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Directors’ remuneration report

Committed to delivering value

Board remuneration committee

Members

R Markland VF Gooding JW Peace PD Skinner OHJ Stocken
Number of meetings in 2008 Scheduled
5
Ad Hoc
5
R Markland (chairman) 5/5 5/5
V F Gooding 5/5 5/5
J W Peace1 2/2 1/1
P D Skinner 5/5 3/5
O H J Stocken 5/5 2/5
Lord Turner2 3/3 3/4

Review and highlights

In addition to its regular agenda items, such as reviewing directors’ compensation, the board remuneration committee (the ‘committee’) activities in 2008 included:

Towards the end of the year, the committee also reflected on the Financial Services Authority’s (FSA) issuance of ‘criteria for good and bad remuneration policies’. The Group believes that its existing performance and reward processes are well aligned to the FSA’s recently published draft code of practice on remuneration policies.

Role of the committee

The committee has specific terms of reference which can be found on the Group’s website. In particular, the committee:

Advisors

In 2004, the committee appointed Kepler Associates (Kepler) as its independent advisors. In 2008, the committee reappointed Kepler to advise it on a range of executive remuneration-related issues for a further 12 month period. Kepler does not provide any other advice or services to the Group.

In addition, during 2008, the committee received advice from the Group head of human resources (Tracy Clarke) and the Group head of reward (Neil Cuthbertson).

Towers Perrin provided formal remuneration survey data and advice to the Group on executive remuneration issues as well as retirement consulting issues in Korea and, together with Clifford Chance LLP, also advised on the design and operation of the Group’s share plans. Clifford Chance LLP also advised on issues relating to executive directors’ contracts. McLagan Partners provided formal remuneration survey data and together with Mercer Oliver Wyman provided advice to the Group on market practice in variable compensation plans within the wholesale banking sector.

Remuneration policy

The success of the Group depends upon the performance and commitment of talented employees. The Group’s reward programmes support and drive its business strategy and reinforce its values. Its existing remuneration policy for 2008 and, so far as practicable, for subsequent years is to:

  1. Support a strong performance-oriented culture, ensuring that individual rewards and incentives relate directly to the performance of the individual, the operations and functions in which they work or for which they are responsible, the Group as a whole and shareholders’ interests; and
  2. Maintain competitive reward that reflects the international nature of the Group and enables it to attract and retain talented executives of the highest quality internationally. Many of the Group’s employees bring international experience and expertise and the Group recognises that it recruits from an international marketplace.

The committee reviews the remuneration policy on a regular basis against significant regulatory developments, market practice and shareholder expectations.

Executive directors

Target remuneration levels for the executive directors are set with reference to individual experience as well as the compensation levels in the Group’s international banking peers and the FTSE 30. These two groupings have business characteristics similar to the Group such as international scope of operations, complexity and size (both in financial terms and with regard to numbers of employees), and represent organisations which compete alongside the Group for talent.

Target remuneration levels are aligned to the market, and the individual executive director is rewarded with higher variable compensation delivered through a combination of annual performance awards, both cash and deferred elements, and performance share awards.

The committee places great emphasis on ensuring that the balance of each executive director’s target remuneration is structured to give the heaviest weighting to performance-related elements.

Other employees

The committee considers the remuneration policy in the context of all Group employees.

Base salaries of employees are determined in a similar way to those of executive directors. The Group’s approach is to ensure that target total compensation is benchmarked to the relevant market in which the individual is employed. Potential total compensation is set at upper quartile or higher for excellent individual and business performance. In addition, employees:

Performance shares remain an important part of the overall reward package for directors and the top 700 senior managers. This aligns the interests of shareholders by ensuring that senior managers build and retain an appropriate equity stake in the Bank.

The chart shows the typical level of target variable compensation for directors and senior managers (the Group’s bands 1 and 2) expressed as a percentage of target total compensation.

Breakdown of target compensation between base salary, cash bonus and shares*

(As a percentage of target total compensation)


  • *Performance shares based on expected value.

At 31 December 2008, the Group employed 73,802 employees worldwide in 75 countries and territories. This means many differing local market conditions and therefore compensation is often structured in different ways (for example, base salaries are not always the only element of core compensation). Different costs of living in countries in which the Group operates and fluctuations in foreign exchange rates also impact total compensation levels. The committee consequently does not consider it helpful to use a ratio comparing compensation between executive directors and non-board employees when assessing the fairness of the Group’s practices.

2008 remuneration decisions for executive directors
The Group continues to have a robust pay for performance culture and, as a result, made annual performance awards for 2008 to those parts of the Group and employees that have performed well.

In recognition of the Group’s strong, absolute and relative performance, and in consideration of emerging best practice around executive remuneration, the following approach has been taken on directors’ compensation:

The actual levels of cash and deferred awards are shown in the directors’ emoluments table.

