The remuneration committee is appointed by the board. During the year the committee comprised Norman Murray (chairman of the committee), Ian Durant, Jane Scriven (until her retirement) and John Brady (appointed to replace her). All of the committee members during the year were regarded by the board as independent non-executive directors.
The committee determines, and annually reviews, all elements of executive directors' remuneration and the remuneration of certain other senior executives who report to the chief executive, and whose details are set out in the Senior Management section. It recommends the fees that should be payable to the chairman to the board. It approves the contracts of the executive directors and those senior executives referred to above and any compensation arrangements arising from their termination. It also approves all LTIP allocations and oversees the operation of all of the company's share based plans. The committee is made aware of the salary levels of the wider senior management team and of the incentive arrangements operating throughout the company.
The committee has taken external advice on general remuneration matters and comparator information from Hewitt New Bridge Street, who do not provide any other services to the company. Advice and assistance is also obtained, where appropriate, from the company's brokers, Deutsche Bank. During the course of the year legal advice has been obtained from the law firm Pinsent Masons. The committee also received internal advice from Rooney Anand, chief executive, in determining appropriate remuneration and incentive packages for the finance director and the other senior executives.
The company operates in a highly competitive market and must attract, motivate and retain high quality directors. The committee considers current market practice and makes comparisons with turnover, market capitalisation and operational details against a selection of other companies. The committee is made aware of and has regard to pay and conditions elsewhere within the group and endeavours to ensure that pay rises for executive and non-executive directors are generally comparable with those being applied elsewhere in the group. A range of bonus plans are operated for managers throughout the group, and all staff with the requisite qualifying service have access to the company's share save scheme.
No director makes a decision relating to his own remuneration. Individual directors leave the meeting when their own remuneration is being discussed. A significant proportion of each executive director's potential remuneration is performance-related with appropriately stretching targets, thus aligning the directors' interests with those of shareholders and encouraging performance at the highest levels.
The committee has considered whether there are any aspects of the remuneration policy which could inadvertently encourage executives to take inappropriate risk and has concluded that the policy remains appropriate in this regard.
The remuneration package of each executive director consists of the following elements:
Annual pay reflects the responsibilities, market value and sustained performance level of executive directors. Pay is reviewed annually or when a change in responsibility occurs. The pay rises granted in 2010/11 were considered appropriate taking account of pay rises for other employees in the group, the performance of the company, the individuals and the relative market positioning of the individuals' packages.
The range of taxable benefits available to executive directors is listed below.
Bonus payments are determined by the remuneration committee and awarded where justified by performance. For the financial year 2011/12, the executive directors will be eligible to receive an annual incentive bonus, the maximum amount being 150% of annual pay, for the achievement of stretch targets. Two thirds of this amount, up to a maximum of 100% of annual pay, is based on pre-determined performance metrics, set at the start of the year, based on group profitability, return on capital employed, and a range of financial and non-financial specific targets relevant to each individual.
The remaining one third of the bonus entitlement, equal to a maximum of 50% of annual pay, is subject to a separate performance condition based on challenging levels of annual economic profit performance in excess of the company's strategic plan, with all of any additional bonus being invested in shares or granted in the form of nil cost options, which would be deferred or, as the case may be, not exercisable for a period of one year and which would be forfeited in the event that the relevant director or employee leaves the group, other than as a good leaver, during that time, to improve motivation, lock-in and alignment of interest. In addition, the additional bonus will be reclaimable by the company in exceptional circumstances of misstatement or misconduct.
The enhanced element of the annual bonus provides improved strategic linkage through the use of an economic profit-based performance condition. Economic profit (operating profit before exceptional items less the weighted average cost of capital multiplied by capital employed) is an important management tool and its use in the annual bonus complements this strategic focus. The use of economic profit also provides a balance to the rest of the bonus plan.
The additional focus on economic profit encourages the management team to target medium-term decisions to ensure growth by: ensuring better deployment of capital expenditure; encouraging further improvements in relation to returns on invested capital; freeing up assets where higher economic profit can be gained by the group; and extracting higher returns from existing uninvested assets.
