Holiday Inn 2004 Annual Report Download - page 32

Individual performance is measured through an assessment of
comprehensive business unit deliverables, demonstrated leadership
behaviours, modelling the Group values and the achievement
of specific Key Performance Objectives. At the executive level,
Key Performance Objectives are linked directly to the Group’s
strategic priorities. At a minimum, the individual performance
of the executive directors is assessed on an annual basis.
The normal policy for executive directors is that, using ‘target’ or
‘expected value’ calculations, their performance-related incentives
will equate to approximately 70% of total annual remuneration
(excluding benefits).
The main components of remuneration are:
Basic salary The salary for each executive director is based on
individual performance and on information from independent
professional sources on the salary levels for similar jobs in groups
of comparable companies. Internal relativities and salary levels in
the wider employment market are also taken into account.
In addition, benefits are provided to executive directors in
accordance with the policy applying to other executives in their
geographic location.
Annual performance bonus Within the Short Term Deferred
Incentive Plan, challenging performance goals are set and these
must be achieved before the maximum bonus becomes payable.
These goals include both personal objectives and targets linked
to the Group’s financial performance. For executive directors, the
maximum bonus opportunity is 100% of salary, with 30% linked to
personal objectives, 35% to adjusted earnings per share and 35%
to earnings before exceptional items, interest and taxation. The
bonus will normally be paid in IHG PLC shares and deferred.
Matching shares may also be awarded up to 0.5 times the
deferred amount. Such awards are conditional on the directors’
continued employment with the Group until the release date. The
shares will normally be released in equal amounts at the end of
each of the three years following deferral.
The executive directors will be expected to hold all shares earned
from the Group’s remuneration plans while the value of their
holding is less than twice their basic salary or three times in the
case of the Chief Executive.
Bonuses are not pensionable.
Executive share options The Committee believes that share
ownership by executive directors and senior executives
strengthens the link between the individual’s personal interest
and that of the shareholders. Grants of options are normally made
annually and, except in exceptional circumstances, will not, in any
year, exceed three times annual salary for executive directors.
A performance condition has to be met before options can be
exercised. The performance condition is set by the Committee.
For options granted in 2004, the Company’s adjusted earnings
per share over the three-year period ending 31 December 2006
must increase by at least nine percentage points over the
increase in the UK Retail Prices Index (RPI) for the same period
for one-third of the options granted to vest; 12 percentage points
over the increase in RPI for the same period for two-thirds of the
options granted to vest; and 15 percentage points over the
increase in RPI for the same period for the full award to vest.
The options lapse if the performance condition is not met. This
remains a realistic but challenging condition in the current economic
climate. The achievement or otherwise of the performance
condition is assessed, based on the Group’s published results;
such assessment is then reviewed by the external auditor.
Executive directors were granted options on 1 April 2004 as
shown in the table on page 35.
It is the current intention for similar performance conditions
to apply to options granted in 2005 and later years.
Executive share options are not pensionable.
Executive directors are entitled to participate in all-employee
share schemes. Options granted under the IHG Sharesave Plan
are not subject to performance conditions and are not pensionable.
Performance restricted shares The Performance Restricted Share
Plan allows executive directors and eligible employees to receive
share awards, subject to the satisfaction of a performance
condition, set by the Committee, which is normally measured over
a three-year period. Awards are normally made annually and,
except in exceptional circumstances, will not exceed three times
annual salary for executive directors. In determining the level of
awards within this maximum limit, the Committee takes into
account the level of executive share options granted to the same
person. The grant of awards is restricted so that in each year the
aggregate of (i) 20% of the market value of the executive share
options and (ii) 33% of the market value of performance restricted
shares, will not exceed 130% of annual salary, taking the market
value in each case as at the date of grant.
For the 2004/06 cycle, performance will be measured by
reference to:
• the increase in IHG PLC Total Shareholder Return (‘TSR’) over
the performance period relative to 10 identified comparator
companies; Accor, De Vere, Hilton Group, Hilton Hotels Corp.,
Host Marriott, Marriott Hotels, Millennium & Copthorne, NH Hotels,
Sol Melia and Starwood Hotels; and
• the increase in IHG Return On Capital Employed (‘ROCE’) over
the performance period.
In respect of TSR performance, 10% of the award will be released
for the achievement of 6th place within the TSR group and 50%
of the award will be released for the achievement of 1st or 2nd
place. In respect of ROCE performance, 10% of the award will
be released for the achievement of 70% growth and 50% of the
award will be released for the achievement of 141.6% growth.
Vesting between all stated points will be on a straight line basis.
The awards lapse if the performance conditions are not met.
Remuneration report
30 InterContinental Hotels Group 2004