Governance - Legal & General...56 Legal & General Group Plc Annual Report and Accounts 2019 Governance Philip Broadley Independent Non-Executive Director Appointed July 2016 Skills

Governance

Board of directors 56

Executive Committee 58

Letter from the Chairman 60

Stakeholder engagement 62

Employee engagement 65

Governance report 66

Committed to the highest standards 70

Nominations and Corporate Governance Committee report 72

Audit Committee report 76

Group Risk Committee report 80

Directors’ report on remuneration 82

Remuneration policy 87

Annual report on remuneration 92

Legal & General Group Plc Annual Report and Accounts 2019 55

Governance

Governance

Board of directors

Sir John KingmanChairmanAppointed October 2016

Skills and experience: John brings financial sector, government and regulatory experience to the Board. John previously served as Second Permanent Secretary to HM Treasury, where he was responsible for policy relating to business, financial services and infrastructure. John was closely involved in the UK response to the financial crisis, handling the resolution of Northern Rock and leading negotiations with RBS, Lloyds and HBOS on their £37 billion recapitalisation. He was the first Chief Executive of UK Financial Investments Ltd.John recently undertook an independent review of the Financial Reporting Council, recommending its replacement by a new statutory Audit, Reporting and Governance Authority.

Other appointments:Royal Opera House Covent Garden Foundation (Trustee)National Gallery (Trustee and Deputy Chair)UK Research and Innovation (Chair)Tesco Bank (Non-Executive Director)

Committee membership key Audit IT Nominations and Corporate

Governance Remuneration Risk Committee Chairman

Other Board members during the year were:Mark Zinkula retired from the Board on 31 August 2019.

Michelle ScrimgeourChief Executive Officer, LGIMAppointed September 2019

Skills and experience: Michelle was appointed to the Board on 2 September 2019, having taken on the role of LGIM CEO in July 2019. Michelle brings to the Board extensive asset management experience across investments, distribution, product, operations, risk and control functions. Michelle has spent her career at major global firms, most recently as Chief Executive Officer, EMEA, at Columbia Threadneedle Investments. Prior to that, Michelle was Chief Risk Officer at M&G Investments and Director of M&G Group Limited, joining in 2012 from BlackRock. Michelle held a number of leadership positions at BlackRock, and previously at Merrill Lynch Investment Managers.Michelle is on the Board of the Investment Association, a member of the FCA’s Practitioner Panel and a member of the Asset Management Taskforce.

Kerrigan ProcterChief Executive Officer, LGCAppointed March 2017

Skills and experience: Kerrigan was appointed to the Board in March 2017, and was appointed as CEO of LGC in January 2018. He has group-wide experience with in-depth knowledge of the workings of the group’s business divisions from his roles as CEO of the LGR business division from 2013 to 2017, and head of solutions at LGIM from 2006 to 2012, where he was responsible for liability driven investment and fund solutions for defined benefit and defined contribution pension schemes across Europe and the US. Prior to joining the group, he worked at RBS in the financial markets division where he held several roles. Kerrigan started his career in 1994 with EY Corporate Finance before moving to Mercer. He is a Fellow of the Institute of Actuaries and has a PhD in number theory from King’s College, London.

Julia WilsonSenior independent Non-Executive DirectorAppointed November 2011; Senior Independent Director from May 2016

Skills and experience: Julia was appointed to the Board in November 2011 and became the Senior Independent Director in May 2016. She has significant corporate finance, tax and accounting experience. She is the Group Finance Director of 3i Group plc, which includes responsibility for finance, investment valuations and treasury. Previously, she was the Group Director of Corporate Finance at Cable & Wireless plc, where she also held a number of other finance-related roles. Julia is a member of the Institute of Chartered Accountants in England and Wales (ACA) and the Chartered Institute of Taxation.

Other appointments:3i Group plc (Director)

Nigel WilsonGroup Chief Executive OfficerAppointed September 2009 as CFO; appointed CEO June 2012

Skills and experience: Nigel brings strong leadership skills to the Board. In November 2019, Nigel was named Change Maker of the Year by Seven Hills, an organisation that campaigns on behalf of innovators and advocates for the social good that businesses do. Nigel also won the ‘Most admired leader’ award at Britain’s Most Admired Companies Award 2017 for Management Today.From 2016 to 2017 Nigel was Chairman of the Investment Association’s review of Executive Pay and the government’s review of Mission Led Business. From 2017 to 2018 he was a member of the government’s Patient Capital Review Industry Panel and a Commissioner in the Resolution Foundation’s Intergenerational Commission. Nigel is a member of the expert group advising on the government’s Social Care Green Paper and on Life Sciences. He is the Chairman of the Bank of England review on innovation in Finance required for addressing Climate Change.

Jeff DaviesChief Financial OfficerAppointed March 2017

Skills and experience:Jeff was appointed Group Chief Financial Officer in March 2017. He brings a wealth of insurance experience, having previously served as a senior partner of Ernst & Young LLP (EY) and led its European risk and actuarial insurance services. Prior to joining EY in 2004, he held a number of senior actuarial roles at Swiss Re Life & Health. He is the Chair of Legal & General America Inc. and a Fellow of the Institute of Actuaries.

Legal & General Group Plc Annual Report and Accounts 201956 Governance

Philip BroadleyIndependent Non-Executive DirectorAppointed July 2016

Skills and experience:Philip was appointed to the Board in July 2016. He has extensive insurance experience having spent over 14 years in senior roles in insurance including as Group Finance Director at Old Mutual plc and prior to that as Group Finance Director of Prudential plc. Philip graduated from St. Edmund Hall, Oxford, where he is now a St. Edmund Fellow. Philip is Chair of the Audit Committee at AstraZeneca PLC and is a Fellow of the Institute of Chartered Accountants in England and Wales.

Other appointments:• AstraZeneca PLC (Non-Executive

Director)• Eastbourne College (Director & Trustee)• London Library (Treasurer)

Henrietta BaldockIndependent Non-Executive DirectorAppointed October 2018

Skills and experience:Henrietta has been Chair of Legal and General Assurance Society Limited since March 2018. She has extensive knowledge of the financial services and insurance sectors through her 25 years’ experience in investment banking, most recently as Chairman of the European Financial Institutions team at Bank of America Merrill Lynch (BAML) where she advised many Boards in the sector on some of their most significant transactions. Henrietta joined BAML in 2000 and served as its Vice President of Financial Institutions Group and the Managing Director and Head of European Financial Institutions Investment Banking. She started her career as a generalist adviser and has focused on financial institutions since 1995.

Other appointments:Hydro Industries (Director)Investec Plc ( Director)Investec Limited (Director)

Lesley KnoxIndependent Non-Executive DirectorAppointed June 2016

Skills and experience:Lesley brings a wealth of international, strategic and financial services experience having spent over 17 years in senior roles in financial services, including with Kleinwort Benson and the Bank of Scotland. Lesley previously served as Chair of Alliance Trust PLC and as Senior Independent Director at Hays plc.Lesley continues in her role as designated workforce director. On 3 July 2019 Lesley was appointed as Chair of the company’s subsidiary Legal & General Investment Management (Holdings) Limited.

Other appointments:• Dovecot Studios Limited (Non-

Executive Director)• Genus Plc (Senior Independent

Non-Executive Director and Chair of Remuneration Committee)

• The Black Stork Charity (Director)• Grosvenor Group Limited pension fund

(Trustee)• National Galleries of Scotland

Foundation (Trustee)

George LewisIndependent Non-Executive DirectorAppointed November 2018

Skills and experience: George has significant, broad, executive and professional experience in financial services, with a strong focus on global asset management. George joined the Royal Bank of Canada in 1986, serving in various financial and wealth management roles. He was a member of RBC’s Group Executive Board from 2007 to 2015, with responsibility for RBC’s wealth, asset management and insurance segments. Prior to his current roles, George served on the Boards (and chaired the Audit and Risk Committees) of Ontario Power Generation and Enbridge Income Fund (TMX).

Other appointments:• Ontario Teachers’ Pension Plan

(Non-Executive Director)• AOG Group (Non-Executive Director)• Cenovus Energy Inc (Non-Executive

Director)

Toby StraussIndependent Non-Executive DirectorAppointed January 2017

Skills and experience:Toby was appointed to the Board in January 2017. Toby brings extensive insurance experience to the Board following an executive career in UK financial services which included Group Director of Insurance and Chief Executive of Scottish Widows at Lloyds Banking Group and, prior to that, Chief Executive of Aviva UK Life.

Other appointments:• Macmillan Cancer Support (Trustee)• Pacific Life Re Limited (Director)

Geoffrey TimmsGroup General Counsel and Company Secretary

Skills and experience: Geoffrey has been the Group General Counsel since 1999 and, in addition, the Group Company Secretary since 2008. Geoffrey is also a Director of CALA (Group) Holdings Limited. Prior to joining Legal & General, Geoffrey was a solicitor with Clifford Chance and then Clyde & Co.


Governance

Board of directors

Executive Committee

Bernie HickmanChief Executive Officer, Legal & General Insurance

Bernie is the Chief Executive Officer of Legal & General Insurance. Bernie joined Legal & General in 1998 from Commercial Union (now Aviva). Between 2005 and 2010 he was the Managing Director of Retail Protection during which time he launched the UK Protection digital platform, OLP Connect, which provides market leading self-service functionality and high levels of straight through processing. Bernie became MD of Individual Retirement in 2014 and the CEO co-founder of Legal & General Home Finance in 2015, when he led the group’s entry into the Lifetime Mortgage market. He has also held the positions of Group Financial Controller, Investor Relations Director and Solvency II Managing Director.

Laura MasonChief Executive Officer, Legal & General Retirement, Institutional

Laura has been CEO of Legal & General’s Institutional Retirement business since January 2018. Laura joined Legal & General in 2011 where she was initially responsible for Annuity Investment strategy. Laura was a part of the senior management team responsible for setting up Legal & General Capital (LGC), where she served as Director of Direct Investment. Laura is a qualified Actuary and spent eight years at Towers Watson as a consultant to all the major UK Life Insurers. Laura has a First Class Honours Degree in Engineering Science from University of Oxford, and a PhD in Engineering Science (Neural Networks and Signal Processing) also from the University of Oxford.

Chris KnightChief Executive Officer, Legal & General Retirement, Retail

Chris is the Chief Executive Officer of Legal & General’s Retail Retirement business. Chris was previously the Chief Financial Officer of Legal & General’s Retirement Division where he was responsible for driving the financial results of the business. Prior to this he was the Finance Director of the Group’s UK Savings and Protection business.

Chris is a qualified actuary, and has had a 30-year career in the UK and international financial services markets. He joined Legal & General in 2009.

Claire SingletonChief Executive Officer, Mature Savings

Claire was appointed Chief Executive Officer, Mature Savings in July 2018. She oversees an area which looks after over one million customers who have invested £29 billion of assets across individual pensions, bond or endowment products. Claire joined Legal & General in 2011 from US law firm Jones Day. A Cambridge law graduate and qualified solicitor, she has worked in a variety of legal roles within the company, most recently as General Counsel, Corporate and Legal & General Capital. Claire helped to build and lead an outstanding legal team, delivering significant value to our business. In 2020, as the Mature Savings business is being transferred to ReAssure Limited, Claire will take up the role as CEO of Legal & General Home Finance.

Other business unit Chief Executive Officers (CEOs)Nigel WilsonGroup Chief Executive OfficerSee Board of directors pages 56 to 57.

Jeff DaviesChief Financial OfficerSee Board of directors pages 56 to 57.

Michelle ScrimgeourChief Executive Officer, Legal & General Investment ManagementSee Board of directors pages 56 to 57.

Kerrigan ProcterChief Executive Officer, Legal & General CapitalSee Board of directors pages 56 to 57.

Geoffrey TimmsGroup General Counsel & CompanySecretary See Board of directors pages 56 to 57.

Other Committee members during the year were:

Cheryl Agius stepped down from her role as Chief Executive Officer, General Insurance on 31 July 2019 and left the company on 31 December 2019.

Mark Zinkula left the company on 31 August 2019.


Simon GaddGroup Chief Risk Officer

Simon has had a varied career with Legal & General since completing a mathematics degree at Oxford University. He qualified as an actuary in 1991 and roles undertaken since have included defined benefit pension valuation, various pricing and marketing roles, general management roles, and leadership of the pensions review. Simon has led several different businesses within Legal & General, including the Retail Protection business, Group Protection business and as MD of Annuities from 2006 to 2012.

John GodfreyGroup Corporate Affairs Director

John has worked in the City for over 35 years, providing advice on corporate affairs and communications to US, European and Japanese financial institutions. He joined Legal & General as Group Communications Director in 2006, becoming Corporate Affairs Director following the global financial crisis. Since then, his responsibilities have variously included communications, public affairs and policy, corporate social responsibility and brand. In 2016 he left Legal & General to work in government as head of the Prime Minister’s Downing Street Policy Unit, returning to the company in September 2017. He is a Financial Inclusion Commissioner.

Emma Hardaker-JonesGroup HR Director

Emma joined Legal & General as Group HR Director in 2017. Emma’s previous role was as Global HR Director and Board Director at PA Consulting, co-leading the successful sale of 51% of PA Consulting to The Carlyle Group in 2015. Prior to PA Consulting, Emma spent a number of years as Group Head of Talent and Resourcing at BP, driving change across the 100 countries in which BP operates. Emma has also held roles at Prudential and the Bank of England and was the co-founder of a dot com start-up, Skillvest.com. Emma has significant international experience having worked in Europe, North America, Asia and Africa.

Stephen LicenceGroup Chief Internal Auditor

Stephen joined Legal & General in 2014 having previously been Emerging Markets Chief Internal Auditor at RSA Insurance where he was responsible for the Internal Audit activity in the group’s businesses across Latin America, Asia, Middle East and Eastern Europe. His 25 years’ Internal Audit experience has included Life, General and Healthcare insurance in both Legal & General and Lloyd’s of London markets. He was also previously an audit consultant at the London Stock Exchange Group. Stephen is a Chartered Member of the Institute of Internal Auditors.

Additional Executive Committee members The role of the Executive Committee

The Group Executive Committee (Exco), chaired by the Group Chief Executive, brings together the heads of Legal & General’s business units with the Executive Committee members shown on these pages. Exco is responsible for the day-to-day implementation of strategy agreed by the Board. The Committee meets regularly to ensure continued cooperation between the business units and the effective adoption of our culture, a key focus for the Group. Exco also monitors and manages risk, ensures efficient operational management and adherence to compliance and addresses key issues such as diversity and environmental and corporate social responsibility.


Governance

Executive Committee

High standards of corporate governance, our corporate purpose, culture and the relationships between the company and our stakeholders have never been more important. The Board is committed to maintaining the highest standards of corporate governance across the group to support the delivery of our strategy, positive stakeholder relationships and the creation of long-term sustainable value for our shareholders.

For the year ended 31 December 2019, the new 2018 UK Corporate Governance Code (the ‘Code’) was the standard against which we were required to measure ourselves. The Board has considered carefully the new requirements of the Code and I am pleased to report that we have complied with all principles of the Code throughout the year. Further detail on our compliance with the Code can be found on pages 70 to 71.

Our approach to governanceThe Board’s role is to lead the company and oversee the governance of the group. The Board plays a key role in ensuring that our approach to governance aligns with our culture and values and that the tone is set from the top.

As a Board, we believe that good corporate governance underpins successful business performance. We have welcomed the recent revisions to the Code, which align with our own priorities. The Board is fully committed to ensuring our governance processes remain effective to support the outcomes we aspire to.

During the year we reviewed our governance structures at Board, Committee and subsidiary company levels to ensure they remain appropriate for the businesses and markets in which we operate, whilst supporting our overall strategy, corporate purpose and culture. As our business continues to evolve and as we pursue our strategic objectives in an ever-changing environment, our strong governance framework supports the Board in ensuring that across the group we make decisions in the right way.

Stakeholder engagementIn addition to the recent changes to the Code aimed at promoting greater transparency, the Board welcomes the new reporting legislation around stakeholder engagement.

We keep the interests of the group’s shareholders, customers, employees, suppliers and wider stakeholders at the heart of our decision making and how we deliver our strategy to achieve long-term, sustainable success. Further detail on how we, as a Board, have fulfilled our duties to our stakeholders under s.172 of the Companies Act 2006 is available on pages 62 to 64.

Our people have always been at the heart of our business. In 2018, the Board took steps to recognise formally the importance of understanding the views of our workforce. As mentioned in our 2018 Annual Report, Lesley Knox was appointed as our designated non-executive director for engagement with the company’s workforce in October 2018. Further detail about Lesley’s activities in her role throughout 2019 is available on page 65.

Letter from the Chairman

Sir John KingmanChairman

Welcome to the 2019 Governance report which provides insight into how we, the Board, have approached our responsibilities during this year, and the work of the Board committees.


As well as a strong governance framework, open, constructive and effective communication with our investors is vital. I have met with a range of our shareholders over the year, and I have valued the opportunity for open and constructive two-way dialogue. The AGM also offers a particularly valuable opportunity for the Board to meet our shareholders in person and to hear their views.

Board changes and succession planningI believe the company has a very high quality Board and benefits from the diverse range and depth of expertise and skills that the directors bring. During the year we have continued to keep under review the composition of the Board, remaining conscious of the need to maintain a well-balanced and diverse Board.

The Board has continued to evolve in 2019 with the appointment of Michelle Scrimgeour on 2 September 2019. Michelle succeeded Mark Zinkula as Chief Executive Officer of Legal & General Investment Management (LGIM) in July 2019 and brings to the Board extensive asset management experience across investments, distribution, product, operations, risk and control functions. Michelle has spent her career at major global firms, most recently as Chief Executive Officer, EMEA, at Columbia Threadneedle Investments.

I should like to take this opportunity once again to thank Mark Zinkula for his excellent stewardship and strong contribution to both the Group Board and in his role as Chief Executive Officer of LGIM.

This year the Nominations and Corporate Governance Committee and the Board have continued to focus on succession planning. We undertake regular and full reviews of both our Group Board and Executive Committee succession plans. We continue to monitor closely the diversity of our succession plans to ensure that we are attracting, developing and progressing diverse talent and teams. Additionally, as part of our efforts to improve our culture and drive inclusion, we continue to take action to increase the diversity of our workforce and reduce our gender pay gap. Further information can be found on page 51.

Subsidiary BoardsStrong subsidiary governance is important to achieving good corporate governance. The Board and subsidiary company Boards enjoy positive and constructive working relationships. Our framework of guiding principles remains in place for the relationship between the Group Board and the Boards of the group’s principal subsidiaries, promoting effective interaction across all levels of the Group. In July 2019 we announced the appointment of Lesley Knox as the non-executive Chair of one of our principal subsidiaries, Legal & General Investment Management (Holdings) Limited (LGIM(H)). This appointment, combined with Henrietta Baldock’s continuing role as Chair of Legal & General Assurance Society Limited (LGAS), means the chairmanship of two of our principal subsidiaries, LGAS and LGIM(H), are now combined with group non-executive director roles, further interlinking our Group Board and principal subsidiary Boards, promoting enhanced collaboration.

Board effectivenessDuring the year an externally facilitated internal review of the effectiveness of the Board and its Committees was conducted, further detail of which can be found on page 68. I am pleased to report that the Board, its Committees and directors continue to operate effectively.

I strongly encourage as many shareholders as possible to attend the AGM on 21 May 2020 and I look forward to sharing with you the successes of the Company during 2019.


High standards of corporate governance, our corporate purpose, culture and the relationships between the company and our stakeholders have never been more important.”



Governance

Letter from the Chairman

Stakeholder engagement

The Board recognises the importance of considering all stakeholders in its decision‑making, as set out in section 172 of the Companies Act 2006 and the new reporting legislation around stakeholder engagement is welcomed by the Board.

As part of the director induction process, directors are briefed on their duties, including their duty under s.172 of the Companies Act 2006. The directors are entitled to require from the company all such information they may reasonably request in order to be able to perform their duties as directors, including advice from an independent advisor at the company’s expense.

In Board decision making, the relevance of each stakeholder group may vary depending on the subject in question, so the Board seeks to understand the needs of each stakeholder group as part of its decision making. Additionally, the Group Company Secretary is available to provide support to the Board in ensuring that sufficient

consideration is given in relation to stakeholder issues during Board discussions. All group and subsidiary Board papers must demonstrate that stakeholder consideration has been taken into account as part of the Board decision making process. For each transaction approved by the Board, discussion takes place around employee impact. Stakeholder impact is also considered in relation to material acquisitions and strategic expansion.

The section below sets out our s.172 statement and provides details of key stakeholder engagement undertaken by the Board during the year. Additional details of our key stakeholders and why they are important to us are set out on pages 14 to 15.

Shareholders

OverviewOur shareholders are vital to the future success of our business, providing funds which aid business growth and the generation of sustainable returns.

Engagement• Full Board attendance at the AGM held in May 2019.

Shareholders were given the opportunity to meet with the Board and ask any questions they had following the meeting.

• The Chairman attended 16 investor meetings, covering topics such as group strategy, governance, the group’s business lines and the wider macro-environment. Feedback from these meetings was shared with the wider Board.

• In October 2019, Lesley Knox sent a letter to our largest investors requesting feedback on the directors’ remuneration policy.

• Investor Relations provides regular updates to the Board and engages the Board on shareholder-related matters. They also provide the Board with regular feedback on investors’ views on business strategy and the market environment.

• In order to provide better, direct access to retail shareholders, the Investor Relations team held a well-attended meeting with ShareSoc, an organisation of 5,000 retail investors. For those ShareSoc members unable to attend in person, the presentation was made available on the ShareSoc website.

• We provide easy access for our shareholders to the company’s announcements, results and investor information, via our company website which has a dedicated shareholder section. The website contains all London Stock Exchange regulatory announcements made by the company and a copy of all of our Annual Reports and related publications. A webcast of half-year and full-year results presentations are also made available via a link on the website which is permanently available.

Outcomes• The retail shareholder meeting with Investor

Relations (referred to on the left) took place on 18 November 2019 and was attended by 50 retail investors. The event was a success: 88% of respondents indicated they were more likely to invest in Legal & General following the presentation.

• Five responses to Lesley Knox’s letter regarding the remuneration policy were received from investors. This feedback was useful input into further developing the directors’ remuneration policy.

Suppliers

OverviewInteraction with our suppliers and treating our suppliers fairly allows us to drive higher standards, and reduce risk in our supply chain whilst benefitting from cost efficiencies and positive environmental outcomes.

Engagement• The Group Risk Committee received at each meeting during

the year a report relating to outsourcing and third party management. A focused review was undertaken which involved consideration of the risks associated with, and the group’s approach to, managing critical third party supplier arrangements.

• The Legal & General Resources Limited Board, our main contracting entity for suppliers, receives a procurement update at each Board meeting, including an update on relationships with suppliers and associated performance. The Group Board has sight of the minutes of each of these Board meetings and any issues are escalated to the Group Board where necessary.

• In accordance with the Group Board matters reserved, any expenditure in relation to a supplier in excess of an amount determined by the group from time to time was put to the Group Board for consideration and approval during the year.

Outcomes• Suppliers were considered throughout the sale

process of the General Insurance and Mature Savings business. A case study on the sale of the GI business is provided on page 69.

Engagement with our stakeholders


Customers

OverviewListening to our customers helps us to better understand their needs and provide suitable and reliable products and services.

Engagement• The Group Board receives a Customer Champion report

annually.• Customer management information is regularly reported to the

Group Board. The Group Risk Committee also received detailed customer MI at each meeting and the Customer Champion attended each meeting to present to the Committee. Subsidiary Boards are also in receipt of regular updates regarding customers.

• A number of Board members visited the General Insurance and Legal & General Retirement Institutional teams in June 2019; activities included call listening, a floor walk with the customer services team and a customer focus presentation.

