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2012 implementation of remuneration policy

The operation of the Remuneration Committee in 2012

The members of the Committee during 2012 are listed below. All are independent non-executive directors:

  • Lord Turnbull KCB CVO (Chairman)
  • Keki Dadiseth
  • Michael Garrett
  • Paul Manduca (until 2 July 2012)
  • Kai Nargolwala

Philip Remnant joined the Committee on 1 January 2013.

In 2012, the Committee met five times. Key activities at each meeting are shown in the table below:

Meeting   Key activities
February 2012  
  • Approve the 2011 directors’ remuneration report;
  • Consider 2011 bonus awards for executive directors (and total compensation figure for Michael McLintock);
  • Consider vesting of the long-term incentive awards with a performance period ending on 31 December 2011; and
  • Approve the annual bonus measures and targets to be used in 2012.
March 2012  
  • Approve 2012 long-term incentive awards and performance measures; and
  • Confirm 2011 annual bonuses and the vesting of long-term incentive awards with a performance period ending on 31 December 2011 in light of audited financial results.
June 2012  
  • Review the remuneration of the Group Leadership Team, senior risk staff and of employees with a remuneration opportunity over £1 million per annum;
  • Note the dilution levels resulting from the Company’s share plans; and
  • Consider proposed changes to the remuneration architecture.
September 2012  
  • Monitor performance against long-term incentive targets, based on the half year results;
  • Review the Committee’s terms of reference;
  • Approve proposed changes to the remuneration architecture for shareholder consultation; and
  • Review total remuneration of executive directors.
December 2012  
  • Note the level of participation in the Company’s all-employee share plans;
  • Approve executive directors’ 2013 salaries and incentive opportunities;
  • Consider the annual bonus measures and targets to be used in 2013;
  • Review an initial draft of the 2012 directors’ remuneration report;
  • Confirm changes to the remuneration architecture in light of shareholder feedback; and
  • Approve the Committee’s 2013 work plan.

In January 2012, the Remuneration Committee met to conclude issues arising from the December 2011 Committee meeting. In addition, the Committee met for a working session in September 2012 to discuss changes to the remuneration architecture to be implemented in 2013.

The Chairman and the Group Chief Executive attend meetings by invitation. The Committee also had the benefit of advice from the Chief Financial Officer, Group Human Resources Director and Director of Group Reward and Employee Relations. The Group Chief Risk Officer advised the Committee on adherence to the Group’s risk appetite and framework. Individuals are never present when their own remuneration is discussed.

During 2012, Deloitte LLP were the independent advisor to the Committee. Advice was also provided by PricewaterhouseCoopers LLP. Market data was sourced from Deloitte LLP, Towers Watson, McLagan Partners and LOMA. Norton Rose, Slaughter & May, Linklaters and Allen & Overy provided legal counsel, including advice on employment law and the operation of the Company’s share plans. Some of these firms also provided other services to the Company: Deloitte LLP and PricewaterhouseCoopers LLP provided advice on Solvency II, taxation and other financial matters, Towers Watson provided actuarial advice and Slaughter & May and Norton Rose provided commercial, corporate and general legal advice.

The operation of the reward policy in 2012

In 2012, executive directors were rewarded on the basis set out below:

Download as excel file

        Long-term incentives (2012 award
as a percentage of salary)
Director Role Base salary at
1 January 2012
Annual bonus –
maximum
percentage
of salary
Group
Performance
Share Plan
(GPSP)
Business Unit
Performance
Plan (BUPP)
Total

Notes

  1. Michael McLintock’s annual bonus and long-term incentive opportunity under the M&G Executive LTIP (rather than the BUPP) are based on M&G’s performance both in absolute terms and relative to its peers. In line with practice in the asset management sector, there is no specified maximum incentive award. Michael’s total remuneration is subject to an overriding cap such that his total remuneration should not be greater than 3 per cent of M&G’s annual IFRS profits. The figure shown for his 2012 M&G Executive LTIP award is the expected value of this grant.
  2. Mike Wells’ maximum annual bonus figure is comprised of 160 per cent of salary and a 10 per cent share of the Jackson senior management bonus pool based on the target performance of Jackson.
  3. All long-term incentives have a three-year performance period. For the awards detailed above the performance period will end on 31 December 2014.
  4. Where awards are made in shares, the final number of shares awarded is calculated in line with the respective plan rules. Details on the shares granted under these plans are outlined in the Directors’ outstanding long-term incentive awards tables in the Supplementary information section.
Rob Devey Chief Executive, UK & Europe £600,000 160% 112.5% 112.5% 225.0%
John Foley Group Chief Risk Officer £610,000 160% 250.0% 250.0%
Michael McLintock Chief Executive, M&G £360,000 note 1 100.0% 344.1% 444.1%
Nic Nicandrou Chief Financial Officer £630,000 175% 225.0% 225.0%
Barry Stowe Chief Executive, PCA HK$8,000,000 160% 112.5% 112.5% 225.0%
Tidjane Thiam Group Chief Executive £1,000,000 200% 400.0% 400.0%
Mike Wells President & CEO, JNL US$1,050,000 note 2 230.0% 230.0% 460.0%

The package for 2012 offered the following proportions of fixed and variable short- and long-term reward to executive directors (average of executive directors):

Good performance

Pie chart showing good performance. 26% Base salary, 30% Cash bonus for 2012, paid in 2013, 18% Deferred bonus for 2012, vesting in 2016, 26% 2 012 LTIP Award, vesting in 2015

  • purple26% Base salary
  • pink30% Cash bonus for 2012, paid in 2013
  • blue18% Deferred bonus for 2012, vesting in 2016
  • dark grey26% 2012 LTIP Award, vesting in 2015

Superior performance

Pie chart showing superior performance. 15% Base salary, 21% Cash bonus for 2012, paid in 2013, 14% Deferred bonus for 2012, vesting in 2016, 50% 2 012 LTIP Award, vesting in 2015

  • purple15% Base salary
  • pink21% Cash bonus for 2012, paid in 2013
  • blue14% Deferred bonus for 2012, vesting in 2016
  • dark grey50% 2012 LTIP Award, vesting in 2015

 

As illustrated above, ‘Good’ performance results in the payment of 2012 annual bonus at the target level and 2012 long-term incentive awards vesting at the threshold level. ‘Superior’ performance generates maximum payment of 2012 annual bonuses and 2012 long-term incentive awards vest in full.

