Management Incentives.

Data extracted from the Governance section in the Directors' Report on Remuneration within the 2015 Annual Report and Accounts. Click here to read the whole report

2015 annual variable pay (AVP) awards (audited)

Click here to read pages 75-78 of the Directors’ Remuneration Report.

This reflects the total AVP awards to be paid in 2016 based on performance in the year ended 31 December 2015. The value includes both the cash element and the portion deferred into shares (50% of the award).

The executive directors’ AVP awards in relation to performance during 2015 were measured against a basket of metrics and objectives. For Nigel Wilson and Mark Gregory, they were weighted between group financial objectives (80%) and other strategic personal objectives (20%). For Mark Zinkula they were weighted between group financial objectives (40%), divisional objectives (40%) and other strategic personal objectives (20%).

Group financial – achievement

For 2015, AVP pay-outs as a percentage of the maximum were: Nigel Wilson 86%, Mark Gregory 84%, and Mark Zinkula 91%. The tables below illustrate performance against each of the measures.

Weightings (as % of total AVP opportunity) Achieved as a % of maximum
Performance measure Nigel Wilson Mark Gregory Mark Zinkula Threshold Target Maximum (100%) Actual Payout % of maximum
Operating cash 10% 10% 5% £1,135m £1,180m £1,205m £1,217m 100%
Operating profit 15% 15% 7.5% £1,270m £1,382m £1,410m £1,455m 100%
Net cash 15% 15% 7.5% £1,120m £1,177m £1,210m £1,256m 100%
Adjusted profit before tax 20% 20% 10% £1,220m £1,365m £1,405m £1,365m 50%
Group expenses 20% 20% 10% £1,190m £1,150m £1,130m £1,130m 100%

Divisional performance – achievement

Divisional objective maximum 40% of total AVP opportunity. For the LGIM division Mark has three key measures – LGIM profit before tax, cost income ratio, and the annualised revenue for our LGIM international business. The actual targets have not been disclosed for reasons of commercial sensitivity as LGIM is a subsidiary of the group’s operations but performance commentary is given in the table below.

Executive Director Divisional Measures Key achievements in the year Payout (% of maximum)
Mark Zinkula LGIM

Key measures include LGIM PBT, cost income ratio, net revenues non UK
Key highlights for 2015 include:
  • Operating profit of £355m, 11% higher than 2014, while maintaining a cost: income ratio below 50%
  • Net inflows of $38bn with positive flows in all business lines and geographic regions
  • Strong growth in LDI and multi-asset solutions, active fixed income and real assets
89.5%

Strategic personal performance – achievement

Personal objectives maximum 20% of total AVP opportunity

Executive Director Overview Key achievements in the year Payout (% of maximum)
Nigel Wilson For 2015, Nigel’s objectives were: Customer and business leadership, building key strategic relationships with customers and positioning Legal & General in the wider business, regulatory and broader community. Colleague & Talent Engagement across the group. 2015 has been a strong year for Nigel, he participated actively in promoting the organisation and its capabilities, including:
  • Significant LGIM, LGR and LGC transactions and the successful on boarding of substantial workplace savings customers, with excellent feedback across multiple sectors.
  • He continued to build his external influence with the business community, government advisors, and wider media, to promote not only outcomes that are “socially and economically good”, but in line with business strategic direction.
  • Promoting talent programmes including 50/50 by 20/20 our approach to diversity.
81.3%
Mark Gregory Mark’s objectives focused on delivering effective management of the group's capital, achieving readiness for Solvency II regime, disposal of non-core subsidiaries and further upgrading the finance function.
  • Increase in the group’s Capital Return on Equity to 17.7%.
  • Approved by the PRA of all Legal & General’s applications in respect of Solvency II.
  • Pro-forma Solvency II surplus of £5.5bn as at 31.12.15.
  • Disposal of our French, Egyptian, Gulf and Irish subsidiaries as well as Suffolk Life in January 2016.
  • £80m of cost savings achieved in 2015.
69.5%
Mark Zinkula Mark’s objectives focused on fund performance, building defined contribution (DC) and defined benefit (DB) businesses, building a broader non-UK-based LGIM organisation and personal leadership of the LGIM business.
  • Continued growth of defined benefit (DB) business, with over 40% share of LDI market
  • Significant growth of defined contribution (DC) business, winning mandates that will increase our customer base by approximately 50%, from 1.4 million customers at the start of the year to over 2 million with the new mandate
  • Successful transfer of the Workplace Savings business to LGIM
  • Repositioning the unit trust business to achieve record inflows during the year
  • Excellent progress expanding LGIM’s business internationally, with positive net flows and key new client wins in all regions
  • Extensive support of the LGR business and LGC business
96.7%

