Annual Report - SABMiller India

Annual incentive plansEach of the executive directors and members of the executivecommittee is entitled to participate in an annual bonus plan thatrewards the achievement of group financial, divisional financial(where applicable), strategic and personal performance objectivesagreed by the committee. The Chief Executive may earn a bonusof up to 175% of base salary. The Chief Financial Officer may earna bonus of up to 120% of base salary and other executivecommittee members may earn bonuses of up to 120% of theirbase salary in the UK and 150% in the USA and South Africa.The group financial performance targets for executive directorannual incentive plans relate to adjusted EPS growth and EBITA.The committee believes that linking short-term incentives to profitgrowth reinforces the company’s business objectives. The divisionalfinancial targets vary according to divisional value drivers derivedfrom group needs and include EBITA, sales volumes, and otherappropriate measurements. Financial performance targets comprise60% of the incentive bonus potential. The strategic and personaltargets which make up the remaining 40% are specific andmeasurable, and include a range of specific non-financial keyperformance indicators in appropriate circumstances. In settingindividual strategic and personal targets, the committee hasdiscretion to take into account all factors that it considersappropriate, including environmental, social and governanceissues, while ensuring that the incentive structure for executivedirectors does not raise the risks relating to environmental, socialand governance issues by inadvertently motivating irresponsiblebehaviour.At its meeting on 13 May 2008, the committee receivedassessments of the performance of the executives participatingin the bonus plans against their agreed targets. In light of theachievement against the group financial targets and the levelsof achievement against their strategic and personal objectives,the committee agreed the payments of bonuses as shown belowto the executive directors:2008Bonus % of %£ salary achievementEAG Mackay 1,606,000 157 90MI Wyman 640,000 104 87Long-term incentive plansThe descriptions of the long-term incentive plans in the sectionbelow have been audited.Share Option PlansAt the time of its primary listing on the London Stock Exchange in1999, the company established and has since operated:■■the SABMiller plc Approved Share Option Scheme (ApprovedScheme) approved by Her Majesty’s Revenue and Customs inthe United Kingdom;the SABMiller plc Executive Share Option (No. 2) Scheme(No. 2 Scheme); and■ the SABMiller plc Mirror Executive Share Purchase Scheme(South Africa) (Mirror Scheme).On the acquisition of Miller in 2002, shareholders approved theestablishment of share incentive arrangements for internationalemployees of the group, principally in the Americas. Thesearrangements comprised:■■the SABMiller plc International Employee Share Scheme(International Scheme); andthe SABMiller plc International Employee Stock AppreciationRights Scheme (SARs Scheme).All grants of options or rights over shares under these plans haveto be at the market value of the company’s shares at the timeof grant. These are issued, usually annually, to participatingemployees on the basis of assessment of performance andpotential and vest over defined time periods in line with localmarket conditions.The tables on page 57 to 59 give details of the grants made tothe executive directors in 2007, those exercised during the yearand those still outstanding and unexercised from previous years.In the year under review, options over 230,000 shares weregranted to the Chief Executive and options over 140,000 sharesto the Chief Financial Officer (with other executive committeemembers employed in the UK being granted options over215,000 shares in the aggregate, depending on their roles andresponsibilities). For these annual grants, vesting is based on asliding scale performance condition, subject to testing at the thirdanniversary of grant from a fixed base, for 67% of the award anda further test at the fifth anniversary of grant from a fixed base,for the remaining 33% of the award.Options granted to executives under the Approved and theNo. 2 Schemes may normally only be exercised between threeand 10 years after grant. The right to exercise is dependent onthe achievement of adjusted EPS growth targets, calculated onthe basis of the definition of Headline Earnings in the new SouthAfrican Circular 8/2007, chosen because of their ready visibilityboth to executives and to shareholders. The adjusted EPSperformance conditions for options granted under these schemeshave been as follows:■options granted prior to 2002 to each executive directorhad a performance condition for vesting which requiredgrowth in adjusted EPS (expressed in sterling) of 3% perannum compound in excess of the change in the RetailPrice Index (RPI) over any three-year period within the10-year option life. This performance condition was satisfiedin respect of all options granted to executive directors in 1999,2000 and 2001;■ options granted to executive directors in 2002 and until 2005have a performance condition that the base annual award(determined by reference to the previous grant levels of 130%of annual salary for the Chief Executive, 115% of annual salaryfor other executive directors and up to 100% for otherparticipants) would vest at compound annualised adjustedEPS growth of RPI + 3% subject to testing at three, fourand five-year intervals from a fixed base. Half of any additionalannual amount would vest at RPI + 4%; and the other halfof any additional annual amount would vest at RPI + 5%compound adjusted EPS growth, measured from a fixed baseand only capable of testing after three, four or five years. Afterthe five-year test any unvested portion of the option will lapse.Details of the EPS levels of achievement by comparison withthe RPI movement over the respective periods are given in thenotes to the share option scheme tables on page 57; and■options granted in 2006 and onwards to each executivedirector have the same performance conditions as for awardsmade from 2002 to 2005, but the retesting provision has beenremoved and the performance tests are applied to two-thirdsof the award after three years and one-third of the award afterfive years.Overview Operating and financial review Governance Financial statements Shareholder informationRemuneration report 51SABMiller plc Annual Report 2008