Final Results - Part 3 of 8
abrdn plc
Full Year Results 2021
Part 3 of 8
2. Board of Directors
Our business is overseen by our Board of Directors. Biographical details (and shareholdings) of the Directors as at 28 February 2022 are listed below.
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Sir Douglas Flint CBE - |
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Stephen Bird - |
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Stephanie Bruce - |
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Sir Douglas' extensive experience of board leadership in global financial services helps to focus Board discussion and challenge on the design and delivery of our strategy. His wide-ranging expertise in international, financial and governance matters is an important asset to abrdn, while his collaborative approach helps to facilitate open and constructive boardroom discussion. Previously, Sir Douglas served as chairman of HSBC Holdings plc from 2010 to 2017. For 15 years prior to this he was HSBC's group finance director, joining from KPMG where he was a partner. From 2005 to 2011 he also served as a non-executive director of bp plc. In other current roles, Sir Douglas is chairman of IP Group plc and serves as HM Treasury's Special Envoy for Financial and Professional Services to China's Belt and Road Initiative. He is also a member of the Monetary Authority of Singapore's international advisory panel, and a board member of both the International Chamber of Commerce UK and the Institute of International Finance. Additionally, he is chairman of the Just Finance Foundation, non-executive director of the Centre for Policy Studies, a member of the Global Advisory Council of Motive Partners and a member of the Hakluyt International Advisory Board. He also chairs the corporate board of Cancer Research UK and is a trustee of the Royal Marsden Cancer Charity. He holds a BAcc (Hons) from the University of Glasgow, a PMD from Harvard Business School and is a Member of the Institute of Chartered Accountants of Scotland. |
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Stephen brings a track record of delivering exceptional value to clients, creating high-quality revenue and earnings growth in complex financial markets, as well as deep experience of business transformation during periods of technological disruption and competitive change. Stephen joined the Board in July 2020 as Chief Executive-Designate, and was formally appointed Chief Executive Officer in September 2020. During 2021 he was appointed as an abrdn representative director to the US closed-end fund boards and the SICAV fund boards where abrdn is the appointed investment manager. Previously, Stephen served as chief executive officer of global consumer banking at Citigroup from 2015, retiring from the role in November 2019. His responsibilities encompassed all consumer and commercial banking businesses in 19 countries, including retail banking and wealth management, credit cards, mortgages, and operations and technology supporting these businesses. Prior to this, Stephen was chief executive for all of Citigroup's Asia Pacific business lines across 17 markets, including India and China. Stephen joined Citigroup in 1998. In 21 years with the company he held leadership roles in banking, operations and technology across its Asian and Latin American businesses. Before this, he held management positions in the UK at GE Capital, where he was director of UK operations from 1996 to 1998, and at British Steel. In other current roles, he is a member of the Financial Services Growth and Development Board in Scotland. He holds an MBA in Economics and Finance from University College Cardiff, where he is also an Honorary Fellow. |
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Stephanie was appointed Chief Financial Officer on joining the Board in June 2019. She is a highly experienced financial services practitioner with significant sector knowledge, both technical and commercial. She brings experience of working with boards and management teams of financial institutions in respect of financial and commercial management, reporting, risk and control frameworks and regulatory requirements. She is also a representative director on the board of VUMTM, our joint venture with Virgin Money. Before joining abrdn, Stephanie was a partner at PwC, leading the financial services assurance practice and a member of the Assurance Executive. Her responsibilities included client growth and services, product development, operations and quality assurance across the UK business. During her career, she has specialised in the financial services sector working with organisations across asset management, insurance and banking, with national and international operations. Stephanie is a member of the Institute of Chartered Accountants of Scotland and served as the Chair of the Audit Committee. She is an associate of the Association of Corporate Treasurers. She holds a Bachelor of Laws (LLB) from the University of Edinburgh. |
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Jonathan Asquith - |
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Catherine Bradley CBE - |
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John Devine - |
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Jonathan has considerable experience as a non-executive director within the investment management and wealth industry. This brings important insight to his roles as Senior Independent Director and Chair of our Remuneration Committee. Jonathan is a non-executive director of CiCap Limited and its regulated subsidiary Coller Capital Limited. He is also a non-executive director of Northill Capital Services Limited and a number of its subsidiaries - Vantage Infrastructure Holdings, Securis Investment Partners and Capital Four Holding A/S - as well as its holding company B-Flexion. At the end of 2020 he stepped down as deputy chairman of 3i Group plc after nearly 10 years as a board member. Previously, he has been chairman of Citigroup Global Markets Limited, Citibank International Limited, Dexion Capital PLC and AXA Investment Managers. He has also been a director of Tilney, Ashmore Group plc and AXA UK PLC. In his executive career Jonathan worked at Morgan Grenfell for 18 years, rising to become group finance director of Morgan Grenfell Group, before going on to take the roles of chief financial officer and chief operating officer at Deutsche Morgan Grenfell. From 2002 to 2008 he was a director of Schroders plc, during which time he was chief financial officer and later executive vice chairman. He holds an MA from the University of Cambridge. |
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Catherine has more than 30 years of executive experience advising global financial institutions and industrial companies on complex transactions and strategic opportunities. She brings knowledge from working across Europe and Asia, serving on the boards of leading consumer-facing companies and working with regulators and standard setters. Catherine is a non-executive director of Johnson Electric Holdings Limited and of easyJet plc, where she chairs the finance committee. She is senior independent director of Kingfisher plc and a board member of the Value Reporting Foundation, where she co-chairs the audit committee. She also chairs the investment committee of the Athenaeum Club. Previously, Catherine has served on the boards of leading industrial and consumer-facing companies in the UK, France and Hong Kong. She was appointed by HM Treasury to the Board of the Financial Conduct Authority in 2014 and played an important role in establishing the FICC Markets Standards Board in 2015. Catherine stepped down from these boards in 2020. In her executive career, Catherine held a number of senior finance roles in investment banking and risk management: in the US with Merrill Lynch, in the UK and Asia with Credit Suisse, and finally in Asia with Société Générale. She returned to Europe in 2014 to start her non-executive career. Catherine graduated from the HEC Paris School of Management with a major in Finance and International Economics. She was awarded a CBE in 2019. |
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John's previous roles in asset management, his experience in the US and Asia and his background in finance, operations and technology, are all areas of importance to our strategy. John's experience is important to the Board's discussions of financial reporting and risk management, and in his role as Chair of our Audit Committee. John was appointed a Director of our business in July 2016, at that time Standard Life plc. From April 2015 until August 2016, he was non-executive Chairman of Standard Life Investments (Holdings) Limited. He is non-executive chairman of Credit Suisse International and of Credit Suisse Securities (Europe) Limited, and a non-executive director of Citco Custody Limited and Citco Custody (UK) Limited. From 2008 to 2010, John was chief operating officer of Threadneedle Asset Management Limited. Prior to this, he held a number of senior executive positions at Merrill Lynch in London, New York, Tokyo and Hong Kong. He holds a BA (Hons) from Preston Polytechnic and is a Fellow of the Chartered Institute of Public Finance and Accounting. |
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Key to Board committees |
R Remuneration Committee RC Risk and Capital Committee A Audit Committee NC Nomination and Governance Committee CH Committee Chair |
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Hannah Grove - |
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Brian McBride - |
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Martin Pike - |
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Hannah brings more than 20 years of leadership experience in the global financial services industry. Her expertise includes leading brand, client and digital marketing and communications strategies, including those for major acquisitions, which she combines with deep knowledge of regulatory and governance matters. She is also our designated non-executive Director for employee engagement. Before joining our Board, Hannah enjoyed a 22-year career at State Street. This included 12 years as Chief Marketing Officer, retiring from the role in November 2020. She was a member of the company's management committee, its business conduct & risk and conduct standards committees, and a board member for its China legal entity. Before joining State Street, Hannah was marketing director for the Money Matters Institute, supported by the United Nations, the World Bank and private sector companies to foster sustainable development in emerging economies. Hannah has also received significant industry recognition as a champion of diversity and inclusion and is a member of the board of advisors for reboot, an organisation that aims to enhance dialogue around race both at work and across society. |
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Brian brings a wealth of digital experience and global leadership experience in both executive and non-executive directorship roles. His direct experience of developing digital strategies and solutions in consumer-facing businesses, in rapidly evolving markets, is of great benefit to the Board's discussions. He sits as a non-executive director on the boards of Standard Life Savings Limited and Elevate Portfolio Services Limited. Brian is currently chair of Trainline PLC, non-executive director of Kinnevik AB, and the lead non-executive director on the board of the UK Ministry of Defence. He is also a senior adviser to Scottish Equity Partners. In February 2022 it was announced that he will become the next president of the Confederation of British Industry (CBI), and has been appointed to the role of vice president until the CBI's AGM in June 2022. In his executive career, Brian worked for IBM, Crosfield Electronics and Dell before serving as chief executive officer of T-Mobile UK and then managing director of Amazon.co.uk. As a non-executive director, Brian has served on the boards of AO.com, the BBC, Celtic Football Club PLC, Computacenter PLC and S3 PLC, and as chair of ASOS PLC. He holds an MA (Hons) in Economic History and Politics from the University of Glasgow. |
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Martin provides broad commercial insight into strategy and risk to the Board, and to his role as Chair of our Risk and Capital Committee. He has particular knowledge of enterprise-wide risk management. His actuarial and strategic consultancy background brings a strong understanding of what drives success in the markets in which we operate. Martin was appointed as a Director of our business in September 2013, at that time Standard Life plc. He is also chairman and non-executive director of Faraday Underwriting Limited - where he sits on the audit and risk committee, and chairs the nomination and remuneration committee. In 2021 he was appointed chairman and non-executive director of AIG Life Limited, as well as becoming a member of its audit committee and chair of its remuneration committee. He joined R Watson and Sons, consulting actuaries, in 1983, and progressed his career with the firm to partner level. His senior roles included head of European insurance and financial services practice, Watson Wyatt from 2006 to 2009, vice president and global practice director of insurance and financial services, Watson Wyatt during 2009, and managing director of risk consulting & software for EMEA, Towers Watson from 2010 to 2013. Martin holds an MA in Mathematics from the University of Oxford. He is a Fellow of the Institute and Faculty of Actuaries and a Fellow of the Institute of Directors. |
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Cathleen Raffaeli - |
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Cecilia Reyes - |
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Jutta af Rosenborg - |
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Cathi has strong experience in the financial technology sector and background in the platforms sector, as well as international board experience. She brings these insights as non-executive chairman of the boards of Standard Life Savings Limited and Elevate Portfolio Services Limited. Her role provides a direct link between the Board and the platform businesses that help us connect with clients and their advisers. Cathi is managing partner of Hamilton White Group, LLC which offers advisory services, including business development, to companies in financial services growth markets. In addition, she is managing partner of Soho Venture Partners Inc, which offers third-party business advisory services. Previously, Cathi was lead director of E*Trade Financial Corporation, non-executive director of Kapitall Holdings, LLC and president and chief executive officer of ProAct Technologies Corporation. She was also a non-executive director of Federal Home Loan Bank of New York - where she was a member of the executive committee, and vice chair of both the technology committee and the compensation and human resources committee. She holds an MBA from New York University and a BS from the University of Baltimore. |
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Cecilia brings great insight from operating in leadership positions in international financial markets. Her knowledge and many years of direct experience of risk management and insurance investment management are of great benefit to the work of the Board. Before joining, Cecilia was with Zurich Insurance Group Ltd for 17 years, latterly as its group chief risk officer, leading the global function comprising risk management and responsible for its enterprise risk management framework. Prior to that, she was its group chief investment officer, responsible for execution of the investment management value chain - including analysis, development and global implementation of the group's strategy for investments. In both positions, she sat on the group's executive committee. Cecilia started her career at Credit Suisse, following which she held senior positions at ING Barings, latterly as head of risk analysis, asset management. In other current roles, she is a member of the supervisory board of NN Group N.V. and the founder of Pioneer Management Services GmbH, which seeks to develop a non-profit social enterprise. Cecilia holds a BSc from Ateneo de Manila University, an MBA from University of Hawaii and a PhD (Finance) from the London Business School, University of London. |
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Jutta has extensive knowledge of international management and strategy, from sector operational roles in a number of listed companies. Her previous experience, which includes group finance and auditing, risk management and mergers and acquisitions, allows her to offer valuable perspectives to strategic discussions. Jutta was appointed a non-executive director of Aberdeen Asset Management PLC in January 2013. She is a non-executive director of JPMorgan European Investment Trust plc and chair of its audit committee. In addition, she is a non-executive director of NKT A/S and Nilfisk Holding A/S, and chairs the audit and remuneration committees of both organisations. She is also a member of the supervisory board of BBGI SICAV S.A, where she chairs the audit committee. Previously, she was the executive vice president, chief financial officer, of ALK Abelló A/S and was chairman of Det Danske Klasselotteri A/S. A qualified accountant, she holds a Master's degree in Business Economics and Auditing from Copenhagen Business School. |
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3. Corporate governance statement
The Corporate governance statement and the Directors' remuneration report, together with the cross references to the relevant other sections of the Annual report and accounts, explain the main aspects of the Company's corporate governance framework and seek to give a greater understanding as to how the Company has applied the principles and reported against the provisions of the UK Corporate Governance Code 2018 ('the Code').
Statement of application of and compliance with the Code
For the year ended 31 December 2021, the Board has carefully considered the principles and provisions of the Code (available at www.frc.org.uk) and has concluded that its activities during the year and the disclosures made within the Annual report and accounts comply with the requirements of the Code. The statement also explains the relevant compliance with the FCA's Disclosure Guidance and Transparency Rules Sourcebook. The table on page 122 sets out where to find each of the disclosures required in the Directors' report in respect of all of the information required by Listing Rule 9.8.4 R.
1. Board leadership and company purpose
Purpose and Business model
The Board supports the Company's purpose set out on page 2 of the Strategic report, and oversees implementation of the Group's business model, which it has approved and which is set out on page 18. Pages 2 to 65 show how the evolution of the business model in 2021 supports the protection and generation of shareholder value over the long term, as well as underpinning our strategy for growth. The Board's consideration of current and future risks to the success of the Group is set out on pages 61 to 65, complemented by the report of the Risk and Capital Committee on pages 93 to 96.
Oversight of culture
The Board and the Nomination and Governance Committee play a key role in overseeing how the management of the Group assesses and monitors the culture evident within the businesses of the Group and how the desired abrdn behaviours are embedded across the Group so as to contribute to its success.
While the evolution of our culture takes time and commitment, the Board and the Executive Leadership Team (ELT) look for empowerment, curiosity and performance to sit at the heart of our culture. Our abrdn desired behaviours will help to drive this important cultural shift:
- Think and act like an owner - Thinking commercially about where we focus our time, effort and money to get the return on investment for our stakeholders.
- Focus on client and customer needs - Continually learning their needs so that they are at the heart of our decisions.
- Get it done together - Executing at pace and working across teams to deliver better outcomes, faster.
- Build the future now - Being bold in building today the solutions that our stakeholders will need for tomorrow, challenging the status quo and adapting quickly.
The principles to deliver this include:
- A performance culture enabled by a clear and effective Performance Management framework.
- A learning culture that is creative, progressive, and talent-oriented.
- Staying connected with each other.
Stakeholder engagement
Recognising their obligations under the Companies (Miscellaneous Reporting) Regulations 2018, the Annual report and accounts explains how the Directors have complied with their duty to have regard to the matters set out in section 172 (1) (a)-(f) of the Companies Act 2006. These matters include responsibilities with regard to the interests of employees, suppliers, customers, the community and the environment, all within the context of promoting the success of the Company. The table on pages 74 to 75 sets out the Board's focus on its key relationships and shows how the relevant stakeholder engagement is reported up to the Board or Board Committees. During 2021, the means to deliver effective engagement were adjusted to reflect the impact of COVID-19.
Engaging with investors
The Investor Relations and Secretariat teams support the direct investor engagement activities of the Chairman, CEO, CFO and, as relevant, Board Committee chairs. During 2021, and within COVID-19 restrictions, we carried out a programme of meetings with domestic and international investors. The wide range of relevant issues discussed included the rationale for the introduction of the client-led growth strategy, together with progress on the delivery of transformation, business strategy, financial performance and share price, capital allocation and returns to shareholders, and corporate governance, including diversity and inclusion. The Chairman, CEO and CFO bring relevant feedback from this engagement to the attention of the Board.
The Board ensures its outreach activities encompass the interests of the Company's one million individual shareholders. Given the nature of this large retail shareholder base, it is impractical to communicate with all shareholders using the same direct engagement model followed for institutional investors. Shareholders are encouraged to receive their communications electronically and around 405,000 shareholders receive all communications this way. The Company actively promotes self-service via the share portal, and since moving our registrar services to Equiniti in July 2021, more than 150,000 shareholders have signed up to this service. Shareholders have the option to hold their shares in the abrdn Share Account where shares are held electronically and around 90% of individual shareholders hold their shares in this way.
To give all shareholders easy access to the Company's announcements, all information reported via the London Stock Exchange's regulatory news service is published on the Company's website. The CEO and CFO continue to host formal presentations to support both the full year and half year financial results with the related transcript and webcast available on the Company's Investor Relations website www.abrdn.com/annualreport
The 2021 Annual General Meeting (AGM) was held in Edinburgh on 18 May 2021. COVID-19 restrictions meant that, at the time the Notice of Meeting was published, it was envisaged that shareholders would not be able to attend the meeting in person. Shareholders were invited to submit questions in advance via the Company's website and arrangements were made for an 'enhanced webcast'. This allowed shareholders to view the meeting live, and to submit questions during the meeting via a 'chat box', many of which were then posed to the Chairman by a moderator. The attendance restrictions were in fact lifted the day before the Meeting and the Company made arrangements for shareholders to attend in person should they wish to do so. The Chairman and CEO presentations addressed the main themes of the questions which had been submitted prior to the meeting. 46% of the shares in issue were voted and all resolutions were passed by at least 94% of votes cast. Resolution 15, which included measures regarding electronic participation at physical meetings, was also passed (over 99% in favour) following clarification from the Company, recognising that this had previously failed to reach the necessary threshold to pass as a special resolution at the 2020 AGM. Investor feedback had made it clear that the lack of support was in relation to an interpretation that the proposed changes to the Company's Articles of Association would allow the Company to hold virtual-only meetings. The Company confirmed that the proposed Articles would not allow the Company to hold a virtual-only AGM and added wording to clarify this in the updated Articles.
Our 2022 AGM will be held on 18 May in Edinburgh. The AGM guide 2022 will be published online at www.abrdn.com in advance of this year's meeting. The voting results, including the number of votes withheld, will be published on the website at www.abrdn.com after the meeting.
Engaging with employees
Melanie Gee continued as our designated non-executive Director to support workforce engagement up to her retirement from the Board on 31 October. She was succeeded in this role by Hannah Grove from 1 November. The Board Employee Engagement (BEE) annual plan is designed to ensure that views from employees across the business globally are heard and understood by the directors. During 2021, our direct engagement plans continued to be disrupted by the need to comply with COVID-19 restrictions so the Board used virtual means to engage with groups of employees through regular meetings and one on one interactions. A summary of the various BEE initiatives is covered below.
