Final Results - Part 3 of 8
Standard Life plc
Full Year Results 2014
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 these commitments are key to understanding and managing our business effectively, providing engaged leadership, and delivering shareholder value over the longer term. Your Board takes the quality of its performance seriously and strives to improve performance through annual reviews and continuing self-assessment". Sir Gerry Grimstone, Chairman and Chairman of the Nomination and Governance Committee.
As well as covering the formal disclosure requirements of the UK Corporate Governance Code (the Code), this statement describes how the Board meets its governance responsibilities. The Directors view the Code as an important tool in supporting how we deliver the Group's strategy. They also see it as an opportunity to drive and support effective leadership and behaviours at Board level and across the Group.
The Nomination and Governance Committee (the Committee) oversees the governance framework so the report on its activities is integrated through the relevant parts of the statement. The Committee members are Sir Gerry Grimstone (Chairman), Crawford Gillies (appointed 13 May 2014), David Grigson and John Paynter. Colin Buchan retired from the Committee on 13 May 2014. David Nish, Chief Executive, is invited to Committee meetings to discuss relevant topics, such as talent development and management succession.
During the year, the Committee met four times. Its duties are to support the composition and effectiveness of the Board, to oversee the development and implementation of the Group's governance framework and to oversee the Group's activities to strengthen its talent pipeline at all levels. Here, you can read about the Committee's role in:
· Reviewing Board diversity, skills and experience
· Identifying and recommending Directors to be appointed to the Board
· Supporting the review of the Board's effectiveness
· Overseeing succession planning, leadership and talent development and diversity levels throughout the Group.
Ultimate responsibility for these important topics rests with the Board and the Committee reports regularly to the Board so that all Directors can be involved as appropriate.
Committee effectiveness
The Committee reviews its remit and effectiveness each year. The 2014 review was carried out via an internal self-assessment questionnaire and by an independent expert, Niall FitzGerald, who was invited to observe one of the Committee meetings as part of his assessment. The review concluded that the Committee:
· Continued to focus Director recruitment on the skills and experience required by the Board
· Saw continued progress in the succession, talent and development, diversity and leadership programmes across the Group
· Continued to support the Board and the other Directors in their governance responsibilities.
More details of Niall FitzGerald's overall Board effectiveness review are given later in this section.
Compliance
Throughout 2014, 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 With regard to Code provision C.3.7, which requires external audit contracts to be put out to tender at least every ten years, and which was introduced with transitional provisions allowing the period for tender to extend to the end of the current engagement partner's term of appointment, the Company last tendered in 2003 and will conduct a tender in accordance with the transitional provisions. The Audit Committee keeps under review the legislation on audit tendering and rotation from the EU and the Competition and Markets Authority and further details are provided in the Audit Committee report.
Together with the Directors' remuneration report, this statement explains how our 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 for 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 to the Board changes to the Board Charter. The Committee has reviewed the revisions to the Code, which will be in place for 2015, and approved the changes needed to ensure our continued compliance. To contribute to external developments, the Committee, generally on behalf of the Board, submits responses to corporate governance consultation documents. The Group Company Secretary is responsible for advising the Board on governance matters.
The governance framework also sets out the Board's relationship with the boards of the principal subsidiaries in the Group. In particular, it identifies the matters which these subsidiaries require to refer to the Board or to a Committee of the Board for approval.
The governance framework also ensures that all decisions which require or would benefit from it, receive the independent input of the non-executive Directors.
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, all relevant laws, regulations, corporate governance and stewardship standards. The Board's role and responsibilities, collectively and for individual Directors, are set out in the Board Charter. The Board Charter also identifies matters that are specifically reserved for decision by the Board. These include approving, overseeing and challenging:
· The development and implementation of strategy, objectives and business plans
· Capital and management structures, including the return of value and share consolidation being proposed in 2015
· Dividend policy
· Financial reporting, including preparation for the introduction of Solvency 2
· How risks are managed, including the Enterprise Risk Management (ERM) framework, risk strategy, risk appetite limits and internal controls
· Significant corporate and other transactions, which during 2014, focused on the proposals to acquire Ignis Asset Management and the sale of the Canadian business
· Remuneration policy
· Succession planning
· The sustainability of the Group's business, our ethical standards and behaviours and our corporate responsibilities
· Significant external communications
· Terms of reference of Board Committees
· Appointments to the Board and to 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 from the Chief Financial Officer on progress against approved strategies, plans and budgets, as well as updates from the Chief Executive of Standard Life Investments Limited on stock market and global economic conditions. There are also regular presentations from key business units and group corporate centre 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 described in the Board Charter.
The Chairman:
· Leads the Board and ensures that its principles and processes are maintained
· Promotes high standards of corporate governance
· Together with the Chief Executive and the Group Company Secretary, 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 relevant and timely information
· Together with the Chairman, represents the Group to external stakeholders, including shareholders, customers, suppliers, regulatory and governmental authorities, and the local and wider communities.
The heads of each business unit and the group corporate centre functions manage their teams within authorities set out in the Board Charter and within 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 of the Board should be made up of independent non-executive Directors. As at 20 February 2015, the Board comprises the Chairman, nine independent non-executive Directors and three executive Directors. The Board is made up of 10 males (77%) and three females (23%)
(2013: males 82%, females 18%). The Board continues to support its Diversity statement 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 commitment to achieve and maintain a diverse workforce, both throughout the Group, and within his executive team.
The Board benefits from the diverse backgrounds of its members which enhance its collective business, operational and international strength. You can read more about our Directors in their biographies on pages 37 to 39.
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 1.6 of the Strategic report - Our sustainable business overview.
Board changes during the period
Appointments
Luke Savage joined the Board on 18 August 2014 as Director and Chief Financial Officer. Luke joined from Lloyd's of London where he was director of finance and operations. Luke previously held senior finance roles at Deutsche Bank (UK) where he was global chief financial officer of equities, Morgan Stanley & Company (UK) where he was financial controller, and Lloyds Bank plc in the corporate banking and treasury department. He is a member of the Institute of Chartered Accountants in England and Wales and is a member of the governing body of Queen Mary University of London.
Isabel Hudson joined the Board on 15 October 2014 as a non-executive Director and became a member of the Audit Committee and the Risk and Capital Committee. Isabel currently holds other non-executive directorships at BT Group plc and Phoenix Group Holdings. She is also chairman of the National House Building Council. Isabel previously held the positions of chief executive officer at Synesis Life, executive director at Prudential UK and chief financial officer of Eureko. She also held non-executive director appointments at QBE Insurance Group Ltd, the Pensions Regulator and MGM Advantage and was a member of the Standard Life Assurance Limited With Profits Committee. Her appointment reflects her strong knowledge of the UK life insurance and pensions market. Prior to her appointment the Board considered fully her role as a non-executive director of Phoenix Group Holdings and concluded that this relationship did not impact her independence.
Kevin Parry joined the Board on 27 October 2014 as a non-executive Director and became a member of the Audit Committee and the Risk and Capital Committee. After the conclusion of the 2015 Annual General Meeting (AGM), Kevin will be appointed chairman of the Audit Committee. His previous appointments include chief financial officer of Schroders plc and group chief executive of Management Consulting Group PLC. Kevin currently holds other non-executive directorships at Daily Mail and General Trust plc and at the Homes and Communities Agency. He is the senior independent director of Intermediate Capital Group plc and is the deputy chairman of the board of trustees and chairman of the finance and investment committee at the Royal National Children's Foundation. Kevin is a Fellow of the Institute of Chartered Accountants in England and Wales. Kevin's appointment reflects his strong financial background and experience.
Retirals
Colin Buchan retired at the conclusion of the 2014 AGM after more than six years' service. David Grigson will retire at the conclusion of the 2015 AGM having served two three-year terms.
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 its 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, Egon Zehnder and Odgers Berndtson to support its recent recruitment searches and Egon Zehnder has also provided executive development assessment support. These consultants have no other connection with the Group.
The Committee reviews the list of potential candidates and agrees a shortlist. Following interviews with potential candidates, the Committee then makes recommendations to the Board on any proposed appointment, subject always to the satisfactory completion of all background checks and regulatory approvals. The other Board members are also offered the opportunity to meet the recommended candidates. 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 three-year fixed term and shareholders then vote on whether to re-elect him or her at every AGM. Once a three-year term has ended, a non-executive Director can continue for further terms if the Board is satisfied with the non-executive Director's performance, independence and ongoing time commitment. There is no specified limit to the number of terms that a non-executive 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 2014, the Committee recommended to the Board that the appointments of Pierre Danon should be continued from 20 October 2014 and John Paynter from 1 January 2015.
The role of our non-executive Directors is to participate fully in the Board's decision-making work - advising, supporting and challenging management as appropriate. You can see our standard letter of appointment on our website at www.standardlife.com/about/board or by writing to the Group Company Secretary. The letter of appointment 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. Non-executive Directors are required to 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, shareholders can vote on whether to re-elect each Director. At the 2015 AGM, all of the current Directors except David Grigson, Luke Savage, Isabel Hudson and Kevin Parry will retire and stand for re-election. Luke, Isabel and Kevin, having been appointed since the previous AGM, will retire and stand for election. David Grigson will retire from the Board following conclusion of the AGM.
You can read more background information about the Directors including the reasons why the Chairman believes you should support their election or re-election, in our AGM guide 2015, which will be published online at www.standardlife.com from 24 March 2015, and in the Board of Directors summary on pages 37 to 39.
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 their length of service. Their individual circumstances are also assessed against independence criteria, including those in the Code. Following this review, the Board has concluded that all the non-executive Directors are independent.
Sir Gerry Grimstone was Chairman of the Board throughout the year. He remained Chairman of TheCityUK but will be stepping down from that role late in 2015. He has also retained his non-executive positions with Deloitte LLP, the UK Government's Ministry of Defence and his membership of the shareholder executive board of the Department for 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 is satisfied that he has sufficient time to carry out his duties. John Paynter served as the Senior Independent Director (SID) throughout the period. In this role, he supports the Chairman, and often meets with him one-to-one. He is also available to talk with our shareholders about any concerns that they may not have been able to resolve through the channels of Chairman, Chief Executive or Chief Financial Officer, or where 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 2015, the Board 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 37 to 39.
Advice
Directors may sometimes need external professional advice to carry out their responsibilities. The Board's policy is to allow them to seek this where appropriate and at the Group's expense. Directors also have access to the advice and services of the Group Company Secretary, whose appointment and removal is a matter for the Board. No Directors sought external advice in 2014.
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 review process to assess how well the Board, its Committees, the Chairman and the Directors are performing collectively and individually and how performance could be improved.
As well as planning the 2014 review, the Committee also considered how the themes from the 2013 review had been taken forward. Risk reporting developed to introduce the "Views on Risk" from the Chief Risk Officer. In respect of engagement, the Board hosted a talent dinner where the Directors met and heard from participants in the leadership programmes and non-executive Directors took part in a new programme to support employees who take up board appointments outside the Group as part of their development. Executive Directors held regular interactive sessions open to all employees.
As mentioned above, the 2014 review was led by an external facilitator, Niall FitzGerald, who is an experienced independent director who has chaired a number of large international public company boards. The Committee believed that he would engage openly with the Directors, understand fully the context of the Board's processes, and would be able to relate directly to the points they raised. The Committee noted that he has provided mentoring support to the Chief Executive since 2011 and, following discussion and consideration, did not believe that this would prevent him from carrying out an independent review.
Niall reviewed the results of earlier board reviews and proposed some minor changes to the self-assessment questionnaires. In 2014, he also attended the Board and Committee meetings in June, the Board meeting in September and a further Committee meeting in October. After studying the individual responses to the questionnaires, he conducted 25 hours of one-to-one interviews with Board members, members of the senior executive team and Committee secretaries to discuss their ratings and comments, with a particular focus on identifying areas for improvement. His review was complemented by the annual online self-assessment process. 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.
Outcome
Following the review process, two reports were produced. The Group Company Secretary analysed the self-assessment responses and prepared a summary report. Niall FitzGerald prepared a report with the findings from his meeting observations and interviews and a series of related points for possible action. Both reports were considered in detail by the Nomination and Governance Committee at its October meeting before being formally presented to the Board in December. Niall FitzGerald attended both meetings to present his report.
The external facilitator's report recognised the Board's successes and strengths and proposed enhancement actions, which could take the Board's performance from upper quartile to top decile in each of these five areas:
1. Board content and reporting - focusing on the balance between comprehensive yet concise and tailored reporting
2. Board organisation and Committees - focusing on the need for strong links from the work of the Committees to the Board
3. Strategy development - focusing on the balance between flexibility and a strong framework around setting strategy
4. Succession planning and talent - focusing on all levels throughout the organisation
5. Leadership and organisational transition - focusing on the Board's opportunity to match talent with needs.
The Committee and the Board discussed these reports and the proposed recommendations and agreed an action plan. At the end of the exercise, the Board supported the conclusions and agreed to take forward actions including:
· Refreshing the Board's strategy-setting process to ensure it remained fit for purpose
· Refreshing the content of the Group Performance Report
· giving the Board continued opportunities to discuss its succession planning and talent development needs in light of the progressive re-shaping of the Group.
Progress to implement the recommendations is monitored by the Group Company Secretary and reported to the Nomination and Governance Committee. Each Committee followed a similar questionnaire, reporting and feedback process and reviewed its own results and recommendations in detail.
Chairman
The review of the Chairman's performance was led by the SID. It was based on feedback given in the confidential online questionnaires. The questions covered:
1. The Chairman's role to lead the Board and encourage effective participation and consensus decision-making
2. How he informs the Board of stakeholders' views
3. His relationship 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 were prepared to support each meeting. These plans built on the responses to particular questions and areas of interest and training needs identified by each Director. 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. These plans also 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 or external resources.
Director induction and development
The Chairman, supported by the Group Company Secretary, is responsible for arranging a comprehensive preparation and induction programme for all new Directors. The programme is tailored to their individual requirements and takes their background knowledge and experience into account. 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 our group corporate centre 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. As mentioned above, during 2014, Luke Savage, Isabel Hudson and Kevin Parry were all appointed to the Board. Given the strength of each of their careers in the financial services industry, their induction programmes were tailored to complement this, recognising, for example, that Isabel had previously served as a member of Standard Life Assurance Limited's With Profits Committee.
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 make a commitment to broaden their understanding of the Group's business. Our group corporate centre monitors relevant external governance and financial and regulatory developments and keeps the on-going Board training and information programme up to date. During 2014, specific Board sessions took place on the UK Workplace pensions market, Solvency 2 implementation, regulatory trends, with profits matters and the Scottish Referendum. 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 people.
