Final Results - Part 3 of 8
Standard Life plc
Full Year Results 2013
Part 3 of 8
Corporate governance
Introduction and report from the Chairman of the Nomination and Governance Committee
"Your Board adheres to the highest standards of corporate governance and ethical behaviour in directing the Group's affairs and in its accountability to you as shareholders. As Directors, we believe this commitment is key to managing our business effectively and delivering shareholder value over the longer term. Your Board continues to take the quality of its performance seriously and strives to improve performance through annual reviews and continuing self-assessment". Gerry Grimstone, Chairman and Chairman of the Nomination and Governance Committee.
As well as recognising the formal disclosure requirements of the UK Corporate Governance Code (the "Code"), this section tells you how the Board meets its governance responsibilities. All the Directors view the Code as an important tool in supporting how we deliver the Group's strategy and as an opportunity to drive and support effective behaviours at Board level and across the Group.
The Nomination and Governance Committee is responsible for the oversight of the corporate governance framework and its implementation. The Committee members are Gerry Grimstone (Chairman), Colin Buchan, David Grigson and John Paynter. Sheelagh Whittaker retired from the Committee on 14 May 2013. David Nish, Chief Executive, attends Committee meetings by invitation to discuss matters such as talent development and management succession.
During the year the Committee met five times. Its key duties are to support the composition and effectiveness of the Board, to oversee the development and implementation of the Group's corporate governance framework and to oversee the Group's activities to strengthen its talent pipeline at all levels. In this section, you can read about the Committee's role in the processes to:
· review Board diversity, skills and experience
· identify and recommend Directors to be appointed to the Board
· oversee succession planning, leadership and talent development and diversity levels throughout the Group
· support the review of the Board's effectiveness.
Committee effectiveness
The Committee reviews its remit and effectiveness annually. Members completed an online self-assessment questionnaire and reviewed the Committee's terms of reference. After analysing the 2013 questionnaire responses, the Committee concluded that it:
· was continuing to focus Director recruitment on the skills and experience required by the Board
· was seeing continued progress in the succession, talent and development, diversity and leadership programmes across the Group
· was continuing to support the Board and the other Directors in their governance responsibilities.
Compliance
Throughout 2013, the Company complied with all of the provisions set out in the Code issued by the Financial Reporting Council (FRC) in September 2012. This is available at www.frc.org.uk
Together with the Directors' remuneration report, this section explains how our corporate governance framework supports the way we apply the Code's main principles of good governance.
Governance framework
The Group's governance framework is approved by the Board and documented in the Board Charter. You can read the Board Charter in the governance section of our website at www.standardlife.com/about/governance
The Group's Code of Business Conduct complements the Board Charter. It sets out our standards of conduct and governing principles in respect of operational excellence, compliance responsibilities, customer service, our people and other stakeholders.
The Board expects the Group to be a leader in corporate governance activities through its own actions and through its stewardship activities. The Nomination and Governance Committee regularly reviews the Group's corporate governance framework against relevant generally accepted standards, guidance and best practice, and, as appropriate, recommends changes to the Board Charter to the Board. To contribute to external developments, the Committee, generally on behalf of the Board, submits responses to corporate governance consultation documents. The Group Company Secretary and General Counsel is responsible for advising the Board on all governance matters.
The governance framework also sets out the Board's relationship with the boards of the Company's principal subsidiaries. In particular, it identifies the matters which must be referred from subsidiary boards to the Board and Board Committees for approval.
Role and responsibilities of the Board
The Board's role is to organise and direct the affairs of the Company and the Group to maximise value for shareholders, in accordance with the Company's constitution and all relevant laws, regulations and corporate governance and stewardship standards. The Board's role and responsibilities, collectively and for individual Directors, are set out in the Board Charter. The Charter also identifies matters that are specifically reserved for decision by the Board. These include approving, overseeing and challenging:
· how strategy, objectives and business plans are developed and implemented
· capital and management structures
· dividend policy
· financial reporting
· how risks are managed, including the Enterprise Risk Management (ERM) framework, risk strategy, risk appetite limits and internal controls
· key Group policies
· significant corporate and other transactions
· significant external communications
· terms of reference of Board Committees
· appointments to the Board and Board Committees
· the matters to be escalated from subsidiary boards to the Board for approval.
The Board regularly reviews reports from the Chief Executive and Group Finance on progress against approved strategies, plans and budgets, as well as updates from the Chief Executive of Standard Life Investments Limited ("Standard Life Investments") on stock market and global economic conditions. There are also regular presentations from key business units and Group functions. The Chairman reports at each Board meeting on the activities he has undertaken on behalf of the Board and the Group since the previous meeting.
Roles of the Chairman and the Chief Executive
The roles of the Chairman and the Chief Executive are separate. Each has clearly defined responsibilities, which are set out in the Board Charter.
The Chairman:
· leads the Board and ensures that its principles and processes are maintained
· promotes high standards of corporate governance
· with the Chief Executive and the Group Company Secretary and General Counsel, sets agendas for meetings of the Board
· ensures Board members receive accurate, timely and clear information on the Group and its activities
· encourages open debate and constructive discussion and decision-making
· leads the Board and individual Director performance assessments and training needs
· speaks on behalf of the Board and represents the Board to shareholders.
The Chief Executive, within authorities delegated by the Board:
· leads the other executive Directors and the executive team in the day-to-day running of the Group
· develops appropriate capital, corporate, management and succession structures to support the Group's objectives
· makes and implements operational decisions
· develops strategic plans and structures for presentation to the Board
· reports to the Board with timely and high quality information
· in conjunction with the Chairman, represents the Group to external stakeholders, including shareholders, customers, suppliers, regulatory and governmental authorities, and both the local and wider communities.
The heads of each business unit and the Group functions manage their teams within authorities set out in the Board Charter and an approved scheme of delegation. This includes reporting to the Chief Executive on how they are complying with Group policies and performing against approved plans and budgets.
Board composition, balance and diversity
The Board's policy is to appoint and retain non-executive Directors who bring relevant expertise as well as a wide perspective to the Group and its decision-making framework. The Directors believe that at least half the Board should be made up of independent non-executive Directors. As at 27 February 2014, the Board comprises the Chairman, eight independent non-executive Directors and two executive Directors. The Board continues to support its Diversity statement, first approved in November 2011, which states that it:
· believes in equal opportunities and supports the principle that due regard should be had for the benefits of diversity, including gender, when undertaking a search for candidates, both executive and non-executive
· recognises that diversity can bring insights and behaviours that may make a valuable contribution to its effectiveness
· believes that it should have a blend of skills, experience, independence, knowledge and gender amongst its individual members that is appropriate to its needs
· believes that it should be able to demonstrate with conviction that any new appointee can make a meaningful contribution to its deliberations
· is committed to maintaining its diverse composition
· supports the Chief Executive's firm commitment to achieve and maintain a diverse workforce, both throughout the Group, and within his executive team.
In terms of gender diversity, two female members of the Board stepped down during 2013, and the Board currently comprises two women and nine men. The departures of Jackie Hunt and the retiral of Sheelagh Whittaker affected our diversity statistics at Board level, however, when considering future appointments, the Board follows the principles of its Diversity statement. The Board also benefits from the diverse backgrounds of its members which enhance its collective business, operational and international strength.
The Nomination and Governance Committee receives updates on progress towards achieving and maintaining diversity throughout the Group. This includes reviewing statistics on age, gender and full/part time working at all levels. The Group also promotes initiatives and programmes to raise awareness of why diversity matters. You can read more about our diversity activities in Section 1.7 of the Strategic report - Our people strategy.
Board changes during the period
Appointments
Martin Pike joined the Board on 27 September 2013 as a non-executive Director and became a member of the Risk and Capital Committee and the Investment Committee. Martin is a qualified actuary and his executive career was spent with Towers Watson. In recent years, Towers Watson has, on occasion, provided consultancy support to Standard Life Assurance Limited. When considering Martin's appointment, the Board concluded that this relationship did not impact his independence.
Retirals and resignations
Sheelagh Whittaker retired at the conclusion of the 2013 Annual General Meeting (AGM) after four years' service. Recognising her experience of the Canadian market, Sheelagh has maintained her links with the Group through her appointment as a non-executive Director on the boards of our principal Canadian subsidiaries.
Jackie Hunt, Chief Financial Officer, resigned on 26 April 2013. Until the appointment of her replacement, the reporting lines to this position have been reassigned. David Nish has been ensuring that the activities of the Chief Financial Officer's role have continued to be carried out, fully supported by the Director of Group Finance and the finance directors of the principal subsidiary companies. Since Jackie's departure the Nomination and Governance Committee has been overseeing the process to recruit her successor and monitoring closely the recruitment plan.
Board appointment process, terms of service and role
Taking account of the Group's strategy, as well as industry and regulatory developments, the Nomination and Governance Committee evaluates the Board's balance of skills, diversity, knowledge and experience, in the context of the time served by non-executive Directors. The Committee uses the results of this focused analysis to direct its recruitment activities and appointment recommendations and reviews all recommendations to appoint independent non-executive directors to the boards of subsidiary companies.
Having identified the capabilities needed for Board roles, and the succession timeframe, the Nomination and Governance Committee considers the related role profile submitted to external search consultants along with the request to prepare a list of suitable candidates. The Group has used the services of JCA Group, Russell Reynolds Associates, Egon Zehnder and Odgers Berndtson to support its recent recruitment searches. These external search consultants do not have any other connection with the Group.
The Committee reviews the list of potential candidates and agrees a shortlist of who they wish to interview. Subject always to the satisfactory completion of all background checks and regulatory approvals, the Committee makes recommendations to the Board on any proposed appointment. The other Board members are also offered the opportunity to meet the recommended candidates. As part of its recommendation, the Committee considers the external commitments of candidates to assess their ability to meet the necessary time commitment and whether there are any conflict of interest matters to address.
Each non-executive Director is appointed for a fixed term of three years and shareholders then vote on whether to re-elect him or her at every AGM. Once a three-year term has ended, a Director can continue for further terms if the Board is satisfied with the Director's performance, independence and ongoing time commitment. There is no specified limit to the number of terms a Director can serve, although the Board recognises the Code provisions regarding length of service when considering whether or not their appointment should be continued. The current average length of service of the non-executive Directors (excluding the Chairman) is just over three years. The Nomination and Governance Committee oversees the process to recommend continued appointments, but members of the Committee do not take part in discussions when their own performance - or continued appointment - is being considered. During 2013, the Committee recommended to the Board that the appointment of Colin Buchan should be continued from 1 January 2014. However, as announced, Colin will retire from the Board at the conclusion of the 2014 AGM after more than six years' service.
The role of the non-executive Directors is to participate fully in the Board's decision-making work - advising, supporting and challenging management as appropriate. You can see the format of the letter of appointment in the Board of Directors section of our website at www.standardlife.com/about/board or by writing to the Group Company Secretary and General Counsel. The letter confirms that the amount of time we expect each non-executive Director to commit to each year, once they have met all of the approval and induction requirements, is 30 to 35 days. When non-executive Directors accept the terms of their appointment, they confirm that they can allocate sufficient time to carry out their duties and responsibilities effectively. You can read more about the induction and development programme later in this section.
Director election and re-election
Since 2011, we have given shareholders the opportunity each year to re-elect all the Directors. At the 2014 AGM all of the current Directors except Martin Pike and Colin Buchan will retire and stand for re-election. Martin, having been appointed since the previous AGM, will retire and stand for election. Colin Buchan will retire at the conclusion of the 2014 AGM and, therefore, will not stand for re-election.
You can read more supporting background information about the Directors and the reasons why the Chairman believes you should support their election or re-election, in the AGM guide 2014, which will be available at www.standardlife.com from 1 April, and in the Board of Directors summary on pages 39 to 41.
Director independence, external activities and conflicts of interest
The Board carries out a formal review of the independence of non-executive Directors annually, including an assessment of their character, judgement and their relationships or circumstances which may affect their independence. The review considers all relevant issues including the number and nature of their other appointments, any other positions they hold within the Group, any potential conflicts of interest they have identified and the length of their service. Their individual circumstances are also assessed against independence criteria, including those in the Code. Following the review, the Board has concluded that all the non-executive Directors are independent. As noted above, the Board considered this in particular prior to Martin Pike's appointment.
Gerry Grimstone was Chairman of the Board throughout the year. He remained Chairman of TheCityUK. He has also retained his non-executive positions with Deloitte LLP and the Ministry of Defence and his membership of the Shareholder Executive Board of the Department of Business Innovation and Skills. He is also Senior Adviser to the board of the Abu Dhabi Commercial Bank. The Board formally reviewed his performance and, taking into account his outside appointments, is satisfied that he has sufficient time to carry out his duties. John Paynter served as the Senior Independent Director (SID) throughout the period. As SID, he is able to support the Chairman, whom he meets regularly one-to-one, and is available to talk with shareholders about any concerns that they may not have been able to resolve through the normal channels of Chairman, Chief Executive or Chief Financial Officer, or if a shareholder considers these channels are inappropriate.
The Directors continued to review and authorise Board members' actual and potential conflicts of interest on a regular and ad hoc basis in line with the authority granted to them in the Company's Articles of Association ("the Articles"). As part of the process to approve the appointment of a new Director, the Board considers and, where appropriate, authorises his or her potential or actual conflicts. The Board also considers whether any new outside appointment of any current Director creates a potential or actual conflict before, where appropriate, authorising it. All appointments are approved in accordance with the Group's Outside Appointments and Conflicts of Interest policies. In January 2014, the Board again reviewed all previously authorised potential and actual conflicts of interest of the Directors and their connected persons and concluded that the authorisations should remain in place until January 2016. Under the terms of the approval, conflicted Directors can be excluded from receiving information, taking part in discussions and making decisions that relate to the potential or actual conflict. The Board's policy encourages executive Directors to take up one external non-executive Director role. David Nish continued as a non-executive Director of the UK Green Investment Bank plc and Keith Skeoch continued as a non-executive Director of the Financial Reporting Council. You can read more about the Directors' outside appointments in their biographies on pages 39 to 41.
Advice
Directors may sometimes need appropriate external professional advice to carry out their responsibilities. The Board's policy is to allow them to seek this, at the Company's expense. No Directors chose to seek external advice during 2013. All Directors also have access to the advice and services of the Group Company Secretary and General Counsel, whose appointment and removal is a matter for the Board.
Board effectiveness
Review process
Board effectiveness is key to the Group's success. The Board has, with the help of the Nomination and Governance Committee, developed a formal annual review process to assess how well the Board, its Committees, the Chairman and the Directors are performing collectively and individually. It also looks at how performance could be improved. The 2013 review, as in 2012, was led internally having been supported by an external facilitator in 2011. In 2014 we intend to incorporate external input into the review process.
The review comprised confidential online questionnaires (with the same external platform we used in 2011 and in 2012); the analysis of the responses; the development of a themed summary report and recommendations for improving performance and effectiveness. This year, members of Group Secretariat also met with each Director individually to discuss his or her ratings and comments, with particular focus on addressing any areas of concern. The output from these meetings informed both the results report and the individual review meetings the Chairman had with each Director.
The survey questions were reviewed and refreshed to focus on generating robust input from the Directors. Directors completed questionnaires about the Board, each Committee they sit on, the Chairman's performance and their own individual performance. They were encouraged to provide open and honest feedback, explain the ratings they gave and suggest how the Board or Committee could improve. The Group Company Secretary and General Counsel, the secretaries of the Board Committees, and the other members of the executive team who interact frequently with the Directors and implement their recommendations and decisions, also completed questionnaires. The questions covered how the Board:
· agrees and implements strategy
· identifies, manages and responds to risks and uses risk appetites
· works together as a team and across the Group
· provides leadership and oversees the talent and development activities across the Group
· holds management accountable
· stays informed of the views of customers and employees
· communicates with stakeholders
· assesses and meets regulatory change
· receives comprehensive and focused information
· reviews its make-up, diversity and balance
· oversees the responsibilities and effectiveness of Board Committees.
Outcome
Group Secretariat produced reports based on the consolidated results of each part of the survey. The reports were then considered in detail by the Nomination and Governance Committee before being formally recommended to the Board. The Board report included an update which set out the progress made to implement the previous year's recommendations. As in 2012, Directors were asked, where possible, to indicate whether and how matters had changed since the previous year. These rankings were positive.
At the end of the exercise, the Board concluded that it had performed effectively since the last review and could demonstrate continuing progress and improving trends in many areas. Suggestions where further improvements could be made included:
· enhancing the risk related information the Board receives, in particular information relating to strategic risk, conduct risk and technology risk
· increasing the level of customer related feedback brought to the Board
· continuing to offer employees the opportunity to interact with the Board
· continuing the non-executive Directors' programme of individual meetings with various parts of the Group
· continuing to focus on the quality and efficiency of Board papers.
Progress to implement the recommendations is monitored by the executive team and reported to the Nomination and Governance Committee.
Each Committee followed a similar questionnaire, reporting and feedback process. The Board concluded that the Committees had performed well and each Committee also reviewed its own results and recommendations in detail. These reviews are covered in the individual Committee sections of this report.
Chairman
The review of the Chairman's performance was led by the SID. It was based on formal feedback given in the confidential online questionnaires. The questions covered:
· the Chairman's role to lead the Board and encourage effective participation
· how he informs the Board of stakeholders' views
· his relationships with both executive and non-executive Directors.
The feedback was summarised into a report which was reviewed by the SID and distributed to all Board members, except the Chairman. The Directors, led by the SID and without the Chairman being present, met to consider the report. They concluded that the Chairman had performed his role effectively, showed strong leadership of the Board and continued to devote significant time to the Group. The SID was responsible for passing feedback from the review directly to the Chairman.
Directors
The Chairman led the performance review of the Directors. He held one-to-one meetings to assess their individual performance and contribution against duties set out in the Board Charter and in their appointment letters.
Before these meetings, the Directors assessed their own performance by completing a confidential online questionnaire, the results of which were shared with the Chairman. The questionnaires asked each Director to identify particular areas of the Group that they might want to visit or learn more about, as well as any technical knowledge they would like to develop.
Individual development and engagement plans ("Plans") were prepared to support each meeting. The Plans built on the responses to particular questions and areas of interest and training needs identified by each Director as well as the follow-up points raised in each of the Group Secretariat interviews. The meetings were designed to review whether each Director was contributing effectively to the Board and to the Board Committees, and whether they continued to have sufficient time to commit to the role. The meetings also considered individual training, development and engagement opportunities for each Director. The Plans summarised the internal and external continuing development the non-executive Directors had undertaken during the year and considered the extent to which each non-executive Director had implemented the points raised in the previous year's review. Each Director takes forward the resulting actions, supported by the Chairman and the Company, using either internal resources or external expertise.
Director induction and development
The Chairman, supported by the Group Company Secretary and General Counsel, is responsible for arranging a comprehensive and structured preparation and induction programme for all new Directors. The programme recognises the Director's background knowledge and experience and is tailored to his or her individual requirements. All Directors are also required to complete the Financial Conduct Authority's (FCA) and Prudential Regulation Authority's (PRA) Significant Influence Function Holder's approval programme before they are appointed and to self-certify annually that they remain competent to carry out this aspect of their role. The formal preparation and induction programme includes:
· meetings with each executive Director, key members of senior management, the heads of the operating businesses and Group functions
· focused technical meetings with internal and external experts on specific areas including Solvency 2, conduct risk, risk and capital management and financial reporting
· visits to business units
· meetings with the external auditors and the FCA/PRA supervisory team
· the Group's corporate governance and risk management frameworks and the role of the Board and its Committees
· key Board materials and information, shareholder communications and financial reports
· the Group's organisational structure, strategy, business activities and operational plans
· the Group's key performance indicators, financial and operational measures and industry terminology
· their individual responsibilities both as Directors and as holders of a Significant Influence Function.
The induction programme provides the background knowledge new Directors need to perform to a high level as soon as possible after joining the Board and to support them as they build their knowledge and strengthen their performance further. When a non-executive Director is appointed to one of the Board's Committees, they receive relevant induction training on the Committee's role and duties.
When Directors are appointed to the Board, they commit to broadening their understanding of the Group's business. The Group corporate centre monitors relevant external governance and financial and regulatory developments and keeps the ongoing Board training and information programme up to date. During 2013, specific Board sessions took place on RDR, new generation platforms, with-profits matters and other product and customer developments. Similarly, the relevant Board Committees received updates on developments in financial reporting, remuneration and corporate governance. Non-executive Directors are actively invited to all parts of the Group's business in order to familiarise themselves with how our business is conducted and to meet with staff.
