Reward arrangements for Executive Directors and other senior
executives need to remain in line with prevailing practices
among other UK-parented companies and be competitive
for an international, fast moving consumer goods company.
The Committee has reviewed arrangements and incentives
since the policy was last amended in 2004 to ensure that
they remain effective and appropriate to the Company's
circumstances and prospects and to monitor the level of
potential awards. In the light of the introduction of IFRS and
the evolving views of investors opposed to the re-testing of
performance conditions applicable to share options, the
Committee is proposing to make the following changes to the
policy to take effect from 1 January 2006:
- No more discretionary share options will be granted unless
general market conditions change or if there are particular
circumstances that arise where an option grant would be
appropriate;
- As a consequence, for Executive Directors, the target and
maximum levels of award under the AIP will increase from
80% and 120% to 100% and 150% of salary respectively,
and the annual LTIP award will increase from 120% to 160%
of salary. The percentage of the LTIP award which vests for
threshold performance will reduce from 40% to 30% and this
will reduce the percentage of shares vesting for all levels of
performance below the 80th percentile. We will seek
shareowner approval to provide for LTIP awards up to a
maximum value of 200% of salary, but any award significantly
higher than the proposed 160% level will only be made in
exceptional circumstances;
- The BSRP performance related scale will be changed from
step vesting to a straight line sliding scale;
- Also, in setting performance ranges for future cycles for all
our long term plans, the economic profit and earnings per
share ranges will be expressed in absolute rather than real
(post inflation) terms. This is partly because there is no one
satisfactory inflation index against which to measure our performance, and secondly because an absolute measure is simpler
and in line with the way in which we communicate our results.
Similar changes will be made to AIP, BSRP and LTIP for
executives below Board level. For those who are not eligible
for LTIP awards, a share plan will be introduced which gives
conditional share awards if performance targets are met, so
that the expected value of remuneration for these employees is
maintained at broadly the same level as previously.
The chart below shows the fixed and variable elements of an
Executive Director's remuneration for 2006, and a range of
outcomes for each component. Expected value is the present
value of the sum of all the various possible outcomes at vesting
or exercise of awards, and was calculated using industry
accepted methodologies.
