Investment Firm Prudential Regime (“IFPR”) Remuneration Disclosure
The following disclosures are made in accordance with the FCA Prudential Sourcebook for Investment Firms chapter 8 (“MIFIDPRU 8”) in respect of the following non-SNI MIFIDPRU investment firms, which are subject to the ‘standard’ remuneration requirements within the Royal London Group:
- Royal London Asset Management Limited (RLAM)
- Royal London Savings Limited (RLS)
These remuneration disclosures are based on the financial year ending 31 December 2022. This information is updated on an annual basis.
Decision Making Process for Remuneration
Royal London Group has a Remuneration Committee (‘the Committee’) consisting of Non-Executive Directors and advised by independent remuneration consultants. The Committee has overall responsibility for the remuneration policy across the Group companies. The Committee’s primary role is to ensure that the Group’s pay structures are in line with the Remuneration Policy aims. The Committee’s Terms of Reference are available on the Royal London website [1].
The Committee receives regular updates from the Group Chief Risk Officer, including an annual report that details how effective Royal London (and its subsidiaries) has been in managing risk within the Group’s stated risk profile.
The Committee may ask independent advisors for advice on any matters in relation to remuneration as they deem necessary. In 2022, the Committee was advised by Deloitte LLP, primarily in relation to executive director and senior management overall remuneration, variable pay, the Remuneration Policy, trends in the external market, and for perspective on regulatory compliance.
Link between pay and performance
Royal London’s remuneration schemes are designed to reward employees for their performance and contribution to the success of their business unit and the Group. In determining short-term incentive awards there are three factors which impact the overall level awarded:
- Royal London Group Performance – how well the Group performs against the Group Scorecard will determine the overall bonus funding available and is based on a mix of financial and non-financial measures.
- Business Unit/Function Performance – how well the business unit or function performs will determine what share of the bonus funding the business unit or function receives. RLAM has a separate functional scorecard to assess performance across the year and measures include financial (profit, revenue and investment performance) and non-financial (people, assurance, customer). In addition, Control Functions have separate scorecards independent from the Group; and
- Personal Performance – each employee is awarded an ‘On-Track’ or ‘Off-Track’ performance rating which reflects their performance and overall contribution to the success of the business and informs individual bonus awards. Individual performance is assessed against a range of measures depending on the nature of the role, these include fund performance, sales and behaviours.
A description of the Group Short-Term Incentive Plan (‘STIP’) and Group Long-Term Incentive Plan (‘LTIP’), the financial and non-financial measures included within the scorecards are detailed in the Royal London Group Annual Report and Accounts [2].
Remuneration structure
All employees are remunerated with fixed pay (salary, pension, and benefits) and variable payments (short and/or long-term incentives), which may be a greater proportion of total compensation than fixed salary. All variable amounts are distributed as cash, apart from awards deferred under the STIP and the LTIP where awards are invested in and converted into units within an RLAM Fund. Arrangements are in place for elements of the cash awards to be deferred for a period of up to five years.
Employees in certain roles are eligible to participate in incentive schemes that differ from the STIP or LTIP. In sales-focussed roles across the Group there are Sales Incentive Plans that determine the variable award, based on a balanced scorecard. All incentive schemes in Royal London are reviewed annually and are capped in line with the Group Remuneration Policy.
The structure of the remuneration packages for Material Risk Takers or Identified Staff is designed to be in line with the Group’s business strategy, take account of any conflicts of interest and the existing and future capital requirements of the business. Royal London’s incentive schemes are designed so they do not encourage excessive risk taking. A full description of the remuneration schemes and the Committee are contained in the Royal London Group Annual Report and Accounts [2].
Risk/Performance adjustments
Royal London also operates a Risk Adjustment policy. Risk Adjustment is any downward adjustment (collective or individual) made to variable remuneration. This includes the STIP, LTIP and any other variable pay scheme that may operate from time to time.
There are two types of risk adjustment:
Ex-ante risk adjustment
The Group identifies its key current and future risks (which include an assessment of the Group’s position against following risk appetite categories – Insurance, Capital, Liquidity, Conduct, Legal & Regulatory, Financial Crime, Third-party, Change Management, Operational Resilience, Information Security, Information Technology, Processing and People), monitors and measures them, and uses this assessment to determine whether an adjustment to the annual bonus pool is required to account for year-on-year changes in risk taken (i.e., where the level of risk taken has materially increased for a certain level of performance achieved, a downwards adjustment would be applied). Ex-ante adjustments would be made collectively (at a Group-wide, Business Area or functional level) and based on forecasted risks.
Ex-post risk adjustment
Ex-post adjustments may be collective (Group wide, Business Unit or function level) or individual adjustments. Risk events and issues are identified and monitored continuously by the Group’s Risk and Internal Audit Functions. This information is collated and used to assess whether a collective or individual adjustment is appropriate based on the issues or events identified throughout the year.