The target set for 2011/12 is to achieve a stretching level of economic profit over and above the budget for the year, with a sliding scale for vesting which will ensure that management will not benefit from more than 20% of the uplift in economic profit. If this economic profit is achieved, it will benefit shareholders and the committee therefore considers that senior management should be incentivised to deliver this additional performance. There will be disclosure in the directors' remuneration report at the end of the year of the basis on which the bonuses were payable.
The pension arrangements for Rooney Anand and Ian Bull are on a defined contribution basis. They both have self-invested personal pension schemes to which the company makes a contribution. The contribution rates are 25% for Rooney Anand and 20% for Ian Bull. Directors are given an option to have pension contributions above the £50,000 annual limit imposed by the government with effect from 6 April 2011 paid to them in cash. No element of remuneration other than annual pay is treated as pensionable. Both executive directors participate in a group death-in-service insurance scheme, with death benefits in excess of the HMRC maximum being provided through additional insurance. The cost of this insurance is disclosed as a non-cash benefit in the emoluments table below.
Long term incentives form an important part of the company's remuneration for its directors and senior employees, with historically a mix of options and LTIP awards being granted, subject to performance conditions based on earnings per share (EPS). Since 2009/10 the company policy has been to grant only LTIP awards. Directors are entitled each year to an LTIP award equivalent to a maximum of 133% of base salary.
Awards are made in the form of restricted forfeitable shares, on which dividends are payable. Dividends in respect of future awards will be held in escrow pending vesting and will be released to the directors to the extent that the awards vest.
All LTIP awards are subject to two performance measures, namely an adjusted free cash flow condition and an earnings per share condition, both measured over a three year period. There is a 60:40 weighting in favour of the cash measure, given the importance of cash management as a medium term business priority. The use of two separate performance conditions is designed to provide a rounded assessment of the company's financial performance.
For the three-year adjusted free cashflow measure, this will be determined by reference to net cash flow from operating activities less capital expenditure. Net cash flow from operating activities will include the impact of changes in working capital, and interest and tax payments, but will be adjusted to exclude exceptional items at the discretion of the remuneration committee in consultation with the audit committee.
The capex related deduction in the free cashflow measure will be for capital expenditure on properties that were within the estate at the beginning of the performance measurement period, where that capital expenditure has not been funded from property disposal proceeds. Free cashflow has been chosen as a performance condition because converting EBITDA to positive cashflows to support debt repayment, continued investment in the business and the ongoing payment of dividends is a key measure for both management and shareholders.
The target range for the adjusted free cash flow performance target for the 2011/12 awards will be that the aggregate adjusted free cash flow of the company for the three financial years ending in April 2012, 2013 and 2014 must be more than £250m to vest at the minimum level and at least £290m to vest in full. Measuring on an aggregate three-year basis (rather than the more common approach of focusing on the end-year only of the three) will ensure that there will be a focus on delivering cash across all three years.The adjusted earnings per share part of the performance condition for awards granted in 2011/12 will be based on a sliding scale range of 'pence per share' targets for the 2013/14 year end, with between 0% and 100% of that part of the award vesting depending on the extent to which the targets are met. The committee does not consider it appropriate to disclose the range, but does consider it to be appropriately challenging in the current economic climate. There will be disclosure of the conditions and the extent to which they have been achieved in the remuneration report at the time each award vests.
In common with all other employees, the executive directors are also entitled to participate in the company's sharesave plan. Further details are given later in this report.
Since September 2007 Rooney Anand has served as a non-executive director of Drive Assist Holdings Limited, a company unconnected with the group. He is entitled to receive and retain for his personal benefit £40,000 per annum from that company by way of director's fees.
The fees paid to the chairman and the other non-executive directors are determined by the board as a whole. They are agreed after taking external advice and making market comparisons, and relate to the services of the directors in connection with the company's business. The non-executive directors do not have service agreements and cannot participate in the pension scheme, the bonus scheme or the share option schemes.
Newly appointed executive directors are offered a service agreement with a notice period of one year. In the event of the employment of an executive director being terminated, the committee would pay due regard to best practice and take account of the individual's duty to mitigate their loss.
Rooney Anand, whose contract with the company commenced on 6 August 2001 is subject to a one year notice period from the company. His contract does not contain any additional terms relating to compensation for termination of employment. The terms of his appointment as chief executive were agreed and set out in a letter dated 24 December 2004.