Breakdown of salary, cash bonus and shares as a percentage of total compensation for directors*

  • *Based on average of Group executive directors.
  • **Performance shares based on expected value.

Remuneration arrangements for executive directors

The table below summarises the four key components of executive directors’ remuneration. Further details on each element are set out in the subsequent sections.

Remuneration element Objective Delivery Programme detail
Base salaries
  • To attract and retain talent by ensuring that salaries are competitive relative to the Group’s international competitors
  • Cash
  • Pensionable
  • Reviewed annually taking account of the latest available market data
  • Any increases normally takes effect from 1 April of the relevant year
  • No increases have been awarded as part of the year end compensation review
Annual Performance Award:
  • Cash
  • Deferred shares
  • To focus participants on the achievement of annual objectives, which align the short-term performance of the Group with the creation of shareholder value
  • To provide a portion of total remuneration which is performance related
  • Awards are in two components: cash and deferred shares. Awards in excess of $50,000 have a proportion deferred into restricted shares
  • The greater the quantum of the annual performance award, the greater the level of deferral, with the highest deferral of 50 per cent
  • A longer vesting period has been introduced. Deferred shares vest in equal tranches after two and three years
  • Plan maximum increased in 2008 from 200 per cent to 250 per cent of salary, for outstanding performance
  • In 2008, each director had a dollar denominated target performance award, set at 125 per cent of salary and converted to dollars at the start of the year
  • The delivery mechanism for the mandatory deferral element with effect from 2008 is the 2006 Restricted Share Scheme. The Deferred Bonus Plan has been retained for any voluntary deferral made by a director
  • The deferred element is normally forfeited during the vesting period in the event of a voluntary resignation or termination for cause
Long-term Incentives: Performance Share Plan
  • To focus participants on meeting and exceeding the Group’s long-term performance targets which are linked to safeguarding shareholder interests
  • Awards of deferred rights or nil price options, exercisable after the third, but before the tenth anniversary of the date of grant, subject to continued employment and performance conditions being met
  • Target and maximum levels of awards are 150 per cent and 400 per cent of base salary, in any one year
  • Awards are entirely discretionary and are based on directors’ individual performance and contribution to long-term value creation
  • Appropriate performance conditions are set by the committee each time an award is made
Retirement Benefits
  • To provide a retirement benefit to executive directors, equivalent to two-thirds of base salary for those who have completed at least 20 years’ service
  • Provided through a combination of approved and/or unapproved defined benefit and cash structures
  • Defined benefit plans comprise a combination of the Standard Chartered Pension Fund, an approved non-contributory scheme, and an unapproved retirement benefit scheme

Base salaries
The annual base salary levels of executive directors as at 31 December 2008 were as follows:

  31 December
2008
Percentage increase
to base salary
as at 1 April
2008
Percentage increase
to base salary
as at 1 April
2009
P A Sands $1,562,045
(£850,000)
13.3%(2) 0.0%(3)
S P Bertamini(1) $900,000
n/a
n/a 0.0%(3)
G R Bullock $918,850
(£500,000)
5.3% 0.0%(3)
R H Meddings $1,148,563
(£625,000)
22.5%(2) 0.0%(3)
  1. Mr Bertamini was appointed to the board on 1 June 2008 and has a US dollar denominated base salary, whereas other directors have sterling denominated base salaries.
  2. Messrs Sands and Meddings were appointed to their current roles in November 2006. The committee decided to phase in base salary increases over a period of time, rather than implementing a larger one-off increase to align their base salary with the market level.
  3. The committee has supported a recommendation from the executive that no changes be made to base salaries for 1 April 2009.

Annual performance award
Executive directors (and most employees) are eligible to receive a discretionary annual performance award based on Group and individual performance.

The committee formally assesses each year Group performance, and so determines the overall bonus pool size against a series of profit-based targets. The committee then exercises its discretion on the final bonus pool by considering a number of quantitative and qualitative measures, including earnings per share (EPS); revenue growth; costs and cost control; bad debts; risk management; total shareholder return and progress against the Group’s strategic management agenda, as well as the Group’s performance relative to its peers.

Individual performance is appraised taking account not only of the results achieved by the individual but also their support of the Group’s values and contribution to the collective leadership of the Group. The ‘values’ principle is applied throughout the organisation. Each executive director has written objectives which are presented to the committee at the start of the financial year and then assessed at the year-end.

The annual performance award comprised two components; a cash award and deferred shares. For 2008 performance year onwards, executive directors will have a proportion of their annual bonus award deferred into restricted shares which vest in equal tranches over a two and three year period. This compares to the previous Deferred Bonus Plan where one-third of any performance bonus award was deferred for 12 months. The restricted shares will be granted under the 2006 Restricted Share Scheme. Two important features of the Group-wide mechanism are that: firstly, any deferred element receives ten per cent uplift in recognition of the loss of potential dividends and, secondly, the rates of deferral are progressive i.e. the more you earn the more you defer, with the highest deferral percentage of 50 per cent of the incremental bonus earned above the highest threshold. The Deferred Bonus Plan has been retained to deliver any voluntary deferral of an annual performance award made by a director.