All employee surveys
Because the Company implemented a comprehensive Group-wide Viewpoints survey during the year - which featured many employee experience-related questions, and which followed on from several COVID 19 related employee surveys in 2020 - no additional BEE specific surveys were undertaken. The Board continued to monitor how the actions to address the Viewpoints survey responses were being taken forward.
Meet the NEDs events
To enable employees to engage with the Directors directly and learn more about how the Board operates, Melanie chaired three virtual Meet the NEDs sessions during the year for team members in the UK/EMEA, Americas and APAC regions. More than 130 colleagues attended and topics covered in the sessions included:
- Strategic direction, Growth and the Future shape of the Group.
- Remuneration policy including variable compensation philosophy and practice.
- Diversity and culture.
- Brand change and roll out.
- NED understanding of employee sentiment and key issues.
NED Engagement event
In addition to the more formal Meet the NEDs events, Melanie chaired an informal virtual social session attended by 10 colleagues who had previously attended the physical 2019/2020 engagement dinners. The discussion covered:
- Thoughts on future ways of working and capturing lessons learned though the pandemic.
- Addressing technology challenges from hybrid working.
- How the use of Microsoft Teams was improving cross-border communication and collaboration.
The BEE Group
Melanie chaired a session of the BEE Group attended by representatives from the employee Networks, the D&I team, the UK employee forum, Regional HR representatives, the CEO office, and the Communications, and Sustainability reporting teams. The topics discussed included:
- Employee engagement in the new Brand rollout.
- Employee input to the New Ways of Working rollout.
- Results from the Viewpoints survey and initial response action plans.
- Regional initiatives to support employees during the pandemic.
At each Board meeting, Melanie gave a report on BEE activities, including the issues that had been raised through the discussions, and the Board considered how the ELT, in particular the Chief People Officer, the Chief Brand, Marketing and Corporate Affairs Officer and the COO, are taking forward the points raised.
After a transition with Melanie, and considering the lessons learned from the first two years of the BEE programme, as well as a scan of external best practices, Hannah Grove took time to reflect on how she would take forward her designated NED role, bearing in mind the key objectives around ensuring the Board hears employee viewpoints, and that employees understand the role of the board. Her plan was approved by the Board in December 2021 and next year's annual report and accounts will report on how she has developed and implemented the programme in 2022.
Summary of Stakeholder engagement activities
In line with their obligations under s.172 of the Companies Act 2006, the Directors consider their responsibilities to stakeholders in their discussions and decision-making.
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Key stakeholders |
Direct Board engagement |
Indirect Board engagement |
Outcomes |
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Clients |
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- The CEO meets regularly with key clients (virtually and/or in compliance with all applicable pandemic restrictions) and reports to the Board on such meetings. - The CEO has regular calls with his opposite number at Phoenix Group, our largest client, and reports back to the Board. - The CEO, sometimes supported by the Chairman, takes part in key client pitches to hear directly from clients on their requirements (again virtually when pandemic restrictions were in place). - The Chairman meets with key clients at conferences and industry membership boards where he represents the Group. - The Board members feed into Board discussions any feedback received directly from clients. |
- The heads of the Growth Vectors report at Board meetings on key client engagement, support programmes and client strategies. - Market share data and competitor activity are reported to the Board. - Analysis of the outcome of client proposals (successful or otherwise) is reported to the Board. Results of client perceptions survey/customer sentiment index are reported. |
- Engagement supported the development of the key client management process, and our client solutions and ESG approaches. - The creation of the Growth Vectors was designed to position the business around client needs with performance accountability measured on that basis. - Investment processes are driven by understanding client needs and designing appropriate solutions taking into account client risk appetite and sophistication. |
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Our people |
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- Meet the NEDs BEE engagement sessions for a diverse mix of staff at all levels allow direct feedback in informal settings. - Employee engagement NED in place and active with the employee diversity networks as well as with employees through their representatives. The BEE NED reports regularly to the CEO and the Board. - Each year, the Chairman and NEDs all mentor one or two CEO-1 or -2 level emerging talent. - The CEO and CFO run 'Town Hall' sessions. |
- The Chief People Officer(CPO) reports to the Nomination and Governance Committee meeting on key hires and employee issues including development needs to support succession planning. - The CPO produces a regular report for the Board drawing out key factors influencing staff turnover, morale and engagement. - Viewpoints and employee surveys collect aggregate, regional, functional and business group trend data which is reported to the Board. |
- Engagement feedback recognised in Board discussions on new ways of working. - Engagement feedback is a key input to talent and development programmes and the design of reward philosophy. |
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Key stakeholders |
Direct Board engagement |
Indirect Board engagement |
Outcomes |
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Society |
Business partners/ supply chain
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- The CEO leads on relationships with key business partners and reports back to the Board. - The Risk and Capital Committee reviews the dependency on critical suppliers and how they are managed. - The Audit Committee leads an assessment of external audit performance and service provision. - The Board received detailed papers supporting the outsourcing of a number of technology services, including the renegotiation of the Group's contracts with FNZ in relation to the Adviser business and the revisions made to the Group's relationship with Phoenix. |
- COO attends Board meetings regularly and reports on first line key supplier relationships and their role in transition and transformation activities. - Supplier surveys undertaken. - Tendering process includes smaller level firms. - Access and audit rights in place with key suppliers. - Modern slavery compliance process in place. - Procurement/payment principles in place. - Certain key suppliers regularly discussed at Audit Committee, Risk and Capital Committee and Board.
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- Transformation discussions have included a focus on the quality, service provision, availability and costs of relevant suppliers. - The overriding guidelines for business partnerships have been established as working for both parties and creating efficient operations. - The Board sought assurance on the ability of key suppliers to continue to operate during the pandemic and the transition to working from home (WFH.) |
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Communities
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- Board members present at relevant events and conferences. - Chairman/CEO/CFO represent the Group on public policy and community organisations. - Board is kept up to date with the activities of the abrdn Financial Fairness Trust. |
- Stewardship/sustainability teams report regularly to the Board. - Feedback on annual Stewardship and TCFD reports. - Review of charitable giving strategy. - ESG commercialisation presentations to the Board. |
- Considered as input to the Group's culture and strategic drivers and charitable giving programmes. - Engagement drives the expression of our purpose. |
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Regulators/ policymakers/ governments
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- Regular engagement by CEO, Chairman and Committee Chairs. - FCA has access to the Board. - 'Dear Board/CEO' letters issued from regulators. - Relevant engagement with regulators in overseas territories. |
- Chief Risk Officer (CRO) updates at every Board meeting. - Board hears reports on the results of active participation through industry groups. |
- Relevant Board decisions recognise regulatory impact and environment. |
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Shareholders |
Strategic partners
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- CEO has taken on detailed handling of the Phoenix and Citigroup relationships with regular meetings with his opposite numbers. - CFO representation on the VMUTM board. - ED direct meetings with core suppliers. |
- Specific updates in CEO report to the Board. - As appropriate, reports to Board/ Committees from representative Directors. - ELT members serve on the Phoenix and HDFC AMC Boards. |
- The development of our business through our relationships with Strategic partners is a critical element of the Board's strategy. |
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Shareholders
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- Results, AGM presentations and Q&A. - Chairman, CEO and CFO meetings with investors. - Chairman, Committee Chairs, Senior Independent Director and BEE NED round table with governance commentators. - Remuneration Committee Chair meetings with institutional investors. - Chairman/CEO/CFO direct shareholder correspondence. |
- Regular updates from the EDs/ Investor Relations Director/ Chairman/Chairman of Remuneration Committee summarising the output from their programmes of engagement. - Analyst/Investor reports distributed to the Board. - As relevant, feedback from corporate brokers. - Publication of Shareholder News. - Dedicated mailbox and shareholder call centre team. |
- Engagement supported the clarification at the 2021 AGM that the Board was not recommending that we move to virtual AGMs, but was increasing the possibilities for remote participation. |
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Speaking up
The workforce has the means to raise concerns in confidence and anonymously, and these means are well communicated. The Audit Committee's oversight of the whistleblowing policy and the Audit Committee Chairman's role to report to the Board on whistleblowing matters is covered in the Audit Committee report on page 90.
Outside appointments and conflicts of interest
The Board's policy encourages executive Directors to take up one external non-executive director role, as the Directors consider this can bring an additional perspective to the Director's contribution. At the moment, Stephen Bird and Stephanie Bruce have representative director roles, either on the board of one of our joint ventures or on fund boards where abrdn is the appointed investment manager, but they do not have any external NED roles and they continue to explore opportunities.
Any proposed additional appointments of the NEDs are firstly discussed with the Chairman and then reported to the Nomination and Governance Committee prior to being considered for approval. The register of the Board's collective outside appointments is reviewed annually by the Board. Directors' principal outside appointments are included in their biographies on pages 68 to 71.
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. As part of the process to approve the appointment of a new Director, the Board considers and, where appropriate, authorises their 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 relevant group policies. At the start of every Board and Committee meeting, Directors are requested to declare any actual or potential conflicts of interests.
In January 2022, 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 February 2024. 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 and relevant Committees follow this process when appropriate.
2. Division of responsibilities
The Group operates the following governance framework.
Governance framework
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- The updated strategy and the 2022 to 2024 business plan to implement the strategy. - Capital adequacy and allocation decisions including the decision to sell stakes in HDFC Life and HDFC AMC, our Nordic real assets business and Parmenion. - Oversight of culture, our standards and ethical behaviours. - Dividend policy including the decision framework governing when to return the dividend to growth. - Financial reporting, including the impact of moving Phoenix and HDFC AMC from associate to investment status. - Risk management, including the Enterprise Risk Management (ERM) framework, risk strategy, risk appetite limits and internal controls and in particular how this was adapted for COVID-19.
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- Significant corporate transactions including the acquisition of Finimize, and the proposed acquisition of interactive investor. - The company rename and rebrand, alongside the sale of the Standard Life brand to Phoenix. - Succession planning, in particular in the Investments vector. - The quarterly performance of the investment business. - The ESG approach, both as an issuer and as an asset manager. - Significant external communications. - The work of the Board Committees. - Appointments to the Board and to Board Committees. - Matters escalated from subsidiary boards to the Board for approval.
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The Board regularly reviews reports from the Chief Executive Officer and from the Chief Financial Officer on progress against approved strategies and the business plan, as well as updates on stock market and global economic conditions. There are also regular presentations from the vector CEOs and business functional leaders. |
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Chairman - Leads the Board and ensures that its principles and processes are maintained. - Promotes high standards of corporate governance. - Together with the Company Secretary, sets agendas for meetings of the Board. - Ensures Board members receive accurate, timely and quality information on the Group and its activities. - Encourages open debate and constructive discussion and decision-making. - Leads the performance assessments and identification of training needs for the Board and individual Directors. - Speaks on behalf of the Board and represents the Board to shareholders and other stakeholders. |
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Chief Executive Officer (CEO) The CEO operates within authorities delegated by the Board to: - Develop strategic plans and structures for presentation to the Board. - Make and implement operational decisions. - Lead the other executive Director and the ELT in the day-to-day running of the Group. - Report to the Board with relevant and timely information. - Develop appropriate capital, corporate, management and succession structures to support the Group's objectives. - Together with the Chairman, represent the Group to external stakeholders, including shareholders, customers, suppliers, regulatory and governmental authorities, and the local and wider communities. |
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Senior Independent Director (SID) The SID is available to talk with our shareholders about any concerns that they may not have been able to resolve through the channels of the Chairman, the CEO or Chief Financial Officer, or where a shareholder considered these channels as inappropriate. The SID leads the annual review of the performance of the Chairman. |
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Non-executive Directors (NED) The role of our NEDs is to participate fully in the Board's decision-making work including advising, supporting and challenging management as appropriate. |
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Nomination and Governance Committee (N&G) - Board and Committee composition and appointments. - Succession planning. - Governance framework. - Culture, Diversity & Inclusion. |
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Audit Committee (AC) - Financial Reporting. - Internal audit. - External audit. - Whistleblowing. - Anti-Financial crime. - Regulatory financial reporting. |
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Remuneration Committee (RC) - Development and Implementation of remuneration philosophy and policy. - Incentive design and setting of executive director targets. - Employee benefit structures. |
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Risk and Capital Committee (RCC) - Risk management framework. - Compliance reporting. - Risk appetites and tolerances. - Transactional risk assessments. - Capital adequacy. |
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Executive leadership team (ELT) The ELT supports the CEO by providing clear leadership, line of sight and accountability throughout the business. The ELT is responsible to the CEO for the development and delivery of strategy and for leading the organisation through challenges and opportunities. |
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Growth Vectors Vector CEOs support the CEO to deliver Growth across the business: - Investments. - Adviser. - Personal. |
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Talent The Chief People Officer (CPO) supports the CEO in developing talent management and succession planning and culture initiatives. |
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Efficient Operations Strategy, Operations, Legal and Finance ELT members support the CEO by overseeing global functions and the delivery of functional priorities. |
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Control The Chief Risk Officer (CRO) supports the ELT and the CEO in their first line management of risk. |
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The framework is formally documented in the Board Charter which also sets out the Board's relationship with the boards of the key subsidiaries in the Group. In particular, it specifies the matters which these subsidiaries refer to the Board or to a Committee of the Board for approval or consultation.
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You can read the Board Charter on our website www.abrdn.com |
Board balance and director independence
The Directors believe that at least half of the Board should be made up of independent non-executive Directors. As at 28 February 2022, the Board comprises the Chairman, nine independent non-executive Directors and two executive Directors. The Board is made up of six men (50%) and six women (50%) (2020: men 55%, women 45%).
As announced, Jutta af Rosenborg and Martin Pike will retire at the conclusion of the 2022 AGM and will not offer themselves for re-election.
The Chairman was independent on his appointment in December 2018. The Board carries out a formal review of the independence of non-executive Directors annually. The review considers 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. Jutta af Rosenborg served on the Aberdeen Asset Management PLC (AAM PLC) board, which she joined in January 2013 prior to the transaction with Standard Life plc (2017). The Board does not consider that Jutta's length of service has had any negative impact on her independence. Following this review, the Board has concluded that all the non-executive Directors are independent and consequently, the Board continues to comprise a majority of independent non-executive Directors.
Jonathan Asquith served as Senior Independent Director throughout 2021. In this role, he is available to provide a sounding board to the Chairman and serve as an intermediary for the other Directors and the shareholders. He also led the process to review the Chairman's performance.
The roles of the Chairman and the CEO are separate and are summarised on page 77. Each has clearly defined responsibilities, which are described in the Board Charter.
The Directors have access to the governance advice of the Company Secretary whose appointment and removal is a matter reserved to the Board.
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You can read more about our Directors in their biographies in Section 2. |
3. Board composition, succession, diversity and evaluation
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 Board continues to support its Board Diversity statement which states that the Board:
- Believes in equity and supports the principle that the best person should always be appointed to the role with due regard given to the benefits of diversity, including gender, ethnicity, age, and educational and professional background when undertaking a search for candidates, both executive and non-executive.
- Recognises that diversity can bring insights and behaviours that make a valuable contribution to its effectiveness.
- Believes that it should have a blend of skills, experience, independence, knowledge, ethnicity 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 CEO's commitment to achieve and maintain a diverse workforce and an inclusive workplace, both throughout the Group, and within the ELT.
- Has a zero tolerance approach to unfair treatment or discrimination of any kind, both throughout the Group and in relation to clients and individuals associated with the Group.
Board Diversity
Gender
Diagram removed for the purposes of this announcement. However it can be viewed in full in the pdf document.
Nationality
Diagram removed for the purposes of this announcement. However it can be viewed in full in the pdf document.
Diversity activities and progress to meet our targets are covered in the Our people section of the Strategic report on page 38. The ELT's diversity policy is covered in the Inclusion and Diversity section of the Directors' report on page 120.
Board changes during the period are covered above and in the Directors' report on page 119.
Ethnicity
Diagram removed for the purposes of this announcement. However it can be viewed in full in the pdf document.
Board appointment process, terms of service and role
Board appointments are overseen by the Nomination and Governance Committee and you can read more about this on page 98.
Each non-executive Director is appointed for a three-year fixed term and shareholders vote on whether to elect/re-elect them 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. Taking account of their appointment dates to the predecessor boards where relevant, the current average length of service of the non-executive Directors is three years. For any NEDs who have already served two three-year terms, the Nomination and Governance Committee considers any factors which might reflect on their independence or time commitment prior to making any recommendation to the Board. During 2021, the Committee reviewed and supported the recommendation that the Chairman and Cathi Raffaeli's appointments be continued for a second term.
The letter of appointment confirms that the amount of time each non-executive Director is expected to commit to each year, once they have met all of the approval and induction requirements, is a minimum of 35 days. The service agreements/letters of appointment for Directors are available to shareholders to view on request from the Company Secretary at the Company's registered address (which can be found in the Shareholder information section) and will be accessible for the 2022 AGM. Non-executive Directors are required to confirm that they can allocate sufficient time to carry out their duties and responsibilities effectively. Their letters of appointment confirm that their primary roles include challenging and holding to account the executive directors as well as appointing and removing executive directors.
External search consultants may be used to support Board appointments. MWM Consulting was engaged to support the appointments of Hannah Grove, Catherine Bradley as well as Mike O'Brien and Pam Kaur. The Group has additionally used the services of MWM Consulting to support other senior management searches.
Director election and re-election
At the 2022 AGM, all of the current Directors will retire. Hannah Grove and Catherine Bradley, having been appointed since the previous AGM, will retire and stand for election. All the other Directors, who wish to continue in office, will stand for re-election. As announced, Mike O'Brien and Pam Kaur will be proposed for election with effect from 1 June 2022 and Jutta af Rosenborg and Martin Pike will retire at the conclusion of the 2022 AGM.
As well as in Section 2, the AGM guide 2022 includes more background information about the Directors, including the reasons why the Chairman, following their annual reviews, believes that their individual skills and contribution support their election or re-election.
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You can read more about the Directors' outside appointments in their biographies in Section 2. |
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 Company Secretary.
Board effectiveness
Review process
The Board commissions externally facilitated reviews regularly. The last external review was held in 2019 with the 2020 and 2021 reviews having been conducted internally. The 2022 review will be facilitated externally.
To carry out the review, the Company Secretary met with each Director individually and gathered their views on the Board's performance over the period and their recommendations on how its effectiveness could be strengthened. Progress on implementing the recommendations from the 2020 review was also discussed. Following this, the Company Secretary prepared a draft report for initial review and discussion with the Chairman. The Board then reviewed and discussed the report.
Outcome
As part of the process, the Board recognised the relevant internal and external factors which it had needed to take account of during the year. These included living with and planning to move beyond COVID-19 and the impact of introducing new ways of working, continuing regulatory uncertainty arising from the outcome of the Brexit negotiations, increasing external expectations on the quality of external reporting, with a particular focus on enhancing ESG, culture and diversity reporting, and the continuing challenges of managing virtual Board meetings, recognising that the Directors had been able to gather in person as a complete board on only a couple of occasions since March 2020. Internally, the main factor was the leadership of the CEO in his first full year in the role.