The employment of Ian Bull, finance director, who resigned from the company during the year, will terminate on 1 July 2011. His successor, Matthew Fearn, will join the company on 1 September 2011. His contract may be terminated by the company on giving one year's notice, without any additional terms relating to compensation for termination of employment.
Non-executive directors are appointed pursuant to letters of appointment for three-year periods. The table below sets out the start and expiry date of their respective appointments.
| Director | Date of appointment |
Expiry date |
Extendable for a further 3 years? |
| Tim Bridge | 2 May 05 | 1 May 14 | No |
| John Brady | 24 June 05 | 23 June 14 | No |
| Ian Durant | 16 Mar 07 | 15 Mar 13 | Yes |
| Norman Murray | 1 Jan 04 | 31 Dec 12 | No |
The appointments of all these non-executive directors can be terminated by the company at any time on three months' written notice, notwithstanding the expiry date above.
A graph showing the total shareholder return of Greene King relative to the FTSE All-Share Index over the last five years is shown below. We have chosen this comparator group as it is the most appropriate market index of which the company is a member.
| Annual pay 2011 £'000 |
Annual fees 2011 £'000 |
Annual bonus 2011 £'000 |
Non-cash benefits 2011 £'000 |
Other cash benefits 2011 £'000 |
Cash in lieu of pension contribution 2011 £'000 |
Total 2011 £'000 |
Total 2010 £'000 |
|
| Tim Bridge* | — | 165 | — | 30 | — | — | 195 | 194 |
| Rooney Anand | 505 | — | 758 | 4 | 16 | 8 | 1,291 | 984 |
| John Brady* | — | 41 | — | — | — | — | 41 | 41 |
| Ian Bull | 328 | — | 320 | 3 | 11 | — | 662 | 618 |
| Ian Durant* | — | 46 | — | — | — | — | 46 | 46 |
| Norman Murray* | — | 46 | — | — | — | — | 46 | 46 |
| Jane Scriven*1 | — | 35 | — | — | — | — | 35 | 41 |
| 833 | 333 | 1,078 | 37 | 27 | 8 | 2,316 | 1,970 |
* Non-executive.
(1) Retired from the board on 17 March 2011.
No payments were made to any third parties in respect of any directors' services. Non-cash benefits principally include the provision of company cars, fuel for company cars, life assurance and private medical insurance. Other cash benefits include cash allowances paid in lieu of company cars.
In relation to the annual bonus figures above, £253,000 of the bonus for Rooney Anand will be deferred under the terms of the economic profit bonus scheme introduced in 2010. This equates to 50% of his salary, as the performance condition relating to this part of his bonus was met in full. Against a target of achieving £10.1m of additional economic profit over that set out in the relevant strategic plan, actual additional economic profit in excess of that amount was £11.1m. The bonus will be deferred in the form of restricted shares, which will be acquired shortly after the preliminary announcement of the results. He will be entitled to any dividends paid on those shares, which will be released to him if he remains in employment for a period of one year from the date that the shares are acquired. Ian Bull forfeited any right to payment of a bonus under the economic profit bonus scheme as a result of his resignation.
Amounts paid or payable to the self-invested personal pension schemes of the executive directors made by the company in respect of the period are shown in the table below:
| 2011 £'000 |
2010 £'000 |
|
| Rooney Anand | 126 | 121 |
| Ian Bull | 65 | 63 |
Tim Bridge is a pensioner member of the group's defined benefit scheme. His pension is equivalent to 1/45th of his final pensionable earnings for each year of service, with a pro rata payment for a part year, subject to HMRC limits. His final pensionable earnings were those received immediately prior to him ceasing to be chief executive.
Two former directors receive additional pension income from the company. John Bridge, who retired as a director on 31 December 1989, receives a pension of £27,000 pa in excess of his scheme entitlements and Bernard Tickner, who retired as a director on 27 August 1992, receives a pension of £22,000 pa in excess of his scheme entitlements. As required by law, both of these figures are stated net of their company-funded pension in payment at 31 March 1997.
The closing price of the company's shares on 28 April 2011 (being the last business day before the financial period end) was 489.6p (2010: 453.9p). The closing price of the company's shares during the period ranged between 376.2p and 491.4p.
