Investor relations
directors' remuneration report
This report contains the information required by the Companies Act 2006 and the relevant parts of the Listing Rules of the United Kingdom Listing Authority and Schedule D to the United Kingdom Corporate Governance Code (June 2010).
The information contained in this report is not subject to audit except where specified.
In accordance with the requirements of the Companies Act 2006, a resolution to approve this report will be proposed at the AGM to be held on 24 May 2012.
Composition of the remuneration committee
The remuneration committee of the Board is chaired by John Sleeman and is to be made up of a minimum of two non-executive directors. The committee is made up of the three non-executive directors; Maarten Henderson, John Sleeman and Michael Parker. The Chief Executive Officer, the Chief Financial Officer, other directors and external advisors may be invited to attend meetings as and when appropriate. The Group Secretary acts as the Secretary to the remuneration committee. The terms of reference of the remuneration committee are available to members of the public upon request and are available on the Group's website at www.pvcrystalox.com. The remuneration committee meets not less than twice a year and is required to report formally to the Board on its proceedings. None of the members of the committee has any personal financial interest in the matters to be decided, potential conflicts of interest or any day-to-day involvement in running the business. No director takes part in discussions relating to his own remuneration and benefits.
Terms of reference of the remuneration committee
The main duties of the remuneration committee are to:
- determine and agree with the Board the framework or broad policy for the remuneration of the Company's Chief Executive Officer, the Chairman, the executive directors, the Company Secretary and such other members of the executive management as it is designated to consider. The remuneration of non-executive directors shall be a matter for the Chairman and the executive members of the Board. No director or manager shall be involved in any decisions as to their own remuneration;
- in determining such policy, take into account all factors which it deems necessary including relevant legal and regulatory requirements, the provisions and recommendations of the United Kingdom Corporate Governance Code and associated guidance. The objective of such policy shall be to ensure that members of the executive management of the Company are provided with appropriate incentives to encourage enhanced performance and are, in a fair and responsible manner, rewarded for their individual contributions to the success of the Group;
- review the ongoing appropriateness and relevance of the remuneration policy;
- approve the design of, and determine targets for, any performance related pay schemes operated by the Group and approve the total annual payments made under such schemes;
- review the design of all share incentive plans for approval by the Board and shareholders. For any such plans, determine each year whether awards will be made and, if so, the overall amount of such awards, the individual awards to executive directors and other senior executives and the performance targets to be used;
- determine the policy for, and scope of, pension arrangements for each executive director and other senior executives;
- ensure that contractual terms on termination, and any payments made, are fair to the individual and the Company, that failure is not rewarded and that the duty to mitigate loss is fully recognised;
- within the terms of the agreed policy and in consultation with the Chairman and/or the Chief Executive Officer as appropriate, determine the total individual remuneration package of each executive director and other senior executives including bonuses, incentive payments and share options or other share awards;
- review and note annually the remuneration trends across the Company or Group;
- oversee any major changes in employee benefits structures throughout the Company or Group;
- agree the policy for authorising claims for expenses from the Chief Executive Officer and the Chairman;
- be exclusively responsible for establishing the selection criteria, selecting, appointing and setting the terms of reference for any remuneration consultants who advise the committee; and
- obtain reliable, up-to-date information about remuneration in other companies. To help it fulfil its obligations the committee shall have full authority to commission or purchase any reports or surveys or information which it deems necessary, within any budgetary restraints imposed by the board.
Remuneration committee process
The remuneration committee met four times during the year. Details of attendance are shown in the Corporate Governance Statement on page 27 of the Annual Report 2011.
During the year the main items considered were:
- discussions concerning the introduction of a performance share plan and setting the performance criteria, working with KPMG LLP as consultants to the committee;
- proposals to introduce a deferred share scheme for certain Group employees;
- to obtain approval for a company share option plan for employees excluding executive directors from HMRC;
- to review and approve awards made under the employee share schemes;
- to introduce a retention bonus for certain Group employees;
- the annual bonus scheme for executive directors;
- the annual bonus schemes for Group employees;
- a review of directors' fees and remuneration;
- to approve the remuneration proposals for salary and bonus payments to employees across the Group;
- a remuneration committee effectiveness review;
- the development of an action plan to improve the areas identified in the remuneration committee review; and
- to review and recommend changes to the terms of reference of the remuneration committee to the Board.
