Remuneration Report
The current elements of remuneration for Executive Directors are as follows:
Salary and Benefits
The Committee reviews salaries taking account of Group and personal performance. Account is also taken of the levels of pay awarded elsewhere in the sector and competitive market practice.
The value of non-salary benefits for Executive Directors is included in the table of remuneration on page 36 and comprises life and health insurance and cash payments in lieu of a car. The value of these benefits is not pensionable, but is assessable to tax.
Short Term Incentives
The Company operates an annual performance related cash bonus scheme for Executive Directors. The maximum bonus payment under this scheme in 2009 is 100% of basic salary for the Chief Executive Officer and 80% (2008: 70%) for other Executive Directors. On target bonus is 60% for the Chief Executive Officer and 50% (2008: 40%) for other Executive Directors. The bonus for the Chief Executive Officer is wholly dependent on the financial performance of the Group; the bonus for the other Executive Directors is 75% (2008: 80%) based on the financial performance of the Group with the remaining 25% (2008: 20%) subject to achievement of specified personal objectives.
Long Term Incentive Plan ("LTIP")
The Company operates a Long Term Incentive Plan (“LTIP”) for Executive Directors. In line with current best practice, the LTIP provides for annual grants to Executive Directors.
Under the LTIP, Executive Directors are awarded rights to acquire ordinary shares. Each award made under the LTIP is subject to performance conditions which will determine how many, if any, of the shares under the award the participant is entitled to receive after the three year performance period. The value of awards which can be made in any year to a participant will normally be equal to 100% of basic salary. This limit can be increased to a maximum of 200% in the case of a participant who within the previous 12 months joined the Group or received a significant promotion.
In any ten-year period, the number of shares which may be issued or placed under option under any executive share plan established by the Company, may not exceed 5% of the issued ordinary share capital of the Company from time to time. In any ten-year period the number of shares which may be issued or placed under option, under any all-employee share plan established by the Company, may not exceed 10% of the issued ordinary share capital of the Company, from time to time.
Two performance conditions apply to the awards so that the vesting of 50% of the award will be linked to earnings per share (“EPS”) growth and 50% will be linked to Total Shareholder Return (share price growth and reinvested dividends) (“TSR”), measured by comparison with the FTSE mid-250 index (excluding investment trusts).
The first performance condition is that the average annual compound growth in the Company’s earnings per share (“EPS”) over the three consecutive financial years, following the year prior to the grant, must exceed the annual compound growth rate in the UK Retail Price Index (RPI) plus 3% per annum, over the same period. At this level of performance, 30% of the award relating to EPS performance would vest. Full vesting of the award relating to EPS performance requires that the Company’s average annual compound growth in EPS exceeds the compound growth in RPI plus 5% per annum over the period. Between these two points, an increasing proportion of vesting occurs at RPI plus 3.5%, RPI plus 4% and RPI plus 4.5%. For the purposes of this condition, EPS will comprise adjusted EPS as defined in note 2 to the consolidated financial statements. The definition of adjusted EPS remains consistent with the definition of EPS approved by the Remuneration Committee in previous years.
EPS was chosen as the appropriate measure of performance as it provides an absolute benchmark of the Company’s performance and is therefore a suitable balance to the relative TSR performance measurement.
The second performance condition compares the growth of the Company’s TSR over a three year period to that of the companies in the FTSE mid-250 index (excluding investment trusts). The Company’s ranking amongst the comparator companies determines the percentage of shares which will vest to a participant. For the participant to receive the full number of shares awarded, the Company must rank in the top quartile of the comparator group. Where the Company’s performance is at the median, 30% of any award is vested. Between these two points, vesting is on a straight-line basis. Where performance over the three year period does not reach the median ranking, no shares are vested, the relevant award lapses and there is no re-testing of performance.
The TSR performance condition was chosen as the Committee believes that TSR is an appropriate method of comparing the performance of the Company to that of its peers. The FTSE mid-250 index (excluding investment trusts) was chosen as the comparator group as there are a limited number of companies which are directly comparable to the Company and the index was therefore felt to be a suitable yardstick of relative performance.
Subsisting awards may vest before their vesting date in the event of a change of control of the Company, in accordance with the rules of the LTIP.
Benefits under the LTIP are not pensionable.
Awards under this LTIP have been made annually by the Remuneration Committee to BM Thompson, I Henderson and NP Lingwood, the last award being made on 17 November 2008. Following the end of the relevant performance period, the number of shares over which an award vests is determined and a participant may then exercise the award on payment of £1 at any time within ten years of the date of grant. The number of shares over which the 2006 awards have vested at 30 September 2009 are set out on page 36. The outstanding awards will vest on 30 September 2010 and 2011 respectively, subject to the performance conditions set out above, measured over three year performance periods ending on 30 September 2010 and 2011.
Pension Arrangements
The Executive Directors receive pension contributions from the Company which are paid into money-purchase schemes. No Directors are members of the Group’s defined benefit schemes.
The pension contributions are 20.0% (2008: 20.0%) of base remuneration, excluding bonuses.
Relative Performance of Remuneration Elements
The Committee’s view is that the performance related elements of the remuneration package for Executive Directors should be a significant element of the total. This serves to align the interests of such Directors with shareholders. Assuming full payment of all elements, more than 60% of the total remuneration of each of the Executive Directors would be performance related.
