Report of The Board in relation to remuneration policy and practice
6. Share ownership
The Group believes that share ownership by colleagues throughout the Group enhances their alignment with shareholders’ interests. Therefore colleagues in the Group are able to acquire shares as a result of:
- the free share plan (up to £3,000 p.a.);
- the sharesave plan (based on contributions of up to £3,000 p.a.);
- the sharebuy plan (based on contributions of up to £1,500 p.a. or 10% of salary, whichever is the lesser);
(These three plans are set up within the approved HMRC legislative framework which can confer tax advantages on UK colleagues.)
- the short term incentive plan for all other than the most senior 240. Colleagues can opt to take the whole or part of their incentive in shares rather than in cash. Those who take their incentive in shares, retain them for three years and remain with the Group for that period (or rank as qualifying leavers) receive a guaranteed 50% enhancement of such shareholding (this facility is termed ‘sharekicker’);
- the long term incentive plan linked to the core and extended short term incentive plans and then linked to EPS performance. For the most senior 240 (65 in respect of the extended short term incentive plan), colleagues can opt to take the whole or part of their incentive in shares rather than in cash. Those who take their incentive in shares, retain them for three years and remain with the Group for that period (or rank as qualifying leavers) may receive no enhancement or may receive up to a 200% enhancement (250% in the case of the Chief Executive) of such shareholding depending on the growth in the Group’s EPS in excess of the RPI, over the three year period. There is a real “at risk” element to this component;
- the long term incentive plan linked to TSR performance. For the most senior 240, share grants of varying percentages of salaries are made and colleagues may receive none of the grant or may receive up to 200% of the grant depending on the Group’s annualised TSR compared to the annualised weighted average TSR of a basket of comparator companies, over a three year period. There is also a real “at risk” element to this component; and
- personal purchase using the Group’s, or other, sharedealing facilities.
These arrangements assist colleagues throughout the Group to acquire shares. They form a key element of the Group’s sustained and, we believe, differentiating commitment to encouraging share ownership by as many colleagues as possible.
The Group expects all of its Directors (including the Chairman and the Non-executive Directors), together with other senior colleagues, to acquire and retain significant numbers of shares relative to base salaries or fees. In the case of each Director the value of the shareholding is required to be at least 100% of base salary or base fee, based on the average annual personal shareholding initially after three years as an Executive Director. All such colleagues satisfied these requirements in 2006 and we will formally review this again in 2009. It is pleasing to report that the average holding of Executive Directors who had been in post for at least three years at the end of 2007 was about four times the minimum requirement – a strong vote of confidence in the Group’s future prospects.