22
AVESCO GROUP PLC ANNUAL REPORT 2011
www.avesco.com
DIRECTORS’ REMUNERATION REPORT
As an AIM listed company, the Company is not required to comply fully with the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 in relation to the Directors' Remuneration Report. Nevertheless, the Board prefers to follow best practice and has therefore prepared the following report. The report complies with the revised AIM Rule 19 and will be put to shareholders for approval at the Annual General Meeting.
This part of the Directors’ remuneration report is unaudited.
Remuneration Committee The remuneration committee comprises Mr Murray and Mr Giniger, who are both non-executive Directors. Mr Murray served on the committee throughout the year. Mr Gibbins was a member of the committee until 10 March 2011, when he ceased to be a Director and Mr Giniger joined the Committee. The remuneration committee has not sought professional advice from external consultants during the year. However, the remuneration committee consults with the Chief Executive, as it considers appropriate, in relation to its proposals relating to the remuneration of the executive Directors.
Remuneration Policy The remuneration committee makes recommendations to the Board on the executive remuneration policy and determines specific remuneration packages for each of the executive Directors. The aim of the remuneration committee is to provide total remuneration packages which attract, retain and motivate executive Directors of the appropriate calibre. The remuneration policy is to reward excellent performance, to be commercially competitive and to align the interests of employees with those of shareholders to create value.
This report sets out the Company's policy on executive remuneration, its operation in the year and (although the remuneration committee is unable to confirm that the policy will continue without amendment in future years) how it is intended to be operated going forwards. It is considered that a successful policy should retain sufficient flexibility to allow account to be taken of future changes in the business environment and remuneration practice. The policy should also allow for any special arrangements which may be necessary in the future in order to recruit a director of sufficient calibre. However, any changes in the policy for future years will be described in future reports, which will be subject to shareholders’ approval.
The principal elements of the remuneration package are as follows:
Basic salary and benefits The salary of each executive Director is reviewed annually having regard to his individual responsibilities and contribution and to ensure that it is competitive with salaries of persons in equivalent positions in comparable companies. All executive Directors receive a Company car and fuel benefit (or an allowance in lieu) and are entitled to pension contributions, medical insurance, life assurance and permanent health insurance cover.
Annual bonus Each of the executive Directors is entitled to a non-pensionable annual bonus which is dependent upon the achievement of short-term corporate and personal performance targets approved by the Remuneration Committee. The annual bonus may not exceed 100% of basic salary. In respect of each of the year ended 30 September 2011 and the year ending 30 September 2012, the annual bonus is based on a range of personal, divisional or Group performance targets, which will differ between directors according to their respective responsibilities and which will be measured against and conditional upon achievement of the Company's internal budgets for the year.
Long term incentives During the year, the Company has operated an executive share option scheme (“Option Scheme”), which was established in 1997 but is now closed, and a long term incentive plan (“LTIP”), which was established in 2007 and continues in operation (see Note 28 in these Accounts for further details).
Under the Option Scheme, which was a HM Revenue and Customs unapproved scheme, the Company granted options to its then directors in respect of a total of 1,468,467 ordinary 10p shares, capable of exercise at a price of 71.1667p per share between 24 February 2007 and 24 February 2011. The right to exercise these options was subject to a performance condition that has been satisfied. On 20 January 2011, options in respect of a total of 1,142,141 shares were settled by means of share appreciation rights whereby no new shares were issued but instead: (i) a total of 348,151 ordinary shares were transferred out of treasury to the option holders; and (ii) in lieu of the issue of additional shares in respect of the option exercise, a cash bonus was declared and used to discharge the Company’s liability to account for tax and national Insurance contributions on the exercise of these options. As a result, all options granted under the Option Scheme have now either been exercised or lapsed and no further grants of options may be made. Except as described above, none of the terms and conditions of the options was varied during the year.
Under the LTIP, awards are made to employees under which they can receive Avesco shares at no cost to themselves based on the achievement of a pre-determined and stretching performance condition. It is intended that vested allocations will be satisfied in due course by delivery through an employee trust. No individual may receive awards in any financial year with an aggregate value at the time of grant in excess of 100% of the employee's basic annual salary although this limit may increase to 200% of the employee's basic annual salary if the remuneration committee decides that exceptional circumstances exist. No awards may be made under the LTIP more than 10 years after its adoption.
The rules of the LTIP provide that in any 10 year period no more than 15% of Avesco's issued share capital from time to time may be issued or subject to an award or option to be issued for the purposes of the LTIP or any other employee share scheme. The 15% limit takes account of the fact that, as at the date of adoption of the LTIP, options had been granted under the Option Scheme in respect of 5.65% of the issued share capital to persons who no longer performed an executive role in the Company and, therefore, less than 10% of the issued share capital would be available for the issue of awards to executives under the LTIP.
LTIP awards were made in August 2007 and January 2008, which were subject to performance conditions that have not been achieved, and accordingly those awards have lapsed. Awards were made in February 2010 in respect of a total of 1,250,000 rights to shares under the LTIP (of which 490,000 were to Directors) and in January 2011 in respect of a total of 1,200,000 rights to shares (of which 320,000 were to Directors). These awards are subject to performance conditions based on the Group achieving a cumulative consolidated adjusted EBITDA target over the three years ending 30 September in 2012 and 2013, respectively. The remuneration committee has discretion to adjust the EBITDA target in relation to exceptional and/or non-recurring events. Subject to the rules of the LTIP and the fulfilment of the performance condition, 50 per cent of the shares will be released after the preliminary announcement of the results of the Company for the final year of the three year target measurement period and, subject to continuing service of the award holder, the remaining 50 per cent of the shares will be released approximately 12 months’ later. None of the terms and conditions of the LTIP awards was varied during the year.
It is intended that further awards may be made under the LTIP in the next 12 months subject to the rules of the LTIP and the fulfilment of a similar performance and vesting conditions as for the previous awards.
Pensions Pension contributions relating to the executive Directors of the Company are paid to defined contribution arrangements and are calculated by reference to basic salary only. Annual bonuses and other benefits are not pensionable.
Contracts Except as noted below, the service contracts of the executive Directors are subject to a twelve months’ notice period by either party. It is the policy of the remuneration committee that the Company should not enter into contracts for any executive Director with rolling notice periods exceeding one year.
The contracts of the executive Directors provide that, in the event of their termination in certain circumstances in the 12 months following a change of control of the Company, the Director shall be entitled to a severance payment not exceeding the sum of 24 months’ emoluments less emoluments received since the change of control. The severance payment is triggered only in the event of termination of the Director (other than for gross misconduct) by the Company or in the event of the Company committing a material breach or making a material change to the Director's detriment in the terms and conditions of the Director's employment or assigning to him duties inconsistent with the position held prior to the change of control. The remuneration committee consider such a provision appropriate in order to retain the services of key executives in the event of a change of control occurring and in order to ensure an orderly transfer to an acquirer.
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