REG - Phoenix Grp Hldgs - Phoenix Group Holdings - 2014 Annual Results <Origin Href="QuoteRef">PHNX.L</Origin> - Part 5

Phoenix groupAnnouncement

18/03/2015 07:01

- Part 5: For the preceding part double click  ID:nRSR7166Hd 

Board. This process was used for the appointment of Kory Sorenson in 2014. The search consultancy
used in 2014 for director appointments was The Zygos Partnership which has no other connection with the Company. 
 
Nomination Committee's principal activities during 2014 
 
-  Delivered a recommendation to the Board in connection with the appointment of Kory Sorenson who was appointed to the
Board in July 2014 following the receipt of regulatory approval 
 
-  Reviewed the balance of skills, diversity, experience, independence and knowledge on the Board, taking account of the
Board Evaluation Report 
 
-  Reviewed the structure, size and composition of the Board, taking account of the recommendation from the Board
Evaluation Report to reduce the size of the Board to around ten, which was achieved in 2014 
 
-  Reviewed the time spent by Directors in fulfilling their duties, noting that it was considered substantial in comparison
with the FTSE 250 average 
 
-  Reviewed the succession plan for Executive and Non-Executive Directors and recommended its approval to the Board 
 
-  Reviewed, prior to their appointments, the proposed new Non-Executive Director appointment to the subsidiary Phoenix
Life Board and the new Phoenix Life Chief Executive appointment. 
 
The Board's policy on diversity was outlined by the statement of former Chairman, Ron Sandler, released on the Phoenix
Group website in October 2011 in response to the Lord Davies review of 'Women on Boards', as follows: "As we already have a
large Board of 14 Directors (including one female Director) and are unlikely to want to increase its size, it is difficult
at this stage to commit to firm percentages regarding the number of women on our Board in 2013 and 2015. Nonetheless, we
have set targets of two female Directors by 2013 and a further female Director by 2015. Our overriding aim remains the
appointment of the most appropriate candidates to the Board." 
 
The appointment of Kory Sorenson in 2014 has raised the proportion of female Directors on the Board to 20% and, subject to
the overriding factor of appointing the right individuals to the Board, it remains the Board's intention to appoint a
further female Director in 2015. Before appointing any further Directors, the Nomination Committee intends to undertake a
skills audit to re-assess the ideal blend of skills and knowledge on the Board, aligned to the strategy, this being a
recommendation of the Board performance evaluation undertaken in November 2014. 
 
Remuneration committee 
 
ian cormack 
 
Chairman 
 
Other members 
 
isabel Hudson 
 
kory sorenson 
 
The composition of the Remuneration Committee accords with the requirements of the Code that the Remuneration Committee
should consist of at least three independent Non-Executive Directors. The Remuneration Committee met seven times during
2014. 
 
The Remuneration Committee is responsible for making recommendations to the Board on the Company's remuneration and
compensation plans, policies and practices and for determining, within agreed terms of reference, specific remuneration
packages for the Executive Directors. These include pension rights and executive incentive schemes to encourage superior
performance. Details of the remuneration structure and the Remuneration Committee's activities in 2014 are provided in the
Directors' remuneration report on pages 60 to 82. 
 
FIT Remuneration Consultants provided advice to the Remuneration Committee in 2014 and is independent of the Company. 
 
Risk committee 
 
DAVID WOODS 
 
Chairman 
 
Other members 
 
René Pierre Azria 
 
Alastair Barbour 
 
Tom Cross Brown 
 
The establishment of a Risk Committee is not a requirement of the Code. However, the Board believes such a committee is
important to ensure the robust oversight of the management of risk within the Group. The composition of the Risk Committee,
with a majority of independent Non-Executive Directors, is in accordance with the final recommendations of the report by
Sir David Walker titled 'A review of corporate governance in UK banks and other financial industry entities'. The Risk
Committee met seven times in 2014. Its meetings are attended by the Chairman of the Audit Committee (who is also a member
of the Risk Committee), the Chief Risk Officer, the Group Head of Internal Audit and, on several occasions during the year,
also by the Group Chairman and the Group Chief Executive Officer. 
 
