No awards are made if performance is below the minimum criteria

CHESNARA | ANNUAL REPORT & ACCOUNTS 2014 74

SECTION C CORPORATE GOVERNANCE

DIRECTORS’ REMUNERATION REPORT

ANNUAL REMUNERATION REPORT

Payments for ceasing to hold office (audited information)

On 3 December 2014 Graham Kettleborough gave notice of his intention to resign from the Board and the Company.

The Remuneration Committee is of the view that Graham considered the interests of the business in the timing of his resignation, which coincided with the successful conclusion of negotiations and a placing to acquire the Waard Group in the Netherlands, and the Company being in a position, through its succession plans, to have appointed a suitable successor. In the circumstances, the Remuneration Committee formed the view that the arrangements and payments set out below were in the interests of the Company and its shareholders and in line with the Company’s Remuneration Policy and contractual agreements with Graham. The total amount for loss of office is as follows:

– Contractual remuneration entitlements to 31 March 2015:

Graham to continue to receive normal pay and benefits under the terms of his service contract from 3 December 2014 to 31 March 2015.

– Payment in lieu of notice and awards from incentive plans:

Graham will cease to be employed by the Company on 31 March 2015, and at that time he will receive a payment in lieu of his contractual remuneration entitlements for the remaining proportion of his twelve month notice period as set out in the table below. This table also shows how the Remuneration Committee (“Committee”) has assessed the treatment of outstanding awards under the various incentive schemes in which Graham participates including where any discretion has been exercised and the amounts / value of such awards.

Description Amount £ Explanation of how calculated

Pay in lieu of salary and benefits 276,214 This represents payment of basic salary (£221,317), accrued holidays (£23,352), pension contributions (£20,959) and other taxable / non-taxable benefits (£10,586) for the 8 months and 2 days of the remaining contractual notice period.

Use and loss of company car 8,200 This represents the value of the use of a company car between 31 March

2015 and 29 June 2015 and compensation for loss of use

of a company car for the period 30 June 2015 to 2 December 2015.

2012 LTIP 99,775 This represents the value accrued under the 2012 LTIP.

The Committee has exercised its discretion to determine that

the award shall be retained in full. This is also captured in the

“single figure earnings table” on page 70.

2014 Short-term incentive scheme 224,716 This represents the value accrued under the 2014 STI scheme.

The Committee has exercised its discretion and determined that this award will be paid in cash with no deferral into shares.

This is also captured in the “single figure earnings table” on page 70.

2014 Long-term incentive scheme 46,969 The Committee determined that Graham should retain a time rated proportion of the share options awarded to him under the 2014 LTI Scheme Award - 26,130 shares as compared with 78,390 originally granted.

The Committee has assessed the performance of the measures under the Scheme against what the Committee consider to be fair proportionate performance targets as at 31 December 2014. Graham led, and was critical to, completion of the acquisition of the Waard Group and to the fund raising so, in making its performance assessment, the Committee has made an adjustment to the Embedded Value to reflect the positive effect that completion of the acquisition of the Waard Group is expected to have and for the timing of the acquisition expenses. As a result Graham will, on 31 March 2015, be awarded 13,065 shares. The Committee also determined that the options will remain exercisable until 30 November 2015 and in accordance with the Scheme Rules an amount in respect of dividends with interest thereon will be payable when the options are exercised. The value shown in based on the share price on 24 March 2015 (359.50 pence).

Total 655,874

The Company paid £1,000 on behalf of Graham in respect of legal services received in relation to his cessation of office.

CHESNARA | ANNUAL REPORT & ACCOUNTS 2014 75 CORPORATE GOVERNANCE SECTION C

Performance graph and CEO remuneration table The following graph shows the Company’s performance compared with the performance of the FTSE 350 Higher Yield Index and the FTSE UK Life Insurance Index. The FTSE 350 Higher Yield Index has been selected as a

comparison because it is the index used by the Company for the performance criterion for the 2014 and 2015 Long-term Incentive Scheme, and the FTSE UK Life Insurance Index has been selected due to Chesnara’s inclusion within this index.