The single figure

Although the UK Government’s proposed reporting requirements have not been finalised, we have anticipated the requirement to present a single figure for executives’ total remuneration. This is included in the Directors' remuneration for 2012 table below. The single figure has been calculated including the following elements:

  • The salary and the cost of providing benefits in 2012;
  • The bonus awarded for performance in 2012 (including the value at award of the deferred element which will be released in 2016);
  • The value of long-term incentive awards with a performance period ending in 2012 which will be released in 2013, using the average share price over the period 1 October 2012 to 31 December 2012; and
  • The value of any salary supplement for pension, employer contributions to a defined contribution pension plan or the increase in transfer value of final salary pension benefits in 2012 (less contributions made by the director during 2012).

Base salary

Executive directors’ salaries were reviewed in 2012 with changes effective from 1 January 2013. In determining 2013 salaries, the Committee considered the performance, experience and internal relativities of each director, as well as the performance of the Group and the salary increases awarded to other employees. To provide context for this review, information was drawn from the following market reference points:

Director   Role   Benchmark(s) used to assess remuneration
Rob Devey   Chief Executive, UK & Europe  
  • FTSE 40
  • International Insurance Companies
John Foley   Group Chief Risk Officer  
  • FTSE 40
Michael McLintock   Chief Executive, M&G  
  • McLagan UK Investment Management Survey
Nic Nicandrou   Chief Financial Officer  
  • FTSE 40
  • International Insurance Companies
Barry Stowe   Chief Executive, PCA  
  • Towers Watson Asian Insurance Survey
Tidjane Thiam   Group Chief Executive  
  • FTSE 40
  • International Insurance Companies
Mike Wells   President & CEO, JNL  
  • Towers Watson US Financial Services Survey
  • LOMA US Insurance Survey

After careful consideration the Committee decided to increase salaries by 3 per cent as set out in the table below. Salary increases for the wider workforce vary across our business units, based on local market conditions. It is anticipated that 2013 salary budgets will increase between 3 per cent and 5 per cent, for the wider workforce.

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Executive 2012 salary 2013 salary (+3%)
Rob Devey £600,000 £618,000
John Foley £610,000 £628,300
Michael McLintock £360,000 £370,800
Nic Nicandrou £630,000 £648,900
Barry Stowe HK$8,000,000 HK$8,240,000
Tidjane Thiam £1,000,000 £1,030,000
Mike Wells US$1,050,000 US$1,081,500

Annual bonus

Performance measures

The financial measures used to assess performance for the 2012 AIP are set out below. These remain unchanged for 2013. Executive directors who have business unit responsibilities are assessed on both Group and business unit performance.

A portion of the annual bonus for each executive director is based on the achievement of personal objectives. These objectives include the executive’s contribution to Group strategy as a member of the Board and specific goals related to their functional and/or business unit role (for instance, project measures relating to the implementation of Solvency II requirements). In addition, all employees are required to comply with the regulatory, governance and risk management practices and policies as these relate to their role and business area. Specifically, all business units must act within the Group’s risk appetite and framework, and all individuals must act within the Group’s Code of Business Conduct.

A proportion of each executive director’s annual bonus is not paid in cash and must be deferred. This portion is deferred for three years in the form of the Company’s shares. This deferral aligns the interests of our executive directors with our shareholders and helps to ensure a focus on the sustainable success of the Company.

Annual bonus opportunities

Executive directors’ bonus opportunities, the weighting of performance measures for 2012 and the proportion of annual bonuses deferred are set out below.

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  Maximum bonus
opportunity
(Percentage of salary)
Deferral requirement Weighting of measures
  Group Business unit Personal
objectives

Notes

  1. Michael McLintock’s annual bonus and long-term incentive opportunities in 2012 were based on M&G’s performance both in absolute terms and relative to its peers. In line with practice in the asset management sector, there is no specified maximum incentive award. Michael’s total remuneration (including long-term incentives) is subject to an overriding cap which requires that his total remuneration must not be greater than 3 per cent of M&G’s annual IFRS profit.
  2. Mike Wells’ annual bonus figure comprises an AIP opportunity of 160 per cent of salary and a 10 per cent share of the Jackson senior management bonus pool. The figure above is based on the target performance of Jackson.
Rob Devey 160% 40% of total bonus 20% 60% 20%
John Foley 160% 40% of total bonus 50% 50%
Michael McLintock Note 1 50% of bonus above £500,000 10% 60% 30%
Nic Nicandrou 175% 40% of total bonus 80% 20%
Barry Stowe 160% 40% of total bonus 20% 60% 20%
Tidjane Thiam 200% 50% of total bonus 80% 20%
Mike Wellsnote 2 c.400% 30% of total bonus 30% 60% 10%

Rewarding performance in 2012

As set out in the Remuneration Committee Chairman’s letter, during 2012 the Group delivered further increases in its key financial measures, specifically new business profitability, IFRS profitability and cash generation. The outstanding performance delivered in 2012 against these measures exceeded both the Group’s 2011 performance and the stretching targets set by the Committee at the start of the year. The Group Chief Risk Officer was invited to attend the Remuneration Committee meeting held in March 2013 and advised the Committee on the Group’s adherence to its risk appetite and framework during 2012.