The importance of Group and individual performance as a determinant of the level of awards is reflected in the variation of the actual annual performance awards made to executive directors in recent years.

Long term incentives
2001 Performance Share Plan (the PSP)
Outline of the PSP

The PSP is designed to be an intrinsic element of total remuneration for the Group’s executive directors and a growing number of senior executives. The significance of the PSP as a percentage of executive directors’ total potential remuneration is one of the strongest indicators of the Group’s commitment to paying for sustainable performance. As shown in the table below, there has been variation in the levels of share awards made to executive directors, illustrating the importance the Group places on individual performance. A performance test is therefore effectively applied both at the time of award and upon vesting.

At its meeting in February 2009, the committee recommended the following proposed PSP awards for executive directors in respect of performance for the 2008 financial year (2008 awards are shown in brackets).

2009 Proposed and 2008 Actual PSP Awards

  Face value (£000s)
Percentage of
current base salary
P A Sands 2,888
(2,625)
340%
(350%)
S P Bertamini 1,288
(n/a)
263%
(n/a)
G R Bullock 1,188
(1,544)
238%
(325%)
R H Meddings 1,785
(1,785)
286%
(350%)

Performance conditions
Half of the award is dependent upon the Group’s total shareholder return (TSR) performance compared to that of a comparator group at the end of a three-year period. The other half of the award will be subject to an EPS growth target applied over the same three-year period.

The committee reviewed the performance conditions in 2008 and concluded that, in aggregate, the combination of the TSR and EPS performance measures and their targets remained appropriate, providing a balance between driving stretching performance and having an effective retention and motivation tool. The rationale for the selection of TSR and EPS performance conditions is set out in the following table:

TSR Measuring growth in share price plus dividends paid to shareholders, relative TSR is recognised as one of the best indicators of whether a shareholder has achieved a good return on investing in the Group relative to a basket of companies or a single index
EPS An EPS performance condition provides an appropriate measure of the Group’s underlying financial performance

TSR element
During 2008, the committee discussed the composition of the comparator group on several occasions. In light of the acquisition of ABN AMRO (ABN), a comparator group constituent, the committee decided, in February 2008, that, for unvested awards granted in 2006 and 2007, ABN should be replaced with a ‘synthetic’ company comprising the median TSR performance of the remaining comparator group companies. In addition, for awards to be granted in 2008, the committee agreed to remove ABN from the comparator group and substitute it with ICICI, a bank of a broadly similar size in one of the Group’s key revenue-generating markets. The committee has also decided that for unvested awards granted in 2006, 2007 and 2008, HBOS, a comparator constituent, would also be replaced by another synthetic company, in view of its acquisition by Lloyds TSB. The constituents of the comparator groups for awards made in 2006, 2007 and 2008 are set out below:

For awards made prior to 2009

ABN AMRO* HSBC
Bank of America ICICI**
Bank of East Asia JPMorgan Chase
Barclays Lloyds TSB
Citigroup Overseas Chinese Banking Corporation
DBS Group Royal Bank of Scotland
Deutsche Bank United Overseas Bank
HBOS Standard Chartered

In June, the committee subsequently conducted a comprehensive review of the comparator group and decided to increase the number of constituents from 15 to 21 for awards to be made in 2009 and beyond. The enlarged group better reflects the increased size and scope of the Group’s business since the original comparator group was established. The committee used a combination of measures, including size, business scope and geographic spread, to identify the most appropriate companies before agreeing the following enlarged comparator group:

For awards made in 2009 and after

Banco Santander JPMorgan Chase
Bank of America Kookmin
Bank of China Lloyds Banking Group
Bank of East Asia Overseas Chinese Banking Corporation
Barclays Royal Bank of Scotland
Citigroup Standard Bank
DBS Group State Bank of India
Deutsche Bank Unicredito
HSBC United Overseas Bank
ICBC Standard Chartered
ICICI  

Following the increase in the number of constituents from 15 to 21, the vesting schedule has been re-calibrated to ensure the vesting level at median and upper quintile remains broadly unchanged. The percentage of award exercisable at the end of the relevant three-year performance period is calculated on a straight-line basis. Minimum vesting occurs if the Group achieves median ranking, with full vesting achieved if the Group is ranked in the upper quintile or above position in the comparator group.

The committee continues to believe that it is preferable to measure TSR performance using a local currency approach. This is considered the most appropriate approach given the international composition of the comparator group, particularly as a significant proportion of comparator companies’ profits are in the same currency as their primary listing. This local currency approach measures the real impact for a shareholder focusing on relative stock movement rather than taking into account exchange rate fluctuations.

