AstraZeneca Annual Report and Form 20-F Information 2011

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Directors’ Remuneration ReportVariable elements of the CEO’s and CFO’s remunerationin 2011Bonus outcomes for 2011For Executive Directors, the principal drivers of annual bonusopportunity are EPS (27% weighting), cash flow (9% weighting),the Group scorecard (24% weighting) and the relevant SET areascorecards (40% weighting). In terms of the SET area scorecards,an average of all SET area scorecards is used for the CEO and theFinance scorecard is used for the CFO. The scorecards includecategories relating to Values, Pipeline and People. At the beginningof 2011, the Committee set EPS, cash flow and scorecard targetsagainst which the performance of the Executive Directors has beenmeasured. At CER, both revenue and Core operating profit for theyear declined by 2% and 4% respectively. This partly accounts for thereduction of 16% in the bonuses of the CEO and the CFO. However,Core EPS increased by 7%. There was strong double-digit growth forCrestor, Seroquel XR and Symbicort. Emerging markets sales growthwas 10% at CER. Brilinta was approved and launched in the US anda number of other countries; other products made good progressthrough regulatory approvals. Both cash flow and EPS performanceexceeded internal and external expectations. Balanced against thiswere a number of pipeline disappointments, including olaparib andTC-5214, which both resulted in impairment charges. The Companymade net cash distributions to shareholders of $9,370 million by wayof dividends and the share buy-back programme, boosted by thesuccessful disposal of Astra Tech. In addition to a strong financialperformance in a challenging environment, significant work wasundertaken in 2011 to continue promoting a culture of responsibility,accountability and compliance. The Company is ranked in the top 7%in the sector in the Dow Jones Sustainability World and EuropeanIndexes, with its highest assessment score to date of 85%.The annual bonus ranges for the CEO and the CFO in 2012 areunchanged from 2011. For the CEO, the range is 0-180% of basesalary and for the CFO it is 0-150% of base salary.Vesting of PSP awards in 2011 and 2012The PSP share awards granted in 2008 in respect of the 2008-2010performance period vested during 2011 at 125% for SET members,including the CEO and the CFO (whose awards were based on TSRalone), following achievement of a relative TSR ranking of first in thecomparator group over the performance period. The Committeeused its discretion to determine this vesting of the maximum PSPaward because the Company’s TSR performance was substantiallybetter than that of the upper quartile of the comparator group in the2008-2010 performance period (a TSR of 55% for the Companyversus 16% for the next best performing company in thecomparator group).The PSP share awards granted in 2009 in respect of the 2009-2011performance period will vest during 2012 at 78% for SET members,including the CEO and the CFO (whose awards were based on TSRalone), following achievement of a relative TSR ranking of fourth in thecomparator group with a TSR of 35% over the performance period.This is in accordance with the performance measures determined bythe Committee.Performance under the PSP in 2011The TSR graphs on page 124 show, for each PSP share award, howthe Company’s TSR performance has compared with the TSR for thecompanies in the comparator group from the first day of the relevantperformance period to 31 December 2011 and how the Company ranksagainst those other peer companies on this basis. At the end of 2011,the Company is on track to meet the cash flow target. We will continueto report on the performance of each PSP share award against therelevant performance target during the relevant vesting period.Performance under the AZIP in 2011Previously granted AZIP awards continued without lapsing as thefull-year dividend for 2011 was $2.80 per Ordinary Share, whichexceeded the 2009 and 2010 full-year dividends of $2.30 and$2.55 per Ordinary Share respectively. Dividend cover did not fallbelow the 1.5 times threshold.How the Remuneration Committee approaches its workRemuneration Committee membershipThe Committee members are John Varley (Chairman of theCommittee), Rudy Markham, Louis Schweitzer and Nancy Rothwell.Louis Schweitzer was considered by the Board to be independentupon his appointment as Chairman of the Board. All other membersof the Committee are independent Non-Executive Directors. TheCompany Secretary acts as the secretary to the Committee.The Committee retains Deloitte LLP (Deloitte), represented by CarolArrowsmith, who provided independent advice on various matters itconsidered in 2011. The cost of this service to the Company in 2011was £118,380 (including VAT). During the year, Deloitte also providedtaxation advice and other specific non-audit services to the Group.The Committee reviewed the potential for conflicts of interest andjudged that there were no conflicts.Committee terms of referenceA copy of the Committee’s terms of reference is available on ourwebsite, astrazeneca.com.The Committee conducted a review of its terms of reference during2011. A small number of changes were recommended to the Board,principally to reflect updated guidance issued by the Association ofBritish Insurers in September 2011. The changes were approved bythe Board in January 2012.Supporting the business strategyThe principal role of the Committee is to develop remunerationpolicies and practices that support the implementation of our businessstrategy and help create shareholder value over time.The remuneration components for all employees (including ExecutiveDirectors and SET members) comprise fixed and variableperformance-related elements. A summary of the main componentsof remuneration is set out on page 119.Base pay and total compensation positioning against the relevantmarket is intended to be sufficient (but no more than necessary) toattract, retain and develop high-calibre talent.Variable pay forms a significant part of the overall remunerationopportunity for Executive Directors, SET members and other seniorexecutives. It is linked to a range of measures designed to promoteindividual and team performance in a way that supports the Group’ssuccess. Such measures are intended to stretch and challenge therelevant individuals while at the same time giving them an opportunityto participate as shareholders in the creation of long-term economicvalue. This is made up of three elements:> The annual bonus drives and rewards short-term performanceagainst specific Group, functional and individual business objectives.> The PSP rewards the generation of cash at levels to financeinvestment in the business, debt repayment and the Company’sshareholder distribution policy; and outperformance of industrypeers in terms of shareholder value-creation measured byrelative TSR.> The performance and holding periods of the AZIP are aligned tothe Company’s product development cycle, reflecting the long-terminvestment horizons that are a feature of the industry. Dividendbasedperformance hurdles motivate the generation of returns forshareholders on a sustainable basis over an extended periodof time.116 Directors’ Remuneration ReportAstraZeneca Annual Report and Form 20-F Information 2011
