DIRECTORS' REMUNERATION REPORT
introduction
This report has been prepared in accordance with Chapter 6 of the Companies Act 2006. The report also meets the relevant requirements of the Listing Rules of the Financial Services Authority and describes how the Board has applied the principles relating to Directors’ remuneration. As required by the Companies Act 2006 (the Act), a Resolution to approve the report will be proposed at the Annual General Meeting of the Company at which the Financial Statements will be approved.
The Act requires the auditors to report to the Company’s members on certain parts of the Directors’ remuneration report and to state whether in their opinion those parts of the report have been properly prepared in accordance with the Act. The report has therefore been divided into separate sections for audited and unaudited information.
unaudited information
remuneration committee
The Company has established a Remuneration Committee that is constituted in accordance with the recommendations of the Combined Code. The members of the Committee during the period under review were Stuart Doughty, who chairs the Committee, Pelham Allen (until 1 January 2009), Christopher Kemball (from 1 January 2009) and James Newman, all of whom are independent Non-Executive Directors and Geoff French (from 1 November 2008) the Group Non-Executive Chairman. The Committee has discretion to decide who, other than its members, shall attend its meetings and in this regard Executive Directors and the HR Director have been invited to attend as considered appropriate to make proposals and discuss the performance of Directors and others as necessary. No Director takes part in discussions relating to their own remuneration and benefits.
The Committee met four times during the year.
None of the Committee has any personal financial interest (other than as shareholders), unauthorised conflicts of interests arising from cross-directorships or day-to-day involvement in running the business. The Committee makes recommendations to the Board.
In determining the Directors’ remuneration for the year, the Committee consulted Hugh Blackwood (Group Chief Executive) and Georgina Corbett (Group HR Director) about its proposals. The Committee also consulted Towers Perrin Limited, the Company’s appointed remuneration consultant, to provide independent advice on the structure and composition of Directors’ remuneration relative to the sector and companies of a similar capitalisation. Towers Perrin Limited also provided training to the Committee on current trends and key remuneration issues. Apart from this Towers Perrin did not provide any other services to the Company or Group and other than being retained as remuneration consultants has no connection with the Group or any Director.
A performance evaluation of the Committee was carried out during the year. This reviewed progress on actions arising from the previous evaluation and agreed a number of further actions to deal with matters raised. Evaluation exercises are conducted annually.
The terms of reference of the Committee were reviewed during the year and a number of changes were agreed. The terms of reference are posted on both the Scott Wilson website and Intranet.
remuneration policy for the executive directors
Executive remuneration packages are designed to attract, motivate and retain Directors of the high calibre needed to maintain the Group’s position as a market leader and to reward them for achieving the Group’s strategic objectives and targets. The performance measurement of the Executive Directors and key members of senior management and the determination of their annual remuneration package are undertaken by the Committee. There are five main elements of the remuneration package for Executive Directors and senior management:
- basic annual salary;
- benefits-in-kind;
- annual performance payments;
- share incentives; and
- pension arrangements.
The Company’s policy is that a substantial proportion of the remuneration of the Executive Directors should be performance related. Accordingly, annual base pay awards and annual bonus payments are performance based and focus on both short and long term measures which are balanced between operational and strategic objectives. Typical goals include business development and revenue generation, profit, capital utilisation, operational efficiency and attainment of key business priorities. The maximum amount an Executive Director may earn in annual cash bonus and share incentives is described below.
None of the Executive Directors hold commercial appointments outside the Group. In the event of an Executive Director wishing to accept an external appointment the permission of the Nominations Committee would be sought, at which time any conditions to be attached to the appointment, including the amount of fee that could be retained by the appointee, would be agreed.
basic salary
An Executive Director’s basic salary is reviewed by the Committee prior to 1 July, which is the start of the salary year and when an individual changes position or responsibility. In deciding appropriate levels, the Committee considers the Group as a whole and relies on objective research which gives up-to-date information on executive packages for a range of comparative companies. The Committee also takes account of the general trading environment, something that is particularly relevant at the present time.