Taking all of this into account, the Board believes that it performed effectively during 2021. Arising from the review the Board looks to see continued developments in these areas:
- Increased informal Board interaction, likely to be a mix of virtual and in person, to allow Board members to get to know each other better and learn from each other.
- Creating more agenda time to discuss and measure ESG and culture, making sure these matters have a clear link to corporate strategy and its execution.
- Specifically within the restrictions of not being able to be together physically, using the Board's time together in virtual meetings as effectively as possible so that all agenda items have full discussion time, while Board members remain aware of the challenges brought by continuing virtual interaction.
Progress to implement the recommendations is monitored by the Company Secretary and the CEO's office and reported to the Nomination and Governance Committee.
Chairman
The review of Sir Douglas's performance as Chairman was led by the SID, Jonathan Asquith. It was based on feedback given in the Company Secretary's individual interviews with each Director as well as focused discussions between the SID and the other Directors.
Through these meetings, Jonathan Asquith sought feedback on: the Chairman's overall leadership role; his relationships with the EDs and the NEDs; Boardroom behaviours; and any development areas to take
forward in 2022.
The Company Secretary summarised the feedback into a draft report which was reviewed and agreed by the SID and distributed to all Board members, except Sir Douglas. The Directors, led by Jonathan Asquith and without Sir Douglas being present, met to consider the report. They concluded that in his third year as Chairman, Sir Douglas had performed his role very effectively and shown strong leadership of the Board. He continued to bring his inclusive yet suitably challenging style to the Boardroom, encouraging, and allowing time for all Board members to participate fully, and he continued to build strong relationships with the EDs while supporting the NEDs in challenging and holding the ELT to account. All the Directors were looking forward to continuing to work with him, individually and collectively, to deliver continued progress in 2022. Jonathan Asquith met with Sir Douglas to pass feedback from the review directly to him.
Directors
The Chairman met each Director individually to discuss their performance during 2021. These discussions considered individual training, development and engagement opportunities and any agreed development actions are taken forward by the individual Director together with the Company Secretary and the Chairman.
Director induction and development
The Chairman, supported by the Company Secretary, is responsible for arranging a comprehensive preparation and induction programme for all new Directors. The programme takes their background knowledge and experience into account. If relevant, Directors are required to complete the FCA's approval process before they are appointed and Directors self-certify annually that they remain competent to carry out this aspect of their role. These processes continue to adapt to meet evolving best practice in respect of the Senior Managers and Certification Regime.
The formal preparation and induction programme includes:
- Meetings with the executive Directors and the members of the ELT.
- Focused technical meetings with internal experts on specific areas including the three growth vectors, regulatory reporting, ESG, conduct risk, risk and capital management, and financial reporting.
- Visits to business areas (when permitted by COVID-19 restrictions) to meet our people and gain a better insight into the operation of the business and its culture.
- Meetings with the external auditors and contact with the FCA supervisory teams.
- Meetings with the Company Secretary on the Group's corporate governance framework and the role of the Board and its Committees, and with the Chief Risk Officer on the risk management framework as well as meetings on their individual responsibilities as holders of a Senior Management Function role.
Background information is also provided including:
- Key Board materials and information, stakeholder and 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.
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 its Committees and to support them as they build their knowledge and strengthen their performance further.
When Directors are appointed to the Board, they make a commitment to broaden their understanding of the Group's business. The Secretariat, Finance, Risk and Reward teams monitor relevant external governance and risk management, financial and regulatory developments and keep the ongoing Board training and information programme up to date. Specific Board and Committee awareness and deep-dive sessions took place on:
- The activity of the ESG investment team and the broader Enabling ESG programme.
- The Group's pension schemes.
- The pending Investment Funds Prudential Regime.
- Governance and oversight of investment risk.
- Cyber and operational resilience.
- External audit reform.
4. Audit, risk and internal control
The Directors retain the responsibility to state that they consider the Annual report and accounts, taken as a whole, is fair, balanced and understandable and presents an assessment of the Company's position and prospects. They also recognise their responsibility to establish procedures to manage risk and oversee the internal control framework. You can read their responsibilities statement on page 123. The reports from the Audit Committee and the Risk and Capital Committee Chairmen show how they have supported the Board in meeting these responsibilities.
The Board's view of its principal and emerging risks and how they are being managed is contained in the risk management section of the Strategic report on pages 61 to 65.
Annual review of internal control
The Directors have overall responsibility for the governance structures and systems of the group, which includes the 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 risks as set out in the risk management section of the Strategic report.
In line with the requirements of the Code, the Board has reviewed the effectiveness of the system of internal control. The Audit Committee undertook the review on behalf of the Board and reported the results of its review to the Board. The system was in place throughout the year and up to the date of approval of the Annual report and accounts 2021.
A review of abrdn's risk management and internal control systems was carried out drawing on inputs across the three lines of defence. The first line management conducted risk and control self-assessments (RCSAs) throughout 2021; Risk & Compliance undertook a review of the effectiveness of the ERM framework (including RCSAs) and how internal controls were operating within the first line; and, Internal Audit produced a Control Environment Assessment using abrdn's risk taxonomy. Collectively these provide a view of the firm's control environment from each of the three lines of defence. The review did not identify any weaknesses that are deemed significant to the overall view that the system of controls was effective in 2021 and there are plans to improve the controls as required.
2021 has seen the business continue to embed and mature the abrdn risk and control practices within each business vector to promote management of risk and control across the organisation. Technology advances and regulatory developments such as UK SoX, IFPR and the Operational Resilience regulation are driving further change in the design of operational processes and internal controls.
The Finance function operates a set of defined processes which operate over all aspects of financial reporting, which includes the senior review and approval of financial results from business unit finance heads, controlled processes for the preparation of the IFRS consolidation, and the monitoring of external policy developments to ensure these are adequately addressed. These processes include the operation of a Technical Review Committee and the Financial Reporting Executive Review Group to provide senior review, challenge and approval of relevant disclosures, accounting policies, and changes required to comply with external developments. The Board's going concern statement is on page 122 and the Board's viability statement is on page 59.
5. Remuneration
The Directors' remuneration report (DRR) on pages 100 to 116 sets out the work of the Remuneration Committee and its activities during the year, the levels of Directors' remuneration and the shareholder approved remuneration policy. The Company's approach to investing in and rewarding its workforce is set out on page 111 of the DRR and in the Reward section of the Directors' report on page 120. The Board believes that its remuneration policies and practices are designed to support strategy and long-term sustainable success. You can read about the policies and practices in the DRR.
Other information
You can find details of the following, as required by Disclosure and Transparency Rule 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.
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, sometimes, in past years unaffected by COVID-19 restrictions, at the offices of one of our overseas locations. 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 during the year, formally at each Board meeting, and informally, without the executive Directors present and where matters including executive performance and succession and Board effectiveness were discussed. The Board scheduled eight formal meetings and a focused strategy meeting in 2021. Additional Board meetings were called in 2021 in relation to Board decisions regarding the changes to the Phoenix relationship and the recommendation to acquire the interactive investor business.
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 distributed before meetings other than, by exception, urgent papers which may need to be tabled at the meeting. 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 Company Secretary. If necessary, they can follow up with the Chairman of the meeting. Recognising that some Directors may have existing commitments they cannot change at very short notice, the Board has established the Standing Committee as a formal procedure for holding unscheduled meetings. The Standing Committee meets when, exceptionally, decisions on matters specifically reserved for the Board need to be taken urgently. All Directors are invited to attend Standing Committee meetings. The Standing Committee met once during 2021 with regard to the recommendation to acquire the Finimize business.
The Chairman is not a member of the Audit, Risk and Capital, or Remuneration Committees. He may attend meetings of all Committees, by invitation, in order to keep abreast of their discussions. The table below reflects the composition of the Board and Board Committees during 2021 and records the number of meetings and members' attendance.
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Board |
Group Audit Committee |
Nomination and Governance Committee |
Remuneration Committee |
Risk and Capital Committee |
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Chairman |
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Sir Douglas Flint |
12/12 |
-- |
4/4 |
- |
- |
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Executive Directors |
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Stephanie Bruce |
12/12 |
- |
- |
- |
- |
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Stephen Bird |
12/12 |
- |
- |
- |
- |
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Non-executive Directors |
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Jonathan Asquith |
12/12 |
- |
4/4 |
9/9 |
- |
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Brian McBride |
12/12 |
- |
- |
9/9 |
- |
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John Devine |
11/12 |
6/6 |
3/4 |
- |
10/10 |
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Hannah Grove1 |
4/4 |
- |
1/1 |
- |
- |
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Martin Pike |
12/12 |
6/6 |
4/4 |
- |
10/10 |
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Cathleen Raffaeli |
12/12 |
- |
- |
9/9 |
10/10 |
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Cecilia Reyes |
12/12 |
- |
- |
9/9 |
10/10 |
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Jutta af Rosenborg |
12/12 |
6/6 |
- |
9/9 |
- |
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Former members |
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Melanie Gee (stood down on 31 October 2021) |
10/10 |
4/5 |
3/3 |
- |
- |
1. Hannah Grove was appointed to the Board and the Nomination and Governance Committee on 1 September 2021
Tenure as at February 2022 |
Executive and Non-executive mix |
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Diagram removed for the purposes of this announcement. However it can be viewed in full in the final document |
Diagram removed for the purposes of this announcement. However it can be viewed in full in the final document |
Board Committees
Diagram removed for the purposes of this announcement. However it can be viewed in full in the final document
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. This includes reporting from the Chairman of the Audit Committee on any whistleblowing incidents which have been escalated to him. The Committees operate within specific terms of reference approved by the Board and kept under review by each Committee.
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These terms of reference are published within the Board Charter on our website at www.abrdn.com |
All Board Committees are authorised to engage the services of external advisers at the Company's expense, whenever they consider this necessary.
Committee reports
This statement includes reports from the chairmen of the Audit Committee, the Risk and Capital Committee and the Nomination and Governance Committee. The report on the responsibilities and activities of the Remuneration Committee can be found in the Directors' remuneration report in Section 3.4.
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The Committee Chairmen are happy to engage with you on their reports. Please contact them via questions@standardlifeaberdeenshares.com |
3.1 Audit Committee report
The Audit Committee assists the Board in discharging its responsibilities for external financial reporting, internal controls over financial reporting and the relationship with the External auditors.
I am pleased to present my report as Audit Committee Chairman.
During the year and up to the date of issuing the annual report, the Committee:
- Discussed and reviewed the impact on financial reporting of the Tritax and Finimize acquisitions.
- Discussed the financial information required to be included in the Class 1 Circular in relation to the proposed acquisition of interactive investor.
- Considered the impact on the internal audit function of Chief Internal Auditor changes.
- Reviewed reporting on financial crime and anti-money laundering controls.
- Received reports on compliance with the FCA Client Assets Sourcebook (CASS) rules in the Company's CASS permissioned regulated legal entities.
The Committee also continued to focus on the quality of financial reporting.
The report is structured in four parts:
1. Governance
2. Report on the year
3. Internal audit
4. External audit
John Devine
Chairman, Audit Committee
3.1.1 Governance
Membership
All members of the Audit Committee are independent non-executive Directors. For their names, the number of meetings and committee member attendance during 2021, please see the table on page 82.
The Board believes Committee members have the necessary range of financial, risk, control and commercial expertise required to provide effective challenge to management, and have competence in accounting and auditing as well as recent and relevant financial experience. John Devine is a member of the Chartered Institute of Public Finance and Accounting. Jutta af Rosenborg is also a qualified accountant. Martin Pike is a fellow of the Institute and Faculty of Actuaries. The Committee members are also members of audit committees related to their other NED roles.
Invitations to attend Committee meetings are extended on a regular basis to the Chairman, the Chief Executive Officer, the Chief Financial Officer, the Group Financial Controller, the Chief Internal Auditor and the Group Chief Risk Officer.
The Audit Committee meets privately for part of its meetings and also has regular private meetings separately with the External auditors and the Chief Internal Auditor. These meetings address the level of co-operation and information exchange and provide an opportunity for participants to raise any concerns directly with the Committee.
Key responsibilities
The Audit Committee's responsibilities are to oversee and report to the Board on:
- The appropriateness of the Group's accounting and accounting policies, including the going concern presumption and viability statement.
- The findings of its reviews of the financial information in the Group's annual and half year financial reports.
- The clarity of the disclosures relating to accounting judgements and estimates.
- Its view of the 'fair, balanced and understandable' reporting obligation.
- The findings of its review of key Group prudential returns and disclosures.
- Internal controls over financial reporting and procedures to prevent money laundering, financial crime, bribery and corruption.
- Outcomes of investigations resulting from whistleblowing.
- The appointment or dismissal of the Chief Internal Auditor, the approved Internal audit work programme, key audit findings and the quality of Internal audit work.
- The skills of the External audit team and their complianc with auditor independence requirements, the approved audit plan, the quality of the firm's execution of the audit, and the agreed audit and non-audit fees.
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 external professional advice whenever it considers this necessary. The Committee did not need to take any independent advice during the year.
In accordance with the Senior Managers and Certification Regime the Audit Committee Chairman is responsible for the oversight of the independence, autonomy and effectiveness of our policies and procedures on whistleblowing including the procedures for the protection of employees who raise concerns related to detrimental treatment. Throughout the year the Audit Committee Chairman met regularly with the Chief Internal Auditor and the Head of Anti-Financial Crime to discuss their work, findings and current developments.
Committee effectiveness
The Committee reviews its remit and effectiveness each year. The 2021 review was conducted internally by the Company Secretary meeting each of the Committee members. As well as general observations, the key performance areas considered were:
- The comprehensiveness of the Committee's agendas against members' expectations.
- How effectively agenda items were presented, discussed and time managed.
- The quality and level of detail in the papers.
- How well the Committee met its objectives and reported to the Board.
- How effectively the Chairman discharged their responsibilities.
The Committee members did not raise any material issues or concerns regarding the above areas or the overall effectiveness of the Committee during 2021. They were very supportive of the Chairman's effective role in leading the Committee through the volume of papers. The Committee members aimed to find the right balance in their discussion time to make sure that while they covered technical financial and regulatory reporting to the appropriate level, they were also able to spend enough time considering all of the other matters under their financial reporting control remit, including supporting the relationships between the finance, risk and internal audit teams. The Committee also spent time reviewing the details of the BEIS consultation paper on the future of audit, and were supportive of the final submission acknowledging that this was likely to bring future changes to their role and operations.
3.1.2 Report on the year
Audit agenda
As well as regular reporting, agenda items were aligned to the annual financial cycle as set out below:
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Jan-Mar |
- Annual report and accounts 2020. - Strategic report and financial highlights 2020. - Financial reporting judgements. - Liaison with the Remuneration Committee on any financial reporting matters related to the achievement of targets and measures. - External auditors' review of Full year results. - Financial crime and Whistleblowing. |
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Apr-Jun |
- Internal audit findings. - CASS reporting update. - Regulatory reporting including Pillar 3. - Initial financial reporting matters for Half year 2021. - Financial crime and Whistleblowing. - External auditors' management letter, and audit strategy including fees. - BEIS White Paper on audit reform. |
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Jul-Sep |
- Half year results 2021. - External auditors' review of Half year results. - External auditors' independence. - Internal audit findings. - Financial crime and Whistleblowing. |
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Oct-Dec |
- Initial financial reporting matters for Full year 2021. - Non-audit services policy. - The Internal audit plan and charter. - Internal audit findings. - Effectiveness of the External auditors and related non-audit services. - Effectiveness of the Internal Audit function. - Financial crime and Whistleblowing. - Risk management and internal control system annual review and future plans. - CASS reporting update. |
The indicative proportion of time spent on the business of the Committee is illustrated below:
Diagram removed for the purposes of this announcement. However it can be viewed in full in the final document.
Detail of work
The focus of work in respect of 2021 is described below.
Financial reporting
Our accounts are prepared in accordance with International Financial Reporting Standards (IFRS). The Committee believes that some Alternative Performance Measures (APMs), which are also called non-GAAP measures, can add insight to the IFRS reporting and help to give shareholders a fuller understanding of the performance of the business. The Committee considered the presentation of APMs and related guidance as discussed further in the 'Fair, balanced and understandable' section below.
The Committee reviewed the Group accounting policies and confirmed they were appropriate to be used for the 2021 Group financial statements. This year there were no new accounting standards which had a significant impact on the Group accounting policies. The Committee considered changes to the Group's segments to be used for 2021 reporting and agreed that these changes were appropriate. In 2021, the Committee also considered proposed changes to the presentation of the IFRS consolidated income statement and agreed that these changes made the financial statements more relevant to users as the presentation was more consistent with peers.
The Committee reviewed the basis of accounting and in particular the appropriateness of adopting the going concern basis of preparation of the financial statements. In doing so, it considered the Group's cash flows resulting from its business activities and factors likely to affect its future development, performance and position together with related risks, as set out in more detail in the Strategic report. The Committee recommended the going concern statement to the Board.
In addition, the Committee considered the form of the viability statement and in particular whether the three-year period remained appropriate, and concluded that it did. This reflects both our internal planning cycle and the timescale over which changes to major regulations and the external landscape affecting our business typically take place. In formulating the statement, the Committee considered the result of stress testing and reverse stress testing presented to the Risk and Capital Committee. The Committee recommended the viability statement to the Board.
During 2021, the Committee reviewed the Annual report and accounts 2020 and the Half year results 2021. For both periods it received written and/or oral reports from the Chief Financial Officer, the Company Secretary, the Chief Internal Auditor and the External auditors. The Committee used these reports to aid its understanding of the composition of the financial statements, to confirm that the specific reporting standards and compliance requirements had been met and to support the accounting judgements and estimates. Following its reviews, the Committee was able to recommend the approval of each of the reports to the Board, being satisfied that the full and half year financial statements complied with laws and regulations and had been appropriately compiled.
The Committee discussed the continued impact of COVID-19 on the Half year results 2021 production process, and supported the steps put in place by management to ensure that controls were maintained and that the timetables remained appropriate for a remote working environment. For year end 2021 results, we were able to move to blended working, assisting the production process.
Accounting estimates and judgements
The Audit Committee considered all estimates and judgements that Directors understood could be material to the 2021 financial statements. The Committee also focused on disclosure of these key accounting estimates and judgements.
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Significant accounting estimates, judgements and assumptions for the year ended 31 December 2021 |
How the Audit Committee addressed |
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Acquisition of Tritax |
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On 1 April 2021 abrdn completed the acquisition of Tritax Management LLP, a specialist logistics real estate fund manager. abrdn purchased, through its subsidiary AAM PLC, 60% of the membership interests in Tritax. Subject to certain conditions, an additional contingent deferred earn-out is expected to be payable to acquire the remaining 40% of membership interests in Tritax should the selling partners choose to exercise put options in each of the years ended 31 March 2024, 31 March 2025 and 31 March 2026. The amount payable is linked to the EBITDA of the Tritax business in the relevant period. abrdn has the right to purchase any outstanding interests at the end of the five-year period through exercising a call option. Analysis was required to determine the appropriate accounting in relation to the 40% of membership interests in Tritax subject to put and call options.
