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Summary of the current Directors’ remuneration policy

The Company’s Directors’ remuneration policy was approved by shareholders at the 2014 AGM. This policy came into effect following the AGM on 15 May 2014 and will apply until the 2017 AGM, when shareholders will be asked to approve a revised Directors’ remuneration policy. Details of the revised policy can be found in the New Directors remuneration policy.

The pages that follow present a summary of the current Directors’ remuneration policy. The complete policy can be found on our website at: www.prudential.co.uk/investors/governance-and-policies/directors-remuneration-policy

Remuneration for Executive Directors

Fixed pay

Element Operation Opportunity
Salary

The Committee reviews salaries annually, considering factors such as:

  • Salary increases for all employees;
  • The performance and experience of the executive;
  • Group or business unit financial performance;
  • Internal relativities; and
  • Economic factors such as inflation.

Market data is also reviewed so that salaries remain in a competitive range relative to each Executive Director’s local market.

Annual salary increases for Executive Directors will normally be in line with the increases for other employees across our business units. However, there is no prescribed maximum annual increase.

Benefits

Executive Directors are offered benefits which reflect their individual circumstances and are competitive within their local market, including:

  • Health and wellness benefits;
  • Protection and security benefits;
  • Transport benefits;
  • Family and education benefits;
  • All employee share plans and savings plans; and
  • Relocation and expatriate benefits.

The maximum paid will be the cost to the Company of providing benefits. The cost of benefits may vary from year to year but the Committee is mindful of achieving the best value from providers.

Provision for an income in retirement

Current executives have the option to:

  • Receive payments into a defined contribution scheme; and/or
  • Take a cash supplement in lieu of contributions.

Jackson’s Defined Contribution Retirement Plan has a guaranteed element (6 per cent of pensionable salary) and additional contributions (up to a further 6 per cent of pensionable salary) based on the profitability of Jackson.

Executive Directors are entitled to receive pension contributions or a cash supplement (or combination of the two) up to a total of 25 per cent of base salary.

In addition, the Chief Executive, PCA receives statutory contributions into the Mandatory Provident Fund.

Variable pay

Element Operation Opportunity
Annual bonus

Currently all Executive Directors participate in the Annual Incentive Plan (AIP).

AIP awards for all Executive Directors are subject to the achievement of financial and personal objectives. Business unit chief executives either have measures of their business unit’s financial performance in the AIP or they may participate in a business unit specific bonus plan. For example, the Chairman and CEO, NABU currently participates in the Jackson Senior Management Bonus Pool as well as in the AIP.

The financial measures used for the annual bonus will typically include profit, cash and capital adequacy. Jackson’s profitability and other key financial measures determine the value of the Jackson Senior Management Bonus Pool.

In specific circumstances, the Committee also has the power to recover all (or part of) bonuses for a period after they are awarded to executives. These clawback powers apply to the cash and deferred elements of 2015 and subsequent bonuses made in respect of performance in 2015 and subsequent years.

The Chief Executive, M&G has a bonus opportunity of the lower of six times salary or 0.75 per cent of M&G’s IFRS profit. For other Executive Directors the maximum AIP opportunity is up to 200 per cent of salary. Annual awards are disclosed in the relevant Annual report on remuneration.

In addition to the AIP, the Chairman & CEO, NABU receives a 10 per cent share of the Jackson Senior Management Bonus Pool.

Deferred bonus shares

Executive Directors are required to defer a percentage (currently 40 per cent) of their total annual bonus into Prudential shares for three years. The release of awards is not subject to any further performance conditions.

The Committee has the authority to apply a malus adjustment to all, or a portion of, an outstanding deferred award in specific circumstances. From 2015 and future awards, the Committee also has the power to recover all, or a portion of, amounts already paid in specific circumstances and within a defined time frame (clawback).

The maximum vesting under this arrangement is 100 per cent of the original deferral plus accrued dividend shares.

Prudential Long Term Incentive Plan

Currently all Executive Directors participate in the Prudential Long Term Incentive Plan (PLTIP). The PLTIP has a three-year performance period. Vesting of outstanding awards is dependent on:

  • Relative total shareholder return (50 per cent of award); and
  • Group IFRS profit (50 per cent of award); or
  • Business unit IFRS profit (50 per cent of award).

The performance measures attached to each award are dependent on the role of the executive and will be disclosed in the relevant Annual report on remuneration. The Chief Executive, M&G’s PLTIP awards are subject only to the TSR performance condition as the IFRS profit of M&G is a performance condition under the M&G Executive LTIP.

