Renumeration Report (page 2)
The Group currently has the following incentive schemes and plans under which awards are outstanding.
No further awards are proposed under the following three plans
1996 Unapproved Executive Share Option Scheme
Executive directors and other senior employees are selected to receive options over shares. Under the Rules of the scheme, exercise of an option is subject to growth in the Company’s earnings per share, excluding exceptional or extraordinary items, exceeding the growth in the retail prices index over a performance period. Options are exercisable between the third and the tenth anniversaries of their dates of grant.
Performance condition: The condition is that the percentage increase in earnings per share, calculated by reference to any three consecutive published balance sheets of the Company commencing with the last published balance sheet prior to the date of grant, exceeds the percentage growth in the retail prices index over the same period by 3% or more.
Long Term Incentive Plan
Under this plan, executive directors and other senior employees are selected to receive awards over shares that vest in whole or in part depending on the satisfaction of a performance condition related to the growth in earnings per share compared to the retail prices index over a performance period.
Performance condition: The performance condition attaching to awards under the plan relates to increase in earnings per share. For an award to vest in its entirety, the increase in earnings per share over the performance period of three years must be not less than the increase in the retail prices index plus 36%. For an award to vest at its lowest level of 25%, the growth in earnings per share over the performance period must be equal to the increase in the retail prices index plus 9%. Awards lapse if the performance is below this level. Where growth is between 9% and 36% above RPI awards are realisable on a straight-line basis. This plan has now been replaced by the 2005 Long Term Incentive Plan.
Deferred Bonus Plan
Under the plan, an eligible executive may defer between 10% and 50% of his or her cash bonus in exchange for receiving a basic award over shares in the Company with a value equivalent, at the date of award, to the amount of the deferred bonus. A basic award may, in normal circumstances, be exercised by a participant after two years. However, if exercise is deferred until after three years and the executive remains employed by the Group, the participant is entitled to receive a matching award of additional shares equal in number to those comprised in the basic award. Shares comprising basic awards are purchased in the market and held in trust by Mourant & Co Trustees Limited until exercise. Dividends are not paid on shares held in trust.
Performance condition: Bonuses received by participants, and which may be deferred under the plan, are themselves subject to demanding performance conditions linked to Company and/or individual performance. The awards under the plan are not subject to any further performance targets. This plan has now been replaced by the 2005 Deferred Bonus Plan.
Further awards are proposed under the following plans
2002 Approved Share Option Plan
This plan is approved by HM Revenue and Customs. Executive directors and other senior employees are selected to receive options over shares. Exercise of an option is subject to growth in the Company’s earnings per share, excluding exceptional or extraordinary items, exceeding the growth in the retail prices index over a performance period. The percentage growth over the retail prices index determines the proportion of the award that may be exercised. Options are exercisable between the third and the tenth anniversaries of their dates of grant.
Performance condition: If the percentage growth in the earnings per share of the Company, after adjustments for exceptional or extraordinary items, exceeds the percentage growth in the retail prices index over the three year performance period by 2% per annum (the base target threshold), an option will become exercisable in respect of one-third of the shares over which it is held. Full vesting takes place when such growth over the performance period is 4% per annum or greater. A sliding scale operates for performance between the lower and upper thresholds. Options lapse if the base target threshold is not achieved. There is no re-testing of performance.
2002 Unapproved Share Option Plan
This plan is the same as the 2002 Approved Share Option Plan and has the same performance condition, except that it is not approved by HM Revenue and Customs.
2002 Sharesave Scheme and International Sharesave Plan
The Group operates a savings related share option scheme in the UK and a similar international plan in respect of overseas employees in certain countries. The scheme and plan are open to all the Group’s employees, including the executive directors, in those geographical areas who have the necessary length of service. Under the scheme and plan, participants contract to save a set amount each month in return for which they receive an option over a specified number of shares. At the end of the savings period participants may exercise their options to buy shares in the Company using their savings. Exercise is not subject to any performance condition.
2005 Long Term Incentive Plan (approved by shareholders at the Annual General Meeting in 2005)
Under this plan, executive directors and other senior employees are selected to receive awards over shares that vest in whole or in part depending on the satisfaction of a performance condition related to Vitec’s total shareholder return (TSR) over a period of three years, relative to a comparator group of other companies.
Performance condition: If Vitec’s TSR performance is at the median of the comparator group, 35% of an award may vest. The full award may vest if Vitec’s TSR performance is in the top 20% of the comparator group. There is pro-rata straight line vesting between these two points. The Remuneration Committee will also consider the underlying financial performance of the Company before it confirms vesting.
2005 Deferred Bonus Plan (approved by shareholders at the Annual General Meeting in 2005)
Executive directors are required to defer a proportion (currently 20%) of any cash bonuses in exchange for receiving a basic award over shares in the Company with a value equivalent, at the date of award, to the amount of the deferred bonus. However, subject to the discretion of the Remuneration Committee, the executive may voluntarily decide to defer a higher proportion up to a maximum of 100% of any bonus paid under the annual bonus scheme. A basic award may, in normal circumstances, be exercised by a participant after two years. However, if exercise is deferred until after three years and the executive remains employed by the Group, and subject to the performance condition, the participant is entitled to receive a matching award of additional shares equal in number to those comprised in the basic award. Shares comprising basic awards are purchased in the market and held in trust by Mourant & Co Trustees Limited until exercise. Dividends that would have accrued to the deferred shares and the matching shares over the three years will be taken into account when calculating the final number of shares to vest.
Performance conditions: If the executive remains in employment for three years and if in that period the Company’s TSR relative to a comparator group of other companies is at median, or above, of the comparator group, the deferred shares will be matched at the rate of:
- one share for every three shares at median performance
- one share for every one share within the top 20% performance
There will be pro-rata straight line vesting between these points.
Five-year share price performance 2001-2005
Under the requirements of the Directors’ Remuneration Report Regulations 2002, the Company is required to include a graph showing the Company’s performance compared to an appropriate index. Set out below, the graph illustrates the Company’s annual total shareholder return (share price growth plus dividends that have been declared, paid and reinvested in the Company’s shares) relative to the FTSE Industrial Engineering Index for the five year period 2001-2005, assuming an initial investment of £100. The Industrial Engineering Index is the broad market index that includes the Company and comprises comparable companies. With effect from the beginning of January 2006, the Engineering and Machinery Index was re-classified as Industrial Engineering.
Five-year historical total shareholder return performance. Growth in the value of a hypothetical £100 holding over five years.
FTSE Industrial Engineering Index comparison based on 30 trading day average values
Information correct at 02/05/2006