Directors’ remuneration policy summary

The current Directors’ remuneration policy can be found on pages 68 to 73 of our 2013 Annual Report and Accounts, which is available on our website. This was approved for three years at the 2014 AGM and therefore will expire this year. The new Directors’ remuneration policy proposed by the Committee is set out in this chapter. Shareholders will be asked to approve the new policy at the 2017 AGM on 27 April 2017. This policy will take effect for Directors from the date it is approved and is expected to apply for three years.

Remuneration policy for employees including the executive Directors

The table below sets out the key components of the remuneration policy for employees and the policy that will apply to the executive Directors, subject to approval at the 2017 AGM, which is the same except where specified below. The remuneration policy for non-executive Directors is set out below.

Component, purpose and link to strategy

Current operation for employees

 

 

 

Application to executive Directors

Base salary
To help recruit, reward and retain talent. Reflects a market competitive rate of pay taking account of the employee’s role and responsibilities, skills and experience, and ongoing contribution.

Base salary is paid in cash via payroll. Base salaries are reviewed annually. The Group actively targets its spend on salary increases at lower-paid employees, for whom fixed pay forms a larger proportion of total remuneration. For higher-paid employees base salaries are adjusted infrequently.

The financial situation of the Group and the performance of the individual are taken into account when determining the appropriate level of base salary increase each year, if any.

We aim to pay executive Directors base salaries that are competitive with other large international asset management firms. As a result, it is likely that salaries will be relatively low when compared to other listed financial services firms and FTSE-100 companies. Like other higher-paid employees, the executive Directors’ base salaries are adjusted infrequently. When salaries for executive Directors are increased, the percentage increase will not normally exceed the average annualised increase across the wider workforce. Larger increases may be awarded where Directors’ salaries have fallen significantly below international competitors.

Benefits and allowances
To help recruit and retain talent. Reflects local market practice and aims to support employee health and wellbeing.

Employee benefits vary between jurisdictions, reflecting local market practice and statutory requirements. Cash allowances are sometimes paid, typically after a benefit has been phased out and cash in lieu offered in exchange. For employees in the UK, a cash allowance is provided to fund benefit options under a flexible benefits plan. Available benefits include private healthcare, life assurance, accidental death, injury or sickness insurances and tax-efficient charitable donations which are matched by the Company (see Our impact). No performance conditions apply.

Executive Directors receive benefits on the same basis as other UK employees, which are relatively low by UK standards for executive Directors. Directors are covered by the Group’s Directors’ and Officers’ Liability Insurance. Executive Directors may also benefit from private use of a driver. The cost of providing benefits varies according to a range of factors, such as insurance premium rates, so no formal maximum exists.

Additional benefits may be provided if required, for example to support international relocation.

SIP
To help increase the number of employee shareholders and increase their participation as shareholders. Provides potential UK tax benefits.

UK employees are eligible to participate in the Share Incentive Plan (SIP). Participating employees use their own funds to acquire Schroders shares (partnership shares) and in return receive awards of shares from Schroders (matching shares) of up to £100 per month based on the market value of the shares. To qualify for maximum tax benefits these shares must be left in the SIP for five years. Performance conditions do not apply. Participants are free to withdraw their Partnership Shares at any time but forfeit the corresponding Matching Shares if they do so or cease to be in employment within one year of acquiring the relevant Partnership Shares, except in certain circumstances as set out in the rules of the SIP.

77% of UK employees participated in the plan as at 31 December 2016 (2015: 78%).

Executive Directors may participate in the SIP on the same basis as other UK employees. The value of any SIP matching shares awarded during the year is included within the value reported for benefits and allowances.

Retirement benefits
To help recruit and retain talent. Reflects local market practice and enables and encourages provision for retirement.

Retirement benefits vary between jurisdictions in a similar way to benefits and allowances. Base salary is generally the only pensionable element of remuneration. No performance conditions apply. In the UK, base salary up to a maximum of £250,000 is pensionable. The Group’s contributions are currently 16% of pensionable salary, plus a contribution to match employee contributions up to a further 2% of salary. Employees in the UK have flexibility and choice over the balance between employer pension contributions and cash in lieu, with options to take as cash some or all of the amount the Company would otherwise contribute to the pension plan.

