Lynne Weller Head of Reward

Transcription

1 PRA Remuneration Policy Statement for Solvency II Phoenix Group September 2017 Firm Specific Information Please list any undertakings with permission to conduct regulated activities under the Financial Services and Markets Act within your group to whom the Remuneration Rules apply. Firm Name FRN PRA Firm Category Level Abbey Life Assurance Company Limited ( ALAC ) AXA Wealth Limited ( AWL ) Phoenix Life Assurance Limited ( PLAL ) Phoenix Life Limited ( PLL ) PA (GI) Limited ( PA(GI) ) AXA Wealth Services Limited ( AWSL ) Pearl Group Services Limited ( PGS ) Pearl Group Management Services Limited ( PGMS ) Phoenix Unit Trust Managers Limited ( PUTM ) Sunlife Limited ( SL ) All Solvency II firms are PRA Category 2 Provide contact details of the key individual(s) who we should contact within your firm regarding your firm s compliance with the Solvency II remuneration requirements. Name Job Title Phone No. Lynne Weller Head of Reward lynne.weller@thephoenixgr oup.com Remuneration Schedule Please indicate when the following events are likely to occur, providing additional details if appropriate. Date Solvency II Identified Staff population finalised for current performance year Date of review of Solvency II Staff population (e.g. ensure new joiners have been assessed) Performance year end date: Bonus pool finalised: Individual awards data finalised: Date financial results are publically announced Planned communication date(s) for all staff: March 2017 (with on-going reviews) March 2017 (with ongoing reviews) 31 December 2017 March 2018 March 2018 March 2018 March

2 A. Remuneration Policies A.i Briefly describe how your firm ensures that its remuneration policies are in line with its business strategy, risk profile, objectives, risk management practices and longterm interests and detail any measures incorporated to avoid conflicts of interest. (Article a) Conflicts of interests All major aspects of employee remuneration are supervised by the Phoenix Group Holdings Remuneration Committee ( Remuneration Committee ), which exclusively comprises independent non-executive directors (who do not perform any executive function). The Remuneration Committee s oversight includes the review of management proposals relating to the levels of fixed pay (and its annual reviews), plus the design and quantum of all incentive (performance related) remuneration arrangements. This oversight by the Remuneration Committee ensures an appropriate level of independent challenge to remuneration policy and its application to ensure the avoidance of any conflicts of interest. Policy aligned to strategy, risk profile, long-term interests, etc. Management (with the benefit of Remuneration Committee oversight) keeps remuneration practices under review to ensure that these support promotion of the long-term interests of the Company and its stakeholders, and adequately and fairly reward staff. All performance related components of remuneration are aligned to measures which reflect achievement of the Company s long-term success and Group strategy. Specifically, financial measures for the Company s annual bonus plan ( Annual Incentive Plan or AIP ) are directly aligned to Phoenix s main financial KPI Operating Companies Cash Generation. Three year Cumulative Cash Generation is one of two metrics within the Company s long-term incentive plan ( LTIP ). Additionally, within the AIP, customer satisfaction (a stated KPI) is a specific performance metric. As explained further in relation to question A.ii below, all assessments of performance for remuneration purposes are subject to oversight by the Remuneration Committee which includes a consideration of adherence to risk-profile and the operation of sound and effective risk management practices. A.ii Briefly describe how your firm ensures that its remuneration policy promotes sound and effective risk management and does not encourage risk-taking that exceeds the firm s levels of tolerated risk. (Article b) 2

