Standard Life Aberdeen plc
Full Year Results 2019
Part 3 of 8
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2. Board of Directors
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Our business is overseen by our Board of Directors. Biographical details (and shareholdings) of the Directors as at
12 March 2019 are listed below.
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Key to Board committees
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| Sir Douglas Flint CBE - Chairman | � | � | Keith Skeoch - | � | � | Stephanie Bruce - | |||||||||||||||||||||||||||
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| Sir Douglas' wide-ranging international and financial experience is an important asset to the business as it delivers against its strategy. His strong track record of board leadership as a chairman helps to facilitate open and constructive boardroom discussion. Previously, Sir Douglas served as chairman of HSBC Holdings plc from 2010 to 2017. For 15 years prior to this he was HSBC's group finance director, joining from KPMG where he was a partner. Between 2005 and 2011 he also served as a non-executive director of BP plc. In other current roles, Sir Douglas is chairman of IP Group plc, and serves as HM Treasury's special envoy to China's Belt and Road Initiative. Additionally, he is chairman of the Just Finance Foundation, non-executive director of the Centre for Policy Studies, member of the global advisory council of Motive Partners and board member of the Institute of International Finance. He also chairs the Corporate Board of Cancer Research UK and is a trustee of the Royal Marsden Cancer Charity. He holds a BAcc (Hons) from the University of Glasgow, a PMD from Harvard Business School and is a Member of the Institute of Chartered Accountants of Scotland. | � | � | Keith joined the business in 1999 as Chief Investment Officer of Standard Life Investments, before becoming Chief Executive of that division in 2004. In 2015 he was appointed Chief Executive of Standard Life plc, and led the merger with Aberdeen Asset Management in 2017. He was named as sole Chief Executive in 2019. He has accountability for the day-to-day running of the business, and leads its integration and transformation activities. Keith started his career in 1979 at the Government Economic Service. He moved into financial services in 1980 and became chief economist with James Capel (HSBC Securities from 1996), where he was latterly managing director of international equities. Keith holds a BA from the University of Sussex and an MA from the University of Warwick. In recognition of his wider contribution to the financial services industry, particularly his work in response to the global financial crisis, he has been awarded honorary doctorates from the University of Sussex and Teesside University. For services to the economics profession, he has been named a Fellow of the Society of Business Economists. He is deputy chair of the Investment Association, and assumes the role of chair on 1 May 2020. He is also a board member of the Financial Reporting Council and a trustee of the Edinburgh International Festival. | � | � | Stephanie was appointed Chief Financial Officer on joining the Board in June 2019. She is a highly experienced financial services practitioner with significant sector knowledge, both technical and commercial. She brings experience of working with boards and management teams of financial institutions in respect of financial and commercial management, reporting, risk and control frameworks and regulatory requirements. Before joining Standard Life Aberdeen, Stephanie was a partner at PwC, a member of the Assurance Executive and led the financial services assurance practice. She joined Price Waterhouse in 1990, qualified as a chartered accountant in 1993 and joined the PwC partnership in 2002. During her career, she has specialised in the financial services sector, working with organisations across asset management, insurance and banking, with national and international operations. Stephanie is a council member of the Institute of Chartered Accountants of Scotland and the chair of the audit committee for the Institute. Stephanie is also an associate of the Association of Corporate Treasurers. She holds a Bachelor of Laws (LLB) from the University of Edinburgh. | |||||||||||||||||||||||||||
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| Martin Gilbert - | � | � | Jonathan Asquith - | � | � | John Devine - | |||||||||||||||||||||||||||||||||||||||||||||
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| Martin brings significant entrepreneurial and executive leadership experience, with a particular focus on global client engagement and business development. He is co-founder and former chief executive of Aberdeen Asset Management and was a director from 1983. In March 2019 he was appointed Vice Chairman, Standard Life Aberdeen and Chairman, Aberdeen Standard Investments. Martin is a non-executive director and senior independent director of Glencore plc, and non-executive chairman of the online bank Revolut. He is a member of the Monetary Authority of Singapore's international advisory panel and the BritishAmerican Business international advisory board. From January 2016 to October 2018 he was deputy chairman of Sky PLC having joined the board in 2011. A chartered accountant, Martin holds an MA in Accounting and a Bachelor of Laws (LL.B) from the University of Aberdeen. He is Adjunct Professor of Finance at Imperial College Business School and, in 2014 he was awarded a Doctorate of Letters from Heriot-Watt University. Martin also has two honorary degrees for services to business and entrepreneurship from University of Aberdeen and Robert Gordon University. In October 2019 Martin advised that he will not seek re-election at the Standard Life Aberdeen 2020 Annual General Meeting, and will retire from the Company on 30 September 2020. | � | � | Jonathan has considerable experience as a non-executive director within the investment management and wealth industry. This brings important insight to his roles as Senior Independent Director and Chair of our Remuneration Committee. Jonathan is deputy chairman and senior independent director of 3i Group plc and non-executive director of CiCap Limited (Coller Capital), Northill Capital Services Limited and Northill UK Management Holdings Limited. Previously, he has been chairman of Citigroup Global Markets Limited, Citibank International Limited, Dexion Capital PLC and AXA Investment Managers. He has also been a director of Ashmore Group plc and AXA UK PLC. In his executive career Jonathan worked at Morgan Grenfell for 18 years, rising to become group finance director of Morgan Grenfell Group, before going on to take the roles of chief financial officer and chief operating officer at Deutsche Morgan Grenfell. From 2002 to 2008 he was a director of Schroders, during which time he was chief financial officer and later executive vice chairman. He holds an MA from the University of Cambridge. | � | � | John's previous roles in asset management, his experience in the US and Asia and his background in operations and technology, are all areas of importance to our strategy. John's experience is important to the Board's discussions of financial reporting and risk management, and in his role as Chairman of our Audit Committee. John was appointed a Director of Standard Life plc in July 2016. From April 2015 until August 2016, he was non-executive Chairman of Standard Life Investments (Holdings) Limited. He is non-executive chairman of Credit Suisse International, Credit Suisse Securities (Europe) Limited and a non-executive director of Citco Custody Limited and Citco Custody (UK) Limited. From 2008 to 2010, John was chief operating officer of Threadneedle Asset Management Limited. Prior to this, he held a number of senior executive positions at Merrill Lynch in London, New York, Tokyo and Hong Kong. He holds a BA (Hons) from Preston Polytechnic and is a Fellow of the Chartered Institute of Public Finance and Accounting. | |||||||||||||||||||||||||||||||||||||||||||||
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| Melanie Gee - | � | � | Martin Pike - | � | � | Cathleen Raffaeli - | |||||||||||||||||||||||||||||||||||||||||||||
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| Melanie brings to the Board significant executive experience in creating successful businesses and leading teams of bankers in various roles. This experience was derived from her career in financial services, where she has specialised in advisory and corporate finance work. She has also had a particular focus on the evolution of cultures and working practices, and is able to draw on these insights as our designated non-executive Director for employee engagement. Melanie was appointed as a Director of Standard Life plc in November 2015. She is a non-executive director and chair of the healthcare company Syncona Limited, a FTSE 250 company. She is also chair of Ridgeway Partners Holdings Ltd and of its wholly-owned subsidiary Ridgeway Partners Limited. Melanie was appointed a managing director of Lazard and Co. Limited in 2008 and became a senior adviser in 2012. Previously Melanie held various roles with UBS, having been appointed a managing director in 1999 and served as a senior relationship director from 2006 to 2008. She was a non-executive director of The Weir Group PLC between 2011 and 2017 and the Drax Group plc between 2013 and 2016. She holds an MA in Mathematics from the University of Oxford. | � | � | Martin provides broad commercial insight into strategy and risk to the Board, and to his role as Chair of our Risk and Capital Committee. He has particular knowledge of enterprise-wide risk management. His actuarial and strategic consultancy background brings a strong understanding of what drives success in the markets in which we operate. Martin was appointed as a Director of Standard Life plc in September 2013. He is also chairman and non-executive director of Faraday Underwriting Limited - where he is a member of the audit and risk committee and chair of the nomination and remuneration committee. Between 2015 and 2018 he served as a non-executive director of esure Group plc where he was chair of the remuneration committee. He joined R Watson and Sons, consulting actuaries, in 1983, and progressed his career with the firm to partner level. His senior roles included head of European insurance and financial services practice, Watson Wyatt from 2006 to 2009, vice-president and global practice director of insurance and financial services, Watson Wyatt during 2009, and managing director of risk consulting & software for EMEA, Towers Watson from 2010 to 2013. Martin holds an MA in Mathematics from the University of Oxford. He is a Fellow of the Institute and Faculty of Actuaries and a Fellow of the Institute of Directors. | � | � | Cathi has strong experience in the financial technology sector and background in the platforms sector, as well as international board experience. She brings these insights to her role as non-executive chairman of the boards of Elevate Portfolio Services Limited and Standard Life Savings Limited. This role provides a direct link between the Board and the platform businesses that help us connect with customers and their advisers. Cathi is a non-executive director of Federal Home Loan Bank of New York, where she is vice chair of the compensation and human resources committee and of the technology committee. She is also a member of the executive committee. She is managing partner of Hamilton White Group, LLC which offers advisory services, including business development, to companies in financial services growth markets. In addition, she is managing partner of Soho Venture Partners Inc, which offers third party business advisory services. Previously, Cathi was lead director of E*Trade Financial Corporation, non-executive director of Kapitall Holdings, LLC and president and chief executive officer of ProAct Technologies Corporation. She holds an MBA from New York University and a BS from the University of Baltimore. | |||||||||||||||||||||||||||||||||||||||||||||
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| Cecilia Reyes - | � | � | Jutta af Rosenborg - | � | � | ||||||||||||||||||||||||||||||
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| Cecilia brings great insight from operating in leadership positions in international financial markets. Her direct experience of risk management and her knowledge of the investment process are of great benefit to the work of the Board. Before joining our Board, Cecilia was with Zurich Insurance Group Ltd (Zurich) for 17 years where she was most recently its group chief risk officer, leading the global function comprising group risk management and responsible for its enterprise risk management framework. Prior to that, she was their group chief investment officer, responsible for the execution of the investment management value chain - including analysis, development and global implementation of the investment strategy for the group's investments. In both positions, she was a member of Zurich's executive committee. Cecilia started her career at Credit Suisse, following which she held senior positions at ING Barings, latterly as head of risk analysis, asset management. She is also the founder of Pioneer Management Services GmbH which seeks to develop a non-profit social enterprise. She holds a BSc from Ateneo de Manila University, an MBA from the University of Hawaii and a PhD (Finance) from the London Business School, University of London. | � | � | Jutta has extensive knowledge of international management and strategy, from sector operational roles in a number of listed companies. Her previous experience, which includes group finance and auditing, risk management and mergers and acquisitions, allows her to offer valuable perspectives to strategic discussions. Jutta was appointed a non-executive director of Aberdeen Asset Management PLC in January 2013. She is a non-executive director of JPMorgan European Investment Trust plc and chair of its audit committee. In addition, she is a non-executive director of NKT A/S and Nilfisk Holding A/S, and chairs the audit and remuneration committees of both organisations. She is also a member of the supervisory board of BBGI SICAV S.A, where she chairs the audit committee. Previously, she was the executive vice president, chief financial officer, of ALK-Abell� A/S and was chairman of Det Danske Klasselotteri A/S. A qualified accountant, she holds a Master's degree in Business Economics and Auditing from Copenhagen Business School. | � | � | ||||||||||||||||||||||||||||||
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*� Shares include qualifying awards as described on page 88 of the Directors' remuneration report 2019.
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Sir Douglas Flint
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3. Corporate governance statement
Letter from the Chairman
I am pleased to introduce the 2019 Corporate governance statement which reflects the work of both myself and the Board during my first year as Chairman of the Group and of the Nomination and Governance Committee.
We have taken time to identify how our governance framework needed to be amended to allow us to implement the revised Code. This gave us the opportunity to revisit our governance processes on stakeholder engagement, employee engagement, succession planning, diversity and inclusion, and some elements of remuneration. Where we have proposed revisions as a result, they have been reflected in the Board Charter. Revisions approved include a specific reference to the Board's commitment to hearing the employee voice in the Boardroom.
Recognising our obligations under the Companies (Miscellaneous Reporting) Regulations 2018, the Directors have explained how we have complied with our duty to have regard to the matters in section 172 (1) (a)-(f) of the Companies Act. These matters include our responsibilities with regard to the interests of employees, suppliers, customers, the community and the environment, all within the context of promoting the success of the Company. During the year the Nomination and Governance Committee mapped out our key stakeholder groups and how engagement with them is incorporated into our discussions. The Strategic report includes our section 172 compliance statement, and on page 59, the Corporate governance statement shows how we consider these responsibilities in our discussions and decision-making.
As we announced in the Annual report and accounts 2018, Melanie Gee was appointed as the non-executive Director (NED) who would take forward employee engagement and you can read about progress during the year on page 58. Melanie's work has built upon the strong processes we had in place and her direct communication with our employees has been very well received. We report later in this statement on the various engagement mechanisms including employee surveys, Meet the NEDs sessions and NED dinners.
Acknowledging that the Board continues to refresh and develop following on from the transformational transactions in 2017 and 2018, we agreed that it would be beneficial to have a further externally facilitated review during 2019 to build on the findings and recommendations from the 2018 review. Independent Board Evaluation once again facilitated this review and you can read about the process and its outcomes on pages 61.
Continuing to build on the integration and transformation work across the business, the Board has discussed the Group's culture and considered the executive leadership team's (ELT) initiatives to embed it throughout the organisation. One of my operating principles is to operate in a culture of openness and debate, and show the Board leading in promoting the desired cultural outcomes throughout the organisation. You can read more about the activities to oversee culture in this statement and in the Strategic report.
Continuing our focus on building a Board with the best skills and diversity mix to lead the Group, we have welcomed new Directors and said farewell to long-serving Directors over the year. I am particularly pleased to have welcomed Jonathan Asquith, Cecilia Reyes and Stephanie Bruce to the Board and to thank Bill Rattray, Richard Mully and Simon Troughton for their many years of service. Rod Paris stood down from the Board on 31 December 2019 but remains our Chief Investment Officer and we also announced that Martin Gilbert will retire from the Board at the conclusion of the 2020 Annual General Meeting. In addition, I look forward to welcoming Brian McBride who will join the Board on 1 May 2020. You can read more about the Board changes and our wider work on diversity and inclusion on pages 76 and 77.
The Board continues to emphasise the importance of strong governance and I look forward to updating you on this in future reports.
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Sir Douglas Flint
Chairman and Chairman of the Nomination and Governance Committee
The statement below, together with the rest of the Corporate governance statement, explains the main aspects of the Company's corporate governance structure and gives a greater understanding of how the Company has applied the principles in the Code. For the year ended 31 December 2019, the Board considers that it has complied in full with the provisions of the Code, available at www.frc.org.uk. The Corporate governance statement also explains the relevant compliance with the Disclosure Guidance and Transparency Sourcebook. The table on page 110 sets out where to find each of the disclosures required in the Directors' report in respect of Listing Rule 9.8.4 R.
Together with the Directors' remuneration report, this statement explains how our governance framework supports the way we apply the Code's principles and provisions of good governance.
Governance framework
The Group's governance framework is approved by the Board and documented in the Board Charter, which is reviewed annually and updated as appropriate.
You can read the Board Charter on our website at www.standardlifeaberdeen.com/annualreport
Governance framework
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| �� The development and implementation of strategy and the business plan �� Capital and management structures including capital allocation and how it supports the Group's long-term sustainable growth �� Oversight of culture, our standards and ethical behaviours �� Dividend policy �� Financial reporting which during 2019 included the impact of the arbitration with Lloyds Banking Group �� How risks are managed, including the Enterprise Risk Management (ERM) framework, risk strategy, risk appetite limits and internal controls �� Remuneration policy | �� Succession planning �� Significant corporate and other transactions which during 2019 included public offerings of shares in our Indian life assurance and asset management associate businesses, preparation for the sale of our Hong Kong insurance subsidiary and commencing joint ventures with Virgin Money and Investcorp �� The sustainability of the Group's business and our own sustainability responsibilities to stakeholders, including wider society and the environment �� Significant external communications �� The work of the Board Committees �� Appointments to the Board and to Board Committees �� Matters escalated from subsidiary boards to the Board for approval | |||||||||||||
| The Board regularly reviews reports from the Chief Executive and from the Chief Financial Officer on progress against approved strategies and the business plan, as well as updates on stock market and global economic conditions. There are also regular presentations from the Chief Investment Officer as well as key business functional leaders and regional heads. | ||||||||||||||
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| Chairman �� Leads the Board and ensures that its principles and processes are maintained �� Promotes high standards of corporate governance �� Together with the CE and the Company Secretary, sets agendas for meetings of the Board �� Ensures Board members receive accurate, timely and clear information on the Group and its activities �� Encourages open debate and constructive discussion and decision-making �� Leads the performance assessments and identification of training needs for the Board and individual Directors �� Speaks on behalf of the Board and represents the Board to shareholders and other stakeholders | � | Chief Executive (CE) The CE operates within authorities delegated by the Board to: �� Develop strategic plans and structures for presentation to the Board �� Make and implement operational decisions �� Lead the other executive Directors and the ELT in the day-to-day running of the Group �� Report to the Board with relevant and timely information �� Develop appropriate capital, corporate, management and succession structures to support the Group's objectives �� Together with the Chairman, represent the Group to external stakeholders, including shareholders, customers, suppliers, regulatory and governmental authorities, and the local and wider communities On 13 March 2019, Keith Skeoch became sole CE and Martin Gilbert continued his individual accountability for managing relationships with clients, winning new business and realising the potential from our global network and product capabilities. This structure was in place until 2 October 2019 when the timing of Martin's standing down from the Board was announced. Since then, he has continued to focus on strengthening the Group's relationships with clients. | � | Senior Independent Director (SID) The SID is available to talk with our shareholders about any concerns that they may not have been able to resolve through the channels of the Chairman, the CE or Chief Financial Officer, or where a shareholder considered these channels as inappropriate. The SID leads the annual review of the performance of the Chairman. | ||||||||||
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| � | � | Non-executive Directors (NED) The role of our NEDs is to participate fully in the Board's decision-making work including advising, supporting and challenging management as appropriate. | ||||||||||||
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| Nomination and Governance Committee (N&G) Board and Committee composition Succession planning Board appointments Governance framework | | Audit Committee (AC) Financial Reporting Internal audit External audit Whistleblowing Financial crime Regulatory financial reporting | | Remuneration Committee (RC) Development and Implementation of remuneration policy Incentive design and setting of targets Employee benefit structures | | Risk and Capital Committee (RCC) Risk management framework Compliance reporting Risk appetites and tolerances Transactional risk assessments Capital adequacy | ||||||||
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| Executive leadership team (ELT) The role of the ELT is to support the CE by providing clear leadership, line of sight and accountability throughout the business. The ELT is responsible to the CE for the development and delivery of strategy and for leading the organisation through challenges and opportunities. | ||||||||||||||
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| Investment Management Committee Support the Chief Investment Officer by overseeing the application of investment processes across asset classes. | | Client and Customer Committee Support the Global Head of Distribution by overseeing the development, delivery and monitoring of client and customer initiatives. | | Operating Committee Support the Chief Operating Officer by overseeing global functions and the delivery of functional priorities. | | Enterprise Risk Management Committee Support the CE in the first line management of risk. | ||||||||
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The governance framework also sets out the Board's relationship with the boards of the principal subsidiaries (as defined in the Board Charter) in the Group. In particular, it specifies the matters which these subsidiaries refer to the Board or to a Committee of the Board for approval.
The Group's Code of Conduct guides our people to do the right thing and complements the Board Charter. It sets out our standards of conduct and culture, and shows the governing principles for operational excellence, compliance responsibilities, customer service, and how we should treat our people, and other stakeholders.
Melanie Gee is the designated NED to support workforce engagement and during 2019, she has sought to engage from two standpoints - top-down engagement through direct all-employee surveys on key topics and bottom-up engagement from regular meetings with relevant employee representatives.
During 2019, there were two all-employee surveys - the first on Environmental, Social and Governance (ESG) from the point of view of the Group as both an investor and an operating company, and the second on diversity and inclusion. For how we operate as a company, the top three ESG themes important to employees were climate change, wellbeing and ethical conduct. For how we invest/develop products, the top three ESG themes were climate change, ethical conduct and poverty & inequality. From the diversity and inclusion (D&I) survey, the key areas where staff thought progress had been made were the strength of the culture, the parental leave policy and the commitment to diversity and inclusion.
The BEE group met twice in 2019 and will meet regularly in 2020. On a rotating basis, employees attending these meetings include:
�� The UK employee representative forum
�� Representatives of the employee networks (Unity, YPDN, Lighthouse, Balance, Armed Forces, Mind Matters)
�� Regional HR representatives to discuss local initiatives on employee engagement
�� The Talent and Leadership team and the Diversity and Inclusion Team to discuss how they are taking forward employee engagement matters, including those arising from the Viewpoints survey
�� The Innovation Team, to consider how employees' views are reflected in innovation activities
�� The Sustainability team, to consider how operational ESG and climate change initiatives are being taken forward
At these meetings, there is general discussion of engagement themes which have been raised to the various representatives. At each Board meeting, Melanie gives a formal report on the issues that have been raised through both the general discussion and the surveys, and the Board considers how the ELT can be asked to take any specific actions to address the points raised, and agree who is accountable to implement the action.
Melanie has also implemented a programme of NED engagement dinners, which are attended by several of the NEDs, and which take employee engagement as their theme.
In further BEE activities, there were three Meet the NEDs sessions - in Edinburgh, Philadelphia and London. These informal sessions were hosted either by Melanie Gee or the Chairman, and employees took the opportunity to raise a wide variety of questions with the NEDs. Feedback from the NED engagement dinners and the Meet the NEDs sessions has been very positive and they complement the 'Town Hall' sessions held by the ELT throughout the year, all across the Group's operations.
The general feedback themes which Melanie escalated to the Board during 2019 included the need for continuing focus on comprehensive and quality communications to help employees understand clearly the ongoing transformation activities, and resolving the outstanding practical challenges arising from these activities cost effectively and pragmatically. The ELT, in particular the Chief HR Officer, the Chief Communications Officer and the Chief Operating Officer (COO), have taken forward the points raised.
