|
| |
|
|
| |
GOVERNANCE > Remuneration Report - Unaudited Information |
|
| |
|
|
| |
|
|
| |
|
Unaudited information
The Remuneration Committee
The Committee comprises only Independent Non-Executive Directors and is chaired by Stephen Howard. The members of the Committee are Lord Blackwell, Christopher Peacock and Lesley MacDonagh. Nigel Rich stepped down from the Committee with effect from 14 May 2007. The Committee operates within written terms of reference which are available on the Company’s website, www.segro.com. The role of the Committee is to set a remuneration policy which attracts and retains high-calibre senior executives and which aligns the rewards of senior executives with the creation of long-term shareholder value. The Remuneration Report will be submitted at the 2008 AGM for the approval of shareholders. The Committee has access to the advice and services of the Director of Human Resources (Jennifer Titford) and the Company Secretary (John Probert). The Chairman and Chief Executive can be invited to attend meetings except where their remuneration is discussed. The Committee may also engage independent remuneration consultants, at the Company’s expense, as it deems appropriate. The Committee met four times during the year.
Advice
Watson Wyatt LLP acted as advisor to the Committee for the duration of the year having been appointed, by the Committee, in 2006. Watson Wyatt provided advice to the Committee on a range of issues related to remuneration including executive remuneration, a proposed new long-term incentive plan and changes to the operation of the Share Incentive Plan. Watson Wyatt provided advice to the Company in respect of matters relating to the remuneration of employees to ensure a consistent approach to reward across the Group. Lovells LLP, one of the Company’s legal advisors, has provided advice to the Committee on all-employee and executive share plans. Lovells also acts for the Company and has provided legal advice to the Company during the year on a range of other matters including advice on corporate, employment, litigation, real estate, tax and pension issues. Hewitt Bacon and Woodrow Ltd, which was appointed by the Company, provided information to the Committee in respect of pension related matters.
[ back to top]
Remuneration Policy and Framework
In order to align the interests of the Executive Directors and shareholders, the Committee sets the remuneration policy and framework such that a large proportion of remuneration is performance related. The performance related elements of remuneration are constituted of both short and long-term reward mechanisms which are designed to align executive reward with the delivery of long-term shareholder value. The Committee considers that the targets it sets in relation to performance based pay are stretching and the Committee will, in accordance with the remuneration framework, only make bonus or share awards in line with strict performance criteria as applicable. In setting the performance targets, the Committee also takes into consideration the maximum amount of remuneration the Directors could receive should all targets be met.
Executive Directors and other senior Executives are encouraged to acquire and retain ordinary shares in the Company to the value of one times their annual salary within a five year period of joining the Group. The Chief Executive is encouraged to acquire and retain shares to the value of one and a half times his annual salary within a five year period.
The Committee regularly reviews the remuneration policy to ensure the Group’s reward programmes remain competitive and provide appropriate incentive for performance. The Committee takes into account institutional investor guidelines in relation to the operation of the performance conditions, the proportion of shares that vest and acceptable levels of dilution.
[ back to top]
Components of Executive Remuneration
The remuneration packages for the Executive Directors comprise the following elements which are all taken into account by the Committee when setting remuneration.
– Base salary
– Annual Incentive Plan (bonus)
– Long-term share incentive
– Save as you earn
– Share Incentive Plan
– Pension contributions
– Company car or company car allowance
– Other benefits (e.g. health and life insurance)
The Committee considers that all elements of the package are of equal importance in supporting the Group’s remuneration policy. An appropriate balance is maintained between fixed and performance-related remuneration and between elements linked to short-term financial performance and those linked to longer-term shareholder value creation (see illustrative charts below). Base salary is the only component of remuneration that is pensionable. The charts indicate the target level of long-term incentives as a proportion of executives' total remuneration.
|
| |
|
| |
Chief Executive |
| |
 |
| |
Other Executive Directors |
| |
 |
| |
|
| |
Base Salary and Benefits
Each Executive Director receives a salary which reflects his responsibilities, experience and performance and taking into consideration market salary level for similar roles. Salaries and benefits are reviewed annually in April. Details of the Directors’ remuneration are given on page 59.
[ back to top]
Annual Incentive Plan (the Plan)
The Plan extends to all employees including the Executive Directors. The Plan consists of a cash bonus payable based on the performance of the Group, the performance of the operating area of the individual and the performance of the individual. Any payments made under the Plan to the Chief Executive, Executive Directors and Executive Committee members are at the discretion of and approved by the Committee.
Performance is measured over the financial year and payment is made after the financial year end. For Executive Directors and the Chief Executive the principal financial measure is the delivery of the annual budget. The Plan also contains an element of reward for the achievement of individual objectives and for the attainment of environmental, social and governance objectives. Actual targets are not disclosed for reasons of commercial sensitivity.
