This report has been prepared in accordance with the requirements of the Companies Act 2006 (“the Act”) and Schedule 8 of the Large and Medium Sized Companies and Groups (Accounts and Reports) Regulations 2008 (“the Regulations”), and the Listing Rules of the UK Listing Authority. The report describes how the Board has applied the principles and complied with the provisions of the UK Corporate Governance Code (“the Code”) relating to directors’ remuneration. As required by the Companies Act, a resolution to approve the report will be proposed at the AGM of the Company at which the financial statements will be approved. The Act requires the Auditor to report to the Company’s members on the “auditable part” of the directors’ Remuneration Report and to state whether in its opinion that part of the report has been properly prepared in accordance with the Companies Act 2006.
Summary
• Directors’ remuneration is reviewed, and any changes made, with effect from 1 January each year. Base salaries for executive directors have been left unchanged at the 1 January 2012 review date;
• Limited annual performance-related bonus payments, of not more than 20% of base salary, partly paid in cash and part in ordinary shares, were awarded to three executive directors in March 2012 in relation to performance in 2011;
• Grants under the Company’s long-term incentive plan (LTIP) were made in 2011, subject to stretching performance targets to be measured over the period 2011-13. The number of ordinary shares granted to executive directors in 2011 was reduced by 29%, compared with the LTIP awards made to those individuals in 2010;
• With effect from 30 June 2011, John Rowe retired from his role as Group Chief Executive and as Director of the Company, and David Marock was recruited and appointed as the new Group Chief Executive, effective 1 July 2011;
• John Rowe receives base salary and benefits for his contractual 12-month notice period expiring 30 June 2012;
• David Marock’s remuneration package as the incoming Chief Executive has greater emphasis on variable, performance-related remuneration with a lower fixed base salary; and
• With effect from 1 July 2011, defined benefit pension accrual for future service ceased for any of the executive directors; all pension benefits are now on a defined contribution basis. This report has been divided into separate sections for unaudited and audited information.
Unaudited information
Remuneration Committee
The Company’s Remuneration Committee is constituted in accordance with the recommendations of the Code. The members of the Committee during the year were Julian Avery (Chairman), Julian Cazalet and David Watson, all Independent Non-Executive Directors and Rupert Robson who is the Non-Executive Group Chairman. Judith Hanratty was a member of the Committee to 31 December 2011 and Gill Ryder was appointed to the Committee on 25 January 2012. None of the committee members has any personal financial interest (other than as shareholders), conflicts of interest arising from cross-directorships, or day-to-day involvement in the running of the business.
The Committee is responsible for developing policy on remuneration for executive directors and senior management and for determining specific remuneration packages for each of the executive directors, and recommending to the Board changes to the fees of the Non-Executive Group Chairman. The Chief Executive may attend meetings by invitation. The Committee met nine times during 2011. No director plays a part in any discussion or decision about his or her own remuneration.
The terms of reference of the Committee are available at the Company’s website www.ctcplc.com/investors
New Bridge Street (a trading name of Aon Hewitt Ltd) is retained as the independent adviser to the Remuneration Committee.
Remuneration policy
Executive remuneration packages are designed to attract, motivate and retain directors and senior management of high calibre. The Committee reviews the packages offered annually. The Committee believes that the interests of shareholders and executive directors should be aligned as far as possible. The Committee seeks to achieve this by incentivising executive directors to deliver success over time through sustainable and profitable growth. This includes the use of annual bonus awards linked to clear objectives and the overall performance of the Company, and awards under the LTIP linked to long-term, sustained performance. The Committee aims to structure incentives to avoid encouraging executive directors to expose the Group to unacceptable levels of risk. Annual bonus payments, where they have been made in the past, have been modest by comparison with market levels.
The Remuneration Committee is mindful of the Environmental, Social and Governance (“ESG”) implications when designing and operating remuneration practices. The incentive structures aim to avoid any undue ESG risks by inadvertently encouraging irresponsible behaviour. The Committee also considers the pay and employment conditions of other employees in the Company and its subsidiaries, below the executive director level, when determining directors’ remuneration. This includes considering the base salary review and bonus outcomes (if applicable) for other senior employees, when reviewing base salaries and determining any bonus awards for executive directors.
