EasyJet 2012 Annual Report Download - page 52

Governance
Directors’ remuneration report
for the year ended 30 September 2012
Letter from the Chairman of the
Remuneration Committee
Dear shareholder,
On behalf of the Board, I am pleased to present the
Remuneration Report for the year ended 30 September 2012.
Performance of the Company in 2012
The Company continued its strong performance in 2012 despite
a difficult macroeconomic environment. The key highlights are set
out below:
→27.9% growth in profit before tax.
→1.8ppt growth in ROCE (excluding lease adjustment) from 12.7%
in 2011 to 14.5% in 2012.
→A major improvement in On Time Performance from 79%
to 88%, reflecting operational robustness.
→Increasing dividend with a proposed ordinary dividend
of 21.5 pence per share for 2012.
These results should be considered in light of the continuing
challenges faced in the airline industry. In addition to the results
set out above, we remain committed to delivering returns in
excess of our cost of capital and returning surplus capital to
our shareholders.
Aligning remuneration policy with Company principles
Simple and cost effective approach – In line with our low cost and
efficient business model, the Committee aim to set a simple fixed
pay package against the market. For example, our Executive
Directors receive minimal benefits (see page 53).
Support the stated business strategy of growth and returns –
Performance is assessed against a range of financial, operational
and longer term returns ensuring value is delivered to
shareholders, and participants are rewarded for the successful
delivery of the key strategic objectives of the Company.
Pay for performance – Remuneration is heavily weighted towards
variable pay, dependent on performance. This ensures that there
is a clear link between the value created for shareholders and pay.
Key pay outcomes in respect of 2012
Annual bonus payment is based on PBT and key operational
performance targets. Bonuses of 95.8% of the maximum were
awarded to the CEO and 93.3% for the CFO, in respect of 2012.
This reflects the outstanding financial and operational results the
Company has achieved.
Carolyn McCall OBE chose to defer the maximum amount of 50%
of her bonus permitted into shares for three years under the
matching scheme. Chris Kennedy chose to defer a third of his
bonus into shares under the matching scheme.
Long-Term Incentive Plan – LTIP awards made in July 2010 are
due to vest in July 2013. These awards are based on ROE
performance for the financial year ended 30 September 2012.
During this period the Company achieved ROE performance of
14.6%, resulting in 91.7% of the awards vesting.
Pay for 2013
Following discussions with shareholders around the 2012 AGM, we
consulted widely on how best to calculate ROCE to appropriately
reflect the performance of the Company. Given that this has clear
implications on our wider remuneration policy, and taking into
account my recent appointment as Remuneration Committee
Chairman, we also took the opportunity to review remuneration
arrangements as a whole.
The key objective of the review process was to ensure that
remuneration arrangements support the successful delivery of the
strategy of the Company. We also compared our arrangements
against a ‘best practice’ point of view and took on board shareholder
comments. As a result we are making the following changes:
→Salary increases – Neither Executive Director has received a
salary increase since their appointment in July 2010. The CEO
will not receive an increase at this time. The CFO received a
salary increase of 2.5% effective 1 October 2012, in line with
those across the wider workforce.
→Mandatory deferral of annual bonus – One-third of the annual
bonus will now be compulsorily deferred each year and will be
subject to forfeiture (as a result, the CEO will have a lower take
home pay opportunity). Executive Directors will also have the
opportunity to voluntarily defer an additional portion.
→No increase in incentive opportunity –The CFO’s incentive
opportunity (split between short term and long term) has been
rebalanced to ensure alignment with the CEO’s. There is no
increase in overall incentive opportunity for either the CEO
or CFO.
→Tougher annual bonus targets – Higher levels of performance
required and a lower payout for the delivery of threshold
performance target. A formal safety underpin also applies
to the bonus.
→Definition of ROCE – Following extensive shareholder
consultation, this has been revised. ROCE for future LTIP grants
will now include an adjustment for operating leases.
→Introduction of a relative TSR measure to LTIP – The LTIP will
be based 50% on TSR relative to the FTSE 51 to 150 and 50%
on ROCE to incorporate an external relative assessment of
performance. In addition, the TSR portion of the LTIP will not
vest unless the Company has achieved positive TSR
performance over the award period.
→Introduction of clawback – Introduced to both short and
long-term incentives in line with emerging best practice.
Shareholder feedback
We are committed to maintaining an open and transparent
dialogue with shareholders. The objective of this report is to clearly
communicate how much our Executive Directors are earning and
how this is strongly linked to performance. As always, I welcome
any comments you may have.
Charles Gurassa
Remuneration Committee Chairman
19 November 2012
easyJet plc
Annual report and accounts 2012
50
Charles Gurassa
Non Executive Deputy Chairman
andSeniorIndependent Director