A summary of the directors' interests in options granted under the company's executive share option schemes is shown below:
| Date of grant |
Option price (p) |
Outstanding as at 2 May 2010 |
Granted during the period |
Exercised during the period |
Lapsed during the period |
Outstanding as at 1 May 2011 |
Exercise period | |
| Tim Bridge | 4-Jan-02 | 281 | 104,652 | — | 104,652 | — | — | — |
| 18-Jul-02 | 296 | 99,669 | — | 99,669 | — | — | — | |
| 1-Aug-03 | 332 | 112,127 | — | — | — | 112,127 | 1 Aug 2006 – 31 July 2013 | |
| 6-Aug-04 | 408 | 99,669 | — | — | — | 99,669 | 6 Aug 2007 – 5 Aug 2014 | |
| Rooney Anand | 18-Jul-02 | 296 | 52,326 | — | 52,326 | — | — | — |
| 1-Aug-03 | 332 | 59,801 | — | 59,801 | — | — | — | |
| 6-Aug-04 | 408 | 54,817 | — | — | — | 54,817 | 6 Aug 2007 – 5 Aug 2014 | |
| 4-Aug-05 | 528 | 69,078 | — | — | — | 69,078 | 4 Aug 2008 – 3 Aug 2015 | |
| 9-Jul-07 | 872 | 52,326 | — | — | 52,326 | — | 9 Jul 2010 – 8 Jul 2017 | |
| 8-Aug-08 | 449 | 102,160 | — | — | — | 102,160 | 8 Aug 2011 – 7 Aug 2018 | |
| Ian Bull* | 11-Jan-06 | 598 | 24,916 | — | — | — | 24,916 | 11 Jan 2009 – 10 Jan 2016 |
| 9-Jul-07 | 872 | 34,884 | — | — | 34,884 | — | 9 Jul 2010 – 8 Jul 2017 | |
| 8-Aug-08 | 449 | 67,276 | — | — | — | 67,276 | 8 Aug 2011 – 7 Aug 2018 |
* Options for Ian Bull will lapse on the last date of his employment, 1 July 2011.
All relevant figures adjusted for 2-for-1 share split in September 2005 and the rights issue in May 2009.
Details of the options exercised during the year, the notional gain before tax achieved by the directors and the number of shares retained on exercise are shown below. Total gains made by directors exercising executive options in the year amounted to £550,000 (2010: nil).
| Date of exercise |
No. of options exercised |
Option exercise price (p) |
Market value at date of exercise (p) |
Notional gain before tax (£) |
No. of shares retained |
|
| Rooney Anand | 16 July 2010 | 52,326 | 296 | 445.2 | 78,070 | 8,405 |
| 16 July 2010 | 59,801 | 332 | 445.2 | 67,695 | 7,264 | |
| Tim Bridge | 28 April 2011 | 104,652 | 281 | 486.16 | 214,704 | 20,851 |
| 28 April 2011 | 99,669 | 296 | 486.16 | 189,531 | 18,378 | |
| 550,000 |
No changes were made during the year to the terms and conditions of any options then outstanding (2010: adjustments were made in respect of all outstanding options, both to the option price and the number of options held by each director, to reflect the impact of the rights issue completed in May 2009, to ensure that the aggregate exercise price of each option remains unchanged). There have been no options exercised and no other changes since the year end to the date of this report.
Unvested options can only be exercised if a performance condition has been met. This condition relates to the growth in audited adjusted earnings per share which must exceed RPI inflation by 4% per annum, measured over the period of three consecutive financial years of the company, starting with the year in which the award is granted. Since the year end, the options granted in 2008 have lapsed, as a result of the remuneration committee having determined that the performance conditions applicable to those options have not been met.
