| Remuneration Committee Report |  |
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This report meets the disclosure requirements of the Companies Act 1985 and the Listing Rules and in accordance with usual practice will be put to shareholders for approval at the annual general meeting.
PricewaterhouseCoopers LLP have audited the directors’ remuneration, share options, share awards and deferred bonus sections of this report (‘the auditable part’). The remainder of the report comprises the unaudited part.
The remuneration committee
Throughout the year, the remuneration committee was chaired by Nichola Pease, and other members were Robert Hiscox, John Barnsley and John Ward until his retirement from the board in February 2004. As noted in the chairman’s statement, Nichola Pease will be retiring at the annual general meeting in February 2005. Robert Hiscox will take over as chairman of the committee, and Robin Broadhurst will join. The committee will therefore retain its membership of three non-executive directors, all of whom are independent in the board’s opinion. Nichola Pease will be available at the annual general meeting to answer related questions from shareholders.
The committee appointed New Bridge Street Consultants LLP (NBSC) and received advice from them during the year regarding the competitiveness of overall packages for the executive directors and on the group’s incentive schemes. NBSC also provided updates on Grainger’s performance in relation to the long-term incentive schemes.
The committee met three times during the year to consider the remuneration policy for the executives and senior management, in order to make recommendations to the board.
The committee’s terms of reference were recently revised and are available on the group’s website.
Remuneration policy
Grainger’s remuneration policy is designed to attract, motivate and retain high calibre individuals to enable the group to operate strategically for the continued benefit of shareholders, over the long-term. In order to operate this policy, the remuneration committee receives information on remuneration packages awarded to directors in comparable organisations.
The policy is also designed to align the directors’ interests with those of shareholders. This is principally achieved through the use of share-based incentives and by encouraging executive directors to maintain a reasonable shareholding in the group.
Remuneration packages include salary, bonus and pension elements as well as long-term share incentive and option schemes. Benefits are also afforded.
No executive director is involved in the determination of his own remuneration. Fees of the non-executive directors, which are set partly under consideration of their committee responsibilities, are determined by the board as a whole.
‘Senior management’ are viewed as the group of people known in Grainger as the ‘subsidiary directors’. The salaries and bonuses of this group of eight people are recommended by the executive directors and reviewed by the remuneration committee. These employees also participate in the long-term incentive scheme described below.
Service contracts
As stated in the corporate governance report, Rupert Dickinson and Andrew Cunningham each hold service contracts with notice periods decreasing on a straight line basis from two years to one year, over a period of five years which began on 1 October 2002. At the date of this report therefore the notice periods have been reduced to approximately 18 months. Their contracts were dated 19 July 1996 and 26 July 2000 respectively. Sean Slade held a contract with a 12 month notice period, which was dated 22 January 2002.
Apart from salary and benefits in relation to the notice period described above, there are no other terms in any of the contracts that would give rise to compensation payable for early termination, or any other liability of the company.
No executive director holds a non-executive directorship outside of the group.
Each non-executive director has specific terms of reference. Their letters of appointment state an initial one year period, with a continuation subject to review at that time. The letters of appointment contain no entitlement to compensation for early termination.
Amounts relating to directors' share options under the SAYE scheme are shown in the directors' share options table further down the page.
Non-performance related remuneration
Basic salaries and benefits
Basic salaries are reviewed by the remuneration committee annually. Uplifts are by reference to cost of living, responsibilities and market rates, as for all employees, and are performed at the same time of year. Executive directors and the deputy chairman, Stephen Dickinson, who has part-time executive responsibilities, specifically including land and regeneration, along with other senior members of staff, received a fully expensed company car, or a car allowance. Along with all members of staff, executive directors also benefit from health and life insurances.
The chairman’s and non-executive directors’ fees are reviewed on a biennial basis by the whole board.
Pensions
The group contributes 15% of basic salary to the money purchase pension schemes of Rupert Dickinson and Andrew Cunningham, and contributed 10% to that of Sean Slade. No other elements of remuneration are pensionable.