The Board recognises that the long-term success of our business is dependent on the way it interacts with a large number of stakeholders. The table below sets out the Board's focus on our key relationships and shows how the relevant stakeholder engagement is reported up to the Board or Board Committees.
| Who are our key stakeholders? | How does the Board engage with them/understand their views directly? | How does the Board engage with them/understand their views indirectly (via information from management)? | How does that engagement support the Board's decision-making? | |
| Clients and customers | � Read more on pages 12 to 17. � | �� The Chairman, CE and Vice-Chairman meet directly with key clients and report to the Board �� Board met with clients during its visit to Philadelphia | �� Global Head of Distribution reports at each Board meeting on key client engagement, support programmes and client strategies �� Specific Board report on key client management �� Reasons for client wins/losses reported �� Results of client perceptions survey/customer sentiment index reported | �� Engagement supported the development of the key client management process, the Wealth business, and initiatives such as the 'students of clients' programme |
| Our people | � Read more on pages 18 to 21. � | �� Meet the NEDs sessions and NED engagement dinners �� Employee engagement NED appointed �� CE and CFO 'Town Hall' sessions | �� Updates from Melanie Gee on a wide range of employee engagement activities �� Full specific programme supported by the Board (see page 58) | �� Engagement feedback recognised in Board discussions |
| Society | Business partners/ supply chain � Read more on pages 22 to 27. � � | �� Risk and Capital Committee review the number of suppliers and how they are managed �� Audit Committee leads on assessment of external audit performance and service provision �� Engagement with FNZ in relation to the Platforms business | �� COO attends each Board meeting and reports on key supplier relationships �� Supplier surveys undertaken �� Tendering process include smaller level firms �� Access and audit rights in place to key suppliers �� Modern slavery compliance process in place �� Procurement/payment principles in place �� Certain key suppliers regularly discussed at Audit Committee, Risk and Capital Committee, Board and SLSL Board | �� The Platforms strategy, IT and transformation discussions have included a focus on the quality, service provision, availability and costs of relevant suppliers |
| Communities � Read more on pages 22 to 27. � | �� Chairman/NEDs/EDs attend relevant events �� Board support for EDs taking up outside appointments | �� Stewardship/sustainability teams report regularly to the Board �� Feedback on annual Sustainability and TCFD Reports �� Review of charitable giving strategy �� ESG presentations to the Board | �� Considered as input to the Group's culture and strategic drivers | |
| Regulators/ policymakers/ governments Read more on pages 22 to 27. � | �� Regular engagement with CE, Chairman and Committee Chairs �� FCA presents to the Board at least annually �� 'Dear Board/CE' letters �� Relevant CE engagement with regulators in overseas territories (MAS, CSSF, CBI, SEC) | �� Chief Risk Officer (CRO) updates at every Board meeting �� Reports on the results of active participation through industry groups | �� Relevant Board decisions recognise regulatory impact and environment | |
| Shareholders | Strategic partners � Read more on pages 28 to 33. � | �� CE on Board of HDFC Asset Management and CFO on Board of HDFC Life �� ED direct meetings | �� Specific updates in CE report �� As appropriate, reports to Board/ Committees from representative Directors �� Two ELT members serve on the Phoenix Board | �� The development of our business through our relationships with Strategic partners is an important element of the Board's strategy |
| Shareholders � Read more on pages 28 to 33. � | �� Results, AGM presentations and Q&A �� Chairman, CE and CFO meetings with investors �� Remuneration Committee Chair meetings with institutional investors �� Publication of Shareholder News �� Dedicated mailbox and shareholder call centre team �� Chairman/CE/CFO direct shareholder correspondence | �� Regular reports from the Investor Relations Director/ Chairman/ Chairman of Remuneration Committee summarising the output from their programmes of engagement �� Weekly Investor Relations reports distributed to the Board �� As relevant, feedback from corporate brokers | �� Engagement supported various decisions including the final terms of the CFO Deferred Share Plan award in 2019 | |
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2. Division of responsibilities
The roles of the Chairman and the CE are separate and are summarised on page 57. Each has clearly defined responsibilities, which are described in the Board Charter.
The heads of each business function and each region manage their teams within the scheme of delegation. This includes reporting to the CE on how they are performing against approved plans and budgets.
The Company Secretary is responsible for advising the Board on governance matters.
Board composition, balance and diversity
The Board's policy is to appoint and retain non-executive Directors who bring relevant expertise as well as a wide perspective to the Group and its decision-making framework. The Directors believe that at least half of the Board should be made up of independent non-executive Directors. As at 10 March 2020, the Board comprises the Chairman, seven independent non-executive Directors and three executive Directors. The Board is made up of six men (55%) and five women (45%) (2018: men 75%, women 25%). The Board continues to support its Board Diversity statement which states that the Board:
�� Believes in equal opportunities and supports the principle that due regard should be had for the benefits of diversity, including gender, ethnicity, age, and educational and professional background when undertaking a search for candidates, both executive and non-executive
�� Recognises that diversity can bring insights and behaviours that make a valuable contribution to its effectiveness
�� Believes that it should have a blend of skills, experience, independence, knowledge, ethnicity and gender amongst its individual members that is appropriate to its needs
�� Believes that it should be able to demonstrate with conviction that any new appointee can make a meaningful contribution to its deliberations
�� Is committed to maintaining its diverse composition
�� Supports the CE's commitment to achieve and maintain a diverse workforce and an inclusive workplace, both throughout the Group, and within the ELT
�� Has a zero tolerance approach to unfair treatment or discrimination of any kind, both throughout the Group and in relation to clients, customers and individuals associated with the Group
You can read more about our Directors in their biographies in Section 2.
You can read more about our diversity activities and current targets in the Our people section of the Strategic report and in our stand alone Sustainability report. We are committed to working to make the Group as inclusive a place to work as possible. Our activities and targets are published in the Strategic report and in the Sustainability report. You can find our gender pay gap disclosure statement on page 60. The Nomination and Governance Committee continues to follow the development of, and the Group's participation in, significant diversity reviews, including the Hampton-Alexander Review and the Parker Review, and we were one of the initial signatories to the Women in Finance Charter. We became one of the founding members of the UK Government Race at Work Charter. The Nomination and Governance Committee supports our commitments under these charters and continues to oversee our progress against these, which we report publically on an annual basis.
Appointments
Stephanie Bruce was elected to the Board at the 2019 AGM as Executive Director and Chief Finance Officer, and took up those roles on 1 June 2019. Jonathan Asquith was appointed as non-executive Director and SID on 1 September 2019, and Cecilia Reyes was appointed as a non-executive Director on 1 October 2019. MWM Consulting were engaged to support the appointments of Jonathan and Cecilia. The Group has additionally used the services of MWM Consulting to support other senior management searches. As announced on 26 February 2020, Brian McBride will join the Board on 1 May 2020.
Simon Troughton and Richard Mully retired from the Board on 14 May 2019. Bill Rattray retired from the Board on 31 May 2019. As announced, Rod Paris stood down from the Board on 31 December 2019, remaining as CIO, and Martin Gilbert will retire from the Board at the conclusion of the 2020 AGM.
Board appointments are overseen by the Nomination and Governance Committee.
Each non-executive Director is appointed for a three-year fixed term and shareholders vote on whether to elect/re-elect him or her at every AGM. Once a three-year term has ended, a non-executive Director can continue for further terms if the Board is satisfied with the non-executive Director's performance, independence and ongoing time commitment. There is no specified limit to the number of terms that a non-executive Director can serve. Taking account of their appointment dates to the predecessor boards, the current average length of service of the non-executive Directors is 3 years. For those NEDs who have served two three-year terms, the Nomination and Governance Committee considers any factors which might reflect on their independence or time commitment prior to making any recommendation to the Board.
The letter of appointment confirms that the amount of time we expect each non-executive Director to commit to each year, once they have met all of the approval and induction requirements, is a minimum of 35 days. The service agreements/letters of appointment for Directors are available to shareholders to view on request from the Company Secretary at the Company's registered address (which can be found in the Shareholder information section) and at the 2020 AGM. Non-executive Directors are required to confirm that they can allocate sufficient time to carry out their duties and responsibilities effectively.
At the 2020 AGM, all of the current Directors will retire. Jonathan Asquith, Stephanie Bruce. Cecilia Reyes and Brian McBride, having been appointed since the previous AGM, will retire and stand for election. All the others with the exception of Martin Gilbert will stand for re-election.
As well as in Section 2, you can read more background information about the Directors, including the reasons why the Chairman, following their annual reviews, believes that their individual skills and contribution supports their election or re-election, in our AGM guide 2020, which will be published online at www.standardlifeaberdeen.com in advance of this year's AGM.
The Board carries out a formal review of the independence of non-executive Directors annually. The review considers relevant issues including the number and nature of their other appointments, any other positions they hold within the Group, any potential conflicts of interest they have identified and their length of service. Their individual circumstances are also assessed against independence criteria, including those in the Code. Following this review, the Board has concluded that all the current non-executive Directors are independent and consequently, the Board continues to comprise a majority of independent non-executive Directors.
The Directors continued to review and authorise Board members' actual and potential conflicts of interest on a regular and ad hoc basis in line with the authority granted to them in the Company's articles of associations (the Articles). As part of the process to approve the appointment of a new Director, the Board considers and, where appropriate, authorises his or her potential or actual conflicts. The Board also considers whether any new outside appointment of any current Director creates a potential or actual conflict before, where appropriate, authorising it. All appointments are approved in accordance with the Group's Outside Appointments and Conflicts of Interest policies.
In February 2020, the Board reviewed all previously authorised potential and actual conflicts of interest of the Directors and their connected persons, and concluded that the authorisations should remain in place until February 2022. Under the terms of the approval, conflicted Directors can be excluded from receiving information, taking part in discussions and making decisions that relate to the potential or actual conflict. The Board and relevant Committees follow this process when appropriate.
The Board's policy encourages executive Directors to take up one external non-executive director role as the Directors consider this can bring an additional perspective to the Director's contribution. Keith Skeoch does not have any FTSE 100 non-executive roles but continued as a non-executive director of the Financial Reporting Council (FRC) and will be appointed Chairman of the Investment Association on 1 May 2020. Martin Gilbert is a non-executive director at Glencore plc. He was also appointed chair of Revolut on 1 January 2020, this additional appointment having been approved by the Board and recognising that his full-time role had been reduced by 20% on 1 January 2020.
You can read more about the Directors' outside appointments in their biographies in Section 2.
Directors may sometimes need external professional advice to carry out their responsibilities. The Board's policy is to allow them to seek this where appropriate and at the Group's expense. Directors also have access to the advice and services of the Company Secretary, whose appointment and removal is a matter for the Board.
In accordance with the Code, the Board commissions externally facilitated reviews regularly. Following the 2018 externally facilitated review, it was agreed that it would be appropriate to commission a further externally facilitated review for 2019 to follow-up on the findings of the 2018 review. As a result, Independent Board Evaluation (IBE) was appointed as the external facilitator and carried out the 2019 review. IBE does not have any other connection with the Group.
To carry out the review, a senior representative of IBE was in attendance and observed a Board meeting and a meeting of each Board Committee. They also had access to the papers for each of these meetings. In addition to this observation and analysis, they held individual meetings with each Board member, members of the Executive leadership team who are regular attendees at Board meetings and the key members of the Board and Committee support teams. Following this, IBE prepared a draft report for review and discussion. The Board then reviewed and discussed the report, and a representative of IBE attended to present the report and recommendations.
The review recognised that amid a changing landscape, with the Board still settling down after overseeing two major transactions in two years, the review's principal purpose was to check the direction of travel for the Board, take early-stage soundings on the new chairmanship and to help induct and assimilate new Board members. The tone of the feedback was positive overall, with the Board particularly recognising the strengths of its composition, and the processes to select and induct new members and support the Board and its Committees. The Directors also reported solid performance on their work on culture, as well as shareholder and stakeholder accountability.�
The key conclusions and recommendations from the review included
�� Prioritising strategy work to align it with the work on purpose, strategic drivers and behaviours and create an overall framework to support Board decision making
�� Reviewing the Board skills matrix to add more sector experience over time
�� Continuing the drive for more effective Board and Committee papers by reinforcing limits on paper lengths, imposing a standard template and an absolute deadline for issuing papers
�� Introduce a mentoring programme for any new Board member who has not previously served on a UK plc board, including executive directors
�� Considering other ways of connecting non-executive Directors with senior executives such as Committee visits to relevant locations, and Board and Committee NED only sessions with key members of the ELT and senior managers
�� Continuing to refine the annual board objectives as a guide to setting agendas and cascading them down to the Committees, as a basis for reporting back to the board
Progress to implement the recommendations is monitored by the Company Secretary and reported to the Nomination and Governance Committee.
The review of Sir Douglas's performance as Chairman was led by the SID, Jonathan Asquith, and supported by IBE. It was based on feedback given in individual interviews between the external facilitator and each Director as well as focused discussions between the SID and the other NEDs.
The feedback was summarised into a report which was reviewed by the SID and distributed to all Board members, except Sir Douglas. The Directors, led by Jonathan Asquith and without Sir Douglas being present, met to consider the report. They concluded that in his first year as Chairman, Sir Douglas had performed his role very effectively and shown strong leadership of the Board. He had brought his own experienced style to the Boardroom and was building strong relationships with the EDs while supporting the NEDs in challenging and holding the ELT to account. The NEDs were looking forward to continuing to work with him, individually and collectively, to deliver continued progress in 2020. Jonathan Asquith met with Sir Douglas to pass feedback from the review directly to him.
As part of the review, IBE prepared an individual evaluation of the members of the Board to support the Chairman's annual round of feedback to Directors and to assist him in leading the Nomination and Governance Committee's ongoing succession planning. Sir Douglas discussed the individual results with each Director. These discussions also considered individual training, development and engagement opportunities.
The Chairman, supported by the Company Secretary, is responsible for arranging a comprehensive preparation and induction programme for all new Directors. The programme takes their background knowledge and experience into account. If relevant, Directors are required to complete the FCA's approval process before they are appointed and Directors self-certify annually that they remain competent to carry out this aspect of their role. These processes continue to adapt to meet evolving best practice in respect of SMCR.
The formal preparation and induction programme includes:
�� Meetings with the executive Directors, key members of senior management, the heads of the operating businesses and business functions
�� Focused technical meetings with internal l experts on specific areas including investments, CRD IV, ESG, conduct risk, risk and capital management, and financial reporting
�� Visits to business areas to meet our people and gain a better insight into the operation of the business and its culture
�� Meetings with the external auditors and contact with the FCA supervisory teams
�� Meetings with the Company Secretary on the Group's corporate governance framework and the role of the Board and its Committees, and with the Chief Risk Officer on the risk management framework as well as meetings on their individual responsibilities as holders of a Senior Management Function role
Background information is also provided including:
�� Key Board materials and information, stakeholder and shareholder communications and financial reports
�� The Group's organisational structure, strategy, business activities and operational plans
�� The Group's key performance indicators, financial and operational measures and industry terminology
The induction programme provides the background knowledge new Directors need to perform to a high level as soon as possible after joining the Board and its Committees and to support them as they build their knowledge and strengthen their performance further.
When Directors are appointed to the Board, they make a commitment to broaden their understanding of the Group's business. Our corporate centre monitors relevant external governance and financial and regulatory developments and keeps the ongoing Board training and information programme up to date. During 2019 specific Board awareness and deep-dive sessions took place on:
�� Transformation
�� Investments capabilities, covering:
-����� Investment governance and investments oversight
-����� Quantitative investment strategies and investment innovation
-����� Private markets and real estate
-����� Embedding ESG
�� The Internal Capital Adequacy Assessment Process (ICAAP)
�� Portfolio dimensionality
�� Investments capabilities covering:
-����� Active equities
-����� Solutions and multi-manager strategies
Similarly, the relevant Board Committees received updates on developments in financial reporting, remuneration and corporate governance.
The Directors retain the responsibility to state that they consider the Annual report and accounts, taken as a whole, is fair, balanced and understandable as well as the responsibility to establish procedures to manage risk and oversee the internal control framework. The reports from the Audit Committee and the Risk and Capital Committee Chairmen show how they have supported the Board in meeting these.
The Directors have overall responsibility for the governance structures and systems of the group, which includes the ERM framework and system of internal control, and for the ongoing review of their effectiveness. The framework is designed to manage, rather than eliminate, risk and can only provide reasonable, not absolute, assurance against material misstatement or loss. The framework covers all of the risks as set out in the risk management section of the Strategic report.
In line with the requirements of the Code, the Board has reviewed the effectiveness of the system of internal control. The system was in place throughout the year and up to the date of approval of the Annual report and accounts 2019.
To support the review, the Risk and Compliance function undertook an assessment of the effectiveness of risk management and internal controls in line with the FRC's guidance on the requirements of the annual review. In carrying out the review, the Risk and Compliance function considered reports presented to the Board, the Audit Committee and Risk and Capital Committee during the period. Key risk items were also discussed at the Enterprise Risk Management Committee throughout the period. At the request of the Audit Committee, management also reported that they had considered the effectiveness of the system of internal control from a 'first line of defence' point of view, and confirmed that they supported the conclusions of the Risk and Compliance review.
Following this review the Board concluded that the system of internal control was effective, and that there had been no significant failings or weaknesses during the period.
Additionally, with regard to regular financial reporting and preparing consolidated accounts, the Finance function sets formal requirements for financial reporting, defines the process and detailed controls for the IFRS consolidation, reviews and challenges submissions and receives formal sign-off on financial reporting from business unit finance heads. In addition, the Finance function runs the Technical Review Committee and the Financial Reporting Executive Review Group which review external technical developments and detailed reporting disclosure and accounting policy issues.
The Directors' remuneration report on pages 78 to 104 sets out the work of the Remuneration Committee and its activities during the year, the levels of Directors' remuneration and the proposed new remuneration policy.
The Company continues to maintain a dialogue with its shareholders. As part of this, our Investor Relations and Secretariat teams support communication with investors. During 2019, the Company continued its programme of domestic and international presentations and meetings between Directors and investors, fund managers and analysts. The wide range of relevant issues discussed, in compliance with regulations, at investor presentations and meetings included transformation, business strategy, financial performance, operational activities and corporate governance. The Chairman has his own investor contact programme and brings relevant issues to the attention of the Board. The Remuneration Committee Chairman has also consulted with major institutional investors regarding executive remuneration plans during the year. More information on this consultation can be found below and in the Directors' remuneration report.
The Board is equally committed to the interests of the Company's 1.1 million individual shareholders who hold approximately one third of the Company's issued shares. Given this large shareholder base, it is impractical to communicate with all shareholders using the same direct engagement model we follow for our institutional investors. We encourage shareholders to receive their communications electronically and around 410,000 shareholders receive all communications this way. We actively promote self service via our share portal and over 400,000 shareholders have signed up to this service. Share portal participants can maintain their personal details and dividend instructions online, and view and download personal documents such as statements and tax documents. Shareholders have the option to hold their shares in the Standard Life Aberdeen Share Account where shares are held electronically in a secure environment and around 90% of individual shareholders hold their shares in this way.
To give all shareholders access to the Company's announcements, all information reported via the London Stock Exchange's regulatory news service is published on the Company's website. We have continued to host formal presentations to support the release of both the full year and half year financial results. At the 2020 AGM, shareholders will be invited to ask questions during the meeting and have an opportunity to talk with the Directors after the formal part of the meeting. The voting results will be published on our website at www.standardlifeaberdeen.com after the meeting. These will include the number of votes withheld.
The 2019 AGM was held in Edinburgh on 14 May 2019 when Directors were available to answer shareholders' questions. In accordance with best practice, all resolutions were considered on a poll which was conducted by our registrars and monitored by independent scrutineers. The results, including proxy votes lodged prior to the meeting, were made available on our website the same day. 46%�of the shares in issue were voted and all resolutions were passed.
Our 2020 AGM will be held on 12 May in Edinburgh.
Following on from the level of the vote to approve the 2018 Directors' Remuneration Report, the Board issued a regulatory announcement on 14 November 2019. The announcement summarised the engagement which Jonathan Asquith, the recently appointed Chairman of the Remuneration Committee, had had with institutional investors and proxy voting agencies. The engagement took the form of a series of meetings and phone calls which also allowed Jonathan to hear investors' views on other remuneration-related matters and this engagement also allowed Jonathan to capture feedback in his capacity as SID. Following on from this engagement, shareholders will be invited to vote on a revised remuneration policy at the 2020 AGM. You can read more about this engagement on page 79 of the Directors' remuneration report.
You can find details of the following, as required by Disclosure and Transparency Rule 7.2.6, in the Directors' report and in the Directors' remuneration report:
�� Significant direct or indirect holdings of the Company's securities
�� Confirmation that there are no securities carrying special rights with regard to control of the Company
�� Confirmation that there are no restrictions on voting rights in normal circumstances
�� How the Articles can be amended
�� The powers of the Directors, including when they can issue or buy back shares
�� How the Company appoints and replaces Directors
�� Directors' interests in shares
The Board and its Committees meet regularly, operating to an agreed timetable. Meetings are usually held in Edinburgh or London and, on occasion, at the offices of one of our international businesses. In September 2019, the Board held its meeting in Philadelphia. As well as meeting with clients, this allowed the Board to spend time with locally-based employees. During the year, the Board held specific sessions to consider the Group's strategy and business planning. The Chair and the non-executive Directors also met during the year, formally at each Board meeting, and informally, without the executive Directors present. At these meetings, matters including executive performance and succession and Board effectiveness were discussed.
Directors are required to attend all meetings of the Board and the Committees they serve on, and to devote enough time to the Company to perform their duties. Board and Committee papers are distributed before meetings other than, by exception, urgent papers which may need to be tabled at the meeting. The Board sometimes needs to call or rearrange meetings at short notice and it may be difficult for all Directors to attend these meetings. If Directors are not able to attend a meeting because of conflicts in their schedules, they receive all the relevant papers and have the opportunity to submit their comments in advance to the Chairman or to the Company Secretary. If necessary, they can follow up with the Chairman of the meeting. The Board has established the Standing Committee as a formal procedure for holding unscheduled meetings. The Standing Committee meets when, exceptionally, decisions on matters specifically reserved for the Board need to be taken urgently. All Directors are invited to attend Standing Committee meetings. The Standing Committee met 4 times during 2019.
�
The Chairman is not a member of the Audit, Risk and Capital, or Remuneration Committees. He may, however, attend meetings of all Committees, by invitation, in order to keep abreast of their discussions. The table below reflects the composition of the Board during 2019 and the members' attendance. The Board met nine times during the year.
| Number of meetings | Board |
| Chairman | � |
| Sir Douglas Flint | 9/9 |
| � | � |
| Executive Directors | � |
| Keith Skeoch | 9/9 |
| Martin Gilbert | 9/9 |
| Stephanie Bruce | 5/5 |
| Rod Paris (stood down 31/12/2019) | 9/9 |
| � | � |
| Non-executive Directors | � |
| Jonathan Asquith | 3/3 |
| John Devine | 9/9 |
| Melanie Gee | 9/9 |
| Martin Pike | 8/9 |
| Cathleen Raffaeli | 9/9 |
| Cecilia Reyes | 2/2 |
| Jutta af Rosenborg | 9/9 |
| � | � |
| Former members | � |
| Bill Rattray | 4/4 |
| Richard Mully | 4/4 |
| Simon Troughton | 4/4 |
Board Committees
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Diagram removed for the purposes of this announcement.� However it can be viewed in full in the pdf document
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The Board has established Committees that oversee, consider and make recommendations to the Board on important issues of policy and governance. At each Board meeting, the Committee Chairmen provide reports of the key issues considered at recent Committee meetings, and minutes of Committee meetings are circulated to the appropriate Board members. This includes reporting from the Chairman of the Audit Committee on any whistleblowing incidents which have been escalated to him. The Committees operate within specific terms of reference approved by the Board and kept under review by the Nomination and Governance Committee.
These terms of reference are published within the Board Charter on our website at www.standardlifeaberdeen.com/annualreport
All Board Committees are authorised to engage the services of external advisers at the Company's expense, whenever they consider this necessary.
The Chairman of each Committee and of the Nomination and Governance Committee review Committee membership at regular intervals. The Nomination and Governance Committee considers all proposed appointments before they are recommended to the Board.
