| |
 |
|
 |
For the financial year ended 31 December
2002, the setting of remuneration policy
and the determination of the compensation
of Executive Directors during 2002 was
undertaken on behalf of the Board by
the Remuneration and Appointments
Committee. The Directors who served
on the Committee during the year were
Dennis Hendrix, Sir Neville Simms, Tony
Isaac, Jack Taylor and Adri Baan (who
became a Member of the Committee
on appointment as a Director on 1 June
2002). Dennis Hendrix was Chairman of
the Committee until his retirement as a
Director on 23 May 2002, at which time
Sir Neville Simms chaired the Committee
until Adri Baan succeeded him in 2003.
The Committee’s terms of reference are
summarised here. The members of
the Committee receive the fees described
here. They are not in receipt of
any other benefits.
The Committee has access to external
independent advice in relation to
remuneration and appointments. During
the year, it received specialist advice on
Directors’ and senior management
remuneration and on the implementation
of the Performance Share Plan 2002 and
the International Power Global Executive
Share Option Scheme from Towers Perrin,
remuneration consultants. Towers Perrin
did not undertake any other services on
behalf of the Company during the year
ended 31 December 2002.
In addition, it received advice from
James Richards, Human Resources
Director, with regard to all aspects of
remuneration and appointments. Peter
Giller, in his capacity as Chief Executive
Officer, attended Committee meetings
to report on Executive Directors‘
performance, other than his own.
This report to the shareholders by
the Committee, on behalf of the Board,
covers remuneration policy, (including
information on share options, long-term
incentive plans, Directors’ service
contracts, and Directors’ pension benefits)
Directors’ aggregate remuneration and
compensation and Directors’ interests
in the Company’s shares.
|
 |
REMUNERATION POLICY
The Company’s remuneration policy for
each Executive Director takes account of
the changing nature of the business in
both the UK and overseas. In order to
compete with and meet these challenges,
the Committee designed executive
remuneration along the following principles:
- Total remuneration levels that
will retain and motivate top
quality executives.
- All remuneration packages have
a significant performance-related
element.
- Incentives are based on meeting
specific, measurable performance
objectives, and align executives
rewards with creating value for
our shareholders.
- Total remuneration packages that
include significant opportunities to
acquire International Power stock
consistent with our strategy of reinvestment
and building a strong
ownership culture.
This policy applies to the current year and
the Committee intends to continue it for
the foreseeable future, taking into account
emerging market practice.
At the start of each financial year the
Remuneration Committee establishes a
framework of individual and corporate
performance targets against which
performance is measured.
Consideration is also given to
remuneration levels in comparator
companies both within the UK and
internationally. The Committee also
has regard to the pay of staff and
management generally within the Group,
to ensure that an appropriate balance is
maintained in remuneration levels.
As part of its continued review of executive
remuneration policy during 2002, and to
assist with the succession management
plan implemented on 1 January 2003,
the Chairman consulted a number of
the Company‘s principal institutional
shareholders and other major
institutional bodies regarding its
executive remuneration arrangements.
The Committee has incorporated these
arrangements into the service agreements
for David Crane and Philip Cox.
|
|
Elements of remuneration
Executive Directors receive a
remuneration package aligned with short
and mediumterm corporate and personal
targets. The package comprises a market
competitive base salary; performance
related annual cash bonus; medium term
share related incentives; pension benefits;
and other benefits including a health
care programme and a company
car allowance.
With regard to the performance
related elements of Executive Director
remuneration packages, they are
structured to provide a significant
award for superior performance.
| Main fixed and performance related elements of remuneration |
| FIXED ELEMENTS |
PERFORMANCE ELEMENTS |
| Base salary |
Bonus |
| Pension |
Demerger LTIP |
| Healthcare |
Performance Share Plan |
| Car allowance |
Executive Share Option Scheme |
The International Power annual
performance bonus is a non-pensionable
cash payment for achieving targets set
by the Board (including EPS, cash flow
and other personal targets). The
maximum annual bonus opportunity for
Executive Directors was set at 50% of
base salary for the performance year 1
January to 31 December 2002. For this
period, the Committee awarded Executive
Directors 40% of their earned salary,
recognising both the significant corporate
and personal achievements during the
period 1 January to 31 December 2002.