Hugh Blackwood was appointed internally and his starting package was considerably below the market norm for his role within a quoted company. Following market benchmarking a three-year strategy was adopted by the Remuneration Committee to move basic salaries closer to the market median, taking care to avoid any unnecessary ratcheting effect internally and having due regard to the remuneration packages throughout the business. During the year the final stages of that strategy were implemented, taking into account also the move to a more conventional structure of having a single Group CEO and a Non-Executive Chairman. The reduction in Geoff French’s salary reflects his move to a Non-Executive role with effect from 1 November 2008. Executive Directors’ contracts of service, which include details of remuneration, will be available for inspection at the Annual General Meeting.
benefits-in-kind
The Executive Directors are able to choose between receiving a Company expensed vehicle commensurate with their seniority or a car allowance in lieu. All other benefits received by the Executive are selected from the standard flexible benefits package available to all UK employees.
annual performance payments
The Committee establishes the objectives that must be met for each financial year if a cash performance payment is to be paid. In setting appropriate parameters, the Committee refers to the objective research on a comparator group of companies as noted above. The Committee believes that any incentive compensation awarded should be tied to the interests of the Company’s shareholders. Account is taken of the extent to which the annual business plan and the strategic objectives set by the Board are being met. The maximum performance-related cash payment that can be paid is 50 per cent of basic annual salary. The performance criteria set for the 53 week period ended 3 May 2009 were not achieved and accordingly no performance payments have been awarded.
share incentives
SHARE OPTIONS
At the time of flotation in March 2006 all employees, including the Executive Directors at the time, were awarded an option on 1,200 Ordinary Shares, the only performance criteria in respect of which was continued employment by the Group for a period of three years from the date of grant. In addition the Executive Directors were entitled to participate in the 2006 and 2007 Scott Wilson SAYE Share Option Schemes that were open to all UK employees. The Remuneration Committee approves any options granted under the option schemes. Non-Executive Directors do not participate in the Company’s share option schemes other than Geoff French who, as an Executive Director at the time of the award, received an option on 1,200 shares referred to above and who participates in the 2007 SAYE Scheme, again having joined the Scheme while still employed in an executive capacity.
Although it remains the policy of the Company to grant share options to the Executive Directors and key employees as a means of providing incentives for performance, at the present time, except as described above, none of the Executive Directors have received awards under the Company’s share option schemes.
No amendments are proposed to be made to the terms and conditions of any entitlement of a Director to share options.
There are no share plans in any of the subsidiary companies within the Group.
long term incentive plan
Although the Company established a long term incentive plan (the LTIP) at the time of flotation it was not used until the appointment of Sean Cummins. This is because each of the Executive Directors other than Sean already held, and continue to hold, considerably more shares than would typically be required to be held under the terms of a director service contract.
Upon his joining the Company in September 2007, the Committee considered and approved an award of shares to Sean Cummins under the LTIP. The award consists of a right to acquire shares at an exercise price of 10 pence per share subject to satisfying performance related vesting conditions, the performance period being the three years ending April 2010. A further award was made in August 2008, again being a right to acquire shares at an exercise price of 10 pence per share subject to satisfying the vesting conditions, the performance period for this award being the three years ending April 2011. The value of shares awarded under the LTIP in any financial year may not exceed 100 per cent of basic salary. Under the terms of Sean’s service agreement he is required to retain at least 50% of any shares received under the LTIP until he holds shares to the value of one year’s salary and thereafter to continue to hold shares to this value.
The performance conditions on the awards made to date, set by the Committee in consultation with remuneration consultants, relate to growth in earnings per share and growth in total shareholder return. These conditions and the vesting scales, which were reviewed at the time of the last award and which took into account the challenging business climate, were chosen in order to align the interests of the participant in the LTIP with the interests of the shareholders. Details of the performance conditions are set out on page 32. The performance conditions and vesting scales attaching to any future awards will be set in consultation with the Company’s remuneration consultants to ensure that they remain appropriate and stretching.
pension arrangements
Geoff French and Hugh Blackwood are members of the defined benefit section of the Scott Wilson Pension Scheme. Their dependants are eligible for dependants’ pensions and the payment of a lump sum in the event of death in service. The pension arrangements provide for a pension on retirement of 1/60th of final salary multiplied by the number of years pensionable service.
Sean Cummins is eligible to join the defined contribution section of the Scott Wilson Pension Scheme. At the present time he is not a member and until such time as he joins he receives an additional monthly payment in lieu of an employer contribution to his pension.
Other than Geoff French, who moved from an Executive to a Non-Executive role with effect from 1 November 2008, Non-Executive Directors do not receive pension contributions and are not members of a Company pension scheme. Pension scheme contributions in respect of Geoff French ceased with effect from 1 May 2009.