2012 financial performance, relative to the targets set by the Committee, is summarised below:

Measure Group PCA UK M&G
Cash flow Above stretch target Above stretch target At Plan level
Net free surplus generated Above stretch target Between Plan and stretch target
IFRS profit Above stretch target Above stretch target Above stretch target Between Plan and stretch target
IGD surplus Above stretch target Between Plan and stretch target Above stretch target
NBP EEV profit Above stretch target Above stretch target Above stretch target
In-force EEV profit Above stretch target Between Plan and stretch target Between Plan and stretch target

On the basis of this outstanding performance, the Committee approved the following 2012 AIP payments:

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Executive 2012 salary Maximum
2012 AIP
2012 outcome
(as a percentage
of max)
2011 outcome
(as a percentage
of max)
Total 2012
AIP payment

Note

  1. In addition to the AIP, Mike Wells also received 10 per cent of the JNL senior management bonus pool. His total 2012 bonus, including his AIP and JNL senior management award, is US$4,599,500.
Rob Devey £600,000 160% 73.9% 90.7% £709,200
John Foley £610,000 160% 100.0% 98.1% £976,000
Michael McLintock £360,000 n/a n/a n/a £1,307,275
Nic Nicandrou £630,000 175% 99.0% 95.9% £1,091,475
Barry Stowe HK$8,000,000 160% 98.1% 94.1% HK$12,560,000
Tidjane Thiam £1,000,000 200% 100.0% 96.9% £2,000,000
Mike Wellsnote 1 US$1,050,000 160% 99.0% 95.4% US$1,663,200

Long-term incentives

Details of the awards made under these plans in 2012 can be found in the Supplementary information.

Group Performance Share Plan (GPSP)

All executive directors receive GPSP awards. GPSP awards vest on the basis of the Group’s Total Shareholder Return (TSR) performance over a three-year period. TSR is the combination of the share price growth and the dividends paid. Prudential’s TSR achievement over the performance period is compared with the TSR of an index composed of 10 international insurers (see box below). This performance measure was selected because it focuses on the value delivered to shareholders. TSR is measured on a local currency basis since this has the benefit of simplicity and directness of comparison.

The vesting schedule for outstanding GPSP awards is set out below:

Line graph showing the vesting schedule for outstanding GPSP awards. 80% x index: 0% of award vesting, 90% x index: 0% of award vesting, 100% x index: 25% of award vesting, 110% x index: 75% of award vesting, 120% x index: 100% of award vesting

  Peer companies used within the Index for all outstanding GPSP awards Aegon, Allianz, Aviva, Axa, Generali, ING, Legal & General, Manulife, Old Mutual and Standard Life

For any GPSP award to vest, the Committee must be satisfied that the quality of the Company’s underlying financial performance justifies the level of reward delivered at the end of the performance period. To ensure close alignment with our shareholders’ long-term interests, participants receive the value of reinvested dividends over the performance period for those shares which ultimately vest. If performance measures are not achieved in full, the unvested portion of any award lapses and performance cannot be retested.

On 31 December 2012, the performance period for 2010 GPSP awards (which began on 1 January 2010) came to an end. Over the performance period the Group has delivered superior returns for shareholders through share price growth and dividends paid. This resulted in Prudential achieving excellent TSR performance of 156.4 per cent.

The peer group’s TSR index was 100 at the start of the 2010 to 2012 performance period and was 111.8 at the end of the period (as illustrated below). In order for the 2010 GPSP awards to vest in full, Prudential’s TSR index over the period had to outperform the peer index by 20 per cent, ie increase from 100 to at least 134.2 (111.8 x 120 per cent). The TSR performance achieved by Prudential of 156.4 per cent equals an outperformance of the peer index of 139.9 per cent.

The Committee, having satisfied itself about the quality of the Company’s underlying financial performance, confirmed vesting of 100 per cent of the 2010 to 2012 GPSP award (for reference, 100 per cent of the 2009 to 2011 GPSP award vested).

The Committee believes that the GPSP performance condition is a stretching requirement that requires exceptional performance, relative to other international insurance companies, for awards to be released in full.

The line chart below compares Prudential’s TSR during the three years from 1 January 2010 to 31 December 2012 with that of the peer group against which TSR is measured for the purposes of the GPSP.

Prudential TSR v peer group index – total returns index % over three years to December 2012

Line graph showing the Prudential TSR v peer group index – total returns index % over three years to December 2012. Dec 2009: Prudential 100, Peer group index 100. Dec 2010: Prudential 98, Peer group index 108. Dec 2011: Prudential 86, Peer group index 109. Dec 2012: Prudential 156.4, Peer group index 111.8.

Business Unit Performance Plans (BUPP)

Asia BUPP

The Chief Executive, PCA receives awards under the Asia BUPP. These awards are dependent on the achievement of PCA’s new business profit, IFRS profit and cash remittance targets over the three-year performance period. Each of these measures will determine vesting of one third of each award. Threshold performance results in 30 per cent of the award vesting, increasing to 100 per cent for stretch performance.

On 31 December 2012, the performance period for the 2010 Asia BUPP award (which began on 1 January 2010) came to an end. Over the period, the new business profit, IFRS profit and cash remittance achieved by the PCA business unit meant that the Committee, having satisfied itself as to the quality of the business units’ underlying financial performance, confirmed vesting of 95.2 per cent of Barry Stowe’s 2010 to 2012 Asia BUPP award (for reference, 86.5 per cent of Barry Stowe’s 2009 to 2011 Asia BUPP award vested).

