In making the above changes to the package, the Company has been mindful of the impact on the overall value of the package. Using assumptions consistent with those underlying the value placed on LTIPs in the Company’s accounts, and assuming executive directors invest half their net bonus into the SMP, the table below summarises the proposals and compares ‘expected’ value of the total direct reward (base salary plus bonus plus long-term incentives) before and after the changes. As the improvements in the annual bonus levels for 2008 will not feed into the SMP until 2009, and the extension of the SMP match will not be introduced until 2009, the expected values of the incentive package delivered in both 2008 and 2009 are shown.
The charts below show the key drivers of performance and their influence on the incentive package.
Performance drivers of incentive package
Total value of incentives as a percentage of salary
| UK executive directors | US executive director | |||
|---|---|---|---|---|
| Current | New | Current | New | |
| Annual bonus | ||||
| On-target | 54% | 61% | 81% | 110% |
| Maximum | 100% | 125% | 150% | 225% |
| Share Matching Plan |
||||
| Match | 1/3:1 – 1:1 | 0 – 2:1 | 1/3:1 – 1:1 | 0 – 2:1 |
| EPS growth target (% pa) | Real growth of 3% – 8% |
Actual growth of 5% – 11% |
Real growth of 3% – 8% |
Actual growth of 5% – 11% |
| Share option grant | ||||
| Award (% of salary) | 150% | - | 150% | - |
| PSP grant on TSR | ||||
| Award (% of salary) | 100% | 100% | 100% | 125% |
| TSR vesting | 1/4 at median, All at top 20% |
1/4 at median, All at top 20% |
1/4 at median, All at top 20% |
1/4 at median, All at top 20% |
| PSP grant on EPS | ||||
| Award (% of salary) | - | 100% | - | 125% |
| EPS growth target (% pa) | - | Nil at 5%, all at 11% |
- | Nil at 5%, all at 11% |
| Expected value of total direct reward as a percentage of salary |
||||
| 2007 | 258% | 293% | ||
| 2008 | 282% | 366% | ||
| 2009 | 298% | 400% | ||