This statement includes reports from the chairmen of the Audit Committee, the Risk and Capital Committee and the Nomination and Governance Committee. The report on the responsibilities and activities of the Remuneration Committee can be found in the Directors' remuneration report in Section 3.4.
The Committee Chairmen are happy to engage with you on their reports. Please contact them via [email protected]
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The Audit Committee assists the Board in discharging its responsibilities for financial reporting, internal control and the relationship with the External auditors.
I am pleased to present my report as Audit Committee Chairman.
As well as overseeing financial reporting, a major role of the Committee in 2019 was to consider the impact of transformation activities on internal controls as the business transitions following the sale of the UK and European insurance business to Phoenix in 2018 (the Sale).
During the year the Committee also:
�� Considered the carrying value of intangible assets, in particular asset management goodwill
�� Considered reports from the Chief Internal Auditor
�� Reviewed CRD IV reporting following the change in the prudential supervision of the group in late 2018
�� Received reports on compliance with the FCA Client Assets Sourcebook (CASS) rules in the Company's CASS permissioned regulated legal entities
The Committee also continued to focus on the quality of financial reporting, including the impact of Code changes and other guidance on the Strategic report.
Our report to you is structured in four parts:
1. Governance
2. Report on the year
3. Internal audit
4. External audit
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John Devine
Chair, Audit Committee
Membership
All members of the Audit Committee are independent non-executive Directors. The table below reflects the composition of the Committee and the members' attendance:
| Member | Attendance |
| John Devine, Chair | 7/7 |
| Melanie Gee | 6/7 |
| Martin Pike | 7/7 |
| Jutta af Rosenborg | 7/7 |
The Board believes Committee members have the necessary range of financial, risk, control and commercial expertise required to provide effective challenge to management, and have competence in accounting and auditing as well as recent and relevant financial experience. John Devine is a member of the Chartered Institute of Public Finance and Accounting. Jutta af Rosenborg is also a qualified accountant and sits on other audit committees.
The Committee schedules six meetings per annum, four of which are co-ordinated with external reporting timetables. In 2019, there was one additional meeting, which was focused on a specific year end accounting matter.
Invitations to attend Committee meetings are extended on a regular basis to the Chairman, the Chief Executive, the Chief Financial Officer, the Group Financial Controller, the Chief Internal Auditor and the Group Chief Risk Officer.
The Audit Committee meets privately for part of its meetings and also has regular private meetings separately with the External auditors and the Chief Internal Auditor. These meetings address the level of co-operation and information exchange and provide an opportunity for participants to raise any concerns directly with the Committee.
The Audit Committee's responsibilities are to oversee and report to the Board on:
�� The appropriateness of the Group's accounting and accounting policies, including the going concern presumption and viability
�� The findings of its reviews of the financial information in the Group's annual and half year financial reports
�� The clarity of the disclosures relating to accounting judgements and estimates
�� Its view of the 'fair, balanced and understandable' reporting obligation
�� The findings of its review of key Group prudential returns and disclosures
�� Internal controls over financial reporting and procedures to prevent money laundering, financial crime, bribery and corruption
�� Outcomes of investigations resulting from whistleblowing
�� The appointment or dismissal of the Chief Internal Auditor, the approved Internal audit work programme, key audit findings and the quality of Internal audit work
�� The independence of the External auditors, the appropriateness of the skills of the audit team, the approved audit plan, the quality of the firm's execution of the audit, and the agreed audit and non-audit fees
In carrying out its duties, the Committee is authorised by the Board to obtain any information it needs from any Director or employee of the Group. It is also authorised to seek, at the expense of the Group, appropriate external professional advice whenever it considers this necessary. The Committee did not need to take any independent advice during the year.
In accordance with the Senior Managers and Certification Regime the Audit Committee Chairman is responsible for the oversight of the independence, autonomy and effectiveness of our policies and procedures on whistleblowing including the procedures for the protection of employees that raise concerns from detrimental treatment. Throughout the year the Audit Committee Chairman met regularly with the Chief Internal Auditor and the Head of Financial Crime to discuss their work, findings and current developments.
The Committee reviews its remit and effectiveness annually. The 2019 review was carried out by external consultants IBE. The review included observation of a meeting, access to papers and interviews with Committee members. The key points arising from the review were:
�� The overall feedback was very positive and Committee members believe that the Committee's oversight of the financial governance of the Company is conducted with diligence and due process
�� In line with feedback on the Board pack, the Committee papers can be too lengthy and may benefit from a sharper focus on key points
�� While the Committee's work has been very thorough, it may now benefit from reconsidering the amount of time it spends on reviewing the technical detail of financial reporting matters as this would allow the members to reflect on the wider context
The Board's review similarly confirmed its satisfaction with the performance of the Committee and its Chairman.
Audit agenda
The Audit Committee has a rolling agenda comprising recurring business, seasonal business and other business.
As recurring business, at every meeting the Committee reviews and discusses:
�� Updates from the Finance function on significant financial accounting, reporting and disclosure matters
�� Findings from Internal audit reports and how high priority findings are being followed up by management
�� Regular refreshes and updates to the Internal audit plan
�� Results of the monitoring of financial crime, fraud risk assessments and whistleblowing including calls to our dedicated Speak Up helpline
�� Reports from the chairs of the subsidiary audit committees
�� Updates on work completed by the External auditors
�� Details of non-audit services requested of the External auditors by the business
�� Other agenda items
Other agenda items were aligned to the annual financial cycle as set out below:
| Jan - Mar | �� Annual report and accounts 2018 �� Strategic report and financial highlights 2018 �� Financial reporting judgements �� Liaison with the Remuneration Committee on targets and measures �� External auditors' review of Full year results |
| Apr - Jun | �� Internal audit findings �� CASS update |
| Jul - Sep | �� Half year results 2019 �� External auditors' review of Half year results |
| �Oct - Dec | �� Initial findings from the 2019 year end work �� Regulatory reporting �� The Internal audit plan �� Integration cost and synergies update �� Effectiveness of the External auditors and related non-audit services |
The indicative proportion of time spent on the business of the Committee is illustrated below:
Diagram removed for the purposes of this announcement.� However it can be viewed in full in the pdf document
The focus of work in respect of 2019 is described below.
Our accounts are prepared in accordance with International Financial Reporting Standards (IFRS). The Committee believes that some Alternative Performance Measures (APMs) which are also called non-GAAP measures can add insight to the IFRS reporting and help to give shareholders a fuller understanding of the performance of the business. The Committee considered the presentation of APMs and related guidance as discussed further in the 'Fair, balanced and understandable' section below.
The Committee reviewed the Group accounting policies and confirmed they were appropriate to be used for the 2019 Group financial statements. The Committee noted, in particular, the impact on accounting policies from the adoption of IFRS 9 Financial Instruments and IFRS 16 Leases. IFRS 9 had a small effect on the reported results but does result in new classifications and disclosures. IFRS 16 had a significant effect on the Statement of Financial Position through the recognition of right of use assets and lease liabilities, but only a small effect on the income statement, and also results in substantial new disclosures.
The Committee reviewed the basis of accounting and in particular the appropriateness of adopting the going concern basis of preparation of the financial statements. In doing so, it considered the Group's cash flows resulting from its business activities and factors likely to affect its future development, performance and position together with related risks, as set out in more detail in the Strategic report. The Committee recommended the going concern statement to the Board.
In addition, the Committee considered the form of the viability statement and in particular whether the three-year period remained appropriate and concluded that it did. This reflects both our internal planning cycle and the timescale over which changes to major regulations and the external landscape affecting our business typically take place. In formulating the statement, the Committee considered the result of stress testing and reverse stress testing presented to the Risk and Capital Committee. The Committee recommended the viability statement to the Board.
During 2019, the Committee reviewed the Annual report and accounts 2018 and the Half year results 2019. For the half year it received written and/or oral reports from the Chief Financial Officer, the Company Secretary, the Chief Internal Auditor and the External auditors. The Committee used these reports to aid its understanding of the composition of the financial statements, to confirm that the specific reporting standards and compliance requirements had been met and to support the accounting judgements and estimates. Following its reviews, the Committee was able to recommend the approval of each of the reports to the Board, being satisfied that the full and half year financial statements complied with laws and regulations and had been appropriately compiled.
The Audit Committee considered all estimates and judgements that Directors understood could be material to the 2019 financial statements. The Committee also focused on disclosure of these key accounting estimates and judgements.
| Significant accounting estimates, judgements and assumptions for the year ended 31 December 2019 | How the Audit Committee addressed these significant accounting estimates and assumptions |
| Intangible assets including goodwill | � |
| An annual recoverable amount assessment is required for goodwill. In particular, the most significant judgements relate to goodwill for the asset management cash generating unit. Goodwill and intangibles primarily relate to the 2017 transaction which was accounted for under IFRS as an acquisition of Aberdeen Asset Management PLC, creating a goodwill asset. Annual reviews for impairment triggers are also required for other intangibles. The intangibles with material judgements are the customer relationship and investment management contract intangibles. | The year end impairment review of asset management goodwill resulted in the recognition of an impairment of �1,569m. The Committee spent time at three meetings reviewing and challenging assumptions relating to future cash flow projections and the discount and long-term growth rates. The Committee considered, in particular, the basis of revenue projections and the margin for forecasting risk in the discount rate, which were considered to be the most significant assumptions. The Committee considered these assumptions were appropriate, and supported the disclosure of sensitivities given the significant inherent judgements involved and range of reasonable outcomes. See Note 15 for further details. The Committee also considered the value in use compared to analyst valuations for the asset management business, and concluded that the analysts' market perspective did not contradict the impairment conclusion. The Committee also considered analysis provided by management on impairment triggers relating to the customer relationship and investment management contract intangibles. The Committee agreed with management that there were no indicators of impairment for these intangibles. |
| Financial instruments at fair value - contingent consideration | � |
| Estimation was required in relation to the valuation of certain indemnities and other contingent assets and liabilities relating to the Phoenix transaction in 2018. This included indemnities relating to the Standard Life Assurance Limited review of past sales practices for annuities, where the main financial risks (both positive and negative) continue to be with the Group, and indemnities relating to lapse experience. | The Committee considered analysis of the contingent assets and liabilities prepared by management and related key assumptions including those relating to persistency and the past sales practices for annuities. The Committee also considered assumptions in relation to certain disagreements under discussion with Phoenix. The Committee was satisfied that the fair value of the contingent consideration was appropriate at this time. Further details are disclosed in Note 40. |
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| Significant accounting estimates, judgements and assumptions for the year ended 31 December 2019 | How the Audit Committee addressed these significant accounting estimates and assumptions |
| UK defined benefit pension plan | � |
| In compiling a set of financial statements, it is necessary to make some judgements and estimates about outcomes that are dependent on future events. This is particularly relevant to the defined benefit pension plan surplus which is inherently dependent on how long people live and future economic outcomes. � For the UK defined benefit pension plan, the Committee reviewed the assumptions for mortality, discount rate and inflation. � | The Committee considered the proposed assumptions taking into account market data and information from pension scheme advisors. In relation to inflation the Committee considered the long-term gap between the Retail Price Index (RPI) and the Consumer Price Index (CPI), as pensions in payment are generally linked to CPI, taking into account uncertainties relating to RPI from government announcements. The Committee also considered reporting from the External auditors and related benchmarking of the pension scheme assumptions. Note 34 of the Group financial statements provides further details on the actuarial assumptions used, and sets out the impact of mortality, discount rate and inflation sensitivities. Note 34 also provides details on the accounting policy applied and accounting policy judgements relating to the Group's assessment that it has an unconditional right to a refund of a surplus, and the treatment of tax relating to this surplus. |
| Investments in associates | � |
| There were significant sales of the holding in HDFC Life in 2019, and therefore determining whether this investment should continue to be classified as an associate was a critical accounting policy judgement. � In relation to the Phoenix associate, judgements were also required relating to the recoverable amount and carrying value of the investment. | During 2019 the shareholding in HDFC Life was reduced to 14.73%. The Committee considered whether HDFC Life should continue to be classified as an associate, and concluded that this classification remained appropriate, notwithstanding that the holding was less than 20%. The classification as an associate was based on significant influence from the Group's Board representation on HDFC Life's board. The Committee noted that if the holding was considered an investment rather an associate it would give rise to a significant increase in the carrying value (to fair value) and the recognition of a significant gain in the income statement. See Note 16 for further disclosures. In relation to Phoenix the Committee considered that the increase in the market value of Phoenix was an indicator that the previous impairment should be reversed. See Note 16 for further information. |
| Provision for separation costs | � |
| The Group expects to incur significant costs in future periods relating to the separation of the UK and European insurance business. Last year the Committee concluded that a provision should only be recognised for costs for which the Group does not expect to derive ongoing benefits, such as those relating to de-coupling and decommissioning of systems and data. | The Committee reviewed analysis from management on separation costs which noted that the total estimate of separation costs had increased by �60m compared to previous estimates. The Committee agreed with management that no additional provision should be recognised in the year ended 31 December 2019 for the additional costs as these related to expenditure from which the Group will derive future benefits. The Committee concluded that the year end separation costs provision was appropriate. See Note 37 for further details. |
Principal risks are disclosed in the Strategic report and recommended to the Board by the Risk and Capital Committee. The Committee was satisfied that the estimates and quantified risk disclosures in the financial statements were consistent with the Strategic report. The Committee concluded that appropriate judgements had been applied in determining the estimates and that sufficient disclosure had been made to allow readers to understand the uncertainties surrounding outcomes.
Fair, balanced and understandable
The Committee supported the financial reporting team's continued aim to draft the Annual report and accounts to be 'fair, balanced and understandable'. A focus in 2019 was ensuring that the Strategic report appropriately explained transformation synergies and related costs, and risks relating to the COVID-19 virus.
To create clarity around what Standard Life Aberdeen means when it talks of being fair, balanced and understandable, a set of principles were developed, which can also act as an organisational definition for each aspect:
| Fair 'We are being open and honest in the way we present our discussions and analysis, and are providing what we believe to be an accurate assessment of business and economic realities' | �� The narrative contained in the Annual report and accounts is honest and accurate �� The key messages in the narrative in the Strategic report and Governance sections of the Annual report and accounts reflect the financial reporting contained in the financial statements �� The Key Performance Indicators (KPIs) for the period are consistent with the key messages outlined in the Strategic report |
| Balanced 'We are fully disclosing our successes, the challenges we have faced in the period, and the challenges and opportunities we anticipate in the future - all with equal importance and at a level of detail that is appropriate for our stakeholders' | �� The Annual report and accounts presents both successes and challenges experienced during the year and, as appropriate, reflects those expected in the future �� The level of prominence we give to successes in the year versus challenges faced is appropriate �� The narrative and analysis contained in the Annual report and accounts effectively balances the information needs and interests of each of our key stakeholder groups |
| Understandable 'The language we use and the way we structure our report is helping us present our business and its performance clearly - in a way that someone with a reasonably informed knowledge of financial statements and our industry would understand' | �� There is a clear and easy to understand framework to the Annual report and accounts �� The layout is clear and consistent and the language used is simple and easy to understand (industry specific terms are defined where appropriate) �� There is a consistent tone across and good linkage between all sections in a manner that reflects a complete story and clear signposting to where additional information can be found |
�� An Internal Review Group (IRG) is in place which reviews the Annual report and accounts specifically from a fair, balanced and understandable perspective and provides feedback to our financial reporting team on whether it conforms to our standards. The members of the IRG are independent of the financial reporting team and include colleagues from Investor Relations, Communications and Strategy.
�� Fair, balanced and understandable guidance was provided to all key stakeholders involved in the Annual report and accounts production process
�� We, as an Audit Committee, reviewed the messaging in the Annual report and accounts, taking into account material received and Board discussions during the year
�� Three drafts of the Annual report and accounts 2019 were reviewed by the Audit Committee at three meetings. The Committee complemented its knowledge with that of executive management and the Internal and External auditors. An interactive process allowed each draft to embrace contributions.
�� Our Annual report and accounts goes through an extensive internal verification process of all content to verify accuracy
The Committee also reviewed the use and presentation of APMs which complement the statutory IFRS results. This review considered guidelines issued by the European Securities and Markets Authority in 2016 and the thematic reviews by the Financial Reporting Council (FRC) during 2017 and 2018. A Supplementary information section is included in the Annual report and accounts to explain why we use these metrics and to provide reconciliations of these metrics to IFRS measures where relevant. This section also provides increased transparency over the calculation of reported financial ratios.
Adjusted profit before tax is a key profit APM. The Committee considered whether the allocation of items to adjusted profit was in line with the defined accounting policies, consistent with previous practice and appropriately disclosed. Where there were judgemental areas, such as in relation to certain restructuring costs, the Committee specifically reviewed the proposed treatments and ensured that the Annual report and accounts provided appropriate disclosures.
We agreed to recommend to the Board that the Annual report and accounts 2019, taken as a whole, is fair, balanced and can be understood by someone with a reasonably informed knowledge of financial statements and our industry.
During 2019 the Group published its first Standard Life Aberdeen plc Pillar 3 report, following the move to group level CRD IV reporting in late 2018. The Committee reviewed the Pillar 3 report and reviewed and discussed papers which set out the control and verification processes followed in the compilation of the report.
The Committee also considered disclosures relating to CRD IV results included in the Strategic report section of the Annual report and accounts and half year reporting, together with related assurance over these disclosures.
As noted earlier, the Directors have overall responsibility for the Group's internal controls and for ensuring their ongoing effectiveness. Together with the Risk and Capital Committee, the Committee provides comfort to the Board of their ongoing effectiveness.
Internal audit regularly reviews the effectiveness of internal controls and reports to the Committee and the Risk and Capital Committee.
The Finance function sets formal requirements for financial reporting which apply to the Group as a whole, defines the processes and detailed controls for the consolidation process and reviews and challenges reporting submissions. Further, the Finance function runs a technical review committee and is responsible for monitoring external technical developments.
The control environment around financial reporting will continue to be monitored closely.
Our people are trained to detect the signs of possible fraudulent or improper activity and how to report concerns either directly or via our independent whistleblowing hotline. The Committee receives regular updates from the Head of Financial Crime who reports on compliance with the Group's Anti-Financial Crime and Anti-Bribery policy, and any other activities associated with financial crime, including fraud risk.
The Committee Chairman is the designated whistleblower's champion and the Committee receives regular updates on the operation of the whistleblowing procedures from the Conduct and Conflicts Oversight Manager. The anonymised reports include a summary of the incidents raised as whistleblowing, and information on developments of the arrangements in place, to ensure concerns can be raised in confidence about possible malpractice, wrongdoing and other matters.
The Committee oversees the findings of investigations and required follow-up action. If there is any allegation against the Risk or Internal audit functions, the Committee directs the investigation. The Committee is satisfied that the Group's procedures are currently operating effectively. The Committee Chairman reports to the Board on the updates the Committee receives.
The role and mandate of the Internal audit function is set-out on in its Charter, which is reviewed and approved by the Committee annually. An exercise was undertaken during the year to benchmark Internal audit resources, with increased consideration of how audit assurance activity across the Group is aligned and coordinated, avoiding gaps and overlaps. Whilst Internal audit maintains a relationship with the External auditors, in accordance with relevant independence standards, the External auditors do not place reliance on the work of Internal audit.
The internal audit plan is reviewed and approved by the Committee annually, but is flexed during the year to respond to internal and external developments. The function's coverage aligns to the Group's activities and footprint, taking account of local Internal audit requirements. 2019 saw a heavy focus on the Group's transformation programme, along with regulatory priorities such as operational resilience and conduct, as well as specific items such as the Senior Mangers & Certification Regime and client money.
The Committee formally assess the effectiveness of the function via a scorecard, which is aligned to the Group's objectives, along with assessing its independence and quality assurance practices. In addition, regular reporting is provided to the Committee to illustrate plan progress, and the status of implementation of recommendations.
The audit function continued to progress its own functional transformation over 2019, with a move to agile auditing, increasing efficiency and effectiveness; whilst also continuing to invest in data and analytics capability.
The Chief Internal Auditor reports to the Committee Chairman. During the year, regular dialogue takes place, at least monthly, between the Committee Chairman and the Chief Internal Auditor.
The appointment
The Committee has responsibility for making recommendations to the Board on the reappointment of the External auditors, determining their independence from the Group and its management and agreeing the scope and fee for the audit. Following its review of KPMG's performance, the Committee concluded that there should be a resolution to shareholders to recommend the reappointment of KPMG at the 2020 AGM.
The members of the Committee attend some industry and governance events arranged by KPMG. The Chairman of the Committee is a director of Credit Suisse International, currently audited by KPMG, with PwC taking over the audit for 2020. Jutta af Rosenborg is a member of the supervisory board of BBGI SICAV SA, currently audited by KPMG, and a director of JPMorgan European Investment Trust which uses KPMG for tax advice on withholding tax.
The Committee complies with the UK Corporate Governance Code, the FRC Guidance on Audit Committees with regard to the external audit tendering timetable, the provisions of the EU Regulation on Audit Reform, and the Competition and Markets Authority Statutory Audit Services Order with regard to mandatory auditor rotation and tendering. The Committee will continue to follow the annual appointment process but does not currently anticipate re-tendering the audit before 2026. The audit was last subject to a tender for the financial year ended 31 December 2017.
The Board has an established policy (the Policy) setting out which non-audit services can be purchased from the firm appointed as External auditors. The Committee monitors the implementation of the Policy on behalf of the Board. The aim of the Policy, which is reviewed annually, is to support and safeguard the objectivity and independence of the External auditors and to comply with the revised FRC Ethical standards for auditors (Ethical Standards). It does this by prohibiting the auditors from carrying out certain types of non-audit services to ensure that the audit services provided are not impaired. It also ensures that where fees for approved non-audit services are significant, they are subject to the Committee's prior approval. KPMG has implemented its own policy preventing the provision by KPMG of non-audit services to FTSE 350 companies which are audit clients.
The services prohibited by the Policy are in line with the Ethical Standards and include:
�� Tax services, other than in exceptional circumstances and subject to specific Audit Committee approval in line with ethical standards
�� Services that involve playing any part in the management of decision-making of the audited entity
�� Book-keeping and preparing accounting records and financial statements
�� Payroll services
�� Designing and implementing internal control or risk management procedures related to the preparation and/or control of financial information or designing and implementing financial information technology systems
�� Valuation services, including valuations performed in connection with actuarial services or litigation support services
�� The majority of legal services
�� Services related to the audited entity's Internal audit function
�� Services linked to the financing, capital structure and allocation and investment strategy of the audited entity, except providing assurance services in relation to the financial statements, such as the issuing of comfort letters in connection with prospectuses
�� Promoting, dealing in, or underwriting shares in the audited entity
�� The majority of human resources services
The Policy permits non-audit services to be purchased, following approval, when they are closely aligned to the External audit function and when the External audit firm's skills and experience make it the most suitable supplier.
These include:
�� Audit related services, such as regulatory reporting
�� Accounting consultations and audits in connection with proposed transactions
�� Investment circular reporting accountant engagements
�� Attesting to services not required by statute or regulation (e.g. controls reports)
�� Consultations concerning financial accounting and reporting standards not relating to the audit of the Group's financial statements
�� Other reports required by a regulator or assurance services relating to regulatory developments
�� Sustainability audits/reviews
�� Auditing IT security where this does not extend to designing and implementing internal control or risk management procedures
KPMG has reviewed its own independence in line with these criteria and its own ethical guideline standards. KPMG has confirmed to the Committee that following its review it is satisfied that it has acted in accordance with relevant regulatory and professional requirements and that its objectivity is not impaired.