Succession planning and talent development
The Board knows that comprehensive contingency and succession planning and talent development are key to effective operation and long-term success. The Nomination and Governance Committee regularly reviews the results of succession planning activities, including key man and retention risk, and talent development programmes at all levels across the Group. These programmes take into account the skills and expertise required by the Board and senior management currently and in the future. They recognise both the talent available within the Group and the need for external recruitment, and they consider the opportunities within the Group for people to develop through initiatives such as overseas placements. The programmes are led by the Group Talent and Organisation Development team. During the year, the Committee received updates on how the programmes at graduate and emerging leader levels, as well as the accelerated programme for senior leaders, have operated. They also received an analysis of how the Group's executive job family had changed over recent years, evidencing the Group's balance of managing underperformance as well as developing talent. They received updates on the specific individual development programmes in place for executive team members and their potential successors. The Committee believes that the plans and programmes continue to strengthen succession planning and talent development. The results of the Committee's reviews are presented at least annually to the Board for discussion. The Board members are keen to interact with the members of the development schemes and have met with, and had presentations from, key talent across the Group. Directors have been able to join the completion events for several of the programmes.
Board meetings and meeting attendance
The Board and its Committees meet regularly, operating to an agreed timetable. Meetings are generally held in Edinburgh or London and, on occasion, at the offices of one of our international businesses. In September 2013, the Board met in Frankfurt. This gave the Directors the opportunity to meet with senior leaders there, learn more about how the German business operates and find out more about our customers in Germany and their needs. During the year, the Board held specific sessions to consider the Group's strategy and business planning. The Chairman and the non-executive Directors also met formally and informally without the executive Directors present. At these meetings, matters including executive performance and succession were discussed.
The Board has a formal procedure for holding unscheduled meetings. This is used when, exceptionally, decisions on matters specifically reserved for the Board need to be taken urgently. Directors are required to attend all meetings of the Board and the Committees they serve on, and to devote enough time to the Company to perform their duties. Board and Committee papers are generally distributed before meetings. The Board sometimes needs to call or rearrange meetings at short notice and it may be difficult for all Directors to attend these meetings. If Directors are not able to attend a meeting because of conflicts in their schedules, they receive all the relevant papers and have the opportunity to submit their comments in advance to the Chairman or the Group Company Secretary and General Counsel. If necessary, they can follow up with the Chairman of the meeting.
Directors' attendance at the 2013 Board and Committee meetings is shown in the following table. The Company Chairman is not a member of the Audit, Risk and Capital, Remuneration and Investment Committees. He does however attend the meetings of all Committees, by invitation, in order to keep abreast of their discussions.
|
|
Board |
Audit |
Risk and Capital |
Remuneration |
Nomination and Governance |
Investment |
Corporate Responsibility |
|
Number of meetings |
9 |
5 |
7 |
12 |
5 |
3 |
5 |
|
Chairman |
|
|
|
|
|
|
|
|
Gerry Grimstone |
9 |
|
|
|
5(c) |
|
5(c) |
|
Executive Directors |
|
|
|
|
|
|
|
|
David Nish |
9 |
|
|
|
|
|
5 |
|
Keith Skeoch |
9 |
|
|
|
|
|
|
|
Jackie Hunt1 |
3 |
|
|
|
|
|
|
|
Non-executive Directors |
|
|
|
|
|
|
|
|
Colin Buchan |
9 |
5 |
|
12 |
4 |
3(c) |
|
|
Pierre Danon |
9 |
|
7 |
11 |
|
3 |
|
|
Crawford Gillies |
9 |
|
7 |
12(c) |
|
3 |
5 |
|
David Grigson |
9 |
5(c) |
7 |
|
4 |
|
|
|
Noel Harwerth |
9 |
5 |
7(c) |
|
|
|
|
|
John Paynter2 |
7 |
5 |
|
10 |
3 |
|
|
|
Lynne Peacock |
9 |
5 |
|
12 |
|
|
5 |
|
Martin Pike3 |
2 |
|
2 |
|
|
|
|
|
Sheelagh Whittaker4 |
3 |
|
2 |
|
1 |
2 |
|
As at 27 February 2014
1 Resigned from the Board on 26 April 2013.
2 John Paynter was given a short period of leave of absence from the Board for medical treatment.
3 Appointed to the Board on 27 September 2013.
4 Retired from the Board on 14 May 2013.
(c) Committee Chairman
Board Committees
The Board has established Committees that oversee, consider and make recommendations to the Board on important issues of policy and governance. At each Board meeting, the Committee Chairmen provide reports of the key issues considered at recent Committee meetings, and minutes of Committee meetings are circulated to the appropriate Board members. The Committees operate within specific terms of reference approved by the Board and kept under review by the Nomination and Governance Committee. These terms of reference are published within the Board Charter on the Board of Directors section of our website at www.standardlife.com/about/board and are also available from the Group Company Secretary and General Counsel. All Board Committees are authorised to engage the services of external advisers at the Company's expense, whenever they consider this necessary. The Chairman of each Committee and the Nomination and Governance Committee review Committee membership at regular intervals. The Nomination and Governance Committee considers all proposed appointments before they are recommended to the Board.
Report from the Chairman of the Audit Committee
"The Board draws on the advice of the Audit Committee to support its effective governance over internal and external financial reporting. As Chairman of the Audit Committee I have had regular meetings with the Chief Financial Officer (and the Chief Executive, following the resignation of Jackie Hunt), the Director of Group Finance, the Group Chief Internal Auditor and the engagement partner from the external auditors. I was also actively engaged in the recruitment of the new Group Chief Internal Auditor who took up her position in February 2013. There are some areas of potential overlap between the Audit Committee's remit and that of the Risk and Capital Committee, so I have spent time with the Chairman of the Risk and Capital Committee to discuss the efficient operation of the two Committees to make sure that all relevant issues are efficiently discussed and all risks associated with internal and external financial reporting are being covered. The Audit Committee has had another very busy year and I am pleased to present my report on its work and operation during 2013". David Grigson, Chairman
The Committee members are David Grigson (Chairman), Colin Buchan, John Paynter, Lynne Peacock and Noel Harwerth. The Board considers them all to be independent non-executive Directors. The Board is satisfied that David Grigson, who is a chartered accountant and served as Chief Financial Officer of Reuters Group, has recent and relevant financial experience. The Board believes that the other members of the Committee have both the broad commercial knowledge and experience of financial management and reporting to bring the right mix of skills to the Committee.
The Committee's remit is to consider and to make appropriate recommendations to the Board on:
· any matter relating to the financial affairs of the Group
· the Group's internal and external audit arrangements
· the Group's internal controls over financial reporting.
During the year, the Committee met five times to coincide with the Company's financial reporting cycle requirements. It met regularly with each of the external and internal auditors without management being present to allow the Committee to discuss any issues of emerging concern in more detail. Invitations to attend the Committee meetings on a regular basis are extended to the Chairman, the Chief Executive, the Chief Financial Officer, the Chief Executive of Standard Life Investments, the Director of Group Finance, the Group Chief Risk Officer and the Group Chief Internal Auditor (GCIA). In June 2013, David Grigson attended the local audit committee meetings of the Group's principal Canadian subsidiaries.
The main issues reviewed and approved or recommended to the Board during 2013 included:
|
January to March |
July to September |
|
· Preliminary Results 2012 · Annual Report and Accounts 2012 · Summary Financial Report 2012 · current material legal actions and litigation to support contingencies and commitments disclosure · the non-audit services policy. |
· Half Year Results 2013 · external audit results of Half Year Results review · external audit plan for 2013 for all audited entities · current material legal actions and litigation.
|
|
April to June |
October to December |
|
· Interim Management Statements/Q1 Trading Results · completion of the 2012 external audit for all audited entities · the 2013 external audit engagement letter for all audited entities · the 2012 external audit fee and the proposed 2013 fee for all audited entities.
|
· Interim Management Statements/Q3 Trading Results · initial findings from Financial Year 2013 year end work · the effectiveness of Group Internal Audit (GIA), the GIA Charter and the GIA annual plan · the effectiveness of the external auditors and their proposed re-appointment at the 2014 AGM · the effectiveness of the Audit Committee. |
At every meeting the Committee:
· reviews the findings of GIA reports and how the high-priority findings are being followed up by management
· reviews the results of the monitoring of financial crime, fraud risk assessments and calls to our dedicated Speak Up helpline
· reviews reports from the chairmen of the subsidiary audit committees
· reviews the findings from external audit work
· reviews the non-audit services requested of the external auditors by the business units, both in terms of the nature of the service and the level of proposed fee.
Financial reporting
Accounting policies, practices and areas of judgement
The Committee reviewed the Group accounting policies and confirmed they were appropriate to be used for the 2013 Group financial statements. The Committee also focussed on the valuation bases for the assets and liabilities, including the key assumptions used to measure the insurance and participating investment liabilities. The Committee reviewed the implications of the adoption of IFRS 13 Fair value measurement on how the fair value of assets and liabilities was calculated and agreed with the approaches being applied.
The Committee discussed the significant accounting and actuarial matters affecting the 2013 Group financial statements and considered the areas listed below to contain the most significant levels of judgement:
· calculation of the value of insurance and participating investment contracts, focussing on the determination of mortality assumptions in UK and Canada and the allowance for future taxes included in the valuation in Canada
· calculation of the fair value of complex financial instruments, including private equity investments and derivatives, and securities where a recent market price was not available
· calculation of the fair value of investment properties and owner occupied buildings
· calculation of the value of intangible assets and goodwill arising from the acquisition of the private client division of Newton Management Limited and the determination of the useful lives of the intangible assets
· calculation of the fair value of the UK pension scheme surplus - in particular reviewing the determination of pension scheme assumptions for mortality, discount rate, inflation and the rate of increase in salaries and pensions and the assessment of the recoverability of the surplus.
For each of the matters discussed, the Committee:
· considered the information management provided to support the Committee's review of the matter, including the strength and operation of the controls to prevent management override and management's responses to the challenges raised by Committee members
· sought information from the external auditors as to whether/how the external auditors had considered each of these areas and how any areas of significant audit focus had been reported in the external auditors' report
· reviewed the consistency of the views of management and the external auditors.
EEV basis of preparation, methodology and areas of judgement
The Committee reviewed the EEV basis of preparation and changes to the methodology, and agreed that the basis of preparation and methodology were appropriate to be used in the 2013 EEV financial information. The Committee considered the areas with the most significant levels of judgement affecting the EEV financial information to be the determination of mortality and persistency assumptions and the risk discount rates in UK and Canada. In addition, the Committee also reviewed the projected release of the future taxes included in the Canadian liabilities. The Committee challenged the assumptions and agreed with management's proposals.
Disclosure
The Committee also considered the processes to prepare and review the Annual Report and Accounts 2013 (ARA). In particular, the Committee sought assurance on the internal and external verification and compliance processes which had taken place as well as the quality of the internal review of the ARA. Following its review, the Committee was able to confirm to the Board that it believed the ARA, taken as a whole, is fair, balanced and understandable.
The Committee also discussed the management information provided on:
· the clarity of disclosures in the Group financial statements and EEV financial information, and agreed that the Strategic report, as a whole, contained a fair, balanced and understandable view of the Group's business, a description of the risk and uncertainties facing the business, a balanced and comprehensive analysis of the development and performance of the Group's business during the year and the position of the Group's business at the end of the year
· the results of management's assessments of the Group's going concern position and Group solvency position, including recommending to the Board that the going concern assessment was reasonable (you can read more in the Going concern section of this report)
· relevant external financial reporting developments and guidance, including how the Committee had supported the introduction of the Strategic report and its additional disclosures, as well as its impact on the previously issued Summary Financial Report.
External audit
The Committee monitors the external auditors' performance. This includes reviewing how independent and objective the external audit team is and how the team maintains its professional scepticism, all in the context of regulatory requirements and professional standards. The Committee assesses the effectiveness of the external audit process and approves the terms of engagement and remuneration for audit services. As part of its ongoing review of the effectiveness of the external auditors, the Committee:
· assesses the team's qualifications, independence, expertise and resources as well as its relationship with management and the executive Directors
· considers the scope and planning of the external audit of the Group
· reviews the audit findings with the external audit team and the overall effectiveness of the audit.
The Committee is satisfied that the external auditors continue to fulfil the terms of the engagement.
The Committee is also responsible for making a recommendation to the Board each year on the appointment, reappointment or removal of the external auditors. The current audit firm was appointed for the 1994 financial year. The external audit was put out to tender in 2003, following which the auditors were reappointed for the financial year beginning 1 January 2004. The audit engagement partner rotates every five years in accordance with Auditing Practices Board ("APB") ethical guidelines and 2013 is the second year for the current partner. The Committee believes that the present auditors' performance and reappointment should be considered every year rather than only when a tender is due. Therefore, there is a standing annual agenda item to review the auditors' performance in detail against the relevant duties in the Committee's terms of reference and taking into account all other appropriate factors, governance standards and guidance. The members of the audit team are not present for this. As part of this review, the Committee considers the way the audit engagement partner reports to and interacts with the Committee and the quality and succession planning of the audit engagement partner and the senior audit team. The Committee also seeks the views of the senior members of the Group Finance team who work most closely with the audit team. The Committee considers the quality of the regular and ad hoc reports received from the audit team on the output of audit activities, considering whether this is consistent with the reports from management, and the updates about independence, internal quality processes and technical knowledge. In particular the Committee looks for evidence that the external auditors have maintained a high level of professional scepticism, have brought a high level of professional challenge to management, and have reported transparently and comprehensively to the Committee.
Following the 2013 effectiveness review, the Committee concluded that it was appropriate to recommend to the Board that a resolution should be proposed at the 2014 AGM to reappoint the present auditors until the conclusion of the 2015 AGM. The Committee's recommendation is not restricted by any contractual obligations. The Committee agreed to comply with the relevant revisions to the Code and to the FRC Guidance on Audit Committees with regard to the external audit tendering timetable which came into force in October 2013. As the Committee believes that the current auditors' performance continues to be satisfactory, the Committee will implement the relevant transitional provisions suggested by the FRC which were issued along with the revised Code.
Non-audit services
The Board has approved the non-audit services from external audit policy (the "Policy") and the Committee monitors the implementation of the Policy on behalf of the Board. The aim of the Policy, which is reviewed annually, is to support and safeguard the objectivity and independence of the external auditors. It does this by prohibiting the auditors from carrying out certain types of non-audit services to ensure that the audit services provided are not impaired. It also ensures that where fees for approved non-audit services are significant, they are subject to the Committee's prior approval. The services prohibited by the Policy include:
· book-keeping or other services related to the accounting records or financial statements
· financial information system design
· appraisal or valuation services where the results would be material to the financial statements
· internal audit outsourcing
· actuarial calculations
· management functions
· legal services
· forensic audit services
· temporary or permanent services as a director, officer or employee or performance of any decision-making, supervisory or monitoring function
· recruitment of senior management.
The Policy permits non-audit services to be purchased, following approval, when they are closely aligned to the external audit function and when the external audit firm's skills and experience make it the most suitable supplier.
These include:
· accounting consultations and audits in connection with acquisitions and disposals of businesses
· due diligence related to mergers and acquisitions
· tax compliance and advisory services
· employee benefit plan audits
· attesting to services not required by statute or regulation
· assurance services relating to regulatory developments affecting the Group
· consultations concerning financial accounting and reporting standards not relating to the audit of the Group's financial statements
· sustainability audits/review.
Depending on the level of the proposed fee, the Policy requires the approval of the Chairman or members of the Committee and/or the whole Committee before certain non-audit services are commissioned. You can find details of the fees paid to the external auditors for audit and non-audit work carried out during the year in Note 9 to the Group financial statements. Non-audit services carried out during 2013 included assurance services related to regulatory stress testing and sustainability reporting, tax advisory services relating to Austria, Germany and Canada and continuing assistance to our Foreign Account Tax Compliance Act (FATCA) compliance project. During the year, the Committee reviewed how the fees related to non-audit services were reported and agreed to extend the associated narrative to evidence as clearly as possible the nature of the service.
Internal audit
The Group has an internal audit function (GIA) and the Committee considers its effectiveness annually, in particular monitoring its independence, objectivity and resourcing in the context of the Institute of Internal Auditors' (IIA) professional standards. A new GCIA was appointed in February 2013. The Committee approves the scope and content of the annual internal audit plan, which is updated on a rolling basis to allow GIA to address any emerging issues. The plan is based on the audit universe, discussed with management and the external auditors and mapped to the key risks within the Own Risk and Solvency Assessment (ORSA). The Committee receives regular reports on:
· the implementation of the approved plan
· key findings from completed reviews, including the impact on financial reporting processes and related applications
· updates on how effectively management has implemented agreed improvement actions
· the GCIA's assessment of the internal control environment at each business unit.
The external auditors identify GIA reviews where they intend to place reliance on the work of the GIA team. Equally, the FCA or the PRA may request GIA to undertake specific reviews as part of their Risk Mitigation Plan follow up. GIA has an internal audit co-sourcing agreement with KPMG LLP and this is used to support specific technical reviews. During the year, GIA carried out its own quality assurance processes and reported the results back to the Committee. The Committee members also met with the senior managers of the GIA team during the year. GIA operates in accordance with a Global Charter which is reviewed by the Committee every year. During 2013 the Global Charter was updated to reflect the IIA new code for internal auditors of banks and financial services.
Financial crime and whistleblowing
The Committee reviews the arrangements for Group employees to raise concerns, in confidence, about possible wrongdoing in financial reporting and other matters. At each meeting it receives reports on all calls to our dedicated Speak Up helpline. Any concerns are investigated and the Committee oversees the follow-up action taken. The Committee also receives updates at every meeting from the Group Head of Financial Crime who reports on compliance with the Group's anti-bribery policy, and any other activities associated with financial crime. Staff are trained how to detect and report the signs of possible fraudulent or improper activity and about the existence of the Speak Up helpline.
Committee effectiveness
The Committee reviews its remit and effectiveness annually. Members complete an online self-assessment questionnaire and review the Committee's terms of reference. After analysing the questionnaire responses in late 2013, the Committee concluded that it had:
· performed effectively during the year
· fulfilled its duties under its terms of reference, and kept its terms of reference up-to-date
· received sufficient, reliable and timely information from management and the external auditors to enable it to fulfil its responsibilities.
The Board's review also confirmed that it was satisfied with the performance of the Committee. After each meeting, the Chairman reports to the Board, summarising the key points from the Committee's discussions which supported the Committee's recommendations to the Board.
Advice and development
In carrying out its duties, the Committee is authorised by the Board to obtain any information it needs from any Director or employee of the Group. It is also authorised to seek, at the expense of the Group, appropriate professional advice inside and outside the Group, whenever it considers this necessary.
Report from the Chairman of the Risk and Capital Committee
"The Risk and Capital Committee supports the Board in the effective oversight and challenge of risk management and the use of capital across the Group. The Committee was formed in April 2010 and is now well established in its role of providing quality support and analysis to the Board. I am pleased to present my report on the work and operation of the Committee during the past year". Noel Harwerth, Chairman
The Committee members are Noel Harwerth, (Chairman), David Grigson, Pierre Danon, Crawford Gillies and Martin Pike (appointed 27 September 2013) who are all considered by the Board to be independent non-executive Directors. Sheelagh Whittaker retired from the Committee on 14 May 2013. During 2013, the Committee met seven times.
The Group Chief Risk Officer attends the Committee meetings and has right of access to the Committee Chairman. Colin Ledlie stood down as Group Chief Risk Officer in March 2013 to take up a secondment with the FCA. Following approval from the Committee and the Board, Raj Singh was appointed as our Group Chief Risk Officer. Others invited to attend Committee meetings on a regular basis include the Chairman, the Chief Executive, the Chief Financial Officer, the Chief Executive of Standard Life Investments and the GCIA as well as the external auditors. The Committee has the authority to meet without management being present if the members consider this necessary.
The role of the Committee is to provide oversight and challenge of, and advice to the Board on:
· the Group's risk strategy, limits and tolerances, material risk exposures and future risk strategy and their impact on capital
· the structure of the Group's ERM framework and its suitability to react to the changing nature of risks
· the risk aspects of major investments, major product developments and other corporate transactions
· material risk and capital matters affecting the Heritage With Profits Fund.
