Letter from the Chairman of the Remuneration Committee.

Letter from the Chairman of the Remuneration Committee.
Rudy Markham, Chairman Remuneration Committee (photo)
“During 2013 Legal & General’s strategy has evolved and accelerated and the Committee has reviewed the executive remuneration framework to ensure that it continues to be aligned with our strategic direction. Following careful consideration by the Committee, we are proposing a re-shaped package with a greater emphasis on the longer term and on delivery of performance within Legal & General’s agreed level of ambition and risk appetite”.

I am pleased to introduce the directors’ report on remuneration for 2013. Over the past year, there has been much debate regarding the level and structure of executive remuneration. This report reflects how the Committee proposes to balance the various interests in a way which is in the long term interests of the company, its customers and shareholders. The report, which seeks to demonstrate the Committee’s commitment to greater transparency, is in two parts:

  • The directors’ policy report which will be subject to a binding shareholder vote at the 2014 AGM. It is intended that this will apply for the next three years from the receipt of shareholder approval.
  • The annual report on remuneration which provides details of directors’ pay in 2013 and how we intend to implement the remuneration policy in 2014. This section will be subject to an advisory shareholder vote at the 2014 AGM.


As outlined at the beginning of this annual report, Legal & General delivered strong performance during 2013. Our focus is on achieving steady and sustainable growth over the long term.

The outcomes against our key performance indicators that reinforce this strategy can be found in the Highlights for 2013 section, and particular highlights include: Profit Before Tax 10% up on 2012, a 16.1% Return On Equity, a 10% increase in EPS and a full year dividend of 9.30p.


During 2013, the Group chief executive led a change in the strategic direction of Legal & General to take into account some key global macro themes affecting the company’s markets, including ageing populations and welfare reforms.

Legal & General has taken some targeted actions in response to these themes, including selective acquisitions. However, it has also made some more general changes, including the reorganisation and simplification of business structures and processes (including a smaller Board) and the hiring of new talent, all of which will help to provide a stronger capability base for future performance.


Against the backdrop of these changes, and the expiry of our existing Performance Share Plan (PSP) in Spring 2014, the Committee decided it would be appropriate to undertake a comprehensive review of our forward looking executive remuneration policy to ensure continued alignment with our strategy. The overarching objective of this review was to ensure that, going forward, directors’ remuneration is clearly linked to long-term strategy and performance and is simple and transparent.

During the entire review process, we have consulted extensively with shareholders and have amended our proposals in response to their feedback.

The proposed changes result in an increase in the focus on longer-term pay so that at maximum performance 81% (up from 76%) of the annual variable pay (AVP) and the Performance Share Plan (PSP) will be paid out over a longer period of three or more years. We are also proposing targets that are more closely aligned to our strategy and level of ambition within our risk appetite.

The Committee was particularly mindful that there should be no payment for failure and so we have focused on our clawback and malus provisions to reflect this.

The key outcomes of the review are set out below:


Increase in maximum opportunity from 125% of salary to 150% of salary for Group chief executive, CFO, CEO LGAS

No change to maximum opportunity for CEO LGIM

Increase in proportion of AVP based on financial performance up to 80% of total AVP, with remaining 20% based on key strategic objectives

Increased level of deferral with 50% of any award deferred into shares for three years; and

Deferred share awards will be subject to malus and clawback


Increase in maximum opportunity from 200% of salary to 250% of salary for all executive directors

15% of award will vest at threshold performance, reduced from the current level of 25%

Performance period remains at 3 years, but life of award extended with vesting in equal tranches over years three to five

PSP awards will be subject to malus and clawback; and

Awards will vest as to 50% based on relative TSR and 50% based on financial metrics (EPS and DPS with an ROE underpin) – rather than the current 100% vesting based on relative TSR


Increase in guidelines from 200% of salary to 300% of salary for the Group chief executive and from 100% of salary to 200% of salary for other executive directors

The broad principles of the remuneration framework set out above will be cascaded and applied as appropriate throughout the organisation, and we will seek to continue to ensure that our wider employee population has a stake in the business and is rewarded fairly based on performance that is achieved in line with company values, risk appetite and customer outcomes.

We increased the Group chief executive’s salary from £750,000 to £820,000, with effect from 1 March 2014. This reflects our policy of progression in the role, is the first review following his appointment 20 months ago, and is in line both with market disclosures made at that time and with what the Group chief executive has achieved to date in terms of the headline financial results, increased strategic clarity and customer focus, simplification of business structures and processes, selective acquisitions and, more generally, the energy, focus and drive he has brought to the organisation.


As a result of the strategic changes in 2013, we also undertook a re-organisation and simplification of the Board, as we believe that a smaller, closely aligned executive team creates the right dynamic, optimising Board efficiency and effectiveness to deliver Legal & General’s strategy. This resulted in increased responsibilities for the executive directors and therefore we increased the salaries of our CFO, CEO LGIM and CEO LGAS to £560,000 pa with effect from 1 July 2013. There will be no further increase for 2014 and their next review will be in March 2015.

Executive directors’ AVP awards are assessed based on a combination of financial results against key Group and Divisional performance indicators and the achievement of personal and strategic objectives. To reflect the strong performance of Legal & General during 2013, and the directors’ contributions to this, the Committee determined that bonuses of between 86% and 93.1% of the maximum potential should be paid.

The PSP awards granted in 2010 measured Legal & General’s relative TSR performance to 2013 against two comparator groups. Over the period Legal & General was ranked within the top decile against the FTSE 100 and was top of the bespoke comparator group. Based on this strong performance, the awards vested in full.


The Committee has been particularly mindful of concerns raised amongst both the investor community and wider public audience about the relative rate of growth in executive remuneration. As such, when determining remuneration outcomes and designing forward looking policy, we have sought to balance the need to maintain a competitive and motivated workforce with market concerns around the level and structure of pay.

The Remuneration Committee will continue to monitor the financial services regulatory environment and shareholder views on remuneration and will incorporate these as appropriate. In addition, we will continue to take very seriously our duty to actively exercise judgement and ensure outcomes are reflective of underlying performance and the shareholder experience.

I trust that you will find this report, in its new form, helpful. It forms part of our commitment to greater transparency and reflects how we propose to balance various considerations and interests in a way which we hope demonstrates that we take our duty to shareholders seriously.

Signature Rudy Markham, Chairman of the Remuneration Committee (handwriting)

Rudy Markham
Chairman of the Remuneration Committee

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