There are no unfunded pension promises or similar arrangements for Directors. Any early retirement provisions are subject to normal actuarial abatements in line with the trust deed and rules applicable to the Scott Wilson Pension Scheme.
performance graph
The following graph shows the Company’s performance, measured by Total Shareholder Return (TSR) for the period 15 March 2006 to 3 May 2009. This performance is compared with the TSR performance of the FTSE Support Services Index (primary comparator) the FTSE Small Cap Index and the FTSE All Share Index. The Committee considers that the first two indices are suitable comparators to assess the performance of the Group as they contain companies in the same sector and of a similar size to Scott Wilson.
Download table
Source: Thomson Datastream (data represents the total return of the Company measured against that of the respective index over the time period specified).
directors’ contracts
It is the Company’s policy that Executive Directors should have contracts with an indefinite term providing for a maximum of one year’s notice. The notice period and term of any future Executive Director appointment will be considered at the time, taking into account best practice but the notice period will not in any event exceed one year. The service agreements of the Executive Directors grant entitlement to:
- a basic salary;
- an annual performance related bonus up to a maximum of 50 per cent of the Director’s salary calculated by reference to financial performance and achievement of personal deliverables;
- in the case of Sean Cummins an award of up to a maximum of 100 percent of basic salary under the Company’s Long Term Incentive Plan, details of which are set out on page 32;
- a motor car with fuel benefit or cash allowance in lieu;
- 30 days’ holiday;
- membership of the Scott Wilson Pension Scheme, the contributions to which are calculated by reference to basic salaries. No performance bonuses, awards under the share schemes or any other payments to Directors are pensionable;
- life assurance; and
- participation in Flexible Benefits Scheme that is available to all employees the UK.
The service agreements of the Executive Directors provide that in the event of notice being served for any reason to terminate an Executive’s agreement, the Company may at its discretion make a payment to the Executive in lieu of notice of the net basic salary the Executive would have received during the notice period. Executive Directors stand for re-election in accordance with the Company’s Articles of Association.
Hugh Blackwood and Sean Cummins, who will retire under the retirement by rotation provisions of the Articles of Association and who are proposed for re-election at the 2009 Annual General Meeting, have service contracts which provide for a notice period of one year and six months respectively. Christopher Kemball is also proposed for re-election at the 2009 Annual General Meeting, this being the first general meeting after his appointment to fill the vacancy created by the resignation of Pelham Allen. Being a Non-Executive Director, Christopher does not have a service contract but is subject to three months’ notice under his letter of appointment.
The details of the Directors’ appointments are summarised in the table below:
Download table
Name of Director |
Date of appointment | Notice period |
|---|---|---|
Geoff French |
5 May 1995 |
12 months |
Pelham Allen (resigned 1 January 2009) |
1 February 2006 |
3 months |
Hugh Blackwood |
5 May 1995 |
12 months |
Sean Cummins |
1 October 2007 |
6 months |
Stuart Doughty |
1 February 2006 |
3 months |
Christopher Kemball |
1 January 2009 |
3 months |
James Newman |
1 February 2006 |
3 months |
non-executive directors
Geoff French became a Non-Executive Director on 1 November 2008, at which time his salary was adjusted by the Committee to reflect his revised role. Details of his emoluments are set out in the table below. The remaining Non-Executive Directors have specific terms of engagement and their remuneration is determined by the Board and based on independent surveys of fees paid to Non‑Executive Directors of similar companies. The basic fee paid to each Non-Executive Director was reviewed during the year, the first review since the initial appointment of Non Executive Directors in February 2006, and with effect from 1 November 2008 the fee increased to £35,000. The Non‑Executive Directors receive further fees of £6,000 for additional work performed for the Company in respect of Chairmanship of Board Committees. Stuart Doughty is also paid £3,000 per annum for work performed as Senior Independent Director. With the exception of Geoff French, Non-Executive Directors do not participate in any of the Company’s share option schemes and are not eligible to join the Company’s pension scheme. As mentioned earlier in this report, Geoff French’s participation in share schemes and the pension scheme pre-date his move to a Non-Executive role with effect from 1 November 2008.