Succession planning and talent development
The Board knows that comprehensive contingency and succession planning, and talent development, are key to our 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. In 2014, executive succession planning and the future talent pipeline were key areas of focus for the Committee. At its June, October and December meetings, the Committee discussed the future leadership and talent needs of the Group and how the programmes would be revised to take account of the skills and expertise required by the Board and senior management. The programmes recognise the changing shape of the Group, and also identified both the talent available within the Group and the need for external recruitment. The programmes are led by the Chief Operating Officer, with input from the Chief Executive and supported by the Group Talent and Organisation Development team. You can read about them in Section 1.6 - Our sustainable business overview.
During the year, the Committee also received updates on how the programmes at graduate and emerging leader levels, as well as the accelerated programme for senior leaders, and the overseas placements, have operated. They received an analysis of how the Group's executive job family had changed over recent years, evidencing the Group's balance of actively managing performance as well as developing talent. In addition, they received updates on the specific individual development programmes in place for executive team members and their potential successors. 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 talent programmes.
The Committee believes that the plans and programmes continue to evolve to strengthen succession planning and talent development, while recognising the changing needs of the Group. The results of the Committee's discussions are presented at least annually to the Board. In 2014, the non-executive Directors held specific discussions on Board and executive succession, the results of which fed into the overall plan.
Board meetings and meeting attendance
The Board and its Committees meet regularly, operating to an agreed timetable. Meetings are usually held in Edinburgh or London and, on occasion, at the offices of one of our international businesses. 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 on three occasions during the year, 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 to the Group Company Secretary. If necessary, they can follow up with the Chairman of the meeting.
Directors' attendance at the 2014 Board and Committee meetings is shown in the following table. The Chairman is not a member of the Audit, Risk and Capital, and Remuneration Committees. He does, however, attend the meetings of all Committees, by invitation, in order to keep abreast of their discussions. The Board met nine times during the year.
|
|
Board |
Audit |
Risk and Capital |
Remuneration |
Nomination and Governance |
Corporate Responsibility |
|
Number of meetings |
9 |
6 |
7 |
10 |
4 |
2 |
|
Chairman |
|
|
|
|
|
|
|
Sir Gerry Grimstone |
9 |
|
|
|
4 (c) |
2(c) |
|
|
|
|
|
|
|
|
|
Executive Directors |
|
|
|
|
|
|
|
David Nish |
9 |
|
|
|
|
2 |
|
Keith Skeoch |
9 |
|
|
|
|
|
|
Luke Savage1 |
3/3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-executive Directors |
|
|
|
|
|
|
|
Colin Buchan2 |
4/4 |
3/3 |
|
2/3 |
1/1 |
|
|
Pierre Danon |
9 |
|
7 |
8 |
|
|
|
Crawford Gillies |
9 |
|
7 |
3/3 |
3/3 |
2 |
|
David Grigson |
9 |
6 (c) |
7 |
|
3 |
|
|
Noel Harwerth |
9 |
6 |
7 (c) |
|
|
|
|
Isabel Hudson3 |
2/2 |
2/2 |
2/2 |
|
|
|
|
Kevin Parry4 |
2/2 |
2/2 |
2/2 |
|
|
|
|
John Paynter |
8 |
6 |
|
9 |
4 |
|
|
Lynne Peacock |
9 |
6 |
|
10 (c) |
|
2 |
|
Martin Pike |
9 |
|
7 |
7/7 |
|
|
As at 20 February 2015
1 Appointed to the Board on 18 August 2014.
2 Retired from the Board on 13 May 2014.
3 Appointed to the Board on 15 October 2014.
4 Appointed to the Board on 27 October 2014.
(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 our website at www.standardlife.com/about/board and are also available from the Group Company Secretary. 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 of 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 views 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, the Group Financial Controller and Treasurer, the Group Chief Internal Auditor and the engagement partner from the external auditors. The accounting and disclosure requirements arising from the acquisition of Ignis Asset Management, the sale of the Canadian business and planning for Solvency 2 implementation have meant that the Audit Committee has had another very busy year." David Grigson, Chairman
The Committee members are David Grigson (Chairman), John Paynter, Lynne Peacock, Noel Harwerth, Isabel Hudson (appointed 15 October 2014) and Kevin Parry (appointed 27 October 2014). Colin Buchan retired from the Committee on 13 May 2014. 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 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. This has been enhanced further with the appointment of Kevin Parry who is also a chartered accountant and served as chief financial officer of Schroders plc. As announced, Kevin will succeed David as Chairman of the Committee at the conclusion of the 2015 AGM.
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 six 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 are extended on a regular basis to the Chairman, the Chief Executive, the Chief Financial Officer, the Chief Executive of Standard Life Investments, the Group Financial Controller and Treasurer, the Group Chief Internal Auditor (GCIA) and the Group Chief Risk Officer.
Financial reporting
IFRS accounting policies, practices and areas of judgement
The Committee reviewed the Group accounting policies and confirmed they were appropriate to be used for the 2014 Group financial statements. The Committee also focused 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 10, 11 and IAS 28 consolidation standards and agreed with the approaches being applied.
The Committee discussed the significant accounting and actuarial matters affecting the 2014 Group financial statements and considered the areas below to contain the most significant levels of judgement:
Acquisition of Ignis Asset Management
The acquisition of Ignis Asset Management during 2014 required an assessment of the fair value of intangible assets relating to the customer contracts acquired, and consideration of the useful lives of these intangible assets. The fair value of these intangible assets were considered again at the year end taking into account post acquisition events. An impairment of £43m was required at the year end resulting from post acquisition outflows from the Ignis Absolute Return Government Bond Fund (the fair value of intangibles recognised at the date of acquisition was £208m). The Committee considered the valuation process relating to these intangibles, and challenged the key assumptions underlying the valuations, in particular the level of future fund flows. The Committee also considered sensitivities to the key assumptions. The Committee was satisfied that the fair values of the intangible assets and the level of the year end impairment were appropriate.
Actuarial assumptions
The Committee reviewed the key assumptions used in calculating the insurance and participating investment contract liabilities in the UK and Canada. The most significant judgements related to annuitant mortality and, in particular, the rate at which life expectancy is expected to improve in future years. The Committee was satisfied with management's review of these assumptions. Note 34 of the Group financial statements provides further details on the actuarial assumptions used, and note 42(d)(ii) sets out the impact of longevity sensitivities.
Sale of Canadian business
Following the sale announcement in 2014, the Canadian business has been treated as a discontinued operation, with assets and liabilities shown as 'Held for sale'. The Committee considered the accounting implications of the sale, and the presentation and disclosure of the Canadian business in the Annual report and accounts 2014. The Committee was satisfied that the accounting, presentation and disclosure were appropriate. The Committee also discussed the year end governance processes relating to the reporting of the Canadian business results and was satisfied that these were appropriate.
Valuation of financial instruments, commercial mortgages and properties
The Committee's review focused on the fair value of complex financial instruments, including private equity investments and derivatives, and securities where a recent market price was not available. The Committee also considered the fair value of commercial mortgages, taking into account increased investment into these assets during 2014, and the fair value of investment properties. The Committee was satisfied with management's analysis. Note 44 of the Group financial statements provides further details on the fair value of assets and liabilities.
For each of the matters discussed, the Committee:
· Considered the management information 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 2014 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 the UK and Canada. In addition, the Committee reviewed the projected release of the future taxes included in the Canadian liabilities. The Committee also discussed the impact of the future charge cap on corporate pensions announced by the UK Department of Work and Pensions. The Committee challenged the assumptions and agreed with management's proposals. In light of the decision to sell our Canadian business and the resultant changing shape of the Group, the Committee agreed that 2014 would be the last year when EEV reporting would be used.
Non-GAAP measures
The Committee reviewed the non-GAAP measures that are presented by management and which complement the statutory IFRS results in order to give a more complete view of the performance of the business.
The key discussions on the non-GAAP measures were:
· Ensuring that the allocation of items to operating profit and to underlying performance were in line with our established accounting policies and were consistent with previous practice. The Committee was satisfied with the consistency of the measures
· Transitioning some non-GAAP measures to reflect the changing shape of the Group, including the increased focus on fee based business as discussed in Section 1.2 of the Strategic report - Group key financial performance indicators. This resulted in the decision to cease reporting of EEV from 2015 and to change the definition of the cash generation metric so that it was more closely linked to underlying performance
· To provide a clearer presentation of the source of assets under administration and net flows, particularly to reflect the significant transformation within Standard Life Investments following the integration of Standard Life Wealth in January 2014 and the acquisition of Ignis Asset Management in July 2014.
Disclosure
The Committee also considered the processes to prepare and review the Annual report and accounts 2014 (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, and recognising available external comment and guidance, 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 (including in relation to the sale of the Canadian business, the impairment of intangible assets relating to the acquisition of Ignis, and the adoption of IFRS 12 Disclosure of Interests in Other Entities) 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 in relation to the Strategic 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 ethical guidelines and 2014 is the third 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. 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, and how the audit team has reacted to any events and issues which arose during the year. 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 review, the Committee recommended that the current auditors be reappointed at the 2015 AGM until the conclusion of the 2016 AGM. A resolution to reappoint them at the 2015 AGM was recommended to and accepted by the Board. 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 well as considering the provisions of the EU Regulation on Audit Reform and the Competition and Markets Authority Orders (CMA Orders) with regard to mandatory auditor rotation and tendering. As the Committee believes that the current auditors' performance continues to be satisfactory, the Committee will implement the relevant transitional provisions as set out by the EU Regulation, the CMA Orders, together with the FRC's suggestions for transition, taking account of the Group's status as a public interest entity throughout the periods considered by the transitional provisions. It is not intended that the external audit will be subject to tender during 2015 and the Committee will consider whether an external audit tender would be appropriate at each year end in advance of the required rotation under the transitional provisions. The Committee will adopt a policy of tendering at least once every ten years in future, once the transitional periods are over.
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 sales 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 2014 included acting as reporting accountants in relation to the sale of the Canadian business, internal controls reporting services for Standard Life Investments, and assurance services relating to Solvency 2. The external auditors were considered the most suitable supplier for these services taking into account the alignment of these services to the external audit. Non audit services also included tax compliance and advisory services relating to German funds where the external audit firm's skills and experience were considered in selection.
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. 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 and reflect changes in the Group's organisation. 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 from the GCIA on:
· The implementation of the approved plan and proposed changes to it
· Key findings from completed reviews, including the impact on financial reporting processes and related applications
· The status of management's implementation of agreed improvement actions, including where and why dates have been rescheduled
· The GCIA's assessment of the internal control environment at each business unit.
The Committee is keen to see how the output from GIA reviews is implemented by management and, during 2014, this led to specific presentations on data governance, end user applications and Solvency 2 assurance.
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.
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-Financial Crime & 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.
Key matters the Committee considered during 2014
At every meeting the Committee reviewed and discussed:
· Updates from Group Finance on significant financial accounting, reporting and disclosure matters
· Findings of Group Internal Audit (GIA) reports and how the high-priority findings are being followed up by management
· Results of the monitoring of financial crime, fraud risk assessments and calls to our dedicated Speak Up helpline
· Reports from the chairmen of the subsidiary audit committees
· Findings from external audit work
· 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.
As well as the following specific items:
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January to March |
July to September |
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· Annual report and accounts 2013 · Strategic report and financial highlights 2013 · Current material legal actions and litigation to support contingencies and commitments disclosure.
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· Half year results 2014 · External audit results of Half year results review · External audit plan for 2014 for all audited entities · 2014 external audit engagement letter for all audited entities · Current material legal actions and litigation.
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April to June |
October to December |
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· Q1 Interim management statement · Completion of the 2013 external audit for all audited entities · 2013 external audit fee and the proposed 2014 fee for all audited entities.
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· Q3 Interim management statement · Initial findings from Financial Year 2014 year end work · Effectiveness of GIA, the GIA Global Charter and the GIA annual plan · Effectiveness of the external auditors and their proposed re-appointment at the 2015 AGM · Group Non-audit Services from External Audit policy · Effectiveness of the Committee · Preparedness for Solvency 2 reporting and assurance provision · Liaison with the Remuneration Committee on targets and measures. |
After each meeting, the Chairman reports to the Board, summarising the key points from the Committee's discussions.
Committee effectiveness
The Committee reviews its remit and effectiveness annually. The 2014 review was carried out both via an internal self-assessment questionnaire and by an independent expert, Niall FitzGerald who was invited to observe one of the Committee meetings as part of his assessment. The review concluded that the Committee had:
· Performed effectively during the year and should continue to liaise with the Risk and Capital Committee in terms of efficiency and coverage
· Fulfilled its duties under its terms of reference, and kept its terms of reference up-to-date, recognising that in 2015 and 2016 its regulatory reporting duties will be expanded to cover Solvency 2
· Received sufficient, reliable and timely information from management and the external auditors to enable it to fulfil its responsibilities, recognising management's continuing goal to reduce the volume of information presented in the face of increasing obligations
The Board's review also confirmed that it was satisfied with the performance of the Committee.
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. Since its formation in April 2010, the Committee has continued to develop in its role, providing quality support and advice 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, Martin Pike, Isabel Hudson (appointed 15 October 2014) and Kevin Parry (appointed 27 October 2014) who are all considered by the Board to be independent non-executive Directors. During 2014, the Committee met seven times. As announced, Martin will succeed Noel as Chairman of the Committee at the conclusion of the 2015 AGM.
The Group Chief Risk Officer attends the Committee meetings. 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 Group Chief Internal Auditor as well as the external auditors. The Group Chief Risk Officer and the Chairman of the With Profits Committee have right of access to the Committee Chairman. The Committee members have the authority to meet without management being present if they consider this necessary.
The Group's strategy of being a global investment solutions business with a leading presence in investment management and in the UK long-term savings and investments market is subject to risks and uncertainties. The Group's risk function seeks to understand and actively manage the sources and scale of these risks and uncertainties and reporting is provided to the Committee on these matters accordingly. The role of the Committee is to provide the Board with oversight, advice and, where needed, challenge regarding:
· The Group's current risk strategy, material risk exposures and future risk strategy and their impact on levels and allocation of capital
· The structure and implementation of the Group's Enterprise Risk Management (ERM) framework and its suitability to react to forward-looking issues and the changing nature of risks
· Regulatory compliance across the Group
· Material risk and capital matters affecting the Heritage With Profits Fund.
At every meeting in the scheduled reporting cycle, the Committee reviews and considers:
· Matters escalated from the Group Enterprise Risk Management Committee (Group ERMC)
· Regular risk reporting from the Group Chief Risk Officer
· Material with profits risk and capital matters
· Other matters as required by the Committee's terms of reference
· Thematic developments of relevance to the business.
After each meeting, the Chairman reports to the Board, summarising the key points from the Committee's discussions.