Executive Directors may participate in pension arrangements, or receive cash in lieu of pension, on the same basis as other employees.

Annual bonus award
To motivate employees to achieve financial, non-financial and personal objectives for the financial year, which are consistent with the Group’s strategy. Helps reward talent for their individual contribution. For executive Directors, awards reflect annual performance along with performance over a longer timeframe for some metrics.

Permanent employees are eligible to be considered for an annual bonus award. Awards in respect of each financial year are discretionary and non-pensionable. The Group’s total spend on remuneration is managed via the total compensation ratio target and the profit share ratio (see Remuneration principles). Individual awards are not capped.

The amount if any that eligible employees are awarded is determined based on a number of financial and non-financial factors, including individual performance objectives, that may vary from year to year to ensure alignment with the Group’s strategic goals.

Bonuses are delivered as a combination of cash, normally payable in February following the end of the financial year, and deferrals. For most employees, any annual bonus award worth up to £52,000 will be payable in cash. Larger awards are subject to a graduated level of deferral, up to 50%. For members of the GMC, 50% of any annual bonus award is deferred.

Annual bonus awards operate the same way for the executive Directors as for other employees except that the proportion deferred is larger, at 60%. Where a LTIP award has been granted during the year, the deferral in respect of that year is reduced by 25% of the grant value of the LTIP award.

In setting executive Directors’ annual bonus awards, the Committee assesses the overall performance of the business and of each individual and applies its judgement to determine an award, taking account of the recommendation of the Chairman in respect of the Group Chief Executive and of the Group Chief Executive in respect of the other executive Directors. There is no prescribed weighting of particular metrics but financial performance factors are central to the decision. Factors considered include the trend in profit for the year; investment performance; the management of risks facing the Group; talent retention and succession planning; progress on diversity and inclusion strategy; cost control; the Company’s reputation; business performance in each Director’s area of responsibility; and Schroders share price performance. Targeted performance is in line with the Group’s strategic goals and the budget for the year. In addition, performance against the annual objectives of each Director is taken into account. These metrics were chosen as they are aligned with the corporate strategy and reflect the areas on which the executive Directors should focus.

ECP
The Group’s main deferral arrangement for annual bonus awards. Aligns the interests of employees with those of shareholders and clients, provides an incentive for the employee to stay at Schroders and makes it more expensive for competitors to recruit talent from Schroders. May be used to compensate new recruits who forfeit remuneration from their previous employer to join Schroders.

Equity Compensation Plan (ECP) awards are granted to executive Directors on the same basis as those granted to other employees, albeit with a larger proportion of any annual bonus award deferred.

Deferral of annual bonus awards is generally delivered as a combination of ECP fund awards, which are conditional rights to receive a cash sum based on the value of a notional investment in a range of Schroders funds, and ECP share awards, which are conditional rights to acquire shares in the Company at nil cost. In 2016, deferrals were generally delivered equally between ECP fund awards and ECP share awards, subject to a minimum fund award of £10,000.

For ECP share awards, additional shares equivalent to dividends paid accrue until the award is exercised. At the Company’s discretion, ECP share awards may be settled in cash but this would only be used in exceptional circumstances, for instance in a jurisdiction where settlement in shares would create an adverse outcome for the Group or award holder. The general application of the ECP is subject to variation in some locations to reflect local restrictions, regulation and practice. Awards can be adjusted to take account of legal, tax and regulatory changes, a change in the Group’s capital or following change of control, or in other circumstances that the Committee considers appropriate.

Awards relate to past performance and so no further performance conditions apply. To provide an incentive to stay at Schroders, ECP awards do not give rise to any immediate entitlement and normally require the participant to be employed continuously by the Group until the third anniversary of grant in order to vest in full. If a participant resigns before the third anniversary of grant, awards are normally subject to forfeiture as follows:

 

Years since grant date

less than 1

1 to 2

2 to 3

 

% lost

100%

66.7%

33.3%

 

 

 

 

 

 

An award holder who leaves the Group may be entitled to retain more of their awards in certain circumstances, such as death, ill health or injury, or otherwise at the Committee’s discretion. When ECP awards are used as part of recruitment, the Committee can set a different vesting period to better align with the awards that the recruit is forfeiting.

