Summary remuneration report
Questions and answers
In this section, Charles Gurassa answers questions on how remuneration is managed at Whitbread.
Does Whitbread's Remuneration Committee fully meet the requirements of the Combined Code on Corporate Governance?
Yes, the membership of the Committee is compliant with the Combined Code.
The Combined Code (which is available at www.frc.org.uk) sets out the duties and powers which companies are expected to delegate to their remuneration committees. Whitbread's Committee has terms of reference (available at www.whitbread.co.uk or by requesting a copy in writing from the General Counsel's office) which set out its duties and powers and these terms of reference comply with the Combined Code.
The Committee met four times in 2008/09 and a summary of the issues considered at those meetings is available in the corporate governance report on page 9 of the Directors' Report and Accounts. The attendance of individual members of the Committee at meetings is shown on page 7 of the Directors' Report and Accounts.
Who provides advice to the Committee?
The Committee has appointed independent remuneration consultants Hewitt New Bridge Street and Towers Perrin to provide external advice. Internal advice is received from the Group Human Resources Director, Louise Smalley. Simon Barratt, General Counsel, acts as Secretary to the Committee.
The Whitbread Group receives advice on the implementation of the Committee's decisions and recommendations from Hewitt New Bridge Street, Towers Perrin and Slaughter and May. Neither Hewitt New Bridge Street or Towers Perrin provide other services to the Whitbread Group, although a different part of the Hewitt group provides services to the Company's pension fund. Slaughter and May provides legal services to the Whitbread Group.
TSR Graph - This is a graph showing the total shareholder return (with dividends reinvested) in the holdings of the Company's shares against a hypothetical holding of shares in the FTSE 100 Index over a five-year period. The FTSE 100 Index has been chosen because Whitbread has been a member of the index during this period.
What are the main principles of Whitbread's remuneration policy?
It is important that our senior executives have the skills, expertise, enthusiasm and drive to achieve the Group's objectives and to enhance shareholder value. Our job is to ensure that the overall remuneration package is sufficiently competitive to attract, retain and motivate executives with the necessary attributes.
We are determined to ensure that the interests of executives and shareholders are aligned and we recognise the importance of having a significant proportion of an executive's remuneration being linked to performance as well as the importance of the balance between short and long-term rewards.
How are base salaries determined?
We review base salaries on an annual basis and consider a number of factors, including market data. When awarding a base salary increase to an executive director, we take into account the personal performance of the director measured against agreed objectives as well as the trading circumstances across the whole Group. The Committee has decided to not award any salary increases to senior executives in 2009/10. The majority of Whitbread's employees will not receive a salary increase this year.
Are executives entitled to other benefits?
All executives are entitled to life assurance and private health cover. Non-core benefits, for which cash alternatives are available, are family health cover and a fully expensed company car.
What are the pension arrangements for executive directors?
The final salary section of the Whitbread Group Pension Fund was closed to new entrants, including directors, on 31 December 2001. New recruits since that date are offered the opportunity to participate in the defined contribution section of the scheme at a rate.
Our policy is to pay a company contribution of 25% of salary for executive directors, with these contributions being increased by a further 2.5% of salary after each of five and ten years' service. Executives are given the option of receiving a monthly amount in cash (less an amount equal to the employer's national insurance payable on the amount) instead of the company pension contribution.
Alan Parker opted out of the pension scheme on 31 May 2005 and
Christopher Rogers opted out of the defined contribution scheme on
31 March 2006. Patrick Dempsey participates in the defined
contribution scheme. Full details of the directors' pension
entitlements, including cash supplements, can be found on page 15
of the Directors' Report and Accounts.
What is the Leadership Group Incentive Scheme (LGIS)?
The LGIS, which was implemented in 2004/05, is a bonus scheme which applies to over 30 executives. The scheme is intended to provide a clear link between performance and reward in order to motivate key executives. It promotes alignment with shareholders by providing an emphasis on equity rewards and promotes retention by deferring a significant part of the awards.
So, how does the LGIS work?
At the beginning of each financial year profit targets are set for the Group and its businesses. Depending on the performance achieved during the year, awards of cash and deferred shares may be made at the end of the year. The cash element of the bonus is payable immediately. The deferred shares will normally be transferred into the executive's name three years after the award date as long as the executive remains employed by the Group during the three-year period.
The threshold, target and stretch bonus potential has been reduced for the 2009/10 financial year and the level of stretch above budget has been significantly increased. The levels of cash and deferred shares (expressed as percentages of base salaries) that can be awarded at different levels of performance will be as follows:
| Below threshold | Nil | |
|---|---|---|
| At threshold | 2% | cash |
| 4% | deferred shares | |
| On target | 20% | cash |
| 42% | deferred shares | |
| Stretch or above (maximum payable) |
53% | cash |
| 94% | deferred shares | |
A straight line will operate between the above levels of
performance. Threshold will be the minimum target at which awards
will be earned, targeted level of performance will be consistent
with budgeted performance and stretch will be significantly above
budget.