Application of policy
The main elements of the remuneration package for executive directors are as follows:
• base salary and benefits; • annual bonus awards;
• longer-term incentive arrangements; and • pension arrangements.
Base salary
Executive directors’ base salaries are determined by the
Committee each year and/or when an individual changes position or responsibility. In deciding appropriate levels, the Committee is mindful of pay and employment conditions in the Group as a whole, the individual’s experience and performance and current market rates.
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Executive directors’ base salaries are reviewed at the start of each financial year and the base salaries of executive directors were reviewed as at 1 January 2012. The annual salaries of executive directors were not increased at 1 January 2012, the second year in which there have been no increases.
1 January 2012 1 January 2011
David Marock GCEO (appointed 1 July 2011) £320,000 £320,000 (from 1 July 2011)
John Rowe GCEO (retired 30 June 2011) Not applicable £371,152
Damian Ely GCOO £214,000 £214,000
George Fitzsimons GFD £210,000 £210,000
Alistair Groom Executive Director £313,650 £313,650
Joe Roach Executive Director US$606,419 US$606,419
In addition to their base salary, pension entitlements and benefits in cash, executive directors receive certain benefits-in-kind, principally a car or car allowance and private medical insurance. David Marock does not receive a car or cash allowance in lieu.
Annual bonus awards
The newly appointed Group Chief Executive, David Marock, under the terms of this appointment received a guaranteed one-off bonus payment for 2011 of £160,000. This was in recognition of the fact that he would be forgoing a significant bonus entitlement with his previous employer. Three other executive directors received bonuses in respect of performance in 2011, partly paid in cash and partly paid in ordinary shares which will be released in three equal tranches after one, two and three years. These bonuses reflect the performances of each director against his objectives, his contribution to the success and development of the Group in the year, and the Group’s overall performance. In no case did the aggregate performance-related bonus of any executive director exceed 20% of their base salary.
Under the annual bonus arrangement for 2012, the Remuneration Committee has agreed a set of individual performance objectives for each executive director as part of the Group’s performance management process. These objectives are tailored around the roles of each of the executive directors and consist of both financial and non-financial objectives, including profit growth and new business development. In addition, all executive directors have shared responsibility for the overall performance of the Group. In assessing the entitlement to any bonus and calculating the quantum of any such award, the Committee takes into account the performance of each executive director against his objectives, his contribution to the success and development of the Group in the year and the Group’s overall performance.
The maximum annual bonus for the newly appointed Group Chief Executive for 2012 performance is 150% of base salary, subject to the performance assessment as outlined above. However, if the bonus award is more than 100% of base salary, which can only be awarded for above target performance, the portion above 100% of base salary will be delivered entirely in ordinary shares, which will be released in three equal tranches after one, two and three years.
The other executive directors are eligible for an annual bonus for 2012, dependent on Group and individual performance. When bonuses have been paid to other executive directors in the past, for at least the last ten years these have not exceeded 50% of base salary.
Performance-related annual bonus awards are discretionary and are non-pensionable.
Long-term incentive arrangements
Charles Taylor Consulting Long Term Incentive Plan 2007 (“LTIP”)
The Committee continues to believe that the operation of the LTIP remains an appropriate vehicle to tie a proportion of remuneration to the Group’s longer-term performance to better align executives’ interests with shareholders.
Awards totalling 200,000 shares were made on 27 April 2011, equating to an award with a face value of between 24% and 37% of base salary for each of the executive directors at a share price of £1.54 (2010: £2.16). Details of these awards are set out in the table below. The maximum award level permitted under the LTIP is 75% of base salary per annum. As the table shows, the number of ordinary shares awarded to each of these executive directors was reduced by more than a quarter, compared with the prior year.
2011 Awards (number of shares) 2010 Awards (number of shares)
John Rowe – GCEO (retired 30 June 2011) None 70,000
Damian Ely – GCOO 50,000 70,000
George Fitzsimons – GFD 50,000 70,000
Alistair Groom – Executive Director 50,000 70,000
Joe Roach – Executive Director 50,000 70,000
Total 200,000 350,000
These awards are subject to a three-year performance period and are due to vest on 27 April 2014 (2010 awards vest 29 April 2013) subject to the Company’s relative Total Shareholder Return (“TSR”) performance.
