Annual Report and Accounts 2009 - BG Group

54
Directors’ Report: Corporate Governance
Remuneration report continued
Company Share Option Scheme (CSOS)
The option price is based on the market value at the date of grant.
Options may only be exercised three years from the date of grant
subject to both continued employment and achievement of a financial
performance condition. This performance condition determines if and
the extent to which options may be exercised. It is based on BG Group’s
EPS (a) growth relative to the growth in the RPIX over a period of three
financial years relative to the financial year which ended immediately
prior to the date of grant. The Committee considers that an EPS
performance measure ensures that employees receive rewards only
when the Company has achieved sustained earnings growth during the
performance period. The calculation of EPS growth for grants made on
or after 21 July 2004 has been made using constant commodity prices
and constant exchange rates. There is no retest provision. Subject to
the above conditions the option may be exercised (in whole or in part)
at any time up to the expiry of 10 years from the date of grant.
% EPS growth over RPIX (over 3 years) % of options that are exercisable
30 or greater 100
15 50
Less than 15 Options are forfeited
A proportion of between half and all of the options will be exercisable
if the Company achieves EPS growth over three years of RPIX plus
between 15% and 30%, respectively.
Over the three-year performance period for the 2006 CSOS grant, the
Company’s EPS growth above the growth in the RPIX exceeded 30%.
As a result, 100% of the shares under the options granted to employees
in September 2006 are exercisable prior to September 2016.
In the event of a change of control, exercise of an option under the
CSOS is not automatic and would depend upon the extent to which
the performance condition had been satisfied at the time.
All-employee share plans
In order to encourage share ownership, the Company currently provides
two all-employee UK HM Revenue & Customs (HMRC) approved share
plans for its UK employees.
Share Incentive Plan (SIP)
The SIP is approved by HMRC. Two elements of the SIP operated
during 2009, the Partnership Shares Plan and the Flex Shares Plan.
(a) Partnership Shares
Eligible employees are offered the opportunity to buy Company shares
from pre-tax earnings as part of a regular share purchase plan. Shares
are currently purchased every six months using employees’ accumulated
deductions and are placed in trust.
At 31 December 2009, 73.0% (31 December 2008 70.5%) of eligible
employees were participating in this plan. Of those participating,
81% (31 December 2008 80%) were contributing the maximum of
£125 per month.
(b) Flex Shares
Flex Share allocations were made to all eligible employees as part of
the UK flexible benefits plan. Flex Share Awards of up to a maximum
of 273 shares, representing the maximum value allowed within the
£3 000 statutory limit, were made on 7 April 2009 to all eligible
employees in the UK who accepted their allocation. These shares will
be held in trust for up to five years.
Sharesave Plan
Grants were made under the BG Group Sharesave Scheme up to and
including 2007. From 2008, grants have been made under the Sharesave
Plan 2008. The plan is approved by HMRC and enables eligible employees
to acquire the Company’s shares with the proceeds of a monthly savings
contract. The contract period is three years. At 31 December 2009, 79.5% of
eligible employees were participating in either the Sharesave Plan 2008 or
its predecessor, the Sharesave Scheme, contributing an average monthly
payment of £226. Of those participating, 81.7% were contributing the
statutory maximum of £250 per month.
(a) For a definition of EPS, refer to page 4.
www.bg-group.com
PENSIONS
The pension arrangements for Executive Directors are detailed on page 60.
As detailed in note 25, page 107, BG Group operates a number of pension
plans across the Group. Outside the UK, these plans are generally
defined contribution (or money purchase) arrangements. In April 2007,
a defined contribution plan was introduced in the UK for new hires.
Employees who were already members of the defined benefit scheme
continue to accrue benefits in that scheme.
DILUTION
The ABI has published guidelines relating to the disclosure of
commitments to issue new shares or re-issue Treasury shares under a
company’s share-based schemes. In the event of all options and awards
outstanding as at 31 December 2009 under BG Group’s LTIP and LTIS
(under which awards are planned to be satisfied by the re-issue of
Treasury shares or by the issue of new shares) vesting, and all CSOS
options becoming exercisable (under which options are currently
satisfied by the issue of new shares), the resulting issue of new shares
and re-issue of Treasury shares would amount to 1.33% of the issued
share capital at that date.
In the event of all options outstanding as at 31 December 2009 under
BG Group’s Sharesave Plan 2008 and Sharesave Scheme (which both
involve the issue of new shares), becoming exercisable, the resulting
issue would represent 0.07% of the issued ordinary share capital at
that date.
Partnership and Flex Share awards made under the SIP during 2009
were satisfied by the re-issue of Treasury shares. These awards
represented 0.015% of the issued share capital as at 31 December 2009.
The Company’s intention is to continue to satisfy the future exercise of
options and vesting of awards under the above schemes by the issue
of new shares and re-issue of Treasury shares as described above.
SHAREHOLDING GUIDELINES
The Committee has adopted guidelines for Executive Directors, GEC
members and certain other senior employees to encourage substantial
long-term share ownership. These specify that, over a period of five
years from the date of appointment, Executive Directors build up, and
then retain, a holding of shares with a value equivalent to 200% of base
salary. The required holding for other members of the GEC is 100% of
base salary and for certain other senior employees is 50% of base salary.
The guidelines require that, in relation to the LTIS and LTIP Performance
Share and Group Share Awards and Deferred Bonus Plan awards, vested
shares (net of tax) should be retained by the individual until the
required shareholding level is reached.
SERVICE CONTRACTS
The Executive Directors’ service contracts, including arrangements
for early termination, are carefully considered by the Committee and
are designed to recruit, retain and motivate Directors of the quality
required to manage the Company. The Committee considers that a
rolling contract with a notice period of one year is appropriate.
In line with the Company’s policy, the Executive Directors’ service
contracts contain change of control provisions. Should the Directors’
employment be terminated within 12 months of a change of control,
they are entitled to liquidated damages. The amount of liquidated
damages is equal to one year’s gross salary and a credit of one year’s
pensionable service (less any deductions the employer is required to
make), which the Committee considers to be a genuine pre-estimate
of loss. The Committee considers that these provisions assist with
recruitment and retention and that their inclusion is therefore in the
best interests of shareholders.
Other than change of control, the Executive Directors’ service contracts
do not contain provisions for compensation in the event of early
termination. When calculating termination payments, the Committee
takes into account a variety of factors, including individual and
Company performance, the obligation for the Director to mitigate his
or her own loss (for example, by gaining new employment) and the