Report on Directors Remuneration 1

Transcription

1 80 LV= Annual Report Report on Directors Remuneration 81 Report on Directors Remuneration 1 Cath Keers Chairman of the Remuneration Committee 1 This part of the Directors Remuneration Report sets out the remuneration policy for the group and seeks to follow the provisions of The Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations ( the Act ), where we believe this assists with disclosure. The policy has been developed taking into account the principles of the UK Corporate Governance Code 2012 and the views of our members and describes the policy to be applied from 2015 onwards. Annual Statement Dear Member, In, LV= delivered strong financial results, particularly in light of external events which created a difficult trading environment. Continued motor price competition and depressed investment returns negatively impacted the general insurance division; meanwhile, changes to pension regulation announced in the Chancellor s Budget in March posed a serious challenge to the pension annuities business within the life division. As the chair of the Remuneration Committee, I and my colleagues seek to ensure we offer a reward package that attracts the best people to lead the group, and that our pay arrangements appropriately reflect the business performance that has been delivered on your behalf. Changes in policy for 2015 The Remuneration Committee keeps the Society s executive remuneration policy under review to ensure it achieves its objectives. During, one of the main areas we considered was the operation of our long-term incentive plan (LTIP). Our LTIP is intended to reward executives for delivering high performance in business results which is sustainable over the long-term. Previous years awards have been linked to growth in the group s enterprise value. Following a review during the year, we concluded that long-term growth in the group s profits was a measure which grows member value, and on which management was more easily able to focus and therefore provided a better incentive effect. Sustained long-term growth in profits provides the resources for us to invest in the Society s future and also to be able to apportion a mutual. We are therefore proposing to adopt this as the measure for this year s LTIP and future awards. Other changes to the LTIP which were made in including reducing the maximum pay-out from a multiple of three times the target award to two will continue to apply. The FCA remuneration code remains the basis for our policy on the deferral of variable pay for executives. When the policy is applied, two-thirds of any pay-out will be deferred for a further period of two years after it has been awarded. These deferred payments are linked to the value of the Society s with-profits fund, ensuring a further link between the remuneration executives receive and members interests. Salary We determine pay for our executive directors in exactly the same way as for our broader employee group taking into account their performance, experience and potential for the future against similar roles in comparable organisations and against changes to salary levels across the wider organisation within an affordable budget. Salaries for staff across LV= will increase this year by an average of 2%, and so the change for our directors will be on average the same. Annual and deferred awards The es paid to the executive directors for performance were an average of 70% of the maximum opportunity which reflects a strong performance in a challenging market place. Payments made under the annual scheme reflect both the financial performance of the business as well as a number of strategic objectives to ensure our executives remain focused on both the short-term and long-term health of the Society. Under our remuneration policy, part of an individual s incentive payment in any one year may be deferred and paid in a later year, subject to there being no change in the view of performance in the year to which the payment related. In, the Committee identified no concerns which would cause it to adjust the deferred payments which fell due in the year and they were therefore released in full. Everything we do as a Society and as a board, we do on your behalf. That is why, as the chair of the Remuneration Committee, I am keen to hear how you think we re doing and what we could do better. Listening to members Everything we do as a Society and as a board, we do on your behalf. That is why, as the chair of the Remuneration Committee, I am keen to hear how you think we re doing and what we could do better. At last year s AGM, we held a discussion on remuneration with the members panel; several members also wrote to us about pay. Some of you made suggestions as to how we might change our pay structures in the future, and these were very helpful as we considered changes to the LTIP. You also asked for some more information for example the ratio of pay between our chief executive officer and employees and we have included that in this report on page 94. We have always aimed to comply with the highest standards of corporate governance and so we have again prepared the Directors Remuneration Report in line with the reporting requirements which apply to listed companies. Since we are proposing some changes to our remuneration policy, the Directors Remuneration Policy and the Annual Report on Remuneration will each be subject to separate votes at the forthcoming AGM, with the policy vote this year to be operated on a binding basis. I hope that as members you will be supportive of both resolutions to approve the payments made in the year under review and the remuneration policy going forwards at this year s AGM. As always, the Committee and I are keen to receive feedback so we can take on board your views when setting future policy. Yours sincerely Cath Keers Chairman of the Remuneration Committee

