Introduction
Below is a summary of the information in the Directors' Remuneration Report. The Report, which is contained in the 2005 Report & Accounts, has more details about the Company's remuneration policy, practices, pension arrangements and incentive plans including a description of the performance conditions. The Report also provides details of all the share awards and options held by the Directors.
Remuneration Policy principles
The Group's remuneration policy for 2005 and for subsequent years for executives, including Executive Directors, is based on the following core principles:
- Basic salary is targeted generally between median and upper quartile of the Company's comparator group and at upper quartile for consistently strong or outstanding individual performance. This, combined with performance related variable elements, is designed to result in upper quartile total remuneration against delivery of superior business results and returns to shareowners;
- A portfolio of incentives and rewards balance the achievement of short and long-term business objectives;
- The performance conditions for the Group's incentive plans (including the BSRP, LTIP and discretionary share options) are based on the measurable delivery of strong financial performance at constant currency and on superior shareowner returns and are widely understood by shareowners;
- Total remuneration opportunities are designed to be competitive in the relevant market, thereby enabling the Group to attract and retain high calibre executives;
- The total remuneration programme includes significant opportunities to acquire Cadbury Schweppes shares, consistent with building a strong ownership culture;
- Executive Directors are expected to meet a share ownership requirement set at four times base salary, which is at the top end of such requirements in the FTSE 100. For new appointments, a Director is given a period of three to five years in which to satisfy this requirement. The share ownership policy applies to all senior executives in the business with a range from one to three times salary, depending on their level of seniority.
Share plans review
The Committee regularly reviews arrangements and incentives for the Group and our Executive Directors and executives. With effect from 1 January 2006, we are proposing a number of changes which, in terms of the expected value of incentives to employees and cost to the Group are broadly neutral:
- No more discretionary share options will be granted unless general market conditions change or if there are particular circumstances that arise where an option grant would be appropriate;
- As a consequence, for Executive Directors, the target and maximum levels of award under the AIP will increase from 80% and 120% to 100% and 150% of salary respectively, and the annual LTIP award will increase from 120% to 160% of salary. The percentage of the LTIP award which vests for threshold performance will reduce from 40% to 30% and this will reduce the percentage of shares vesting for all levels of performance below the 80th percentile. We will seek shareowner approval to provide for LTIP awards up to a maximum value of 200% of salary, but any award significantly higher than the proposed 160% level will only be made in exceptional circumstances;
- The BSRP performance related scale will be changed from step vesting to a straight line sliding scale;
- Also, in setting performance ranges for future cycles for all our long term plans, the economic profit and earnings per share ranges will be expressed in absolute rather than real (post inflation) terms. This is partly because there is no one satisfactory inflation index against which to measure our performance, and secondly because an absolute measure is simpler and in line with the way in which we communicate our results.
Similar changes will be made to AIP, BSRP and LTIP for executives below Board level. For those who are not eligible for LTIP awards, a share plan will be introduced which gives conditional share awards if performance targets are met, so that the expected value of remuneration for these employees is maintained at broadly the same level as previously.