Having considered compliance with our policy and the fees paid to KPMG, the Committee is satisfied that KPMG has remained independent.
The Group audit fee payable to KPMG in respect of 2019 was �4.8m (2018: KPMG �4.7m). In addition �2.1m (2018: �1.7m) was incurred on audit related assurance services. Fees for audit related assurance services are primarily in respect of client money reporting and the half year review. The Committee is satisfied that the audit fee is commensurate with permitting KPMG to provide a quality audit and monitors regularly the level of audit and non-audit fees. Non-audit work can only be undertaken if the fees have been approved in advance in accordance with the Policy for non-audit fees. Unless fees are small (which we have defined as less than �75,000), the approval of the whole Committee is now required.
Non-audit fees amounted to �1.2m (2018: �1.8m) all of which related to other assurance services (2018: �1.6m). Other assurance services in 2019 primarily related to control assurance reports (�0.7m), which are closely associated with audit work, and assurance reporting relating to fund mergers where KPMG are the auditors of the relevant funds (�0.4m). The External auditors were considered the most suitable supplier for these services taking into account the alignment of these services to the work undertaken by External audit and the firm's skill sets. The Committee also monitors audit and non-audit services provided to non-consolidated funds and were satisfied fees for those services did not impact auditor independence.
Further details of the fees paid to the External auditors for audit and non-audit work carried out during the year are set out in Note 8 of the Group financial statements.
The ratio of non-audit fees to audit and audit related assurance fees is 17% (2018: 28%). The total of audit related assurance fees (�2.1m) and non-audit fees (�1.2m) is �3.3m, and the ratio of these audit related assurance fees and non-audit fees to audit fees is 69% (2018: 75%).�As noted above the audit related assurance fees are primarily fees in relation to required regulatory reporting, where it is normal practice for the work to be performed by the External auditor.
The Committee is satisfied that the non-audit fees do not impair KPMG's independence.
Audit quality and materiality
The Committee places great importance on the quality and effectiveness of the External audit. The Senior Statutory Auditor is Jonathan Mills, who is completing his third audit as the lead audit partner. The Committee looks to the audit team's objectivity, professional scepticism, continuing professional education and its relationship with management, all in the context of regulatory requirements and professional standards. Specifically:
�� The Committee discussed the scope of the audit prior to its commencement
�� The Committee reviewed the annual findings of the Audit Quality Review team of the FRC in respect of KPMG's audits. We requested a formal report from KPMG of the applicability of the findings to Standard Life Aberdeen both in respect of generally identified failings and failings specific to individual audits. We were satisfied insofar as the issues might be applicable to Standard Life Aberdeen's audit, that KPMG had proper and adequate procedures in place for our audit.
�� The Committee approved a formal engagement with the auditor and agreed its audit fee
�� The Committee Chairman had at least monthly meetings with our lead audit partner to discuss Group developments
�� The Committee receives updates on KPMG's work, compliance with independence and its findings
�� The Committee reviewed and discussed the audit findings including audit differences prior to the approval of the financial statements. See the discussion on materiality in the next paragraph for more detail.
We have discussed the accuracy of financial reporting (known as materiality) with KPMG both as regards accounting errors that will be brought to the Committee's attention and as regards amounts that would need to be adjusted so that the financial statements give a true and fair view. Differences can arise for many reasons ranging from deliberate errors (fraud etc.) to good estimates that were made at a point in time that, with the benefit of more time, could have been more accurately measured. Overall audit materiality has been set at �31m (2018: �32m). This equates to approximately 4.4% of normalised profit before tax (as set out in the KPMG independent auditors' report) and 5% of adjusted profit before tax. This is within the range in which audit opinions are conventionally thought to be reliable. To manage the risk that aggregate uncorrected differences become material, we supported that audit testing would be performed to a lower materiality threshold for individual reporting units. Further, KPMG agreed to draw the Committee's attention to all identified uncorrected misstatements greater than �1.6m (2018: �1.6m). The aggregated net difference between the reported pre-tax profit and the auditor's judgement of pre-tax profit was less than �8m which was significantly less than audit materiality. The gross differences were attributable to various individual components of the consolidated income statement and balance sheet. No audit difference was material to any line item in either the income statement or the balance sheet. Accordingly, the Committee did not require any adjustment to be made to the financial statements as a result of the audit differences reported by the External auditors.
KPMG has confirmed to us that the audit complies with their independent review procedures.
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The Risk and Capital Committee supports the Board in providing effective oversight and challenge of risk management and the use of capital across the Group.
I am pleased to present my report as Chairman of the Risk and Capital Committee.
Over the year, the Risk and Capital Committee has focused on ensuring the effective oversight and independent challenge of the management of risks in the business so as to ensure that we could meet the expectations of our shareholders, clients and customers.
The Committee has closely monitored developments from our regulators across the world who have increased their focus on operational resilience to further strengthen the integrity of the financial system and protect customers and clients. The overall risk environment for the Group remains at an elevated level given the combination of business transformation activity and the difficult market environment.
Key areas of focus for the Committee during 2019 were on the assessment, challenge and review of key risks arising from the ongoing transformation activity across the Group and risk and capital implications arising from the delivery of the business plan. Particular attention was given to the risks of IT disruption and data loss which could be very disruptive for our clients and customers. In light of ongoing uncertainty in the political landscape over the year, the Committee regularly assessed Standard Life Aberdeen's preparations for a disorderly Brexit scenario to ensure we continue to be able to provide our customers and clients with continuity of service, whatever the outcome.
Furthermore, the Committee continued to challenge and advise the Board in respect of key activities undertaken by the business throughout 2019, including:
�� The ongoing development of the Enterprise Risk Management (ERM) framework and the Risk transformation programme.
�� Considering aspects of the Group's ICAAP and reviewing the documentation of the first Standard Life Aberdeen wide ICAAP document following the sale of the UK and European insurance business to Phoenix in 2018 (the Sale). This included teach-in sessions on specific elements of the ICAAP
�� Reviewing the external assessment of our cyber risk exposures against the US National Institute of Standards and Technology (NIST) framework
�� Reviewing Standard Life Aberdeen's exposure to climate change and management of related risks and opportunities
Further details on this and other activities carried out by the Committee during the year can be found in the report that follows.
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Martin Pike
Chairman, Risk and Capital Committee
All members of the Risk and Capital Committee are independent non-executive Directors. The table below reflects the composition of the Committee and the members' attendance for 2019:
| Member | Attendance |
| Martin Pike, Chair | 7/7 |
| John Devine | 7/7 |
| Melanie Gee | 6/7 |
| Cathleen Raffaeli | 6/7 |
| Cecilia Reyes (first attendance in October 2019) | 2/2 |
The Committee meetings are attended by the Chief Risk Officer. Others invited to attend on a regular basis include the Chief Executive, the Chief Financial Officer, the Chief Investment Officer, Chief Operating Officer, Group General Counsel and the Chief Internal Auditor as well as the External auditors.
Regular private meetings of the Committee's members have been held during the year providing an opportunity to raise any issues or concerns with the Chairman of the Committee. The Committee's members have also held regular private meetings with the Chief Risk Officer and the Chief Internal Auditor and have been given additional access to management and subject matter experts outside of the Committee meetings in order to support them in gaining an in-depth understanding of specific topics.
Our purpose of investing for a better future results in exposure to a range of risks and uncertainties. Understanding and actively managing the sources and scale of these risks and uncertainties are key to fulfilling this purpose.
The role of the Committee is to provide the oversight and advice to the Board, and where appropriate, the board of each relevant Group company on:
�� The Group's current risk strategy, material risk exposures and their impact on the levels and allocations of capital
�� The structure and implementation of the Group's ERM framework and its suitability to react to forward-looking issues and the changing nature of risks
�� Changes to the risk appetite framework and quantitative risk limits
�� Risk aspects of major investments, major product developments and other corporate transactions
�� Regulatory compliance across the Group
Further detail on the work performed in each of these areas is set out in the report below.
In carrying out its duties, the Committee is authorised by the Board to obtain any information it needs from any Director or employee of the Group. It is also authorised to seek, at the expense of the Group, appropriate external professional advice whenever it considers this necessary. The Committee did not need to take any independent advice during the year.
Overview
The Committee operates a rolling agenda and uses each meeting to consider a range of recurring items as well as other items that are more ad hoc and/or more forward-looking in nature. An indicative breakdown as to how the Committee spent its time is shown below:
Diagram removed for the purposes of this announcement.� However it can be viewed in full in the pdf document
The key recurring items considered by the Committee are:
�� The Views on Risk report which provides a holistic assessment from the Chief Risk Officer of the key risks and uncertainties faced by the Group's businesses and the actions being taken to manage these
�� Ongoing activity to enhance and develop Standard Life Aberdeen's ERM framework, for example the Risk Appetite and Policy frameworks
�� Performance of the Group's ICAAP processes in accordance with the Capital Requirements Directive. The ICAAP supports the Committee in understanding changes to the risk profile of the Group and the capital position over the course of the year
�� Minutes from the Standard Life Aberdeen plc Enterprise Risk Management Committee (ERMC) and from those risk committees comprising non-executives that operate in Standard Life Aberdeen plc's directly-held subsidiaries
Through these recurring activities the Committee was able to challenge management's assessment of risks and to oversee the key actions being taken to manage these risks.
In addition to reviewing these recurring items the Committee provided oversight of a broad range of topics in 2019. This included consideration of:
| Jan - Mar | �� Advice provided to the Remuneration Committee regarding the delivery of performance in 2018 relative to risk appetites �� Findings included in the 2018 Internal controls report issued for Aberdeen Standard Investments �� Risk and compliance organisational design update �� Update on Standard Life Aberdeen's preparations for a disorderly Brexit �� Plans for testing, assurance reviews, and validation activity to be performed in 2019 �� Monitoring of risks related to overall transformation and integration activities |
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| Apr - Jun | �� Proposed changes to the risk appetite framework �� Overview of the steps taken to refresh the policy framework �� Update on Standard Life Aberdeen's preparations for a disorderly Brexit �� Discussion of the key points following Woodford Fund Disclosure �� Cyber risk and cyber security related matters �� Liquidity risk framework overview �� Results from stress tests and scenario analysis �� Actions taken to enhance the conduct risk framework |
| Jul - Sep | �� Update on the management of IT obsolescence �� Review of Standard Life Aberdeen's exposure to and management of climate change related risks and opportunities �� Update on Standard Life Aberdeen's preparations for a disorderly Brexit �� Pillar 2 operational risk capital requirements |
| Oct - Dec | �� The Standard Life Aberdeen ICAAP report �� Results from the 2019 stress and scenario testing programme �� Annual review of risk policies �� Monitoring and oversight regional plans for 2020 �� The combined second and third line assurance plan �� Review of the risk assessment of the business plan |
After each meeting, the Committee Chairman reports to the Board, summarising the key points from the Committee's discussions and any specific recommendations.
Standard Life Aberdeen's risk appetite framework provides a common framework to enable the communication, understanding and control of the types and levels of risk that the Board is willing to accept in its pursuit of the strategy of the Group, including the business plan objectives and the capital it requires.
The Committee has continued to support the Board through monitoring exposures against tolerances and appetites throughout the year. The Committee reviewed and proposed updates to the framework to ensure that the risk appetites and risk limits appropriately reflected changes to the risk profile in view of the ongoing transformation of the business. Additional metrics for Supplier Risk, Strategic Risk and Conduct Risk were created to strengthen our oversight in these areas. In advance of the new prudential regime for investment firms, the tolerances in relation to our capital management framework have been revised.
The Committee has received regular reporting through the Views on Risk report on each of the 12 principal risks. The Views on Risk report includes relevant dashboards on the risks, commentaries and associated management information. Through reviewing this reporting the Committee has monitored risks relative to applicable risk appetites and the resilience of the capital position under current and stressed conditions. Environmental, social and governance risks are actively managed within the business and updates on this are also included within the report. Using this material, the Committee is able to oversee, challenge and advise the Board on the Group's risk appetite, material risk exposures and the impact of these on the levels and allocation of capital.
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Key items that the Committee discussed during the year in this context included:
�� Risks relating to the status of the Group's Brexit preparations and the possibility of a disorderly exit from the EU
�� Risks associated with the delivery of the business plan
�� Enhancements to components of the Group's risk appetite framework
�� The ICAAP report produced for Standard Life Aberdeen
�� The management of cyber risk across the Group
�� Approach to management of the Group's liquidity risk framework
We received a number of one-off reports during the year which directly supported the Committee in our oversight of risk appetites, exposures and capital.
Stress testing and scenario analysis performed in 2019 also supported the Committee in understanding, monitoring and managing the risk and capital profile of the business under stressed conditions. This provided a forward-looking assessment of resilience to potentially significant adverse events affecting key risk exposures and comprised:
�� Individual stresses - looking at stresses to a range of financial variables in isolation
�� Combined stress scenarios - looking at simultaneous stresses impacting on economic conditions, flows and idiosyncratic factors specific to the Group
�� Reverse stress testing - considering extreme but plausible events, including as a result of operational, conduct or reputational risks, that have the potential to cause the business to become unviable
The Committee reviewed the results of the stress testing and scenario analysis that was performed. This included reviewing the results of three scenarios which were explored as part of the reverse stress testing exercise: a market shock with adverse impacts on our strategic investments; a significant breakdown in a key strategic relationship and the outage of a key payment mechanism.
Based on the results of the stress testing and scenario analysis, the Committee concluded there was no requirement for the business to reduce its risk exposures and that the business was resilient to extreme events as a result of the robust controls, monitoring and triggers in place to identify events quickly and the range of management actions available to help mitigate their effects. The Committee also provided oversight of the risk and capital implications of the financial reforecasts produced during the year and the strategic business plan produced in December 2019.
During the year the business continued to embed the ERM framework used to identify, assess, control and monitor the Group's risks.
The Committee has obtained assurance regarding the operation of the ERM framework through its review of regular content within the Views on Risk report. In particular we have used our review of the various risk and capital dashboards, including the consolidated dashboard on key conduct risk indicators and board risk appetite metrics to understand the Group's risk profile and the effectiveness of the framework in supporting the management of these risks.
The Committee receives reporting from the Risk and Compliance function on the results of the quarterly risk management survey of regional and functional executives which is used to support identification of key risks facing the business. The completion of this survey along with subsequent discussion of the results at the ERMC is noted as helping to drive greater risk awareness and accountability. Furthermore, through reviewing the results of the survey, the Committee has been able to ensure there is appropriate focus on the key risks facing the business.
Exceptions-based reporting is provided to the Committee through the Views on Risk report setting out any matters of significance in respect of the results of quarterly policy compliance reporting and actions being taken in response to risk events. These two items also support the Committee in performing its oversight of the ERM framework.
The Committee also receives regular reporting from the Chief Internal Auditor which provides an independent assessment of the internal control environment relating to the operation of the framework.
The Committee reviews and assesses regulatory compliance plans detailing the planned schedule of monitoring activities to be performed by the Risk and Compliance function to ensure there is appropriate coverage. Regular updates on key findings from regulatory compliance activity and progress against the plan were reported to the Committee through the Views on Risk report.
As a Committee we have closely monitored regulatory developments to understand and anticipate potential implications for the Group and the wider financial services sector. This included monitoring regulatory developments regarding statements from the European Securities and Markets Authority, the FCA and other European regulators. In particular the Committee paid close attention to developments in connection to Operational Resilience, remedies arising from the FCA's Asset Management Market Study and Liquidity Management.
The Committee has continued to rely on the work of those risk committees comprising non-executives operating in subsidiary companies to provide oversight and challenge of risks within those subsidiaries. This has included the risk committees in place for Aberdeen Standard Investments Life and Pensions Limited, Standard Life Savings Limited, Elevate Portfolio Services Limited and Standard Life (Asia) Limited.
The Committee receives updates and minutes from these committees in order to maintain awareness and oversight of risks across the Group. The Committee also reviews the terms of reference for these committees in order to ensure their remit is suitably aligned. In addition to the Committee reviewing reporting from the subsidiary risk committees, arrangements also exist for the Committee's Chairman to attend those subsidiary risk committees.
During the year the Committee provided advice to the Remuneration Committee regarding the delivery of performance in the context of incentive packages. In particular, the Committee considered whether performance had been delivered in a manner that was consistent with the Group's strategy, risk appetite and tolerances, and capital position. The provision of this advice helps ensure the Group's overall remuneration practices are aligned to the business strategy, objectives, culture and long-term interests of the Group and that individual remuneration is consistent with, and promotes, effective risk management.
The Committee reviews its remit and effectiveness annually. In 2019 this was carried out by external consultants IBE. The review included observation of a meeting, access to papers and interviews with Committee members. The key points arising from the review were:
�� The Committee has had a challenging year given the particular risk environment and the complexity of its duties, but the feedback indicates that the Committee has performed well and is making progress and continuing to fulfil its remit
�� Some Committee members commented that there was still a tendency for the Committee to spend a lot of its time discussing details, and it would benefit from keeping its focus on the bigger picture
�� In line with feedback on the Board pack, members commented that while the quality of materials is seen as high, they could be too long and complex and they would encourage the paper sponsors to simplify and reduce the levels of complexity
Overall, Board members have confidence in the Committee and its Chairman and appreciate the care and diligence with which it fulfils its duties.
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Following on from my introductory letter to the Corporate Governance statement, and together with the other relevant parts of the statement, this section covers the specific work of the Nomination and Governance Committee as it supports the Board in providing effective oversight and challenge of the governance framework.
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Sir Douglas Flint
Chairman and Chairman of the Nomination and Governance Committee
The members of the Committee are the Chairman and a number of the independent non-executive Directors. The table below reflects the composition of the Committee and the members' attendance during 2019:
| Member | Attendance |
| Sir Douglas Flint | 5/5 |
| Melanie Gee | 5/5 |
| Jonathan Asquith | 2/2 |
| John Devine | 3/3 |
| Martin Pike | 3/3 |
| � | � |
| Former member | � |
| Richard Mully | 2/2 |
| Simon Troughton | 2/2 |
Keith Skeoch and Martin Gilbert, in their CE and Deputy Chairman of Aberdeen Standard Investments roles, were invited to Committee meetings to discuss relevant topics, such as the role and membership of key executive management committees, talent development and management succession.
The Committee's role is to support the composition and effectiveness of the Board, and oversee the Group's activities to strengthen its talent pipeline. It also oversees the ongoing development and implementation of the Group's governance framework.
In this report and other parts of the corporate governance statement you can read about the Committee's role in relation to its key responsibilities.
�� Identifying and recommending Directors to be appointed to the Board and the Board Committees
�� Reviewing and assisting in the development and implementation of the Company's culture, diversity and inclusion activities
�� Reviewing Board diversity, skills and experience
�� Supporting the process and output of the Board's effectiveness review
�� Overseeing succession planning, leadership and talent management development and diversity levels throughout the Group
�� Considering how the Group should comply with developing corporate governance requirements
The Committee reports regularly to the Board so that all Directors can be involved in discussing these topics as appropriate.
An indicative breakdown as to how the Committee spent its time is shown below:
| Jan - Mar | �� Supported the Chairman transition arrangements �� Recommended the co-CE transition arrangements �� Reviewed compliance with the UK Corporate Governance Code 2016 for the 2018 ARA �� Considered the gender diversity action plan �� Considered the 2019 ethnicity action plan �� Reviewed the proposal for Board employee engagement �� Reviewed the Board Charter and Committees' terms of reference �� Recommended the appointment of the CFO | |
| Apr - Jun | �� Reviewed Board and Committee composition �� Reviewed the SID succession process �� Culture, Diversity and Inclusion action plans update �� Reviewed the process for stakeholder engagement �� Recommended the appointment of two NED Board members �� Reviewed ELT succession planning �� Reviewed ELT development activities | � |
| Oct - Dec | �� Supported the Chairman Aberdeen Standard Investments retirement process �� Culture, Diversity and Inclusion action plans update �� Supported the selection of the external facilitator for the Board Effectiveness Review �� Reviewed ELT development activities �� Reviewed ELT succession planning | � |
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An indicative breakdown as to how the Committee spent its time is shown below:
Diagram removed for the purposes of this announcement.� However it can be viewed in full in the pdf document
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The key governance activities during the year included:
�� Maintaining high-quality membership of the Board and its Committees
�� Reviewing the executive governance structures, including the move to a single CE and the rebalance between the CE role and the client relationship role
�� Oversight of our transformation programme from the perspective of the evolution of the firm's culture, strategic drivers and behaviours
�� Reviewing employee feedback from the Viewpoints survey on our purpose, values and culture and executive management's response
�� Supporting the externally facilitated Board effectiveness review for 2019 and ensuring the feedback from the 2018 review was fully considered
�� Supporting the Chairman ASI transition process
The Committee regularly reviews the Group's corporate governance framework against relevant directors' duties, generally accepted standards, guidance and best practice, and, as appropriate, recommends to the Board changes to the Board Charter.
When seeking to make Board appointments, the Committee identifies the skills, experience and capabilities needed for particular Board roles. This recognises the need to secure a pipeline of potential successors to be able to chair the Board Committees, and also the need to plan ahead to take account of the length of time served on the Board by the current independent NEDs. In addition, it also recognises the skills which the Board will need as it moves forward to oversee the implementation of its approved strategy, such as digital experience, and takes account of the Group's commitments to achieve and maintain its Board diversity target (33% by 2020).
The related role profile is then submitted to external search consultants along with the request to prepare a list of suitable candidates. The Committee then considers the potential suitable candidates and agrees a shortlist. Following interviews with potential candidates, the Committee then makes recommendations to the Board on any proposed appointment, subject always to the satisfactory completion of all background checks and regulatory notifications or approvals. The other Board members are also offered the opportunity to meet the recommended candidates. Part of this includes considering the external commitments of candidates to assess their ability to meet the necessary time commitment and whether there are any conflict of interest matters to address. This process was followed for the appointments of Stephanie Bruce, Jonathan Asquith, Cecilia Reyes and Brian McBride.
The Committee also oversees the process to recommend continued appointments, but members of the Committee do not take part in discussions when their own performance - or continued appointment - is being considered. Martin Pike's continued appointment was reviewed during the year. This was his third term of appointment, and the Committee agreed that he continued to meet all independence and time commitment expectations
The Committee regularly reviews the results of succession planning activities, including key person and retention risk, and talent development programmes across the Group.
In particular, the Committee discussed the future leadership and talent needs of the Group and how the current programmes would be revised to take account of the skills and expertise required by the Board and the executive leadership team. The programmes recognise the changing shape of the Group, and also identify both the talent available within the Group and the need for external recruitment. The programmes are led by the Chief HR Officer, with input from the CE and supported by the Group Talent and Organisation Development team. Also during 2019, the non-executive Directors held specific private discussions on Board and executive succession, the results of which fed into the overall plan.
The Committee has a key role in supporting the Board evaluation process. You can read about the 2019 review on page 61. The Committee oversaw the process to select IBE as the external facilitator and also reviews the progress to implement the recommendations of the 2018 review.
