1.1 Composition of the Remuneration, Senior Appointments and Nominations Committee
The members and remit of the Committee are given on page 46 in the Directors' Report on Corporate Governance.
The Committee is chaired by J L Wood, Non-Executive Vice Chairman. Other than when it meets as a nomination committee, the Committee consists wholly of Non-Executive Directors.
The responsibility for determining the remuneration policy for Executive Directors rests with the Board and the responsibility for determining their actual remuneration rests with the Committee. The basis of the remuneration of the Non-Executive Directors is determined by the Board as a whole.
The Chairman, the Chief Executive and the Personnel and Communications Director attend meetings at the Committee's request. They are not present when their own remuneration or contractual terms are being discussed.
The Committee has access to independent and external advice on remuneration matters. Each year the Committee commissions an independent survey which reviews the market position for both salaries and total remuneration for Executive Directors and other Executives. The Committee also commissions independent surveys which review the Group's remuneration policy for such Executives.
1.2 Compliance
Full details of the Group's approach to corporate governance, including compliance with the Combined Code appended to the Listing Rules of the London Stock Exchange, are included in the Directors' Report on Corporate Governance on pages 45 to 47.
In designing performance-related bonus schemes for Executive Directors and other Executives, the Committee has followed the provisions contained in Schedule A to the Combined Code which is appended to the Listing Rules, as previously included in the Best Practice provisions appended to the Listing Rules. In preparing this Report, the Board has followed the provisions in Schedule B to the Combined Code which is appended to the Listing Rules.
1.3 Service Contracts
All Executive Directors have service contracts which provide for one year's notice in the event of termination. Neither the Chairman nor any Non-Executive Director has a service contract, save as disclosed in 3.5.1.
2.1 Policy
The remuneration policy for Executive Directors and other Executives (159 staff in all) is designed to deliver the following objectives:
| - | To establish a structure of reward which reinforces the importance of sustained improvement in personal and Group performance, both in absolute terms and in relation to peer groups, during a period of intense competition and change. |
| - | To establish a market position at which salary policy is set at, or around, a market median but bonus and performance related payments provide scope for both upper and lower quartile rewards depending on the level of performance achieved. |
| - | To enable Executives to become equity stakeholders in the Group. |
| - | To attract, motivate and retain personnel of the highest calibre. |
2.2 Basic Salary
Basic salaries and salary benchmarks for Executive Directors and other selected Executives, and salary benchmarks for other Executives, are reviewed annually by the Committee, taking into account the performance of the individual and information from independent sources on salary rates for comparable jobs in the financial services industry, and in other selected major public companies. As described in the policy objectives, the Group's policy is to set basic salary at, or around, a market median. Scope for differential rewards is provided through bonus schemes and performance related payments but this depends upon what levels of business and personal performance are achieved over a sustained period.
Pension is based on basic salary only.
2.3 Performance-Related Bonus
The purpose of the bonus schemes is to provide a direct link between each individual's remuneration and the performance of the Group, both annually and over the longer term.
The Group introduced new bonus arrangements for Executive Directors and other Executives with effect from 1 January 1998 and these replaced all previous bonus schemes for these individuals.
These arrangements (the Long Term Executive Bonus Scheme and the Short Term Executive Bonus Scheme) were approved by shareholders at the Annual General Meeting on 21 April 1998. Other than in respect of Group Treasury and certain Clerical Medical Executives (for whom separate bonus arrangements apply), all Executive Directors and other Executives participate in both schemes. Their levels of participation differ in order that overall remuneration is positioned to align with the Group's policy objectives outlined earlier.
Payment of bonuses is subject to the approval of the Committee and no Executive Director or other Executive has a contractual right to a bonus, except in respect of a small number of Executives in specialist areas in respect of their initial periods of employment.
Bonus payments are not pensionable.