Remuneration Committee
Jill Little (Chairman)
Gordon McQueen
Oliver Marriott
Hilary Riva
All Committee members are independent non-executive Directors. The Committee’s composition did not change during the year.
In addition to its regular work, the Committee during the year reviewed and recommended to the Board the employment terms of the new appointees to the roles of Deputy Chairman, Chief Executive and Finance Director; and reviewed the Group’s LTIP performance conditions and annual bonus objectives and targets.
Terms of reference
The Committee’s terms of reference which are available on the Group’s website encompass:
- Reviewing the Group’s remuneration framework and policy;
- Determining within this framework the specific remuneration packages for the Chairman, executive Directors and Company Secretary;
- Monitoring the remuneration of staff;
- Reviewing share plans;
- Designing and setting targets for the annual bonus scheme; and
- Reviewing pension and other benefit arrangements.
The Chief Executive and Deputy Chairman may at the invitation of the Committee Chairman attend meetings. Other executive Directors do not attend. No Director has any involvement in decisions regarding their own remuneration.
Activities during the year
The Committee met eight times (three scheduled and five additional meetings) during the year to deal with the following matters:
Remuneration policy
The objective of the Group’s remuneration policy is to have a simple, transparent remuneration structure aligned with the Group’s long term business strategy.
The Group aims to provide a remuneration package which will secure and retain high calibre executive Directors and management with the skills, experience and motivation necessary to manage the business of the Group and maximise shareholder value on a sustainable basis. In determining the components of total remuneration, the Committee seeks to incentivise Directors and other staff, placing emphasis on rewards for performance and delivery of shareholder value and recognises that under- performance should not be rewarded.
The performance related elements of annual bonus and long term incentives can constitute a substantial proportion of the total remuneration if the challenging targets set by the Committee are met.
There were no changes to the Group’s remuneration policy during the year.
The components of executive Directors’ remuneration are set out below:
The Committee considers the salaries of all employees within the Group when setting salary levels of the executive Directors. The same remuneration principles are applied across the Group and all employees are eligible to participate in the Group’s annual bonus scheme and LTIP.
New Bridge Street (an Aon Hewitt Company) has provided external independent advice to the Committee during the year. It is appointed by the Committee and only provides advice to the Group in respect of the Directors and Company Secretary’s remuneration.
Terms of employment
The executive Directors are employed under service contracts which may be terminated by either party giving not less than twelve months notice. In the case of Jonathan Lane and Brian Bickell, a maximum of twelve months salary and benefits would be payable by the Group in the event of termination without notice although the Board would seek to reduce the amount payable by enforcing a Director’s duty to mitigate his loss. In the case of Simon Quayle and Thomas Welton, their contracts can be terminated by the Group paying a sum equal to their basic annual salaries. The Group has no other financial obligations in the event of early termination of an executive Director’s contract.
Upon his appointment as Chief Executive, Brian Bickell entered into a new service contract effective from 1 October 2011 on substantially the same terms as his existing contract. His notice provisions described above continue to apply to his new contract. Upon his appointment as Deputy Chairman, Jonathan Lane’s existing contract was varied by letter to reflect the change in his role. The role is non-pensionable. His notice provisions remain the same. Details of Christopher Ward’s terms of employment are found in the remuneration report.
Executive Directors are permitted to accept external appointments with the prior approval of the Board where there is no adverse impact on their role with the Group. Any fees arising from such appointments may be retained by the executive Director where the appointment is unrelated to the Group’s business. Jonathan Lane received and retained fees in the year ended 30 September 2011 in respect of his directorship of a private company unconnected with the Group’s business totalling £4,250 (2010: £4,250). The other executive Directors did not hold any paid external appointments during the year.
The Group has a policy which requires executive Directors to build up and maintain a minimum shareholding in the Company equivalent to one year’s salary. Newly appointed executive Directors will be expected to accumulate a shareholding to this value over a period of five years from the date of their appointment. At 30 September 2011 the market value of executive Directors’ actual shareholdings was between nine and twelve times their annual salary at that date.
The terms of appointment of non-executive Directors are documented in letters of appointment and the standard letter is set out on the website. They have a one month notice period and their appointment would terminate without compensation if not re-elected at the Annual General Meeting.