• In May, Philip Broadley spent time with the Legal & General Retirement Retail team and walked through a customer journey in the ‘shoes of the customer’; this included call listening and a review of the various documents customers receive.

Outcomes• Legal & General Financial Advice (LGFA) launched

in November 2019 with an aim to play a part in growing the overall market for lifetime mortgages by increasing the supply of high quality advice which will help customers navigate greater complexity and choice throughout their later life. More information on the LGFA business can be found on page 29.

• Having reviewed customer MI throughout the year, both the Board and the Customer Champion identified a trend whereby the median timeframe to pay life and protection claims had increased in the first half of 2019. The MD of Retail Protection was asked to attend the Group Risk Committee meeting in May to explain the trend and actions being taken to improve the situation; following this, the MD returned to the December Group Risk Committee meeting and evidenced how the actions taken had successfully reversed the trend.

• Pages 30 to 31 provide further information on our customer focus.

Community

OverviewContributing positively to wider society enables us to create stronger communities and have a positive environmental impact.

Engagement• The Group Board’s approach to environmental, social and

governance matters is of high importance. The Group Corporate Responsibility & Ethics (GCRE) Committee has responsibility and oversight of such matters and the Group Board is provided with regular updates and a presentation on GCRE Policy on an annual basis. The Board also receives annually an update on CSR.

• A number of our Group Board non-executive directors serve as trustees for various charities. Further detail of these trusteeships is provided within the director biographies on pages 56 to 57.

• Jeff Davies is the Group Board sponsor of the Task Force on Climate-related Financial Disclosures Report (TCFD), whilst Lesley Knox is Group Board sponsor of the Modern Slavery Act. These Board members drive the agenda in relation to the respective subject area, receive reports back on targets and plan the upcoming five-year strategy. Further information on the TCFD can be found on page 49 and our Modern Slavery Statement can be found on page 51.

• Nigel Wilson is a member of the expert group advising on the government’s Social Care Green Paper and on Life Sciences. He is the Chairman of the Bank of England review on innovation in finance required for addressing climate change. During the year Nigel Wilson spoke at a number of ‘Not a Red Card’ mental health events. Further detail on the Not a Red Card campaign can be found on page 54.

• A Senior Leadership event was held in November 2019 at which there was focus on how business leaders should respond to the climate change challenge.

Outcomes• The Chairman’s Awards took place in January

2019 where employees’ achievements in charity work, external of Legal & General, were celebrated. Employees were nominated by staff, friends and family to receive awards for their charitable efforts. Group Board members attended the event.

• In July 2019, we announced the launch of homes to rent to the later living sector through Inspired Villages, our suburban later living business, providing greater choice for residents in order to suit their individual financial circumstances and to provide housing across the spectrum of all tenures, ages and social groups. More information on the Later Living and Affordable Homes businesses is provided on pages 36 to 37.

• There has been further investment in Future Cities throughout the year. This helps to create sustainable communities with good employment opportunities, high quality and varied housing, access to an efficient and comprehensive public transport system whilst reducing our environmental impact. Further detail on the Future Cities business is on page 36.

• Pages 38 to 39 provide further examples of some of our recent investments which have positively impacted communities.

• Ahead of the G7 meeting of world leaders, Legal & General joined 34 global businesses and the OECD to back Business for Inclusive Growth – a ground-breaking public and private sector collaboration across the G7 nations.

Engagement with our stakeholders continued


Governance

Stakeholder engagement

Regulators

OverviewWe work with our regulators proactively, with openness and transparency. Early and active engagement, with both government and our regulators, helps to ensure we understand changing requirements and can take timely action to implement the regulatory change required, optimising outcomes for our customers and our people where possible.

Engagement• The Group Board non-executive directors attend individual

Proactive Meetings with both the PRA and FCA on a frequency determined by the regulators for each two-year supervisory cycle. Topics covered include strategy, board effectiveness, cyber, culture, regulatory matters and customer outcomes.

• At each meeting the Group Board received a report from the Chief Risk Officer which contained an update on Prudential Regulation. The Chief Risk Officer periodically attends Group Board meetings to present to the Board.

• To mark the beginning of each two-year supervisory cycle, the FCA attend the Group Board to discuss their priorities. The PRA attend the Group Board annually as part of the PRA’s Periodic Summary Meeting cycle.

• During the year we had two Mastertrusts authorised by The Pension Regulator (TPR) and we are now subject to their supervision. Legal & General has been proactive in establishing an open working relationship with this new regulator.

Outcomes• Regulators have been fully engaged during the

Mature Savings sale process and the sale of the General Insurance business.

• Having launched a new financial advice business, Legal & General Financial Advice (LGFA), in November 2019, the FCA was frequently updated on progress such that the authorisation process and business request for authorisation was well understood and well managed on both sides. We believe the introduction of LGFA will drive positive customer outcomes in the home finance market.

• Authorisation of two Mastertrusts by TPR has meant that we can assist more companies in providing work place pensions to customers. Having a colourful retirement is important to us and we are honoured to be able to help our customers in achieving this.

Employees

OverviewEngaging with our people enables us to create an inclusive company culture and a positive working environment.

Engagement• We were an early adopter of the initiative to appoint a designated

workforce director. Lesley Knox reports back to the Board at each meeting on employee-related matters. A report from the Designated Workforce Director is provided on the next page.

• The Board has and will continue to take part in site visits, giving directors an opportunity to meet with employees from various areas of the business. The Board attended a site visit to our investment management business at our central London head office in May 2019, and a number of Board members visited the Cardiff and Hove sites during the year.

• The Voice employee survey provides the ability to gain valuable insights about what is important to employees. Following the Voice surveys, action plans at both group-level and with divisional and local teams are put in place. Voice helps enable us to become a more digital, healthy, and inclusive organisation. The Board receives, periodically, detailed metrics on the views and requirement of employees coming out of the Voice survey and plans for how actions will be implemented to address issues raised by employees in the survey.

• The Board has oversight of whistleblowing and routinely receives reports arising from its operation. Philip Broadley serves as the Group Board’s whistleblowing champion.

Outcomes• A report from the designated workforce director,

including detail of activities throughout the year and the output of this engagement is provided on page 65.

• 83% of employees took part in the September 2019 Voice survey, providing 10,780 individual comments. Since the survey, action has been taken on some of the most important issues raised by employees:

– Hearing from leaders about the future of the business, our strategy and our change programmes: Nigel Wilson, Jeff Davies and Sir John Kingman held Town Hall events in Solihull, Penrith, Leeds, Barnsley, London and Maryland.

– Frustrations with IT and systems: Our ambitious Project 2020 is ongoing, which will help to make sure we have the right technology to support and transform the way we work.

– Communication within the business: Over the summer, a series of focus groups across the company were held to identify where the issues were and what could be done to address them. This helped to create a new narrative for the company, which focused on who we are, how we work, and importantly, where we are going.

• In January 2019 the Board hosted a ‘Rising Stars’ dinner. This was an opportunity for the Board to meet and interact with some of the company’s valued and high potential individuals across the business. It was also an opportunity for those employees to meet the Board members and gain some insight into their roles and perspectives.

• Additional workspace has been provided in central London. This will address employee feedback regarding office workspace which will materially improve employee experience.

Engagement with our stakeholders continued


Stakeholder engagement continued

Employee engagement

Lesley KnoxDesignated workforce director

Legal & General has few assets more precious than its people, so the approach to employee representation to the Board needs to be careful, attentive and thorough.

The focus for 2019 was on getting up and running in what is a new role for me and for the company, and I took a three-fold approach. First, finding out what is on employees’ minds by speaking to as many of them as possible. Second, understanding what mechanisms we already have in place for employee representation within the group and how they fit together. And third, relaying my findings to colleagues in the boardroom and on the Executive Committee.

What underlies all this is connection. Connecting employees with the Board and each other, using technology to improve these connections and fostering the growth of passionate communities of employees that exist already.

There is much we already do well, and which Legal & General had been doing before the creation of my role. Our Voice survey, launched in late 2018, marked a shift from an inflexible annual survey towards an ‘always listening’ approach to employee engagement. Our employee satisfaction index ended 2019 on 72 (on an average 82% completion rate over the course of three surveys); over the course of 2019 we received 18,747 individual employee comments through the survey. This gives us a rich source of feedback, solid foundations from which to monitor employee engagement, and perhaps most importantly, clarity on where we need to focus our efforts.

Other mechanisms for employee representation include our recognised Union partner, Unite; local employee engagement forums, which represent our people’s concerns on a variety of issues, both local and national; and our Management Consultative Forum, which represents senior grades. In 2020 I intend to work more closely with each of these groups, helping to make their constituents’ case to the Board and with the Executive Committee.

I have visited Legal & General sites in Cardiff, Hove and Edinburgh as well as our London HQ this year, speaking to around 400 employees of all grades and most business areas. They have raised issues including: underinvestment in our junior and middle managers’ skills, especially in leadership and in using insights from the Voice survey to make improvements; and the need for us to offer clearer development opportunities, including building a pipeline of talent from the apprentice level. Working with HR colleagues, these topics will be a focus for 2020.

As well as referring my findings to individual Executive and Board colleagues, the Board offers me the opportunity to report at every meeting. I do this after every site visit. A mixture of anecdotal and formal reports are given, leading to action where required.

We have used employee insight this year to improve the experience of those Mature Savings and General Insurance employees who are leaving the business, through outplacement and redeployment support and ongoing communication and engagement activity. Meanwhile, we know we have more to do on integrating employees in outlying parts of our business, including CALA Homes; and on ensuring that employees of those businesses which are growing organically, such as Digital and IT, are represented and engaged well.

My main finding for 2019 is that Legal & General has a great workforce: passionate, engaged people who are committed to doing the right thing and creating the best possible experience for clients, customers and each other. Many of them are quite literally invested in the future of their company: 67% of employees already hold shares through our employee share plan; and 5% of our ordinary shareholders are employees. Furthermore, they are enthusiastic supporters of the communities where they live; there is much to celebrate, and we do, with events like our annual Chairman’s Awards. In short, if inclusive capitalism begins at home, our employees are already exemplifying the best of our corporate purpose.

I look forward to a 2020 of informed, active advocacy for Legal & General’s employees to my Board colleagues.


Governance

Employee engagement

The UK Corporate Governance Code – committed to the highest standardsThe 2018 UK Corporate Governance Code (the ‘Code’) emphasises the role of good corporate governance in achieving long-term sustainable success. The principles of the Code are the standards against which we are required to measure ourselves during the year. The information on the following pages explains how we have applied the principles of the Code in practice during the year. The information required under Disclosure Guidance and Transparency Rule 7.2.6 can be found in the directors’ report on pages 250 to 253. Each year, the Board reviews the group’s corporate governance framework and compliance with the Code. Pages 70 to 71 set out at a high level how we have complied with each of the principles.

Governance is integral to both our Board environment and organisational culture, and is a key ingredient in the success of our business. Our governance framework and policies support good decision making thereby contributing to the success of the business over the long term, in the interests of our stakeholders.

The BoardThe table below sets out the changes to the Board that have taken place over the course of the year. Michelle Scrimgeour took on the role of CEO of Legal & General Investment Management (LGIM) in July 2019 and was appointed an executive director of the Board on 2 September 2019. Michelle replaced Mark Zinkula who stepped down from the Board on 31 August 2019. The Board continues to focus on maintaining a well-balanced and diversified Board with the right mix of individuals who can apply their wider business knowledge and experiences to the setting and oversight of delivery of the Group’s strategy.

Changes to the Board

Appointments Resignations

Michelle Scrimgeour2 September 2019

Mark Zinkula31 August 2019

Governance report

How the Board operatesThe Board is led by the Chairman, Sir John Kingman. The day-to-day management of the company is led by Nigel Wilson, the Group Chief Executive. The non-executive directors play a key role in our governance framework and culture, and their roles are not limited to the boardroom. Examples of some of the other activities they have undertaken during the course of the year are set out on page 70.

The Board is accountable for the long-term success of the company by setting the group’s strategic objectives and monitoring performance against those objectives. The Board meets formally on a regular basis and at each meeting considers business performance, strategic proposals, acquisitions and material transactions in the context of the Group’s strategic plans, risk appetite, the interests of the group’s stakeholders and our social purpose. The Board and its subsidiaries operate within a clearly defined delegated authority framework, which is fully embedded across the group.

The delegated authority framework ensures that there is an appropriate level of Board contribution to, and oversight of, key decisions, and that the day-to-day business is managed effectively. The delegated authority framework consists of a clearly defined schedule of matters reserved for the Board. The types of matters reserved include, amongst other things, matters relating to the group’s strategic plan, material transactions, risk appetite, and oversight of systems of internal control and corporate governance policies. Those matters which are not reserved are delegated by the Board to group level committees, the Group Executive Committee and to the Group CEO who then delegates decision making onward to the Group Capital Committee, an executive decision making forum, and his direct reports.

How the Board spent its time in 2019The Board met formally eight times during 2019 including two off-site strategy events, and Board sub-committees were constituted on a number of occasions in order to deal with matters arising in the ordinary course of business outside of the formal schedule of meetings. A table of individual Board member attendance at the formal Board and Committee meetings is provided on page 71. Board members met informally with the executive and senior management on a regular basis outside of the formal meeting schedule.

The Board agenda is set by the Chairman and consists of the following broad discussion areas:

• an update from the Group Chief Executive, the Group Chief Financial Officer and a report from each of the key business divisions on business performance and key business initiatives;

• discussions on strategic proposals, acquisitions, material transactions and other material initiatives;

• risk and compliance matters;• legal and governance matters; and• people and employee engagement matters.

Board members and, as appropriate, individuals from the relevant business areas are invited to attend in relation to key items allowing the Board the opportunity to debate and challenge on initiatives directly with the senior management team along with the executive directors.


Key areas of focus in 2019 Discussion and actions arising

Strategy • At its December meeting, the Board considered and approved the Group’s five-year business plan and 2020 budget. This included a review of the divisional strategic objectives, initiatives and financial and non-financial KPIs.

• The Board held a full day strategy event which covered, among other things, the Group’s medium-term strategic opportunities, which had been identified as key for the Board to focus on in the 2018 evaluation exercise.

• The Board held a further two-day strategy event in London to discuss progress against the Group’s strategic plan and how the Board believes it should evolve. The Board also discussed the strategic options in particular arising from ageing population trends globally, changes in the role of ESG and in investing both as principal and agent for our clients.

• At each Board meeting, the Board considered corporate and material transactions to ensure that proposed transactions were aligned with the group’s strategy and risk appetite. The Board had early sight of pipeline initiatives.

Solvency II • The Board considered and approved Internal Model Major Change applications and regularly monitors the Group’s Solvency II position.

Governance • An externally-facilitated internal Board evaluation took place in the later part of 2019. Detailed recommendations arising from the evaluation were developed and an action plan was subsequently adopted by the Board.

• The Board is regularly updated by the Group General Counsel and Company Secretary on legal matters, emerging regulation and governance changes.

• The Board is regularly updated by the Chief Risk Officer on risk and compliance matters.• During 2019, the Board has had particular focus on the interaction with subsidiary Boards and initiatives to promote greater collaboration

and engagement whilst enhancing the strength of oversight and challenge at all levels of governance. Lesley Knox and Henrietta Baldock’s roles as Chair of LGIM(H) and LGAS, respectively, mean the Chairmanship of two of our principal subsidiaries are combined with Group non-executive roles, further strengthening the link between our Group Board and principal subsidiary Boards.

Stakeholders • During the year, the Board regularly considered the Group’s relationship with various stakeholder groups. It discussed customers, shareholder matters, employee engagement, and the Group’s impact on, and relationship with, wider society and the environment. The Board has focused deep dives on such areas, for example sessions with the executive nominated as the Group’s Customer Champion, and it considers these matters as part of its decision making on strategic proposals.

• Employee engagement continued to be a focus for the Board in 2019 with Lesley Knox being the Designated Workforce Director providing regular updates on engagement with the workforce, the results of the employee survey and visits to a number of Legal & General office locations.

• Board members met regularly through the year with key regulators, the Prudential Regulation Authority and Financial Conduct Authority.

Ensuring our directors have the right skills and experience to maintain an effective BoardThe Board believes that continuous director training and development is important to maximise the effectiveness of the Board. The Chairman is assisted by the Group Company Secretary in providing all new directors with a comprehensive induction programme on joining the Board. This is individually tailored to the knowledge and experience of each individual, and includes a series of meetings with members of the Board and with the group’s operational and functional leadership, external advisors to the group and a programme of meetings with staff. This ensures directors obtain a detailed insight of the Group, its businesses and governance framework as well as the regulatory macro environment in which it operates.

The key areas of the Board’s induction programme include:

• an introduction to the group’s corporate structure, governance framework and guiding principles;

• a meeting with the Group Company Secretary who provides detail on the roles and responsibilities of the Board, delegated authority framework, listed company requirements and the requirements of the UK Corporate Governance Code, and how the group complies with its principles;

• meetings with the CEO of each business division to receive an overview of each business unit including information around strategic goals, risk overview and management, customers, and key financial and non-financial KPIs;

• meetings with members of the Board, the Executive Committee and senior management, covering areas such as:

– group risk management – risk and compliance – finance – remuneration – investor relations and corporate affairs;

• a meeting with the Group Actuary focusing on regulatory capital and the Group’s Internal Model; and

• meetings with the Chairs of the Risk, Remuneration and Audit Committees, the external auditor and the group’s brokers.

In addition, all Board members receive continuing education and development at regular intervals throughout the year. Board and Committee meetings are used regularly to update the Board on developments in the areas in which the group operates, and specific training sessions for directors are scheduled for key topical issues. For example, the Board received a detailed training session in November 2019 on the impact on the Group of the new accounting standard IFRS 17. Other development activities undertaken throughout 2019 included a deep dive into our Affordable Housing business and updates in respect of our US businesses and other international aspirations. Non-executive directors also visited our business operations in different locations and attended one-to-one briefing sessions with key members of the senior management team on a regular basis over the year.


Governance

Governance report

Group Information Technology (‘IT’) CommitteeThe IT Committee’s primary role is to provide oversight of, and guidance to, the Board with regards to all aspects of IT, cyber and information security across the Group. Its responsibilities include:

• overseeing the control environment in place for IT, cyber and information security;

• overseeing major change programmes including technology aspects and understanding their strategic contribution and risks;

• reviewing risks relating to IT, cyber and information security and plans for mitigation; and

• reviewing and endorsing the Group IT Strategy and Group Cyber Strategy, and their implementation plans.

The Committee membership comprises the Chairman, the Senior Independent Director, the Chair of the Audit Committee and the Chair of the Risk Committee. One of the Group CEO and the Group CFO, the Chief Risk Officer and the Group IT Director are expected to attend all meetings. The Committee is also advised by two independent IT experts. The Committee met eight times during 2019.

2019 Board and Committee evaluations

The Board undertakes a formal review of its performance and that of its Committees each year. The 2019 externally-facilitated internal review was conducted by Lintstock, an external Board review specialist. Lintstock have no other connection to the company or individual directors. Board members were required to review and complete a comprehensive questionnaire. The aim of the review was to assess the effectiveness of the Board, both as a collective unitary Board, and at individual Board member level, in order to implement any actions required to become a more effective Board. The performance of each of the Board Committees was also assessed.

The review focused in particular on the following areas:• Board composition, expertise and dynamics;• strategic and performance oversight;• succession planning and human resource management; and• priorities for change.

The evaluation included a review of the Chairman’s performance.

The results of the review were very positive. A summary of recommendations from the review is set out below, together with an update on the progress made against the recommendations from the 2018 internal review.

Recommendations from 2019

Continue to have regular oversight over and involvement in non-executive and executive development and succession.

Continue to improve the Board’s understanding of its stakeholders, including customers, suppliers and employees.

Continue to enhance focus on the Group’s businesses and the markets in which they operate.

Continue to enhance the support provided to the Board in terms of training, facilities and quality of papers.

Recommendations from 2018 review Progress against 2018 recommendations

Board to have greater visibility over divisional transformation programmes.

The Board receives regular updates in respect of all major and transformational programmes through the business reports of the heads of the division and business management information packs. In addition during the course of 2019 the Board held detailed discussions on IFRS 17 planning and cyber security transformation. There is also a standing agenda item in relation to strategic divisional proposals.

At each IT Committee meeting, a standing item is an update to the Committee in relation to major programmes together with periodic deep dives.

Continue to evolve the Board’s involvement in the group’s processes for managing and developing talent.

As well as regular scheduled discussions about succession planning and development of leadership skills, the Board holds a dinner each year for ‘Rising Stars’ working within the business. Furthermore, the Nominations and Corporate Governance Committee held a deep dive in relation to talent development and planning for women at grades 5 and 6.

Continue to have regular oversight over executive succession.

Executive development and succession planning is scheduled for review at least annually and throughout 2019 the Nominations and Corporate Governance Committee held sessions on executive and Board succession planning. In addition, the Board discussed top talent and succession plans for individual business senior management and this was further developed with a detailed discussion at the strategy event in October 2019.

Improve the Board’s understanding of the views and requirements of customers.

The Executive Customer Champion reports to the Board periodically and provides an update in relation to the customer champion work being carried out in each business division and on group-wide initiatives.

Consider how the group’s communications with the media and other stakeholders could be improved.

The group appointed a new Head of Investor Relations in March 2019 and the PR functions have been strengthened through its relationship and engagement with the Tulchan Group, a public communications advisory firm, who are involved early on in the process in relation to significant media communication matters. The Board has also considered how the group could improve its press relations and ensure that it is further digitally enabled and digitally responsible.

In 2019 the Committee:

• focused in particular on the Group’s cyber security, information security, access management and GDPR programmes;

• considered capabilities relating to IT, cyber and digital skills and plans to address any capability gaps;

• reviewed and endorsed the organisation and operating model in place for IT and cyber security and subsequently considered its ongoing suitability; and

• maintained oversight of the overall resilience of the group’s IT systems.


Governance report continued

Stakeholder engagementDetail on our key stakeholders can be found on pages 14 to 15. Detail of the Board’s engagement with its stakeholders and our s.172 statement is provided on pages 62 to 64.

Major decisions and discussions during 2019The Board factored the needs and concerns of our stakeholders into its discussions and decisions throughout the year, in accordance with s.172 of the Companies Act 2006

(see s.172 statement on pages 62 to 64). Stakeholder issues are an integral part of the Board’s decision making and we seek to embed this in key subsidiary Boards and decision making committees throughout the organisation. Whilst not all decisions affect every stakeholder group our Boards and committees endeavour to balance the sometimes conflicting needs of our stakeholders to ensure all are treated consistently and fairly. Major decisions and considerations during 2019 include:

Decision

• Affordable Homes: Consideration of third party asset and tenant managers with a focus on partners who have high levels of customer service capabilities and a focus on their regulatory and safety obligations.

• Approval of £100 million investment to Sunderland regeneration: Supporting the creation of up to 3,000 new jobs.

• Approval of the development of a flagship Build to Rent Scheme in Wandsworth: Delivering 1,000 new homes.

• Sale of Mature Savings business: Impact on employees, regulators and customer service levels throughout the ongoing sale process.

• Approval of partnership with Croydon Council: A £45 million investment to provide 167 affordable homes for families on the housing waiting list, providing much-needed stability for local families and residents.

• Approval of £4 billion partnership with Oxford University: Developing homes for university staff and students, together with science and innovation districts in and around Oxford.

• Sale of General Insurance business: Consideration of all key stakeholders throughout the sale process. See more detail below.

• Approval of the acquisition and development of Bath Quays North: Transformation of an under-utilised site into a commercial district to attract and retain office occupiers in the city.

• Approval of additional workspace in City Place, London: Addressing the issue of space, which will materially improve employee experience.

Looking at one of the decisions in more detail: Sale of the GI businessIn April 2019 the Board approved the sale of the General Insurance business (comprising principally our home insurance and pet insurance businesses) to Allianz, subject to receipt of the necessary regulatory and competition authority approvals, with the sale subsequently completing on 31 December 2019. The sale included a substantial workforce and required the establishment of transitional services arrangements.