In addition there were a number of estimates relating to the acquisition including: - The fair value of contingent consideration. - The determination and valuation of separately identifiable intangibles. |
The Committee spent time discussing the acquisition at three meetings. Following significant analysis the Committee agreed with management that Tritax should be accounted for as a 100% acquisition on 1 April 2021 with contingent consideration recognised in relation to the fair value of the earn out payments (under the put and call options) and the fair value of the expected non-discretionary allocation of profit payments to the holders of the 40% membership interests up to the expected date of the exercise of the options.
The Committee also discussed judgements relating to the recognition and valuation of intangibles and agreed with management that the material intangibles recognised should be in relation to Tritax's investment management contracts with Tritax Big Box REIT plc and Tritax Euro Box plc which are listed closed-end real estate funds. The Committee agreed that a useful life of 13 years was reasonable and that other assumptions were within a reasonable range. See Note 14 for further details.
The Committee challenged management's assumptions underlying the fair value of contingent consideration both at the date of acquisition and at 31 December 2021. The Committee noted and supported that disclosures of sensitivities to key assumptions would be provided given the inherent uncertainties in the valuation. See Note 39 for further details. |
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UK defined benefit pension plan |
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In compiling a set of financial statements, it is necessary to make some judgements and estimates about outcomes that are dependent on future events. This is particularly relevant to the defined benefit pension plan surplus which is inherently dependent on how long people live and future economic outcomes.
For the UK defined benefit pension plan, the Committee reviewed the assumptions for mortality, discount rate and inflation.
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The Committee considered the proposed assumptions taking into account market data and information from pension scheme advisors. In relation to inflation the Committee considered the long-term gap between the Retail Price Index (RPI) and the Consumer Price Index (CPI), as pensions in payment are generally linked to CPI, taking into account the 2020 announcements relating to the future of RPI. The Committee concurred with management and their actuarial advisors that mortality assumptions should not be updated for COVID-19 at this point as the impact on long term mortality rates for pension scheme members was not clear.
The Committee also considered reporting from the External auditors and related benchmarking of the pension scheme assumptions.
Note 33 of the Group financial statements provides further details on the actuarial assumptions used, and sets out the impact of mortality, discount rate and inflation sensitivities. Note 33 also provides details on the accounting policy applied and accounting policy judgements relating to the Group's assessment that it has an unconditional right to a refund of a surplus, and the treatment of tax relating to this surplus. |
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Significant accounting estimates, judgements and assumptions for the year ended 31 December 2021 |
How the Audit Committee addressed |
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Investments in associates |
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During 2020 the Group's holding in Phoenix reduced to 14.4%. As detailed in the 2020 Audit Committee report, during 2020 Phoenix was considered to be an associate notwithstanding that the holding was significantly less than 20%. The classification as an associate was based on significant influence from the contractual relationships with Phoenix, including the licencing to Phoenix of the Standard Life brand, and the Group's Board representation on the Phoenix board.
In February 2021, abrdn announced a simplification and extension of the strategic partnership with Phoenix. Determining whether Phoenix should continue to be classified as an associate following this announcement was a critical accounting policy judgement in relation to 2021.
In September 2021 abrdn announced the sale of shares in HDFC AMC reducing abrdn's shareholding from 21.2% to 16.2%. Judgement was required to consider whether HDFC AMC should continue to be classified as an associate or should be accounted for as an investment at fair value.
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The Committee discussed the implications of the announcement on
The Committee noted that following the sale, abrdn's rights to Board representation were reduced from two Directors to one and that accounting standards had a rebuttable assumption that a shareholding of less than 20% does not give rise to significant influence. The Committee concurred with management's judgement that HDFC AMC should no longer be considered an associate and that therefore accounting as an investment was appropriate, giving rise to a significant increase in the carrying value (to fair value) and a significant gain in the 2021 income statement. |
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Investments in subsidiaries In relation to the abrdn plc Company only accounts, an assessment is made at each reporting date as to whether there are any indicators of impairment in relation to investments in subsidiaries. At year end 2021 management noted that the Company's net assets attributable to shareholders of £5.9bn were higher than the Company's market capitalisation of £5.3bn. This was considered an indicator of impairment in relation to the Company's largest investment in its subsidiary AAM PLC, which had a carrying value of £2.1bn at 31 December 2021, and therefore a value in use was determined for this investment.
Management also noted indicators of impairment in relation to the Company's investment in abrdn Financial Planning Limited (aFPL).
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The Committee discussed the investments in subsidiaries impairment assessment with management and the External auditors and agreed that there was an indicator of impairment in relation to the investment in AAM PLC, noting that all other investments in subsidiaries (with the exception of aFPL) were supported by financial assets, or other relevant analysis. The Committee agreed that no impairment was required based on the AAM PLC value in use, and supported that disclosure was made in the Company accounts to set out that appropriate consideration had been given to the Company net assets being higher than the market capitalisation.
The Committee also reviewed and challenged the assumptions relating to the recoverable amount of aFPL and agreed with management that an impairment of £45m was appropriate. See Note A of the Company financial statements in Section 8 for further details.
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Principal risks are disclosed in the Strategic report and recommended to the Board by the Risk and Capital Committee. The Committee was satisfied that the estimates and quantified risk disclosures in the financial statements were consistent with the Strategic report. The Committee concluded that appropriate judgements had been applied in determining the estimates and that sufficient disclosure had been made to allow readers to understand the uncertainties surrounding outcomes.
Fair, balanced and understandable
The Committee supported the financial reporting team's continued aim to draft the Annual report and accounts to be 'fair, balanced and understandable'.
abrdn's principles
To create clarity around what abrdn means when it talks of being fair, balanced and understandable, a set of principles was developed, which can also act as an organisational definition for each aspect:
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Fair 'We are being open and honest in the way we present our discussions and analysis, and are providing what we believe to be an accurate assessment of business and economic realities.' |
- The narrative contained in the Annual report and accounts is honest and accurate. - The key messages in the narrative in the Strategic report and Governance sections of the Annual report and accounts reflect the financial reporting contained in the financial statements. - The Key Performance Indicators (KPIs) for the period are consistent with the key messages outlined in the Strategic report. |
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Balanced 'We are fully disclosing our successes, the challenges we have faced in the period, and the challenges and opportunities we anticipate in the future - all with equal importance and at a level of detail that is appropriate for our stakeholders.' |
- The Annual report and accounts presents both successes and challenges experienced during the year and, as appropriate, reflects those expected in the future. - The level of prominence we give to successes in the year versus challenges faced is appropriate. - The narrative and analysis contained in the Annual report and accounts effectively balances the information needs and interests of each of our key stakeholder groups. |
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Understandable 'The language we use and the way we structure our report is helping us present our business and its performance clearly - in a way that someone with a reasonably informed knowledge of financial statements and our industry would understand.' |
- There is a clear and easy to understand framework to the Annual report and accounts. - The layout is clear and consistent and the language used is simple and easy to understand (industry specific terms are defined where appropriate). - There is a consistent tone across and good linkage between all sections in a manner that reflects a complete story and clear signposting to where additional information can be found. |
Activities
An Internal Review Group (IRG) is in place which reviews the Annual report and accounts specifically from a fair, balanced and understandable perspective and provides feedback to our financial reporting team on whether it conforms to our standards. The members of the IRG are independent of the financial reporting team and include colleagues from Investor Relations, ESG reporting,
Risk, Communications and Strategy.
The key points discussed by the IRG covered:
- The clarity of sustainability/climate change reporting.
- The impact of markets on profitability.
- The balance of reporting on investment performance and net flows.
- How previously reported matters had been updated.
Fair, balanced and understandable guidance was provided to all key stakeholders involved in the Annual report and accounts production process .
We, as an Audit Committee, reviewed the messaging in the Annual report and accounts, taking into account material received and Board discussions during the year.
Three drafts of the Annual report and accounts 2021 were reviewed by the Audit Committee at three meetings. The Committee complemented its knowledge with that of executive management and the Internal and External auditors. An interactive process allowed each draft to embrace contributions.
Our Annual report and accounts goes through an extensive internal verification process of all content to verify accuracy.
The Committee also reviewed the use and presentation of APMs which complement the statutory IFRS results. This review considered guidelines issued by the European Securities and Markets Authority in 2016 and the thematic reviews by the Financial Reporting Council (FRC). A Supplementary information section is included in the Annual report and accounts to explain why we use these metrics and to provide reconciliations of these metrics to IFRS measures where relevant. This section also provides increased transparency over the calculation of reported financial ratios.
Adjusted operating profit and adjusted profit before tax are key profit APMs. In early 2021 the Committee discussed proposed changes to the definition of adjusted profit before tax which changed the treatment of associates and joint ventures. The Committee agreed that the changes made the results more understandable following the reclassification of HDFC Life and Phoenix from associates to equity investments, and supported the publication of a press release in Q1 2021 which set out the revised definition together with the new segments. The Committee also agreed that adjusted operating profit, which is reported at segment level, should be the primary profit APM going forwards. The Committee considered whether the allocation of items to adjusted operating profit was in line with the defined accounting policies, consistent with previous practice and appropriately disclosed. Where there were judgemental areas, such as in relation to certain costs relating to rebranding, the Committee specifically reviewed the proposed treatments and ensured that the Annual report and accounts provided appropriate disclosures.
We agreed to recommend to the Board that the Annual report and accounts 2021, taken as a whole, is fair, balanced and can be understood by someone with a reasonably informed knowledge of financial statements and our industry.
Prudential reporting
In H1 2021 the Group published Pillar 3 reporting under CRD IV. The Committee reviewed the Pillar 3 report and papers which set out the control and verification processes followed in the compilation of the report.
The Committee also considered disclosures relating to CRD IV results included in the Strategic report section of the Annual report and accounts and half year reporting, together with related assurance over these disclosures. The Committee supported also presenting regulatory results on the basis that now applies under the Investment Firm Prudential Regime.
Internal controls
As noted earlier, the Directors have overall responsibility for the Group's internal controls and for ensuring their ongoing effectiveness. This does not extend to associates and joint ventures. Together with the Risk and Capital Committee, the Committee provides comfort to the Board of their ongoing effectiveness.
Internal audit regularly reviews the effectiveness of internal controls and reports to the Committee and the Risk and Capital Committee.
The Finance function sets formal requirements for financial reporting which apply to the Group as a whole, defines the processes and detailed controls for the consolidation process and reviews and challenges reporting submissions. Further, the Finance function runs a Technical Review Committee and is responsible for monitoring external technical developments.
The control environment around financial reporting will continue to be monitored closely.
Financial crime and whistleblowing
The Committee receives regular updates from the Head of Anti-Financial Crime who reports on compliance with the Group's Anti-Financial Crime and Anti-Bribery policy, and any other activities associated with financial crime, including fraud risk. During 2021, the Committee spent time considering the implementation of the Anti-Money Laundering (AML) Transformation programme, the objectives of which are to standardise, strengthen and embed sustainable and effective controls to mitigate AML risks across the Group. For each vector, the programme is focusing on the global standards over customer due diligence, customer risk assessment, Politically Exposed Persons and sanction screening and transaction monitoring.
Our people are trained via mandatory training modules to detect the signs of possible fraudulent or improper activity and how to report concerns either directly or via our independent whistleblowing hotline. The Committee Chairman is the designated whistleblower's champion and the Committee receives regular updates on the operation of the whistleblowing procedures (Speak Up) from the Conduct and Conflicts Oversight Manager. The anonymised reports include a summary of the incidents raised as whistleblowing, and information on developments of the arrangements in place, to ensure concerns can be raised in confidence about possible malpractice, wrongdoing and other matters.
The Committee oversees the findings of investigations and required follow-up action. If there is any allegation against the Risk or Internal audit functions, the Committee directs the investigation. The Committee is satisfied that the Group's procedures are currently operating effectively. The Committee Chairman reports to the Board on the updates the Committee receives.
3.1.3 Internal audit
The role and mandate of the Internal audit function is set out in its Charter, which is reviewed and approved by the Committee annually. Whilst Internal audit maintains a relationship with the External auditors, in accordance with relevant independence standards, the External auditors do not place reliance on the work of Internal audit.
The Internal Audit plan is reviewed and approved by the Committee annually, but is flexed during the year to respond to internal and external developments. The function's coverage aligns to the Group's activities and footprint, taking account of local Internal Audit requirements.
The Committee formally assess the effectiveness of the function via a scorecard, which is aligned to the Group's objectives, along with assessing its independence and quality assurance practices. Independent external reviews are also undertaken at regular intervals. The most recent one was completed in H2 2021 by Deloitte who assessed the abrdn Internal Audit function as having the highest overall rating with conformance against all aspects of the Institute of Internal Auditors' International Professional Practices Framework (IPPF) and the Internal Audit Financial Services Code of Practice (the Standards). Two areas for improvement were identified against the Standards (skillset and resourcing and scope of quality assurance) and actions are underway to address them. The Committee met specifically to review the results of the external report and to agree the proposed actions of the Internal Audit team to take forward the recommendations.
Regular reporting is provided to the Committee to illustrate plan progress, and the status of implementation of recommendations. The Committee's own review of the function in 2021 was positive and supports the continuous evolution and enhancement of the function.
The Chief Internal Auditor reports to the Committee Chairman. During the year, regular dialogue takes place between the Committee Chairman and the Chief Internal Auditor. During 2021, the Committee oversaw the succession process to the Chief Internal Auditor, initially through an interim appointment, and subsequently, by approving the appointment of a permanent successor. 3.1.4 External auditors
The appointment
The Committee has responsibility for making recommendations to the Board on the reappointment of the External auditors, determining their independence from the Group and its management and agreeing the scope and fee for the audit. Following its review of KPMG's performance, the Committee concluded that there should be a resolution to shareholders to recommend the reappointment of KPMG at the 2022 AGM.
The Committee complies with the UK Corporate Governance Code, the FRC Guidance on Audit Committees with regard to the external audit tendering timetable, the provisions of the EU Regulation on Audit Reform, and the Competition and Markets Authority Statutory Audit Services Order with regard to mandatory auditor rotation and tendering. The Committee will continue to follow the annual appointment process but does not currently anticipate re-tendering the audit before 2026. The audit was last subject to a tender for the financial year ended 31 December 2017.
The Senior Statutory Auditor is Jonathan Mills, who, having been appointed since 1 January 2017, is completing his fifth audit as the lead audit partner. Recognising the rotational requirements to appoint a new lead audit partner for financial year 2022, during 2021 the Committee met and evaluated the experience and credentials of the potential candidates to succeed Jonathan Mills, and agreed a plan with KPMG on how to evolve the audit team to ensure a smooth handover. The Committee supported the appointment of Richard Faulkner as Senior Statutory Auditor for FY 2022.
Auditor independence
The Board has an established policy (the Policy) setting out which non-audit services can be purchased from the firm appointed as External auditors. 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 and to comply with the revised FRC Ethical standards for auditors (Ethical Standards). It does this by prohibiting the auditors from carrying out certain types of non-audit services, and by setting out which non-audit services are permitted. It also ensures that where fees for approved non-audit services are significant, they are subject to the Committee's prior approval. KPMG has implemented its own policy preventing the provision by KPMG of most non-audit services to FTSE 350 companies which are audit clients. A 70% fee cap on non-audit services to audit clients is in place.
The services prohibited by the Policy are as set out in the FRC Revised Ethical Standard 2019.
The Policy permits non-audit services to be purchased, following approval, when they are closely aligned to the External audit service and when the External audit firm's skills and experience make it the most suitable supplier.
These include:
- Audit related services, such as regulatory reporting.
- Investment circular reporting accountant engagements.
- Attesting to services not required by statute or regulation (e.g. controls reports).
- Other reports required by a regulator or assurance services relating to regulatory returns.
- Sustainability reports audits/reviews.
- Fund merger assurance engagements, where the engagement is with the manager and the external auditor is also the auditor of the fund.
During 2021 the Committee discussed the appointment of KPMG as Reporting Accountants in relation to the proposed interactive investor acquisition Class 1 Circular. The Committee considered that the appointment of KPMG was appropriate and were satisfied that the appointment did not impact auditor independence. The Committee noted that the proposed appointment required KPMG to seek a waiver from the FRC for exemption from the 70% cap on non-audit fees in relation to a subsidiary of the group that is also a public interest entity, albeit that the Reporting Accountant services were not provided to this subsidiary. A waiver was not required in relation to the abrdn group. KPMG applied for the waiver and it was granted.
KPMG has reviewed its own independence in line with these criteria and its own ethical guideline standards. KPMG has confirmed to the Committee that following its review it is satisfied that it has acted in accordance with relevant regulatory and professional requirements and that its objectivity is not impaired.
Having considered compliance with our Policy and the fees paid to KPMG, the Committee is satisfied that KPMG has remained independent.
Audit and non-audit fees
The Group audit fee payable to KPMG in respect of 2021 was £5.1m (2020: KPMG £5.2m). In addition £2.0m (2020: £2.3m) was incurred on audit related assurance services. Fees for audit related assurance services are primarily in respect of client money reporting and the half year review. The Committee is satisfied that the audit fee is commensurate with permitting KPMG to provide a quality audit and monitors regularly the level of audit and non-audit fees. Non-audit work can only be undertaken if the fees have been approved in advance in accordance with the Policy for non-audit fees. Unless fees are small (which we have defined as less than £75,000), the approval of the whole Committee is required.
Non-audit fees amounted to £2.1m (2020: £0.8m). This primarily comprised £1.1m relating to the Reporting Accountant work on the Class 1 Circular discussed above, and £0.8m (2020: £0.8m) relating to control assurance reports, which are closely associated with audit work. The External auditors were considered the most suitable supplier for these services taking into account the alignment of these services to the work undertaken by External audit and the firm's skill sets. The Committee specifically assessed whether KPMG should be appointed as the Reporting Accountant with regard to the Class 1 transaction, and were comfortable that this appointment was appropriate. A further £0.3m of non-audit fees were incurred in 2022 relating to these Reporting Accountant services. The Committee also monitors audit and non-audit services provided to non-consolidated funds and were satisfied fees for those services did not impact auditor independence.
Further details of the fees paid to the External auditors for audit and non-audit work carried out during the year are set out in Note 7 of the Group financial statements.
The ratio of non-audit fees to audit and audit related assurance fees is 30% (2020: 11%). The total of audit related assurance fees (£2m) and non-audit fees (£2.1m) is £4.1m, and the ratio of these audit related assurance fees and non-audit fees to audit fees is 80% (2020: 59%). As noted above the audit related assurance fees are primarily fees in relation to required regulatory reporting, where it is normal practice for the work to be performed by the External auditor.
The Committee is satisfied that the non-audit fees do not impair KPMG's independence.
Audit quality and materiality
The Committee places great importance on the quality of the External audit and carries out a formal annual review of its effectiveness.
The Committee looks to the audit team's objectivity, professional scepticism, continuing professional education and its relationship with management, all in the context of regulatory requirements and professional standards. Specifically:
- The Committee discussed the scope of the audit prior to its commencement.
