Remuneration Committee - Terms of Reference

1. SCOPE

1.1 PURPOSE

To set the principles and parameters of remuneration policy for the Group, and to oversee remuneration policy and outcomes for those colleagues specified in these terms of reference.

1.2 AUTHORITY

The committee is a committee of the Board of the company.  The committee is authorised by the Board to:
• undertake any activity within its terms of reference; and
• seek any information it requires from within the Company.  All colleagues are directed to co-operate with any request made by the committee.

2. RESPONSIBILITIES

The overarching purpose of the committee is to consider, agree and recommend to the Board an overall remuneration policy and philosophy for the Company that is aligned with its long term business strategy, its business objective, its risk appetite and values and recognises the interests of relevant stakeholders.  The remuneration policy and philosophy will cover the whole company but will pay particular attention to those colleagues defined in 1.3.1 (a) below.

In discharging this overarching purpose, the committee's principal responsibilities are to:

Formulate Remuneration Policy

(a) determine and approve the contracts of employment and the terms of service, including all aspects of remuneration in respect of:
(i) the Chairman and Deputy Chairman of the Company, the Group Chief Executive, the Company Secretary and each direct report to the Group Chief Executive.
(ii) the terms and other commitments to be made on the retirement, resignation or dismissal of the Chairman or Deputy Chairman of the Company, the Group Chief Executive or any of the latter's direct reports (excluding Personal Assistant / Executive Assistant) and the Company Secretary with the aim of ensuring fairness, avoiding reward for failure and recognising the duty to mitigate loss.
(iii) any other colleagues whose base salary proposals exceed £350k and/or whose short term incentive opportunity exceeds £250k.

(b) set the policy and principles to be applied by the Group Executive Committee or relevant Divisional/Functional Remuneration Committees in relation to terms of service and all aspects of remuneration for individuals not falling within 1.3.1 (a) above who are considered to be in a significant influence function or have material impact on the risk profile of Lloyds Banking Group.   

(c) determine the pensions policy for all colleagues and consider the individual pensions impact/costs of salary increases considered in 1.3.1 (a) above

(d) set the budget for annual salary increases for colleagues identified in 1.3.1 (a) above.

(e) determine the design and targets for any annual performance related pay schemes operated by the company for colleagues covered in 1.3.1 (a) above and subsequently, review individuals' performance against these targets and agree any payments proposed.  In both circumstances, the committee will seek input from the Chief Risk Officer to ensure that awards reflect the company’s risk appetite and profile.

(f) set the policy and principles to be applied by the Group Executive Committee or relevant Divisional or Functional Remuneration Committees in relation to any annual performance related pay schemes operated by the company for colleagues covered in 1.3.1 (b) above.

(g) review and approve the overall incentive spend as a proportion of Net Revenues and Economic Profit.

(h) determine the design of, eligibility for and targets for, any longer term performance related pay schemes operated by the company.  Subsequently, review performance against these targets and agree any payments proposed.

(i) agree the policy for authorising claims for expenses from the Group Chief Executive and the Company Chairman and Deputy Chairman.

Monitor Remuneration Policy

(a) review annually the report from the Group HR Director on the operation of the Remuneration Policy and its effectiveness.

(b) monitor the application of the authority delegated to the Group Executive Committee and the Divisional Remuneration Committees to ensure that policies and principles are being consistently and effectively applied, seeking support and input from HR and Risk as appropriate and appropriate sign off from the business units.   

(c) liaise as required with the Risk Oversight Committee and Risk Function in relation to risk-adjusted performance measures. 

(d) commission an annual review of the risks arising from the Lloyds Banking Group remuneration policies for the purposes of the Internal Capital Adequacy Assessment Process (ICAAP).

(e) periodically review and obtain board approval to update its own terms of reference to reflect emerging legislation, codes of conduct and best practice.  At appropriate intervals, evaluate its own performance against the terms of reference.
Report and provide assurance on Remuneration Policy
(a) report annually to the Board the substance of the Company's remuneration policy and propose any substantive changes.  This report will be supported by independent commentary from the Chief Risk Officer in the context of the Company's risk appetite and by positive assurance from each Group Executive Committee member that all remuneration arrangements within their Division/Function reflect fully the Company's overall approach.

(b) consider and recommend to the Board the contents of the annual Remuneration Policy Statement for the FSA.