The Committee's work in 2014
Risk exposures and risk strategy
The Committee primarily discharged its duties regarding the Group's current and future risk strategy and material risk exposures through reviewing the regular risk reporting from the Group Chief Risk Officer. This reporting has continued to evolve and focuses on matters affecting the customer, and on the economic, regulatory, conduct and policy agenda environments. It also highlights the Group's risk and capital profile as well as forward looking actions and emerging risks. Decisions taken during the year to acquire Ignis Asset Management and dispose of the Group's Canadian business were subject to scrutiny by the Committee. This included reviewing the business case and risk assessments relating to these transactions and considering the transactions in the context of the Group's risk strategy, material risk exposures and allocation of capital.
In discussing the proposed acquisition of Ignis Asset Management, the Committee paid particular attention to the content of the risk assessment. This considered the impact of the transaction on customers, the ability of the Group to manage the prudential, financial and operational risks arising from the transaction, the risks associated with the planned integration of the business as well as the overall impact on shareholder value.
For the sale of the Canadian business, the Committee provided review and challenge of key areas including:
· The impact on the Group's capital position and residual risk profile following the sale, including the reduction in the overall risk exposures of the Group, the extent to which the Group retained a balanced risk profile despite reduced risk diversification and the expected reduction in volatility of the Group's balance sheet and profitability
· The strategic implications for the remaining Group businesses including on-going access to North American markets
· The mitigating actions regarding key project risks including execution risk, currency risk, leak risk and regulatory and competitive risks
· The overall sale price agreed, including the impact on material contracts in the Canadian business and reaching agreement regarding investments in joint ventures.
Other items discussed during the year included:
· The Group's position in relation to the referendum on Scottish independence in September 2014 and subsequent external announcements regarding proposals to devolve further powers to Scotland
· The provision of guaranteed products by the UK and Europe business in Germany in the context of the low interest environment
· Steps being taken to ensure that capital was being used efficiently across the Group
· The Group's response to developments regarding the landscape for annuity provision in the UK following the 2014 Budget presented to the UK parliament and the announcement of a charge cap on default funds of defined contribution qualifying schemes
· Progress regarding key items on the Group's change programme and their impact on delivering the Group's strategy.
During the year, the Committee received proposals regarding changes to the Group's Risk Appetite framework and risk limits. This included receiving proposals regarding the quantitative risk limits to be used to manage the business during 2015 accompanied by risk assessments of the business plan for 2015. Specific items discussed by the Committee in respect of the risk limit proposals included the use of judgement in developing the limit proposals and the expected behaviour of exposures relative to limits under adverse scenarios. During the year, the Committee also received proposals regarding the Group's Capital Adequacy framework which outlines when it may be appropriate to take action to manage the Group's risk profile. The Committee considered both sets of proposals and provided advice to the Board accordingly.
The Committee also received regular reports on the Group's own risk and solvency assessment (ORSA). The ORSA process is a core element of the Group's ERM framework and is a continuous process carried out by the risk function. The Committee received regular updates on this through the regular risk reporting from Group Chief Risk Officer, quarterly ORSA summary reports, ad-hoc risk reviews and a full ORSA report. The Committee determined that developments in the ORSA environment were well understood and any necessary actions were progressing appropriately. As a result, the Committee concluded, there was no need for the full ORSA report to be updated outside of the routine annual cycle.
Enterprise Risk Management framework
The Committee monitored the structure and implementation of the Group's ERM framework primarily through the material contained in the Group Chief Risk Officer's regular risk reporting and the quarterly and annual ORSA reports. The material reviewed included:
· The status of compliance with group policies and the results of control self-assessment
· Dashboard summaries of key risks
· The Group Chief Internal Auditor's assessment of the internal control environment related to the management of risk and capital
· The minutes of the Group ERMC.
As a key component of the Group's ERM framework, the Committee received a 'deep dive' presentation on risk culture within the Group which took into consideration the Financial Stability Board's publication "Guidance on Supervisory Interaction with Financial Institutions on Risk Culture". In discussing risk culture and the "tone from the top", the Committee noted the overall positive responses received in the employee survey to questions on risk culture and the multiple layers of control designed to identify and act upon any issues.
In line with the Committee's duties, the Committee reviewed the key assumptions and bases underlying submissions regarding regulatory solvency and reviewed other major regulatory submissions. This included reviewing Group submissions to regulators on reverse stress testing, European Insurance and Occupational Pensions Authority (EIOPA) stress testing and field testing performed for the International Association of Insurance Supervisors (IAIS).
Scrutiny of with profits risk and capital matters
The Committee is advised of relevant updates on with profits risk and capital matters through material contained in the Group Chief Risk Officer's regular risk reporting. In addition, mechanisms exist for the Chairman of the Standard Life Assurance Limited With Profits Committee to highlight specific matters to the Committee.
During the year, there were no specific matters that were highlighted to the Committee by the Chairman of the Standard Life Assurance Limited With Profits Committee. Furthermore, in performing scrutiny of with profits risk and capital matters, there were no specific items identified by the Committee during the year that were sufficiently material as to require the Committee to provide advice to the Board.
Regulatory compliance
At the start of the year the Committee reviewed and assessed the 2014 regulatory compliance plans detailing the planned assurance activities to be performed across the Group. The Committee also considered and agreed the proposed approach for Group Compliance to monitor and report on these assurance activities.
During the year, reporting on regulatory compliance was provided to the Committee through the Group Chief Risk Officer's regular risk reporting. This included relevant updates on the activities contained in the 2014 plan, significant regulatory developments expected to impact the Group and the Group's planned response to those regulatory developments.
The Committee has also received regular reporting on the Group's progress towards the implementation of Solvency 2. These updates have focused on model development activity, the enhancement of systems and tools and the overall pace challenge associated with Solvency 2 reporting timescales.
Committee effectiveness
The Committee reviews its remit and effectiveness annually. The 2014 review was carried out both via an internal self-assessment questionnaire and by an independent expert, Niall FitzGerald, who was invited to observe one of the Committee meetings as part of his assessment. The review concluded that the Committee continued to make good progress and to evolve.
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". Lynne Peacock, Chairman
The Committee members are Lynne Peacock (Chairman), Pierre Danon, John Paynter and Martin Pike (appointed 13 May 2014) - all of whom are considered by the Board to be independent non-executive Directors. Previous chairman, Crawford Gillies, and Colin Buchan retired from the Committee on 13 May 2014.
During 2014, the Committee met ten 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 Officer and Chief 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 Corporate Responsibility Committee
"The Corporate Responsibility Committee has provided oversight over sustainability issues and reported 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". Sir Gerry Grimstone, Chairman
The Committee members are Sir Gerry Grimstone (Chairman), Crawford Gillies, Lynne Peacock and David Nish.
In 2014, the Committee met twice and provided guidance on the Group's sustainability programme. It also supported the Board's role in providing leadership on environmental and social issues. The Committee's duties included keeping under review the Group's sustainability strategy and policies and making recommendations to the Board on sustainability issues. During the Board effectiveness review in 2014, the Board concluded that as sustainability was central to our strategy, sustainability and corporate responsibility should form a core part of the Board's agenda and should be reported on at each Board meeting. The Committee will therefore be stood down in early 2015.
You can find more details about the Group's sustainability activities in Section 1.6 of the Strategic report - Our sustainable business overview 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 2014". Niall Franklin, Chairman
The Committee members are Niall Franklin (Chairman), Graham Aslet, Clifton Melvin and Ross Ainslie. The members are appointed by the SLAL Board on the recommendation of the Nomination and Governance Committee. During 2014, the WPC met seven times. Directors of the Standard Life plc and SLAL Boards and senior actuaries, 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 and engages with an actuary from Milliman LLP to routinely provide the members with advice. The Chairman has a right of access at all times to the Chairman of the Risk and Capital Committee but there was no requirement during the year for this right to be exercised.
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 2014 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 2014, the Committee Chairman attended a meeting of the Board at which with profits matters were discussed.
During 2014, the Committee reviewed:
· The cost charged to the Heritage With Profits Fund for annuities that arise on the vesting of certain pension policies
· Management of with profits assets and, in particular, the setting of investment strategy
· Management of bonus rates and fair payout bases.
The Committee reviews its remit and effectiveness annually. The 2014 review was carried out by means of a self-assessment questionnaire and the Committee discussed the results of the review formally at one of its meetings. The WPC members concluded that they had used their available time effectively, focusing on the key issues and providing appropriate challenge. The Committee provides information on its composition and how the Committee protects the interests of policyholders and makes its views known at the following website 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 its shareholders. As part of this, our investor relations and group secretariat teams support communication with investors. During 2014, 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, in a regulatory compliant way, at investor presentations and meetings covers business strategy, financial performance, operational activities and corporate governance. 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 investors regarding executive remuneration during the year. More information on the consultation can be found in the Directors' remuneration report.
The Board is equally committed to the interests of the Company's 1.3 million individual shareholders who hold approximately 54% 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 investors. 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 Annual report and accounts, the Strategic report and the AGM guide are produced. We believe that communicating electronically with our shareholders supports our sustainability strategy, and around 430,000 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 and 85% of individual shareholders hold their shares in this way.
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. 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 organise several short analyst and investor events designed to give deeper insight into particular areas of our business, have created a company profile which is intended to give a high level introduction to the Group and have also created divisional profiles to give further high level insights into our business.
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 the Annual report and accounts 2014 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 2015 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 2014 AGM was held at the Edinburgh International Conference Centre on 13 May 2014. 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.
A General Meeting was held on 3 October 2014 at which shareholders were asked to consider the resolution, recommended by the Board, that Manulife's offer to purchase our Canadian business should be accepted. Directors were available to answer shareholders' questions and the voting procedures were consistent with our AGM process. 45% of the shares in issue were voted and the resolution was passed.
Our role as an institutional investor
Standard Life Investments, the Group's principal asset management company, understands 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. These guidelines are applicable on a global basis. The guidelines support Standard Life Investments' 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. In line with Principle 7 of the Stewardship Code, Standard Life Investments obtains appropriate independent assurance over the policies and procedures which underpin its stewardship policy statements. 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.
In addition, Group Finance operates a number of internal process controls around the preparation and application of methodologies used in our Group financial results.
These include:
· Chairing a Technical Review Committee (TRC), attended by senior finance managers, which makes decisions on IFRS accounting policy and reporting issues to support consistent interpretation and application across the Group
· Maintaining a Group IFRS Accounting manual which details the accounting treatment to be applied during the preparation of the financial results. Any changes to this manual are reviewed and approved by the TRC
· Seeking approval from Group Finance committees, including the Financial Reporting Executive Review Group and EEV Basis Group, for changes to certain reporting methodology, metrics and disclosures
· Receiving assurance from business unit finance directors that all methodology changes have been complied with in the preparation of the business unit results
· Reviewing and challenging submissions from business unit finance teams.
In line with the Code and the further guidance in the Turnbull Report, the Board has conducted a review of the effectiveness of the risk management system which includes our 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 2014.
In preparation for Solvency 2 requirements which will be introduced in 2016, the review has been expanded this year to include all elements of the system of governance as follows:
· Functions (Internal Audit, Compliance, Actuarial and Risk Management)
· 'Fit and Proper'
· Boards and Committees
· Outsourcing
· Remuneration Policy
· The ERM framework.
A certification exercise was completed by each of the business unit chief executive officers, finance directors, chief risk officers and Group function executives. They were asked to confirm that:
· An effectiveness review over each component of the system of governance has been conducted and that, where any material issues had been found, recommendations have been made to restore process effectiveness.
· Significant control breakdowns identified through the risk management system were reported during the year and that actions are in place to remedy these
· The external auditors had been made aware of relevant information.
In order to support these statements, business unit risk teams completed a schedule identifying the control processes supporting each of the six elements of the system of governance. Subject matter experts and process owners assessed whether the control processes were fit for purpose with output provided to business unit risk teams for review. The conclusion of these reviews was summarised in a report which was used to support the certifications. In order to support further the certifications the business unit risk teams produced reports documenting the most significant control issues during the year and the assurance activity conducted in relation to the system of internal control during the year.
These reports were reviewed by the business unit chief risk officer, chief financial officer and chief executive or Group function executives as part of their certification. Reports combining the output from these certifications were then collated by Group Risk in order that this exercise could be undertaken by the Chief Financial Officer, Chief Risk Officer and Chief Executive. Completed certifications and supporting documentation were presented to the business unit and the Group Enterprise Risk Management Committees. The results of the output from this review were presented to the Audit Committee which subsequently reported its conclusions to the Board. The internal controls relating to the joint ventures are not covered by these reports but are managed through participation on the boards and audit committees of those companies.
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 in Section 1.3 - Chief Financial Officer's overview and our key risks in Section 1.5 - Principal risks and uncertainties. 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 36 and 37), management of its risks including market, credit and liquidity risk (Note 42), its contingent liabilities and commitments (Notes 46 and 47), and its capital structure and position (Note 50).
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 were 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's ERM framework enables a risk based approach to managing our business, allowing the risks of the Group to be identified, assessed, controlled and modelled consistently. Standard Life's Risk Function is responsible for the design and implementation of the ERM framework.
We have operated our ERM framework for a number of years and we believe that our framework is consistent with the requirements of emerging regulatory frameworks relating to risk management and systems of governance including Solvency 2.
We continue to strengthen and evolve the framework to ensure that it is consistent with our evolving Group portfolio and external best practice.
There are five key elements to the 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. You can find out more about each element of the framework below.
The Own Risk and Solvency Assessment (ORSA) is a process that supports our implementation of the ERM framework and comprises of all the processes that exist within the ERM framework. It is how we identify, assess, control and monitor the risks that inform our capital requirements.
Capital and risk are managed within the Group to support the strategic objective of generating sustainable, high quality, returns for shareholders. Risk and capital metrics support the delivery of the strategy and the objective of maintaining financial strength and security - underpinning customer, regulatory, investor and wider stakeholder confidence.
You can find out more information about our risk exposures at 31 December 2014 in Note 42 - Risk management which shows the impact of applying this framework in managing our business and in Section 1.5 - Principal risks and uncertainties.
Risk culture
Risk culture is a core component of our ERM framework. It is the way we think and act as individuals and as a group - our attitudes, capabilities and behaviours. Our culture drives how we identify, understand and openly discuss, and act on, current and future risks. Fair treatment of our customers is at the heart of our culture. We are committed to building valuable relationships with our customers that help them to protect and grow their assets.
Risk culture is influenced by:
· The "tone from the top" - the way we raise awareness of risk at all levels in the company
· Our business model - how we structure our business and use risk management insight to drive business actions and
· The governance and processes we establish.
Our approach
· Group-wide risk awareness, deepening understanding of risk, ongoing embedding and change
· The right structure, effectively implemented, with risk focused committees and pre-emptive and proactive risk management
· The right people, in the right jobs, demonstrating the right behaviours with roles and responsibilities clearly defined.
