Chemring Group PLC |Annual Report and Accounts 2012

33
Directors’ remuneration report
for the year ended 31 October 2012
Statement by the Chairman of the Remuneration Committee
Dear shareholder
The past eighteen months have been extremely challenging for the Company, as continuing pressure on defence spending has
resulted in increasingly uncertain prospects within the sector. The Board has also had to address the uncertainty caused by a third
party approach for the Group, and the departure of David Price from the role of Chief Executive and Paul Rayner from the role of
Finance Director. The Remuneration Committee has had to determine their termination arrangements, as well as the remuneration
arrangements for the new Chief Executive and Finance Director.
Against this backdrop, the Remuneration Committee has needed to ensure that its remuneration policy is capable of appropriately
rewarding and incentivising the revised senior management team to deliver improved performance. It has also taken account of the
forthcoming changes to remuneration reporting announced by the UK Department for Business, Innovation and Skills, and has sought
to incorporate many of these early, in this year’s remuneration report.
The Committee’s basic policy remains to provide executive remuneration packages which are competitive, but not excessive, by
reference to market rates across comparator companies. These take into account the individual contribution and performance of
each executive, and reflect the performance of the business against financial objectives. The Committee also remains conscious of its
responsibility to ensure that remuneration appropriately aligns executive and shareholder interests.
Accordingly, the Remuneration Committee has made the following decisions in respect of 2012 and 2013:
• Mark Papworth and Steve Bowers have joined the Company on salaries that are below the level of their predecessors. Their next
review will take place in early 2014.
• As in 2011, no bonuses will be paid to executive directors in respect of 2012.
• The Performance Share Plan awards which could have vested on 20 January 2013 have lapsed, as the threshold level of earnings
per share growth has not been achieved.
• David Price and Paul Rayner received termination payments that were consistent with their contracts, namely the payment of one
times annual salary plus benefits. Their deferred share awards, which were made in connection with their annual bonuses for 2009
and 2010, were also allowed to vest. Dr Price’s and Mr Rayner’s other long term incentive awards lapsed.
• The structure of the annual bonus remains largely unchanged for 2013, with 40% of any award deferred in shares for three years
and subject to claw-back. The maximum annual bonus will be 125% of salary for Mr Papworth and 100% of salary for the other
executive directors.
• The Committee has reviewed the weighting of the financial and personal objectives in the annual bonus plan, and has increased
the weighting on personal objectives for 2013 in recognition of the need to focus on key strategic and operational goals, given the
ongoing review of the strategy.
• At the time of negotiating Mr Papworth’s remuneration package, there was a high probability that a bid for the Company would be
forthcoming, and that a new owner might not wish to maintain his employment. Therefore, it was agreed with him that we would
include some additional elements in his package that would protect him in this eventuality. A change of control clause was agreed,
which provides that, in the event of a change of control of the Company during the first twelve months of his employment, which
results in the termination of his employment within a six month period thereafter, he will receive a lump sum payment of twelve
months’ salary in lieu of notice and a guaranteed bonus, pro-rated for that proportion of the year during which he is employed.
This provision falls away after the first twelve months of his employment.
• In addition, in order to provide an immediate alignment with shareholders, the Committee decided to award Mr Papworth
performance shares worth 200% of his annual salary. The Committee is aware that the priority of many shareholders is to see a
significant increase in the share price, and we therefore decided to set a performance condition which was linked directly to such
a result. The award will vest in full if the share price reaches 500p at the end of the three year vesting period. This represents an
increase of 130% over the share price at the time of grant.
• The Committee also intends to use a performance condition based on share price growth for the performance share plan awards
to be made to other senior executives in early 2013. If the full vesting share price of 500p for these awards is achieved, the
Company’s market capitalisation will have increased by over £394 million since the date of this report.
• The change in strategy and appointment of a new Chief Executive and Finance Director mean that it is an appropriate time
to review the remuneration policy for executive directors. The Committee intends to conduct a fundamental review of its
remuneration policy during 2013. If the Committee proposes to make substantive changes to the executive directors’ remuneration
policy, it will, as part of the review process, consult with shareholders and will report back on the outcome in next year’s report
and accounts.
Business review Corporate governance Financial statements Other information
I F R Much
Chairman of the Remuneration Committee
Chemring Group PLC Report and Accounts 2012