Summary remuneration report
A resolution to approve the full Directors’ Remuneration report, which can be found on pages 18 to 25 of the Directors’ Report and accounts 2008, will be proposed at the AGM of the Company to be held on 14 May 2009.
Remuneration Committee
The Remuneration Committee (“RemCo”) is primarily responsible for determining the remuneration policy and conditions of service for executive Directors and the Chairman of the Company. It also reviews and monitors the level and structure of remuneration for certain senior managers immediately below the level of the Board.
The RemCo has been chaired by Robert Walvis since November 2003. Its other members during the year were Stephen Howard, Steve Marshall, Gordon Sage, Christoph von Rohr until September 2008 and, from September 2008, Hubertus Krossa. Sir David John, the former Company Chairman, attended meetings by invitation. No member of the RemCo has conflicts of interest arising from cross-directorships and no member is involved in the day-to-day executive management of the Group.
Executive Directors’ remuneration
General policy
It is the policy of the RemCo to establish an overall remuneration package that
is competitive and which facilitates the recruitment and retention of high calibre
management. The annual and long-term incentive plans make up an important
part of each executive Director’s remuneration and are structured so as to
motivate senior managers to deliver high standards of performance, without
encouraging excessive risk taking. It is intended that the share-based elements
of the package will not only drive performance over the long-term but will also
assist in aligning the interests of senior management with those of shareholders.
The structure of executive Directors’ remuneration was similar in 2008 to that in 2007 and no significant changes to the existing policy are currently envisaged for 2009. Under the current arrangements, if target performance is achieved, basic salary will represent around one-half of total earnings. If maximum is achieved, which would involve a superior level of performance substantially in excess of business plan, basic salary will represent around one-third of total earnings.
Basic salaries
It is the policy of the RemCo to set basic salaries at levels which it believes are
competitive given the size and complexity of the Company, as well as the broad
business sectors in which it operates. The RemCo sets basic salaries around
mid-market levels, but also takes into account its own judgement of the
performance of the Group’s businesses and the performance of individual
Directors. The RemCo intends to continue to use this approach in the
foreseeable future.
Annual incentive plan
Each executive Director participates in an annual incentive plan, under which
pre-determined financial targets must be achieved before any payment is earned.
The maximum potential bonus which could have been earned by executive
Directors for 2008 was 80% of basic salary and the performance indicator
chosen was profit before tax, exceptional items and amortisation of intangible
assets (“profit”). A bonus of 40% of basic salary would have been earned for
the achievement of performance in line with target. Two-thirds of any bonus
achieved is payable in cash, whilst the remaining one-third is deferred in the form
of ordinary shares in the Company under the Deferred Bonus Plan (the “DBP”).
These shares, along with shares awarded in lieu of dividends paid during the
deferral period, will be released to the Directors after three years, providing they
are still employed by the Company at that time (unless specified leaver conditions
are met, in which case early vesting may be permitted under the rules of the
DBP). Bonuses are non-pensionable.
It is currently intended that the annual incentive plan for 2009 will operate in the same way and at the same level as for 2008 and the RemCo will continue to review the competitiveness and structure of the annual incentive plan in future years.
Long-term incentive scheme
The RemCo believes that performance related long-term incentives which
align executives with both business strategy and shareholders’ interests are
an important component of overall executive remuneration arrangements.
The Company operates a Performance Share Plan (the “PSP”) under which conditional awards of shares in the Company are made to executive Directors and other selected operational and functional senior managers. The maximum market value of any award, at the award date, will be 150% of basic salary, other than in exceptional circumstances, where the limit is 200% of basic salary. It is currently the intention of the RemCo that an award of 150% of salary will only be made to the Chief Executive, with the other executive Directors and selected senior managers receiving conditional awards over shares with a market value of 125% of basic salary.
The awards will vest, subject to the achievement of performance conditions, three years after the date of grant together with shares in lieu of dividends payable. There is no provision for the re-testing of these performance conditions. For the 2008 award, there are two performance conditions each applying to separate parts of the award. 50% of an award is linked to an adjusted earnings per share (“EPS”) growth target, and the remaining 50% is linked to total shareholder return (“TSR”) performance relative to a comparator group.
The RemCo considers that the EPS and TSR performance conditions provide a good blend of performance metrics, with EPS growth rewarding strong financial performance and TSR rewarding stock market performance, which aligns with investors’ interests.
It is the intention of the RemCo to make awards under the PSP in 2009. For the TSR element of the award, it is currently anticipated that a similar peer group of companies will be used. The RemCo is currently reviewing the EPS targets and individual levels of award, to ensure these continue to remain stretching and appropriate given current market conditions and business outlook.
Pensions
The executive Directors participate in the Balfour Beatty Pension Fund (the
“Fund”). The Fund provides for a pension at a normal retirement age, for pension
purposes, of 62 and each Director pays an annual contribution equal to 5% of
pensionable salary. The pension for a Director who can complete 20 or more
years’ pensionable service at normal retirement age is targeted at two-thirds of
final pensionable salary, subject to HMRC limits. With effect from 6 April 2006,
HMRC limits were changed, with one of the changes being to no longer use
the earnings cap, when determining the maximum permissible benefits.
However, a Fund-specific earnings cap has been retained for those members
who were previously subject to the HMRC earnings cap. A discretionary cash
supplement is paid in lieu of pension provision on earnings above the Fund
specific cap.
Share ownership guidelines
To further align the interests of senior management with those of shareholders,
executive Directors and certain other senior managers are subject to share
ownership guidelines. Executive Directors are required to accumulate a holding
of ordinary shares in the Company to the value of 100% of their basic salary at
a reference date. In order to achieve this, they will be expected to retain at least
half of the shares (after payment of any taxes due) which vest from awards made
under the PSP and the DBP. Details of the shareholdings of all the Directors can
be found in the table below.
