Renumeration Report (page 1)
This Report contains the information required under the Combined Code on Corporate Governance and under the Directors’ Remuneration Report Regulations 2002. A resolution to approve the Report will be proposed at the 2006 Annual General Meeting. The Chairman of the Remuneration Committee will be available to answer questions about directors’ remuneration at the Annual General Meeting.
Remuneration Committee
At the commencement of 2005, the Remuneration Committee comprised Sir David Bell (Chairman of the Committee), Michael Harper, Nigel Moore, John Potter and Will Wyatt. On 18 May 2005 Sir David stood down as Chairman of the Committee and was replaced by Will Wyatt. Sir David remained a member of the Committee throughout 2005. Michael Harper also stood down as a member of the Remuneration Committee on 18 May 2005.
Under its terms of reference, the Committee, on behalf of the Board, determines the remuneration packages including bonus arrangements, participation in incentive schemes, pension contributions and all other benefits received by the executive directors. In the event of the termination of employment of those directors, the Committee would also determine any compensation payments, after taking appropriate legal advice.
The Committee also makes recommendations to the Board, within its terms of reference, on the framework of senior executive remuneration including terms of service, pay structure, bonus and share incentive arrangements and other benefits.
The Chairman, Michael Harper, and the Chief Executive, Gareth Rhys Williams, attend meetings by invitation of the Committee. The executive directors are not present when their remuneration is being considered. The remuneration of the non-executive directors is determined by the Board as a whole with the relevant non-executive director abstaining when his or her remuneration is considered.
Remuneration policy
The executive directors’ remuneration comprises a basic salary plus, under the Executive Bonus Scheme, company and/or individual performance-related elements of up to 100% of salary. Therefore, if they achieve maximum performance in relation to the performance-related elements of their remuneration, these elements would, in total, account for 50% of their total cash remuneration.
Remuneration packages are formulated to attract, retain and motivate executive directors and senior executives of the quality required, without being excessive, by reference to salary and benefit surveys supplied by one or more external sources. They take into account the responsibilities involved, remuneration packages in comparable companies that have similar international operations, relative performance and both internal and external advice. Remuneration and benefits reflect responsibility and market comparisons of similar roles. The notice period by the Company under the service contracts of the executive directors is 12 months. The normal retirement age of executive directors is 60. Executive directors’ service contracts do not provide for pre-determined amounts of compensation in the event of early termination by the Company. The Committee’s policy in the event of early termination of employment is to mitigate compensation to the fullest extent practicable.
The Committee believes that it is beneficial for an executive director to take up one external non-executive appointment. Remuneration received by a director in respect of such an external appointment would be retained by the director.
The Committee currently has no intention of amending the above stated policy for 2006 and future years, although it will be reviewed from time to time.
When reviewing and determining executive and non-executive directors’ and senior management’s remuneration, advice is sought and received from one or more external remuneration and benefit consultants and their various surveys of remuneration and fees and also internally from the Chief Executive, Gareth Rhys Williams, and the Company Secretary, Roland Peate. During the year, the Committee received external advice from Towers Perrin and Deloitte & Touche. In the last quarter of 2005, Watson Wyatt was formally appointed as remuneration adviser to the Remuneration Committee and it has given advice to that Committee on the remuneration of the executive directors and of the other members of the Executive Board. Watson Wyatt also provide pensions advice and services to the Company.
Chairman and the other non-executive directors
The Chairman and the other non-executive directors do not have service contracts but have letters of appointment. The initial period of their appointments is three years but their appointments may, by mutual consent and with the approval of the Nominations Committee and the Board, be extended for a further three years. In exceptional circumstances appointments may be extended beyond six years, by mutual consent and with the approval of the Nominations Committee and the Board, if it is in the interests of the Group to do so.
A new non-executive director, Simon Beresford-Wylie, was appointed to the Board on 1 March 2006. He was also appointed to the Audit, Nominations and Remuneration Committees on the same date.
As announced in the Interim Report 2005 and referred to in the Chairman’s and Chief Executive’s Statement, John Potter, who has completed just over seven years as a non-executive director, will be standing down immediately after the Annual General Meeting for 2006.
Sir David Bell, who completes nine years as a non-executive director on 13 March 2006, will, after that date, no longer be considered independent. Consequently he stood down, on 1 March 2006, from membership of the Remuneration Committee and the Audit Committee. Sir David also stood down as Senior Independent Director on 1 March 2006 and Will Wyatt assumed that role.
