Report of The Board in relation to remuneration policy and practice
7.3 Shorter term incentive plans
The shorter term incentive plans for Executive Directors and colleagues in Level 9 and Level 8 have two key elements.
The first element, operated annually, rewards the achievement of annual line of sight operating plan objectives – those for which the individual has prime or material contributory accountability. It is an annual scheme based on annual performance. Payment levels which apply for the 2008 plan are as follows:
| Category | Incentive for 2008 as a % of annual salary | |
| Target | Maximum | |
| Executive Directors | 90 | 135 |
| Level 9 | 75 | 112.5 |
| Level 8 | 60 | 90 |
Any incentive outcome from the 2008 plan is crystallised for participants in March 2009 but then may be invested in shares for three years until March 2012 (see Section 7.4).
For Executive Directors and certain senior colleagues, payment of target incentive will require the achievement of targets which include EPS and operating expenses. For others, payment of target incentive will require the achievement of divisional or functional operating plan targets which might include sales, costs, profitability, risk management and/or customer service components.
These targets are the same as those within the Group’s business plan. The Committee discloses actual performance in relation to target in the report which immediately follows the relevant business year.
The second element, operated annually, rewards the sustained achievement of Group operating plan objectives, for which Executive Directors and colleagues in Level 9 and Level 8 have aggregate contributory responsibility, through a combination of annual and biennial performance. Group performance is again measured using EPS and operating expenses. Payment levels which apply for the 2008-09 cycle of the plan are as shown below.
Any incentive outcome from the 2008-09 plan is crystallised for participants in March 2010 but then may be invested in shares for three years until March 2013 (see Section 7.4).
The incentive payment levels for both the first and second elements of the plan are higher than those which applied in 2007 and 2006-07. The Committee decided to increase these incentive levels to better ensure that we can recruit and retain the calibre of colleague we require – and engage with and motivate them to deliver our stretching operational targets – during the current volatile financial climate. The Committee will review these incentive levels, for the plans which will apply in 2009 and 2009-10, towards the end of 2008.
The Committee is making some amendments to the incentive plan for 2007-08, for the same reasons, so that, during 2008, it operates in a manner consistent with the plan for 2008-09.
| Category | Incentive for 2008-09 as a % of annual salary |
|||||
Target |
Maximum |
|||||
2008 |
2009 |
Total |
2008 |
2009 |
Total |
|
| Executive Directors | 22.5 |
22.5 |
45 |
33.75 |
33.75 |
67.5 |
| Level 9 | 18.75 |
18.75 |
37.5 |
28.125 |
28.125 |
56.25 |
| Level 8 | 15 |
15 |
30 |
22.5 |
22.5 |
45 |
There is a separate additional core short term incentive plan for one Executive Director, Peter Cummings, to recognise and respond to market practice in his divisional specialism. The level of the incentive payment under this additional plan is dependent on the extent to which Peter Cummings achieves his divisional operating plans. The additional incentive opportunity is a target incentive of 100% of salary (and a maximum of 200% of salary) for 2008. The incentive outcome will be matched by an additional equivalent deferred cash amount which will be used to buy shares after the end of 2010.
These incentive levels for Peter Cummings are the same as those which applied in 2007 and are higher than those which applied in 2006.