Directors' Report: Governance - British American Tobacco

For the Executive Directors and Management Board members, the
annual bonus opportunity for 2010 (unchanged from 2009) will be as
shown in the summary table above. The annual bonus opportunity for
senior managers also remains unchanged with the annual ‘on-target’
bonus opportunity being 45 per cent of base salary with a normal
maximum award of 90 per cent of salary rising to 135 per cent of
base salary in cases of exceptional performance.
In 2009, the targets reflected the six common measures referred to
above with each having an equal weighting of 16.67 per cent. Relevant
performance points are: threshold (which must be exceeded to attract
any payment of a bonus for that measure); target; and maximum
amount (the level at which the bonus for that measure is capped) are
set at the start of the year by reference to the projected performance
for each target in the context of the Group’s annual budget. No elements
of the bonuses are guaranteed and, as in previous years, the specific
targets are commercially sensitive and not made public.
While the current proposed bonus targets do not include any
measures which directly reflect the Group’s performance on corporate
social responsibility (CSR) and governance issues, the Board continues
to recognise the importance of this area. Governance is embedded in
the organisation as evidenced by the Company’s strong governance
structure. In addition, the delivery of the strategic vision encompasses
the business measure of Responsibility for which the Dow Jones
Sustainability Indices (an external benchmark) have been used as
one of the measures to assess the Company’s successful performance
to date – see CSR section of the Corporate governance statement.
The Committee receives reports from management to allow it to
assess the extent to which performance measures have been achieved.
Subject to the Committee exercising its judgment in the assessment
of the quality of the Company’s overall performance, the payout for
each measure is determined by reference to performance relative to
that measure’s performance points, on a pro rata basis.
In respect of the year ended 31 December 2009, the total
payouts under the IEIS were: Chief Executive 135.4 per cent
(2008: 169.4 per cent); Finance Director and Chief Operating Officer
121.9 per cent (2008: 153.5 per cent); and Management Board
91.4 per cent (2008: 116.7 per cent), in each case paid 50 per cent
in cash and 50 per cent in deferred shares. The actual performancerelated
pay values are shown in Table 4 – annual cash bonus and
deferred share bonus. For senior managers, the total payouts reflect
performance at a global, regional, area or end market level, as applicable
to their roles. For senior managers whose bonus was linked to global
performance, the total payout under the IEIS in respect of the year
ended 31 December 2009 was 60.9 per cent (2008: 81.2 per cent),
paid 55 per cent in cash and 45 per cent in deferred shares.
Awards made under the Deferred Share Bonus Scheme (the Deferred
Scheme) are in the form of free ordinary shares in the Company which
are normally held in trust for three years and no further performance
REMUNERATION REPORT
CONTINUED
conditions apply in that period. In certain circumstances, such as
resigning before the end of the three year period, participants may
forfeit the shares. The Remuneration Committee encourages a culture
of ‘ownership’ of these awarded shares and participants receive a cash
sum equivalent to the dividend on the after-tax position of all unvested
ordinary shares held in the Deferred Scheme at the dividend record date.
Long-term incentives
Purpose – incentivise growth in earnings per share and total
shareholder return (TSR) over a three year period
Delivery – discretionary annual award
– awards of shares
– variable due to performance over three year period
– dividend equivalent payment
Policy – maximum annual award of 300 per cent of salary
– three year performance period
– TSR performance (50 per cent of the total award) combines
both the share price and dividend performance during the
three year performance period as against two comparator
groups (25 per cent for each measure): (1) constituents of the
FTSE 100 Index; and (2) a peer group of FMCG companies
– earnings per share measure (50 per cent of the total award)
relates to earnings per share growth (on an adjusted diluted
basis) relative to inflation
The long-term element of remuneration continues to be delivered
through the Company’s LTIP. All the Executive Directors, Management
Board members and senior employees participate in the Long-Term
Incentive Plan adopted in 2007 (the 2007 LTIP). This plan replaced the
LTIP adopted in 1998 (1998 LTIP) under which no further awards have
been made and which has now expired. The 2007 LTIP provides for
awards of free ordinary shares, provided demanding and appropriately
stretching performance conditions are met over a three year period.
The first award under the 2007 LTIP was made in May 2007.
Award levels
The current award levels for Executive Directors and Management
Board members (in place since 2008) are set out in the table below
and will continue to apply to awards made in 2010. Senior managers
receive awards over 75 per cent or 25 per cent of salary dependent on
grade. The maximum annual award under the rules of the 2007 LTIP
is 300 per cent of base salary. The Committee continues to review the
application of this limit in the context of its policy overall.
Multiple of
base salary
LTIP awards %
Chief Executive 300
Finance Director 250
Chief Operating Officer 250
Management Board 200
82 British American Tobacco Annual Report 2009 Directors’ report: Governance