Our stakeholder impact analysis identified the following risks and benefits to our key stakeholders:

Risk Mitigant/Benefit

The Legal & General employees dedicated to the General Insurance (GI) business may be negatively impacted as a result of the sale

In order to secure jobs and benefits for the employee workforce dedicated to the GI business we negotiated for all such employees to be transferred to the purchaser’s group with protection of their contractual terms and conditions, and continuity of service as part of the transaction, avoiding to the extent possible any negative impact of the sale on the affected workforce. We also ensured communication and consultation was opened up to the whole impacted workforce directly rather than solely with their representatives, thereby exceeding our legal obligations. In recognition of the personal uncertainty for our people, we ensured they had access to regular town hall briefings and a dedicated mailbox for any questions. We consulted extensively with our trade union, Unite, as well as our Management Consultative Forum.

Customers may be unsettled or treated differently as a result of the sale

The impact on customers was a key consideration when agreeing the sale. In particular, the Board considered metrics illustrating the level of customer satisfaction with the buyer, which reflected a strong track record with regards to customer service in the UK market. Additionally, Legal & General customers will benefit from becoming part of a corporate group for which general insurance is a strategic focus.

Existing suppliers suffer disruption or detriment As part of the sale, and following engagement with our suppliers, it was agreed that transitional support of certain supplier contract management services would continue to be provided by Legal & General to allow an extended period to arrange an orderly migration for suppliers.

Regulatory risk There was proactive engagement and dialogue with both the PRA and FCA throughout the sale process.



Governance

Governance report

Committed to the highest standards

Compliance with the 2018 UK Corporate Governance Code: For the year ended 31 December 2019, we are pleased to report that we have applied the principles and complied with the provisions of the Code.

1. Board leadership and company purposeA. Board’s roleThere is a formal schedule of matters reserved for the Board which sets out the structure under which the Board manages its responsibilities, providing guidance on how it discharges its authority and manages the Board’s activities. The Board’s main activities throughout the year are detailed on pages 66 to 67. The company continues to be led by an effective and entrepreneurial Board; a yearly planner is reviewed at each Board meeting to ensure the most important and current topics are being discussed at meetings throughout the year. Our governance framework means we have a robust decision making process and a clear framework within which decisions can be made and strategy can be delivered. Our delegated authority framework ensures that decisions are taken by the right people at the right level with accountability up to the Board, and enables an appropriate level of debate, challenge and support in the decision making process.

B. Purpose and CultureThe Board’s agenda is set by the Chairman and deals with those matters relating to the group’s strategic plan, risk appetite, and systems of internal control and corporate governance policies. The Board held a strategy meeting in March 2019 and met for a two day off-site strategy event in October 2019 to consider the group’s strategy. The Board regularly reviews the CRO conduct report providing insight into culture across the organisation and helping to ensure behaviours throughout the business align with the company’s purpose, values and strategy. Furthermore, the Board is responsible for overseeing implementation of the group-wide diversity and inclusion policy which applies to all individuals directly employed by the group and forms the basis of engagement with customers and suppliers. Board members participate in site visits enabling them to meet with employees and gain first-hand insight into culture in the various business divisions. The Chairman, Group CEO and Group CFO have also hosted Town Hall events at various locations throughout the year. Additionally, when the Board is considering entering a new market/business area, culture plays a major part in discussions and Board members remain conscious of the need to embed the company culture in any new businesses.

C. Resources and ControlsMatters delegated to the Group Chief Executive include managing the group’s business in line with the strategic plan and approved risk appetite, and responsibility for the operation

of the internal control framework. The Group Risk Committee assists the Board in the oversight of the risks to which the group may be exposed and provides the Board with strategic advice in relation to current and potential future risk exposures. The risk management framework supports the informed risk taking by our businesses, setting out those rewarded risks that we are prepared to be exposed to and the risks that we want to avoid. Further information on risk management can be found on pages 42 to 47.

D. Stakeholder EngagementBoard members take an active role in engaging with shareholders and wider stakeholders. Further information on the Board’s engagement with stakeholders can be found on pages 62 to 64. Board members receive feedback at each Board meeting from Lesley Knox on her role as Designated Workforce Director and periodic feedback from the Voice survey enabling them to assess and monitor culture.

E. Workforce EngagementIn addition to Board members’ site visits, the designated workforce director meets with hundreds of employees of various grades and across business divisions throughout the year, enabling visibility of workforce policies and practices across the organisation and how these align with the company’s values. There is a whistleblowing hotline available for any members of the workforce who wish to raise any concern of wrongdoing in the workplace. The Board has oversight of whistleblowing and routinely receives reports arising from its operation. Additionally, employees are encouraged to share their views through the Voice survey and with the Designated Workforce Director. Further details are available on page 65.

2. Division of responsibilitiesF. Role of the ChairmanThe Chairman sets the agendas for meetings, manages the meeting timetable and encourages an open and constructive dialogue during meetings, inviting the views of all Board members.

G. Composition of the BoardIn addition to the Chairman, the Board comprises six independent non-executive directors and four executive directors.The roles of the Chairman and Group Chief Executive are clearly defined and the role profiles are reviewed as part of the annual governance review undertaken by the Board. Sir John Kingman, the Chairman, is responsible for leading the Board while Nigel Wilson, Group Chief Executive, is responsible for the day-to-day management of the company within the parameters of the strategy set by the Board. Sir John Kingman was identified by the directors as being independent on appointment.

H. Role of the non-executive directorsThe non-executive directors’ engagement with management, constructive challenge and contribution to Board discussion is assessed as part of the Board’s annual effectiveness review. The non-executive directors’ letters of appointment set out the time commitment expected from them. At times, this time commitment may go beyond that set out in the letter of appointment and is therefore reviewed regularly. External commitments, which may have an impact on existing time commitments, must be agreed in advance with the Chairman and approved by the Nominations and Corporate Governance Committee under its delegation from the Group Board. In addition, the policy for the identification and management of directors’ conflicts of interest is reviewed on an annual basis. The significant commitments of each of the directors are included in the Board biographies on pages 56 to 57. The Chairman’s commitments were considered as part of his appointment and the Board agreed that he had no commitments that were expected to have a negative impact upon his time commitment to the Company. This is kept under review.

I. Role of the Company SecretaryProcedures are in place to ensure that Board members receive accurate and timely information via a secure and electronic portal and all directors have access to the advice of the Group General Counsel and Company Secretary as well as independent professional advice at the expense of the company.

3. Composition, succession and evaluationJ. Appointments to the Board and succession planningThe Nominations and Corporate Governance Committee is responsible for assessing the composition of the Board and, in making recommendations for appointments to the Board, the Committee considers the balance of skills, experience and knowledge needed in order to enhance the Board and support the company in the execution of its strategy. Details of the work undertaken by the Nominations and Corporate Governance Committee are set out on pages 72 to 75. The Nominations and Corporate Governance Committee is responsible for leading the process of appointing new directors to the Board and for succession planning.

K. Skills, experience and knowledge of the BoardThe Nominations and Corporate Governance Committee is committed to ensuring that all appointments are made on merit having evaluated the capabilities of all potential candidates against the requirements of the Board, with due regard for the benefits of all types of diversity, including diversity of gender,


social and ethnic backgrounds, cognitive and personal strengths. Further details of the appointments undertaken during the year can be found on page 73 and a summary of the Board’s policy on diversity and inclusion can be found on page 74.

L. Board evaluationAn externally facilitated internal Board effectiveness review was undertaken during 2019. Details of this internal evaluation and an update on the progress against the recommendations from the 2018 evaluation are set out on page 68. The Board undergoes an externally facilitated evaluation every three years with the next external evaluation taking place in 2020. Sir John Kingman’s performance is appraised as part of this annual review, as well as the effectiveness of both the non-executives and the executive team.

All directors were subject to shareholder election or re-election at the 2019 AGM and all directors received over 98% votes in favour of their re-election. All directors will be subject to shareholder election or re-election at the 2020 AGM.

4. Audit, risk and internal controlM. Internal and external auditThe Audit Committee comprises six independent non-executive directors and the Board delegates a number of responsibilities to the Audit Committee, including oversight of the group’s financial reporting processes and internal control, and the work undertaken by the external and internal auditors. The Committee

also supports the Board’s consideration of the company’s viability statement and its ability to operate as a going concern. The Audit Committee chair provides regular updates to the Board on key matters discussed by the Committee.

N. Fair, balanced and understandable assessmentThe Strategic report, located on pages 1 to 53, sets out the performance of the company, the business model, strategy, and the risks and uncertainties relating to the company’s future prospects. When taken as a whole, the directors consider the annual report is fair, balanced and understandable and provides information necessary for shareholders to assess the company’s performance, business model and strategy.

O. Risk management and internal control frameworkThe Board sets the company’s risk appetite and annually reviews the effectiveness of the company’s risk management and internal control systems. A description of the principal risks facing the company is set out on pages 46 to 47. Page 45 sets out how the directors have assessed the prospects of the company, over what period they have done so and why they consider that period to be appropriate (the ‘viability statement’). The Group Risk Committee considers assessments of the group’s current risk profile and emerging risk factors, facilitated by the Group Chief Risk Officer. The activities of the Group Risk and Audit Committees are set out on pages 76 to 81.

Board and Committee meetings attendance during 20191

Director Appointment date Committee

appointments Board (8)Audit

Committee (5)

Nominations and Corporate

Governance Committee (3)

Remuneration Committee (5)

Group Risk Committee (5)

Group IT Committee (8)

Chairman and executive directors

Sir John Kingman2 24 October 2016 8/8 3/3 8/8

N D Wilson 1 September 2009 8/8

J Davies 9 March 2017 8/8

K Procter 9 March 2017 8/8

M Zinkula 18 September 2012 4/53

M Scrimgeour 2 September 2019 4/44

Non-executive directors

J Wilson 9 November 2011 8/8 4/5 3/3 4/5 8/8

H Baldock 4 October 2018 8/8 5/5 3/3 5/5 5/5

P Broadley 8 July 2016 8/8 5/5 2/3 5/5 5/5 7/8

L Knox 1 June 2016 8/8 5/5 2/3 5/5 5/5

G Lewis 1 November 2018 8/8 5/5 3/3 5/5

T Strauss 1 January 2017 8/8 5/5 3/3 5/5 5/8

1. Attendance at meetings in accordance with the formal schedule of meetings.2. Attends all Audit, Remuneration and Group Risk Committee meetings as an invitee.3. Mark resigned from the Legal & General Group Plc Board on 31 August 2019.4. Michelle was appointed to the Legal & General Group Plc Board on 2 September 2019.

UK Corporate Governance CodeA full version of the Code can be found on the Financial Reporting Council’s websitePlease visit: frc.org.uk

5. RemunerationP. Remuneration policies and practicesThe company aims to reward employees fairly and its remuneration policy is designed to promote the long-term success of the company whilst aligning the interests of both the directors and shareholders. Shareholders last approved the remuneration policy at the 2017 AGM and approval of the remuneration policy will be sought at the upcoming AGM in May 2020. The directors’ remuneration policy is set out on pages 87 to 91.

Q. Executive remunerationThe Remuneration Committee is responsible for setting the remuneration for all executive directors. No director is involved in deciding their own remuneration outcome.

R. Remuneration outcomes and independent judgementDetails of the composition and the work of the Remuneration Committee are set out in the directors’ report on remuneration on pages 82 to 83.

Committee membership key

Audit IT Nominations and Corporate Governance Committee Remuneration Risk Committee Chairman


Governance

Committed to the highest standards

The role of the CommitteeThis year the Nominations Committee and the Corporate Governance Committee were merged. This reflects that the work of the two Committees is strongly aligned around corporate governance matters and the role of the Board in relation to Board appointments and succession planning. The remit of the joined Committee places a diverse and experienced Board at the heart of strong corporate governance standards.

The Committee has overall responsibility for leading the process for new appointments to the Board. It also ensures that these appointments bring the required skills and experience to the Board to support the Board’s role in the development and oversight of the group’s strategy. As part of this, the Committee reviews the structure, size and composition of the Board to ensure the Board is made up of the right people with the necessary skills and experience whilst striving to achieve a Board composition that promotes diversity of thought and approach.

The Committee’s key responsibilities are:

• Regularly reassessing the structure, size and composition of the Board and recommending any suggested changes.

• Considering succession planning for directors and other senior executives. This takes into account the promotion of diversity and inclusion, the challenges and opportunities facing the company, and the skills and expertise needed by the Board in the future. In addition, the Committee ensures the continued ability of the company to compete effectively in the market place.

• Reviewing the criteria for identifying and nominating candidates for appointment to the Board based on the specification for a prospective appointment including the required skills and capabilities.

• Identifying and nominating for approval of the Board, candidates to fill Board vacancies as and when they arise, taking into account other demands on directors’ time.

• Reviewing the time commitment required from non-executive directors and assessing the non-executive directors’ other significant commitments to ensure that they continue to be able to fulfill their duties effectively.

• Overseeing and monitoring the company’s corporate governance framework, ensuring compliance with the UK Corporate Governance Code while promoting the highest standards of corporate governance across the group.

Nominations and Corporate Governance Committee report


The composition of the CommitteeThe Committee is composed of the Group Chairman and all the independent non-executive directors. The table below sets out the Committee membership during the year. The Group Chief Executive and Group HR Director may be invited to attend meetings where this may assist the Committee in fulfilling its responsibilities and, most notably, in relation to executive appointments and succession planning.

Members

Sir John Kingman

Julia Wilson

Henrietta Baldock

Philip Broadley

Lesley Knox

George Lewis

Toby Strauss

In line with our conflicts of interest management policy, directors are asked to absent themselves from any discussions relating to his/her own reappointment or succession.

The Committee’s terms of reference, which set out full details of the Committee’s responsibilities, can be viewed on our website: https://www.legalandgeneralgroup.com/about-us/corporate-governance/


How the Committee spent its time in 2019During 2019 the Committee has focused in particular on the recruitment of the new Legal & General Investment Management (LGIM) CEO, Michelle Scrimgeour. Her biography is set out on

The process for the appointment of new LGIM CEO

Role requirements Process Search Recruitment

A detailed specification was prepared for the role of CEO of LGIM and Group Board Executive Director, specifying the skills, knowledge, experience and attributes required.

The Committee directed the selection process, appointing a sub-committee to manage the process. Korn Ferry, an external search consultant, was engaged to facilitate the search and selection process.

Potential candidates identified were assessed against the role specification and shortlisted for interview. Interviews focused on each candidate’s skills and experience for the role.

The Committee agreed that Michelle Scrimgeour was the right candidate for the role and should be proposed to the Board for appointment as LGIM CEO and Group Board executive director. The Board approved her appointment, which took effect on 2 September 2019. Regulatory approval of Michelle’s appointment to LGIM was received on 6 September 2019.

An effective Board is one that represents both diversity of thought and background. Ensuring appropriate diversity in Board composition with the right mix of skills and experience has been a key focus for the Committee during the year. The Committee undertook an assessment of the skills and competencies required for non-executive roles for the Board to effectively develop and oversee the group’s strategy. The Committee also identifies any gaps which could be filled to enhance the Board’s future performance. The Committee determined that the Board is the right size, sufficiently international and able to manage the demands of the group concluding that no further additions to the Board were required at this time. Looking forward, the group’s ambition is to improve ethnic diversity at senior management and Board level in accordance with the Board Diversity Policy and is aspiring to meet the recommendations made by the Parker review.

The Committee has continued to focus on contingency, medium-term and long-term succession planning for the executive and senior management, with particular emphasis on leadership succession and capabilities evaluation. The CEO and the HR Director engaged a leadership consultancy to provide insights, recommendations and independent assurances in relation to succession planning and executive capabilities. The findings were shared with the Board and were used to help facilitate discussions at the Committee in relation to succession planning and to identify

The remit of the joined Committee places a diverse and experienced Board at the heart of strong corporate governance standards.”


key attributes and capabilities for future leaders. The report drafted by the consultancy was discussed by the Committee with a view to further developing internal succession planning and the capabilities of the executive and senior management. This activity will continue to evolve during the course of 2020. The Committee also approved the launch of the new Leadership Principles for the group, being ‘Ambitious, Authentic and Agile’.

The Committee is responsible for evaluating the independence of all non-executive directors and undertakes an annual review of each non-executive director’s other interests. The Board, on the recommendation of the Committee, is satisfied that each non-executive director serving at the end of the year remains independent and continues to have sufficient time to discharge their responsibilities to the company. As Julia Wilson has served on the Board for eight years, her continued independence was subject to a more rigorous review. Committee members considered Julia’s external interests and other relationships which could materially interfere with her ability to exercise independent judgement. It was concluded that there were no circumstances which would affect Julia’s ability to act in the best interest of the company and that her length of tenure had no detrimental impact on her level of independence.

page 56 and shows the strength and depth of skills and experience she has brought to the Board, in particular her extensive asset management experience. The process involved in Michelle’s appointment was as follows:


Governance


The Committee also considered the Chairman’s new role as a Board member of Tesco Bank. The Committee discussed the time commitment this would involve and whether it may have a material impact on the Chairman’s commitments to Legal & General. The Committee determined that the Chairman had sufficient time to perform the new role as Board member of Tesco Bank and that the Chairman’s time commitments would continue to be reviewed. The Chairman provided assurance to the Committee that his primary responsibility would be to give the full time commitment necessary to Legal & General.

Our approach to diversityOur approach to diversity on the Board is set out in our Group Board Diversity Policy, which is reviewed annually. We have continued to recruit based on merit while remaining committed to diversity in the widest sense including diversity of gender, social and ethnic backgrounds, cognitive and personal strengths, when seeking to fill vacant Board positions and for the company more generally.

The Committee has three key areas of focus for the Board as part of driving diversity and inclusion across the group.

1. Building a diverse and inclusive BoardWe have a responsibility to develop and sustain a panel of Board members that are diverse, and are reflective of our people as well as the businesses and communities our organisation serves.

We have maintained the gender diversity on our Board which comprises 36% females and 64% males following the appointment of Michelle Scrimgeour. The Board continues to support Lord Davies’ and the Hampton-Alexander voluntary targets, namely for a third of all Board members in FTSE 350 companies and FTSE 100 companies to be women by 2020. The chart overleaf demonstrates the Board’s current position.

We are committed to increasing ethnic diversity representation at all grades across the Group.

2. Building a diverse Senior Leadership TeamThe Board plays an important role in modelling and promoting ‘difference’ across the Group’s senior leadership population. This includes monitoring and guiding the Group to achieve its gender diversity target of 40% female leadership by 2020 and ensuring effective career plans are in place to build a diverse talent pipeline. It also includes shaping and supporting future goals across the senior leadership population.

Our Executive Committee comprises 31% females and 69% males and two of our five business divisions are led by a female CEO. Gender data at management and employee level is available on page 50. The Board firmly supports Legal & General’s gender balance goal of 50/50 by 2020 which aims to have a 50/50 balance of men and women right through the organisation by 2020. Achieving this remains a challenging task but we have made steady progress as a result of a number of planned actions. Some examples include:

• inclusive hiring practices like balanced shortlists and diverse interview panels;

• introduction of a digital, strengths-based assessment tool to reduce bias in talent decisions;

• continued commitment to our female mentoring programme;

• introduction of agile working practices so individuals can balance busy lives;

• wellbeing resources including access to a backup network for child, adult and elder care; and

• ongoing external validation and benchmarking through the Women in Finance Charter, the Bloomberg Gender Equality Index and Hampton Alexander Review.

The Board continues to support the delivery of the talent and leadership programmes within the wider organisation which seek to address diversity and inclusion by removing barriers that prevent people from realising their potential. Board members actively participate in discussions relating to talent and leadership and a number of Board members act as mentors to individual employees who have been identified as future leaders.

3. Driving diversity & inclusion across our organisationThe Board is responsible for overseeing the implementation of our Group-wide diversity and inclusion policy. This policy applies to all people directly employed by the Group and forms the basis of our engagement with our clients, suppliers and other third-party providers. Our standards include:

• We will be fair and transparent, and treat our people with integrity and openness. We will be respectful of differences and we will not tolerate behaviour that marginalises, disadvantages or devalues others.

• We will aim to build a workforce that reflects the diverse communities we serve. We are committed to creating social value and being led by the needs of our customers. We will invest in our hiring processes so we can attract a more diverse pool of people, and we will tackle barriers that prevent us from attracting and retaining more diverse talent.

• We will create an inclusive environment where people feel comfortable sharing their opinions and feel like they belong. We will encourage our people to embrace difference, to listen to other points of view, and work together to achieve the best outcome.

• We will ensure that everyone across Legal & General understands their responsibilities in driving an inclusive and diverse culture and the opportunities it can bring. We will develop a robust governance framework and use data and insights to shape our actions, measure our progress, and drive accountability.

More information relating to diversity and inclusion across our organisation can be found on page 50.


Nominations and Corporate Governance Committee report continued

4. Corporate GovernanceThe Board is also responsible for overseeing and monitoring the group’s corporate governance framework which includes the following activities:

• Monitoring the group’s compliance with the UK Corporate Governance Code.

• Promoting the highest standards of corporate governance across the company.

• Considering and approving directors’ additional external appointments, taking into account other demands on directors’ time.

• Ensuring that on appointment to the Board, non-executive directors receive a formal letter of appointment setting out clearly what is expected of them in terms of time commitment, Committee service and involvement outside Board meetings.

• Overseeing the process for ensuring that non-executive directors have tailored induction programmes on appointment and on-going development programmes, including regular Executive Business Awareness sessions, designed to maximise their effectiveness.

• Overseeing the process by which the Board, each Committee and individual directors assess their effectiveness (including the use of an external facilitator periodically, as well as self-assessment) and report to the Board on the findings and recommendations.

Details of the group’s compliance with the UK Corporate Governance Code have been provided on pages 70 to 71.

Finding what you need onlineWe have published our Gender Pay Gap data, which can be found online at www.legalandgeneralgroup.com/media-centre/reports.

A summary is available on page 51 of this report.

DiversityGender

36% Females

64% Males

As at 31 December 2019the Board comprised:

The Committee only engages executive search firms that are signatories to the Voluntary Code of Conduct for Executive Search Firms, which promotes gender diversity and best practice for corporate Board searches. In 2019, the company engaged JCA Group and Korn Ferry which are both signatories to this Code. Both of these search firms have no other connection to the company or individual directors.

The Committee briefs the search firm to ensure that the pool of candidates presented includes candidates with an appropriate range of experience, knowledge and background, and who demonstrate independence of approach and thought. As detailed on page 73, this process was followed for the recruitment of our new executive director appointed in 2019.

Tenure

14% Over six years

43% Between three and six years

43% Between one and three years

The length of tenure of thenon-executives varies:


Governance


Audit Committee report

Letter from the ChairmanDear ShareholderI am pleased to present the Audit Committee Report for the year ended 31 December 2019. The report explains the work of the Audit Committee during the year, and meets the disclosure requirements set out in the 2018 UK Corporate Governance Code (the ‘Code’).

The Code requires that the Audit Committee must operate effectively and efficiently and that its members have a balance of skills and experience to deliver its responsibilities. There were no changes to the membership of the Committee during the year. The members of the Audit Committee have a wide range of experience, including as executives in the financial services and other sectors, as non-executive directors, and as Board members responsible for financial reporting. The Board considers that I meet the requirements of the Code in having recent and relevant financial experience, as do other members of the Audit Committee.

It is worth highlighting that all members of the Audit Committee are also members of the Risk Committee, which ensures that there is appropriate identification and management of any issues that are relevant to both committees.

The Audit Committee meets regularly and privately with each of the external auditor and the Chief Internal Auditor. These meetings allow for regular and open dialogue of any issues relevant to the Audit Committee’s work. Audit Committee members also meet regularly with management outside of formal committee meetings to discuss topical issues and maintain their understanding of the group’s businesses.

