Aer Lingus 2012 Annual Report Download - page 55

REPORT OF THE REMUNERATION COMMITTEE ON DIRECTORS’ REMUNERATION Aer Lingus Group Plc
ANNUAL REPORT 2012
53
2011 Transformational Performance Scheme
The Transformational Performance Scheme was referenced and described in
detail in the Remuneration Reports of the 2010 and 2011 Annual Reports.
It was a special short-term bonus opportunity to support the Company’s
turnaround with performance criteria based upon the achievement of
a stretching 2011 in-year Greenfield Cost Reduction Programme target.
The scheme is applicable to the Chief Financial Officer and other senior
managers. As disclosed in the 2011 report, the bonuses were earned in
2011 but payment was deferred. The deferred bonuses earned under this
scheme were paid in October 2012. No further awards will be made under
this scheme.
2013 Performance Related Bonuses
The structure of the 2013 performance related pay scheme is broadly
unchanged from that which applied in 2012. In 2013, the Group will
continue to focus its Executive Directors and senior managers on the
sustainable performance and health of the Group with annual performance
related bonus opportunities. The continued emphasis on individual targets
allows the Company to take account of the subtlety and complexity of the
work undertaken at this level and to focus participants on the right financial
and strategic outcomes.
Employee Gain-Sharing Incentive
In 2009, a provision was made for employee gain-sharing incentives for the
Greenfield Cost Reduction Program. 3,700 of the Group’s employees are
eligible to participate. Executive Director s and senior management are not
eligible to participate in these gain-sharing incentives. The funding for the
gain-sharing incentives was contingent on a minimum level of profitability
in a given fiscal year and the achievement of the Greenfield Cost Reduction
Program targets. Both the required minimum level of profitability and the
Greenfield Cost Reduction Program targets were achieved in 2012 and
therefore a sum of €6.25 million is payable to employees under these
arrangements.
Long Term Incentive Plan
Conditional awards of shares are granted to Executive Directors and
senior managers under the Company’s LTIP. The LTIP is a share based
long-term performance award scheme which provides for the vesting of
shares subject to the achievement of minimum performance objectives,
as specified by the Remuneration Committee. In order to promote the
long term sustainability of the Company, the performance conditions are
measured over a three-year period and are linked to the Company’s long
term value creation.
As part of a review of the Company’s executive remuneration strategy, in
2010 the Remuneration Committee modified the performance objectives
for LTIP awards. The 2010, 2011 and 2012 performance conditions consist
of Total Shareholder Return (TSR) measured 50% against a comparator
group of European airlines and 50% against the companies in the ISEQ
General Index. TSR measures the change in value for shareholders arising
from changes in the Company’s share price plus the returns that would
arise for shareholders if dividends were reinvested in the Company’s shares
on the relevant ex-dividend date, net of corporation tax but before income
tax. The following financial underpin also applies: positive cumulative
EBITDAR (before exceptional items as determined by the Remuneration
Committee) of at least €100 million during the performance period and
positive EBITDAR as shown in the Company’s financial accounts in the final
year of the performance period (before exceptional items as determined by
the Remuneration Committee).
The maximum award under the rules of the LTIP is 150% of base salary.
Under the rules of the scheme the maximum number of shares that can vest
is set at 125% of the shares which are the subject of the award , for superior
performance. However for the awards made in 2012, the Remuneration
Committee determined that the maximum number of shares that will be
capable of vesting will be reduced to 100% of the awards. Awards under the
LTIP can be made on an annual basis at the discretion of the Remuneration
Committee. There is no requirement in the LTIP for shares to be held for
a period following vesting.
Following a determination by the Remuneration Committee, the 2010 LTIP
award (covering the performance period 1 January 2010 to 31 December
2012) vested on 6 February 2013 at 108% of the shares which were the
subject of the award, based on superior performance. This is the first
award that has vested under the scheme since its introduction in 2007 and
reflects the significant transformation that has been achieved since 2009.
Measuring Total Shareholder Return (TSR) over the performance period,
Aer Lingus ranked second of 10 companies in the comparator group of
European airlines and sixth of 38 in the comparator group of companies
in the ISEQ General Index. The other companies in the comparator group
of European airlines were: Easyjet, Ryanair Holdings, Deutsche Lufthansa,
British Airways / International Airlines Group, Finnair, Air France / KLM,
Vueling Airlines, Air Berlin and SAS. On 6 February 2013, 486,717 shares
vested to the Chief Executive Officer and 440,607 shares vested to the
Chief Financial Officer in respect of the 2010 LTIP award.
In 2012, awards were made to the Chief Executive Officer and Chief
Financial Officer of face value of 99% of their basic salaries.
Information regarding LTIP awards to Executive Directors is set out in Table
2.4 on page 57.
It is envisaged that awards under the LTIP will be made in 2013 broadly on
the same basis as was done in 2012. A review of the scheme commenced
in 2012 and is ongoing in 2013. It is expected that the existing scheme will
be replaced by a new Long Term Incentive Scheme to be operative from
2014 onwards.
Report of the Remuneration Committee on Directors’ Remuneration
Unaudited information