Remuneration for employees below board

General remuneration policy

The group’s remuneration policy is broadly consistent across the group and, in line with our remuneration principles, is designed to reward, motivate and retain high performers in line with the risk appetite of the group. 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 and other benefits such as pension. Key employees are also eligible to participate in the performance share plan (PSP).

Summary of the 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 2015, base salary budgets have been set at 2.4% for all employees below Board, including LGIM. However, this does not mean a flat increase at this level for everyone.

Annual bonus

The majority of employees have a discretionary bonus scheme based on individual performance against objectives. Bonuses above a certain threshold are subject to deferral with the deferral amount increasing with the size of the bonus. Deferred awards are normally held in shares for three years.

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

The group operates bespoke bonus schemes where business appropriate, however, 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 senior management population but may include other employees in key roles. This includes employees in LGIM whose roles span different business divisions and whose participation encourages synergy and teamwork across the group. 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.

PSP awards will be made to under 100 employees during 2015.

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 the 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

The group 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 approved HMRC employee share plans in operation for all UK employees including the Savings-Related Share Option Scheme (SAYE) and the Employee Share Plan (ESP). The Committee has increased the amount which may be saved under the SAYE from £250 to £375 per month from April 2015. The grant price is equal to 80% of the quoted market price of the group shares on the invitation date. Each year the Committee also considers a grant of Group Performance Shares (Freeshares) after the annual results. The Committee did not grant any awards in respect of 2014 performance (for 2013 performance 280 shares were granted).

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 10 years limit for all schemes.

As at 31 December 2014, the company had 4.91% of share capital available under the 5% in 10 years limit, and 9.57% of share capital under the 10% in 10 years limit.

As at 31 December 2014, 22,452,298 shares were held by the Employee Benefit Trust to hedge outstanding awards of 40,749,876 shares for the PSP and SBP.