Share Incentive Schemes will receive a minimum return on equity before
Directors’ The Remuneration and Nomination Committee
believes that employees should be encouraged
awards granted to employees will vest.
remuneration to own Hiscox shares so that they are aligned with ROE has been calculated as profit after tax and
report continued the long-term success of the Company. Hiscox
operates a Performance Share Plan for senior
goodwill amortisation divided by shareholder
funds at the beginning of each year, excluding
managers, a UK Save as You Earn scheme foreign currency items on economic hedges and
and an International Save as You Earn scheme. intragroup borrowings. ROE encourages efficient
use of capital, or its return to shareholders. In
Performance Share Plan 2013 £150 million of capital will be returned,
Restricted share awards or nil cost option above normal progressive dividends.
awards (depending on the appropriate practice
by country) are made to Executive Directors The performance conditions for the PSP have been
and other senior managers at the discretion of unchanged since 2007. For future awards to be
the Remuneration and Nomination Committee. made in 2013 and subsequent years the Committee
Awards under this plan were made in 2012 and has decided to align the approach to setting the
the Remuneration and Nomination Committee PSP performance conditions with the method of
has also agreed to make awards under this setting the bonus hurdle. The benchmark rate will
plan in 2013. The maximum annual award be set annually as described above under ‘Annual
to an individual under the Performance Share cash incentives’ (taking account of medium-term
Plan is a value of 200% of basic salary. forward-looking investment returns) and the vesting
threshold will be five percentage points above this.
Dividend payments
In order to better align senior managers with As a result of these proposed changes the
total shareholder return, the concept which threshold rate below which none of the 2013
is applied to the Performance Share Plan PSP award will vest will be a 7.0% post-tax
awards is that the recipient is provided with return on equity over a three-year period. If this
the equivalent of the dividend either in shares minimum threshold rate of return is reached or
or cash. This specifically works as follows: exceeded, then 25% of the PSP awards granted
dividends (or amounts equal to dividends) in 2013 will vest. The whole of the award will
on shares granted under the Performance only vest if a 14.5% post-tax return on equity
Share Plan roll up in the form of shares is achieved. The rate of vesting for performance
between the grant and vesting; above the threshold level of performance
at the end of the performance period the will remain unchanged and will be determined
employee would have options over the on a straight line sliding scale.
proportion of the share grant which vests
by reference to the satisfaction of the Save as You Earn
applicable performance target as well as The sharesave scheme and international
over the number of shares representing the sharesave scheme are offered to all employees
‘rolled up’ dividends on those shares; and and currently have a 56% participation.
for UK-based employees only, after vesting
but before exercise, the employee would Shareholding guidelines
then receive ‘shadow dividends’ (i.e. We strongly believe that senior managers within
amounts equal to dividends paid) on the Hiscox should be aligned with Hiscox shareholders
total number of shares that have vested. by owning a minimum number of Hiscox shares.
Performance conditions Formal shareholding guidelines are in place
Performance conditions for the Performance which mean that within five years of becoming
Share Plan (PSP) are as follows: an Executive Director, Hiscox Partner (the top
25% of the award vests if the Company 5% of employees in the company) or a member of
achieves an average ROE of 10% post-tax a subsidiary board, the employee will be expected
for each of the three years; to own Hiscox shares valued at 100% of salary
100% vests if the average three-year return for Hiscox Partners and members of subsidiary
exceeds 17.5% post-tax; and boards and 150% of salary for Executive Directors.
vesting will occur on a straight-line basis
between these points. The table at the end of the remuneration report
details Directors’ interests in the long-term
The Remuneration and Nomination Committee incentive plans.
believes that using ROE as the long-term
performance condition better aligns the interests
of employees with shareholders as ROE best
captures the efficiency with which the Company
is using shareholder funds to generate earnings.
The Remuneration and Nomination Committee
believes that an average ROE performance
requirement over the three-year period smoothes
out any cyclical fluctuations in earnings and
ensures that over any given period shareholders
42 Directors’ remuneration report Hiscox Ltd Report and Accounts 2012