Terms of employment
Hubert Aulich, Iain Dorrity and Peter Finnegan have rolling service contracts dated 21 May 2007. Each executive director's employment is terminable on twelve months' notice by the executive director or twelve months' notice by the Company. The Company may elect to terminate the employment of an executive director by making a payment equal to twelve months' basic salary, Company pension contributions and contractual benefits. No payment is due to be made in these circumstances for any element of bonus not declared before notice of termination of employment is given.
The Company does not have a minimum shareholding guideline for executive directors as the current executive directors all have shareholdings many times in excess of their annual salary which aligns the executives' and shareholders' interests. The committee intends to review the need for a formal guideline for executive directors in the future.
Executive directors' contracts of service, which include details of remuneration, are available for inspection at the Company's registered address and will be available for inspection at the AGM to be held on 24 May 2012.
Remuneration policy
The Company's remuneration policy is to provide executive remuneration packages that attract, motivate and retain high calibre individuals needed to maintain the Group's position as a market leader, to deliver outstanding operational performance, to deliver excellent financial performance and to enhance shareholder value. To achieve this policy the packages must:
- be competitive;
- encourage a focus on long-term, sustained performance;
- be fair and transparent;
- be consistent across the Group; and
- be aligned to shareholders' interests.
The performance measurement of the executive directors and key members of senior management and the determination of their annual remuneration package are undertaken by the committee.
There are five elements of the current remuneration package for executive directors and senior management:
- basic annual salary;
- benefits-in-kind;
- annual bonus payments, which cannot exceed 100% of salary;
- long-term incentives; and
- pension arrangements.
The committee takes into account the general pay and employment conditions of other employees of the Group when determining executive directors' remuneration for the relevant financial year. This includes taking account of the levels of base salary increase for employees below executive level when reviewing executive base salaries and ensuring that the same principles apply in setting performance targets for executives' incentives as for other employees of the Group.
The committee believes that it is appropriate for the Group to introduce a long-term incentive scheme in 2011, which incentivises executives and senior management to deliver long-term sustained improvement in financial performance and shareholders' returns. Such schemes are typical in other quoted companies and the remuneration committee believes that the introduction of such a scheme is required to achieve the objectives of the remuneration policy. The committee engaged KPMG LLP as consultants during 2010 and 2011 to assist in the creation of such a scheme. The outcome of this collaboration is a performance share plan under which conditional awards of whole free shares are to be granted which vest three years after grant and are subject to continued employment and performance conditions. The performance conditions proposed are Total Shareholder Return ("TSR") and EPS growth.
The performance share plan was approved by shareholders at the 2011 AGM, held on 26 May 2011.
Basic salary
An executive director's basic salary reflects the market value of the individual, his or her skills, experience and performance. Basic salaries are reviewed by the committee annually prior to the start of the salary year, and on the occasion when an individual changes position or responsibility. In deciding appropriate remuneration levels, the committee considers the Group as a whole and relies on objective research which gives up to date information on a comparator group of listed companies of similar size and complexity.
During 2011 basic salaries of the executive directors were reviewed along with the salaries of all other Group employees.
The remuneration committee discussed the review for the executive directors and were mindful that there was a pay freeze throughout the Group due to the difficult trading environment. As a result of these discussions, the committee agreed to recommend to the Board that there would be no increase in the remuneration of the executive directors. On the recommendation of the remuneration committee, the Board decided to maintain the salaries that have been effective since 1 July 2008. Salaries agreed in Sterling and Euros are shown below.
Chairman and non-executive directors
Maarten Henderson and John Sleeman were appointed on 11 June 2007 and Mike Parker was appointed on 1 January 2010. All appointments are based on an initial term of three years with a six month notice period. Continuation of each appointment is contingent on satisfactory performance and re-election at Annual General Meetings of the Company.
Fees payable to the Chairman and the non-executive directors are reviewed annually by the Board and are set at a level to retain individuals with the necessary experience and ability to make a substantial contribution to the Group. The fees are intended to reflect the time commitment and responsibilities of the roles of the individual non-executive directors. The Chairman and non-executive directors do not receive any other benefits in addition to their fees and they do not participate in the Group's bonus schemes, pension schemes or share incentives.
The Board discussed the reviews for the Chairman and non-executive directors and were mindful that there was a pay freeze throughout the Group due to the difficult trading environment. As a result of these discussions the Board agreed that there would be no increase in the fees of the Chairman and non-executive directors. The Board decided to maintain the fees that have been effective since 1 July 2008. Fees agreed in Sterling are shown below:
Annual basic salaries and fees of the Directors
Payable in Sterling |
2012 annual rate € |
2011 annual rate € |
Iain Dorrity |
300,000 | 300,000 |
Peter Finnegan |
250,000 | 250,000 |
John Sleeman |
50,000 | 50,000 |
Maarten Henderson |
100,000 | 100,000 |
Michael Parker |
40,000 | 40,000 |
Payable in Euros |
€ | € |
Hubert Aulich* |
228,536 | 219,095 |
* Hubert Aulich sacrifices part of his salary to allow for higher levels of pension contribution. His basic salary here is stated after the salary sacrifice.
