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Directors' Remuneration Report
This is a summary of the Directors’ Remuneration Report for the 12 month period to 31 December 2006.
The Directors’ Remuneration Report shows remuneration paid to Directors over that period and, except as stated, reflects remuneration paid by The Standard Life Assurance Company and its subsidiaries prior to demutualisation on 10 July 2006 and by the Company and its subsidiaries after that date.
Remuneration policy
The Company’s remuneration policy is that remuneration should reward outstanding performance but not pay out when performance is poor.
The Remuneration Committee determines the content of each executive Director’s compensation package by reference to market practice for similar companies, current economic conditions, the earnings and benefits of the Company’s employees and the individual’s contribution to the Company’s performance.
Remuneration packages for the Company’s executive Directors are made up of base salary, participation in the company-wide flexible benefits scheme, pension provision, annual bonus and participation in a share based long-term incentive plan.
The Chairman and the non-executive Directors do not receive pension provision, bonuses or incentive payments.
Pension
Executive Directors can choose to participate in a defined contribution pension plan or receive a non-benefit bearing cash supplement.
Those appointed before 16 November 2004 also keep the option of remaining as members of the staff pension scheme which currently provides pensions on a final salary basis.
Annual bonus
80% of a Director’s annual bonus depends on attaining specified financial measures and 20% is based on personal measures.
The Group Chief Executive can earn a bonus of up to 100% of salary and other Directors, except Keith Skeoch, have a bonus maximum of 90% of salary.
Keith Skeoch participates in the cash based incentive payments used within Standard Life Investments that are consistent with the practices of competing fund managers.
Standard Life Investments’ Remuneration Committee determines the level of his personal performance bonus, which is capped at 150% of salary, and company bonus, which is uncapped. These recommendations are reviewed by the Group’s Remuneration Committee.
Long-term incentive plan
The 2005 and 2006 long-term incentive plan (LTIP) awards were granted pre-flotation as cash based awards.
To promote alignment with shareholders, it was a term of these awards that they would convert into equivalent awards over shares following flotation using the average Standard Life plc share price over the 20 dealing days following flotation. This averaging was deliberately done so as to avoid any allegation that the Directors planned to benefit from a lower flotation share price.
In 2007 and future years, LTIP awards will be granted over shares and grant levels in 2007 will be the same as in 2006.
Although the LTIP provides for a maximum annual grant of 200% of salary, the Group Chief Executive will be awarded a 2007 LTIP award over shares worth 175% of salary.
The other executive Directors, except Keith Skeoch, will receive a grant over shares worth 100% of salary. Keith Skeoch will receive a grant over 80% of salary and also participates in the long-term incentive arrangements used within Standard Life Investments that are consistent with the practices of competing fund managers.
The Company’s policy, which has been applied to the 2005 and 2006 grants, is that LTIP awards will only vest to the extent that a return on capital performance condition has been met.
Return on capital
Return on capital is defined as the sum of the operating profits of Standard Life Bank, Standard Life Healthcare and Standard Life Investments and the European Embedded Value (EEV) profits of the United Kingdom, Canadian and international life and pension businesses divided by a group capital figure.
To date the Group’s capital figure has been defined as the Group’s opening EEV for the financial year being reviewed. The target is set on a sliding scale basis and performance will be measured over a three-year period.
In light of the transition to reporting EEV profits, for the 2005 awards, the return on capital for the financial year ending 31 December 2007 will be compared to the target. For the 2006 awards, the return on capital over the two financial years ending 31 December 2007 and 31 December 2008 will be compared with the target.
The Remuneration Committee will set a threshold, target and stretch return on capital for each award. At threshold performance, 30% of an award will vest; the target return on capital will result in 50% vesting; and full vesting will only be achieved for stretch performance.
Between these three calibration points straight line pro-rating of vesting will apply. If the performance condition is not met at the first and only review at the end of the performance period then the awards lapse.
The targets are set as a combined return of capital thus ensuring performance over the whole period is measured, i.e. the awards are not sub-divided across performance in the separate years making up the performance period.
The targets will generally become more demanding each year reflecting the improvement in the Group’s return of capital. The Remuneration Committee will take into account the levels of return on capital being made by the Group’s competitors on comparable business when defining the stretch performance.
Retrospective disclosure of the targets will be made and, in addition, disclosure of the return on capital target for the forthcoming year will be disclosed. In this regard, the 2007 return on capital targets are:
2007 return on capital targets
The return on capital performance condition is underpinned by the Remuneration Committee having a power to adjust the resulting vesting level in light of actual versus expected cash generation over the performance period. This will ensure that management is encouraged to write a good balance of short, mid and long-term profitable business.
This performance target has been chosen by the Remuneration Committee because it is an appropriate measure of the financial performance of the Group as a whole, it is aligned to the corporate goals of the Group and has universal application across all participants.
The returns on capital are calculated using audited results so that we can make sure that there is third party verification.
Share ownership guidelines
During 2006 the Remuneration Committee adopted share ownership guidelines.
The executive Directors are expected to build up a shareholding of shares worth 100% of base salary and other Group executive members are expected to build up a holding worth 50% of base salary.
Policy on service contracts
All executive Directors have service contracts that provide for a 12 month notice period from the Company.
Recruitment of David Nish
No special recruitment arrangements were made, except a recruitment LTIP award on terms equivalent to the terms of the 2006 LTIP awards described above.
The full report, of which this is a summary, is set out in the Annual Report and Accounts.
Gerry Grimstone
Chairman of the Remuneration Committee
Edinburgh, 22 March 2007
- Foreword
- Remuneration policy
- Pension
- Annual bonus
- Long-term incentive plan
- Share ownership guidelines
- Policy on service contracts
- Recruitment of David Nish
This is a summary of the Directors’ Remuneration Report for the 12 month period to 31 December 2006.