3 Remuneration policy is aligned to the Phoenix Risk Management Framework primarily through the design of incentive pay arrangements: The Remuneration Committee considers overall business performance (including adherence to risk appetite and sound and effective risk management) as part of its assessment against the performance measures under the Group s main AIP and LTIP before confirming any performance outcomes. For both the AIP and the LTIP this review of overall business performance is formalised as an underpin performance condition and for the AIP there is an additional ability to moderate all performance outcomes between 80% and 120% of the provisional outcome, considering both the quality of the outcomes achieved and also the wider shareholder experience. In carrying out such assessments the Remuneration Committee works in conjunction with both the CRO and the Audit Committee (and in respect of the Life Company, additionally with the chairman and other non-executive directors of that company). Accordingly, appropriate adherence to the firm s risk appetite and sound and effective risk management act as factors whereby the Remuneration Committee may reduce payments under the Group s main AIP and LTIP. When future performance measures are being set for AIP or LTIP, the opinions of the Chief Risk Officer ( CRO ) are sought. The CRO reports to the Remuneration Committee twice a year; at the half year, the CRO outlines the areas he wishes to cover at the full-year and asks the Committee if there are any other areas of focus, at the full-year he presents a paper and discusses (without management present) whether there are any particular concerns from a risk perspective generally and specifically to help the Committee assess whether there have been any risk related issues which warrant an adjustment to either the AIP or LTIP out-turns under the various underpins. This ensures that the performance measures set are consistent with the firm s risk appetite. For completeness, while the remit of the Remuneration Committee does not extend to non-employees, the Company has developed a policy to ensure that its outsource providers ( OSPs ) remunerate their own staff in a manner which is consistent with the Company s risk appetite. This is achieved by: a. Requiring OSPs to confirm their compliance with agreed remuneration principles; b. Requiring OSPs to explain the principles behind their remuneration arrangements (but not the precise quantum) and any metrics used under its variable pay arrangements and give the Company an opportunity to comment on such metrics; and c. Disclose to the Company any breaches of these principles. A.iii Does your firm have a Remuneration Committee (RemCo) established within the UK? If not, who has oversight of the remuneration policy for your firm? (Article e and f) 3

4 Phoenix Group Holdings has a Remuneration Committee which is established in Jersey. This Committee complies with the requirements of the UK s Corporate Governance Code, reflecting the London Stock Exchange premium listing of Phoenix Group Holdings. The Remuneration Committee is comprised of independent non-executive directors (see above). In accordance with its terms of reference, the Remuneration Committee oversees remuneration arrangements for senior staff including all Solvency II Identified Staff. 4

5 B. Solvency II Identified Staff B.i In accordance with the requirements of Article 275(1)(c) of the Solvency II Regulation specific remuneration arrangements should be applied to the administrative, management or supervisory body, persons who effectively run the undertaking or have other key functions and other categories of staff whose professional activities have a material impact on the undertaking s risk profile. Please set out the high level framework you have used to determine which of your staff are Material Risk Takers (MRTs). You may wish to provide information as an attachment to this RPS. In line with the PRA s guidance, we have identified the following as Solvency II Identified Staff: Board members, executive committee members, SIMF holders with PRA supervisory pre-approval, Key Function Holders reported to the PRA. Beyond these specific categories of staff, a limited number of individuals are also classified as MRTs. B.ii With regard to Solvency II Identified Staff engaged in the risk management, compliance, internal audit and actuarial function, briefly explain how your firm ensures that the variable remuneration is independent from the operational units under their control. (Article h) For Solvency II Identified Staff who are Key Function Holders within what are considered as control functions the following applies: For the AIP, performance measures are set only on the basis of measures which are non-financial and relate to personal performance and the achievement of objectives linked to the relevant individual s functions. Accordingly, the performance measures are independent of the performance of the business area that the relevant individual oversees; Participation in the LTIP is based on seniority and not all Solvency II Identified Staff within what are considered as control functions will participate in LTIP. Where they do so, they do so on the same terms as other participants. Thus variable remuneration is linked to whole group, rather than business unit performance B.iii Have you ensured that any early termination payments made to Solvency II Identified Staff in the current performance year reflect performance achieved over the whole period of activity and do not reward failure? (Article f) 5

6 Termination payments reflect the terms of individuals service contracts. The firm s policy is to pay only salary, benefits and pension entitlements for the contractual period of notice. Where individuals participate in incentive plans, such participation will normally cease on termination. In certain limited cases (for example, ill-health or retirement) individuals can retain participation rights, but with the retained rights being subject to the continued application of any on-going performance conditions and to time-based pro-rata reductions. B.iv What arrangements do you have in place to ensure that your Solvency II Identified Staff undertake not to use personal hedging strategies or remuneration and liabilityrelated insurance to undermine the risk alignment effects embedded in their remuneration arrangements? (Article g) The Company does not allow employees to use personal hedging strategies for remuneration arrangements so as to undermine the risk alignment effects embedded in their remuneration arrangements. Employees are required to complete an annual confirmation that they will not at any time deal in or enter into any hedging or insurance contract protecting against not receiving (or being adversely impacted by subsequent changes in share prices relating to) any part of their remuneration package. This confirmation is given via a Business Ethics module delivered as computer based training, and for participants in the group s LTIP, the position is further confirmed in the documentation which individuals complete in order to confirm their participation in the plan each year. B.v How do you ensure that the fixed and variable remuneration components are appropriately balanced with the fixed portion representing a sufficiently high proportion of total remuneration which allows the operation of a fully flexible policy on variable remuneration components including the possibility to pay no variable remuneration component? (Article a) The ratio of fixed to variable remuneration will differ depending on the specific incentive schemes in operation across the business. However, the Company seeks to ensure that an appropriate balance between fixed and variable remuneration is maintained for all employees (and not only Solvency II Identified Staff) by benchmarking roles against market practice and ensuring that fixed pay is generally around the median level which, therefore, enables the Committee to be satisfied that the fixed proportion should be sufficient to allow variable pay to operate on a fully-flexible basis, with the possibility of no payments of variable remuneration in a year should performance warrant such an outcome. The Company keeps this balance under review on a regular basis. All fixed pay for Solvency II Identified Staff is appropriately set by reference to external benchmarking and internal relativities. In no case are the fixed components of pay set at levels which would then require undue reliance for living costs on incentive pay elements. 6