2 82 LV= Annual Report Report on Directors Remuneration 83 Summary of Remuneration Policy for executive directors (to apply from 1 January 2015) Purpose and link to strategy Operation opportunity Performance measures Base salary Directors Remuneration Policy Report Remuneration policy When developing our remuneration policy we compare ourselves to other businesses, in particular financial services organisations of a similar size to our own, to ensure our policy is designed to support recruitment and retention of talented people who are able to achieve stretching targets and deliver greater benefits for our members. Our aim is to provide remuneration packages that are positioned at the mid-point of the external market, and which have a significant proportion dependent upon the delivery of strong performance. Our remuneration policy is strongly influenced by good risk management practice to ensure that management are incentivised appropriately to support the short, medium and long-term interests of our members. This policy for executive directors is described in more detail below. While we currently remain outside the scope of the Financial Conduct Authority s (FCA) remuneration code, we keep it under regular review and aspire to follow its spirit. Seeking the views of members The committee is keen to hear members views on the Society s remuneration policy and the remuneration decisions which the committee takes on our members behalf. We hold feedback and focus group sessions and these will feature in future member panel gatherings. Last year, we held two separate votes on the Directors Remuneration Report: one on the Society s remuneration policy for directors and a second on the implementation of the policy during the prior and current years. This brought us in line with changes in legislation on executive pay governance that applies to listed companies. Both of these votes were advisory and we stated that the Society would move to a binding vote for the remuneration policy in 2017, in full compliance with the regulations, after the policy had run its first three-year period. In light of the proposed changes to our remuneration policy for 2015, we will again be holding two votes on remuneration at the 2015 AGM and it is therefore our intention to bring forward the adoption of a binding vote on remuneration policy to this year. Consideration of employment conditions elsewhere in the group When setting levels of remuneration for directors, the committee takes into account the pay arrangements across the Society as a whole to ensure that consistent underlying principles are applied for all employees when making decisions about rewards. The remuneration arrangements for the executive directors are similar to those for the general employee population, aside from quantum and participation rates in incentive schemes. The committee takes into account employees views with regard to remuneration generally when determining the design of the Society s remuneration policy. It does not however consult employees generally regarding the pay arrangements for senior executives, although this position is kept under review. To attract high performing individuals to lead the Society and continue to reward them fairly in the context of alternative opportunities open to them. Benefits To operate a competitive benefits structure that provides adequate protection to our employees and aids recruitment and retention. Annual To drive and reward delivery of near-term business objectives. Salaries are reviewed annually (but not necessarily increased) taking account of several factors including individual experience, responsibilities, function and sector, along with individual and group performance. The committee also reviews benchmarking information on pay levels in organisations of comparable size and complexity to LV= and aims to position our salary around the mid-point of the external market for good individual performance, in line with the relevant market for the job. If salaries are increased they are effective from 1 April each year. The Society provides: l car allowance l medical insurance l income protection cover l group product discounts, which are available to all staff and directors on equal terms. A performance plan is agreed with each executive for the performance year using a balanced scorecard approach. The annual is not pensionable. Part of the annual may be deferred. Any amount deferred will be paid after a period of three years. During the deferral period, the value of deferred amounts will be tied to the value of investments in the withprofits fund, thereby creating a link to on-going business performance and members interests. There is no prescribed maximum annual increase. The committee is guided by the general increase for the LV= employee population and wage increases generally, but on occasions may need to take into account factors such as retention risk, development in the role and/ or changes in responsibility. Car allowance of up to 10,200. The value of other benefits are based on the cost to the group and are not pre-determined. Chief executive: maximum payment of 150% of salary (with 75% paid for target performance). Other directors: maximum payment of 120% of salary (with 60% paid for target performance). Individual performance is taken into account when salary levels are reviewed. N/A The annual pot is measured against annual group and divisional financial objectives, accounting for 60% of the assessment and a balanced scorecard of objectives covering risk, people, strategy and customer, accounting for the remaining 40%. Risk is taken into account when assessing performance against all the measures in the balanced scorecard and the committee may reduce or cancel any payment if it considers that risk exceeded acceptable levels. In addition, no payments will be made unless the Society achieves a pre-determined level of profits.