In respect of 2007, Executive Directors could earn a cash bonus of up to a maximum of 80 per cent of base salary if they met stringent performance criteria set by the Committee. This bonus was based on Group profit adjusted for one-off and certain other items (40 per cent), divisional performance (24 per cent) and individual performance (16 per cent). The Chief Executive had the opportunity to earn a cash bonus of up to 100 per cent of base salary. His bonus is based on Group profit adjusted for one-off and certain other items (80 per cent) and individual performance (20 per cent).
Marshall Lees, who was based in the USA and who resigned from the Board as at 1 August 2007, had the opportunity of earning a cash bonus of up to 100 per cent of salary, in line with market conditions in the USA.
[ back to top]
Long-Term Share Incentive Scheme (the LTIS)
The Committee believes that long-term incentives are an effective way to align the interests of shareholders and reward long-term performance. SEGRO has one long-term share incentive plan in operation, the LTIS, in which Executive Directors and members of the Executive Committee participate. There is no current intention to make further awards under the existing LTIS arrangements, the last award having been made in 2007.
Awards were made annually and were determined by an assessment of both corporate and individual performance. The maximum value of the annual award to the Chief Executive was 175 per cent of salary and a maximum of 140 per cent of salary for other executives. Details of awards granted to the Executive Directors under the LTIS in 2007 are set out in the table on page 60.
Awards vest after three years subject to the achievement of performance targets and approval of the Committee. The performance targets are based on achievement of real growth in adjusted diluted earnings per share (EPS), weighted 60 per cent, and adjusted diluted net asset value (NAV), weighted 40 per cent, over the three years between grant and vesting: |
| |
|
| |
| |
Vesting |
Adjusted
diluted
EPS growth |
Adjusted
diluted
NAV growth
Per share |
|
| Low Hurdle |
20% |
4.0% p.a. |
4.0% p.a. |
| High Hurdle |
100% |
11.0% p.a. |
8.0% p.a. |
|
|
| |
|
| |
Adjusted diluted EPS is used to reflect the importance of earnings for our shareholders whilst adjusted diluted NAV reflects the growth in value of SEGRO’s property assets. Actual performance is initially calculated by the Finance Director and based on the figures for adjusted diluted EPS and adjusted diluted NAV included in the accounts. These figures are reviewed by the auditors and are then submitted to the Committee for approval.
Executive Directors are encouraged, as part of the Company’s shareholding guidelines, to hold their LTIS shares for a three year period after vesting.
In the event of a change of control of the Company, the Committee would have discretion to determine if any awards vest and if so, over how many shares. In exercising this discretion the Committee would refer to current institutional investor guidelines, the financial performance of the Company and the portion of the performance period elapsed.
[ back to top]
New Long-Term Incentive Plan (the 2008 LTIP)
As a result of the growth and development of our business, our change to REIT status and the changes in the property sector, the Committee, assisted by Watson Wyatt, conducted a review of executive long-term share incentive arrangements. Following this review, it was decided that, subject to shareholder approval, a new plan, the 2008 LTIP, would be implemented. The proposed 2008 LTIP reflects current investor guidelines and best practice whilst encouraging our executives to maximise shareholder returns. Earnings per share will remain in the new plan. A new measure of Total Property Return will be introduced to more accurately reflect our sector.
Details of the proposed operation and the performance conditions applicable to any release of shares under the first grant of awards under the 2008 LTIP are provided in the Company’s Notice of Meeting for the 2008 AGM and a resolution will be put to shareholders at that meeting to approve the 2008 LTIP arrangements. Subject to shareholder approval, awards will be made during 2008 under the 2008 LTIP.
[ back to top]
Executive Share Option Plans (the Plans)
All executive long-term share incentive arrangements are currently delivered through LTIS. As reported in the 2005 Report and Accounts, the Committee suspended the granting of options under the Plans to Executive Directors and the Executive Committee in 2005. There is no current intention to make further grants under the Plans. Details of options which were exercised or lapsed in the year and the performance conditions which applied to those options can be found on page 61 of this report. As at the year end, no Directors held any options under the Plans.
[ back to top]
Summary of Employee Share Plans
1981 Savings-Related Option Scheme (the SAYE Scheme)
The Company has operated a HM Revenue & Customs (HMRC) proved SAYE Scheme since 1981 which is open to all eligible employees within SEGRO. Each participant may save up to £250 a month to buy shares under option at the end of the option period. Savings contracts can be for a three, five or seven year period. The exercise price for options granted in 2007 included a discount of 20 per cent to the market value of the shares at the time of grant. The Board intends to operate the SAYE Scheme on similar terms in 2008. Options granted to Executive Directors under the SAYE Scheme are not subject to performance conditions.
Details of options granted to Executive Directors under the SAYE Scheme are set out in the table on page 61.
Share Incentive Plan (the SIP)
The SIP is a HMRC approved all-employee share plan open to all eligible employees of participating Group companies. During 2007, participating employees were awarded shares annually based on 7 per cent of gross annual salary, up to a maximum amount of £3,000.