At each quarterly meeting, the Committee:
· reviews the Group Chief Risk Officer's status reports on risk dashboards and risk metrics
· reviews matters escalated from the Group Enterprise Risk Management Committee ("Group ERMC")
· reviews compliance reporting on matters arising from the approved annual plan
· reviews any with-profits matters related to risk management of the use of capital
· reviews the ORSA
· discusses emerging external risks and their impact on the risk strategy.
The Committee's work in 2013
Economic uncertainty has continued during 2013 impacted by a number of factors including the possibility that quantitative easing measures in the USA may be phased out and by on-going concerns in the Eurozone. The Committee closely monitored financial markets during the year in order to assess the impact on the Group's risk profile and capital position. Interest rates in the UK, Germany and Canada remained low relative to historic levels however for most of the year yields were higher than their 2012 closing levels. Stock markets have experienced strong growth in 2013 with a number of markets reaching historic highs. Against this economic backdrop the Committee carefully monitored solvency levels and key risk metrics across the Group.
In advance of completing the acquisition of the private client division of Newton Management Limited, details of the proposed transaction were presented to the Committee. The Committee discussed the key risks and mitigants associated with the transaction and the approach to due diligence that was being adopted.
The Committee continued to monitor regulatory developments relevant to the Group. This included considering the impact of the FCA and the PRA replacing the Financial Services Authority in April. In response to the European Union (EU) formally announcing a delay in the implementation date for Solvency 2 regulations, the Committee considered the likely impact of the delay and the Group's planned response to ensure the Group remained well positioned to meet the regulatory requirements and deliver process improvements that assist in managing capital effectively.
In December, the Committee assessed the appropriateness of the Group's key risk metrics and decided to focus on economic capital resources in 2014. The committee reviewed and approved the Group's Risk Appetite Framework and reviewed the proposed quantitative risk limits to be used to manage the business during 2014.
The Committee noted improvements that were made to internal risk reporting during the year which included increased focus on risks relating to conduct, the customer and the regulatory environment. In addition to standing agenda items, the Committee also received a number of thematic reviews on areas of specific interest. These 'deep dives' included reviews of hedging, credit risk management, the use of correlations, persistency risk management and longevity risk management.
Committee effectiveness
The Committee reviews its remit and effectiveness annually. Members of the Committee completed an online self-assessment questionnaire and reviewed the Committee's terms of reference in late 2013. The general consensus from the completed questionnaires was that the Committee continues to make good progress and to evolve.
You can find out more about the Group's main sources of risk and how risks are managed in Section 1.5 of the Strategic report - Risk management. You can also find out more about risk exposures in Note 41 to the Group financial statements.
Report from the Chairman of the Remuneration Committee
"The Committee supports effective governance over remuneration. You can read my full introduction in the Directors' remuneration report which follows this section". Crawford Gillies, Chairman
The Committee members are Crawford Gillies (Chairman), Colin Buchan, Pierre Danon, John Paynter and Lynne Peacock - all of whom are considered by the Board to be independent non-executive Directors.
During 2013 the Committee met twelve times. The Committee's role is to approve or make recommendations to the Board in respect of the overarching Group-wide remuneration policy, including:
· rewards for the executive Directors, senior executives and the Chairman
· the design and targets related to any employee share plan
· the design and targets for annual cash bonus plans below the executive level
· changes to employee benefits structures (including pensions) throughout the Group.
The Chairman, Chief Executive and Group Operations Officer (who has overall responsibility for the Group's People function) are invited to attend Committee meetings on a regular basis. The Director of Group Reward and Employment Policy attends all meetings in his capacity as secretary to the Committee.
You can find details of the Group's current remuneration policies for the Directors and senior executives as well as more information on all of the Committee's activities during the year in the Directors' remuneration report.
Report from the Chairman of the Investment Committee
"The Investment Committee oversees the high-level asset allocation strategy (including benchmarks) within the Heritage With Profits Fund and Insured Funds as well as the investment activities and stewardship role of the Group as an investor and a fund manager and reports its findings and recommendations to the Board. I am pleased to present my report on the work and operation of the Committee during the year". Colin Buchan, Chairman
The Committee members are Colin Buchan (Chairman), Crawford Gillies, Pierre Danon and Martin Pike (appointed 27 September 2013) who are all considered by the Board to be independent non-executive Directors. Sheelagh Whittaker retired from the Committee on 14 May 2013. During the year the Committee met three times and reported to the Board on matters relevant to the investment activities and stewardship role of the Group as an investor and fund manager.
At each meeting, the Committee:
· receives updates from Standard Life Investments on the performance of financial markets and various investment classes and the global outlook, covering both micro and macro-economic situations
· oversees investment activity within Standard Life Assurance Limited considering matters such as fund performance, investment objectives, investment benchmarks and asset allocation
· receives updates on specific corporate governance and stewardship matters related to investments managed by Standard Life Investments.
The Chief Executive and other board members and executives (where appropriate) of Standard Life Investments attend Committee meetings. The Committee's discussions are relevant to and inform the deliberations at the Board and other Committee meetings.
Following the 2013 review of its effectiveness, which considered that the Committee had performed well, the Committee discussed how to strengthen further investment insight throughout the Group. It concluded that this could best be done by relevant Boards and other committees taking on the responsibilities presently exercised by the Committee and expanding them. On this basis, the Board accepted the Committee's recommendation that the Committee should stand down and thanked Colin Buchan for his leadership of the Committee. Our amended governance framework will ensure full oversight of matters relevant to the investment activities and stewardship role of the Group as an investor and fund manager.
Report from the Chairman of the Corporate Responsibility Committee
"The Corporate Responsibility Committee provides oversight over sustainability issues and reports its findings and recommendations to the Board. I am pleased to present my report on the work and operation of the Committee during the year". Gerry Grimstone, Chairman
The Committee members are Gerry Grimstone (Chairman), Crawford Gillies, Lynne Peacock and David Nish.
During the year the Committee met five times. The Committee oversees and provides guidance and direction on the Group's sustainability programme. It also supports the Board's role in providing leadership on environmental and social issues. The Committee's duties include keeping under review the Group's sustainability strategy and policies and making recommendations to the Board on sustainability issues. This links our responsibilities to our stakeholders more closely to our long-term business objectives. During 2013, the Committee oversaw donations to charities involved with employability and financial capability - a key focus for the Group's sustainability strategy.
You can find more details about the Group's sustainability activities in Section 1.8 of the Strategic report - Our sustainability strategy and on the Group's website at www.standardlife.com/sustainability
Report from the Chairman of the With Profits Committee of Standard Life Assurance Limited
"Whilst the management of its with-profits business is the direct responsibility of the Board of Standard Life Assurance Limited (SLAL), FCA regulations require that a with-profits firm's governance arrangements should make provision for independent judgement and advice. The SLAL Board has established a With Profits Committee (WPC) for this purpose. I am pleased to present my report on the work and operation of the Committee during 2013". Niall Franklin, Chairman
The Committee members are Niall Franklin (Chairman), Graham Aslet, Clifton Melvin and Ross Ainslie (appointed 1 July 2013). Ray Greenshields retired from the Committee on 31 March 2013. The Committee members are appointed by the SLAL Board on the recommendation of the Nomination and Governance Committee. The WPC met eight times during 2013. Directors of the Standard Life plc and SLAL Boards and senior actuaries involved with the management of the with-profits business, in particular the UK & Europe Chief Risk Officer, the With Profits Actuary and the Actuarial Function Holder, routinely attend these meetings.
SLAL has had a WPC since demutualisation. Its role is to monitor and advise the SLAL Board on the management of with-profits business, providing independent judgement on the fair treatment of with-profits policyholders, and to take a proactive role in raising any issues that merit further consideration. The Committee reviews all proposals that are material to the interests of SLAL's with-profits policyholders. The Committee has the authority to engage external advisers, when appropriate, and has engaged an actuary from Milliman LLP to routinely provide the members with advice.
The Committee's routine formal interaction with the SLAL Board is by the minutes of its meetings and by an annual report to the SLAL Board in which it reviews the management of with-profits business having regard to SLAL's duty to treat its with-profits policyholders fairly and to meet their reasonable benefit expectations. The Committee has authority to make a report to the with-profits policyholders. It did not do so during 2013 and would not expect to do so unless it disagreed materially with SLAL's own annual report to its with-profits policyholders (which is required by FCA regulations) on the management of the with-profits business. The Directors of SLAL and of the Company have an open invitation to attend any of the Committee meetings. Minutes of the Committee meetings are submitted to the Board and in May 2013 the Committee Chairman attended a meeting of the Board at which with-profits matters were discussed.
During 2013, the Committee reviewed:
· allocation of costs
· management of with profits assets and, in particular, the setting of investment strategy
· management of bonus rates and fair payout bases.
The Committee has a web page which provides information on its main activities, including how the Committee protects the interests of policyholders and makes its views known.
You can access the web page at www.standardlife.co.uk/1/site/uk/fund-info/with-profits/with-profits-committee
Communicating with investors
The Company continues to develop a dialogue with all its shareholders. As part of this, the Investor Relations and Group Secretariat teams support communication with investors. During 2013, the Group continued its programme of domestic and international presentations and meetings between the executive Directors and institutional investors, fund managers and analysts. The wide range of relevant issues discussed at investor presentations and meetings covers business strategy, financial performance, operational activities and corporate governance - but excludes inside information. The Chairman has his own investor contact programme and brings relevant issues to the attention of the Board. The Remuneration Committee also consulted with major institutional shareholders regarding executive remuneration during the year. More information on the consultation can be found in the Directors' remuneration report on page 70.
The Board is equally committed to the interests of the Company's 1.3 million individual shareholders who hold approximately 55% of the Company's issued shares. Given this large shareholder base, it is impractical to communicate with all shareholders using the same direct engagement model we follow for our institutional shareholders. The Company has continued to gather and respond to shareholders' views on the services and means of communication available to them, mainly via the Shareholder Questions mailbox and surveys conducted with shareholders contacting the shareholder helpline. Their input has informed how the Company communicates with them - particularly online - and how the ARA, the new Strategic report and the AGM guide 2014 are produced. We believe that communicating electronically with our shareholders supports our sustainability strategy, and around 500,000 shareholders receive all communications electronically. We encourage shareholders to use our share portal to access information relating to their personal shareholding and dividend history and around 300,000 have signed up to this service. Share portal participants can also change their details and dividend mandates online and receive dividend tax vouchers electronically. We also encourage our individual shareholders to hold their shares in the Standard Life Share Account where shares are held electronically in a secure environment.
To give all shareholders access to the Company's announcements, all material information reported via the London Stock Exchange's regulatory news service is published on the Company's website. During 2013 we expanded our online investor communication tools. We have continued to host formal presentations to support the release of both the Full-Year and Half-Year financial results together with conference calls for our two Interim Management Statements. These results-related events are also made available live on the Group's website, with the facility for all listeners to ask questions, as well as having a permanent replay facility.
We have hosted several short analyst and investor events designed to give deeper insight into particular areas of our business, created a company profile which is intended to give a high level introduction to the Group and are in the process of developing divisional profiles to give further high level insights.
We also publish a monthly newsletter which features articles from senior management, to keep investors up to date on matters which may be of interest to them. These are available on the Investors section of the Group's website. We have also maintained our Investor Relations Twitter account @sl_invrelations
The Chairman's statement and the Strategic report in this ARA aim to provide a balanced overall assessment of the Group's activities, performance and prospects. This information will be supported by a presentation at the 2014 AGM - an event that provides a valuable opportunity for the Board and shareholders to communicate. Shareholders will be invited to ask questions during the meeting and have an opportunity to talk with the Directors after the formal part of the meeting. The voting results will be published on our website at www.standardlife.com after the meeting. These will include the number of votes withheld.
The 2013 AGM was held at the Edinburgh International Conference Centre on 14 May 2013. Directors were available to answer shareholders' questions. In accordance with best practice, all resolutions were considered on a poll which was conducted by our registrars and monitored by independent scrutineers. The results, along with proxy votes lodged prior to the meeting, were made available on our website the same day. 40% of the shares in issue were voted and all resolutions were passed.
Institutional investor
Standard Life Investments, the Group's principal asset management company, recognises the importance of good governance and stewardship. As a major investor, it monitors the governance of the companies it invests in. It also holds regular meetings with their senior management representatives. Standard Life Investments maintains principles and policy guidelines on corporate governance, stewardship and voting. During 2013, these guidelines were updated to make them applicable on a global basis. The guidelines support Standard Life Investment's approach to engaging and to voting at shareholder meetings. Standard Life Investments also makes voting reports available to clients and publishes summary information on its website. The policy guidelines are applied pragmatically, after all relevant information has been carefully considered. When assessing the Company's compliance with the principles and provisions of the Code, the Nomination and Governance Committee also reviewed the Company's compliance with these principles and policy guidelines. The Committee concluded that the Company complied with the guidelines during the year.
Standard Life Investments is a strong supporter of the principles of good stewardship that are set out in the Stewardship Code, believing that it is mutually beneficial for companies and long-term investors such as Standard Life Investments to have a relationship based on accountability, engagement and trust. Standard Life Investments has made public its processes to comply with the Stewardship Code's seven best practice principles. You can read more about this and its governance and stewardship annual review at www.standardlifeinvestments.com
Other information
You can find details of the following, as required by DTR 7.2.6, in the Directors' report and in the Directors' remuneration report:
Share capital
· significant direct or indirect holdings of the Company's securities
· confirmation that there are no securities carrying special rights with regard to control of the Company
· confirmation that there are no restrictions on voting rights in normal circumstances
· how the Articles can be amended
· the powers of the Directors, including when they can issue or buy back shares.
Directors
· how the Company appoints and replaces Directors
· Directors' interests in shares.
Annual review of internal control
The Directors have overall responsibility for the Group's ERM framework and system of internal control and for the ongoing review of their effectiveness. The framework is designed to manage, rather than eliminate, risk and can only provide reasonable, not absolute, assurance against material misstatement or loss. The framework covers all of the Group's risks as set out in the ERM Framework section below. GIA regularly reviews the effectiveness of internal control and the ERM framework, and reports its findings to the Audit Committee and the Risk and Capital Committee. In particular, with regard to regular financial reporting and preparing consolidated accounts, Group Finance participates in the control self-assessment and policy compliance elements of the ERM framework. Group Finance maintains an up-to-date Group Accounting Manual and sets formal requirements with business unit finance functions which specify the reports and approvals needed. Group Finance then reviews and challenges these as part of the consolidation process. The consolidation team which sits within Group Finance defines the process and detailed controls for the IFRS consolidation. In addition, Group Finance runs the Technical Review Committee (TRC), which is made up of senior finance managers. The TRC reviews external technical developments and detailed reporting and accounting policy issues to support the consistent interpretation and application of the Group accounting policies and practices. This is done in conjunction with the Group's other management committees with external reporting responsibilities: the Financial Reporting Executive Review Group and the EEV Basis Group.
In line with the Code and the further guidance in the Turnbull Report, the Board has reviewed the effectiveness of the system of internal control. The system was in place throughout the year and up to the date of approval of the Annual Report and Accounts 2013. In order to support this review, a certification exercise was completed by each of the business unit Chief Executive Officers, Chief Financial Officers, Chief Risk Officers and Group function executives. They were asked to confirm the following:
· that they had maintained the risk management system (incorporating the system of internal control), reported significant control breakdowns throughout the year and that necessary actions had been taken or were being taken to remedy and monitor these breakdowns
· that the scheme of delegation was reviewed and approved by relevant committees
· that the system of governance had been reviewed and was documented
· that the system of internal control was also regularly reviewed and results reported to relevant Enterprise Risk Management Committees (ERMCs)
· that the external auditors had been made aware of relevant information.
In order to support these statements, the most significant control issues which arose throughout the year were documented and reviewed. Business unit risk functions were also asked to produce a report detailing the assurance activity which had been conducted throughout the year in relation to the system of internal control. The certification, documented control issues and assurance reports were reviewed by each business unit and/or the Group Chief Risk Officer as appropriate, with challenge provided by Group Risk, before being presented for certification. A certificate was then prepared by Group Risk for the Chief Executive together with a report combining the output from the business unit and Group function executive certifications. Completed certifications and supporting documentation were presented to the business unit and the Group ERMCs. The results of the output from this review were presented to the Audit Committee which subsequently reported its conclusions to the Board.
Going concern
The Group's business activities, together with the factors likely to affect its future development, performance and position are set out in the Strategic report. The Strategic report includes details on our cash flow and capital management - Section 1.3 Group financial overview-and a section describing our key risks-Section 1.5 Risk management. Further details of the Group's risk and capital management procedures and governance are outlined later in this section. In addition, the Group's financial statements include notes on the Group's borrowings and subordinated liabilities (Notes 35 and 36), management of its risks including market, credit and liquidity risk (Note 41), its contingent liabilities and commitments (Notes 44 and 45), and its capital structure and position (Note 48).
The Group continues to meet Group and individual entity capital requirements, and day-to-day liquidity needs through the Group's available credit facilities. The Company's revolving credit facility of £500 million was renewed on 5 March 2013 and is due to mature in March 2018. The Group has considerable financial resources together with a diversified business model, with a spread of business and geographical reach. As a consequence, the Directors believe that the Group is well placed to manage its business risks successfully.
The recommendation of Group Finance and supporting information regarding the appropriateness of the going concern basis was submitted to the Audit Committee. The Committee reviewed the recommendation taking into account the relevant FRC guidance (Going Concern and Liquidity Risk; Guidance for Directors of UK Companies). After making appropriate enquiries, and taking account of the above, the Directors have a reasonable expectation that the Company and the Group as a whole have adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the financial statements.
The Group's Enterprise Risk Management framework
The Group has an ERM framework that enables risks to the Group to be identified, assessed, controlled and monitored consistently, objectively and holistically. We have operated our ERM framework for a number of years and we continue to seek opportunities to strengthen the framework and to ensure that it is aligned with external best practice.
There are five key elements to our ERM framework which are set out in the adjacent diagram (Diagram removed for the purposes of this announcement. However it can be viewed in full in the pdf document). The operation of this framework provides for a risk-based approach to managing our business, integrating concepts of strategic planning, operations management and internal control.
You can find out more about each element of the framework below.
We believe that our current ERM framework is closely aligned to the requirements of emerging regulatory frameworks relating to risk management and systems of governance, although we recognise there will continue to be developments in line with regulatory developments and industry best practice.
During the year we have further developed and embedded our ORSA process. This has been built on our ERM framework which provides a good foundation for this in terms of identifying, assessing, controlling and monitoring risks.
Our experience of operating and improving our ERM framework over a number of years means that we are well placed to meet the future requirements of Solvency 2 which we anticipate will support the further embedding of risk management within the Group.
You can find out more information about our risk exposures at 31 December 2013 in Note 41, Risk management which shows the impact of applying this framework in managing our business and in Section 1.5 of the Strategic report - Risk management.
Risk culture
Our approach
· right people, right jobs, right behaviours, roles and responsibilities clearly defined
· right structure, effectively implemented, risk focused committees and management
· Group-wide awareness, deepening understanding of risk, ongoing embedding and change.
Risk governance structure
The risk governance structure we use in defining our risk culture includes the Risk and Capital Committee (the"RCC") which is made up of non-executive Directors as detailed in the Report from the Chairman of the RCC above. The Group Chief Risk Officer also attends meetings of the RCC. The main role of the RCC is to provide oversight and challenge of, and advice to the Board on:
· the Group's risk strategy, limits and tolerances, material risk exposures and future risk strategy and their impact on capital
· the structure of the Group's ERM framework and its suitability to react to the changing nature of risks
· the risk aspects of major investments, major product developments and other corporate transactions
· material risk and capital matters affecting the Heritage With Profits Fund.
The RCC also provides advice to the Remuneration Committee on an arm's length basis on various matters, including whether specific risk adjustments need to be applied to performance-related payments in incentive packages.
The Group ERMC consists of the members of the executive team which includes the Group Chief Risk Officer. The Group ERMC meets at least quarterly, and usually in conjunction with the executive team. The main role of the Group ERMC is to:
· oversee compliance with the Group's ERM framework
· support the Chief Executive in the management of risk across the Group.
The Group ERMC is supported by the Group Credit Risk Committee which deals with all types of credit risks arising from the current and proposed activities of the Group. In addition, our internal Chief Risk Officer (CRO) Forum, comprising our business unit CROs, meets monthly to review risk matters.