3 84 LV= Annual Report Report on Directors Remuneration 85 Purpose and link to strategy Operation opportunity Performance measures Purpose and link to strategy Operation opportunity Performance measures Pension Divisional long-term incentives (applies only to divisional managing directors) To provide the facility for a competitive and viable retirement income. Directors can elect to join a defined contribution pension scheme or receive a cash sum in lieu of pension contributions. Group long-term incentive plan (LTIP) To drive and reward the achievement of longer-term business objectives so creating a powerful retention incentive. The scheme provides further alignment between the interests of executive directors and members. LTIP pay-outs will be made in cash. One-third of any payment will be made after 3 years when the scheme vests, one-third will be deferred for a further year and one-third will be deferred for 2 years after vesting. Up to 22% of salary may be paid as a cash sum and/ or contribution to a defined contribution pension scheme. pay-out is capped at two times the original award, the value of which is up to: Chief executive: 100% of salary. Other board executive directors: 75% of salary, with the exception of John O Roarke who is not a member of the group LTIP scheme. N/A From 2015, the Group LTIP will be determined by a measure of earnings growth over the three-year period of the plan cycle. Earnings growth for this purpose is defined as profit before tax in life and group adjusted for exceptional items and for the effects of short-term fluctuations in investment performance of the with-profits fund. Performance is measured as growth over the three-year period, compared to the average of the three years prior to the start of the plan cycle. The LTIP scheme will pay out only if the growth in earnings over the scheme period exceeds a threshold target growth rate which is set by the Remuneration Committee with due regard to the Society s long-term business plans, the prevailing external economic environment and the nature of the risks which the group undertakes. A second measure, Relative Investment Performance, is applied for awards to the chief executive and group finance director. In determining whether financial targets have been achieved, the committee may, where appropriate, make positive or negative adjustments for the financial impacts of any management actions which affect the calculation of the adjusted earnings, to ensure that the calculation is fully aligned to the interests of members. The committee also has discretion to defer, amend or cancel any payment in the event of any capital, liquidity or dividend policy commitments not being met. The chief risk officer will provide advice to the committee on any use of this discretion. Schemes prior to 2015 were based on growth in group Enterprise Value and, for the chief executive and group finance director, an additional measure of Relative Investment Performance of the Society. To drive and reward exceptional performance against longer-term business objectives of the business units. Deferred variable pay and claw-back The FCA provides organisations with guidance on the appropriate deferral of variable pay. Whilst the Society does not fall within the scope of these regulations, it seeks to adopt these principles as a matter of best practice. We operate a policy of deferral that covers our annual scheme and the group LTIP; this includes the option for the Remuneration Committee to claw back any deferred payments. General insurance The managing director of general insurance, was part of the management team which previously owned LV Insurance Management Limited, 95% of which was acquired by LV= in 2006 and the residual 5% in. The members of the team were given the opportunity to reinvest part of the sale proceeds in a new divisional share scheme (as described on page 93) under which the consideration which the team will receive for their shares in 2016 is linked to the future growth in the value of the general insurance business unit. Any payments will be made in cash, without deferral. At least 40% of the variable remuneration paid to executive directors is delivered in long-term pay. If this ratio is not met, then a portion of the annual payment for that year will be deferred. For employees whose variable remuneration is 500,000 or more, the requirement will be that 60% be in longterm pay. Long-term pay vests in full after a period of deferral of three years, beginning at the date the variable pay was awarded. The payment is subject to further deferral and is made in three equal tranches over the three years following vesting. Deferred payments are subject to recovery provisions, at the discretion of the committee, where it has come to light that awards were made in error or where new information is made available that would have changed the value of the original award. The committee keeps under review all elements of remuneration and retains the discretion to make changes in response to market conditions and in exceptional circumstances, where it is in the interest of members to do so. Provisions of previous policy that will continue to apply LTIP awards and The outstanding awards under the group LTIP will continue to form part of the remuneration policy until vesting. Payments are based on growth in Enterprise Value and Relative Investment Performance of the business. opportunities under these awards are two times the original award. For the managing director of general insurance: the value of the award is determined as a percentage of the value created within the business unit, but subject to a cap. Further details are given in the Annual Report on Remuneration on page 93. N/A The general insurance divisional scheme is linked to the total shareholder return generated by the division based on the increase in the open market value from 31 December 2012 to 31 December 2015 plus the cumulative ordinary dividends paid. N/A Selection and disclosure of performance measures The committee selected the performance conditions because these are central to the Society s overall strategy and are the key metrics used by the executive directors to oversee the operation of the business. The performance targets are determined annually by the committee following consultation with the audit and risk committees and are typically set at a level that is above the level of the group s forecasts. The committee is of the opinion that the performance targets for the annual are commercially sensitive in respect of the Society and that it would be detrimental to the interests of the Society to disclose them before the start of the financial year. The targets will be disclosed in the annual remuneration report that follows the end of the relevant financial year.

