Carphone Warehouse 2011 Annual Report Download - page 43

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Carphone Warehouse Group plc Annual Report 2011 39
GOVERNANCE
Also prior to the Demerger, Old Carphone
Warehouse introduced the TalkTalk VES,
in which certain Company directors
and other key management participate.
The scheme has a similar structure to
the Best Buy Europe VES, but is based
on the value of TalkTalk Group, with the
obligation to acquire the relevant shares
lying with TalkTalk Group. As with the
Best Buy Europe VES, the Group advanced
loans to participants to enable them
to purchase TalkTalk VES shares.
The terms of these loans are similar
to those of the Best Buy Europe VES.
Share options
Old Carphone Warehouse Group had a
market priced share option scheme for
executive directors and senior managers.
With the exception of share schemes which
lapsed due to the Demerger, all share
options were cancelled and replaced
with share options in the Company and
TalkTalk. Share option holders received
two share options in TalkTalk and one
share option in the Company for every
two share options previously held.
No share options have been issued
to executive directors by the Group,
as long-term variable benefits have been
provided through the Best Buy Europe VES.
Old Carphone Warehouse Group also had
nil priced share options. These options
were replaced at Demerger in the same
way as noted above. All such outstanding
options had vested prior to the Demerger
except for those granted by Old Carphone
Warehouse in December 2006. This
scheme was subject to TSR performance
targets measured against an initial
performance period to 4 June 2010. These
targets were not met and as such the
scheme lapsed.
Since the Demerger, nil priced and market
priced share options have been issued to
members of Group management who did
not participate in the Best Buy Europe VES.
The directors do not participate in these
schemes.
Share gift
In December 2008, shares were gifted by
the Old Carphone Warehouse Group’s
ESOT to certain senior employees within
Old Carphone Warehouse Group and
Best Buy Europe, including Nigel Langstaff
prior to his appointment as a director of
the Company. The shares were restricted
until 30 June 2010 and were conditional on
meeting various internal performance
conditions, principally in relation to
earnings and cash generation. Loans were
provided to cover the tax arising on this
gift; these loans were forgiven by the
Remuneration Committee subsequent to
the year-end.
Joint venture long-term incentive plans
The remuneration strategy of the Group
is also applied as far as possible within
Best Buy Europe and Virgin Mobile France.
Alongside short-term incentive plans,
Best Buy Europe has its own VES, which
vests in 2014. The scheme enables
participants to share in incremental
profits generated by Best Buy Europe over
a base defined in respect of the year to
3 April 2010.
Senior management of Best Buy Mobile
participate in a long-term incentive plan
which is based on incremental earnings
generated, in the same way as Best Buy
Europe’s profit share. The scheme vests
in annual instalments to February 2013.
Virgin Mobile France has issued market
and nil priced share options to certain
employees of the business. These options
vest over periods of two to four years.
Directors of the Company do not
participate in these joint venture schemes.
The value of the Best Buy Europe VES
pool is adjusted on vesting for any change
in the Company’s market capitalisation
since 6 April 2009, such that an increase
in the Company’s market capitalisation
increases the value of the pool. The
Company’s opening market capitalisation
for this purpose represents an allocation
of the market capitalisation of Old
Carphone Warehouse at that date, based
on the market capitalisations of the
Company and TalkTalk in the five days
following the Demerger. The Company
has an obligation to acquire these shares
if performance conditions are met, to
provide participants with the share of
value described above. It is intended that
the Company’s shares would be used as
consideration for this purpose.
Performance is measured over an initial
performance period to July 2013, at which
point participants have a put option over
60% of their shares, and a subsequent
performance period to July 2014, at which
point participants have a put option over
the remainder of their shares. On a change
of control, Best Buy Europe VES shares
may vest early if the relevant performance
conditions have been achieved. Loans are
ordinarily repayable in full if performance
conditions are met. If performance
conditions are not met or a participant
leaves the scheme before vesting, the Best
Buy Europe VES shares are transferred to
the Group for the lower of market value at
that date and the value of the participant’s
outstanding loan. However, if market value
at the date of transfer is lower than the
value of the loan, the participant will
ordinarily be required to repay only 20% of
the difference.