Thorn-EMI 1995 Annual Report

Notes to the accounts
32. Directors'and employees, emoluments and Directors, interests contjnued
diff-erence between the market share price when the option is exercised and the price to be paid
lor the shares. The greater the share price growth between grant and exercise, the more valuable
the option. Tax is due on the gain either on exercise or on the sale of the resulting shares.
The right to exercise normally only arises in the period between three and ten years from
the grant, after which the option cannot be exercised. options granted in 1995 and thereafter
(under the new Executive Share Option Scheme to be put to shareholders for approval at the
1995 Annual General Meeting) can only be exercised ifperformance targets, as set by the
committee, are met. It is intended that the initial performance target will be Total Shareholder
Return ("TSR"), i.e. based on share price growth plus dividends, over the measurement period
determined by the Committee. For an option to be exercisable, THORN EMI,s TSR must be at
least at the median of the companies comprising the FT-SE 100 at the start of the period.
A share option is generally granted in relation to its "face value" i.e. the number of shares
under option multiplied by the price to be paid on exercise. Each year the uK Executive Directors
are typically granted share options with a lace value of1000/o ofbase salary, to a maximum over
any ten-year period ofeight times annual earnings. Options with a face value ofup to four times
annual earnings are granted under shareholder-approved Executive Share Option Schemes. The
remainder may be in the form of SARs whereby, instead of buying the shares on exercise,
the executive is paid the "gain" between the market share price at the grant and the exercise.
To reinforce its long-term nature, an SAR cannot normally be exercised in part earlier than
four years and in lull earlier than six years from grant. For SARS granted on or before July 1994,
to ensure that gains reflect true performance and not simply inflationary share price rises, any
"gain" is reduced to the amount by which the share price growth exceeds the UK Retail Prices
Index ("RPI") over the period between the grant and the exercise. The exercise of SARs granted
afterJuly 1994, as with all Executive Options granted after this date, is subtect to the
achievement of performance targets as set by the Committee.
In addition, the UK Executive Directors and all other eligible employees are entitled to
apply for options under the shareholder-approved Savings-Related Share Option Scheme
("ShareSave Scheme"). The number of options granted is related to the value of savings made by
the employee under a Save-As-You-Earn contract over frve years. The maximum total monthly
savings an employee may make is currently !250. The option price is currently set at 800/o of the
market share price prior to the grant and the right to exercise normally only arises for a sixmonth
period once the five years savings have been completed.
Retirement Benefits
UK Executive Directors are members of the Group's UK contributory Pension Fund which,
subject to Inland Revenue limits, provides them with a pension of up to two-thirds of base
salary after 20 years membership (or 10 years for those who joined before 17 March 1987),
together with benehts on death or disability. Mr Fifield is a member of three co-ordinated
defined contribution retirement plans operated by EMI Music in the US (see section (v) of this
Note).
Entitlement to notice
Each Executive Director has an employment contract with entitlement to notice. During
the year, all the UK Executive Directors voluntarily agreed (without compensation) to reduce
their normal notice period to 24 months (increasing to 36 months in the event of a change in
control of the Company). It is the Company's intention to limit the normal notice period of
future Executive Directors to 24 months. Furthermore, it has been and continues to be the
Committee's practice to scrutinise the compensation entitlement of any departing Executive
Director with particular focus on his or her legal duty to mitigate loss, thereby reducing any
termination payment. Mr Fifleld's employment contract has specific terms covering his
obligation to mitigate in the event of the termination ofhis employment. Non-executive
Directors do not have contracts, but each appointment is subject to review every three years.