*The “options without performance measures” column in the above table does not include the share options that will be awarded as part of the mandatory deferral rules of the 2014 STI Scheme, which equate to 35% of the cash award under this scheme. The timetable for the administration of the Scheme means that these will be reported in the 2015 Annual Report & Accounts.

Statement of Directors’ shareholding and share interests (audited information)

The Remuneration policy, which was effective from the 2014 AGM, requires Executive Directors to hold shares to the value of their basic salary. Directors may dispose of shares even when the minimum holding level has not been achieved where funds are required to discharge any income tax and National Insurance liabilities arising from awards received from a Chesnara incentive plan.

The table below shows, in relation to each Director, the total number of share interests with and without performance conditions, the total number of share options with and without performance measures, those vested but unexercised and those exercised at 31 December 2014 or the date of resignation.

The share options that were exercised during the year relate to the maturity of the “save as you earn” scheme that was instigated in 2011 and matured in 2014. The option price of the shares in the save as you earn scheme was 173.4p per share.

No changes took place in the interests of the Directors between 31 December 2014 and 30 March 2015.

Chesnara total shareholder return rebased FTSE UK Life Insurance Index, rebased FTSE 350 Higher Yield Index, rebased 300

250

200

150

100

50

Jan 10 Jan 11 Jan 12 Jan 13 Jan 14

TSR Index

Name of Director Shares Options

With Without With Without Vested Exercised

performance performance performance performance but during the measures measures measures measures * unexercised year

Graham Kettleborough (ceased to be being a Director on

31 December 2014) – 87,512 26,130 – – 5,190

John Deane

(appointed on 3 December 2014) – 9,677 – – – –

David Rimmington – 8,048 41,800 – – 5,190

Frank Hughes – 12,123 48,443 – – 5,190

Peter Mason – 21,743 – – – –

Peter Wright – 70,000 – – – –

Veronica Oak

Veronica Oak (née France) – 2,000 – – – –

David Brand – 3,000 – – – –

Mike Evans – 6,452 – – – –

Total – 220,555 116,373 – – 15,570

CHESNARA | ANNUAL REPORT & ACCOUNTS 2014 76

SECTION C CORPORATE GOVERNANCE

DIRECTORS’ REMUNERATION REPORT

ANNUAL REMUNERATION REPORT

Percentage change in remuneration for Director undertaking the role of Chief Executive Officer

The table below shows the percentage change in remuneration for the Director undertaking the role of Chief Executive Officer and the Company’s employees as a whole between the years 2014 and 2013.

Percentage change in remuneration in 2014 compared with 2013 Group

CEO employees

Salary and fees 2.50% 1.55%

All taxable benefits (0.06)% (3.02)%

Annual bonuses (29.82)% (5.07)%

Performance graph and CEO remuneration table (continued)

The table below sets out the details for the Director undertaking the role of Chief Executive Officer (Graham Kettleborough):

Year Long-term

incentive

Annual bonus vesting CEO single pay-out rates against figure of total against maximum remuneration maximum opportunity

£000 % % Note

2014 712 91.30% 34.52% 1

2013 702 100.00% n/a 2

2012 612 65.48% 100.00% 3

2011 384 17.39% n/a 4

2010 631 100.00% n/a 4

Note 1 – During 2014 an LTIP that was granted to the CEO in 2012 vested. The LTIP included a condition such that the sum of the LTIPs and annual bonuses awarded in that year could not exceed 100% of the CEO’s salary. The annual bonus in 2012 amounted to 65.48% of salary. When the performance measurements for the 2012 LTIP were assessed, the award was required to be restricted due to the operation of the 100% cap combined cap, such that the 2012 LTIP paid out 34.52% of the salary at the time of award.

During 2014 the annual bonus that was awarded represented 70% of the CEO’s salary. The maximum payable was 75% of the CEO’s salary, resulting in a 91.30% pay-out with reference to the maximum potential award.

Note 2 – During 2013 no LTIP value was earned