4 86 LV= Annual Report Report on Directors Remuneration 87 Illustrations of application of remuneration policy The group s policy results in a significant portion of remuneration received by executive directors being dependent on group performance. The chart below illustrates how the total pay opportunities for the executive directors vary under three different performance scenarios: minimum, on-target and maximum. All assumptions made are noted below. Indicative of remuneration packages for 2015 at different levels of performance Mike Rogers Chief Executive Min Target Max Philip Moore Finance Director Min Target Max 100% 47% 31% 100% 49% 33% 100% 68% 51% 100% 42% 27% 24% 24% 32% 49% 27% 31% 29% 32% Richard Rowney Managing Director Life and Pensions Min Target Max John O Roarke Managing Director General Insurance Min Target Max 26% 36% 37% 32% 32% Basic Salary, benefits and pension Bonus (% of 2015 Salary) LTIP award (-2015 scheme) Total remuneration is the final year of the general insurance LTIP scheme. Further details can be found on page % 674 1,587 2, , , Notes 1. Basic salary is based on salary coming into effect on 1 April Benefits and pension levels are based on amounts on the basis that these will not be significantly different from amounts expected to be paid in The on-target level of is 50% of the maximum opportunity. 3. The on-target level of the group LTIP is 50% of the maximum pay-out. 4. The divisional LTIP for the managing director, general insurance was a single award made in and is not therefore included in the illustration above. Any vesting amounts will be disclosed when paid. Approach to recruitment and promotions The remuneration package for any new executive director would be set in line with the remuneration policy in force at the time of appointment. In exceptional circumstances, to ensure we are able to recruit the most talented people to our business, it may be necessary to make an offer to a new director on terms outside the current policy. In such an event, the committee would seek members approval at the following AGM to revise the policy such that these new arrangements were brought within the scope of the approved policy. When it considers it to be in the best interests of the Society and its members the committee may offer additional cash payments to new appointees as compensation for the loss of, LTIP or other such arrangements from their former employer. Any cash payments would reflect the time horizons and performance requirements attached to the lost remuneration. Members will be informed of any such payments in the next directors remuneration report to be published. In the case of an internal appointment, any variable pay element awarded in respect of the prior role would normally be allowed to pay-out according to its terms. In addition, any other on-going remuneration obligations existing prior to appointment would continue, provided that they are put to members as an advisory vote at the earliest opportunity. For external and internal appointments, the committee may agree that the group will meet certain relocation expenses as appropriate. Service contracts and payments for loss of office Our executive directors are subject to a notice period of 12 months. Service contracts normally continue until the director s agreed retirement date or such other date as the parties agree. The service contracts contain a provision for early termination and notice periods given by the group are limited to 12 months or less. In certain circumstances, such as gross misconduct, a director s service contract may be terminated without notice and without any further payment or compensation, except for sums accrued up to the date of termination. If the Society terminates the employment of a director in other circumstances, compensation is generally limited to salary due for any unexpired notice period and any amount assessed by the Remuneration Committee as representing the value of other contractual benefits (including pension) which would have been received during the unexpired notice period; however, the committee may determine that a level of compensation above this is appropriate in individual cases. Payments in lieu of notice are not pensionable. Copies of the Directors service contracts and letters of appointment are available for inspection at the company s registered office. l Termination payment base salary plus benefits (including pension), may be subject to phasing and mitigation where this is in the interests of the Society. In addition, any statutory entitlements would be paid as necessary. In certain circumstances, a pro rata may be payable, along with the entitlement to partial LTIP awards, the treatment of which is set out below. l LTIP the default treatment under the LTIP is that any outstanding awards lapse when employment ends. However, the Remuneration Committee has the discretion to consider an individual a good leaver (e.g. death, disability, retirement etc.) and in these circumstances awards may not lapse immediately and the individual may retain their entitlement to a pro rata payment under the scheme, to reflect their reduced period of employment during the term of the LTIP; payments received under these circumstances will be subject to the same performance conditions and timescales as for other participants. If it considers it appropriate to do so the committee may choose to remove the normal performance conditions and time pro rating, instead making payments under the scheme at the point employment ends, although it is envisaged that this would only be applied in exceptional circumstances. In determining whether an executive should be treated as a good leaver or not, the committee will take into account the performance of the individual and the reasons for their departure. Summary of the policy for non-executive directors The policy is intended to apply for three years beginning on 1 January The committee keeps under review all elements of the policy and retains the discretion to make changes in response to market conditions and in exceptional circumstances, where it is in the interest of members to do so. Fees In order to attract and retain high calibre non-executive directors to the Society we pay individuals fees for the positions they undertake for the organisation. Fees are generally reviewed on an annual basis and whilst there is no prescribed maximum increase that is applied, consideration is taken of the fees paid for similar roles in other organisations, the responsibility and necessary time commitment to the group s affairs, the general increase for the broader UK employee population and on occasion the need for specific skills, changes in responsibility, or other relevant factors. No other remuneration is paid apart from these non-pensionable fees and non-executive directors are not eligible to participate in any performance-related arrangements. Fees for the non-executive directors are determined by the executive members of the board. For the chairman fees are determined by the whole board (excluding the chairman himself). Notice either party may give three months notice of termination.