With effect from 1 January 2003 the
maximum annual bonus for Executive
Directors has been increased to 60% of
base salary for the performance year.
Furthermore, in order to increase share
ownership of Executive Directors, it is
intended that the bonuses payable for
the performance years 2003, 2004
and 2005 will be paid part in cash
and part in shares.
|
|
Share plans for Executive Directors:
Performance conditions
Demerger Long-Term Incentive Plan
Two separate performance conditions
apply to the release of any awards made
under this Plan. First, that the average
of the closing mid-market prices of an
Ordinary Share on the London Stock
Exchange for the 60 consecutive dealing
days immediately prior to the third
anniversary of the Demerger Date must
be equal to or greater than 152% of the
Initial Price (the Initial Price having been
fixed as being 295.175p per share (being
the average of the mid-market price of an
International Power Ordinary Share on the
20 dealing days immediately following the
Demerger)). Secondly, the average annual
growth in normalised earnings per share
of the Company for the financial reporting
period of the Company ending on
31 December 2000 to the end of the
financial reporting period ending on
31 December 2003 must equal or
exceed 7%.
Shares will vest subject to the
Remuneration Committee being satisfied
with the achievement of the performance
conditions in line with the above. To date,
no awards have been made in respect
of this Plan.
2002 Performance Share Plan
The awards made under this Plan in
2002 will normally vest after the end
of a three year period commencing
on 1 January 2002 and ending on
31 December 2004 (the Performance
Period). The performance condition that
applies to the above awards is based
on growth in normalised earnings per
share (EPS growth). Under this condition,
30% of the award will vest after
31 December 2004 if average annual EPS
growth over the Performance Period is
not less than RPI+7%. 100% of the
award will vest if average annual EPS
growth over the Performance Period is
equal to or greater than RPI+12%.
Vesting will be prorated for EPS
growth between these two points.
As part of the Company’s succession
management plan, a further award has
been made in 2003 to David Crane and
Philip Cox. These awards will normally
vest after the end of a three year period
commencing on 1 January 2003 and
ending on 31 December 2005 (the
performance period). The performance
condition that applies to the above
award is based on growth in normalised
earnings per share (EPS growth). Under
this condition, 30% of the award will
vest after 31 December 2005 if
EPS performance for the year ended
31 December 2005 is not less than
11.5p. 100% of the award will vest if
EPS performance for the year ended
31 December 2005 is equal to or greater
than 14p. Vesting will be prorated for EPS
performance between these two points.
Shares will vest subject to the
Remuneration Committee being satisfied
with the level of achievement of the
performance condition as outlined above.
|
|
Approved and Unapproved Executive Share Option Plans
Options granted to Executive Directors
in 2002 will become exercisable if
average annual EPS growth over the
Performance Period (being 1 January
2002 to 31 December 2004) is not
less than RPI+4%.
Options will become exercisable
subject to the Remuneration Committee
being satisfied that the performance
condition outlined above has
been achieved.
Selection of performance criteria
For the 2002 Performance Share Plan
and the Approved and Unapproved
Executive Share Option Plans, the
performance conditions have been
aligned with the key objective of growth
in earnings per share of the Company.
For the Demerger LTIP, the performance
conditions have been aligned with this
same objective, together with growth
in the Company’s share price.
The Remuneration Committee has
chosen EPS growth as the performance
measure for its stock plans to ensure
that there is an objective measure of
relative performance and the Committee
has decided to measure the relative
growth in EPS against growth in the
RPI index. This choice of EPS growth
recognises that International Power
is a UK-based company that operates
almost entirely outside the UK, that there
is no comparator group of companies
against which the Company’s performance
can adequately be measured in terms of
Total Shareholder Return (TSR), and that
EPS is an objective financial measure that
can be tracked. Whilst the Committee
recognises that this is not a measure
that is universally liked by some major
shareholders, the Committee believes
that the targets set are challenging and,
if achieved, will demonstrate significant
financial performance on the part
of the Directors and employees of
the Company.
This appoach will continue to be
adopted for further awards under the
2002 Performance Share Plan and grants
under the Approved and Unapproved
Executive Share Option Plans.
