Barclays 2006 Annual Report Download - page 135

Barclays PLC
Annual Report 2006 131
Governance
2
Potential
Effective compensation
date of Notice for loss
Directors(a) contract period of office
Matthew W 1 year’s contractual
Barrett(b)(c) 1st Sept 2004 1 year remuneration(d)
John Varley 1st Sept 2004 1 year "
Robert E
Diamond Jr 1st Jun 2005 1 year "
Gary Hoffman 1st Jan 2004 1 year "
Naguib Kheraj 1st Jan 2004 1 year "
David Roberts(b) 1st Jan 2004 1 year "
Frits Seegers(b) 7th Jun 2006 1 year "
Barclays Capital, BGI and Barclays Wealth
The Committee has established frameworks for the governance
of remuneration in these businesses. Ranges have been set for
key financial and compensation ratios such as operating margin,
operating costs to net revenue, compensation to pre-compensation
profit before tax and bonus expenditure as a percentage of pre-bonus
profits. The Committee approves aggregate bonus and long-term
incentive expenditure, and strategic investment for new hires. The
Committee also approves individual compensation for the members of
the management teams, and any employee with total compensation in
excess of £750,000.
The BGI EOP
BGI is Barclays asset management business headquartered in San
Francisco. The BGI EOP was approved by shareholders at Barclays 2000
AGM to provide the employee share incentive arrangements required to
recruit and retain the quality of senior management and investment
talent appropriate for building a global investment management
business. The BGI EOP was designed to provide participants with a long-
term equity interest in BGI to meet the expectations of, in particular,
BGI’s key investment talent in the United States, who could expect to
participate in the equity of their employer. Under the terms of the BGI
EOP, options are granted at fair value to key BGI employees over shares in
Barclays Global Investors UK Holdings Limited (BGI Holdings) within an
overall cap of 20% of the issued ordinary share capital of BGI Holdings.
All grants of options are approved by the Committee. The Committee is
also advised of option exercises and share sales by employees. Directors
of Barclays PLC are not eligible to receive options under the BGI EOP.
In summary the BGI EOP operates as follows:
•Certain key BGI employees are granted options over shares in
BGI Holdings.
•The option exercise price is based on the fair value of a BGI Holdings
share at the date of grant determined by an independent appraiser.
•The options generally vest evenly over a three-year period and can
be exercised in two annual exercise windows.
•Option holders are required to fund the exercise without any
financial support from any member of the Barclays Group.
Once employees become shareholders, they are subject to the Articles
of BGI Holdings under which:
•Shareholders are required to hold the shares for a minimum of 355
days. As shareholders, employees derive the full risks and rewards of
ownership, including voting rights and entitlement to any ordinary
dividends paid by BGI Holdings.
•On expiry of the minimum holding period, shareholders may, but are
not obliged to, offer their shares for sale during two annual sales
windows.
•Barclays Bank PLC, at its discretion, has a right to purchase shares so
offered, but is not obliged to do so.
The table below contains information of the number of shares in BGI
Holdings over which options were granted, outstanding and exercised
in 2005 and 2006:
Number Number
granted outstanding Number
during year at year end exercised
Year (000s) (000s) (000s)
2005 2,360 5,442 4,368
2006 3,973 6,929 2,188
In 2006 BGI employees exercised options over 2.2m (2005: 4.4m)
shares for consideration of £44m (2005: £49m); Barclays Bank PLC
purchased 4.9m (2005: 3.4m) shares offered for sale by shareholders
for consideration of £410m (2005: £160m). As at 31st December 2006,
employees own 9.4% of BGI Holdings (2005: 12.1%).
BGI EOP – Accounting and disclosure
The BGI EOP is accounted for as an equity settled share-based payment
in accordance with IFRS 2 ‘Share-based Payment’. The fair value of the
services received from the employees is measured by reference to the
fair value of the share options granted on the date of the grant. The cost
of the employee services received in respect of the share options
granted is recognised in the income statement over the period that the
services are received. The cost for 2006 of £37.4m (2005: £14.9m,
2004: £10.5m) is included in staff costs in Note 8 to the accounts. In
accordance with IFRS 2, details of share options granted and exercised,
together with weighted average fair values at grant date and weighted
average exercise prices are set out in Note 51 to the accounts. In
accordance with IAS 33 ‘Earnings per Share’, unexercised options are
taken into account in the calculation of diluted earnings per share as
set out in Note 11 to the accounts.
For Group reporting, the exercise of options by employees is treated as
a deemed disposal of interests in a subsidiary, as its holding in the
subsidiary has been reduced for the consideration represented by the
exercise price. Any subsequent purchase of shares offered for sale by
employees is treated as a purchase of an additional investment in a
subsidiary entity. The cash flows relating to these capital transactions are
included in the Consolidated cash flow statement and disclosed, along
with other disposals and acquisitions, in Notes 43 and 44 to the accounts
respectively and related movements in goodwill and minority interests
are included in Notes 23 and 38 to the accounts respectively.
Notes
(a) Details of executive Directors standing for re-election at the 2007 AGM are set out on page 116.
(b) Matthew W Barrett retired on 31st December 2006, David Roberts ceased to be a Director on 31st December 2006 and Frits Seegers was appointed as an executive
Director on 10th July 2006.
(c) There was no formal retirement date under Matthew W Barrett’s contract. However, his pension may not commence later than 20th September 2019 (age 75).
(d) One year’s contractual remuneration is calculated as follows: 12 months’ base salary, bonus, if eligible (being the average of the previous three years’ bonus awards, in
some cases (Gary Hoffman, Naguib Kheraj and David Roberts) capped at 100% of base salary), medical benefit (while an employee) and continuation of pension
benefits. Payments in the event of termination are subject to mitigation if alternative employment is found during any period of pay in lieu of notice.