National Grid 2008 Annual Report Download - page 618

BOWNE INTEGRATED TYPESETTING SYSTEM
CRC: 10087
Name: NATIONAL GRID
Date: 17-JUN-2008 03:10:51.35Operator: BNY99999TPhone: [phone]Site: BOWNE OF NEW YORK
Y59930.SUB, DocName: EX-15.1, Doc: 16, Page: 93
Description: EXHIBIT 15.1
0/6289.00.00.00Y59930BNY
[E/O] EDGAR 2 *Y59930/289/6*
BOWNE INTEGRATED TYPESETTING SYSTEM
CRC: 10087
Name: NATIONAL GRID
Date: 17-JUN-2008 03:10:51.35Operator: BNY99999TPhone: [phone]Site: BOWNE OF NEW YORK
Y59930.SUB, DocName: EX-15.1, Doc: 16, Page: 93 Description: EXHIBIT 15.1
0/6289.00.00.00Y59930BNY
[E/O] EDGAR 2 *Y59930/289/6*
Table of Contents
Annual Report and Accounts 2007/08
101
It is currently intended to continue this policy in subsequent
years.
Executive Directors’ remuneration
Remuneration packages for Executive Directors consist of
the following elements:
Salary
Salaries are reviewed annually and targeted broadly at the
median position against the relevant market. In determining
the relevant market, the Remuneration Committee takes
account of the regulated nature of the majority of the
Company’s operating activities along with the size,
complexity and international scope of the business. For UK-
based and US-based Executive Directors, UK and US
markets are used respectively. In setting individual salary
levels, the Remuneration Committee takes into account
business performance, the individual’s performance and
experience in the role; and salary practices prevailing for
other employees in the Company.
Annual bonus including the Deferred Share Plan (DSP)
Annual bonuses are based on the achievement of a
combination of demanding Company, individual and, where
applicable, divisional targets. The principal measures of
Company performance are adjusted earnings per share
(EPS), see page 40 for further details; and cash flow. The
main divisional measures are operating profit and safety
targets. Financial targets (including safety targets where
applicable) represent 70% of the bonus. Individual targets,
representing 30% of the bonus, are set in relation to key
operating and strategic objectives. The Remuneration
Committee sets
total rewards should be set at levels that are competitive
in the relevant market. For UK-based Executive Directors,
the primary focus is placed on companies ranked (in terms
of market capitalisation) 11-40 in the FTSE 100. This peer
group is therefore weighted towards companies smaller
than National Grid and positioning the package slightly
below median against this group is considered to be
appropriate for a large, international but predominately
regulated business. For US-based Executive Directors,
the primary focus is placed on US utility companies;
a significant proportion of the Executive Directors’ total
reward should be performance based. Performance based
incentives will be earned through the achievement of
demanding targets for short-term business and individual
performance as well as long-term shareholder value
creation, consistent with our Framework for Responsible
Business which can be found at:
www.national
g
rid.com/corporate/About+Us/Corporate
Governance/Other;
for higher levels of performance, rewards should be
substantial but not excessive; and
incentive plans, performance measures and targets
should be stretching and aligned as closely as possible
with shareholders’ interests.
salary;
annual bonus includin
g
the Deferred Share Plan;
long-term incentive, the Performance Share Plan;
all-employee share plans;
pension contributions; and
non-cash benefits.
targets at the start of the year and reviews performance
against those targets at year end. The Remuneration
Committee may use its discretion to reduce payments to
take account of significant safety or service standard
incidents; or to increase them in the event of exceptional
value creation. The Remuneration Committee has discretion
to consider environmental, social and governance issues
when determinin
g
payments to Executive Directors.
Performance against Company and divisional financial
targets for this year is shown in the table below:
In 2007/08, the maximum annual bonus opportunity for
Executive Directors was 150% of base salary, with 40% of
the bonus (60% of salary) being paid for target performance.
One half of any bonus earned is automatically deferred into
National Grid shares (ADSs for US-based Executive
Directors) through the DSP. The shares are held in trust for
three years before release. During this time, they are not
owned by the Executive Directors and, therefore, no
dividends are paid. The Remuneration Committee may, at
the time of release of the shares, use its discretion to pay a
cash amount equivalent to the value of the dividends that
would have accumulated on the deferred shares. For the
2007/08 bonus and onwards, the deferred shares may be
forfeited if the Executive Director ceases employment during
the three year holding period as a ‘bad leaver’, for example,
resignation. The newly introduced forfeiture provision will
serve as a strong retention tool.
The Remuneration Committee believes that requiring
Executive Directors to invest a substantial amount of their
bonus in National Grid shares increases the proportion of
rewards linked to both short-term performance and longer-
term total shareholder returns. This practice also ensures
that Executive Directors share a significant level of personal
risk with the Company’s shareholders. Bonuses for UK-
based Executive Directors are not pensionable, but in line
with current US market practice, US-based Executive
Directors’ bonuses are pensionable.
Long-term incentive – Performance Share Plan (PSP)
Executive Directors and approximately 350 other senior
employees who have significant influence over the
Company’s ability to meet its strategic objectives, may
receive an award which will vest subject to the achievement
of performance conditions set by the Remuneration
Committee at the date of grant. The value of shares (ADSs
for US-based Executive Directors and relevant employees)
constituting an award (as a percentage of salary) varies by
grade and seniority subject to a maximum, for Executive
Directors, of 200% of salary. The provisions in the PSP rules
allow awards up to a maximum value of 250% of salary, in
order to provide a degree of flexibility for the future.
Level of performance achieved in 2007/08
as determined by the Remuneration Committee
Financial measures Company targets Divisional targets
Adjusted EPS Stretch
Cash flow Stretch
Operating profit Below threshold
(i),
between target
and
stretch (ii) and
at stretch
(
iii
)
(i) Electricity Distribution & Generation.
(ii) Transmission.
(iii) Gas Distribution and non-regulated businesses.