EPS element
The percentage of award which will normally be exercisable at the end of the relevant three-year performance period is as follows:

Increase in EPS Percentage of award exercisable
Less than 15% nil
15% 15
Between 15% - 30% >15 but <50*
30% or greater 50

Vesting of 2006 awards
The committee recently reviewed whether the performance conditions on the awards granted in 2006 were satisfied at the end of December 2008. The table below sets out EPS and TSR performance over the three-year performance period and the percentage of the 2006 awards that has now vested.

  Vesting
Element Performance March 06
Awards
May/Sept 06*
Awards
EPS growth 30.04% 50% 50%
TSR ranking 6 out of 15 35% 29%
Total   85% 79%

For awards granted in 2008, normalised EPS of 173.0 cents (197.6 cents pre-rights issue) has been used as a base figure.

Executive Share Option Scheme (the ESOS)
Outline of the ESOS
It is proposed that no further awards will be made under the ESOS. However, the scheme will be retained for use in exceptional circumstances or if there is a subsequent change in policy in response to future market trends. Under the ESOS, options to acquire the Company’s ordinary shares are exercisable after the third, but before the tenth, anniversary of the date of grant. The exercise price per share is the share price at the date of grant and options can normally only be exercised if a performance condition is satisfied.

Restricted Share Scheme (the RSS)
The RSS is used as a vehicle for deferring part of annual performance awards for certain employees and as an incentive plan to motivate and retain high performing staff at any level of the organisation. Except where used for deferral purposes, executive directors are not generally eligible to participate in the RSS. However, upon recruitment to the Group, awards may be made on an exceptional basis, for example, to newly appointed executive directors to compensate for share awards forfeited on leaving their previous employer. No such awards have been made since 2003.

Under the RSS, the value of shares awarded in any year to any individual may not exceed two times their base salary. Half of the award vests two years after the date of grant and the balance after three years. The RSS, in line with other similar schemes operated by our competitors, does not have performance conditions.

All employee Sharesave Schemes
The Group believes strongly in encouraging employee share ownership at all levels in the organisation. It seeks to engage employees in the Group’s performance, align their interests more closely with those of shareholders and offer them an opportunity for long-term savings and a share in the Group’s financial success that they help to create. The Group has operated UK and International Sharesave schemes since 1984 and 1996 respectively; the latter being specifically launched to allow all non-UK based employees to participate. In 2008, the Company introduced an Irish Sharesave Scheme for employees.

Under Sharesave, employees are invited to open a three-year or a five-year savings contract. Within a period of six months after the third or fifth anniversary, employees may purchase ordinary shares in the Company at a price which is at a discount of up to 20 per cent on the share price at the date of invitation. As at 31 December 2008, 37 per cent of employees globally participate in the Group’s all-employee Sharesave schemes (2007: 42 per cent). There are no performance conditions attached to options granted under these schemes.

In some countries in which the Group operates, it is not possible to operate Sharesave, typically because of securities laws, regulatory or other similar issues. In these countries the Group offers an equivalent cash-based scheme to its employees.

Further details on the long-term incentives operated by the Group are set out in note 42 on pages 148 to 153 to the financial statements.

Shareholding guidelines
The Group operates a shareholding guideline policy which aims to align the interests of executives with shareholders by ensuring that they build up a significant equity stake in the Company. The key aspects of the guidelines are as follows:

The minimum number of shares executives are expected to hold are as follows:

  Original Revised
Group CEO 100,000 shares 200,000 shares
Group executive directors 60,000 shares 120,000 shares
Standard Chartered Bank directors 40,000 shares 80,000 shares
Other members of Group management committee 15,000 shares 50,000 shares
Other senior management                        10,000 – 15,000 shares

Retirement benefits
Retirement benefits are provided through a combination of approved and/or unapproved defined benefit and cash structures depending upon when the executive director joined the Group and his geographical location. Executive directors are given the opportunity to waive a proportion of the cash element of any potential annual performance award, to enhance their unfunded unapproved retirement benefits. Any amounts waived in respect of 2008 are shown in the Audited information section below and the additional pension benefits have been calculated by the Group’s actuary using the assumptions adopted for IAS 19 reporting.

The defined benefit plans comprise a combination of the Standard Chartered Pension Fund, an approved non-contributory scheme, and an unapproved retirement benefit scheme. The unapproved scheme is unfunded but the benefits are secured by a charge, in the name of an independent trustee, over specific Group assets. The unapproved unfunded retirement benefit scheme provides that part of the executives benefit which exceeds the UK Government’s lifetime allowance. In other respects the terms of the unapproved scheme are designed to mirror the provisions of the Standard Chartered Pension Fund. Upon the death in service of an executive director, pension benefits are available to a spouse and dependant children and a lump sum is payable.