Total shareholder return
As required by the Director’s
remuneration report regulations,
below is a graph showing TSR for the
Company as marked against a broadbased
market equity index over the last
five years. The index that has been used
is the FTSE 100. This index has been
chosen as the Company has, for the
majority of the last five years, been a
constituent member of that index.
|
|
|
|
Directors’ service contracts
David Crane and Philip Cox each have service contracts subject to 12 months notice by the Company. For the period 1 January 2003
to 31 December 2004, if the service agreements for David Crane and Philip Cox are terminated for a change of control, the notice
period is increased to 24 months. For termination other than for cause, an Executive Director may receive a payment of 125% of
annual basic salary. For termination through the change of control provision referred to above, this payment increases to 250% of
annual basic salary. The date upon which these contracts were entered into was 25 February 2003. The Chairman of International
Power plc, Sir Neville Simms has a letter of appointment with a 12 month notice period. The letter of appointment was signed on 22
February 2000. Peter Giller had a service agreement that was due to terminate on 2 October 2003. As part of the Company’s
management succession plan, Peter Giller’s service agreement was terminated early on 31 December 2002. Peter Giller, effective
from 1 January 2003, moved to the position of Deputy Chairman and Non-Executive Director for an initial period of one year.
The other Non-Executive Directors are appointed on a three year fixed-term, annual fixed-fee basis.
The following table summarises the appointment and termination dates for Directors:
| Non-Executive Directors |
Date contract entered into |
Contract expiry |
 |
| Adri Baan |
30 May 2002 |
29 May 2005 |
|
| Peter Giller |
1 January 2003 |
31 December 2003 |
|
| Tony Isaac |
2 October 2000 |
19 May 2003 |
|
| Sir Neville Simms |
22 February 2000 |
12 months notice |
|
| Jack Taylor |
2 October 2000 |
19 May 2003 |
|
Sir Neville Simms‘ contract will
expire at the 2010 AGM, following
his 65th birthday.
|
| Executive Directors |
|
| David Crane |
25 February 2003 |
12 months notice |
|
| Philip Cox |
25 February 2003 |
12 months notice |
|
| Both Executive Directors’ contracts terminate on
their reaching normal retirement age which is 26 January 2019 for David Crane
and 22 September 2011 for Philip Cox. |
|
|
Directors’ pension benefits
With regard to the current Executive Directors of International Power plc, for the period up to 31 December 2002 there are no
pension scheme arrangements in which they participate. The Executive Directors received the following cash benefit in lieu of any
pension arrangements.
| |
|
Cash allowance received |
Cash allowance received |
| |
Percentage of base salary |
for the year to |
for the year to |
| |
paid in lieu of pension |
31 December 2002 |
31 December 2001 |
| |
arrangements |
(£000) |
(£000) |
|
| P Giller |
n/a |
n/a |
n/a |
|
| D W Crane |
30% |
87 |
65 |
|
| P G Cox |
30% |
87 |
65 |
|
With effect from 1 January 2003 pension arrangements for David Crane and Philip Cox are provided through the Senior Section of the
International Power Group of the Electricity Supply Pension Scheme, which is a scheme approved by the Inland Revenue, The scheme
provides for: a normal retirement age of 60; an accrual rate of one thirtieth of pensionable salary; four times salary death-in-service
benefits; a widow’s pension of 2/3 executive’s pension; and executive’s contribution of 6% of salary up to 15% of Inland Revenue
earnings limits.
The benefits provided through the scheme are restricted by Inland Revenue earnings limits. These arrangements are supplemented by the
Company making contributions to personal pensions, life assurance, and a Funded Unapproved Retirement Benefit Scheme, up to a cost
to the Company of 30% of salary (which includes the cost of the benefit provided through the Senior Section of the International Power
Group Electricity Supply Pension Scheme).
|
|
Audit
The details of the Directors‘ remuneration and interest in 2002 as disclosed on pages 44 to 47 have been audited by the Company‘s
external auditor.