Share schemes open to all employees
Executive directors, and Stephen Dickinson, deputy chairman, are eligible to participate in two share schemes which are open to all employees with relevant service, subject to the rules of the schemes.
The first is a Save As You Earn scheme (SAYE), and the second a Share Incentive Plan (SIP). Both are Inland Revenue approved and therefore subject to the limits prescribed.
Performance related remuneration
A significant element of executive directors’ and senior management’s potential remuneration is performance related. The combination of short and long-term incentives attempt to align the interests of executives and senior management with the interests of shareholders, and to reward significant outperformance of budgeted expectations.
Non-executive directors do not receive performance related remuneration.
Annual discretionary bonus
Each year the remuneration committee considers the award of a bonus to the executive directors, which is at their ultimate discretion. Rupert Dickinson and Andrew Cunningham, participate in an arrangement introduced last year whereby the provisional bonus is calculated over a three year period by reference to the enhancement of the triple net asset value of Grainger, relative to a theoretical market comparator. The comparator movement is calculated with regard to the Nationwide and Halifax house price indices and also interest rates, using five year swap rates. Bonuses remain capped at 150% of salary. Subject always to the committee’s discretion, one-third of the calculated amount is approved for payment and the provisional balance is taken into account over the next two years. The award payable for the year ending 30 September 2004 represents 61% of salary for that year (2003: 88%).
Long-term incentives
Grainger’s policy in relation to long-term incentive schemes has evolved over time to align the long-term interests of executives and senior management more closely with those of shareholders, to reward sustained performance over a number of financial years and to encourage the executives to increase their shareholdings.
Executive directors and senior management are eligible to receive annual conditional awards of shares worth up to 50% of salary under the Long-Term Incentive Scheme and of share options up to a maximum of 125% of salary under the Executive Share Option Scheme. The awards under both schemes become unconditional provided performance criteria are satisfied over a single three year performance period following grant. The criteria for all awards granted since March 2002 has been based on Total Shareholder Return (TSR) – dependent upon where Grainger’s TSR lies with respect to a pre-determined comparator group as follows:
| Comparator companies | Performance condition | Vesting of option |
| Brixton plc | ||
| Capital and Regional plc | If Grainger’s TSR is equal to or greater than the upper quartile TSR of the comparator companies | |
| CLS Holdings plc | 100% | |
| Daejan Holdings plc | ||
| Derwent Valley Holdings plc | If Grainger’s TSR is equal to the median TSR of the comparator companies | |
| Freeport plc | 40% | |
| Great Portland Estates plc | ||
| London Merchant Securities plc | If Grainger’s TSR is above the median but below the upper quartile TSR of the comparator companies | |
| Minerva plc | ||
| Mountview Estates plc* | Pro-rata vesting | |
| Pillar Property plc | If Grainger’s TSR is below the median TSR of the comparator companies | |
| Quintain Estates and Development plc |
0% | |
| Shaftesbury plc | ||
| The Unite Group plc | ||
| * Benchmark Group plc delisted during the year and was replaced by Mountview Estates plc. As shown in the table above, no award vests unless Grainger's TSR is higher than the median TSR of the comparator group. | ||
These performance criteria are believed to be stretching but realistic, and reward executives if Grainger’s return to shareholders outperforms this group of companies operating in broadly similar markets.
Options are granted at the current mid-market price and any material changes to the long-term incentive schemes are presented to shareholders for approval.