EIP
To reward exceptional performance and potential. Aligns employee interests with shareholders or clients, provides an incentive to stay at Schroders and makes it more expensive for competitors to recruit from Schroders.

Executive Directors are not eligible to receive Equity Incentive Plan (EIP) awards.

The EIP is an additional deferred remuneration plan, used to reward exceptional performance and potential. No further performance conditions apply.

EIP awards do not give rise to any immediate entitlement and require the participant to be employed continuously by the Group until the fifth anniversary of grant. Malus and clawback terms apply, in a similar way to awards under the ECP. If a participant resigns before the fifth anniversary of grant, awards are normally forfeited in full. EIP share awards are conditional rights to acquire shares in the Company at nil cost. Additional shares equivalent to the dividends paid accrue until the award is exercised. EIP fund awards are conditional rights to receive a cash sum based on the value of a notional investment in a range of Schroders funds. EIP awards may also be used as part of recruitment, in a similar way to ECP.

LTIP
To incentivise executive Directors to deliver long-term performance and the achievement of strategic priorities, while maximising alignment with shareholder interests.

Only executive Directors receive awards under the LTIP currently.

Executive Directors typically receive an LTIP award in March each year. LTIP awards are conditional rights to acquire shares in the Company at nil cost. Annual LTIP awards can be up to four times base salary for any individual and have a four-year performance period. Awards granted to executive Directors from 2018 will be subject to a 12-month holding period from when they vest, during which they cannot be exercised, after which they may then be exercised within a 12-month period.

LTIP awards do not give rise to any immediate entitlement and normally require the participant to be employed continuously by the Group until the awards may be exercised. Following the end of the four-year performance period, the Committee will determine the extent to which the performance conditions have been achieved and the extent to which the awards may be exercised. A participant who leaves the Group may still receive a proportion of their awards in certain circumstances, such as death, ill health or injury, or otherwise at the Committee’s discretion. In these circumstances, the award vests at the end of the performance period in the normal way, subject to meeting the performance conditions, with the proportion that vests adjusted downwards for the proportion of the performance period worked. Vesting may be accelerated if the participant dies, with the proportion that vests determined by estimating the extent to which the performance conditions will be met. At the Company’s discretion, LTIP awards may be settled in cash but this discretion would only be exercised in exceptional circumstances, for instance in a jurisdiction where settlement in shares would create an adverse outcome for the Group or award holder.

The Committee determines the performance conditions for each award and uses its judgement to set challenging criteria that are consistent with the Group’s strategy. Since the LTIP was approved by shareholders in 2010, the vesting of awards has been subject to EPS and NNB performance conditions.

  • EPS growth was chosen as a measure of profitability and is measured relative to a composite index that the Committee believes to be a reasonable proxy for the market movement of Schroders’ AUM. As a result, earnings increases or decreases purely as a result of movements in financial markets are excluded from the measurement of performance. Each year that this EPS performance condition is used, the balance of Schroders’ AUM at the previous year end has been reviewed to determine the weighting of the underlying indices that make up the composite index for new awards. If the growth of adjusted EPS in the fourth year compared with that in the year prior to grant exceeds the growth in the composite index over the same period by 20% then 12.5% of the award vests, rising on a straight-line basis to 50% vesting for comparative growth of 40% or more. Comparative growth of 20% or less is not rewarded. Targets were set at 20% to 40% as a range of outperformance of the composite index that is very stretching.
  • NNB, being gross sales less gross redemptions, was chosen as a measure of the Group’s organic growth. If cumulative NNB over the four-year performance period is £15 billion then 12.5% of the award vests, rising on a straight-line basis to 50% vesting for NNB of £25 billion or more. NNB of less than £15 billion is not rewarded. Targets were set by reference to historical actual performance, aiming to provide targets that are stretching but not unrealistic.

For LTIP awards made from 2018 onwards, when determining vesting the Committee has the discretion to reduce the extent to which awards vest if the Group has suffered a material failure of risk management or if the Committee judges that the unadjusted outcome from the performance conditions does not reflect underlying performance.

Malus and clawback terms
To allow variable remuneration awards to be risk adjusted in certain circumstances.