2002 DIRECTORS’ REMUNERATION AND INTERESTS
Directors’ aggregate remuneration
The table below shows the aggregate remuneration of the International Power plc Directors for the year ended 31 December 2002
and compares it with the figures for the year ended 31 December 2001.
| |
|
|
|
|
|
|
Aggregate |
Aggregate |
| |
|
|
|
|
|
|
remuneration |
remuneration |
| |
|
|
|
|
Payment |
|
year to 31 |
year to 31 |
| |
|
|
Termination |
Performance |
in lieu of |
Other |
December |
December |
| |
Salary |
Fees |
payment |
related bonus |
pension |
benefits |
2002 |
2001 |
| |
£ |
£ |
£ |
£ |
£ |
£ |
£ |
£ |
|
| Sir Neville Simms |
175,000 |
– |
– |
– |
– |
– |
175,000 |
175,000 |
|
| P G Cox(2) |
291,500 |
– |
– |
116,600 |
87,450 |
14,082 |
509,632 |
460,655 |
|
| D W Crane(2) |
291,500 |
– |
– |
116,600 |
87,450 |
17,761 |
513,311 |
467,029 |
|
| P Giller(3)(4) |
194,094 |
– |
403,799 |
– |
– |
77,950 |
675,843 |
530,998 |
|
| J Moore |
– |
– |
– |
– |
– |
– |
– |
18,433 |
|
| J D Taylor(1) |
– |
30,000 |
– |
– |
– |
– |
30,000 |
25,000 |
|
| A Isaac(1) |
– |
35,000 |
– |
– |
– |
– |
35,000 |
30,000 |
|
| J M Amusategui |
– |
– |
– |
– |
– |
– |
– |
14,583 |
|
| A Baan(1) |
– |
17,500 |
– |
– |
– |
– |
17,500 |
– |
|
| D Hendrix(1) |
– |
12,500 |
– |
– |
– |
– |
12,500 |
25,000 |
|
| Total |
952,094 |
95,000 |
403,799 |
233,200 |
174,900 |
109,793 |
1,968,786 |
1,746,698 |
|
Notes
- The International Power plc Non-Executive Directors‘ fees are split between an annual fee of £15,000 for Board membership,
for attendance at Board meetings and for general duties as Directors. They each receive a further £15,000 per annum for their
membership of Board Committees. In addition, Tony Isaac receives an additional fee of £5,000 per annum for his role as Senior
Independent Director. Adri Baan joined the Company on 1 June 2002. Dennis Hendrix ceased to be a Director on 23 May 2002.
- David Crane and Philip Cox both received a cash supplement of 30% of base salary in lieu of pension scheme arrangements.
They also received a company car allowance and private medical insurance, both of which are included in other benefits.
- On 2 October 2000, Peter Giller received a one-off conditional award of 677,564 Ordinary Shares in the Company in respect
of his three year term of employment (subject to the rules of the Restricted Share Plan). One third of the Ordinary Shares
conditionally awarded to him (being 225,854) were issued to him on 2 October 2001 and a further third (225,855) was released
on 2 October 2002. The final third (225,855) were issued to him on termination of his service agreement on 31 December
2002. The salary stated in the table above reflects: 9/12 of the value of his 2002 release, based on the share price at
2 October 2002 of 82.875p per share at the time of the vesting of the shares; and 3/12 of the remaining third released to him
on 31 December 2002 based on a share price of 95.125p per share. In addition, during 2002 he was provided with a weekly
cash supplement of £1,100 in respect of housing costs (which is included in other benefits).
- As part of Peter Giller’s termination of his service agreement he received, on 31 December 2002, the balance of his 2003
Restricted Share Plan release and the full release of his 2002 Performance Share Plan award of 255,102 shares. Both these
releases were based on a share price of 95.125p, and are reflected in the termination payment shown in the table above.
He also received, as part of termination arrangements, a relocation allowance of £25,000 (which is included in other benefits).
|
|
Long-term incentive plans
1. Demerger LTIP
| |
|
|
|
Market value |
|
|
| |
|
|
|
of an |
|
|
| |
No. of shares |
|
|
Ordinary |
|
No. of shares |
| |
under award |
Conditional |
|
Share as at |
End of |
under award as |
| |
as at 1 January |
awards made |
Date of |
date of award |
performance |
at 31 December |
| |
2002 |
during the year |
award |
(pence) |
period |
2002 |
|
| P Giller |
– |
– |
– |
– |
– |
– |
|
| D W Crane |
– |
– |
– |
– |
2 October 2003 |
– |
|
| P G Cox |
– |
– |
– |
– |
2 October 2003 |
– |
|
| Details of the qualifying conditions that are conditions with respect to performance under the Demerger LTIP
are given in the Directors’remuneration report on page 41. |
2. 2002 Performance Share Plan
| |
|
|
|
Market value |
|
|
| |
No. of shares |
|
|
of an |
|
No. of shares |
| |
under award |
Conditional |
|
Ordinary |
End of |
under award as |
| |
as at 1 January |
awards made |
Date of |
Share as at |
performance |
at 31 December |
| |
2002 |
during the year |
award |
date of award |
period |
2002 |
|
| P Giller |
– |
255,102 |
24 May 2002 |
196p |
– |
– |
|
| D W Crane |
– |
148,724 |
24 May 2002 |
196p |
31 December 2004 |
148,724 |
|
| P G Cox |
– |
148,724 |
24 May 2002 |
196p |
31 December 2004 |
148,724 |
|
|
Details of the qualifying conditions that are conditions with respect to performance under the 2002 Performance Share Plan are given
in the Directors’ remuneration report on page 41.