The Directors’ Remuneration Report shows remuneration paid to Directors over that period and, except as stated, reflects remuneration paid by The Standard Life Assurance Company and its subsidiaries prior to demutualisation on 10 July 2006 and by the Company and its subsidiaries after that date.
Remuneration policy
The Company’s remuneration policy is that remuneration should reward outstanding performance but not pay out when performance is poor.
The Remuneration Committee determines the content of each executive Director’s compensation package by reference to market practice for similar companies, current economic conditions, the earnings and benefits of the Company’s employees and the individual’s contribution to the Company’s performance.
Remuneration packages for the Company’s executive Directors are made up of base salary, participation in the company-wide flexible benefits scheme, pension provision, annual bonus and participation in a share based long-term incentive plan.
The Chairman and the non-executive Directors do not receive pension provision, bonuses or incentive payments.
Pension
Executive Directors can choose to participate in a defined contribution pension plan or receive a non-benefit bearing cash supplement.
Those appointed before 16 November 2004 also keep the option of remaining as members of the staff pension scheme which currently provides pensions on a final salary basis.
Annual bonus
80% of a Director’s annual bonus depends on attaining specified financial measures and 20% is based on personal measures.
The Group Chief Executive can earn a bonus of up to 100% of salary and other Directors, except Keith Skeoch, have a bonus maximum of 90% of salary.
Keith Skeoch participates in the cash based incentive payments used within Standard Life Investments that are consistent with the practices of competing fund managers.
Standard Life Investments’ Remuneration Committee determines the level of his personal performance bonus, which is capped at 150% of salary, and company bonus, which is uncapped. These recommendations are reviewed by the Group’s Remuneration Committee.
Long-term incentive plan
The 2005 and 2006 long-term incentive plan (LTIP) awards were granted pre-flotation as cash based awards.
To promote alignment with shareholders, it was a term of these awards that they would convert into equivalent awards over shares following flotation using the average Standard Life plc share price over the 20 dealing days following flotation. This averaging was deliberately done so as to avoid any allegation that the Directors planned to benefit from a lower flotation share price.
In 2007 and future years, LTIP awards will be granted over shares and grant levels in 2007 will be the same as in 2006.
Although the LTIP provides for a maximum annual grant of 200% of salary, the Group Chief Executive will be awarded a 2007 LTIP award over shares worth 175% of salary.
The other executive Directors, except Keith Skeoch, will receive a grant over shares worth 100% of salary. Keith Skeoch will receive a grant over 80% of salary and also participates in the long-term incentive arrangements used within Standard Life Investments that are consistent with the practices of competing fund managers.
The Company’s policy, which has been applied to the 2005 and 2006 grants, is that LTIP awards will only vest to the extent that a return on capital performance condition has been met.
Return on capital
Return on capital is defined as the sum of the operating profits of Standard Life Bank, Standard Life Healthcare and Standard Life Investments and the European Embedded Value (EEV) profits of the United Kingdom, Canadian and international life and pension businesses divided by a group capital figure.
To date the Group’s capital figure has been defined as the Group’s opening EEV for the financial year being reviewed. The target is set on a sliding scale basis and performance will be measured over a three-year period.
In light of the transition to reporting EEV profits, for the 2005 awards, the return on capital for the financial year ending 31 December 2007 will be compared to the target. For the 2006 awards, the return on capital over the two financial years ending 31 December 2007 and 31 December 2008 will be compared with the target.
The Remuneration Committee will set a threshold, target and stretch return on capital for each award. At threshold performance, 30% of an award will vest; the target return on capital will result in 50% vesting; and full vesting will only be achieved for stretch performance.
Between these three calibration points straight line pro-rating of vesting will apply. If the performance condition is not met at the first and only review at the end of the performance period then the awards lapse.
The targets are set as a combined return of capital thus ensuring performance over the whole period is measured, i.e. the awards are not sub-divided across performance in the separate years making up the performance period.
The targets will generally become more demanding each year reflecting the improvement in the Group’s return of capital. The Remuneration Committee will take into account the levels of return on capital being made by the Group’s competitors on comparable business when defining the stretch performance.
Retrospective disclosure of the targets will be made and, in addition, disclosure of the return on capital target for the forthcoming year will be disclosed. In this regard, the 2007 return on capital targets are:
2007 return on capital targets
| Performance Level | Level of Vesting | 2007 Return on Capital applicable to both the 2005 and 2006 Awards |
|---|---|---|
| Threshold | 30% | 9.0% |
| Target | 50% | 9.5% |
| Stretch | 100% | 10.5% |
The return on capital performance condition is underpinned by the Remuneration Committee having a power to adjust the resulting vesting level in light of actual versus expected cash generation over the performance period. This will ensure that management is encouraged to write a good balance of short, mid and long-term profitable business.
This performance target has been chosen by the Remuneration Committee because it is an appropriate measure of the financial performance of the Group as a whole, it is aligned to the corporate goals of the Group and has universal application across all participants.
The returns on capital are calculated using audited results so that we can make sure that there is third party verification.
Share ownership guidelines
During 2006 the Remuneration Committee adopted share ownership guidelines.
The executive Directors are expected to build up a shareholding of shares worth 100% of base salary and other Group executive members are expected to build up a holding worth 50% of base salary.
Policy on service contracts
All executive Directors have service contracts that provide for a 12 month notice period from the Company.
Recruitment of David Nish
No special recruitment arrangements were made, except a recruitment LTIP award on terms equivalent to the terms of the 2006 LTIP awards described above.
The full report, of which this is a summary, is set out in the Annual Report and Accounts.
Gerry Grimstone
Chairman of the Remuneration Committee
Edinburgh, 22 March 2007