(c) through the committee chairman be available to meet with the FSA to discuss the Remuneration Policy Statement and related issues.

(d) consider and recommend to the Board the contents of the Directors' Remuneration Report (DRR) to be included in the Company's Annual Report and Accounts and Summary Financial Statement.

(e) through the committee chairman, be available to meet shareholders as required and answer Shareholders' questions in respect of the DRR at the Company's Annual General Meeting.

3. ACCESS TO ADVICE

The committee will be supported by Group HR and Group Risk and will have access to whatever additional advice or support it requires in the discharge of its duties.  This will include but is not limited to: 
• access to the advice and services of the Group HR Director and HR team; 
• access to the advice and services of the Chief Risk Officer and the Risk team;
• advice and support of consultants appointed on behalf of the committee.  To preserve independence, remuneration consultants appointed on behalf of the committee should not also be engaged by management without the consent of the committee chairman; and
• independent professional, technical and/or legal advice or other resources from outside the Company as and when it considers this necessary, including, if considered necessary or appropriate, an independent review of individual packages for higher earners.  

To assist the committee in understanding the implications of risk in the discharge of its responsibilities, the committee shall:
• at least annually, receive reports from the Chief Risk Officer on the implications of the remuneration policy for risk and risk management;
• invite the Chief Risk Officer to attend meetings at least twice yearly, specifically for the purpose of setting and reviewing performance targets for the population referred to in 1.3.1 (a).  
• meet with the Chief Risk Officer as required without management being present to discuss matters of relevance to the committee; and
• hold a joint meeting annually with the Risk Oversight Committee.
 
4. MEMBERSHIP AND ATTENDANCE

4.1 MEMBERSHIP

Members of the committee shall be appointed by the Nomination and Governance Committee in consultation with the chairman of the Remuneration Committee.  The committee shall be made up of at least three members, all of whom shall be independent non-executive directors. The chairman of the Board may also serve on the committee as an additional member provided he was considered independent on his appointment as chairman.  Membership shall include at least one member of the Risk Oversight Committee and at least one member of the Audit Committee.

The members of the committee are as shown in the Appendix.

Appointments to the committee shall be for a period of up to three years, which may be extended for two further three-year periods, provided the director still meets the criteria for membership of the committee.

4.2 CHAIRMAN
 
The Board shall appoint the committee chairman who shall be an independent non-executive director.  In the absence of the committee chairman and/or an appointed deputy, the remaining members present shall elect one of themselves to chair the meeting.  The Chairman of the Board shall not be chairman of the committee.

The chairman of the committee shall be available to meet with the FSA and others to discuss the Remuneration Policy Statement and related issues, and shall be available to meet shareholders and to answer questions in respect of the Directors' Remuneration Report at the Annual General Meeting.

4.3 REGULAR ATTENDEES

Only members of the committee (and other independent non-executive directors) have the right to attend committee meetings.  However, all other independent non-executive directors have an open invitation to attend meetings, and others, including the Group Chief Executive, Group HR Director, HR, the Chief Risk Officer, HR Director, Total Reward and external advisers may be invited to attend all or part of the meeting as appropriate.

No person shall be in attendance when matters concerning their own remuneration or fees are discussed.

4.4 QUORUM

The quorum shall be any two members.  A duly convened meeting of the committee at which a quorum is present shall be competent to exercise all or any of the authorities, powers and discretions vested in or exercisable by the committee.

5. COMMITTEE MANAGEMENT

5.1 SECRETARY

The secretary to the committee shall be the Company Secretary or their nominee.

Group Secretariat will support the chairman in managing the business of the committee.  The agenda and papers will be circulated to all members of the committee at least 4 working days before the meeting. 

The secretary shall minute the proceedings of all meetings of the committee, including recording the names of those present and in attendance.  Minutes of committee meetings will be circulated promptly to all members of the committee, and the committee chairman will report formally to the Board on the committee's proceedings.

5.2 FREQUENCY

Meetings shall be held as and when required to enable the responsibilities defined in Section 1.3 to be discharged.

6. VERSION CONTROL

6.1 REVIEW REQUIREMENTS

These terms of reference are subject to review by the Nomination and Governance Committee at least annually, or as required by the Board.

6.2 APPROVED

Lloyds Banking Group Board.

APPENDIX
MEMBERSHIP OF THE REMUNERATION COMMITTEE

Details of committee membership can be obtained from Group Secretariat.