5 88 LV= Annual Report Report on Directors Remuneration 89 Annual Report on Remuneration The Remuneration Committee The Remuneration Committee determines the broad policy for remunerating the executive directors and agrees the remuneration of each executive director and other senior managers. The committee reviews remuneration policy and strategy at least once a year and all incentive and schemes are established and monitored by the committee. Members of the committee are provided with regular training and topical briefing sessions on developments and trends in executive remuneration, particularly as this relates to the financial sector. Committee membership, attendance and advisors to the committee During the committee members were Cath Keers, who chaired the committee, Mark Austen, and Caroline Burton. The chief executive is invited to meetings except when his own remuneration is being discussed. Other senior employees, such as the chief risk officer, the human resources director and the head of reward, regularly provide advice to the committee and normally attend meetings by invitation. New Bridge Street (which is a part of Aon plc) was appointed by the committee and is the committee s independent external adviser. During the course of the year, New Bridge Street (NBS) provided advice to the committee on remuneration levels and structures, and attended committee meetings at the invitation of the committee. The committee has reviewed and discussed the objectivity and independence of the advice it receives from NBS and is satisfied that NBS continues to provide robust and professional advice. In addition, the firm is a signatory to the Remuneration Consultants Code of Conduct. During the course of the year, Aon plc provided other services to the Society; however, the committee considers that adequate structures are in place to ensure the independence of the advice received from NBS. The total fees paid to NBS in respect of its services to the committee during the year were 61,295. Committee activities in In the committee met four times. The matters which were addressed included: l Review of the overall policy relating to directors remuneration; l Revisions to the structure and performance measures within the group LTIP; l Reviewing salary levels; l Preparation of the report on directors remuneration; and l Other routine matters throughout the year. Results of members votes on remuneration resolutions at AGM At the Society s AGM in May, two resolutions on remuneration were approved by members: the Policy on Directors Remuneration and the Directors Remuneration Report: Policy on Directors Remuneration Directors Remuneration Report Votes cast in favour 37,224 38,526 Votes cast against 2,959 2,191 Abstentions 2,118 1,580 Spoilt papers Total votes cast 42,311 42,311 Votes cast at AGM Directors Remuneration Report In favour Against 94.6% 5.4% Remuneration decisions taken in respect of the coming year (year ending 31 December 2015) Base salary The Remuneration Committee agreed to increase executive director base salary levels by a maximum of 2% with effect from 1 April Current base salary levels and those which will apply from 1 April 2015 are as follows: w.e.f. 1 April 2015 w.e.f. 1 April Percentage increase M Rogers 540, ,000 2% P Moore 369, ,100 2% R Rowney 327, ,300 2% J O Roarke 301, ,800 2% Performance targets to be applied for the annual and group LTIP ( Scheme) in 2015 For 2015, the annual will continue to be based on group and divisional financial objectives accounting for 60% of the assessment and a balanced scorecard of objectives covering risk, people, strategy and customer accounting for the remaining 40%. Performance targets are based on the group s business targets. The LTIP awards to be granted in 2015 will be subject to a performance condition relating to growth in group adjusted average pre-tax profits and, for the chief executive and group finance director a proportion of the awards will be linked to the group s Relative Investment Performance. Performance condition Growth in group adjusted average pre-tax profits Group Relative Investment Performance Weighting 75% for chief executive and group finance director and 100% for managing director, life and pensions 25% for chief executive and group finance director only The group LTIP scheme will only pay out if the growth within life and group pre-tax profit (adjusted for exceptional items and excluding the effects of short-term fluctuations in investment performance of the with-profits fund) over the scheme period exceeds a threshold target growth rate. Group Relative Investment Performance relates to the annualised performance return of the with-profits fund. The scheme will only pay out for this element if the performance return is greater than benchmark. Non-executive directors fees As detailed in the Directors Remuneration Policy Report, fees for the non-executive directors are determined by the board, based on the responsibility and time committed to the group s affairs and appropriate market comparisons. Individual non-executive directors do not take part in discussions regarding their own fees. Fees are reviewed annually and changes are implemented from 1 June each year. A summary of current fees is as follows: w.e.f. 1 June Chairman 178,500 Base fee 51,000 Additional fees: Senior independent director 5,228 Investment Committee chair 8,364 Committee chair fees 12,546 Membership of Audit/Risk/Remuneration Committee 5,228 Membership of Investment Committee 3,494 Membership of With-profits Committee 4,182 Fees effective from June 2015 will be approved in April Policy on Directors Remuneration 92.6% 7.4%