Group Risk supports the operation of these risk committees (the RCC, the Group ERMC and the Group Credit Risk Committee) and provides assurance, assistance and advice to them as required.
Group Risk is supported by the Risk functions within the business units which each have their own business unit ERMC. The business unit risk functions are responsible for providing assurance that the financial and non-financial risks inherent in business activities are identified and managed in accordance with the appetite and limits approved by the Board and relevant subsidiary boards. They are also responsible for producing risk management information for use within the business unit and for aggregation across the Group.
Three lines of defence
The Group operates a three lines of defence model of risk management, with clearly defined roles and responsibilities for committees and individuals:
First line: day-to-day risk management is delegated from the Board to the Chief Executive and, through a system of delegated authorities and limits, to business managers.
Second line: risk oversight is provided by the Group CRO and established risk management committees, including the Group ERMC. These management committees are supported by the specialist Risk Management and Compliance functions across the Group.
Third line: independent verification of the adequacy and effectiveness of the internal risk and control management systems is provided by the Audit Committee, which is supported by the GIA function, and the RCC.
Qualitative risk appetites
The Group has defined qualitative risk appetite principles and statements to provide guidance to our businesses and help to drive our strategy in line with the Group's appetite for risk. The general principles are:
· the Group has no appetite for unrewarded risk
· the Group has no appetite for any risk that is not consistent with the delivery of our strategic objectives
· the Group's appetite for accepting risk is dependent on the expected return exceeding the cost of capital
· the price charged for accepting risk should seek to maximise the risk/reward profile; prices charged for our products should fully reflect all risks.
Quantitative risk limits
Quantitative risk limits are used to support the qualitative risk appetite statements and allow regular objective reporting of exposures against risk limits. The quantitative risk limits used during 2013 have been based on the following key risk metrics which are a focus of our risk management activity:
· excess working capital
· economic capital resources.
These metrics enable us to measure risk and capital consistently across the Group's diverse range of businesses, activities and projects. These metrics supplement, rather than replace, the wide range of metrics currently used throughout the Group and, where appropriate, make allowance for local regulatory capital considerations. The Group's risk profile is assessed and reviewed regularly.
During 2013 the Group has managed its exposures using quantitative risk limits based on economic capital resources and excess working capital risk metrics.
Economic capital resources are a quantification of the capital available within the Group. They are a measure, based on an internal economic capital methodology, of the value of the Group's assets less liabilities. This metric supports management of the financial strength of the Group and delivery of long-term shareholder value. Under this metric, risk exposures are measured as the amount of capital that is needed to cover the risks taken by the Group, calibrated to withstand a defined risk event.
Excess working capital is shareholder cash that is in excess of regulatory requirements, target solvency requirements and any further operational constraints. This metric supports management of the primary source of funding for the business, the strategic activities of the Group and distributions to shareholders. Under this metric, risk exposures are measured as the reduction in excess shareholder cash that a business might expect to see as a consequence of a defined risk event.
For 2014, the Group is transitioning away from excess working capital as a key risk metric. Economic capital resources will be the key risk metric for managing risk exposures against quantitative risk appetites across the group. Although excess working capital will be not be used for the purposes of the risk appetite framework, we will continue to track and manage the business through a wide range of risk, capital and profit metrics.
You can find out more about our approach to assessing risk exposures and establishing risk limits in the Risk and capital model detailed below.
ERM reporting
Group Risk continues to review and challenge risk reporting from the risk functions across the Group to ensure that accurate and adequate information is delivered to the risk committees (as detailed above) to support their risk management mandates. To support this, during 2013, the RCC and Group ERMC risk reporting content and style were refreshed.
Risk control processes
Our approach
· embedded and comprehensive policy framework covering financial and non-financial risks
· operational risk and control: integrated system, consistent application
· active control management: make the right things happen the first time, identify when things have not gone well and understand why, recover the position quickly when things have not gone well.
Key risk control processes
Risk control processes are the practices by which we manage financial and non-financial risks within the Group. Risk control processes are used to identify, assess, control and monitor risk. They are defined in, and implemented through, the Group's policy framework.
|
|
Objective |
Processes |
|
Identify |
Identify major sources of risk which may affect shareholder value and/or the interests of the Group's policyholders, customers and other stakeholders. |
Internal/external events and loss monitoring |
|
Risk register and policies |
||
|
Risk profile and ownership |
||
|
Key processes and ownership |
||
|
Risk metrics/indicators |
||
|
Gross and net risk assessment |
||
|
Key controls |
||
|
Benchmarks |
||
|
Assess |
Assess exposures to each major source of risk, using qualitative and quantitative techniques as appropriate. |
Limits: thresholds/tolerances |
|
Control |
Establish a defined response to risk. Management selects the risk responses, which may include avoiding, accepting, reducing or transferring the risk exposure. |
Assurance mechanisms: control self-assessment/policy compliance/second line oversight/audit reviews |
|
Monitor |
Current exposure to identified risks is monitored and reported as required. |
Reporting to committees and boards |
We manage our financial and non-financial risks using a control framework which comprises of: policy framework, control self-assessment (CSA), risk assessment, key risk indicators, risk event and action plan management, supported by the Operational Risk and Control (ORAC) system.
The policy framework and CSA modules require senior management to certify adherence with policy standards and key controls on a regular basis. The results of this exercise and risk event information are reported to Group and business unit ERMC meetings on a regular basis.
Policy framework
The policy framework supports the Group's corporate purpose by providing a consistent, high-level approach to managing the key risks faced by the Group and operates on five levels: Diagram removed for the purposes of this announcement. However it can be viewed in full in the pdf document.
The five levels of the policy framework interact as follows:
· Governing principles: articulate the Group's approach to managing our key risks at the highest level, and assist the Group's businesses to operate effectively, efficiently and in compliance with applicable laws and regulations
· Risk appetite framework: defines the key principles under which the Group should seek to take risks
· Policies: state the standards that business units must comply with in managing the key risks that threaten the achievement of our strategy and business objectives
· Benchmarks: state how each business unit will demonstrate policy compliance through providing appropriate evidence for each policy standard, in terms of processes, controls and communications
· Processes, procedures and controls: designed and implemented by business units to help ensure compliance with the standards set out in the policy.
The policy framework helps ensure that all businesses operate effectively, efficiently and comply with all applicable laws and regulations.
Tax policy and risk management
As part of the policy framework, the Group operates the Tax Risk and Transfer Pricing Policy which supports the delivery of the Group's business objectives. The key principles of this policy are:
· the principles apply to all taxes and levies payable by the Group or operated/collected by the Group on behalf of governmental authorities
· we will be compliant with all legally required reporting, disclosures and approvals and will pay all tax that we consider to be legally due in any territory acting in an open, honest and transparent manner with tax authorities and other relevant bodies
· we shall act in a transparent manner with revenue and governmental authorities at all times
· tax shall be managed and controlled within a commercial context so that all transactions and arrangements must have a business purpose and commercial rationale
· we shall lobby and seek to influence applicable industry bodies or associations, governments and other external bodies (such as the Organisation for Economic Co-operation and Development and the EU) in the interests of all our stakeholders including customers, shareholders and employees.
The Group pro-actively manages tax risks and employs an experienced in-house tax team to oversee the tax affairs of the Group who report the Group's tax position and material tax issues to the Audit Committee.
In addition, the Group participates in the development of tax policy and legislation through engagement with tax authorities on tax consultations and involvement with representative bodies such as the Association of British Insurers and the Investment Management Association in alignment with our business strategy and to promote a stable environment for long term savings and investments.
Environmental, social and governance risks
We have a sustainability strategy which, taken together, helps us ensure that we manage our environmental, social and governance risks effectively. The strategy has five material themes:
1. Listening and responding to customers
2. Operating and growing responsibly
3. Developing and engaging our people
4. Protecting our environment
5. Contributing to our communities.
The strategy is underpinned by our Code of Business Conduct and policy framework. In particular, the Environment Policy and the Group Community Investment Policy directly support the sustainability strategy. The standards in the Environment Policy require business units to identify applicable environmental legislation and, together with our sustainability team, establish annual environmental targets and environmental management programmes to achieve these targets.
In addition, we complete a regular environmental risk assessment which identifies and assesses risks, such as the cost and source of energy, energy-efficient ratings of Company property, and responsible sourcing of materials. The standards in the Group Community Investment Policy provide clear guidance on which charities can and cannot be supported, and reaffirm that our community involvement should have a positive and sustainable effect.
PricewaterhouseCoopers LLP provide limited-scope assurance on seven key performance indicators (KPIs) spread across our five material themes which relate to our environmental, social and governance disclosures. These KPIs are:
· Customer complaints recorded
· Impact of technology on employee engagement
· Succession planning for critical roles
· Voting at shareholder meetings of investee companies
· Environment, Social, Governance engagements
· Carbon footprint (greenhouse gas emissions reported as kg of CO2e)
· Total community contribution.
You can read more about how we have progressed against these themes in Section 1.8 of the Strategic report - Our sustainability strategy on pages 34 to 37, or at www.standardlife.com/sustainability
Emerging risk management
Our approach:
· defined process for the identification of emerging risks
· supported by reverse stress testing of business plans
· raising awareness at executive level and across the Group.
The Group has defined a clear and simple process for identifying and managing emerging risks. The process provides for:
· the identification of emerging financial and non-financial risks
· the creation of action plans and identification of early warning indicators
· the effective management of emerging risks by the appropriate risk committee
· the passage of any risks identified into 'business as usual' processes where appropriate.
Reverse stress testing and analysis is a key component of the emerging risk process and our method for carrying it out has been further embedded during the year. Reverse stress testing serves to enhance our risk processes by subjecting our business plans to a combination of stress events. This enables us to take a forward-looking view of risks driven by our business model along with any capital implication associated with these risks.
Risk and capital models
Our approach:
· modelling and understanding our business
· managing complexity, achieving consistency and clarity with common metrics
· risks effectively quantified and business fully profiled.
The Group continually strives to enhance its internal risk and capital models. Our main objective is to improve the consistency of the quantitative measurement of risk and use of capital across all businesses.
Within our model, the capital of the Group is quantified according to a number of metrics as described above. Businesses plan their capital consumption using internally agreed targets, which are set to ensure that strategic objectives can be delivered under a wide range of market and trading conditions. The risk exposures of the business units are assessed on the basis of the expected variance in key metrics in response to specific risk events, covering the full range of risks to which the Group is exposed.
Strategic risk management
Our approach:
· putting risk at the heart of our business planning
· identifying and understanding our risks and strategy and making the right decisions
· effective strategic control and allocation of capital.
Strategic risk management forms an integral part of the strategic planning process and is directly linked to the Group's corporate objectives. This process enhances the Group's capability to assess strategic allocation of capital and the ability to identify, monitor and manage emerging risks.
The process is based on a consideration of the general environment, the competitive environment and external events that could prevent, or impact the achievement of the strategy.
As part of this process, we have been monitoring the Scottish independence debate very closely. Our main priority, regardless of any constitutional change which may take place in the future, is to continue serving our customers across the UK and around the world and maintain our competitive position in the markets in which we operate. More details on this are included in Section 1.1 of the Strategic report. Where there are areas that need further clarity, these will remain areas of focus within the strategic risk management process.
Directors' remuneration report
This report sets out the policies that will govern what and how we pay the Directors of Standard Life plc in the future and what we paid them in 2013. Where tables and charts in this report have been audited by PricewaterhouseCoopers LLP we have marked them as 'audited' for clarity.
Remuneration Committee Chairman's statement
Introduction
I am pleased to present the Remuneration Committee's report on Directors' remuneration for the year ended 31 December 2013 which has been prepared in line with the new reporting requirements which came into effect on 1 October 2013. This sets out our remuneration policy for our Directors and how our remuneration policy was applied during 2013.
The Group has had another strong year, delivering increased growth in group underlying performance, net flows and returns to shareholders. We believe that the Remuneration Committee's decisions on the level of pay, annual bonus payments and the level of awards to be granted from the long-term incentive arrangements for the executive Directors reflects its assessment of the Group's overall performance in 2013.
We are also proposing a new long-term incentive plan. These proposals have been supported by a number of our institutional investors and will further strengthen the alignment of awards with the interests of our customers, shareholders and our focus on delivering sustainable business growth.
2013 saw strong financial performance with Group operating profit before tax of £751m, revenue up 7% on 2012 and continuing capital strength. As well as delivering strong financial performance, the Group has continued to deliver on its strategy and ambitions through a stronger customer focus, realisation of investment in technology through improved efficiency and effectiveness of its operations and by positively engaging its people in why the Group exists as a business.
Reflecting on the overall acceleration in growth on the prior year and the strong performance of the executive Directors, the Remuneration Committee decided to approve payments under the Group annual bonus, for 2013, of 75.14% of the Chief Executive's (CE) maximum potential bonus (131.5% of salary) and, for the Chief Executive, Standard Life Investments (CE, SLI) of 79.75% of his maximum potential bonus (47.85% of salary). In addition, the Remuneration Committee approved a total of 100% of the CE, SLI's maximum potential bonus (305% of salary) under the Standard Life Investments' annual bonus arrangement.
Given the performance delivered in 2013 relative to the stretching longer term targets set in 2011, the Remuneration Committee also determined that the awards granted in 2011 under the Standard Life Long-term Incentive Plan (the current Group LTIP) should vest at 64% of the maximum award and those granted in 2011 under the Standard Life Investments Long-term Incentive Plan (SLI LTIP) should vest at 60.9% of the maximum award.
The Remuneration Committee reviews the way that the performance has been achieved and receives input from the Risk and Capital Committee. This is in order to ensure that the performance has been achieved in a manner consistent with the Group's risk strategy and is an appropriate reflection of the Group's performance. The total remuneration in respect of 2013 for the CE is £4,049k and for the CE, SLI is £4,201k. The breakdown is set out on page 84 of this report.
In setting salary for 2014 for the executive Directors, the Remuneration Committee considered updated market analysis for the CE as well as the anticipated salary increases to be awarded to employees across the Group. In recognition of this, and his personal performance, he has been awarded a 2.53% increase moving his base salary from £790,000 to £810,000 from 16 March 2014. In setting salary for the CE, SLI, the Remuneration Committee considered his contribution to Standard Life Investments' growth, the anticipated salary increases to be awarded to employees generally, his personal performance and his standing in the broader investment community. Reflecting this, the CE, SLI has been awarded an increase of 2.8% moving his base salary from £437,750 to £450,000 with effect from 16 March 2014.
Remuneration policy
Our remuneration policy report is set out on pages 72 to 83 and we propose that, subject to shareholder approval, the policy is effective from 13 May 2014 - the date of the 2014 Annual General Meeting (AGM).
Our remuneration policy is designed to support our overall strategic objectives of driving customer and shareholder value and delivering sustainable business growth. Remuneration is one of the key tools we have as a business to incentivise our people to achieve these objectives while ensuring we are able to attract and retain the right talent given the aspirations and opportunities of the Group.
In reviewing our re-muneration policy for our executive team we have re-assessed our remuneration principles to ensure that these continue to be relevant and appropriate. The revised principles that underpin our remuneration policy are summarised below:
· The design and structure should be simple in design and operation
· The overall remuneration policy should encourage significant levels of long-term share ownership to ensure the executive has wealth not just income at risk to align executives' interests with shareholders and to incentivise continued delivery during and beyond the performance period
· Performance should be assessed over a meaningful period that reflects our focus on sustained performance, suitable for a long-term business
· The basis of awards should be transparent for both shareholders and participants through the use of relevant and measureable performance targets that are clearly linked to driving shareholder value through our customer focus
· Award level and design should be competitive in order to attract, retain and incentivise a talented executive team through alignment with Group performance and reflect the individual's value in the market, without paying more than is necessary
· We should provide an appropriate level of fixed remuneration and ensure that incentive arrangements balance risk and reward
· Our remuneration policy should reflect Standard Life's role as a leading investor and promoter of best remuneration practice and governance in the wider market.
Proposed new Group long-term incentive plan
During 2013, we carried out a review of our long-term incentive arrangements for our executive team and senior management. This was in the context of the expiry of the current Group LTIP at the end of 2014 as well as emerging views on best practice in executive pay.
The objective of the review was to ensure that our long-term incentive arrangements continue to support our overall strategic objectives of driving customer and shareholder value and delivering sustainable business growth.
As a result of the review, a new long-term incentive plan, underpinned by our remuneration principles, is being presented to shareholders for approval. Subject to this approval, the Standard Life plc Executive Long Term Incentive Plan (the new Group LTIP) will be used to grant awards from 2014 onwards.
The key features of the proposed new Group LTIP for executive Directors from 2014 are summarised below:
· Delivers shares based on performance against Group targets
· Maximum awards as a percentage of salary will be maintained at existing levels for 2014 for current executive Directors
· Three-year performance period with an additional two-year holding period making it a five-year plan from grant to vest
· Awards are based on cumulative Group operating profit before tax and cumulative Group net flows performance
· The assessment of performance against the targets set is subject to robust underpins with Remuneration Committee discretion to adjust downwards (to zero) if considered appropriate
· Provisions apply which allow the Remuneration Committee to reduce unvested awards if considered appropriate.
We will disclose the performance target ranges for the new Group LTIP awards at the beginning of the performance period and performance against the targets will be disclosed at the end of the performance period.
In support of the new Group LTIP and to help ensure that executive wealth, as well as income, is linked to Group performance we will be replacing the existing shareholding guidelines for executive Directors with an increased shareholding requirement. To promote stewardship, we are also introducing a requirement that Standard Life plc shares earned from incentive arrangements, to the value of the shareholding requirement, must be held for at least 12 months following cessation of employment.
The Remuneration Committee values the opportunity to listen to our shareholders' views and is committed to maintaining an open and transparent dialogue with shareholders on executive remuneration. We therefore undertook an extensive consultation exercise with our major institutional shareholders in the process of developing the new Group LTIP involving face to face meetings. The structure now being proposed to shareholders is reflective of the feedback we received.
During the consultation, investors were supportive of the proposed design and operation of the new Group LTIP. They were particularly positive about the simplicity of the plan, the strong link between the performance measures and the Group's strategy and the longer holding period. We believe that this plan and the associated shareholding requirements are consistent with and will support our strategic objective of delivering customer and shareholder value and sustainable profitable growth over time, and are in line with the best interests of our shareholders.
Further details of the proposed new Group LTIP are set out in this report and in the AGM Guide 2014. A resolution to approve the new plan will be put forward at the 2014 AGM. I hope you will support this resolution and also the resolutions to approve the Directors' remuneration policy and the Directors' remuneration report.
Agenda for 2014
We believe it is appropriate to review the remuneration arrangements for the Chief Executive, Standard Life Investments (CE, SLI), but delayed doing that during 2013 due to the uncertainty surrounding regulatory changes affecting the asset management sector. Once that uncertainty is resolved, we will conduct a review and will consult major institutional investors as part of this process.
Crawford Gillies, Chairman, Remuneration Committee
Future policy report
This section sets out the remuneration policy for executive Directors and non-executive Directors, which is subject to a binding vote of shareholders and will, if approved, take effect from 13 May 2014 - the date of the 2014 AGM.