Annual bonus payment
An executive director may receive by way of further remuneration a bonus in accordance with their contract of service. There is no contractual right to receive a bonus until it is declared in writing in respect of the financial year to which it relates and such bonus whether declared or not shall not be payable unless the executive director is employed on the date of payment.
For bonus purposes an "Adjusted Base Salary" is used which is the annual basic salary of the executive director with the exception of Hubert Aulich. His annual basic salary is deemed to be the same as that of Peter Finnegan. This adjustment is required as Hubert Aulich sacrifices part of his basic salary to allow for higher level of pension contributions.
The bonus scheme allows the executive directors to receive a maximum bonus of 100% of Adjusted Base Salary, based:
In 2010
- upon the Group's earnings, subject to a maximum of 50% of Adjusted Base Salary; and
- upon an increase in earnings per share, subject to a maximum of 50% of Adjusted Base Salary.
In 2011
- upon the Group's earnings, subject to a maximum of 100% of Adjusted Base Salary.
Half of each bonus will be payable in cash and the other half deferred and payable in shares under the Executive Directors' Deferred Share Plan which will vest three years after the award date.
Awards of deferred shares under the Executive Directors' Deferred Share Plan will be satisfied on vesting by the transfer of shares from the existing PV Crystalox Solar PLC Employee Benefit Trust. The trust has already acquired and will, from time to time, continue to acquire shares that will be available for award to employees (including executive directors).
Bonus in respect of 2010 performance payable in 2011
Group earnings target
The annual bonus scheme based on the Group's earnings allowed a bonus of up to a maximum of 50% of the Adjusted Base Salary to be paid to the executive directors. The following conditions were used to calculate the bonus based on the Group's earnings (profit attributable to equity holders of the parent) in 2010 which was payable following the release of the Group's audited results in 2011:
- a bonus of 30% of Adjusted Base Salary for achieving a target of €16.3 million;
- a maximum payout of 50% of Adjusted Base Salary for achieving a target of €21.3 million;
- no payout for a performance of less than €16.3 million; and
- payout between earnings of €16.3 million and €21.3 million to be in the proportion 0.4% of Adjusted Base Salary for bonus purposes per €100,000 of additional earnings over €16.3 million.
The Group's earnings for 2010 were €23.3 million so this element of the annual bonus paid out at the maximum 50% of Adjusted Base Salary.
EPS growth target
The other part of the annual bonus scheme allowed a bonus of up to a maximum of 50% of the Adjusted Base Salary to be paid to the executive based on the Group's earnings per share growth. The payout is calculated according to the following formula:
|
Earnings per share growth % over prior year |
Bonus % of salary |
|
>10% |
50% |
|
>9% to 10% |
45% |
|
>8% to 9% |
40% |
|
>7% to 8% |
35% |
|
>6% to 7% |
30% |
|
>5% to 6% |
25% |
|
>4% to 5% |
20% |
|
>3% to 4% |
15% |
|
>2% to 3% |
10% |
|
>1% to 2% |
5% |
|
>0% to 1% |
0% |
Basic earnings per share was €0.057 in 2010 and €0.072 in 2009. As there was a reduction in EPS there was no payout in relation to this target for 2010.
Bonus in respect of 2011 performance payable in 2012
Group earnings target
The bonus will be based solely on Group Earnings such that a bonus of 60% of basic salary for bonus purposes is payable for achieving the 2011 target of €31.0 million and a maximum payout of 100% is payable for achieving the 2011 target plus €10 million (€41.0 million).
- A bonus of 10% is payable for achieving 2011 target less €5 million (€26.0 million).
- No payout for Group Earnings of less than €26.0 million.
- Payout between earnings of €26.0 million and €31.0 million to be in the proportion 1.0% of basic salary for bonus purposes per €100,000 of additional earnings over €26.0 million.
- Payout between earnings of €31.0 million and €41.0 million to be in the proportion 0.4% of basic salary for bonus purposes per €100,000 of additional earnings over €31.0 million.
The Group's Earnings for 2011 earnings were a loss of €60.9 million so there was no payout in relation to this element of the annual bonus.