audited information
aggregate directors’ remuneration
The total amounts for Directors’ remuneration were as follows:
Download table
| 2009 £ |
2008 £ |
|
|---|---|---|
Emoluments |
783,447 |
996,552 |
Compensation for loss of office |
Nil |
407,706 |
Gains on exercise of share options |
Nil |
3,700 |
Amounts receivable under long term incentive schemes |
Nil |
Nil |
Money purchase pension contributions |
Nil |
Nil |
|
783,447 |
1,407,958 |
directors’ emoluments
Download table
Name of Director |
Fees/basic salary £ |
Benefits -in-kind £ |
Annual performance pay £ |
2009 Total £ |
2008 Total £ |
|---|---|---|---|---|---|
Executive |
|
|
|
|
|
Geoff French(1) |
172,000 |
11,584 |
Nil |
183,584 |
230,912 |
Hugh Blackwood |
233,333 |
14,905 |
Nil |
248,238(2) |
217,947 |
Sean Cummins |
226,967 |
9,491 |
Nil |
236,458 |
170,525(3) |
Retired Directors |
— |
— |
— |
— |
676,874 |
Non-Executive |
|
|
|
|
|
Pelham Allen(4) |
22,000 |
Nil |
Nil |
22,000 |
30,000 |
Stuart Doughty |
43,000 |
Nil |
Nil |
43,000 |
42,000 |
Christopher Kemball(5) |
11,667 |
Nil |
Nil |
11,667 |
n/a |
James Newman(6) |
38,500 |
Nil |
Nil |
38,500 |
36,000 |
Aggregate emoluments |
747,467 |
35,980 |
Nil |
783,447 |
1,404,258 |
Fees to third parties |
|
|
|
— |
— |
(1) Geoff French moved from an Executive to an Non-Executive role on 1 November 2008 at which time his salary was reduced commensurate with his revised role.
(2) Hugh Blackwood became Group Chief Executive on 1 May 2008. See Basic Salary section above for background to increase in emoluments.
(3) Figure stated for 2008 is for period 1 October 2007 (date of appointment) to 27 April 2008.
(4) Figure stated is for the period 28 April 2008 to 1 January 2009 (date of resignation).
(5) Figure stated is for period 1 January 2009 (date of appointment) to 3 May 2009.
(6) James Newman’s fees and expenses are invoiced to the Company by West Wood on Derwent Limited.
Ron Wall resigned as a Director on 27 April 2008 but continues to be employed by the Group. During the year, he received £210,043 in salary and benefits (2008: £206,440). No performance payment was made to Mr Wall.
directors’ share options and ltip awards
SHARE OPTIONS
Aggregate emoluments disclosed above do not include any amounts for the value of options to acquire Ordinary Shares in the Company granted to or held by the Directors.
Details of options for Directors who served during the year are as follows:
Download table
Name of Director |
Scheme | 28 April 2008 |
Granted | Exercised | 3 May 2009 | Market price at date of grant |
Exercise price £ |
Date from which exercisable |
Expiry date |
|---|---|---|---|---|---|---|---|---|---|
Geoff French |
All Employee |
1,200 |
Nil |
Nil |
1,200 |
n/a |
1.20 |
27.02.09 |
26.02.16 |
|
SAYE |
2,776 |
Nil |
Nil |
2,776 |
3.11 |
2.42 |
01.11.10 |
30.04.11 |
Hugh Blackwood |
All Employee |
1,200 |
Nil |
Nil |
1,200 |
n/a |
1.20 |
27.02.09 |
26.02.16 |
|
SAYE |
5,736 |
Nil |
Nil |
5,736 |
1.92 |
1.63 |
01.06.09 |
30.11.09 |
Pelham Allen, who resigned on 1 January 2009, did not hold any share options.
Sean Cummins, Stuart Doughty Christopher Kemball and James Newman do not have any share options.
The All Employee Share Options were granted on 27 February 2006 prior to the shares being listed on The Stock Exchange. The exercise price was agreed with HM Revenue and Customs as being not less than the market price of the shares on the date of grant.
There have been no variations to the terms and conditions or performance criteria for share options during the financial year.
The market price of the Ordinary Shares at 3 May 2009 was 64.75 pence and the range during the period was 235.5 pence to 38.5 pence.
LTIP AWARDS
Details of LTIP Awards made to Directors who served during the year are as follows:
Download table
Name of Director |
Scheme | 28 April 2008 |
Granted | Number of Ordinary Shares exercised |
3 May 2009 £ |
Market price at date of award £ |
Exercise price £ |
Fair value charge in the year £ |
Market price at date of vesting |
Date from which shares vest |
Expiry date |
|---|---|---|---|---|---|---|---|---|---|---|---|
Sean Cummins |
LTIP |
70,000 |
|
|
70,000 |
2.14 |
0.10 |
42,724 |
— |
10 September |
24 April 2018 |
|
|
|
103,564 |
Nil |
103,564 |
1.9025 |
0.10 |
39,096 |
— |
9 |
5 August |
Performance Conditions applicable to LTIP award:
One half of the award (over a maximum of 35,000 Shares) may only be exercised to the extent that an EPS Condition is met as follows:
- If the Real Terms EPS Increase* is less than 15.7625 per cent (5 per cent per annum) then no shares shall vest.