The Board's diversity statement is on page 60. The Committee has a key role in supporting this through its oversight of diversity and inclusion activities. In the Directors' report you can read about our inclusion direction, progress against which is monitored by the Committee. In the Strategic report you can read about our Gender representation, and the progress against the targets we have set. In addition, in the Sustainability report, you can read the Diversity and Inclusion section. The Global Head of Diversity and Inclusion attends the Committee at least twice a year to report on progress on delivering against our action plans and initiatives.
During the year the Committee also received updates on the initiatives on corporate culture. These included co-creating, articulating and embedding the drivers and behaviours to support our strategy, as well as the leadership role to support these, and then measurement via a proposed scorecard. This work also included the initiatives on Board employee engagement and bringing the employee's voice into the Boardroom, work which will continue to evolve in 2020.
The Committee reviews its remit and effectiveness each year. In 2019, this was carried out by external consultants IBE via an external review and IBE was appointed as the external facilitator. The review included observation of a meeting, access to papers and interviews with Committee members. The key points arising from the review were:
�� The Committee has been able to focus its work on the most important issues: succession, culture and D&I, and employee engagement
�� In particular the Committee was keen to continue its consideration of how to make the most appropriate use of the information it receives through the NED Board employee engagement channel
�� The Committee was also keen to continue to maintain its focus on supporting the delivery of action on the people issues within its remit
Overall, Board members have confidence in the effectiveness of the Committee and the way in which it performs its duties.
Remuneration Committee Chairman's statement
This report sets out what the Directors of Standard Life Aberdeen were paid in 2019 and how we will pay them in 2020, together with an explanation of how the Remuneration Committee reached its recommendations. It also sets out the proposed remuneration policy which, subject to shareholder approval at the 2020 AGM, will apply from that date. Where tables and charts in this report have been audited by KPMG LLP we have marked them as 'audited' for clarity.
The report is structured in the following sections:
�� The annual statement from the Chairman of the Remuneration Committee
�� An overview of the 2019 remuneration outcomes and the proposed remuneration policy and how it will be implemented in 2020
�� The annual remuneration report, which sets out in detail how the remuneration policy was implemented in 2019
�� The new remuneration policy, which is subject to a shareholder vote at the 2020 AGM
The Directors' remuneration report was approved by the Board and signed on its behalf by
Jonathan Asquith
Chairman, Remuneration Committee
10 March 2020
| � | Page reference |
| At a glance - 2019 Remuneration outcomes | 81 |
| At a glance - proposed Remuneration policy and 2020 implementation | 83 |
| In detail - 2019 Remuneration Outcomes | 85 |
| Shareholdings and outstanding share awards | 88 |
| Executive Directors' remuneration in context | 90 |
| Remuneration for non-executive Directors and the Chairman | 92 |
| The Remuneration Committee | 94 |
| Future remuneration policy | 96 |
This is my first report to shareholders, having been appointed to the Board and as Remuneration Committee Chair in September 2019. I would like to thank Richard Mully who served as the previous Committee Chairman, the Board, and my fellow Committee members for their support.
On appointment, I took the opportunity to meet with a number of our key institutional shareholders and their representatives as well as to undertake a review of our approach to executive remuneration. The outcome is the new remuneration policy which I now present for your approval, together with the Remuneration Committee's report on Directors' remuneration for the year ended 31 December 2019.
We recognise that it is important for all companies, not least major investors such as Standard Life Aberdeen, to consider carefully how their executives are paid. We need to be able to attract and retain talented individuals from diverse backgrounds to manage our businesses and ensure that they are appropriately incentivised. In setting the terms of remuneration for the most senior employees, we must ensure that the interests of a broad range of stakeholders including shareholders, clients, regulators and the wider workforce are respected; their trust is central to our Company and therefore of foremost importance to the pay decisions that we take.
In March 2019, it was confirmed that Keith Skeoch had been appointed as the sole CE, with Martin Gilbert remaining on the Board in his new role as Vice Chairman. Subsequently, it was announced in October 2019 that Martin would leave the Company on 30 September 2020. He relinquished his executive reports with effect from the date of that announcement. His time reduced to 4 days per week from 1 January 2020, with his remuneration (fixed and variable opportunity) pro-rated accordingly from that date. He will not seek re-election as a Director at the 2020 AGM.
Stephanie Bruce was appointed to the Board as CFO with effect from 1 June 2019. Her remuneration arrangements were disclosed as part of our Annual report and accounts 2018. The performance targets attached to her initial award are set out on page 89. Her predecessor, Bill Rattray retired from the Board on 31 May 2019 and remained employed to support transition to Stephanie until 31 December 2019. His remuneration for the period of time he was on the Board is set out on page 85 and his remaining remuneration is detailed on page 87.
It was also announced on 17 December 2019 that Rod Paris would step down from the Board with effect from 31 December 2019, while continuing his valuable work as CIO of the Company. His remuneration for the 2019 performance year, as well as the vesting and release of deferred awards granted in his capacity as an executive Director, will be delivered in accordance with existing policy. In line with this, his shareholding requirement under the current policy will remain in-force until the end of 2020.
There were also extensive changes on the non-executive Director front. Sir Douglas Flint stepped up to Chairman on 1 January following the retirement of Sir Gerry Grimstone. Richard Mully and Simon Troughton stepped down from the Board at the Annual General Meeting in May. Following my appointment on 1 September 2019, Cecilia Reyes also joined the Board as a non-executive Director and a member of the Remuneration Committee from 1 October 2019. All non-executive Directors' fee arrangements are set out on page 93.
The targets for the Executive Incentive Plan (EIP) in 2019 covered a range of focus areas that the Board regarded as critical in challenging management to drive stretch performance while operating within appropriate risk settings. The outcome of the scorecard is set out on page 82 and summarised in the table below.
| Executive Director | Final outcome (% of max) | Final outcome (% of salary) | Final outcome (�000s) |
| Keith Skeoch | 20.83% | 125% | 750 |
| Martin Gilbert | 20.83% | 83% | 498 |
| Rod Paris | 22.83% | 137% | 616 |
| Stephanie Bruce1 | 22.83% | 47% | 246 |
| Bill Rattray1 | 19.83% | 29% | 129 |
1�� Outcome (% of annual salary) has been prorated to reflect the period of time spent on the Board.
Performance against financial metrics accounts for 80% of the bonus opportunity for executive Directors. As set out in the Chairman's review, investment performance for our clients and customers improved in the year, with positive effects on their returns. Despite this improving background, the balance of financial metrics in the EIP scorecard landed below target. This has given rise to a final assessment of 8.33% of maximum on financial measures.
It should be noted that four of the financial performance metrics are included in the Underpin condition for the 2018 EIP Deferred Award. The final outcome of this award is not due to be assessed until 2022 and will be reported at that time; it is likely, however, that the result will be negatively impacted by the financial performance for 2019.
In addition to the above, the Committee set a range of non-financial (10%) and personal (10%) performance targets for the executive Directors, amounting to 20% of bonus opportunity in total. The Remuneration Committee assessed that a final score of 6.5% out of 10% of the maximum on non-financial measures was appropriate. This was driven by the following key factors:
�� A positive assessment for achievements under strategic delivery, in particular unlocking of value from our Indian stakes
�� Considerable progress on our people agenda including the formation of a new leadership team
�� Progress against key milestones for integration and transformation
Full detail on the Committee's assessment is provided on page 86 together with the achievements of each of the individual executive Directors against the personal targets which make up the final 10% of their scorecards.
To consider whether the awards generated by the scorecard were fair in the broader performance and risk context, the Remuneration Committee considered the following factors:
�� The outcome from the perspective of overall Company performance including one-off items
�� The shareholder experience during 2019
�� The input from the Risk and Capital Committee, and Audit Committee
�� The context of incentive funding across the workforce
The Remuneration Committee concluded that there were no grounds for exercising its discretion to amend the outcome of the process.
The Board changes announced in March 2019 included the transition away from the co-CEO structure and Martin Gilbert's appointment as Vice Chairman, the prospective appointment of Stephanie Bruce as Finance Director and the detailed terms of the appointment of the new Chairman.
All of these changes had remuneration implications and it became clear in the lead up to the 2019 AGM that some shareholders had concerns in this area. As such, prior to the 2019 AGM, the Chairman held discussions with a number of our largest shareholders and their representatives. Having listened to the concerns raised, the Committee approved further conditionality on the one-off deferred award made to Stephanie Bruce. This was in the form of a performance condition linked to efficiency targets and was communicated to the Stock Exchange on 30 April 2019. At the AGM 57.98% of shareholders' votes cast were in favour of the resolution to approve the Directors' remuneration report. As a result, the Company committed to consult further with shareholders and report back on their concerns and how the Company proposed to address them.
This consultation got under way as soon as practicable after my appointment as Chairman of the Remuneration Committee and involved letters to our leading shareholders and follow up meetings with them and their proxy voting advisers in the fourth quarter of 2019. In these meetings, the discussion points around the 2019 AGM were recognised to be one-off issues of which the key agenda items were:
�� Martin Gilbert's remuneration with effect from 13 March 2019 to reflect his new role as Vice Chairman. By the time of the consultation, Martin's decision to step down from this role and retire from the Company had already been announced and the issue was treated as closed.
�� Stephanie Bruce's one-off deferred award with a face value of �750,000 which was the subject of the performance condition referred to above
Stephanie Bruce was considered a critical addition to the Board to deliver our strategic plan and her recruitment from outside the financial sector presented particular challenges. As a partner at PricewaterhouseCoopers LLP, her annual emoluments were exclusively in cash and included a share of partnership profits which were relatively dependable, while not guaranteed. On leaving the partnership, she forfeited the right to these payments and transitioned to a pay model with a higher proportion of pay truly at risk. In compensation for her loss of partnership earnings going forward, the Committee felt it was appropriate to grant her a one-off deferred award, to which the performance conditions set out on page 89 were subsequently attached.
Shareholders made it clear that they had not expected the Company to use its general discretions in the remuneration policy to grant an award of this kind. On behalf of the Committee I acknowledged their concerns and agreed that prior consultation with key investors would be considered should a similar issue arise in the future. I also confirmed that assessment of performance against the targets for Stephanie Bruce's one-off award would be separately verified, noting that the first performance assessment is due to take place in June 2020 on the anniversary of her appointment.
I also took the opportunity during my shareholder meetings to discuss our thinking regarding remuneration arrangements and solicited views on the future shape and direction of executive remuneration at the Company. The encouragement received from shareholders and their representatives to consider alternative approaches and the points that they raised informed the decision by the Remuneration Committee to propose the new remuneration policy set out below.
As outlined in both the Chairman's message and the Chief Executive's review, 2019 was a pivotal year for both our industry and our business. Looking forward we need to position our Company for 2020 and beyond to ensure we are ready to meet the turbulent challenges facing markets and our industry. This demands a remuneration policy and package for our executive Directors that motivates and incentivises delivery against our plan, whilst aligning their long-term interests with those of shareholders.
Our existing remuneration policy is only two years old, but changes to the business since it was first proposed and practical issues around its implementation in the form of the current EIP have undermined its suitability. In particular, much of the current remuneration policy focuses on the achievement of budgetary targets around adjusted profits; this gives rise to four key issues:
�� The Company has a substantial and costly programme of integration and systems restructuring work to complete following the Standard Life/Aberdeen Asset Management merger and the sale of the UK and European insurance businesses to Phoenix in 2018. The cost-effective and timely delivery of these 'below the line' items is not addressed by the incentives embedded in the EIP.
�� While the existing EIP achieves a degree of shareholder alignment by delivering rewards in the form of shares, there is no explicit linkage between the quantum delivered and any of the conventional independent measures of shareholder value
�� The Phoenix transaction provides the Company with the opportunity to reorganise its capital structure via the realisation of value in non-core assets and the return of excess capital to shareholders. Since this process has little impact on Adjusted Earnings, it again falls outside the scope of the EIP.
�� The EIP has been established as a multi-year plan, with financial performance measured in the main over trailing periods of up to three years; awards are then subject to annual re-tests on challenging criteria until vesting. The complexity of the structure makes outcomes highly unpredictable and significantly weighted towards trailing performance rather than future growth, while its rigidity does not equip it well to deal with evolving strategic challenges in a fast-changing environment.
These factors, together with feedback obtained from our investors through our meetings over the last six months, have led the Committee to develop the new remuneration policy which is proposed for approval at this year's AGM. It has been designed to address the shortcomings identified above and to ensure that our remuneration policy is structured appropriately to drive delivery of our strategy and meet the following core principles:
Simple and transparent: easy for participants and wider stakeholders to understand.
Alignment to performance: executive remuneration aligned to overall performance of the Company.
Reward short and long-term performance: rewards delivery of short-term plans and long-term shareholder returns.
External landscape: considers the evolving external landscape for executive reward.
Market competitive: attracts and retains the right talent to deliver our strategy.
For simplicity and ease of understanding, the new remuneration policy is structured to conform substantially with existing market norms. It has six key features:
Base salary - set to reflect the role and experience of the relevant individual, with increases typically in line with the wider workforce, adjusted where appropriate for changes in role or responsibilities.
Benefits and pensions - aligned with the wider workforce.
Annual bonus - rewarding management for the efficient and timely execution of the stretching plan agreed with the Board over the short term (12 months), with a majority focus (75%) on financial performance. Non-financial performance (20%) makes up most of the balance, concentrating on the achievement of desired outcomes in our relationships with our customers and our people. The remaining 5% is reserved to reward the achievement of specific personal targets set for each of the executive Directors. Underpinning the final outcome is Board discretion, where Risk and Conduct matters are considered along with any other contextual references such as sustainability of outcomes. Given the importance of these aspects, they can have a substantial impact on final awards, notwithstanding performance against the targets set.
Long-Term Incentive Plan (LTIP) - aligning management expectations with those of the Board and shareholders over the long term (five years), with a three year performance measurement period and subsequent two year retention period. Performance measures are linked to the creation of long-term shareholder value and must include a minimum of two measures of which one should be absolute and one relative in nature.
Shareholding requirement - remains 500% of salary for CE and 300% for CFO. For executive Directors serving from this year's AGM the post-employment shareholding requirement has been extended to two years following departure from the Board.
Quantum - there is no increase in the overall opportunity available to any of the executive Directors as a result of the change from the existing to the proposed remuneration policy.
A core part of the design of our new remuneration policy was to maintain a similar remuneration potential at target and maximum for executive Directors as their potential under the current policy. The proposed 2020 remuneration package for our executive Directors is detailed on page 96. The Board increased salaries in line with the salary increase being awarded to our employees. Pension has been reduced to align to the pension opportunity for our wider workforce. There has been no change to the incentive pay opportunity or the proportion potentially available to recipients in cash, as distinct from deferred. We have chosen adjusted diluted earnings per share (EPS) and relative total shareholder return (TSR) as the two shareholder value measures to be used as the basis for judging performance for the 2020 LTIP.
Further detail regarding the proposed new policy and its implementation for 2020 is summarised in the 'At a glance' section on page 83 and set out in full in the 'Future remuneration policy' section starting from page 96.
As we reported in an RNS announcement in November, the Committee consulted extensively with shareholders and their representatives in the development of this policy and their views have helped us to shape our final proposals. The shareholders that we consulted were supportive of the proposed approach going forward, and in particular:
�� Increased alignment to shareholders through the introduction of an LTIP
�� Greater levels of transparency for both management and shareholders on how performance and remuneration outcomes align through a simplified model for delivery which removes trailing performance measures and performance retests
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Shareholders and their representative bodies also provided helpful commentary which have guided the implementation of the new policy for our executives in 2020. I thank them for both their time and contribution.
To help you navigate the report effectively, I would like to draw your attention to the 'At a glance' sections between pages 81 and 84 which summarise both the outcomes for 2019 and also the proposed new remuneration policy and its implementation in 2020. Further detailed information is then set out in the rear sections of the report for your reference as required.
On behalf of the Board, I invite you to read our remuneration report and welcome your feedback.
This section sets out our 2019 remuneration policy, the 2019 award outcomes for each executive Director, the performance against the executive incentive plan scorecard and the performance against each of the 2019 performance measures contained in this scorecard.
This chart shows the outcome for each executive Director based on 2019 performance compared to the maximum opportunity.
Diagram removed for the purposes of this announcement.� However it can be viewed in full in the pdf document
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2019 Remuneration outcomes (long-term incentive awards)
| � Both Keith Skeoch (Executive LTIP) and Rod Paris (SLI LTIP) were granted LTIP awards in 2017, prior to the merger with a performance period ending 31 December 2019. The Committee reviewed the performance conditions attached to these awards and assessed that performance had not met the minimum threshold required to vest. The awards will lapse in full. More detail on the performance conditions can be found on page 88. � | Diagram removed for the purposes of this announcement.� However it can be viewed in full in the pdf document � � |
In determining the final outcome for the EIP, the Remuneration Committee took advice from the Risk and Capital Committee and the Audit Committee, while also considering culture and conduct, the shareholder experience and pay for the wider workforce. As a result of this, the Committee concluded that there would be no further discretion applied to the scorecard outcome. The following table sets out the final outcome for the 2019 EIP, including the personal performance assessment. The table also details the final value derived for each individual.
| � | Financial metrics (maximum 80%) | Non-financial metrics (maximum 10%) | Personal Performance (maximum 10%) | Formulaic outcome (% of maximum) | Board approved final outcome (% of maximum) | Maximum opportunity (% of salary) | Total payable (% of salary) | Total payable (�000s) | EIP cash (�000s) | EIP deferred (�000s)1 |
| Keith Skeoch | 8.33% | 6.5% | 6.0% | 20.83% | 20.83% | 600% | 125% | 750 | 187 | 563 |
| Martin Gilbert2 | 8.33% | 6.5% | 6.0% | 20.83% | 20.83% | 399% | 83% | 498 | 124 | 374 |
| Rod Paris | 8.33% | 6.5% | 8.0% | 22.83% | 22.83% | 600% | 137% | 616 | 154 | 462 |
| Stephanie Bruce3 | 8.33% | 6.5% | 8.0% | 22.83% | 22.83% | 350% | 47% | 246 | 61 | 185 |
| Bill Rattray4 | 8.33% | 6.5% | 5.0% | 19.83% | 19.83% | 350% | 29% | 129 | 32 | 97 |
1��� Deferred awards will be made in 2020, in the form of nil cost options under the Deferred Bonus Plan rules. Performance Underpins are applied, as set out on page 87.
2��� Martin Gilbert's total opportunity was 600% of salary until the 13 March 2019 and 350% of salary thereafter as a result of his change in role to Vice Chairman of the Company.
3��� Stephanie Bruce's total opportunity was 350% of salary from 1 June 2019 to 31 December 2019.
4��� Bill Rattray retired from the Board on 31 May 2019. The EIP outcome has been pro-rated to reflect the period of time spent on the Board.
The following chart shows performance against the target range for each of the financial and non-financial metrics which form the EIP. Financial metrics contribute a maximum of 80% of the outcome, with non-financial metrics contributing a maximum of 10% of the outcome. Further detail on the assessment of the performance conditions, including highlights from the personal performance assessment (which account for a maximum of 10% of the final outcome) can be found on page 86.
Diagram removed for the purposes of this announcement.� However it can be viewed in full in the pdf document
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The following table describes the remuneration policy applicable in 2019. A comparison between the current and the proposed policy is presented on page 84.
| Salary: Core reward for undertaking the role, normally reviewed annually. |
| Pension and Benefits: Provides market competitive cost-effective benefits. |
| Executive Incentive Plan: A single incentive plan designed to reward the delivery of the Company's business plan in a range of financial and non-financial areas. Performance assessed against a range of key financial, non-financial and personal performance measures. Performance is measured both on annual and, where appropriate, trailing performance of up to three years. Awards are delivered as follows: �� 25% in the form of cash �� 75% in the form of a deferred award (subject to Underpin conditions which are measured over three years from award) �Vested awards are subject to a holding period until the fifth anniversary of the grant date. |
| Shareholding guidelines: Executive Directors are required to build up substantial interests in the Company. The shareholding requirement for the Chief Executive is 500% of salary, and 300% of salary for other directors. Executive Directors are required to hold shares to the value of the shareholding requirement for one year post-cessation. |
This section sets out our proposed 2020 remuneration policy (and compares this to our current policy), 2020 implementation of this policy (including a comparison to 2019) and the 2020 performance measures and targets that will be used to determine outcomes.
As referred to in the Chairman's statement, a new policy has been proposed for implementation in 2020. The tables below summarise the key elements and implementation of the policy. Details of how our proposed policy supports the delivery of our strategy can be found on page 99. The policy for Chairman and non-executive Director fees remains unchanged and is set out on page 104.
| Salary: Core reward for undertaking the role, normally reviewed annually. Change from current policy: No change |
| Pension and benefits: Provides a competitive and flexible retirement benefit that does not create an unacceptable level of financial risk or cost to the Company. Provides market competitive cost effective benefits. The level of pension and benefits is reviewed periodically in line with the opportunity offered to other employees in the Company. Change from current policy: Reduction in pension quantum proposed. This is to bring executive Director pension into line with the opportunity available to the wider workforce. |
| Bonus: Annual plan designed to reward the delivery of the Company's business plan in a range of financial and non-financial areas. �� Performance assessed against key financial, non-financial and personal performance measures �� Awards will vest at 25% for threshold performance, 50% for target performance and 100% for maximum performance with straight line vesting between these points �� Awards are delivered 50% in the form of cash and 50% in the form of a deferred award. The deferred award is delivered in shares and vests in equal tranches over three years. Retention is applied as required by regulation. Cash and deferred awards are subject to malus and clawback. Change from current policy: The EIP is replaced by an annual bonus and LTIP award. Annual bonus performance will be assessed against forward looking metrics measured over 12 months, rather than based on trailing performance. |
| Long-Term Incentive Plan (LTIP): Designed to incentivise and reward long-term performance and shareholder value creation. �� Performance measures will include an absolute and relative measure �� Awards are subject to a three-year performance period with vested awards subject to a further two-year holding period �� Awards are subject to malus and clawback �� The first LTIP award will be made following the 2020 AGM, subject to the policy's approval Change from current policy: New element of remuneration (partly replaces the EIP). |
| Shareholding guidelines: Executive Directors are required to build up substantial interests in the Company. The shareholding requirement for executive Directors remains at 500% of salary for the CE and 300% of salary for the CFO. Executive Directors are required to hold shares to the value of the shareholding requirement for two years following departure from the Board. Martin Gilbert will be subject to the policy in place at the time of the announcement of his departure, i.e. one year post-cessation of employment with the Company. Change from current policy: Increase from current post employment shareholding requirement of 12 months to 24 months. |
| Quantum: There is no increase in the quantum of opportunity available to any of the executive Directors as a result of the change from the existing to the proposed remuneration policy. |
At the beginning of each year the Remuneration Committee sets the performance measures for the annual bonus based on strategic priorities. For 2020, 75% of the measures are based on financial performance, with the remainder based on non-financial performance. The Remuneration Committee retains an appropriate level of flexibility to apply discretion to ensure that remuneration outcomes are reflective of a holistic view of overall performance. The discretionary assessment will include, but will not be limited to risk, compliance and conduct, and culture.
The following table sets out the performance scorecard to be used based on the Company's strategic priorities:
| Focus area | Weighting | Example performance metrics to be used to assess 2020 |
| Positioning for growth | 45% | Investment performance, Fee based revenue, Cost/income ratio |
| Delivering for our shareholders | 30% | Profitability and delivery of key strategic initiatives |
| Investing in our people and our customer experience | 20% | Performance against key people objectives (including people engagement and diversity) and key customer objectives (including customer advocacy) |
| Individual objectives | 5% | Key individual deliverables |
Due to commercial sensitivity, actual targets and ranges will be disclosed at the end of the performance period.
