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Annual report and accounts 2016

78 Report of the

78 Report of the Remuneration Committee continued Introduction As a Spanish incorporated company, IAG is subject to Spanish corporate law. The Spanish legal regime regarding directors’ remuneration is substantially parallel to that of the UK as far as directors´ remuneration disclosure and approval requirements are concerned. It is the Company’s intention once again to comply voluntarily with all reporting aspects of the UK legislation of 2013 and to follow best practice UK standards, for the benefit of our UK shareholder base. Therefore, the Company has prepared a Directors’ Remuneration Report in accordance with UK legislation (the UK DRR). Additionally, the Company has prepared a Spanish Directors’ Remuneration Report (the Spanish DRR) bearing in mind that our annual Shareholders’ Meeting is subject to Spanish corporate law. We have ensured that the UK DRR and the Spanish DRR are totally consistent. The Spanish DRR, prepared in accordance with Spanish legislation, is available on the Company’s website. In addition to the Remuneration Committee Chairman’s statement, this Directors’ Remuneration Report contains two different sections: • The first section, the Directors’ Remuneration Policy, contains details of the components of the remuneration packages of the Company’s directors and how they are linked to the business strategy (this section has no changes from last year). No changes to the policy will be proposed this year. • The second section, the Annual Remuneration Report, covers the information on Directors’ remuneration paid in the reported year. The Remuneration Committee takes responsibility for the preparation of the report, which is approved by the Board. The Company’s policy on directors’ remuneration was approved by shareholders at the annual Shareholders’ Meeting on June 18, 2015. No changes to the policy will be proposed this year. However, certain aspects of how the policy operates in practice were approved by the Board with effect from January 1, 2016. These adjustments to the application of policy were listed in last year’s Report at the beginning of the Remuneration Policy section, and are listed again (unchanged) in this Report. Directors’ Remuneration Policy Key elements of pay Executive Directors The Company’s remuneration policy is to provide total remuneration packages which are linked to the business strategy, competitive, and take into account each individual’s performance of their role in the Company’s work. The Company’s primary comparator group is the FTSE 26 to 100 (excluding financial services), with a secondary reference to Ibex- 35 and global airline companies where appropriate. The Committee is updated on pay and conditions of the employees within the Group, and takes this into account when considering executive directors’ remuneration. The policy as shown on the following pages was approved by shareholders at the 2015 Shareholders’ Meeting. The policy remains unchanged from that disclosed in the last two financial years. However, as was explained last year, listed below is how the policy is applied in practice in respect of certain remuneration elements. Also, notes to clarify adjustments to the practical application of the policy have been added to the Policy section, in italics. Face value awards for PSP awards will not exceed 200 per cent of salary for the CEO of IAG, and not exceed 150 per cent of salary for other executive directors. Executive directors below the CEO of IAG (currently, this is just the CFO of IAG) had their shareholding requirement increased to 200 per cent of basic salary, with effect from January 1, 2016. The maximum value of variable remuneration offered at recruitment will be no more than that awarded to current directors. Therefore, for a new CEO of IAG there will be a 200 per cent maximum opportunity in the annual incentive plan and a 200 per cent maximum face value award for the PSP. For any new executive director other than a new CEO of IAG, the figures will be maxima of 150 per cent and 150 per cent respectively. These figures exclude any buy-out amounts. INTERNATIONAL AIRLINES GROUP Annual Report and Accounts 2016

79 The table below summarises the main elements of remuneration packages for the executive directors: Purpose and link to strategy Operation of element of policy Maximum opportunity Performance metrics Base salary To attract and retain talent to help achieve our strategic objectives Annual incentive award Incentivises annual corporate financial performance and the delivery of role specific objectives Incentive Award Deferral Plan (IADP) Aligns the interest of executives and shareholders and provides a retention tool Takes account of role, skills and contribution. The positioning of base salaries is set with reference to market positioning (primarily the FTSE 26 to 100 excluding financial services), as well as the individual’s skills and contribution. Basic salaries are reviewed annually, to take effect on January 1 each year. Although there is no formal maximum, basic salaries are reviewed annually by the Remuneration Committee by taking into account the following factors: company affordability, the value and worth of the executive, retention risks, and the size of pay increases generally across the whole group of companies. The Board, on a recommendation from the The maximum opportunity in the Committee, sets the financial targets that incentive plan is 200 per cent of apply to the annual incentive award (two- salary. 50 per cent of this will be thirds of the annual incentive) at the beginning awarded for on-target performance, of each year. These are set by reference to a and there will be no payment at all number of factors including the Business Plan until financial and personal (as approved by the Board). For the one-third performance have reached the portion based on personal objectives, the threshold level of the target range. Remuneration Committee, on the proposal of the Chairman, will consider the Chief Executive Officer performance against his role-specific objectives; and the Remuneration Committee, on the proposal of the Chief Executive Officer, will consider the Chief Financial Officer performance against his role-specific objectives. Both performance evaluations will be submitted to the Board for final approval. The Board, on a recommendation from the Committee, retains the discretion to prevent any incentive award payments if, in its opinion, the underlying financial performance of the Company had not been satisfactory in the circumstances. Malus and clawback provisions apply – see below. The IADP operates over 50 per cent of the annual incentive award. It is designed to align the interests of executives with shareholders by providing a proportion of the annual incentive in deferred shares. The shares will be subject to forfeiture if the executive leaves during the three year deferral period, except if the executive is granted Good Leaver status. This is covered in the section below on exit payment policy. On vesting, executives will receive the benefit of any dividends paid over the deferred period. In line with the rules of the IADP and IAG’s philosophy to encourage and facilitate employee shareholding, participants may elect to self-fund any tax due rather than sell a portion of their share award to meet tax liabilities. Malus provision applies – see below. Half of any annual incentive plan pay-out is deferred into shares. Individual and business performance are considered in reviewing and setting base salary. Two-thirds of the annual incentive is subject to a financial measure (e.g. IAG operating profit), and one-third is based on role specific objectives. No other performance conditions apply because it is based on performance already delivered. Strategic Report Corporate Governance Financial Statements Additional Information www.iairgroup.com

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