Directors' Report: Governance - British American Tobacco

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www.bat.com/annualreport2009 Remuneration Committee Attendance at meetings in 2009 Meetings Meetings eligible Name attended to attend Anthony Ruys 3 3 Karen de Segundo 3 3 Robert Lerwill 3 3 Ana Maria Llopis 3 3 Christine Morin-Postel 1 3 Gerry Murphy 2 2 Sir Nicholas Scheele 2 3 At the date of this report, the Committee comprises the independent Non-Executive Directors of the Company set out in the table above. Gerry Murphy became a member of the Remuneration Committee upon his appointment as a Non-Executive Director on 13 March 2009. There were no other changes in the membership of the Remuneration Committee during 2009. The Secretary to the Committee is Nicola Snook, the Company Secretary. No Executive Director or Management Board member plays any part in determining his or her remuneration. During the year ended 31 December 2009, both the Chief Executive and the Chairman were consulted and invited to attend meetings of the Committee, except when their own remuneration was under consideration. In determining remuneration for the year, the Committee consulted the Chief Executive, and the Director, Human Resources and the Group Head of Reward. Richard Burrows, prior to taking up his role as Chairman, also attended a meeting of the Remuneration Committee. The agenda for the meetings of the Remuneration Committee is agreed by the Chairman of the Remuneration Committee, taking into account the views of other members of the Committee, as appropriate. Directors’ report: Governance British American Tobacco Annual Report 2009 Summary terms of reference The Remuneration Committee is responsible for: ■ determining an executive remuneration policy covering salary, performance-based variable rewards and pensions; ■ determining, within the terms of the agreed policy, the specific remuneration packages for the Chairman, the Executive Directors and the members of the Management Board both on appointment and on review, having due regard to pay and employment conditions elsewhere in the Group; ■ the setting and the review of targets applicable for the Company’s short and long-term performance-based variable reward schemes and determining achievement against targets; ■ exercising its discretion in relation to performance-based rewards (where appropriate and as provided by the applicable scheme rules); and ■ monitoring and advising the Board on any major changes to the policy on employee benefit structures for the British American Tobacco Group. The Committee’s terms of reference were reviewed and updated in March 2009. The full terms of reference are available from the Company Secretary and on www.bat.com. The Remuneration Committee is authorised by the Board to seek any information it requires from, and require the attendance at any of its meetings of, any Director or member of management, and all employees are expected to cooperate with any request made by the Committee. The Committee is authorised by the Board to obtain, at the Company’s expense, outside legal or other independent professional advice if it considers this necessary. In particular, the Committee is responsible for the appointment of any remuneration consultants who may advise the Committee. Deloitte LLP provided remuneration services and advice to the Remuneration Committee throughout the year. Deloitte is an international professional services firm which has also supported management in the development and delivery of remuneration proposals as well as the provision of tax, corporate finance and consulting services to British American Tobacco Group companies around the world. Herbert Smith LLP has also been retained by the Company to provide legal advice in respect of the Company’s share schemes, as well as providing other legal services to British American Tobacco as a whole. Ernst & Young LLP provides tax advice to international assignees and in respect of the Company’s share schemes. 79 From the Chairman Performance and strategy Regional review Financial review Governance Group financial statements Parent Company financial statements Shareholder information
