Holiday Inn 2005 Annual Report Download - page 28

Individual performance is measured through an assessment of
comprehensive business unit deliverables, demonstrated leadership
behaviours, modelling the Group values and the achievement of
specific Key Performance Objectives. At the executive level, Key
Performance Objectives are linked directly to the Group’s strategic
priorities. At a minimum, the individual performance of the
Executive Directors is assessed on an annual basis.
The normal policy for Executive Directors is that, using ‘target’ or
‘expected value’ calculations, their performance-related incentives
will equate to approximately 70% of total annual remuneration
(excluding benefits).
The main components of remuneration are:
Basic salary The salary for each Executive Director is based on
individual performance and on information from independent
professional sources on the salary levels for similar jobs in groups
of comparable companies. Internal relativities and salary levels in
the wider employment market are also taken into account.
In addition, benefits are provided to Executive Directors in
accordance with the policy applying to other executives in their
geographic location.
Annual performance bonus Within both the Short Term Incentive
Plan and the Short Term Deferred Incentive Plan, challenging
performance goals are set and these must be achieved before
the maximum bonus becomes payable. The Short Term Incentive
Plan is linked to personal objectives and the Short Term Deferred
Incentive Plan is linked to the Group’s financial performance.
For Executive Directors, the maximum bonus opportunity under the
Short Term Incentive Plan in 2006 is 80% of salary and is payable
in cash. The maximum bonus opportunity under the Short Term
Deferred Incentive Plan in 2006 is 100% of salary, with 50% linked
to adjusted earnings per share and 50% to earnings before special
items, interest and taxation. The performance level required to
trigger maximum bonus is 110% of budget for both measures.
This bonus will normally be paid in IHG PLC shares and deferred.
Matching shares may also be awarded up to 0.5 times the
deferred amount. Such awards are conditional on the Directors’
continued employment with the Group until the release date.
The shares will normally be released at the end of the three years
following deferral.
The Executive Directors will be expected to hold all shares earned
from the Group’s remuneration plans while the value of their
holding is less than twice their basic salary or three times in the
case of the Chief Executive.
Bonuses are not pensionable.
Executive share options Following a full review of incentive
arrangements, the Committee has concluded that share options
are not the most effective incentive for the foreseeable future and
therefore no further grants of options will be made. However, the
Committee believes that share ownership by Executive Directors
and senior executives strengthens the link between the individual’s
personal interest and that of the shareholders.
For options granted in 2005, the Company’s adjusted earnings per
share over the three-year period ending 31 December 2007 must
increase by at least nine percentage points over the increase in the
UK Retail Prices Index (RPI) for the same period for one-third of the
options granted to vest; 12 percentage points over the increase in RPI
for the same period for two-thirds of the options granted to vest; and
15 percentage points over the increase in RPI for the same period for
the full award to vest. The options lapse if the performance condition
is not met. This remains a realistic but challenging condition in the
current economic climate. The achievement or otherwise of the
performance condition is assessed, based on the Group’s published
results; such assessment is then reviewed by the external auditor.
Executive Directors were granted options on 4 April 2005 as shown
in the table on page 32.
Executive share options are not pensionable.
Executive Directors are entitled to participate in all-employee share
plans. Options granted under the IHG Sharesave Plan are not
subject to performance conditions and are not pensionable.
Performance restricted shares The Performance Restricted
Share Plan allows Executive Directors and eligible employees to
receive share awards, subject to the satisfaction of a performance
condition, set by the Committee, which is normally measured
over a three-year period. Awards are normally made annually and,
except in exceptional circumstances, will not exceed three times
annual salary for Executive Directors. In determining the level
of awards within this maximum limit, the Committee takes into
account the level of executive share options granted to the same
person. The grant of awards is restricted so that in each year the
aggregate of (i) 20% of the market value of the executive share
options and (ii) 33% of the market value of performance restricted
shares, will not exceed 130% of annual salary, taking the market
value in each case as at the date of grant.
For the 2005/07 cycle, performance will be measured by
reference to:
• the increase in IHG PLC Total Shareholder Return (TSR) over
the performance period relative to 10 identified comparator
companies: Accor, De Vere, Hilton Group, Hilton Hotels Corp.,
Host Marriott, Marriott Hotels, Millennium & Copthorne,
NH Hotels, Sol Melia and Starwood Hotels; and
• the cumulative annual growth (CAGR) in the number of rooms
within the IHG system over the performance period relative
to nine identified comparator companies:
Carlson Hospitality Worldwide, Cendant, Choice,
Hilton Group, Hilton Hotels Corp., Hyatt Hotels & Resorts,
Marriott Hotels, Sol Melia and Starwood Hotels.
In respect of TSR performance, 10% of the award will be released for
the achievement of sixth place within the TSR group and 50% of the
award will be released for the achievement of first or second place.
In respect of rooms CAGR performance, 10% of the award will be
released for the achievement of median growth and 50% of the
award will be released for the achievement of upper quartile growth.
Vesting between all stated points will be on a straight line basis.
remuneration report
26 InterContinental Hotels Group 2005