Remuneration
Set out below is a detailed explanation of the components of executive Directors’ remuneration. Tables 1 to 3 contain the details of pay entitlements for Directors during the year.
Base salary
The revised salaries of Jonathan Lane and Brian Bickell are set out below for their roles from 1 October 2011, when Brian Bickell became Chief Executive and Jonathan Lane became Deputy Chairman. Jonathan Lane remains an executive Director on a part time basis contracted to work two days a week.
Salaries for the other executive Directors were revised with effect from 1 December 2011 to reflect the performance of the Group and the individuals, and cost of living increases.
Salaries of other employees were also reviewed with effect from 1 December 2011, with increases of at least 4%.
The chart below illustrates the balance of fixed and variable pay which comprises the executive Directors’ remuneration on an aggregate basis:
* The relative proportions for share options has been calculated using the fair value per award and the expected percentage of options that will vest at the respective year ends.
Annual Bonus Scheme
The Group operates an Annual Bonus Scheme under which executive Directors and employees may be awarded a bonus based on the achievement of a range of challenging personal and corporate performance targets.
These are set by the Committee at the beginning of each year and assessed at the year end in light of actual performance. The targets are consistent with the Group’s overall strategy and key business objective of long term growth of rental income and net asset value with focus on the attainment of key management and business objectives. They relate to those operational and financial aspects of managing the Group’s portfolio which are considered to be critical to maximising and realising its income and capital value potential. In setting these robust targets and assessing actual performance, factors which the Committee takes into account include the Group’s financial and non- financial KPIs and its success in achieving its corporate responsibility objectives including:
- The extent to which rental levels are achieved in excess of the market rental values assessed by the Group’s external valuers at their last valuation (a Group KPI);
- The ability of management to maximise the occupation of its properties and, where vacancies arise, minimise the time that properties are vacant and not producing income (a Group KPI); and
- Corporate responsibility performance against targets set at the beginning of the year.
An explanation of the Group’s KPIs is contained within the Business Review. Total shareholder return and growth in net asset value are the performance measures which are used in the LTIP and are therefore not used as measures for the Annual Bonus Scheme.
Other than in exceptional circumstances, the maximum annual bonus is limited to 125% of salary. The Committee is satisfied that the bonus limit is not excessive. Participants may elect to receive a bonus in shares or cash. To encourage investment in the Group’s equity, the value of the bonus is reduced by 20% for that part taken in cash rather than shares.
Where a participant elects to take part or all of their annual bonus in shares, awards are granted under the Deferred Annual Share Bonus Scheme, which allows participants to exercise their award after a minimum period of three years and no later than seven years following the date of the award. The value of dividends receivable on the shares accrue and is paid on exercise.
This award is not subject to any further performance conditions as it relates to the deferred element of a bonus which has already been earned
Annual bonuses are not pensionable and are not contractual.
Long Term Incentive Plan
All employees are eligible to participate in the plan. Conditional awards in the form of nil cost options are granted to employees at the discretion of the Committee. Awards to employees are limited to a maximum value of 150% of salary per annum in normal circumstances. Within this limit the maximum percentage of salary will vary according to the employee’s position in the Group and in particular to the extent to which they are capable of influencing corporate performance of the Group. In exceptional circumstances an award of up to 200% of salary may be made.
Each award is subject to performance conditions set by the Committee each year applying over a three year performance period. There are two separate performance conditions for the vesting of awards, independent of each other and each applying to one half of the shares awarded. The Committee considers that the performance conditions provide a balanced assessment of the long term performance of the Group, with NAV focusing on improvements in asset performance and TSR rewarding superior returns to shareholders. The conditions apply to the awards made in previous and current financial years as the Committee believes the conditions are still appropriate to the Group
Performance against these criteria is illustrated below for grants in 2007 and 2008 which have vested during the financial year or are about to vest. The awards made in 2008 for the performance period 1 October 2008 to 30 September 2011 will vest on 16 December 2011. New Bridge Street prepare the TSR calculation and verify the NAV calculations for the Committee.
Sharesave
The Group operates an HM Revenue & Customs approved Sharesave scheme for all employees. The scheme rules had been in operation for ten years and were due to expire in 2011. The extension of the rules for a further ten years was approved at the 2011 Annual General Meeting.
