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Lloyds Banking Group alert service

RNS Number : 4900X
Lloyds Banking Group PLC
22 February 2017
 

 

 

 

 

 

 

 

22 February 2017

LLOYDS BANKING GROUP -
SUMMARY REMUNERATION ANNOUNCEMENT

 

The purpose of this announcement is to provide transparency in a single remuneration disclosure. It contains details of upcoming remuneration disclosures for the Group, including salary, bonus, Long-Term Incentive Plan awards and Fixed Share Awards for the Person Discharging Managerial Responsibilities (PDMR).

 

SUMMARY - 2016 GROUP BONUS OUTCOME

·   As a result of further strategic progress in 2016, the Group reported strong financial performance overall, with good underlying profits, significantly increased statutory profit and announced increased ordinary dividend payments and the payment of a special dividend. As a result of this performance, the total bonus outcome has increased year-on-year to £392.9 million (from £353.7 million in 2015).

·   The total bonus outcome for 2016 includes a 19 per cent collective performance adjustment applied to the Group's total bonus outcome (2015: 26 per cent), reflecting conduct-related provisions relevant to the year which impacted negatively on profitability and shareholder returns.

·   At 4.8 per cent of pre-bonus underlying profit, the bonus outcome remains significantly less than the Group's funding limit of 10 per cent of pre-bonus underlying profit (2015: 4.2 per cent).

·   Cash bonuses remain capped at £2,000, with additional amounts paid in shares and subject to deferral and performance adjustment.

 

Lord Blackwell, the Group's Chairman said:

"Our approach to reward aims to provide a clear link between remuneration and delivery of the Group's key strategic objectives, namely, becoming the best bank for customers whilst delivering long-term, superior and sustainable returns to shareholders. We believe in offering fair reward where colleagues are rewarded for performance aligned to the long-term sustainable success of the business, our commitment to rebuilding trust and changing the culture of the Group. 

 

The awards announced today recognise our further progress against our strategic objectives. The progressive return of the Group to private ownership, the resumption of dividends since 2014 and our strong capital and balance sheet position are testament to the hard work of all colleagues to transform and simplify our business."



 

2016 REMUNERATION OUTCOMES

The remuneration outcomes set out below reflect the Group's preference for a high proportion of awards to be delivered in shares, deferred where appropriate and with the potential for performance adjustment, and where applicable clawback, to be applied, aligning the interests of senior executives with those of shareholders and customers. 

 

Where awards have not yet been made, estimates have been provided. A statement will be provided to the market following the actual awards in the normal way.

 

Further information is available in the 2016 Annual Report and Accounts.  

 

2016 GROUP ANNUAL BONUS

The Group's total bonus outcome has been determined by reference to risk-adjusted performance and the views of key stakeholders.

 

The Group has delivered strong financial performance in 2016 following further strategic progress.  Underlying Profit was £7.9 billion and statutory profit has more than doubled to £4.2 billion.  The Group's balance sheet remains strong and capital generation of approximately 190bps has enabled the Group to fully cover the expected capital impact of the MBNA acquisition, increase the ordinary dividend and pay a special dividend.

 

In reaching the decision on the 2016 bonus outcome, the Remuneration Committee considered the conduct-related provisions, including an additional provision for PPI in 2016.  This led to a downward adjustment of 19 per cent. 

 

The total bonus outcome for the 2016 performance period is £392.9 million.

 

Annual bonus awards are deferred into ordinary shares of the Group ('Shares') under the Lloyds Banking Group Deferred Bonus Plan ('Deferred Bonus Award') and are subject to performance adjustment throughout the deferral period and, where applicable, clawback.

 

For Executive Directors, awards are determined in the same way as employees across the Group by reference to Group, business area and individual performance. Information regarding the performance of the Executive Directors in 2016 will be available in the Annual Report and Accounts.

 

Deferred Bonus Awards made to Executive Directors and members of the Group Executive Committee are subject to clawback for at least seven years from the date of grant. This period may be extended to ten years where there is an ongoing internal or regulatory investigation.

