Holiday Inn 2007 Annual Report Download - page 39

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THE BOARD, SENIOR
MANAGEMENT AND
THEIR RESPONSIBILITIES
Remuneration report 37
THE BOARD, SENIOR
MANAGEMENT AND
THEIR RESPONSIBILITIES
2.3 Main components
The components of overall reward place a strong emphasis
on performance-related reward. The individual elements 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 and benefits).
A summary of the fixed and variable elements of executive
remuneration is shown below:
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 analyses those 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.
Annual bonus
During 2007, and in previous years, the annual performance
bonus consisted of two elements, the Short Term Incentive Plan
(STI) and the Short Term Deferred Incentive Plan (STDIP). Both
elements required the achievement of challenging performance
goals before target bonus is payable.
Any bonus for 2007 earned under the STI arrangement is payable
in cash in 2008, based on individual performance relative to
personal objectives and leadership competencies.
100% of any bonus earned under the STDIP for 2007 is payable in
2008 in shares and deferred on a mandatory basis. Participants
could also receive matching shares up to half of the total deferred
amount. This matching award was taken into account when the
Committee decided 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.
For awards to be made in respect of financial year 2008 onwards,
the STI and STDIP will be combined, so that all Executive
Directors will participate in the Annual Bonus Plan. Cash bonuses
will no longer be payable under the STI. Existing powers within
the STDIP, renamed the Annual Bonus Plan, will be used to pay
both cash and share bonuses. The maximum bonus amount a
participant can receive in any one year is 200% of salary. The
target award level will be 115% of salary. Half of any bonus earned
will be deferred in the form of shares for three years. Matching
shares will no longer be awarded. The first cash and share awards
will be made under the new arrangements in 2009, in respect of
the 2008 financial year.
A summary of the way in which the new bonus arrangements
work is shown below:
Annual
Bonus
Plan
50%
Deferred
Shares
50%
Cash
EBIT
(50%)
Rooms Growth
(20%)
Individual
(30%)
Target 115%
Maximum 200%
Structure
Performance
measures
Key
EBIT = Earnings
before interest
and tax
Fixed (approx 30%)
Key
TSR = Total shareholder return
EPS = Earnings per share
Base salary
Variable (approx 70%)
Long-term
incentive
Long Term
Incentive Plan
(
Performance Shares
)
Linked to individual
performance, financial
and operational
measures
Linked to relative
TSR
(
50%
)
and
adjusted EPS
growth
(
50%
)
Annual Bonus Plan
(
Cash and
Deferred Shares
)
Short-term
incentive