Report of The Board in relation to remuneration policy and practice
7. Remuneration policy for Executive Directors and other senior colleagues
To deliver its objective of creating real increases in shareholder value relative to the finance sector, the Group needs to attract and retain the most capable and committed people and create the right employment conditions and reward opportunities for them.
The remuneration policy for Executive Directors and their most senior colleagues is aligned with this objective. Accordingly, the focus of remuneration policy is not simply on salary but is increasingly weighted towards incentive plans that are aligned with the delivery of both shorter term operating plans and longer term increases in shareholder value.
The practical delivery of this policy is achieved through a number of objectives which, for 2008, will therefore be as follows:
- salary policy will be set at around market median for the financial services sector though, in practice, salaries are managed broadly up to this position;
- the short term incentive plans will be based on the delivery of operating plans; and
-
the long term incentive plans will be focused on both the
creation of relative additional shareholder value and the
creation of real growth in EPS. Participants in these plans
will not receive any payments under them unless either:
- the Group’s relative TSR is above that of the finance sector as measured using the weighted average TSR of a comparator group of companies. This long term plan is highly geared so that average performance (or worse) generates no reward but outstanding performance generates a high level of reward; or
- the Group’s growth in EPS is above that of the growth in the RPI. This long term plan is also highly geared so that no real performance improvement (or worse) generates no reward but outstanding performance generates a high level of reward.
The Committee has appropriate procedures in place to ensure that these policies are followed in practice.
In the event of a change of control or other corporate reorganisation, the Committee’s approach to the extent to which incentives will vest will be one that is fair, transparent and, where appropriate, will accurately reflect actual performance up to, and time up to, the date of the event or such alternative date as is considered to be relevant and robust. Overall, in determining the approach, the Committee will also take account of any replacement incentives and any transitional provisions.
The Committee is making some changes to remuneration structures for 2008 and beyond, as set out in Sections 7.3 and 7.4. There are no further plans at present to make any changes to this remuneration policy for 2008 and beyond. However, the Committee will continue to keep all these issues under consideration in future.
In broad terms, for 2008 and beyond, for every £100 of target reward for Executive Directors, about £26 is fixed and £74 is performance contingent. Sustained exceptional performance can result in a further £105 of reward. Of the performance element of reward, between 15% and 25% is based solely on annual performance with the rest based on longer term performance.
For remuneration purposes, roles in HBOS fall into one of ten categories, Levels 1–9 and the Executive Directors.
This report covers colleagues who fall into Level 8 and above, about 65 colleagues in all, but with emphasis on Executive Directors. The report also covers the Chairman and the Non-executive Directors. The Appendix gives broad details of remuneration arrangements for colleagues in Levels 1-7.