Risk governance structure
Our risk culture is strongly influenced by our risk governance structure including our risk committees. The Risk and Capital Committee (the RCC), is our most senior risk committee and a Committee of the Board. A full description of the attendees and objectives of the RCC can be found in the Report from the Chairman of the RCC above.
At the Group Executive level the Group Enterprise Risk Management Committee (the Group ERMC) consists 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 executive team in the management of the risk profile of 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.
Our risk function 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. It is also 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. The function is also responsible for producing risk management information for use within the business units 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 GIA function. This is subject to supervision and challenge from the Audit Committee.
ERM reporting
The risk function reviews and challenges risk reporting across the Group to ensure that accurate and adequate information is delivered to the executive team and risk committees to support their risk management mandates.
Strategic risk management
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.
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.
The strategic, capital and business planning process links together performance management targets, capital management, and the setting of risk appetites and limits, taking into account available capital and financial strength targets to ensure our growth and projected returns reflect our risk preference.
Risk appetite framework
The Group's risk appetite framework defines the key principles under which the Group should take risks. It has eight elements - our risk strategy, risk principles, risk definitions, risk preferences, qualitative risk appetite statements, risk metrics, quantitative risk limits (setting, monitoring and managing) and roles and responsibilities. Two key elements of the framework - qualitative risk appetites and quantitative risk limits - are discussed in more detail below.
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 only has appetite for rewarded risk
· The Group only has appetite for risks that are consistent with the delivery of our business plan objectives
· The fair treatment of customers is paramount when assessing risks to be accepted
· Prices charged for our products should fully reflect all risks
· The Group's appetite for accepting risk is dependent on the expected return which should exceed the cost of capital
· Risks accepted should help maintain risk diversification and avoid excessive concentrations of risk.
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 2014 have been based on the economic capital resources risk metric.
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.
This metric enables us to measure risk and capital consistently across the Group's diverse range of businesses, activities and projects. It supplements, rather than replaces, the wide range of risk, capital and profit metrics currently used throughout the Group and, where appropriate, makes allowance for local regulatory capital considerations. The Group's risk profile is assessed and reviewed regularly.
Risk control processes
Risk control processes are the practices by which we manage financial and non-financial risks, including conduct risk, within the Group. They are used to identify, assess, control and monitor risk within the Group.
We use 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.
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.
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 of the Group's businesses operate effectively, efficiently and comply with all applicable laws and regulations. Examples of how we use the policy framework in practice are set out three case studies below.
Conduct Risk
Conduct risk is the risk that through our culture, strategies, decision making and behaviours we do not deliver fair outcomes for our customers. We have no appetite for behaviours and decisions that knowingly lead to unfair customer outcomes.
Our Conduct Risk Policy sets out the ways we make sure that wherever in the world we operate, we manage our conduct risk by ensuring that our customers are treated with consideration and fairness. Key principles include that:
· We have no appetite for behaviours and decisions that knowingly lead to unfair customer outcomes
· We will place the fair treatment of customers central to our culture
· All propositions and services will be designed and reviewed in line with the needs of the identified target customers.
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 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 Association in alignment with our business strategy and to promote a stable environment for long term savings and investments.
Environmental, social and governance risks
Our sustainability strategy is fundamental to our strategic purpose of helping to build a more prosperous world. It helps us ensure we effectively manage the environmental, social and governance (ESG) risks and recognise the opportunities that may affect the Company's short and long term value. Details of the strategy and how we measure our progress are included in Section 1.6 of the Strategic report - Our sustainable business overview.
The strategy is underpinned by our code of business conduct and ERM and policy frameworks. The following details some of our main policies and activities that support this strategy:
· Our Conduct Risk policy sets out the ways we help make sure that wherever in the world we operate, we treat our customers with consideration and fairness
· Through our Tax Risk and Transfer Pricing policy, we set out our approach to managing tax risks including our disclosures, transparency and reputational impacts
· We remain committed to minimising financial crime. We have an Anti-Financial Crime & Anti-Bribery policy to protect the Company and our customers' information and assets, which also promotes a 'zero tolerance' approach to financial crime, bribery and corruption
· Our Health & Safety policy sets out our commitment to creating a safe and healthy environment for our people. This includes safety on our premises, employee health and wellbeing, and our approach to flexible working time
· Our Environment policy is in place to ensure that we minimise, as far as reasonably possible, the environmental impacts we have through our business activities. This includes minimising our greenhouse gas emissions, the waste we produce and the paper we use
· Through our Community Investment policy, we aspire to contribute actively to our communities in a positive and sustainable way. The policy lets our people know what is expected of them and provides guidance on which charities we can support.
You can read more about our sustainability strategy by visiting www.standardlife.com/sustainability
Risk and capital models
The risk and capital models section of the ERM framework covers the models that we use to measure our risk exposures and capital position and the work that we do to test and understand the sensitivity of these positions. The models and the insight that they provide are integral to managing the business.
Our approach
· Modelling and understanding our business
· Managing complexity, achieving consistency and clarity with common metrics
· Risks effectively quantified and business fully profiled.
Consistency of measurement
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 the Economic Capital metric 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 in response to specific risk events, covering the full range of risks to which the Group is exposed.
Stress and scenario testing programme
We carry out a group-wide programme of stress and scenario testing to ensure that the Board and senior management have a strong understanding of the risks that the Group is running and their potential impact, the consequent capital requirements, and appropriate potential mitigating actions. Considered as a whole, the stress and scenario testing programme within Standard Life gives a wide-ranging picture of the range of risks run by the Group and the consequent capital requirements. It aims to ensure that the Group would have sufficient assets to meet its liabilities even after a range of severe scenarios.
Emerging risk management
The aim of the emerging risk management component of the ERM framework is to identify risks before they emerge and to plan so that we are able to respond quickly as they become an active business concern. As part of this process we use our emerging risk process to inform reverse stress testing and capital adequacy requirements across the Group.
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.
Emerging Risk Process
The Group has defined a clear and simple process for identifying and managing emerging risks which includes:
· The identification of emerging financial and non-financial risks including Environmental, Social and Governance 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
Reverse stress testing and analysis is a key component of the emerging risk process. 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.
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 2014. 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 2014. This sets out our remuneration policy for the Directors and how our remuneration policy was applied during 2014.
The Group has had another strong year, delivering increased growth in underlying performance, Group operating profit before tax and Group operating return on equity from continuing operations. Furthermore, 2014 has been a pivotal year in the development of the Group as a global investment solutions provider. This development has been accelerated through the acquisition of Ignis and the planned sale of our Canadian business to Manulife which completed on 30 January 2015. The sale of our Canadian business was the most significant of these corporate actions in terms of size.
As a result of the scale of these corporate actions the Remuneration Committee has determined that it is appropriate to restate the financial performance targets for the long-term incentive plans and 2014 annual bonus award to account for the changes in the structure of the Group.
Performance targets
The Remuneration Committee considered that the targets previously set for the long-term incentive plans and 2014 annual bonus plan had become inappropriate for rewarding our executives for the delivery of our goal of driving shareholder value. These targets were based on budgets set, and structures in place, prior to the decisions to proceed with the corporate actions noted above. As such, whilst the Remuneration Committee will continue to drive performance through the existing incentive plans, we have restated the performance targets set for the awards on a plan by plan basis. We have adjusted the targets for the awards made in 2012 and 2013 under the Group Long-Term Incentive Plan (Group LTIP) which are based on Group operating profits in the final year of the three-year performance periods and the targets for the awards made in 2014 under the Standard Life plc Executive Long Term incentive plan (Executive LTIP). We have also adjusted the targets for the 2014 annual bonus scheme. In addition, the awards made in 2012, 2013 and 2014 under the Standard Life Investments Long-Term Incentive Plan (Standard Life Investments LTIP) have been adjusted.
Leading up to and during 2014 the key objective in relation to the sale of the Canadian business, was to seek to maximise shareholder value through aligning actions and decisions to support a possible sale. As a result, the Board determined that certain initiatives and activities which would have positively impacted the Canadian business operating profit, and would have been reflected in the assessment of performance in terms of the incentive plans, should not proceed, as these may have impacted the sales process or the shareholder value to be generated. As a consequence, compared to the Group LTIP target set in 2012, a significant reduction in operating profit for the Canadian business was expected in 2014, and a smaller although still significant reduction was also expected for the Canadian business compared to the 2014 annual bonus targets set in 2013.
In respect of the 2012 Group LTIP awards the Remuneration Committee discussed a number of methods of adjustment, including attempting to restate the targets as if our Canadian business had not been sold, and trying to estimate the impact of the various management actions and business opportunities that did not proceed. However, given the complexity and subjectivity involved in making such adjustments, and with the 2012 target being based only on the profits in 2014, we decided that the most appropriate and transparent methodology for adjustment was to remove the 2014 operating profits of the Canadian business from both the target and the 2014 financial results used to determine the vesting of the 2012 award.
Whilst the principal driver behind the restatement of the targets is the sale of the Canadian business, given the increasing importance of the Newton Private Client business acquisition (which is now part of Standard Life Wealth); the Ignis acquisition and the joint ventures in delivering our strategy as a global investment solutions provider, we considered it was appropriate to include these businesses in the restated targets at the same time. The restated targets for the 2012 and 2013 Group LTIP will include Ignis and Newton Private Client business. The 2014 Executive LTIP restated targets will include Ignis (the Newton Private Client business was already in the original target). The joint ventures will be included in the restated targets for the 2013 Group LTIP and 2014 Executive LTIP.
In summary, the adjustments made to the 2014 Group operating profit targets and results for the 2012 Group LTIP, which vests in March 2015, are as follows:
• Removal of Canadian business, sold in January 2015
• Inclusion of Ignis, acquired in July 2014
• Inclusion of Newton Private Client business, acquired in September 2013
• Removal of interest income no longer receivable due to Canadian capital restructuring.
In relation to the 2014 Group annual bonus plan the following adjustments have been made to the targets and results:
• Removal of Canadian business, sold in January 2015
• Inclusion of Ignis, acquired in July 2014.
Further details of the adjustments made to the targets for the 2013 Group LTIP and the 2014 Executive LTIP awards and details of the restated Group and Executive LTIP targets are provided on pages 91 to 94.
In respect of Standard Life Investments, the adjustments made to the targets and results for the 2012 and subsequent Standard Life Investments LTIP awards are as follows:
• Removal of Canadian business, sold in January 2015 (in line with the approach taken for the 2012 Group LTIP)
• Inclusion of Ignis, acquired in July 2014
• Inclusion of Standard Life Wealth, accounted for within Standard Life Investments from January 2014
• Use of earnings before interest, tax, depreciation and amortisation (EBITDA) rather than earnings before interest and tax (EBIT). As a result of the impact on the Standard Life Investments' balance sheet of the acquisition of Ignis and transfer in of Standard Life Wealth the profit measure has been amended from EBIT to EBITDA as we believe this is more reflective of the day to day performance of the business.
The expected IFRS gain on the sale of the Canadian business will be reflected in non-operating profit and will therefore not be included in the performance assessment of any long-term incentive plan or annual bonus plan.
In determining the adjustments detailed above the Remuneration Committee considers that the restated performance targets will not be materially less difficult to satisfy than the original performance targets.
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 prior to determining the LTIP and bonus plan performance target restatements, involving a number of face to face meetings, to inform our approach.
During the consultation, investors recognised the significant value of the corporate actions undertaken by the Company. They were also largely supportive of the proposed approach to the restatement and acknowledged that other methods of restatement were more complicated and less transparent. There was also an understanding that these are exceptional circumstances in terms of the scale of corporate actions and their impact on targets and value creation for shareholders.
How our remuneration policy was applied in 2014
Given the performance delivered in 2014 relative to the restated 2012 Group LTIP targets, the operating profit measured against the restated 2012 target is above the maximum resulting in 100% vesting of the award. In addition, the Remuneration Committee determined that the awards granted in 2012 under the Standard Life Investments LTIP, measured against the restated targets, should vest at 83.6% of the maximum award.
Before confirming the levels of vesting the Remuneration Committee considered whether it believed that these vesting levels reflected the underlying performance of the Group. As part of these discussions the Remuneration Committee took into account the following indicators of underlying Group performance:
• The strong performance of the remaining portfolio of businesses, principally the UK business and Standard Life Investments, which have delivered against the stretch targets, adjusted as detailed above, which were set for them 3 years ago with significant outperformance of Standard Life Investments against the targets
• As detailed above the Canadian business operating profit has been removed from the Group targets, due to the impact of the sale on the 2014 operating profit numbers. However the Remuneration Committee considered that as an individual business unit over the 3 years to 2014 the Canadian business has contributed aggregate operating profits which exceed the budgets set in 2011 for 2012 to 2014.
• The level of dividends and capital returns to shareholders which since 2010 has been £3.5bn (147p per share) made up of £1.5bn ordinary dividends paid, £0.3bn special dividend paid in 2013 and the approximate £1.75bn return of value proposed from the sale of the Canadian business
• The impact of the sale which is consistent with the Group's strategic focus on investment solutions and brings a new distribution partnership with Manulife.
Having considered the above factors the Remuneration Committee determined these vesting levels appropriately reflected the performance of the Group, the overall shareholder value delivered to investors and the strategic value created by the sale of the Canadian business.
For purposes of transparency, the Remuneration Committee can confirm that an indicative vesting of approximately 28% would have been achieved for the 2012 Group LTIP based on the original targets, including Canadian business performance, but restated for the acquisitions of Ignis and Newton Private Client, and the Canadian capital restructuring. This indicative vesting level does not consider other factors which have impacted the Canadian results, including management actions and business opportunities which could have been executed in 2014 if the sale process had not commenced. Therefore, as explained above, due to the complexity and subjectivity involved in attempting to restate the targets as if the Canadian operations had not been sold, and the significant strategic shareholder value created by the sale, it was decided that the most appropriate methodology was to remove the 2014 operating profit of the Canadian business from both the target and the 2014 financial results used to determine the vesting of the 2012 award.
As detailed in the circular to shareholders we do not expect to make any adjustment to the number of shares over which participants have options or awards following the capital reorganisation and it is expected that the return of value and share capital consolidation will achieve a largely neutral position for holders of options.
Reflecting on the strong financial and non-financial performance including the delivery of the strategic objectives, the Remuneration Committee decided to approve payments under the Group annual bonus, for 2014, of 94.86% of the Chief Executive's (CE) maximum potential bonus (166% of salary), 89.8% of the Chief Finance Officer's (CFO) maximum potential bonus (134.7% of salary), pro-rated for the period of employment during 2014 and, for the Chief Executive, Standard Life Investments (CE, Standard Life Investments) of 95.5% of his maximum potential bonus (57.3% of salary). In addition, the Remuneration Committee approved a total of 100% of the CE, Standard Life Investments maximum potential bonus (305% of salary) under the Standard Life Investments annual bonus arrangement. The Remuneration Committee reviews the way that the performance has been achieved and receives formal input from the Risk and Capital Committee to assist with its deliberations. 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 2014 for the CE is £5,473k, the CFO is £1,305k (for the period from 18 August 2014), and for the CE, Standard Life Investments is £5,272k reflecting the strong performance of the Group. The breakdown is set out on page 87 of this report.
