Annual Report 2007 in PDF - Cairn Energy PLC

CORPORATE GOVERNANCE STATEMENT
CONTINUED
The audit committee has established a policy in relation to the supply of non-audit services by the external auditors and
other third parties. The Company will engage an external adviser to provide non-audit services on the basis of the skills and
experience required for the work, where benefit will be derived as a result of the third party’s knowledge of the Company and
cost. These advisers may include the Company’s external auditors for a restricted list of non-audit services, although, before
the engagement commences, the Company must be satisfied that the auditors’ objectivity and independence would not be
compromised in any way as a result of being instructed to carry out those services. If the cumulative fees to be paid to an
external adviser for the provision of non-audit services are below a certain level, the adviser may be engaged in accordance with
the Company’s financial delegations of authority after a quotation has been received. If the fees payable are expected to exceed
that level on a cumulative basis, the engagement must be approved by the audit committee in advance after following a tender
process.
kPMG LLP has been appointed by the audit committee to supervise and co-ordinate the Company’s internal audit function.
At the beginning of each year, an internal audit plan is developed by the internal auditor, in consultation with senior
management, based on a review of the outcome of the previous year’s internal audit, the significant risks in the Group Risk
Matrix and identified mitigation measures. The internal auditor also attends the Group Risk Management Committee meetings
to maintain an understanding of the business activities and associated risks. The audit committee receives updates on the
internal audit work plan on an ongoing basis. The external auditors do not place any reliance on the work undertaken by
the Company’s internal audit function due to the nature of the scope and the timing of their work. The external auditors do,
however, attend audit committee meetings where internal audit updates are given.
The Company undertook an audit tender process in 2003, as a result of which Ernst & Young LLP were re-engaged as the
Company’s auditors. The Company monitors its auditors’ performance on an ongoing basis, including an annual assessment
carried out by the audit committee with input from the Finance Director and other key members of the finance team.
Following such assessment, the audit committee meets to discuss what actions, if any, require to be taken.
2. Remuneration Committee Report
The remuneration committee comprises four non-executive directors, all of whom are considered by the Board to be
independent. Currently, its members are Hamish Grossart (chairman), Ed Story, Mark Tyndall and Todd Hunt. The remuneration
committee met seven times in 2007.
The Chief Executive, at the request of the committee, attends its meetings. In addition, he is consulted by the committee on its
proposals. The Chairman also attended three meetings of the committee during 2007 as an observer, on being invited to do so
by the committee. Certain other of the executive directors attended meetings of the committee as observers on being invited to
do so by the committee. None of the members of the committee, nor the Chief Executive nor the Chairman, participated in any
meetings or discussions relating to their own remuneration.
The role of the committee includes:
• determining and agreeing with the Board the remuneration policy for all the executive directors, the Chairman and the
members of the GMB;
• within the terms of the agreed policy, determining the total individual remuneration package for each executive director;
• determining the level of awards made under the Company’s share option plans and long-term incentive plans and the
performance conditions which are to apply;
• determining bonuses payable under the Company’s cash bonus scheme;
• determining the vesting of awards under the Company’s long-term incentive plans and exercise of share options; and
• determining the policy for pension arrangements, service agreements and termination payments for executive directors.
Details of the Company’s policies on remuneration, service contracts and compensation payments are given in the Directors’
Remuneration Report on pages 57 to 68.
3. Nomination Committee Report
The nomination committee comprises Norman Murray (chairman), two independent non-executive directors Hamish Grossart
and Ed Story, and, to ensure input from the executive, one executive director, Sir Bill Gammell (Chief Executive). Certain other
of the non-executive directors attended meetings of the committee as observers on being invited to do so by the committee.
The Combined Code requires there to be a formal, rigorous and transparent procedure for the appointment of new directors,
which should be meritocratic and made against objective criteria. For this purpose, the Board has established the nomination
committee, whose role includes considering the composition, balance and skills of the Board and making recommendations to
the Board on these matters, on the appointment of new directors and on the reappointment and orderly succession of existing
directors.
No new appointments were made to the Board during 2007.
The nomination committee met three times in 2007.
44 CAIRN ENERGY PLC ANNUAL REPORT 2007