Service Contracts - Executive Directors
The service agreements of the Executive Directors include the following terms:
| Date of Contract | Notice Period | |
| BM Thompson | 13 July 2000 | 12 months |
| I Henderson | 1 August 2000 | 12 months |
| NP Lingwood | 3 July 2001 | 12 months |
The Executive Directors are subject to rolling contracts and offer themselves for re-election as Directors at least every three years in accordance with the Company’s Articles of Association. Payments on termination for Executive Directors are restricted to the value of salary and contractual benefits for the notice period. There is no predetermined special provision for Executive Directors with regard to compensation in the event of loss of office. The Remuneration Committee would consider the circumstances of individual cases of early termination and determine compensation payments accordingly.
Non-Executive Directors
The fees for the non-Executive Directors are determined by the Board as a whole, having regard to market practice. Business expenses are also reimbursed.
The non-Executive Directors do not have contracts of service, but are appointed pursuant to letters of appointment. Such appointments are for a one year term and the Company’s policy is for re-appointment to be on an annual basis. Non-Executive Directors are not eligible to participate in any incentive plan or Company pension arrangement and are not entitled to any payment in compensation for any early termination of their appointment. They are due for re-appointment to the Board on the following dates:
| Date of Re-appointment | Renewal | |
| IM Grice | 24 January 2010 | Annual |
| JW Matthews | 24 July 2010 | Annual |
| JL Rennocks | 11 July 2010 | Annual |
All Directors’ appointments are subject to approval of the shareholders in General Meeting sought on a three yearly basis.
During the year ended 30 September 2009 the non-Executive Directors each received a fee of £35,000 per annum (2008: £30,000). The Chairman, who is a non-Executive Director, received a fee of £70,000 per annum (2008: £60,000) for his services during the year ended 30 September 2009.
Total Remuneration of the Directors
The total remuneration of the Directors for the year ended 30 September 2009 is set out below.
| Fixed emoluments | |||||
| Salary & fees £000 |
Other benefits £000 |
Performance based bonus £000 |
2009 Total £000 |
2008 Total £000 |
|
| IM Grice | 35 | - | - | 35 | 30 |
| I Henderson | 207 | 11 | 50 | 268 | 328 |
| NP Lingwood | 207 | 12 | 50 | 269 | 329 |
| JW Matthews | 35 | - | - | 35 | 30 |
| JL Rennocks | 70 | - | - | 70 | 60 |
| BM Thompson | 340 | 14 | 102 | 456 | 631 |
| 894 | 37 | 202 | 1,133 | 1,408 | |
The pension contributions paid on behalf of the Directors are as follows:
| 2009 £000 |
2008 £000 |
|
| BM Thompson | 68 | 66 |
| I Henderson | 41 | 39 |
| NP Lingwood | 41 | 39 |
| 150 | 144 |
Long Term Incentive Plan
On 17 November 2008 Executive Directors received a share award with a face value of one times salary as set out below. On 30 September 2009 the performance period relating to the award made on 22 December 2006 ended and the LTIP awards vested and became exercisable by each of the Directors, as set out below.
| LTIP shares held at 30 Sept 2008 Number |
LTIP shares awarded during the year ended 30 Sept 2009 Number |
LTIP shares vested on 30 Sept 2009 (note 1) Number |
LTIP shares lapsed on 30 Sept 2009 Number |
Share price on date of award |
Vesting date |
Total LTIP shares held at 30 Sept 2009 Number |
|
| BM Thompson | |||||||
| 22 December 2006 | 191,925 | - | 175,132 | 16,793 | 161.6p | 30 Sept 2009 | - |
| 17 December 2007 | 178,225 | - | - | - | 184.6p | 30 Sept 2010 | 178.225 |
| 17 November 2008 | - | 276,423 | - | - | 123.0p | 30 Sept 2011 | 276,423 |
| I Henderson | |||||||
| 22 December 2006 | 115,155 | - | 105,079 | 10,076 | 161.6p | 30 Sept 2009 | - |
| 17 December 2007 | 106,715 | - | - | - | 184.6p | 30 Sept 2010 | 106,715 |
| 17 November 2008 | - | 168,293 | - | - | 123.0p | 30 Sept 2011 | 168,293 |
| NP Lingwood | |||||||
| 22 December 2006 | 115,155 | - | 105,079 | 10,076 | 161.6p | 30 Sept 2009 | - |
| 17 December 2007 | 106,715 | - | - | - | 184.6p | 30 Sept 2010 | 106,715 |
| 17 November 2008 | - | 168,293 | - | - | 123.0p | 30 Sept 2011 | 168,293 |
Note:
- The awards which vested on 30 September 2009 were calculated in accordance with the performance conditions described on pages 34 and 35. The awards may be exercised at any time before 22 December 2016 on payment of £1. In aggregate 91.3% of the total LTIP award granted on 22 December 2006 vested unconditionally and became exercisable.
- Under the first performance condition, the average annual compound growth rate in the Company’s adjusted EPS (as defined on page 43) over the three year period ended 30 September 2009 was 7.5% pa; this compares with an annual compound growth rate in RPI +4.5% over the same period of 7.5% pa. Accordingly 82.5% of the shares relating to this award (representing 50% of the total award) vested unconditionally.
- Under the second performance condition, the Company’s TSR grew 14.5% over the three year period ended 30 September 2009; this growth gave the Company a ranking of 42 in the comparator group and put the Company in the 77 percentile. The median TSR was -18.1% and the lower threshold of the upper quartile was 11.7%. Accordingly 100% of the shares relating to this part of the award vested unconditionally.