Financial Statements - Chemring Group PLC

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C H E M R I N G G R O U P P L CDirectors’ Remuneration Reportfor the year ended 31 October 2003This report sets out the informationrequired by the Directors’ RemunerationReport Regulations 2002(“the Regulations”). As required bythe Regulations, the Directors’Remuneration Report will be submittedto shareholders for approval at theAnnual General Meeting on23 March 2004.Unaudited InformationRemuneration CommitteeThe Remuneration Committeecomprises the three non-executivedirectors and is chaired byMr K C Scobie. The Committeedetermines the remuneration packages ofthe executive directors and also reviewsremuneration packages for seniormanagement. None of the Committeemembers has any personal financialinterest in the matters reserved for theCommittee, nor do they have anyconflicts of interest arising fromcross-directorships, and they are notinvolved in the day to day running ofthe Group’s business.The Committee met five times duringthe year. The Chief Executive attendsmeetings by invitation but is not presentduring any discussions relating to hisown remuneration. During the year theCommittee received advice onremuneration matters fromNew Bridge Street Consultants andAon Consulting. The Committee alsoconsults internally with theChief Executive and the Company Secretary.Remuneration Policy forExecutive DirectorsThe Committee’s policy is to provideexecutive remuneration packages whichare competitive, but not excessive, byreference to market rates, reflect theperformance of the business againstfinancial objectives, and which take intoaccount the individual contribution andperformance of each executive director.Remuneration packages comprise thefollowing elements:(i) basic salary and benefits;(ii) annual bonuses linked to theGroup’s financial performance; and(iii) awards of share options linked tothe long term growth of the Group.The performance-related elements of thebonuses and share options are intendedto align the interests of executivedirectors with those of shareholders.Basic Salaries and BenefitsThe executive directors’ basic salaries arereviewed annually by the Committee,and adjustments made as appropriatetaking into account individualperformance and comparable salary levelsin manufacturing companies of a similarsize and in other companies within theaerospace and defence sector. TheCommittee refers to published salarysurveys and also reviews theremuneration information presented inthe annual reports of companies in thereference group.The main taxable benefits for executivedirectors are company cars, fuel forprivate motoring and private medicalinsurance.Annual BonusesThe Company operates an annualperformance-related bonus plan for theexecutive directors. Under thisarrangement, bonuses are paid basedupon the achievement of predeterminedtargets for earnings per share andreductions in the Group’s netindebtedness. The maximum bonuswhich can be earned is 45% of basicsalary. Bonuses are non-pensionable.The performance measures for the bonusplan are reviewed annually by theCommittee. The bonus plan willcontinue to be based upon earnings pershare and reduction of net debt in 2004.Share Option SchemeThe Company operates an executiveshare option scheme (The Chemring1998 Executive Share Option Scheme),under which both Inland Revenueapproved and unapproved options maybe granted. Participation in this schemeis extended to the executive directorsand senior management of the Group.In determining whether to grant optionsto an individual and the number ofoptions to be granted, the Committeetakes into account their level of senioritywithin the organisation and theanticipated contribution by thatindividual to the long term performanceof the Group.In order to align the interests ofparticipants in the scheme with those ofthe Company’s shareholders, options canonly be exercised under the schemesubject to a performance condition.All options granted to date have beenissued subject to a performancecondition which requires the growth inthe Company’s earnings per share toexceed RPI by 9% over a consecutivethree year period prior to exercise.Options are normally exercisablebetween the third and tenth anniversaryof their grant.P 14
2 0 0 3 F I N A N C I A L S T A T E M E N T SThe Committee continues to believethat a performance condition linked togrowth in earnings per share is anappropriate basis upon which to rewardthe executive directors for a measurableincrease in the performance of theGroup. However, taking into accountcurrent market practice and institutionalshareholders’ views on this subject, it islikely that a more demandingperformance condition requiringincreased growth in earnings per sharewill be applied to future option grantsunder the scheme.Long Term IncentiveSchemeThe Company previously operated along term incentive scheme known asThe Chemring Group PLC Share BasedIncentive Scheme. This scheme is notbeing utilised for executive directors atpresent.Performance GraphThe graph alongside shows acomparison of the Company’s totalshareholder return (TSR) over the lastfive financial years against a “broadequity market index”, as required by theRegulations. The FTSE Small CapIndex has been selected by theCommittee for this comparison becauseit provides the most appropriate measureof performance of listed companies of asimilar size to the Company.pension of up to two-thirds of salary,subject to Inland Revenue limits. TheExecutive Scheme also provides lifeassurance cover, dependants’ pensionsand lump sum payments ondeath-in-service.Mr Evans’ benefits under the ExecutiveScheme accrue based on a pension oftwo-thirds final pensionable salary withno cash commutation, and a 50%spouse’s pension, in respect of hismembership of the scheme from10 August 1987 to 5 April 1993. Forservice thereafter, his benefit accrual isbased on a pension of 50% finalpensionable salary plus 1.5 times finalpensionable salary as cash, and atwo-thirds spouse’s pension. For serviceaccrued from 1 February 2004 thespouse’s pension reduces to 50%. Anyexcess of cash over the Inland Revenuepermitted maximum is converted backto pension at the rate of £12 cash toTotal Shareholder ReturnValue(£)40035030025020015010050Mr Rayner’s pension under theExecutive Scheme accrues at 1/80th offinal pensionable salary for each year ofmembership, and he also accrues a cashlump sum of 3/80ths of final pensionablesalary for each year of membership. Atwo-thirds spouse’s pension is payable inrespect of service accrued to31 January 2004, reducing to 50% forservice accrued thereafter, and ondeath-in-service, Mr Rayner’s dependantswould receive a lump sum payment oftwo times basic salary and, in addition aspouse’s pension would be payable, ascalculated above. Mr Rayner is subject tothe earnings cap in respect of hismembership of the Executive Scheme.All pensions in payment in respect ofpensionable service accrued under theExecutive Scheme after 6 April 1993 areincreased by the lower of RPI or5% per annum.031 Oct 98 31 Oct 99 31 Oct 00 31 Oct 01 31 Oct 02 31 Oct 03Chemring Group PLCFTSE Small Cap IndexThe graph shows the value, by 31 October 2003, of £100 invested in the Company’s shares on31 October 1998 compared with the value of £100 invested in the FTSE Small Cap Index.PensionsMr Evans and Mr Rayner are membersof the Chemring Group ExecutivePension Scheme (“the ExecutiveScheme”). This is an approved finalsalary scheme providing, at retirement, a£1 pension. On death-in-service,Mr Evans’ dependants would receive alump sum payment of four times basicsalary and, in addition a spouse’s pensionwould be payable, as calculated above.Mr Evans has a normal retirement age of 60.Prior to 1 October 2003, the ExecutiveScheme was non-contributory. Witheffect from that date, members havebeen required to make monthlycontributions to the scheme at the rateof 6% of pensionable salary.P 15
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Financial Statements - Chemring Group PLC

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