Annual Report 2010 in PDF - BBA Aviation

Directors’
Remuneration
Report
continued
78 — Directors’ Report
The annual bonus payments in respect of 2010 are included in table 1
on page 81. Both Simon Pryce and Mark Hoad received 70.6% of their
salary in respect of the performance against the f nancial objectives
set (35.6% in respect of partial achievement of Group operating proft
targets, 35% in respect of full achievement of Group free cash fow
targets). Andrew Wood also received 70.6% of his salary in respect of
achievement of fnancial objectives and 20% in respect of
achievement of personal objectives, prorated to refect his retirement
at the end of April 2010. Simon Pryce received 17% and Mark Hoad
received 19% in respect of achievement of their respective personal
objectives.
2011 Annual Bonus arrangements
The structure for the 2011 annual bonus follows that of the 2010
annual bonus. Of the maximum bonus opportunity for executive
directors of up to 125% of salary: 105% will be based on f nancial
objectives (with a maximum of 35% for achievement of Group free
cash fow targets and 70% for achievement of Group operating proft
targets) and the remaining 20% based on measurable personal
objectives. As was the case for the 2010 annual bonus, 50% of any
bonus paid to Simon Pryce and Mark Hoad in 2012 in respect of the
2011 annual bonus will be compulsorily deferred into BBA Aviation
shares under the Deferred Bonus Plan described below. A further 50%
will be eligible to be deferred voluntarily at the director’s discretion.
While the Committee had concluded in 2009 that the changed
economic environment at that time meant that it was appropriate to
increase the weighting given to cash fow in the 2009 annual bonus, in
2010 and again in 2011 the Committee has concluded that a signifcant
weighting on operating proft targets is now appropriate in the
current economic environment.
c. Longer-term performance incentives – Deferred Bonus Plan
The structure of deferred bonuses, paid in shares, places increased
focus on long-term alignment with shareholder value creation and
encourages the retention of key employees.
The Remuneration Committee believes that it is important to
encourage personal investment and ongoing shareholding in BBA
Aviation plc. The Company has had a deferred bonus plan since 2006
and this plan enables a signifcant proportion of executive directors’
remuneration to be deferred and linked to performance-related longterm
incentives. The structure of deferred bonuses, paid in shares
under this plan, places increased focus on long-term alignment
with shareholders’ interests, reinforces the critical importance of
maintaining performance and aids retention.
A fxed percentage of the annual bonus awarded to executive
directors and other senior management has to be deferred into BBA
Aviation’s shares for a period of three years. Executive directors and
other senior management may voluntarily defer a further percentage
of their annual bonus into shares held under the terms of the Deferred
Bonus Plan. The Company makes a matching award of shares (on a
one to one basis) calculated by reference to the total amount of bonus
deferred (whether voluntarily or compulsorily). These matching
awards are subject to a performance condition that is tested at the end
of the three-year performance period and the awards will lapse if the
condition is not met.
The overall efect is to defer the payment of at least 50% of the annual
bonus earned by executive directors as shown by the timeline below:
Timeline for 2010 annual bonus:
2010 Annual bonus targets set
2011
2012
2013
2010 bonus targets measured and
performance conditions set for
matching award
Year 1 of deferred 2010 bonus
Year 2 of deferred 2010 bonus
2014 Deferred 2010 bonus released in
shares and depending on performance
condition being satisfied related
matching shares released
The performance condition that was used for the matching awards
that were granted in 2010 in relation to the 2009 annual bonus was
comparative TSR and this performance condition too will be measured
over a three-year performance period. Further details of that condition
are shown on page 79. As disclosed in last year’s remuneration report,
the Committee believes that it is appropriate to move to the more
relevant Company fnancial measure of ROIC in respect to the matching
awards that will be made under the Deferred Bonus Plan in March 2011.
It is intended that the ROIC performance condition used for the
matching award in 2011, and measured over a three-year performance
period, will result in full vesting if average pretax ROIC over the
three-year period is 11.5%, with 25% of the award vesting if average
pretax ROIC over the three years is 10% and pro-rata vesting between
25% and 100% for average pretax ROIC between 10% and 11.5%.
As ROIC for the frst half of 2010 was 8.8% and ROIC for the full year was
below 10% the Committee is of the view that this proposed target
is suitably stretching.
For the 2010 bonus paid in 2011 and for future bonuses, if at any
time before the third anniversary of the deferral into shares the
employee leaves the Group (other than due to injury, disability,
retirement, redundancy, death or their employing company ceasing to
be a part of the Group) then that part of the bonus compulsorily
deferred into shares and still subject to restrictions would be forfeited,
subject to the rules of the Deferred Bonus Plan. The forfeiture
restrictions would in general be lifted as to a third on each anniversary
of the deferral into shares. On the third anniversary of the deferral into
shares, the shares would be released to the employee. If an employee
left before the third anniversary any voluntarily deferred portion of the
bonus would be retained by the individual, though the related
matching award would usually lapse on their departure.
The Committee considers the award levels under the Deferred
Bonus Plan to be appropriate, when viewed in the context of the
structure of the total remuneration package including the increased
element of compulsory deferral of bonus forfeitable if the individual
leaves within three years, and to support and reinforce its policy to
reward sustained and superior performance with potential upper
quartile remuneration.