Directors' Report: Governance - British American Tobacco

The Company also operates the Free Shares element of the plan,
known as the Share Reward Scheme. Under this Scheme, eligible
employees (including Executive Directors) receive an appropriation
of shares in April of each year in which the Scheme operates in respect
of performance in the previous financial year. An award of £2,030 will
be made to Executive Directors and Management Board members
on 1 April 2010 in respect of the year ended 31 December 2009.
The performance conditions are aligned to those set for the IEIS in
respect of the same performance period. The plan shares are held in
a UK-based trust for a minimum period of three years and during that
time the trust will exercise its voting rights as directed by the plan’s
participants. The maximum individual award under the Share Reward
Scheme is £3,000.
Options and awards outstanding
To satisfy the future exercise of awards or options under the Group’s
employee share schemes, ordinary shares are acquired in the market
by the Group’s employee share ownership trusts or the Company
issues new shares.
During the year, new ordinary shares were issued by the Company
in relation to the Sharesave Scheme and to certain participants in
the Share Option Scheme resident outside the UK.
Under the Sharesave Scheme, a total of 1,232,474 options over ordinary
shares in the Company were outstanding at 31 December 2009. The
options outstanding under the Sharesave Scheme are exercisable until
June 2015 at option prices ranging from 663p to 1555p.
The British American Tobacco Group Employee Trust (BATGET)
BATGET is used to satisfy the vesting and exercise of awards of
ordinary shares made under the Deferred Scheme, and the 1998
LTIP and the 2007 LTIP as well as the exercise of options under the
Share Option Scheme. The number of shares held in BATGET to
satisfy outstanding awards is consistently monitored by a committee
of senior management that reports to a committee of the Board.
BATGET is funded by interest-free loan facilities from the Company
totalling £400 million, enabling the trust to facilitate the purchase
of ordinary shares to satisfy the future vesting or exercise of options
and awards. The loan to BATGET amounted to £273 million at
31 December 2009 (2008: £193 million). The loan is either repaid
from the proceeds of the exercise of options or, in the case of ordinary
shares acquired by BATGET to satisfy the vesting and exercise of awards,
the Company will subsequently waive the loan provided over the life
of the awards. If the options lapse, ordinary shares may be sold by
BATGET to cover the loan repayment.
BATGET currently waives dividends on the ordinary shares held by it. As
at 31 December 2009, BATGET held 14,679,045 ordinary shares with
a market value of £296.0 million (1 January 2009: 14,137,074 ordinary
shares; £254.5 million). BATGET waived payment of the final dividend
for 2008 of £8.5 million in May 2009 and the interim dividend for
2009 of £4.3 million in September 2009.
REMUNERATION REPORT
CONTINUED
While shares are held by BATGET, the trustee does not exercise
any voting rights. However, as soon as shares held in BATGET are
transferred out to share scheme participants, the participants may
exercise the voting rights attaching to those shares.
Details of the Company’s material share-based payment arrangements,
reflecting both equity share-based and cash-settled share-based
arrangements, are set out in note 27 to the accounts.
Shareholding guidelines
Executive Directors and Management Board members are encouraged
to hold shares in the Company. The Remuneration Committee’s
guidelines require a holding equal to the value of a percentage of salary
as set out below and excludes shares earned but not yet vested under
Company share plans.
Multiple of
base salary
Shareholding guidelines %
Chief Executive 200
Chief Operating Officer 150
Finance Director 150
Management Board 100
The Executive Directors, Paul Adams (Chief Executive), Nicandro
Durante (Chief Operating Officer) and Ben Stevens (Finance Director),
all meet the shareholding guidelines. There are transitional provisions
for those Executive Directors and Management Board members who
do not meet the requirements of the shareholding guidelines upon
appointment. In such cases, individuals may, generally, only sell a
maximum of up to 50 per cent of any shares vesting (after tax) under
Company share plans until the threshold under the shareholding
guidelines has been met.
The interests of the Directors of the Company in the ordinary shares
of the Company are shown in Table 5.
Executive Directors’ pension benefits
Purpose – provision of competitive post-retirement benefits
Delivery – British American Tobacco UK Pension Fund; defined benefit
plan (up to April 2005)
– monthly pension payment
Policy – pension accrues at 1/40th of annual basic salary
– normal pensionable age of 60
– maximum pension payable will not exceed 2/3 of base
salary averaged over the preceding 12 months
– UK Pension Fund retains a scheme-specific cap following
the introduction of new UK pension regime in 2006
– excess benefits continue to be accrued within an unfunded
unapproved retirement benefits scheme
Executive Directors (with the exception of Nicandro Durante) are, like
other UK employees, eligible for membership of the British American
Tobacco UK Pension Fund (Pension Fund).
86 British American Tobacco Annual Report 2009 Directors’ report: Governance