6 90 LV= Annual Report Report on Directors Remuneration 91 Remuneration for the past year (year ended 31 December ) Summary table of directors remuneration Audited The remuneration of individual directors, including that of the chairman and highest paid director, was as follows: 000 Salary Long-term and fees Other benefits 1 Pension 2 Annual 3 incentives 4 M Rogers , ,291 2,364 P Moore ,317 R Rowney ,179 J O Roarke M Austen D Neave J Edwards C Keers C Burton J Dean D Holt Total 2, , ,340 1, ,004 2,526 5,887 Notes 1. Benefits include car allowance, medical insurance and income protection cover. 2. This comprises the value of any defined benefit pension accrued, any payments by LV= into the defined contribution section of our pension scheme and any cash allowance paid in lieu of foregone contributions as appropriate. A breakdown can be found in the Pensions section on page This relates to the payment of the annual for the year ended 31 December. Further details of this payment are set out below. For Mr Rogers and Mr Moore an element of these full year amounts will be subject to deferral. 4. This relates to the vesting of the 2012 LTIP award. The performance period for this award ended on 31 December. Two-thirds of the figures shown are deferred to be paid in equal tranches in May 2016 and May Appointed to role of chairman on 23 May. 6. Appointed 1 June. 7. Resigned on 23 May. Total Annual for the year ended 31 December Audited The annual for the year under review was based on performance against annual group and divisional financial objectives, risk metrics and a balanced scorecard of personal objectives. Details of actual performance against targets are as follows: Group/divisional profit (note 1) Profit required for threshold ( m) Profit required for maximum ( m) Actual profit ( m) Actual Specific individual and strategic objectives Actual Total Actual Payable in 2015/ deferred Payable in 2015 Deferred M Rogers P Moore R Rowney J O Roarke Note 1: Profit related is linked to group operating profit for Mike Rogers and Philip Moore, underlying operating profit for the life and heritage business for Richard Rowney and operating profit for the general insurance business for John O Roarke. The Society operates a performance range for profit targets (see note 1 above) which is considered to be stretching at all levels. The threshold target is the level of performance that must be achieved to release 100% of the pot for the business. If the threshold level of performance is not achieved the Remuneration Committee looks at the performance of the business/ division in the round to understand such issues as the internal and external factors that have impacted performance and the broad trajectory of the business and market conditions, for example, before determining the appropriate level of to be released. The specific individual and strategic objectives for the year ended 31 December were as follows: M Rogers P Moore R Rowney J O Roarke Description of individual and strategic objectives l Deliver progress against the seven key strategic objectives, based on the five year plan. l Ensure the capital sustainability of the group, including Solvency II. l Operate within the group s risk appetite; capital, earnings, liquidity, brand, regulatory, operation. l Maintaining leading engagement at high performing organisation (HPO) levels. l Deliver best loved proposition. l Deliver the financial plans and targets. l Creation of an economic capital framework. l Ensure finance reporting and forecasting processes are fit for future and delivered in a timely and accurate manner to support a cost efficient culture at LV=. l Maintain strong employee engagement and support development of our people through the delivery of strong talent and succession frameworks. l Deliver the financial plans and targets. l Lead the strategic growth of the life, retirement and protection business through the optimal use of capital, liquidity and improved margins. l Build direct to consumer capability, using digital to create new corporate partner offering. l Operate within risk management framework, consistently delivering best outcomes for customers. l Consistent delivery of key operational service standards that drive commercial value l Ensure satisfactory governance over the design, implementation and ongoing review of Life products to ensure customers interests are protected. l Grow SME, home and commercial motor revenue to diminish dependence on core personal motor product. l Prudently expand direct personal lines motor footprint to support planned growth. l Implement key elements of the Direct capability strategy to meet emerging customer expectations. l Ensure satisfactory governance over the design, implementation and ongoing review of general insurance products to ensure customers interests are protected. l Ensure robust succession planning is in place through development of the senior general insurance team. Risk is taken into account when appraising all performance measures and the committee may reduce or cancel any payment if it considers that risk exceeded acceptable levels. In addition, no payments will be made unless the Society achieves a pre-determined level of profits. Any variable pay amount deferred will be paid in equal parts over the following three years. During the deferral period, the value of deferred amounts will be tied to the value of members invested funds, thereby creating a link to ongoing performance.

