Annual statement from the Chairman of the Remuneration Committee

I am pleased to present the
Remuneration Committee’s report
on directors’ remuneration for
the year to 31 December 2013.

Lord Turnbull
Chairman of the Remuneration Committee


Dear fellow shareholder,

I am pleased to present the Remuneration Committee’s report on directors’ remuneration for the year to 31 December 2013.

Firstly, I am delighted to welcome Philip Remnant and Anthony Nightingale, who joined the Committee in 2013. Keki Dadiseth and Michael Garrett stepped down from the Committee in 2013 following eight and nine years’ service respectively, and I would like to thank them for their contribution.

I trust that you will find this a clear and comprehensive report that illustrates the strong alignment between Prudential’s performance and our executive directors’ remuneration. To comply with new legislation regarding disclosure of executive directors’ remuneration we have changed the format of this year’s report and, in addition, the Remuneration Committee has taken into account best practice guidelines issued by shareholder representatives.

While we have endeavoured to keep the report as concise as possible, Prudential is a large and complex organisation. Each of our major business units has a market capitalisation which would independently make them a constituent of the FTSE 100, and the pay and remuneration arrangements for the respective business unit CEOs reflect the differing market practices in the geographies and industries in which they operate. As Prudential is unusual in having all of these executives on the Board, and as it is required to comply with Hong Kong as well as UK reporting requirements, our report is understandably longer than many others.

To assist shareholders with the understanding of our remuneration practices we have set out an ‘at a glance’ summary page, below. This is followed by:

As you will see, we operate a remuneration architecture which provides a clear link between pay and the achievement of the Group’s key strategic priorities and delivery of shareholder value. This consists of base salary and benefits; an annual bonus, of which a significant proportion is deferred in Prudential shares for three years; and a long-term incentive plan, all underpinned by significant shareholding guidelines.


Achievement in 2013 under our key performance measures

IFRS operating profit

2013: £2,954m, CAGR +20%

EEV new business profit

2013: £2,843m, CAGR +15%

Business unit remittances

2013: £1,341m, CAGR +18%

Total shareholder return

1 Jan 14: £434 Prudential plc - value of £100 invested on 1 January 2009, £201 International insurers - value of £100 invested on 1 January 2009

Rewarding 2013 performance

During 2013, the Group delivered further increases in new business profitability, IFRS profitability and cash generation, due to strong performances across all of our business units. This was accomplished in an environment of continued global macroeconomic uncertainty, while operating within the Group’s risk appetite, risk framework and maintaining appropriate levels of capital.

Across all of our key performance metrics the Group’s 2013 results exceed those achieved in 2012. The Remuneration Committee sets stretching performance ranges for all of its incentive plans and the bonuses awarded to executive directors reflect these excellent achievements during 2013, which have generated substantial value for our shareholders.

Strong share price growth and a step change in our dividend policy means that £100 invested in Prudential on 1 January 2009 increased to £434 by 31 December 2013. This outstanding track record means that Prudential’s shareholder return is, once more, significantly ahead of our peers in the international insurance sector over the three year performance period of our long-term incentives. As a result the awards made in 2011 under the Group Performance Share Plan will be released in full in 2014.

Further details of how the Remuneration Committee rewarded this exceptional 2013 performance are set out in the Annual report on remuneration.

Aligning 2014 pay to performance

In 2013, shareholders approved a new remuneration architecture that further improved the alignment of the Group’s reward strategy with the business strategy. As set out in the directors’ remuneration policy, we are not intending to make any changes to our remuneration architecture for 2014, or any significant changes to the metrics used.

In particular, in determining the 2014 remuneration packages the Committee was mindful of the following:

  • Maintaining our restraint on base salary increases: The 2014 salary increases for executive directors are in line with salary increase budgets for other employees across our business units;
  • Determining annual bonus metrics that remain based on challenging performance requirements closely aligned to the strategy of the Group and business units. 40 per cent of 2014 bonuses will also be deferred into shares for three years before release in 2018. Deferred shares are subject to malus provisions which mean that part or all of these amounts can be withheld in specific circumstances;
  • Continuing to ensure that long-term incentive awards only vest subject to achievement of stretching performance measures linked to the three year business plan, as well as being dependent on delivery of shareholder returns that exceeds our peers;
  • Ensuring long-term alignment between the interests of shareholders and executives by requiring executives to maintain a significant shareholding on an ongoing basis; and
  • Retaining the current maximum opportunities under the annual bonus and long-term incentive awards, other than an increase (from 225 per cent to 250 per cent of salary) to the Chief Financial Officer’s long-term incentive award.

The Chief Financial Officer’s total remuneration opportunity for 2014 has increased by 10 per cent. This reflects the increasing complexity and responsibilities of the role, together with the incumbent’s considerable performance and contribution to the Group. In making this adjustment, the Remuneration Committee were mindful of ensuring that the majority of this be provided through long-term incentive awards, so that the full value is only realised over the long term and subject to the achievement of stretching performance conditions. I am grateful for the support that our major shareholders gave for this when I discussed it with them prior to implementation.

Further details of how the Remuneration Committee has aligned 2014 packages with performance are set out in the Annual report on remuneration.

Shareholder support

Prudential maintains open and transparent communication with our shareholders of which this report forms part. During Autumn 2013, I personally met with shareholders and their representatives, who together own more than half of our share capital, to discuss our remuneration policy and its implementation in 2014.

The Remuneration Committee is extremely grateful for this feedback and support received from shareholders on Prudential’s remuneration architecture and directors’ remuneration policy, which builds on the significant vote in favour of the 2012 directors’ remuneration report.

In conclusion

I trust that you find this a clear and comprehensive report that demonstrates the link between pay and performance at Prudential.

At the AGM in May 2014:

  • Prudential’s directors’ remuneration policy for future years will be subject to a binding shareholder vote; and
  • The annual report on remuneration will be subject to an advisory vote.

I look forward to your continued support.

Lord Turnbull
Chairman of the Remuneration Committee
11 March 2014

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