In addition, Royal London’s incentives also contain malus and clawback provisions which enables the Committee to impose further conditions on any bonus opportunity and/or award; or reduce (including to nil) the bonus opportunity and/or number of fund units by reference to which a payment or award is calculated at any time before the end of the recovery period which is 3 years (STIP) or 5 years (LTIP) from the date of grant.
Guaranteed Variable Remuneration
The Group Remuneration Policy includes provisions related to guaranteed variable remuneration. Recruitment awards are used, where appropriate, to aid the recruitment of talented individuals by ensuring that they suffer no financial loss as a result of commencing employment with the Group. They are designed to compensate for the loss of existing awards that will be forfeited on joining the Group and usually replicate the terms of the awards forgone by the employee but will be linked to Royal London Group performance. At the point a replacement buy-out award is put in place, the value of any award should be no more favourable in terms of value or conditions than the award being forfeited.
Guaranteed bonus awards are only permitted in exceptional circumstances, where the capital position of the Group is strong, for one year only and must be agreed with Group Performance and Reward team in the first instance.
Severance Pay
Employees who leave the Group will be entitled to any contractual payments in line with best practice and any contractual arrangements. Any payments made will meet the requirements of regulation and any appropriate legislation and must not reward failure or misconduct.
In determining the amount of a severance payment, the Group will always seek to minimise the cost to the Group while complying with contractual terms and consider the circumstances in place at the time.
The following illustrative criteria may be considered for the purposes of determining the amount of a severance payment (but not limited to):
- The reasons for the early cessation of employment;
- The length of an individual’s service with the Group;
- The seniority of the individual’s role within the Group; and
- The potential costs of legal fees and settlement costs of any actual dispute.
Quantitative Remuneration Disclosure - Financial Year ending 31 December 2022
In 2022, 69* individuals were designated as ‘Identified Staff’ for the Group entities highlighted above. Identified Staff are determined by reference to the criteria set out in the FCA’s MIFIDPRU Remuneration Code on Material Risk Taker identification.
Royal London’s Identified Staff include Non-Executive Directors, Executive Directors, and members of Committees with oversight of the activities of these firms, senior management and control functions heads and those individuals whose professional activities have a material impact on the firm's risk profile.
In addition to the regulatory categories Royal London also considers the following additional firm-wide criteria including those who pose a material conduct and reputational risk to the firm based on risk taking authority, decision making responsibility and who pose a conduct or reputational risk to the firm. The Remuneration Committee approves the list of Identified Staff, which is reviewed on an annual basis to ensure it remains within the risk profiles for each of the respective entities.
In respect of the financial year ending 31 December 2022, the total aggregate remuneration [3] of £92.27m was paid to colleagues of these entities. The total aggregate remuneration split between Senior Management [4], All Identified Staff and All Staff is illustrated in the table below.
| RLAM | RLS | |||||
| Senior Management | Other Identified Staff | All Staff | Senior Management | Other Identified Staff | All staff | |
| Fixed remuneration (£) | £3.79m | £8.53m | £51.99m | £1.77m | £0.47m | £4.39m |
| Variable remuneration (£) | £4.75m | £14.86m | £33.59m | £1.67m | £0.09m | £2.30m |
| Total remuneration (£) | £8.54m | £23.39m | £85.58m | £3.44m | £0.56m | £6.69m |
*This number references the number of named individuals identified for the relevant Group’s entities listed above. Some individuals may be included as Identified Staff for both entities due to the nature of their role and responsibilities.
The table below details the number and amounts of guaranteed variable remuneration awards, severance payments and the highest severance payment awarded for each entity.
| RLAM | RLS | |||||
| Senior Management | Other Identified Staff | Total | Senior Management | Other Identified Staff | Total | |
| Guaranteed variable remuneration awards | ||||||
| Guaranteed variable remuneration awards - Number of MRTs | 0 | 0 | 0 | 0 | 0 | 0 |
| Guaranteed variable remuneration awards -Total amount (£m) | £0 | £0 | £0 | £0 | £0 | £0 |
| Severance payments awarded during the financial year | ||||||
| Severance payments awarded during the financial year - Number of MRTs | 0 | 0 | 0 | 1 | 0 | 1 |
| Severance payments awarded during the financial year - Total amount (£m) | £0 | £0 | £0 | £0.15 | £0 | £0.15 |
| The amount of the highest severance payment awarded to an individual MRT (£m) | £0 | £0 | £0 | £0.15 | £0 | £0.15 |
Footnotes
[1] Royal London Remuneration Committee Terms of Reference
[2] Royal London Annual Report and Accounts 2022
[3] This figure is comprised of basic salary, car allowances, short term incentive, long term incentive awards and annual fees for Non-Executive Directors. The Royal London Long Term Incentive Plan awards are valued at their initial grant value.
[4] Senior Management refers to any Directors or Executive Committee members for these entities. Annual Fees for any Non-Executive Directors have also been used to calculate fixed remuneration.