EasyJet 2012 Annual Report Download - page 58

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Governance
Directors’ remuneration report
continued
Targets for the financial year ending 30 September 2013 will be
subject to the same metrics but the Remuneration Committee
has made the threshold performance target tougher relative to
budget and reduced the proportion of the total bonus that is
earned at this level of performance.
The safety of our customers and people underpins all of the
operational activities of the Group and the bonus plan includes an
underpin that enables the Remuneration Committee to scale back
the bonus earned in the event that there is a safety event that
occurs that it considers warrants the use of such discretion.
How does the Long Term Incentive Plan work?
The LTIP provides for annual awards of performance shares and
matching shares subject to three year performance.
The annual award limit for performance shares is 200% of salary.
In the year ending 30 September 2013 the intention is to grant
awards of 200% of salary to the CEO and 150% of salary to the
CFO (previously 200% of salary). The reduced award to the
CFO reflects a policy to ensure full alignment of incentives for
the senior executives following the remuneration review.
Matching share awards are linked to the investment of any
voluntary amount deferred by the Executive Directors under the
annual bonus plan (up to 50% of annual bonus earned for the
CEO and 33% for the CFO). The investment is made into easyJet
shares, which are then matched on a 1:1 pre-tax basis.
2013 awards
For 2013 awards onwards, performance and matching
share awards are earned three years after grant, subject to
continued employment and the satisfaction of the following
performance conditions:
→50% ROCE (including operating leases adjustment)
→50% relative TSR
The introduction of relative TSR reflects feedback received from
shareholders around the time of last year’s AGM to consider the
use of more than one performance measure, and will provide a
balance between incentivising improved financial performance
and creating market-leading returns for shareholders.
ROCE (including operating leases adjustment) targets
ROCE targets for 2013 grants have been reviewed against the
Company’s three year business plan.
Following extensive shareholder consultation and feedback,
going forward, operating leases will be included in the
ROCE calculation.
ROCE is calculated based on normalised profit after tax, adjusted
for implied interest on operating lease costs, divided by the
average net debt, plus average shareholders’ equity, plus an
adjustment to capitalise operating leases at seven times the
annual lease rental, in line with market practice.
In addition, three year average ROCE will be assessed to ensure
sustainable performance over the whole period (for 2013
awards performance will be assessed for the financial years
ending 30 September 2013, 30 September 2014 and
30 September 2015).
Subsequent to this review, the appropriateness of the level of
ROCE targets for 2013 awards was considered. After careful
thought, the following ranges are to apply:
ROCE Vesting % (of ROCE part of award)
Below 12% 0%
12% 25%
16% 100%
Straight-line vesting between performance points.
Following the review, the ROCE targets were set against a
background of the excellent progress made by the management
team, the business plan and market expectations.
The increased ROCE targets represent an incentive for
significantly improved performance.
Relative TSR targets
The TSR performance condition will assess the relative TSR
performance of the Company against a comparator group
comprised of those UK listed companies ranked in the positions
FTSE 51–150 at the date of grant, on the basis that they are
broadly of a similar size. The following performance schedule
will apply:
Threshold
(25% vesting)
Maximum
(100% vesting)
Relative TSR
performance
Median
performance
Upper quartile
performance
Awards will vest on a straight-line basis between these points.
In order for the TSR element of the awards to be earned, there will
be an additional requirement that the Company must achieve
positive absolute TSR performance over the performance period.
Employee share plan participation
easyJet encourages share ownership throughout the Company
by the use of Performance (Free) Shares within a Share Incentive
Plan and a Sharesave Plan. Take up of the schemes remains high
with over 85% of eligible staff now participating in one or more of
the plans. Executive Directors may also participate in these plans
on the same terms as other eligible staff. They are summarised in
the Corporate Responsibility section on page 34.
During the review, the ROCE targets were reviewed in light of the
excellent progress made by the management team, the business
plan and market expectations.
Employee Share Plans
%
Share plan participants
Other employees
85
15
easyJet plc
Annual report and accounts 2012
56