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Directors' remuneration report

Annual statement from the Chairman of the Remuneration Committee

“I am pleased to present the Remuneration
Committee’s report for the year to 31 December

Lord Turnbull
Chairman of the Remuneration Committee

Lord Turnbull, Chairman of the Remuneration Committee

Dear shareholder,

I am pleased to present the Remuneration Committee’s report for the year to 31 December 2014.

This will be the last report that I present as Chairman of the Remuneration Committee before I step down from the Board at the AGM. I am pleased that Anthony Nightingale, who has served the Remuneration Committee since June 2013, has agreed to undertake this role going forward.

The Committee’s report is presented in the following sections:

This letter shares the Committee’s thinking on a number of the key decisions that we took about rewarding the performance achieved in 2014 and about remuneration arrangements for 2015.

Rewarding 2014 Performance

As set out in the Business Review section earlier in this Annual Report, the Group’s financial performance in 2014 was strong:

Strategic priority

IFRS operating profit

Prudential’s primary measure of profitability and a key driver of shareholder value

Group performance £m

arrow going upwardsCAGR

Strategic priority

EEV new business profit

A measure of the future profitability of the new business sold during the year and indicates the profitable growth of the Group

Group performance £m

arrow going upwardsCAGR

Strategic priority

Business unit remittances

Cash flows across the Group balance these net remittances (which support dividend payments) with the retention of cash for profitable reinvestment

Group performance £m

arrow going upwardsCAGR

Read more: Measuring our performance

All businesses reported strong performance in 2014, notwithstanding the challenges the Group faced which included the decline in long-term interest rates and the UK budget changes announced in March 2014. These results were achieved while maintaining appropriate levels of capital and operating within the Group’s risk appetite and framework. The Committee believes that the bonuses it awarded to executive directors for 2014 appropriately reflect this strong performance.

The Group achievements in 2014 built on the strong results achieved in recent years. Over the longer term, the Group has created substantial value for shareholders through share price rises and by increasing dividend payments. £100 invested in Prudential on 1 January 2012 was worth £257 on 31 December 2014. This performance outstripped that of other international insurance companies; this measure of total returns was the performance condition attached to the Group Performance Share Plan awards made in 2012, therefore the Committee determined that these awards should be released in full in Spring 2015.

Executives’ community of interest with other shareholders is fostered by annual and long-term incentive plans and is underscored by their personal shareholdings. Many of the executive directors have shareholdings which far exceed the guidelines that they are asked to meet. For instance, on 31 December 2014, Tidjane Thiam had a beneficial interest in shares with a value of almost 1,000 per cent of his salary.

Implementing the Policy approved by shareholders

The Committee was pleased with the level of support which shareholders gave the Company’s Directors’ Remuneration Policy at the 2014 AGM. The Committee believes that the Policy remains appropriate and does not intend to present the Policy to shareholders for their approval in 2015.

The Committee will implement two refinements to executive pay arrangements in 2015 within the current Policy:

  • Economic capital measure – as the Group prepares for the implementation of Solvency II, it is increasingly using economic capital as a key measure of capital adequacy. To reflect this change, part of executive directors’ 2015 bonuses will be determined by the achievement of economic capital targets; and
  • Power to recover incentive payments – the Committee has determined that it is appropriate for it to have the power to recover (‘clawback’) incentives after they are received by executives. Clawback provisions will apply to 2015 bonuses and long-term incentive awards, and may be applied in certain circumstances including the mis-statement of financial results.

Reflecting the growth of the Group

Recent years have seen significant increases in the complexity and scale of the Group. The Company’s geographic footprint and range of products have continued to grow in response to customers’ savings and protection needs. While these developments have delivered real and sustained value to shareholders, they have also required the organisation to operate in a more complex regulatory environment and to build effective relationships with new and more diverse groups of stakeholders. As a result, leadership roles have become more demanding and time consuming.

It was in this context that the Committee reviewed the Chairman’s fee during 2014. Paul Manduca’s fee has been fixed since his appointment as Chairman in July 2012. On his appointment, Mr Manduca agreed that Prudential would be his principal focus but his actual time commitment has been significantly higher than we anticipated at that time. The Committee has decided to increase the Chairman’s fee from £600,000 to £700,000 with effect from 1 July 2015 to recognise the increased demands of the role.

In determining executive directors’ packages for 2015, the Committee was conscious to balance restraint with the need to recognise particular changes in the scope of some roles. All executive directors received a 2015 salary increase of 3 per cent. These increases are in line with those awarded to other Group employees. The exception was the Chief Executive of PCA, who received a 5 per cent increase to reflect inflation and employee salary increases in the Asian market. Changes were made to the maximum bonus opportunities and long-term incentive awards of the Chief Executives of PCA and of UK & Europe, as described in the Annual Report on Remuneration. These changes reflect the growing scale and strategic impact of these roles, and the personal contribution made by the incumbents. A number of the Company’s largest shareholders were consulted on these changes.

External pay data does not drive the level of executive directors’ salaries or non-executive directors’ fees. When the Committee has resolved on planned increases, we reference data as a sense check to ensure that the remuneration paid by the Company remains fair, competitive and within the range of that offered by similar organisations.

In conclusion

I trust that you will find this report a clear account of the way in which the Committee has implemented the Directors’ Remuneration Policy during 2014.

I look forward to your continued support for the Company’s remuneration arrangements.

Lord Turnbull
Chairman of the Remuneration Committee
9 March 2015


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