Linking reward with performanceExecutive Directors and other SET members are eligible to participatein different elements of variable performance-related pay, which aredescribed in the Additional information section below. The decisionas to whether or not, in any given year, they receive any or all oftheir elements of variable pay is determined by the Committee, which,in making such a determination, will typically have regard to theperformance of the individual and the Group, and will consider theelements of variable pay applicable to senior employees in othercomparable organisations.The Committee works with the Audit Committee to ensure that theGroup’s remuneration policies and practices achieve the right balancebetween appropriate incentives to reward good performance andmanaging risk in terms of employee behaviour and how the Companyachieves its business objectives.The AstraZeneca annual bonus plan, in which all employees participate,contains goals demonstrating a commitment to distinction throughintegrity, to enhance reputation and avoid reputational damage. All LTIplans operated by AstraZeneca contain claw-back provisions.Exercising judgementThe Committee believes that an essential element of its approachis the exercise of its judgement and discretion in determiningremuneration in order to reflect relevant circumstances and achievethe right balance between the interests of the business, shareholdersand employees. The Committee always considers the overallperformance of the Group when using its discretion under the termsof AstraZeneca’s remuneration arrangements. This is to avoidmechanistic outcomes under the terms of any remuneration planwhich would provide for rewards that are not justified either byunderlying business performance or in circumstances whereAstraZeneca has suffered reputational damage.Aligning senior executives’ interests with those ofshareholdersPart of the annual bonus of Executive Directors and SET membersis deferred into shares, helping align senior executives’ interests withthose of shareholders.The proportion currently deferred into shares is one-third of thepre-tax annual bonus for Executive Directors and one-sixth for otherSET members. The Committee reviews annually whether theproportion of bonus to be deferred should be changed in the light ofmarket and/or best practice developments. The shares are acquiredon the open market at the prevailing market price and held for a periodof three years from the date of acquisition before being delivered toindividual Executive Directors and other SET members.In addition to partial bonus deferral, there is a requirement forExecutive Directors and other SET members to hold shares in theCompany. The shareholding requirement for the CEO was increasedin January 2012 from 200% to 300% of base salary, and for the CFOfrom 125% to 200% of base salary. The requirement for all other SETmembers is 125% of base salary.In all aspects of its work, the Committee considers both the externalenvironment in which the Company operates and the guidance issuedby organisations representing institutional shareholders. It consults theCompany’s largest investors on general and specific remunerationand provides an annual opportunity for representatives of thoseinvestors to meet the Chairman of the Committee and otherCommittee and Board members.Considering the wider employee contextThe Committee sets overall remuneration policy and makes decisionsabout specific remuneration arrangements in the broader context ofemployee remuneration throughout the Group. The Committeeannually reviews Group remuneration data including bonus data;gender and geographical data in relation to base salaries; andaggregate data about the shareholding levels of senior managers. Inparticular, in reviewing the base salaries of Executive Directors andSET members, the Committee considers the overall level of any salaryincreases being awarded to employees across the Group in therelevant year.Main work of the Remuneration Committee during the yearThe Committee met five times in 2011. The individual attendancerecord of Committee members is set out on page 105. At the invitationof the Committee, except where their own remuneration was beingdiscussed, the CEO; the Executive Vice-President, Human Resources& Corporate Affairs; the Global Head, Reward & Employment; and theVice-President, Global Compensation attended one or moreCommittee meetings in 2011 and provided advice and services thatmaterially assisted the Committee.The work of the Committee focused on the following principal mattersduring 2011:> A review of the terms of senior executives’ remuneration packageson appointment, promotion and termination, including theremuneration packages on the appointment of a number of seniorleaders in R&D.> The assessment of Group and individual performance againstperformance targets to determine the level of executive bonuses for2010 and to set executive bonus performance targets for 2011.> The assessment of performance against targets to determine thelevel of vesting in 2011 under the PSP and to set PSP and AZIPperformance thresholds for awards made in 2011.> The determination of awards made under the Group’s main LTIplans: the PSP, the AZIP and the Global Restricted Stock Plan(GRSP) to SET members and other participants.> The determination of restricted share awards to a limited number ofsenior executives under the AstraZeneca Restricted Share Plan (RSP).> The setting of the terms of appointment of Katarina Ageborg asChief Compliance Officer and a SET member.> A review of performance metrics used by the R&D organisation.> The approval of rules of a new UK all-employee savings-relatedshare option scheme, which will be proposed to shareholders forapproval at the 2012 AGM, to replace the AstraZeneca Savings-Related Share Option Plan, which expires in 2013.