annual report 2007 - the Admiral Group plc

ADMIRAL GROUP plc 31· Approved Free Share Incentive Plan (SIP). The SIP is available to all staff (Henry Engelhardtand David Stevens have declined to be included in the plan). The maximum annual awardunder the SIP is £3,000 per employee. Shares awarded under the SIP are forfeited if theemployee leaves within three years of the award. Awards are made twice a year, based onthe results of each half-year. During 2005, 2006 and 2007 the Group’s results have meantthat qualifying staff have received maximum awards in each year.· Discretionary Free Share Scheme (DFSS). Awards under the DFSS are distributed on a widerbasis than most plans of this type. The Committee believes that as the DFSS develops andawards begin to vest in 2008, it will have the effect of reducing staff attrition and creating adefinite alignment of the interests of staff and shareholders.Of the Group’s current Executive Directors, only Kevin Chidwick (Finance Director) participatesin this scheme.The performance criterion in determining how many shares vest under the DFSS is the growthin earnings per share (EPS) in excess of a risk free return, defined as average 3-month LIBOR,over a three-year period. The Committee feels that this is a good indicator of long-termshareholder return with which to align staff incentivisation. The Committee recommendsfor approval by the Board awards to the Finance Director and other employees under theDFSS. The EPS targets are such that for full vesting of shares to occur, the average EPSgrowth over the three-year performance period would have to be approximately 16% perannum (assuming LIBOR averages 5% over the period). Only 10% of shares vest for matchingLIBOR over the three-year period. The plan allows for a maximum award of £400,000 or600% of basic salary if lower.Remuneration report 30 - 35The Committee is conscious of the maximum allowable awards under both share schemes andcontrols are in place to ensure that neither scheme is issued shares in excess of 5% of the Group'sissued share capital over the 10 year period from 1 January 2005.The Committee determines the fees for the Chairman of the Board after consultation with theExecutive Directors and review of market data. The fees of the Chairman were not subject toreview in 2007. The Chairman waives 25% of his fee.Non-executive Directors’ remuneration is set by the Chairman and Executive Directors andapproved by the Board as a whole. A summary of their contracts and remuneration is shownbelow.Executive Directors are allowed, or though none currently do, to accept appointments as NonexecutiveDirectors of companies with prior approval of the Chairman. Approval will only begiven where the appointment does not present a conflict of interest with the Group’s activitiesand the wider exposure gained will be beneficial to the development of the individual. Wherefees are payable in respect of each appointment these will be retained by the Company.Executive Directors’ remunerationTwo of the three Executive Directors (Henry Engelhardt and David Stevens) are founding Directors.They and the Committee continue to hold the view that the significant shareholdings held bythem provide a sufficient alignment of their interest in the performance of the Group with theinterests of other shareholders.In light of this, their remuneration packages consist of below-median base salary (comparedto market rates by the Committee) and benefits such as private medical cover, permanenthealth insurance and death in service cover. The Group does not contribute to any pensionarrangements on behalf of these Executive Directors, and they have not, nor is it intendedthat they will participate in any Group share schemes. Their remuneration was reviewed inSeptember 2007. Henry Engelhardt was awarded a rise of 5.2% taking his salary to £305,000 andDavid Stevens awarded a rise of 6% taking his salary to £265,000The Committee aims to ensure that the remuneration of the Finance Director is fair and intotal, in-line with market rates, and is designed to provide rewards for achieving increases inshareholder value.