Audit Committee focus for the 2019 yearThe Audit Committee met five times in accordance with its annual plan and additional meetings were arranged as necessary. In line with its purpose, the Audit Committee’s time over the course of the year was spent in consideration of:

• The integrity of the Company’s financial statements and Solvency II disclosures, including consideration of the viability statement and going concern assessments

• Key accounting, financial reporting and actuarial areas of judgement

• The adequacy and effectiveness of our systems of internal control, including whistleblowing

• The effectiveness, performance and objectivity of both the internal and external audit functions

In addition to the above, the Committee has also begun focusing more on the Company’s preparedness for IFRS 17. Our work in this regard has primarily been in respect of ensuring plans are in place to meet the new financial reporting requirements, but we expect the focus to increase significantly over the coming years, with a greater focus on the modelling, methodologies and assumptions used to calculate insurance liabilities and the impact of transition.

KPMG LLP (‘KPMG’) were appointed as the group’s external auditors with effect from the financial year ended 31 December 2018, and their first externally facilitated internal audit effectiveness review was carried out during 2019 in conjunction with the broader review of the Board’s effectiveness. The review focused on audit quality, the structure and independence of the audit team and KPMG’s relationship with the Committee, Executive team and Group Internal Audit. The Committee commented on how the Committee perceived KPMG’s understanding of the group’s business environment and made suggestions on areas of future audit focus. I have shared the review’s findings with the lead audit partner and discussed improvements which could be made to the way in which the Committee and KPMG interact.

The information on the following pages sets out in detail the activities of the Audit Committee during the year. I hope that you will find this report useful in understanding our work and I welcome any comments from shareholders on my report.

Phillip BroadleyChairman of the Audit Committee

Phillip BroadleyChairman of the Audit Committee

The composition of the CommitteeThe Committee is composed entirely of independent non-executive directors. The table below sets out its membership during the year.

Members

Philip Broadley

Henrietta Baldock

Lesley Knox

George Lewis

Toby Strauss

Julia Wilson

Other regular attendees at Committee meetings include the following:

Group Chairman; Group Chief Executive; Group Chief Financial Officer; Group Chief Risk Officer; Director of Group Finance; Group Chief Internal Auditor; Legal & General Retirement Finance Director; LGIM Finance Director; Group Actuary; Chief Tax Officer; Representatives of the external auditor, KPMG LLP.


How the Audit Committee spent its time in 2019The Audit Committee is a Board Committee with governance responsibilities that include the oversight of financial disclosures and corporate reporting. The Board has delegated to the Audit Committee the following principal responsibilities to assist the Board in discharging its responsibilities with regards to monitoring the integrity of the group’s financial statements, monitoring the effectiveness of the internal control (including financial internal control) framework and the independence and objectivity of the internal and external auditors. The Audit Committee is also responsible for advising the Board on whether the annual report and accounts, taken as a whole, are fair, balanced and understandable and for reviewing the basis on which the Board provides the viability statement and going concern assessment. These considerations have been factored into our year-end processes.

Percentage of time allocated to specific agenda items

50% Financial reporting, including areas of

judgment, and reporting developments

13% External audit

8% Internal audit

19% Internal controls

10% Other (including governance)

The Audit Committee’s terms of reference, which set out full details of its responsibilities, can be viewed on our website, https://www.legalandgeneralgroup.com/about-us/corporate-governance/group-board-committees/

The Audit Committee has an annual work plan aligned with the financial reporting cycle of theCompany. The Audit Committee’s activities fall into three principal areas:

• Accounting and Financial Reporting• Internal Control• Internal and external audit

Accounting and financial reportingThe Audit Committee reviews the appropriateness of the half year and annual financial statements, which it carries out with both management and the external auditors. This review includes ensuring that the annual report and accounts, taken as a whole, are fair, balanced and understandable, as well as covering compliance with disclosure requirements and the material areas in which significant judgements had been applied.

In collaboration with the Risk Committee, the Audit Committee also reviews the disclosures to be made in relation to internal control and risk management, as well as the principal risks and uncertainties.

The significant accounting issues considered in relation to the 2019 financial statements are detailed on page 78.

Robust year-end governance processes are in place to support the Audit Committee’s considerations which include:

• ensuring that all of those involved in the preparation of the Company’s annual report have been appropriately trained and fully briefed on the ‘fair, balanced and understandable’ requirements;

• internal legal verification of all factual statements, together with legal verification of descriptions used within the narrative;

• regular engagement with and feedback from senior management on proposed content and changes;

• feedback from external advisors (corporate reporting specialists, remuneration and strategic reporting advisors, external auditor) to enhance the quality of our reporting; and

• early opportunity for review and feedback on our annual report by Audit Committee members.

The Audit Committee, having completed its review, recommended to the Board that, when taken as a whole, the 2019 annual report is fair, balanced and understandable, and provides the information necessary for shareholders to assess the Company’s position and performance, business model and strategy. The Audit Committee, together with the Risk Committee, reviewed the key assumptions and methodologies of the risk-based capital model as well as related Solvency II disclosures.


Governance


Issue Committee’s response

Valuation of non-participating insurance contract liabilities – retirement:

The non-participating insurance liabilities for retirement products are significant in size and their estimation is inherently judgemental.

The Committee evaluated the significant judgements that have an impact on the valuation of non-participating insurance liabilities for retirement products. This included considering:

Valuation interest rates – which are used to discount the liabilities. These are sensitive to judgements made, for example, on credit default of the backing assets, as well as the investment data used to calculate the internal rate of return. The Committee focused on management’s proposed changes to reserving assumptions, other modelling changes, and the determination of the credit default assumption. This included analysis of internal historic data and external market experience, including consideration of Brexit outcomes.

Longevity assumptions – which estimate how long policyholders receiving annuity payments will live. The challenge around the setting of longevity assumptions was a particularly significant area for review as the judgements could be expected to have a material impact on the group’s results. The Committee considered the effectiveness of the controls over the accuracy and completeness of the data used in determining the longevity assumption and the validity of independent industry data supporting those assumptions. The Committee also reviewed available data illustrating recent trends in mortality experience in the UK population and the mortality experience on different blocks of our business.

The Committee concluded that the retirement insurance contract liabilities are appropriate for including in the financial statements, reflecting the asset risks and the available data on policy holder longevity.

Valuation of complex investments:

Mark to model investments can involve significant judgement and can produce valuation challenges for investments in new classes.

Mark to model valuations inherently include assumptions that lead to the existence of a range of plausible valuations for financial instruments (known as valuation uncertainty). Certain assets are subject to a higher degree of valuation uncertainty, particularly where valuations are modelled using no market inputs or the valuations are affected by other factors such as the illiquidity of the asset.

The group has continued to increase its exposure to complex investments, in line with its strategy and risk appetite. The valuation of these investments, including property assets, lifetime mortgages, and private credit, requires the use of complex models and management judgement. The Committee seeks to ensure that the valuation process for these investments is robust.

The Committee reviewed the processes and controls over investment valuations, in particular the valuation uncertainty policies and governance which included management’s assessment of valuation uncertainty by asset type.

The Committee concluded that there are appropriate controls surrounding the valuation of complex assets and that they are valued appropriately for inclusion in the financial statements.

Valuation of non-participating insurance liabilities – insurance:

The non-participating insurance liabilities for protection contracts are an important driver of the profitability for this line of business and require judgements to be made regarding the assumed rates of mortality and persistency. The company makes extensive use of reassurance to reduce mortality risk.

The Committee has reviewed the methodology for calculating reserves including the allowance made for payments to and from reassurance counterparties. The assumptions for the rate of future mortality and morbidity (how many customers will die or become ill during the policy term) and persistency (how many customers will discontinue cover) are based on the company’s internal experience and use judgement about how experience may vary in the future.

The Committee reviewed the assumptions and the expected level of prudence taking into account market benchmarking, internal experience studies and the reassurance structures. The Committee also considered the internal control environment in place to control the valuation models.

The Committee concluded that the insurance liabilities of the Insurance division are appropriate for inclusion in the financial statements.

Internal controlThe Board has delegated responsibility for reviewing the effectiveness of the group’s systems of internal control to the Audit Committee.

The Audit Committee has the primary responsibility for the oversight of the group’s system of internal controls including financial reporting control and the work of the internal audit function. The Audit Committee, in collaboration with the Risk Committee, seeks to ensure that the group operates within a framework of prudent and effective controls that allow risk to be identified, assessed and managed.

The Audit Committee has completed its review of the effectiveness of the group’s system of internal control policies and procedures, during the year and up to the date this report was approved, in accordance with the requirements of the Guidance on Risk Management, Internal Control and related Financial and Business Reporting published by the FRC. During this review, the Audit Committee did not identify any weaknesses which were determined to be significant to the preparation of the financial statements. The Audit Committee also noted that there were no significant changes to the control environment noted in the current year, significant to the preparation of the financial statements. Where areas for improvement were

identified, processes are in place to ensure that the necessary actions are taken and progress is monitored by the Audit Committee.

The Audit Committee monitored and reviewed the scope, extent and effectiveness of the activity of the group internal audit function. In particular, the Audit Committee evaluates the alignment of the internal audit plan with the group’s key risks and strategy.

Internal AuditThe Group Chief Internal Auditor has a standing agenda item at each Audit Committee meeting to update the Audit Committee on audit activities, progress of the audit plans, the results

During the year, the Audit Committee has continued to keep abreast of significant and emerging accounting developments, and the Audit Committee regularly considers the progress of the projects to implement new

standards, and the key judgements relating to their implementation, including the expected impacts on results and the approach to transitional disclosures.


Audit Committee report continued

of any unsatisfactory audits and the action plans to address these areas. In 2019, 117 audits were completed in line with the Internal Audit Plan approved by the Audit Committee. There was a particular focus on key themes including cyber/data management and governance, financial control framework establishment, digital business and regulatory change, conduct risk, financial management and control, model risk, outsourcing/vendor management and economic and political volatility.

The external auditorThe Audit Committee has the primary responsibility for overseeing the relationship with, and performance of the external auditor. This includes making recommendations for their appointment, re-appointment, removal and remuneration.

AppointmentThe Audit Committee is cognisant of the requirements governing the appointment of an external auditor, notably the requirements of the Competition and Markets Authority (CMA) in relation to the mandatory re-tendering of audit services every ten years, together with the European Union’s requirements for mandatory audit firm rotation. The Company confirms that it has complied with the CMA requirements for the financial year under review.

KPMG were appointed as the group’s external auditors with effect from the financial year ended 31 December 2018.

PerformanceThe Audit Committee assesses the effectiveness of the external auditor against some of the following criteria:

• Provision of timely and accurate industry specific and technical knowledge

• Maintaining a professional and open dialogue with the Audit Committee Chair and members at all times

• Delivery of an efficient audit and the ability to meet objectives within the agreed timeframes

• The quality of its audit findings, management’s response and stakeholder feedback

The Audit Committee receives regular reports from the external auditor on audit findings and significant accounting issues. In 2019, the Audit Committee continued to focus on the external auditor’s assurance work on the financial control environment, as well as their conclusions on the significant accounting issues noted above.

The Chair of the Audit Committee regularly meets the external auditor throughout the course of the year. The Audit Committee also meets the external auditor in private throughout the year.

The Audit Committee reviews and approves the terms of engagement of the external auditor and monitors its independence. This includes overseeing, and in certain circumstances approving, the engagement of the external auditors for non-audit work. The non-audit services policy prohibits the auditor from providing the following services:

• Tax advice and compliance• Management or decision making• Book-keeping and preparing accounting

records or statements• Design or implementation of internal controls• Valuation• Legal, internal audit or human resources• Those linked to financing capital structure

or allocation or investment strategy• Promoting, dealing in or underwriting

share issues• Payroll services

RemunerationIn 2019, the group spent £1.6 million on non-audit services provided by KPMG. It spent a further £0.8 million on audit-related services required by legislation, which is excluded from any calculation of the ratio of non-audit to audit fees in accordance with the UK FRC Ethical Standard for Auditors (June 2016). Further details can be found in Note 34 to the consolidated financial statements. The non-audit fee represents 23% of the total audit fee for 2019. The audit fee in 2019 includes additional fees relating to the prior year audit of group subsidiaries.

Analysis of current and prior-year spend on audit, other assurance and non-assurance services

2019 2018 2017

Audit 7.1 6.0 6.1

Audit-related required by legislation 0.8 0.8 0.8

Other audit-related 1.1 0.6 1.0

Other assurance 0.3 0.2 0.4

Non-assurance 0.2 1.5 0.8

Total 9.5 9.1 9.1

Following the audit tender process, the policy was updated and approved by the Audit Committee to address the requirements as set out in the EU Audit regulation.

Our policy is to approach other firms for significant non-audit work. The group’s policy requires that all services with an anticipated cost in excess of a specified amount are subject to a full competitive tender involving at least one other alternate party in addition to the external auditor. If the external auditor is selected following the tender process, the Audit Committee is responsible for approving the external auditors’ fees on the engagement. For services with an anticipated cost below the specified amount, the Group Chief Financial Officer has authority to approve the engagement. The external auditor and management are required to report regularly to the Audit Committee on the nature and fees relating to non-audit services provided under this authority.

The Audit Committee remains satisfied that KPMG continues to be independent. In addition, KPMG annually reports on whether and why it deems itself to be independent.


Governance


Group Risk Committee report

The role of the Committee is to assist the Board in the oversight of the risks to which the group may be exposed and to provide the Board with strategic advice in relation to current and potential future risk exposures. This includes reviewing the group’s risk profile and appetite for risk, and assessing the effectiveness of the group’s risk management framework. The group’s approach to the management of risk is set out in more detail on pages 42 to 47.

Committee activities during 2019The work of the Committee is supported by the Group Chief Risk Officer and the Company Secretary, who assist the Committee chairman in planning the Committee’s work and ensuring that the Committee receives accurate and timely information. The Committee met five times during 2019.

Group Chief Risk Officer’s reportThe Committee receives at each meeting a formal report from the Group Chief Risk Officer. This report brings to the Committee’s attention key factors in the operating environment of the group’s businesses and an assessment of the potential risks that may emerge. The review includes analysis of risks arising from the macro-economic outlook and conditions in financial markets, together with geopolitical, legislative and regulatory change risks that may impact the Group’s businesses, and risks associated with the implementation of the group’s business strategy.

In addition to the Group Chief Risk Officer’s report, the Committee is provided with management information on risk appetite, comparing actual positions relative to the group’s risk appetite statement; and quantitative analysis of the group’s exposures to financial and operational risks, including risk-based capital requirements in relation to the core risks implicit in the group’s businesses.

Group Conduct Risk Director’s reportAt each meeting the Committee receives a report from the Group Conduct Risk Director. This provides the Committee with an assessment of the overall profile of conduct risks for the group; analysis and trends in conduct risk indicators including complaints data, and the results of reviews undertaken by the group conduct risk monitoring team, as well as evaluation of changes in the conduct risk landscape as regulatory approaches evolve. The Group Conduct Risk Director’s report is accompanied by a suite of customer service metrics designed to enable the Committee to assess the management of the customer journey across the group’s financial services products.

Toby StraussChairman of the Group Risk Committee

The composition of the CommitteeThe Committee is composed entirely of independent non-executive directors. The table below sets out its membership during the year.

Members

Julia Wilson

Henrietta Baldock

Philip Broadley

Lesley Knox

George Lewis

Toby Strauss

Other attendees at Committee meetings include: the Group Chairman; Group Chief Executive; Group Chief Financial Officer; Group Chief Risk Officer; Group Conduct Risk Director; Group Chief Internal Auditor; Chief Executive Officer LGC; and representatives of the external auditor, KPMG LLP.


Focused business and risk reviewsFocused ‘deep dive’ reviews of particular risk areas are undertaken at each Committee meeting. The purpose of these reviews is to enable Committee members to examine the risk profile of the core business lines and to consider the robustness of the frameworks in place to manage the key risk exposures. Committee members are invited to participate in setting the agenda for these deep dive reviews, considering both the current operating environment and emerging risk factors. Below are examples of some of the key reviews that took place during 2019, and the areas of focus by the Committee.

• Financial risks from climate change: Reviews of the risks presented by climate change for the sectors in which the group invests and the group’s strategy for their management;

• Health, safety and property development risks: Reviews of the profile and management of the health, safety and environmental risks within the commercial real estate and housing businesses operated by LGC and LGIM Real Assets;

• Credit risk management: A review of LGR’s credit portfolio, considering risk measurement, monitoring and reporting along with broader investment themes and credit strategy;

• Operational resilience: Assessment of the group’s capabilities to ensure continuity of business operations and regulatory expectations of the UK financial services sector;

• Outsourcing and third party management: Consideration of the risks and the group’s approach to managing critical third party supply arrangements;

• The transition from LIBOR: Activities to ready the group for the replacement of LIBOR with SONIA, and actions to minimise associated legal, regulatory and conduct risks;

• Claims management: The group’s approach to assessing and settling protection claims to ensure balanced customer outcomes;

• Direct Investment: Reviews of the risks, limits, tolerances and risk monitoring for the direct investment asset class;

• Brexit risks: Reviews considering the potential stress scenarios of a ‘no deal’ Brexit and potential management actions.

The Committee also takes an active role in the development of the group’s recovery and resolution plans, which have been put in place in line with the UK regulatory requirements relating to systemically important insurers. As part of this activity the Committee considered the results of liquidity and credit risk ‘fire drills’ undertaken during the year.

Risk appetite At its July meeting, the Committee undertook a detailed review of the operation of the group’s risk appetite framework and the key measures and tolerances used to determine acceptable risk taking, recommending some refinements to the Board. In December, the Committee considered the risk profile of the group’s strategic plan and its alignment with the group’s overall risk appetite.

In addition to this aggregate view of acceptable risk taking, the Committee also considers, as part of the group’s overall transaction approval process, the appetite for specific risks associated with transactions, particularly where the transaction is material in the quantum of risks being assumed or aspects of the transaction may present risks that are relatively new to the group.

Risk-based capital modelThe group’s risk-based capital model (internal model) is used to determine the capital requirements for the group and forms the calculation engine for the Solvency II internal model. As well as reviewing and using the output of the model in its understanding of the group’s risk profile, the Committee is the focal point for model governance with specific consideration of the:

• key assumptions, methodologies and areas of expert judgement used within the model;

• activities undertaken to independently validate the outputs of the model;

• ongoing development of the model to ensure that it reflects the business lines and risk profile of the group; and

• processes to ensure that changes applied in the model are undertaken in a controlled manner, and in line with model development plans.

Own Risk and Solvency Assessment (ORSA) The ORSA is an ongoing assessment of the risks to which Legal & General is exposed and an evaluation of the sufficiency of capital resources to sustain the business strategy over the plan horizon. Over the course of the year the Committee considered different aspects of the group’s ORSA process. This included the review of proposed stress tests and scenarios to be used in the evaluation of capital adequacy, the profile of risks within the group’s strategic plan and how they may change over the planning period, and the group’s overall capacity to bear the risks identified.

A formal ORSA report is subject to annual review by the Committee prior to formal approval of the Group Board.

Risk governance Sound frameworks of risk management and internal control are essential in the management of risks. During the year, the Committee has received updates on the continued development of the risk governance framework.

Risk-based remunerationThe Committee advises the Remuneration Committee on risk matters to be considered in reviewing bonus pools.


Governance

Group Risk Committee report

Our remuneration report is organised into the following sections

Letter from the Chairman of the Remuneration Committee 82

Quick read summary 84

Remuneration policy 87

Annual report on remuneration 94

The directors’ remuneration policy was subject to a binding vote in 2017, and has applied for three years from the 2017 AGM. A proposed new remuneration policy is set out on pages 87 to 93 and will be presented for approval at the 2020 AGM. The annual report on remuneration together with the Chairman’s Statement will be subject to an advisory shareholder vote.

Letter from the ChairmanDear ShareholderI am pleased to present the Remuneration Committee’s report for 2019, and also propose a new directors’ remuneration policy for shareholder approval at our 2020 AGM.

This year, we have sought to improve the transparency and clarity of our remuneration report, including a ‘quick read’ section summarising our current remuneration policy and its implementation in 2019, showing graphically the outcomes against performance targets and the resulting remuneration received for 2019. Full details, in accordance with the remuneration reporting regulations, continue to be disclosed on pages 94 to 113 but I hope this ‘quick read’ summary is useful.

Link between pay and performanceLegal & General has continued to deliver strong performance during 2019. Excluding mortality reserve releases, operating profit has increased by 12% and earnings per share has continued to grow, up by 16%. In this context, and considering overall financial performance, the Committee has determined the outcomes for incentive awards.

Annual variable pay As in previous years, the Committee chose to exclude the beneficial impact of mortality assumption changes from the results when determining annual bonus (AVP) awards. However, even excluding these items, there was very strong financial performance during 2019 resulting in bonus outcomes in the range 55% to 92% of maximum. The Committee considered the AVP outcomes in the context of underlying business performance and determined that no adjustment was required.

The targets and outcomes relating to each AVP award are summarised in the ‘quick read’ section on page 86 and in further detail on pages 96 to 98.

Performance Share Plan The long-term incentive (PSP) awards granted in 2017 were subject to performance over the three-year period ended 31 December 2019. Total Shareholder Return (TSR) under the PSP rules was 45%, significantly outperforming the median of the FTSE 100 and the comparator group. Over the same period, Earnings Per Share (EPS) grew by 42.9% (12.6% p.a.) and Dividends Per Share (DPS) by 22.4% (7% p.a.), resulting in 86.9% of the 2017 PSP award vesting, with the remaining 13.1% lapsed and forfeited. The PSP targets and outcomes are summarised in the ‘quick read’ section on page 86 with further detail on page 99.

Base pay increases The average base pay increase for UK employees during 2019 was 3.6%, and the increases for Nigel Wilson, Kerrigan Procter and Michelle Scrimgeour, with effect from 1 March 2020, have been set at 3.6%, 3.8% and 3.5% respectively. As stated in our 2016 report, and again last year, the Committee may award higher increases for a recently appointed executive director who progresses in the role over time, and therefore Jeff Davies has been awarded a 6.3% increase with effect from 1 March 2020.

Board changesAs previously announced, during 2019 Mark Zinkula retired and Michelle Scrimgeour was appointed a Group Board director and Chief Executive Officer LGIM. Mark had led LGIM since 2011 and created a significant business during that time. In accordance with our approved

Lesley KnoxChairman of the Remuneration Committee

Directors’ report on remuneration

Remuneration Committee membersThe composition of the CommitteeThe Committee is composed entirely of independent non-executive directors. The table below sets out its membership during the year.

Members

Henrietta Baldock

Philip Broadley

Lesley Knox

Other regular attendees at the meeting include the following:Group Chairman; Group Chief Executive; Director of Group Finance; Group HR Director; Group Reward Director; Head of Executive Compensation; Representative of the independent adviser Deloitte LLP


remuneration policy and the relevant plan rules, due to his retirement Mark was designated a ‘good leaver’ for the purposes of his unvested share awards. Mark continued to receive his remuneration through to his leaving on 31 August 2019, and is eligible for a 2019 bonus (AVP) award pro-rated for the period through to his leaving, based on targets and performance for the full year. His bonus remains subject to the normal deferral period (three years). Mark was not granted a long-term incentive (PSP) awards grant in 2019, but his unvested PSP awards from prior years have been pro-rated and will vest on the normal dates based on targets and performance for the full performance periods, and subject to normal deferral. Malus and clawback provisions continue to apply to all of Mark’s AVP and PSP awards. Full details of the treatment of Mark’s AVP and PSP awards upon leaving are shown on page 103.