In setting salaries for 2015 for the executive Directors, the Remuneration Committee considered the individual's skills and performance; the size, complexity and responsibility of the role and the context of the anticipated salary increases to be awarded to employees across the Group. In recognition of his personal performance, and the typical level of salary increases across Standard Life, the Chief Executive has been awarded a 3.1% increase moving his base salary from £810,000 to £835,000 from 16 March 2015. The salary for the CFO, who joined the group on 18 August 2014, will remain unchanged at £600,000.
In setting the salary for the CE, Standard Life Investments, the Remuneration Committee considered the significant increase in size, complexity and responsibilities of the role, specifically the following:
• The role of Standard Life Investments in the development of a well-diversified global asset management business, which is one of the key growth engines for the group
• The organic growth and significantly expanded international reach of the Standard Life Investments business and growth of Standard Life Investments' Assets Under Management and third party business
• The inorganic growth of Standard Life Investments with the successful acquisitions of Ignis and the transfer in of Standard Life Wealth and Newton's private client management businesses into Standard Life Investments which has resulted in the creation of private market, liquid-alternatives and high net worth capabilities alongside the active management platform
• The continued expansion of our global distribution and extension of our global network of strategic partners, John Hancock and Manulife in North America, Sumitomo Trust and HDFC AMC in Asia.
The Remuneration Committee considers that given the above, a base salary adjustment from £450,000 to £500,000 (11.1%) reflects the growth and transformation of Standard Life Investments that has already taken place as well as the increasing importance of Standard Life Investments within the Group.
Remuneration policy
Our remuneration policy report is set out on pages 75 to 86 and we propose that, subject to shareholder approval, the policy is effective from 12 May 2015 - the date of the 2015 Annual General Meeting (AGM).
During 2014 we have reviewed the remuneration policy as it relates specifically to the CE, Standard Life Investments. We are proposing the removal of the discretion for the Remuneration Committee to make an award in excess of the maximum bonus payable under the Standard Life Investments' company bonus plan in the event that stretch targets are exceeded. We are also introducing additional bonus deferral which will apply to the Standard Life Investments' personal and company bonuses. Details of the deferral, which will apply to bonuses paid from 2016 onwards, are provided in the Directors' remuneration policy.
Furthermore, to support our transition to becoming a global investment solutions provider and to create alignment across our most senior leadership population we are proposing, for this population, the application of a consistent long-term incentive arrangement. In order to be able to provide a consistent long-term incentive arrangement across the leadership population two rule changes to the Executive LTIP plan rules are proposed.
Increase in the maximum grant value
In line with the Group's move towards becoming a global investment solutions provider, the leadership population to be covered by the Executive LTIP may include current participants in the Standard Life Investments LTIP. Currently such participants may receive awards up to 500% of base salary under that plan. In order to accommodate all possible leadership roles within the Executive LTIP a rule change, to increase the maximum award opportunity under the Executive LTIP from 300% to 500%, is proposed. Standard Life Investments' participants would continue to be subject to Standard Life Investments related performance conditions to maintain their alignment to the performance of that business. Subject to the rule change being approved it is the intention of the Remuneration Committee to grant one award under the Executive LTIP to the CE, Standard Life Investments, instead of the current 200% under each of the Executive LTIP and the Standard Life Investments LTIP. This will be for grants from 2016 onwards. Performance conditions related to the performance of Standard Life Investments will continue to apply to awards made to the CE, Standard Life Investments in addition to Group performance conditions.
The rule change is not intended to result in changes to the overall grant level to participants. We are not changing the quantum of awards made to executive Directors and will not do so without consulting with our major institutional investors.
Deferral into funds
A rule change to allow for the ability to make awards in the form of Standard Life Investments' funds as well as over Standard Life plc shares is proposed. The intention behind this rule change is to accommodate any future regulatory change which requires remuneration to be deferred into funds. For the executive Directors, shares will continue to be the preferred deferral vehicle.
At the same time as consulting on the restatement of the performance targets with our investors, we also consulted on the proposed rule changes. During the consultation, investors understood and were supportive of the proposed rule changes.
A resolution to approve the amended plan rules will be put forward at the 2015 AGM. As a consequence our remuneration policy has been amended and is also subject to a resolution for approval.
I hope you will support these resolutions, which require your approval to take effect, and also the resolution to approve the Directors' remuneration report.
Agenda for 2015
As the strategy and structure of the company continues to develop, and we continue to move to become a global investment solutions provider, during 2015 we will continue to review the remuneration arrangements for our executive Directors and the performance measures used to determine the vesting of the Standard Life plc Executive LTIP to ensure that the awards are aligned to the company's strategy and structure. We will consult the Company's major institutional investors as part of this review.
Lynne Peacock, 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 12 May 2015 - the date of the 2015 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 |
To provide market competitive monetary and non-monetary benefits, in a cost effective manner, to assist employees in carrying out their duties efficiently. |
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 |
To promote share ownership by all employees to drive performance aligned to the Company's shareholders' 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 plans are: · The Standard Life (Employee) Share Plan · The Standard Life Sharesave Plan. |
The maximum opportunity is in line with all other employees and is as determined by the prevailing HMRC rules on maximum employee payment limits.
|
Not applicable. |
|
Pension |
To 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 Group's defined contribution pension plan and are offered the alternative of a cash allowance. The level of company pension contribution and level of cash allowance are reviewed periodically taking into account: · External benchmark data · Pension legislation · Other elements of the remuneration package. |
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 |
To support the delivery of the Group's annual business plan. The 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 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 |
To support the delivery of Standard Life Investments' annual business plan by rewarding Standard Life Investments' employees for the delivery of individual performance objectives in the year and Standard Life Investments' corporate and investment performance.
|
The 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 bonus 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, Standard Life Investments is determined by the Remuneration Committee. Normally, 50% of the combined Standard Life Investments' personal and company bonuses 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). Higher levels of deferral or longer deferral periods may apply at the Remuneration Committee's discretion. 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, or equivalent for other forms of awards, over the deferral period. These will normally be paid on a reinvested basis. The deferral will apply to bonuses paid in 2016 and onwards.
|
The maximum award opportunity for the CE, Standard Life Investments in respect of any financial year is 105% of salary in respect of the personal bonus award and is 200% of salary in respect of the company bonus award. No other Directors participate in this plan.
|
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 (Executive LTIP) |
To reward participants for the delivery of the Group's goals of driving shareholder value through customer experience including 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. 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's scorecards over the plan period. 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. Awards are normally granted in the form of nil-cost options. These are usually in the form of shares but may be awarded in other forms, such as a unit, share or equivalent in a fund, or fund of funds managed by Standard Life Investments, if it is considered appropriate. Unvested awards are subject to malus (details set out later in the report). Dividend equivalents, or equivalents for other forms of awards, accrue over the five-year period. These will normally be paid 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 Executive LTIP rules. The cumulative Group operating profit and cumulative Group net flows performance condition ranges will be disclosed in the Directors' remuneration report published in the year in which the awards are made.
|
The maximum award opportunity possible under the plan rules is 500% of salary. The Remuneration Committee's current intention is that award levels for executive Directors will be based on role and will be up to a maximum of 200% of salary for the CE and CFO. The award level for the CE, Standard Life Investments in 2015 will be up to 200% of salary. In 2016, it is anticipated that an award of up to 400% of salary will be made to the CE, Standard Life Investments with no award being made under the Standard Life Investments Long-Term Incentive plan from 2016 onwards. The Remuneration Committee will normally consult with the Company's largest institutional investors in advance of increasing award levels above the current grant levels.
|
Vesting of the award for the CE, CFO and, for 2015, the CE, SLI is based on the following Group performance measures: · Cumulative Group operating profit performance before tax weighted at up to 100% of the award (for 2015 this is 70%) · Cumulative Group net flows weighted at no more than 50% of the award (for 2015 this is 30%). The split between these measures, for each grant, is set annually by the Remuneration Committee. Vesting of a portion of the awards made from 2016 for the CE, Standard Life Investments will also be based on performance targets based on Standard Life Investments' performance measures (currently consolidated cumulative three-year third party earnings before interest, tax, depreciation and amortisation. This measure 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). The split between the Group and Standard Life Investment performance measures for the CE, Standard Life Investments will be determined annually by the Remuneration Committee. 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
|
To reward 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. 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. 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. 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 rules. |
The maximum award opportunity for the CE, Standard Life Investments is 200% of salary. No other Directors participate in this plan. This plan will not be used to grant awards to the CE, Standard Life Investments after 2015. |
Vesting of the award is based on Standard Life Investments' consolidated cumulative three-year third party earnings before interest, tax, depreciation and amortisation. 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. 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. |
Notes to policy table
The deferred element of the Group annual bonus plan, Executive LTIP and the Standard Life Investments Long-Term Incentive Plan (Standard Life Investments LTIP) shall be operated in accordance with the rules of the respective plans. The rules of the Executive LTIP were approved by shareholders in 2014. The rules of the Standard Life Investments LTIP were approved by shareholders in 2010.
Changes to the policy table
All changes made to our policy as set out in the policy table are detailed in the remuneration policy section of the Remuneration Committee Chairman's statement.
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 set out above, or any previous policy came into effect or (ii) at a time when a previous policy, approved by shareholders, was in place provided the payment is in line with the terms of that policy or (iii) 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. In relation to an award over shares including awards granted in 2012 and 2013 under the Group LTIP, awards granted in 2012, 2013 and 2014 under the Standard Life Investments LTIP, and awards granted in 2014 under the Executive LTIP and any other share based plan operated by the Group. This means making payment in line with the terms that were agreed at the time the award was granted.
Awards (in the form of nil-cost options) that were granted to executive Directors under the Group LTIP prior to 2014 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 overall 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 reinvested 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 previously granted to the CE, Standard Life Investments under the Standard Life Investments LTIP 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 zero) 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
Under the malus and clawback provisions, the Remuneration Committee can reduce awards that have not yet vested (malus) and can require the repayment of an award (clawback).
Malus or clawback may apply where stated in the policy table.
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 the Group's 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, degree of stretch against the performance targets in the business plan, 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, used to determine the Group annual bonus awards, were chosen.
|
Performance metric |
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 · Operating return on equity. |
Focuses management on the delivery of the business' strategic priorities across the Group to drive improved performance in future years. |
Focuses management on growing 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 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 Executive LTIP were chosen.
|
Performance metric |
Operating profit before tax |
Net flows |
|
Rationale |
Chosen measure of profitability and closely linked to cash generation. A key measure of the profit the Group makes. Excludes items which create short-term volatility and that are not within management control. Targets the Group's ability to deliver returns to the Company's shareholders and provides an indication of the Company's dividend paying capability. |
Net flows are a measure of the assets that customers have invested with the Group during the year (premiums and deposits) minus the assets they've taken out (withdrawals, claims and annuity payments). This reflects the Group's ability to win/retain business and is an indicative measure of customer satisfaction. As a result of the acquisition of Ignis and the inclusion of our overseas joint ventures in the targets, the definition of net flows has been reviewed for appropriateness and it will exclude flows arising from investment in money market and liquidity funds. These funds operate like bank accounts and customers can invest or disinvest cash with little notice and financial penalty which leads to significant volatility in the net flows and as such their inclusion is inappropriate for the purpose of rewarding growth in net flows. The net flows attributable to money market and liquidity funds will be reported each year in the Annual report and accounts. |
The table below sets out why the performance conditions used in the Standard Life Investments' personal and company bonus plan were chosen.
|
Performance metric |
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, tax, depreciation and amortisation (EBITDA) · Operating return on equity. |
Drives delivery against the Standard Life Investments' strategic priorities.
|
Embeds a culture that places the customer at the heart of the Standard Life Investments' 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 organisational capability by building resource capabilities and the behaviours needed to deliver the Standard Life Investments' annual business plan. |
The following table sets out why the performance conditions for the Standard Life Investments LTIP were chosen:
|
Performance metric |
Consolidated cumulative three-year third party earnings before interest, tax, depreciation and amortisation (EBITDA). |
|
Rationale |
Chosen measure of profitability which drives the growth of Standard Life Investments. |
The measure has been amended to EBITDA from earnings before interest and tax (EBIT) as management believe this is more reflective of the day to day performance of the business.
Awards under the Standard Life Investments 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.
Awards will not be granted to the CE, Standard Life Investments under the Standard Life Investments LTIP after 2015. The performance conditions used in the Standard Life Investments LTIP will be included in the Executive LTIP and will apply for the CE, Standard Life Investments only.
Remuneration arrangements throughout the Group
Throughout the Group the following overarching principles and practices are applied to our remuneration policy:
· Remuneration is linked to performance, is transparent and is easy to understand
· The policy encourages behaviours that deliver results which are aligned to the interests of the Group's 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 Executive 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 2015. Chart removed for the purposes of this announcement. However it 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 includes the chairmanship of any appropriate Board committee. The remuneration policy for non-executive Directors 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 (Holdings) Limited, in each case 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
Appointment of executive Directors
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 Chief Executive, Standard Life Investments) at or shortly following recruitment shall be limited to 475% of salary. The maximum level for the Chief Executive, Standard Life Investments 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 circumstances but 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 the Group's 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 the contracts 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 Director's role.
The terms and provisions that relate to remuneration in each of the executive Director's 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 Director 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 contributions 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 Luke Savage 24 April 20142 |
1 David Nish signed a new contract in October 2009, reflecting his appointment to Chief Executive from 1 January 2010.
2 Luke Savage's contract was effective from 18 August 2014.
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 on page 100 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 |
Sir 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)2 |
|
|
Pierre Danon |
28 November 2011 (continuation 6 October 2014) |
|
|
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 |
|
|
Isabel Hudson |
15 October 20143 |
|
|
Kevin Parry |
27 October 20143 |
|
|
John Paynter |
21 December 20114(continuation 2 December 2014) |
|
|
Lynne Peacock |
13 March 2012 |
|
|
Martin Pike |
27 September 2013 |
|
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 Retired from the Board on 13 May 2014.
3 Appointment effective from date of letter of appointment.
4 Appointed Senior Independent Director with effect from 25 May 2012 for a three-year term. Letter of appointment dated 24 May 2012.
The service agreements / letters of appointment for Directors are available to shareholders to view on request from the Group Company Secretary at the Company's registered address (details of which can be found in the Contact details on page 302 and at the 2015 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 of over six months
· Rights under all-employee share plans, to bonus awards and to 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 Executive 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 Group LTIP and Executive 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 Standard Life Investments 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 as for a change of control.