 

 

2016 Annual Bonus Awards

In line with requirements of the PRA Rulebook and FCA Remuneration Code (SYSC 19D), a maximum of 40 per cent of any variable remuneration awarded to Executive Directors and other members of the Group Executive Committee can be paid in 2017. The remaining 60 per cent must be deferred.

                                                                                                                      

For the 2016 Annual Bonus, £2,000 is paid in cash in March 2017, with the balance of the upfront 40 per cent delivered in Shares in June and September 2017.  The remaining 60 per cent is deferred into Shares with 40 per cent vesting in 2018 and 20 per cent in 2019.

 

Name

Number of 

Shares 

awarded(1)(2)

António Horta-Osório

956,416

George Culmer

449,581

Juan Colombás

452,212

Andrew Bester

370,286

Karin Cook

300,497

Simon Davies

291,676

Antonio Lorenzo

428,277

Vim Maru

354,731

Zak Mian

239,786

David Oldfield

467,659

Matt Young

168,706

 

1

Based on an assumed share price of 67.47 pence. The actual number of shares awarded will be determined by the average of the closing share price of the five trading days prior to the date of award.

2

The number of shares shown is the net amount, after deductions for estimated income tax and NIC.

 

Deferred Bonus Awards for 2013, 2014 and 2015 Performance

Deferred Bonus Awards are due to be released in 2017 which relate to performance in 2013, 2014 and 2015. In accordance with the Group's deferral policy, a proportion of the Shares are released over three years, being received in tranches in March and September.

 

The Group expects that, after the settlement of estimated income tax and national insurance contributions, the PDMRs listed in the table below will receive in 2017 the number of Shares (for no payment) as set out by their name, split between releases in March and September.

 

Name

2013 

2014 

2015 

António Horta-Osório

1,085,156

-

-

George Culmer

-

328,887

-

Juan Colombás

-

310,249

-

Andrew Bester

106,612

66,307

50,505

Karin Cook

34,718

29,837

35,654

Antonio Lorenzo

94,068

57,329

87,242

Vim Maru

47,854

57,024

52,977

Zak Mian

19,397

14,419

11,376

David Oldfield

39,712

36,727

46,238

Matt Young

86,938

47,843

65,094

 



 

2017 Executive Director Base Salaries

The Group has applied a 2 per cent overall salary budget increase for the general population differentiated by performance and market position. Salary increases of 2 per cent are proposed for the Chief Financial Officer and the Chief Risk Officer.

 

As announced last year, for the first time since 2011 a salary increase was applied in 2016 for the Group Chief Executive to begin to adjust his base salary to the previously disclosed Reference Salary of £1.22 million which was set relative to the market when he joined in 2011. After discussing the proposed increase with shareholders, the Remuneration Committee decided to stage the adjustment over two years, with an initial increase to £1.125 million effective from January 2016 and the second stage increase to £1.22 million due to be implemented with effect from January 2017. The form of the increase will follow that for 2016, with 2 per cent delivered in cash (in line with other colleagues) and the remainder in shares.

 

Salaries will therefore be as follows, with the effective dates shown below:

 

António Horta-Osório

£1,220,000

(1 January 2017)

George Culmer

£764,070

(1 April 2017)

Juan Colombás

£753,458

(1 January 2017)

 

Fixed Share Awards in 2017

After the settlement of income tax liabilities and national insurance contributions, Shares are due to be acquired on behalf of the PDMRs as listed in the table below in respect of each quarter.

 

The Shares will be held on behalf of the PDMRs and will be released over five years, with 20 per cent being released each year on the anniversary of the award.

 

Name

Quarterly 

share 

awarded(1)

António Horta-Osório

176,745

George Culmer

98,977

Juan Colombás

97,602

Andrew Bester

96,227

Karin Cook

79,731

Simon Davies

96,227

Antonio Lorenzo

98,152

Vim Maru

79,731

Zak Mian

79,731

David Oldfield

89,354

Matt Young

68,734

 

1

Based on a share price of 67.47 pence. The actual number of shares awarded will be determined by the share price on the date of award.