Under malus terms, deferred remuneration awards granted under the ECP, EIP or LTIP may be reduced or lapsed at the Committee’s discretion in the event of a material misstatement of the Group’s financial results or individual misconduct. Under clawback terms, amounts paid or released from such awards may be recovered for a period of 12 months from the date of payment or release in the event of individual misconduct, at the Committee’s discretion.

Malus and clawback terms apply to deferred remuneration granted to the executive Directors on the same basis as for other employees. In addition, executive Directors’ contracts extend clawback terms to the cash element of any annual bonus awards.

Malus terms apply to ECP awards granted since May 2011, to EIP awards granted since July 2013 and to LTIP awards granted at any time. Clawback applies to ECP, EIP and LTIP awards granted since October 2013.

Personal shareholding policy
To align the interests of senior management with those of shareholders.

Members of the GMC are required, over time, to acquire and retain a holding of Schroders shares or rights to shares equivalent to 300% of base salary. Each GMC member undertakes not to sell any Schroders shares until their share ownership target has been reached and to ensure that the required shareholding is maintained when selling or transferring shares, except that shares may be sold to satisfy tax and social security liabilities arising when an award vests or is exercised. For these purposes, rights to shares includes the estimated after-tax value of ECP and EIP share awards but does not include any unvested rights to shares awarded under the LTIP as these are subject to performance conditions.

The personal shareholding policy for the Group Chief Executive requires the acquisition and retention of Schroders shares or rights to shares equivalent to 500% of base salary. For the other executive Directors the requirement is 300% of base salary.

On stepping down as an executive Director, half the level of shareholding required while an executive Director must be maintained for two years, or the actual level of shareholding on stepping down if lower.

Shareholder dilution

Deferred remuneration plans involving Schroders shares are non-dilutive to shareholders, as shares to satisfy awards are purchased in the market.

In approving the application of this policy to the executive Directors, authority is given for the Group to honour any commitments entered into with current or former Directors prior to the approval and implementation of this policy (such as payment of pension or the vesting or exercise of past share awards), provided that such commitments complied with any applicable remuneration policy in effect at the time they were given. Any remuneration commitment made prior to an individual becoming a Director and not in anticipation of their appointment to the Board may be honoured, even where it is not consistent with the Directors’ remuneration policy in place at the time it is fulfilled.

New policy for 2017 and considerations when setting policy

In recommending the Directors’ remuneration policy to the Board and to shareholders, the Committee aims to ensure that policies and practices are consistent with the principles outlined in chapter Remuneration principles, while supporting effective risk management so as not to encourage excessive or inappropriate risk-taking.

During 2016, the Committee and the Board discussed possible changes in remuneration philosophy and approach, including aligning more closely with FTSE-100 norms. The simplicity of the current approach has many benefits, including keeping the fixed cost base of the Group relatively low. The Board concluded that overall it remains appropriate but that changes to the Directors’ remuneration policy should be made to develop further the alignment of executive pay to the financial performance of the Group and the interests of clients and shareholders.

Feedback received from shareholders on Directors’ remuneration was discussed by the Committee and the Board and taken into account when considering the new policy. Overall, 96% of shareholder votes received at the 2016 AGM were cast in favour of the Annual report on remuneration and 92% of votes received at the 2014 AGM were cast in favour of the current Directors’ remuneration policy. The table below summarises concerns raised by a small minority of shareholders during 2016 and the policy changes proposed as a result, while the table in chapter Remuneration report summarises the policy changes proposed.

As far as possible, the remuneration policy for executive Directors is consistent with that applied for other employees, as shown in the tables above. Employees are not consulted on the Directors’ remuneration policy but management engage with employees on a wide range of other relevant issues, including in the UK via an Employee Forum that provides an additional channel for representing and understanding employee views.

The Group’s remuneration policies and practices take account of legislation, regulation, corporate governance standards, best practice and guidance issued by regulators, shareholders and shareholder representative bodies. Reward policies comply with the relevant provisions of the FCA’s Remuneration Codes, the Remuneration Part of the PRA Rulebook and the UK Corporate Governance Code. Each year the Committee works to ensure that variable remuneration reflects performance and strikes the appropriate balance between managing current and future risk and reward. The Committee reviews Directors’ remuneration in the context of remuneration across the Group, including financial performance, the total compensation ratio, the profit share ratio and the allocation of variable remuneration between employees.