Michelle joined on 1 July 2019, and was appointed an executive director on 2 September 2019. Her annual base pay was set at £575,000 which is lower than Mark’s base pay of £638,000 but recognising that this is her first board appointment. In accordance with the approach we have taken with other new executive directors, we have set base pay at a lower level so that subject to continued performance, the Committee may reposition her base pay as she progresses in the role over time. Annual bonus (AVP) award and long-term incentive (PSP) awards for Michelle have been set in line with Mark’s previous opportunities, at a maximum of 175% and 250% of base pay respectively. Michelle’s pension contributions have been set at 10% of base pay, in line with the majority of the UK workforce. Michelle was eligible to receive a 2019 bonus (AVP) award pro-rated for her period of service during 2019, and subject to deferral, malus and clawback, as normal.

On appointment, Michelle forfeited cash and share awards from her previous employer, Columbia Threadneedle Investments (CTI). In accordance with our policy on recruitment remuneration, the Committee granted to Michelle cash and share awards, matching as closely as possible the value and timescale to vesting of her forfeited CTI awards. The details of these awards are set out on pages 102 to 103 which are subject to malus and clawback in the normal way, and furthermore will be forfeited if Michelle resigns prior to the third anniversary of her commencement date (i.e. before 1 July 2022).

Consideration of the wider workforceThe Committee considers remuneration across the wider workforce when determining executive director remuneration, policy and practices. Although quantum and participation will vary, the policies and practices applying to executive directors are the same as for the wider workforce in most instances. In 2019, changes

were made to the benefits provided to UK employees. Private medical insurance is now available to every UK employee, with increased life insurance, and improved holiday and family-friendly policies (maternity, paternity, adoption and shared parental leave). During 2020, there will be a further review of employee benefits, including a review of UK pension contributions.

As the group’s designated workforce director, I meet a broad range of our employees, ensuring they are appropriately represented in the Boardroom and when making Remuneration Committee decisions. My report on page 65 explains some of those activities undertaken during the year, and our work on diversity and inclusion, gender pay gap, and employee engagement is set out on page 51. Again this year, we adopted a stratified approach to distributing base pay increases for UK employees, with the lowest paid (less than £30,000 a year) receiving thei highest increases (generally 4% of base pay) recognising their greater exposure to price inflation.

The CEO pay ratio for 2019 to median is 112 as detailed on page 109. Variations in the vesting of long-term incentives (PSP) awards can cause short-term variations in the total remuneration pay ratio, but the general trend when looking at base pay has been for a slight reduction in the ratio.

We continue to be encouraged by the number of employees choosing to invest in the company’s Share Purchase and ShareSave plans. Around two thirds of all employees now participate, becoming shareholders in our company, contributing to and benefiting from our collective success.

Remuneration policy review It will be three years since our directors’ remuneration policy was last approved by shareholders in 2017. Therefore at our 2020 AGM, we will submit a new policy for approval.

During 2019, we reviewed our approach to remuneration in the context of future business strategy, updated investor guidelines and evolving best practice, and sought feedback from shareholders and representative bodies. I am grateful for all the responses received, which have helped shape our thinking.

Since 2017, we have made some progressive changes within the bounds of our current policy, by simplifying the performance measures and extending the holding period to five years for PSP awards. Post employment shareholding requirements and the alignment of pension contributions for new executive directors with the majority of the UK workforce were introduced in 2019. These changes are now formally included in our proposed new remuneration policy.

During the course of the review, the Committee considered a number of alternative approaches, including a restricted stock plan. However, reflecting on our long-term strategic priorities, we concluded that the current framework remains aligned with and continues to drive the delivery of our business strategy, maintaining the link between remuneration and shareholder returns, and reflecting best practice and investor expectations. As such, the proposed new remuneration policy remains very similar to the existing policy (except as noted below), with no new incentive plans or changes to the current incentive opportunities. The proposed new remuneration policy is set out on pages 87 to 93, including the following proposed changes:

• Shareholding requirements increased to 325% of base pay for all executive directors, with a post-employment shareholding requirement at the same level for at least two years post-cessation of employment.

• Relocation benefits, where an executive director may be required to relocate or perform duties outside their home country, any such benefits (including housing, school fees, home travel, etc.) will be limited to a maximum period of two years.

• Bonus moderator to be explicitly included in the AVP determination, enabling the Committee to reduce (but not increase) formulaic outcomes, if not justified in the context of a range of factors, including risk management, behaviours, culture, capital generation, Solvency II coverage ratio and sustainable financial performance.

• Environmental, social and governance (ESG) targets to be included as a specific performance measure from 2021 for the AVP, and also considered when assessing the vesting outcome of the PSP.

• Pension contributions for new executive directors are already aligned with that available to the majority of the UK workforce (currently 10% of base pay), but pension contributions will be aligned between the UK workforce and all executive directors by 2022.

A further explanation for each of these proposed policy changes is set out on page 87.

I hope that you will find this report a useful and clear account of the Committee’s decisions and remuneration outcomes for the year. Furthermore, I hope that you will support the proposed changes to our remuneration policy, which are designed to strengthen our approach, and continue to improve the link between director remuneration and shareholder returns.

Lesley KnoxChairman of the Remuneration Committee


Governance


Remuneration policy summary and 2019 implementation

Remuneration element and time horizon 2019 policy summary 2019 implementation

Base pay

2019 2020 2021 2022 2023

OperationReviewed annually, with increases effective 1 March.

OpportunityNo maximum, but any increase will normally be in line with the range for other UK employees. In specific circumstances, the Committee may award increases above this level, for example where base pay for a newly appointed executive director has been set with a view to allow the individual to progress in the role over time.

PerformancePersonal performance will be taken into consideration in determining any increase.

Effective 1 March

2019

Effective 1 March

2020%

increase

Nigel Wilson £945,500 £979,500 +3.6%

Jeff Davies £555,000 £590,000 +6.3%

Kerrigan Procter £525,000 £545,000 +3.8%

Michelle Scrimgeour £575,000* £595,000 +3.5%

Mark Zinkula £638,000# n/a n/a

Employees below the Board (average) 3.6%

* Effective from joining 1 July 2019# Effective until leaving 31 August 2019

Benefits

2019 2020 2021 2022 2023

OperationMarket competitive, in line with benefits provided to other senior employees in the UK.

OpportunityNo maximum, except for plan limits and HMRC rules, in line with other UK employees.

PerformanceNo performance conditions.

Benefits during 2019 include:• Allowance in lieu of a company car• Private medical insurance• Life insurance• Income protection• All-employee ShareSave plan (SAYE)• All-employee share purchase plan (SIP)

Pension contributions

2019 2020 2021 2022 2023

OperationDefined contribution pension plan or a cash allowance in lieu of pension. Non-UK nationals may be permitted to participate in home-country pension plans where relevant. Base pay is the only element of pensionable remuneration.

OpportunityUp to 15% of base pay, in line with other senior employees in the UK. For new executive directors, pension contributions are aligned to that available to the majority of the workforce (currently 10% of base pay).

PerformanceNo performance conditions.

Pension contributions during 2019(as % of base pay):

Nigel Wilson 15%

Jeff Davies 13.8%

Kerrigan Procter 15%

Michelle Scrimgeour 10%

Mark Zinkula 15%

Majority of workforce 10%

Other senior employees in the UK 15%

Annual Variable Pay (AVP)

2019

50% cash

50% deferred for 3 years

2020 2021 2022 2023

OperationPerformance assessed over a one-year period, with targets and weightings set annually. Awards are determined after the year end, taking into consideration performance against targets, the underlying performance of the business, and individual performance. The Committee may adjust and amend the awards if circumstances justify a change. 50% of any AVP award is deferred into shares for three years, malus and clawback provisions apply.

OpportunityUp to 150% of base pay for the Group Chief Executive and Chief Financial Officer, and 175% of base pay for the other executive directors. No bonus is payable for threshold performance or below, with up to 50% of maximum for target performance (up to 60% of maximum is payable for target performance for Mark Zinkula).

PerformanceMeasures selected by the Committee aligned with the group’s strategic priorities, based on an appropriate mix of group and/or divisional financial performance targets as well as strategic and personal measures.

Bonus opportunity for 2019(as % of base pay): At target At maximum

Nigel Wilson 75% 150%

Jeff Davies 75% 150%

Kerrigan Procter 87.5% 175%

Michelle Scrimgeour 87.5% 175%

Mark Zinkula 105% 175%

70% Financial performance

30% Strategic and personal objectives


Quick read summary

Remuneration policy summary and 2019 implementation

Remuneration element and time horizon 2019 policy summary 2019 Implementation

Performance Share Plan (PSP)

2019

Performance

2020 2021 2022 2023

Deferred

OperationConditional award of shares, subject to the achievement of financial performance targets set annually by the Committee, with a performance period of normally no less than three years, and awards released on the fifth anniversary of the grant date. The Remuneration Committee may amend the vesting downwards (but not increase the level of vesting) dependent on the underlying performance of the group. PSP awards are subject to malus and clawback.

OpportunityThe maximum award opportunity is 300% of base pay, although the normal award opportunity is 250% of base pay. 15% of the award vests for threshold performance, increasing to 100% of the award for maximum performance.

PerformanceMeasures selected by the Committee aligned with the group’s long-term strategic priority of delivering sustainable returns to shareholders, with normally 50% based on total shareholder return (TSR) and 50% on financial measures.

PSP award grants in 2019(as % of base pay): Maximum

Nigel Wilson 250%

Jeff Davies 250%

Kerrigan Procter 250%

Michelle Scrimgeour n/a

Mark Zinkula Nil

Shareholding requirements

Executive directors’ share ownership

Employment + 2 years

The Group Chief Executive is expected to build a shareholding of 300% of base pay and the other executive directors 200% of base pay, with any after tax vested shares retained until the guideline is met, to be maintained for at least two years after leaving employment.

From 2020, the shareholding requirement is proposed to be increased to 325% of base pay for all executive directors.

All executive directors are on target to fulfil their share ownership requirements within five years of appointment.

Share ownership at 31 December 2019

JD

NW

200% 300%

MS

KP

MZ

966%

581%

Target met

Target met

Target met

0%

1%

325%

266%

CEO pay ratio

Total remunerationSince 2016 we have been voluntarily disclosing the details of the pay ratio in relation to the Group CEO and the wider UK employee population. The chart opposite provides an indication of the change in the pay ratio, for total remuneration, since 2017, the period for which we have a consistent basis for the calculation.

For 2019 the pay ratio for total remuneration has increased as a result of the higher level of vesting of the 2019 PSP award, which is a reflection of the sustained financial performance and high total shareholder return delivered over the last three years. Further details of the pay ratio are provided on page 109.

Lower quartile UK employee

Median UK employee

Upper quartile UK employee

2017 2018 2019

134

79

39

168

112

68

133

90

51

50% EPS

25% TSR (vs FTSE 100)

25% TSR (vs comparator group)


Governance


Alignment with strategy and 2019 performance outcomes

The performance measures for the incentive plans are directly aligned to the group’s key performance indicators. The Group Board reviews the KPIs annually and adds or changes them where appropriate. The purpose of each KPI is explained in more detail on pages 19 and 20. Further details of performance measures and outcomes are provided on pages 96 and 98.

Overarching drivers of the business Group KPIs Incentive plans (weightings) 2019 performance targets and outcomes

AVP PSPGroup

CEO & CFO

Divisional

CEOs Threshold Target Maximum Actual1

Profitability Net release from operations (NRO)

20% 10%£1,458m

£1,578m£1,502m£1,396m

Operating profit 25% 12.5%£1,883m

£2,085m£1,977m£1,823m

Earnings per share (EPS) 1 year growth

12.5% 6.25%25.3p

28.8p26.5p24.1p

Return on Equity (ROE) 12.5% 6.25%18.1%

19.2%18.8%17.3%

Divisional financial performance (see page 97)

35%

Earnings per share (EPS) 3 year average annual growth 50%

12.6%14.0%5.0%

Dividend per share (DPS) 3 year average annual growth

7.0%14.0%5.0%

Shareholder value creation

TSR vs FTSE 100 25% 27.4Top 20thMedian

19.047.5

TSR vs comparator group 25%Top 20thMedian

8.4 6.013.5

Strategic priorities (see page 97): 30% 30%

100% 100% 100%

1. Performance measures exclude the impact of mortality assumption changes, profits and separation costs relating to the Mature Savings business and intangible asset adjustments.

Remuneration receivedExecutive directors’ remuneration (£’000)

Nigel Wilson

1,118 1,194 3,398

Actual remuneration

2018 1,086

Maximum remuneration

1,292 2,193 4,5922019 1,107

1,418 2,523 5,0482019 1,107

Jeff Davies

638 1,237

Actual remuneration

2018 599


1,206 2,6112019 642

833 2,8632019 642

763

1,388

Kerrigan Procter


919 1,318 2,8562019 619

Key

Fixed (base pay, benefits and pension contributions)



Replacement awards.

Actual remuneration

2018


372 1,763 2,3522019 217

503 1,763 2,4832019 217

N/A

Michelle Scrimgeour (appointed to the Board 2 September 2019, CEO LGIM from 1 July 2019)

620 404 1,619

Actual remuneration

2018 595

707 1,146 2,4722019 619


Quick read summary continued

The following sections set out our directors’ remuneration policy, which is subject to shareholder approval by way of a binding vote at the 2020 AGM on 21 May 2020.No new incentive plans or changes to the current incentive opportunities are proposed. Below is a summary of the changes between the current (2017) remuneration policy and the proposed (2020) remuneration policy:

Remuneration type Proposed changes

Benefits • Relocation benefits, where an executive director may be required to relocate or perform duties outside their home country, will be limited to a maximum period of two years.

Pension contribution • Pension contributions for new executive directors aligned to that available to the majority of the UK workforce.

• Pension contributions will be aligned between the majority of the UK workforce and all executive directors by 2022

Annual Variable Pay (AVP) • A bonus moderator explicitly included in the AVP determination enabling the Committee to reduce (but not increase) formulaic outcomes if not justified in the context of a range of factors.

• From 2021, inclusion of environmental, social and governance (ESG) targets as a specific performance measure.

Performance Share Plan (PSP) Progressive changes made since 2017 now incorporated into policy:• Holding period applied to Performance Share Plan

(PSP) awards such that no awards may be released prior to five years from grant.

• Performance measures for PSP awards simplified by replacing the Earnings Per Share (EPS) and Dividends Per Share (DPS) matrix with EPS growth target (in addition to comparative TSR).

Shareholding requirements • Shareholding requirement for all executive directors increased to 325% of base pay (previously 300% of base pay for the Group Chief Executive and 200% of base pay for the other executive directors)

• Post-employment shareholding requirement for executive directors introduced to maintain their shareholding for at least two years after leaving employment.


Governance

Remuneration policy

Remuneration policy

Fixed pay

Base pay Pension contributions Benefits Annual Variable Pay (AVP) Performance Share Plan (PSP) Non-executive directors’ fees Shareholding requirements

Purpose and link to strategy

Provides a fixed level of earnings, appropriate to the market and requirements of the role.

Provides a basis for savings to provide an income in retirement.

Provides benefits and allowances appropriate to the market, and to assist employees in efficiently carrying out their duties.

Incentivises and rewards the achievement of annual financial performance and delivery of strategic priorities.

50% of any AVP award is deferred into shares, reinforcing retention and alignment with shareholders, by encouraging long-term focus and risk alignment.


Provides a direct and transparent link between executive pay and the delivery of shareholder returns over the longer term.

Compensates non-executive directors for their responsibilities and time commitment.

Provides alignment with shareholder returns and ensures a reduction in own wealth if there is a reduction in Legal & General’s share price.

Operation Reviewed annually with effect from 1 March, taking into account:• the individual’s skills,

experience and performance;

• scope of the role;• external market data,

including other FTSE 100 companies and other financial and non-financial institutions;

• pay and conditions elsewhere in the group; and

• overall business performance.

There is no obligation to increase base pay upon any such review, and any decision to increase base pay will take into account the associated impact on overall quantum.

In line with other employees in the UK, executive directors may:• participate in a defined

contribution pension plan; or

• receive a cash allowance in lieu; or

• receive some combination thereof.

Non-UK national executives may be permitted to participate in home-country pension plans where relevant.

Base pay is the only element of pensionable remuneration.

In line with other employees in the UK, benefits currently include:• private medical insurance;• life insurance;• income protection; and• all-employee (ShareSave

and Share Purchase) plans.

Executive directors may participate in voluntary benefits and choose to acquire Legal & General products which they fund themselves, sometimes through salary sacrifice.

In line with other senior managers in the UK, executive directors receive a non-pensionable cash allowance in lieu of a company car.

Where an executive director is required to relocate, or perform duties outside their home country, additional benefits may be provided, (including healthcare and assistance for housing, school fees, home travel, relocation costs and tax compliance advice) for a period not exceeding two years.

In normal circumstances:• performance is assessed over a one-year period;• performance measures and weightings are set

annually to ensure they are appropriately stretching, and aligned with the group’s strategic priorities;

• performance targets take into account internal forecasts, market expectations and prior year performance. Target normally equates to the forecast in the strategic plan, with maximum set at an appropriate stretch above plan, but still within the company’s risk appetite.

• AVP awards are determined after the year end, taking into consideration performance against targets, individual performance, and overall business performance;

• 50% of any AVP award is paid in cash, after the year end, with 50% deferred into restricted shares (or nil-cost options, or phantom equivalent, or other forms dependent upon business or regulatory requirements) for a further three years;

• dividends or dividend equivalents may accrue during the deferral period and vest and are paid in shares upon vesting;

• malus and clawback apply to both cash awards and deferred awards.

Operation A conditional award of shares (or nil-cost options, or phantom equivalent, or other forms dependent upon business or regulatory requirements). In normal circumstances: • subject to a performance period of no less than three years;• subject to a holding period such that no awards are released before

five years from the date of grant;• performance measures and targets are set annually by the

Committee to ensure they are relevant and appropriately stretching, and aligned with the delivery of shareholder returns over the longer term;

• performance targets take into account, internal forecasts, any guidance provided to the market, market expectations, prior performance, and the company’s risk appetite;

• dividends or dividend equivalents may accrue in the period following the end of the performance period until vesting and release; and

• malus and clawback apply.

Exceptionally, the Committee may adjust and amend the PSP awards in accordance with the rules, including:• lengthen the performance period and/ or the holding period for

future awards;• reduce (but not increase) the level of vesting dependent upon the

performance of the group.

Fees for the Chairman and non-executive directors are set at an appropriate level to reflect:• time commitment required to fulfil the role;• responsibilities and duties of the positions;

and• typical competitor practice in the FTSE 100

and other financial services institutions.

Fees comprise a base fee for membership of the Board, plus (where applicable) additional fees for:• Senior Independent Director (SID);• Committee chairmanship; and• Committee membership (not including the

Nominations Committee).

Additional fees for membership of Committee, or chairmanship or membership of subsidiary Boards, or other fixed fees may apply if justified by time or commitment.

The Chairman receives an inclusive fee for the role. The Chairman’s fee is reviewed annually by the Committee, and the non-executive directors’ fees are reviewed by the executive directors. There is no obligation to increase fees upon any such review.

Executive directors are expected to retain any after tax vested share awards until their shareholding requirements are met, and maintain that shareholding requirement (or their actual shareholding at the date of leaving, if lower) for at least two years after leaving employment with the group.

The Committee retains the discretion to withhold future PSP grants if executive directors are not making sufficient progress towards their shareholding requirement.

Non-executive directors may elect to receive a proportion of their fees (normally 50%) in Legal & General shares until their shareholding requirement is met.

The sale of shares prior to the shareholding requirements being met may be permitted in extenuating situations, for example, a change to personal circumstances, ill health, etc.

Opportunity There is no set maximum base pay, but any increases will normally be in line with the range of increases for other UK employees. In specific circumstances, the Committee may award increases above this level, for example where:• base pay for a recently

appointed executive director has been set with a view to allowing progression in the role over time; or

• there has been a significant increase in the size or scope of an executive director’s role or responsibilities; or

• there is a significant change in the regulatory environment.

For new executive directors, pension contributions are aligned to that available to the majority of the workforce (currently up to 10% of base pay).

Pension contributions for executive directors appointed before 2019 are currently aligned with the contributions for other senior managers in the UK defined contribution pension plan (currently up to 15% of base pay).

Pension contributions will be aligned between the majority of the UK workforce and all executive directors by 2022.

The maximum amount paid in respect of benefits will be the actual cost of providing those benefits which, particularly in the case of insured benefits, may vary from year to year, although the Committee is mindful of achieving the best value from benefit providers.

The maximum opportunity for participation in the all-employee share plans is the same for all employees and takes into account prevailing HMRC rules.

The maximum opportunity in respect of any financial year is:• 150% of base pay for the Group Chief Executive and

Chief Financial Officer;• 175% of base pay for other executive directors.

No bonus is payable for threshold performance or below, with up to 50% of maximum for target performance.

The Committee will consider the calculated outcome in the context of a range of factors (not just the specific performance measures) including risk management, behaviours, culture, capital generation, Solvency II coverage ratio and sustainable financial performance, and may apply a ‘moderator’ to reduce (but not increase) an AVP award if there are factors that warrant such a reduction.

Opportunity or requirement

The maximum opportunity for an executive director in respect of any financial year is 300% of base pay (although the Committee’s current intention is that the normal award opportunity will be 250% of base pay).• 15% of the award vests for threshold performance;• 100% of the award vests for achievement of maximum.

The Committee assesses the formulaic vesting outcome, and may amend the vesting downwards (but not increase the level of vesting) considering a range of factors including overall performance, risk management, capital generation, Solvency II coverage ratio, and (from 2021) ESG.

Fees are subject to the aggregate limit in the company’s Articles of Association. Any changes in this limit would be subject to shareholder approval.

The Chairman and non-executive directors are not eligible to participate in any benefit, pension or incentive plan. However, additional benefits may be provided if the Board feels this is justified, such as tax compliance advice, work permits or similar. Expenses incurred in carrying out duties (and any associated tax liability) may be reimbursed or paid directly by the company.

Shares owned outright equivalent to:• 325% of base pay for

executive directors; and• 100% of base fee for

non-executive directors.

Performance Personal performance will be taken in consideration in determining any base pay increase.

There are no performance conditions.


A combination of:• Financial performance (primary measure with at least

70% weighting) – to ensure growth and return to shareholders; and

• Strategic and personal performance – to safeguard the future, with the development of future income streams, and focus on key metrics including customers, culture and (from 2021) ESG.

Performance An appropriate mix (normally an equal weighting) of:• earnings performance – to incentivise growth in earnings; and• shareholder return – to deliver a competitive return for shareholders.

No performance conditions. Not applicable.

See pages 90 and 93 for Remuneration policy notes


Remuneration policy continued

Fixed pay

Base pay Pension contributions Benefits Annual Variable Pay (AVP) Performance Share Plan (PSP) Non-executive directors’ fees Shareholding requirements


Provides a fixed level of earnings, appropriate to the market and requirements of the role.

Provides a basis for savings to provide an income in retirement.

Provides benefits and allowances appropriate to the market, and to assist employees in efficiently carrying out their duties.

Incentivises and rewards the achievement of annual financial performance and delivery of strategic priorities.

50% of any AVP award is deferred into shares, reinforcing retention and alignment with shareholders, by encouraging long-term focus and risk alignment.


Provides a direct and transparent link between executive pay and the delivery of shareholder returns over the longer term.

Compensates non-executive directors for their responsibilities and time commitment.

Provides alignment with shareholder returns and ensures a reduction in own wealth if there is a reduction in Legal & General’s share price.

Operation Reviewed annually with effect from 1 March, taking into account:• the individual’s skills,

experience and performance;

• scope of the role;• external market data,

including other FTSE 100 companies and other financial and non-financial institutions;

• pay and conditions elsewhere in the group; and

• overall business performance.

There is no obligation to increase base pay upon any such review, and any decision to increase base pay will take into account the associated impact on overall quantum.

In line with other employees in the UK, executive directors may:• participate in a defined

contribution pension plan; or

• receive a cash allowance in lieu; or

• receive some combination thereof.