Jackson BUPP

The President and CEO, JNL receives an award under the Jackson BUPP. Vesting of awards made under this plan is dependent on Shareholder Capital Value (SCV) growth over the performance period. The SCV growth required is outlined in the table below. Vesting occurs between these performance levels on a straight-line basis.

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Percentage of BUPP award which vests Compound annual
growth in SCV
over three years
0% <8%
30% 8%
75% 10%
100% 12%

On 31 December 2012, the performance period for the 2010 Jackson BUPP came to an end. Although no current executive director had a 2010 award under this plan the vesting level for other participants was 100 per cent (for reference 93.75 per cent of the 2009 to 2011 awards vested).

UK BUPP

The Chief Executive, UK & Europe receives awards under the UK BUPP. Given the cash-generative priorities of the UK Business Unit, UK BUPP awards are assessed using the same relative TSR measure applied to GPSP awards.

On 31 December 2012, the performance period for the 2010 UK BUPP (which began on 1 January 2010) came to an end. As detailed above, Prudential’s TSR over this period was equal to 139.9 per cent of the peer index. The Committee, having satisfied itself as to the quality of the business unit’s underlying financial performance, confirmed vesting of 100 per cent of Rob Devey’s 2010 to 2012 UK BUPP award (for reference 100 per cent of Rob Devey’s 2009 to 2011 UK BUPP award vested).

For any BUPP award to vest, the Committee must be satisfied that the quality of underlying financial performance of the relevant business unit justifies the level of reward delivered at the end of the performance period. To ensure close alignment with our shareholders’ long-term interests, participants receive the value of reinvested dividends over the performance period for those shares which ultimately vest. If the performance conditions are not achieved in full, the unvested portion of any award lapses and cannot be retested.

Limits on award sizes

The rules of the GPSP and BUPP set a limit on the value of shares which may be awarded to an executive in a financial year. The combined value of shares awarded under the two plans may not exceed a maximum of 550 per cent of salary although the awards made in a particular year are often significantly below this limit. On a change in control of Prudential, vesting of awards made under these arrangements would be prorated for performance and to reflect the elapsed portion of the performance period.

M&G Executive Long-Term Incentive Plan

The Chief Executive, M&G receives awards under the M&G Executive Long-Term Incentive Plan. Under this plan an annual award of phantom shares is made with a notional starting share price of £1. The phantom share price at vesting is determined by the increase or decrease in M&G’s profitability over the three-year performance period with profit and investment performance adjustments also applied:

Profit growth

The value of phantom shares vesting will be adjusted by a profit measure as follows:

  • No adjustment will be made if profits in the third year of the performance period are at least equal to the average annual profit generated over the performance period;
  • A loss or zero profit will result in the value of the award being reduced to zero, irrespective of investment performance; and
  • Between these points, the value of phantom shares will be reduced on a straight-line basis from no reduction to the complete elimination of the value of the award.
Investment performance

The value of phantom shares vesting will be adjusted by an investment performance measure as follows:

  • Where the investment performance of M&G’s funds is in the top two quartiles during the three-year performance period, the value of phantom shares vesting will be enhanced. The value of phantom shares may be doubled if performance is in the top quartile;
  • Investment performance in the third quartile will not change the value of phantom shares vesting; and
  • Investment performance in the bottom quartile will result in awards being forfeited, irrespective of any profit growth.

The value of the vested phantom shares will be paid in cash after the end of the three-year performance period.

On 31 December 2012, the performance period for the 2010 award under the M&G Executive Long-Term Incentive Plan (which began on 1 January 2010) came to an end. M&G’s profit at the end of the performance period was 204 per cent of that at the start and M&G’s investment performance was in the second quartile. The Committee, having satisfied itself about the quality of M&G’s underlying financial performance, confirmed vesting of Michael McLintock’s 2010 award with a value of £2.65 per share. This will result in a payment of £2,616,024 to Michael McLintock in 2013 (for reference, the 2009 to 2011 award vested with a value of £2.96 per share which resulted in a payment of £5,417,359 to Michael McLintock during 2012). Based on 2011 performance, an award of 952,960 phantom shares with an expected value of £1,238,849 was made to Michael McLintock in 2012.

As described in the remuneration architecture review section of this report, the method used to determine the number of phantom shares awarded to Michael McLintock under the M&G Executive Long-Term Incentive Plan has been revised. With effect from 2013, Michael McLintock will receive an annual award with a face value of three times his salary. The ultimate value of the 2013 award will be determined with reference to the profitability and investment performance of M&G over the three years from 1 January 2013 to 31 December 2015 using the measures set out above.

Jackson Long-Term Incentive Plans

Prior to his appointment as an executive director, Mike Wells participated in the two long-term incentive plans offered to senior staff within Jackson. Mike Wells was awarded ADRs under the JNL US Performance Share Plan and cash-based awards under the JNL Long-Term Incentive Plan. Awards made under both plans have a performance period of four years and vesting is dependent on the achievement of shareholder value targets. Up to 150 per cent of the original number of ADRs awarded under the JNL Performance Share Plan may be released if stretch performance targets are achieved.

Outstanding awards made to Mike Wells before his appointment as an executive director remain subject to the original performance conditions and vesting schedule. No further awards will be made to Mike Wells under these plans.

On 31 December 2012, the performance periods for the 2009 awards under the JNL long-term incentive plans (which began on 1 January 2009) came to an end. Over the period the shareholder value of the US business grew by 22.68 per cent per annum (on a compound basis) and by 126.51 per cent over the performance period. This resulted in vesting of 150 per cent of Mike Wells’ 2009 JNL US Performance Share Plan award and of 126.51 per cent of his 2009 cash-settled JNL Long-Term Incentive Plan award (for reference 150 per cent of Mike Wells’ 2008 to 2011 JNL US Performance Share Plan award and 95 per cent of his 2008 to 2011 cash-settled JNL Long-Term Incentive Plan award vested).