Performance share plan
The first awards under the performance share plan ("PSP") covering the performance period ending on 31 December 2013 were made on 26 May 2011 following the approval of the scheme by shareholders at the AGM on that date.
Under the PSP participants are to receive awards over shares with a value equal to a percentage of basic salary at the date of the award as follows.
|
Award % of salary |
|
|
Participant |
|
|
Chief Executive Officer |
125% |
|
Other Executive Directors |
100% |
The payout under the scheme is based on achievement of performance targets for achieving growth in both TSR and EPS in accordance with the following matrix.
|
TSR growth |
<10% |
10%–20% |
>20%–30% |
>30%–40% |
>40% |
|
EPS, Euro cents |
|||||
|
<10.1 |
0% |
10% |
20% |
30% |
40% |
|
10.1–10.9 |
10% |
20% |
30% |
40% |
50% |
|
>10.9–11.7 |
20% |
30% |
40% |
50% |
60% |
|
>11.7–12.5 |
30% |
40% |
50% |
60% |
70% |
|
>12.5–13.4 |
40% |
50% |
60% |
70% |
80% |
|
>13.4 |
50% |
60% |
70% |
80% |
100% |
Pension arrangements
The executive directors' contracts of service set out their basic salaries from which contributions can be made into the Crystalox Group Personal Pension Scheme or such other pension plan suitable to the executive and his country of residence. Iain Dorrity and Peter Finnegan are entitled to a Company contribution of 6% of basic salary and paid directly to a defined contribution scheme (the Crystalox Group Personal Pension Scheme). Hubert Aulich has a proportion of his salary paid into a defined benefit scheme as set out overleaf.
Directors' remuneration payable (audited)
Hubert Aulich has a proportion of salary paid into his pension scheme and his bonus is capped at 50% of his salary including the amount sacrificed for pension. The payment was subject to currency movements.
|
Annual bonuses (in respect of 2011 payable in deferred shares in 2012)¹ € |
||||||
|
Annual bonuses (in respect of 2011 payable in cash 2012)¹ € |
||||||
|
Fees/basic salary € |
Benefits- in-kind € |
Total 2011 € |
Total 2010 € |
|||
|
Maarten Henderson |
115,275 |
— |
— |
— |
115,275 |
116,605 |
|
Hubert Aulich |
228,536 |
7,548 |
— |
— |
236,084 |
381,210 |
|
Iain Dorrity |
345,825 |
10,340 |
— |
— |
356,165 |
533,945 |
|
Peter Finnegan |
298,562 |
1,014 |
— |
— |
299,576 |
448,790 |
|
Michael Parker |
46,110 |
— |
— |
— |
46,110 |
46,642 |
|
John Sleeman |
57,638 |
— |
— |
— |
57,638 |
58,303 |
|
1,091,946 |
18,902 |
— |
— |
1,110,848 |
1,585,495 |
1 The annual bonus amount reflects both the cash element of the bonus which is to be paid in 2012 and represents 50% of the value of the bonus and the remaining 50% which is payable in shares under the Executive Directors' Deferred Share Plan which will vest three years after the award date.
The above amounts were subject to social security taxes paid by the Group as follows:
|
Total 2011 € |
Total 2010 € |
|
|
Fees, salaries, bonuses and benefits |
1,110,848 |
1,585,495 |
|
Social security |
102,847 |
158,678 |
|
1,213,695 |
1,744,173 |
Directors' share grants (audited)
In accordance with the Group's policy since 2010, 50% of a participant's gross bonus is payable in deferred shares under the Executive Directors' Deferred Share Plan. Under the rules of this plan the number of shares is calculated by reference to 50% of a participant's gross bonus divided by the average of the middle market quotations on the five consecutive dealing days immediately following the date on which the results are announced. The shares granted in the year relate to the 2010 bonus.
Deferred shares awarded due to 2010 performance
|
Date of grant |
Normal vesting date |
Number of shares awarded)¹ |
Price at grant)² p |
Value at grant € |
|
|
Maarten Henderson |
— |
— |
— |
— |
— |
|
Hubert Aulich |
24.03.11 |
24.03.14 |
112,007 |
55.80p |
72,878 |
|
Iain Dorrity |
24.03.11 |
24.03.14 |
134,409 |
55.80p |
87,454 |
|
Peter Finnegan |
24.03.11 |
24.03.14 |
112,007 |
55.80p |
72,878 |
|
Michael Parker |
— |
— |
— |
— |
— |
|
John Sleeman |
— |
— |
— |
— |
— |
|
358,423 |
233,210 |
1 The number of shares to be awarded is dependent on the price at grant.
2 The price is based on the average of the middle market quotations on the five consecutive dealing days immediately following the date on which the results are announced.