- The Committee reviewed the annual findings of the Audit Quality Review team of the FRC in respect of KPMG's audits and requested a formal report from KPMG of the applicability of the findings to abrdn both in respect of generally identified failings and failings specific to individual audits. The Committee was satisfied insofar as the issues might be applicable to abrdn's audit, that KPMG had proper and adequate procedures in place for our audit.
- The Committee approved a formal engagement with the auditor and agreed its audit fee.
- The Committee Chairman had regular meetings with the lead audit partner to discuss Group developments.
- The Committee receives updates on KPMG's work and its findings and compliance with auditor independence requirements.
- The Committee reviewed and discussed the audit findings including audit differences prior to the approval of the financial statements. See the discussion on materiality in the following paragraphs for more detail.
- The Committee also continued to monitor and discuss relevant external matters in relation to KPMG as a firm.
KPMG adopted a blended working approach during most of the audit period. The Committee discussed this with KPMG and were satisfied that it had not impacted audit quality.
The Committee discussed the accuracy of financial reporting with KPMG both as regards accounting errors that would be brought to the Committee's attention and as regards amounts that would need to be adjusted so that the financial statements give a true and fair view. Differences can arise for many reasons ranging from deliberate errors (fraud etc.) to good estimates that were made at a point in time that, with the benefit of more time, could have been more accurately measured. KPMG have set overall audit materiality at £19m (2020: £25m). This equates to approximately 3.5% of normalised profit before tax (as set out in the KPMG independent auditors' report) and 6% of adjusted profit before tax. This is within the range in which audit opinions are conventionally thought to be reliable. To manage the risk that aggregate uncorrected differences become material, the Committee supported that audit testing would be performed to a lower materiality threshold for individual reporting units. Furthermore, KPMG agreed to draw the Committee's attention to all identified uncorrected misstatements greater than £0.95m (2020: £1.25m). The aggregated net difference between the reported pre-tax profit and the auditor's judgement of pre-tax profit was less than £6m which was less than audit materiality. The gross differences were attributable to various individual components of the consolidated income statement and balance sheet. No audit difference was material to any line item in either the income statement or the balance sheet. Accordingly, the Committee did not require any adjustment to be made to the financial statements as a result of the audit differences reported by the External auditors.
KPMG has confirmed to the Committee that the audit complies with their independent review procedures.
3.2 Risk and Capital Committee report
I am pleased to present my report as Chairman of the Risk and Capital Committee.
The Risk and Capital Committee supports the Board in providing effective oversight and challenge of risk management and the use of capital across the Group so as to ensure that we meet the expectations of our shareholders, regulators and clients.
While the risk environment remains at an elevated level as a result of ongoing business transformation activity and a challenging market environment, the Committee accepted management's assessment that the risk outlook for the Group had reduced materially from prior years.
A key area of focus for the Committee during 2021 was our response to managing the impacts of the global COVID-19 pandemic on our clients, people and business. We successfully established new ways of working to support our customers and the delivery of our business plan and we managed the impacts of the difficult economic environment.
Throughout 2021 the Committee continued to review and challenge key activities undertaken by the business and advise the Board on these, including:
- Evolution of the Enterprise Risk Management (ERM) framework.
- Key components of the Group's ICAAP and the Group's capital and liquidity.
- Management of the risks arising from the firm's third party relationships.
- Key project updates from the transformation activity across the Group.
- Conduct risks across our three growth vectors and the Group's approach to vulnerable customers.
- The Group's activity to complete the transition from LIBOR-based reference rates.
- Implementation of the UK's Investment Firms Prudential Regime (IFPR) for the Group and its key entities.
- Work to develop our approach to managing cyber resilience in line with the US National Institute of Standards and Technology (NIST) framework.
- The Group's exposure to emerging risks including climate change.
Furthermore the Committee has closely monitored developments from our regulators across the world as they have responded to the challenges brought about by the COVID-19 pandemic and progressed the regulatory agenda including in the areas of operational resilience, liquidity and third party risk management.
Further details on this and other activities carried out by the Committee during the year can be found in the report that follows.
Martin Pike
Chairman, Risk and Capital Committee
Membership
All members of the Risk and Capital Committee are independent non-executive Directors. For their names, the number of meetings and committee member attendance during 2021, please see the table on page 82.
The Committee meetings are attended by the Chief Risk Officer. Others invited to attend on a regular basis include the Chief Executive Officer, the Chief Financial Officer, Chief Operating Officer, Group General Counsel and the Chief Internal Auditor, as well as the External auditors.
Regular private meetings of the Committee's members have been held during the year providing an opportunity to raise any issues or concerns with the Chairman of the Committee. The Committee's members have also held regular private meetings with the Chief Risk Officer and have been given additional access to management and subject matter experts outside of the Committee meetings in order to support them in gaining an in-depth understanding of specific topics.
Key responsibilities
The Company's purpose results in opportunities and exposure to a range of risks and uncertainties. Understanding and actively managing the sources and scale of these opportunities and risks are key to fulfilling
this purpose.
The role of the Committee is to provide oversight and advice to the Board, and where appropriate, the board of each relevant Group company on:
- The Group's current risk strategy, material risk exposures and their impact on the levels and allocations of capital.
- The structure and implementation of the Group's ERM framework and its suitability to react to forward-looking issues and the changing nature of risks.
- Changes to the risk appetite framework and quantitative risk limits.
- Risk aspects of major investments, major product developments and other corporate transactions.
- Regulatory compliance across the Group.
Further detail on the work performed in each of these areas is set out in the report below.
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 external professional advice whenever it considers this necessary. The Committee did not need to take any independent advice during the year.
The Committee's work in 2021
Overview
The Committee operates a dynamic agenda and uses each meeting to consider a range of recurring items as well as other items that are more ad hoc and/or more forward-looking in nature. An indicative breakdown as to how the Committee spent its time is shown below:
Diagram removed for the purposes of this announcement. However it can be viewed in full in the final document.
The key recurring items which were considered by the Committee are:
- The 'Views on Risk' report which provides a holistic assessment from the Chief Risk Officer of the key risks and uncertainties faced by the Group's businesses and the actions being taken to manage these.
- Ongoing activity to enhance and develop abrdn's ERM framework, for example the Risk Appetite and Policy frameworks.
- Performance of the Group's ICAAP processes in accordance with the Capital Requirements Directive including the firm's stress and scenario testing programme. The ICAAP has supported the Committee in understanding changes to the risk profile of the Group and the capital position over the course of the year.
- Evolution of regulatory responsibilities under IFPR.
Through these recurring activities the Committee was able to challenge management's assessment of risks and to oversee the key actions being taken to manage these risks.
In addition to reviewing these recurring items the Committee provided oversight of a broad range of topics in 2021. This included consideration of:
|
Jan-Mar |
- Advice provided to the Remuneration Committee regarding the delivery of performance in 2020 relative to risk appetites. - Findings included in the 2020 Internal controls report issued for Aberdeen Standard Investments. - Monitoring of risks related to overall transformation and integration activities. - Emerging risks to the Group. - Conduct risks for the Personal vector. - abrdn's approach to vulnerable customers. - abrdn's approach to fund governance. - Managing and monitoring conflicts of interest. - Review of abrdn's principal risks and risk disclosures for the Annual report and accounts. |
|
Apr-Jun |
- Proposed changes to the risk appetite framework. - Conduct risks for the Adviser vector. - Conduct risks related to cannabis investments. - abrdn's securities lending programme. - Thematic review of pensions transfer-related activity. - Cyber risks including the Group's resilience maturity against the NIST framework. - Assessment of political and reputational risks. - Review of the remit of the Risk & Compliance function. - The liquidity risk management framework. |
|
Jul-Sep |
- Reviewing abrdn's approach and activity in relation to the FCA's Conduct Questions. - abrdn's product strategy including in relation to seed capital and co-investment. - Procurement transformation programme. - LIBOR transition programme. - The Senior Managers and Certification Regime. |
|
Oct-Dec |
- Conduct risks for the Investments vector. - Completion of the LIBOR transition programme. - The management of IT obsolescence. - Operational resilience programme activity. - Review of abrdn wind-down plan and triggers. - Data privacy management. - Implementation of the Investment Firms Prudential Regulation. - 2021 combined second and third line assurance plan. |
After each meeting, the Committee Chairman reports to the Board, summarising the key points from the Committee's discussions and any specific recommendations.
Risk exposures and risk strategy
abrdn's risk appetite framework provides a common framework to enable the communication, understanding and control of the types and levels of risk that the Board is willing to accept in its pursuit of the strategy of the Group, including the business plan objectives and the capital and liquidity it requires.
The Committee has received regular reporting through the Views on Risk report on each of the Group's 12 principal risks including risk dashboards, commentary and management information.
The Committee reviewed and proposed updates to the risk appetite framework to ensure that the risk appetites and risk limits reflected changes to the risk profile in view of the external environment and ongoing transformation of the business. In particular additional metrics for Operational Risk and Third Party Management were created to strengthen our management of impacts caused by the COVID-19 pandemic.
Through reviewing this reporting the Committee supports the Board by monitoring risks relative to applicable risk appetites and the resilience of the capital position under current and stressed conditions. Key items that the Committee discussed during the year in this context included:
- Risks that have emerged as a result of the global COVID-19 pandemic.
- Risks associated with the delivery of the business plan.
- Enhancements to components of the Group's risk appetite framework.
- The abrdn ICAAP report.
- Steps taken to strengthen the conduct risk framework.
- The management of cyber risk across the Group.
- The approach to management of the Group's liquidity risk framework.
Stress testing and scenario analysis performed in 2021 also supported the Committee in understanding, monitoring and managing the risk and capital profile of the business under stressed conditions. This provided a forward-looking assessment of resilience to potentially significant adverse events affecting key risk exposures and comprised:
- Individual stresses - looking at stresses to a range of financial variables in isolation.
- Combined stress scenarios - looking at simultaneous stresses impacting on economic conditions, flows and idiosyncratic factors specific to the Group.
- Reverse stress testing - considering extreme but plausible events, including as a result of operational, conduct or reputational risks, that have the potential to cause the business to become unviable.
The Committee reviewed the results of the stress testing and scenario analysis that was performed. This included reviewing the results of one scenario which was explored as part of the reverse stress testing exercise: the failure of our main third party provider of administration services that support the Group's trading. Based on the results of the stress testing and scenario analysis, the Committee concluded there was no requirement for the business to reduce its risk exposures and that the business was resilient to extreme events as a result of the robust controls, monitoring and triggers in place to identify events quickly and the range of management actions available to help mitigate their effects.
Enterprise Risk Management (ERM) framework
During the year the business continued to evolve the ERM framework used to identify, assess, control and monitor the Group's risks.
The Committee has obtained assurance regarding the operation of the ERM framework through its review of regular content within the Views on Risk report. In particular we have used our review of the various risk and capital dashboards, including the consolidated dashboard on key conduct risk indicators and board risk appetite metrics to understand the Group's risk profile and the effectiveness of the framework in supporting the management of these risks.
The Committee receives reporting from the Risk and Compliance function on the results of the quarterly risk management survey of regional and functional executives which is used to support identification of key risks facing the business. The completion of this survey along with subsequent discussion of the results by the Executive Leadership Team helps to drive greater risk awareness and accountability. Furthermore, through reviewing the results of the survey, the Committee has been able to ensure there is appropriate focus on the key risks facing the business.
Exceptions-based reporting is provided to the Committee through the Views on Risk report setting out any matters of significance in respect of the results of policy compliance reporting and actions being taken in response to risk events. These two items also support the Committee in performing its oversight of the ERM framework.
The Committee also receives regular reporting from the Chief Internal Auditor which provides an independent assessment of the internal control environment relating to the operation of the framework.
Regulatory developments and compliance
The Committee reviews and assesses regulatory compliance plans detailing the planned schedule of monitoring activities to be performed by the Risk and Compliance function to ensure there is appropriate coverage. Regular updates on key findings from regulatory compliance activity and progress against the plan were reported to the Committee through the Views on Risk report.
As a Committee we have closely monitored global regulatory developments to understand and anticipate potential implications for the Group and the wider financial services sector. In particular the Committee paid close attention to developments in connection to COVID-19, Operational Resilience, LIBOR transition, the Investment Firms Prudential Regulatory Regime and new sustainability regulations including the EU Sustainable Finance Disclosure Regulation.
Governance arrangements
The Committee has continued to refer to the work of those non-executive risk committees operating in subsidiary companies to provide oversight and challenge of risks within those subsidiaries. This has included the risk committees in place for abrdn Life and Pensions Limited, Standard Life Savings Limited and Elevate Portfolio Services Limited.
The Committee receives updates from and reviews the minutes of these committees in order to maintain awareness and oversight of risks across the Group. The Committee also reviews the terms of reference for these committees in order to ensure their remit is suitably aligned. In addition to the Committee reviewing reporting from the subsidiary risk committees, arrangements also exist for the Committee's Chairman to attend those subsidiary risk committees on request.
During the year the Committee provided advice to the Remuneration Committee regarding the delivery of performance in the context of incentive packages. In particular, the Committee considered whether performance had been delivered in a manner that was consistent with the Group's strategy, risk appetite and tolerances, and capital position. The provision of this advice helps ensure the Group's overall remuneration practices are aligned to the business strategy, objectives, culture and long-term interests of the Group and that individual remuneration is consistent with, and promotes, effective risk management.
Committee effectiveness
The Committee reviews its remit and effectiveness annually. The 2021 review was conducted internally by the Company Secretary meeting with each of the Committee members. As well as general observations, the key performance areas considered were:
- The comprehensiveness of the Committee's agendas against members' expectations.
- How effectively agenda items were presented, discussed and time managed.
- The quality and level of detail in the papers.
- The Committee's thoughts on the role of the 2nd line of defence and how it might continue to develop.
- How well the Committee met its objectives and reported to the Board.
- How effectively the Chairman discharged their responsibilities.
The Committee members did not raise any material issues or concerns regarding the above areas or the overall effectiveness of the Committee during 2021. The Committee was encouraged by the move of the investment risk team to come under the CRO's remit and were keen to learn more about the work of the investment risk team. Acknowledging the amount of time the Committee spends on regulatory risk, going forward, the Committee aims to spend more time on the inter-connectedness of the holistic business risks the Company runs and manages, as the agendas allow. The Committee also encouraged the Risk Team to make more use of two-way secondment opportunities with business colleagues, so that both the risk team and the business learn from each other, and this business-partnering approach could further strengthen the quality of the information presented to the Committee. The Committee members were supportive of the Chairman's role in managing the challenging number of matters which fall in the Committee's remit.
3.3 Nomination and Governance Committee report
The Committee's key priorities this year were to support the Board's succession planning, maintain effective board governance processes during the pandemic and continue to oversee the development of talent and leadership initiatives.
Governance Framework
We have continued to review our governance framework against the Code principles and provisions. The Committee did not make any fundamental changes to our governance framework in 2021 but we did approve some detailed changes to reflect the Board's reporting responsibilities arising from the change from CRD IV to IFPR. Hannah Grove succeeded Melanie Gee on 1 November 2021 as our designated Board Employee Engagement NED and you can read more about this programme on page 73.
Board evaluation
Having commissioned externally facilitated reviews in 2018 and 2019, as we did in 2020 we carried out our Board review internally in 2021 and you can read about the process and its outcomes on page 79.
Culture, Diversity and Inclusion
Continuing to build on the transformation activity across the business, the Committee has received updates on the work to oversee the Group's culture, diversity and inclusion programmes and considered the ELT's initiatives to implement these throughout the organisation. You can read more about this below and on pages 38 and 39.
Talent and Leadership
The Committee spent time hearing from the Talent and Organisation Effectiveness team supporting and challenging its plans to deliver effective leadership, talent and performance management across the Group.
Board composition
The Committee supported our Director succession and appointment processes. As I have covered already in my Chairman's statement, I am pleased to have welcomed Hannah Grove and Catherine Bradley to the Board and following on from the upcoming retirement of Jutta af Rosenborg and Martin Pike in May, I look forward to welcoming Mike O'Brien and Pam Kaur in due course.
The Board continues to emphasise the importance of strong governance and I look forward to updating you on this in future reports.
Sir Douglas Flint
Chairman and Chairman of the Nomination and Governance Committee
Membership
The members of the Committee are the Chairman and a number of the independent non-executive Directors. For their names, the number of meetings and committee member attendance during 2021, please see the table on page 82.
Stephen Bird, in his CEO role, was invited to Committee meetings to discuss relevant topics, such as the roles within and membership of the ELT, talent development and management succession.
The Committee's role is to support the composition and effectiveness of the Board, and oversee the Group's activities to strengthen its talent pipeline. It also oversees the ongoing development and implementation of the Group's governance framework.
In this report and other parts of the corporate governance statement you can read about the Committee's role in relation to its key responsibilities.
Key responsibilities:
- Identifying and recommending Directors to be appointed to the Board and the Board Committees.
- Reviewing and assisting in the development and implementation of the Company's culture, diversity and inclusion activities.
- Reviewing Board diversity, skills and experience.
- Supporting the process and output of the Board's effectiveness review.
- Overseeing succession planning, and leadership and talent management development throughout the Group.
- Considering how the Group should comply with current and upcoming corporate governance requirements, guidance and best practice and relevant directors' duties.
The Committee reports regularly to the Board so that all Directors can be involved in discussing these topics as appropriate. The Committee's work in 2021
An indicative breakdown as to how the Committee spent its time is shown below:
|
Jan-Mar |
- Reviewed compliance with the UK Corporate Governance Code for the 2020 ARA. - Considered the diversity and inclusion 2021 priorities. - Reviewed the Board Charter and Committees' terms of reference. - Agreed the NED mentoring programme and pairings for 2021. |
|
Apr-Jun |
- Reviewed the recommendations to shareholders to re/elect Directors at the AGM. - Reviewed the continued appointment of Cathi Raffaelli and Sir Douglas Flint at the end of their first three-year term. - Received the half year update on the Culture, Diversity and Inclusion action plans. - Reviewed ELT succession planning. - Recommended the appointment of Hannah Grove. - Reviewed progress on the recommendations from the 2020 Board effectiveness review. - Reviewed the revised approach to 2022 ESG external reporting, including the Stewardship Code. |
|
Oct-Dec |
- Received the full-year update on the Culture, Diversity and Inclusion action plans. - Approved the process for the 2021 Board Effectiveness Review. - Reviewed ELT and senior leadership succession planning. - Recommended the appointment of Catherine Bradley. - Agreed the revisions to the Board Charter. - Reviewed progress on Talent and Leadership development activities. - Received the regular update on the activities of the abrdn Financial Fairness Trust. |
An indicative breakdown as to how the Committee spent its time is shown below:
Diagram removed for the purposes of this announcement. However it can be viewed in full in the final document.
Board appointments
The Committee discusses the skills, experience and capabilities needed for particular Board roles. This recognises the need to secure a pipeline of potential successors to be able to chair the Board Committees, and also the need to plan ahead to take account of the length of time served on the Board by the current independent NEDs. In addition, it also recognises the skills which the Board will need as it moves forward to oversee the implementation of its approved strategy and takes account of the Group's commitments to achieve and maintain its published Board diversity targets.