Shareholder comments

Committee’s considerations during 2016

Total remuneration for the executive Directors is too high.

The Group aims to pay employees including the executive Directors competitive levels of total remuneration, which are reviewed annually and benchmarked by reference to the external market. Pay is driven by the performance of the Group and of each Director. Benchmarking is used to establish a frame of reference for what competitors are paying, rather than as a start point or primary factor when remuneration decisions are made. Information on the competitive positioning of executive Directors’ remuneration is on Positioning of remuneration. We have also disclosed the ratio of the Group Chief Executive’s remuneration to that of other employees across the Group, see Ratio of the Group Chief Executive’s remuneration.

A maximum annual bonus award should be specified for each executive Director.

During 2016 the Committee again revisited the merits of capping annual bonus awards at an individual level. We continue to believe that not setting a cap for individual annual bonus awards is in the best interests of shareholders. It allows us to attract, retain and motivate the best talent, who know that good performance and behaviour in line with our values will be rewarded. It also allows us to keep base salaries relatively low, controlling the fixed cost base when times are challenging.

Remuneration is too short-term. Bonus deferral should be higher and LTIP awards should make up more of total remuneration.

Under the new Directors’ remuneration policy, the proposal is to increase the proportion of any annual bonus awards for executive Directors that is deferred from approximately 50% to approximately 60%. LTIP grant levels have varied historically and the existing approach continues to be appropriate, using LTIP awards alongside significant deferral of annual bonus awards into share and fund awards. Although the LTIP incentivises long-term performance and the achievement of strategic priorities it also creates challenges in setting meaningful longer-term targets that are aligned with the interests of shareholders and clients and remain so as the economy and business cycles evolve.

The LTIP performance metrics are too complex.

The Committee recognises that the composite index used for EPS performance measurement is complex but considers that the benefits, in excluding earnings increases or decreases purely as a result of movements in financial markets, justify the continuation of this approach.

LTIP performance and holding periods should total at least five years.

Under the new Directors’ remuneration policy, LTIP awards may not be exercised in the first year following vesting, which alongside the four-year performance period will align the LTIP with this guidance.

The Committee does not set fixed ratios for Directors’ pay relative to other employees as it believes this would restrict flexibility in aligning reward and performance appropriately. However, the Committee does consider this when setting the level of annual bonus award payable to the Group Chief Executive, as described in chapter Annual report on remuneration.

This year the Committee has introduced additional disclosures, aiming to increase transparency and provide more insight into the decisions the Committee has made and the rationale behind those decisions, both on the remuneration of the executive Directors and more broadly across the Group. The ratios of the Group Chief Executive’s remuneration to the average for members of the GMC and the average for employees as a whole are shown in chapter Annual report on remuneration.

Remuneration policy illustrations

These scenario charts show, for each of the executive Director roles, the relative split of fixed elements of remuneration, annual bonus awards and LTIP awards, in accordance with the proposed new Directors’ remuneration policy. The lowest, average and highest remuneration over the eight years ended 31 December 2016 has been used as an indication of the earnings potential for each role. Over the same period, profit before tax and exceptional items has ranged from £137.5 million to £644.7 million. Future remuneration will be determined based on performance, as described elsewhere in this report.

Group Chief Executive (£’000)

Remuneration policy illustrations: Group Chief Executive (bar chart)

Chief Financial Officer (£’000)

Remuneration policy illustrations: Chief Financial Officer (bar chart)

The remuneration policy illustrations are based on actual fixed pay and annual bonus awards for each role over the eight years ended 31 December 2016 and the LTIP grants due to be granted in March 2017, which are set out in chapter Annual report on remuneration, as follows:

Fixed pay

In these scenarios, fixed pay consists of base salary, benefits and allowances and retirement benefits. Salary is the annual salary effective from 1 March 2017. Benefits and allowances and retirement benefits are the anticipated annualised amounts from 1 March 2017.

 

 

 

 

 

 

Role

Base salary £’000

Benefits and allowances £’000

Retirement benefits £’000

Total fixed pay £’000

Group Chief Executive

500

12

45

557

Chief Financial Officer

375

8

45

428

 

 

 

 

 

 

 

Lowest

Average

Highest

Annual bonus award

Being the lowest over the last eight years of the sum of actual annual bonus award and actual fixed pay each year, less the fixed pay value shown above.

