4. BPG directors remuneration

Best practice guidance ‒
Directors’ pay and standards of performance
Introduction
This document provides guidance to water companies in England and Wales on best
practice in reporting Directors’ pay and standards of performance. This is to help
them prepare their yearly financial statements about their regulated business
(‘regulatory accounts’).
There are two areas of legislation that companies must be aware of when preparing
reports on Directors’ remuneration.
•
RAG 3.07 details the information required to be included in the regulatory
accounts to meet the requirements introduced by the Water Act 2003 on
director’s pay and standards of performance.
•
The recent update to the Companies Act on requirements for the Directors’
remuneration report applicable for 2013-14.
RAG 3.07 has the following specific requirements with respect to the link between
directors’ pay and standards of performance.
Paragraph 3.2.3 The statement should detail any arrangements linking the
remuneration of the directors of the company to standards of performance in
connection with carrying out of functions of a relevant undertaker.
Paragraph 3.2.7 The statement must include in particular:
•
•
•
•
•
the date the arrangements were made;
a description of all the standards of performance in question;
an explanation of the purpose of linking each particular standard of
performance to remuneration;
a description of the targets set for each standard; and
an explanation of how all the standards of performance are assessed and the
source of the data.
1
Best practice guidance ‒ Directors’ pay and standards of performance
RAG 3.07 paragraph 3.2.7 also requires that there should be an explanation of:
•
•
whether targets were achieved or not; and
how remuneration was calculated for each standard; and details of the
amounts paid to individual directors.
This can be best demonstrated in the form of tables – see example tables 6 and 7
below.
Following a consultation last year, we published ‘Board leadership, transparency and
governance – principles’ for regulated companies in January 2014. This sets out the
principles that we expect companies’ Boards to adopt as a minimum. This includes
reporting of Directors’ remuneration. Following an update to the Companies Act,
companies need to be aware of the requirements for the Directors’ remuneration
report, which will apply to quoted companies.
We identified some examples of good practice in the 2012-13 regulatory accounts,
for the presentation of tabular information. Examples of tables are shown below
(note that any figures included in the tables are for illustrative purposes only).
Companies need to be aware that reproducing these tables alone will not be
sufficient to meet all the requirements which apply for 2013-14.
2
Best practice guidance ‒ Directors’ pay and standards of performance
Example table 1 Key elements of Executive Directors’ remuneration
Remuneration element
Purpose and link to
strategy
Operation
Maximum potential
value (as % base pay)
Performance metrics
Base salary
Benefits
Annual bonus
140% Summarise here (detail
set out in table 3 below)
Long-term incentive plan
120% Summarise here (detail
set out in table 4 below)
Share option scheme
Share warrants
Pension
3
Changes for
2013-14
Best practice guidance ‒ Directors’ pay and standards of performance
Example table 2 Elements of Executive Directors’ remuneration package as a percentage of salary
This table also shows the proportion of payments related to variable and long-term performance for 2012-13 and 2013-14.
Components of
Executive Director
remuneration
2012-13
2013-14
Value (% of base salary)
Value (% of base salary)
Target performance
Maximum performance
Base salary
Pension
Target performance
Maximum performance
100%
100%
20%
20%
Bonus
60%
120%
60%
120%
Long-term incentive plan
70%
140%
70%
140%
250%
380%
250%
380%
Variable pay – bonus and
LTIP (as % total)
52%
68.4%
52%
68.4%
Long-term pay – LTIP and
pension (as % total)
36%
42.1%
36%
42.1%
Total salary
4
Best practice guidance ‒ Directors’ pay and standards of performance
Example table 3 Breakdown of key elements of annual bonus plan for executive directors
Performance measure
Financial measures
Corporate measures
Weight for 2012-13 (as
% of base salary)
Weight for 2012-13 (as
% of base salary)
Weight for 2012-13 (as
% of base salary)
Chief Executive
Finance Director
Other Director
Measure 1 (state measure)
13.33%
16.67%
10%
Measure 2
13.33%
16.67%
10%
Measure 3
13.33%
16.67%
10%
40%
50%
30%
Measure 1 (state measure)
10%
10%
10%
Measure 2
10%
10%
10%
Measure 3
10%
10%
10%
Measure 4
10%
10%
10%
40%
40%
40%
40%
30%
50%
140%
140%
140%
Personal performance
Total % base pay
5
Best practice guidance ‒ Directors’ pay and standards of performance
Example table 4 Key elements of long-term incentive plan
Performance measure
Description
Overall weighting
Measure 1 (state measure)
50%
Measure 2
40%
Measure 3
30%
Total (as % base pay)
120%
Example table 5 Directors’ remuneration 2012-13
Name
Base
salary/fee
Termination Taxable
payment
benefits
Cash payments in
lieu of pension
contributions
6
Annual
bonus
scheme
Long-term
incentive
scheme
Total
2012-13
Total
2011-12
2012-13 company
contributions to
pension scheme
Best practice guidance ‒ Directors’ pay and standards of performance
Example table 6 Achievement against performance related measures (annual bonus)
Performance measure
Weight for 2012-13 (as
% of base salary)
2012-13 achievement (as % base salary)
Director 1
Financial measures
Corporate measures
Director 2
Measure 1 (state measure)
13.33%
10%
10%
Measure 2
13.33%
8%
8%
Measure 3
13.33%
13.33%
13.33%
40%
31.33%
31.33%
Measure 1 (state measure)
10%
10%
10%
Measure 2
10%
10%
10%
Measure 3
10%
5%
5%
Measure 4
10%
5%
5%
40%
30%
30%
40%
35%
25%
140%
96.33%
86.33%
£100,000
£80,000
£96,330
£69,040
Personal performance
Total % base pay
Base pay
Bonus paid
7
Best practice guidance ‒ Directors’ pay and standards of performance
Example table 7 Achievement against performance related measures (long-term incentive plan)
Performance
measure
Director 1
Date of
award
End of
performance
period
Measure
achieved?
Measure 1 (state
measure)
Measure 2
Measure 3
Director 2
Measure 1 (state
measure)
Measure 2
Measure 3
Total (as % base pay)
8
Base value of
awards held at
31 March 2012
Base value
of awards
granted
during year
Base value of
awards held at
31 March 2013
Value of
awards
vested

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