The divisional targets are considered by the Board to be commercially sensitive as this information is not formally disclosed in the annual report and accounts and will not be disclosed this year or in a future remuneration report.

Risk consideration

The Committee reviewed a comprehensive report from the chief risk officer to ascertain that the executive directors’ objectives had been fulfilled within the risk appetite of the group. In addition, the Committee received feedback from the Group Regulatory Risk and Compliance function and from the Group Legal Counsel that there were no material issues to consider around regulatory breaches, customer outcomes or litigation that would prevent payment of any AVP award or trigger any malus. The Committee was satisfied that the AVP awards should be paid.

For 2014, AVP pay-outs as a percentage of the maximum were: Nigel Wilson 91%; Mark Gregory 86%; Mark Zinkula 78% and John Pollock 85%.

Deferral policy

In line with our policy, 50% of all 2015 AVP awards were deferred for three years into nil cost options, subject to continued employment and clawback/malus provisions.

Executive director Cash bonus Deferred bonus Total bonus
Nigel Wilson £556,313 £556,313 £1,112,625
Mark Gregory £361,819 £361,819 £723,638
Mark Zinkula £458,515 £458,515 £917,030
John Pollock £71,094 £71,094 £142,188

Performance share plan (PSP) awards

Details of how the 2012 PSP award vested (audited)

The 2012 PSP award vested in full in May 2015 as Legal & General’s TSR exceeded the 80th percentile of the FTSE 100 and the bespoke comparator group over the three-year performance period.

In line with policy, the Committee carefully reviewed the company’s underlying performance over the performance period. The review included considerations of partnerships entered into and maintained, cost management, capital management and risk. The Committee felt the company performance had been strong over the period and saw no reason not to allow the PSP to vest in accordance with the TSR out-turn.

The results are shown below:

Grant date Performance period Comparator group Legal & General's TSR Comparator group median rank Comparator group 80th percentile TSR performance Legal & General's notional rank % of award vesting against comparator group Percentage of total award vesting
24 April 2012 24 April 2012 FTSE 100 156.90% 48.5/96 19.7/96 6.6 100% 100%
to 23 April 2015 Bespoke comparator group 10.5/20 4.5/20 1.7 100%

The values included in the single figure table are calculated by multiplying the number of shares vesting on 8 May 2015 by the share price on 8 May 2015 of £2.690. For 2014, 100% of the maximum PSP awards granted to the executives in 2011 vested.

LGIM LTIP Award – LGIM long-term incentive plan (LGIM LTIP) awards

Between March 2010 and March 2012, Mark Zinkula was granted LGIM LTIP awards as part of his remuneration as CEO LGIMA and CEO LGIM. Following his appointment as an executive director, Mark receives no further awards under this plan. Under the LGIM LTIP, annual awards of notional shares in LGIM are granted to participants. The vesting of these notional shares is subject to the satisfaction of the cumulative growth in PBT condition over the three-year performance period. The value of the notional LGIM shares is delivered in cash after the end of the three-year performance period. Actual targets have not been disclosed due to commercial sensitivity. The table below shows the outcome of his 2012 award, circa. 38% vested in 2015.