Share ownership guidelines

As a condition of serving, all directors are required to have beneficial ownership of a minimum of 2,500 ordinary shares in the Company. This interest in shares must be acquired within 12 months of appointment to the Board if the director does not have such an interest upon appointment.

Executive directors should have a substantial shareholding to maximise the community of interest between them and other shareholders. This may be built up over a period of five years following their appointment.

The level of the requirements which applied to executive directors in 2012 and the current holdings of directors are shown below. The shareholding guidelines have been increased as part of the review of remuneration architecture and full details of the revised guidelines are outlined in the Remuneration policy report. Shares earned and deferred under the Annual Incentive Plan are included in calculating the executive director’s shareholding for these purposes.

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  2012
Shareholding
guideline as a
percentage of
base salary
Shareholding
at 31 December
2012 as a
percentage
of base salary
note
2013
Shareholding
guideline as a
percentage of
base salary

Note

Beneficial interest, based on the share price as at 31 December 2012 (£8.655). Calculated using base salaries on 31 December 2012.

Rob Devey 100% 397% 200%
John Foley 100% 459% 200%
Michael McLintock 200% 1,641% 200%
Nic Nicandrou 100% 482% 200%
Barry Stowe 100% 680% 200%
Tidjane Thiam 200% 800% 350%
Mike Wells 100% 773% 200%

Benefits

All executive directors receive core health and security benefits, for example medical insurance and life assurance.

Other benefits may be offered to executives, dependent on:

  • Local market practice;
  • The benefits offered to other employees within the business unit; and
  • Applicable expatriate and relocation benefits and allowances.

The Directors' remuneration for 2012 table below sets out the cost of providing benefits in 2012.

All-employee share plans

It is important that all employees are offered the opportunity to own shares in Prudential, connecting them both to the success of the Company and to the interests of other shareholders. Executive directors are invited to participate in these plans on the same basis as other staff in their location.

Save As You Earn (SAYE) schemes

UK-based executive directors are eligible to participate in the HM Revenue and Customs (HMRC) approved Prudential Savings-Related Share Option Scheme and Barry Stowe is invited to participate in the similar International Share Ownership Scheme. These schemes allow all eligible employees to save towards the exercise of options over Prudential plc shares with the option price set at the beginning of the savings period at a discount of up to 20 per cent of the market price.

Participants elect to enter into savings contracts of up to £250 per month for a period of three or five years. At the end of this term, participants may exercise their options within six months and purchase shares. If an option is not exercised within six months, participants are entitled to a refund of their cash savings plus interest if applicable under the rules. Shares are issued to satisfy those options which are exercised. No options may be granted under the schemes if the grant would cause the number of shares which have been issued, or which remain issuable pursuant to options granted in the preceding 10 years under the scheme and any other option schemes operated by the Company, or which have been issued under any other share incentive scheme of the Company, to exceed 10 per cent of the Company’s ordinary share capital at the proposed date of grant.

Share Incentive Plan (SIP)

UK-based executive directors are also eligible to participate in the Company’s HMRC approved Share Incentive Plan (SIP). This allows all UK-based employees to purchase Prudential plc shares up to a value of £125 per month from their gross salary (partnership shares). For every four partnership shares bought, an additional matching share is awarded which is purchased by Prudential on the open market. Dividend shares accumulate while the employee participates in the plan. Partnership shares may be withdrawn from the scheme at any time. If the employee withdraws from the plan within five years, matching shares are forfeited.

No directors or other employees are provided with loans to enable them to buy shares.

Pension benefits

Michael McLintock elected to become a deferred member of a contributory defined benefit scheme (described below) on 5 April 2012. Michael McLintock now receives a salary supplement of 25 per cent of salary. John Foley elects to receive a combination of contributions into the money purchase scheme and a cash supplement with a total value of 25 per cent of salary. All other executive directors based in the UK have chosen to receive their pension benefits in the form of a cash supplement of 25 per cent of salary throughout 2012. These executives are provided with life assurance cover of up to four times salary plus a dependants’ pension.

Barry Stowe receives a cash supplement of 25 per cent of salary and a payment to the Hong Kong Mandatory Provident Fund. He is provided with life assurance cover of up to four times salary. Mike Wells participates in Jackson’s Defined Contribution Retirement Plan, a qualified 401(k) retirement plan, on the same basis as all other US-based employees. The Company provides matching contributions of 6 per cent of base salary (Mike Wells’ salary for pension purposes is limited to US$250,000). He also participates in the profit sharing element of the plan which provides eligible participants with an annual profit sharing contribution, depending on the financial results of Jackson for the plan year, to a maximum of an additional 6 per cent of pensionable salary. An annual profit sharing contribution equivalent to 6 per cent of pensionable salary was made in 2012 (in 2011, the profit share contribution was 5 per cent of pensionable salary). Mike Wells is provided with life assurance cover of two times salary.

Those executives who joined the Group before June 2003 were entitled to maintain their membership of the defined benefit plans available at that time. However, at the end of 2012, no executive director was an active member of a Group defined benefit scheme. Until 5 April 2012, Michael McLintock participated in a contributory defined benefit scheme that provides a target pension of two thirds of final pensionable earnings on retirement at age 60 for an employee with 30 years or more potential service, his contribution was 4 per cent of base salary. Michael McLintock participated on the same basis as other employees who joined M&G at the same date. Benefits under the plan are subject to a notional scheme earnings cap (set at £129,600 for the 2011/2012 tax year) which replicates the HMRC earnings cap in force before A-Day (6 April 2006). Michael McLintock was also entitled to supplements based on his salary above the notional earnings cap.

