Annual Report 2007 in PDF - Cairn Energy PLC
Annual Report 2007 in PDF - Cairn Energy PLC
Annual Report 2007 in PDF - Cairn Energy PLC
Create successful ePaper yourself
Turn your PDF publications into a flip-book with our unique Google optimized e-Paper software.
CORPORATE GOVERNANCE STATEMENT<br />
CONTINUED<br />
The audit committee has established a policy <strong>in</strong> relation to the supply of non-audit services by the external auditors and<br />
other third parties. The Company will engage an external adviser to provide non-audit services on the basis of the skills and<br />
experience required for the work, where benefit will be derived as a result of the third party’s knowledge of the Company and<br />
cost. These advisers may <strong>in</strong>clude the Company’s external auditors for a restricted list of non-audit services, although, before<br />
the engagement commences, the Company must be satisfied that the auditors’ objectivity and <strong>in</strong>dependence would not be<br />
compromised <strong>in</strong> any way as a result of be<strong>in</strong>g <strong>in</strong>structed to carry out those services. If the cumulative fees to be paid to an<br />
external adviser for the provision of non-audit services are below a certa<strong>in</strong> level, the adviser may be engaged <strong>in</strong> accordance with<br />
the Company’s f<strong>in</strong>ancial delegations of authority after a quotation has been received. If the fees payable are expected to exceed<br />
that level on a cumulative basis, the engagement must be approved by the audit committee <strong>in</strong> advance after follow<strong>in</strong>g a tender<br />
process.<br />
kPMG LLP has been appo<strong>in</strong>ted by the audit committee to supervise and co-ord<strong>in</strong>ate the Company’s <strong>in</strong>ternal audit function.<br />
At the beg<strong>in</strong>n<strong>in</strong>g of each year, an <strong>in</strong>ternal audit plan is developed by the <strong>in</strong>ternal auditor, <strong>in</strong> consultation with senior<br />
management, based on a review of the outcome of the previous year’s <strong>in</strong>ternal audit, the significant risks <strong>in</strong> the Group Risk<br />
Matrix and identified mitigation measures. The <strong>in</strong>ternal auditor also attends the Group Risk Management Committee meet<strong>in</strong>gs<br />
to ma<strong>in</strong>ta<strong>in</strong> an understand<strong>in</strong>g of the bus<strong>in</strong>ess activities and associated risks. The audit committee receives updates on the<br />
<strong>in</strong>ternal audit work plan on an ongo<strong>in</strong>g basis. The external auditors do not place any reliance on the work undertaken by<br />
the Company’s <strong>in</strong>ternal audit function due to the nature of the scope and the tim<strong>in</strong>g of their work. The external auditors do,<br />
however, attend audit committee meet<strong>in</strong>gs where <strong>in</strong>ternal audit updates are given.<br />
The Company undertook an audit tender process <strong>in</strong> 2003, as a result of which Ernst & Young LLP were re-engaged as the<br />
Company’s auditors. The Company monitors its auditors’ performance on an ongo<strong>in</strong>g basis, <strong>in</strong>clud<strong>in</strong>g an annual assessment<br />
carried out by the audit committee with <strong>in</strong>put from the F<strong>in</strong>ance Director and other key members of the f<strong>in</strong>ance team.<br />
Follow<strong>in</strong>g such assessment, the audit committee meets to discuss what actions, if any, require to be taken.<br />
2. Remuneration Committee <strong>Report</strong><br />
The remuneration committee comprises four non-executive directors, all of whom are considered by the Board to be<br />
<strong>in</strong>dependent. Currently, its members are Hamish Grossart (chairman), Ed Story, Mark Tyndall and Todd Hunt. The remuneration<br />
committee met seven times <strong>in</strong> <strong>2007</strong>.<br />
The Chief Executive, at the request of the committee, attends its meet<strong>in</strong>gs. In addition, he is consulted by the committee on its<br />
proposals. The Chairman also attended three meet<strong>in</strong>gs of the committee dur<strong>in</strong>g <strong>2007</strong> as an observer, on be<strong>in</strong>g <strong>in</strong>vited to do so<br />
by the committee. Certa<strong>in</strong> other of the executive directors attended meet<strong>in</strong>gs of the committee as observers on be<strong>in</strong>g <strong>in</strong>vited to<br />
do so by the committee. None of the members of the committee, nor the Chief Executive nor the Chairman, participated <strong>in</strong> any<br />
meet<strong>in</strong>gs or discussions relat<strong>in</strong>g to their own remuneration.<br />
The role of the committee <strong>in</strong>cludes:<br />
• determ<strong>in</strong><strong>in</strong>g and agree<strong>in</strong>g with the Board the remuneration policy for all the executive directors, the Chairman and the<br />
members of the GMB;<br />
• with<strong>in</strong> the terms of the agreed policy, determ<strong>in</strong><strong>in</strong>g the total <strong>in</strong>dividual remuneration package for each executive director;<br />
• determ<strong>in</strong><strong>in</strong>g the level of awards made under the Company’s share option plans and long-term <strong>in</strong>centive plans and the<br />
performance conditions which are to apply;<br />
• determ<strong>in</strong><strong>in</strong>g bonuses payable under the Company’s cash bonus scheme;<br />
• determ<strong>in</strong><strong>in</strong>g the vest<strong>in</strong>g of awards under the Company’s long-term <strong>in</strong>centive plans and exercise of share options; and<br />
• determ<strong>in</strong><strong>in</strong>g the policy for pension arrangements, service agreements and term<strong>in</strong>ation payments for executive directors.<br />
Details of the Company’s policies on remuneration, service contracts and compensation payments are given <strong>in</strong> the Directors’<br />
Remuneration <strong>Report</strong> on pages 57 to 68.<br />
3. Nom<strong>in</strong>ation Committee <strong>Report</strong><br />
The nom<strong>in</strong>ation committee comprises Norman Murray (chairman), two <strong>in</strong>dependent non-executive directors Hamish Grossart<br />
and Ed Story, and, to ensure <strong>in</strong>put from the executive, one executive director, Sir Bill Gammell (Chief Executive). Certa<strong>in</strong> other<br />
of the non-executive directors attended meet<strong>in</strong>gs of the committee as observers on be<strong>in</strong>g <strong>in</strong>vited to do so by the committee.<br />
The Comb<strong>in</strong>ed Code requires there to be a formal, rigorous and transparent procedure for the appo<strong>in</strong>tment of new directors,<br />
which should be meritocratic and made aga<strong>in</strong>st objective criteria. For this purpose, the Board has established the nom<strong>in</strong>ation<br />
committee, whose role <strong>in</strong>cludes consider<strong>in</strong>g the composition, balance and skills of the Board and mak<strong>in</strong>g recommendations to<br />
the Board on these matters, on the appo<strong>in</strong>tment of new directors and on the reappo<strong>in</strong>tment and orderly succession of exist<strong>in</strong>g<br />
directors.<br />
No new appo<strong>in</strong>tments were made to the Board dur<strong>in</strong>g <strong>2007</strong>.<br />
The nom<strong>in</strong>ation committee met three times <strong>in</strong> <strong>2007</strong>.<br />
44 CAIRN ENERGY <strong>PLC</strong> ANNUAL REPORT <strong>2007</strong>