Non-UK national executives may be permitted to participate in home-country pension plans where relevant.

Base pay is the only element of pensionable remuneration.

In line with other employees in the UK, benefits currently include:• private medical insurance;• life insurance;• income protection; and• all-employee (ShareSave

and Share Purchase) plans.

Executive directors may participate in voluntary benefits and choose to acquire Legal & General products which they fund themselves, sometimes through salary sacrifice.

In line with other senior managers in the UK, executive directors receive a non-pensionable cash allowance in lieu of a company car.

Where an executive director is required to relocate, or perform duties outside their home country, additional benefits may be provided, (including healthcare and assistance for housing, school fees, home travel, relocation costs and tax compliance advice) for a period not exceeding two years.

In normal circumstances:• performance is assessed over a one-year period;• performance measures and weightings are set

annually to ensure they are appropriately stretching, and aligned with the group’s strategic priorities;

• performance targets take into account internal forecasts, market expectations and prior year performance. Target normally equates to the forecast in the strategic plan, with maximum set at an appropriate stretch above plan, but still within the company’s risk appetite.

• AVP awards are determined after the year end, taking into consideration performance against targets, individual performance, and overall business performance;

• 50% of any AVP award is paid in cash, after the year end, with 50% deferred into restricted shares (or nil-cost options, or phantom equivalent, or other forms dependent upon business or regulatory requirements) for a further three years;

• dividends or dividend equivalents may accrue during the deferral period and vest and are paid in shares upon vesting;

• malus and clawback apply to both cash awards and deferred awards.

Operation A conditional award of shares (or nil-cost options, or phantom equivalent, or other forms dependent upon business or regulatory requirements). In normal circumstances: • subject to a performance period of no less than three years;• subject to a holding period such that no awards are released before

five years from the date of grant;• performance measures and targets are set annually by the

Committee to ensure they are relevant and appropriately stretching, and aligned with the delivery of shareholder returns over the longer term;

• performance targets take into account, internal forecasts, any guidance provided to the market, market expectations, prior performance, and the company’s risk appetite;

• dividends or dividend equivalents may accrue in the period following the end of the performance period until vesting and release; and

• malus and clawback apply.

Exceptionally, the Committee may adjust and amend the PSP awards in accordance with the rules, including:• lengthen the performance period and/ or the holding period for

future awards;• reduce (but not increase) the level of vesting dependent upon the

performance of the group.

Fees for the Chairman and non-executive directors are set at an appropriate level to reflect:• time commitment required to fulfil the role;• responsibilities and duties of the positions;

and• typical competitor practice in the FTSE 100

and other financial services institutions.

Fees comprise a base fee for membership of the Board, plus (where applicable) additional fees for:• Senior Independent Director (SID);• Committee chairmanship; and• Committee membership (not including the

Nominations Committee).

Additional fees for membership of Committee, or chairmanship or membership of subsidiary Boards, or other fixed fees may apply if justified by time or commitment.

The Chairman receives an inclusive fee for the role. The Chairman’s fee is reviewed annually by the Committee, and the non-executive directors’ fees are reviewed by the executive directors. There is no obligation to increase fees upon any such review.

Executive directors are expected to retain any after tax vested share awards until their shareholding requirements are met, and maintain that shareholding requirement (or their actual shareholding at the date of leaving, if lower) for at least two years after leaving employment with the group.

The Committee retains the discretion to withhold future PSP grants if executive directors are not making sufficient progress towards their shareholding requirement.

Non-executive directors may elect to receive a proportion of their fees (normally 50%) in Legal & General shares until their shareholding requirement is met.

The sale of shares prior to the shareholding requirements being met may be permitted in extenuating situations, for example, a change to personal circumstances, ill health, etc.

Opportunity There is no set maximum base pay, but any increases will normally be in line with the range of increases for other UK employees. In specific circumstances, the Committee may award increases above this level, for example where:• base pay for a recently

appointed executive director has been set with a view to allowing progression in the role over time; or

• there has been a significant increase in the size or scope of an executive director’s role or responsibilities; or

• there is a significant change in the regulatory environment.

For new executive directors, pension contributions are aligned to that available to the majority of the workforce (currently up to 10% of base pay).

Pension contributions for executive directors appointed before 2019 are currently aligned with the contributions for other senior managers in the UK defined contribution pension plan (currently up to 15% of base pay).

Pension contributions will be aligned between the majority of the UK workforce and all executive directors by 2022.

The maximum amount paid in respect of benefits will be the actual cost of providing those benefits which, particularly in the case of insured benefits, may vary from year to year, although the Committee is mindful of achieving the best value from benefit providers.

The maximum opportunity for participation in the all-employee share plans is the same for all employees and takes into account prevailing HMRC rules.

The maximum opportunity in respect of any financial year is:• 150% of base pay for the Group Chief Executive and

Chief Financial Officer;• 175% of base pay for other executive directors.

No bonus is payable for threshold performance or below, with up to 50% of maximum for target performance.

The Committee will consider the calculated outcome in the context of a range of factors (not just the specific performance measures) including risk management, behaviours, culture, capital generation, Solvency II coverage ratio and sustainable financial performance, and may apply a ‘moderator’ to reduce (but not increase) an AVP award if there are factors that warrant such a reduction.

Opportunity or requirement

The maximum opportunity for an executive director in respect of any financial year is 300% of base pay (although the Committee’s current intention is that the normal award opportunity will be 250% of base pay).• 15% of the award vests for threshold performance;• 100% of the award vests for achievement of maximum.

The Committee assesses the formulaic vesting outcome, and may amend the vesting downwards (but not increase the level of vesting) considering a range of factors including overall performance, risk management, capital generation, Solvency II coverage ratio, and (from 2021) ESG.

Fees are subject to the aggregate limit in the company’s Articles of Association. Any changes in this limit would be subject to shareholder approval.

The Chairman and non-executive directors are not eligible to participate in any benefit, pension or incentive plan. However, additional benefits may be provided if the Board feels this is justified, such as tax compliance advice, work permits or similar. Expenses incurred in carrying out duties (and any associated tax liability) may be reimbursed or paid directly by the company.

Shares owned outright equivalent to:• 325% of base pay for

executive directors; and• 100% of base fee for

non-executive directors.

Performance Personal performance will be taken in consideration in determining any base pay increase.



A combination of:• Financial performance (primary measure with at least

70% weighting) – to ensure growth and return to shareholders; and

• Strategic and personal performance – to safeguard the future, with the development of future income streams, and focus on key metrics including customers, culture and (from 2021) ESG.

Performance An appropriate mix (normally an equal weighting) of:• earnings performance – to incentivise growth in earnings; and• shareholder return – to deliver a competitive return for shareholders.

No performance conditions. Not applicable.

See pages 90 and 93 for Remuneration policy notes


Governance

Remuneration policy

Remuneration policy notes

Area Commentary

Decision making process In determining the new remuneration policy, the Remuneration Committee followed a robust process. The Committee discussed the detail of the policy over a series of meetings in 2019 and early 2020. The Committee considered the strategic priorities of the business and evolving market practice. Input was sought from the management team, while ensuring that conflicts of interests were suitably mitigated. An external perspective was provided by our major shareholders and independent advisors. The Committee also assessed the policy against the principles of clarity, simplicity, risk management, predictability, proportionality and alignment to culture.

Deferred share element The deferred share element of the AVP plan and the PSP shall be operated in accordance with the rules of the respective plans.

Prior arrangements The Committee reserves the right to make any remuneration payments and/or payments for loss of office (including exercising any discretions available to it in connection with such payments) notwithstanding that they are not in line with the policy set out in this report, where the terms of the payment were agreed: (i) before 21 May 2014 when the group’s first approved policy came into effect; (ii) before the policy above came into effect, provided that the terms of such payment were consistent with the shareholder approved policy at the time the payments were agreed; or (iii) at a time when the relevant individual was not a director of Legal & General and, in the opinion of the Committee, the payment was not in consideration for the individual becoming a director of Legal & General. For these purposes ‘payments’ includes the Committee satisfying awards of variable remuneration and, in relation to deferred awards, the terms of the payment are ‘agreed’ at the time the award is granted.

Minor amendments The Committee will follow any statutory requirements when operating the policy, and may make minor amendments to the policy for regulatory, exchange control, or administrative purposes without obtaining shareholder approval for that minor amendment.

Malus/clawback The Committee may apply malus (i.e. reduce the number of shares in respect of which an award vests, or delay such vesting, or impose additional vesting conditions) in the event of financial mis-statement, personal misconduct, failure of risk management, reputational damage, factual error in calculating payment/ vesting, material downturn in performance or other exceptional circumstances identified by the Committee. The Committee may also, in exceptional circumstances, claw-back share awards which have already been released to individuals, if it considers it appropriate to do so having regard to such factors as it deems relevant – such as the likelihood of recovery, any loss suffered, and the link between the award and the event. Clawback will normally only apply within four years of the end of the relevant performance period.

Discretion in relation to future operation of the policy

In the event of a variation of the company share capital or a demerger, special dividend or any other event that may affect the company’s share price, the number of shares subject to an award and/or any exercise price applicable to the award, may be adjusted. The Committee may amend any performance conditions applicable to PSP awards if any event occurs which causes the Committee to consider an amended performance condition would be more appropriate and not materially less difficult to satisfy.

Performance measures and targets

The performance conditions for the AVP and the PSP have been chosen by the Committee to align with the group’s strategic priorities and are the key performance indicators in relation to the operation of the business. AVP financial measures have been chosen to ensure company growth and return to shareholders. AVP strategic and personal measures have been set to safeguard the future of the company, by for instance, focusing on the development of future income streams and to ensure performance related to key metrics such as risk management, customer strategy and culture is taken into consideration.For the PSP, earnings measures are chosen to incentivise growth in earnings and shareholder return measures are chosen to deliver a good return on equity for shareholders.

Remuneration policy for other employees

The remuneration policy for other employees does not differ significantly from the executive remuneration policy. Further details are provided on page 108.

Recruitment remunerationThe Committee will pay no more than it considers necessary to attract appropriate candidates, and it is not contemplated that remuneration will need to be different from the structure or exceed the limits set out in the remuneration policy table. The maximum variable remuneration will be in line with that set out in the remuneration policy table, that is 475% of base pay, excluding any compensation for awards forfeited on appointment.

As a result of regulations around the globe in the financial services sector, executives are likely to have accrued deferred remuneration which may be lost upon a change of employment. Accordingly, to aid the recruitment of a new executive director, the Committee may grant deferred cash and share awards to compensate for awards forfeited upon leaving a previous employer, taking into consideration relevant factors including:

• the form of the award;• any performance conditions;• the vesting profile and likelihood of vesting; and• relevant regulatory requirements and guidance.

Any awards will reflect the terms and the value of the arrangements forgone, and any such compensation will be subject to forfeiture and clawback if the executive leaves the company voluntarily within a fixed time period determined by the Committee, being not less than three years. Where possible the Committee will use existing share-based plans. However, in the event these are not appropriate, the Committee retains the discretion to use the Listing Rules exemption (LR 9.4.2) for the purpose of making an award to compensate for amounts forfeited upon leaving a previous employer.

For internal appointments, the Committee may continue to honour prior commitments made before joining the Board.

Where a new executive director has to relocate to take up the appointment, either within the UK or from overseas, practical and/or financial support may be provided in relation to relocation or mobility including the cost of any tax incurred for a period not exceeding two years. For appointments from overseas, certain home country benefits may continue to apply. Relocation and mobility support may also apply to the recruitment of a non-executive director.

The Committee will normally align the remuneration arrangements for new non-executive directors with those outlined within the policy table.



Service contracts and appointment lettersAll executive directors are subject to annual re-election. The contracts for executive directors are rolling service contracts.

When determining the leaving arrangements for an executive director, the Committee will take into account any pre-established agreements, including the rules of any incentive plans, statutory and contractual obligations, the performance and conduct of the individual and the commercial justification for any payments.

Standard notice policy is:

• 12 months’ notice from the company• 12 months’ notice from the executive director• The current CFO’s service contract may be terminated on six months’ notice by the company or the executive director.

Executive directors may be required to work during their notice period, or take a period of ‘garden leave’, or may be provided with payments in lieu of notice if not required to work their full notice period.

Appointment letters for non-executive directors are currently for three years, but subject to annual re-election. Appointments may be terminated by either party without notice.

Termination and payments for loss of officeAny termination payments in lieu of notice would consist solely of base pay and the cost of providing benefits for the outstanding notice period. Any statutory requirements will be observed. Our standard practice is to include within executive directors’ contractual terms mitigation provisions as regards payments in lieu of notice.

Eligibility for annual variable pay, deferred annual variable pay awards and performance share awards are governed by their respective plan rules, as summarised below:• Annual Variable Pay (AVP) – there is no automatic entitlement to an annual bonus in the year of cessation of employment. However, for a ‘good leaver’,

the Committee may determine that an executive director will receive a bonus pro-rated for the period through to leaving based on targets and performance for the full year, and an assessment of overall business and personal performance.

• Deferred AVP awards – in the event that a participant is a ‘good leaver’ any outstanding unvested deferred awards will normally be released in accordance with the ordinary timescale. Exceptionally, the Committee reserves the right to accelerate any vesting or payment, for example in the case of terminal illness.

• Performance Share Plan (PSP) – unless the Committee determines otherwise, in the event that a participant is a ‘good leaver’ any unvested PSP awards will be pro-rated for the period through to leaving and vest based on targets and performance to the end of the performance period, with awards released at the normal times. Exceptionally, the Committee reserves the right to accelerate vesting or payment due, for example in the case of terminal illness.

‘Good leaver’ circumstances are leaving due to death, disability, ill-health or injury, redundancy, retirement with company agreement, the individual’s employing company/business ceasing to be part of the group, or other circumstances at the Committee’s discretion. For all other leavers, unvested awards lapse.

Awards will generally vest early upon a takeover of the company, merger or other corporate reorganisation. Alternatively participants may be allowed or required to exchange their awards for new awards. If there is a demerger, delisting or special dividend or other transaction which may affect the share price, the Committee may allow awards to vest on the same basis as for a takeover.

The Committee reserves the right to make any other payments in connection with a director’s cessation of office/employment where the payments are made in good faith in the discharge of an existing legal obligation (or by way of damages for breach of such obligation) or by way of settlement of any claim arising in connection with the cessation of the director’s office/employment, or for any fees for outplacement assistance and/or director’s legal and/or professional advice fees in connection with his/her cessation of office/employment.

Consideration of employment conditions elsewhere in the groupThe remuneration policy for other UK employees is similar to that for executive directors in accordance with our philosophy that remuneration should be appropriate to the local competitive market, and reward high performance in a framework of appropriate risk management.

Some components of remuneration may apply only to certain levels of employees (for example, long-term incentives). Other components of remuneration may be paid at different levels based on grade or length of service (for example, pension participation, and some benefit entitlements and allowances). There are other variances depending on geographic location and local market practice. However, the general approach is consistent across the group. Further details are provided on page 108.

The Committee receives information regarding base pay, benefits, variable pay and terms and conditions of employees throughout the group. This includes relevant background information that allows the Committee to consider not only the highest paid, but the lowest paid and all pay levels across the group, and ensure a consistency of approach when determining the remuneration arrangements for executive directors. The Committee also has oversight of all long-term incentive awards across the company.

The company does not invite employees to comment specifically on the directors’ remuneration policy, but regular employee surveys include questions about pay and benefits, and the responses are used to inform remuneration policy across the group.


Governance

Remuneration policy

In developing the scenarios, the following assumptions have been made:

Fixed remuneration Consists of 2020 base pay, benefits (based on the value included in the single figure for 2019) and pension.

On Target In addition to fixed remuneration,• Annual variable element pays out at 50% of maximum includes the potential value that each executive director

could receive for target performance:• PSP is shown at threshold (15% of maximum)

Maximum In addition to fixed remuneration, includes the potential value that each executive director could receive for maximum performance under the annual variable element and the PSP.

Maximum + 50% share price growth In addition to the maximum scenario, includes a 50% share price increase assumption on the PSP award.

Statement of consideration of shareholder views The Committee seeks to maintain an active dialogue with investors regarding remuneration and corporate governance more generally. During 2019 and early 2020, the Committee sought feedback from its 20 largest shareholders and representative bodies regarding the directors’ remuneration policy, so that shareholders could enter into further discussions with the Chairman of the Committee, and express their views in advance of the Committee making any final proposals. The responses helped shape the Committee’s thinking in formulating the changes to the remuneration policy. The Committee is grateful to shareholders for their feedback and continues to appreciate all feedback.

Illustration of the application of the remuneration policyThe charts below illustrate the executive directors’ fixed remuneration (defined below) and how much they could earn for target and maximum performance and in the event of a 50% growth in share price for PSP awards based on their remuneration for 2020.

Remuneration scenario (£’000)

Nigel Wilson

1,150100%

16%33% 2,25251%

29% 48% 5,06823%

23% 39% 20% 6,29218%

693100%

16%33% 1,35751%

29% 48% 3,05323%

23% 39% 20% 3,79118%

Jeff Davies

Fixed Remuneration

On Target

Maximum

Maximum + 50% share price growth

Fixed Remuneration

On Target

Maximum


Kerrigan Procter

Key

Fixed (base pay, benefits and pension contributions)



50% Share Price Growth

Michelle Scrimgeour (appointed to the Board 2 September 2019, CEO LGIM from 1 July 2019)

658100%

15%36% 1,33949%

32% 46% 2,97422%

26% 37% 19% 3,65618%

674100%

16%37% 1,41847%

33% 46% 3,20321%

26% 38% 19% 3,94617%

Fixed Remuneration

On Target

Maximum


Fixed Remuneration

On Target

Maximum




How our approach to remuneration aligns with strategyOur remuneration approach has been designed to support strategy and reward the achievement of long-term sustainable performance. In alignment with the provisions of the UK Corporate Governance Code, the Committee has continued to consider our approach to executive remuneration to ensure that our policies, structures and performance measures have clear strategic rationale.

The Committee considers it essential that the performance measures used for the purpose of the incentive arrangements for management are directly aligned to the Group’s KPIs. The following sets out how the performance measures used for the purpose of the AVP and PSP are directly linked to our KPIs and other strategic priorities and the rationale for these measures.

How do the performance measures used for incentive arrangements align with the group’s key performance indicators and other strategic priorities?

Group KPIs and strategic priorities

Profitability Shareholder value creation

Strategic priorities and non-financial goals

Net Release from Operations

Operating profit

EPS ROE Total Shareholder Return Solvency II Risk Culture Customer ESG (from 2021)

AVP (CEO) 20% 25% 12.5% 12.5% Underpin 30% and Moderator

PSP 50% 50% Underpin Underpin Underpin

Alignment with the UK Corporate Governance CodeWhen determining our new directors’ remuneration policy, the Committee reviewed our alignment with the provisions of the revised 2018 Code. The table below details how the Committee addressed the principles set out in the UK Corporate Governance Code in respect of the directors’ remuneration policy:

Clarity • The Committee welcomes open and frequent dialogue with shareholders on our approach to remuneration. As part of the review of policy during 2019, shareholders were consulted to understand their views on proposed changes.

• The remuneration policy for our executive directors has been designed in line with the remuneration philosophy and principles that underpin remuneration across the Group, and the details of our approach to executive remuneration is transparent for all employees.

Simplicity • Our remuneration arrangements throughout the Group are simple in nature and well understood by both participants and shareholders. Although quantum and participation will vary, the policies and practices applying to executive directors are the same as for the wider workforce in most instances.

• The objective of each element of our policy is explained and the amount paid in respect of each element of pay is clearly set out.

Risk • In line with regulatory requirements, our approach aims to promote sound and effective risk management whilst supporting our long-term success. The Committee considers that the structures of incentive arrangements does not encourage inappropriate risk-taking.

• In reviewing award outcomes the Committee is presented with a comprehensive report from the Chief Risk Officer to ascertain that objectives have been fulfilled within the risk appetite of the group. In addition, the Committee receives feedback from the Group Regulatory Risk and Compliance function on any issues to consider around regulatory breaches or customer outcomes.

• AVP deferral, the PSP holding period and our shareholding requirement (including the post-cessation shareholding requirement) provide a clear link to the ongoing performance of the business and the experience of our shareholders.

• Malus and clawback provisions apply to both the AVP and PSP.

Predictability • Our policy contains details of threshold, target and maximum opportunity levels under our AVP and PSP, with actual outcomes dependent on performance achieved against predetermined measures and target ranges. This is illustrated by the charts on page 92.

Proportionality • The AVP scorecard rewards achievement of our annual operating targets and the PSP scorecard rewards achievement of long-term financial and shareholder value creation targets. The Committee’s ability to apply discretion to reduce formulaic outcomes under both plans ensures appropriate outturns in the context of underlying Company and individual performance.

• Our performance measures and target ranges under the AVP and PSP are aligned to Company strategy. This is illustrated by the chart above.

Alignment to culture • Under the AVP, the Committee assesses performance against a range of objectives, including those related to our customers and culture, strategy and risk. This ensures that reward is not determined solely on financial performance but also drives behaviours consistent with Legal & General’s culture.


Governance

Remuneration policy

Audited information Content contained within a grey outline box indicates that all the information in the panel is audited.

Planned implementation for 2020Content contained within a black outline box indicates that all the information in the panel is planned for implementation for 2020.

‘Single figure’ of remuneration – executive directorsThe following table shows a single total figure of remuneration for each executive director in respect of qualifying services for the 2019 financial year, together with a comparative figure for 2018.

Single figure table

Fixed Variable

PSP3

Executive director

Base Pay

£’000

Benefits

£’000

Pensions

£’000

AVP

£’000

Replacement Award £,000

Face value£’000

Share price appreciation

£’000Total

£’000Total

£’000

2019

Nigel Wilson 942 24 141 1,292 – 1,975 218 2,193 4,592

Jeff Davies 548 22 72 763 – 1,087 119 1,206 2,611

Kerrigan Procter 518 31 70 707 – 1,032 114 1,146 2,472

Michelle Scrimgeour1 – from 1 July 2019 192 6 19 372 1,763 – – – 2,352

Mark Zinkula2 428 182 69 413 – 1,208 133 1,341 2,433

2018

Nigel Wilson 924 23 139 1,118 – 1,078 116 1,194 3,398

Jeff Davies 508 24 67 638 – – – – 1,237

Kerrigan Procter 483 47 65 620 – 365 39 404 1,619

Mark Zinkula2 636 208 102 696 – 742 80 822 2,464

1. Michelle Scrimgeour succeeded Mark Zinkula as CEO of Legal & General Investment Management Limited with effect from 1 July 2019 and was appointed to the Board on 2 September 2019. The figures included above are in respect of the remuneration received during the period in 2019 that Michelle was an executive director. This includes the full amount of variable remuneration received during this period. In the period from 1 July 2019 until 2 September 2019, Michelle received base pay of £95,833.

2. Mark Zinkula stepped down as an executive director and as CEO LGIM on 31 August 2019, remuneration details for 2019 are in respect of service provided as an executive director. 15% of Mark Zinkula’s base pay and AVP are paid to him in the US. At the time of his appointment as CEO LGIM a US dollar to GB sterling exchange rate of £1 = $1.60 was agreed. In 2019, Mark received £361,533 in base pay in the UK and $106,006 in base pay in the US. Based on the exchange rates at the time of payments the total value of base pay received by Mark in 2019 was £444,545.

3. The 2016 PSP figures reported in the 2018 single figure now reflect the actual vesting price of the shares, which vested on 8 March 2019, at £2.683 per share. The values previously included in the 2018 report based on a three-month average share price to 31 December 2018 were £1,085k (Nigel Wilson), £368k (Kerrigan Procter) and £747k (Mark Zinkula).