Executive director Grant date % of base salary No. of notional shares at award Face value at award £000 Notional share price at award £ Value at date of vest (figure shown in single figure of remuneration) £000 Notional share price at time of vest £
Mark Zinkula 1 March 2012 120% 89,821 492 5.48 249 7.30

For 2014, 61% of the maximum LGIM LTIP awards granted to Mark Zinkula in 2011 vested.

This is the final payment due to Mark Zinkula under this plan.

Scheme interests awarded during the financial year (audited)

The following table sets out details of awards made under the 2014 PSP in 2015.

EXECUTIVE DIRECTOR Type of award Basis of award (% of salary and face value) % of award vesting for threshold performance % of award vesting for maximum performance Performance/
holding period
Nigel Wilson Nil-cost options 250% of salary
£2,050,0001
15% 100% 1 January 2015 to 31 December 2017. Awards are also subject to a holding period, such that awards are released in equal tranches in years 3, 4 and 5 from the start of the performance period.
Mark Gregory Nil-cost options 250% of salary £1,400,0001 15% 100%
Mark Zinkula Nil-cost options 250% of salary £1,400,0001 15% 100%

1. The number of shares awarded is calculated based on the average share price for the five days preceding the grant which was £2.8474.

No awards were made to John Pollock under the Performance Share Plan in 2015.

Awards were also made during the year under the share bonus plan in respect of performance for 2014, in line with our policy 50% of all 2014 AVP awards were deferred into shares for three years, subject to malus provisions. The amounts deferred in respect of the 2015 bonus are set out in the deferral policy section.

Performance conditions for PSP awards granted in 2015 (audited)

Financial performance condition (50% of the 2015 award)

50% of the award will vest based on performance against the following matrix of earnings per share and dividends per share growth, subject to achieving a return on equity underpin whereby return on equity must be at least 12% over the performance period.

Dividends per share growth (% p.a.)
Earnings per
share growth
(% p.a.)
<5 5 6 7 8 9 10 11 12 13 14
<5 0 0 0 0 0 0 0 0 0 0 0
5 0 15 25 35 45 55 65 75 85 95 100
6 0 25 35 45 55 65 75 85 95 100
7 0 35 45 55 65 75 85 95 100
8 0 45 55 65 75 85 95 100
9 0 55 65 75 85 95 100
10 0 65 75 85 95 100
11 0 75 85 95 100
12 0 85 95 100
13 0 95 100
14 0 100

The vesting levels between stated points on the matrix will be calculated on a straight line basis.

TSR performance condition (50% of the 2015 award)

25% of the award will vest based on Legal & General’s TSR performance relative to the FTSE 100.

The remaining 25% of the award will vest based on Legal & General’s TSR performance against a bespoke group of insurers (comprising the insurance constituents in the FTSEurofirst 300 plus any FTSE 350 Life Insurance companies not in the FTSEurofirst 300 and five US firms including Metlife, Prudential Financial, Ameriprise Financial, Principal Financial and Lincoln National).

The vesting schedule of the TSR performance conditions is as follows:

% of award that vests
Below median 0%
Median (threshold vesting) 15%
Between median and the 80th percentile 15% – 100%
80th percentile and above 100%

At the end of the three-year performance period, the Committee will critically assess whether the formulaic vesting outcome produced by the matrix is justified. To do this, the Committee will look at a number of factors including: whether the result is reflective of underlying performance and has been achieved within the company’s agreed risk appetite; the quality of earnings and the nature of any changes in leverage; key assumptions; dividend cover and behaviours, etc. If such considerations mean that the formulaic outcome of the vesting schedule is not felt to be justified, then the Committee can exercise downwards discretion.

This is the only information required to be disclosed by LR9.8.4R.

Benefits for 2016

Click here to read page 80 of the Directors’ Remuneration Report.

