Holiday Inn 2006 Annual Report Download - page 34

3.2 The main components
The Group has performance-related reward policies. These are
designed to provide the appropriate balance between fixed
remuneration and variable ‘risk’ reward, which is linked to the
performance of both the Group and the individual. Group
performance-related measures are chosen carefully to ensure
a strong link between reward and true underlying financial
performance, and emphasis is placed on particular areas requiring
executive focus.
The normal policy for all Executive Directors is that, using ‘target’
or ‘expected value’ calculations, their performance-related
incentives will equate to approximately 70% of total annual
remuneration (excluding pensions & benefits).
The main components of remuneration are as follows:
Base salary and benefits The salary for each Executive Director
is reviewed annually and based on both individual performance
and on the most recent relevant market information provided from
independent professional sources on comparable salary levels.
Internal relativities and salary levels in the wider employment
market are also taken into account.
Base salary is the only element of remuneration which is
pensionable.
In addition, benefits are provided to Executive Directors in
accordance with the policy applying to other executives in their
geographic location.
In assessing levels of pay and benefits, IHG compares the packages
offered by different groups of comparator companies. These groups
are chosen having regard to participants’:
• size – turnover, profits and the number of people employed;
• diversity and complexity of businesses;
• geographical spread of businesses; and
• relevance to the hotel industry.
*Using target or expected value calculations.
Base salary Short-term
incentive
Long-term
incentive
Annual bonus
plus deferred
shares (STDIP)
Performance
restricted
shares (PRSP)
Performance based
approx. 70%*
Fixed
approx. 30%*
Annual performance bonus This has two elements – the Short
Term Incentive Plan (STI) and the Short Term Deferred Incentive
Plan (STDIP). Both elements require the achievement of
challenging performance goals before target bonus is payable.
The STI is linked to individual performance as measured by an
assessment of comprehensive business unit deliverables,
demonstrated leadership behaviours, and the achievement of
specific Key Performance Objectives that are linked directly to
the Group’s strategic priorities. For Executive Directors, the
target bonus opportunity under the STI in 2007 is 40% of salary,
payable in cash.
The STDIP is linked to the Group’s financial and operational
performance. The target bonus opportunity under the STDIP in
2007 is 50% of salary of which half is linked to net annual room
additions and half is linked to earnings before special items,
interest and taxation.
It is possible for participants to earn maximum bonuses of double
the targets under the STI and the STDIP. No bonus is payable if
financial and operational performance is less than 90% of target
and maximum bonus is payable if performance exceeds 110%
of target.
Under the 2006 STDIP, 80% of bonus must be paid in shares and
deferred. Participants may defer the remaining 20% of bonus on
the same terms. For 2007, 100% of the bonus will be paid in shares
and deferred. Matching shares may also be awarded up to half the
total deferred amount. Any matching award is taken into account
when the Committee decides the basic level of payment under the
STDIP. Therefore there is no separate performance test governing
the vesting of matching awards. Such awards are, however,
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.
Performance restricted shares The Performance Restricted
Share Plan (PRSP) 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, other than in exceptional circumstances, will not
exceed three times annual salary for Executive Directors.
For the 2006/08 PRSP cycle, performance will be measured by
reference to:
• the increase in IHG’s Total Shareholder Return (TSR) over the
performance period relative to nine* identified comparator
companies: Accor, Hilton Hotels Corp., Choice, Marriott Hotels,
Millennium & Copthorne, NH Hotels, Sol Melia, Starwood
Hotels and Wyndham Worldwide; and
• the cumulative annual growth (CAGR) in the number of rooms
within the IHG system over the performance period relative to
eight identified comparator companies: Carlson Hospitality
Worldwide, Choice, Hilton Hotels Corp., Hyatt Hotels & Resorts,
Marriott Hotels, Sol Melia, Starwood Hotels and Wyndham
Worldwide.
*Following the delisting of De Vere Group Plc shares in September 2006.
Remuneration report
32 IHG Annual report and financial statements 2006