Aer Lingus 2010 Annual Report Download - page 40

38 Remuneration Committee Report Aer Lingus Group Plc – Annual Report 2010
Performance Related Bonuses
Performance related bonuses are payable to executive Directors and senior
management for meeting clearly defi ned and stretching annual profi t
targets and strategic goals set and monitored by the Remuneration
Committee. In setting meaningful targets for the 2010 performance
related bonuses, the Remuneration Committee was mindful of the need to
restore the Group to profi tability while also recognising the importance of
incentivising and retaining management to drive the business forward.
The annual bonus performance targets for executive Directors and certain
senior management were determined based on fi nancial criteria (with
an 80% weighting) to align with the goal of restoring the Company to
profi tability and non-fi nancial criteria divided into two categories (each
with a 10% weighting), based on customer and people targets, which
are key to the long-term success of the Group. The annual performance
related bonuses were subject to a cap of 100% of basic salary for the
executive directors and 40% and 30%, respectively for the other two
categories of senior management. Following an annual review of the
Chief Executive Offi cer’s remuneration, his annual performance related
bonus opportunity was adjusted from the fi rst anniversary of the date of
commencement of his employment. Therefore, for the fi nal third of 2010,
the Chief Executive Offi cer’s annual performance related bonus
opportunity was adjusted to 150% of basic salary. The fi nancial
performance criteria related to operating profi t, revenue, operating
savings and Greenfi eld Cost Reduction Program savings. The Group was
successful in achieving its targets for the 2010 fi nancial year. As it
performed above expectations in the 2010 fi nancial year, achieving a
signifi cant turnaround in its profi tability, annual bonuses were paid at
the between target and stretch level. No deferment periods applied to
the annual performance related bonuses.
In 2011, the Group will continue to incentivise Executives and senior
management with annual performance related bonus opportunities. In
addition the Group plans to introduce a short-term bonus opportunity to
incentivise and further support the Company’s recovery, but may impose
a deferment period in respect of any such bonuses earned.
In 2009, a provision was made for employee gainsharing incentives for
the Greenfi eld Cost Reduction Program. Executive management are not
eligible to participate in these gainsharing incentives. The funding for
the gainsharing incentives was contingent on a minimum level of
profi tability in a given fi scal year and the achievement of the Greenfi eld
Cost Reduction Program targets. Both the required minimum level of
profi tability and the Greenfi eld Cost Reduction Program targets were
achieved in 2010 and therefore a sum of €6.25 million is payable to
employees under these arrangements.
Long Term Incentive Plan
Conditional awards of shares are granted to executive Directors under
the Company’s LTIP. The LTIP is a share based performance award
scheme which provides for the vesting of shares subject to the
achievement of minimum performance objectives, as specifi ed
by the Remuneration Committee. In order to promote the long term
sustainability of the Company, the performance conditions are measured
over a three-year period and are linked to the Company’s long term
value creation. The performance objectives for the awards granted in
2007, 2008 and 2009 consisted of both Total Shareholder Return (TSR)
and Compound Growth in EBITDAR.
TSR measures the change in value for shareholders arising from changes
in the Company’s share price plus the returns that would arise for
shareholders if dividends were reinvested in the Company’s shares on
the relevant ex-dividend date, net of corporation tax and but before
income tax. For 2007, 2008 and 2009 the TSR element is assessed over
a three year period against a peer group of European airlines. For 2007,
2008 and 2009 the EBITDAR element is assessed over a three year
period by reference to the EBITDAR fi gures in the Company’s
Consolidated Financial Statements.
The performance objectives for the awards granted in 2007 were not
achieved and accordingly the 2007 awards lapsed.
As part of its review of the Company’s executive remuneration strategy
for 2010 and future years, the Remuneration Committee modifi ed the
performance objectives for the awards granted in 2010. The 2010
performance objectives consist of Total Shareholder Return (TSR)
measured 50% against a comparator group of European airlines and 50%
against the companies in the ISEQ general index. The following fi nancial
underpin also applies: positive cumulative EBITDAR (before exceptional
items as determined by the Remuneration Committee) of, or in excess of
€100 million during the performance period and positive EBITDAR as
shown in the Company’s fi nancial accounts in the fi nal year of the
performance period (before exceptional items as determined by the
Remuneration Committee)
The maximum award under the LTIP is 150% of base salary. The maximum
number of shares that can vest is set at 125% of the maximum salary
multiple. Awards under the LTIP can be made on an annual basis at the
discretion of the Remuneration Committee. There is no requirement in
the LTIP for shares to be held for a period following vesting.
Report of the Remuneration Committee on Directors’ Remuneration (continued)