BAE-annual-report-2014

Governance
ANNUAL
REMUNERATION
REPORT
CONTINUED
ExSOP 2012
Options are normally exercisable between the third and tenth anniversary of their grant, subject to the performance
condition set out below being achieved. In 2015, shares will be awarded under the single umbrella plan (the Long-Term
Incentive Plan) that was approved at the 2014 AGM as detailed on pages 83 and 85. Awards made from 2015 will
be subject to a further two-year clawback period after the three-year vesting period.
Plan
ExSOP 2012
Performance condition
The proportion of the award capable of exercise is determined by the Company’s TSR (share price growth plus
dividends) ranking relative to a comparator group of 12 other international defence companies over a three-year
performance period. No shares vest if the Company’s TSR is outside the top 50% of TSRs achieved by the sectoral
comparator group, with 25% vesting at median, 100% vesting if it is in the top quintile and vesting on a straight-line
basis between these two parameters.
RSP
The RSP is not subject to a performance condition as it is designed to address retention issues principally in the US.
The shares are subject only to the condition that the participant remains employed by the Group at the end of the
vesting date (three years after the award date). Shares under award attract dividends prior to vesting. In 2015, shares
will be awarded under the single umbrella plan that was approved at the 2014 AGM as detailed on pages 83 and 85.
Awards made from 2015 will be subject to a further two-year clawback period after the initial three-year vesting period.
SMP
The SMP was a standalone investment plan linked to the award under the Annual Incentive Plan. It operated for the
final time in 2013 in relation to the annual incentive relating to 2012 performance. Executive directors were required
to invest at least one-third (and maximum 50%) of their annual incentive into the SMP and were granted a conditional
award of matching shares against the gross value of the annual incentive invested. The matching shares attract
dividends during the three-year deferral period, released on vesting of any matching shares.
Plan
SMP
Performance condition
In respect of a three-year performance period, nil match for average EPS growth of 5% per annum increasing
uniformly to a maximum 2:1 match at 11% growth per annum.
Statement of directors’ shareholdings and share interests
Minimum Shareholding Requirement (MSR)
Executive directors are compulsorily required to establish and maintain a minimum personal shareholding equal to
a set percentage of base salary. An Initial Value must be achieved as quickly as possible using shares vesting or
options exercised through the executive share option schemes and Long-Term Incentive schemes by retaining 50%
of the net value (i.e. the value after deduction of exercise costs and tax) of shares acquired under these schemes.
Once the Initial Value is achieved, a Subsequent Value must be achieved in the same way, except that a minimum
of 25% of the net value must be retained on each exercise or acquisition. Shares owned beneficially by the director
and his/her spouse count towards the MSR. The MSR does not apply after the individual has ceased to be a
director. Any case of non-compliance would be dealt with by the Committee.
The following table sets out MSR Initial Value and Subsequent Value:
Director Initial Value Subsequent Value
Ian King 150% 300%
Peter Lynas 100% 200%
Jerry DeMuro 175% 350%
Linda Hudson 175% 350%
Ian King and Peter Lynas were both in excess of their ‘Subsequent Value’ MSR at 31 December 2014. Following the
announcement in 2013 of Linda Hudson’s retirement in 2014, the Committee agreed to reduce her MSR to 175%
and she subsequently retained a holding to that level until she ceased to be a director. Jerry DeMuro joined the
Board in 2014 and does not yet hold shares in the Company.
There are no shareholding requirements for the Chairman or the non-executive directors.
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BAE Systems
Annual Report 2014