Other information.

Other information.

REMUNERATION FOR EMPLOYEES BELOW BOARD

GENERAL REMUNERATION POLICY

The Group’s remuneration policy is applied broadly consistently for all employees and, in line with our remuneration principles, is designed to support recruitment, motivation and retention as well as to reward high performance in a framework of approved risk management. Remuneration is considered within the overall context of the Group’s sector and the markets in which the divisions operate. The policy for the majority of employees continues to be to pay around the relevant mid-market range with a competitive package designed to align the interests of employees with those of shareholders, and with an appropriate proportion of total remuneration dependent upon performance.

We define core remuneration as base salary, annual bonus that is closely aligned to performance and other benefits such as pension. There is also the ability to participate in the performance share plan (PSP) for key employees.

SUMMARY OF REMUNERATION STRUCTURE FOR EMPLOYEES BELOW BOARD

ELEMENT

POLICY

BASE SALARY

We aim to attract and retain key employees by paying salaries which deliver competitive total remuneration, taking into account market pay levels at companies of similar size, scale and scope as well as overall business performance. A key factor is also the ability, experience and performance of the individual.

For 2014, base salary budgets have been set at 2.5% for all management and staff employees below Board, including LGIM. However, this does not mean a flat increase for everyone. Increases to base salary are in line with position in base salary band and other criteria.

ANNUAL BONUS

The majority of employees have a discretionary bonus scheme based on individual performance against objectives. Normally deferral increases with the level of the bonus and is normally held in shares for three years.

The company reserves the right to adjust deferral levels for Code staff as deemed appropriate.

There are some bespoke bonus schemes, where business appropriate, but the Remuneration Committee has ultimate discretion over all bonus plans.

Separate plans operate within LGIM consistent with industry practice.

PERFORMANCE SHARE PLAN (PSP)

Participation in the PSP generally is extended to the Leadership Group but may include other employees in key roles. This includes employees in LGIM whose roles cross business divisions and whose participation encourages synergy and teamwork across the company. Typically less than 100 employees participate in total in the PSP.

Participation in the plan for one year does not guarantee participation in future years.

Subject to shareholder approval the PSP will be awarded to under 100 employees for 2014.

Where appropriate, grants under the PSP may also be made for new employees who join the company during the year in key roles.

PENSION

All employees are given opportunity to participate in a Group pension scheme.

SHAREHOLDING REQUIREMENTS

The Leadership Group is asked to build up a voluntary shareholding of 50% of base salary.

ANNUAL EQUAL PAY AUDIT

Management seeks to ensure that our pay policies and practices are free from unfair bias. Part of the pay review process is an annual equal pay audit that reviews pay and bonus decisions by gender, ethnicity, age and full-time versus part-time working. In addition, it considers the pay of the Control Function departments (Risk, Compliance and Internal Audit) as well as the ‘oversight departments’ of Finance and Human Resources and looks at decisions for employees who report directly to the business versus those who report to the function head. The review extends to all employees, including those in LGIM.

ALL EMPLOYEE SHARE SCHEMES

There are share schemes for all UK employees. Executive directors are entitled to participate on the same terms as all UK employees in the Savings-Related Share Option Scheme (SAYE) and the Employee Share Plan (ESP), both of which are approved by HMRC. Each year the Committee considers a grant of Group performance shares (Freeshares) after the annual results are known to tie any award more closely to company performance. For performance in relation to 2013, the Committee has agreed a grant of 280 shares to each employee (for 2012 performance this was 372 shares).

The SAYE allows employees to enter into a regular savings contract over either three or five years, coupled with a corresponding option over shares of the Group. The grant price is equal to 80% of the quoted market price of the Group shares on the invitation date.

Under the ESP, approved by HMRC, permanent UK employees may elect to purchase Group shares from the market at the prevailing market price on a monthly basis. The Group supplements the number of shares, purchased by matching the first £20 of each employee’s contribution. From February 2013 the company also matched employee contributions between £20 and £125 on a one matching share for every two purchased. From time to time, the Group may make a grant of Freeshares (see above). Both the free and matching shares must be held in trust for three years before they may vest to the employee.

Dilution limits

The company’s all-employee plans and the now-closed ESOS operate within the ABI’s dilution limit of 5% of issued capital in 10 years for executive schemes and all its plans will operate within the 10% of issued capital in ten years limit for all schemes.

As at 31 December 2013, the company had 4.88% of share capital available under the 5% in 10 years limit, and 9.17% of share capital under the 10% in 10 years limit.

As at 31 December 2013, 27,465,738 shares were held by the Employee Benefit Trust to hedge outstanding awards of 46,521,095 shares for the PSP and SBP. This means that the Trust holds shares sufficient to cover 59.4% of outstanding awards.

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

Rudy Markham
Chairman of the Remuneration Committee

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