Punch Taverns plc 2011 Annual Report

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32 Punch Taverns plc Annual Report and Financial Statements 2011 Report on Directors’ remuneration Dear Shareholder I am pleased to present the remuneration report for the year ended 20 August 2011, for which we will be seeking approval from shareholders at the 2011 AGM. As this is the first remuneration report for Punch following the demerger of the Spirit business to Spirit Pub Company plc on 1 August 2011, the key points with respect to the impact of the demerger on the executive remuneration policy are summarised below: At demerger: • base salaries were adjusted to reflect the new responsibilities of the post-demerger Chief Executive Officer and Finance Director; • annual bonus plans continued to operate until the year end, including bonus deferral; • awards granted under the Punch Taverns plc Long Term Incentive Plan 2008 (‘LTIP’), the Company’s primary long-term arrangement, and Ian Dyson’s recruitment award were adjusted to keep individuals whole. Awards will continue to run until the normal vesting dates and the total shareholder return targets will continue to apply, although post demerger performance will relate only to Punch’s share price (i.e. it will exclude the share price performance of Spirit). Historic dilution was shared between Punch and Spirit based on whether award-holders were employed by Punch or Spirit post demerger; and • the Spirit Value Growth Plan (‘SVGP’), a cash-based long-term incentive arrangement introduced for Mike Tye in July 2008, lasped at demerger as a result of the performance hurdle not being met. No payout was therefore earned under this arrangement. Following demerger: • given the focus on short-term improvement of the business and the constraints around the use of equity given the Company’s current market capitalisation relative to the size of the business, annual bonus potential was increased from 150% of base salary to 250% of base salary for the Chief Executive Officer and to 200% of base salary for the Finance Director for 2011/12. Targets will continue to be primarily based on profit metrics and a third of any bonus will continue to be deferred into shares with a clawback provision operated; and • LTIP award levels will reduce from 200% of base salary (2010: 125%) to 50% of salary given current dilution constraints. Given the difficulty in setting long-term financial-based performance metrics at the current time, relative total shareholder return will continue to be operated as the sole performance measure. The Company’s largest investors and representative bodies were consulted in advance of the changes set out above and were generally supportive. The Committee has given a commitment to review the split between cash / shares and short- / long-term incentives on an annual basis. During 2010/11, the Committee also dealt with the following Board changes unrelated to the demerger: • the departure of Giles Thorley and appointment of Ian Dyson as Chief Executive Officer on 6 September 2010; and • the resignation of Phil Dutton (Finance Director) on 17 December 2010 and appointment of Steve Dando as Acting Finance Director (subsequently appointed Finance Director on 10 May 2011). Further details on the above are set out within the report which follows. The Committee unanimously recommends that shareholders vote to approve the Report on Directors’ remuneration. On behalf of the Board Mark Pain Remuneration Committee Chairman
Punch Taverns plc Annual Report and Financial Statements 2011 33 Introduction This report has been prepared in accordance with the requirements of the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 (the ‘Regulations’). The report also meets the relevant requirements of the Listing Rules of the Financial Services Authority, and describes how the Board has complied with the provisions of the UK Corporate Governance Code (the ‘Code’) relating to remuneration matters. The report is divided into two parts. The first part contains the commentary on remuneration policy which is not required to be audited. The second part contains the remuneration tables that have been audited in accordance with the relevant statutory requirements. Unaudited information The Remuneration Committee (the ‘Committee’) For details of the Committee, please see the Corporate governance statement on pages 27 to 31 of this report. Advisers to the Committee The Committee received independent remuneration advice from Hewitt New Bridge Street (‘HNBS’), part of Aon Corporation. This independent adviser was appointed by the Committee and is accountable to it. The terms of engagement between the Committee and HNBS are available from the Company Secretary on request. In addition, Computershare provides administration services connected to the Executive and all-employee share plans. The Committee also consults with the Chief Executive Officer, the Company Secretary and Director of Human Resources. However, no executive is permitted to participate in discussions or decisions about their personal remuneration. Remuneration policy The Committee’s reward policy is designed to help drive business performance and maximise shareholder value. It is based on the following principles: • that remuneration should be viewed holistically (‘Total Reward’), taking account of all reward elements; • that Total Reward should be set at a market-competitive level to retain and recruit people of the required talent and experience; • that the package should be structured so that most of Total Reward is dependent on performance; • that Total Reward costs should be monitored and controlled; and • that Total Reward should support the creation of shareholder value. Total Reward levels are benchmarked against both listed UK pub, restaurant and hospitality sector companies and those UK companies of a similar size and complexity to the Group in other relevant sectors. Financial statements Governance Business review
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