BAE-annual-report-2014

Governance
REMUNERATION
COMMITTEE
REPORT
CARL SYMON
CHAIRMAN OF THE REMUNERATION COMMITTEE
Members
Carl Symon (Chairman)
Chris Grigg
Nick Rose
Governance
The Remuneration Committee was in place throughout 2014 and held six
meetings. All its members are independent in accordance with the provisions
of the Code.
The Chief Executive and the Company’s Chairman attend Committee meetings
by invitation only. They do not attend where their individual remuneration is
discussed and no director is involved in deciding his own remuneration.
Summary of responsibilities
Agreeing a policy for the remuneration of the Chairman, executive directors,
members of the Executive Committee (EC), the Company Secretary and other
senior executives
Within the agreed policy, determining individual remuneration packages for
the Chairman, executive directors and EC members
Agreeing the policy on terms and conditions to be included in service
agreements for the Chairman, executive directors, EC members, the Company
Secretary and other senior executives, including termination payments and
compensation commitments, where applicable
Approving any employee share-based incentive schemes and any performance
conditions to be used for such schemes
Determining any share scheme performance targets
The Committee’s full Terms of Reference, which are reviewed each year by
the Board, are available on the Company’s website.
Dear Shareholders,
On behalf of the Board, I am delighted to
present the Remuneration Committee’s
Report for 2014.
We were pleased by the level of shareholder
support received for our 2013 Remuneration
Committee Report in our first year of reporting
under the new reporting regulations. In
implementing the Directors’ Remuneration
Policy (the Policy), we stated that it would
apply for three years with 2015 being the
first year of operation. I am pleased to
confirm that, for 2015, no revisions are
proposed to our executive remuneration
framework which would constitute a change
to the Policy. However, we remain committed
to continued transparency and engagement
with our shareholders and have consulted
with our major shareholders on proposed
changes to our executive remuneration
arrangements for 2015 which may be made
at the discretion of the Remuneration
Committee as follows:
Earnings per Share (EPS) performance
condition applicable to Long-Term Incentive
(LTI) grants
The current LTI performance metrics of
5% to 11% average annual EPS growth with
nil vesting at threshold were developed
during a period of high-growth expectations
from our shareholders commensurate with
the then market opportunities. The metrics
are no longer deemed appropriate given the
recent changes in the market for defence
companies. It is proposed to set a
performance range of 3% to 7% average
annual EPS growth for 2015 awards of
Performance Shares under the Long-Term
Incentive Plan (LTIP) as this will provide
executives with an appropriately challenging
and meaningful incentive to drive performance
which, at the same time, delivers a level of
financial performance which supports capital
market expectations. Achievement of
performance at the threshold level represents
significant challenge due to the dependency
on winning several pivotal orders.
For this reason, it is proposed that there
should be a level of reward equal to 25%
of maximum for achievement of threshold.
Average annual EPS growth of 5% will
achieve 50% vesting with full vesting
requiring 7% growth. Whilst not ‘straight-line’
vesting (as currently), this vesting profile will
provide a potential reward for the executives
which reflects the unique set of market
challenges which are expected in the next
several years. It is intended that the revised
EPS performance condition is also subject to
the same ‘quality of earnings’ performance
hurdle as applies to the Total Shareholder
Return (TSR) condition, such that awards
will not vest unless the Board is satisfied
that there has been a sustained
STRATEGIC REPORT GOVERNANCE
FINANCIAL STATEMENTS
BAE Systems
Annual Report 2014
67