The Remuneration Committee, in setting remuneration policy, recognises the need to be competitive in an international market. The Committee’s policy is to set remuneration levels which ensure that the executive directors are fairly and responsibly rewarded in return for high levels of performance.
Remuneration policy is designed to support key business strategies and create a strong, performance-orientated environment. At the same time, the policy must attract, motivate and retain talent.
Accordingly, executive directors receive base salaries comparable with companies of a similar size and international scope and have the opportunity to earn enhanced total remuneration for meeting the performance targets set by the Committee.
In setting remuneration levels for the executive directors, the Committee takes account of the remuneration policy and practice applicable to other Group employees.
The components of remuneration for executive directors comprise base salary (a fixed sum payable monthly which is reviewed annually in October), benefits (including car allowance and non-contributory health insurance), an annual bonus (with a deferred element), long term incentives (comprising share options and awards under a performance share plan) and pension contributions.
The Remuneration Committee considers that a successful remuneration policy must ensure that a significant part of the remuneration package is linked to the achievement of stretching corporate performance targets. Performance-related elements for the year ended 30 September 2008 comprise share options, awards under a performance share plan and annual bonus.
The policy adopted by the Committee ensures that a significant proportion of the remuneration of executives is aligned with corporate performance, generating a strong alignment of interest with shareholders. As a result, significantly over half of the executive directors’ potential remuneration packages is performance-related.
Policy on Salary of Executive Directors
It is the policy of the Committee to pay base salaries to the executive directors at broadly market rates compared with those of executives of companies of a similar size and international scope (in particular those within the FTSE 50-150 with more than 50% of revenue derived from overseas), whilst also taking into account the executives’ personal performance and the performance of the Group.
In the year ending September 2009 salaries of executive directors have been increased by between 4% and 5% from those disclosed in this report, in line with comparator information from the time of the review.
Policy on Fees of non-Executive Directors
The fees of the non-executive directors are reviewed every two years. The current fees are in place for the two financial years ending on 30 September 2008. The basic fee for directors is £40,000. An additional fee of £5,000 and £7,000 is paid for membership of the Remuneration and Audit Committees respectively. Therefore, a director sitting on both of those Committees will receive £52,000.
Further payments are made to the chair of each of these committees, being £6,000 and £8,000 for chairing the Remuneration and Audit Committees respectively. A further payment of £4,000 is made each year to the Senior Independent Director.
For the two financial years ending September 2010, the basic fee has been increased to £55,000, but Committee membership fees will no longer be paid. The chairmanship fees will be increased to £13,000 and £17,000 for the Remuneration and Audit Committees respectively. The payment to the Senior Independent Director will be increased to £10,000.
In relation to the Chairman of the Board, it is the policy of the Board for remuneration to be comparable to that of the median fees for non-executive chairs of companies of a comparable size and complexity. The Chairman's remuneration will next be reviewed in 2010.
Non executive directors are not entitled to participate in long term plans or pension schemes.
Policy on Bonus
The bonus in the case of executive directors (and indeed all employees) is designed to reward outstanding performance. Full details of the scheme and bonus payments can be found within the company’s annual report.
Policy on Long-Term Incentives
Executive Share Options
Full details of the Policy on Long Term Incentives can be found within the company's annual report.
Performance Share Plan
Full details of the Performance Share Plan can be found within the company's annual report.
Policy on Pensions
All the executive directors’ pension arrangements are of the defined contribution type. The Sage Executive Pension Scheme is the main pension fund for Sage executives in the UK. It is a defined contribution plan where the standard contribution rate is 25% of base salary subject, where appropriate, to limits set by HMRC. No components of remuneration other than base salary are pensionable.
Policy on Directors’ Shareholdings
The Committee believes that all executive directors should hold a substantial number of shares in the Company. It is, therefore, its policy that all executive directors over time hold shares equivalent in value to 150% of their annual salary. Until the required holding is achieved, executive directors will be expected to retain (net of any taxes) at least 50% of:
- shares received as deferred bonus
- shares resulting (net of exercise costs) from the exercise of share options granted from December 2004 onwards; and
- performance shares received under the Plan.
In assessing whether the target of 150% of salary is met, vested options under the share option schemes of the company will be deemed to have a value equal to the net value after exercise costs and taxation of those options as if exercised on the relevant date.
Policy on Service Contracts
In relation to contracts with executive directors, the Remuneration Committee aims to set notice or contract periods at one year. If it is necessary to offer longer notice or contract periods to new directors recruited from outside the Group, it is the Company’s policy to reduce these as soon as contractually possible after the initial period to a notice period of one year.
Both executive and non-executive directors are subject to election by shareholders at the first annual general meeting following their appointment and thereafter require re-election at least once every three years. The appointment of a non-executive director may be terminated without compensation if that director is not re-elected by shareholders or otherwise in accordance with the Company’s Articles of Association.
The appointment of the non-executives is for a fixed term of one, two or three years, during which period the appointment may be terminated by the Board on notice, ranging from 6 to 12 months (in the case of the Chairman of the Board). There are no provisions on payment for early termination in their letters of appointment. The Remuneration Committee reviews the contracts of executives on an annual basis to ensure they are in line with policy and market practice.
Executive directors are permitted, where appropriate and with Board approval, to take non-executive directorships with other organisations in order to broaden their knowledge and experience in other markets and countries.
Mr P L Stobart is a non-executive director of Capital & Regional plc. Mr P S Harrison is a non-executive director of Hays plc. In the year under review, these fees were £42,000 in the case of Mr P L Stobart and £57,000 in the case of Mr P S Harrison.
Fees received in their capacity as directors of these companies are retained by each of them reflecting the personal responsibility they undertake in these roles.
The Board recognises the significant demands that are made on executive and non-executive directors and has therefore adopted a policy that no executive director should hold more than two directorships of other listed companies.
The Board encourages executive directors to limit other directorships to one listed company and in no case should more than one directorship of another FTSE 100 company be taken. Where an executive director holds non-executive positions at more than one listed company only the fees from one such company will be retained by the director.
No formal limit on other board appointments applies to non-executive directors under the policy but prior approval from the chairman on behalf of the Board is required in the case of any new appointment. In the case of the Chairman prior approval of the Senior Independent Director is required on behalf of the Board.
The service contracts of executive directors and the letters of appointment of non-executive directors prohibit the disclosure of confidential information relating to the Group both during the term of the contract and after its termination. The letters of appointment of non-executive directors and service contracts of executive directors are available for inspection at the Company’s registered office during normal business.