The proportion of shares which may be transferred under the LTIP will be determined in accordance with the Company’s ranking by growth in TSR against the constituent companies of the FTSE Small Cap Index (as constituted on the Allocation Date) (“the comparator Group”) in accordance with the following table:
Ranking of the Company against the comparator Group by reference to TSR growth Percentage of ordinary shares which may be transferred
Below median Nil
Median 25%
Between median and upper quartile Pro rata on a straight-line basis between 25% and 100%
Upper quartile 100%
The performance period for the LTIP awards is the period of three years from the date of grant of the award. The starting point and end point for the TSR measurement are based on the average Net Return Index i.e. the index that reflects movements in share price over a period and dividends reinvested on a net basis (without any associated tax credit) in shares on the ex-dividend date, measured over the three days immediately preceding the start and end of the performance period.
This performance condition was chosen as it represents a clear measure of value generated for shareholders relative to other UK-listed companies of comparable size.
Executive share options
No options were granted during the 2011 financial year, and none have been granted since 2006. Previous grants of options became exercisable only if the total earnings per ordinary share increased by at least the rate of increase Retail Price Index plus 6 percentage points per annum, over the three-year vesting period.
Save As You Earn (“SAYE”)
The Company also operates a SAYE share option scheme for eligible employees under which options may be granted at a discount of up to 20% of market value. The value of options over ordinary shares that participants can be granted is capped, and is based on a monthly contribution to a savings account of a maximum of £250 per participant. The executive directors are eligible to participate in the SAYE share option scheme.
Details of the share plan awards granted and exercised are shown on page 40.
Recruitment Award
David Marock was recruited externally and appointed Group Chief Executive Officer with effect from 1 July 2011. David Marock received a special award in 2011 under Listing Rule 9.4.2 R (2) of the FSA Handbook, to facilitate his recruitment (“Recruitment Award”). This was in the circumstances where David Marock was leaving employment with a previous company, to take up the position with the Group, and foregoing substantial incentive pay entitlements in his role with his previous employer.
The Recruitment Award includes the following two elements:
(a) An LTIP award made on 18 October 2011 over 300,000 ordinary shares with a value on the date of grant of £408,370. This award is due to vest on the third anniversary of the award date (18 October 2014) subject to TSR performance conditions identical to those of the 2011 awards as detailed above for the other executive directors.
(b) A restricted share award made on 18 October 2011 over 362,318 ordinary shares with a value on the date of grant of £500,000. This award, which is not subject to performance conditions, is due to vest on the third anniversary of the award date (18 October 2014), providing David Marock remains in service at the vesting date.
The provisions relating to the Recruitment Award detailed above (parts (a) and (b)), including the maximum number of ordinary shares available for release and the basis for determining the participant’s entitlement, cannot be altered to the advantage of the participant without prior shareholder approval (except for minor amendments to benefit the administration, to take account of a change in legislation or to obtain or maintain favourable tax, exchange control, or regulatory treatment for the participant or the Company). The benefits under the Recruitment Award detailed above are non-pensionable. The terms of the Recruitment Award will be available for inspection at the registered office of the Company from the date that the Notice of AGM is sent until the close of the AGM, and at the place of the AGM for at least 15 minutes before and during the meeting.
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Charles Taylor Consulting plc
0 20 40 60 80 100 120 December 2011 FTSE Small Cap Index
December 2010 December 2009 December 2008 December 2007 Value (£) December 2006
John Rowe’s retirement
Following the announcement in December 2010 that John Rowe wished to stand down as Group Chief Executive, the process to identify and recruit a new Group Chief Executive was immediately commenced as the Board wished to ensure that the Group did not have a period without a Group Chief Executive. John Rowe was asked to continue as Group Chief Executive until a successor could be recruited and had taken up the role. David Marock started as Group Chief Executive on 1 July 2011 and John Rowe’s 12 month contractual notice period commenced on 1 July 2011.
Under his service agreement, John Rowe is entitled to receive his base salary and related benefits during his notice period. He is not eligible for any further grants under the LTIP. He does retain a pro-rata portion of the LTIP awards he already holds subject to the normal performance conditions and vesting dates. The Board has also asked him to be available as a consultant to the Group for a period of two years after his employment ends in 2012. The consultancy fee payable will be £50,000 per annum.
