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 2015.”

Anthony Nightingale, CMG SBS JP
Chairman of the Remuneration Committee

Anthony Nightingale, CMG SBS JP, Chairman of the Remuneration Committee

Dear shareholder,

I am pleased to present the Remuneration Committee’s report for the year to 31 December 2015.

This is my first report as Chairman of the Remuneration Committee since I took on the role in May 2015. I would like to thank my predecessor Andrew Turnbull, who served as a member of the Committee for nine years, acting as Chairman for four of those years, for his contribution and leadership of the Committee during this period.

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

By way of preface, I would like to share the context for the key decisions the Committee took during 2015, in particular the remuneration arrangements for those joining and stepping down from the Board, how we rewarded the performance achieved in 2015 and the decisions relating to remuneration arrangements for 2016.

Rewarding long-term performance

As set out above, the strong performance of the Group has been sustained over a number of years, notwithstanding the external challenges faced by the Group during this time. The Group delivered total IFRS operating profits of £10,147 million in the 2013, 2014 and 2015 financial years, exceeding the stretching targets established by the Committee.

I am pleased to say that this impressive financial performance has translated into significant returns to the Company’s shareholders, with £100 invested in Prudential on 1 January 2013 being worth £189 on 31 December 2015 through the combined effect of dividends paid and increases in the share price.

Based on this level of total shareholder return and strong cumulative IFRS operating profit performance over the same period, the Committee determined that the performance conditions attached to Prudential Long Term Incentive Plan (‘PLTIP’) awards made to Executive Directors in 2013 achieved between 97.5 per cent and 100 per cent vesting depending on business unit. These awards will be released to participants in May 2016.

Our Executive Directors are also Prudential shareholders, with a significant proportion of their remuneration delivered in the Company’s shares through both the annual and long-term incentive plans we operate. This alignment between the executive team and other shareholders is demonstrated by the fact that many of the Executive Directors have shareholdings well in excess of the guidelines that they are asked to meet. For instance, on 31 December 2015, Mike Wells had a beneficial interest in shares with a value of over 650 per cent of his salary, which is significantly higher than his share ownership guideline of 350 per cent of salary.

Prudential's 2016 Executive Directors' remuneration

No changes to Prudential’s remuneration architecture are proposed for 2016. We will continue to operate all elements of remuneration in line with the Directors' remuneration policy approved by shareholders at the 2014 AGM, and accordingly do not intend to ask shareholders to vote on the policy at the 2016 AGM. An enhancement to the policy since it was adopted in 2014 has been the inclusion of a recovery provision (clawback) in Executive Directors' incentive arrangements from 2015, which was described in the 2014 Directors' remuneration report. This provision allows incentives to be recovered after they are paid in certain circumstances.

In determining remuneration packages for 2016, the Remuneration Committee was mindful of the need to maintain restraint on base salary increases. The Executive Directors will receive an increase in base salary of 1 per cent with effect from 1 January 2016, which is below the salary increase budget for other employees.

There have been no changes to incentive opportunities for 2016.

Rewarding 2015 performance

As set out in the business review section earlier in this Annual Report, the Group’s financial performance in 2015 was very strong:

Strategic priority

Group performance £m

2015 bonus achievement

IFRS operating profit

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

CAGR
+20%
2011 2012 2013 2014 2015
2017 2520 2954 3186 4007
2014-2015 growth 26%

Above stretch level

IFRS operating profit accounted for 35 per cent of Group financial bonus targets

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

CAGR
+16%
2011 2012 2013 2014 2015
1433 1536 1791 2115 2617
2014-2015 growth 23%

Above stretch level

EEV new business profit accounted for 5 per cent of Group financial bonus targets

Business unit remittances

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

CAGR
+9%
2011 2012 2013 2014 2015
1105 1200 1341 1482 1625
2014-2015 growth 10%

Above stretch level

A cash flow measure was used to determine 10 per cent of the Group financial bonus targets

Performance against these key metrics exceeded the stretching targets established by the Board. The Group achieved these results 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 2015 appropriately reflect this excellent performance.

Enhanced bonus disclosure

The Committee has enhanced the Annual Incentive Plan (‘AIP’) reporting this year, a development which I trust you will find welcome. In addition to the information on bonus disclosure familiar to shareholders from last year’s report, which provides an illustrative view of 2015 performance against Group and business unit targets, we have also given more detailed information on the Group financial performance range (threshold and maximum) and the results achieved for the 2014 performance year. These disclosures can be found in the annual report on remuneration.

This more detailed disclosure complements the retrospective reporting of the three-year IFRS operating profit targets applied to awards made under the PLTIP. The performance period for 2013 PLTIP awards ended on 31 December 2015 and the Group IFRS operating profit target (and the result achieved) for this period is disclosed in the annual report on remuneration.

The Committee believes these enhanced disclosures will provide shareholders with additional clarity.

Changes to the executive team

As you will be aware, there have been a number of changes to Prudential’s executive team during 2015, including the appointment of Mike Wells as Group Chief Executive. The remuneration decisions arising from these changes were disclosed in stock exchange and website announcements when they took place. Further information can be found in the ‘Recruitment arrangements’ and ‘Payments to past directors’ sections of this report.

In making decisions about the remuneration arrangements for those joining and stepping down from the Board, the Committee worked within the Directors’ remuneration policy approved by shareholders and was mindful of:

  • The skills, knowledge and experience that each new Executive Director brought to the Board;
  • The need to support the relocation of executives where this is necessary to enable them to assume their roles;
  • Its commitment to honour legacy arrangements; and
  • In relation to executives leaving the Board, the particular circumstances of the departure and the contribution the individual made to the Group.

In conclusion

During the year, I wrote to our major shareholders, and the shareholder representative bodies, ISS and the Investment Association, seeking their views on the decisions which the Committee took in 2015 and its proposals for 2016. We had a number of useful meetings where shareholders expressed their views and I am grateful for this feedback. On behalf of the Committee, I would like to thank shareholders for their engagement. We are firmly committed to continuing the Committee’s policy of engaging with our shareholders and we look forward to your continued support for the Company’s remuneration arrangements.

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 2015.

Anthony Nightingale, CMG SBS JP
Chairman of the Remuneration Committee
8 March 2016

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Our executive remuneration at a glance

4

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