Base salary
As a result of the above review and, having taken account of the competitive positioning, performance and general market trends, the Committee has increased the annual base salaries of executive directors with effect from January 2008 as follows:
| Executive director | Base salary at 31 December 2007 |
Base salary at 1 January 2008 |
Percentage increase |
|---|---|---|---|
| George Rose Group Finance Director |
£560,000 | £592,500 | 5.8% |
| Ian King 1 Chief Operating Officer – UK/Rest of World |
£560,000 | £592,500 | 5.8% |
| Walt Havenstein 1 Chief Operating Officer – US |
$850,000 | $900,000 | 5.9% |
1 The two Chief Operating Officers were new in post at the beginning of 2007. Following a half year review of performance in their new roles, the base salary of Ian King was increased from £530,000 to £560,000, and that of Walt Havenstein was increased from $750,000 to $850,000, with effect from 1 July 2007.
Annual bonus
Structure: The annual bonus for 2008 has been restructured to increase the focus on long-term performance and risk management (both business risk and reputation risk). To further reinforce the importance of key aspects of the Group’s corporate responsibility agenda, a specific part of the annual bonus will be based on driving performance and improvement in ethics and safety. The structure of the annual bonus for 2008 will be:
| Measure | % of bonus | |
|---|---|---|
| In-year financial performance | 66% | Down from 75% |
| Ethics and safety | 12% | Up from 25% |
| Other objectives that support the Executive Committee’s top ten objectives |
22% | Up from 25% |
At present, executive directors can invest some or all of their net annual bonus into the Share Matching Plan (SMP). To increase the alignment between short-term and long-term reward, executive directors will be required to invest at least one-quarter (one-third for the Chief Operating Officer – US) of their net 2008 annual bonus into the SMP when the bonus is paid in 2009. Further investment can be made on a voluntary basis up to a maximum investment of half their net bonus.
Levels: To remain competitive and to increase the gearing to drive for high performance, the maximum bonus levels have been increased to market median levels but the payout for achieving on-target performance against the in-year financial targets has been reduced from 50% to 40% of maximum. The table below summarises the revised bonus structure and levels for the executive directors.
| Maximum bonus as percentage of salary | UK executive directors | US executive director | ||
|---|---|---|---|---|
| Current | New | Current | New | |
| In-year financial performance | 75% | 83% | 112.5% | 150% |
| Ethics and safety | 25% | 15% | 37.5% | 27% |
| Other objectives supporting the Group strategy | 25% | 27% | 37.5% | 48% |
| Total | 100% | 125% | 150% | 225% |
| Bonus compulsorily invested into SMP | - | 31.25% | - | 75% |
| Maximum bonus payable in cash | 100% | 93.75% | 150% | 150% |
The financial targets, both base and stretch, are derived from the Integrated Business Plan (IBP), which is agreed by the Board and which implements corporate strategy on a group-wide basis by ensuring that business plans which support the strategy are integrated across all businesses. In determining the in-year financial performance measures, the view was taken that the Company’s major investors believe EPS and cash targets (and, where appropriate, EBITA1) to be key indicators of long-term financial performance and value creation.
The Executive Committee top ten objectives are agreed by the Board each year as those key to delivering the Group’s strategy. These are set out on the 2008 Executive Committee top ten objectives page and used as the basis to set the individual objectives for the executive directors which are agreed by the Chairman and the Committee. These then flow down to members of the Executive Committee and the senior leadership team to ensure that all businesses within the Group are aligned with the overall Group strategy. The annual bonus targets set by the Committee for the executive directors, which the Committee believes are stretching but achievable, are summarised in the table below.
| Annual bonus as a percentage of base salary for 2008 | George Rose | Ian King | Walt Havenstein | |||
|---|---|---|---|---|---|---|
| Measure | Base target |
Stretch target |
Base target |
Stretch target |
Base target |
Stretch target |
| Group EPS | 16.6% | 41.5% | 8.3% | 20.75% | 15% | 37.5% |
| Group cash | 16.6% | 41.5% | 8.3% | 20.75% | 15% | 37.5% |
| Business EBITA1 | - | - | 8.3% | 20.75% | 15% | 37.5% |
| Business cash | - | - | 8.3% | 20.75% | 15% | 37.5% |
| Ethics and safety | Up to 15% | Up to 15% | Up to 15% | Up to 15% | Up to 27% | Up to 27% |
| Other objectives supporting the Group’s strategy | Up to 27% | Up to 27% | Up to 27% | Up to 27% | Up to 48% | Up to 48% |
If performance is between the base and stretch targets, the bonus is pro-rated on a straight line basis
1. earnings before amortisation and impairment of intangible assets, finance costs and taxation expense.