|
|
|
Executive share options
| |
|
|
|
|
|
No. of |
| |
No. of |
|
|
|
|
shares under |
| |
shares under |
|
|
|
|
option as at |
| |
option as at |
Granted |
Exercise price |
Exercise |
Exercise |
31 December |
| |
1 January 2002 |
during the year |
per share |
period from |
period to |
2002 |
|
| P Giller |
– |
15,306(1) |
196p |
24 May 2005 |
24 January 2006 |
15,306 |
| |
– |
239,796(2) |
196p |
24 May 2005 |
24 January 2006 |
239,796 |
|
| Total Options |
– |
|
|
|
|
255,102 |
 |
| D W Crane |
– |
15,306(1) |
196p |
24 May 2005 |
24 May 2012 |
15,306 |
| |
– |
133,418(2) |
196p |
24 May 2005 |
24 May 2012 |
133,418 |
|
| Total Options |
– |
|
|
|
|
148,724 |
|
| P G Cox |
– |
15,306(1) |
196p |
24 May 2005 |
24 May 2012 |
15,306 |
| |
– |
133,418(2) |
196p |
24 May 2005 |
24 May 2012 |
133,418 |
|
| Total Options |
|
|
|
|
148,724 |
|
| |
|
|
|
|
|
|
(1) Approved Executive Share Options.
(2) Unapproved Executive Share Options.
Details of the qualifying conditions that are conditions with respect to performance under both the Approved and Unapproved
Executive Share Option Plans are given in the Directors’ remuneration report on page 42.
|
|
|
Sharesave Options
| |
|
|
|
|
|
No. of |
| |
No. of |
|
|
|
|
shares under |
| |
shares under |
|
|
|
|
option as at |
| |
option as at 1 |
Granted |
Exercise price |
Exercise |
Exercise |
31 December |
| |
January 2002 |
during the year |
per share |
period from |
period to |
2002 |
|
| P Giller |
8,976 |
- |
188p |
|
Lapsed 1 October 2002 |
- |
| |
|
18,250 |
90p |
24 December 2007 |
24 June 2008 |
18,250* |
|
| Total Options |
|
|
|
|
18,250 |
|
| D W Crane |
8,976 |
- |
188p |
|
Lapsed 1 October 2002 |
- |
| |
|
18,250 |
90p |
24 December 2007 |
24 June 2008 |
18,250 |
|
| Total Options |
|
|
|
|
18,250 |
|
| P G Cox |
8,976 |
- |
188p |
|
Lapsed 1 October 2002 |
- |
| |
|
18,250 |
90p |
24 December 2007 |
24 June 2008 |
18,250 |
|
| Total Options |
|
|
|
|
18,250 |
|
|
*Lapsed 1 January 2003 |
The middle market quotation for an Ordinary Share of the Company on 31 December 2002 was 95.75p and the daily quotations
during the period ranged from 221p to 83.5p.
|
|
Shares held in trust
For the International Power Restricted Share Plan referred to in this report, 677,564 shares in the Company were purchased and
placed in a trust fund which at cost and net of administration expenses of the trust, totalled £1.7 million at 31 December 2001. The
Remuneration Committee vested one third of the shares to Peter Giller on 2 October 2001 and one third on 2 October 2002.