Remuneration Policy for executive Directors
|
Element |
Purpose and link to strategy
|
Operation |
Maximum opportunity |
Performance metrics |
|
Base salary |
To provide a core reward for undertaking the role positioned at a level needed to recruit and retain the talent required to develop and deliver the business strategy.
|
The Remuneration Committee sets base salaries taking into account a range of factors including: · the individual's skills, performance and experience · internal relativities and wider workforce salary levels · external benchmark data · the size and responsibility of the role · the complexity of the business and geographical scope · economic indicators. Base salaries are normally reviewed annually, with any increases usually effective from March. Base salaries may be reviewed more frequently at the discretion of the Remuneration Committee. |
Salaries for executive Directors are set at an appropriate level to attract and incentivise individuals of the calibre and with the experience required. Whilst there is no maximum salary, any increases for executive Directors will normally be in line with the typical level of increases awarded to other employees at Standard Life and will be a reflection of their performance. The Remuneration Committee may award increases above this level in certain circumstances, such as: · where a new recruit or promoted employee's salary has been set lower than the market level for such a role and larger increases are justified as the individual becomes established in the role · where there is a significant increase in the size and responsibilities of the executive Director's role. |
Not applicable
|
|
Benefits |
Provide market competitive monetary and non-monetary benefits, in a cost effective manner, to assist employees in carrying out their duties efficiently. |
The executive Directors are provided with a package of core benefits funded by the Company and are invited to participate, in line with other employees, in their employing company's voluntary benefits programme which they fund themselves through salary sacrifice. Core benefits currently provided include health screening, private healthcare, death in service protection, disability benefit and reimbursement of membership fees of professional bodies. Where the Remuneration Committee considers it appropriate other benefits may be provided on recruitment or relocation.
|
Car allowance up to a maximum of £16,585 per annum. There is no maximum value of the core benefit package as this is dependent on the cost to the employing company and the individual's circumstances. In the event of recruitment or relocation additional benefits may be provided, such as: · housing rental costs · education allowance · travel and accommodation costs · relocation costs (including shipping costs, legal fees and stamp duty associated with the purchase of a house and other professional advice). Such benefits would be set at an appropriate level taking into account the individual's circumstances and typical market practice.
|
Not applicable |
|
All-employee share plans |
Promote share ownership by all employees to drive performance aligned to our shareholder interests. |
Executive Directors can participate in the all-employee share plans operated by Standard Life on the same basis as all other employees. The two current all -employee share arrangements are: · The Standard Life (Employee) Share Plan · The Standard Life Sharesave Plan. |
The maximum opportunity is in line with all other employees and as determined by the prevailing HMRC rules on maximum employee payment limits.
|
Not applicable
|
|
Pension |
Provide a competitive, flexible retirement benefit in a way that does not create an unacceptable level of financial risk or cost to the Group. |
Executive Directors are auto-enrolled into the Company's defined contribution pension plan and are offered the alternative of a cash allowance. The level of pension benefit and level of cash allowance are reviewed periodically taking into account: · external benchmark data · pension legislation · other elements of the remuneration package. We would continue to honour defined benefit pension arrangements in the event of an individual being promoted to an executive Director role who retains a contractual entitlement to such a pension benefit. |
Employer contribution into the Group's defined contribution pension plan of up to 32% of salary. Alternatively, a cash allowance of up to 30% of salary.
|
Not applicable |
|
Group annual bonus |
Designed to support the delivery of our annual business plan. Focus is on the delivery of the annual financial, strategic, customer and people objectives.
|
Awards are based on a balanced Group scorecard combining annual financial and non-financial performance targets. Performance targets are set annually by the Remuneration Committee. The Remuneration Committee exercises its judgement to determine awards at the end of the year to ensure that the outcome of the scorecard is fair in the context of our overall Group performance, taking into account actual performance against Group scorecard targets, business performance and performance against personal goals. Normally, 50% of any bonus above 25% of salary is deferred into shares which vest after two years from the date of award (subject to the deferred amount being at least 10% of salary). Deferred bonus shares are normally granted in the form of nil-cost options, however may be awarded in other forms if it is considered appropriate. Deferred bonus shares are subject to malus between grant and vest and cash awards are subject to clawback for two years from the date of award (details set out later in this report). Deferred awards will accrue dividend equivalents over the deferral period. These will normally be paid in shares on a reinvested basis.
|
The maximum award opportunity in respect of any financial year is based on role and is up to 175% of salary.
|
Performance is measured against a range of key financial metrics, strategic, customer and people indicators and personal performance. The performance scorecard is weighted with at least 50% of bonus based on financial performance and no less than 30% based on non-financial performance. The non-financial targets are split between strategic, customer and people measures. The split between financial and non-financial targets is set annually by the Remuneration Committee. A portion of the award may be based on individual performance objectives. This will be no more than 20% of the overall award. Performance is measured over 12 months. The award opportunity for bonus at threshold performance is zero with up to 50% of the award normally payable for target performance. 100% of the award is payable for maximum performance.
|
|
Standard Life Investments' personal and company bonus plans |
Designed to support the delivery of Standard Life Investments' annual business plan. Rewards Standard Life Investments' employees for the delivery of individual performance objectives in the year and on Standard Life Investments' corporate and investment performance.
|
Bonus pool is determined by reference to Standard Life Investments' financial performance. Personal bonus awards are based on personal performance against agreed Standard Life Investments' business scorecard objectives and awarded from the bonus pool. Company awards are made from the bonus pool after deduction of personal bonus payments and the size of the award reflects the value of total reward positioned against market. The award for the CE, SLI is determined by the Remuneration Committee. Awards are normally paid in cash.
|
The maximum award opportunity for the CE, SLI in respect of any financial year is 105% of salary in respect of the personal bonus element and is 200% of salary in respect of the company bonus element. The Group CE and Group CFO do not participate in this plan. In the event that stretch targets are exceeded the Remuneration Committee retains the discretion to award a higher company bonus to the CE, SLI provided it is in line with its principles on remuneration. Such discretion would only be used: (i) if the company bonus and personal bonus were at a maximum (ii) following consultation with the Group's largest shareholders on the use of such discretion (iii) on the basis that the award made to the CE, SLI did not exceed 2.5% of Standard Life Investments' profits delivered above the stretch targets. Any additional bonus payments made to the CE, SLI would be deferred, over a period to be agreed by the Remuneration Committee, into Standard Life plc shares, would be eligible to accrue dividends and would be subject to clawback (details set out later in the report).
|
Performance is measured against a range of key financial metrics, strategic, customer and people indicators and personal performance. Individual awards are then based on personal performance objectives set at the start of the year against Standard Life Investments' business scorecard objectives. Performance is measured over 12 months. The award opportunity for the personal bonus and company bonus at threshold performance is zero, with up to 50% of the award normally payable for target performance. 100% of the award is payable for maximum performance.
|
|
The Standard Life plc Executive Long Term Incentive Plan (new Group LTIP) |
Rewards participants for the delivery of our goals of driving shareholder value through customer experience with a focus on measures such as cumulative Group operating profit and cumulative Group net flows.
|
Award of shares subject to performance measured over a three-year period with a subsequent two-year holding period. Awards may only be exercised after the five-year combined period. Performance targets are set annually for each three-year cycle by the Remuneration Committee. The Remuneration Committee has the discretion to amend the final vesting level of awards if it does not consider that it reflects the performance of the Group. Group LTIP awards are normally granted in the form of nil-cost options. They may however be awarded in other forms if it is considered appropriate. Unvested awards are subject to malus (details set out later in the report). Dividend-equivalents accrue over the five-year period. These will normally be paid in shares on a reinvested basis. Vesting of awards takes place on a straight line basis between threshold and target performance and target and maximum performance. The Remuneration Committee may adjust and amend awards in accordance with the Group LTIP rules.
|
The maximum award opportunity under the plan is 300% of salary. The Remuneration Committee's current intention is that award levels will be based on role and will be up to a maximum of 200% of salary. The Remuneration Committee will normally consult with the Group's largest shareholders in advance of increasing award levels above the current grant levels.
|
Vesting of the award is based on the following performance measures: · Cumulative Group operating profit performance before tax weighted at up to 100% of the award · Cumulative Group net flows weighted at no more than 50% of the award. The weighting of measures for awards to be made in 2014 will be: · Cumulative Group operating profit (excluding life joint ventures) before tax - 70% · Cumulative Group net flows performance (excluding life joint ventures) - 30%. The split between these measures, for each grant, is set annually by the Remuneration Committee. Awards are subject to review by the Remuneration Committee and the Risk and Capital Committee at the end of the three-year performance period to confirm that vesting of the award is appropriate. This will take into account performance relative to the Group scorecards over the plan period. The Group cumulative operating profit and Group cumulative net flows performance condition ranges will be disclosed in the Directors' remuneration report published in the year in which the awards are made. The award opportunity at threshold performance is zero, with up to 50% of the award normally vesting for target performance. 100% of the award vests for maximum performance.
|
|
Standard Life Investments' Long-term Incentive Plan (SLI LTIP)
|
Rewards the delivery of Standard Life Investments' long-term strategy and the delivery of sustainable returns to the Group. |
Award of shares subject to a three-year performance period. Performance targets are set annually for each three-year cycle by the Remuneration Committee. The Remuneration Committee has the discretion to amend the final vesting level of awards if it does not consider that it reflects the performance of Standard Life Investments. SLI LTIP awards are normally granted in the form of nil-cost options. They may however be awarded in other forms if it is considered appropriate. Awards are subject to clawback for up to two years post vesting. Dividend-equivalents accrue over the three-year period. These will normally be paid in shares on a reinvested basis. The Remuneration Committee may adjust and amend awards in accordance with the SLI LTIP rules.
|
The maximum award opportunity for the CE, SLI is 200% of salary. The Group CE and Group CFO do not participate in this plan. |
Vesting of the award is based on Standard Life Investments' consolidated cumulative three-year third party earnings before interest and tax. The vesting of awards is subject to an investment performance gateway which requires Standard Life Investments' performance to be above the lower quartile of the money-weighted average of all assets under management (captive and third party assets) compared to other asset managers. Awards are also subject to review by the Remuneration Committee and the Risk and Capital Committee at the end of the three-year performance period to confirm that vesting of the award is appropriate. The award opportunity at threshold performance is zero, with normally up to 50% of the award vesting for target performance. 100% of the award vests for maximum performance. |
Notes to policy table
The deferred element of the Group annual bonus plan, the new Group LTIP and the SLI LTIP shall be operated in accordance with the rules of the respective plans. The rules for the new Group LTIP will be set out for approval at the 2014 AGM. The rules of the SLI LTIP were approved by shareholders in 2010.
Remuneration Committee discretion in relation to existing commitments
The Remuneration Committee reserves the right to make any remuneration payments and payments for loss of office notwithstanding that they are not in line with the policy set out above where the terms of the payment were agreed: (i) before the policy came into effect or (ii) at a time when the relevant individual was not a Director of the Company and the payment was not in consideration for the individual becoming a Director of the Company.
For these purposes 'payments' include the Remuneration Committee satisfying awards of variable remuneration and, in relation to an award over shares (including awards granted in 2011, 2012 and 2013 under the current Group LTIP, the SLI LTIP and any other share based plan operated by the Group), in line with the terms of the payment that were agreed at the time the award was granted.
Awards granted to executive Directors under the current Group LTIP (in the form of nil-cost options) are subject to the achievement of Group operating profit performance targets measured in the final financial year of the three year performance periods . The Remuneration Committee has the discretion to amend the final vesting level of these awards if it does not consider that it reflects the performance of the Group. Awards are also subject to review by the Risk and Capital Committee at the end of the performance period to confirm that vesting of the award is appropriate. The maximum individual award under this plan is 200% of salary. These awards accrue dividend-equivalents over the performance period which will normally be paid in shares on a re-invested basis. The performance target ranges for these awards are disclosed in this or previous remuneration reports with the target performance level disclosed retrospectively in the remuneration report for the final year of the performance period.
Awards granted to the CE, SLI under the SLI LTIP in 2011, 2012 and 2013 are consistent with the remuneration policy table above.
Remuneration Committee discretion in relation to future operation of the remuneration policy
In the event of a variation of share capital, demerger, special dividend or similar event, the Remuneration Committee may adjust or amend awards in accordance with the rules of the relevant plan.
The Remuneration Committee retains the discretion to amend the performance target in exceptional business or regulatory circumstances. If discretion is exercised in this way the Remuneration Committee will consult with major shareholders as appropriate.
All awards are subject to Remuneration Committee discretion and may be adjusted (or reduced to nil) where it determines that the overall level of the Company or Group performance does not warrant payment of variable remuneration, or it considers that risks (such as financial, regulatory, compliance or brand risk) have not adequately been reflected in awards.
Malus or clawback
Malus or clawback may apply where stated in the policy table on pages 72 to 77.
Under the malus and clawback provisions the Remuneration Committee can reduce awards that have not yet vested and can require the repayment of an award.
The circumstances in which malus or clawback would apply are set out below:
· Where there is a material mis-statement of the Group's financial statements through information or assumptions that are found to be misleading prior to the date of vesting
· Where there is fraud and/or any other material financial irregularity, or failure of risk management which results in material losses being incurred
· Where there is serious misconduct by a participant or team.
The Remuneration Committee will address any performance issues through their oversight of the annual Group scorecard.
No other element of remuneration is subject to malus or clawback.
Performance measures and target setting
Performance targets for our incentive arrangements are set on an annual basis by the Remuneration Committee. The Remuneration Committee takes into account a range of factors including internal business forecasts, prior year performance, and degree of stretch against the performance targets in the business plan as well as the economic environment, market conditions and expectations.
We aim to deliver target awards for 'good' performance. By this we mean business outcomes are delivered consistently against agreed requirements and performance expectations in terms of both 'what' has been delivered and 'how' this level of performance has been achieved. Maximum awards will only be earned where the performance in the Group or Standard Life Investments has significantly exceeded expectations.
The following table sets out why the performance conditions that are currently used for the annual Group performance scorecard were chosen.
|
Performance metrics |
Financial metrics |
Strategic metrics |
Customer metrics |
People metrics |
|
Rationale |
Measures chosen to support the delivery of financial performance as set out in the Group's annual business plan. Measures chosen may include, but are not limited to: · Group operating profit before tax · European Embedded Value operating profit before tax (EVOP) · Operating return on equity (RoE). |
Focuses management on the delivery of the business' strategic priorities across the Group to drive improved performance in future years. |
Focuses management on growing our customer volumes through winning new customers and growing revenue from our existing customers which will ultimately lead, through growth in assets under management and quality revenue flows, to increasing profitability and increased shareholder value.
|
Develops our organisational capability by building the resources for the future, and encouraging the desired behaviours. |
The table below sets out why the performance conditions for the new Group LTIP were chosen.
|
Performance metrics |
Operating profit before tax |
Net flows |
|
Rationale |
Chosen measure of profitability and closely linked to cash generation. A key measure of the profit we make that provides an indication of the long-term operating performance. It excludes items which create short-term volatility and that are not within management control. Targets our ability to deliver returns to our shareholders and provides an indication of our dividend paying capability. |
Net flows are a measure of the assets that customers have invested with us during the year (premiums and deposits), minus the assets they've taken out (withdrawals, claims and annuity payments). This reflects our ability to win/retain business and is an indicative measure of customer satisfaction. |
The following table sets out why the performance conditions currently used in the Standard Life Investments' personal and company bonus plan were chosen.
|
Performance metrics |
Financial metrics |
Strategic metrics |
Customer metrics |
People metrics |
|
Rationale |
Measures chosen to support the delivery of financial performance as set out in the Standard Life Investments' annual business plan. Measures chosen may include, but are not limited to: · Operating profit before tax · Earnings before interest and tax (EBIT) · Operating RoE. |
Drives delivery against the Standard Life Investments' strategic priorities.
|
Embeds a culture that places the customer at the heart of our business. Embeds the Standard Life and Standard Life Investments brands to drive competitive advantage. Continues to enhance the external profile of Standard Life Investments with key external parties. |
Develops our organisational capability by building resource capabilities and the behaviours we will need to deliver the Standard Life Investments' annual business plan. |
The following table sets out why the performance conditions currently used in the SLI LTIP were chosen:
|
Performance metric |
Consolidated cumulative three-year third party earnings before interest and tax |
|
Rationale |
Chosen measure of profitability which drives the growth of Standard Life Investments. |
Awards under the SLI LTIP are also subject to an investment performance gateway which requires Standard Life Investments' investment performance to be above the lower quartile of the money-weighted average of all assets under management (captive and third party assets) compared to other asset managers before the award vests. This benchmarks performance relative to other asset managers and prevents vesting for relative underperformance.
Remuneration arrangements throughout the Group
The following overarching principles are applied to our remuneration policy and practice throughout the Group:
· Remuneration is linked to performance, is transparent and easy to understand
· The policy encourages behaviours that deliver results which are aligned to the interests of our key stakeholders
· Remuneration is competitive and reflects financial and personal performance and the individual's value in the market, without paying more than is necessary
· The policy provides an appropriate balance of fixed and variable remuneration.
The scorecard used to determine annual bonuses for executive Directors is used in the determination of annual bonuses for all employees.
Although the above principles apply throughout the Group, given the size of the Group and the scale of its operations, the way in which the remuneration policy is implemented varies by jurisdiction and seniority. For example participation in the current Group LTIP is at the Remuneration Committee's discretion and is normally limited to senior management, and the Group's defined contribution pension provision is graduated based on seniority.
Scenario charts
The chart below illustrates how much the current executive Directors could earn under different scenarios for 2014 (Charts removed for the purposes of this announcement. However they can be viewed in full in the pdf document).
This is based on the following assumptions:
· Below threshold is based on fixed pay only which includes salary, pension allowance and taxable benefits
· Target includes the potential value of annual and long-term incentives which would be payable for target performance (being 50% of maximum)
· Maximum shows the total remuneration receivable for maximum performance under all incentive plans
· A constant share price is assumed and dividend equivalents have been ignored.
Remuneration Policy for non-executive Directors
|
Approach to fees |
Operation |
Other items |
|
Fees for the Chairman and non-executive Directors are set at an appropriate level to reflect the time commitment, responsibility and duties of the position and the contribution that is expected from non-executive Directors. Board membership fees are subject to a maximum cap which is stated in the Company's Articles of Association. Any changes in this would be subject to shareholder approval.
|
The Board annually sets the fees for the non-executive Directors other than the fee for the Chairman of the Company which is set by the Remuneration Committee. Fees are set at a market rate with reference to the level of fees paid to other non-executive directors of FTSE 100 financial services companies. The Chairman receives an aggregate fee which takes into account their role in all Board committees. Non-executive Director remuneration policy is to pay: · Board membership fees · Further fees for additional Board duties such as Chairman of a Committee, the Senior Independent Director and the Chairman of Standard Life Investments to take into account the additional responsibilities and time commitments of the roles. The Board retains discretion to remunerate the non-executive Directors in shares rather than cash where appropriate. |
The Chairman and non-executive Directors are not eligible to participate in any incentive arrangements. Additional fees or benefits may be provided at the discretion of the Remuneration Committee in the case of the Chairman, and the Board in the case of the other non-executive Directors, to reflect for example, housing, office, transport and other business related expenses incurred in carrying out their role.
|
Remuneration Policy for new appointments
Principles
In determining remuneration arrangements for new appointments to the Board (including internal promotions), the Remuneration Committee applies the following principles:
· The Remuneration Committee takes into consideration all relevant factors, including the calibre of the individual, local market practice and existing arrangements for other executive Directors, adhering to the underlying principle that any arrangements should reflect the best interests of the Group and its shareholders
· Remuneration arrangements for new appointments will typically align with the remuneration policy presented above
· In the case of internal promotions, the Remuneration Committee will honour existing commitments entered into before promotion
· The Remuneration Committee will explain to shareholders the rationale for the relevant arrangements in the following year's Directors' remuneration report; and the maximum level of bonus and long-term incentive awards which may be awarded to a new executive Director (excluding the CE, SLI) at or shortly following recruitment shall be limited to 475% of salary. The maximum level for the CE, SLI will be 865% of salary. These limits exclude buyout awards and are in line with the policy table above.
Components and approach
The remuneration package offered to new appointments may include any element of remuneration included in the remuneration policy set out in this report, or any other element which the Remuneration Committee considers is appropriate given the particular circumstancesbut not exceeding the maximum level of bonus and long term incentive awards detailed above. In considering which elements to include, and in determining the approach for all relevant elements, the Remuneration Committee will take into account a number of different factors, including (but not limited to) typical market practice, existing arrangements for other executive Directors and internal relativities, and market positioning.
Buyouts
To facilitate recruitment, the Remuneration Committee may make an award to 'buy out' remuneration terms forfeited on leaving a previous employer. In doing so, the Remuneration Committee will adhere to the FCA guidance in relation to the practice of buyout awards to new recruits and, in particular, the requirements for Code Staff (as defined by our regulators). In considering buyout levels and conditions, the Remuneration Committee will take into account such factors as the type of award and performance measures and the likelihood of performance conditions being met. The buyout award will reflect the foregone award in amount and terms (including any deferral or retention period and performance conditions) as closely as possible but within the structures and timing of equivalent Group plans. Where appropriate, the Remuneration Committee retains the discretion to utilise Listing Rule 9.4.2 (a rule, set by the United Kingdom Listing Authority, which permits an arrangement to be made without shareholder approval, specifically to facilitate, in unusual circumstances, the recruitment or retention of the relevant individual) for the purpose of making an award to 'buy out' remuneration terms forfeited on leaving a previous employer or to utilise any other incentive plan operated by the Group.