Being the mean over the last eight years of the sum of actual annual bonus award and actual fixed pay each year, less the fixed pay value shown above.

Being the highest over the last eight years of the sum of actual annual bonus award and actual fixed pay each year, less the fixed pay value shown above.

 

In all three scenarios the annual bonus award is then subject to deferral into ECP fund and share awards, as outlined in the policy.

LTIP

Assuming no vesting.

Being the face value of the award to be granted in March 2017, assuming 50% vesting.

Being the face value of award to be granted in March 2017, assuming 100% vesting.

The total remuneration values used in these scenarios for the Group Chief Executive reflect the remuneration awarded to Peter Harrison in respect of 2016 performance and to Michael Dobson in respect of performance in 2009–2015.

Remuneration policy for the non-executive Directors

The table below sets out the remuneration policy for non-executive Directors, who only receive fixed pay.

Component

Operation

 

Further information

Fees
To reflect the skills, experience and time required to undertake the role.

Fees for the Chairman and other non-executive Directors are determined by the Board based on market information for comparable asset managers and other financial services groups and the constituent companies of the FTSE-100 Index. Non-executive Directors do not participate in decisions concerning their fees.

Fees are usually reviewed biennially. The fees for the non-executive Chairman were last reviewed in 2016, while fees for other non-executive Directors were last increased in 2014. The non-executive Directors’ current annual fees are shown on the non-executive Directors’ current annual fees.

Benefits
To enable the non-executive Directors to undertake their roles.

Non-executive Directors’ benefits are principally expenses incurred in connection with the Group’s business and reflect business needs. Non-executive Directors may receive private use of a driver, car parking, meals, travel costs, tax on reimbursed benefits and, in the case of Bruno Schroder, private health care and medical benefits. Michael Dobson receives life insurance benefits on the same terms as UK employees and private health care and medical benefits for him and his family.

Schroders does not pay retirement or post employment benefits to non-executive Directors. They do not participate in any of the Group’s incentive arrangements. Bruno Schroder and Michael Dobson, as former executives, have been in receipt of a pension since April 2007 and May 2012 respectively but have ceased accruing any further entitlement.

Recruitment of new Directors

The table that follows summarises the remuneration policy when hiring new executive Directors.

Area

Policy and operation

Overall approach

On appointment, the Committee aims to pay executive Directors remuneration that is appropriate in level and structure to attract, motivate, retain and reward Directors of the quality required to run the Group successfully, while avoiding paying more than is necessary.

Notice periods

The Group’s general policy is that each executive Director will have a rolling contract of employment with mutual notice periods of six months. The Committee will consider the appropriate notice period when appointing any new executive Director. If necessary to secure a new hire, a notice period of up to 12 months may be offered. When recruiting new executive Directors, the Committee’s policy is that contracts will not contain any provision for compensation upon early termination.

Base salary

Base salary is likely to be set at the same level as for other Directors, provided this is justifiable by reference to the candidate’s skills and experience, and taking into account remuneration in their most recent role, internal relativities and external market rates for roles with similar responsibilities.

Other fixed pay

Benefits and allowances, retirement benefits and SIP participation will be provided on a similar basis as those available to other employees. If the Group hires a new executive Director internationally then relocation support may be offered, on a similar basis as would be offered for other employees. This may include support such as temporary accommodation, assistance finding new accommodation, transportation of household goods, school search for children moving internationally with the Director, tax advice and assistance preparing tax returns and a one-off cash allowance of up to £5,000 after tax.

Annual bonus award

New executive Directors would be eligible to be considered for annual bonus awards in the same way as existing Directors. The Group does not award guaranteed annual bonuses to executive Directors.

LTIP

New executive Directors would be eligible to be considered for LTIP awards in the same way as existing Directors.

Legal fees

The Group may pay reasonable fees for a new executive Director to obtain independent legal advice in relation to their appointment.

Buy-out awards

Where a candidate will forfeit remuneration as a result of leaving their current employer or joining Schroders, the Group may mitigate that loss by making one-off awards as a term of their appointment. The Committee will take reasonable steps to ensure that any such awards are no more generous in either amount or terms than the remuneration being forfeited. Any deferred remuneration will be subject to malus and clawback terms, in the same way as the award being replaced.