Following the cessation of Peter Giller’s term of office as Chief Executive on 31 December 2002, in accordance with the terms of
the Plan, the balance of the shares were released to Peter Giller as at that date. In line with recommended practice, the fund balance
has been written down to £nil over the period of service to which it related. The book value relating to this purchase as at
31 December 2002 was therefore £nil (31 December 2001: £1.0 million).
In respect of awards made under the 2002 Performance Share Plan during 2002, 1,273,138 shares were purchased and placed in
a trust fund which, at cost and net of administration expenses of the trust, totalled £2.5 million. Following the cessation of Peter
Giller’s term of office as Chief Executive on 31 December 2002, in accordance with the terms of the Plan, the Committee released
255,102 shares to Peter Giller as at that date. Whilst the Directors have an interest in all of the shares held in the Trust, in respect of
awards made to directors under the Performance Share Plan as at the date of this report, the number of shares that may vest to
Directors if full performance of the relevant performance condition is achieved is 297,448. In line with recommended practice, the
fund balance will be written down to £nil over the period of service to which it relates. The book value of the shares placed in Trust
in respect of this Plan as at 31 December 2002 was £1 million.
With regard to the International Power Demerger Long-Term Incentive Plan referred to in this report, as at 31 December 2002
there has not been any requirement to purchase shares for placement in a trust fund. In line with recommended practice, should the
Company be required to purchase shares in respect of this plan, the fund balance will be written down to £nil over the period of
service to which any such purchase relates.
|
|
Summary of emoluments and benefits
Highest paid Director The aggregate emoluments of the highest paid Director, Peter Giller, were £675,843 (twelve months to
31 December 2001: Peter Giller £530,998).
Summary of LTIPs
| Award Date |
No. of shares under award |
Market value at date of
award |
Prospective date of vesting |
| 24 May 2002 |
297,448 |
196p |
May 2005 |
|
| Total |
297,448 |
|
|
|
Summary of Directors’ Unexercised Executive Share Options
| Grant date |
No. of Options |
Exercisable price |
Date exercisable |
| 24 May 2002(1) |
45,918 |
196p |
2005 – 2012 |
|
| 24 May 2002(2) |
506,632 |
196p |
2005 – 2012 |
|
| Total |
552,550 |
|
|
|
(1) Approved Executive Share Options
(2) Unapproved Executive Share Options
|
|
|
Summary of Directors’ Unexercised Sharesave Options
| Grant date |
No. of Options |
Exercisable price |
Date exercisable |
| |
54,750 |
90p |
24 December 2007 – 24 June 2008 |
|
| Total |
54,750 |
|
|
|
Directors’ beneficial interests
| |
As at 31 December 2002 |
As at 1 January 2002 |
| |
|
|
|
(or date of appointment if later) |
| Director |
Ordinary Shares |
Executive Options |
Sharesave options |
Ordinary Shares |
Executive Options |
Sharesave Options |
| |
|
| A Baan* |
5,000 |
– |
– |
– |
– |
– |
| P G Cox |
15,000 |
148,724 |
18,250 |
10,000 |
– |
8,976 |
| D W Crane |
24,000 |
148,724 |
18,250 |
14,000 |
– |
8,976 |
| P Giller** |
744,568 |
255,102 |
18,250 |
107,756 |
– |
8,976 |
| A E Isaac |
5,000 |
– |
– |
5,000 |
– |
– |
| Sir Neville Simms |
30,000 |
– |
– |
30,000 |
– |
– |
| J D Taylor |
5,000 |
– |
– |
5,000 |
– |
– |
*Appointed as a Director on 1 June 2002 |
| ** Upon the cessation of his appointment as Chief Executive on 31 December 2002, Peter Giller withdrew from the Sharesave Plan.
Accordingly, his Sharesave Options lapsed on 1 January 2003. |
Between 31 December 2002 and the date of approval of these accounts, the following changes in Directors’ beneficial
interests have taken place:
On 7 January 2003 Peter Giller sold 220,000 Ordinary Shares at a price of 103.4p per share.
On 7 March 2003 Sir Neville Simms purchased 70,000 Ordinary Shares at a price of 77.75p per share and David Crane
and Philip Cox purchased 20,000 and 10,000 Ordinary Shares respectively at a price of 77.5p per share.
No Director had, at any time during the financial year, any beneficial interest in the shares of any subsidiary undertaking.
Adri Baan
Chairman of the Remuneration Committee
On behalf of the Board of Directors of International Power plc
6 March 2003
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