Annual Incentive Plan (AIP)
Annual incentive targets are set each year to take account of current business plans and conditions, and there is a threshold performance below which no award is paid. AIP awards are based on financial tests, subject to appropriate adjustments, as determined by the Committee. In 2006, awards were based on the delivery of Underlying economic profit (UEP), defined as Underlying profit from operations less a charge for the weighted average cost of capital, and growth in revenue, both key elements of the annual contract. The award is weighted 60% on the delivery of UEP and 40% on the growth in revenue, and these weightings will remain the same for 2007. For both years, if our trading margin is below the contracted level, the revenue element of the award will be reduced at all levels of performance except at the threshold level. Furthermore, if targets are only achieved at the expense of lowering returns on total invested capital, the Committee reserves the right to reduce AIP payments accordingly.
The target incentive award for an executive Director is 100% of base salary, with the maximum award being at 150% for exceptional performance. AIP awards to executive Directors for 2005 and 2006 were 91% and 74% respectively of base salary, and in 2006, this represented 43.1% on the delivery of UEP and 31.1% on the growth in revenue. View the AIP received by the executive Directors in respect of the 2006 financial year.