The Risk Committee advises the Board on risk appetite and tolerance in setting the future strategy, taking account of the
Board's overall degree of risk aversion, the current financial situation of the Group and the Group's capacity to manage
and control risks within the agreed strategy. It advises the Board on all high level risk matters. Details of the Risk
Management Framework, for which the Risk Committee has oversight, are provided in the Risk Management section on pages 36
to 41. 
 
Risk Committee's principal activities during 2014 
 
-  Recommended to the Board the Group's risk appetite 
 
-  Recommended to the Board the Group's overall risk management strategy 
 
-  Approved the Group Risk function's 2014 plan 
 
-  Considered any breaches of the Group's risk appetite 
 
-  Monitored compliance with the Group's principal risk policies, satisfying itself that action plans to address
significant breaches of those policies were sufficient 
 
-  Reviewed the Group's risk profile, monitoring it against the risk categories of Market, Insurance, Credit, Financial
Soundness, Customer and Operational with particular attention to risk appetite, risk trends, risk concentrations,
provisions, experience against budget and key performance indicators for risk 
 
-  Provided oversight of, and challenge to, the design and execution of the Group's stress and scenario testing, including
any changes of assumptions 
 
-  Undertook horizon scanning to consider emerging risks that could impact the Group. 
 
Investment Committee (dissolved July 2014) 
 
The Investment Committee met twice in 2014 and was dissolved in July 2014 following the sale of Ignis, the oversight of
which formed a large part of the Investment Committee's activity. There remains an active Investment Committee of the
Phoenix Life Board. Group investment oversight is undertaken at the Group Board. 
 
COMMUNICATION WITH SHAREHOLDERS 
 
The Company places considerable importance on communication with shareholders and regularly engages with them on a wide
range of issues. 
 
The Company's Investor Relations department is dedicated to facilitating communication with investors and analysts and an
active investor relations programme is maintained. The Company continued its communication and engagement with the
investment community during 2014. At these meetings a wide range of relevant issues including strategy, performance,
management and governance are discussed. The Chairman, Senior Independent Director and Executive Directors are available to
meet investors and analysts when required. Should major shareholders wish to meet newly appointed Directors, or any of the
Directors generally, they are welcome to do so. 
 
In November 2014, the Chairman hosted the Company's first 'investor governance event', engaging with major shareholders and
proxy advisers on governance issues. This is part of our increased interaction with shareholders on governance matters
which involved several meetings between the Company's management and shareholders and proxy advisers in 2014. 
 
The Directors consider it important to understand the views of the market. Board members regularly receive copies of the
latest analyst reports on the Company and the sector, as well as market feedback to further develop their knowledge and
understanding of external views about the Company. The Chairman and the Non-Executive Directors provide feedback to the
Board on topics raised with them by major shareholders. In addition, investor days are conducted periodically. The Company
also undertakes perception studies, when appropriate, designed to determine the investment community's view of the core
business from both institutional fund managers and sell-side analysts. 
 
The Company's AGM provides another opportunity to communicate with its shareholders. At the 2014 meeting, the Company
complied with the Code provisions relating to voting and the separation of resolutions. Shareholders were invited to ask
questions during the meeting. It is intended that the same processes will be followed at the 2015 AGM. In line with the
Code, details of proxy voting by shareholders will be made available at the meeting and will be posted on the Company's
website following the meeting. 
 
The Company's Annual Report and Accounts, together with the Company's Interim Report, Interim Management Statements and
other public announcements and presentations, are designed to present a fair, balanced and understandable view of the
Group's activities and prospects. These are available on the Company's website at www.thephoenixgroup.com, along with a
wide range of relevant information for private and institutional investors, including the Company's financial calendar. 
 
