Clare Bettelley speaks to Luke Savage about insurance market Lloyd’s titanic battle to retain employees at the not-for-profit Corporation
The challenge in attracting staff to Lloyd’s, the specialist insurance market formally known as Lloyd’s of London, is compounded by the fact that it is a not-for-profit organisation and lacks the ability to lure prospective staff with share schemes and lucrative stock and option awards. As part of its answer to responding to the competition for talent in the provider-rich global insurance market, the Corporation is in the throes of rolling out a cash bonus scheme.
Luke Savage, director, finance, risk management and operations at Lloyd’s, has been instrumental in the creation of a retention-focused scheme for its 700-strong staff, entitled the Lloyd’s Performance Plan. “When you’re a not-for-profit organisation, [you] need to counter the appeal of people being able to leave when the market’s doing well,” he says.
Bonuses are based on the Corporation’s pre-tax profit for the last full financial year multiplied by a percentage based on employee grade, which is then multiplied by salary. For example on a profit of £2.5 billion someone earning £50,000 a year would receive 12.5% of their salary.
“We had looked at far more complex ideas that effectively created shadow investment schemes to follow the results of the shares of the listed vehicles in the market, but we [decided to keep] it very simple, specifically to make it easier for people to understand.”
Long-term incentive plan
Savage says that he expects the cost of the scheme to be absorbed through Lloyd’s members’ annual subscriptions. “The scheme has been calibrated so that we should be able to operate it without having to go back to the market for more money.”
The scheme is open to all staff and capped according to their grades. It will supersede Lloyd’s existing executive long-term incentive plan (L-tip). On whether executives can earn more than is possible under their existing L-tip, Savage says: “For a given level of profit and a given point in the cycle, one may or may not earn more. The reason I’m being cagey is that the old scheme looked at average results over three years on one basis while the new scheme looks at results for a particular year on a different basis, so the amount you get paid, will vary as a function of where you are in the cycle.”
Awards under the old L-tip were calculated as a percentage of the Corporation’s aggregate profits for the relevant three-year period for each £1m of participants’ salaries.
Savage’s estimated long-term bonus as at 31 December 2006 was £13,000, which increased to £19,000 with the addition of his performance bonus.
“As a Corporation we have to pay a lot more attention to our reward package and work a lot harder by making sure that we provide an overall attractive package to [all] our staff – [not simply] those who have equity.”
Hence, Lloyd’s offers staff a number of non-financial rewards. It offers a defined benefit (DB) pension scheme, which it shifted from final salary to career average for new joiners in 2005. “It was part of a means to manage our risk to the Corporation in the long term. But we made a very clear choice not to close a DB scheme in favour of a defined contribution scheme. We think the DB scheme is valuable to people, certainly for the more mature members of staff, so while we’ve modified the terms, we have kept that scheme open,” he says. The Corporation also introduced employee contributions of 5% for most staff.
Savage says he manages reward costs as part of the ongoing programme of driving efficiency through the Corporation. “Take the area that looks after all the assets we hold on behalf of members – ‘market services’. We’ve managed to shrink its head count by 50% in the last five years and with the savings generated, we’ve invested in new heads in growing areas or made sure that the reward for the rest of our staff stays in line with the market.”
Lloyd’s core benefits
Basic employee benefits for new joiners (excluding executives):
• Lloyd’s Performance Plan and a performance-related bonus
• Career average defined benefit pension with 5% employer contribution
• Life assurance
• 25 days minimum holiday allowance
• Flexible benefits, including private medical insurance, childcare vouchers, additional holiday, cycle-to-work scheme
• Car or cash alternative (for managers)
Recent career history of Luke Savage
Savage is director, finance, risk management and operations graduated in electrical and electronic engineering from Imperial College, University of London, and holds the ACA/FCA accountancy qualification.
2004-present: Director, finance, risk management and operations, Lloyd’s
2000-2004: Global head of equity control, Deutsche Bank
1998-2000: Financial controller, strategic re-engineering, Morgan Stanley International (UK)
1991-1997: Financial controller, rates, commodities and derivative product control, Morgan Stanley International (UK)
1987-1990: Corporate treasury banking, Lloyds Bank