Appointment of non-executive Directors
If a new Chairman or non-executive Director is appointed, remuneration arrangements will normally be in line with those detailed in the remuneration policy for non-executive Directors set out above.
Service Contracts
Executive Directors: The executive Directors' terms and conditions of employment are detailed in individuals' executive service contracts. In these contracts, the Remuneration Committee aims to strike the right balance between the Company's interests and those of the executive Directors, while ensuring that they comply with best practice, legislation and the agreed remuneration principles. Contracts are not for a fixed term, but set out notice periods in line with the executive's role.
The terms and provisions that relate to remuneration in the executive Director contracts (that are not set out elsewhere in this report) are set out below. It is intended that the terms for any new appointment would be in line with these:
|
Provision |
Policy |
|
Notice periods |
Six months by the executive Directors to the Company. Up to 12 months by the Company to the executive Director. A payment in lieu of notice can be made. |
|
Termination payments |
Any payment in lieu of notice will be up to 12 months' salary, pension contributions and the value of other contractual benefits. A duty to mitigate applies. The payment may be made in phased instalments. Rights to bonus and existing long-term incentive awards are governed by the rules of the respective plans. |
|
Remuneration |
Salary, pension and core benefits are specified in the contracts and are treated as described above. There is no contractual entitlement to participate in the annual bonus plan or receive long-term incentive awards. Individuals are notified of these discretionary schemes at the beginning of each year. |
|
Non-compete clauses |
Applies during the contract and for up to six months after leaving at the Company's choice. |
|
Contract dates |
David Nish 31 October 20061 Keith Skeoch 3 April 2006 |
1 David Nish signed a new contract in October 2009, reflecting his appointment to Chief Executive from 1 January 2010.
Non-executive Directors: The non-executive Directors, including the Chairman, have letters of appointment that set out their duties and responsibilities. The key terms are:
|
Provision |
Policy |
|
|
Period of appointment |
Three-year term which can be extended by mutual consent and is subject to re-election by shareholders in line with the Company's articles of association and the UK Corporate Governance Code. |
|
|
Time commitment |
Two to three days per week for the Chairman. For other non-executive Directors - 30 to 35 days a year. |
|
|
Notice periods (apply to both the Company and non-executive Director) |
Chairman - six months. For other non-executive Directors - no notice period. |
|
|
Remuneration |
Fees as set out in on page 95. Reimbursement of travel and other reasonable expenses incurred in the performance of their duties. No pension, annual bonus or other incentive payment permitted. |
|
|
Date of letters of appointment |
Gerry Grimstone |
6 June 20031 as Director and 28 February 2007 as Chairman (continuation 27 May 2010 and 28 May 2013) |
|
Colin Buchan |
27 November 2007 (continuation 25 January 2011 and 17 December 2013) |
|
|
Pierre Danon |
28 November 2011 |
|
|
Crawford Gillies |
7 December 2006 (continuation 11 January 2010 and 3 December 2012) |
|
|
David Grigson |
26 October 2009 (continuation 30 October 2012) |
|
|
Noel Harwerth |
18 July 2012 |
|
|
John Paynter |
21 December 20112 |
|
|
Lynne Peacock |
13 March 2012 |
|
|
Sheelagh Whittaker Martin Pike |
23 June 2009 (continuation 2 October 2012)3 27 September 20134 |
|
1 Initially appointed as a Director of The Standard Life Assurance Company and appointed as a Director of Standard Life plc effective from 30 March 2006.
2 Appointed Senior Independent Director with effect from 25 May 2012 for a three-year term. Letter of appointment dated 24 May 2012.
3 Retired on 14 May 2013.
4 Appointed with effect from 27 September 2013.
The service agreements / letters of appointment for Directors are available to shareholders to view on request from the Group Company Secretary and General Counsel at our registered address (details of which can be found in the Contact details on page 289 and at the 2014 AGM.
Loss of office remuneration
The Remuneration Committee will consider the following factors when considering remuneration for loss of office:
· The individual's service contract and the rules of the relevant incentive plans
· Circumstances of the loss of office
· Performance during office
· The commercial justification for any payments.
The remuneration policy for loss of office for executive Directors is as follows:
· Any payment in lieu of notice will be up to 12 months' salary, pension contributions and the value of other contractual benefits
· There is a duty to mitigate any termination payments
· The payment may be made in phased instalments and the policy is to do this for notice periods over six months
· Rights to all-employee plans, bonus awards and long-term incentive awards are governed by the rules of the respective plans
· Awards under all-employee share plans vest in accordance with their terms, under which good leavers are entitled to shares on or shortly after cessation. Other leavers would usually forfeit awards.
· Typically, for good leavers, rights to annual bonus and long-term incentive awards will be pro-rated for time in service to termination as a proportion of the performance period and will, subject to performance, be paid at the usual time (which in the case of the new Group LTIP will normally include the holding period). Outstanding deferred share awards will typically vest in full at the date of termination.
· In certain circumstances, such as the individual's death, the Remuneration Committee retains the discretion to accelerate payments if it is considered appropriate
· In all plans, the Remuneration Committee retains the discretion to disapply time pro-rating for good leavers (see below) and, in the case of the current Group LTIP, performance pro-rating
· Typically, for other leavers, rights to annual bonus and outstanding long-term incentive awards will be forfeited
· Other payments such as legal fees or outplacement costs may be paid if considered commercially appropriate.
In both the annual bonus plans' and long-term incentive plans' rules, the distinction is made between good leavers and other leavers. A good leaver is someone whose employment comes to an end because of death, ill health, injury, disability, redundancy or retirement as determined by their employing company, sale of the employing company or business or any other circumstance at the discretion of the Remuneration Committee. For the purposes of the SLI LTIP, a good leaver may also include an individual who is transferred out of Standard Life Investments to another company in the Group. In determining whether an individual is a good leaver, the Remuneration Committee will exercise its judgement in a manner which seeks to be in the Company's interests taking into account all relevant factors in relation to the departure. Where judgement has been exercised the Remuneration Committee would provide an explanation in the following year's Directors' remuneration report.
In the event of a change of control, executive Directors may receive a cash bonus in respect of the year in which the change of control occurs which, unless the Remuneration Committee determines otherwise, will be time pro-rated by reference to the bonus year. Outstanding deferred share awards will typically vest in full. Long-term incentives will normally vest early, taking into account the extent to which any relevant performance conditions have been met and, unless the Remuneration Committee determines otherwise, the time that has elapsed from the beginning of the relevant performance period. If the Company undergoes a winding up or is subject to a demerger, delisting, special dividend or other event which in the opinion of the Remuneration Committee may affect the current or future share price, the Remuneration Committee may allow awards to vest on the same basis.
The treatment of other awards in the event of a change of control will be in line with the relevant plan rules as approved by shareholders.
There is no provision for compensation payments for non-executive Directors.
Considering conditions elsewhere in the Group
When setting the policy for executive Directors' remuneration, the Committee has regard to the pay and employment conditions elsewhere within the Group, recognising international variance and jurisdictional differences, where appropriate.
The Remuneration Committee is informed about the approach on salary increases, Group-wide benefit offerings including pensions, the structure of incentive arrangements and distribution of outcomes throughout the wider organisation, as well as the take-up of all-employee share ownership plans, employee engagement survey results and staff morale.
The Remuneration Committee does not consider it appropriate to consult employees in the Group on the remuneration policy for executive Directors. However, the Group engages with its employee associations from an early stage in the annual remuneration cycle. The areas discussed include: external relativities, economic factors, employee expectations and congruence of executive pay with that of the wider workforce in terms of overall pay budgets and approach.
Consideration of shareholder views
The Remuneration Committee values the opportunity to listen to our shareholders. As explained in the Remuneration Committee Chairman's statement major institutional shareholders were consulted as part of the approach to designing the new long-term incentive plan. The overall reaction from shareholders with whom we met and from those who expressed views on the proposed plan has been positive.
Annual remuneration report - what we did in 2013
This section sets out the annual remuneration report and is subject to an advisory vote of shareholders at the Annual General Meeting.
Single total figure of remuneration - executive Directors (audited)
The following table sets out the single total figure of remuneration for each of the executive Directors who served as director at any time during the financial year ending 31 December 2013.
|
Executive Directors |
|
Basic salary for year £000s |
Taxable benefits in year £000s1 |
Annual bonus earned for year £000s |
Long-term incentives with performance period ending during the year £000s2 |
Pension allowance paid in lieu of pension in year £000's |
Total remuneration for the year £000s |
|
David Nish3 |
2013 |
787 |
17 |
1,039 |
1,970 |
236 |
4,049 |
|
|
2012 |
775 |
18 |
1,217 |
3,322 |
232 |
5,564 |
|
|
|
|
|
|
|
|
|
|
Keith Skeoch3 |
2013 |
436 |
3 |
1,545 |
2,108 |
109 |
4,201 |
|
|
2012 |
425 |
15 |
1,528 |
2,803 |
106 |
4,877 |
|
|
|
|
|
|
|
|
|
|
Jackie Hunt4 |
2013 |
178 |
5 |
- |
- |
45 |
228 |
|
|
2012 |
530 |
16 |
733 |
1,360 |
132 |
2,771 |
1 This includes the taxable value of all benefits paid in respect of the year ended 31 December 2013. For executive Directors this includes car allowance of £16,585 for David Nish, £2,490 for Keith Skeoch (Keith Skeoch ceased to receive a car allowance with effect from 16 March 2013) and a car allowance of £5,154 for Jackie Hunt. Also included is private health cover - this amount is not significant.
2 The figure reported for long-term incentives in 2013 is the market value of Group LTIP and SLI LTIP awards that will vest in 2014. The share price at the date of vesting was not known at the date of publication of this report and therefore the number of Standard Life plc shares that will vest has been multiplied by the average share price over the quarter ending 31 December 2013 (£3.49). This amount includes additional Standard Life plc shares received in respect of accrued dividends from grant through to 31 December 2013.
The figure reported for long-term incentives in 2012 has been restated as the actual market values at the date of vest of the Group LTIP and SLI LTIP, unknown at the date of publication of the 2012 Annual Report and Accounts are now known. The estimates provided in last year's report were: David Nish £2,759k, Keith Skeoch £2,273k and Jackie Hunt £1,129k.
3 David Nish participates in the Standard Life Sharesave Plan - his option is not yet exercisable. Both David Nish and Keith Skeoch participate in the Standard Life Employee Share Plan - the maximum annual award of matching shares is currently £300.
4 Jackie Hunt resigned from the Board on 26 April 2013 and ceased to be a Standard Life employee on 4 September 2013. The table includes figures for the period from 1 January 2013 to the date Jackie Hunt resigned as a Director.
Base salary (audited)
|
|
Annual base salary as at 1 January 2013 |
Annual base salary from 16 March 2013 |
Total base salary paid in 2013 |
|
David Nish |
£775,000 |
£790,000 |
£786,875 |
|
Keith Skeoch |
£425,000 |
£437,750 |
£435,886 |
|
Jackie Hunt1 |
£537,500 |
£565,000 |
£178,323 |
1 Jackie Hunt resigned from the Board on 26 April 2013 and ceased to be a Standard Life employee on 4 September 2013 at which date payment of salary ceased.The table includes figures for the period from 1 January 2013 to the date Jackie Hunt resigned as a Director.
Pension (audited)
No Directors are members of, or have benefits in, the Standard Life Staff Pension Scheme. Executive Directors received a cash allowance in lieu of pension as follows:
|
|
Cash allowances in lieu of pension contribution as a % of salary |
Paid in 2013 |
|
David Nish |
30% |
£236,492 |
|
Keith Skeoch |
25% |
£108,972 |
|
Jackie Hunt1 |
25% |
£44,580 |
1 Jackie Hunt resigned from the Board on 26 April 2013 and ceased to be a Standard Life employee on 4 September 2013 at which date payment of the cash allowance ceased. The table includes figures for the period from 1 January 2013 to the date Jackie Hunt resigned as a Director.
Annual bonus plans
Group annual bonus
Awards in respect of 2013 were made under the Group annual bonus plan. The target and maximum award opportunities (expressed as a percentage of salary) that could be earned in respect of 2013's Group performance were:
|
|
Target |
Maximum opportunity |
|
David Nish |
75% |
175% |
|
Keith Skeoch |
30% |
60% |
|
Jackie Hunt |
75% |
150% |
For David Nish and Keith Skeoch, 90% of the award was based on Group performance and 10% on personal performance. Jackie Hunt is no longer entitled to a bonus award as her employment with the Group ceased on 4 September 2013.
The scorecard weightings, key achievements and overall score for 2013 are shown, for David Nish and Keith Skeoch, in the following table:
· The scorecard is based on a scale of 1 to 5 with 5 reflecting maximum, 3 on target and 1 unsatisfactory performance
· More information on our financial KPIs can be found in Section 1.2 of the Strategic report
· Before approving the level of performance in 2013, the Remuneration Committee sought the views of the Group Chief Risk Officer and the Risk and Capital Committee on the level of underlying risk within the business
· The actual financial performance targets and the detailed non-financial measures used for the determination of the annual bonus plans have not been disclosed in this Directors' remuneration report as the Board deem that, given the annual bonus rewards the achievement of the Group's business plan, the disclosure of these could seriously prejudice the Group's business. The financial targets will be disclosed at the earliest in the Directors' remuneration report published for the financial year following the year in which the bonus is paid.
|
Element (weighting as a % of maximum bonus opportunity) |
Performance measure |
Key achievements |
Overall score (out of 5) |
|
Financial (63%) |
Group operating profit before tax (excluding life joint ventures).1 EEV operating profit before tax (EVOP) (excluding life joint ventures).1 Operating return on equity (RoE) (excluding life joint ventures).1 |
Strong financial performance across the Group against challenging targets demonstrated by: · Group operating profit before tax (excluding life joint ventures)1 of £746m exceeding maximum targets · EVOP (excluding joint ventures)1 of £892m between threshold and target · Group operating RoE (excluding joint ventures) was 15% exceeding maximum targets · Group assets under administration including joint ventures increased by 12% from 2012 to £244.2bn · Group net flows including joint ventures of £9.6bn. |
4.1 |
|
Strategic/delivery/ process (9%) |
Management of the Group's strategy and its deployment in each Business Unit including the annual investment programme, any corporate actions and the efficiency of the Group's balance sheet. |
· Proactive Board review, challenge and approval of strategy at Group level and in each business unit, including update and on-going monitoring of strategic risks · Good delivery progress across all change portfolios. · All planned balance sheet actions successfully completed and financial strength maintained, allowing for special dividend to be paid. |
3.8 |
|
Customer and external leadership (9%) |
Drive customer focus within the organisation and build advocacy for the Standard Life brand. Protect and enhance Standard Life's corporate reputation. |
· Deepened our customer experience understanding through more robust measurement · Evolved Customer Personas to profile how our customers feel about their finances and drive more informed treatment and engagement · Evolved customer engagement through bespoke and rolling campaigns, with 200,000 customers now receiving monthly online communications · Enhanced availability of our customer retirement offering, resulting in 70% of our workplace customers accessing our full retirement journey · Developed a broader set of propositions to meet our customers' evolving needs including the Impaired Life Annuity which was launched in Q4/13 · Received over 1,500 pieces of print and on-line media coverage which was largely neutral or positive in tone with only 6% being negative · Delivered key thought leadership campaigns boosting customer financial awareness and encouraging action on savings, including 'Saving in Mind' and 'Family Financial Tree' in the UK and a programme to tackle financial inertia in Canada · Secured a partnership agreement which saw Standard Life Investments become the first ever worldwide sponsor of the Ryder Cup · Achieved our highest ever score and retained our position in the Dow Jones Sustainability Index (DJSI) for a third consecutive year, putting us in the top 10% of listed companies.
|
4.0 |
|
People (9%) |
Develop our organisational capability by building the environment, the resources, capabilities and developing the behaviours we will need. This will include: · Ensuring the environment we work in creates a culture of continuous improvement · Developing powerful and consistent leadership, identifying and growing tomorrow's leaders · Embedding our remuneration and performance management strategy to encourage high performance and the delivery of our business objectives. |
· We launched another cohort of each of our award-winning talent programmes and benchmarked some of our top leaders against the best externally to continue to create a strong succession pipeline · To strengthen our global graduate capability, we began recruitment activity in Montreal, Boston and Hong Kong · We continued our role in supporting the youth employment agenda with a number of initiatives in place and with 54 young people having now completed the Edinburgh Guarantee internship · Building on our regular performance management conversations and enabled by technology, we introduced a flexible pay matrix and a new goal management system to support our performance culture · We accelerated our diversity agenda across the Group and delivered a range of activities to achieve our goals · We continue to make good progress in building our corporate systems. These group wide systems provide us with scalable platform on which the business can grow either organically or inorganically. |
4.2 |
|
Personal (10%) |
Personal scorecards. Behaviours against our leadership model and personal development. |
Strong individual performance by each of our executive Directors against their own individual objectives. |
n/a |
|
Based on performance against each of the four Group performance elements and considering the performance of the Group as a whole, the Remuneration Committee approved a rating of 4.1 out of 5 for performance against the Group scorecard during 2013. |
|||
1 Life joint ventures refers to HDFC Standard Life Insurance Company Limited and Heng An Standard Life Insurance Company Limited
As a result of the ratings approved by the Remuneration Committee, the Group annual bonus outcome as approved by the Remuneration Committee for 2013 is:
|
|
|
Bonus opportunity based on Group performance as a % of total bonus |
Bonus opportunity based on personal performance as a % of total bonus |
Total bonus payable as a % of bonus maximum |
Total bonus payable as a % of base salary1 |
Total Bonus |
|
David Nish |
Maximum |
90% |
10% |
100% |
175% |
|
|
|
Actual |
66.85% |
8.29% |
75.14% |
131.5% |
£1,038,850 |
|
Keith Skeoch |
Maximum |
90% |
10% |
100% |
60% |
|
|
|
Actual |
69.75% |
10% |
79.75% |
47.85% |
£209,463 |
1 Bonus paid based on base salary at 31 December 2013.
Half of any Group bonus above 25% of salary awarded is deferred into awards over Standard Life plc shares (subject to the deferred amount being at least 10% of salary) which vest two years from the date of award. In addition, deferred bonus shares are subject to malus between grant and vest and cash awards are subject to clawback for two years from the date of award where information is later proven to be inaccurate or misleading as a result of the executive's actions, or if the Group's financial statements are restated.
Standard Life Investments bonuses
As well as participating in the Group annual bonus in 2013, Keith Skeoch also participated in the Standard Life Investments' discretionary annual cash bonus plans:
· These plans reward participants based on Standard Life Investments' corporate and investment performance. Consistent with fund management practice the amount of the bonus pool is determined by reference to Standard Life Investments' financial performance and having regard to the total remuneration spend.
· Personal bonus plan - rewards participants for personal performance in the year. Keith Skeoch's opportunity for 2013 was capped at 105% of salary.
· Keith Skeoch's company bonus opportunity for 2013 was equal to 200% of salary, if Standard Life Investments met its stretch targets. In the event that these stretch targets were exceeded, a higher Standard Life Investments company bonus could have been awarded by the Remuneration Committee provided that it was in line with its principles on total remuneration (details are provided in the future policy report).
The determination of annual bonuses at Standard Life Investments is subject to two levels of control. Firstly, the board of Standard Life Investments (Holdings) Limited reviews its financial results, and after taking into account the level of overall performance and risk, its remuneration committee proposes the level of bonus payments. This is then referred to the Remuneration Committee which reviews these recommendations and determines the bonuses to be paid to the most senior executives within Standard Life Investments.
The key achievements during the year in which the bonus outcome was determined were:
· Very strong EBIT performance
· Maintaining strong investment performance with 99% of third-party funds above benchmark in the year
· Third party gross sales increased compared to 2012
· Securing the first global partnership with the Ryder Cup
· Building the relationship with John Hancock.