> Jointly with the Audit Committee, a review of compensation policyacross the Commercial organisation.> The review and determination of incentive arrangements below SETlevel for a limited pool of eligible employees in the context of theCompany’s restructuring plans in Commercial and R&D.> A review of Group reward data, including average salary dataanalysed by gender.> Consideration of the review of the Committee’s effectiveness carriedout by the Board.> A benchmarking review of the Committee’s activities and policiesagainst institutional investor guidelines.> A review of the levels of share ownership of Executive Directors, otherSET members and senior executives immediately below SET level.> A review of the pension entitlements of Executive Directors andother SET members.> A review of the proportion of Executive Directors’ and SETmembers’ annual cash bonuses that are deferred into shares witha three-year vesting period.> A review of the performance of Deloitte, the independent adviserto the Committee.> The submission by the Company of a response to the executiveremuneration discussion paper published by the UK Departmentfor Business, Innovation & Skills in September 2011.> The preparation, review and approval (in January 2012) of this Report.Corporate GovernanceAstraZeneca Annual Report and Form 20-F Information 2011Directors’ Remuneration Report 117
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healthAstraZeneca Annual Reportand
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Financial summary$33.6bnSales down
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China: We announcedour decision to
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OverviewOperational overview7979 pr
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Chairman’s StatementI would like
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Chief Executive Officer’s ReviewA
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The process of getting a drug to ma
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OverviewnovationInnovation drives p
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Our Strategy and PerformanceMore pe
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Using the full range of innovative
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Our strategyMissionto make the most
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Our strategic priorities to 2014Our
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Our performance in 2011Our performa
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Business shapePeopleResponsible bus
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Strategy and PerformanceaborationIm
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Delivering our strategyOur strategy
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Development projects20112010 129342
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Investing in capabilitiesA core com
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Patent expiries for our key markete
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our Established Markets footprint i
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Product qualityWe are committed to
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We have a global approach, supporte
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ComplianceWe ensure a culture of et
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tegrityBusiness ReviewWe are dedica
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Delivering our strategyResponsible
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India has the fastest growing numbe
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ProtestsAstraZeneca acknowledges th
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Also in 2011, the DIHR in collabora
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healthcollaborationRaising breast c
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Pipeline by Therapy Area at 31 Dece
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Therapy Area ReviewIn September, we
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Therapy Area ReviewGastrointestinal
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Therapy Area ReviewInfectionTherapy
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Page 132 and 133: RiskManagement reporting and assura
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Page 138 and 139: RiskSupply chain and delivery risks
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Financial Statements18 Post-retirem
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Financial Statements18 Post-retirem
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Financial Statements20 Share capita
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Financial Statements23 Financial ri
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Financial Statements23 Financial ri
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Financial Statements24 Employee cos
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Financial Statements25 Commitments
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Financial Statements26 LeasesTotal
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Financial StatementsIndependent Aud
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Financial StatementsCompany Account
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Financial Statements4 ReservesShare
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Financial StatementsGroup Financial
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Development PipelineNCEsPhase III/R
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Development PipelineNCEsPhases I an
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Shareholder Information> For shares
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Shareholder InformationDocuments on
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Corporate InformationHistory and de
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GlossaryThe following abbreviations
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Index2011 performance summary 23Acc
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Contact informationRegistered offic
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AstraZeneca Annual Report and Form 20-F Information 2011

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