G4S Annual Report and Accounts 2011

Overview Strategic review Performance
Directors’ remuneration report continued
The revised lower end of the range is CPI +4% per annum, which is still
stretching, but is also achievable. The committee was concerned that the
previous targets were perceived as unachievable and were no longer acting
as an incentive to better performance.
The Remuneration Committee continues to believe that a combination of
earnings per share growth and total shareholder return targets is the most
appropriate performance measure for the performance share plan, as it
provides a transparent method of assessing the company’s performance,
both in terms of underlying financial performance and returns to
shareholders. Other measures, such as Return on Invested Capital,
were considered to be less appropriate for a service company.
The decision to change the lower end of the range was made after an
analysis of growth based on market consensus and economic outlook.
The Remuneration Committee also looked at currency movements and the
calibration used by other companies in the FTSE 100. Weighted global CPI
was seen as more relevant than UK RPI given the group’s global footprint.
In respect of awards made from 2012 onwards, the committee has decided
that the extent to which allocations of shares under the plan vest will be
determined, as to half of the award, by the company’s normalised earnings
per share growth relative to the global CPI over a single three-year period
and half of the award, by the company’s ranking by reference to TSR using
the bespoke global comparator group, again over a single three-year
period. The committee believes that this will help to address the concerns
expressed by some shareholders about over reliance on EPS as a measure
of underlying performance.
Participants in the PSP will receive a further share award with a value
equivalent to the dividends which would have been paid in respect of
future PSP awards vesting at the end of the performance period.
There will only be a transfer of shares under the third (or half in 2012) of the
award attributable to TSR if the Remuneration Committee is satisfied that
the company’s TSR performance is reflective of the company’s underlying
performance.
The company calculates whether the EPS performance targets have been
achieved by reference to the company’s audited accounts which provide
an accessible and objective measure of the company’s earnings per share,
whilst TSR ranking will be determined by Towers Watson whose findings
are verified by Alithos.
Awards will not normally vest where an employee ceases to be employed
within the group unless cessation of employment is due to death, injury,
disability, redundancy, retirement or following a change of control of, or sale
outside the group of, his or her employing company. In these situations,
vesting will occur in the normal course and the performance targets will
need to be satisfied. Only a proportion of the award, based on the time
which has elapsed from the award date to the end of the last complete
month in which the employee was employed, will vest in these
circumstances in most cases. The Remuneration Committee does however
retain the ability to allow for a greater award to vest if it considers it to be
appropriate in exceptional circumstances.
Share retention
The company’s current policy is to use market purchased shares to satisfy
performance share plan awards.
The committee believes that continued shareholding by executive directors
will strengthen the alignment of their interests with shareholders’ interests.
Accordingly, a formal policy has been adopted under which executive
directors are required to retain 50% of after-tax PSP vestings until a total
shareholding equal to 100% of base salary (150% for the chief executive) is
achieved. This policy has been extended to senior management but the
minimum shareholding is set at a lower level.
Minimum
shareholding
Value of
shares held*
Shareholding as at
31 December 2011
Retention
policy met?
Nick Buckles 150% of salary £4,979,512 600% of salary Yes
Trevor Dighton 100% of salary £3,411,335 669% of salary Yes
Grahame Gibson 100% of salary £1,920,291 308% of salary Yes
*Based on shareholding (excluding deferred shares) as at 31 December 2011 and share
price of £2.718, as at 30 December 2011, the last working day of the year.
Fees, service contracts and
letters of appointment
The fees of the non-executive directors are subject to periodic review
which takes into account comparative fee levels in other groups of a similar
size and the anticipated time commitment. Their fees were increased by 5%
(7.4% for the chairman) from July 2011; the previous increase having been
made in July 2008.
Mr Seligman was appointed as the deputy chairman on 17 October 2011
and Lord Condon relinquished this role on the same date.
The service contracts of those who served as executive directors during
the period are dated as follows:
Nick Buckles 2 June 2004
Trevor Dighton 2 June 2004
Grahame Gibson 6 December 2006
The service contracts are terminable on 12 months’ notice by either the
company or by the executive directors. There are no liquidated damages
provisions for compensation payable upon early termination, but the
company reserves the right to pay salary in lieu of notice. The directors’
contracts do not provide for the payment of a guaranteed bonus in the
event of termination. It is the company’s policy that it should be able to
terminate the service contracts of executive directors on no more than
12 months’ notice and that payments for termination of contract are
restricted to the value of salary and other contractual entitlements for
the notice period. The Remuneration Committee would consider the
application of mitigation obligations in relation to any termination payments.
The committee is satisfied that the current arrangements are appropriate
and were in line with best practice at the time the executive directors
were appointed.
The chairman and the other non-executive directors do not have service
contracts, but letters of appointment.
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G4S plc
Annual Report and Accounts 2011