Barclays 2007 Annual Report Download - page 149

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Governance
Barclays PLC Annual Report 2007 147
Annual Bonus and ESAS
The maximum bonus opportunity for executive Directors is tailored to the
relevant market; this is typically 250% of base salary. The annual bonus is
based on a qualitative and quantitative assessment of performance
(including EP and PBT results) with the quantitative assessment
comprising the majority. EP and PBT are considered to be good measures
of value creation for shareholders.
ESAS is a deferred share award plan which operates in conjunction with
the annual Barclays Group cash bonus plans (and various other cash
long-term incentive plans operated by Barclays Group companies).
Currently, for executive Directors, typically 75% of the annual bonus is
delivered as cash. A recommendation may be made to the ESAS
trustee that the remaining 25% is delivered as an award under ESAS
(‘Mandatory ESAS award’).
In addition, executive Directors may request that any cash bonus, to which
they may have otherwise become entitled, be granted as an additional
award under ESAS (‘Voluntary ESAS award’).
Both Mandatory and Voluntary ESAS awards will normally include
additional shares called bonus shares with a value of up to 30% of the
bonus amount awarded in shares. The ESAS trustee may apply dividends
it receives on shares held in trust in purchasing additional Barclays shares
which may also be released to participants.
A Mandatory ESAS award is a provisional allocation of Barclays shares
which does not give rise to any right or interest in those shares. Normally,
under a Mandatory ESAS award, the ESAS trustee grants participants the
right to call for the shares plus two-thirds of any bonus shares, in the form
of a nil-cost option following the third anniversary of the award date. If this
right is not exercised, the ESAS trustee may, following the fifth anniversary,
release all the Barclays shares including all bonus shares and dividend
shares to the participant.
Awards under Voluntary ESAS are granted in the form of a nil-cost option
which is a right to acquire Barclays shares which will become fully
exercisable after five years.
Neither the exercise of nil-cost options granted under Mandatory or
Voluntary ESAS nor the release of Barclays shares under award is subject
to performance conditions. As ESAS is a deferred share award plan, it
would not be appropriate to attach a performance condition to options
or awards.
If an executive ceases to be employed he may forfeit his award depending
on why he leaves.
PSP
The PSP was approved by shareholders at the 2005 AGM and replaced the
ISOP as the main performance linked share incentive plan. PSP awards to
date have been granted in the form of provisional allocations of Barclays
shares which do not give a participant any right to acquire, or an interest in,
shares until such time as the PSP trustee decides to release the shares to
the participant (i.e. when the PSP awards vest). Participants do not pay
to receive an award or to receive a release of shares. Performance share
awards are communicated to participants as an initial allocation. Normally,
the maximum expected value of an award at the date of grant will be the
higher of 150% of base salary or 75% of base salary and target bonus.
‘Expected value’ is a single value for the award at grant which takes account
of the various possible performance and vesting outcomes, although it is
Barclays performance over a three-year period which determines the final
number of shares that may be released to participants. Dividend shares
may also be released in respect of the vested shares.
Awards normally vest on the third anniversary of the date of grant, if and
to the extent that the performance conditions are satisfied. Note that:
– relative TSR and EP are both considered to be good measures of value
creation to shareholders;
– before any shares are released, Barclays cumulative EP over the
performance period must normally be greater than the total for the
previous three-year period;
– for PSP awards made in 2005, the award depended on Barclays TSR
relative to a peer group of 11 other international banks. These awards are
due to lapse in 2008 as the TSR performance condition was not satisfied;
– the performance conditions for PSP awards made in 2006 and 2007
will be measured over the three-year performance period (2006 to
2008 and 2007 to 2009 respectively);
– for PSP awards made in 2006 and 2007, 50% of the award depends on
Barclays EP and 50% of the award depends on Barclays TSR relative to a
peer group of 11 other international banks;
– for awards made in 2005, 2006 and 2007 in relation to the TSR
element of the award, there is no vesting unless Barclays is ranked
above median on relative TSR.
The peer group for the TSR element of the 2007 award, as for the 2006
award, isa:
UK Mainland Europe US
HBOS Banco Santander bCitigroup
HSBC BBVA JP Morgan Chase
Lloyds TSB BNP Paribas
Royal Bank of Scotland Deutsche Bank
UBS
The performance scales for the TSR and EP elements of the 2007 award
are as shown in the two charts below:
Notes
aThe reserve companies for the 2006 and 2007 awards are UniCredit, Morgan Stanley,
Bank of America and Wachovia.
bThe Committee has approved the substitution of Banco Santander for ABN AMRO in
the TSR peer group for awards granted under the PSP in 2005, 2006 and 2007, in
accordance with the Committee’s agreed peer group adjustment principles.
This adjustment was made in anticipation of the takeover of ABN AMRO.
Following a review of the peer group reserve banks, it was decided that Banco
Santander was the most suitable substitute based on both competitive position relative
to Barclays and similarity to ABN AMRO.
Award Multiple
8th 7th 6th 5th 4th 3rd 2nd 1st
1.0
1.25
1.5
2.5
PSP 2007: Total Shareholder Return Performance Scale
2.0
3.0
Barclays TSR ranking in the peer group
Number of shares that vest
(as a % of maximum)
33%
42%
50%
83%
67%
100%
PSP 2007: EP Performance Scale
Cumulative 2007-2009 EP (£m)
7,400 7,800 8,200 8,600
Award Multiple
1.0
3.0
2.0
2.5
1.5
1.25