The 2020 LTIP award
The first award under the LTIP plan will be made following the 2020 AGM, subject to the approval of the remuneration policy. Targets for the award will be measured for the three-year period ended 31 December 2022 and are set as follows:
| Performance measure | Weighting | Threshold performance (25% vesting) | Stretch performance (100% vesting)1 |
| Adjusted diluted EPS Compound Annual Growth Rate (CAGR) | 50% | 5% | 15% |
| Relative TSR2 | 50% | Equal to the median company | Equal to, or in excess of, the upper quartile company |
1��� Straight line vesting occurs between threshold and maximum.
2�� Relative TSR will be calculated using a 90-day average share price, both at the beginning and at the end of the performance period.�The 90-day averaging will commence 45 days prior to the beginning and also 45 days prior to the end of the performance period. The calculation will be performed on a local currency basis.
The proposed peer group1 to be used for the relative TSR measure consists of the following global asset management peers:
| Affiliated Managers | DWS Group | Jupiter Fund Management | SEI Investments |
| Alliance Bernstein | Eaton Vance | M&G | St James's Place |
| Ameriprise Financial | Franklin Resources | Man Group | T Rowe Price Group |
| Amundi | Invesco | Quilter | � |
| Ashmore Group | Janus Henderson Group | Schroders | � |
1�� This peer group will be subject to re-evaluation throughout the performance period to adjust for the effects of corporate events such as mergers and acquisitions, with substitutes introduced where necessary to maintain the approximate size and comparability of the group.
The following chart compares the implementation of the previous policy to the proposed policy. Salary and pension for 2020 shown below includes the following adjustments:
�� Salary of �615k for the CE, and �538k for the CFO (representing a 2.5% increase, in line with the wider workforce)
�� Pension of 18% of salary (a reduction from 20% of salary, and in line with the maximum contribution in place across the wider workforce)
Diagram removed for the purposes of this announcement.� However it can be viewed in full in the pdf document
�
The Committee recognises that the split between annual bonus and LTIP is typically more heavily weighted towards the longer term performance. Under the new policy, the maximum variable opportunity is 300% of salary for the annual bonus, and 500% of salary for the LTIP, with a maximum total combined variable award of 700% of salary. The Committee therefore retains flexibility to vary the balance between short and long-term remuneration in the future.
The terms of Martin Gilbert's retirement were agreed at the time of the announcement relating to his departure. In line with the prevailing policy at that time, Martin Gilbert will continue to receive a pension of 20% of salary until his departure. He will have a maximum opportunity for 2020 Annual Bonus of 204% of salary, to be pro-rated for time served (he will not be eligible to receive a 2020 long-term incentive award). His salary will remain as �480,000, reflecting the pro-rated value based on his working four days per week.
This section reports remuneration awarded and paid at the end of 2019 in further detail, including the performance Underpins to be applied to the EIP deferred awards granted in 2020 and payments to past Directors.
Single total figure of remuneration - executive Directors (audited)
The following table sets out the single total figure of remuneration for each of the executive Directors who served as a Director at any time during the financial year ending 31 December 2019:
| Executive Directors | � | Basic salary for year | Taxable benefits in year | Pension allowance paid in year | Other payments �000s2 | Fixed pay sub-total | EIP paid in cash3 | EIP deferred4 �000s | Long-term incentives with performance period ending | Variable sub-total | Total remuneration |
| Keith Skeoch | 2019 | 600 | 1 | 120 | 1 | 722 | 187 | 563 | 0 | 750 | �1,472 |
| 2018 | 600 | 1 | 120 | 1 | 722 | - | 367 | - | 367 | �1,089 | |
| Martin Gilbert | 2019 | 600 | 1 | 120 | - | 721 | 124 | 374 | - | 498 | �1,219 |
| 2018 | 600 | 2 | 120 | - | 722 | - | 367 | - | 367 | �1,089 | |
| Rod Paris | 2019 | 450 | 1 | 90 | 1 | 542 | 154 | 462 | 0 | 616 | �1,158 |
| 2018 | 450 | 1 | 90 | 1 | 542 | 151 | 454 | 40 | 645 | �1,187 | |
| Stephanie Bruce7 | 2019 | 308 | - | 62 | - | 370 | 61 | 185 | - | 246 | �616 |
| 2018 | - | - | - | - | - | - | - | - | - | - | |
| Bill Rattray8 | 2019 | 186 | - | 37 | - | 223 | 32 | 97 | - | 129 | �352 |
| 2018 | 450 | 1 | 90 | - | 541 | 77 | 229 | 0 | 306 | �847 |
1��� This includes the taxable value of all benefits paid in respect of the relevant year. Included for 2019 are medical premiums at a cost to the group of �518 for Keith Skeoch and Rod Paris and �1,274 for Martin Gilbert.
2��� Keith Skeoch, Martin Gilbert and Rod Paris participate in the Standard Life Sharesave Plan. Keith Skeoch and Rod Paris participate in the Standard Life (Employee) Share Plan - the maximum annual award of matching shares in 2019 was �600.
3��� This figure shows the annual cash bonus paid in respect of the year.
4��� This figure shows the annual deferred EIP awarded in respect of the year. In the event that all, or part, of the award fails to satisfy the Underpin performance condition and subsequently lapses, the single figure outcome will be restated in the following Annual report and accounts.
5��� The values reported for 2018 have been restated to reflect the value of the shares vesting in respect of the three-year performance measurement period ending on 31 December 2018. Where the awards vested in 2019 the price has been restated using the share price on the vesting date. For 2018, the Executive LTIP vested at 0% and the Standard Life Investments LTIP vested at 3.175% of maximum, with the outcome restated in the table above at the vesting price of �2.5775. The previous share price used (based on the three month average to 31 December 2018) was �2.6415.
6��� For 2019, both the Executive and Standard Life Investments LTIPs failed to achieve threshold performance and will vest at 0%.
7��� Appointed 1 June 2019 - all figures reflect amounts paid/awarded since the date of appointment.
8��� Stepped down from the Board on 31 May 2019. The values shown represent the emoluments paid for the period spent on the Board.
No salary changes were made in 2019.
During 2019, all executive Directors received a cash allowance in lieu of pension contributions of 20% of base salary.
The following section contains details on the targets and the Remuneration Committee's assessment of outcomes for the period 1 January 2019 to 31 December 2019 against each of the elements of the EIP scorecard.
| � | Weighting (% of max opportunity) | Threshold | Target | Stretch | Actual | Result |
| Long-term financial | | | | | | |
| Adjusted diluted EPS (pence) 1,2 | 20% | 40.1 | 44.3 | 49.1 | 41.5 | 3.33% |
| Gross new business flows (all channels) (�bn)1,3,4 | 10% | 137.7 | 153.0 | 168.2 | 138.3 | 0.2% |
| Net new business flows (excl. Strategic insurance partners) (�bn)1,3 | 10% | (11.2) | 2.9 | 17.2 | (50.2) | 0% |
| Investment performance 5 | 20% | 50.0% | 60.0% | 70.0% | 54.8% | 4.8% |
| Short-term financial | | | | | | |
| Cost/income ratio 6 | 20% | 70.6% | 68.6% | 66.6% | 70.9% | 0% |
1��� Includes eight months of discontinued business in 2018
2��� Includes 2018 adjusted diluted EPS outcome, which is aligned to the 2018 adjusted profit outcome
3��� Flows excludes investment in cash and liquidity funds and Advice flows net of eliminations
4��� Excludes Lloyds in 2019
5��� Includes an adjustment for GARS returns below LIBOR +2.5% or equivalent
6��� Cost/income ratio targets have been restated following the HDFC Life and AM stake sales
| Quadrant | Highlights from assessment | Result (% of max) |
| Strategic (2.5%) | -����� Enabling execution of planned HDFC Life/ Asset Management share sales, delivering above target outcomes -����� �3bn gross AUM added from new products, significantly ahead of target of �2bn -����� Development of a cohesive and ambitious plan for the Group's Wealth and Platforms business -����� Transformation objectives assessed as being on track but behind stretch targets | 1.5% |
| Customer | -����� Global Brand rank remained in the top 10 of the NMG client survey, in line with the target. The Retail Gatekeeper and Retail Advisor rankings remained static. -����� Top awards received in respect of the Group's IFA platforms -����� Activity rates were measured at 112% of the stretch target -����� Strong levels of client retention from the high risk profile, above target range -����� AUM at high risk fell by approximately 1/3rd | 1.5% |
| People (2.5%) | -����� Transformation of leadership team completed during 2019, with the ELT and Global Leadership Group established, providing continued development for future succession pool -����� Most improved company in the Hampton-Alexander FTSE 100 index, to 10th position and a 9% increase in women in senior roles since 2017 to 36%, ensuring strong progress towards the Women in Finance targets -����� Voluntary turnover within the Company remains ahead of the benchmark at 9.7% -����� Implementation of an integrated HR system | 2% |
| Risk, compliance, conduct (2.5%) | -����� Global Code of Conduct attestation rate across all employees of over 99%, in line with the stretch target -����� Successful planning and execution of organisational and customer documentation changes to prepare for the full range of possible Brexit scenarios -����� Company operating at an elevated level of risk as a result of the transformation environment, however positive management action has resulted in improvements over the second half of the year -����� Improvement in Cyber threat defences and preparedness | 1.5% |
| � | Highlights from assessment | Result (% of max) |
| Keith Skeoch | -����� Leading role in strategic planning and execution of HDFC Life /AMC sales considerably enhancing value of retained shareholdings, and in planning and executing share buyback activity -����� Leading consultant recognition for improved investment performance which reflects a multi-strategy approach -����� Strong focus on the people agenda and development of a talented leadership team -����� Leadership of an improved planning and budgeting process through final stage of transition -����� Progress with Phoenix on exiting from elements of the Transitional Service Agreement and developing the strategic relationship had been slower than expected -����� Further transformation synergies identified, however with additional costs and some delay | 6% |
| Martin Gilbert | -����� Ongoing and impressive outreach to a diverse client base while successfully transitioning key client and industry relationships to senior colleagues -����� Strong management of the development plans for strategic clients and distribution and marketing agenda -����� Continuing participation in leading investor conferences to project the Aberdeen Standard Investments brand | 6% |
| Rod Paris | -����� Improvement of investment performance as a result of strong leadership on the integration of the investment teams and capabilities -����� Completing transition of the target operating model and management succession planning in core areas -����� Reinforcing focus on stewardship and environmental, social and governance activities across the company and introducing a more proactive and public engagement policy | 8% |
| Stephanie Bruce � | -����� Strong impact in first 6 months of taking over leadership of the finance function, including improved efficiency in the delivery of results reporting and target setting for our business plan -����� Enhancement of Board financial information and support for the Audit Committee. Effective oversight of the regulatory and capital management requirements and relationship building with key regulators -����� Effective management of our strong capital position to support strategic investments to grow the business and maintain our dividend policy | � 8% |
| Bill Rattray | -����� Provided support and effective handover of his finance function responsibilities to Stephanie Bruce -����� Supported Stephanie Bruce in initial dealings with the investor community and provided ad hoc input as required on complex historic matters | 5% |
Before approving the level of performance in 2019, the Remuneration Committee sought the views of the Audit Committee on material accounting, reporting and disclosure matters that it considered during the year and the Risk and Capital Committee on the management of risk within the business. When reflecting on whether the formulaic outcome could be considered fair in the context of the overall results, they took into account the feedback received as well as items including culture and conduct, shareholder experience and pay for the wider workforce.
The Remuneration Committee determined there should be no adjustments made to the EIP scores as a result of this review. The final outcome, including how this impacted the payout for each Director, is set out on page 82.
Awards will be subject to performance Underpins, measured over a three-year period. Subject to performance against the Underpins, awards will vest pro-rata over years three, four and five following grant. Awards will not be released to participants until the fifth anniversary of grant.
The following table sets out each of the performance Underpins:
| Performance measure | Weighting | Underpin level |
| Investment performance | 25% | -���� Measured based on a blend of three-year and five-year investment performance. -���� Requires average results of the three years to be at or above 55% of AUM by value to be outperforming benchmark |
| Flows | 25% | -���� Rewards a key driver of AUMA -���� Cumulative performance between 2020-2022 -���� For Gross new business flows, Underpin set at greater than or equal to �235bn (excludes flows arising from investment in cash and liquidity funds and flows from LBG) -���� For Net new business flows, Underpin set at greater than or equal to �30bn (excludes flows arising from investment in cash and liquidity funds and excludes Strategic Insurance Partners) |
| Return on adjusted equity | 25% | -���� Rewards efficient profit generation -���� Average performance between 2020 - 2022 to be 17% or higher -���� Return on equity is calculated as adjusted profit before tax divided by adjusted IFRS equity |
| Cost/income ratio including associates and joint ventures | 25% | -���� Rewards strategy of building an efficient and effective business -���� Measured based on performance in 2022 -���� Underpin set at less than or equal to 65% |
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Payments made to former Directors that have not been previously reported elsewhere are reported if they are in excess of �20,000.
Bill Rattray stepped down from the Board with effect from 31 May 2019 but remained employed until 31 December 2019 to support transition to Stephanie Bruce, after which point he left the Company. Details of his pro-rata remuneration until stepping down from the Board are included in the table on page 85. He continued to be eligible for his salary and benefits until his termination date of 31 December 2019. The amounts payable in respect of the period 1 June to 31 December 2019 include base salary, contractual benefits and pension (totalling �316k). No further payments were made to him in respect of 2019. For the remaining portion of his notice period, until 31 May 2020, Bill Rattray will be entitled to payment for his base salary, contractual benefits and pension (totalling �226k).
As Bill retired from the Company, he was treated as a good leaver for the purpose of outstanding incentive awards. In line with the respective plan rules, the following treatment applied:
�� Legacy awards under the Aberdeen Deferred Share Plan: Unvested awards will vest in full at the normal vesting date
�� Deferred awards under the EIP: Unvested awards will pay-out at the normal time, subject to performance against the Underpin conditions
Rod Paris remains employed with the Company in his role as CIO following stepping down from the Board and his outstanding incentive awards will continue to vest in line with their original terms.
As disclosed in the 2018 Directors' remuneration report, in accordance with the terms of his letter of appointment, in 2019 Sir Gerry Grimstone received fees of �190,000 and an allowance of �10,000 in respect of his six month notice period.
Subject to the Board's approval, executive Directors are able to accept a limited number of external appointments to the boards of other organisations and can retain any fees paid for these services. Significant executive Director appointments held during the year are shown below:
| Executive Director | Role and organisation | 2019 Fees |
| Keith Skeoch | Non-executive Director Financial Reporting Council | �nil |
| | Director and deputy chair of the Investment Association | �nil |
| Martin Gilbert | Non-executive Director Glencore plc | US$300,000 |
| | Chairman of the Practitioner Panel - Prudential Regulation Authority1 | �nil |
| Stephanie Bruce | Board and council member of ICAS | �nil |
| Bill Rattray | Non-executive Director Curtis Banks Group PLC | �50,833 |
1��� Stepped down from this position with effect from November 2019.
This section reports our Directors' interests in shares.
Keith Skeoch participated in the 2017 Executive LTIP, the outcome of which was dependent on the achievement of stretching performance conditions by reference to adjusted profit and net flows targets. On assessment of performance against these conditions, it was determined that the award did not meet the required thresholds against either of these measures and the award lapsed in full.
The table below sets out the adjusted performance targets for Executive LTIP awards granted in 2017:
| Performance condition | Performance measurement period | Threshold | Maximum | Actual | % Vesting |
| Cumulative Group adjusted profit before tax1 | 1 January 2017 to | �2,635m | �3,210m | �2,171m | 0% |
| Cumulative Group net flows2 | �27.7bn | �45.9bn | (�70.1bn) | 0% |
1��� These are the performance targets after the adjustments in 2017 in light of the merger and in 2018 following the transaction with Phoenix. Further adjustments were made to this target in 2019 as a result of the Lloyds Banking Group withdrawal and associate and joint venture share reduction changes. These adjustments resulted in a reduction in the threshold and maximum targets of �30m and �35m respectively. These formulaic adjustments have not resulted in a change to vesting outcome.
2��� No change was made to the net flows condition in 2017 from those originally set at grant.
Rod Paris participated in the 2017 SLI LTIP which was dependant on the achievement of adjusted profit targets and subject to Underpins relating to investment performance. After the performance conditions were assessed, it was determined that the award did not meet the required thresholds against the measure and the award lapsed in full. The actual adjusted profit targets are not disclosed as Aberdeen Standard Investments is a subsidiary of the Company and the Board deems that this is commercially sensitive information which, if disclosed, could seriously prejudice the Company's business.
| | Threshold | Target | Maximum | Actual | % Vesting |
| Cumulative adjusted profit performance | 70% of target | 100% of target | 130% of target | 59% of target | 0% |
A shareholding requirement was implemented in 2014 and amended in 2018. We continue to require executive Directors and senior management to maintain a material long-term investment in Standard Life Aberdeen plc shares. The Remuneration Committee reviews progress against the requirement annually and retains discretion to require executive Directors to purchase shares to meet the requirement. Personal investment strategies (such as hedging arrangements) are not permitted. For the purpose of the shareholding requirement, awards qualifying include 50% of the value of deferred awards held by the executive Directors that have vested but not been exercised and 50% of the value of long-term incentive awards that are no longer subject to a performance condition but have not been exercised (as a proxy for the tax due on exercise of the awards). All executive Directors have complied with the current requirement as at 31 December 2019, with the exception of Stephanie Bruce who was appointed during 2019.
The following table shows the total number of Standard Life Aberdeen plc shares held by the executive Directors and their connected persons:
| � | Total number of shares owned at 1 January 2019 | Shares acquired during the period 1 January 2019 to 31 December 2019 | Total number of shares owned at 31 December 20191 | Shares acquired between 31 December 2019 and 9 March 2020 |
| Keith Skeoch | 2,386,031 | 49,195 | 2,435,226 | 54 |
| Martin Gilbert | 431,161 | - | 431,161 | - |
| Rod Paris | 671,722 | 9,093 | 680,815 | - |
| Stephanie Bruce | - | - | - | - |
| Bill Rattray | 1,525,603 | - | 1,525,603 | - |
The following table shows the number of qualifying awards included in assessing achievement towards the shareholding requirement, as at 31 December 2019:
| � | Qualifying awards | � | � | � | � | |
| � | Number of shares available as unrestricted vested deferred awards | Number of shares under option under long-term incentive plans which are no longer subject to performance conditions | Total qualifying holding (shares held from table above) and 50% of qualifying awards | Value1 of holding | Shareholding requirement | Total of the value of shares (from table above) and 50% of the value of qualifying awards at 31 December 2019 as a % of salary |
| Keith Skeoch | - | 360,355 | 2,615,404 | �8,581,139 | 500% | 1430% |
| Martin Gilbert | 1,157,710 | - | 1,010,016 | �3,313,863 | 300% | 552% |
| Rod Paris | - | 53,017 | 707,324 | �2,320,728 | 300% | 516% |
| Stephanie Bruce | - | - | - | - | 300% | N/A |
| Bill Rattray | 746,831 | - | 1,899,019 | �6,230,680 | 300% | 1385% |
1��� The closing price at 31 December 2019 used to determine value was 328.10 pence.
Under the proposed remuneration policy set out on page 96, which is subject to approval at the 2020 AGM, an executive Director will have to hold shares up to the value of their shareholding requirement for 24 months post departure from the Board. The previous policy required shares up to the value of the requirement to be held for 12 months post departure. Bill Rattray continues to hold more than 300% of his salary in shares, which must be held until 31 December 2020. In line with the policy which was in place at the time of the announcement relating to his departure, Martin Gilbert will be required to hold 300% of his pro-rated salary in shares until 30 September 2021.
This table shows the total number of share options with and without performance conditions held at 31 December 2019: ��
| � | Unvested options | Unvested options without performance measures2 | Vested but unexercised options at 31 December3 | Exercised during | Aggregate gains made |
| Keith Skeoch | 1,678,540 | 360,355 | - | - | - |
| Martin Gilbert | 138,107 | 807,969 | 1,157,710 | 1,167,351 | �3,616,453 |
| Rod Paris | 1,160,882 | 53,017 | - | 15,399 | �39,953 |
| Stephanie Bruce | 281,571 | - | - | - | - |
| Bill Rattray | 86,190 | 163,960 | 746,831 | - | - |
1���� Includes LTIP awards made in 2017 and 2018 and awards granted in 2019 disclosed below, excluding, in each case, shares to be awarded in lieu of dividend equivalents.
2��� This comprises awards under the LTIP granted in 2015 and deferred bonus awards (including unvested awards under the Aberdeen Variable Pay plans). It does not include shares to be awarded in lieu of dividend equivalents. Also included are options granted under the Standard Life Sharesave Plan.
3��� This comprises awards made under the Aberdeen Variable Pay plans which are now exercisable.
4��� For Martin Gilbert, this comprises of deferred bonus awards. The dividend equivalent value of �1,706,173 for these shares was settled in cash. For Rod Paris, this comprises an award made under the 2016 Standard Life Investments LTIP. It includes shares awarded in lieu of dividend equivalents.
5��� The closing market price of Standard Life Aberdeen plc shares at 31 December 2019 was 328.10 pence and the range for the year was 231.05 pence to 336.90 pence.
The table below shows the key details of the EIP deferred awards granted in 2019:
| Participant | Type of award | Basis of award | Face value at grant | Number of shares awarded | % payable for threshold performance | Details on performance conditions |
| Keith Skeoch | Nil-cost option | Deferred Bonus1 | �367,200 | 138,107 | Not applicable | EIP deferred awards are subject to performance Underpins measured over three years as set out on page 91 in the Annual report and accounts 2018 |
| Martin Gilbert | Nil-cost option | �367,200 | 138,107 | |||
| Rod Paris | Nil-cost option | �453,600 | 170,603 | |||
| Bill Rattray | Nil-cost option | �229,163 | 86,190 | |||
| Stephanie Bruce | Nil-cost option | One-off award2 | �750,000 | 281,571 | 66.6% | See below |
1��� The share price used for the deferred bonus awards was 265.88p.
2��� The share price used for the deferred awards was 266.36p.
As set out in the announcement made on 30 April relating to the one-off award for Stephanie Bruce, efficiency targets of �350m had previously been disclosed, with �230m still to be realised at 31 December 2018. Two-thirds of her award will vest to the extent that an efficiency target of �175m is achieved. If the total remaining efficiencies of �230m are delivered by 3 June 2022, the award vests in full. Awards will be assessed based on progress made over the three years from grant, with performance measured prior to vest for each tranche. The Committee believes that the targets attached to this award are challenging, ambitious and stretching, and also central to the Company's strategic transformation. The first anniversary of the award is 3 June 2020, and vesting of the first tranche will be determined based on performance up to that date. Performance will be assessed by the Committee, with input from the Audit Committee to be received to aid the assessment of performance.