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 loss of office for non-executive Directors.
Considering conditions elsewhere in the Group
When setting the policy for executive Directors' remuneration, the Committee takes into account 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 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 the Company's shareholders. As explained in the Remuneration Committee Chairman's statement, major institutional shareholders were consulted in respect of the amendments proposed to the Executive LTIP rules and restatement of targets for the outstanding Group and Executive LTIP awards.
This section sets out the annual remuneration report and is subject to an advisory vote of shareholders at the AGM.
Annual remuneration report - what we did in 2014
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 2014.
|
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 |
Other payments £000s3 |
Pension allowance paid in lieu of pension in year £000's |
Total remuneration for the year £000s |
|
David Nish4 |
2014 |
806 |
17 |
1,345 |
3,063 |
- |
242 |
5,473 |
|
|
2013 |
787 |
17 |
1,039 |
2,127 |
- |
236 |
4,206 |
|
|
|
|
|
|
|
|
|
|
|
Keith Skeoch4 |
2014 |
447 |
- |
1,630 |
3,083 |
- |
112 |
5,272 |
|
|
2013 |
436 |
3 |
1,545 |
2,263 |
- |
109 |
4,356 |
|
|
|
|
|
|
|
|
|
|
|
Luke Savage4,5 |
2014 |
226 |
40 |
301 |
- |
681 |
57 |
1,305 |
|
|
2013 |
- |
- |
- |
- |
- |
- |
- |
1 This includes the taxable value of all benefits paid in respect of the year ended 31 December 2014. For executive Directors this includes car allowances of £16,585 for David Nish and £5,963 for Luke Savage (car allowance was pro-rated for the period in employment). Luke Savage also received £33,913 in respect of a travel allowance payable at a rate of £7,500 per month for a maximum period of 6 months. Also included is private health cover - this amount is not significant.
2 The figure reported for long-term incentives in 2014 is the market value of Group LTIP and Standard Life Investments LTIP awards, granted in 2012, that will vest in 2015. 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 2014 (£4.01). This amount includes additional Standard Life plc shares received in respect of accrued dividends from grant through to 31 December 2014.
The figure reported for long-term incentives in 2013 has been restated as the actual market values at the date of vesting of the Group LTIP and Standard Life Investments LTIP, unknown at the date of publication of the 2013 Annual report and accounts, are now known. The estimates provided in last year's report were: David Nish £1,970k, Keith Skeoch £2,108k.
3 The other payments comprise a cash award of £540,000 made to Luke Savage in recognition of long-term awards and £141,165 in respect of short-term awards awarded by his previous employer which were forfeited on joining Standard Life. Of the amount of £540,000, £270,000 was paid in 2014 and payments of £135,000 and £135,000 will be paid in 2015 and 2016 subject to ongoing employment requirements. The amount of £141,165 relating to the short-term award will be paid in March 2015.
4 David Nish and Luke Savage participate in the Standard Life Sharesave Plan - their options are 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.
5 Luke Savage joined Standard Life on 18 August 2014. Salary, taxable benefits, annual bonus and pension allowance shown are paid from that date.
Base salary
|
|
Annual base salary as at 1 January 2014 |
Annual base salary from 16 March 2014 |
Total base salary paid in 2014 |
|
David Nish |
£790,000 |
£810,000 |
£805,870 |
|
Keith Skeoch |
£437,750 |
£450,000 |
£447,470 |
|
Luke Savage |
- |
£600,0001 |
£226,087 |
1 Luke Savage was appointed a Director on 18 August 2014 and salary shown is annual base salary from that date.
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 2014 |
|
David Nish |
30% |
£241,761 |
|
Keith Skeoch |
25% |
£111,868 |
|
Luke Savage1 |
25% |
£56,522 |
1 Luke Savage was appointed a Director on 18 August 2014 and the cash allowance shown was paid from that date.
Annual bonus plans
Group annual bonus
The target and maximum bonus award opportunities (expressed as a percentage of base salary at 31 December 2014) that could be earned in respect of 2014's Group performance were:
|
|
Target |
Maximum opportunity |
|
David Nish |
75% |
175% |
|
Keith Skeoch |
30% |
60% |
|
Luke Savage1 |
65% |
150% |
1 Luke Savage was appointed a Director on 18 August 2014 and the bonus payable will be pro-rated accordingly.
The bonus award is based on Group performance and personal performance. The relative weightings are 90% based on Group performance and 10% on personal performance for David Nish and Keith Skeoch. Luke Savage's award is based 80% on Group performance and 20% on personal performance.
The scorecard weightings, key achievements and overall score for 2014 are shown 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 the Group's financial key performance indicators can be found in Section 1.2 of the Strategic report
· Before approving the level of performance in 2014, 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 deems 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.
As explained in the Remuneration Committee Chairman's statement, adjustments have been made to the 2014 financial targets to reflect the impact of the corporate actions undertaken during the year.
· Removal of target and actual contribution from Canadian business, sold in January 2015
· Inclusion of target and actual contribution from Ignis, acquired in July 2014.
|
Element (weighting as a % of maximum bonus opportunity) |
Performance measure |
Key achievements |
Overall score (out of 5) |
|
Financial David Nish and Keith Skeoch (63%) Luke Savage (56%) |
Group operating profit before tax (excluding our discontinued Canadian business and life joint ventures).1 European Embedded Value operating profit after tax (EVOP) (excluding our discontinued Canadian business and life joint ventures).1 Operating return on equity (RoE) (excluding our discontinued Canadian business and life joint ventures).1 |
Strong financial performance from operations including · Group operating profit before tax (excluding our discontinued Canadian business and life joint ventures)1 of £581m -above maximum · EVOP (excluding our discontinued Canadian business and life joint ventures)1 of £627m - above maximum · Operating RoE (excluding our discontinued Canadian business and life joint ventures)1 of 17.6%- above maximum. |
5 |
|
Strategic/delivery/ process David Nish and Keith Skeoch (9%) Luke Savage (8%) |
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. |
We have announced the two most significant transactions in the Group's history: · Acquisition of Ignis Asset Management and associated strategic partnership with Phoenix Group. This was funded from existing resources making more efficient use of our capital · Proposed sale of Canadian business and global collaboration agreement with Manulife (completed 30 January 2015) with associated capital return. We have also continued to deliver on our strategy at a time of unprecedented market and regulatory change: · Produced strong investment performance · Launched new 'good-to-go' UK auto-enrolment solution and secured significant new business without capacity issues · Responded quickly and constructively to March Budget and DWP command papers which materially impacted the retirement, annuity and workplace pensions markets · First to market with "clean" platform to comply with regulation taking effect from 2016, with greater discounts and assets invested in discounted clean funds than any other platform · Made necessary preparations in advance of Scottish Independence referendum in September · Took swift action in response to regulatory change in Dubai. During this period of significant change we maintained our external financial strength ratings and stable outlooks. |
4.75 |
|
Customer and external leadership David Nish and Keith Skeoch (9%) Luke Savage (8%) |
Drive customer focus within the organisation and build advocacy for the Standard Life brand. Protect and enhance Standard Life's corporate reputation. |
· Established a clear customer vision, My Life Savings, for our UK business and completed the integration of our entire UK customer operations to a single site, improving customer focus, enabling greater collaboration and driving process efficiency. · Significantly increased the number of retail customers across Standard Life Investments with the acquisition of Ignis Asset Management, the integration of Standard Life Wealth and the migration of the Sigma investment platform. A dedicated Client Council has been set up to provide effective oversight of these customers and to enable focused customer insight to be undertaken. · Received a number of industry excellence awards, including City A.M. Insurance Company of the Year, Multi-Asset Manager of the Year at the Financial News 2014 Awards for Excellence and Best Customer Insight and Feedback at the UK Customer Experience Awards · Promoted our brand to a worldwide audience through our high profile sponsorship of the Ryder Cup and our partnership with Andy Murray · Received accreditation as a UK Living Wage employer and retained our position on a number of key sustainability indices, including the Dow Jones Sustainability Indices (DJSI) World and Europe and the FTSE 350 Climate Disclosure Leadership Index (CDLI) · Defined a clear common purpose and guiding principles for our brand that will help strengthen engagement with customers and other stakeholders. |
4.25
|
|
People David Nish and Keith Skeoch (9%) Luke Savage (8%) |
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. |
· Redefined the role of the centre, creating the Strategic Corporate Centre and adoption of a lead business model for agreed services · The proposed change to employee pensions was a major initiative for the year with a significant impact on many of our employees · Launched two more cohorts of our award winning talent programmes with over half of the next emerging leaders cohort being female and our first group wide graduate intake with increased international diversity · We've seen an encouraging shift in our InterAction results with 87% of employees completing the survey and strong levels of engagement when compared externally · Started to embed a more inclusive approach to career and talent development for all our people including an increase in international assignments at all levels of the organisation · Continued our role in supporting the youth employment agenda extending our support to placements across the UK and supporting some of the hardest to reach young people. We have increased our employees under 25 from 0.5% to 5.4% in three years. · Received full recognition as a Living Wage employer in the UK from the Living Wage Foundation · Ran our pay and performance across the globe on a single platform clearly linking pay and performance and continuing to develop our culture of transparency and openness.
|
4.25 |
|
Personal David Nish and Keith Skeoch (10%) Luke Savage (20%) |
Personal scorecards. Behaviours against our leadership model and personal development. |
|
Not applicable |
|
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 4.8 out of 5 for performance against the Group scorecard during 2014. |
|||
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 2014 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 |
84.86% |
10% |
94.86% |
166% |
£1,344,600 |
|
Keith Skeoch |
Maximum |
90% |
10% |
100% |
60% |
|
|
|
Actual |
85.5% |
10% |
95.5% |
57.3% |
£257,850 |
|
Luke Savage |
Maximum |
80% |
20% |
100% |
150% |
|
|
|
Actual |
75.47% |
14.33% |
89.8% |
134.7% |
£301,138 |
1 Bonuses are paid based on base salary at 31 December 2014. Luke Savage's bonus has been prorated to reflect his appointment during the performance period.
If the bonus payable amounts to more than 25% of salary, then half of the amount above 25% of salary is deferred for two years into an award over Standard Life plc shares. The deferral is not made if the amount to be deferred is less than 10% of salary.
2013 Group annual bonus - disclosure of financial targets
The financial targets used in the determination of the 2013 Group annual bonuses paid in March 2014, and not previously disclosed, are shown in the following table:
|
Performance Target |
Below Threshold |
Threshold |
Maximum |
|
Group operating profit before tax (excluding life joint ventures)1 |
<£620m |
£620m |
£732m |
|
European Embedded Value operating profit before tax (excluding life joint ventures)1 |
<£865m |
£865m |
£1,267m |
|
Operating return on equity (excluding life joint ventures)1 |
<12.4% |
12.4% |
14.6% |
1 Life joint ventures refers to HDFC Standard Life Insurance Company Limited and Heng An Standard Life Insurance Company Limited.
Standard Life Investments' bonuses
Keith Skeoch participated in the Standard Life Investments' personal and company bonus plans, in addition to the Group annual bonus. 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, having regard to the total remuneration spend.
· Personal bonus plan - rewards participants for personal performance in the year. Keith Skeoch's opportunity for 2014 was capped at 105% of salary.
· Company bonus plan - Keith Skeoch's company bonus opportunity for 2014 was equal to 200% of salary.
The determination of annual bonuses at Standard Life Investments is subject to two levels of control. First, 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. The second level of control is when this is referred to the Remuneration Committee which reviews these recommendations and determines the bonuses to be paid to the most senior employees within Standard Life Investments.
In 2014, Standard Life Investments continued to expand globally and had another very successful year. The key achievements during the year in which the bonus outcome was determined were:
· Very strong EBITDA performance
· Standard Life Investments operating profit before tax increased compared to 2013
· Total assets under management increased compared to 2013
· Maintaining strong investment performance with 98% of third-party funds ahead of the 3 year benchmark
· Successful acquisition of Ignis
· Collaboration agreement with Manulife.
Based on Keith Skeoch's and Standard Life Investments' performance in 2014, the Remuneration Committee approved a personal bonus award of 105% of salary and a company bonus award of 200% of salary.
|
|
|
Company bonus plan |
Personal bonus plan |
Total as a % of bonus maximum |
Total as % of base salary |
Total Bonus |
|
Keith Skeoch |
Maximum |
200% |
105% |
100% |
305% |
|
|
|
Actual |
200% |
105% |
100% |
305% |
£1,372,500 |
Summary of bonus outcomes (audited)
The following table shows the total bonus awards made in respect of 2014:
|
|
Group cash bonus |
Group deferred bonus |
Standard Life Investments' cash bonuses |
Total |
|
David Nish |
£773,550 |
£571,050 |
- |
£1,334,600 |
|
Keith Skeoch |
£185,175 |
£72,675 |
£1,372,500 |
£1,630,350 |
|
Luke Savage1 |
£178,514 |
£122,624 |
- |
£301,138 |
1 Luke Savage was appointed a Director on 18 August 2014 and the bonus payable is pro-rated accordingly.
Annual bonus payments are not pensionable.
Long-term incentives
Standard Life Long-Term Incentive Plan (Group LTIP)
The plan under which awards were made in 2012 is the Group LTIP. The Executive LTIP has been used to grant awards since May 2014.
The awards granted in 2012 under the Group LTIP 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 awards are also subject to two underpins when assessing the Group performance. The first requires the 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.
2012 Group LTIP awards vesting in respect of performance ending in 2014 (audited)
Awards were made in March 2012 of 200% of salary to David Nish and Keith Skeoch.
As a result of the corporate actions during 2014, and as detailed more fully in the Remuneration Committee Chairman's statement, the following adjustments have been made to the 2012 LTIP targets and results:
· Removal of Canadian business, sold January 2015
· Inclusion of Ignis, acquired in July 2014
· Inclusion of Newton Private Client business, acquired in September 2013
· Removal of interest no longer receivable due to Canadian capital restructuring.
The tables below summarise the original performance targets for the awards, the amended performance targets and the outcome.
Original targets
|
2014 performance level |
Below threshold |
Threshold |
Target |
Maximum |
|
2014 Group operating profit before tax (excluding life joint ventures)1 |
<£675m |
£675m |
£750m |
£825m |
1 Life joint ventures refers to HDFC Standard Life Insurance Company Limited and Heng An Standard Life Insurance Company Limited.
Revised targets and performance outcome
|
2014 performance level |
Below threshold |
Threshold |
Target |
Maximum |
|
Restated 2014 Group operating profit before tax (excluding life joint ventures)1 |
<£460m |
£460m |
£510m |
£560m |
|
Actual performance |
£581m |
|||
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 100% of awards granted to David Nish and Keith Skeoch in 2012 should vest in 2015.