Details of directors’ pension entitlements under HMRC approved defined benefit schemes and supplements in the form of contributions to pension arrangements paid by the Company are set out in the following table:

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      Additional pension earned during
year ended 31 December 2012
  Transfer value of accrued benefit
at 31 December
note (3)
     
  Age at
31 December
2012
Years of
pensionable
service at
31 December
2012
Accrued
benefit at
31 December
2012
(£ per annum)
£000
  Ignoring
inflation
on pension
earned to
31 December
2011 note(1)
£000
  Allowing
for inflation
on pension
earned to
31 December
2011 note(2)
£000
  2012
£000
2011
£000
Increase
in transfer
value less
contributions
made by
directors
during 2012
£000
  Contributions
to defined
contribution
pension
schemes note(4)
£000

Notes

  1. As required by the Companies Act remuneration regulations.
  2. As required by Stock Exchange Listing rules.
  3. The transfer value equivalent has been calculated in accordance with the M&G Group Pension Scheme’s transfer basis.
  4. This table includes employer contributions to defined contribution plans totalling £71,124 (2011: £56,224). Supplements in the form of cash are included in the Directors' remuneration for 2012 (audited information) table
  5. Michael McLintock became a deferred member of the M&G defined benefit scheme on 5 April 2012. The amounts shown above as at 31 December 2012 are calculated as at this date.
Rob Devey 44                      
John Foley 56                       50
Michael McLintock (note 5) 51 20 56   1   (1)   1,323 1,102 218  
Nic Nicandrou 47                      
Barry Stowe 55                       2
Tidjane Thiam 50                      
Mike Wells 52                       19

No enhancements to retirement benefits were paid to or receivable by directors or former directors other than the discretionary pension increases awarded to all pensioners which have been made during the year.

Executive directors’ service contracts

The normal notice of termination that the Company is required to give executive directors is 12 months. Accordingly, in normal circumstances, a director whose contract is terminated would be entitled to one year’s salary and benefits in respect of their notice period. Additionally, outstanding awards under annual and long-term incentive plans may vest depending on the circumstances and according to the rules of the plans. When considering the termination of any service contract, the Remuneration Committee will have regard to the specific circumstances of each case, including the director’s obligation to mitigate his loss. Payments are phased over the notice period.

Executive directors’ service contracts provide details of the broad types of remuneration to which they are entitled, and about the kinds of plans in which they may be invited to participate. The service contracts offer no certainty as to the value of performance-related reward and confirms that any variable payment will be at the discretion of the Company.

Details of the service contracts of the executive directors are outlined below:

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Executive director Date of contract Notice period
to the Company
Notice period
from the Company

Note

The contract for Mike Wells is a renewable one-year fixed term contract. The contract is renewable automatically upon the same terms and conditions unless the Company or the director gives at least 90 days’ notice prior to the end of the relevant term.

Rob Devey 1 July 2009 12 months 12 months
John Foley 8 December 2010 12 months 12 months
Michael McLintock 21 November 2001 6 months 12 months
Nic Nicandrou 26 April 2009 12 months 12 months
Barry Stowe 18 October 2006 12 months 12 months
Tidjane Thiam 20 September 2007 12 months 12 months
Mike Wellsnote 15 October 2010 12 months 12 months

Policy on external appointments

Subject to the Group Chief Executive’s or the Chairman’s approval, executive directors are able to accept external appointments as non-executive directors of other organisations. Any fees paid may be retained by the executive director. During 2012, Michael McLintock received £47,500 as a trustee of another organisation (for reference, Michael McLintock received £45,000 for this role in 2011). Other directors served on the boards of educational, development, charitable and cultural organisations without receiving a fee for such services.

Chairman and non-executive directors’ letters of appointment and fees

Non-executive directors’ letters of appointment

Non-executive directors do not have service contracts but are appointed pursuant to letters of appointment with notice periods of six months without liability for compensation.

Under the terms of their letters of appointment, continuation of the non-executive directors’ appointment is contingent on satisfactory performance and re-election by shareholders. Non-executive directors are typically expected to serve two three-year terms from the date of their election by shareholders. Thereafter, the Board may invite the Director to serve for an additional period.

Details of the letters of appointment for the non-executive directors are outlined below:

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Non-executive director Appointment by the Board Initial election by
shareholders at AGM
Notice period Expiration of current
term of appointment

Notes

  1. Keki Dadiseth and Michael Garrett were reappointed in 2012 for one year. The Board will consider a further renewal term in May 2013.
  2. Paul Manduca was appointed as Chairman of the Board on 2 July 2012.
  3. Kathleen O’Donovan retired from the Board on 31 March 2012.
  4. For Philip Remnant the table assumes initial election by shareholders at the 2013 AGM.
Keki Dadiseth(note 1) 1 April 2005 AGM 2005 6 months AGM 2013
Howard Davies 15 October 2010 AGM 2011 6 months AGM 2014
Michael Garrett(note 1) 1 September 2004 AGM 2005 6 months AGM 2013
Ann Godbehere 2 August 2007 AGM 2008 6 months AGM 2014
Alistair Johnston 1 January 2012 AGM 2012 6 months AGM 2015
Paul Manduca(note 2) 15 October 2010 AGM 2011 6 months AGM 2014
Kaikhushru Nargolwala 1 January 2012 AGM 2012 6 months AGM 2015
Kathleen O’Donovan(note 3) 8 May 2003 AGM 2004 6 months n/a
Philip Remnant(note 4) 1 January 2013 AGM 2013 6 months AGM 2016
Lord Turnbull 18 May 2006 AGM 2006 6 months AGM 2015

Chairman’s letter of appointment, fees and benefits

Paul Manduca was appointed as a non-executive director on 15 October 2010 and became Senior Independent Director on 1 January 2011. On 2 July 2012, he was appointed Chairman. He is paid an annual fee of £600,000. A contractual notice period of 12 months by either party applies. Paul Manduca is provided with life assurance cover of four times his annual fees plus an additional sum to buy a dependants’ annuity, private medical insurance and the use of a car and driver. No pension allowance is paid and he is not a member of any Group pension scheme.