The Remuneration Committee reviewed its effectiveness in 2009 as part of the Board evaluation process. Changes to the scope of membership for the Remuneration Committee were considered but the current format was deemed appropriate for the time being. In addition, the Committee’s review concluded that it is operating effectively internally and also externally with Deloitte LLP, its remuneration consultants. Key activities of the Remuneration Committee in 2009 The Remuneration Committee met three times during 2009. The Committee followed its regular work programme designed around its two scheduled meetings in February and October each year at which it: ■ benchmarked, reviewed and set the salaries for the Executive Directors and the Management Board members; ■ assessed the achievement of the targets for the 2008 IEIS award and set the targets for the award made in 2009; ■ assessed the measurement of the performance conditions for the vesting of the Long-Term Incentive Plan (LTIP) 2006 award; ■ determined the LTIP award for March 2009 and its associated performance conditions; ■ assessed the achievement of the targets for the 2008 Share Reward Scheme award and set the targets for the award made in 2009; ■ monitored the application of the Company’s shareholding guidelines for the Executive Directors and the Management Board members; and ■ reviewed the Remuneration report for the year ended 2008 prior to its approval by the Board. In addition, the Remuneration Committee dealt with the following: ■ terms of appointment for Richard Burrows as Chairman of the Company; ■ terms of appointment and termination for the Management Board appointments and departures during the year; ■ a general update of the Company’s shareholding guidelines and clarification of the position on shares held by spouses and the use of shares as security for loans; and ■ the use of restricted shares in connection with the vesting of the May 2007 LTIP award. REMUNERATION REPORT CONTINUED Remuneration policy Fixed and variable remuneration The Remuneration Committee has set a guideline that approximately 50 per cent of the remuneration package should be performancerelated. The remuneration package comprises both core fixed elements (base salary, pension and other benefits) and performance-based variable elements (cash and share incentive annual bonus plans, and the LTIP). The composition in the case of the current Executive Directors for 2009 is illustrated in the bar chart below: Executive Directors’ percentage of fixed and variable remuneration ■ Salary ■ Pension and benefits ■ Bonus (cash/deferred shares) ■ LTIP P N Adams 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Notes: 1 The above illustration of the current Executive Directors’ percentage of fixed and variable remuneration for 2009 is based on a number of assumptions: (1) base salary represents annual salary; (2) pension represents the transfer value of net increase in pension to the UK Pension Fund as disclosed in Table 7 (Nicandro Durante’s transfer value is based on constant exchange rates); (3) benefits are core benefits such as car allowance, private medical and personal accident insurance; (4) bonus is the amount received for performance in 2009 delivered in cash and deferred shares; and (5) LTIP represents the target annualised expected value of the longterm incentive award granted in 2009 expressed as a percentage of base salary. 2 Fixed remuneration comprises: salary, pension and benefits. Variable remuneration comprises: bonus (cash and deferred shares) and LTIP. Pay Comparator Group The setting of the reward opportunity for Executive Directors remains underpinned by responsible independent benchmarking. The approach is focused on a peer group which includes selected FTSE 100 companies and, from 2009, Philip Morris International (the Pay Comparator Group), which is supplemented by market data of FTSE 350 companies, with the relative scale and complexity, as well as the practice of the FTSE 30 companies. The Pay Comparator Group is made up of companies which meet the criteria of a consumer goods focus, an international spread of operations and a competitor for top management talent. 80 British American Tobacco Annual Report 2009 Directors’ report: Governance J B Stevens N Durante
Page 1 and 2: GOVERNANCE Board of Directors A sum
Page 3 and 4: 1. Richard Burrows (Irish) Chairman
Page 5 and 6: CONTENTS Chairman’s introduction
Page 7 and 8: meeting to address Jan du Plessis
Page 9 and 10: The Board and its Committees receiv
Page 11 and 12: Accountability and audit Audit Comm
Page 13 and 14: The Audit Committee has an establis
Page 15 and 16: Corporate social responsibility CSR
Page 17 and 18: Appointments to the Board Nominatio
Page 19: CONTENTS Introduction 78 Remunerati
Page 23 and 24: For the Executive Directors and Man
Page 25 and 26: in each company’s index over the
Page 27 and 28: The Company also operates the Free
Page 29 and 30: Executive Directors’ external app
Page 31 and 32: Appendices to the Remuneration repo
Page 33 and 34: REMUNERATION REPORT CONTINUED Table
Page 39 and 40: CONTENTS Companies Act 2006 98 Prin
Page 41 and 42: Articles of Association The followi
Page 43 and 44: 2) a Director to accept or continue
Page 45 and 46: The Disclosure and Transparency Rul
Page 47: 106 British American Tobacco Annual

Directors' Report: Governance - British American Tobacco

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