G4S Annual Report and Accounts 2011

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Overview Strategic review Performance Directors’ remuneration report continued The claw-back mechanism Any payment under either the annual bonus scheme or the PSP may be clawed back from the director concerned if the committee so determines and, in the case of misstatement of accounts, where the Audit Committee concurs. The time period in which the claw back can be made depends on the reason for the overpayment. Misstatement of financial accounts Fraud or reckless behaviour Annual bonus scheme up to 2 years after payment up to 2 years after payment Performance Share Plan up to 2 years after vesting up to 6 years after vesting The amount to be clawed back directly from the executive will be the overpaid amount after netting off taxes and social security deductions. How have the elements of remuneration changed year-on-year? Elements of remuneration Base salary Annual bonus Long-term incentive plan Change No increase in 2009, 2010 or 2012. An increase was made in January 2011. Unchanged in maxima but the potential payouts on threshold and budgeted profit targets were altered for one year in 2011 only. After consultation with major shareholders, a change was made on the inflation measurement to reflect increasing global footprint and exposure to markets outside the UK. For 2012 TRS/EPS measurements to be weighted equally. Link between pay and performance The payouts under the annual bonus scheme and long-term incentive plan in previous years have been made in accordance with the agreed measures. Where there has been a payout under the annual bonus scheme or long-term incentive plan, the committee has not exercised any discretion to increase payments above that to which the executives were entitled under the applicable rules. Pay for group executive committee Number in band Base Pay (£000) 2011 2010 151–200 0 1 201–250 2 1 251–300 3 4 301–350 1 2 351–400 2 0 The maximum bonus level for the members of the group executive committee is 100% of base salary. Elements of remuneration Elements of remuneration Availability Fixed Base salaries Available to all employees worldwide Pensions Available to most employees in developed markets Variable Annual bonus Available to all senior managers worldwide Long-term incentive plan Available to some senior managers worldwide Benefits Car or car allowance Available to all senior managers worldwide Protection insurance Available to most employees in developed markets Healthcare Available to all senior managers worldwide (a) Base salary and benefits The salaries of the executive directors are reviewed with effect from 1 January each year. Although interim salary reviews may be carried out following significant changes in responsibility, no such reviews have taken place since the appointments of the current executive directors. The salaries take account of benchmarking exercises based on a robust sample of similarly sized companies by revenue and market capitalisation, with a significant part of their business overseas. They also reflect responsibility, individual performance, internal relativities and salary and other market information supplied by Towers Watson. Base salaries for the executive directors were frozen in 2009 and 2010. However, the position following two consecutive pay freezes was not consistent with the company’s stated remuneration policy, and the committee took steps to more closely align base salaries to its competitive mid-market policy in 2011. At the executive directors’ request though, the committee has agreed to freeze those directors’ base salaries again in 2012 in view of the economic circumstances and the pay and employment conditions across the group, notwithstanding the consistently strong performance of the group throughout the period. (b) Performance-related bonus scheme For the year under review, the executive directors participated in an annual performance-related bonus scheme, payments under which were dependent on the attainment of defined PBTA (profit before tax and amortisation) targets of the group, adjusted for the effect of any exceptional items and discontinued operations and using constant exchange rates. The committee believes that PBTA best reflects the various key drivers of business success within the group. The maximum bonus entitlement for the executive directors is an amount equal to 125% of base salary (150% in the case of the chief executive). For 2011, 75% of maximum bonus entitlement was payable on achievement of the budgeted target and the amount of bonus increased on a straight-line basis up to 100% of maximum bonus entitlement for achievement of a stretch profit target. Any bonus due above 50% of the individual’s maximum bonus entitlement would be awarded as deferred shares which would not vest for three years. For achievement of a threshold level of profits which is at least 95% of the budgeted profit target, a bonus payment of 50% of maximum bonus entitlement was due, with no bonus payable for performance below threshold. 64 G4S plc Annual Report and Accounts 2011
Governance Financial statements Shareholder information The PBTA target used for the above scheme is the same as the company’s budgeted PBTA for the corresponding period (assuming constant exchange rates). The PBTA target allows for adjustments in respect of any material, non-budgeted changes which take place during the year, such as acquisitions, disposals etc. Thus, for example, should a planned disposal not be completed by the year end, the committee reserves the right to re-insert the operating profit or loss for the business in question in the actual and budgeted PBTA targets. The Remuneration Committee and the executive directors have agreed that, in light of a number of factors affecting the group in 2011, it would not be appropriate to consider the payment of an annual bonus for the executive directors for this year. For 2012, the threshold and budgeted target bonus opportunity will revert to 35% and 60% of maximum bonus entitlement respectively. This was the position in previous years; the 50% and 75% levels described above having been adopted for 2011 only. Percentage of max bonus entitlement 2010 2011 2012 Threshold 35% 50% 35% Targeted PBTA 60% 75% 60% Stretch 100% 100% 100% (c) Performance Share Plan (Long-term incentive plan) The Performance Share Plan (“PSP”) was introduced in July 2004 and modified in 2007. Under the plan, the executive directors and certain other senior executives receive conditional allocations of the company’s shares which are released to them only on the achievement of demanding performance targets. The maximum annual award of shares payable under the plan is two and a half times base salary. The annual award approved by the committee for the year under review is two times base salary for the chief executive, one and a half times base salary for the other executive directors and one times salary for senior executives below board level. The extent to which allocations of shares under the plan vest is determined, as to two-thirds of the award, by the company’s normalised earnings per share growth relative to the UK RPI over a single three-year period and, as to the remaining third of the award, by the company’s ranking by reference to TSR (total shareholder return; being share price growth plus dividends paid) using a bespoke global group of 16 support services companies as a comparator group, again over a single three-year period. This comparator group has been expanded to 17 companies by the addition of Loomis in respect of awards made from March 2011 onwards. Please see page 67 for the list of companies that, in addition to G4S, make up the comparator group. Targets applicable from March 2007 to March 2011 Two-thirds of each award granted Average annual growth in EPS period ending on 31 December in the third year Proportion of allocation vesting Less than UK RPI + 6% pa Nil UK RPI + 6% pa (18% over 3 years) 25% UK RPI + 6 to 11% pa Pro-rata between 25% and 100% Greater than UK RPI + 11% pa (33% over 3 years) 100% One-third of each award granted Ranking against the bespoke comparator group by reference to TSR Proportion of allocation vesting Below median Nil Median 25% Between median and upper quartile Pro-rata between 25% and 100% Upper quartile 100% In respect of awards made from March 2011 onwards, the inflation measure applied to EPS will be global CPI weighted according to the group’s geographical revenue sources and the lower end of the range will be plus 4% per annum rather than plus 6% per annum. Targets applicable for awards made in March 2011 Two-thirds of each award granted Average annual growth in EPS period ending on 31 December in the third year Proportion of allocation vesting Less than global CPI + 4% pa Nil Global CPI + 4% pa (11% over 3 years) 25% Global CPI + 4 to 11% pa Pro-rata between 25% and 100% Greater than global CPI + 11% pa (33% over 3 years) 100% One-third of each award granted Ranking against the bespoke comparator group by reference to TSR Proportion of allocation vesting Below median Nil Median 25% Between median and upper quartile Pro-rata between 25% and 100% Upper quartile 100% G4S plc Annual Report and Accounts 2011 65
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G4S Annual Report and Accounts 2011

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