All share plans operated by the Company which permit awards to be satisfied by issuing new shares contain dilution limits that comply with the guidelines produced by The Investment Association (IA). On 31 December 2019, the Company's standing against these dilution limits was:
�� 1.56% where the guideline is no more than 5% in any 10 years under all discretionary share plans in which the executive Directors participate
�� 2.03% where the guideline is no more than 10% in any 10 years under all share plans
As is normal practice, there are employee trusts that operate in conjunction with the Executive LTIP, Standard Life Investments LTIP, the Restricted Stock Plan, the deferred elements of the Standard Life annual bonus plan and the Aberdeen Asset Management deferred plans. On 31 December 2019 the trusts held 52,644,135 shares acquired to satisfy these awards. Of these shares, 10,909,928 are committed to satisfying vested but unexercised awards. The percentage of share capital held by the employee trusts is 2.25% of the issued share capital of the Company�- within the 5% best practice limit endorsed by the IA.
The Company promotes employee share ownership with a range of initiatives, including:
�� The Standard Life (Employee) Share Plan which allows eligible employees to buy Standard Life Aberdeen plc shares directly from earnings.
A similar tax-approved plan is used in Ireland. At 31 December 2019, 1,717 individuals in the UK and Ireland were making a monthly average contribution of �64. On 31 December 2019, 2,188 individuals were Standard Life Aberdeen plc shareholders through participation in the Plan.
�� The Sharesave Plan offered in 2019 to eligible employees in the UK. This plan allows UK tax resident employees to save towards the exercise of options over Standard Life Aberdeen plc shares with the option price set at the beginning of the savings period at a discount of up to 20% the market price. At 31 December 2019, 2,479 individuals were saving towards one or more of the Sharesave offers.
Pay compared to performanceThe graph shows the difference in the total shareholder return at 31 December 2019 if, on 1 January 2009 �100 had been invested in Standard Life Aberdeen plc and in the FTSE 100 respectively. It is assumed dividends are reinvested in both. The FTSE 100 has been chosen as Standard Life Aberdeen plc is a member of this FTSE grouping. | Diagram removed for the purposes of this announcement.� However it can be viewed in full in the pdf document � |
The following table shows the single figure of total remuneration for the Director in the role of Chief Executive for the same 10 financial years as shown in the graph above. Also shown are the annual incentive awards and LTIP awards which vested based on performance in those years:
| Year ended 31 December | Chief Executive | Chief Executive single figure of total remuneration (�000s) | EIP outcome/ Annual incentive rates against maximum opportunity (%) | Long-term incentive plan vesting rates against maximum opportunity (%) |
| 2019 | Keith Skeoch | 1,472 | 21 | - |
| 20181 | Keith Skeoch | 1,089 | 10 | - |
| Martin Gilbert | 1,089 | 10 | - | |
| 20171 | Keith Skeoch | 3,028 | 82 | 70 |
| Martin Gilbert | 1,317 | 56 | - | |
| 2016 | Keith Skeoch | 2,746 | 81 | 31.02 |
| 2015 | Keith Skeoch | 1,411 | 87 | 40.77 |
| 2015 | David Nish | 2,143 | 90 | 40.77 |
| 2014 | David Nish | 6,083 | 95 | 100 |
| 2013 | David Nish | 4,206 | 75 | 64 |
| 2012 | David Nish | 5,564 | 88 | 100 |
| 2011 | David Nish | 2,601 | 77 | 63.5 |
| 2010 | David Nish | 1,971 | 83 | - |
1��� Co-CEO.
The following table compares what the Company spent on employee remuneration to what is paid in the form of dividends to the Company's shareholders. Also shown is the Company's adjusted profit before tax which is provided for context as it is one of our key performance measures:
| � | 2019 | % change | 2018 |
| Remuneration payable to all Group employees (�m)1 | 646 | (16.3%) | 772 |
| Dividends paid in respect of financial year (�m) | 495 | (11.4%) | 559 |
| Share buybacks and return of capital (�m) | 515 | (58.3%) | 1,235 |
| Adjusted profit before tax (�m)1 | 584 | (32.1%) | 860 |
1��� Includes discontinued operations in respect of the year ended 31 December 2018.
The table below shows the percentage year-on-year change in salary, benefits and annual bonus earned between the year ended 31 December 2018 and the year ended 31 December 2019 for Keith Skeoch as Chief Executive compared to the average UK-based Group employee. The Remuneration Committee considers these appropriate comparators as the Chief Executive is UK-based and the largest number of Group employees are based in the UK.
| � | % change in base salary | % change in EIP outcome1 | % change in benefits2 |
| Keith Skeoch | 0% | 104% | 0% |
| UK-based employees | 3% | 5% | 0% |
1��� The percentage change in EIP outcome for the CE reflects the Committee's discretion exercised in 2018 to reduce the vesting outcome by 50%; in 2019 the Committee concluded that no such discretionary reduction was required.
2��� The change in benefits figure is based on the change in medical premium paid by the Group on behalf of employees. Benefits do not include pension contributions for these purposes.
The table below sets out the ratio of Keith Skeoch's pay to the median, 25th and 75th percentile total remuneration of full-time equivalent UK employees in accordance with the legislation published by the Government in 2018. We have identified the relevant employees for comparison using our gender pay gap data set (snapshot data from April 2019) and updated the figures for remuneration received in respect of the 2019 performance year ending 31 December 2019 (methodology B). This was chosen by the Committee as it utilised a data set which had already been processed and thoroughly reviewed, and this enabled timely reporting for disclosure purposes. Some employing entities are excluded from the gender pay gap calculation due to the number of individuals employed by these entities being less than 250, in line with the regulations. The Committee considered this would not have a material impact on the outcome of the pay ratio calculation given the limited number of individuals this excludes, relative to the total population being captured and the range of the remuneration for those excluded individuals, which was spread across quartiles.
The remuneration paid to the individuals identified under methodology B was reviewed and considered representative of the quartiles and the trends seen across the Company on remuneration in respect of both the salary and bonus. Benefits figures were based on the medical premium paid by the Company on behalf of employees.
The ratio has increased from 2018, which reflects the outcome paid to the CE under the EIP, due to the Committee's assessment of performance in each of the relevant years.
| � | Year | Method | 25th percentile | 50th percentile | 75th percentile |
| Keith Skeoch | 2019 | Option B | 34 | 23 | 13 |
| Keith Skeoch | 2018 | Option B | 30 | 19 | 12 |
�
| � | Base salary �(�000s) | Total pay (�000s) |
| CE remuneration | 600 | 1,472 |
| 25th percentile employee | 32 | 44 |
| 50th percentile employee | 47 | 64 |
| 75th percentile employee | 71 | 117 |
Our principles for setting pay across the wider workforce are the same as for our executives, with arrangements varying in respect of proportion of the package which is linked to performance increasing for more senior roles within the Company as responsibility and accountability increases. In the data set out above, individuals received different pension contributions and benefits depending on the terms and conditions they were eligible for at the time of the merger, however bonus payments were made under the same plan. A project to harmonise terms and conditions was undertaken following a comprehensive employee consultation and engagement program. UK employees (below executive Director) are, as of 1 January 2020, subject to the same pension and benefits structures for the first time since the merger.
Base salaries are targeted at an appropriate level in the relevant markets in which the Group competes for talent. The Committee considers the base salary percentage increases for the Group's broader UK and international employee populations when determining any annual salary increases for the executive Directors.
In 2019, all employees were eligible to be considered for performance related variable remuneration. This has been designed to reward delivery of results over appropriate time horizons and includes deferred variable compensation at a suitable level for the employee's role. Variable remuneration for employees, including executive Directors, is determined as a total pool.
The Group engaged with its employee associations from an early stage in the annual remuneration cycle. The areas discussed include: external market data, economic factors, employee expectations and congruence of executive pay with that of the wider workforce in terms of overall pay budgets and approach. The Group operates a Compensation Committee consisting of the Chief HR Officer (Chair), Chief Financial Officer and Chief Risk Officer. The role of the Compensation Committee is to consider the implementation of the remuneration policy across the Group. The Compensation Committee refers its terms of reference to the Remuneration Committee for approval and the Chair of the Compensation Committee formally reports to the Remuneration Committee on all matters which fall within the Compensation Committee's remit.
Single total figure of remuneration - non-executive Directors (audited)
The following table sets out the single total figure of remuneration for each of the non-executive Directors who served as a Director at any time during the financial year ending 31 December 2019. Non-executive Directors do not participate in bonus or long-term incentive plans and do not receive pension funding:
| Non-executive Directors | � | Fees for year ended | Taxable benefits in | Total remuneration |
| Sir Douglas Flint1 | 2019 | 475 | 1 | 476 |
| � | 2018 | 14 | - | 14 |
| Simon Troughton2 | 2019 | 75 | 1 | 76 |
| | 2018 | 200 | 13 | 213 |
| Jonathan Asquith3 | 2019 | 46 | - | 46 |
| | 2018 | - | - | - |
| John Devine | 2019 | 131 | 3 | 134 |
| | 2018 | 124 | 3 | 127 |
| Melanie Gee | 2019 | 117 | 4 | 121 |
| | 2018 | 114 | 4 | 118 |
| Richard Mully2 | 2019 | 46 | 8 | 54 |
| | 2018 | 124 | 8 | 132 |
| Martin Pike | 2019 | 128 | 3 | 131 |
| | 2018 | 114 | 5 | 119 |
| Cathleen Raffaeli4 | 2019 | 149 | 3 | 152 |
| � | 2018 | 35 | - | 35 |
| Jutta af Rosenborg | 2019 | 94 | - | 94 |
| | 2018 | 94 | 1 | 95 |
| Cecilia Reyes5 | 2019 | 24 | - | 24 |
| | 2018 | - | - | - |
1��� Appointed to the Board with effect from 1 November 2018. Appointed Chairman with effect from 1 January 2019. Sir Douglas Flint is eligible for life assurance of 4x his annual fee. For 2019 this figure relates to the period 19 December-31 December which was the relevant period that cover was in place.
2��� Stepped down from the Board on 14 May 2019.
3��� Appointed to the Board with effect from 1 September 2019.
4��� Appointed to the Board with effect from 1 August 2018.
5��� Appointed to the Board with effect from 1 October 2019.
The non-executive Directors, including the Chairman, have letters of appointment that set out their duties and responsibilities. The key terms are set out in the remuneration policy, and can be found on page 104.
The service agreements/letters of appointment for Directors are available to shareholders to view on request from the Company Secretary at the Company's registered address (details of which can be found on page 258) and at the 2019 AGM. Details of the date of appointment to the Board and date of election by shareholders are set out below:
| Chairman/ non-executive Director | Initial appointment to the Board | Initial election by shareholders |
| Chairman | | |
| Sir Douglas Flint | 1 November 2018 | AGM 2019 |
| Senior Independent Director | � | � |
| Jonathan Asquith | 1 September 2019 | � |
| Non-executive Directors | � | � |
| John Devine | 4 July 2016 | AGM 2017 |
| Melanie Gee | 1 November 2015 | AGM 2016 |
| Martin Pike | 27 September 2013 | AGM 2014 |
| Cathleen Raffaeli | 1 August 2018 | AGM 2019 |
| Jutta af Rosenborg | 14 August 2017 | AGM 2018 |
| Cecilia Reyes | 1 October 2019 | � |
The following table sets out non-executive Director fees to be paid in 2020. No increases were made to the level of fees from 2019.
| Role | 2020 fees1 | 2019 fees |
| Chairman's fees2 | �475,000 | �475,000 |
| Non-executive Director fee3 | �73,500 | �73,500 |
| Additional fees: | � | � |
| Senior Independent Director | �25,000 | �25,000 |
| Chairman of the Audit Committee | �30,000 | �30,000 |
| Chairman of the Risk and Capital Committee | �30,000 | �30,000 |
| Chairman of the Remuneration Committee | �30,000 | �30,000 |
| Committee membership (Audit, Risk and Capital, Remuneration and Nomination Committees) | �10,000 | �10,000 |
| Employee engagement4 | �15,000 | �15,000 |
1��� The core fee of �73,500 paid to each non-executive Director (including the Chairman) is expected to total �662k for 2020 (2019: �588k). This is within the maximum �1,000,000 permitted under Article 87 of Standard Life Aberdeen plc's articles of association. Total fees including additional duties are expected to amount to �1,408k for 2020 (2019: �1,413k).
2��� The Chairman's fees are inclusive of the non-executive Directors' core fee and no additional fees are paid to the Chairman where they chair, or are a member of, other committees/boards. The Chairman is eligible to receive life insurance benefits with effect from December 2019.
3��� For non-executive Directors, individual fees are constructed by taking a base fee and adding extra fees for being the Senior Independent Director, chairman or member of committees and/or subsidiary boards where a greater responsibility and time commitment is required.
4��� This fee was introduced in 2019. Details on the role responsibilities are set out on page 79 of the Annual report and accounts 2018.
The following table shows the total number of Standard Life Aberdeen plc shares held by each of the non-executive Directors and their connected persons:
| � | Total number of shares owned | Shares acquired during the period 1 January 2019 to 31 December 2019 | Total number of shares owned at 31 December 2019 or date of cessation if earlier4 |
| Sir Douglas Flint | 50,374 | 38,650 | 89,024 |
| Simon Troughton1 | 64,054 | - | 64,054 |
| Jonathan Asquith2 | - | 20,000 | 20,000 |
| John Devine | 28,399 | - | 28,399 |
| Melanie Gee | 67,500 | - | 67,500 |
| Richard Mully1 | 90,116 | - | 90,116 |
| Martin Pike | 69,476 | - | 69,476 |
| Cathleen Raffaeli | - | 9,315 | 9,315 |
| Jutta af Rosenborg | 8,750 | - | 8,750 |
| Cecilia Reyes3 | - | - | - |
1��� Stepped down from the Board on 14 May 2019.
2��� Appointed to the Board with effect from 1 September 2019.
3��� Appointed to the Board with effect from 1 October 2019.
4��� There were no changes to the number of shares held by Directors between 31 December 2019 and 9 March 2020.
Sir Douglas Flint, as Chairman, is subject to a shareholder guideline holding of 100% of the value of his annual fee in Standard Life Aberdeen plc shares to be reached within four years of appointment.
Membership
During 2019 the Remuneration Committee was made up of independent non-executive Directors.
| Member | Attendance |
| Jonathan Asquith (Chair since 1 September 2019) | 2/2 |
| John Devine (acting Chair between 14 May and 1 September) | 8/8 |
| Cathleen Raffaeli | 8/8 |
| Jutta af Rosenborg | 8/8 |
| Cecilia | 2/2 |
| Richard Mully (Chair until 14 May 2019) | 4/4 |
To consider and make recommendations to the Board in respect of the total remuneration policy across the Company, including:
�� Rewards for the executive Directors, senior employees and the Chairman
�� The design and targets for any employee share plan
�� The design and targets for annual cash bonus plans throughout the Company
�� Changes to employee benefit structures (including pensions) throughout the Company
| Jan - Mar | �� 2018 Directors' remuneration report �� 2018 bonus payments and 2016 LTIP outcomes �� Set 2019 EIP scorecard targets �� Review remuneration outcomes for executive Directors and the Material Risk Taker population �� Approval of the remuneration arrangements for the incoming CFO, and departure terms for the previous CFO |
| Apr - Jun | �� Update on the external environment and feedback from AGM �� Remuneration decisions for the ELT and other senior employees within Remuneration Committee's remit �� Review of the Employee Sharesave Plan |
| Jul - Sep � | �� Review of relevant disclosures required under regulation, including CE pay ratio data �� Review of Martin Gilbert's retirement arrangements �� Mid-year review of performance against target for annual bonus and LTIP awards �� Review investor consultation material |
| Oct - Dec � | �� Review overall approach to remuneration philosophy at Standard Life Aberdeen �� Material Risk Takers and related 2019 disclosures �� Update on the regulatory position of Standard Life Aberdeen and the Committee's Terms of Reference �� Review gender pay gap data �� Update on investor consultation and consider proposals for the executive remuneration policy �� Review of the Deferred Share Plan and Discretionary Share plan rules �� Update on the terms and conditions harmonisation across the wider workforce |
During the year, the Remuneration Committee took advice from Deloitte LLP (a member of the Remuneration Consultants Group) who were appointed by the Remuneration Committee in 2017. The Remuneration Committee is satisfied that the advice given is objective and independent.
A representative from Deloitte LLP attends, by invitation, all Remuneration Committee meetings to provide information and updates on external developments affecting remuneration as well as specific matters raised by the Remuneration Committee. Outside of the meetings, the Remuneration Committee's Chairman seeks advice on remuneration matters on an ongoing basis. As well as advising the Remuneration Committee, Deloitte LLP also provided tax, risk management and consultancy services to the Company during the year. Deloitte Total Rewards and Benefits is an investment adviser to the trustees of the Standard Life Staff Pension Scheme.
Fees paid to Deloitte LLP during 2019 for professional advice to the Remuneration Committee were �294,486.
Where appropriate, the Remuneration Committee receives input from the Chairman, Chief Executive, Chief Financial Officer, Chief HR Officer, Global Head of Reward, Chief Risk Officer, and the Head of Stewardship and ESG Investments. This input never relates to their own remuneration. The Remuneration Committee also receives input from the Risk and Capital Committee and Audit Committee.
The Remuneration Committee reviews its remit and effectiveness annually. In 2019 an independent externally facilitated review was conducted by IBE. This included observation of a meeting, review of papers and interviews with Remuneration Committee members. The key points arising from the review were:
�� The Remuneration Committee had a significant period of change in 2019, due to the change in leadership, which led to some loss of momentum. However, there were positive early signs of a fresh approach under the new Chair.
�� Remuneration Committee members were considered engaged and well informed
�� Remuneration Committee reports to the Board were considered specific, concise and timely
�� Going forward, the Committee will consider holding routine private sessions at each meeting to agree how best to focus their time and review progress
We remain committed to ongoing shareholder dialogue and take an active interest in voting outcomes. As set out in the Chairman's statement, the Committee was disappointed with the outcome of the vote on the 2019 Directors' Remuneration Report. Details of the follow-up actions taken by the Committee following the vote are published in the Remuneration Committee Chairman's statement.
The remuneration policy was subject to a vote at the 2018 AGM on 29 May 2018 and the following table sets out the outcome of the vote.
| Policy (2018 AGM) | For | Against | Withheld |
| % of total votes | 97.91% | 2.09% | � |
| No. of votes cast | 1,412,472,135 | 30,105,977 | 15,014,089 |
The Directors' remuneration report was subject to a vote at the 2019 AGM on 14 May 2019 and the following table sets out the outcome.
| 2019 Directors' remuneration report | For | Against | Withheld |
| % of total votes | 57.98% | 42.02% | � |
| No. of votes cast | 607,428,291 | 440,226,225 | 89,312,048 |
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This section sets out the remuneration policy for executive Directors and non-executive Directors, which is subject to a binding vote of shareholders and will, if approved, take effect from the date of the 2020 AGM.
The Remuneration Committee agreed the following core principles designed to support our strategy, culture and values which guided the design of the remuneration framework going forward:
�� Simple and easy to understand for participants and wider stakeholders alike
�� Aligns executive remuneration with the overall performance of the Company
�� Rewards executives for the delivery of both short-term plans and long-term returns to shareholders
�� Takes into consideration the external landscape relating to executive reward
�� Is market competitive to ensure that the Company is able to attract and retain the right talent to deliver the Company's strategic ambitions
In determining the new remuneration policy, the Committee followed a robust process which included detailed discussions on the content of the policy at multiple Committee meetings. The Committee considered input from management (although decisions were taken by the Committee alone to avoid conflicts of interest), shareholders and its independent advisers.