Standard Life Investments Long-Term Incentive Plan (Standard Life Investments LTIP)
In 2012, in addition to the Group LTIP, Keith Skeoch participated in the Standard Life Investments LTIP. Under the Standard Life Investments LTIP, awards will only begin to vest if Standard Life Investments' investment performance (three-year money-weighted average) 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.
The level of vesting is then subject to consolidated cumulative third-party EBITDA performance as shown in the table below. The actual EBITDA targets will not be disclosed as the Board deems that this is commercially sensitive information and, if disclosed, could seriously prejudice the Group's business.
As noted in the Remuneration Committee Chairman's statement, the performance targets and results for the 2012 award have been adjusted to reflect:
· Removal of Canadian business, sold in January 2015
· Inclusion of Ignis, acquired in July 2014
· EBITDA , rather than EBIT as the appropriate profit metric
· Inclusion of the business of Standard Life Wealth, accounted for within Standard Life Investments' business from January 2014.
|
Performance |
Consolidated cumulative three-year third party EBITDA |
% 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 EBITDA and 140% on target cumulative three-year third party EBITDA.
Before an award can vest, the Risk and Capital Committee is required to verify to the Remuneration Committee that the level of vesting was not as a result of behaviour that has exposed the Group to undue risk. If the 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.
2012 Standard Life Investments LTIP awards vesting in respect of performance periods ending in 2014
In line with the above, Keith Skeoch received an award under this plan in March 2012 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 2012 award.
|
Performance level |
Below threshold |
Threshold |
Target |
Maximum |
|
Consolidated cumulative three-year third party EBITDA |
<60% of target |
60% of target |
100% of target |
140% of target |
|
Actual performance |
|
|
|
126.8% 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 EBITDA was 126.8% of target, the Remuneration Committee determined that 167.1% of target awards (83.6% of the maximum award) granted in 2012 should vest in March 2015.
Awards granted in 2014
Awards to executive Directors were made in 2014 under the Executive LTIP and the Standard Life Investments LTIP. As set out in the Remuneration Chairman's report, the performance targets for the Executive LTIP and Standard Life Investments LTIP have been adjusted.
The following adjustments have been made to the cumulative Group operating profit target and cumulative net flows target:
· Removal of Canadian business, sold January 2015
· Inclusion of Ignis, acquired in July 2014
· Inclusion of India and China life joint ventures - HDFC Standard Life Insurance Company Limited and Heng An Standard Life Insurance Company Limited
· Inclusion of expected interest on proceeds of the sale of the Canadian business less the planned equity return.
The table below shows the original performance targets for the Executive LTIP:
|
2016 performance level |
Below threshold |
Threshold |
Maximum |
|
Original performance range: 2016 cumulative Group operating profit before tax (excluding life joint ventures)1 |
<£2,165m |
£2,165m |
£2,585m |
|
2016 cumulative Group net flows (excluding life joint ventures)1 |
<£21.2bn |
£21.2bn |
£33.4bn |
1 Life joint ventures refers to HDFC Standard Life Insurance Company Limited and Heng An Standard Life Insurance Company Limited.
The following adjustment have been made to Standard Life Investments targets for awards granted in 2014
· Removal of Canadian business, sold January 2015
· Inclusion of Ignis, acquired in July 2014
· EBITDA, rather than EBIT as the appropriate profit metric
· Inclusion of the business of Standard Life Wealth, transferred to Standard Life Investments' business in January 2014.
The targets for awards granted under the Standard Life Investments LTIP in 2013 have been adjusted on the same basis.
The table below summarises the key details of the awards made in 2014 with the amended performance targets (audited):
|
Award |
Type of interest |
Basis of award (% of salary and face value at grant)1 |
Performance criteria |
% of award vesting at restated threshold and restated threshold performance levels |
% of award vesting at restated maximum and performance required for maximum vest |
|
2014 Executive LTIP award, vests on 20 May 2019 |
Nil-cost option |
David Nish - 200% - £1,620,000 |
Cumulative Group operating profit before tax3 (70%) and cumulative Group net flows4 (30%) for the three-year period ended 31 December 2016 |
Vesting: 0% Cumulative Group operating profit before tax Threshold: £1,795m Cumulative Group net flows Threshold: £15.5bn |
Vesting5 :100% of award Cumulative Group operating profit before tax Maximum: £2,145m Cumulative Group net flows Maximum: £24.3bn |
|
Keith Skeoch - 200% - £900,000 |
|||||
|
Luke Savage - 125% - £750,0002 |
|||||
|
2014 Standard Life Investments LTIP award, vests on [28] March 2017 |
Nil-cost option |
Keith Skeoch - 200% - £900,000 |
Standard Life Investments consolidated cumulative three-year third party EBITDA to 31 December 2016 and subject to an investment performance gateway |
Vesting: 0% Threshold: 60% of third party EBITDA target |
Vesting: 200% of target award6 Maximum: 140% of third party EBITDA target |
1 The number of shares awarded is calculated based on the average share price for the five days preceding the grant which was £3.88 for the awards granted to David Nish and Keith Skeoch on 20 May 2014 and £4.07 for the award granted to Luke Savage on 10 September 2014.
2 This award was granted on 10 September 2014 and vests on 10 September 2019.
3 Cumulative Group operating profit before tax includes life joint ventures which refer to HDFC Standard Life Insurance Company Limited and Heng An Standard Life Insurance Company Limited.
4 Cumulative Group net flows includes life joint ventures which refer to HDFC Standard Life Insurance Company Limited and Heng An Standard Life Insurance Company Limited and excludes flows in relation to money market and liquidity funds.
5 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 Executive LTIP awards vest.
6 Vesting takes place on a straight-line basis between 60% and 140% of Standard Life Investments consolidated cumulative three-year target third party EBITDA.
All of the above awards are subject to an additional personal performance underpin whereby, if an executive Director 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.
Revised targets for LTIP awards granted in 2013
Again as a result of the corporate actions taken in 2014 the Group operating performance targets for awards granted in 2013 under the Group LTIP have also been restated.
As a result of the corporate actions during 2014 the following target adjustments have been made to the 2013 LTIP targets:
· Removal of Canadian business, sold in January 2015
· Inclusion of Ignis, acquired in July 2014
· Inclusion of Newton Private Client business, acquired in September 2013
· Inclusion of India and China life joint ventures - HDFC Standard Life Insurance Company Limited and Heng An Standard Life Insurance Company Limited
· Inclusion of expected interest income on proceeds of the sale of the Canadian operations less the planned equity return.
|
2015 performance level |
Below threshold |
Threshold |
Maximum |
|
Original performance range 2015 Group operating profit before tax (excluding life joint ventures)1 |
<£725m |
£725m |
£875m |
|
Restated performance range 2015 Group operating profit before tax (including life joint ventures)1 |
<£610m |
£610m |
£740m |
1 Life joint ventures refers to HDFC Standard Life Insurance Company Limited and Heng An Standard Life Insurance Company Limited.
At threshold or below threshold performance no awards vest. At maximum performance 100% of the awards vest. Between threshold and maximum performance vesting is on an incremental basis using predetermined milestones.
Share ownership
A share holding requirement was implemented in 2014 and we continue to require executive Directors and senior management to maintain a material long-term investment in Standard Life plc shares.
David Nish and Keith Skeoch are required to hold 300% of the value of their base salary in the form of Standard Life plc shares. Luke Savage will be required to acquire and hold Standard Life plc shares to the value of 200% of his base salary from awards granted under the Executive LTIP and deferred annual bonus plan.
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 Executive LTIP and the Standard Life Investments 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 Group LTIP and the Standard Life Investments 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 the earlier of 1 January 2014 or date of appointment |
Shares acquired/(sold) by the Director during the period |
Total number of shares owned at 31 December 20141 |
Total value2 of shares owned at 31 December 2014 as a % of salary at 31 December 2014 |
Shares acquired/(sold) by the Director during the period 31 December 2014 to 19 February 2015 |
|
David Nish |
1,752,918 |
509,415 |
2,262,333 |
1,117% |
37 |
|
Keith Skeoch |
1,502,552 |
406,329 |
1,908,881 |
1,697% |
36 |
|
Luke Savage |
- |
- |
- |
-% |
- |
1 Includes shares held by the Director and by their connected persons.
2 Closing share price at 31 December 2014 was 400.1p.
As is shown from the table, David Nish and Keith Skeoch met the share ownership requirements in 2014. Luke Savage was appointed in August 2014 and as such does not yet meet the shareholding requirement.
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 2014:
|
|
Options with performance measures1 |
Options without performance measures2 |
Vested but unexercised |
Exercised during year3 |
|
David Nish |
1,509,445 |
285,411 |
- |
794,405 |
|
Keith Skeoch |
1,672,731 |
33,410 |
- |
625,582 |
|
Luke Savage |
184,329 |
5,116 |
- |
- |
1 This comprises awards made under the Group, Executive and Standard Life Investments LTIPs in 2012, 2013 and 2014 excluding shares to be awarded in lieu of dividend equivalents.
2 This comprises deferred bonus awards made in 2013 and 2014 and options granted under the Standard Life Sharesave Plan excluding shares to be awarded in lieu of dividend equivalents.
3 This comprises exercises of awards made under the 2011 Group and Standard Life Investments LTIPs and deferred share awards from the 2011 Group bonus plan including dividend equivalents.
The Chairman continues to be subject to a guideline holding of 100% of the value of his annual fee in Standard Life plc shares within four years of appointment. Sir Gerry Grimstone, as Chairman, fully met this requirement in 2014 with the value of his shares at the end of the year being 289% of his fees.
The closing market price of Standard Life plc shares at 31 December 2014 was 400.1p and the range for the year was 354.0p to 426.3p.
Directors' interests in the Company's shares through the medium of the Group's share plans are shown below:
Group, Executive 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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
31/03/11 |
31/03/14 |
752,573 |
- |
127,965 |
563,544 |
316,994 |
- |
£2.0596 |
£3.9453 |
03/04/14 |
£2,223,350 |
|
|
29/03/12 |
29/03/15 |
665,750 |
- |
97,969 |
- |
- |
763,719 |
£2.3282 |
- |
- |
- |
|
|
25/03/13 |
25/03/16 |
427,050 |
- |
54,075 |
- |
- |
481,125 |
£3.6998 |
- |
- |
- |
|
|
20/05/146 |
20/05/19 |
- |
416,645 |
17,375 |
- |
- |
434,020 |
£3.8882 |
- |
- |
- |
|
|
|
|
1,845,373 |
416,645 |
297,384 |
563,544 |
316,994 |
1,678,864 |
|
|
|
|
|
|
Keith Skeoch |
|
|
|
|
|
|
|
|
|
|
|
|
|
31/03/115 |
31/03/14 |
412,701 |
- |
70,173 |
290,325 |
192,549 |
- |
£2.0596 |
£3.8529 |
02/04/14 |
£1,118,593 |
|
|
31/03/11 |
31/03/14 |
412,701 |
- |
70,173 |
309,039 |
173,835 |
- |
£2.0596 |
£3.8529 |
02/04/14 |
£1,190,696 |
|
|
29/03/125 |
29/03/15 |
365,088 |
- |
53,723 |
- |
- |
418,811 |
£2.3282 |
- |
- |
- |
|
|
29/03/12 |
29/03/15 |
365,088 |
- |
53,723 |
- |
- |
418,811 |
£2.3282 |
- |
- |
- |
|
|
25/03/135 |
25/03/16 |
236,634 |
- |
29,962 |
- |
- |
266,596 |
£3.6998 |
- |
- |
- |
|
|
25/03/13 |
25/03/16 |
236,634 |
- |
29,962 |
- |
- |
266,596 |
£3.6998 |
- |
- |
- |
|
|
28/03/145 |
28/03/17 |
- |
237,818 |
9,949 |
- |
- |
247,767 |
£3.7844 |
- |
- |
- |
|
|
20/05/146 |
20/05/19 |
- |
231,469 |
9,652 |
- |
- |
241,121 |
£3.8882 |
- |
- |
- |
|
|
|
|
2,028,846 |
469,287 |
327,317 |
599,364 |
366,384 |
1,859,702 |
|
|
|
|
|
|
Luke Savage |
|
|
|
|
|
|
|
|
|
|
|
|
|
10/09/146 |
10/09/19 |
- |
184,329 |
2,654 |
- |
- |
186,983 |
£4.0688 |
- |
- |
- |
|
|
|
|
- |
184,329 |
2,654 |
- |
- |
186,983 |
|
|
|
|
|
1 All awards lapse six months after the expected first date of exercise.
2 The Remuneration Committee has invoked the power within each of the LTIP rules in relation to the 2011, 2012, 2013 and 2014 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 for which the record dates (or payment dates in the case of the Executive LTIP) between March 2011 and December 2014 fall within the relevant vesting periods. All awards were made under the Group LTIP unless otherwise stated.
3 The 2011 Group LTIP vested at 64% and the Standard Life Investments' LTIP at 60.1%.The Standard Life Investments' LTIP was previously disclosed as vesting at 60.9% but was amended post publication of the 2013 Annual report and accounts.
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 Standard Life Investments LTIP.
6 Awards granted under the Executive LTIP.
Bonus awards-deferred shares
These awards are the deferred share elements of the 2011, 2012 and 2013 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 |
|
|
|
|
|
|
|
|
|
|
|
|
29/03/12 |
29/03/14 |
209,667 |
- |
21,194 |
230,861 |
- |
- |
£2.015 |
£3.9453 |
3/04/14 |
£910,816 |
|
28/03/13 |
28/03/15 |
153,751 |
- |
17,594 |
- |
- |
171,345 |
£3.326 |
- |
- |
- |
|
28/03/14 |
28/03/16 |
- |
121,991 |
5,103 |
- |
- |
127,094 |
£3.448 |
- |
- |
- |
|
|
|
363,418 |
121,991 |
43,891 |
230,861 |
- |
298,439 |
|
|
|
|
|
Keith Skeoch |
|
|
|
|
|
|
|
|
|
|
|
|
29/03/12 |
29/03/14 |
23,813 |
- |
2,405 |
26,218 |
- |
- |
£2.015 |
£3.8529 |
2/4/2014 |
£101,014 |
|
28/03/13 |
28/03/15 |
18,907 |
- |
2,162 |
- |
- |
21,069 |
£3.326 |
- |
- |
- |
|
28/03/14 |
28/03/16 |
- |
14,503 |
605 |
- |
- |
15,108 |
£3.448 |
- |
- |
- |
|
|
42,720 |
14,503 |
5,172 |
26,218 |
- |
36,177 |
|
|
|
|
|
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 bonus plan for the deferred share 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 29 March 2012 and 31 December 2014 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.