Deferred shares awarded due to 2011 performance
No bonus is payable in relation to 2011 performance due to failure to achieve targets. Accordingly no awards of deferred shares are to be made.
Performance share plan
Maximum awards for performance period ending in 2013
|
Date of grant |
Number of shares awarded in year |
Price at grant p |
|
|
Maarten Henderson |
— |
— |
— |
|
Hubert Aulich |
26.05.11 |
515,464 |
48.50p |
|
Iain Dorrity |
26.05.11 |
773,196 |
48.50p |
|
Peter Finnegan |
26.05.11 |
515,464 |
48.50p |
|
Michael Parker |
— |
— |
— |
|
John Sleeman |
— |
— |
— |
|
1,804,124 |
Directors' pension (audited)
|
Contributions to defined contribution scheme € |
Contributions to defined benefit scheme € |
Total 2011 € |
Total 2010 € |
|
|
Maarten Henderson |
— |
— |
— |
— |
|
Hubert Aulich |
— |
28,275 |
28,275 |
72,741 |
|
Iain Dorrity |
20,750 |
— |
20,750 |
20,989 |
|
Peter Finnegan |
17,290 |
— |
17,290 |
17,490 |
|
Michael Parker |
— |
— |
— |
— |
|
John Sleeman |
— |
— |
— |
— |
|
38,040 |
28,275 |
66,315 |
110,220 |
Increases in pension benefits as 31 December 2011
|
Accrued pension |
Transfer value of accrued benefits |
Change in transfer value less directors' contributions |
Additional accrued benefits earned in the year |
Transfer value of increase in accrued benefits less directors' contributions |
|||
|
2011 |
2010 |
2011 |
2010 |
2011 |
2011 |
2011 |
|
|
€ |
€ |
€ |
€ |
€ |
€ |
€ |
|
|
Hubert Aulich |
60,000 |
60,000 |
903,010 |
765,485 |
137,525 |
— |
137,525 |
Hubert Aulich's contributions in the financial year were €nil (2010: €nil).
Remuneration policy for non-executive directors
The non-executive directors have specific terms of engagement and their remuneration is determined by the Board based on independent surveys of fees paid to non-executive directors of similar companies. Non-executive directors are not eligible to join the Company's share schemes or pension schemes.
Directors' interests in shares of the company
The interests in the ordinary share capital of the Company as at 31 December 2011 of those directors who were in office during the year are detailed below. The table details separately beneficial interests and share options issued to the directors under the Performance Share Plan and the Executive Director's Deferred Share Plan.
|
Shares held at 31 Dec 2011 |
Shares held at 31 Dec 2010 |
PSP awards 31 Dec 2011 |
PSP awards 31 Dec 2010 |
Deferred Shares 31 Dec 2011 |
Deferred Shares 31 Dec 2010 |
|
|
Hubert Aulich |
11,355,469 |
11,355,469 |
515,464 |
Nil |
131,115 |
19,108 |
|
Iain Dorrity |
44,085,974 |
44,085,974 |
773,196 |
Nil |
157,338 |
22,929 |
|
Peter Finnegan |
2,671,912 |
2,671,912 |
515,464 |
Nil |
131,115 |
19,108 |
|
Maarten Henderson |
Nil |
Nil |
Nil |
Nil |
Nil |
Nil |
|
Michael Parker |
Nil |
Nil |
Nil |
Nil |
Nil |
Nil |
|
John Sleeman |
Nil |
Nil |
Nil |
Nil |
Nil |
Nil |
The closing mid-market price of a PV Crystalox Solar PLC share on 30 December 2011 was 4.37 pence and the price range during the year was 3.90 pence to 61.43 pence.
Between 1 January 2012 and 9 March 2012 (the latest date for which it was practical to obtain the information) there were no changes to the beneficial interest of the directors in the ordinary shares of the Company.
Shareholder return
Performance graph (unaudited)
The graph below shows the TSR performance from 6 June 2007 when the Group listed on the London Stock Exchange to 31 December 2011. This is compared against the TSR performance of the FTSE 250 index. The Group was a member of the FTSE 250 index between September 2007 and March 2010. The graph is based upon £100 being invested in the shares of PV Crystalox Solar PLC in June 2007 if all dividends had been reinvested and the comparative figures for the FTSE 250 index again assuming that dividends were reinvested. The data has been sourced from Thomson Datastream.
John Sleeman
Chairman of the Remuneration Committee
27 March 2012