In January 2008, the Board approved amendments to the operation of the SIP so that participating employees will be awarded shares not only in relation to their salary, but also by reference to the Company’s prior year performance, which is currently measured through Group profit before tax.
In previous years shares were held by the SIP Trustees for a period of five years before they may be released to a participant. Going forward, employees will be able to opt to receive their shares from three years after the date of award. If they opt to receive their shares between three and five years the employee will be responsible for all tax liabilities. The Trustees of the SIP during 2007 were John Heawood, John Probert and Jennifer Titford.
A scheme designed on a similar basis, but not HMRC approved, will be operated for employees in Continental Europe.
The Executive Directors’ holdings under the SIP are included in the table showing Directors’ interests in shares on page 59.
[ back to top]
Total Shareholder Return
Below are charts showing total shareholder returns for the Company for each of the last five financial years compared to the FTSE 250 Index and the FTSE 350 Real Estate Index. The Company is a constituent of both the FTSE 250 Index and the FTSE 350 Real Estate Index and considers that both these indices provide an appropriate illustration of the Company’s relative performance. |
| |
|
| |
Total Shareholder Return – value of hypothetical £100 holding of shares |
| |
 |
| |
Total Shareholder Return – value of hypothetical £100 holding of shares |
| |
 |
| |
|
| |
[ back to top]
External Appointments
An appointment of an Executive Director to the Board of a non-Group company requires the approval of the Board and any such approval is subject to consideration of the time commitment the proposed appointment may require. Executive Directors who are Non-Executive Directors of non-Group companies may retain any fees payable to them with the consent of the Committee, except in cases where the directorship is as a representative of the Company. During the year Ian Coull was a Non-Executive Director of the London Regional Board of Royal SunAlliance plc and David Sleath was a Non-Executive Director of Bunzl plc. Walter Hens was up until May 2007, a Non-Executive Director of Intervest Offices, a Belgian property company from which he did not receive any fees in respect of his service during 2007. Details of the fees paid in respect of these appointments are disclosed on page 59 of this report.
[ back to top]
Policy on Service Contracts
Executive Directors
Service agreements for the Executive Directors are on a 12 month rolling basis, with the exception of Walter Hens, who transferred from a 24 month rolling contract to a 12 month rolling contract with effect from 1 January 2008. Executive Directors may now opt to continue in employment until age 65. The service agreement for John Heawood, which may be terminated by either party giving one year’s notice, will terminate on 4 July 2008. Ian Coull, David Sleath and Walter Hens are required to give six months’ notice to the Company.
The appointment and contract commencement dates for the Executive Directors are as follows: |
| |
|
| |
| Name |
Date of
Appointment |
Date of
Contract |
|
| Ian Coull |
1 January 2003 |
1 January 2003 |
| John Heawood |
4 November 1996 |
4 November 1996 |
| Walter Hens |
1 January 2007 |
5 March 2008 |
| David Sleath |
1 January 2006 |
31 March 2005 |
|
|
| |
|
| |
Any proposals for the early termination of the service contracts of Directors and senior executives are considered by the Committee taking into account contractual terms and the principles of mitigation.
John Heawood will leave the Company on 4 July 2008. The payments made at this time will be made in accordance with his contractual entitlements.
Non-Executive Directors
The fees payable to Non-Executive Directors are set by reference to those paid by comparable organisations for similar appointments.
The Non-Executive Directors do not participate in any of the Company’s employee share plans nor do they receive any other benefits or pension rights under the pension scheme. While the Non-Executive Directors do not have service contracts, they have signed letters of engagement that inter alia prescribe their duties and obligations. The terms and conditions in respect of the appointment of the Non-Executive Directors are available at www.segro.com.
The appointment dates and service commencement/renewal dates of the Chairman and the Non-Executive Directors are as follows: |
| |
|
| |
| Name |
Date of
Appointment |
Date of
Service Agreement |
|
| Nigel Rich |
1 July 2006 |
1 July 2006 |
| Stephen Howard |
16 May 2001 |
29 January 2004 |
| Lord Blackwell |
1 April 2001 |
29 January 2004 |
| Lesley MacDonagh |
1 January 2007 |
1 January 2007 |
| Andrew Palmer |
28 January 2004 |
28 January 2004 |
| Christopher Peacock |
28 January 2004 |
28 January 2004 |
| Thom Wernink |
23 May 2005 |
27 May 2005 |
|
|
| |
|
| |
Retention arrangements for Marshall Lees
The continuing retention of Marshall Lees during 2007 was critical for the realisation of a high sale price for Slough Estates USA Inc. To ensure Marshall Lees’ retention and commitment during this period of uncertainty the Committee determined to incentivise Marshall Lees through an additional bonus opportunity and the application of discretion in determining share plan vesting. |
| |
|
| |
|
| |
[ back to top] |
|
|
| |
|
|
|