Executive Directors’ salaries in 2015
The current base salaries paid to the Executive Directors were set before the IPO. The Committee has considered the current level of salaries and decided to award an increase of 2% from 1 April 2015, in line with the average increase awarded to UK employees.
Director Position 2015 base salary£’000 2014 base salary £’000 Annual change in base salary
Paul Geddes Chief Executive Officer 775 760 2%
John Reizenstein Chief Financial Officer 469 460 2%
Annual Incentive Plan 2015
The maximum annual incentive awards which may be payable to Executive Directors in respect of 2015 are shown below and have remained unchanged since the IPO.
Director Position Maximum annual incentive award for 2015 (% base salary) Deferred under the Deferred Annual Incentive Plan
Paul Geddes Chief Executive Officer 175% 40%
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During 2014, the Committee reviewed the basket of measures used to assess performance under the AIP and the operation of the overall framework since it was put in place at the time of the IPO. The review concluded that, overall, the framework worked well in linking the variable pay of Executive Directors with the performance of the Group. However, as part of the review, the Committee decided to adopt the following changes aimed at simplifying the plan and further strengthening that link:
• In 2014, ongoing operating profit was adjusted to exclude movements in prior-year reserves. This adjustment will no longer be made in 2015 although the Committee will assess the impact of prior-year reserving on performance as part of its overall judgement. The weighting of ongoing operating profit has increased to 50%
• To remove the specific weighting for cost targets and lead indicators, but consider these factors as part of its overall exercise of judgement around the quality and sustainability of earnings
• To broaden the basket of customer measures and double the weighting of this element to 20%, reflecting the specific business priorities for the year ahead
Measures Weighting for 2015 Weighting for 2014
Financial Ongoing operating profit (no longer adjusted for prior-year
reserving from 2015) 50% 40%
Other financial measures not reflected in the definition of profit, primarily the performance of the Run-off segment and
restructuring costs 10% 10%
Cost targets 10%
Strategic A mix of financial and non-financial lead indicators including market share, retention, quote to conversion ratio, scored loss ratio, progress with technology and strategic projects and others
No specific weighting, but considered as part of the overall
judgement 10%
Based on a basket of customer measures including Net
Promoter Score and complaints 20% 10%
Personal objectives Defined objectives for each Executive Director, including
shared objectives across the Executive Committee 20% 20%
In line with previous years, all AIP outcomes will continue to be determined after the Committee determines a payment gateway. This requires the Committee to be satisfied that it is appropriate to permit a bonus award, at all or at a given level. The gateway necessarily involves some subjective judgement of performance. This may result in positive or negative moderation of each AIP performance measure or the overall bonus outcome.
The table below sets out the gateway criteria for the AIP for 2015.
Gateway criteria for the Annual Incentive Plan for 2015 outcomes for Executive Directors
• Quality and sustainability of earnings, referring to reserving, gross written premium, costs and loss ratio, and relevant lead indicators
• Additional customer context, for example, conduct, experience, brand and franchise health • Affordability
• Risk management within risk appetite
• The Group’s relative performance to that of its peers • The wider economic environment
• Exceptional events, such as abnormal weather
• Any regulatory breaches and / or reputational damage to the Group
• Committee satisfaction that paying the bonus does not cause major reputational concerns
The Committee may also use its discretion to take into account additional factors. These include the quality of financial results, the ’direction of travel‘ of all measures and a wider consideration of reputation, risk and audit.
Performance conditions for Long-Term Incentive Plan awards
LTIP awards to be granted in 2015 will continue to be subject to performance against the following performance conditions: • 60% based on RoTE over a three-year performance period (2015, 2016 and 2017)
• 40% based on relative TSR performance against the constituents of the FTSE 350 (excluding investment trusts) over a three-year performance period starting on the date of grant. The starting TSR and closing TSR will both be averaged over a three-month period
For these purposes, we use the Group’s standard definition for RoTE, see page 170, subject to other adjustments which the Committee may consider appropriate.
Following the year end, the Committee reviewed the performance targets and, in line with its commitment to ensure that awards to Executive Directors would only be payable if significant value has been created for shareholders, decided to increase the RoTE target range as follows:
Performance required for threshold vesting Performance required for maximum vesting
Performance measure Vesting for threshold performance Awards for 2015 prior to 2015Awards made Awards for 2015 Awards made prior to 2015
RoTE 20% of this element of the award Average annual RoTE performance of 14.5% Average annual RoTE performance of 14.0% Average annual RoTE performance of 17.5% Average annual RoTE performance of 17.0% Relative TSR 20% of this element
of the award Median Upper quintile
For the TSR and RoTE elements, 20% of the award vests for threshold performance with 100% vesting for maximum performance. There is a straight-line interpolation between these points for the TSR element (on a ranked basis). For the RoTE element, 40% of the award will vest for RoTE of 15.5% for awards to be made in 2015 (previously 15%). Otherwise, similar to TSR, a straight-line interpolation occurs from threshold to target then from target to maximum performance.
The LTIP awards will also vest only to the extent that the Committee is satisfied that the outcome of the TSR and RoTE performance conditions reflects the Group’s underlying financial performance from the date of grant until vesting. When considering these matters, the Committee will consider whether there have been any material risk failings.
Pension and benefits
A pension contribution of 25% of base salary will continue to be paid to both Executive Directors in 2015. This is shown in the table below.
Director Position Pension contribution (% base salary)
Paul Geddes Chief Executive Officer 25%
John Reizenstein Chief Financial Officer 25%
Benefits comprise the provision of a company car or car allowance, private medical insurance, life assurance, income protection and health screening. The Executive Directors are also eligible for certain discounted Group products in line with
the approach for all employees. Non-Executive Director fees
The current fees for the Chairman and Non-Executive Directors were set in 2012 and have not been changed to date.
Position Fees for 2015£’000
Board Chairman fee 400
Basic Non-Executive Director fee 70
Additional fees
Senior Independent Director fee 30
Chair of Audit, Risk and Remuneration Committees 30
Chair of CSR Committee 10
Member of Board Committee (Audit, Risk or Remuneration) 10
Member of Board Committee (CSR or Nomination) 5
No additional fees are paid for membership or chairmanship of the Investment Committee. External directorships
The Company encourages Executive Directors to accept, subject to the approval of the Chairman, an invitation to join the board of another company outside the Group in a non-executive capacity. This recognises the value of such wider experience. In these circumstances, they can retain any remuneration from the non-executive appointment. Executive Directors are generally limited to accepting one external directorship.
John Reizenstein is a trustee and director of Farm Africa, for which he receives no fees, otherwise the Executive Directors do not hold any external directorships.