An external search consultant is then requested to prepare a list of suitable candidates. From that, the Committee agrees a shortlist. Following interviews with potential candidates, the Committee makes recommendations to the Board on any proposed appointment, subject always to the satisfactory completion of all background checks and regulatory notifications or approvals. Part of this includes considering the external commitments of candidates to assess their ability to meet the necessary time commitment and whether there are any conflict of interests to address.
The Committee also 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. Cathi Raffaeli's and Sir Douglas Flint's continued appointments were reviewed during the year and the Committee agreed that they continued to meet all independence and time commitment expectations and recommended to the Board that they should continue their appointments for a second term.
Succession planning and talent management activities
The Committee regularly reviews the results of succession planning activities, including key person and retention risk, and talent development programmes across the Group.
In particular, the Committee discussed the future leadership and talent needs of the Group and how the current programmes would be revised to take account of the skills and expertise required by the Board and the ELT. The programmes recognise the changing shape of the Group, and also identify both the talent available within the Group and the need for external recruitment. The Talent and Change agenda is led by the CPO, with input from the CEO.
The Committee spent time looking at the strategic priorities of the talent team to:
- Bring the best possible people into the organisation.
- Enable people to be the best they can.
- Create the best possible environment for our people to thrive.
and discussed the team's progress to deliver initiatives to support early careers, talent acquisition, future talent, core capabilities and behaviours and effective performance management.
The Committee continued its NED mentoring programme which allows each NED to get to know two or three members of the next generation of talent through individual meetings which take place over the course of the year and evolve based on the needs of each individual being mentored. Having received positive feedback from both mentors and mentees, this will continue in 2022.
Board evaluation
The Committee has a key role in supporting the Board evaluation process. You can read about the 2021 review on page 79. During the year, the Committee reviewed the progress to implement the recommendations of the 2020 review.
Culture, Diversity and inclusion
The Committee and the Board have spent time with the CEO and the Chief People Officer understanding their plans to strengthen and develop the measurement and reporting of culture across the Group. The key elements of a future-ready culture have been agreed as including:
- Authentic leaders who feel connected to strategy.
- Accountability, with swift and effective decision-making.
- Client-centricity.
- Shared ownership of talent.
- Reward that links pay to performance.
- Career opportunity, development and coaching.
Initiatives to support delivery of this include a new technology enabled culture engagement tracking tool and a measurement dashboard for internal and external use. The Committee will look to see progress against these initiatives during 2022 and will report on the progress it has seen in next year's annual report and accounts.
The Committee also received the annual update from the Chairman and the CEO of the abrdn Financial Fairness Trust and was pleased to hear of the grants made and contributions to positive policy changes during 2021.
The Board's diversity statement is on page 78. The Committee has a key role in supporting it through its oversight of culture, diversity and inclusion activities. The Diversity and Inclusion Team attends the Committee at least twice a year to report on progress to deliver against action plans and initiatives. The Committee reviewed and supported the 2021 diversity and inclusion priorities which provide the focus for the team's work throughout the year. These are:
- Making diversity and inclusion part of our purpose.
- Maintaining inclusive ways of working.
- Attracting and developing diverse talent.
- Ensuring colleagues feel included and valued every day.
The Committee received advance sight of UK and US government-led diversity and inclusion reporting including:
- HM Treasury Women in Finance Charter.
- UK Government's Hampton Alexander Review.
- US Federal Government's EEO-1 diversity data.
As well as supporting external indices and partnership reporting, the Committee was keen to understand how the findings arising from contributing our data to these reports were being taken forward by the executive leadership team.
The Committee also reviewed and supported abrdn's response to the joint FCA, PRA, and Bank of England Discussion Paper 'Diversity and Inclusion in the financial sector - working together to drive change' and will continue to review outcomes arising from this.
Progress against diversity targets for the Board and senior management are included on pages 38 and 39.
ESG Reporting
During the year, the Committee supported abrdn's ESG external reporting by reviewing the various reports in advance of their publication. The ESG reports issued were:
- UK Stewardship Report - this was the first report on how abrdn had applied the UK Stewardship Code as an investor. The FRC confirmed abrdn as a signatory to the Stewardship Code.
- Sustainability Report - this was an annual report with ESG data, activity and achievements across abrdn's operations and vectors, to bring to life our brand values and our ESG priorities.
- Diversity and Inclusion Report - this standalone report supported the requests from stakeholders for more in depth information on diversity and inclusion.
The Committee members considered these reports in terms of their quality, consistency and alignment with other relevant information, and their comments strengthened the final reports.
Committee effectiveness
The effectiveness review was conducted internally by the Company Secretary meeting each of the Committee members. As well as general observations, the key performance areas considered were:
- The comprehensiveness of the Committee's agendas against members' expectations.
- How effectively agenda items were presented, discussed and time managed.
- The quality and level of detail in the papers.
- How well the Committee met its objectives and reported to the Board.
- How effectively the Chairman discharged their responsibilities.
The Committee members did not raise any material issues or concerns regarding the above areas or the overall effectiveness of the Committee during 2021. Looking at the Committee's work to oversee talent and leadership, the Committee was supportive of the progress made and the refreshed framework which had been put in place and agreed that in 2022 it will review evidence that the programmes were starting to deliver the next generation of talent. The Committee also recognised the increasing external focus on, and challenges brought by, collecting and disclosing diversity data. The Committee noted that, as the Chief People Officer rolls out her plans, it will spend time in 2022 discussing how effectively culture was being measured and reported across the Group.
3.4 Directors' remuneration report
Remuneration Committee Chairman's statement
This report sets out what the Directors of abrdn were paid in 2021 and how we will pay them in 2022, together with an explanation of how the Remuneration Committee reached its recommendations. Where tables and charts in this report have been audited by KPMG LLP we have marked them as 'audited' for clarity.
The report is structured in the following sections:
- The annual statement from the Chairman of the Remuneration Committee.
- An overview of the 2021 remuneration outcomes and how we propose to implement the remuneration policy in 2022.
- The annual remuneration report, which sets out in detail how the remuneration policy was implemented in 2021.
Approval
The Directors' remuneration report was approved by the Board and signed on its behalf by:
Jonathan Asquith
Chairman, Remuneration Committee
28 February 2022
Report contents
|
|
Page |
|
At a glance - 2021 remuneration outcomes |
103 |
|
2022 Remuneration policy implementation |
104 |
|
2021 annual remuneration report |
105 |
|
Shareholdings and outstanding share awards |
107 |
|
Executive Directors' remuneration in context |
110 |
|
Remuneration for non-executive Directors and the Chairman |
113 |
|
The Remuneration Committee |
115 |
Dear Shareholder
On behalf of the Board I am pleased to present the Directors' Remuneration Report for the year ended
31 December 2021.
Introduction
Our Directors' Remuneration Report for 2020 received a 96% vote in favour from shareholders at the 2021 AGM. I would like to thank our shareholders for their continued strong support of our approach to remuneration matters and their continued dialogue on these issues. Our current Directors' Remuneration Policy ('Policy') was designed to drive the delivery of our strategy through a simple and transparent structure for executive remuneration with a focus on sustainable long-term performance. It is now in its final year of operation before being submitted to shareholders at the 2023 AGM. During 2022 the Committee will take time to review the policy with a view to identifying any areas where change would be desirable to ensure it remains fit for purpose for the next phase of our strategy.
2021 was a significant year for abrdn. Most visibly, we launched our abrdn brand, pulling together our expertise under a common external facing identity. This was a significant milestone on our journey and involved much collaborative work across the organisation. Alongside good progress on key financial metrics, steps were taken to remove complexity from the business, as set out in the Chief Executive Officer's review. There has also been a clear focus on sustainability issues, and we have reflected this by incorporating environmental targets in the executive Directors' bonus scorecards from 2022 to make sure this is an area where we hold ourselves to account.
In this year of ongoing challenge we have continued to drive forward our reward agenda. Our end-of-year processes incorporated careful consideration of remuneration outcomes to reflect the achievements and progress made during 2021 against our financial and non-financial KPIs. Consideration was also given to broader stakeholder interests and the complex regulatory and social landscape in which abrdn operates as we start to move to a post-pandemic world. Our pay decisions have focused on encouraging and rewarding contributions to the long term success and sustainability of our business.
Our performance in 2021 and alignment with remuneration
Against a mixed market background in 2021, financial performance has been strong:
- Fee based revenue growth of 6%.
- A reduction in our cost/income ratio to 79% (from 85% in 2020).
- An increase in adjusted operating profit of 47%.
- An increase in adjusted diluted earnings per share to 13.7p (from 8.8p in 2020).
Good customer performance was sustained across all three of our distinct client facing vectors, reflected in positive customer feedback in Investments, awards for our abrdn Wrap and Elevate Platforms and strong customer service ratings for our Personal and Discretionary propositions.
How our remuneration policy was applied in 2021
Annual bonus
The 2021 executive Director bonus plan was designed and operated in line with our Directors' Remuneration Policy to reward management for the efficient and timely execution of a stretching 12 month plan agreed with the Board with a majority focus (75%) on financial performance targets. General non-financial performance objectives (20%) made up most of the balance, concentrating on the achievement of desired outcomes in our relationships with our customers and our people. The remaining 5% was reserved to reward the achievement of specific personal targets set for each of the executive Directors. Full details on our bonus outcomes against targets can be found on pages 105 and 106.
Financial performance (75%)
Financial targets were set with reference to the Board-approved plan. The 2021 scorecard was streamlined to focus on four key financial metrics to ensure the alignment of performance with achievement against strategic priorities. Within these measures, adjusted profit before tax was weighted at 35% of the total scorecard, investment performance was weighted at 20% and the remaining portion was equally split between net flows (10%) and transformation synergies (10%).
The outcomes against these financial targets can be summarised as follows:
- Adjusted profit before tax was above our stretch target.
- Investment performance was strong, with the outcome between target and stretch.
- Net flows were between threshold and target.
- Transformation synergies were fully realised, just above the stretch target.
This resulted in an overall assessment of 62.5% out of a maximum of 75% on financial measures.
Non-financial performance (25%)
The general non-financial measures focused on our Customers (12%) and our People (8%) both of which are important to the sustainability of our business.
- Customer: performance was assessed for each of our three distinct vectors: Investments, Adviser and Personal. The Committee took into account more than 20 performance indicators in determining that overall performance had been strong, with the outcome being agreed as 11.5% out of 12%.
- People: our performance against diversity targets improved compared to 2020 with a 1% increase in percentage female representation in our global workforce while maintaining target achievement for our female representation in CEO-1 and CEO-2 levels. Our employee engagement score fell short of threshold performance, reducing the overall People score to 1.5% out of 8%.
This yielded an overall assessment of 13% out of a maximum of 20% achievement on non-financial measures (excluding the personal performance outcome for each executive Director).
Details on the Committee's assessment of individual performance against personal objectives, which make up the final 5% of the bonus opportunity, are provided on page 106. Stephen Bird was assessed to have met or exceeded his objectives across a range of deliverables with a maximum 5% vesting and Stephanie Bruce was judged to have met her objectives with a 4% outcome for this element.
Remuneration Committee assessment
To assess whether the awards generated by the scorecard were fair in the broader performance and risk context, the Committee reviewed the individual components which contributed to the delivery of this performance and the alignment of scorecard outcomes with the experience of a range of stakeholders. The Committee considered, amongst other things:
- Input from the Risk and Capital Committee and the Audit Committee. There were no items raised by these committees which warranted Remuneration Committee intervention in executive Director outcomes for 2021.
- The wider workforce context, including a material increase to the 2021 distributable bonus pool compared to 2020.
- The shareholder experience during 2021, noting that the disappointing performance of the share price during 2021 was already reflected in the significant proportion of executive Director remuneration dependent on three year Total Shareholder Return (TSR) via the Long Term Incentive Plan (LTIP).
- As in 2020, no application was made for government support to mitigate the effects of COVID-19 and dividend payments to shareholders were maintained.
Taking these and other considerations into account, the Committee concluded that the outcomes of the scorecard were fair and balanced and no adjustment to them was needed or made.
Summarising these results, the Remuneration Committee approved the following outcomes based on performance against targets:
|
Executive Director |
Final outcome |
2021 total bonus (£000s) |
|
Stephen Bird |
80.5% |
1,761 |
|
Stephanie Bruce |
79.5% |
642 |
Vesting of long term incentives
Stephanie Bruce -One-Off Deferred Award
As already disclosed in an RNS announcement on 11 August 2021, the Remuneration Committee assessed the performance condition around the vesting of the second tranche of the one-off deferred award made to Stephanie Bruce. The Committee approved the vesting level at 100% of maximum. Further detail is included on page 107.
No other long term incentive plans were due to vest for the current executive Directors as a result of performance in periods ending on 31 December 2021.
The EIP awards granted in 2019 to former executive Directors were measured against their underpin hurdles for the period ending 31 December 2021, with final vesting being assessed at 25% of the maximum award. Full details of the vesting outcome can be found on page 108.
2021 LTIP Award
LTIP awards were made to Stephen Bird and Stephanie Bruce on 9 April 2021. Details of these awards are set out on page 108.
Policy implementation in 2022
For the second year running the Committee decided not to increase the salaries for the executive Directors or the base fees for the non-executive Directors or the Chairman. As set out on page 114, the supplementary fees for membership of the Audit, Remuneration and Risk and Capital Committees set in 2017 have been updated to take account of increases in workload.
In line with previous practice, we will continue to set stretching targets for the annual bonus and the LTIP to ensure that the maximum opportunity will only be earned for exceptional performance.
The scorecard for the 2022 annual bonus is detailed on page 104 and the targets, which are commercially sensitive, will be disclosed at the end of this performance year in the Annual report and accounts 2022. The scorecard retains the structure of focusing 75% of opportunity on the achievement of financial targets as set out in our Policy. As management has fully delivered against our commitment of achieving £400m of annualised synergies by the end of 2021, this target has been removed from the 2022 scorecard and the remaining metrics rebalanced.
We also decided to increase the weighting available to target ESG measures in the non-financial element of the bonus scorecard by eliminating the 5% allocation previously allocated to executive Directors' personal performance objectives. It is the Committee's view that the overall scorecard provides an appropriate basis for the assessment of the executive Directors' performance without the need for a formalised personal performance component.
Accordingly, the 25% of the 2022 bonus scorecard attributable to non-financial performance will be allocated between customer measures (12%) and ESG measures (13%).
ESG measures will include people engagement, diversity and environmental targets linked to both our impact as an investor (via reducing the carbon intensity of our portfolios) and the reduction of the environmental impact of our own operations towards net zero. The Committee has agreed a basket of key indicators in each of these areas which will allow a rounded assessment of performance to be made.
The threshold and maximum performance targets for the proposed grants under the 2022 Executive LTIP are detailed on page 104. The three year Adjusted Diluted Capital Generation per share growth target range employed for the last reporting period was set at 8%-20% Compound Average Growth Rate (CAGR), somewhat above normal levels in the market, reflecting a low baseline in the previous year and the levels of surplus capital available in the Group. Strong financial performance in 2021 has lifted the baseline for this measure by 45%, while the capital actions undertaken over the last twelve months are expected to reduce considerably any surplus capital overhang. In light of the above, the Committee has revised the threshold and maximum levels for this measure to a three year CAGR range of 5%-15%, which is aligned with the updated business plan agreed with the Board.
The Committee also reviewed and decided to revise the TSR peer group for the Relative TSR metric, removing both T Rowe Price and Ameriprise on the basis of their different geographical focus and relatively much larger size compared to abrdn. They are replaced by Hargreaves Lansdown (given our strategic focus on Platforms) and Ninety One (reflecting our Investments vector activities), both of which are considered to be competitors for our business and talent.
To help you navigate the report effectively, I would like to draw your attention to the sections on pages 103-104 which summarise both the outcomes for 2021 and also how the remuneration policy will be implemented in 2022. Further detailed information is then set out in the rear section of the report for your reference as required.
On behalf of the Board, I invite you to read our remuneration report. As always, the Committee and I remain open to hearing your views on this year's report and our remuneration policy in general.
At a glance - 2021 remuneration outcomes
2021 Outcome of the financial and non-financial performance metrics
The following charts show performance against the target range for each of the financial and non-financial metrics which govern the annual bonus. Further detail on the assessment of the performance conditions can be found on pages 105-106.
Diagrams removed for the purposes of this announcement. However they can be viewed in full in the final document.
Personal performance measures
The outcome of individual personal performance measures (5% weighting) is set out on page 106.
2021 annual bonus scorecard outcome
The following table sets out the final outcome for the 2021 annual bonus, including the personal performance assessment. A detailed breakdown of performance can be found on pages 105-106.
|
|
Bonus Scorecard Outcome |
Total Bonus Outcome |
||||||
|
|
Financial metrics (maximum 75%) |
Non-financial metrics (maximum 20%) |
Personal performance (maximum 5%) |
Board approved outcome |
Annual salary (£000s) |
Maximum opportunity |
Total award |
Total award (£000s) |
|
Stephen Bird |
62.5% |
13 % |
5% |
80.5% |
875 |
250% |
201% |
1,761 |
|
Stephanie Bruce |
4% |
79.5% |
538 |
150% |
119% |
642 |
||
Total remuneration outcomes in 2021
The chart below shows the remuneration outcomes for each executive Director in 2021 based on performance compared to the maximum opportunity.
Diagram removed for the purposes of this announcement. However it can be viewed in full in the final document
At a glance - 2022 remuneration policy implementation
This section sets out how we propose to implement our remuneration policy in 2022. The full remuneration policy can be found in the 2019 Annual Report and Accounts on pages 96-104.
|
Element of remuneration |
Key features of operation |
2022 implementation |
||||||
|
Salary Core reward for undertaking the role |
Normally reviewed annually, taking into account a range of internal and external factors. |
No change to quantum Stephen Bird: £875,000 Stephanie Bruce: £538,125 |
||||||
|
Pension Competitive retirement benefit |
Aligned to the current maximum employer contribution available to the UK wider workforce (18% of salary). |
No change to quantum Stephen Bird: 18% of salary Stephanie Bruce: 18% of salary |
||||||
|
Benefits Competitive benefits |
Includes (i) private healthcare; (ii) death in service protection (iii) income protection (iv) reimbursement of membership fees of professional bodies; and (v) eligibility for the all employee share plan. |
No change
|
||||||
|
Annual bonus To reward the delivery of the Company's business plan |
Annual performance assessed against a range of key financial and non-financial measures. At least 75% will be based on financial measures. At least 50% deferred into shares vesting in equal tranches over a three-year period. Awards are subject to malus and clawback terms. |
No change to quantum Stephen Bird: 250% of salary Stephanie Bruce: 150% of salary See below for 2022 performance conditions |
||||||
|
Performance conditions for 2022 annual bonus |
||||||||
|
||||||||
|
Element of remuneration |
Key features of operation |
2022 implementation |
||||||
|
Long-term incentive plan To align with our shareholders and reward the delivery of long-term growth |
Awards are subject to a three-year performance period, with a subsequent two-year holding period. Dividend equivalents accrue Awards are subject to two equally weighted performance metrics Awards are subject to malus and clawback terms. |
No change Stephen Bird: 350% of salary Stephanie Bruce: 200% of salary 2022 performance metrics are set out below |
||||||
|
Performance conditions for 2022 Long term incentive plan |
|
|||||||
|
|
Target range1 |
|||||||
|
Adjusted Diluted Capital Generation per share (50% weighting) |
5% - 15% CAGR |
|||||||
|
Relative TSR2 (50% weighting) |
Equal to median - equal to upper quartile |
|||||||
|
1. Straight line vesting occurs between threshold and maximum. 25% vesting for threshold performance. 2. The peer group is made up of the following global asset management peers: Affiliated Managers, Alliance Bernstein, Amundi, Ashmore Group, DWS Group, Franklin Resources, Hargreaves Lansdown, Invesco, Janus Henderson Group, Jupiter Fund Management, Man Group, Ninety One, St James's Place, Schroders, M&G, Quilter, SEI Investments.
|
||||||||
|
Element of remuneration |
Key features of operation |
2022 implementation |
||||||
|
Shareholding requirements |
Executive Directors are required to build up a substantial interest in Company shares. The share ownership policy for executive Directors requires shares up to the value of the shareholding requirement to be held for a period of two years following departure from the Board. |
No change Stephen Bird: 350% of salary Stephanie Bruce: 300% of salary |
||||||
Directors' Remuneration in 2021
This section reports remuneration awarded and paid at the end of 2021 in further detail, including payments to past Directors.