Base pay

Executive directorAnnual base pay as at

1 January 2019Annual base pay effective

1 March 2019Total base pay

paid in 2019Annual base salary effective

1 March 2020%

increase

Nigel Wilson 927,000 945,500 942,417 979,500 3.6%

Jeff Davies 510,000 555,000 547,500 590,000 6.3%

Kerrigan Procter 484,500 525,000 518,250 545,000 3.8%

Michelle Scrimgeour1 – 575,0001 191,667 595,000 3.5%

Mark Zinkula 638,000 638,000 427,787 n/a n/a

1. Michelle Scrimgeour’s base pay applied from the commencement of her role as CEO LGIM on 1 July 2019 and she was appointed to the Board on 2 September 2019. The figure included in the single figure table above for total base pay in 2019 is in respect of the period for which she was an executive director.


Annual report on remuneration

BenefitsBenefits include the elements shown in the table below.

Executive director

Car allowance, insurances and

taxable expenses £’000

Dividends £’000

Discount SAYE and SIP

matching shares £’000

International allowance

£’000

Total benefits

£’000

2019

Nigel Wilson 20 3 1 – 24

Jeff Davies 20 1 1 – 22

Kerrigan Procter 20 3 8 – 31

Michelle Scrimgeour 6 – – – 6

Mark Zinkula 44 – – 138 182

2018

Nigel Wilson 20 3 – – 23

Jeff Davies 24 – – – 24

Kerrigan Procter 20 27 – – 47

Mark Zinkula 48 – – 160 208

The SIP matching shares and dividends relate to the all-employee share purchase plan. No dividends are payable on outstanding share bonus plan (SBP) or PSP awards. The SAYE is calculated based on the value of the discount on SAYE share options exercised in the year. No directors exercised SAYE options during the year.

The international allowance for Mark Zinkula includes allowances for schooling, flights and associated tax advice resulting from his relocation to the UK.

Benefits for 2020Benefits for 2020 remain in line with policy.

PensionNigel Wilson and Kerrigan Procter received a cash allowance of 15% of base pay. Mark Zinkula received a cash allowance of 15% of base pay in lieu of joining the UK pension plan, and also participated in the Legal & General America 401k plan and a US non-contributory cash balance plan, with total employer contributions to the 401k plan in 2019 of £4,980. Jeff Davies received a cash allowance of 13.8% of base pay and Michelle Scrimgeour received a cash allowance of 10% of base pay. All cash allowances are subject to normal payroll deductions of income tax and national insurance.

Pension for 2020Nigel Wilson and Kerrigan Procter receive a cash allowance of 15% of base pay, Jeff Davies receives a cash allowance of 13.8% of base pay and Michelle Scrimgeour receives a cash allowance of 10% of base pay.


Governance


2019 annual variable pay (AVP) awardsThis reflects the total AVP awards to be paid in 2020 based on performance for the year ended 31 December 2019. The value includes both the cash element and the portion deferred into shares (50% of the award).

The executive directors’ AVP awards in relation to performance during 2019 were measured against a basket of metrics and objectives. For Nigel Wilson and Jeff Davies, they were weighted between group financial objectives (70%) and other strategic personal objectives including effective risk management (30%). For Kerrigan Procter, Michelle Scrimgeour and Mark Zinkula they were weighted between group financial objectives (35%), divisional objectives (35%) and other strategic personal objectives including effective risk management (30%).

As with 2017 and 2018, the AVP awards were subject to potential adjustment based on an assessment of overall financial performance, risk and any other circumstances considered relevant by the Remuneration Committee as well as a Solvency II performance measure. For 2019, the Solvency II performance measure was assessed by the Committee on a qualitative assessment of performance informed by input from the Chief Risk Officer and the Risk Committee. Based on this assessment and consideration of all the circumstances, it was determined that no adjustment was necessary to the formulaic outcome.

For 2019, AVP payouts as a percentage of the maximum were: Nigel Wilson 91%, Jeff Davies 92%, Kerrigan Procter 77%, Michelle Scrimgeour 74% and Mark Zinkula 55%. For Michelle and Mark the AVP payouts have been pro-rated for length of service in 2019. The tables below illustrate performance against each of the measures. Further details on the breakdown of the AVP payout for Mark Zinkula are provided on page 103 along with details of other award vestings.

Group financial – achievement

Weighting 2019 Performance

Performance measuresNigel

WilsonJeff

DaviesKerrigan

ProcterMichelle

Scrimgeour Threshold Target Maximum ActualPayout

% of maximum

Net release from operations1 20.00% 20.00% 10.00% 10.00% 1,396 1,458 1,502 1,578 100%

Operating profit1 25.00% 25.00% 12.50% 12.50% 1,823 1,883 1,977 2,085 100%

Adjusted EPS1 12.50% 12.50% 6.25% 6.25% 24.1 25.3 26.5 28.8 100%

Adjusted ROE1 12.50% 12.50% 6.25% 6.25% 17.3 18.1 18.8 19.2 100%

Solvency II performance2 Underpin

1. Performance measures exclude the impact of mortality assumption changes, profits and separation costs relating to the Mature Savings business and intangible asset adjustments.

2. Solvency II performance assessed on a qualitative basis.

Based on the above results, the group element of AVP pays out at 100% of maximum, as set out in last year’s report and in the Remuneration Committee Chair’s statement accompanying the report, in determining payouts the Committee considered the impact of mortality assumption changes and separation costs relating to the Mature Savings business on performance measures. The Committee was of the view that it would not be appropriate to include the impact of these items, in calculating the AVP outturn.


Annual report on remuneration continued

Divisional performance – achievementDivisional objectives represent a maximum of 35% of the total AVP opportunity for Kerrigan Procter, Michelle Scrimgeour and Mark Zinkula. For the LGIM division there were five key measures – LGIM operating profit (including a separate specific target for the Workplace Savings business), cost income ratio, global annualised net new revenue and flagship fund performance. For the Legal & General Capital division, there were seven key measures – PBT (with specific targets for new direct investments, existing direct investments, modular housing and the traded portfolio), return on new direct investments, operating profit on the traded portfolio and divisional expenses.

Divisional and personal strategic objectives are considered by the Group Board to be commercially sensitive. The actual targets are not formally disclosed in the annual report and will not be disclosed in this year or in a future report as they relate to subsidiaries of the group. Performance commentary is given in the table below.

Executive director Divisional measures Summary of performancePayout

(out of 35%)

Kerrigan Procter Key measures include PBT (for direct investments and modular housing), return on new direct investments, operating profit and PBT on the traded portfolio and divisional expenses

• Growth in operating profit of 13% in 2019, up to £363m• Growth in the direct investment portfolio to £2.9m, an increase of 22%

over 2018• Continued growth of CALA Homes, with unit sales increasing by 14% in

2019 and revenue growing to £1bn

19%

Michelle Scrimgeour

LGIM key measures include operating profit (with a separate specific target for Workplace Savings), cost income ratio, global annualised net new revenues and flagship fund performance

• Operating profit growth of 4%, up to £423m• External net flows of £86.4bn, a significant increase on 2018 with

continued international growth• A cost income ratio of 54%, a slight increase on 2018, reflecting continued

investment to ensure operational efficiency and future growth

19%

Strategic personal performance – achievementPersonal objectives represented a maximum 30% of the total AVP opportunity. For all of the directors, the objectives covered strategic implementation, effective risk management, customer experience and company culture. A performance commentary is given in the table below.

Executive director Divisional measures Summary of performancePayout

(out of 30%)

Nigel Wilson For 2019, Nigel’s objectives focused on continuing development of the company’s medium-term strategy and driving growth across all businesses through continued pricing and risk disciplines, growth of international assets and revenues, successful disposal of non-core businesses and the continued development of a truly digital organisation

Nigel’s award reflects his delivery against all his strategic personal objectives including:• Continued strong financial performance with growth across all key areas

of the company’s business model• Reviewing and building on the long-term strategy of the business,

ensuring a continued focus on inclusive capitalism to deliver economically successful and socially useful outcomes

• International growth, in particular in the PRT and investment management businesses

21%

Jeff Davies Jeff’s objectives included ensuring continued pricing and risk disciplines, in particular in regard to PRT business, successful disposal of non-core businesses, contribute to continued development of the company’s medium-term strategy and continued investment and improvement of IT systems and controls

Jeff’s award reflects his continued strong performance throughout the year and against all objectives including:• Contribution to the review and development of the company’s long-term

strategy• Ensuring pricing and risk disciplines which allow the company to continue

to grow profitably across key markets such as PRT, defined contribution (DC) fund management and affordable housing

• Continued development of the group finance function, helping to build a high performing culture

22%

Kerrigan Procter Kerrigan’s objectives focused on implementation of LGC’s strategy across Future cities, Housing and SME finance and continued development of a strong culture and risk discipline across the business

Kerrigan’s award reflects his strong performance in driving forward performance across the core areas of strategic focus. Key achievements include:• Significant future cities investments including the establishment of a

partnership with Oxford University, a £100m investment in Sunderland and continued clean energy investments

• Rapid growth of the affordable homes business and continued growth of CALA Homes

• Continued development of the risk and control environment, reflecting the diverse risks of the business

23%

Michelle Scrimgeour

Michelle’s objectives focused on the continued development of the defined contribution and defined benefit businesses, growth of the retail business, establishing a personal investing capability for the UK, international growth of the LGIM business and continued enhancement of capabilities and services delivered to the group

Michelle’s award reflects her delivery against key objectives since joining the company in July 2019, including:• Continuing work to diversify the business, broadening the defined

contribution proposition including the launch of a multi-asset ESG fund as a default option in the MasterTrust

• International growth across US, Japan and Europe• Investment in technology to improve operational efficiency and customer

experience

20%


Governance


Risk considerationThe Committee reviewed a comprehensive report from the Chief Risk Officer to ascertain that the executive directors’ objectives had been fulfilled within the risk appetite of the group. In addition, the Committee received feedback from the Group Regulatory Risk and Compliance function that there were no issues to consider around regulatory breaches or customer outcomes of such materiality that they would prevent payment of any AVP award or trigger a recommendation that malus should be applied. The Committee was satisfied that the AVP awards should be paid.

Deferral policyIn line with our policy, 50% of all 2019 AVP awards were deferred for three years into conditional shares, subject to continued employment and clawback/malus provisions.

Executive director Cash bonus £ Deferred bonus £ Total bonus £

Nigel Wilson 646,200 646,200 1,292,400

Jeff Davies 381,250 381,250 762,500

Kerrigan Procter 353,300 353,300 706,600

Michelle Scrimgeour 185,900 185,900 371,800

For 2018, AVP payouts as a percentage of the maximum were: Nigel Wilson 80%, Jeff Davies 83%, Kerrigan Procter 73% and Mark Zinkula 62%.

Outstanding share bonus plan (SBP) awardsThe table below shows the shares held under the SBP and those that were awarded or vested during 2019. The shares awarded in 2019 relate to deferred AVP in relation to the 2018 performance year. The share price used to calculate the awards is the average of the three days preceding grant.

Grant date

Awards outstanding at

1 January 2019

Awards granted in 2019

Grant price £

Face value at grant price £

Awards vested

in 2019

Awards outstanding at

31 December 2019

Nigel Wilson1 722,272 194,979 £2.867 £559,005 271,950 645,301

Jeff Davies 122,767 111,272 £2.867 £319,018 0 234,039

Kerrigan Procter 350,760 108,107 £2.867 £309,944 98,357 360,510

Michelle Scrimgeour 0 350,013 £2.717 £950,985 0 350,013

1. The awards vested in 2019 include 43,109 shares for Nigel Wilson accrued as dividends on deferred awards.

AVP potential 2020Deferral policyIn line with our policy, 50% of all 2020 AVP awards will be deferred for three years into conditional shares, subject to continued employment and clawback/malus provisions.

In line with our policy, for 2020 the target and maximum AVP opportunities for our executive directors will be:

Executive directorTarget opportunity

(% of salary)Maximum opportunity

(% of salary)

Nigel Wilson 75% 150%

Jeff Davies 75% 150%

Kerrigan Procter 87.5% 175%

Michelle Scrimgeour 87.5% 175%

Performance will be based on a combination of group and/or divisional financial performance targets as well as strategic (including customer, employee measures and effective risk management) and personal measures. The percentage weightings will be the same as in 2019. Actual targets have not been disclosed due to commercial sensitivity. Group financial targets will be disclosed in the 2020 annual report. Divisional and strategic personal performance targets are considered confidential and will not be disclosed in any future report.



Details of how the 2017 PSP award vestedThe 2017 PSP award vested at 86.9% in March 2020 based on a combination of TSR (50%) and financial performance (50%) over the three-year performance period ended 31 December 2019.

In line with policy, the Committee carefully reviewed the company’s underlying performance over the performance period. The review included considerations of capital management, risk, cost management and partnerships entered into and maintained. The Committee felt the company performance had been strong over the period and saw no reason not to allow the PSP to vest in accordance with the TSR and financial performance outturn.

The results are shown below:

Grant datePerformance period

Comparator group

Legal & General’s TSR1

Comparator group

median rank

Comparator group

80th percentile TSR performance

Legal & General’s

notional rank

% of award vesting against

comparator group

Percentage of element

vesting

18 April 2017 1 January 2017 to 31 December 2019

FTSE 100

45.0%

47.5 19.0 27.4 74.9%

73.9%

Bespoke comparator

group 13.5 6.0 8.4 72.8%

Performance condition Performance targets Actual performance Percentage of element vesting

EPS growth (% p.a.) subject to performance matrix 12.60%

100.0%

DPS growth (% p.a.) subject to performance matrix 7.00%

ROE underpin (% p.a.) 12% p.a. underpin 18.37%

1. TSR is calculated under the PSP scheme rules using the three-month average prior to the start and the end of the performance period.

The figures reported for the 2017 PSP, with a performance period ended 31 December 2019, reflect the market value of the awards that will vest in March 2020. The share price at the date of vesting was not known at the end of the financial year and as such the value included in the ‘single figure’ of remuneration is based on the number of shares that will vest multiplied by the average share price over the quarter ended 31 December 2019 (£2.756).

Executive director Shares granted in 2017 Shares vesting in March 2020Estimated value of

shares on vesting (£)

Nigel Wilson 915,444 795,749 2,192,736

Jeff Davies 503,544 437,705 1,206,123

Kerrigan Procter 478,367 415,820 1,145,818

Michelle Scrimgeour – – –

Financial performance condition (50% of the 2017 award) Fifty percent of the award vested based on performance against the following matrix of earnings per share and dividends per share growth, subject to achieving a return on equity underpin whereby return on equity must be at least 12% over the performance period.

Dividends per share growth (% p.a.)

Earnings per share growth (% p.a.)

<5 5 6 7 8 9 10 11 12 13 14<5 0 0 0 0 0 0 0 0 0 0 0

5 0 15 25 35 45 55 65 75 85 95 1006 0 25 35 45 55 65 75 85 95 1007 0 35 45 55 65 75 85 95 1008 0 45 55 65 75 85 95 1009 0 55 65 75 85 95 100

10 0 65 75 85 95 10011 0 75 85 95 10012 0 85 95 10013 0 95 10014 0 100

The vesting levels between stated points on the matrix are calculated on a straight line basis.


Governance


Other remuneration informationTotal shareholder return (TSR)The chart shows the value, as at 31 December 2019, of £100 investment in Legal & General shares on 31 December 2009, compared to £100 invested in the FTSE 100 on the same date. The other points plotted are the values at the intervening financial year-ends. The FTSE 100 Index was chosen as the company is a member of this index.

650

600

550

500

450

400

350

300

250

200

150

1002009 2010 2011 2012 2013 2014 2015 2016 201920182017

As at 31 December 2019

FTSE 100 Legal & General

Chief Executive – historic remuneration informationThe table below shows the remuneration of the Group Chief Executive in place at the time over the same period.

Year Name

Group Chief Executive single figure of

total remuneration (£’000)

Annual variable element against

maximum opportunity

PSP vesting rates against

maximum opportunity

2019 Nigel Wilson 4,592 91.1% 86.9%

2018 Nigel Wilson 3,3981 80.4% 48.7%

2017 Nigel Wilson 3,4392 85.3% 59.9%

2016 Nigel Wilson 5,4173 87.8% 76.6%

2015 Nigel Wilson 5,4974 86.25% 100%

2014 Nigel Wilson 4,213 90.67% 100%

2013 Nigel Wilson 4,072 93.10% 100%

2012 Nigel Wilson – appointed CEO 30 June 2012 898 96.00% 0% – note 5

Tim Breedon – retired 30 June 2012 3,280 84.80% 100% – note 6

2011 Tim Breedon 2,325 79.58% 16.60%

2010 Tim Breedon 1,526 89.98% 0%

1. Restated from 2018 report to reflect the actual value of the 2016 PSP at vesting2. Restated from 2017 report to reflect the actual value of the 2015 PSP at vesting.3. Restated from 2016 report to reflect the actual value of the 2014 PSP at vesting.4. Restated from the 2015 report to include the value of the PSP award vesting in August 2015.5. The 2009 PSP vested in full in 2012. However, no PSP is shown in the figure for Nigel Wilson as, while he received the PSP, it vested during the time he was CFO.6. The 2009 PSP vested in full in 2012. The PSP figure that vested for Tim Breedon is shown in his figure as it vested during the time he was Group Chief Executive.



Scheme interests awarded during the financial yearThe following table sets out details of PSP awards made in 2019.

Executive director Type of award

Basis of award (% of base pay

and face value)1

% of award vesting for

threshold performance

% of award vesting for maximum

performancePerformance/

holding period

Nigel WilsonNil-cost options

250% of base pay£2,363,750 15% 100% 1 January 2019 to

31 December 2021. Awards are also subject

to a holding period, such that the award

is not released until year 5 from the

grant date.

Jeff DaviesNil-cost options

250% of base pay£1,387,500 15% 100%

Kerrigan ProcterNil-cost options

250% of base pay£1,312,500 15% 100%

Michelle ScrimgeourNil-cost options

0% of base pay£0 15% 100%

1. The number of shares awarded is calculated based on the average share price for the five days preceding the grant which was £2.8544.

Awards were also made during the year under the share bonus plan (SBP) in respect of performance for 2018; in line with our policy 50% of all 2018 AVP awards were deferred into shares for three years, subject to malus and clawback provisions. The amounts deferred in respect of the 2018 AVP were also made in line with the above deferral policy.

Michelle Scrimgeour received the following awards as part of her compensation for pay forfeited on leaving her previous employer. Further details are provided on pages 102 to 103.

Grant date 18 July 2019 Type of awardBasis of award

(value)1 Grant price Vesting date

Michelle Scrimgeour Conditional shares £197,564 £2.717 31 May 2020Conditional shares £261,362 £2.717 31 May 2021Conditional shares £492,060 £2.717 31 May 2022

1. The number of shares awarded is calculated based on the average share price for the five days preceding the grant.

Performance conditions for PSP awards granted in 2019Financial performance condition (50% of the 2019 award)50% of the award will vest based on the EPS growth with vesting based on performance as set out in the table below:

EPS growth p.a. Proportion of shares vesting

<5% 0%

5% 15%

12% 100%

Between 5% and 12% Straight line basis between 15% and 100%

TSR performance condition (50% of the 2019 award)25% of the award will be based on Legal & General’s TSR performance relative to the FTSE 100.

The remaining 25% of the award will be based on Legal & General’s TSR performance against a bespoke group of insurers.

The vesting schedule of the TSR performance conditions is as follows:

Grant date 16 April 2019 Proportion of shares vesting

Below median 0%

Median (threshold vesting) 15%

80th percentile and above 100%

Between median and the 80th percentile Straight line basis between 15% and 100%

At the end of the three-year performance period, the Committee will critically assess whether the formulaic vesting outcome is justified. To do this, the Committee will look at a number of factors including: whether the result is reflective of underlying performance and has been achieved within the company’s agreed risk appetite; the Solvency II coverage ratio, the quality of earnings and the nature of any changes in leverage or key assumptions. If such considerations mean that the formulaic outcome of the vesting schedule is not felt to be justified, then the Committee can exercise downwards discretion.


Governance


Performance Share Plan (PSP) 2020 awards: Nigel Wilson, Jeff Davies, Kerrigan Procter, and Michelle Scrimgeour will each be granted an award over nil-cost options with a face value of 250% of base pay.

As indicated previously, for the 2020 award, the following performance measures will be used:

• relative TSR performance against the FTSE 100 (25% of award) and a bespoke group of companies (25% of award)• EPS growth (50% of award)

Vesting of awards will be subject to an assessment of performance against Solvency II objectives.

Having considered the business plan over the coming three years and market expectations of performance and given the level of stretch within the TSR performance conditions, the Committee considered it appropriate to continue to set threshold vesting (15% of the award) at median TSR performance and maximum vesting at the upper quintile TSR performance.

For the EPS growth measure the Committee considered it appropriate for vesting to be based on performance as set out in the table below:

EPS growth p.a. Proportion of shares vesting

<5% 0%

5% 15%

12% 100%

Between 5% and 12% Straight line basis between 15% and 100%

Performance share plan (PSP) 2018For information, other outstanding PSP awards are shown below.

Grant date 16 April 2018% of base

payFace value

£’000Share price

at award £Max no.

of shares

Nigel Wilson 250 2,318 £2.6708 867,717

Jeff Davies 250 1,275 £2.6708 477,385

Kerrigan Procter 250 1,211 £2.6708 453,515

Mark Zinkula 250 1,595 £2.6708 597,199

Awards made on appointment of Michelle ScrimgeourAs a consequence of regulations around the globe in the financial services sector, executives are likely to have accrued significant deferred remuneration that may be lost upon a change of employment. Our policy on recruitment remuneration provides that in these circumstances, the Committee may grant awards equivalent to the remuneration arrangements forfeited upon leaving a previous employer, taking into consideration relevant factors including, but not limited to, the form of the award, any performance conditions attached to those awards, the vesting profile and likelihood of vesting, and any relevant regulatory requirements and guidance in relation to the awards. Any awards will reflect the terms and the expected value of the arrangements forgone, and where possible, the Committee will use existing share-based plans.

On appointment as CEO LGIM in July 2019, Michelle Scrimgeour forfeited cash and share awards from her previous employer, Columbia Threadneedle Investments (CTI). Accordingly, in accordance with our policy on recruitment remuneration, the following cash and share awards have been granted to Michelle, subject to malus and clawback, matching as close as possible both the value and timescale to vesting of her forfeited CTI awards.

Cash awards

Payment date In replacement of Value

31/07/2019 2018 annual bonus award £205,000

31/08/2019 2018 annual bonus award £205,000

29/02/2020 Pro-rated 2019 annual bonus award and LTI awards vesting 2019 £299,959

31/08/2020 Pro-rated 2019 annual bonus award £102,500



Awards made on appointment of Michelle Scrimgeour continuedShare awards

Grant date Vesting date In replacement of Award value No. of Shares Grant price

18/07/2019 31/05/2020 LTI vesting 2020 £197,564 72,714 £2.717

18/07/2019 31/05/2021 LTI vesting 2021 £261,362 96,195 £2.717

18/07/2019 31/05/2022 LTI vesting 2022 £492,060 181,104 £2.717

All cash and share awards will be forfeited if Michelle resigns prior to the third anniversary of her commencement date (i.e. before 1 July 2022).

Payments for loss of office (audited)As announced in May 2018, Mark Zinkula retired on 31 August 2019. As set out in the 2018 Annual Report, and consistent with our remuneration policy, Mark remained eligible for an annual variable pay (AVP) award for 2019, pro-rated for the period through to his leaving, conditional upon performance, with any award subject to deferral in accordance with the normal rules and deferral timescales.

2019 annual variable pay (AVP) awardIn line with the remuneration policy, the determination of Mark’s 2019 AVP award was weighted between group financial objectives (35%), divisional financial objectives (35%) and strategic objectives (30%).

