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Continued
Short-term incentive arrangements
The 2003 annual bonus scheme for executive directors was based on operating profit and working capital relative to the operating plan for that year. The maximum value of annual bonus under the scheme was 70 per cent of basic salary. Executive directors were eligible to receive 80 per cent (equivalent to 56 per cent of annual basic salary) of any bonus in cash and 20 per cent (equivalent to 14 per cent of annual basic salary) in the form of a deferred share award. The shares to be held in trust by the Trustee of the Company's Employee Share Ownership Trust for three years and would normally be forfeited if an executive left or was dismissed. No bonuses were paid in respect of operating profit as the performance target was not met. Bonuses paid in respect of achieving the working capital targets are shown in the Directors' renumeration table. A similar annual bonus scheme is in place for 2004.
Performance Share Plan
The executive directors have previously participated in the Performance Share Plan which is a long-term incentive plan. Total shareholder return (TSR) was used as the performance measure in order to align the level of reward to directors with the interests of shareholders.
Under the Performance Share Plan, participants are, on payment of a nominal option price of 1 penny per share, able to exercise options over shares in the Company in respect of an individual grant if the performance criteria are met over a three year performance period. Details of options granted to executive directors under the Performance Share Plan are shown in the table of directors' share options at the end of this report; this includes details of options granted in 2001 which have now lapsed.
At the date of this report, grants made in 2002 remain outstanding. The maximum value of shares over which options were granted was equivalent to 80 per cent of annual basic salary as determined at 1 January 2002 or at date of appointment, if later.
The method used to assess whether the performance condition was achieved is carried out by taking the TSR for each comparator company over a three year period commencing 1 January in the year of the relevant grant, with each company then placed in descending order according to their TSR returns on the basis that the company with the highest return is shown first. If the Company's TSR over the same period is more than the company in the 30th percentile position, all options will become exercisable; options to the value of 60 per cent of salary will be exercisable if in the top 40; 40 per cent if in the top 50 and 20 per cent if in the top 60. No options will be exercisable if the Company's performance is below the 60th percentile position. The TSR information and calculations are carried out by New Bridge Street Consultants.
The comparator companies for purposes of grants in 2002 were the following national and international chemical companies.
The definition of market value in relation to a share on any date is the average of the daily middle market quotations of such shares over a period of three months ending on the dealing day immediately preceding such date.
Directors' remuneration report continues on the next page >
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