Single total figure of remuneration - executive Directors (audited)
The following table sets out the single total figure of remuneration for each of the individuals who served as an executive Director at any time during the financial year ending 31 December 2021:
|
Executive Directors |
|
Basic salary for year |
Taxable benefits in year |
Bonus paid in cash |
Bonus deferred £000s |
Long-term incentives with performance period ending |
Pension allowance paid in year |
Fixed pay sub-total |
Variable sub-total |
Total remuneration |
|
Stephen Bird2 |
2021 |
875 |
1 |
880.5 |
880.5 |
- |
158 |
1,034 |
1,761 |
2,795 |
|
2020 |
438 |
- |
263.5 |
263.5 |
- |
79 |
517 |
527 |
1,044 |
|
|
Stephanie Bruce |
2021 |
538 |
1 |
321 |
321 |
- |
97 |
636 |
642 |
1,278 |
|
2020 |
535 |
1 |
189.5 |
189.5 |
- |
101 |
637 |
379 |
1,016 |
1. This includes the taxable value of all benefits paid in respect of the relevant year. Included for 2021 are medical premiums at a cost to the group of £606 for executive Directors.
2. Stephen Bird was appointed on 1 July 2020 - all figures reflect amounts paid/awarded since the date of appointment.
Base salary (audited)
There was no change to the base salaries of executive Directors in 2021.
Pension (audited)
Under the Directors' Remuneration Policy approved at the 2020 AGM, with effect from 1 June 2020 the executive Directors received a cash allowance in lieu of pension contributions of 18% of base salary.
Annual Bonus Plan
The following section contains details on the targets and the Remuneration Committee's assessment of outcomes for the period 1 January 2021 to 31 December 2021 against each of the elements of the executive Director bonus scorecard.
Financial performance metrics - 75% of total scorecard outcome
|
|
Weighting |
Threshold |
Target |
Stretch |
Actual |
Result |
|
Investment performance - % AUM > benchmark average of 3 year and 5 year for all asset classes |
20% |
55% |
65% |
70% |
67% |
14%/20% |
|
Net flows1 (£bn) |
10% |
(6) |
1 |
16 |
(3.2) |
3.5%/10% |
|
Adjusted profit before tax (£m) |
35% |
240 |
262 |
306 |
323 |
35%/35% |
|
Delivery of transformation synergies (£m) |
10% |
355 |
375 |
400 |
404 |
10%/10% |
1. Excluding LBG tranche exits and cash/liquidity £bn.
Non-financial performance metrics - 20% of total scorecard outcome
|
|
Weighting |
Threshold |
Target |
Stretch |
Actual |
Result |
|
Investing in our people (8%) |
|
|
|
|
|
|
|
Diversity of leadership and the wider workforce (measured at 31 December 2021)1 % female representation in CEO-1 and CEO-2 |
2% |
36% |
38% |
40% |
38% |
1%/2% |
|
% female representation in Global workforce |
2% |
46% |
47% |
48% |
46% |
0.5%/2% |
|
People engagement: outcome of the Viewpoints full company survey |
4% |
58%
|
62%
|
66%
|
51% |
0%/4% |
1. The Committee agreed to remove the acquisition of Finimize when determining the outcome of this metric. The timing of the acquisition (announced in October 2021) meant that the executive Directors had no opportunity to influence the gender representation before the end of the performance period. This adjustment impacted the outcome of the CEO -1 and CEO-2 metric by 2% and had no material impact on the Global workforce metric.
|
Investing in our customers (12%) |
Highlights from assessment |
|
|
Customer Advocacy: improvement from baseline across the Adviser, Personal and Investments vectors |
The Committee considered more than 20 quantitative and qualitative measures, from internal and external sources. Key factors in the determination were: - Positive, in-depth feedback from our largest client in the Investments vector citing a pivotal year in our strategic partnership. - External award recognition for abrdn Wrap and Elevate platforms, assessed across core areas including user experience and client service quality. - Year on year increase in Net Promoter Score for the Discretionary and Adviser vectors. - Strong overall customer satisfaction rating for the Personal vector. - Personal vector's Digital Retirement Advice service rated 4.9/5 by our customers.
|
11.5% / 12% |
Personal performance metrics - 5% of total scorecard outcome
|
|
Highlights from assessment |
Result |
|
Stephen Bird |
- Successful delivery of rebranding exercise to create a unified brand experience, on schedule and on budget. Measurable success points were reviewed, including metrics on client communications and brand campaign results achieving strongly against targeted performance. - Development of strategic acquisition opportunities in line with the Board's ambitions, including Finimize and ii as well as significant divestments with capital proceeds reinvested in growth areas. - Achievement of key milestones in the People agenda, including roll out of an enhanced remuneration and reward framework across the group, strengthening the link between corporate objectives and individual performance. |
5%/5% |
|
Stephanie Bruce |
- Key milestones met in the finance transformation project, yielding improved and consistent management information to enhance decision making. - Partnerships with the vectors and functions developed, further improving support to all business areas in line with objectives. - Development of the finance team progressed - Regulatory relationships successfully maintained. |
4%/5% |
Before approving the overall assessment of performance in 2021, the Remuneration Committee sought the views of the Audit Committee on material accounting, reporting and disclosure matters that it considered during the year and of the Risk and Capital Committee on the management of risk within the business. In considering whether the bonus outcomes derived from the scorecards were fair in the context of the overall results, the Remuneration Committee took into account the feedback received as well as factors including the impact of the COVID-19 pandemic, shareholder experience and pay for the wider workforce. In light of these, and noting the material increase in the distributable bonus pool for the wider workforce, the lack of recourse to Government support and the maintenance of our dividend pay out policy, a final determination was made that no adjustment should be made to the bonus outcomes set out above as a result of this review.
Payments to past Directors and payments for loss of office (audited)
Payments made to former executive Directors that have not been previously reported elsewhere are reported if they are in excess of £20,000.
No payments to past directors or payments for loss of office were made during the year.
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. Both Stephen Bird and Stephanie Bruce held representative directorships on behalf of the Group during the year for which they received no fees.
Shareholdings and outstanding share awards
This section reports our executive Directors' interests in shares.
Directors' interests in shares (audited)
Our shareholding requirements for executive Directors are detailed on page 104. The Directors' Remuneration Policy requires executive Directors to accumulate and maintain a material long-term investment in abrdn plc shares. The Remuneration Committee reviews progress against the requirements annually. Personal investment strategies (such as hedging arrangements) are not permitted for the purposes of reducing the economic exposure arising from the shareholding requirements.
The following table shows the total number of abrdn plc shares held by the executive Directors and their connected persons:
|
|
|
|
|
|
|
Unvested shares |
|
|||||
|
|
Total number of shares owned at 1 January 2021 |
Shares acquired during the period 1 January 2021 and 31 December 2021 |
Total shares owned as at 31 December 20211 |
Options exercised during the period 1 January 2021 and 31 December 2021 |
Vested but unexercised share options |
Subject to performance conditions2 |
Not subject to performance conditions3 |
Shares lapsed |
||||
|
Stephen Bird |
500,000 |
200,000 |
700,000 |
- |
- |
1,979,415 |
89,008 |
- |
||||
|
Stephanie Bruce4 |
133,741 |
226,259 |
360,000 |
109,729 |
- |
1,048,172 |
63,969 |
- |
||||
1. There were no changes to the number of shares held by executive Directors between 31 December 2021 and 28 February 2022.
2. Includes: the 2020 LTIP awards and the 2021 LTIP awards granted in 2021 disclosed below (awards subject to performance targets over the three-year period ending 31 December 2023), excluding, in each case, shares to be awarded in lieu of dividend equivalents.
3. This comprises deferred bonus awards. It does not include shares to be awarded in lieu of dividend equivalents.
4. On 10 August Stephanie Bruce exercised the second tranche of her one-off award. The share price used for exercise was 289.40 pence. This resulted in a gain of £317,556.
The following table shows the number of qualifying awards included in assessing achievement towards the shareholding requirement, as at 31 December 2021. Qualifying awards include 50% of the value of awards held by the executive Directors that have vested but not been exercised (as a proxy for the payment of tax due on the exercise of the awards).
|
|
Qualifying awards |
|
|
|
|
|
|
|
|
|
Number |
Number of shares under option under long-term incentive plans which are no longer subject to performance conditions |
Total qualifying holding (shares held from table above and 50% of qualifying awards) |
Value1 of holding |
Shareholding requirement |
Basic |
Total of the value of shares owned and 50% of the value of qualifying awards at 31 December 2021 as a % of salary |
Shareholding requirement met? |
|
Stephen Bird |
- |
- |
700,000 |
1,686,300 |
350% |
£875,000 |
193% |
In progress |
|
Stephanie Bruce |
- |
- |
360,000 |
£867,240 |
300% |
£538,125 |
161% |
In progress |
1. The closing market price at 31 December 2021 used to determine the value of each holding was 240.90 pence.
Executive Directors who have not yet satisfied the shareholding requirement are expected to accumulate shares until they have fully met their shareholding requirement. They are required to hold 100% of vested shares (post-tax) granted under the Company's share plans (including any dividend equivalents) until they have met their shareholding requirement. All other shares acquired and held by the executive Director or owned indirectly by a partner or family trust also count towards the shareholding requirement.
Stephen Bird and Stephanie Bruce, who were appointed during 2020 and 2019 respectively, have not yet met the shareholding requirement, however the Committee is satisfied with the progress they have made towards their respective requirements given their tenure.
Vesting of the CFO Deferred Award
The second anniversary of the award was 3 June 2021 and vesting of the second tranche was determined based on performance up to that date. The award had a maximum value at grant of £750,000, and the first tranche of the award vested at 100% on 22 June 2020.
The Award is considered for vesting in three tranches on the first, second and third anniversary of the grant of the Award. The vesting level for the first anniversary and second anniversary tranches is based on an assessment made by the Remuneration Committee of the progress made towards the achievement of the efficiency targets. The vesting level of the third anniversary tranche will be adjusted by the Remuneration Committee to ensure that the overall vesting of the award is commensurate with the final achievement against the efficiency targets.
The Remuneration Committee reviewed progress made towards the £175m (baseline target) and £230m (maximum target) in June 2021, prior to approving the vesting level of the second tranche of the award. As at 31 December 2020, actions had been taken which delivered £351m of annualised synergies, benefiting 2020 operating expenses by £287m (2019: £234m) (as published in our 2020 ARA). When the Remuneration Committee undertook its assessment of whether the second tranche of the award should vest in June 2021, this level of efficiency achievement was reported and agreed by the Remuneration Committee to be 'on track' for the purposes of assessing vesting of the second tranche of the award. Performance was assessed by the Committee taking into account the CFO's personal performance and conduct, and following checks with the Audit and Risk and Capital Committees to ensure there were no other matters which the Committee should take into account when determining this outcome.
The Remuneration Committee, having satisfied itself regarding progress made towards the efficiency targets, approved the vesting level of the second tranche of the Award at 100% and this tranche vested on 21 June 2021. Both the first and second tranches of the award remain subject to malus and clawback provisions in line with the Remuneration Policy.
Executive Incentive Plan (EIP) outcome (audited)
Awards granted under the 2018 EIP to former executive Directors, set out in full on page 91 of the 2018 Annual Report and Accounts and summarised below, completed their performance period on 31 December 2021. The Remuneration Committee reviewed the outcomes and concluded that three of the four elements had failed the performance hurdle and therefore lapsed.
|
Measure |
Performance underpin hurdle |
Actual performance |
Outcome (as % of maximum opportunity) |
|
Investment performance |
At least 55% AUM by value to be outperforming the benchmark |
66% |
25% |
|
Flows |
Gross new business flows underpin of £251.5bn 1 Net new business flows underpin of £40.6bn 2 |
183.7 (19.1) |
0% |
|
Return on adjusted equity |
At least 17% |
12% |
0% |
|
Cost/Income ratio |
68.9%3 |
74% |
0% |
1. Flows exclude investment in cash & liquidity funds and total Lloyds.
2. Flows exclude investment in cash & liquidity funds and strategic insurance partners.
3. The Cost/Income ratio was restated from 66.0% to 68.9% to remove the impact of JVs & Associates from the 2021 target and outcome following the change to how these are accounted for in 2021.
The following amounts had been previously disclosed in respect of each director and an adjustment is set out below for each in light of the performance assessment.
|
Participant |
Total EIP value deferred (£000s) |
EIP value following performance outcome (£000s) |
Original single total figure disclosure for 2018 (£000s) |
Adjusted single total figure disclosure for 2018 (£000s) |
|
Martin Gilbert |
367 |
92 |
1,089 |
814 |
|
Keith Skeoch |
367 |
92 |
1,089 |
814 |
|
Rod Paris |
454 |
113.5 |
1,188 |
847.5 |
|
Bill Rattray |
229 |
57 |
847 |
675 |
Awards granted in 2021 (audited)
The table below shows the key details of the LTIP and deferred awards granted in 2021:
|
Participant |
Type of |
Basis of award |
% of |
Face value |
Number of shares awarded |
% payable |
Details on performance conditions |
|
Stephen Bird |
Nil-cost option |
LTIP |
350% |
£3,062,500 |
1,033,650 |
25% |
Awards are subject to performance against targets measured over three years as set out on page 78 of the Annual report and accounts 2020 |
|
Stephanie Bruce |
Nil-cost option |
LTIP |
200% |
£1,076,250 |
363,254 |
||
|
Stephen Bird |
Nil-cost option |
Deferred Bonus |
Not applicable |
£263,730 |
89,008 |
Not applicable |
Not applicable |
|
Stephanie Bruce |
Nil-cost option |
£189,540 |
63,969 |
1. The share price used for the awards was 296.28 pence (the five day average price from 31 March 2021)
Share dilution limits
All share plans operated by the Company which permit awards to be satisfied by issuing new shares contain dilution limits that comply with the guidelines produced by The Investment Association (IA). On 31 December 2021, the Company's standing against these dilution limits was 0.6% where the guideline is no more than 5% in any 10 years under all discretionary share plans in which the executive Directors participate and 1.07% where the guideline is no more than 10% in any 10 years under all share plans.
As is normal practice, there are employee trusts that operate in conjunction with the Executive LTIP, Standard Life Investments LTIP, the Restricted Stock Plan, the deferred elements of the abrdn plc annual bonus plan and the Aberdeen Asset Management deferred plans. On 31 December 2021 the trusts held 64,966,706 shares acquired to satisfy these awards. Of these shares, 8,076,074 are committed to satisfying vested but unexercised awards. The percentage of share capital held by the employee trusts is 2.98% of the issued share capital of the Company - within the 5% best practice limit endorsed by the IA.
Promoting all-employee share ownership
The Company promotes employee share ownership with a range of initiatives, including:
- The abrdn plc (Employee) Share Plan which allows eligible employees to buy abrdn plc shares directly from earnings.
A similar tax-approved plan is used in Ireland. At 31 December 2021, 1,680 individuals in the UK and Ireland were actively making monthly contributions averaging £71. At 31 December 2021, 2,060 individuals were abrdn plc shareholders through participation in the Plan.
- The Sharesave Plan which was offered in 2021 to eligible employees in the UK. This plan allows UK tax resident employees to save towards the exercise of options over abrdn 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. At 31 December 2021, 1,925 individuals were saving towards one or more of the Sharesave offers.
Executive Directors' remuneration in context
Total shareholder return of abrdn plc compared to the FTSE 100 index
Diagram removed for the purposes of this announcement. However it can be viewed in full in the final document
Pay compared to performance
The graph shows the difference in the total shareholder return at 31 December 2021 if, on 1 January 2011, £100 had been invested in abrdn plc and in the FTSE 100 respectively. It is assumed dividends are reinvested in both. The FTSE 100 has been chosen as abrdn 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 Officer for the same 10 financial years as shown in the graph above. Also shown are the annual incentive awards and LTIP awards which vested based on performance in those years.
|
Year ended 31 December |
Chief Executive Officer |
Chief Executive Officer single total figure of remuneration (£000s) |
Bonus outcome/ Annual incentive rates against maximum opportunity (%) |
Long-term incentive plan vesting rates against maximum opportunity (%) |
|
2021 |
Stephen Bird |
2,795 |
80.5 |
- |
|
2020 |
Stephen Bird |
1,044 |
48 |
- |
|
Keith Skeoch |
1,075 |
48 |
- |
|
|
2019 |
Keith Skeoch |
1,472 |
21 |
- |
|
2018 1 |
Keith Skeoch |
814 |
10 |
- |
|
Martin Gilbert |
814 |
10 |
- |
|
|
2017 1 |
Keith Skeoch |
3,028 |
82 |
70 |
|
Martin Gilbert |
1,317 |
56 |
- |
|
|
2016 |
Keith Skeoch |
2,746 |
81 |
31.02 |
|
2015 |
Keith Skeoch |
1,411 |
87 |
40.77 |
|
2015 |
David Nish |
2,143 |
90 |
40.77 |
|
2014 |
David Nish |
6,083 |
95 |
100 |
|
2013 |
David Nish |
4,206 |
75 |
64 |
|
2012 |
David Nish |
5,564 |
88 |
100 |
1. Co-CEO. The outcome for 2018 has been updated to reflect the EIP vesting.
Relative importance of spend on pay
The following table compares what the Company spent on employee remuneration to what is paid in the form of dividends to the Company's shareholders. Also shown is the Company's adjusted profit before tax which is provided for context as it is one of our key performance measures:
|
|
2021 |
% change |
2020 |
|
Remuneration payable to all Group employees (£m)1 |
604 |
-3% |
625 |
|
Dividends paid in respect of financial year (£m) |
309 |
-1% |
313 |
|
Share buybacks and return of capital (£m)2 |
41 |
-89% |
359 |
|
Adjusted profit before tax (£m) 3 |
323 |
35% |
240 |
1. In addition, staff costs and other employee related costs of £97m (2020: £91m) and £53m (2020: £nil) are included in restructuring and corporate transaction expenses and in cost of sales respectively. See Note 6 of the Group financial statements for further information.
