Annual Report and Accounts 2006 - Optos

Directors’ Remuneration Report
INTRODUCTION
All matters relating to executive remuneration are determined by the remuneration committee, a committee of the Board.
A resolution to approve the report will be proposed at the annual general meeting of the Company at which the financial statements for the year ended
30 September 2006 will be approved. Certain items in the remuneration report are required to be audited and are identified as such against the relevant heading.
REMUNERATION COMMITTEE
The Board considers that the Chairman of the Board should be a member of the remuneration committee as it is essential that the Chairman be involved in the work
of the remuneration committee and, in particular, the setting of the executive Directors’ remuneration. Since January 2006, the remuneration committee has consisted
of the following non-executive directors – Dr John Padfield, Barry Rose, Anne Glover and Patrick Paul. The remuneration committee is required to meet at least twice a
year and at such other times as the Chairman of the remuneration committee shall require.
The remuneration committee is responsible for determining the remuneration of the executive Directors and the senior management team together with their terms
and conditions of employment. It is also responsible for considering management recommendations for remuneration and employment terms of the Company’s staff,
including, for example, incentive arrangements for bonus payments and grant of share options.
No members of the remuneration committee have any personal financial interest (other than as shareholders), conflicts of interest arising from cross-directorships or
day-to-day involvement in running the business. The remuneration committee makes recommendations to the Board, and other Directors attend meetings when
invited by the remuneration committee. No Director plays a part in any discussion about his or her own remuneration.
REMUNERATION POLICY
The remuneration committee has established a policy on the remuneration of executive Directors and the Board has established a policy for non-executive Directors
for the current and subsequent years. The remuneration committee’s decisions are made on the basis of rewarding individuals for the nature of the jobs they undertake
and their performance according to defined objectives to deliver the Company’s strategy. Proper regard is given to the need to attract and retain high-quality,
well-motivated staff at all levels, and to the remuneration being paid by similar companies.
The remuneration policy is reviewed annually by the remuneration committee.
POLICY FOR EXECUTIVE DIRECTORS’ REMUNERATION
During the financial year ended 30 September 2006, the remuneration committee appointed New Bridge Street Consultants LLP to provide further advice on
structuring executive Directors’ remuneration packages, together with a report on the proposals for a Long-Term Incentive Plan (“LTIP”).
For the next financial year, the executive Directors will receive a combination of basic salary, management incentive scheme (as described below), pension and benefits
in kind. The basic salary is the only pensionable part of the remuneration package.
The remuneration committee gives consideration to several components In respect of the executive Directors’ remuneration, which together comprise the total
remuneration package. These consist of the following:
• Basic salary is determined by the remuneration committee at the beginning of each year and when an individual changes position or responsibility. In deciding
appropriate levels, the remuneration committee considers the position in the Company, personal and Company performance, and relies on objective research
which gives up-to-date information on a comparable group of companies. Basic salaries were reviewed in September 2005, with increases taking effect from
1 October 2005 and further increases on 15 February 2006. The basic salaries were last reviewed in September 2006, with increases taking effect from 1 October
2006. The next review will take place in September 2007.
• Quarterly Performance Incentives are paid, provided that objectives established by the remuneration committee are met for each financial year. For 2006,
the objectives put emphasis on net installs, revenue per site of existing customers and control of expenditure.
• Benefits in Kind, which comprise Company car allowance, private health insurance, life insurance and Company sick pay. Where a Director is on international
assignment, the additional benefits provided are housing allowance, school fees and specified family travel.
• Pension Contribution. The Company operates a contracted-out defined contribution scheme for executive Directors whereby the Company contributes 10% of a
Director’s gross salary. Prior to February 2006, the Company contribution was 7%.
The Company has operated discretionary share option arrangements. The discretionary options have been granted pursuant to four different types of option
agreement. Most terms of those option agreements are identical. However, the terms on which options vest differ between the types of agreement. The four types of
vesting are as follows:
• Time-based vesting over the three years commencing on the date on which the option was granted. One third of the options vest on grant and the remaining
two-thirds vest over the following 36 months on a monthly basis.
• Time-based vesting over three years as described above but with full acceleration of vesting on the admission of the Company’s shares to trading on certain stock
exchanges, including the London Stock Exchange.
• Time-based vesting by reference to the flotation of the Company. Under this form of option agreement, one third of the shares under option vest on the admission
of the Company’s shares to trading on certain stock exchanges, including the London Stock Exchange. The remaining two-thirds then vest in two tranches – on the
date six months after admission and on the date 12 months after admission.
• Vesting as to one third immediately, with the remaining two-thirds vesting subject to satisfaction of performance targets. Such targets are based on the Company
achieving two successive quarters of positive operating profit and two successive quarters of positive earnings over the period from grant to 31 March 2006 and
31 March 2007 respectively. These performance periods were accelerated by 12 months due to the IPO and the conditions have been achieved.
In addition to the above, two further vesting arrangements have been utilised in respect of two separate grants. The first grant is subject to time-based vesting with
one third of the option vesting on the first, second and third anniversaries of the date of grant. The second grant is subject to performance-based vesting, with the
option vesting over four quarters dependent on the North American business attaining certain performance levels.
Optos plc Annual Report & Accounts 2006 25