Base salary is the only element of remuneration which is pensionable.

Executive directors’ contracts of employment
The Group policy is for all executive directors to receive and be required to give 12 months’ notice. The dates of the executive directors’ contracts of employment are as follows:

Mr P A Sands 31 December 2003
Mr S P Bertamini* 22 April 2008
Mr G R Bullock 19 October 2004
Mr R H Meddings 12 December 2003
Mr M B DeNoma** 11 December 2003

All executive directors have contracts subject to 12 months’ rolling notice. These terminate automatically at the first annual general meeting following the executive director’s 60th birthday.

The contracts contain payment in lieu of notice (PILON) provisions which can be exercised at the Group’s discretion. The PILON would comprise an amount equal to 12 months’ base salary, pension contributions/entitlement and certain benefits and allowances (such as life assurance and car allowance). Any annual performance award payable as part of a PILON is determined by the committee taking into consideration individual and Group performance. Any payment under the PILON would be paid in quarterly instalments and be subject to mitigation.

Special provisions apply in the event where the Group terminates the executive’s contract in the 12 months following a change of control without giving notice. These provide that, if the executive’s contract is terminated by the Group (other than where summary dismissal is appropriate or the executive serves out notice), the Group will pay in four equal instalments an amount equal to 12 months’ base salary, annual performance award, pension contributions/entitlement and certain benefits and allowances. The amount of annual performance award payable in respect of the 12 months following the date of termination is the executive’s target bonus. The amount of annual performance award payable in respect of the performance period which the executive director worked prior to termination will be decided by the committee taking into consideration individual and Group performance, unless such a period is less than six months, in which case a pro rata target bonus is payable.

Steve Bertamini
Steve Bertamini joined the Group on 19 May 2008 and was appointed as an executive director with effect from 1 June 2008. Details relating to his compensation arrangements were approved by the committee and announced on 22 April 2008. Further details including proposed deferred share awards, are set out in the directors’ emoluments table.

Mervyn Davies (former chairman)
Contract

Lord Davies stepped down from the board on 14 January 2009 to take up appointment as a minister in the UK Government. Lord Davies’ contract of employment was dated 23 February 2007. Although he had a 12 month notice period, the committee agreed that, in recognition of Lord Davies’ significant contribution and long service, the notice period would be waived and not paid. The committee also decided to exercise its discretion and permit Lord Davies to retain awards under the Group’s share plans awarded to him when Group chief executive (see Long-term incentives table).

Remuneration
Lord Davies was paid a base fee of $1,194,505 (£650,000) per annum, payable in cash. In addition, he was provided with a car and driver, private healthcare provision and life assurance coverage. As chairman, Lord Davies was not eligible to receive discretionary share awards or to participate in either the Group’s annual performance award or retirement plans.

Non-executive directors of Standard Chartered PLC
The fees of the non-executive directors are determined by the chairman and the executive directors and are non-pensionable. Non-executive directors’ fees are reviewed at least every two years and, as with executive directors’ remuneration, reflect the international nature of the roles which they perform.

Basic annual fees and committee fees are set to be competitive against the Group’s international comparator group. The non-executive directors’ fees were revised in 2008 and are set out in the table below (fees prior to review are shown in italics). Increases in fee levels, particularly for involvement in committees, reflect, in part, the growing regulatory and governance responsibilities resulting in an increase in the time commitment required by non-executive directors.

  Ordinary membership Chairmanship
PLC Board $137,828 (£75,000)
$119,451 (£65,000)

Deputy chairman* $275,655 (£150,000)
$275,655 (£150,000)

Audit and risk $55,131 (£30,000)
$36,754 (£20,000)
$119,451 (£65,000)
$91,885 (£50,000)
Board nomination $18,377 (£10,000)
$13,783 (£7,500)
N/A**
 
Board remuneration $36,754 (£20,000)
$27,566 (£15,000)
$73,508 (£40,000)
$55,131 (£30,000)
Sustainability and responsibility $13,783 (£7,500)
$9,189 (£5,000)
N/A**
 

Following Lord Davies’ resignation, John Peace was appointed acting chairman and Rudy Markham was appointed the acting senior independent director. The committee has approved an initial base fee of $1,194,505 (£650,000) per annum for the role of acting chairman. This is an all-inclusive fee, while acting chairman John Peace will not receive a fee for being deputy chairman. The fee is due to be reviewed by the committee in May 2009. While acting as senior independent director, Rudy Markham will receive a fee of $55,131 (£30,000) in addition to his current fees.

With effect from 1 September 2008, UK-based non-executive directors are able to take up to 50 per cent of their monthly post-tax base fees to acquire shares in Standard Chartered PLC. Further detail on non-executive directors’ fees is set out in the emoluments table.

