Full Annual Report - Inchcape

Governance
Remuneration report
Compliance
This report complies with the Directors’ Remuneration Report
Regulations 2002 and other relevant requirements of the FSA Listing
Rules. The Remuneration Committee believes that the Company
has complied with the provisions regarding the remuneration
matters contained within the Code.
Details of those who served on the Remuneration Committee
during the year and information on Towers Watson, who acted
as remuneration consultants, can be found in the Remuneration
Committee report on pages 66-67.
Remuneration policy
The current remuneration policy was introduced in October 2007.
In establishing the policy the Remuneration Committee had regard
to the need to:
• continue to align with and support the Company’s
business strategy;
• allow the Company to motivate and retain its executive
management whilst having regard to pay and conditions
throughout the Group;
• recruit executives of high quality; and
• safeguard interests of shareholders by aligning the remuneration
package of executives with shareholder interests.
The key elements of the remuneration policy are:
Element of Package
Base salary
Annual bonus plan
Long-term incentives
(share options and
co-investment plan)
Pension and
other benefits
Policy
• competitive (i.e. at or around median)
when compared with those organisations
of similar size, complexity and type;
• link between the level of remuneration
and the performance of the Group and
the individual;
• sufficient to attract and motivate talent;
• reviewed annually.
• relevant financial performance criterion;
• Net Promoter Score;
• stretching personal objectives.
• link to long-term growth;
• aligned to shareholders interests;
• personal financial commitment.
• market competitive.
At the beginning of 2009 the Company was faced with an
unprecendented global downturn in the car industry that started in
the fourth quarter of 2008 and quickly spread throughout the world.
The Remuneration Committee has monitored the remuneration
policy carefully to ensure that it has remained appropriate for the
challenging environment.
The Remuneration Committee felt that whilst the overall
remuneration policy was sound, actions were necessary to help
drive the Company’s recovery and support the business in 2009.
In summary it was agreed that:
• there were no increases to Executive Directors’ and Executive
Committee members’ salaries;
• the co-investment plan was suspended; and
• no bonus payments were made in 2009 against 2008 targets
for Executive Directors.
In addition, due to the market conditions and the critiera that had
been set, executive share options and restricted share awards that
had been due to vest for Executive Directors lapsed as the
performance conditions were not met.
Shareholder consultation
The Remuneration Committee consulted with shareholders and
shareholder representative bodies in April 2009 to explain the
Company’s position and the need to support the underlying
strategy as well as to understand shareholders’ respective views.
In particular, it was considered necessary to amend the
performance criteria for short and long term incentives to ensure
alignment with the needs of recovery. The three year plan (2009 –
2011) which was the base for the executive share option grant of
2009 was developed at the beginning of 2009 whilst the Group
was implementing its recovery strategy.
The Group successfully completed its Rights Issue in April 2009
thanks to the strong support of its shareholders. To mitigate the
effects of the downturn from an operational perspective,
management focused on the execution of five priorities: growing
market share, growing aftersales, reducing costs, managing working
capital and selective capital expenditure investments. The
execution of these self help initiatives has delivered excellent results
as the Group was able to extract more costs than planned and
managed to reduce working capital faster than expected.
Moreover the Group outperformed its competitors in the market
place by gaining market share in most markets and by improving
customer service. The trading performance also benefited from a
stronger performance in the second half of the year in Hong Kong,
Australia and the UK.
In light of these challenging market conditions and mindful of
the need to encourage the right behaviours to best position the
Company to manage the downturn and to take advantage of
any upturn, the Remuneration Committee refined elements of the
remuneration policy for this period. In particular the Remuneration
Committee reviewed its position on executive share option grants
to senior management and the Group Chief Executive.
2009 summary
It was decided that:
• the annual bonus would have an operating profit qualifier
and would be based on an internal measure of cash flow from
operating activities (CFOA);
• vesting of executive share options granted in 2009 would be
based on a cumulative three year CFOA growth measure; and
• there would be a one off executive share option award made to
the Group Chief Executive, with additional performance criteria.
Whilst there was a range of views amongst the shareholders
consulted, the consultation was successful overall. As part of this
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Inchcape plc ¦ Annual Report and Accounts 2009