7 92 LV= Annual Report Report on Directors Remuneration 93 Group LTIP payments made in the year (2012 scheme) Audited The group LTIP scheme which started on 1 January 2012 is based on performance to 31 December. For the scheme, the pay-out is based on both the growth in Enterprise Value (75% of award for M Rogers and P Moore, and 100% for R Rowney) and the Relative Investment Performance (25% of award for M Rogers and P Moore). The performance condition and actual performance for the award granted is as follows. Metric Enterprise Value growth Relative Investment Performance Performance condition Threshold Actual % Vesting Annualised growth in SBU Enterprise Value for LTIP purposes Annualised performance return relative to benchmark from start of scheme to 31 December The vested awards are subject to a claw-back provision. 9% 20% 8.2% nil 0 basis points Equal to or greater than 60 basis points 128 basis points 300% Total vesting percentage (M Rogers and P Moore) 75% Total vesting percentage (R Rowney) Group LTIP awards made in the year ( 2016 scheme) Audited Type of award Basis of award Face value of base Relative Investment award ( '000) Enterprise Value (1) Performance (2) % of face value of award that would vest at maximum performance nil Vesting determined by performance over M Rogers Cash 100% of salary % 75% 200% 3 years to P Moore Cash 75% of salary % 75% 200% 31 December 2016 R Rowney Cash 75% of salary % n/a 200% Group LTIP Performance of current schemes LTIP Scheme scheme Threshold Enterprise Value growth (1) Relative Investment Performance (2) Award at threshold (% of base award) award % % of face value of award that would vest at threshold performance Cumulative performance (3) Threshold Award at threshold (%of base award) award % Cumulative performance 9% 75% 20% 300% 8.2% 0 bp 75% 60 bp 300% 128bp (4) Group LTIP summary of awards and amounts vested during Audited,000 Award M Rogers P Moore R Rowney Unvested awards at 1 January (1) Awards made in the year Additional/ (reduced) value on vesting of scheme (2) To be paid in respect of scheme Of which deferred Unvested awards at 31 December (3) (124) (64) (225) (1) Unvested awards are shown at the base award level. Unvested awards at 1 January are in respect of awards granted in 2012 and. (2) For the LTIP scheme growth in Enterprise Value did not reach the threshold level of performance required. Relative Investment performance exceeded the benchmark. (3) Unvested awards at 31 December are in respect of awards granted in and. General insurance divisional LTIP awards made prior to Audited During, certain key management personnel within the general insurance business subscribed for 4.5 million 1 B ordinary shares in Liverpool Victoria General Insurance Group Limited (LVGIG). Pursuant to the Articles of Association of LVGIG the Society is required to purchase these shares in 2016 for a price equal to par plus rolled-up interest plus a percentage of the increase in the market value (plus ordinary dividends paid) of the general insurance business from 1 January to 31 December 2015, as set out below: a) 0% if the growth rate is less than 9%; b) 5% if the growth rate is 9%; c) Between 5% and 15% on a straight line basis to the extent the growth rate is between 9% and 19%; or d) 15% if the growth rate is greater than 19%. The purchase in 2016 is contingent on the key management personnel remaining in the employment of the group until 31 December Any leavers prior to this date will have their shares purchased for a lesser amount based on the proportion of the three year period from 1 January to their date of leaving. The estimated total charge for the year calculated under IFRS 2 was 10 million. John O Roarke owns 22.2% of these shares, resulting in an effective unvested increase in the estimated value of the award of 2.2 million for. See note 51 for further details of the general insurance LTIP scheme. Life divisional LTIP In the remuneration policy put to members and approved last year, provision was made to introduce an LTIP in the life division, in which the managing director, life and pensions might have been a participant. In the light of changes in the pensions industry announced in the Chancellor s Budget, the committee decided that it would not be appropriate to introduce such a scheme and no such