A summary of the directors' interests in options granted under the long-term incentive plan (LTIP) is shown below:
| Date of grant |
Type of award |
Outstanding at 2 May 2010 |
Granted during the period |
Vested during the period |
Lapsed during the period |
Outstanding at 1 May 2011 |
Performance period |
|
| Rooney Anand | 9-Jul-07 | Restricted forfeitable shares |
42,000 | — | — | 42,000 | — | May 2007 – May 2010 |
| 8-Aug-08 | Restricted forfeitable shares |
82,000 | — | — | — | 82,000 | May 2008 – May 2011 | |
| 9-Dec-09 | Restricted forfeitable shares |
153,000 | — | — | — | 153,000 | May 2009 – May 2012 | |
| 12-Aug-10 | Restricted forfeitable shares |
— | 160,000 | — | — | 160,000 | May 2010 – May 2013 | |
| Ian Bull* | 9-Jul-07 | Restricted forfeitable shares |
28,000 | — | — | 28,000 | — | May 2007 – May 2010 |
| 8-Aug-08 | Restricted forfeitable shares |
54,000 | — | — | 54,000 | — | May 2008 – May 2011 | |
| 9-Dec-09 | Restricted forfeitable shares |
100,000 | — | — | 100,000 | — | May 2009 – May 2012 | |
| 12-Aug-10 | Restricted forfeitable shares |
— | 104,000 | — | 104,000 | — | May 2010 – May 2013 |
* Under the rules of the scheme, all of the awards granted to Ian Bull lapsed on the date of his resignation.
The market price of the shares on 12 August 2010, when the last awards were made, was 412.6p, although the number of shares comprising the award was determined by reference to the closing market price on 11 August 2010, namely 417.9p.
During the year the 2007 LTIP awards lapsed on the third anniversary of their grant as a result of the remuneration committee having determined that the performance conditions applicable to those awards had not been met. The 2008 LTIP awards will also lapse on the third anniversary of their grant for the same reasons. Total gains made by directors under the LTIP in the period ended 1 May 2011 therefore amounted to £nil (2010: £nil).
The 2009 LTIP awards will only vest to the extent that two separate performance targets are met, over the three financial years ending in April 2012. A maximum of 60% of each award will vest if an adjusted free cash flow performance condition has been met. The remaining 40% of the award will vest if an earnings per share performance condition has been met. The target range for the adjusted free cash flow performance condition is that the aggregate adjusted free cash flow of the company for the three financial years ending in April 2010, 2011 and 2012 must be more than £190.0m to vest at the minimum level and at least £230.0m to vest in full. The 2010 LTIP awards will only vest to the extent that the relevant performance targets are met over the three financial years ending in April 2013. As with the 2009 award, a maximum of 60% of each award will vest if an adjusted free cash flow performance condition has been met and the remaining 40% of the award will vest if an earnings per share performance condition has been met. The target range for the adjusted free cash flow performance condition is that the aggregate adjusted free cash flow of the company for the three financial years ending in April 2011, 2012 and 2013 must be more than £230.4m to vest at the minimum level and at least £270.4m to vest in full.
The earnings per share performance conditions set a range for the EPS for the financial year ending in April 2012 (for the 2009 LTIP) or April 2013 (for the 2010 LTIP) which the remuneration committee considered to be sufficiently challenging in the market conditions.
The remuneration committee is advised on a regular basis as to how actual performance is tracking against the relevant targets. In relation to the 2009 LTIP, based on performance to date and assuming that the business units meet their stretching strategic plan targets, it is anticipated that the business will meet the upper quartile of the free cash flow target and the upper quartile of the earnings per share target. For the 2010 LTIP, and on the same assumptions, it is anticipated that the business will meet the upper quartile of the earnings per share target, whilst performance against the free cash flow target is in the lower quartile. Details as to the extent to which the targets have actually been met and the awards have vested will be provided at the end of each three year performance period.
No changes were made during the period, or since the year end to the date of this report, to the terms and conditions of any awards then outstanding. Save as set out above, no awards vested or lapsed during the period. There have been no other changes to the date of this report.
The company has operated an HMRC approved sharesave scheme for a number of years. Options are granted over the company's ordinary shares at an option price which, at board discretion, is at a discount of up to 20% of the closing price at the time of granting. The company has historically granted all such options at a 20% discount.
None of the directors has any interest in any options granted under the sharesave scheme.
The directors' beneficial interests in Greene King shares resulting from participation in the company's HMRC approved share incentive plan are reflected in their shareholding data in the directors' report. No further awards will be made under this scheme (2009/10: no award).
Shareholders will be asked to vote on this remuneration report, as an ordinary resolution, at the company's AGM.
Approved by the board of directors on 29 June 2011.
29 June 2011
Westgate Brewery
Bury St Edmunds
Suffolk IP33 1QT
Tel: +44 (0) 1284 763222
Company registration no: 24511