2. The 2020 amount excludes unsettled purchases of shares, expenses and the irrevocable contractual obligation with a third party to purchase the Company's own shares. See Note 25 of the Group financial statements for further information on the buybacks.
3. The Group has changed the definition of adjusted profit before tax in 2021. See Note 12 of the Group financial statements for further information. The comparative amount for the year ended 31 December 2020 has been prepared on the same basis as the year ended 31 December 2021 to allow for a more meaningful comparison.
Annual percentage change in remuneration of Directors compared to UK based employees
The table below shows the percentage year-on-year change in salary, benefits and annual bonus earned between the year ended 31 December 2020 and the year ended 31 December 2021 for the executive Directors, along with any percentage change in fees for the non-executive Directors, compared to the average UK-based Group employee. The Remuneration Committee considers this the most appropriate comparison given the location of the executive Directors and that the Group does not operate a harmonised salary and benefits structure across its global operations. The 2020 disclosure is also shown alongside this data. Year on year movement on base salaries or Director fees is attributable to part-year appointment changes.
|
|
% Base salary/fee |
Annual bonus outcome |
% Benefits1 |
||||
|
2021 |
2020 |
2021 |
2020 |
2021 |
2020 |
||
|
Executive Directors |
Stephen Bird2 |
100% |
- |
234% |
- |
- |
- |
|
Stephanie Bruce |
- |
74% |
69% |
54% |
- |
100% |
|
|
Non-executive Directors3,4 |
Sir Douglas Flint |
- |
- |
- |
- |
- |
- |
|
Jonathan Asquith |
- |
202% |
- |
- |
- |
- |
|
|
John Devine |
-3% |
-2% |
- |
- |
- |
-100% |
|
|
Melanie Gee |
-20% |
-3% |
- |
- |
- |
-100% |
|
|
Hannah Grove |
- |
- |
- |
- |
- |
- |
|
|
Brian McBride |
59% |
- |
- |
- |
- |
- |
|
|
Martin Pike |
- |
-3% |
- |
- |
- |
-100% |
|
|
Cathleen Raffaeli |
- |
- |
- |
- |
- |
-100% |
|
|
Jutta af Rosenborg |
- |
- |
- |
- |
- |
- |
|
|
Cecilia Reyes |
- |
292% |
- |
- |
- |
- |
|
|
|
UK-based employees |
- |
2.5% |
50% |
-52.5% |
- |
17% |
1. The change in benefits figures for employees (including executive Directors) are based on the change in medical premium paid by the Group on their behalf. Benefits do not include pension contributions for these purposes.
2. Stephen Bird was appointed 1 July 2020.
3. Remuneration for non-executive Directors and the Chairman is disclosed on page 113.
4. Melanie Gee stepped down from the Board on 31 October 2021. Hannah Grove was appointed to the Board on 1 September 2021, and is the Board Employee Engagement designated NED as well as a member of the Nomination and Governance Committee. Brian McBride was appointed to the Board with effect from 1 May 2020.
How pay was set across the wider workforce in 2021
Our principles for setting pay across the wider workforce are consistent with those for our executive Directors, in that the proportion of the remuneration package which is linked to performance increases for more senior roles within the Company as responsibility and accountability increases.
Base salaries are targeted at an appropriate level in the relevant markets in which the Group competes for talent. The Remuneration Committee considers the base salary percentage increases for the Group's broader UK and international employee populations when determining any annual salary increases for the executive Directors. A Group-wide decision was made not to carry out a salary review and the same approach was applied to executive Directors.
As part of the transformation of our performance culture, and incorporating colleague feedback, a new reward philosophy was adopted in 2021 (see page 39 for detail). As a result, the eligibility criteria for participation in variable pay plans was reviewed. It was determined that bonus eligibility for some UK roles should be removed, and instead their packages rebalanced to include a higher base salary. This adjustment meant that the colleagues concerned also benefitted from increases in salary linked benefits, such as pension.
For roles where variable remuneration eligibility is retained, our clear approach is designed to support and reward performance at a company, team and individual level. Performance related variable remuneration includes deferred variable compensation at a suitable level for the employee's role, ensuring a performance link over a longer time horizon than a single year. Variable remuneration for employees, including executive Directors, is determined as a total pool which is distributed across the business based on the performance of each vector and function. Individuals are then considered for a bonus payment on the basis of their individual performance objectives and goals, taking into account conduct.
The Group engaged with its employees in 2021 through the annual Viewpoints full company survey. The survey included an opportunity for employees to provide feedback to the Board on pay and benefit matters. Additionally, the Board Employee Engagement programme continued, with meet the NED sessions and virtual get togethers enabling direct communication for employees and the NEDs on a range of topics, including remuneration. The Board Employee Engagement representative NED has a designated slot at each Board meeting to feedback views and insights to ensure that employee views can be taken into account. The representative NED also shares updates with all employees via regular email communication.
The Group operates a Compensation Committee comprising the Chief People Officer (Chair), Chief Financial Officer and Chief Risk Officer, the role of which is to consider the implementation of the remuneration policy across the Group. The terms of reference of the Compensation Committee are set by the Remuneration Committee and the Chair of the Compensation Committee formally reports to the Remuneration Committee on all matters which fall within the Compensation Committee's remit.
Pay ratio
The table below sets out the ratio of CEO pay to the median, 25th and 75th percentile total remuneration of full-time equivalent UK employees in accordance with legislation published by the Government in 2018. We have identified the relevant employees for comparison using methodology B, our gender pay gap data set (snapshot data from 5 April 2021). This was chosen by the Remuneration Committee as it utilised a data set which had already been processed and thoroughly reviewed, and this enabled timely reporting for disclosure purposes. Some employing entities are excluded from the gender pay gap calculation in line with the regulations due to the number of individuals employed by these entities being less than 250. The Committee considered this would not have a material impact on the outcome of the pay ratio calculation given the limited number of individuals this excludes, relative to the total population being captured, and the range of the remuneration for those excluded individuals, which was spread across quartiles.
The remuneration paid to each of the individuals identified under methodology B was reviewed against other individuals within the quartile both above and below. The individual identified at the 25th percentile was replaced by the next identified in that quartile as they were not considered representative due to the structure of their package not being consistent with their peers'. The individual identified at the 50th percentile had a full time equivalent outcome which was considered representative of the quartile. The individual identified at the 75th percentile had since left the business and was not bonus eligible, therefore the next identified individual was selected. Benefits figures were based on the medical premium paid by the Company on behalf of employees.
The ratio has increased from 2020, which reflects the fact that the CEO has a greater level of remuneration at risk which is dependent on Company performance; based on performance in 2020, the bonus for the CEO paid out at 48% of maximum, compared to 80.5% of maximum in 2021. Additionally, there has been a material change in the number of staff employed by the Group during the year which makes a year on year comparison more challenging. It is noted that in future years the ratio may be impacted by the vesting of long-term incentive awards (the performance period of the first LTIP award granted to the CEO will end in 2022).The Committee is comfortable that the pay ratio reflects the pay and progression policies across the Company set out above. Further detail on workforce pay is set out below.
|
|
Year |
Method |
25th percentile |
50th percentile |
75th percentile |
|
Stephen Bird |
2021 |
Option B |
62 |
45 |
25 |
|
Stephen Bird/Keith Skeoch |
2020 |
Option B |
49 |
30 |
18 |
|
Keith Skeoch |
2019 |
Option B |
34 |
23 |
13 |
|
Keith Skeoch |
2018 |
Option B |
30 |
19 |
12 |
|
|
Base salary (£000s) |
Total pay (£000s) |
|
CEO remuneration |
875 |
2,795 |
|
25th percentile employee |
38 |
45 |
|
50th percentile employee |
53 |
62 |
|
75th percentile employee |
75 |
113 |
Remuneration for non-executive Directors and the Chairman
Single total figure of remuneration - non-executive Directors (audited)
The following table sets out the single total figure of remuneration for each of the non-executive Directors who served as a Director at any time during the financial year ending 31 December 2021. 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 |
Taxable benefits in |
Total remuneration |
|
Sir Douglas Flint1 |
2021 |
475 |
- |
475 |
|
|
2020 |
475 |
- |
475 |
|
Jonathan Asquith |
2021 |
139 |
- |
139 |
|
|
2020 |
139 |
- |
139 |
|
John Devine |
2021 |
124 |
2 |
126 |
|
|
2020 |
128 |
- |
128 |
|
Melanie Gee2 |
2021 |
90 |
- |
90 |
|
|
2020 |
113 |
- |
113 |
|
Hannah Grove3 |
2021 |
29 |
- |
29 |
|
|
2020 |
- |
- |
- |
|
Brian McBride4 |
2021 |
121 |
- |
121 |
|
|
2020 |
76 |
- |
76 |
|
Martin Pike |
2021 |
124 |
- |
124 |
|
|
2020 |
124 |
- |
124 |
|
Cathleen Raffaeli5 |
2021 |
149 |
- |
149 |
|
|
2020 |
149 |
- |
149 |
|
Jutta af Rosenborg |
2021 |
94 |
- |
94 |
|
|
2020 |
94 |
- |
94 |
|
Cecilia Reyes |
2021 |
94 |
9 |
103 |
|
|
2020 |
94 |
- |
94 |
1. Sir Douglas Flint is eligible for life assurance of 4x his annual fee. This is a non-taxable benefit.
2. Stepped down from the Board with effect from 31 October 2021.
3. Appointed to the Board with effect from 1 September 2021.
4. Appointed to the Board with effect from 1 May 2020. Total fees include subsidiary Board fees of £30,000 per annum as a member of the Standard Life Savings Limited and Elevate Portfolio Services Limited Boards.
5. Total fees include subsidiary Board fees of £55,000 per annum as Chair of the Standard Life Savings Limited and Elevate Portfolio Services Limited Boards.
The non-executive Directors, including the Chairman, have letters of appointment that set out their duties and responsibilities. The key terms are set out in the remuneration policy, and can be found on pages 96-104 of the Annual report and accounts 2019.
The service agreements/letters of appointment for Directors are available to shareholders to view on request from the Company Secretary at the Company's registered address (details of which can be found on page 283) and at the 2022 AGM. Details of the date of appointment to the Board and date of election by shareholders are set out below:
|
Chairman/ non-executive Director |
Initial appointment to the Board |
Initial election by shareholders |
|
Chairman |
|
|
|
Sir Douglas Flint |
1 November 2018 |
AGM 2019 |
|
Senior Independent Director |
|
|
|
Jonathan Asquith |
1 September 2019 |
AGM 2020 |
|
Non-executive Directors |
|
|
|
John Devine |
4 July 2016 |
AGM 2017 |
|
Melanie Gee |
1 November 2015 |
AGM 2016 |
|
Hannah Grove |
1 September 2021 |
- |
|
Brian McBride |
1 May 2020 |
AGM 2020 |
|
Martin Pike |
27 September 2013 |
AGM 2014 |
|
Cathleen Raffaeli |
1 August 2018 |
AGM 2019 |
|
Jutta af Rosenborg |
14 August 2017 |
AGM 2018 |
|
Cecilia Reyes |
1 October 2019 |
AGM 2020 |
Implementation of policy for non-executive Directors in 2022
The following table sets out abrdn non-executive Director fees to be paid in 2022. Fees for 2022 remain at the current level, with the exception of the Committee membership fees paid to members of the Audit, Risk and Capital and Remuneration Committees, which have been increased to £17,500 following a review of market data; these membership fees had previously remained unchanged since being set in 2017.
|
Role |
2022 fees1 |
2021 fees |
|
Chairman's fees2 |
£475,000 |
£475,000 |
|
Non-executive Director fee3 |
£73,500 |
£73,500 |
|
Additional fees: |
|
|
|
Senior Independent Director |
£25,000 |
£25,000 |
|
Chairman of the Audit Committee |
£30,000 |
£30,000 |
|
Chairman of the Risk and Capital Committee |
£30,000 |
£30,000 |
|
Chairman of the Remuneration Committee |
£30,000 |
£30,000 |
|
Committee membership (Audit, Risk and Capital and Remuneration Committees) |
£17,500 |
£10,000 |
|
Committee membership (Nomination Committee) |
£10,000 |
£10,000 |
|
Employee engagement |
£15,000 |
£15,000 |
1. The core fee of £73,500 paid to each non-executive Director (including the Chairman) is expected to total £735k for 2022 (2021: £662k). This is within the maximum £1,500,000 permitted under Article 87 of abrdn's articles of association. Total fees including additional duties are expected to amount to £1,407k for 2022 (2021: £1,407k).
2. The Chairman's fees are inclusive of the non-executive Directors' core fees and no additional fees are paid to the Chairman where he chairs, or is a member of, other committees/boards. The Chairman is eligible to receive life assurance, which is a non-taxable benefit.
3. For non-executive Directors, individual fees are constructed by taking the core fee and adding extra fees for being the Senior Independent Director, chairman or member of committees and/or subsidiary boards where a greater responsibility and time commitment is required.
Non-executive Directors' interests in shares (audited)
The following table shows the total number of abrdn plc shares held by each of the non-executive Directors and their connected persons:
|
|
Total number of shares owned |
Shares acquired during the period |
Total number of shares owned at |
|
Sir Douglas Flint |
89,369 |
90,248 |
179,617 |
|
Jonathan Asquith |
70,000 |
32,849 |
102,849 |
|
John Devine |
28,399 |
- |
28,399 |
|
Melanie Gee1 |
67,500 |
- |
67,500 |
|
Hannah Grove2 |
- |
33,000 |
33,000 |
|
Brian McBride |
- |
- |
- |
|
Martin Pike |
69,476 |
- |
69,476 |
|
Cathleen Raffaeli |
9,315 |
- |
9,315 |
|
Jutta af Rosenborg |
8,750 |
231 |
8,981 |
|
Cecilia Reyes |
- |
- |
- |
1. Stepped down from the Board with effect from 31 October 2021.
2. Appointed to the Board with effect from 1 September 2021.
3. There were no changes to the number of shares held by the reportable Directors noted above between 31 December 2021 and 28 February 2022. On 4 January 2022, Catherine Bradley was appointed to the Board. As at 28 February 2022 she holds 12,181 shares.
Sir Douglas Flint, as Chairman, is subject to a shareholding guideline of 100% of the value of his annual fee in abrdn plc shares to be reached within four years of appointment. As set out in the above table, during 2021 he purchased 90,248 abrdn plc shares. The total investment cost of Sir Douglas Flint's shareholding was £453k, equivalent to 95% of his annual fee. Based on the share price at 31 December 2021 (240.90p), his shareholding is valued at 91% of his annual fee.
The Remuneration Committee
Membership
During 2021 the Remuneration Committee was made up of independent non-executive Directors. For their names, the number of meetings and committee member attendance during 2021, please see the table on page 82.
The role of the Remuneration Committee
To consider and make recommendations to the Board in respect of the total remuneration policy across the Company, 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 Company.
- Changes to employee benefit structures (including pensions) throughout the Company.
The Remuneration Committee's work in 2021
|
Jan-Mar |
- 2020 Directors' remuneration report. - 2020 bonus payments and 2018 LTIP outcomes. - 2021 annual bonus scorecard targets and 2021 LTIP targets. - Updates from the Risk and Audit Committees on relevant matters for the Committee's consideration when determining pay outcomes. - Review remuneration outcomes for executive Directors and the Material Risk Taker population. |
|
Apr-Jun |
- Update on the external environment and feedback from AGM. - Review the Group Remuneration Philosophy and Policy. - Remuneration decisions for the Executive Leadership Team and other senior employees within Remuneration Committee's remit. - Agree outcome of the second tranche of the CFO's one-off award. |
|
Jul-Sep |
- Consider anticipated impact of regulatory changes on remuneration. - Review eligibility criteria for the Group-wide Variable Pay Plan. - Mid-year review of performance against target for annual bonus and LTIP awards for the executive Directors. |
|
Oct-Dec |
- Finalise Group Remuneration Policy and bonus pool allocation principles. - Review gender pay gap data. - Updates on regulatory changes and external environment. - Update the Remuneration Committee's Terms of Reference. - Review 2022 remuneration proposals. |
External advisers
During the year, the Remuneration Committee took advice from Deloitte LLP (a member of the Remuneration Consultants Group) who were appointed by the Remuneration Committee in 2017. The Remuneration Committee is satisfied that the advice given is objective and independent.
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. Outside 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, accounting support, risk management and consultancy services to the Company during the year. Deloitte Total Rewards and Benefits is an investment adviser to the trustees of the Standard Life Staff Pension Scheme.
Fees paid to Deloitte LLP during 2021 for professional advice to the Remuneration Committee were £183,750.
Deloitte LLP have now been Remuneration Committee advisers for five years. To ensure the Committee is receiving the best quality advice and value for money, a retender process has been started, with a view to appointing a new adviser or retaining Deloitte LLP in summer 2022. The outcome of this process will be published to shareholders in next year's Directors' Remuneration Report.
Where appropriate, the Remuneration Committee receives input from the Chairman, Chief Executive Officer, Chief Financial Officer, Chief People Officer, Global Head of Reward and the Chief Risk Officer. This input never relates to their own remuneration. The Remuneration Committee also receives input from the Risk and Capital Committee and the Audit Committee.
Remuneration Committee effectiveness
The Committee reviews its remit and effectiveness each year. The 2021 review was conducted internally by the Company Secretary, who met with each of the Committee members. As well as general observations, the key performance areas considered were:
- The comprehensiveness of the Committee's agendas against members' expectations.
- How effectively agenda items were presented, discussed and time managed.
- The quality and level of detail in the papers.
- How well the Committee met its objectives in terms of making decisions and reporting to the Board.
- How effectively the Chair discharged their responsibilities.
The Committee members did not raise any material issues or concerns regarding the above areas or the overall effectiveness of the Committee during 2021. They were very supportive of the Chair's effective role in leading the Committee through its discussions. The main area where the Committee looked to see continued improvement in 2022 was in relation to the clarity of the presentation of some of the more technical and regulatory remuneration matters. The Committee was pleased that during 2021 it had found time to move beyond overseeing the annual cycle of remuneration matters to review and agree the revised and updated Group Remuneration Policy and Principles.
Shareholder voting
We remain committed to ongoing shareholder dialogue and take an active interest in voting outcomes.
The remuneration policy was subject to a vote at the 2020 AGM on 12 May 2020 and the following table sets out the outcome.
|
Policy 2020 AGM |
For |
Against |
Withheld |
|
% of total votes |
91.66% |
8.34% |
|
|
No. of votes cast |
1,003,905,073 |
91,323,405 |
10,346,991 |
The Directors' remuneration report was subject to a vote at the 2021 AGM on 18 May 2021 and the following table sets out the outcome.
|
2020 Directors' remuneration report |
For |
Against |
Withheld |
|
% of total votes |
96.90% |
3.10% |
|
|
No. of votes cast |
969,169,906 |
30,957,556 |
2,113,755 |
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