7 C. Risk adjustment - Bonus Pool Size C.i Bonus Pool Size Please provide a high level summary of the process your firm follows to determine the overall bonus pool amount providing detail on how the performance measurement includes a downward adjustment for exposure to current and future risks and takes into account the firm s risk profile and the cost of capital. (Article e) The Group does not operate a traditional bonus pool. Instead each employee has a target and maximum bonus level (expressed as percentages of salary) which can be achieved dependent upon performance against specific performance measures. This process creates the overall amount of group wide bonuses. The cost of bonuses (and NICs) at a target level is accrued within the Group s budget, and is accordingly approved in line with overall financial budgets. As explained above (see question A.ii), the Company s AIP is a discretionary arrangement and the Remuneration Committee considers overall performance, and specifically adherence to risk appetite and sound and effective risk management, before confirming any outcomes. Accordingly, financial performance for the purposes of the AIP must be confirmed as being in line with the Company s risk appetite. The main financial measure in both the AIP and LTIP is based on Cash Generation. As this measure reflects cash remitted from the life companies to Phoenix Group Holdings, it is only delivered when the life companies have covered both their respective capital requirements and capital management policies. The PRA provides the life companies with its non objection to any capital management policy. C.ii Please explain how the bonus awarded and any executive incentive scheme (e.g. Long-term Incentive Plan (LTIPs)) is based on a combination of the performance of the individual, the business unit concerned and the overall results of the firm.(article b) 7

8 Solvency II Identified Staff generally participate in the main Group level AIP and in the main Group LTIP. Within the main Group AIP, there is a mix of both group financial and non-financial (group strategic and personal) metrics (see answer to E.i below). The main Group LTIP is measured on Group financial metrics (Cumulative cash generation and TSR). However the underpin measure considers specifically both customer satisfaction and personal performance, as well as factors relating to debt management and risk management (see answer to E.ii, below). There are also two individuals who are Solvency II Identified Staff who are participants in incentive plans based on SunLife performance: SunLife has a discrete AIP plan modelled on the Group-wide AIP. Within this the corporate element is based on SunLife metrics rather than Group-wide metrics; there are also personal performance elements. A specific long-term plan has been established for selected employees of the SunLife business which has the potential to reward these individuals for any increase in value of that business over a period of 4 years. This specific plan is designed to promote appropriate retention and incentivisation of the individuals, and includes deferral of amounts that may be earned. 8

9 E.i Please list all bonus schemes or other reward or compensation schemes (including those in place for partnerships and other legal structures) that Solvency II Identified Staff participate in and provide a high-level description of each scheme, including: numbers of participants; the performance measures (financial and non-financial) used and the risk adjustment (including discretionary factors) applied to determine whether and how much the scheme will pay out; determination of the substantial deferred portion; the length of the deferral period; the proportion of the unvested deferred portion that is subject to performance adjustment (i.e. malus); the vesting schedule (i.e. pro-rata basis; cliff vesting at the end of the performance period or any other combination); award composition (i.e. proportion in shares/cash etc.);and length of a retention policy if applied. Annual Incentive Plan The AIP applies to the vast majority of Solvency II Identified Staff within the Group. The only exception is 2 Solvency II Identified Staff who participate in the discrete SunLife AIP. The levels of participation in AIP and the mix of metrics vary between different grades of staff. For the majority of staff, the balance of measures is weighted towards personal performance. At more senior levels, there is an increased weighting towards corporate (both financial and strategic) measures, and for Executive Directors the balance of performance measures for 2017 is as follows: Cumulative cash generation 50% Customer satisfaction 20% Personal measures 30% As detailed earlier, the Remuneration Committee has wide powers to adjust the outcomes for AIP performance measures having considered overall business performance (including adherence to risk appetite and sound and effective risk management). This operates as both a formal underpin plus the ability to moderate all performance outcomes between 80% and 120% of any provisional outcome. SunLife has a discrete AIP plan modelled on the Group-wide AIP. Within this the corporate element is based on SunLife metrics rather than Group-wide metrics; there are also personal performance elements. Executive Directors and members of the Executive Committee are required to defer 40% of any AIP outturn into shares. For all bar 4 of the remaining Solvency II Identified Staff, one-third of all AIP outcomes are deferred into shares. The deferral period for all Solvency II Identified Staff is 3 years, with cliff vesting at the end of the 3-year period. Taken together in aggregate with LTIP participation (see below) this exceeds 40% deferral of variable remuneration for all Solvency II Identified Staff, representing a substantial portion of variable remuneration subject to deferral. Where Solvency II Identified Staff are not subject to deferral of AIP, this reflects a proportionate approach, taking account of the individuals levels of remuneration (both total remuneration and the proportion of variable remuneration). The cash element of AIP can be subject to clawback for a period of 3-years from its payment, and the deferred element of bonus remains subject to potential malus for the 3-year period until its vesting. 9