- If the Real Terms EPS Increase is 15.7625 per cent (5 per cent per annum) then 3,500 Shares shall vest.
- If the Real Terms EPS Increase is 36.7631 per cent (11 per cent per annum) or more then 35,000 Shares shall vest.
- If the Real Terms EPS Increase is between 15.7625 per cent and 36.7631 per cent then the number of Shares which vest shall be determined pro-rata on a straight-line basis between 3,500 and 35,000.
One half of the award (over a maximum of 35,000 Shares) may only be exercised to the extent that a TSR Condition is met as follows:
- If the TSR Ranking** is median 17,500 Shares shall vest.
- If the TSR Ranking is top quartile 35,000 Shares shall vest.
- If the TSR Ranking is above median but below top quartile the proportion of the shares in that half of the award which vest shall be determined pro-rata on a straight-line basis using a fixed formula.
* Real Terms EPS Increase means, in respect of the award of 70,000 shares, the extent to which the percentage growth in the earnings per share of the Company for the financial year ending April 2010 compared to the earnings per share of the Company for the financial year ended 29 April 2007 exceeds the percentage growth in RPI from April 2007 to April 2010. In the case of the award of 103,564 shares it is the percentage growth in EPS for the financial year ending April 2011 compared to the earnings per share of the Company for the financial year ended 28 April 2008 exceeds the percentage growth in RPI from April 2008 to April 2011.
** TSR Ranking means the position of the Company in a table of comparator companies extracted from the FTSE Support Services Index, excluding FTSE100 companies, ranked according to the percentage growth in total shareholder return from 30 April 2007 to 30 April 2010 in respect of the award of 70,000 shares and the period 30 April 2008 to 30 April 2011 in respect of the award of 103,564 shares.
The Company operates within ABI guidelines on dilution limits associated with share schemes. As at 3 May 2009 the share options held by Directors represented 0.014 per cent per cent of the issued share capital.
directors’ pension entitlements
Two Directors are members of the Company’s defined benefit pension scheme. The following Directors had accrued entitlements under the schemes as follows:
Download table
Name of Director
| Accrued Pension 27 April 2008 £ |
Increase in accrued pension in the year £ |
Accrued pension 3 May 2009 £ |
|---|---|---|---|
Geoff French |
92,062 |
8,767 |
100,829 |
Hugh Blackwood |
78,899 |
9,927 |
88,826 |
The following table sets out the transfer value of the Directors’ accrued benefits under the scheme calculated in a manner consistent with “Retirement Benefit Schemes – Transfer Values (GN 11)” published by the Institute of Actuaries and the Faculty of Actuaries:
Download table
Name of Director |
Transfer value 27 April 2008 £ |
Contributions made by the Director £ |
Increase in transfer value in the year net of contributions £ |
Transfer value 3 May 2009 £ |
|---|---|---|---|---|
Geoff French |
1,397,300 |
13,401 |
64,331 |
1,475,032 |
Hugh Blackwood |
1,148,365 |
25,139 |
72,688 |
1,246,192 |
The following additional information is given to comply with the requirements of the Listing Rules, which differ in some respects from the equivalent statutory requirements:
Download table
Name of Director |
Increase in accrued pension in the year in excess of inflation £ |
Transfer value of increase in the year less Directors’ contributions £ |
|---|---|---|
Geoff French |
8,767 |
102,156 |
Hugh Blackwood |
9,927 |
100,712 |
The transfer values disclosed above do not represent a sum paid or payable to the individual Director. Instead they represent a potential liability of the pension scheme.
Members of the scheme have the option to pay Additional Voluntary Contributions; neither the contributions nor the resulting benefits are included in the above tables.
Sean Cummins is eligible to join the defined contribution section of the Scott Wilson Pension Scheme. At the present time, he is not a member and until such time as he joins he receives an additional monthly payment in lieu of an employer contribution to his pension. Payment made in this respect for the 53 week period ended 3 May 2009 amounted to £34,612 (2008: £19,250).
approval
This report was approved by the Board of Directors signed on its behalf by:
STUART DOUGHTY
CHAIRMAN OF THEREMUNERATION COMMITTEE
30 JUNE 2009