Setting new standards - Friends Life

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CORPORATE GOVERNANCE The Remuneration Committee a) Purpose and terms of reference of the Committee The Committee: • recommends to the Board the broad policy in respect of senior executive remuneration; • ensures that the levels of remuneration for the executive directors and senior executives are sufficient to attract, retain and motivate directors of the quality required by the Company; • structures executive directors’ remuneration so as to link rewards to corporate and individual performance; and • sets the remuneration for all executive directors and the Chairman. The fees of non-executive directors are a matter for the consideration of the Board as a whole. The Committee’s full terms of reference are published on the Company’s website at www.friendsprovident.com and can be obtained on written request to the Company Secretary at the Company’s registered office. b) Membership: The members of the Committee are Lady Judge (Chair), Alison Carnwath and Christopher Jemmett. c) Advisers: During 2006, the Committee was assisted by PricewaterhouseCoopers LLP to provide independent advice on remuneration matters and Towers Perrin in respect of pension matters. The Committee also consulted with Keith Satchell, the Group Chief Executive, and Mike Hampton, the Group HR Director, to ensure policy was appropriate. During 2006, the Committee undertook a review of external advisers and concluded, in the interests of good corporate governance, that a rotation would be appropriate and appointed Deloitte Touche LLP in lieu of PricewaterhouseCoopers LLP. This appointment takes effect from 2 April 2007. Additional disclosures in respect of Alain Grisay (audited) The remuneration of the executive directors of F&C Asset Management plc (F&C), a separately listed, 52% owned subsidiary company, is fully disclosed in the directors’ remuneration report of the board of F&C. Alain Grisay is remunerated entirely by F&C in accordance with its remuneration policy. He is also a director of the Company. He has a rolling service contract with F&C dated 11 October 2004 that requires twelve months’ notice of termination on either side. Accordingly, this report includes only those disclosures required of the Company in respect of Alain Grisay. It is the Company’s policy to allow the board of F&C and its remuneration committee to determine the remuneration policy and packages for the executive directors of F&C. Alain Grisay participates in the LTRP which is the primary long-term incentive arrangement of F&C. Under the LTRP, contingent awards of shares are made under the Deferred Awards and the Restricted Awards. The vesting of Deferred Awards under the LTRP is contingent solely on the continued employment of the relevant participant over a three year period. No deferred awards were made to Alain Grisay during the year. The vesting of Restricted Awards under the LTRP is determined over three years and depends on F&C’s TSR compared with FTSE 250 companies and on Earnings Per Share (EPS) performance, and is subject to continuing service. TSR and EPS performance measures are each applied to 50% of every award. For TSR performance, no options will vest for below median TSR performance; for TSR performance between the 125th and 63rd places, awards will vest on a straight-line basis with 35% vesting for 125th place and 100% vesting for 63rd place and above. Share options During the year, Alain Grisay received a restricted share award under the LTRP of 956,937 shares. Date of Share price grant Alain Grisay on award date 15 November 2004 208,333 240.25p No awards made in 2005 - N/A 17 May 2006 956,937 209.0p Alain Grisay also participated in the Re-investment Plan (RP) which was a one-off plan linked to the merger of F&C Group (Holdings) Limited (F&CGH) and ISIS Asset Management plc on 11 October 2004. The RP was established to encourage key former F&CGH individuals to re-invest one half of the proceeds of their vested Shadow Equity Plan entitlement into ‘investment Shares’ in F&C. These shares were forfeitable should the participant voluntarily resign or be dismissed for gross misconduct within 24 months of completion of the merger. During 2006, 597,818 Investment Shares were released to Alain Grisay. Full details of the LTRP and RP are set out in the F&C Remuneration Report. The market price of F&C shares at 31 December was 211.0p. The highest and lowest F&C share price during 2006 was 232.0p and 176.0p respectively. The mid-market price of F&C shares at close of business on 19 March 2007 was 173.5p per share. For the Board Lady Judge Chairman, Remuneration Committee 19 March 2007 68 Friends Provident Annual Report & Accounts 2006
FINANCIAL STATEMENTS Independent Auditor’s report to the members of Friends Provident plc We have audited the Group and parent company financial statements of Friends Provident plc for the year ended 31 December 2006 which comprise the Consolidated income statement, the Consolidated and Parent company balance sheets, the Consolidated cash flow statement, the Consolidated statement of recognised income and expense and the related notes. These financial statements have been prepared under the accounting policies set out therein. We have also audited the information in the Remuneration Report of the Board that is described as having been audited. This report is made solely to the company’s members, as a body, in accordance with section 235 of the Companies Act 1985. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members, as a body for our audit work, for this report or for the opinions we have formed. Respective responsibilities of directors and auditor The directors’ responsibilities for preparing the Annual Report and the Group financial statements in accordance with applicable law and International Financial Reporting Standards (IFRS) as adopted by the EU, and for preparing the parent company financial statements and the Remuneration Report of the Board in accordance with applicable law and UK Accounting Standards (UK Generally Accepted Accounting Practice) are set out in the Statement of directors’ responsibilities on page 56. Our responsibility is to audit the financial statements and the part of the Remuneration Report of the Board to be audited in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland). We report to you our opinion as to whether the financial statements give a true and fair view and whether the financial statements and the part of the Remuneration Report of the Board to be audited have been properly prepared in accordance with the Companies Act 1985 and whether, in addition, the Group financial statements have been properly prepared in accordance with Article 4 of the IAS Regulation. We also report to you if, in our opinion, the Directors’ report is not consistent with the financial statements. The information given in the Directors’ report includes that specific information presented in the Annual Review that is cross-referred from the Business review section of the Directors’ report. In addition, we report to you if, in our opinion, the company has not kept proper accounting records, if we have not received all the information and explanations we require for our audit, or if information specified by law regarding directors’ remuneration and other transactions is not disclosed. We review whether the Corporate governance report reflects the Company’s compliance with the nine provisions of the 2003 FRC Combined Code specified for our review by the Listing Rules of the Financial Services Authority, and we report if it does not. We are not required to consider whether the Board’s statements on internal control cover all risks and controls, or form an opinion on the effectiveness of the Group’s corporate governance procedures or its risk and control procedures. We read other information contained in the Annual Report and consider whether it is consistent with the audited financial statements. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the financial statements. Our responsibilities do not extend to any other information. Basis of audit opinion We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements and the part of the Remuneration Report of the Board to be audited. It also includes an assessment of the significant estimates and judgements made by the directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the Group’s and company’s circumstances, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements and the part of the Remuneration Report of the Board to be audited are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements and the part of the Remuneration Report of the Board to be audited. Opinion In our opinion: • the Group financial statements give a true and fair view, in accordance with IFRS as adopted by the EU, of the state of the Group’s affairs as at 31 December 2006 and of its profit for the year then ended; • the Group financial statements have been properly prepared in accordance with the Companies Act 1985 and Article 4 of the IAS Regulation; • the Parent company financial statements give a true and fair view, in accordance with UK Generally Accepted Accounting Practice, of the state of the Parent company’s affairs as at 31 December 2006; • the Parent company financial statements and the part of the Remuneration Report of the Board to be audited have been properly prepared in accordance with the Companies Act 1985; and • the information given in the Directors’ report is consistent with the financial statements. KPMG Audit Plc Chartered Accountants Registered Auditor London 19 March 2007 Friends Provident Annual Report & Accounts 2006 69
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Friends Provident plc Pixham End Do
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