The graph below shows TSR (based upon share price growth with dividends reinvested) for Grainger, compared to the comparator group, the FTSE 250 and the FTSE Real Estate Index. These comparators have been chosen on the basis that they are the markets within which Grainger operates.
| Directors’ remuneration | ||||||
|---|---|---|---|---|---|---|
| Chairman, deputy chairman and executive directors | ||||||
| Robert Dickinson | Stephen Dickinson | Rupert Dickinson | Andrew Cunningham | Sean Slade | Total | |
| £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | |
| Non-performance related remuneration | ||||||
| Salary and fees | 90 | 120 | 400 | 300 | 160 | 1,070 |
| Taxable benefits | – | 20 | 27 | 20 | 14 | 81 |
| Share incentive plan | – | 6 | 6 | 6 | 6 | 24 |
| Total non-performance related remuneration | 90 | 146 | 433 | 326 | 180 | 1,175 |
| Performance related remuneration | ||||||
| Annual discretionary bonus | – | – | 245 | 180 | 35 | 460 |
| Total performance related remuneration | – | – | 245 | 180 | 35 | 460 |
| Total remuneration for the year ended 30 September 2004 | 90 | 146 | 678 | 506 | 215 | 1,635 |
| Total remuneration for the year ended 30 September 2003 | 90 | 239 | 602 | 437 | 231 | 1,599 |
| Pension contributions into money purchase schemes | ||||||
| Year ended 30 September 2004 | – | – | 60 | 45 | 16 | 121 |
| Year ended 30 September 2003 | – | – | 30 | 33 | 13 | 76 |
| Directors’ remuneration continued from above | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| Non-executive directors | |||||||||
| Robin Herbert | John Barnsley | Robin Broadhurst | Robert Hiscox | Nichola Pease | John Ward | Robin Oldfield | Total | Total | |
| £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | |
| Non-performance related remuneration | |||||||||
| Salary and fees | 30 | 28 | 15 | 25 | 30 | 12 | – | 140 | 1,210 |
| Taxable benefits | – | – | – | – | – | – | – | – | 81 |
| Share incentive plan | – | – | – | – | – | – | – | – | 24 |
| Total non-performance related remuneration | 30 | 28 | 15 | 25 | 30 | 12 | – | 140 | 1,315 |
| Performance related remuneration | |||||||||
| Annual discretionary bonus | – | – | – | – | – | – | – | – | 460 |
| Total performance related remuneration | – | – | – | – | – | – | – | – | 460 |
| Total remuneration for the year ended 30 September 2004 | 30 | 28 | 15 | 25 | 30 | 12 | – | 140 | 1,775 |
| Total remuneration for the year ended 30 September 2003 | 30 | 12 | – | 25 | 30 | 30 | 10 | 137 | 1,736 |
| Pension contributions into money purchase schemes | |||||||||
| Year ended 30 September 2004 | – | – | – | – | – | – | – | – | 121 |
| Year ended 30 September 2003 | – | – | – | – | – | – | – | – | 76 |
On 26 February 2004, Robin Broadhurst was appointed. This followed John Ward’s resignation of the same date. In the previous year, Robin Oldfield resigned and John Barnsley was appointed, both on 27 February 2003.
