Lenovo 2012 Annual Report Download - page 66

2011/12 Annual Report Lenovo Group Limited
64
COMPENSATION COMMITTEE REPORT
Fixed Compensation
Fixed compensation includes base salary, allowances and
benefits-in-kind (e.g. medical, dental and life insurance,
etc.). Base salary and allowances are set and reviewed
annually for each position, reflecting competitive market
positioning for comparable positions, market practices,
as well as the Company’s performance and individual
contribution to the business. Allowances are provided
to facilitate temporary and permanent staff relocations.
Benefits-in-kind are reviewed regularly taking into
consideration relevant industry and local market practices.
Performance Bonus
The Chairman/CEO and senior management are eligible
to receive performance bonuses. The amounts paid
under the plan are based on the performance of the
Company, its subsidiaries, relevant performance groups
and/or geographies as appropriate, as well as individual
performance.
Long-Term Incentive Program
The Company operates a LTI Program which was adopted
by the Company on May 26, 2005. The purpose of the LTI
Program is to attract, retain, reward and motivate executive
and non-executive directors, senior management and
selected top-performing employees of the Company and its
subsidiaries.
Under the LTI Program, the Company maintains three
types of equity-based compensation vehicles: (i) share
appreciation rights, (ii) restricted share units, and (iii)
performance-based share units. These vehicles are
described in more detail below.
(i) Share Appreciation Rights (“SARs”)
SARs entitle the holder to receive the appreciation
in value of the Company’s share price above a
predetermined level. SARs are typically subject to a
vesting schedule of up to four years.
(ii) Restricted Share Units (“RSUs”)
RSUs are equivalent to the value of one ordinary share
of the Company. Once vested, RSUs are converted
to an ordinary share, or its cash equivalent. RSUs are
typically subject to a vesting schedule of up to four
years. Dividends are typically not paid on RSUs.
(iii) Performance Based Share Units
The Company has three performance based share unit
plans, namely, the 2005 Performance Share Unit (PSU)
plan, the 2007 Performance RSU plan and the 2008
Performance RSU plan.
The 2005 PSU plan was discontinued in 2006;
however, the Company continues to honor grants
previously awarded. All outstanding awards were
vested on May 1, 2008. The 2007 and 2008
Performance RSU plans have also been discontinued;
similarly, the Company continues to honor grants
previously awarded. All outstanding awards were
vested by June 1, 2012.
The Company reserves the right to pay any awards
under the LTI Program in cash or in ordinary shares at its
discretion. The Company has created and funded a trust
to pay shares to eligible recipients. In the case of SARs,
awards are due after exercise by the recipient. In the case
of RSUs, awards are due after the employee satisfies any
vesting conditions.
The number of units that are awarded under the LTI
Program is set and reviewed annually, reflecting competitive
market positioning, market practices, especially those
among Lenovo’s competitors, as well as the Company’s
performance and each individual’s actual and expected
contribution to the business. In certain circumstances,
awards under the LTI Program may be made to support the
attraction of new hires. Award levels and mix may vary by
individual.
Prior to the adoption of LTI Program in 2005, the Company
granted its employees, including directors and senior
management, share options. No further options have been
granted since 2004. Details of the Share Option Plan are
set out in the Directors’ Report on pages 93 to 94.
Retirement Benefits
The Company operates a number of retirement schemes
for its employees, including Executive Directors and senior
management. These schemes are reviewed regularly and
are intended to deliver benefit levels that are consistent with
local market practices. Details of the programs are set out
in the Directors’ Report on pages 95 to 98.