The Standard Life Sharesave Plan
David Nish was granted options over 9,669 Standard Life plc shares exercisable from 1 November 2016 under the Sharesave Plan on 15 September 2011. The exercise price for these options is £1.5746.
Luke Savage was granted options over 5,116 Standard Life plc shares exercisable from 1 November 2019 under the Sharesave Plan on 12 September 2014. The exercise price for these options is £2.961.
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. Significant executive Director appointments held during the year are shown below.
|
Executive Director |
Role and organisation |
2014 fees |
|
David Nish |
Deputy chairman of the board of the Association of British Insurers (ABI)1 Member of the Financial Services advisory board 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 Association Member of the advisory board of Reform Scotland2 Non-executive director of the Financial Reporting Council (FRC) |
£nil3 |
|
Luke Savage |
Member of Council, Queen Mary University of London |
£nil |
1 David Nish stepped down from the ABI long term savings committee on 11 November 2014.
2 Keith Skeoch stepped down from the advisory board of Reform Scotland on 9 May 2014.
3 Keith Skeoch continues to waive his fees from the FRC.
Loss of office payments in 2014 (audited)
No loss of office payments were made in 2014.
Payments to former directors (audited)
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 2014.
Pay compared to performance
Performance graph: Graph removed for the purposes of this announcement. However it can be viewed in full in the PDF document. The graph shows the difference in value at 31 December 2014 between having invested £100 on 1 January 2009, respectively, in Standard Life plc and in the FTSE 100. 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.
The following table shows the single figure of total remuneration for the Director in the role of Chief Executive (CE) for the same six 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 (%) |
|
2014 |
David Nish |
5,473 |
95 |
100 |
|
2013 |
David Nish |
4,206 |
75 |
64 |
|
2012 |
David Nish |
5,5641 |
88 |
100 |
|
2011 |
David Nish |
2,601 |
77 |
63.5 |
|
2010 |
David Nish |
1,971 |
83 |
-2 |
|
2009 |
Sir Sandy Crombie3 |
2,175 |
67 |
49.67 |
1 The increase in the CE single figure for 2012 reflects David Nish's promotion to CE 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 CE on 31 December 2009.
Relative importance of spend on pay
The following table compares what the Group spent on employee remuneration to what is paid in the form of dividends to the Company's shareholders. Also shown is the Group's operating profit before tax from continuing operations 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) |
|
2014 |
577 |
358 |
604 |
|
2013 |
5251 |
376 |
5061 |
1 Comparatives for the year ended 31 December 2013 have been restated to reflect classification in the current year of the Group's Canadian business as discontinued operations. Refer to Note 12 - Discontinued operations.
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 2013 and the year ended 31 December 2014 for the Chief Executive compared to the average UK based Group employee:
|
|
% change in base salary |
% change in bonus |
% change in benefits |
|
CE |
3.1% |
29.45% |
0% |
|
UK based employees of the Group |
3.2% |
13.08% |
0% |
Implementation of policy in 2015
Base salary
The Remuneration Committee considered it appropriate to award increases as follows:
|
|
Increase to base salary |
Base salary effective from 16 March 2015 |
|
David Nish |
£25,000 |
£835,000 |
|
Keith Skeoch |
£50,000 |
£500,000 |
|
Luke Savage |
- |
£600,000 |
Further details on the rationale for the increase for Keith Skeoch are set out in the Remuneration Committee Chairman's statement.
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% |
|
Luke Savage |
65% |
150% |
For David Nish and Keith Skeoch, 90% of the award will be based on Group performance and 10% on personal performance. For Luke Savage, 80% of the award will be based on Group performance and 20% on personal performance. Keith Skeoch will continue to participate in the Standard Life Investments' personal and company bonus plans. The maximum awards under these plans 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 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 the Group's 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
· Luke Savage - 25% of salary.
Long-term incentive arrangements
The Remuneration Committee proposes to grant awards equivalent to 200% of salary to David Nish and Keith Skeoch and 125% of salary to Luke Savage, in the form of nil-cost options under the Executive LTIP. Vesting of these awards, in 2020, is based on the following performance measures measured over the period to 31 December 2017:
· 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) |
|
2015 Executive LTIP award, to vest in March 2020 |
Nil-cost option |
David Nish - 200%-£1,670,000 Keith Skeoch - 200%-£1,000,000 Luke Savage - 125%-£750,000 |
Cumulative Group operating profit before tax (70%) and cumulative Group net flows (30%) for the three-year period ended 31 December 2017 |
Vesting: 0% Cumulative Group operating profit before tax Threshold:£1,670m Cumulative Group net flows Threshold:£16.6bn |
Vesting :100% of award Cumulative Group operating profit before tax Maximum:£2,040m Cumulative Group net flows Maximum: £27.6bn |
Keith Skeoch will also be granted an award, in the form of a nil-cost option equivalent to 200% of salary under the Standard Life Investments LTIP. This award will vest in 2018 subject to performance in the period to 31 December 2017. The award will vest provided the Standard Life Investments' investment gateway is passed. The level of vesting is based on the consolidated cumulative three-year third party Standard Life Investments (Holdings) Limited EBITDA achieved in the three years to 31 December 2017. The performance targets will not generally be disclosed as the Board and the Remuneration Committee deem that, given the vesting of the Standard Life Investments LTIP rewards the achievement of its 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 |
|
2015 Standard Life Investment LTIP award, vests in March 2018 |
Nil-cost option |
Keith Skeoch - 200%- £1,000,000 |
Consolidated cumulative three-year third party Standard Life Investments (Holdings) Limited EBITDA to 31 December 2017 and subject to an investment gateway |
0% Threshold: 60% of EBITDA target |
200% of target award Maximum: 140% of EBITDA target |
Single total figure of remuneration - non-executive Directors
The following table (audited) 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 2014. 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 |
|
Sir Gerry Grimstone |
2014 |
350 |
16 |
366 |
|
|
2013 |
350 |
26 |
376 |
|
Colin Buchan2 |
2014 |
32 |
3 |
35 |
|
|
2013 |
86 |
4 |
90 |
|
Pierre Danon |
2014 |
71 |
14 |
85 |
|
|
2013 |
71 |
20 |
91 |
|
Crawford Gillies |
2014 |
81 |
5 |
86 |
|
|
2013 |
97 |
8 |
105 |
|
David Grigson |
2014 |
97 |
5 |
102 |
|
|
2013 |
97 |
15 |
112 |
|
Noel Harwerth |
2014 |
97 |
9 |
106 |
|
|
2013 |
97 |
10 |
107 |
|
Isabel Hudson3 |
2014 |
15 |
2 |
17 |
|
|
2013 |
- |
- |
- |
|
Kevin Parry4 |
2014 |
13 |
1 |
14 |
|
|
2013 |
- |
- |
- |
|
John Paynter |
2014 |
127 |
10 |
137 |
|
|
2013 |
127 |
16 |
143 |
|
Lynne Peacock |
2014 |
87 |
9 |
96 |
|
|
2013 |
71 |
14 |
85 |
|
Martin Pike5 |
2014 |
71 |
9 |
80 |
|
|
2013 |
19 |
2 |
21 |
1 Sir 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 Colin Buchan resigned from the Board at the close of the AGM on 13 May 2014.
3 Isabel Hudson was appointed on 15 October 2014.
4 Kevin Parry was appointed on 27 October 2014.
5 Martin Pike was appointed on 27 September 2013.
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 2014 or date of appointment if later |
Shares acquired/(sold) by the Director during the period |
Total number of shares owned at 31 December 2014 or date of cessation if earlier1 |
Shares acquired/(sold) by the Director during the period 31 December 2014 to 19 February 2014 |
|
Sir Gerry Grimstone |
252,544 |
- |
252,544 |
- |
|
Colin Buchan2 |
30,121 |
- |
30,121 |
- |
|
Pierre Danon |
37,251 |
18,157 |
55,408 |
- |
|
Crawford Gillies |
50,170 |
- |
50,170 |
- |
|
David Grigson |
15,000 |
- |
15,000 |
- |
|
Noel Harwerth |
10,000 |
- |
10,000 |
- |
|
Isabel Hudson |
- |
- |
- |
- |
|
Kevin Parry |
44,397 |
- |
44,397 |
- |
|
John Paynter |
45,000 |
5,000 |
50,000 |
- |
|
Lynne Peacock |
15,345 |
- |
15,345 |
- |
|
Martin Pike |
40,000 |
- |
40,000 |
- |
1 Includes shares held by the Director and by their connected persons.
2 Colin Buchan resigned from the Board at the close of the AGM on 13 May 2014.
Following a review of non-executive Director fees in 2014, the Board (and the Remuneration Committee in respect of the Chairman) considered it appropriate to increase the Chairman's fees by £20,000 (5.7%) to £370,000 and the fees for committee chairman by £4,500 (17.6%) to £30,000.
|
Role |
2015 fees1 |
2014 fees |
|
Chairman's fees2 |
£370,000 |
£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 |
£30,000 |
£25,500 |
|
Chairman of the Risk and Capital Committee |
£30,000 |
£25,500 |
|
Chairman of the Remuneration Committee |
£30,000 |
£25,500 |
|
Chairman of the Investment Committee |
-4 |
£15,000 |
|
Chairman of Standard Life Investments (Holdings) Limited |
£38,250 |
£38,250 |
1 The core fee of £71,400 paid to each non-executive Director (including the Chairman) is expected to total £714,000 for 2015 (2014: £642,600). This is within the maximum £1,000,000 permitted under Article 87 of Standard Life plc's articles of association. Total fees including additional duties are expected to amount to £1,152,350 for 2015 (2014: £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 2015 the Chairman will also receive £15,000 (2014: £15,000) as an allowance towards his business related accommodation costs in Edinburgh.
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.
4 The Investment Committee met once in 2014 on 28 January and stood down at that meeting.
The Remuneration Committee
Members
During 2014, the Remuneration Committee was made up of independent non-executive Directors: Crawford Gillies (Chairman until 13 May 2014 when he stepped down from the Committee), Lynne Peacock (Chairman from 13 May 2014), Colin Buchan (until 13 May 2014), Martin Pike (from 13 May 2014), Pierre Danon, and John Paynter.
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 employees and the Chairman
· the design and targets for any employee share plan
· the design and targets for annual cash bonus plans throughout the Group
· 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 the Group Company Secretary.
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. Deloitte is a member of the Remuneration Consultants' Group, which is responsible for the stewardship and development of the voluntary code of conduct in relation to executive remuneration consulting in the UK.
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 Executive 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 Total Rewards and Benefits 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 Master 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 2014 for professional advice to the Committee were £132,295.
Where appropriate, the Remuneration Committee receives input from the Chairman, Chief Executive, Chief Financial Officer, Group Operations Officer, Group Reward and Employment Policy Director, Group Chief Risk Officer and the Head of Corporate Governance at Standard Life Investments. This input never relates to their own remuneration.
As noted on page 37, Sir 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 Sir 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.
The Committee reviews its remit and effectiveness annually. The 2014 review was carried out both via an internal self-assessment questionnaire and by an independent expert, Niall FitzGerald who was invited to observe one of the Committee meetings as part of his assessment. The review concluded that the Committee continued to:
· recognise how the evolution of the Group impacted on remuneration policies and reward design proposals
· focus on aligning remuneration structures across the Group.
Activities of the Remuneration Committee
The Remuneration Committee met 10 times during 2014. The key issues discussed/approved were:
January to March
· 2013 Directors' remuneration report
· Approving 2014 executive Director and senior management salaries and the vesting outcomes of the long-term plans and the 2013 bonus plans
· Agreeing the 2014 Group scorecard measures
· Setting targets for the 2014 Executive LTIP and 2014 annual bonuses.
April to June
· Confirmation of the remuneration package for the appointment of the CFO
· Code staff - review of population and remuneration
· Disposal of the Canadian business.
July to September
· Disposal of the Canadian business.
October to December
· Investor consultation on restatement of targets and changes to the Executive LTIP plan rules
· Chairman's 2015 fee
· Performance in 2014.
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 tables sets out actual voting on the remuneration policy and 2013 Directors remuneration report presented at the 2014 AGM on 13 May 2014:
|
|
For |
Against |
Withheld |
|
Policy (% of total votes cast) |
95.8% |
4.2% |
|
|
Policy (No. of votes cast) |
894,269,807 |
39,117,295 |
35,158,952 |
|
|
For |
Against |
Withheld |
|
2013 Directors Remuneration Report (% of total votes cast) |
97.7% |
2.3% |
|
|
2013 Directors Remuneration Report (No. of votes cast) |
890,059,942 |
21,307,143 |
57,170,259 |
Promoting all-employee share ownership
We believe that share ownership by our employees helps them to understand the interests of the Company's shareholders. On 31 December 2014, 65% of our employees were Standard Life plc 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. At 31 December 2014, 3,772 employees (65% of those eligible in the UK) were making a monthly average contribution of £40. A similar tax-approved plan is used in Ireland and has a 60% take-up. Even though the plan cannot be structured on a tax-favourable basis in Germany and Austria, more than 120 employees in these countries are buying shares each month.
· The Standard Life 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 have been made annually since 2011 to UK employees and, as at 31 December 2014, just over 3,000 employees in the UK had accepted one or more of the Sharesave offers.
· The Standard Life Ireland Sharesave Plan which launched in August 2012. Invitations have been made annually from August 2012. As at 31 December 2014, 73 employees in Ireland had accepted one or more of the Sharesave Ireland invitations.
Share dilution limits
The Executive LTIP, the previous Group LTIP, the Standard Life Investments LTIP, the Standard Life (Employee) Share Plan, the Standard Life Sharesave Plan and the Standard Life Ireland Sharesave Plan contain dilution limits that comply with the guidelines produced by The Investment Association (IA). On 31 December 2014, the Company's standing against these dilution limits was:
· 2.98% where the guideline is no more than 5% in any 10 years under all discretionary share plans in which the executive Directors participate (Executive LTIP, Group LTIP and Standard Life Investments LTIP)
· 3.7% where the guideline is no more than 10% in any 10 years under all share plans (Executive LTIP, Group LTIP, Standard Life Investments 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 Executive LTIP, Group LTIP and Standard Life Investments LTIP and the Standard Life (Employee) Share Plan. On 31 December 2014, the number of unallocated shares held within these trusts was 6,470 in respect of the Standard Life (Employee) Share Plan. In addition, the trusts held 1,081,758 shares acquired to satisfy deferred bonus awards, Executive LTIP, Group LTIP and Standard Life Investments' LTIP awards and other share plan awards. Of these shares 34,653 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 IA.
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 2014, the Directors contributed £599,203 (2013: £2,869,942) to products sold by the Group.
Approval
This report was approved by the Board on 20 February 2015 and signed on its behalf by:
Lynne Peacock, Chairman, Remuneration Committee
20 February 2015
This information is provided by RNS
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