Annual Report for the year ended 31 December 2008

The concept of a bonus ceiling does not naturally align with the Group’s
remuneration philosophy. To set a ceiling on the level of bonuses within
the current profit levels would seriously prejudice the ability of the Group
to attract, retain and motivate many of its senior employees whose
contribution to profits within an organisation such as this is vital and
may be much greater than in other businesses. This would therefore be
counter productive to the objective to retain senior management in order
to improve profit performance.
The Committee acknowledges that the consequence of this is that
the scheme does not comply with schedule A of the Combined Code.
The current and prospective bonus schemes are designed to generate
and reward behaviours which drive the creation of long-term shareholder
value and support our risk and compliance framework. The emphasis on
annual bonus payments, which are not capped on an individual basis
but only by reference to the profit pool made available, allows the Group
to keep fixed cost remuneration low while at the same time remaining
competitive.
Exceptional Performance Awards
As part of the 2008 changes to Executive Director remuneration and
reward all Executive Directors of the Company and principal operating
subsidiaries may receive additional rewards for exceptional performance.
in 2009 a pool will be created for the Executive Board and will be
accrued once adjusted NiBBiT (net income before bonus, interest and
tax) has exceeded budget by more than 10% on the relevant business
units. For all profits above this level 10% will be added to a pool for
distribution subject to the return on capital employed being above the
cost of capital of the Group or relevant subsidiary. The Remuneration
Committee will have discretion to determine any awards from this pool
to Executive Directors of the Group. The Group CEO will provide
recommendations to the Remuneration Committee for the allocation
of the pool for each subsidiary Director. Awards from this pool will be
subject to a 25% deferral on the same terms as the bonus awards
detailed above. All performance related cash awards will be subject to
a 25% deferral in future years for Executive Directors and all employees
across the Group who receive a cash bonus in excess of £100,000.
3. Medium to long-term incentive plans
The third element of reward for the Executive Directors is the medium to
long-term incentive plans which are forward looking in nature. in years
of relatively poor profit performance when bonuses might be reduced,
share based awards encourage continuity of service, help to drive
improved profit performance and of course closer align the interests
of Directors with shareholders. The level of share-based awards is not
subject to a maximum multiple of salary due to the low salary cap for
Executive Directors relative to other similar sized companies. There are
currently two plans which have been used to offer medium and longterm
incentives to Executive Directors (both of which are unapproved)
as follows:
Performance Share Plan
shareholders at the Annual General Meeting held on 25 May 2006
approved the 2006 performance share plan (“psp”). it had been
designed to reward significant value creation by Executive Directors
and management and was intended to further align the interests of
shareholders, executives and staff. The awards were therefore designed
to reflect the future performance of the Group. The psp made available
a pool of the Company’s ordinary shares (“shares”) split between
Executive Directors and other staff. Entitlements to the shares that are
the subject of the awards were subject to the achievement of specified
share price growth, conditions from a base share price of £1.42 per
share, within a three year period from 1 April 2006 and to continued
employment. The performance condition would be satisfied in respect of
one third of the shares if the average share price over any period of 60
continuous days within the three year period (“Measurement period”)
equals or exceeded £2.13 (50% above the base price) and in respect of
the remaining two thirds if the share price doubled to £2.84 within the
Measurement period. At the time of the approval of the psp the Board
believed these targets to be sufficiently stretching in the context both
of the prevailing economic environment and the prospects of the Group
based on past performance and reported strategy. The Board determined
not to reduce the performance targets as far as they relate to Executive
Directors.
As at the date of this report performance conditions for awards under
this plan can no longer be met and therefore awards under this plan to
Executive Directors will not vest.
The 2002 Executive Share Incentive Scheme (“2002 ESIS”)
shares may be awarded to Executive Directors under the 2002 Executive
share incentive scheme, approved by shareholders on 10 October 2002.
During 2008 awards of 500,000 shares were made to Andrew umbers
on 28 March 2008 and 30 December 2008 in satisfaction of commitments
made to Andrew umbers on joining the Group in 2006. The awards will
vest on 31 January 2010 and 31 January 2011 respectively.
The Remuneration Committee is aware that the Executive share incentive
scheme operates unusually in two main respects: there are no annual
limits on award levels and the vesting of awards are phased over two,
three or four years. The Committee believes this flexibility allows
remuneration to be structured in a simple and yet highly effective way,
and which also aligns the interests of Executive Directors with those of
shareholders.
As part of its continuing remuneration review and in order to create the
right combination of meaningful incentive and shareholder alignment
within a business in which short-term decisions and performance
are critical to medium-term and long-term growth, the Committee is
developing detailed plans to provide equity awards to the Executive
Directors which will be subject to achievement of performance
conditions that may reasonably include profitability, total shareholder
return, earnings per share and return on capital employed.
We have made very good progress
WiTh The inTegraTion and developmenT
of each of our businesses.
33