Executive directors
Executive directors’ remuneration comprises basic salary, bonus, share incentives, company vehicle or cash allowance, fuel where a company vehicle is provided, medical health insurance, membership of the Group’s Pension Scheme, life assurance and additionally, for Gareth Rhys Williams, contributions towards a permanent health arrangement. Contributions are also paid by the Company to a funded unapproved retirement benefits scheme for Gareth Rhys Williams calculated as a proportion of the difference between the pensions earnings cap and his basic salary. In respect of Alastair Hewgill, effective 6 April 2005, his pension arrangements changed and are now on a similar basis, but not the same as, those of Gareth Rhys Williams. For further information, please refer to the page 3 of this report.
It is the Company’s policy to make provision for pensions for executive directors through funded retirement benefit schemes. Up to the pensions earnings cap, retirement benefits are provided through an approved retirement benefit scheme. For further information, see page 3 of this report and the table entitled Pensions Related Remuneration.
Gareth Rhys Williams, Chief Executive, aged 44, is employed under a service contract dated 23 November 2001. The notice period by the Company under his contract is 12 months; notice by the employee is six months. The Company may, in the event of termination of employment, pay a sum in lieu of notice equal to 12 months’ gross basic salary together with the gross value of the other benefits that he is entitled to receive under his service contract, but excluding pension contributions and any bonus. The bonus arrangements for 2006 will be calculated on the basis that up to 75% of his base salary relates to the achievement of operating profit targets and up to 25% of his base salary relates to specific personal objectives. The unexpired term of Gareth Rhys Williams’ service contract, to his normal retirement date, is 16 years.
Alastair Hewgill, Finance Director, aged 51, is employed under a service contract dated 17 April 2002. The notice period by the Company under his contract is 12 months; notice by the employee is six months. The Company may, in the event of termination of employment, pay a sum in lieu of notice equal to 12 months’ gross basic salary together with the gross value of the other benefits that he is entitled to receive under his service contract, but excluding pension contributions and any bonus. The bonus arrangements for 2006 will also be calculated on the basis that up to 75% of his base salary relates to the achievement of operating profit targets and up to 25% of his base salary relates to specific personal objectives. The unexpired term of Alastair Hewgill’s contract, to his normal retirement date, is nine years.
Incentive arrangements
The policy of the Remuneration Committee over the last few years was to make annual awards under the Long Term Incentive Plan to the executive directors and the other members of the Executive Board. Such awards were based on a proportion of base salary. Grants of conventional share options were also made annually to the Group’s senior management immediately below the level of the Executive Board. Participation in the Deferred Bonus Plan was open to those employees who were members of the Group’s Executive Bonus Scheme and who received a bonus.
An in-depth review of the Group’s incentive arrangements for executive directors, other members of the Executive Board and all other participants in the Group’s incentive arrangements was carried out by Deloitte and Touche in early 2004. That review resulted in the overall package of incentives, including salary, bonus scheme and share incentive arrangements being restructured. The new arrangements, agreed by the Remuneration Committee at the time, resulted in a new Long Term Incentive Plan and a new Deferred Bonus Plan which were approved by shareholders at the Annual General Meeting in 2005.
The new Long Term Incentive Plan was implemented and first used in June 2005 to make awards to the executive directors and the other members of the Executive Board, and also to the Group’s key senior management below the level of the Executive Board. As envisaged when shareholder approval was received, the new Deferred Bonus Plan will replace the previous Deferred Bonus Plan and will be used in connection with bonuses arising from the Executive Bonus Scheme for 2005 and future years.
In line with the advice from Deloitte and Touche, a grant of share options was made in June 2005 to the executive directors and the other members of the Executive Board. Further grants are planned to be made to that group of executives every three years.
Executive directors and the other members of the Executive Board are now required to build up, over a period, a meaningful holding of shares in the Company. The value of holdings by the executive directors at the end of 2005 represented 57% and 49% of the base salaries of Gareth Rhys Williams and Alastair Hewgill respectively (calculated by reference to the middle market price of a share of The Vitec Group plc on 30 December 2005, the last dealing day of 2005, which was 375p - see Director’s shareholdings table).
There are no plans to make any further grants under the Premium Option Plan. There are no options outstanding under that plan.
This policy is reviewed at least annually and may be revised from time to time. Invitations under the Group’s Sharesave arrangements are usually made annually and these are planned to continue. Such awards and grants take into account the overall and flow limits advised by the Association of British Insurers.
The performance conditions applicable to the Group’s new Long Term Incentive Plan and to the matching element of the new Deferred Bonus Plan relate to total shareholder return against a comparator group of companies of a similar size and with similar geographical spread. Awards under the previous Deferred Bonus Plan were not subject to any performance targets. The performance conditions under the Group’s share option schemes will continue to relate to increases in earnings per share.
The combination of share incentives with performance conditions using total shareholder return and increases in earnings per share is considered the most appropriate way of aligning the interests of senior management with those of shareholders.
Monitoring and measuring of the performance conditions take place following the end of each year when the Company’s results have been audited and again at the time of exercise of options and awards.
Information correct at 02/05/2006