Letter from the Remuneration Committee Chairman
Following the strong support received from shareholders at both individual meetings and at the last AGM, the Committee enacted the agreed changes to the policy during 2014. On behalf of the Committee, I would like to thank shareholders for their strong support and feedback over the last year.
In this year’s report, we have sought to improve both the look and feel of the report. Our remuneration policy, shown in summary, remains unchanged and the recruitment and exit policy arrangements are shown in full. We have also reviewed and improved the level of disclosure around the annual variable pay arrangements for the executive directors.
When making decisions on remuneration, the Committee remains vigilant regarding the impact of any changes on the total remuneration potential for executive directors as a whole and ensures that any decisions made are consistent with the spirit and letter of the policy approved by shareholders.
Policy implementation 2014
Financial performance, measured by the key business performance indicators, is outlined in the Fast read of the annual report. Legal & General delivered strong financial performance during 2014, particular highlights include: operating profit up 10% on 2013; operating cash of £1,101m; a 10% increase in Earnings per Share; and a full year dividend of 11.25p.
The Committee considered overall financial performance and personal achievements against the pre-determined targets for the executive directors and decided the following in respect of incentive awards for 2014:
Annual Variable Pay (AVP)
For performance in 2014 the committee approved awards for the executive directors of between 78% and 91% of the maximum to reflect both the financial performance of the group and the personal performance of each of the executive directors. 50% of the award is deferred into shares for three years.
Performance Share Plan (PSP)
Given Legal & General’s exceptional total shareholder return performance over the three-year period to May 2014, the long term incentive award, granted in 2011 under the PSP, vested in May 2014. The Committee concluded that the performance conditions were met and the award vested in full. A detailed description of the performance assessment can be found in the Components of the single figure section of the annual report.
As announced in 2014, John Pollock will retire and step down from the Group Board at the 2015 AGM.
- Up to retirement – John will continue to receive a salary of £560,000 to the end of May 2015 (pro-rated for time). He will be eligible for an AVP award ‘at target level’ subject to performance (pro-rated for service). Any bonus payment made in March 2016 will be subject to the policy deferral requirements (i.e. 50% will be deferred into shares for three years) and awards will be subject to malus and clawback. He will not receive a PSP award made in respect of 2015.
- Retirement provision – Consistent with the payments for loss of office policy, John will be a good leaver and as such his outstanding share awards will be treated in line with the good leaver provisions in the respective plan rules. A copy of the payment for loss of office policy, as approved by shareholders, is included in the Approach to termination section of the annual report.
The Committee extends our best wishes to John on his retirement after a long and successful career at Legal & General.
Proposed plans for 2015
Base salary increase for employees
Across the UK employee population the base salary increase was on average 2.4%. The actual increases awarded to employees varied significantly in line with Legal & General’s philosophy that remuneration spend should be focused on high-performing employees, and in particular those that are positioned behind the desired market reference point.
Base salary increases for Executive Directors
Both Mark Gregory and Mark Zinkula will receive a salary increase of circa 2.7%. As outlined to shareholders during the consultation last year, Nigel Wilson was appointed at a base salary level which was below the market rate, with the intention to increase his salary to a more appropriate level to reflect his experience and performance in the role over time. In line with this, the Committee made its first change to Nigel’s salary last year given his strong performance in the role. Following a review of Nigel’s performance in the role for 2014, his third year of CEO tenure, the Committee considered it appropriate to continue with the salary progression for Nigel, who receives an increase of 4.9% for 2015.
The Committee is mindful of recent comments by some shareholders regarding time horizons for long-term incentive awards. Following a review of the time horizons for long-term incentive plans in operation for the executive directors, the Committee considered that given the new PSP was only implemented in 2014, which for the first time encompasses a holding period for awards of up to five years from the date of grant, and given the updated shareholding guidelines that were put into place last year, it was not appropriate to make any further changes at this stage. However, the Committee is supportive of continuing to keep the time horizons of our long-term incentive plans under review, which we will continue to do over the course of 2015.
Malus and clawback
Following the publication of the 2014 Corporate Governance Code (the “Code”), the Committee reviewed the malus and clawback provisions in place for executive director incentive plans. Malus and clawback provisions already apply on the deferred element of the AVP and the PSP. To ensure that the group continues to comply with the Code, the Committee determined that it would be appropriate to include a clawback provision on the cash element of the AVP, which will apply to awards in respect of 2015 performance onwards. Clawback for the cash element of the AVP will apply for a four-year period from the end of the performance period and will apply at the Committee’s discretion in the event of a mis-statement of financial results, personal misconduct, failure of risk management or where there is a factual error in calculating a payment.
Finally, I wanted to take this opportunity to thank Mike Fairey, who stepped down from the Remuneration Committee and the Group Board at the 2014 AGM, for all of the support and guidance he provided to the Committee over the years. I also wanted to welcome Carolyn Bradley and Richard Meddings to the Remuneration Committee, both of whom joined in December 2014.
Chairman of the Remuneration Committee