Non-executive directors’ fees

Non-executive directors are not eligible to participate in annual bonus plans, long-term incentive plans or pension arrangements. Their fees are determined by the Board and reflect their individual responsibilities, including chairmanship and membership of committees where appropriate. The Board reviews fees annually.

An increase of just under 3 per cent was made to the basic non-executive fee with effect from 1 July 2012. No increases were made to the additional fees paid to committee chairmen or members. The revised fees are:

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Annual fees From
1 July 2012
£

Notes

  1. No fee is payable for chairmanship or membership of the Nomination Committee.
  2. The Company may determine that additional fees should be paid if, in a particular year, the number of meetings is materially greater than usual.
Basic fee 87,500
Audit Committee Chairman – additional fee 70,000
Audit Committee member – additional fee 25,000
Remuneration Committee Chairman – additional fee 50,000
Remuneration Committee member – additional fee 25,000
Risk Committee Chairman – additional fee 60,000
Risk Committee member – additional fee 25,000
Senior Independent Director – additional fee 50,000

Please see the Directors' remuneration for 2012 table for details of the fees received by individual non-executive directors during 2012.

Non-executive directors’ share ownership requirements

In July 2011, a share ownership requirement for non-executive directors was introduced. Non-executive directors are required to hold shares with a value equivalent to one times the annual basic fee (excluding additional fees for chairmanship and membership of any committees). Non-executive directors will be expected to attain this level of share ownership within three years of the implementation of this requirement (or within three years of their date of appointment, if later). The Chairman is required to hold shares with a value equivalent to one times his annual fee and is expected to attain this level of share ownership within five years of the date of his appointment.

Directors’ shareholdings

The interests of directors in ordinary shares of the Company are set out below. ‘Shares subject to deferral’ includes shares acquired under the Share Incentive Plan (detailed in the Supplementary information), deferred annual incentive awards and interests in shares awarded on appointment (detailed in the 'Other Share Awards' table in the Supplementary information).

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  1 January 2012   31 December 2012
  12 March 2013
  Beneficial
interest
(Number
of shares)
  Number of
shares owned
outright
Number of
shares subject
to deferral
Total
beneficial
interest
(Number
of shares)
  Number of
shares subject
to performance
conditions
  Beneficial
interest
(Number
of shares)

Notes

  1. Alistair Johnston was appointed to the Board on 1 January 2012.
  2. Harvey McGrath retired from the Board on 2 July 2012.
  3. Kaikhushru Nargolwala was appointed to the Board on 1 January 2012.
  4. Nic Nicandrou’s interest in shares on 12 March 2013 includes his monthly purchases made under the SIP plan in January, February and March 2013.
  5. Kathleen O’Donovan retired from the Board on 31 March 2012.
  6. Philip Remnant was appointed to the Board on 1 January 2013.
  7. Part of Barry Stowe’s beneficial interest in shares is made up of 207,963 ADRs (representing 415,926 ordinary shares) and 95,305 ordinary shares. 8,513.73 of these ADRs are held within an investment account which secures premium financing for a life assurance policy).
  8. Mike Wells’ beneficial interest in shares is made up of 295,904 ADRs (representing 591,808 ordinary shares). In the table above, the figure for shares subject to performance conditions reflects the maximum number of shares (150 per cent of the original number awarded) which may be released to Mike Wells under the JNL Performance Share Plan. This maximum number of shares may be released if stretch performance targets are achieved.
Keki Dadiseth 32,196   32,196 32,196     32,196
Howard Davies 3,083   3,192 3,192     3,192
Rob Devey 126,006   154,746 120,697 275,443   537,208   275,443
John Foley 364,378   277,178 46,057 323,235   351,917   323,235
Michael Garrett 39,233   39,233 39,233     39,233
Ann Godbehere 15,914   15,914 15,914     15,914
Alistair Johnston note (1)   5,000 5,000     5,000
Paul Manduca 2,500   2,500 2,500     2,500
Harvey McGrath note (2) 300,636      
Michael McLintock 595,363   487,203 195,530 682,733   161,834   682,733
Kaikhushru Nargolwala note (3)   16,000 16,000     16,000
Nic Nicandrou note (4) 167,655   227,791 123,067 350,858   546,037   350,907
Kathleen O'Donovan note (5) 24,425      
Philip Remnant note (6)      
Barry Stowe note (7) 274,575   359,997 151,234 511,231   625,976   511,231
Tidjane Thiam 650,116   524,123 399,716 923,839   1,408,368   923,839
Lord Turnbull 16,624   16,624 16,624     16,624
Mike Wells note (8) 438,718   369,142 222,666 591,808   1,152,908   591,808

Directors’ remuneration for 2012 (audited information)

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£000 Salary/
fees
2012
cash
bonus
2012
deferred
bonus
Total
2012
bonus
Benefits* Cash
supple-
ments for
pension
purposes
Total
emolu-
ments
2012
2012
employers’
pension
contribu-
tions
Value of
anticipated
releases
from LTIPs
in respect of
performance
periods
ending
31 December
2012§
  Total 2012
remuner-
ation –
‘The Single
Figure’
  • * The value of benefits is the cost to the Company of providing core and additional benefits.
  • Each remuneration element is rounded to the nearest £1,000 and totals are the sum of these rounded figures.
  • Pension benefits are described in the section on 'Pensions benefits' above.
  • § Value of anticipated long-term incentive plan releases is the total of cash paid plus, for shares released, the value of the released shares based on the average closing share price over the period 1 October 2012 to 31 December 2012. All executive directors participate in long-term incentive plans and the details of share releases from awards with a performance period ending 31 December 2012 are provided in the footnote to the tables on share awards in the Supplementary information. This figure does not include releases from other share plans or all-employee share plans, (set out in the Supplementary information). Dividend equivalents will be released on these vested shares.
  • ‘The Single Figure' is based on the methodology outlined above.