Employees have the option to save up to £250 per month for three or five years. At the end of the savings period, employees may use their savings plus a tax free bonus to acquire shares in the Group at the market price prevailing shortly before they commenced saving. A further offer of savings contracts to all employees to buy shares in the Group at a 20% discount to the market price prevailing shortly before the date of grant was made during the year. All executive Directors participated in the scheme again this year.
Clawback
The Committee has introduced a clawback provision for executive Directors under the Annual Bonus Scheme and the LTIP for material misstatement of the financial statements or gross misconduct which will apply to awards from December 2011 onwards.
Non-executive Directors’ fees
Fees payable to non-executive Directors are determined by the Board with the non-executive Directors taking no part in the discussion. Fees are within limits set by the Articles of Association and are intended to reflect time commitment and responsibilities of individual non-executive Directors’ roles. They are set at broadly median levels to ensure individuals of the necessary calibre and experience are recruited and retained. Fees are reviewed every two years with market data provided by New Bridge Street.
Basic fees were reviewed in November 2011 and will remain at current levels for non-executive Directors. With effect from 1 December 2011, a fee for the Chairmanship of a Committee of £7,500 for non-executive Directors, other than the Chairman, has been introduced.
The fees payable to the Chairman are set by the Committee and ratified by the Board with the Chairman taking no part in the discussion regarding his fees.
Fees with effect from 1 December 2011 are as follows:
Appointment of Finance Director
Christopher Ward will join the Board in January 2012 as Finance Director and be proposed for election at the 2012 Annual General Meeting.
He will be employed on an annual salary of £250,000 and will be entitled to a package of benefits identical to other full time executive Directors. It is expected that on joining the Group, he will be granted nil cost options under the Group’s LTIP. Any such offer of LTIPs will be in line with those granted to the other executive Directors.
He will be employed on a service contact with a notice period of six months for the first twelve months of the contract and thereafter on twelve months’ notice. The contract contains a clause, identical to that contained in Jonathan Lane and Brian Bickell’s contracts, of Director’s duty to mitigate loss.
Total shareholder return
The graphs below show the TSR for the Company compared with the FTSE 350 Super Sector Real Estate Index of which the Company is a constituent. The Committee uses this index as one measure of performance for awards of shares under the LTIP, it considers this is an appropriate benchmark against which the relative performance of the Company should be compared for the purposes of considering executive Directors’ remuneration. The graphs below show relative TSR performance over the last five and ten financial years.
The Board considers that the Group has complied throughout the year with the requirements of the UK Corporate Governance Code in relation to Directors’ remuneration.
A resolution to approve this Report will be proposed at the 2012 Annual General Meeting.
Audited tables
Table 1 – Remuneration (audited)
Table 2 – Share options (audited)
Directors exercised certain share options during the year and, in each case, sold sufficient shares to meet the subscription cost (where appropriate), their personal taxation and national insurance liabilities arising on the exercise and retained the remainder. The gains stated above are the gross proceeds of the exercise (before deduction of tax and national insurance) after deducting the cost of exercising the option where relevant. The share prices on the dates of exercise are set out below.
Table 3 –Share entitlement under Deferred Annual Share Bonus Scheme and held in the employee benefit trust (audited)
Directors hold entitlements to shares in respect of that part of awards granted under the Deferred Annual Share Bonus Scheme where Directors have elected to take their annual bonus by way of shares rather than cash. At 30 September 2011 and at 28 November 2011, the trustee of the Shaftesbury PLC Employee Benefit Trust held a total of 89,605 shares in respect of awards granted but not delivered to Directors (as set out below) and employees.
Each award of shares may be delivered to an individual for a consideration of £1 at any time between three and seven years after the date of grant of an award. No long term performance conditions apply to these awards as the awards have been made after annual performance targets relating to the annual bonus have already been met. The value of these awards has already been disclosed as part of the bonus figure in the remuneration table of the year to which the bonus related.
No Director elected for shares under this scheme in 2009.
On behalf of the Board
Jill Little
Remuneration Committee Chairman
30 November 2011
See Annual Report for detail.