10 E.ii Please list all executive incentive schemes (e.g. Long Term Incentive Plans (LTIPs); or carried interest schemes where not linked to an individual s co-investment) that could incentivise Solvency II Identified Staff for future performance and provide a high-level description of each scheme, including: number of participants; the structure of the scheme s awards, including a description of the initial award (e.g. deferred cash, shares, share options, phantom shares) and the form of the proposed payout (e.g. proportion in shares, cash etc); the length of the scheme s performance period; the performance measures (financial and non-financial) used and the risk adjustment (including discretionary factors) applied to determine whether and how much the plan will pay out; the vesting schedule (i.e. pro-rata basis; cliff vesting at the end of the performance period or any other combination); the proportion of the unvested deferred portion that is subject to performance adjustment (i.e. malus); and The length of a retention policy if applied. 10

11 23 Solvency II Identified Staff participate in the Company s main LTIP.. Awards are made over fixed values which determine a number of company shares and are capable of vesting after an initial 3 year employment requirement period (after which performance conditions are also measured). An additional 2-year holding period is applied to Executive Directors and members of the Executive Committee. The performance measures are calculated over 3 financial years, beginning with the financial year in which awards are made. The measures for 2017 s awards are 50% Cumulative Cash Generation and 50% relative TSR, both measured over financial years 2017, 2018 and The TSR measure can be summarised as follows: Position at which the Company is ranked % of 50% of an Award that Vests (i.e. expressed as a percentage of 50% of the total number of shares originally subject to the Award) 80 th percentile 100% Between 50 th and 80 th percentile Pro-rata between 25% and 100% 50 th percentile 25% Below 50 th percentile 0% The comparator group for TSR is the FTSE 250 (excluding investment trusts) as at the start of the 3 year performance period. The Cumulative Cash Generation measure is set against appropriately stretching targets which are 1,372million (25% of this part vests) and 1,572million (100% of this part vests). This relates to the period of three financial years 2017, 2018 and There are 2 further Solvency II Identified Staff who participate in a discrete long-term plan established for selected employees of the SunLife business which has the potential to reward these individuals for any increase in value of that business over a period of 4 years. This specific plan is designed to promote appropriate retention and incentivisation of the individuals, and includes deferral of amounts that may be earned. Irrespective of the satisfaction of these conditions, no part of an Award may be realised unless the Remuneration Committee is satisfied as an underpin that the Company's bank debt and associated interest costs have, in the Remuneration Committee's opinion, remained within acceptable parameters and the Company has made progress towards the Board of Director's strategy on debt management, capital restructuring and risk management. Also the Remuneration Committee will consider customer satisfaction and (in exceptional circumstances) personal performance for the purposes of the underpin. For LTIP awards made from 2015 onwards to Executive Directors and members of the Executive Committee, after the determination of the performance conditions, no vested shares will ordinarily be released until a further holding period of 2 years is completed. Additionally, released shares may not be sold (other than to cover tax liabilities associated with the release of shares) until the following share ownership thresholds are achieved: Executive Directors 200% of salary Executive Committee 100% of salary All awards are potentially subject to malus until their release after the 5 year period (3 years until employment requirement date plus additional 2 year holding period). Additionally, the Company has the power to operate clawback (requiring actual payback of value received) for a further year after the 5 year period. 11