FINANCIAL REPORTING AND GOING CONCERN 
 
The Directors have acknowledged their responsibilities in the Statement of Directors' Responsibilities in relation to the
IFRS financial statements for the year ended 31 December 2014. 
 
The Group's business activities, together with the factors likely to affect its future development, performance and
position are set out in the Strategic Report on pages 6 to 45. 
 
The financial position of the Group, its cash flows and liquidity position are described in the financial statements and
notes. 
 
The Board's going concern assessment is included within the Directors' report on page 85. 
 
REVIEW OF SYSTEM OF INTERNAL CONTROLS 
 
The Code requires Directors to review the effectiveness of the Company's risk management and internal control systems which
includes financial, operational and compliance controls. The Board has overall responsibility for the Group's risk
management and internal control systems and for reviewing their effectiveness. The Group's systems of internal controls are
designed to manage rather than eliminate the risk of failure to achieve business objectives and can provide only reasonable
and not absolute assurance against material misstatement or loss. The Board's review of the period covered by this report,
which was undertaken with the assistance of the Audit and Risk Committees, was completed on 17 March 2015. Where any
significant weaknesses were identified, corrective actions have been taken, or are being taken and monitored. 
 
The Board (and its subsidiary company boards) monitor internal controls on a continual basis, in particular through Audit
and Risk Committees. There is an ongoing process for identifying, evaluating and managing the significant risks faced by
the Group, which has been in place throughout the period covered by this report and up to the date of approval of the
Annual Report and Accounts for 2014, in accordance with the 'Internal Control: Guidance to Directors' published by the
Financial Reporting Council. 
 
Additional assurance is provided by the internal audit function, which operates and reports independently of management.
The internal audit function provides objective assurance on risk mitigation and control to the Audit Committee. 
 
DIRECTORS' Remuneration Report 
 
CHAIRMAN'S INTRODUCTION 
 
DEAR SHAREHOLDER 
 
On behalf of the Board, I am pleased to present our Directors' remuneration report for the year ended 31 December 2014.
This report covers remuneration for all Executive Directors and Non-Executive Directors of the Company. 
 
Company performance 
 
2014 was a year of significant change for Phoenix Group with a number of major corporate actions being completed. These are
set out in more detail in the Group Chief Executive Officer's report at the beginning of this Annual Report and Accounts.
Particularly relevant operational and financial highlights for the year included: 
 
-  Operating companies' cash generation of £567 million 
 
-  Incremental MCEV from management actions of £261 million, a significant proportion of our target of £300 million over
the period 2014 - 2016 
 
-  The issue of a £300 million senior unsecured bond, re-establishing a relationship with the debt capital markets 
 
-  The divestment of Ignis to Standard Life Investments (Holdings) Limited which facilitated a comprehensive refinancing of
the Group's bank debt into a single unsecured facility, lowering interest costs and gearing 
 
-  The accreditation, for the third successive year, that Phoenix has been formally recognised as one of 'Britain's Top
Employers'. This reflects our commitment to employee development and engagement, evidenced by the employee engagement
survey result of a 2% increase compared to 2013 to 78%, further strengthening the positive comparison against the Financial
Services benchmark 
 
-  The improvement in speed of customer pay-outs and servicing complaints which increased the overall satisfaction rate to
4.65 on a 5 scale rating over a rolling 12-month period. 
 
These factors represent a significant performance by the Company and its management team and, accordingly, the Remuneration
Committee ('Committee') concluded that the indicative out-turn of the Annual Incentive Plan ('AIP') and Long-Term Incentive
Plan ('LTIP') should be allowed to stand without the exercise of any discretionary adjustment (up or down). 
 
The only adjustment to the targets as set at the start of the year was to remove the impact of the sale of Ignis on the
financial targets. These adjustments, while technical in nature, were consistent with institutional shareholder guidelines
and maintained the integrity of the original targets to ensure they did not become easier to achieve, and that no benefit
was gained from the sale in determining the AIP and LTIP out-turn. No other changes to the targets have been made. 
 