 



 

Release of Long-Term Incentive Awards made in March 2014

The Group has delivered a good financial performance over the performance period of the 2014 Long-Term Incentive Plan (LTIP) awards, continuing to transform the business for the benefit of our shareholders. The scale of the challenge was set out in stretching targets of the 2014 LTIP as approved by the Remuneration Committee and our shareholders.

 

At the end of the performance period, it has been assessed that these awards will vest at 55 per cent of maximum, as detailed in the table below:

 


Threshold

Maximum

Actual

performance

Weighted

payout

Economic profit
(30% of award)

£2,154m

£3,231m

£3,377m

30%

Absolute total shareholder return (30% of award)

8% per annum

16% per annum

(5%)

0%

Cost:income Ratio

(10% of award)1

48.9%

46.5%

50.5%

0%

Customer satisfaction
(10% of award)2

0.54

0.50

0.46

10%

Net promotor score
(10% of award)

3rd place

1st place

1st place

10%

SME lending

(5% of award)

14%

18%

13.4%

0%

Share of first-time buyer market (5% of award)

20%

25%

25.5%

5%

 

1

Adjusted total costs.

2

FCA reportable complaints per 1,000 for the period up to and including H1 2016 and formally closed FCA complaints per 1,000 accounts for the period from H2 2016.  Both exclude PPI complaints, any complaints received via Claims Management Companies (CMC) and any complaints relating to TSB activity.  With the introduction of the FCA guidance contained in PS15/19 applicable from 1 July 2016, the complaint classification and reporting for the original metric ceased on 30 June 2016.  Accordingly, the Remuneration Committee has rebased the original 2014 metrics in line with the new FCA reporting regime.  The Remuneration Committee considers the rebased targets equally stretching.

 

The Group expects that, after the settlement of income tax and national insurance contributions, the PDMRs listed in the table below will receive in March the number of Shares (including dividend equivalents) as set out by their name, following the partial vesting of long-term awards made in March 2014.  Executive Directors and  Material Risk Takers at the time of the award  in 2014 are required to retain any shares vesting for a further two years.

 

Name

Shares 

António Horta-Osório

1,439,800

George Culmer

778,907

Juan Colombás

693,444

Andrew Bester

757,272

Karin Cook

104,246

Antonio Lorenzo

709,671

Vim Maru

208,986

Zak Mian

118,015

David Oldfield

186,858

Matt Young

540,908

 

Group Ownership Share Plan - 2017 awards

As announced in the 2016 Directors' Remuneration Report, the Group's long-term variable remuneration arrangements are to be known as the Group Ownership Share plan. Awards for the 2016 performance period are expected to be made in March under the rules of the 2016 Long-Term Incentive Plan. The 2017 awards will be subject to a three-year performance period with vesting between the third and seventh anniversary of award, on a pro-rata basis. 

 

Name

Maximum 

number of 

shares 

awarded(1)(2)


Expected 

value(4)

António Horta-Osório

5,424,633 (3)


£1,830,000

George Culmer

3,053,196


£1,029,996

Juan Colombás

3,010,791


£1,015,691

Andrew Bester

2,968,385


£1,001,385

Karin Cook

2,411,293


£813,450

Simon Davies

2,853,119


£962,500

Antonio Lorenzo

3,238,239


£1,092,420

Vim Maru

2,411,293


£813,450

Zak Mian

1,590,336


£536,500

David Oldfield

2,947,976


£994,500

Matt Young

1,927,523


£650,250

 

1

Based on a share price of 67.47 pence. The actual number of shares awarded will be determined by the average of the closing share price of the five trading days prior to the date of award.

2

Vesting determined in 2020 subject to the satisfaction of stretching performance targets over the performance period ending 31 December 2019.

3

Based on Mr Horta-Osório's 'Reference Salary' of £1,220,000 as at 31 December 2016.

4

The values for the LTIP awards are shown at an expected value of 50 per cent of maximum value and before deduction of income tax and NIC. The actual vesting value will depend on the achievement of performance conditions and the share price at the date of vesting. These awards are subject to clawback for at least seven years from the date of award.