| Directors’ share options | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Ordinary shares of 25p each (thousands) | |||||||||||
| Stephen Dickinson | Rupert Dickinson | Andrew Cunningham | Sean Slade | Total | |||||||
| Dates exercisable | Exercise price | 30 Sept 2004 | 1 Oct 2003 | 30 Sept 2004 | 1 Oct 2003 | 30 Sept 2004 | 1 Oct 2003 | 30 Sept 2004 | 1 Oct 2003 | 30 Sept 2004 | 1 Oct 2003 |
| Non-performance related (available to all staff) | |||||||||||
| SAYE scheme | |||||||||||
| 8 Aug 07 to 8 Feb 08 | £8.180 | – | – | 2 | 2 | 2 | 2 | 2 | 2 | 6 | 6 |
| 1 Sept 08 to 1 March 09 | £9.323 | 2 | 2 | – | – | – | – | – | – | 2 | 2 |
| Performance related (conditional awards) | |||||||||||
| Inland Revenue Approved Executive | |||||||||||
| Share Option Scheme | |||||||||||
| 6 Jan 97 to 6 Jan 04 | £2.312 | – | – | – | 40 | – | – | – | – | – | 40 |
| 19 July 99 to 19 July 06 | £2.920 | – | – | – | – | – | – | 10 | 10 | 10 | 10 |
| 23 Dec 99 to 23 Dec 06 | £3.425 | – | – | – | – | 9 | 9 | – | – | 9 | 9 |
| Long-Term Incentive Scheme | |||||||||||
| 9 July 00 to 9 July 07 | £2.671 | – | – | 13 | 13 | 7 | 7 | 8 | 8 | 28 | 28 |
| 24 Jan 06 to 24 Jan 13 | £9.590 | – | – | 39 | 39 | 29 | 29 | 20 | 20 | 88 | 88 |
| 12 Jan 07 to 12 Jan 14 | £16.320 | – | – | 31 | – | 23 | – | 12 | – | 66 | – |
| 2 | 2 | 85 | 94 | 70 | 47 | 52 | 40 | 209 | 183 | ||
During the year, Rupert Dickinson exercised 40,000 options under the company’s Inland Revenue Approved Executive Share Option Scheme at the option price of £2.312. At the date of exercise, the mid-market price was £16.15 per share. The total gain before tax was £553,520.
The market price of the company’s shares at the end of the financial year was £18.35, and the range during the year was £13.38 to £19.55.
The current long-term incentive scheme replaced the old Executive Share Option Scheme, however some options granted under this scheme are still in existence and are disclosed above. Exercise is conditional upon a growth in earnings per share in excess of the retail price index over a period of three consecutive years during the period of the option.
| Directors’ share awards | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| Ordinary shares of 25p each (thousands) | |||||||||
| Rupert Dickinson | Andrew Cunningham | Sean Slade | Total | ||||||
| Earliest vesting date | 30 Sept 2004 | 1 Oct 2003 | 30 Sept 2004 | 1 Oct 2003 | 30 Sept 2004 | 1 Oct 2003 | 30 Sept 2004 | 1 Oct 2003 | |
| Performance related (conditional awards) | |||||||||
| Long-Term Incentive Scheme | |||||||||
| 1999 scheme (matching awards) | 5 Dec 05 | 10 | 10 | 9 | 9 | 4 | 4 | 23 | 23 |
| 2002 scheme | 24 Jan 06 | 16 | 16 | 11 | 11 | 8 | 8 | 35 | 35 |
| 2003 scheme | 12 Jan 07 | 12 | – | 9 | – | 5 | – | 26 | – |
| 38 | 26 | 29 | 20 | 17 | 12 | 84 | 58 | ||
| The share price at the date of award of the 2003 scheme was £16.32. | |||||||||
| Deferred bonus | ||||
|---|---|---|---|---|
| As reported fully in previous years, Rupert Dickinson and Andrew Cunningham participate in a one-off deferred bonus scheme as detailed below: | ||||
| Original monetary amount | Equivalent number of shares, based on average share price 1 Oct 00 – 30 Sept 01 (£7.1319) |
First tranche – vested11 Dec 03(mid-market value £15.75) | Second tranche to vest in Dec 2005following results announcement | |
| Rupert Dickinson | £600,000 | 84,130 | 42,065 | Providing still in full time employment and not under notice to leave |
| Andrew Cunningham | £300,000 | 42,064 | 21,032 | |
Sean Slade announced his resignation on 12 November 2004. He received compensation of one year’s basic salary and benefits, and an ex-gratia payment of £30,000. In addition the remuneration committee awarded him 3,011 shares and 7,527 options under current long-term incentive schemes. These awards took into account the time that had elapsed since the grant of the awards and the performance of the group as required by the rules of the scheme. Sean also received 2,655 shares relating to the matching award which would have vested in December 2005. Just prior to resignation he exercised 10,273 approved share options and he retains 7,712 options which are exerciseable until 12 May 2005.
Nichola Pease
Chairman of the Remuneration Committee
21 December 2004
