G4S Annual Report and Accounts 2011

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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. 66 G4S plc Annual Report and Accounts 2011
Governance Financial statements Shareholder information Date of appointment Extended until Period of appointment as at 31 December 2011 Alf Duch-Pedersen 19 May 2004 AGM 2013* 7 years 7 months Lord Condon 19 May 2004 AGM 2013 7 years 7 months Mark Elliott 1 September 2006 31 August 2013 5 years 4 months Winnie Fok 1 October 2010 for 2 years 1 year 3 months Bo Lerenius 19 May 2004 AGM 2013 7 years 7 months Mark Seligman 1 January 2006 31 December 2012 6 years Clare Spottiswoode 14 June 2010 13 June 2014 1 year 6 months *Mr Duch-Pedersen will retire as soon as a new chairman has been appointed. All continuing directors are required to stand for re-election by the shareholders at least once every three years, although they have agreed to submit themselves for re-election annually in accordance with the 2010 UK Corporate Governance Code. It is the company’s policy that executive directors may each hold not more than one external non-executive appointment and may retain any associated fees. None of the executive directors currently holds an external non-executive appointment. Performance graph The performance graph below shows the total cumulative shareholder return of the company over the five years to the end of December 2011, based on a hypothetical shareholding worth £100, compared with the return achieved by the FTSE 100 constituent companies over the same period. The directors believe this to be an appropriate form of broad equity market index against which to base a comparison given the size and geographic coverage of the company and the fact that the company is itself a member of the FTSE 100. The graph also compares the company’s performance over the same period with the bespoke group of companies which is used for comparative total shareholder return purposes in the company’s performance share plan. The values attributable to the bespoke comparator group companies have been weighted in accordance with the market capitalisation of the companies calculated at spot exchange rates as at each year end. 2006–2011 total shareholder return performance Value (p) 180 160 140 120 100 80 60 2006 2007 2008 2009 2010 2011 G4S FTSE 100 index Peer Group The peer group currently includes G4S and the following companies: Atkins (WS) Brambles Ind Brink’s Bunzl Capita Compass Garda Hays MITIE Prosegur Rentokil Initial Rexam Securitas AB Serco Sodexo Loomis* *Loomis added in respect of awards made from March 2011 onwards. G4S plc Annual Report and Accounts 2011 67
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G4S Annual Report and Accounts 2011

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