| Base salary - there is no change in the operation of this element of pay compared to the previous policy | |
Purpose and link to strategyTo provide a core reward for undertaking the role, commensurate with the individual's role, responsibilities and experience. � � | Maximum opportunitySalaries for executive Directors are set at an appropriate level to attract and retain individuals of the right calibre and with the experience required. Whilst no maximum is set, when considering annual incremental increases the Remuneration Committee is guided by the general increase for the broader employee population. The Remuneration Committee may determine larger increases in certain circumstances, such as: development in role; change in responsibility; where a new or promoted employee's salary has been set lower than the market level for such a role and larger increases are justified as the individual becomes established in the role. |
| Operation Normally reviewed annually, taking into account a range of factors including: (i) the individual's skills, performance and experience; (ii) increases for the broader employee population; (iii) external market data and other relevant external factors; (iv) the size and responsibility of the role; and (v) the complexity of the business and geographical scope. | Performance metrics Not applicable. � � |
| Pension - the maximum opportunity has been reduced to align with that available to the wider workforce in the UK | |
| Purpose and link to strategy To provide a competitive, flexible retirement benefit in a way that does not create an unacceptable level of financial risk or cost to the Company. | Maximum opportunity Maximum employer contribution aligned to those available to the wider workforce in the relevant jurisdiction. The current maximum employer contribution available to the UK wider workforce is 18% of salary. |
| Operation Employee contributions are made to the Company's defined contribution pension arrangement, or equivalent cash allowances are paid. The level of contribution/cash equivalent is reviewed periodically taking into account the pension opportunity offered to other employees within the Company. | Performance metrics Not applicable. � |
| Benefits - there is no change to the operation of this element of pay compared to our previous policy | |
| Purpose and link to strategy To provide market competitive and cost effective benefits. � | Maximum opportunity There is no maximum value of the core benefit package. The costs associated with benefits provision are monitored and controlled by the Remuneration Committee. Maximum contributions under 'all-employee' share plans will be set in line with other employees and within the limits set by the relevant tax authority. |
| Operation In line with other employees, executive Directors are provided with a package of core benefits, which include (i) private healthcare; (ii) death in service protection; (iii) income protection (iv) reimbursement of membership fees of professional bodies; and (v) eligibility for the all employee share plan. Executive Directors are also eligible to participate in the Company's flexible benefits programme. Executive Directors are provided with a health screening assessment. Specific benefit provision may be subject to change from time to time. Additional benefits may be provided on recruitment or to support relocation with the Remuneration Committee's agreement. | Performance metrics Not applicable. � |
| Annual Bonus - this element (together with the new Long-Term Incentive Plan) replaces the Executive Incentive Plan | |
| Purpose and link to strategy To reward the delivery of the Company's business plan in a range of financial and non-financial areas and to align executives' interests to those of shareholders and our customers and clients. | Maximum opportunity The maximum award opportunity in respect of any financial year is based on role and is up to 300% of salary. |
| Operation An annual incentive programme in respect of which the performance measures, and their respective weightings and targets, are normally set annually by the Remuneration Committee. Normally 50% of the award will be paid in cash. No less than 50% will be deferred into shares vesting in equal tranches over a three-year period. A retention period may be applied, as required by regulation. Where required, for regulatory purposes, deferred awards may be made in a combination of share awards and fund awards (which are conditional rights to receive a cash sum based on the value of a notional investment in a range of Standard Life Aberdeen funds). Deferred awards may include the right to receive (in cash or shares) the value of the dividends that would have accrued during the vesting period. Awards are subject to malus and clawback. The Remuneration Committee may adjust and amend awards in accordance with the rules. | Performance metrics Performance is assessed against a range of key financial, non-financial and personal performance measures. At least 75% will be based on financial performance measures and no more than 10% will be based on personal performance measures. For threshold performance, the award opportunity is 25%, with 100% of the award payable for maximum performance. Payouts between threshold and maximum (100%) are determined on an annual basis. Details of the payout schedule will be disclosed in the relevant DRR. The Remuneration Committee exercises its judgement to determine awards at the end of the performance period, which in normal circumstances will be one financial year, and will use its discretion to amend them if material change is required to ensure that the outcome is fair in the context of overall Company and individual performance and conduct. The Risk and Capital Committee and the Audit Committee advise the Committee as part of this process to ensure that the performance outcomes have not been achieved by assuming inappropriate levels of risk. |
| Long-Term Incentive Plan - this is a new element which (together with the Annual Bonus) replaces the Executive Incentive Plan | |
| Purpose and link to strategy To align with our shareholders and promote sustainability by rewarding the delivery of long-term growth in shareholder value. | Maximum opportunity The maximum award opportunity in respect of any financial year is based on role and is up to 500% of salary. However, when combined with the annual bonus, the total incentive opportunity may not exceed 700% of salary. This means that in financial years where the Annual Bonus opportunity is set at the maximum (300% of salary), the maximum LTIP award would be 400% of salary. Up to 25% of the award vests for threshold performance |
| Operation An annual award of performance shares, normally subject to a Performance targets are normally set annually for each three-year cycle by the Remuneration Committee. Awards are subject to review by the Remuneration Committee at the end of the three-year performance period to confirm that vesting of the award is appropriate in the context of overall performance of the Company and the individual. The Committee may take advice from the Risk and Capital Committee and the Audit Committee to determine appropriate vesting. Awards may include the right to receive (in cash or shares) the value of the dividends that would have accrued over the performance and holding period. The Remuneration Committee may adjust and amend awards in accordance with the LTIP rules. Awards are subject to malus and clawback. | Performance metrics Performance metrics are set by the Remuneration Committee and are linked to the achievement of the Company's long-term strategic priorities and the creation of long-term shareholder value. LTIP awards are subject to at least two performance metrics, with at least one being absolute in nature (e.g. an earnings based metric) and one being a relative metric (e.g. a shareholder return based metric) Subject to these restrictions, the Committee retains the discretion to introduce other or additional performance metrics for future awards. Were the Committee to intend to introduce any such alternative or additional metric(s) for future awards, it would expect to consult with the Company's largest institutional shareholders in advance. For 2020, the LTIP award will be based on the following metrics: �� Adjusted diluted earnings per share (50%) �� Relative total shareholder return measured against a bespoke competitor peer group (50%) (the provisional peer group to be used for the 2020 LTIP is set out on page 84). The Remuneration Committee retains the discretion to amend the final vesting level of awards if material change is required to ensure that they reflect fairly the performance of individuals or the Company. |
| Other features | |
| Malus and clawback Malus and clawback provisions apply to annual bonus and LTIP awards. Under the malus and clawback provisions, the Remuneration Committee has the ability to reduce awards that have not yet vested (malus) and can require repayment of an award (clawback) for a period of up to five years from the date of award. The circumstances in which malus or clawback would apply, include but are not limited to: �� A material misstatement of the Company's audited financial statement �� Any failure of risk management, fraud or other material financial irregularity �� Material corporate failure �� An error in the information or assumptions on which the relevant award was paid/granted or vests, as a result of erroneous or misleading data or otherwise �� Serious misconduct by a participant or otherwise | Share ownership Executive Directors are required to build up a substantial interest in Company shares. The shareholding requirement for executive Directors remains at 500% of salary for the CE and 300% of salary for other executive Directors. The Committee retains the discretion to reduce this requirement for new joiners to align it with the higher of their maximum LTIP opportunity or 200% of salary. The post cessation of employment share ownership policy for executive Directors in place after the close of this year's AGM will require shares up to the value of the shareholding requirement to be held for a period of two years following departure from the Board. � |
Our remuneration policy is designed to support our long-term strategy of delivering shareholder value, by aligning the interests of our executive Directors with our stakeholders - including our customers, our shareholders and our people. The performance goals that are set for the short-term element of variable remuneration reward the delivery of the Company's business plan, while the long-term element promotes sustainability and alignment by rewarding the delivery of long-term growth in shareholder value. A significant proportion of variable remuneration is delivered in the form of shares and deferred over a period of time, ensuring our Directors are further aligned to the shareholder experience. The remuneration policy is also designed to support our strategic drivers, as follows:
| Our strategic drivers | How our remuneration structure supports our strategic drivers | |
| � � | High impact intelligence Harness our intellectual capital, emotional intelligence and data to generate best in class impact. | �� Investment performance is measured as part of the annual bonus assessment, incentivising best in class impact �� Personal and people metrics are considered as part of the annual assessment of award outcomes. This rewards game changing innovation and contribution to our success. |
| � | Enduring relationships Deepen our understanding of customers and clients to ensure we exceed their expectations and build relationships that last. | �� Our remuneration structure is weighted to long-term success, ensuring that executive Directors are incentivised to focus on sustainable outcomes �� Customer and client metrics for satisfaction are included as part of the annual bonus non-financial assessment �� Long-term investment performance is considered as part of the financial assessment of annual award outcomes |
| � | Connections without borders Bring the best of our business to all our markets by constantly connecting our people, capabilities and assets to deliver a seamless proposition. | �� By ensuring our performance metrics are focused on Company performance and KPIs, individuals are incentivised to deliver strong performance across all Company activity globally �� Employee engagement metrics form a part of the non-financial metrics under the Annual Bonus Plan |
| � | Future fit Build a strong organisation, positioned for growth and ready to anticipate and meet the challenges of tomorrow. | �� The focus on long-term outcomes via the LTIP incentivises and rewards future sustainable success and the creation of shareholder value �� Our new remuneration structure is transparent for executive Directors and shareholders. This enables the package to attract and retain key talent providing clear alignment between performance and reward outcomes for all our stakeholders. �� The achievement of strategic milestones sets out a number of key objectives which have been identified for future success will be recognised within the annual bonus assessment |
The remuneration framework appropriately addresses the following principles as set out in the 2018 Corporate Governance Code.
| Code provision | Standard Life Aberdeen approach |
| Clarity | Incentive arrangements are based on clearly defined financial, non-financial and individual performance metrics which are aligned with the Company's strategy for sustainable long-term growth. |
| Simplicity � | Remuneration arrangements are simple, comprising the following key elements: �� Fixed element: comprises base salary, benefits and pension, which are aligned to those offered to the majority of the workforce �� Short-term incentive: annual bonus which incentivises the delivery of financial, non-financial and individual performance metrics aligned to the Plan for the year agreed with the Board. Half of the bonus is paid in cash with the balance deferred over a period of three years. �� Long-term incentive: LTIP which incentivises financial performance over a three-year period, promoting long-term sustainable value creation for shareholders tied to established and transparent shareholder value metrics. Awards are subject to a two-year holding period post vesting. |
| Risk � | In line with regulatory requirements, remuneration arrangements across the Company are designed to ensure that they do not encourage excessive risk taking. Performance targets for incentive arrangements are set to reward delivery of the Company's business plan which is set in line with the Company's risk appetite statement. The Remuneration Committee retains the flexibility to review and amend formulaic outcomes to ensure that they are appropriate in the context of overall performance of the Company, including adherence to risk appetite limits. The Remuneration Committee takes advice from the Risk and Capital Committee and Audit Committee as part of this review. |
| Predictability � | The Remuneration scenario charts, set out on page 103, provide estimates on the potential future reward opportunity in a range of scenarios, including below threshold, target and maximum performance (including share price appreciation). Conditions around vesting are clear and understandable. |
| Code provision | Standard Life Aberdeen approach |
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| Proportionality � | Variable remuneration is directly aligned to the Company's strategic priorities (through the selection of key financial and non-financial performance metrics), with payments calibrated to ensure that payments are only made where strong performance is delivered. As noted above, the Remuneration Committee retains the flexibility to review formulaic outcomes to ensure that they are appropriate in the context of overall performance of the Company. |
| Alignment with culture � | The remuneration policy at Standard Life Aberdeen has been set to be appropriate for the nature, size and complexity of the Company, recognising variances in markets and geographies. It has been designed to support the delivery of the Company's key strategic priorities and is in the best interests of the Company and its stakeholders, as set out on page 99. A shared culture and values by employees of the Company is critical to delivery of the Company's strategic priorities. This is recognised through alignment of the remuneration policy with the wider workforce whenever possible. |
Performance measures and approach to target setting
Performance targets for the Company's incentive arrangements are set on an annual basis by the Remuneration Committee. The Committee takes into account a range of factors including business forecasts, prior year performance, degree of stretch against the performance targets in the business plan, the economic environment, market conditions and expectations.
The following table sets out details on why the performance measures for the purpose of the annual incentive plan were chosen. These metrics and the balance between them may vary over time, but financial metrics will be weighted no less than 75% of the total.
| Financial metrics | Non-financial metrics |
| Measures to support the delivery of performance in each area are set as part of the Company's annual business plan. For reasons of commercial confidentiality detailed measures will be disclosed annually in arrears as part of the remuneration policy implementation report. Performance areas are grouped by category below, together with their weightings for the 2020 performance period: �� Positioning for growth (45%): Investment performance, Fee based revenue, Cost/income ratio may be used to support delivery of financial performance as set out in the business plan �� Delivering for our shareholders (30%): Profitability and delivery of key strategic initiatives may be used to focus management on strategic priorities, delivery of shareholder value and drive improved performance in future years | Non-financial metrics chosen to focus management on the delivery of the business strategic priorities for the financial year. Metrics may be linked to factors including, but are not limited to: �� Investing in our People and our Customer experience (20%): Performance against key people objectives (including people engagement and diversity) may be used to focus management on developing organisational capability and encouraging desired behaviours. Customer objectives (including customer advocacy) may be used to measure our success in ensuring that customers remain at the forefront of our sustainable strategy �� Individual objectives (5%): Key individual deliverables will be used to focus executives on specific projects related to their leadership role which they can influence in order to drive improved performance in future years |
The following table sets out details on why the performance measures for the purpose of the Long-term Incentive Plan (LTIP) were chosen for the 2020 awards.
| Adjusted diluted earnings per share | Relative total shareholder return |
| Chosen measure of profitability and a key performance indicator for the Company. Targets the Company's ability to deliver incremental returns to the Company's shareholders and provides an indication of the Company's dividend paying capability. | Aligns executive reward with the creation of shareholder value and provides an external assessment of Company performance against relevant peers which is less influenced by market effects. |
The Remuneration Committee reserves the right to make any remuneration payments and payments for loss of office, notwithstanding that they are not in line with the policy set out above where the terms of the payment were agreed: (i) before the policy set out above, or (ii) at a time when a previous policy, approved by shareholders, was in place provided the payment is in line with the terms of that policy, or (iii) at a time when the relevant individual was not a Director of the Company and the payment was not in consideration for the individual becoming a Director of the Company. For these purposes, payments include the Remuneration Committee satisfying awards of variable remuneration. This means making payment in line with the terms that were agreed at the time the award was granted.
The key terms of the executive Directors legacy plans are set out below. All awards are subject to malus and clawback provisions.
| Overview of key terms for awards | |
| Executive Incentive Plan | Awards granted in 2019 and 2020. �� Awards (in the form of nil-cost options) granted to executive Directors under the Executive Incentive Plan prior to the approval of this policy are subject to the achievement of Underpin performance conditions relating to investment performance, flows, return on adjusted equity and cost/ income ratio performance over a three-year performance period �� Awards vest in equal tranches on the third, fourth and fifth anniversary of the grant date and are subject to a holding period until the end of the fifth anniversary of the grant date �� The Remuneration Committee has the discretion to amend the extent to which the Underpin performance conditions have been met to ensure that the outcome is fair in the context of overall Company performance �� The awards accrue dividend equivalents over the deferral and holding period |
| Executive Long-Term Incentive Plan (Executive LTIP) | Awards granted in 2016, 2017 and 2018. �� Awards (in the form of nil-cost options) granted to executive Directors under the Executive LTIP are subject to the achievement of cumulative Company operating profit before tax and cumulative Company net flows performance over three-year performance periods. Awards are subject to a two-year holding period after the end of the performance period. �� Adjustments have been made to update the profit measure to adjusted profit before tax in the 2016 and 2017 LTIP performance measures and to adjusted profit excluding spread/risk margin in the 2018 LTIP performance measures. In addition, the net flows target has been updated in the 2018 LTIP performance measures to Company growth net flows. Finally the cumulative targets which relate to the 2018 performance year onwards reflect the enlarged Company. �� The Remuneration Committee has the discretion to amend the final vesting levels of these awards if it does not consider that they reflect the overall performance of the Company and individuals. Awards are also subject to review by the Risk and Capital Committee at the end of the performance period to confirm that vesting of the award is appropriate. These awards accrue dividend equivalents over the vesting period which will normally be paid in shares on a reinvested basis. |
| Aberdeen Variable Pay in Deferred shares | �� Pre-merger awards - under the terms of the merger, existing awards granted to employees of Aberdeen under the Aberdeen Deferred Share Plan 2009 or the Aberdeen USA Deferred Share Award Plan prior to completion were exchanged for equivalent awards over shares in the Company �� Awards granted post-merger - awards (in the form of nil-cost options) that were granted to executive Directors under the Aberdeen Deferred Share Plan 2009. Awards will be released in equal tranches over five years from grant. Awards are eligible to receive dividend equivalents between the date of grant and the date of exercise, which may be paid only after the earliest vesting date has passed. |
The Committee will operate variable remuneration plans according to the respective rules of the plans. The Committee will retain flexibility in a number of areas regarding the operation and administration of these plans, including (but not limited to): change of control, changes in regulatory requirements, variation of share capital, demerger, special dividend, fund merger, winding up or similar events.
The Committee also retains the discretion within the remuneration policy to adjust targets and/or set different measures and weightings if events happen that cause it to determine that the original targets or conditions are no longer appropriate and that amendment is required so that the targets or conditions achieve their original purpose. Revised targets/measures will be, in the opinion of the Committee, no less difficult to satisfy than the original conditions.
Share awards, under the Company's share plans, may be granted as conditional share awards, nil cost options or forfeitable shares at the discretion of the Committee. Awards may at the Committee's discretion be settled in cash (for example, where required for local legal/regulatory purposes).
The Committee may accelerate the vesting and/or the release of awards if an executive Director moves jurisdictions following grant and there would be greater tax or regulatory burdens on the award in the new jurisdiction.
Remuneration policy for new executive Director appointments
| Area | Policy |
| Principles | In determining remuneration arrangements for new executive appointments to the Board (including internal promotions), the Committee applies the following principles: �� The Committee takes into consideration all relevant factors, including the calibre of the individual, local market practice and existing arrangements for other executive Directors, adhering to the underlying principle that any arrangements should reflect the best interests of the Company and its shareholders �� Remuneration arrangements for new appointments will typically align with the remuneration policy �� In the case of internal promotions, the Committee will honour existing commitments entered into before promotion |
| Components and approach | The remuneration package offered to new appointments may include any element of remuneration included in the remuneration policy set out in this report, or any other element which the Committee considers is appropriate given the particular circumstances but not exceeding the maximum level of variable remuneration set out below. In considering which elements to include, and in determining the approach for all relevant elements, the Committee will take into account a number of different factors, including (but not limited to) typical market practice and existing arrangements for other executive Directors and internal relativities. The maximum level of variable remuneration which may be awarded to a new executive Director, at or shortly following recruitment, shall be limited to 700% of salary. This limit excludes buyout awards which are in line with the policy as set out below. |
| Buyouts | To facilitate recruitment, the Committee may make an award to buy out remuneration terms forfeited on leaving a previous employer. In doing so, the Committee will adhere to regulatory guidance in relation to the practice of buyout awards to new recruits. In considering buyout levels and conditions, the Committee will take into account to the best of their ability the type of award, performance measures and the likelihood of performance conditions being met in setting the quantum of the buyout. The buyout award will reflect the foregone award in amount and terms (including any deferral or retention period) as closely as possible. Where appropriate, the Committee retains the discretion to utilise Listing Rule 9.4.2 for the purpose of making an award to buy out remuneration terms forfeited on leaving a previous employer or to utilise any other incentive plan operated by the Company. |
Within executive service contracts, the Committee aims to strike the right balance between the Company's interests and those of the executive Directors, whilst ensuring that the contracts comply with best practice, legislation and the agreed remuneration principles. Contracts are not for a fixed term, but set out notice periods in line with the executive Director's role.
| Area | Policy |
| Notice period | Our standard notice policy is: �� Six months by the executive Director �� Up to 12 months by the employer to the executive Director Executive Directors may be required to work during the notice period or take a period of 'garden leave' or may be provided with pay in lieu of notice if not required to work the full notice period. |
| Termination payments | Any payment in lieu of notice will be made up of up to 12 months' salary, pension contributions and the value of other contractual benefits. The payment may be made in phased instalments (this will be standard policy for notice periods of over six months). A duty to mitigate applies. |
| Non-compete clauses | Applies during the contract and for up to 12 months after leaving, at the Company's choice. |
| Treatment of incentive awards | For the purpose of awards under the annual bonus, long-term incentive plan and Executive Incentive Plan, approved leavers are defined as those whose office or employment comes to an end because of death, ill-health, injury or disability, redundancy, or retirement with the agreement of the employing company; the sale of the individual's employing company or business out of the Group or any other reasons at the discretion of the Committee. Annual bonus planLeavers during the award year For approved leavers, rights to awards under the annual bonus will typically be pro-rated for time in service to termination as a proportion of the performance period, and will be paid at the normal time in the normal manner (i.e. in cash/ deferred awards as appropriate and subject to performance), unless the Committee determines that payments should be accelerated (e.g. on death). For other leavers, rights to awards under the annual bonus will be forfeit. � � Leavers during the deferral period For approved leavers, outstanding deferred awards under the annual bonus will typically vest and be released at the scheduled vesting date. The Committee retains the discretion to apply time pro-rating (over the deferral period) for approved leavers and to accelerate the vesting and/or release of awards if it considers it appropriate. For other leavers, rights to deferred awards will be forfeited. Awards under the Long-Term Incentive PlanLeavers during the performance period For approved leavers, outstanding awards under the LTIP will typically be pro-rated for time in service to termination as a proportion of the performance period and will be released at the scheduled vesting date subject to performance. Subsequent holding periods will also apply. The Committee retains the discretion to dis-apply time prorating for approved leavers. For other leavers, rights to outstanding awards will be forfeited. Leavers during the holding period Vested awards subject only to a holding period will be retained and released at the scheduled date. Legacy awards under the Executive Incentive PlanLeavers during the deferral period Outstanding deferred awards under the EIP will typically be paid at the normal time, subject to performance against the Underpin performance conditions. The Committee retains the discretion to apply time pro-rating (over the deferral period) for approved leavers and to accelerate the vesting and/or release of awards if it considers it appropriate. For other leavers, rights to deferred awards will be forfeited. Legacy awards under the Aberdeen Deferred Share PlansA good leaver is defined as someone whose employment comes to an end because of death, ill-health, injury, disability, redundancy or retirement, sale of the employing company or business or any other reason at the discretion of the Remuneration Committee. Unvested awards granted to good leavers will typically vest in full at the normal vesting date, unless the Remuneration Committee decides that they should vest on the date of termination. |
| Other payments | The Committee reserves the right to make any other payments (including appropriate legal fees) in connection with an executive Director's cessation of office or employment where the payments are made in good faith in discharge of an existing legal obligation (or by way of damages for breach of such an obligation) or by way of settlement of any claim arising in connection with the cessation of that executive Director's office or employment. |
| Change of control | Outstanding awards will be treated in line with the terms of the respective plans. |
The following chart illustrates how much the current executive Directors could receive under a range of different scenarios along with a comparison to our current policy:
Diagram removed for the purposes of this announcement.� However it can be viewed in full in the pdf document
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Outcomes for the 2020 scenario chart are based on the following:
�� Minimum - fixed pay, consisting of salary and pension effective 1 April 2020 (18% of salary), and benefits (the value of taxable benefits are as shown in the Single Total Figure of Remuneration table for 2019 on page 85)
�� Target - fixed pay, 50% of the maximum bonus award, 50% of LTIP vesting
�� Maximum - fixed pay, 100% of maximum bonus award, 100% of LTIP vesting
�� Maximum + share price growth assumes share price growth of 50% for the LTIP element
Remuneration policy for non-executive Directors
No changes are being proposed to the remuneration policy for the Chairman and non-executive Directors. The policy remains as follows:
| Area | Policy |
| Approach to fees | �� Fees for the Chairman and non-executive Directors are set at an appropriate level to reflect the time commitment, responsibility and duties of the position and the contribution that is expected from non-executive Directors �� Board membership fees are subject to a maximum cap which is stated in the Company's articles of association. Any changes to the cap would be subject to shareholder approval. |
| Operation | �� The remuneration policy for non-executive Directors is to pay: (i) Board membership fees; and (ii) further fees for additional Board duties such as chairmanship or membership of a committee, the Senior Independent Director, and the chairman of subsidiary boards, in each case to take into account the additional responsibilities and time commitments of the roles. Additional fees may be paid in the exceptional event that non-executive Directors are required to commit substantial additional time above that normally expected for the role. �� The Chairman receives an aggregate fee, which includes the chairmanship of any appropriate Board committee �� The Board annually sets the fees for the non-executive Directors, other than the fee for the Chairman of the Company which is set by the Committee �� Fees are set at a market rate with reference to the level of fees paid to other non-executive Directors of FTSE100 financial services companies �� The Board retains discretion to remunerate the non-executive Directors in shares rather than cash where appropriate |
| Other items | �� The Chairman and non-executive Directors are not eligible to participate in any incentive arrangements �� Additional fees or benefits may be provided at the discretion of the Committee in the case of the Chairman, and the Board in the case of the other non-executive Directors, to reflect, for example, life assurance, housing, office, transport and other business-related expenses incurred in carrying out their role |
Non-executive Directors, including the Chairman, have letters of appointment that set out their responsibilities. The key terms are:
�� Period of appointment: A three-year term, which can be extended by mutual consent and is subject to re-election by shareholders in line with the Company's articles of association and the UK Corporate Governance Code
�� Notice periods: Six months for the Chairman. No notice period for other non-executive Directors.
�� Termination payment: There is no provision for compensation payments for loss of office for non-executive Directors
If a new Chairman or non-executive Director is appointed, the remuneration arrangements will normally be in line with those detailed in the remuneration policy for non-executive Directors above.
When setting the policy for executive Directors' remuneration, the Committee takes into account the pay and employment conditions elsewhere in the Company, recognising international variance and jurisdictional differences, where appropriate. The Committee is informed about the approach to salary increases, Company-wide benefits offerings including pensions, the structure of incentive arrangements and distribution of outcomes throughout the wider organisation, as well as the take-up of all-employee share plans, employee engagement survey results and employee morale, although it does not directly consult employees in the Company on the remuneration policy for executive Directors.
The Company applies a consistent remuneration philosophy for employees. The remuneration philosophy is reviewed at least annually by the Remuneration Committee and may be updated to ensure that this remains aligned to business strategy and regulatory requirements as well as being appropriately structured to attract, retain and incentivise our employees.�
The Remuneration Committee values the opportunity to engage in meaningful dialogue with its investors.
Prior to the 2020 AGM, as detailed in the Committee Chairman's cover statement, the Committee consulted with key institutional shareholders on the proposed policy and the changes that were being made. The proposed policy reflects the discussions with shareholders during the consultation process.
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