Service contracts
It remains the Company’s policy and practice to include in executive Directors’
contracts a 12 months’ rolling notice period from the Company and six months’
notice on the part of the Director. This policy will continue.
Service contracts of executive Directors do not include provision for specific payment in the event of early termination, nor do they provide for extended notice periods or compensation in the event of a change of control. The RemCo would seek to ensure that the Director fulfils his obligation to mitigate his losses and would also give consideration to phased payments where appropriate.
Non-executive Directors
Non-executive Directors are appointed by the full Board following recommendations from the Nomination Committee. The Chairman’s remuneration falls within the remit of the RemCo operating within the broad policy recommended by the RemCo and approved by the Board.The Board determines the terms on which the services of other non-executive Directors are provided. All non-executive Directors are elected for a term of three years and must retire and, if eligible, seek re-election at the AGM in the third calendar year following the year in which they were elected (or last re-elected). They are not eligible to join any pension scheme operated by the Company and cannot participate in any of the Company’s share option, annual incentive or long-term incentive schemes. None of the appointment letters for non-executive Directors contain provision for specific payment in the event of termination for whatever cause.
The fees of the non-executive Directors are reviewed from time to time with the last review having taken effect from 1 July 2008.
Performance graph
The graph below shows Balfour Beatty’s TSR performance compared to the FTSE 250 Index (excluding investment trusts) TSR over the five financial years ended 31 December 2008.
As in previous reports, the RemCo has elected to compare the TSR on the Company’s ordinary shares against the FTSE 250 Index (excluding investment trusts) principally because this is a broad index of which the Company was a constituent member during the year.
The values indicated in the graph show the share price growth plus reinvested dividends from a £100 hypothetical holding of ordinary shares in Balfour Beatty plc and in the index at the start of the period and have been calculated using 30 trading day average values.
Directors' remuneration earned in 2008
| Name of Director | Basic salary £ |
Fees £ |
Pension supplement £ |
Benefits in kind £ |
Annual cash bonus £ |
Total remuneration 2008 £ |
Total remuneration 2007 £ |
| M J Donovan | – | 45,000 | – | – | – | 45,000 | 42,000 |
| S L Howard | – | 49,000 | – | – | – | 49,000 | 42,000 |
| Sir David John | – | 71,372 | – | – | – | 71,372 | 190,000 |
| G E H Krossa | – | 16,540 | – | – | – | 16,540 | – |
| D J Magrath | 256,308 | – | 33,531 | 12,008 | 181,333 | 483,180 | – |
| S Marshall | – | 162,273 | – | – | – | 162,273 | 49,000 |
| A L P Rabin | 402,500 | – | 70,236 | 20,852 | 226,667 | 720,255 | 653,951 |
| G H Sage | – | 45,000 | – | – | – | 45,000 | 42,000 |
| I P Tyler | 605,000 | – | 71,934 | 27,187 | 336,000 | 1,040,121 | 949,428 |
| Dr H C von Rohr | – | 54,092 | – | – | – | 54,092 | 62,548 |
| R J W Walvis | – | 52,500 | – | – | – | 52,500 | 49,000 |
| P J L Zinkin | 392,500 | – | – | 17,890 | 216,000 | 626,390 | 587,290 |
| Former Directors | – | – | – | – | – | – | 50,208 |
| Total | 1,656,308 | 495,777 | 175,701 | 77,937 | 960,000 | 3,365,723 | 2,717,425 |
Notes:
(i) Basic salary and fees were those paid in respect of the period of the year during which individuals were Directors.
(ii) Ian Tyler, Anthony Rabin and Duncan Magrath received taxable cash supplements in lieu of pension provision on their salary above the Balfour Beatty Pension Fund specific earnings cap.
(iii) The performance target for annual bonus was profit before tax, exceptional items and amortisation of intangible assets (“profit”). The profit for the year ended 31 December 2008 resulted in a maximum bonus of 80% of basic salary for each executive Director. Two-thirds of this bonus is payable in cash and these are the amounts shown in the table above. The remaining one-third is deferred in the form of ordinary shares in the Company which will be released to the Director on 31 March 2012, providing he is still employed by the Company at that time. The number of shares comprising the deferred element will be determined based on the share price at the award date of 31 March 2009.
(iv) Awards made under the Performance Share Plan in 2005 to Ian Tyler, Anthony Rabin, and Peter Zinkin vested during the year. At the date of vesting on 18 April
2008 the closing market price was 463p and the total values of the shares which vested were £546,354, £378,720, and £403,555 respectively.
(v) Ian Tyler, Anthony Rabin, and Peter Zinkin exercised savings-related share options during the year. The closing market prices on the dates of exercise ranged between 411.25p and 400.0p and the values realisable on exercise were £4,184, £1,826, and £3,450 respectively.
Directors' interests
The interests of the Directors and their immediate families in the ordinary share capital of Balfour Beatty plc and its subsidiary undertakings during the year are set out below.
| Number of ordinary shares | ||
| Name of Director | At 1 January 2008* |
At 31 December 2008 |
| M J Donovan | 5,000 | 5,000 |
| S L Howard | 5,045 | 5,045 |
| G E H Krossa | – | 5,000 |
| D J Magrath | 6,000 | 16,000 |
| S Marshall | 5,000 | 5,000 |
| A L P Rabin | 101,728 | 142,172 |
| G H Sage | 5,000 | 5,000 |
| I P Tyler | 133,005 | 154,051 |
| R J W Walvis | 10,000 | 10,000 |
| P J L Zinkin | 122,171 | 148,686 |
| * or date of appointment, if later. | ||
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