Remuneration Policy for 2015 
 
Reflecting on feedback over the course of the year from a number of our major shareholders and taking account of
developments more generally in market practice during the year, the Committee concluded that: 
 
-  For 2015, neither Executive Director will receive a salary increase (this means that the Group Chief Executive Officer
has not had any increase in salary since joining approximately four years ago). 
 
-  The Shareholding Guidelines of all Executive Directors should be increased to 200% of base salary. 
 
-  In respect of 2015 and subsequent LTIP awards, a two-year holding period should be introduced so that after the
three-year performance period, LTIP awards would only be exercisable after a further two-year period. 
 
-  In future, it will disclose more detail regarding the Company's performance against the performance measures and targets
for the AIP. 
 
With these changes, the Committee believes the ongoing arrangements to be appropriate. 
 
One of our core challenges is how best to select the comparable universe against which to compare our Executive Directors
both for performance and for remuneration in a specialised industry. While we do look to FTSE 31-100 data when
benchmarking, it should be understood that this is used as a cap rather than a target or aspiration. We recognise that
Phoenix Group Holdings is not a FTSE 31-100 company but, given the focus on transactional activity to deliver benefits
through management actions, in some respects it has comparable complexity to this market. Additionally, the FTSE 31-100
includes more insurance groups than the FTSE 250 which are felt to be broadly comparable, so some rough comparisons might
be useful. 
 
Our practical solution is to use data from both the FTSE 31-100 and FTSE 250 universes, aiming for a target remuneration
point that is appropriately positioned between the two. While not perfect, and kept under constant review, this approach
has enabled us to attract, motivate and retain the quality of experienced staff we believe the Company needs without paying
more than we feel to be appropriate. 
 
By way of information, the practical application of the policy explained in the preceding paragraph has been to set the
total target package for each of the two Executive Directors at less than 90% of the FTSE 31-100 data set. While our Group
Finance Director's salary increased last year due to a strong performance, neither executive will receive an increase in
2015 as their salaries are each considered to be at an appropriate level. 
 
Shareholder approval 
 
At the Annual General Meeting ('AGM') on 23 April 2015, shareholders will be invited to approve the 2014 Directors'
remuneration report as set out in the following pages. For ease of reference, the main summary policy tables from the
Directors' Remuneration Policy approved at the 2014 AGM are also set out as an Appendix to the Directors' remuneration
report, although we are not seeking further approval from shareholders for our policy at the 2015 AGM. 
 
The Committee continues to seek to reflect developments in practice as deemed appropriate for Phoenix Group, and I hope
that we can continue to rely on the support of our shareholders for the resolution on the 2014 Directors' remuneration
report which will be proposed at the 2015 AGM. 
 
Yours sincerely 
 
Ian Cormack 
 
Remuneration Committee Chairman 
 
17 March 2015 
 
INTRODUCTION 
 
We have presented this Directors' remuneration report to reflect the UK's Large and Medium-sized Companies and Groups
(Accounts and Reports) (Amendment) Regulations 2013 (the 'UK regulations'). The Company complies with the reporting
obligations within the UK regulations as a matter of good practice, although it is not strictly required to do so as a
non-UK incorporated quoted company. The Directors' remuneration report also describes how the Board has complied with the
provisions set out in the UK Corporate Governance Code relating to remuneration matters. 
 
At our 2015 AGM we will be holding an advisory vote on the Directors' remuneration report. 
 
The auditors have reported on certain parts of the Directors' remuneration report and stated whether, in their opinion,
those parts of the Directors' remuneration report have been properly prepared in accordance with the Companies Act 2006.
Those sections of the Directors' remuneration report which have been subject to audit are clearly indicated. 
 
DIRECTORS' REMUNERATION POLICY 
 
The Directors' Remuneration Policy ('Remuneration Policy') was approved by the 
 
Company's shareholders at the Company's AGM on 30 April 2014 and has e