Based on Keith Skeoch's and Standard Life Investments' performance in 2013 the Remuneration Committee approved personal bonus award of 105% of salary and a company bonus award of 200% of salary. Although Standard Life Investments exceeded its stretch targets in 2013 it was decided, in agreement with Keith Skeoch, that no additional company bonus payment would be considered this year.
|
|
|
Company bonus plan |
Personal bonus plan |
Total as % of bonus maximum |
Total as % of base salary |
Total Bonus |
|
Keith Skeoch |
Maximum |
200% |
105% |
100% |
305% |
|
|
|
Actual |
200% |
105% |
100% |
305% |
1,335,138 |
Summary of bonus outcomes (audited)
The following table shows the total bonus awards made in respect of 2013:
|
|
Group cash bonus |
Group deferred bonus |
Standard Life Investments' cash bonuses |
Total |
|
David Nish |
£618,175 |
£420,675 |
- |
£1,038,850 |
|
Keith Skeoch |
£159,450 |
£50,013 |
£1,335,138 |
£1,544,601 |
Annual bonus payments are not pensionable.
Long-term incentives
Standard Life Long-Term Incentive Plan (current Group LTIP)
The current Group LTIP is due to expire at the end of 2014 and shareholder approval is being sought at the 2014 AGM for a new plan (the Standard Life plc Executive Long Term Incentive Plan) which will be used to grant awards for 2014 onwards.
The LTIP awards currently in existence have a performance condition based on Group operating profit before tax (excluding profits of the life joint ventures - HDFC Standard Life Insurance Company Limited and Heng An Standard Life Insurance Company Limited). The current Group LTIP awards are also subject to two underpins when assessing the Group performance. The first requires the Group Risk and Capital Committee to be satisfied that performance obtained has been achieved within acceptable defined risk parameters. The second requires the Remuneration Committee to be satisfied that Group operating profit performance reflects overall Group performance.
2011 awards vesting in respect of performance ending in 2013 (audited)
Awards were made in March 2011 of 200% of salary to David Nish and Keith Skeoch and 125% of salary to Jackie Hunt. The table below summarises the performance targets for the awards and the outcome.
|
2013 performance level |
Below threshold |
Threshold |
Target |
Maximum |
|
2013 Group operating profit before tax (excluding life joint ventures)1 |
<£650m |
£650m |
£725m |
£800m |
|
Actual performance |
£746m |
|||
1 Life joint ventures refers to HDFC Standard Life Insurance Company Limited and Heng An Standard Life Insurance Company Limited.
In line with the above results, the Remuneration Committee determined that 64% of awards granted to David Nish and Keith Skeoch in 2011 should vest in 2014. The 2011 award granted to Jackie Hunt lapsed on the cessation of her employment.
Standard Life Investments Long-Term Incentive Plan (SLI LTIP)
In addition to the current Group LTIP, Keith Skeoch participated in the SLI LTIP. Under the SLI LTIP:
· Awards will only begin to vest if Standard Life Investments' investment performance is above the lower quartile of the money-weighted average of all assets under management (both captive and third party assets) compared to other asset managers. Investment performance is based on the three-year money-weighted average investment performance of Standard Life Investments against relevant benchmarks.
· The level of vesting, subject to the above hurdle being satisfied, will be based on consolidated cumulative three-year third party earnings before interest and tax (EBIT) performance as shown in the table below. The actual EBIT targets will not be disclosed as the Board deem that this is commercially sensitive information and, if disclosed, could seriously prejudice the Group's business.
|
Performance |
Consolidated cumulative three-year third party EBIT |
% of target award of shares that vest1 |
|
Threshold |
60% of target |
0% |
|
Maximum |
140% of target |
200% |
1 Vesting takes place on a straight-line basis between 60% of target cumulative three-year third party EBIT and 140% of target cumulative three-year third party third party EBIT.
Before an award can vest, the Group's Risk and Capital Committee will need to verify to the Group's Remuneration Committee that the level of vesting was not as a result of behaviour that has exposed the Group to undue risk. If the Group's Risk and Capital Committee determines that the Group has been exposed to undue risk, the Remuneration Committee will take this into account when determining the level of vesting.
2011 awards vesting in respect of performance periods ending in 2013
In line with the above, Keith Skeoch received an award under this plan in March 2011 equivalent to 200% of salary (at maximum vesting).No other executive Director received an award under this plan.
The following table sets out performance against targets for the 2011 award.
|
Performance level |
Below threshold |
Threshold |
Target |
Maximum |
|
Consolidated cumulative three-year third party EBIT |
<60% of target |
60% of target |
100% of target |
140% of target |
|
Actual performance |
|
|
|
108.7% of target |
As performance was above the lower quartile of the money-weighted average of all assets under management (both captive and third-party assets) and the consolidated cumulative three-year third party EBIT was 108.7% of target, the Remuneration Committee determined that 121.8% of target awards (60.9% of the maximum award) granted in 2011 should vest in March 2014.
Awards granted in 2013 (audited): The table below summarises the key details of awards granted to executive Directors under the current Group LTIP and the SLI LTIP in 2013.
|
Award |
Type of interest |
Basis of award (% of salary and face value at grant)1 |
Performance criteria |
% of award vesting at threshold and threshold performance level |
% of award vesting at maximum and performance required for maximum vest |
|
2013 Group LTIP award, vests in March 2016 |
Nil-cost option |
David Nish - 200%- £1,580,000 Keith Skeoch - 200%- £875,500 Jackie Hunt - 125%- £706,2502 |
Group operating profit before tax (excluding life joint ventures)3 in the year ended 31 December 2015 |
Vesting: 0% Threshold: £725m |
Vesting: 100% of award4 Maximum: £875m |
|
2013 SLI LTIP award, vests in March 2016 |
Nil-cost option |
Keith Skeoch - 200%- £875,500 |
Consolidated cumulative three-year third party Standard Life Investments' EBIT to 31 December 2015 and subject to an investment performance gateway |
Vesting: 0% Threshold: 60% of third party EBIT target |
Vesting: 200% of target award5 Maximum: 140% of third party EBIT target |
1 The number of shares awarded is calculated based on the average share price for the five days preceding the grant which was £3.70.
2 This award lapsed on 4 September 2013.
3 Life joint ventures refer to HDFC Standard Life Insurance Company Limited and Heng An Standard Life Insurance Company Limited.
4 Vesting between threshold and maximum levels will be on an incremental basis using predetermined milestones. These will be disclosed on a retrospective basis in the Directors' remuneration report for the year for which the Group LTIP awards vest.
5 Vesting takes place on a straight-line basis between 60% of target third party EBIT and 140% of target third party EBIT.
All of the above awards are subject to an additional personal performance underpin whereby if an executive performs at an unsatisfactory level in any year during the three-year performance period, their original award would be reduced by one-third, unless the Chief Executive, or the Remuneration Committee in the case of the Chief Executive, recommends otherwise.
Awards are also subject to clawback. This allows the Remuneration Committee to ask for awards to be repaid for up to two years from the date they vest, where misconduct by the executive during the performance period is subsequently discovered, or if the Group's financial statements for the year ended 31 December 2015 (in the case of the 2013 award) are restated.
Share ownership
We operated a set of share ownership guidelines during 2013. The purpose of these guidelines was to encourage our executives, and the Chairman, to hold a substantial element of their personal wealth in Standard Life plc shares to align their interests with those of Standard Life's shareholders. The shareholding guideline targets were to be achieved within five years of their appointment as an executive Director (or from 10 July 2006 for those in role at the time of flotation).
Executive Directors were expected to build up a holding of Standard Life plc shares by keeping any shares they or their family members acquire, plus at least half the shares acquired under the current Group LTIP and from deferred bonuses on an after-tax basis, until the guideline was met.
These guidelines will be strengthened from 2014. David Nish and Keith Skeoch will now be required to hold 300% of their base salary in the form of Standard Life plc shares (under the previous guideline it was expected they would hold 150% and 100% respectively). The Chief Financial Officer when appointed will be required to hold 200% (Jackie Hunt, as CFO, was expected to attain a 100% holding).
The shares which the executive Directors will be required to hold to reach their respective shareholding requirement are based on the net vested shares arising from the exercise of an award. Net vested shares are those shares which the executive Director could retain after selling sufficient shares to cover the costs of the income tax and employee national insurance payable when the award is exercised. Executive Directors will be required to hold shares arising from the following awards:
· 100% of the net vested shares that could be acquired from the exercise of awards granted from 2014 onwards (this includes the awards arising from the deferral of annual bonus and awards granted under the new Group LTIP and the SLI LTIP)
· 50% of the net vested shares that could be acquired from the exercise of awards granted prior to the introduction of the new requirement (this includes awards arising from the deferral of annual bonus and awards granted under the current Group LTIP and the SLI LTIP)
· Shares currently held which were obtained from the exercise of awards and which contributed to satisfying the previous shareholder guidelines.
Executive Directors will be required to retain shares held in respect of the requirement for a period of one year following their departure from the Group.
The Remuneration Committee reviews progress against the requirements annually and retains discretion to require executive Directors to purchase shares to meet the requirement.
Directors' interests in shares (audited)
The following table shows the actual number of Standard Life plc shares held by the executive Directors.
|
|
Total number of shares owned at 1 January 2013 |
Shares acquired/(sold) by the Director during the period |
Total number of shares owned at 31 December 20131or date of resignation |
Total value2 of shares owned at 31 December 2013 as a % of salary at 31 December 2013 |
Shares acquired/(sold) by the Director during the period 1 January 2014 to 26 February 2014 |
|
David Nish |
1,048,083 |
704,835 |
1,752,918 |
798% |
78 |
|
Keith Skeoch |
994,500 |
508,052 |
1,502,552 |
1234% |
77 |
|
Jackie Hunt |
128,022 |
50,271 |
178,293 |
122% |
- |
1 Includes shares held by the Director and by their connected persons.
2 Closing share price at 31 December 2013 was 359.6p.
3 Calculation based on numbers of shares held at date of resignation (26 April 2013) and the share price on that date (387.3p).
As is shown from the table David Nish and Keith Skeoch met the share ownership guidelines in place in 2013 and Jackie Hunt was on target to do so at the date of her resignation.
The Chairman will continue to be subject to a guideline holding of 100% of the value of his fees in Standard Life plc shares within four years of appointment. Gerry Grimstone as Chairman fully met this requirement in 2013 with the value of his shares at the end of the year being 259% of his fees.
The table below shows in relation to each executive Director, the total number of share options with and without performance conditions held at 31 December 2013:
|
|
Options with performance measures1 |
Options without performance measures2 |
Vested but unexercised |
Exercised during year3 |
|
David Nish |
1,845,373 |
373,087 |
- |
1,179,857 |
|
Keith Skeoch |
2,028,846 |
42,720 |
- |
816,110 |
|
Jackie Hunt |
- |
- |
- |
486,656 |
1 This comprises awards made under the Group and SLI LTIPs in 2011, 2012 and 2013 excluding shares to be awarded in lieu of dividend equivalents.
2 This comprises deferred bonus awards made in 2012 and 2013 and Sharesave options excluding shares to be awarded in lieu of dividend equivalents.
3 This comprises exercises of awards made under the 2010 Group and SLI LTIPs and deferred share awards from the 2010 Group bonus plan including dividend equivalents.
The closing market price of Standard Life plc shares at 31 December 2013 was 359.6p and the range for the year was 326.1p to 421.7p.
Directors' interests in the Company's shares through the medium of the Group's share plans are shown below:
Group and Standard Life Investments LTIPs
Awards are subject to vesting conditions that are based on continuous employment and on satisfying corporate performance targets over the performance period.
|
Award dates |
Number of shares |
Value of shares |
|
|||||||||
|
Original award |
Expected first date of exercise1 |
Original award |
Awarded during year |
Shares in lieu of rolled-up dividends to end of year2 |
Exercised during year3 |
Lapsed during year |
At end of year |
Share price at award date4 |
Share price on exercise date |
Actual date of exercise |
Total value on exercise date |
|
|
David Nish |
|
|
|
|
|
|
|
|
|
|
|
|
|
25/06/10 |
25/06/13 |
778,983 |
- |
177,329 |
956,312 |
- |
- |
£1.8614 |
£3.471 |
28/06/13 |
£3,319,129 |
|
|
31/03/11 |
31/03/14 |
752,573 |
- |
127,965 |
- |
- |
880,538 |
£2.0596 |
- |
- |
- |
|
|
29/03/12 |
29/03/15 |
665,750 |
- |
67,301 |
- |
- |
733,051 |
£2.3282 |
- |
- |
- |
|
|
25/03/13 |
25/03/16 |
- |
427,050 |
34,755 |
- |
- |
461,805 |
£3.6998 |
- |
- |
- |
|
|
|
|
2,197,306 |
427,050 |
407,350 |
956,312 |
- |
2,075,394 |
|
|
|
|
|
|
Keith Skeoch |
|
|
|
|
|
|
|
|
|
|
|
|
|
16/06/105 |
16/06/13 |
383,057 |
- |
87,193 |
326,823 |
143,427 |
- |
£1.8274 |
£3.511 |
28/06/13 |
£1,147,335 |
|
|
25/06/10 |
25/06/13 |
376,061 |
- |
85,606 |
461,667 |
- |
- |
£1.8614 |
£3.511 |
28/06/13 |
£1,620,714 |
|
|
31/03/115 |
31/03/14 |
412,701 |
- |
70,173 |
- |
- |
482,874 |
£2.0596 |
- |
- |
- |
|
|
31/03/11 |
31/03/14 |
412,701 |
- |
70,173 |
- |
- |
482,874 |
£2.0596 |
- |
- |
- |
|
|
29/03/125 |
29/03/15 |
365,088 |
- |
36,906 |
- |
- |
401,994 |
£2.3282 |
- |
- |
- |
|
|
29/03/12 |
29/03/15 |
365,088 |
- |
36,906 |
- |
- |
401,994 |
£2.3282 |
- |
- |
- |
|
|
25/03/13 |
25/03/16 |
- |
236,634 |
19,258 |
- |
- |
255,892 |
£3.6998 |
- |
- |
- |
|
|
25/03/13 |
25/03/16 |
- |
236,634 |
19,258 |
- |
- |
255,892 |
£3.6998 |
- |
- |
- |
|
|
|
|
2,314,696 |
473,268 |
425,473 |
788,490 |
143,427 |
2,281,520 |
|
|
|
|
|
|
Jackie Hunt |
|
|
|
|
|
|
|
|
|
|
|
|
|
25/06/10 |
25/06/13 |
318,980 |
- |
72,612 |
391,592 |
- |
- |
£1.8614 |
£3.441 |
25/06/13 |
£1,347,311 |
|
|
31/03/11 |
31/03/14 |
303,456 |
- |
- |
- |
303,456 |
- |
£2.0596 |
- |
- |
- |
|
|
29/03/12 |
29/03/15 |
288,581 |
- |
- |
- |
288,581 |
- |
£2.3282 |
- |
- |
- |
|
|
25/03/13 |
25/03/16 |
- |
190,888 |
- |
- |
190,888 |
- |
£3.6998 |
- |
- |
- |
|
|
|
|
911,017 |
190,888 |
72,612 |
391,592 |
782,925 |
- |
|
|
|
|
|
1 All current Group LTIP and SLI LTIP options lapse six months after the expected first date of exercise.
2 The Remuneration Committee has invoked the power within the LTIP rules in relation to the 2010, 2011, 2012 and 2013 awards for the awards to carry a right to receive rolled-up dividends, but only to the extent that the awards vest. As such, these awards include shares equivalent to the level of dividends announced between June 2010 and December 2013 which fall within the relevant vesting periods. All awards were made under the current Group LTIP unless otherwise stated.
3 The 2010 Group LTIP vested at 100% and the SLI Group LTIP at 69.5% of maximum.
4 Based on the average share price for the five dealing days immediately before the awards were granted.
5 Keith Skeoch's awards under the SLI LTIP.
Bonus awards-deferred shares
These awards are the deferred share elements of the 2009, 2010 and 2011 bonus awards. The value of the bonus deferred into share awards is reported within the annual bonus figures shown in the Directors' remuneration for the year for which the bonus is payable.
|
Award dates |
Number of shares |
Value of shares |
|||||||||
|
Original award |
Expected first date of exercise1 |
Original award |
Awarded during year |
Shares in lieu of rolled-up dividends to end of year2 |
Exercised during year |
Lapsed during year |
At end of year |
Share price at award date3 |
Share price on exercise date |
Actual date of exercise |
Total value on exercise date |
|
David Nish |
|
|
|
|
|
|
|
|
|
|
|
|
31/03/11 |
31/03/13 |
206,609 |
- |
16,936 |
223,545 |
- |
- |
£2.114 |
£3.760 |
30/04/13 |
£840,552 |
|
29/03/12 |
29/03/14 |
209,667 |
- |
21,194 |
- |
- |
230,861 |
£2.015 |
- |
- |
- |
|
28/03/13 |
28/03/15 |
- |
153,751 |
12,513 |
- |
- |
166,264 |
£3.326 |
- |
- |
- |
|
|
|
416,276 |
153,751 |
50,643 |
223,545 |
- |
397,125 |
|
|
|
|
|
Keith Skeoch |
|
|
|
|
|
|
|
|
|
|
|
|
31/03/11 |
31/03/13 |
25,529 |
- |
2,091 |
27,620 |
- |
- |
£2.114 |
£3.913 |
07/05/13 |
£108,077 |
|
29/03/12 |
29/03/14 |
23,813 |
- |
2,405 |
- |
- |
26,218 |
£2.015 |
- |
- |
- |
|
28/03/13 |
28/03/15 |
- |
18,907 |
1,538 |
- |
- |
20,445 |
£3.326 |
- |
- |
- |
|
|
49,342 |
18,907 |
6,034 |
27,620 |
- |
46,663 |
|
|
|
|
|
|
Jackie Hunt |
|
|
|
|
|
|
|
|
|
|
|
|
31/03/11 |
31/03/13 |
87,863 |
- |
7,201 |
95,064 |
- |
- |
£2.114 |
£3.394 |
10/04/13 |
£322,647 |
|
29/03/12 |
29/03/14 |
116,095 |
- |
- |
- |
116,095 |
- |
£2.015 |
- |
- |
- |
|
28/03/13 |
28/03/15 |
- |
89,993 |
- |
- |
89,993 |
- |
£3.326 |
- |
- |
- |
|
|
|
203,958 |
89,993 |
7,201 |
95,064 |
206,088 |
- |
|
|
|
|
1 All deferred share awards lapse six months after the expected first date of exercise.
2 The Remuneration Committee has invoked the power within the deferred share plan rules for the awards to carry a right to receive rolled-up dividends, but only to the extent that the awards vest. As such, these awards include shares equivalent to the level of dividends announced between March 2011 and November 2013 or the date of vesting if earlier.
3 Based on the average share price for the month of December preceding the date the awards were granted.
Sharesave
David Nish and Jackie Hunt were granted options under the Standard Life Sharesave Plan on 15 September 2011. David Nish was granted options over 9,669 Standard Life plc shares exercisable from 1 November 2016 and Jackie Hunt was granted options over 5,715 Standard Life plc shares exercisable from 1 November 2014. Jackie Hunt's options lapsed on 4 September 2013 when her employment with Standard Life ceased.
The exercise price for these options is £1.5746. No Sharesave option grants were made to executive Directors during 2012 or 2013. Sharesave options lapse six months from the date of exercise.
Executive Directors' external appointments
Subject to the Board's approval, executive Directors are able to accept a limited number of external appointments to the boards of other organisations and can retain any fees paid for these services. Executive appointments held during the year are shown below.
|
Executive Director |
Role and organisation |
2013 fees |
|
David Nish |
Deputy Chairman of the Board of the Association of British Insurers (ABI) Chairman of the Long Term Savings and Life Insurance Committee of the ABI Member of the Advisory Council of TheCityUK Non-executive director of the UK Green Investment Bank plc |
£30,000 |
|
Keith Skeoch |
Director of the Investment Management Association Member of the Advisory Board of Reform Scotland Non-executive director of the Financial Reporting Council |
£01 |
|
Jackie Hunt |
Non-executive Director of National Express Group PLC |
£14,4602 |
1 Keith Skeoch continues to waive his fees from the ABI.
2 Jackie Hunt's fees from National Express Group for the period 1 January 2013 to the date of her resignation (26 April 2013).
Loss of office payments in 2013 (audited)
No loss of office payments were made in 2013. Jackie Hunt resigned as Chief Financial Officer and Director on 26 April 2013. She had a six month notice period and, therefore, would have ceased to be a Standard Life employee on 26 October 2013. By mutual agreement this was brought forward to 4 September 2013. She continued to receive salary, benefits and pension contributions while she remained an employee. Jackie Hunt did not receive an annual bonus in respect of the 2013 financial year. The deferred share awards granted in 2012 and 2013 (in respect of performance in 2011 and 2012) have lapsed as have the LTIP awards made in 2011, 2012 and 2013. The qualifying conditions for exercise of the deferred bonus award made in 2011 and the LTIP award made in 2010 were met and both awards were exercised. Details of the exercise of those awards are set out above.
