United Utilities Annual Report and Financial Statements for the year

Directors’ remuneration report (continued)
Executive directors’ remuneration
Executive directors’ remuneration during the year ended 31 March 2003 is shown in table 3.
Table 3: Executive directors’ remuneration (audited information)
A B C D
Long-term incentive vesting
Gross salary Annual bonus Other benefits Total emoluments during the year ended 31 March
2003 2002 2003 2002 2003 2002 2003 2002 2003 2002
£’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000
John Roberts 429.2 366.7 228.2 210.1 30.6 21.8 688.0 598.6 – –
Simon Batey 291.7 271.7 155.1 155.6 17.9 16.7 464.7 444.0 – –
Les Dawson 222.9 208.8 118.6 119.6 19.7 50.0 361.2 378.4 – –
Gordon Waters 221.7 198.8 117.9 113.9 24.2 18.3 363.8 331.0 – –
Totals 1,165.5 1,046.0 619.8 599.2 92.4 106.8 1,877.7 1,752.0 – –
Notes:
• John Roberts was the highest paid director in the year ended 31 March 2003.
• No long-term incentives vested during the year (see long-term incentive plan in section D below).
• Other benefits for 2001/02 include relocation costs of £31,700 for Les Dawson.
• Les Dawson resigned from the board on 25 March 2003. His emoluments for 2003 relate to the period up to and including the date of his resignation as a director.
It is anticipated that he will continue to be employed by the company until 31 August 2003.
A Salary
The committee reviews salaries each year taking account of group and personal performance. Any changes are made with effect from 1 September. The committee
commissions independent assessments of market rates based on the practice of other utility companies and companies of a similar size and complexity. The committee
also takes account of the levels of pay awards elsewhere in the group.
Following its annual review in 2002, the committee agreed the following changes to the annual salaries of executive directors:
Table 4: Executive directors’ salary review 1 September 2002 1 September 2001
£’000 £’000
John Roberts 450.0 400.0
Simon Batey 300.0 280.0
Les Dawson 235.0 215.0
Gordon Waters 230.0 210.0
B Annual bonus
The annual bonus is designed to motivate executive directors and other senior executives to achieve the group’s key operational and strategic objectives. The maximum
award is 60 per cent of annual salary. Directors are rewarded according to the company’s financial and non-financial performance for the year and the achievement of
individual targets. Targets are set each year. The non-financial and individual targets may include measures related to customer service and environmental performance
and performance against other key stakeholder measures. Annual bonus awards may be made partly or wholly in shares where a participant has still to satisfy the
company’s minimum share ownership target.
(a) 2003/04
The financial performance measures to be used for determining annual bonuses for 2003/04 are profit before exceptional items, interest and tax (PBEIT) and profit before
exceptional items and tax (PBET). A maximum award of 24 per cent of salary is allocated to each measure. One-quarter of the maximum awards becomes payable when
threshold targets are met. Awards increase in value on a straight line basis until half of the maximum award is payable for achieving a target midway between the threshold and
stretch targets. Awards continue to increase in value on a straight line basis between the intermediate and stretch targets at which point the maximum award is payable. Thus,
there is greater incentivisation to achieve stretch targets. The stretch targets are demanding and achievement represents results which are in excess of expectations. One-fifth
of the annual bonus, accounting for 12 per cent of salary, will depend on: achieving improvements in environmental performance measured by the group’s score in the Business
in the Environment (BiE) index; employee related targets, measured by results achieved in the group’s culture change programme; and the achievement of individual objectives.
(b) 2002/03
The financial measures for the determination of annual bonuses for 2002/03 were also PBEIT and PBET. The maximum bonus opportunity allocated to these targets was
48 per cent, the same as for 2003/04. The results for the year showed that although the stretch PBET target was achieved, the stretch PBEIT was not. The total payable for
performance against financial targets was, therefore, 47.18 per cent. Non-financial targets accounted for up to 12 per cent of salary. 6 per cent was divided between three customer
service targets (interruptions in electricity supply, achievement of Ofwat levels of service for water supply and population served by failing wastewater treatment works), 3 per cent was
based on the group score in the BiE index and 3 per cent based on UCan group scores in the 2003 culture profile employee questionnaire. The environmental and employee-related
targets were achieved; the customer service targets were not. Therefore 6 per cent bonus was payable bringing the overall bonus payable to a total of 53.18 per cent of salary.
(c) Prior year annual bonuses paid in deferred shares
The whole of the annual bonus awards for John Roberts and Gordon Waters in 2000 and half of the value of awards for all of the executive directors in 2001 were
satisfied by the grant of contingent rights to receive shares in the company to be purchased in the market by the company’s employee share trust. The right to these
shares may be forfeited in certain circumstances if an executive is not in the company’s employment when the shares are due to be transferred to him from the trust.
The company does not match the number of deferred shares and there are no additional performance measures associated with the release of these shares (see table 5).
40 United Utilities Annual Report & Accounts 2003