New non-executive Directors receive fees and benefits in line with the policy for other non-executive Directors. Non-executive Directors are engaged under letters of appointment. They do not have service contracts. When recruiting new non-executive Directors, the Board’s policy is that letters of appointment will have a mutual notice period of six months.

Directors’ service contracts and letters of appointment

Each of the executive Directors has a rolling service contracts with a mutual notice period of six months. Each of the non-executive Directors has a letter of appointment with a mutual notice period of six months, with the exception of Bruno Schroder who does not have a notice period. Letters of appointment and service contracts are available for shareholders to view at the Company’s registered office on business days between the hours of 9 a.m. and 5 p.m. and will be available at the AGM.

Policy on termination arrangements

The following table sets out the remuneration policy on termination of a Director.

Area

Policy and operation

Overall approach

When an executive Director leaves the Group, the Committee will review the circumstances and apply the treatment that it believes is appropriate. Any payments will be determined in accordance with the terms of the service contract between the Group and the employee, as well as the rules of any deferred remuneration plans and the Directors’ remuneration policy. There are no contractual provisions for non-executive Directors to receive compensation upon termination.

Restrictive covenants

Executive Directors’ service contracts include restrictions prohibiting the solicitation of clients and of Schroders employees for a period of 12 months after leaving employment, against which any period spent on notice or garden leave is offset.

Fixed pay

Base salary, benefits and allowances and retirement benefits for executive Directors and fees for non-executive Directors will continue to be paid through the notice period. The Committee also has the discretion to make a payment in lieu of notice to executive Directors, normally based on salary only. The treatment of shares acquired or awarded under the SIP will be in accordance with the plan rules.

Annual bonus awards

Departing executive Directors do not have a contractual entitlement to an annual bonus award. If a departing Director works during the notice period to achieve the Group’s goals and supports an effective transition of responsibilities, the Committee may recommend to the Board that a discretionary payment be made to reflect the Director’s contribution during the proportion of the financial year worked. Any such payment will normally be subject to the same deferral arrangements as an annual bonus award, provided this is permitted under applicable law and regulations and except in the case of death, ill health or injury when payment may be fully in cash, at the Committee’s discretion.

Treatment of unvested ECP awards

The treatment of awards under the ECP held by departing executive Directors will be in accordance with the plan rules. In certain circumstances, those rules permit participants to retain some or all of their unvested awards following the termination of their employment, for example if the employee is leaving due to ill health or injury, or otherwise at the discretion of the Committee. Any unvested ECP awards that are retained will vest on their normal vesting date except in the case of death, and ill health at the Committee’s discretion, when they vest immediately.

LTIP awards

Departing executive Directors are not eligible to receive new LTIP awards.

Treatment of unvested LTIP and EIP awards

The treatment of awards under the LTIP and EIP will be in accordance with the relevant plan rules. For the EIP this operates on a similar basis as for the ECP. For the LTIP this is similar except that in all cases any vesting remains subject to satisfaction of the associated performance conditions and will be reduced pro-rata for the proportion of the performance period worked.

Shareholding requirements

On stepping down, executive Directors are required to maintain for a period of two years a holding of shares or interests in shares equal in number to half that which applied under the personal shareholding policy, or the number actually held on stepping down if lower.

Legal fees

The Group may pay reasonable fees for a departing Director to obtain independent legal advice in relation to their termination arrangements and nominal consideration for agreement to any contractual terms protecting the Company’s rights following termination. If the value of either of these exceeds £10,000 it will be disclosed in the Annual report on remuneration.

Retirement gifts

The Board may choose to make a retirement gift to a departing non-executive Director. If the value of any such gift exceeds £10,000 it will be disclosed in the Annual report on remuneration.

Settlement agreements

The Committee may agree additional exit payments where such payments are made in good faith to discharge an existing legal obligation, or as damages for breach of such obligation, or in settlement or compromise of any claim arising on termination of a Directors’ office or employment. This may include the provision of outplacement support. If the value of any such payment exceeds £10,000 it will be disclosed in the Annual report on remuneration.

Other payments

Other payments to former Directors that do not exceed £10,000 will not be disclosed in the Annual report on remuneration.