Dilution
The ABI guidelines permit the Company to issue options and awards of shares of up to 10% of the issued share capital on a ten year rolling basis, of which, 5% can be applied against discretionary schemes (LTIP and ESOS). As at 31 December 2011, there were 927,901 shares available for such awards, of which 404,557 ordinary shares were available for discretionary schemes. The following table sets out the calculation:
All schemes
Discretionary (LTIP & ESOS)
Issued shares 40,344,664 40,344,664
ABI Limits 4,034,466 10% 2,017,233 5%
Issued (exercised and outstanding) 3,106,565 1,612,676
Available 927,901 404,557
Performance graph
The following graph shows the Company’s performance, measured by reference to total shareholder return, compared with the performance of the FTSE Small Cap Index, also measured by reference to total shareholder return.
The FTSE Small Cap Index has been selected for this comparison as it is the index the Company is using to determine performance under the LTIP scheme for executive directors and it is the most appropriate index measure.
Pension and other arrangements
With effect from 1 July 2011, all of the executive directors are in receipt of either a defined contribution to a money purchase pension scheme, or an equivalent cash allowance. Defined benefit plan accrual for future service has ceased. The table below details the defined contribution and cash allowance arrangements for each executive director with effect from 1 July 2011.
Name Type of arrangement Employer contribution Employee contribution
David Marock Defined contribution to SIPP1 15% of base salary None
Damian Ely4 Defined contribution to GPP2 15% of base salary 5% of base salary
George Fitzsimons5 Defined contribution to PP3 15% of base salary 5% of base salary
Alistair Groom6 Cash allowance 15% of base salary None
Joe Roach Defined contribution to US 401(k) plan US$8,250 pa $20,500 pa
1 SIPP is Self Invested Personal Pension 2 GPP is Aviva Group Personal Pension 3 PP is AXA Personal Pension
4 Damian Ely is required to contribute 5% of base salary to the GPP, to be eligible for the company contribution. Up to 30 June 2011, he was accruing benefits on the basis of 1/60th of final salary per year of service in the Charles Taylor & Co Ltd Retirement Benefits Scheme on £170,936 of pensionable salary (subject to an employee contribution of 5% of pensionable salary), and receiving 5% defined contribution to the GPP on £43,064 of base salary.
5 George Fitzsimons is required to contribute 5% of base salary to the PP to be eligible for the company contribution. Up to 30 June 2011, he was receiving a company contribution to the PP of 12.5% of base salary.
6 Up to 30 June 2011, Alistair Groom was accruing benefits on the basis of 1/60th of final salary per year of service in the Charles Taylor & Co Ltd Retirement Benefits Scheme, on £196,264 of pensionable salary (subject to an employee contribution of 5% of pensionable salary), and receiving a 15% cash allowance on £117,386 of base salary.
Up to 30 June 2011, John Rowe was accruing benefits on the basis of 1/60th of final salary per year of service in the Charles Taylor & Co Ltd Retirement Benefits Scheme, on £230,717 of pensionable salary (subject to an employee contribution of 5% of pensionable salary), and receiving a 15% cash allowance on £140,435 of base salary.
Directors’ contracts
All the executive directors have entered into service agreements with the Group, requiring notice of termination to be given by either party, as detailed in the table below
Executive Director Notice period Contract date Compensation
John Rowe GCEO (resigned 30 June 2011) 12 Months 4 July 2005 Base salary/benefits
David Marock GCEO (appointed 1 July 2011) 12 Months 1 July 2011 Base salary/benefits
Damian Ely GCOO 12 months 1 October 2005 Base salary
George Fitzsimons GFD 6 months 4 November 2004 Base salary
Alistair Groom Executive Director 12 months 4 July 2005 Base salary/benefits
Joe Roach Executive Director 12 months 1 January 1997 Base salary
Executive directors’ contracts of service and letters of appointment of non-executive directors, which include details of their remuneration, will be available for inspection at the AGM.
External appointments
A number of executive directors to serve as directors on a number of external organisations all of which are related to the Group’s business activities. These are detailed on pages 24 to 25. The executive directors receive no fees or additional remuneration for these appointments.
Non-executive directors
The non-executive directors have individual letters of engagement and their remuneration is determined by the Board in accordance with the Articles of Association and based on surveys of the fees paid to non-executive directors of similar companies. With the exception of the Chairman