 



 

 

Shareholding Requirement

Members of the Executive Committee were required to build up a holding in Lloyds Banking Group plc shares of value equal to 100 per cent of base salary (200 per cent for the Group Chief Executive, 150 per cent for the other Executive Directors) within three years from the later of 1 January 2012 or their date of appointment to the Group Executive Committee/joining the Board. With the introduction of the Fixed Share Award in 2014, the gross annual value of these awards was added to salary to determine the personal shareholding requirement. For the purposes of assessing this additional shareholding requirement, Executive Directors and members of the Executive Committee had up to three years from 1 January 2014 to build up the additional shareholding created by the addition of the Fixed Share Award.

 

The following table sets out the total shareholding for each of the PDMRs as at 31 December 2016 as well as indicative shareholding as at 31 March 2013.

 

Name

Shareholding at 

 31 December 

 2016(1)

Indicative 

 Shareholding 

 at 31 March 

 2017(2)

António Horta-Osório

 17,891,894

 20,593,595

George Culmer

 10,545,483

 11,587,810

Juan Colombás

 6,361,547

 7,307,717

Andrew Bester

 2,881,725

 3,846,936

Karin Cook

 1,308,833

 1,542,913

Simon Davies

 432,890

 529,117

Antonio Lorenzo

 7,187,759

 8,114,902

Vim Maru

 3,122,442

 3,490,088

Zak Mian

 812,172

 1,042,213

David Oldfield

 1,929,449

 2,266,998

Matt Young

 2,347,610

 3,057,190

 

1

Includes shares owned outright reduced by forfeitable Matching Shares under the Share Incentive Plan, plus the estimated net number of vested unexercised options.

2

Includes vested 2014 LTIP, Deferred Bonus releases and Fixed Share Awards.

 

Shown below are the disclosures of the eight highest paid senior executives, Pillar 3 and Executive Director total remuneration. These are prepared on different bases as required by relevant regulations or to provide consistency with prior disclosures. Further information is shown in the footnotes to each disclosure.

 

Emoluments of the eight highest paid Senior Executives(1)

The following table sets out the emoluments of the eight highest paid senior executives (excluding Executive Directors) in respect of the 2016 performance year.



 

 

 


Executive


8

7

6

5

4

3

2

1


£000

£000

£000

£000

£000

£000

£000

£000

Fixed









Cash Based

305

589

300

740

799

315

330

420

Shares Based

200

406

250

490

500

500

740

650

Total Fixed

505

995

550

1,230

1,299

815

1,070

1,070










Variable









Upfront Cash

2

2

2

2

2

2

2

2

Deferred Cash

0

0

0

0

0

0

0

0

Upfront Shares

273

152

416

187

217

462

658

238

Deferred Shares

213

231

432

284

328

196

165

360

Long term incentive plan2

1,042

744

884

833

780

2,020

2,571

2,886










Total variable pay

1,530

1,129

1,734

1,306

1,327

2,680

3,396

3,486

Pension cost3

46

147

45

181

182

63

66

84

Total Remuneration

2,081

2,271

2,329

2,717

2,808

3,558

4,532

4,640

 

(1) Includes members of the Group Executive Committee and Senior Executive level colleagues.

(2) Values shown reflect awards for which the performance period ended on 31 December 2016, including the 2014 LTIP and 2014 Commercial Banking Transformation Plan.  Dividend equivalents are included where applicable. 

(3) Pension costs based on a percentage of salary according to level.

 

Analysis of High Earners by Band

The following table sets out the numbers of 2016 Material Risk Takers (MRTs) in each remuneration bracket, as required by Pillar 3 disclosures: 

Number of MRTs paid €1 million(1)(2) or more for 2016

December 2016 MRTs(3)

€1m - €1.5m

31

€1.5m - €2m

8

€2m - €2.5m

4

€2.5m - €3m

3

€3m - €3.5m

3

€3.5m - €4m

3

€4m - €4.5m

-

€4.5m - €5m

-

€5m - €5.5m

-

€5.5m - €6m

-

€6m - €6.5m

-

€6.5m - €7m

1

€7m - €7.5m

-

Total

53

(1) Converted to Euros using the exchange rate €1 = £0.84815 (average exchange rate 1 December 2016 - 31 December 2016, based on the European Commi
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