Notes

  1. Paul Manduca was appointed as Chairman on 2 July 2012. The figures above include the fees he received as senior independent non-executive director prior to his appointment as Chairman.
  2. Harvey McGrath retired from the Board on 2 July 2012.
  3. 'The Single Figure' for Michael McLintock includes the increase in transfer value of his defined benefit pension. This is outlined under Pension benefits above.
  4. Barry Stowe’s benefits relate primarily to his expatriate status, including costs of £217,567 for housing, £32,104 for children’s education, £69,289 for home leave and a £248,894 Executive Director Location Allowance.
  5. Mike Wells’ bonus figure excludes a contribution of US$15,000 from a profit sharing plan which has been made into a 401(k) retirement plan. This is included under employers’ pension contribution.
  6. Keki Dadiseth was paid allowances totalling £8,997 in respect of his accommodation expenses in London whilst on the Company’s business.
  7. Kathleen O’Donovan retired from the Board on 31 March 2012.
Chairman                      
Paul Manduca note (1) 393 71 464   464
Harvey McGrath note (2) 252 50 302   302
Executive directors                      
Rob Devey 600 426 284 710 114 150 1,574 1,804   3,378
John Foley 610 586 390 976 156 103 1,845 50   1,895
Michael McLintock note (3) 360 904 404 1,308 124 93 1,885 218 3,190   5,293
Nic Nicandrou 630 655 437 1,092 99 158 1,979 1,804   3,783
Barry Stowe note (4) 651 613 409 1,022 608 163 2,444 2 2,183   4,629
Tidjane Thiam 1,000 1,000 1,000 2,000 123 250 3,373 4,428   7,801
Mike Wells note (5) 663 2,031 871 2,902 55 3,620 19
3,008   6,647
Total executive directors 4,514 6,215 3,795 10,010 1,279 917 16,720 289
16,417   33,426
Non -executive directors                      
Keki Dadiseth note (6) 120           120       120
Howard Davies 171           171       171
Michael Garrett 111           111       111
Ann Godbehere 181           181       181
Alistair Johnston 111           111       111
Kaikhushru Nargolwala 136           136       136
Kathleen O’Donovan note (7) 28           28       28
Lord Turnbull 161           161       161
Total non -executive directors 1,019           1,019       1,019
Overall total 6,178 6,215 3,795 10,010 1,400 917 18,505 289 16,417   35,211

Directors' remuneration for 2011 (audited information)

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£000 Salary/
fees
2011
cash
bonus
2011
deferred
bonus
Total
2011
bonus
Benefits* Cash
supplements
for pension
purposes
Total
emoluments
2011
Value of
anticipated
releases
from LTIPs
in respect of
performance
periods
ending
31 December
2011
  • * Benefits include (where provided) the cost of providing the use of a car and driver, medical insurance, security arrangements and expatriate benefits.
  • Pension benefits are described in the section on ‘Pensions and long-term savings’ in the 2011 Directors’ remuneration report.
  • Value of anticipated long-term incentive plan releases is the total of cash paid plus, for shares released, the value of the released shares based on the share price at 31 December 2011. This figure does not include releases from other share plans or all-employee share plans. Dividend equivalents will be released on these vested shares.

Notes

  1. John Foley and Mike Wells were appointed to the Board on 1 January 2011.
  2. Barry Stowe’s benefits relate primarily to his expatriate status, including costs of £184,489 for housing, £32,077 for children’s education, £35,093 for home leave and a £245,114 Executive Director Location Allowance.
  3. Mike Wells’ bonus figure excludes a contribution of US$12,250 from a profit sharing plan which has been made into a 401(k) retirement plan. This is included in the table on pension contributions.
  4. Keki Dadiseth was paid allowances totalling £8,997 in respect of his accommodation expenses in London whilst on the Company’s business as is the usual practice for directors who are not resident in the UK.
  5. Bridget Macaskill retired from the Board on 30 September 2011.
  6. James Ross retired from the Board on 19 May 2011.
Chairman                
Harvey McGrath 500 82 582
Executive directors                
Rob Devey 550 479 319 798 111 138 1,597 1,544
John Foley (note 1) 550 518 345 863 139 100 1,652
Michael McLintock 350 779 279 1,058 93 96 1,597 6,005
Nic Nicandrou 550 507 338 845 84 138 1,617 2,020
Barry Stowe (note 2) 641 579 386 965 544 160 2,310 2,341
Tidjane Thiam 900 785 785 1,570 116 225 2,811 1,910
Mike Wells (notes 1 and 3) 624 1,660 711 2,371 64 3,059 1,369
Total executive directors 4,165 5,307 3,163 8,470 1,151 857 14,643 15,189
Non-executive directors                
Keki Dadiseth (note 4) 102           102  
Howard Davies 153           153  
Michael Garrett 93           93  
Ann Godbehere 158           158  
Bridget Macaskill (note 5) 65           65  
Paul Manduca 156           156  
Kathleen O’Donovan 98           98  
James Ross (note 6) 33           33  
Lord Turnbull 129           129  
Total non-executive directors 987           987  
Overall total 5,652 5,307 3,163 8,470 1,233 857 16,212 15,189
 
 

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