Payments to former directors
Payments made to former directors during the year (if not reported elsewhere) will in future be reported here if they are in excess of £20,000. No such payments were made in 2013.
Pay compared to performance
Performance graph: The graph shows the difference between investing £100 in Standard Life plc and the FTSE 100 on 1 January 2009 to 31 December 2013. It is assumed dividends are reinvested. The FTSE 100 has been chosen as the comparator index because Standard Life plc is a member of this FTSE grouping (Graph removed for the purposes of this announcement. However it can be viewed in full in the pdf document).
The following table shows the single figure of total remuneration for the director in the role of Chief Executive for the same five financial years as shown in the graph above. Also shown are the annual bonus awards and Group LTIP awards which vested based on performance in those years.
|
Year ended 31 December |
CE |
CE single figure of total remuneration (£000s) |
Annual bonus award rates against maximum opportunity (%) |
Long-term incentive plan vesting rates against maximum opportunity (%) |
|
2013 |
David Nish |
4,049 |
75 |
64 |
|
2012 |
David Nish |
5,5641 |
88 |
100 |
|
2011 |
David Nish |
2,601 |
77 |
63.5 |
|
2010 |
David Nish |
1,971 |
83 |
02 |
|
2009 |
Sir Sandy Crombie3 |
2,175 |
67 |
49.67 |
1 The key drivers behind the increase in the CE single figure for 2012 reflects David Nish's promotion to Chief Executive in 2010 and the correspondingly higher Group LTIP award granted, and also the impact of the increase in the Standard Life plc share price which moved from £1.86 at the award date to £3.46 on the first possible date of exercise and which drives the value outcome of the Group LTIP plan.
2 The Group LTIP targets for the award granted in 2008 were not met and therefore no Group LTIP award vested for the year ended 31 December 2010.
3 Sir Sandy Crombie stepped down from the role of Chief Executive on 31 December 2009.
Relative importance of spend on pay
The following table compares our spend on employee remuneration to that paid in the form of dividends to our shareholders. Also shown is a measure of our profit before tax which is provided for context:
|
|
Remuneration payable to all Group employees (£m) |
Dividends paid in respect of financial year (£m) |
Group operating profit before tax (£m) |
|
|
2013 |
679 |
375 |
751 |
|
|
2012 |
645 |
3451 |
867 |
|
1 A further £302m was paid in the form of a special dividend at the same time as the final dividend for 2012
Percentage change in remuneration of the director in the position of Chief Executive
The table below shows the percentage year-on-year change in salary, benefits and annual bonus earned between the year ended 31 December 2012 and the year ended 31 December 2013 for the CE compared to the average UK based Group employee:
|
|
% change in base salary |
% change in bonus 2012 to 2013 |
% change in benefits2 |
|
CE |
1.02% |
(1.46%)1 |
0% |
|
UK based employees of the Group |
1.97% |
1.17 |
0% |
1 The CE's bonus for 2013 was less than that for 2012
2 There was no change to core benefits in 2013
Implementation of policy in 2014
Base Salary
The Remuneration Committee considered it appropriate to award increases as follows:
|
|
Increase to base pay |
Base pay effective from 16 March 2014 |
|
David Nish |
£20,000 |
£810,000 |
|
Keith Skeoch |
£12,250 |
£450,000 |
Bonus
The executive Directors will participate in the Group annual bonus plan. Target and maximum award opportunities are:
|
|
Target |
Maximum opportunity |
|
David Nish |
75% |
175% |
|
Keith Skeoch |
30% |
60% |
For David Nish and Keith Skeoch, 90% of the award will be based on Group performance and 10% on personal performance. Keith Skeoch will continue to participate in the Standard Life Investments' personal and company bonus plan. The maximum awards under this plan are 105% of salary and 200% of salary respectively.
The financial performance targets and the detailed non-financial measures used for the determination of the Group and Standard Life Investments' annual bonus plans, and our financial and non-financial performance against these, will not generally be disclosed. The Board and the Remuneration Committee believe that, given the annual bonus rewards the achievement of our business plans, the disclosure of these could seriously prejudice the Group's business. In evaluating the non-financial metrics, the Remuneration Committee will reference, where possible, objective data and will exercise judgement in determining achievement of objectives when assessing performance. Disclosure on performance and how performance has been evaluated by the Remuneration Committee will be provided in the Directors' remuneration report at the end of the performance period. The Group financial targets will be disclosed at the earliest in the Directors' remuneration reports published for the financial year following the year in which the bonus is paid. This will allow shareholders to assess whether awards are appropriate in the context of the performance and progress made at the end of the year.
Pension
Cash allowances are paid in lieu of pension as follows:
· David Nish - 30% of salary
· Keith Skeoch - 25% of salary
Long-term incentive arrangements
Subject to the approval of the new Group LTIP at the 2014 AGM, the Remuneration Committee proposes to grant awards equivalent to 200% of salary to David Nish and 200% of salary to Keith Skeoch, in the form of nil-cost options under this plan. Vesting of these awards, in 2019, is based on the following performance measures measured over the period to 31 December 2016:
· Cumulative Group operating profit before tax performance weighted at 70% of the award
· Cumulative Group net flows weighted at 30% of the award.
|
Award |
Type of interest |
Basis of award (% of salary and face value at grant) |
Performance criteria |
Threshold (% of target award vesting at threshold) |
Maximum (% of award vesting and target for maximum vest) |
|
2014 new Group LTIP award, to vest in June 2019 |
Nil-cost option |
David Nish - 200%- £1,620,000 Keith Skeoch - 200%- £900,000 |
Cumulative Group operating profit before tax1 (70%) and cumulative Group net flows2 (30%) for the three-year period ended 31 December 2016 |
Vesting: 0% Cumulative Group operating profit before tax1 Threshold: £2,165m Cumulative Group net flows2 Threshold: £21.2bn |
Vesting :100% of award Cumulative Group operating profit before tax 1 Maximum: £2,585m Cumulative Group net flows2 Maximum: £33.4bn |
1 Cumulative Group operating profit before tax excluding life joint ventures which refer to HDFC Standard Life Insurance Company Limited and Heng An Standard Life Insurance Company Limited.
2 Cumulative Group net flows excluding life joint ventures which refer to HDFC Standard Life Insurance Company Limited and Heng An Standard Life.
Keith Skeoch will also be granted an award, in the form of a nil-cost option equivalent to 200% of salary under the SLI LTIP. This award will vest in 2017 subject to performance in the period to 31 December 2016. The award will vest provided the investment gateway is passed. The level of vesting is based on the cumulative three-year third party EBIT achieved in the three years to 31 December 2016. The performance targets will not generally be disclosed as the Board and the Remuneration Committee deem that, given the vesting of the SLI LTIP rewards the achievement of our business plans, the disclosure of these could seriously prejudice the Group's business.
|
Award |
Type of interest |
Basis of award (% of salary and face value at grant) |
Performance criteria |
Threshold (% of award vesting at threshold) |
Maximum % of target award vesting and target for maximum vest |
|
2014 SLI LTIP award, vests in March 2017 |
Nil-cost option |
Keith Skeoch - 200%- £900,000 |
Consolidated cumulative three-year third party Standard Life Investments' EBIT to 31 December 2016 and subject to an investment gateway |
0% Threshold: 60% of EBIT target |
200% of target award Maximum: 140% of EBIT target |
Single total figure of remuneration - non-executive Directors (audited)
The following table sets out the single total figure of remuneration for each of the non-executive Directors who served as director at any time during the financial year ending 31 December 2013. Non-executive Directors do not participate in bonus or long-term incentive plans and do not receive pension funding.
|
Non-executive Directors |
|
Fees for year ended 31 December £000s |
Taxable benefits in year ended 31 December £000s1 |
Total remuneration for the year ended 31 December £000s |
|
Gerry Grimstone |
2013 |
350 |
26 |
376 |
|
|
2012 |
350 |
34 |
384 |
|
Colin Buchan |
2013 |
86 |
4 |
90 |
|
|
2012 |
86 |
1 |
87 |
|
Pierre Danon |
2013 |
71 |
20 |
91 |
|
|
2012 |
70 |
15 |
85 |
|
Crawford Gillies |
2013 |
97 |
8 |
105 |
|
|
2012 |
95 |
5 |
100 |
|
David Grigson |
2013 |
97 |
15 |
112 |
|
|
2012 |
95 |
6 |
101 |
|
Noel Harwerth |
2013 |
97 |
10 |
107 |
|
|
2012 |
43 |
1 |
44 |
|
John Paynter |
2013 |
127 |
16 |
143 |
|
|
2012 |
115 |
12 |
127 |
|
Lynne Peacock |
2013 |
71 |
14 |
85 |
|
|
2012 |
52 |
4 |
56 |
|
Sheelagh Whittaker2 |
2013 |
27 |
7 |
34 |
|
|
2012 |
70 |
6 |
76 |
|
Martin Pike3 |
2013 |
19 |
2 |
21 |
|
|
2012 |
- |
- |
- |
|
Lord Blackwell4 |
2013 |
- |
- |
- |
|
|
2012 |
44 |
3 |
47 |
|
Baroness McDonagh3 |
2013 |
- |
- |
- |
|
|
2012 |
28 |
1 |
29 |
1 Gerry Grimstone received an allowance of £15,000 towards his business related accommodation costs in Edinburgh in addition to his Chairman's fees. Other amounts reported relate to expenses such as travel and accommodation expenditure incurred on Group business. While these payments are the reimbursement of expenses and not benefits they are included as being a payment which is subject to tax.
2 Sheelagh Whittaker resigned at the close of the AGM on 14 May 2013.
3 Martin Pike was appointed on 27 September 2013.
4 Lord Blackwell and Baroness McDonagh resigned from the Board at the close of the AGM on 25 May 2012.
The following table shows the number of Standard Life plc shares held by each of the non-executive Directors:
|
|
Total number of shares owned at 1 January 2013 |
Shares acquired/(sold) by the Director during the period |
Total number of shares owned at 31 December 20131or date of resignation |
Shares acquired/(sold) by the Director during the period 31 December 2013 to 26 February 2014 |
|
Gerry Grimstone |
252,544 |
- |
252,544 |
- |
|
Colin Buchan |
30,121 |
- |
30,121 |
- |
|
Pierre Danon |
25,805 |
11,446 |
37,251 |
- |
|
Crawford Gillies |
50,170 |
- |
50,170 |
- |
|
David Grigson |
15,000 |
- |
15,000 |
- |
|
Noel Harwerth |
10,000 |
- |
10,000 |
- |
|
John Paynter |
35,000 |
10,000 |
45,000 |
- |
|
Lynne Peacock |
5,345 |
10,000 |
15,345 |
- |
|
Sheelagh Whittaker |
11,809 |
- |
11,809 |
- |
|
Martin Pike |
- |
40,000 |
40,000 |
- |
1 Includes shares held by the Director and by their connected persons.
Non-executive Director fees: Following a review of non-executive Director fees in 2013, the Board (and the Remuneration Committee in respect of the Chairman) considered it appropriate to make no changes to non-executive Director fees:
|
Role |
2014 fees1 |
2013 fees |
|
Chairman's fees2 |
£350,000 |
£350,000 |
|
Non-executive Director Core fees3 |
£71,400 |
£71,400 |
|
Additional fees: |
|
|
|
Senior Independent Director |
£17,500 |
£17,500 |
|
Chairman of the Audit Committee |
£25,500 |
£25,500 |
|
Chairman of the Risk and Capital Committee |
£25,500 |
£25,500 |
|
Chairman of the Remuneration Committee |
£25,500 |
£25,500 |
|
Chairman of the Investment Committee |
£15,000 |
£15,000 |
|
Chairman of Standard Life Investments |
£38,250 |
£38,250 |
1 The core fee of £71,400 paid to each non-executive Director (including the Chairman) will total £642,600 for 2014 (2013: £642,600). This is within the maximum £1m permitted under Article 87 of Standard Life plc's articles of association. Total fees including additional duties are expected to amount to £1,068,450 for 2014 (2013: £1,068,450).
2 The Chairman's fee is inclusive of the non-executive Directors core fee and no additional fees are paid to the Chairman where he chairs, or is a member of, other committees/boards. In 2014 the Chairman will also receive £15,000 (2013: £15,000) as an allowance towards his business related accommodation costs in Edinburgh. The Chairman elected to receive no increase in fees in 2014.
3 For non-executive Directors, individual fees are constructed by taking a base fee and adding extra fees for chairing subsidiaries' boards and committees where a greater responsibility and time commitment is required.
The Remuneration Committee
Members: During 2013, the Remuneration Committee was made up of five independent non-executive Directors: Crawford Gillies (Chairman), Colin Buchan, Pierre Danon, John Paynter and Lynne Peacock.
Our role: To consider and make recommendations to the Board in respect of the total remuneration policy across the Group, including:
· rewards for the executive Directors, senior executives and the Chairman
· the design and targets for any employee share plan
· the design and targets for annual cash bonus plans below executive level
· changes to employee benefit structures (including pensions) throughout the Group.
If you would like a copy of the Remuneration Committee's terms of reference these can be found in the Board Charter which you can obtain from www.standardlife.com/about/board_committees or request a copy from our Group Company Secretary and General Counsel.
External advisers: The Remuneration Committee received information on comparative pay data from Towers Watson. Pinsent Masons LLP provided legal interpretation of remuneration related regulations to the Remuneration Committee.
During the year, the Remuneration Committee also took advice from Deloitte LLP, who were appointed as external advisors to the Remuneration Committee from October 2011 until June 2014.
A representative from Deloitte LLP attends, by invitation, all Remuneration Committee meetings to provide information and updates on external developments affecting remuneration as well as specific matters raised by the Remuneration Committee. Deloitte LLP also drafted the plan rules and ancillary documentation for the new Group LTIP. Outside of the meetings, the Remuneration Committee's Chairman seeks advice on remuneration matters on an ongoing basis. As well as advising the Remuneration Committee, Deloitte LLP also provided tax, risk, data and real estate advice to the Group during the year. Deloitte LLP is an investment adviser to the trustees of the Standard Life Staff Pension Scheme. As well as providing these services, the Group is the current appointed provider for the defined contribution pension plan that Deloitte LLP provides for its employees and Deloitte LLP is one of the employee benefit consultants through which Standard Life has been appointed to provide defined contribution arrangements for Deloitte's clients through competitive tender.
Fees paid to Deloitte LLP during 2013 for professional advice to the Committee were £155,000.
Where appropriate, the Remuneration Committee receives input from the Chairman, CE, CFO, Group Operations Officer, Director of Group Reward and Employment Policy, Group Chief Risk Officer and Head of Corporate Governance at Standard Life Investments. This input never relates to their own remuneration.
As noted on page 39, Gerry Grimstone is an independent non-executive of Deloitte LLP. He was appointed to this role to represent the public interest following a recommendation by the Financial Reporting Council that all major audit firms should have such representation. His remuneration for that role is a fixed sum and has no relationship to Deloitte's business activities. Both the Chairman and the Remuneration Committee recognised the need to ensure there is no conflict of interest arising from the appointment of Deloitte LLP to advise the Remuneration Committee. The Chairman did not play a part in the tender and selection process. We were satisfied at the date of the appointment that the nature of the Chairman's appointment to Deloitte LLP did not create a conflict of interest. We continue to monitor this position and are satisfied that the continuing appointment does not give rise to a conflict of interest. Deloitte LLP operates appropriate safeguards to maintain the independence of its advice, for example, the team responsible for providing advice to the Remuneration Committee are not rewarded for cross-selling non-related services to Standard Life and work is contracted for independently from work performed by the rest of the firm. Whilst Gerry Grimstone has access to the Remuneration Committee advisor to the extent that he is invited to attend Remuneration Committee meetings, he does not meet with the Remuneration Committee advisor other than in those meetings to discuss matters relating to Standard Life. Communication between Deloitte LLP and the Remuneration Committee is on instruction from the Remuneration Committee Chairman.
Activities of the Remuneration Committee: The Remuneration Committee met 12 times during 2013. The key issues discussed/approved were:
January to March
· 2012 Directors' remuneration report
· Approving 2013 executive Director and executive team salaries and the vesting outcomes of the 2012 bonus plans and long-term plans dependant on 2012 performance
· Agreeing the 2013 Group scorecard
· Set targets for 2013 LTIP.
April to June
· Development of thinking around the direction of the new Group LTIP.
July to September
· 2013 mid-year performance review for annual bonus and LTIP awards
· Approval for 2013 invitations for the UK and Ireland Sharesave plans.
October to December
· Investor consultation on proposed new Group LTIP
· 2013 annual bonus update and principles for the 2014 salary and bonus planning cycle
· Performance updates for the outstanding LTIP awards granted in 2011, 2012 and 2013
· Chairman's 2014 fee.
Shareholder voting: We remain committed to on-going shareholder dialogue and take an active interest in voting outcomes. Where there are substantial votes against resolutions in relation to Directors' remuneration, we seek to understand the reasons for any such vote, and will detail here any actions in response to it.
The following table sets out actual voting on our previous remuneration report presented at the 2013 AGM on 14 May 2013:
|
|
For |
Against |
Abstain |
|
2012 Directors' remuneration report (% of total votes cast) |
95.94% |
4.06% |
|
|
2012 Directors' remuneration report (No. of votes cast) |
882,413,708 |
37,372,850 |
38,980,605 |
Promoting all-employee share ownership: We believe that share ownership by our employees helps them to understand the interests of our shareholders. On 31 December 2013, 64% of our employees were Standard Life shareholders through participation in our share plans. We promote employee share ownership with a range of initiatives:
· The Standard Life (Employee) Share Plan which allows employees to buy Standard Life plc shares directly from their earnings. On 31 December 2013, 3657 employees (65% of those eligible in the UK) were making a monthly average contribution of £42. A similar tax-approved plan is used in Ireland and has a 47% take-up. Even though the plan cannot be structured on a tax-favourable basis in Canada, Germany and Austria, more than 640 employees in these countries are buying shares each month.
· The Sharesave Plan which allows UK tax resident employees to save towards the exercise of options over Standard Life plc shares with the option price set at the beginning of the savings period at a discount of up to 20% of the market price. Sharesave invitations were made in August 2011, August 2012 and September 2013 to UK employees and at December 2013, 2918 employees in the UK had accepted one or more of the Sharesave offers.
· The Standard Life Ireland Sharesave plan which launched in August 2012. A further invitation was made in September 2013. As at 31 December 2013, 85 employees in Ireland had accepted one or more of the Sharesave Ireland invitations.
Share dilution limits: The current Group LTIP, the new Group LTIP, the SLI LTIP, the Standard Life (Employee) Share Plan, the Sharesave Plan and the Standard Life Ireland Sharesave Plan contain dilution limits that comply with the guidelines produced by the Association of British Insurers (ABI). On 31 December 2013, the Company's standing against these dilution limits was:
· 3.05% against 5% in any 10 years under all executive share plans (current Group LTIP and SLI LTIP)
· 3.67% against 10% in any 10 years under all share plans (current Group LTIP, SLI LTIP Standard Life (Employee) Share Plan, the Sharesave Plan and Sharesave Ireland Plan).
As is normal practice, there are employee trusts that operate in conjunction with the Group and SLI LTIPs and the Standard Life (Employee) Share Plan. On 31 December 2013, the number of unallocated shares held within these trusts was 11,610 in respect of the Standard Life (Employee) Share Plan. In addition, the trusts held 3,112,350 shares acquired to satisfy deferred bonus awards, Group LTIP and SLI LTIP awards and other share plan awards. Of these shares 111,720 are committed to satisfying vested but unexercised awards. The percentage of share capital held by the employee trusts is comfortably less than the 5% best practice limit endorsed by the Association of British Insurers.
Related party transactions: All transactions between Directors and the Group are on commercial terms that are equivalent to those available to all employees. During the year to 31 December 2013, the Directors contributed £2,869,942 (2012: £898,905) to products sold by the Group.
Approval
This report was approved by the Board on 27 February 2014 and signed on its behalf by:
Crawford Gillies, Chairman, Remuneration Committee
This information is provided by RNS
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