Details of non-executive directorships held by the executive directors

Certain directors serve as non-executive directors of other companies. Details of these directorships are contained in the board of directors section. Details of non-executive fees of the executive directors are shown below:

Name Organisation Current annual fees
G R Bullock Fleming Family &
Partners Limited
No fees payable
 
  MCashback Limited No fees payable
  Spirax-Sarco
Engineering plc
$66,157*
 
R H Meddings 3i Group plc $35,321*

Performance graph

The graph below shows the Group’s TSR performance on a cumulative basis over the last five years alongside that of the FTSE 100 and the PSP comparator group. The FTSE 100 provides a broad comparator group against which the Group’s shareholders may measure their relative returns. The Company is a constituent member of the FTSE 100 Index and the London Stock Exchange is the principal exchange for the Company’s shares.

Miscellaneous long-term incentive-related matters and employee benefit trusts

The Group has two employee benefit trusts which are administered by an independent trustee and which hold ordinary shares to meet various obligations under the Group’s incentive plans. One trust (the ‘2004 trust’) is used in conjunction with the 2004 Deferred Bonus Plan. The other trust (the ‘1995 trust’) holds shares to satisfy the exercise of awards under the Group’s various share plans. The independent trustee does not have any rights to dividends and voting is at the discretion of the trustee.

The respective holdings of the trusts are as follows:

  31 December
2008*
31 December
2007
1995 trust 2,949,563 261,495
2004 trust 480,166 377,270

As each executive director is within the class of beneficiary of these trusts, they are deemed, for the purposes of the Companies Act 1985, to have an interest in the trusts’ shares.

Dilution limits
The Group’s existing share plans contain various limits which govern the amount of awards that may be granted and also the amount of shares which may be issued to satisfy any subsequent exercise of awards. These limits, which are monitored, are in line with those stated in the Association of British Insurers’ corporate guidelines. Under the terms of the Company’s listing on the Stock Exchange of Hong Kong, there is an additional limit which provides that awards under any plan cannot be granted (whether to be satisfied through the issue of new shares or market purchased shares) which would cause the total number of shares under option (all schemes) to exceed ten per cent of issued share capital at that time.

Vesting provisions on a change of control
The rules of the PSP do not provide for automatic vesting in the event of a change in control. However, the rules do provide that the number of shares subject to the award be pro-rated, based on the length of the shortened performance period. The committee may ‘at its discretion, and acting fairly and reasonably’, determine the extent to which awards vest having regard for the performance of the Group in the period since the date of grant.

Rights issue
On 24 November 2008, the Group announced details of a rights issue in participating countries. As a result of the rights issue, the board agreed to make adjustments to all unexercised share options and share awards granted under the Group’s Employee Share Schemes. The basis of the adjustments was the theoretical ex-rights price methodology, which was considered the most appropriate to take into account the impact of the rights issue. The adjustments under certain plans were approved by the relevant tax authorities, where necessary.

Under the Performance Share Plan, EPS at the end of a three-year performance period is measured against a base EPS figure. The board remuneration committee has also adjusted the base EPS figures to take account of the rights issue using a standard theoretical ex-rights price methodology. The EPS figures given below are the adjusted EPS figures.

Year of grant Original base EPS figure Revised base EPS figure
2006 153.7 134.5
2007 170.7 149.4
2008 197.6 173.0

International financial reporting standards
Details on how share awards have been expensed under IFRS 2 are set out in note 42 to the financial statements on pages 148 to 153.

General
The middle market price of an ordinary share at the close of business on 31 December 2008 was 875 pence. The share price range during 2008 was 664 pence to 1903 pence per share (based on closing middle market prices). Full details of the directors’ shares and options can be found in the Company’s register of directors’ interests.

Unless indicated otherwise, the foreign exchange rates used in this directors’ remuneration report are based on the average rates throughout the relevant financial year. The rates are £1:$1.8377 (2008) and £1:$2.0054 (2007).

