Directors' Report: Governance - British American Tobacco
Directors' Report: Governance - British American Tobacco
Directors' Report: Governance - British American Tobacco
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The Remuneration Committee reviewed its effectiveness in 2009<br />
as part of the Board evaluation process. Changes to the scope of<br />
membership for the Remuneration Committee were considered<br />
but the current format was deemed appropriate for the time being.<br />
In addition, the Committee’s review concluded that it is operating<br />
effectively internally and also externally with Deloitte LLP, its<br />
remuneration consultants.<br />
Key activities of the Remuneration Committee in 2009<br />
The Remuneration Committee met three times during 2009.<br />
The Committee followed its regular work programme designed<br />
around its two scheduled meetings in February and October each<br />
year at which it:<br />
■ benchmarked, reviewed and set the salaries for the Executive<br />
Directors and the Management Board members;<br />
■ assessed the achievement of the targets for the 2008 IEIS<br />
award and set the targets for the award made in 2009;<br />
■ assessed the measurement of the performance conditions for<br />
the vesting of the Long-Term Incentive Plan (LTIP) 2006 award;<br />
■ determined the LTIP award for March 2009 and its associated<br />
performance conditions;<br />
■ assessed the achievement of the targets for the 2008 Share<br />
Reward Scheme award and set the targets for the award<br />
made in 2009;<br />
■ monitored the application of the Company’s shareholding<br />
guidelines for the Executive Directors and the Management<br />
Board members; and<br />
■ reviewed the Remuneration report for the year ended 2008<br />
prior to its approval by the Board.<br />
In addition, the Remuneration Committee dealt with the following:<br />
■ terms of appointment for Richard Burrows as Chairman<br />
of the Company;<br />
■ terms of appointment and termination for the Management<br />
Board appointments and departures during the year;<br />
■ a general update of the Company’s shareholding guidelines<br />
and clarification of the position on shares held by spouses<br />
and the use of shares as security for loans; and<br />
■ the use of restricted shares in connection with the vesting<br />
of the May 2007 LTIP award.<br />
REMUNERATION REPORT<br />
CONTINUED<br />
Remuneration policy<br />
Fixed and variable remuneration<br />
The Remuneration Committee has set a guideline that approximately<br />
50 per cent of the remuneration package should be performancerelated.<br />
The remuneration package comprises both core fixed elements<br />
(base salary, pension and other benefits) and performance-based<br />
variable elements (cash and share incentive annual bonus plans,<br />
and the LTIP).<br />
The composition in the case of the current Executive Directors for 2009<br />
is illustrated in the bar chart below:<br />
Executive Directors’ percentage of fixed and variable remuneration<br />
■ Salary ■ Pension and benefits ■ Bonus (cash/deferred shares) ■ LTIP<br />
P N Adams<br />
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%<br />
Notes:<br />
1 The above illustration of the current Executive Directors’ percentage of fixed and<br />
variable remuneration for 2009 is based on a number of assumptions: (1) base salary<br />
represents annual salary; (2) pension represents the transfer value of net increase<br />
in pension to the UK Pension Fund as disclosed in Table 7 (Nicandro Durante’s<br />
transfer value is based on constant exchange rates); (3) benefits are core benefits<br />
such as car allowance, private medical and personal accident insurance; (4) bonus<br />
is the amount received for performance in 2009 delivered in cash and deferred<br />
shares; and (5) LTIP represents the target annualised expected value of the longterm<br />
incentive award granted in 2009 expressed as a percentage of base salary.<br />
2 Fixed remuneration comprises: salary, pension and benefits. Variable remuneration<br />
comprises: bonus (cash and deferred shares) and LTIP.<br />
Pay Comparator Group<br />
The setting of the reward opportunity for Executive Directors remains<br />
underpinned by responsible independent benchmarking. The approach<br />
is focused on a peer group which includes selected FTSE 100 companies<br />
and, from 2009, Philip Morris International (the Pay Comparator Group),<br />
which is supplemented by market data of FTSE 350 companies, with<br />
the relative scale and complexity, as well as the practice of the FTSE 30<br />
companies. The Pay Comparator Group is made up of companies<br />
which meet the criteria of a consumer goods focus, an international<br />
spread of operations and a competitor for top management talent.<br />
80 <strong>British</strong> <strong>American</strong> <strong>Tobacco</strong> Annual <strong>Report</strong> 2009 Directors’ report: <strong>Governance</strong><br />
J B Stevens<br />
N Durante