The Committee has the authority to apply a malus adjustment to all, or a portion of, an outstanding award in specific circumstances. For 2015 and future awards, the Committee also has the power to recover all, or a portion of, amounts already paid in specific circumstances and within a defined timeframe (clawback).

The value of shares awarded under the PLTIP (in any given financial year) may not exceed 550 per cent of the executive’s annual basic salary.

Awards made in a particular year are usually significantly below this limit and are disclosed in the relevant Annual report on remuneration. The Committee would consult with major shareholders before increasing award levels during the life of this policy.

The maximum vesting under the PLTIP is 100 per cent of the original share award plus accrued dividend shares.

M&G Executive LTIP

The Chief Executive, M&G currently receives awards under this plan. The incumbent receives an annual award of phantom shares each with a notional starting share price of £1. The phantom share price at vesting is currently determined by M&G’s profitability, with profit and investment performance adjustments, over the three-year performance period. Awards are settled in cash.

The Committee has the authority to apply a malus adjustment to all, or a portion of, an outstanding award in specific circumstances. For 2015 and future awards, the Committee also has the power to recover all, or a portion of, amounts already paid in specific circumstances and within a defined time frame (clawback).

The Chief Executive, M&G receives an award with an initial value of 300 per cent of salary under this plan. Maximum vesting is 100 per cent of the number of phantom shares originally awarded.

Share ownership guidelines

The guidelines for share ownership are as follows:

  • 350 per cent of salary for the Group Chief Executive; and
  • 200 per cent of salary for other Executive Directors.

Executives have five years from the implementation of these increased guidelines (or from the date of their appointment, if later) to build this level of ownership.

The full policy sets out the Committee’s powers in respect of Executive Directors joining or leaving the Board, where a change in performance conditions is appropriate or in the case of corporate transactions (such as a takeover, merger or rights issue). The policy also describes legacy long-term incentive plans under which some Executive Directors continue to hold awards.

Remuneration for Non-executive Directors and the Chairman

Non-executive Directors

Fees Benefits Share ownership guidelines

All Non-executive Directors receive a basic fee for their duties as a Board member. Additional fees are paid for added responsibilities such as chairmanship and membership of committees or acting as the Senior Independent Director. Fees are paid to Non-executive Directors in cash. Fees are reviewed annually by the Board with any changes effective from 1 July.

If, in a particular year, the number of meetings is materially greater than usual, the Company may determine that the provision of additional fees is fair and reasonable.

Travel and expenses for Non-executive Directors are incurred in the normal course of business, for example, in relation to attendance at Board and Committee meetings. The costs associated with these are all met by the Company.

It is expected that Non-executive Directors will hold shares with a value equivalent to one times the annual basic fee (excluding additional fees for chairmanship and membership of any committees).

Non-executive Directors are expected to attain this level of share ownership within three years of their appointment.

Chairman

Fees Benefits Share ownership guidelines

The Chairman receives an annual fee for the performance of the role. On appointment, the fee may be fixed for a specified period of time. Fees will otherwise be reviewed annually with any changes effective from 1 July.

The Chairman is not eligible to participate in annual bonus plans or long-term incentive plans.

The Chairman may be offered benefits including:

  • Health and wellness benefits;
  • Protection and security benefits;
  • Transport benefits; and
  • Relocation and expatriate benefits (where appropriate).

The Chairman is not eligible to receive a pension allowance or to participate in the Group’s employee pension schemes.

The Chairman has a share ownership guideline of one times his annual fee and is expected to attain this level of share ownership within five years of the date of his appointment.

In setting the Directors’ remuneration policy, the Committee considers a range of factors including:

Conditions elsewhere in the Group

Across the Group, remuneration is reviewed regularly with the intention that all employees are paid appropriately in the context of their local market and given their individual skills, experience and performance. Each business unit’s salary increase budget is set with reference to local market conditions. The Remuneration Committee considers salary increase budgets in each business unit when determining the salaries of Executive Directors.

Prudential does not consult with employees when setting the Directors’ remuneration policy: Prudential is a global organisation with employees, and agents in multiple business units and geographies. As such, there are practical challenges associated with consulting with employees directly on this matter. As many employees are also shareholders, they are able to participate in binding votes on the Directors’ remuneration policy and annual votes on the Annual report on remuneration.

Shareholder views

The Remuneration Committee and the Company undertake regular consultation with key institutional investors on the remuneration policy and its implementation. This engagement is led by the Remuneration Committee Chairman and is an integral part of the Company’s investor relations programme. The Committee is grateful to shareholders for their feedback and takes this into account when determining executive remuneration.

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