awards were made scheme 7% 50% 18% 200% 11.8% 0 bp 75% 60 bp 200% 123bp scheme (5) 6% 50% 19% 200% 16.0% 0 bp 75% 60 bp 200% 9bp For scheme participants measured on investment performance 75% of their award is based on Enterprise Value performance and 25% on Relative Investment Performance for all scheme years. (1) Annualised growth in SBU Enterprise Value for LTIP purposes. (2) Annualised investment performance return relative to benchmark return. (3) Annualised growth in Enterprise Value for LTIP purposes from start of scheme to 31 December. (4) Annualised performance return relative to benchmark from start of scheme to 31 December. (5) Threshold and maximum targets for the 16 scheme are implied and are calculated from the component parts of the scheme. These have been approved by the Remuneration Committee following the Budget announcement in March which led to a change in the original targets for this scheme for the life business.

8 94 LV= Annual Report Report on Directors Remuneration 95 Pensions Audited,000 Deferred DB pension as at 31 December Deferred DB pension at 31 December Increase in accrued pension net of inflation Transfer value of net increase in accrued pension Normal retirement date Pension value from DB scheme * Pension value from DC scheme Pension value from cash allowance M Rogers n/a n/a n/a n/a n/a n/a n/a P Moore n/a n/a n/a n/a n/a n/a n/a R Rowney n/a n/a 10/11/2035 n/a J O Roarke n/a n/a 20/03/2023 n/a n/a * The value of the pension under the DB scheme is calculated using the HMRC Method. Transfer values are included to satisfy the Listing Rules requirements. Percentage change in remuneration levels Salary Taxable benefits Bonus % change % change Total pension value % change Chief executive (12) % change based on a static population excluding the CEO Ratio of CEO pay to average employee FTE salary Relative importance of the spend on pay 18:1 18: Total remuneration m m % change Staff costs Mutual Pensions Since the closure of the defined benefit (DB) section of our pension scheme to future accrual in, executive directors have had the choice of receiving contributions into the defined contribution (DC) section of our pension scheme or being paid an equivalent cash allowance. During, Mike Rogers, Philip Moore and John O Roarke all received cash payments in lieu of pension. Richard Rowney was a member of the DC scheme until 1 September and received cash payments in respect of pension payments above the statutory annual allowance for pension contributions. From 1 September he left the pension scheme and has received cash payments in lieu of pension from that date. Details of deferred pension for the executive directors at 31 December are shown in the table opposite. Payments to past directors No payments were made to past executive directors during the year ended 31 December. Directors loans As at 31 December and 31 December there were no loans outstanding to directors. Additional information on directors remuneration Percentage change in remuneration levels The table opposite shows the movement in the salary, benefits and annual for the group chief executive between the current and previous financial year compared to that of the total bill for the same elements for all employees. Relative importance of the spend on pay The table opposite shows the group s actual spend on pay (for all employees) relative to the mutual, which represents a significant, discretionary disbursement of profit to members. Chief executive remuneration over previous financial years The total remuneration figures for the chief executive during each of the last six financial years are shown in the table opposite. The total remuneration figure includes the annual based on that year s performance and LTIP awards based on three year performance periods ending in the relevant year. The annual pay-out and LTIP vesting level as a percentage of the maximum opportunity are also shown for each of these years. The directors approved the Directors Report on Remuneration on 27 March Cath Keers Chairman of the Remuneration Committee Group chief executive s remuneration over six financial years 1 January 31 December Total remuneration ( '000) 997 1,247 2,177 2,622 2,364 1,666 Bonus % of maximum awarded % 77% 86% 95% 100% 74% 80% LTIP % of maximum vesting % 0% 0% 100% 100% 90% 25%