Audited information

Remuneration of directors

  2008 2007
  Fixed Variable  
Directors Salary/
fees
$000
Benefits(a)
$000
Cash bonus(b)
$000
Deferred
shares(c)
$000
PSP(d)
$000
Total
$000
Salary/
fees
$000
Benefits(a)
$000
Cash
bonus(b)
$000
Deferred
bonus(c)
$000
Total
$000
PSP(d)
$000
Total
including
PSP
$000
Lord Davies(e) 1,195 41 1,236 1,304 21 1,325 1,325
Sub total 1,195 41 1,236 1,304 21 1,325 1,325
P A Sands(f) 1,516 65 1,051 1,575 1,799 6,006 1,504 63 2,005 1,003 4,575 2,422 6,997
S P Bertamini(g)(h) 701 462 563 2,012 1,270 5,008
G R Bullock 907 53 189 606 740 2,495 900 50 543 521 2,014 1,424 3,438
R H Meddings 1,096 43 913 913 1,112 4,077 1,023 46 1,036 682 2,787 1,647 4,434
M B DeNoma(h)(j) 1,274 2,884 4,158 1,218 1,233 1,103 551 4,105 1,243 5,348
Sub total 5,494 3,507 2,716 5,106 4,921 21,744 4,645 1,392 4,687 2,757 13,481 6,736 20,217
J W Peace(p) 276 276 125 125 125
J F T Dundas(f)(i)(k) 214 214 180 180 180
V F Gooding(f)(l) 180 180 159 159 159
R H P Markham(i)(k) 263 263 250 250 250
R Markland(i)(k)(l) 270 270 224 224 224
S B Mittal 133 133 54 54 54
J G H Paynter(k)(m) 44 44
P D Skinner(l) 168 168 153 153 153
O H J Stocken(f)(l) 180 180 156 156 156
Sir CK Chow(n) 44 44 282 282 282
Lord Turner(o) 154 154 188 188 188
Sub total 1,926 1,926 1,771 1,771 1,771
Total 8,615 3,548 2,716 5,106 4,921 24,906 7,720 1,413 4,687 2,757 16,577 6,736 23,313

Notes

General Notes

Retirement benefits of executive directors and the former Group chairman

Directors Accrued pension $000* Transfer value of accrued
pension $000** ***
Increase in accrued pension
(net of inflation and waiver)
during 2008 $000††
  At
1 January
2008
Increase
during the
year
At
31 December
2008
At
1 January
2008
Increase
during the
year net of
waiver
At
31 December
2008
2008
waiver
$000
Annual
pension
Transfer
value
P A Sands 251 74 241 4,558 395 3,635 67 1,029
G R Bullock 278 85 270 5,284 389 4,575 415 47 793
R H Meddings 264 72 249 4,658 653 3,911 65 1,039

Notes

General notes

Deferred compensation
In recognition of the substantial elements of deferred compensation and share awards forfeited when he left his previous employer, Steve Bertamini participates in a deferred compensation arrangement under which a total of $6,500,000 has been allocated into an interest bearing account, and all or part of the account may be invested in an alternative investment vehicle at his discretion. It will vest in three tranches unless he resigns or is terminated for cause: $3,000,000 after the second, $2,000,000 after the fourth and $1,500,000 after the sixth anniversary of joining. No further awards are planned.

  Grant date Allocation Vested Value as
at 31 December 2008
Vesting
period
S P Bertamini 19 May 2008 $6,500,000 $6,606,978 2010-2014

Directors’ interests in ordinary shares

Directors At 1 January
2008
Total interests*
Personal
interests
Family
interests
Rights issue
subscription**
At 31 December
2008
Total interests***
J W Peace 5,000 5,000 1,648 6,648
P A Sands 50,670 81,402 26,835 108,237
S P Bertamini 2,000 40,000 659 40,659
G R Bullock 88,837 136,427 44,044 180,471
J F T Dundas 2,100 2,100 692 2,792
V F Gooding 2,045 2,071 682 2,753
R H P Markham 2,425 2,491 821 3,312
R Markland 2,194 2,254 743 2,997
R H Meddings 152,312 156,453 51,577 208,030
S B Mittal 2,000 2,000 2,000
J G H Paynter 2,000 2,000 659 2,659
P D Skinner 3,289 4,078 1,250 5,328
O H J Stocken 10,000 10,773 3,448 14,221
Lord Davies 24,957 2,000 22,957 8,227 33,184
Lord Turner 5,092 5,092
M B DeNoma 139,715 108,888 108,888
Sir CK Chow 15,664 15,664 15,664

General notes

2004 Deferred Bonus Plan

Directors Shares held in trust at
1 January 2008*
Shares awarded
during the period(a)
Shares awarded in
respect of notional
dividend(b)
Shares vested
during the period(a)
Rights issue
adjustment**
Shares held in trust
at 31 December
2008***
P A Sands 24,845 29,998 190 25,035 4,272 34,270
S P Bertamini
G R Bullock 14,789 15,599 113 14,902 2,221 17,820
R H Meddings 18,693 20,398 143 18,836 2,905 23,303
Lord Davies 37,859 290 38,149
M B DeNoma 17,746 16,499 135 17,881 16,449

Notes

Subsequent pages contain information on share options and share awards.