Benefits for 2016 to be in line with policy.

Annual variable pay potential (AVP) 2016

In line with our policy, for 2016 the target and maximum AVP opportunities for our executive directors will be:

EXECUTIVE DIRECTOR Target opportunity (% of salary) Maximum opportunity (% of salary)
Nigel Wilson 75% 150%
Mark Gregory 75% 150%
Mark Zinkula 105% 175%

Performance will be based on a combination of group and/or Divisional financial performance targets as well as strategic (including customer and employee measures) and personal measures. The majority of the targets will be financial. Actual targets have not been disclosed due to commercial sensitivity.

Performance share plan (PSP) 2016

For 2016, Nigel Wilson and Mark Zinkula will be granted an award over nil-cost options with a face value of 250% of base salary.

Having considered the business plan over the coming three years and market expectations of performance, given the level of stretch within the financial and TSR performance conditions used for the 2015 award, the Committee considered it appropriate to use the same performance conditions for the 2016 award. These may be reviewed as part of the remuneration policy review undertaken during 2016.

See ‘Performance conditions for PSP awards granted in 2015’ for further details.

Total shareholding of executive directors (audited)

Click here to read page 88 of the Directors’ Report.

EXECUTIVE DIRECTOR Type Owned outright/ vested shares Subject to deferral/ holding period Total vested and
unvested shares
(excludes any
shares with
performance conditions)
Subject to performance conditions
Nigel Wilson Shares 3,285,102 514,876 3,799,978 0
ESP 9,069 3,028 12,097 0
Options 291,765 0 291,765 2,522,840
Mark Gregory Shares 2,288,370 333,441 2,621,811 0
ESP 28,547 5,689 34,236 0
Options 0 9,911 9,911 1,651,678
Mark Zinkula Shares 588,500 373,888 962,438 0
ESP 0 0 0 0
Options 0 0 0 1,651,678
John Pollock Shares 2,912,698 124,675 3,037,373 0
ESP 0 0 0 599,777
Options 0 0 0 0

Information in relation to other outstanding awards (audited)

Performance share plan (PSP)

Click here to read page 89 of the Directors’ Remuneration Report.

For information, other outstanding PSP awards are shown below. 2013 awards were granted under the legacy plan, whilst 2014 awards were granted under the new PSP.

EXECUTIVE DIRECTOR % of base salary Face value
£100
Share price at award £ Max no. of shares
Grant date 17 April 2013
Nigel Wilson 200% 1,500 1.6863 889,521
Mark Gregory 200% 922 1.6863 547,055
Mark Zinkula 200% 922 1.6863 547,055
Grant date 11 June 2014
Nigel Wilson 250% 2,050 2.3342 878,245
Mark Gregory 250% 1,400 2.3342 599,777
Mark Zinkula 250% 1,400 2.3342 599,777

Legacy awards granted in 2013 under the PSP were subject to a TSR performance condition measured over three years, with 50% of each award subject to TSR performance relative to the FTSE 100 and 50% subject to TSR performance relative to a bespoke industry peer group.

Outstanding share bonus plan (SBP) awards

The table below shows the shares held under the SBP and those that were awarded or vested during 2015. For Mark Zinkula, these include shares awarded when he was appointed as CEO LGIM and prior to him joining the Board. The shares awarded in 2015 relate to deferred AVP in relation to the 2014 performance year. The share price used to calculate the awards is the average of the three days preceding grant.

EXECUTIVE DIRECTOR Awards outstanding at 1 January 2015 Awards granted in 2015 Grant price £ Face value at grant price £ Awards vesting in 2015 Awards outstanding at 31 December 2015
Nigel Wilson 464,764 195,058 2.8587 557,612 144,946 514,876
Mark Gregory 304,644 126,966 2.8587 362,958 98,169 333,441
Mark Zinkula 315,372 133,987 2.8587 383,029 75,471 373,888