The group and divisional financial performance achieved were as set out on pages 96 and 97, resulting in Mark achieving a maximum award for group financial performance and 58% of maximum for divisional financial performance. Mark’s strategic personal performance targets had not been fully achieved at the date of his retirement, so the Committee did not consider it appropriate to award any bonus in respect of this component. Therefore, overall, Mark will receive an AVP award of 55% of the maximum.

The AVP payment will be subject to the normal policy deferral requirements (i.e. 50% deferred into shares for three years) and awards will remain subject to malus and clawback.

Unvested deferred share awardsMark was treated as a good leaver in accordance with the rules of the AVP plan, and therefore upon retirement his unvested deferred share awards will vest in accordance with the ordinary timescale (i.e. deferred for three years), as set out in the table below.

Bonus year Grant date Vesting date Awards Grant price

2015 21/04/2016 21/04/2019 188,611 £2.431

2016 18/04/2017 18/04/2020 166,682 £2.495

2017 16/04/2018 16/04/2021 164,818 £2.688

2018 16/04/2019 16/04/2022 121,306 £2.867

Unvested performance share plan (PSP) awardsIn accordance with the rules of the performance share plan (PSP), upon retirement, a participant remains eligible to receive a proportion of their PSP awards already granted, pro-rated for the period through to leaving, and subject to the normal performance conditions over the full performance period, and released in accordance with the normal timescale.

In 2017, Mark was granted a PSP award over a maximum of 629,934 shares. After pro-rating for service to the date of his retirement in August 2019, the maximum number of shares that can vest is 559,750. As disclosed on page 99, the 2017 PSP vested at 86.9% of maximum based on performance for the full performance period ended 31 December 2019, resulting in 486,422 shares vesting. In accordance with the normal rules, these shares vest in equal thirds following the results announcements for 2019 to 2021.

In 2018, Mark received a PSP award over a maximum of 597,199 shares. After pro-rating for service to the date of his retirement in August 2019, the maximum number of shares that can vest is 331,292. The number of shares vesting will be based on performance for the full performance period to 31 December 2020, and then subject to deferral for a further two years, with any shares released in April 2022.

Mark was not granted a PSP award in 2019.

Payments to past directorsThere were no payments to past directors in 2019.


Governance


Statement of directors’ shareholding and share interestsTotal shareholding of executive directors

TypeOwned outright/

vested sharesSubject to deferral/

holding period

Total vested and unvested shares

(excludes any shares with

performance conditions)

Subject to performance

conditions

Shares sold or acquired during the period 1 January 2020 and 28 February 2020

Own outright/ vested shares

Subject to deferral/holding period

Nigel Wilson Shares 2,997,796 645,301 3,643,097 –

ESP 15,654 3,907 19,561 – 81 45

Options – 447,327 447,327 2,611,268

Jeff Davies Shares – 234,039 234,039 –

ESP 1,582 1,093 2,675 – 81 45

Options – 5,818 5,818 1,467,020

Kerrigan Procter Shares 440,211 360,510 800,721 –

ESP 19,951 973 20,924 – 81 45

Options – 140,176 140,176 1,391,698

Michelle Scrimgeour Shares – 350,013 350,013 – – –

ESP – – – – – –

Options – – – –

Mark Zinkula1 Shares 1,689,048 – 1,689,048 –

ESP – – – – – –

Options – – – 891,043

1. Mark Zinkula’s shares are as at 31 August 2019, the date of his retirement.



Shareholding guidelines – executive directorsThe Group Chief Executive is expected to build a shareholding of 300% of base salary and the other executive directors 200% of base salary. The table below shows shareholding levels as at 31 December 2019. From 2020 the shareholding requirement for all executive directors will increase to 325% of base pay.

Actual share ownership as % of 2019 base salary:

vested shares1

Guidelines on share ownership

as a % of base salary Guideline met

Shares owned at 1 January 2019

Shares owned at 31 December 2019

Shares sold or acquired

during the period 1 January 2020 and

28 February 2020

Nigel Wilson 966% 300% Yes 3,011,725 3,013,450 126

Jeff Davies 1% 200% No 1,005 1,582 126

Kerrigan Procter 266% 200% Yes 264,425 460,162 126

Michelle Scrimgeour – appointed 2 September 2019 0% 200% No – – –

Mark Zinkula – retired on 31 August 20192 581% 200% Yes 1,242,899 1,689,048 –

1. Closing share price as at 31 December 2019: £3.03; Closing share price as at 31 August 2019: £2.20.2. The amount reported as Mark Zinkula’s shares owned as at 31 December 2019 are as at 31 August 2019, the date of his retirement.

Notes Shares used for the above calculation exclude those with performance conditions, any unexercised options, those shares subject to a period of deferral and any shares held in a private trust where the executive director is not a trustee. They include vested shares where the executive director has beneficial ownership, shares independently acquired in the market and those held by a spouse or civil partner or dependent child under the age of 18 years.

Although the share ownership guidelines are not contractually binding, executive directors are normally expected to retain any after tax vested share awards until the guideline is met. The Committee retains the discretion to withhold future grants under the PSP if executives are not making satisfactory progress against the guidelines. Once shareholding requirements have been met, executive directors may sell surplus shares if they wish. The Committee has discretion to allow executive directors to sell shares prior to the shareholding guidelines being met if there are extenuating circumstances, for example, changes to personal circumstances.

From 2020 all executive directors will also be required to maintain this level of shareholding for two years post-cessation of their employment.

Share options exercised during 2019The following table shows all share options exercised by the executive directors during 2019.

Executive director Date of grant Shares exercised Exercise date

Share price at date of exercise

£Gain

£

Nigel Wilson 11/06/2014 215,672 23/04/2019 2.910 627,606

Nigel Wilson 14/04/2015 159,576 23/04/2019 2.910 464,366

Nigel Wilson 21/04/2016 148,282 23/04/2019 2.910 431,501

Mark Zinkula 11/06/2014 147,288 06/03/2019 2.762 406,809

Mark Zinkula 14/04/2015 106,692 12/03/2019 2.739 292,229

Mark Zinkula 14/04/2015 113,974 16/09/2019 2.528 288,126

Mark Zinkula 21/04/2016 102,090 01/04/2019 2.752 280,952

Mark Zinkula 21/04/2016 109,057 16/09/2019 2.528 275,696

Mark Zinkula 21/04/2016 109,058 16/09/2019 2.528 275,699

Kerrigan Procter 11/06/2014 121,812 17/11/2019 2.767 337,054





Governance


Non-executive directors’ remuneration – 2019Non-executive directors’ feesThe fees for the Chairman were reviewed during 2019 and with effect from 1 August 2019 the fee was increased from £490,000 to £505,000. The table below sets out the current fees.

The current limit for fees paid to non-executive directors is an aggregate of £1,500,000 p.a.

Annual feesCurrent fee

£

Chairman 505,000

Base fee 75,000

Additional fees:

Senior Independent Director 30,000

Committee Chairmanship fees (Audit, Remuneration and Group Risk Committees) 30,000

Attendance fee (payable if the non-executive sits on two or more Board Committees) 10,000

The table below shows the actual fees paid to our non-executive directors in 2019 and 2018.

Non-executive director

Fees for 2019

Benefits for 2019

Total remuneration

for 2019Fees

for 2018Benefits for 2018

Total remuneration

for 2018

Sir John Kingman Chairman N CG 496,250 – 496,250 466,667 – 466,667

Henrietta Baldock1 A N R Ri – appointed 1 October 2018 190,625 1,115 191,740 103,447 – 103,447

Philip Broadley A CG N R Ri 115,000 1,439 116,439 115,000 569 115,569

Lesley Knox A N R Ri 165,000 3,062 168,062 115,000 1,211 116,211

George Lewis A N Ri – appointed 1 November 2018 102,708 17,906 120,614 14,167 – 14,167

Julia Wilson A CG N Ri 115,000 367 115,367 115,000 – 115,000

Toby Strauss A CG N Ri 115,000 437 115,437 115,000 1,547 116,547

Key:NED Committee membership:A = AuditN = NominationsR = RemunerationRi = RiskCG = Corporate Governance

1. Henrietta Baldock is also Chair of the Legal & General Assurance Society Board for which she receives a separate fee to that paid to her as a non-executive director of the group. The actual fees in the table above include her total fees for both roles.

2. Lesley Knox is also Chair of the Legal & General Investment Management (Holdings) Limited Board for which she receives a separate fee to that paid to her as a non-executive director of the group. The actual fees in the table above include her fees for both roles.

Shareholding requirements – non‑executive directorsNon-executive directors are required to build up a shareholding equivalent to one times base fee. The table below shows their shareholding as at 2 January 2020, taking into account share purchases in relation to December 2019 fees, purchased on 2 January 2020.

NameShareholding as at

2 January 2020Holding as a % of

base feeMet criteria of 1 x

base fee

Shares purchased from 1 January 2020 to 28 February 2020

Sir John Kingman 180,717 108% Met 3,862

Henrietta Baldock 9,664 39% On Target 1,206

Philip Broadley 43,135 174% Met –

Lesley Knox 77,600 314% Met –

George Lewis 25,592 103% Met 338

Julia Wilson 51,823 209% Met –

Toby Strauss 36,134 146% Met 1,789



Non-executive directors’ terms of employment

Annual feesCurrent letter of

appointment start dateCurrent letter of

appointment end date

Sir John Kingman 24 October 2016 24 October 2021

Julia Wilson 09 December 2017 09 December 2020

Henrietta Baldock 04 October 2018 04 October 2021

Philip Broadley 08 July 2019 08 July 2022

Lesley Knox 01 June 2019 01 June 2022

George Lewis 01 November 2018 01 November 2021

Toby Strauss 01 January 2020 01 January 2023

The standard term for non-executive directors is three years and for the Chairman is five years. All non-executive directors are subject to annual re-election.


Governance


Remuneration for employees below BoardGeneral remuneration policyThe group’s remuneration policy is designed to reward, motivate and retain high performers in line with the risk appetite of the group. Remuneration is considered within the overall context of the group’s sector and the markets in which the divisions operate. The policy for the majority of employees continues to be to pay around the relevant mid-market range with a competitive package designed to align the interests of employees with those of shareholders, and with an appropriate proportion of total remuneration dependent upon performance.

We define core remuneration as base pay, annual bonus and other benefits such as pension. Key employees are also eligible to participate in the performance share plan (PSP).

Summary of the remuneration structure for employees below the Board

Element Policy

Base pay We aim to attract and retain key employees by paying base pay which delivers competitive total remuneration. Factors taken into account when determining salaries include:• the nature, size and scope of the role• the knowledge, skills and experience of the individual• individual and overall business performance• pay and conditions elsewhere in the group• appropriate external market data

As a member of the Living Wage Foundation base pay is also set with reference to the Foundation’s UK and London living wage levels.

During 2019, the average base pay increase was 3.6%. For the latest pay review the approach adopted was for the lowest paid employees (less than £30,000) to receive, on average, the highest increases (generally 4% of base pay).

Annual bonus The majority of employees participate in a discretionary bonus plan, unless an alternative plan applies based on role. An employee will be considered for a discretionary bonus award based on achievement against objectives, conduct and behaviours, the role performed during that year and internal relativities.

The group operates bespoke bonus plans where business appropriate. However, the Remuneration Committee has ultimate discretion over all bonus plans.

Bonuses above a certain threshold are subject to deferral with the deferral amount increasing with the size of the bonus. Deferred awards are normally held in shares for three years.

The company reserves the right to adjust deferral levels for code staff as deemed appropriate.

Performance share plan (PSP)

Participation in the PSP is offered to a small number of senior executives each year in recognition of the strategic and influential role that they hold in terms of driving company performance, as well as their individual contribution. This includes employees in LGIM whose roles span different business divisions and whose participation encourages synergy and teamwork across the group. Participation in the plan for one year does not guarantee participation in future years.

PSP awards were made to around 80 employees during 2019.

Where appropriate, grants under the PSP may also be made for new employees who join the company during the year in key roles.

Other share plans and long-term incentives

The company operates a Share Bonus Plan (SBP) which provides the vehicle for deferral of annual bonuses in the majority of cases and also allows for a limited number of awards of shares to high potential individuals and those with critical skills.

Benefits In 2019, changes were made to the benefits provided to UK employees. Private medical insurance is now available to every UK employee, with increased life insurance, improved holiday and family-friendly policies (maternity, paternity, adoption and shared parental leave). During 2020, there will be a further review of employee benefits.

Pension All employees are given the opportunity to participate in a Group Pension Scheme. The pension opportunity offered to the majority of the workforce is 10% of base pay.

Employee share plans

All employees are given the opportunity to participate in a Save As You Earn (SAYE) plan and an Employee Share Purchase plan. These are both HMRC approved plans which offer all employees the opportunity to share in the success of the business.



Annual equal pay auditThe group seeks to ensure that our pay policies and practices are free from unfair bias. Part of the pay review process is an annual equal pay audit that reviews pay and bonus decisions by gender, ethnicity, age and full-time versus part-time working. In addition, it considers the application of the pay policy more widely, in particular looking at decisions made in the annual pay review across grades, functions and divisions.

Gender pay reportingThe group has published its gender pay report for 2019. Further details can be found on page 51 of the annual report.

Pay ratio in relation to the Group CEOSince 2016 we have voluntarily disclosed details of the pay ratio in relation to the Group CEO and the wider UK employee population. From 2018 we made some amendments to how we report the information in order to align with the reporting requirements set out by BEIS, which came into effect for financial years starting 1 January 2019.

The tables below provide the ratio between the CEO single figure total remuneration and total remuneration for all UK employees and the details of the salary and total remuneration for UK employees.

Total remuneration

Pay ratio All UK employees £

Year Method 75th percentile Median 25th percentile 75th percentile Median 25th percentile

2019 B 68 112 168 67,744 41,177 27,408

2018 B 39 79 134 86,082 42,906 25,381A 49 83 132 69,923 40,814 25,730

2017 B 51 90 133 67,475 38,055 25,891A 52 89 137 66,572 38,802 25,023

Base pay

Pay ratio All UK employees £

Year Method 75th percentile Median 25th percentile 75th percentile Median 25th percentile

2019 B 16 26 40 59,692 36,000 23,375

2018 B 13 26 41 71,583 35,493 22,570A 16 27 41 57,853 34,475 22,781

2017 B 18 27 42 51,550 33,706 21,765A 16 27 42 58,020 33,649 22,148

Pay ratio commentaryBetween 2018 and 2019 the ratio of total remuneration for the Group CEO compared to UK employees has risen, having previously fallen from 2017 to 2018. The increase is the result of the high vesting level of the 2017 PSP compared with the PSP awards in the previous two years, which reflects the sustained financial performance and the delivery of high total shareholder returns over the last three years.

MethodologyWe have chosen option B as our method for calculating the pay ratio for 2019, consistent with the methodology for reporting of the gender pay gap. The total remuneration figures for the UK employees are based on salaries at 1 December 2019. Bonus amounts for 2019 are not determined for some eligible employees until after publication of this report, and therefore it is not possible to determine the exact 2019 total remuneration for all UK employees (option A) within this timescale. As indicated in the 2018 report, for completeness and transparency, we have included the pay ratios based on the option A method for 2018 and 2017 and we will also retrospectively disclose the pay ratio for 2019 based on the option A method in the 2020 report. We do not believe that this will result in pay ratio figures which are materially different to the 2019 figures disclosed above.


Governance


Percentage change in remuneration of director undertaking the role of Group Chief Executive 2019 over 2018

Change to base pay % Change to benefits % Change in AVP %

Group Chief Executive 1.99% 2.14% 15.60%

Comparator group 3.60% 3.60% 3.07%

As with last year we have chosen the whole UK employee population as the comparator group. This group has been chosen because it includes a wider cross section of the group’s employees. The increase in benefits for the employee comparator group relates to the impact of base pay increases.

Relative importance of spend on payThe chart opposite shows the relative importance of spend on pay compared to shareholder dividends and operating profit for the year. Operating profit has been shown because it is a KPI of the business. No share buybacks were made in 2018 or 2019.

0

250

750

1,250

2,500

2,000

2,250

1,000

500

1,750

1,500

2018 2019

(£m)

7% increase

2% decrease

6% decrease

15% increase

Share dividends Operating profit Tax Expenditure on pay



Remuneration CommitteeThe table below shows the members and attendees of the Remuneration Committee during 2019.

Committee members, attendees and adviceMeetings in 2019During 2019, the Committee met five times and in addition had ongoing dialogue via email and telephone discussion. An outline of the Committee undertakings during 2019 is shown in the table below. Members: during 2019 the Remuneration Committee comprised the following non-executive directors:

Year

Number of Remuneration Committee meetings attended during 2019

Lesley Knox 5/5

Philip Broadley 5/5

Henrietta Baldock 5/5

Committee undertakings

Quarter Governance Performance Remuneration policy Regulatory

First • Review of report on the activities of the Group Reward Steering Committee in 2018

• Reviewed findings of the CRO report

• Approved the 2018/19 annual pay review and executive pay awards

• Approved vesting of the 2016 PSP, LGIM LTIP and LGC Direct Investment Share Awards

• Approved the 2019 AVP performance measures

• Approved the 2019 long-term incentive awards

• Approved the 2019 SAYE invitation

• Approved the remuneration policy statement for the PRA

Third • Reviewed outcomes of AGM season

• Review of Group & Divisional Reward Steering Committee terms of reference

• Financial update and indicative variable pay update for executive teams

• Review of the executive remuneration policy

Fourth • Review and approval of Committee terms of reference

• Review of report on the activities of the Group Reward Steering Committee in 2019

• Review of the salary and variable pay budget proposals for the 2019/20 review

• Consideration of incentive out-turns in respect of 2019

• Continuation of remuneration policy review, focused on pension contributions and shareholding requirements

• Review of AVP and PSP performance measures and targets for 2020

• Approved 2020 SAYE invitation

• Review of code staff lists• Reviewed remuneration policy

statements for FCA and PRA

At the invitation of the Remuneration Committee, the Group Chairman attends Committee meetings. Where appropriate, the Group Chief Executive, Nigel Wilson; and the Group HR Director, Group Reward Director, Head of Executive Compensation, Director of Group Finance and Group Chief Risk Officer also attend meetings. No person is present during any discussion relating to his or her own remuneration.

At the invitation of the Remuneration Committee, a representative from Deloitte LLP also attends Committee meetings. During 2019, Deloitte principally advised the Committee on external developments affecting remuneration as well as specific matters raised by the Remuneration Committee. Deloitte were appointed by the Committee. The Committee reflects on the quality of advice provided and whether it properly addresses the issues under consideration as part of its normal deliberations. The Committee is satisfied that the advice received from Deloitte LLP engagement team is objective and independent. Deloitte are signatories to the remuneration consultants’ group code of conduct in relation to executive remuneration consulting in the UK. The total fees paid to Deloitte in relation to Remuneration Committee work during 2019 were £120,750 (excluding VAT). While fee estimates are required for bespoke pieces of work, fees are generally charged based on time with hourly rates in line with the level of expertise and seniority of the adviser concerned. During the year, Deloitte also provided the company with tax advice, consulting services, internal audit support and financial advisory services.


Governance


Terms of referenceThe Committee’s terms of reference are available on our website. The remit of the Committee includes the remuneration strategy and policy framework for the whole company as well as the executive directors.

The Committee particularly focuses on:

• determining the individual remuneration for executive directors and for other designated individuals or for those who are discharging a head of control function role

• undertaking direct oversight on the remuneration of other high earners in the group• oversight of the remuneration of Code staff and employees in the control and oversight functions• oversight of remuneration policies and structures for all employees

Considering riskThe Reward Steering Committee (RSC) and the Group Regulatory Risk and Compliance Function make a key contribution to the process of designing reward structures and evaluating whether achievement of objectives and any payment from plans have taken into account the overall risk profile of the group.

Reward Steering Committee (RSC)Reporting to the Remuneration Committee, the RSC helps set the framework within which our incentive arrangements are normally reviewed and implemented, with a view to supporting business strategy, whilst acting within the group’s risk appetite. The members of the RSC include the Group HR Director, Group Chief Risk Officer, Group Conduct Risk Director, Regulatory Risk Director, LGIM Chief Compliance Officer, the Director of Group Finance, the Group Reward Director and the Head of Executive Compensation.

Where a business unit tables a proposal for consideration, the relevant business manager is required to attend the RSC meeting to explain the background and to answer all questions and challenges from the RSC.

Group regulatory risk and compliance functionThe Remuneration Committee also works closely with the Group Regulatory Risk and Compliance Function with respect to remuneration proposals.

In particular, the function reports to the Committee on an annual basis on whether any risks have been taken outside of pre-agreed parameters, there have been regulatory breaches, or they are aware of any other considerations that may lead the Committee to consider whether it should impact the payment of bonuses to staff (including in particular the executive directors and Code staff).

The CRO also specifically looks at the overall risk profile of the group and whether executive directors have achieved objectives within the group’s accepted risk appetite. The CRO also reviews the executive directors’ objectives for the forthcoming year to ensure they are in line with the risk parameters.

Since the implementation of a new Solvency II remuneration policy in 2016, the scope of the CRO report has been extended to consider whether there are any risk considerations which may warrant adjustments to the overall level of corporate annual variable pay awards.

Engagement with shareholdersThe Committee seeks to maintain an active and productive dialogue with investors on developments in the remuneration aspects of corporate governance and any changes to the group’s executive pay arrangements.

During 2019, we reviewed our approach to remuneration in the context of future business strategy, updated investor guidelines and evolving best practice, and sought feedback from shareholders and representative bodies. The responses that we received have helped shape our thinking and whilst the proposed new remuneration policy remains very similar to the existing policy we have proposed a number of changes. These include increasing the shareholding for all executive directors to 325% of base pay, limiting the period for which relocation benefits may be paid to a director to a maximum of two years and the introduction of an explicit bonus moderator in the AVP enabling the Committee to reduce (but not increase) formulaic outcomes. From 2021 it is also proposed to include a specific environmental, social and governance (ESG) target as an AVP performance measure.

During 2019 the pension contributions for new executive directors have already been aligned with that available to the majority of the UK workforce (10% of base pay). We will continue to review pension contributions and it is intended that these will be aligned between the UK workforce and all executive directors by 2022.



Statement of voting at the annual general meeting (AGM) 2019The table below shows the voting outcomes on the directors’ remuneration policy at the AGM in May 2017, and the directors’ remuneration report at the last AGM in May 2019.

Item For Against Abstain number

Remuneration policy 91.23% 8.77% –3,851,461,140 370,032,785 15,093,723

2018 remuneration report 97.83% 2.17% –4,066,344,533 90,018,275 28,689,449

Dilution limitsThe company’s all-employee plans and the now-closed ESOS operate within the Investment Association’s dilution limit of 5% of issued capital in 10 years for executive schemes, and all its plans will operate within the 10% of issued capital in 10 years limit for all schemes.

As at 31 December 2019, the company had 4.93% of share capital available under the 5% in 10 years limit and 9.71% of share capital under the 10% in 10 years limit.

As at 31 December 2019, 29,537,141 shares were held by the Employee Benefit Trust to hedge outstanding awards of 52,054,902 shares for the PSP and SBP.

Other information relating to directors’ remunerationExternal appointmentsThe company considers that certain external appointments can help to broaden the experience and contribution to the Board of the executive directors. Any such appointments are subject to annual agreement by the group and must not be with competing companies. Subject to the group’s agreement, any fees may be retained by the individual. However, they received no fees for the below appointments.

External appointments held in 2019 are shown below:

Role and organisation Fees

Nigel Wilson n/a Nil

Jeff Davies n/a Nil

Kerrigan Procter n/a Nil

Michelle Scrimgeour Director of The Investment Association, Member of the FCA Practitioner Panel Nil

Mark Zinkula On the Board of the Financial Reporting Council Nil


Governance


Documents

Governance - Legal & General...56 Legal & General Group Plc Annual Report and Accounts 2019 Governance Philip Broadley Independent Non-Executive Director Appointed July 2016 Skills