Long-term incentives
Share options

Directors Scheme Grant date As at 1 January 2008* Adjusted exercise price (pence)** Exercised Lapsed Rights issue subscription*** At 31 December 2008**** Period of exercise
P A Sands ESOS 20 May 2002 205,384 754.35
(861.80)
 29,254 234,638 2009-2012
  ESOS 5 March 2003 195,510 604.41
(690.50)
27,847 223,357 2009-2013
  ESOS 4 March 2004 96,205 818.86
(935.50)
13,703 109,908 2009-2014
  ESOS 9 March 2005 97,837 849.94
(971.00)
13,935 111,772 2009-2015
  Sharesave 26 September 2007 1,351 1,088.03
(1,243.00)
192 1,543 2010-2011
G R Bullock ESOS 4 March 2004 64,136 818.86
(935.50)
64,136(b)
  ESOS 9 March 2005 50,205 849.94
(971.00)
50,205(b)
  Sharesave 8 September 2003 2,472 561.08
(641.00)
2,824(c) 352
  Sharesave 29 September 2008 826 1,017.12
(1,162.00)
117 943 2011-2012
R H Meddings ESOS 4 March 2004 65,473 818.86
(935.50)
9,325 74,798 2009-2014
  ESOS 9 March 2005 74,794 849.94
(971.00)
74,794(b)
  Sharesave 8 September 2006 878 931.34
(1,064.00)
125 1,003 2009-2010
Lord Davies ESOS 4 March 2004 3,206 818.86
(935.50)
456 3,662 2009-2010(e)(f)
  ESOS 9 March 2005 154,479 849.94
(971.00)
154,479(b)
M B DeNoma ESOS 9 March 2005 64,109 849.94
(971.00)
64,109(d)

For notes refer to the Share awards table below.

Share awards

Directors Scheme Grant date As at 1 January 2008* Exercised Lapsed Rights issue subscription** As at 31 December 2008*** Period of exercise
P A Sands RSS 20 May 2002 52,216 52,216(b)
  PSP 4 March 2004 48,102 48,102(b)
  PSP 9 June 2004 36,644 5,219 41,863 2009-2014(i)
  PSP 9 March 2005 97,837 13,935 111,772 2009-2015(i)
  PSP 14 March 2006 73,170 10,422 83,592 2009-2016(j)
  PSP 11 May 2006 35,958 5,121 41,079 2009-2016(j)
  PSP 12 March 2007 142,143 20,246 162,389 2010-2017
  PSP 11 March 2008(g) 161,737 23,037 184,774 2011-2018
S P Bertamini PSP 16 September 2008(h) 51,939 7,398 59,337 2011-2018
G R Bullock PSP 9 March 2005 58,573 58,573(d)
  PSP 14 March 2006 48,780 6,948 55,728 2009-2016(j)
  PSP 11 May 2006 17,979 2,560 20,539 2009-2016(j)
  PSP 12 March 2007 81,495 11,607 93,102 2010-2017
  PSP 11 March 2008(g) 95,117 13,548 108,665 2011-2018
R H Meddings PSP 9 March 2005 74,794 74,794(b)
  PSP 14 March 2006 59,930 8,536 68,466 2009-2016(j)
  PSP 11 May 2006 22,089 3,146 25,235 2009-2016(j)
  PSP 12 March 2007 87,870 12,515 100,385 2010-2017
  PSP 11 March 2008(g) 109,981 15,665 125,646 2011-2018
Lord Davies PSP 9 March 2005 154,479 154,479(d)
  PSP 14 March 2006 111,498 15,881 127,379 2009-2010(e)(k)
  PSP 11 May 2006 82,191 11,707 93,898 2009-2010(e)(k)
  PSP 12 March 2007 179,186 25,522 204,708 2010(e)(l)
M B DeNoma PSP 9 March 2005 74,794 74,794(d)
  PSP 14 March 2006 59,930 59,930 2009-2016(j)
  PSP 11 May 2006 22,089 22,089 2009-2016(j)
  PSP 12 March 2007 84,424 84,424 2010-2017
  PSP 11 March 2008(g) 83,025 83,025 2011-2018

Notes

Remuneration of five highest paid individuals

As a result of the Company’s listing on The Stock Exchange of Hong Kong Limited, it is necessary to disclose certain information relating to the five highest paid employees in the Group. Set out below are details for five individuals (none of whom were executive directors) whose emoluments* were the highest in the year ending 31 December 2008:

Components of remuneration $
Basic salaries, allowances and benefits in kind 2,659,535
Pension contributions 521,949
Bonuses paid or receivable* 43,040,294
Payments made on appointment
Compensation for loss of office  
– contractual
– other
Total** 46,221,778

The emoluments were in the following bands:

HK (approx. $ equivalent) Number of employees
HK $41,500,001 – HK $42,000,000 ($5,329,190 – $5,393,397) 1
HK $42,000,001 – HK $42,500,000 ($5,393,397 – $5,457,604) 1
HK $45,500,001 – HK $46,000,000 ($5,842,847 – $5,907,054) 1
HK $47,000,001 – HK $47,500,000 ($6,035,468 – $6,099,675) 1
HK $182,000,001 – HK $182,500,000 ($23,371,387 – $23,435,594) 1

By order of the board

Annemarie Durbin
Group company secretary
3 March 2009

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