As well as the profit targets explained above the Group, together with each business, has a financial target. The failure to meet this target would result in the reduction of cash and deferred shares payable as outlined above being reduced by 25%.
Targets for future financial years will be determined by the Committee at, or near to, the beginning of each financial year.
The Committee assesses the profit results at the end of each financial year, as well as the performance of each executive director against pre-determined targets before agreeing the awards, which are then independently verified by Hewitt New Bridge Street.
Whitbread uses the WINcard to manage its businesses, but to what extent are executives incentivised based on WINcard measures?
Profit growth, a key WINcard measure, is the basis for awards made under the LGIS. Executives may also earn a maximum cash bonus of 20% of base salary for meeting other WINcard targets. These targets apply to all management throughout the Company. They are set at the beginning of the financial year and, for directors, they are reviewed and approved by the Committee after the year-end. Further details on the WINcard.
Is the Long Term Incentive Plan (LTIP) another incentive scheme?
Yes, although it serves to drive future performance and retention rather than to reward past performance.
The LGIS rewards executives for their performance at the end of a successful year, with an immediate cash bonus and an award of deferred shares. Once those deferred shares have been awarded, they will normally be transferred to the executive as long as they remain a Whitbread employee.
The LTIP, by contrast, is all about the future. It rewards
executives if earnings and relative total shareholder return over a
three-year period exceed specified hurdles. Executive directors
will be granted awards in 2009/10 as follows:
| Alan Parker | 125% |
|---|---|
| Patrick Dempsey | 100% |
| Christopher Rogers | 100% |
However, the shares will normally only be transferred into the executive's name in the event that the executive remains a Whitbread employee and that performance conditions are met over a three-year performance period.
How are the LTIP performance conditions selected and what are they?
The Committee selects conditions that it believes will closely align the interests of executives to those of shareholders.
For awards made in 2009, as was the case for grants made in 2007 and 2008, two performance conditions have been selected. Each condition will apply to half of the awards. The two conditions are relative total shareholder return (TSR) and earnings per share (EPS) growth as shown below.
The measurement of relative TSR will compare Whitbread's TSR with that of a comparator group of companies over the period from 27 February 2009 to 1 March 2012. Averaging will take place before the start and end of the performance period to reduce the impact of short-term share price fluctuations. The Committee has decided that the most appropriate comparator group for 2009 awards is the FTSE 51-150 excluding certain sectors: asset managers, consumer finance, equity investment instruments, investment services, life insurance, non-life insurance, mining, oil & gas and speciality finance.
The Committee has also reviewed the EPS targets for the 2009 awards in light of the economic conditions and Whitbread's forecast performance. The EPS target is set out below.
The results of the TSR performance condition test are produced for the Committee by Hewitt New Bridge Street, while the EPS calculations are verified by the Company's auditor Ernst & Young LLP. The results are considered by the Committee before the vesting level is confirmed.
Have any LTIP awards vested in 2009?
The awards made in 2006 were subject to a relative TSR performance condition. The performance condition was met in full, resulting in a vesting level of 100%. The comparator group comprised 19 travel and leisure companies (including Whitbread) at the time of measurement and Whitbread was ranked third, which is in the upper quartile. The awards vested on 1 March 2009, after the end of the financial year and will be reflected in the LTIP table in next year's full remuneration report.
The awards granted in 2009 will vest in three years' time as follows:
| TSR Condition | |
|---|---|
| Position at which the Company is ranked | Proportion of award vesting to executive |
| Upper quartile and above | Full vesting of half the award |
| Between median and upper quartile | Pro rata on a straight line between quarter and full vesting of half the award |
| Median | Quarter of half the award vests |
| Below Median | This half of the award does not vest |
| EPS Condition | |
|---|---|
| 2011/12 EPS: required annual percentage growth above Whitbread's 2009/10 budgeted EPS | Proportion of award vesting to executive |
| 14.6% or above | Full vesting of half the award |
| Between 6.3% and 14.6% | Pro rata on a straight line between quarter and full vesting of half the award |
| 6.3% | Quarter of half the award vests |
| Below 6.3% | This half of the award does not vest |
Are executive directors required to hold Whitbread shares?
This year we have introduced share ownership guidelines for senior executives. Executive directors are required to build and hold a shareholding equal to 100% of their salary within five years and other senior executives 50% of salary.
Directors' emoluments for 2008/09
The directors' aggregate emoluments for 2008/09 were £3,463,315 (2007/08: £3,942,358). In addition, the aggregate value of awards made to directors under the Long Term Incentive Plan was £1,739,575 (2007/08: £1,263,750). The aggregate amount of gains made by directors on the exercise of share options during the year was £nil (2007/08: £900,503) and the aggregate market value of awards exercised by directors under long term incentive schemes during the year was £229,214 (2007/08: £619,707). The aggregate amount of contributions paid by the Company to money purchase pension schemes in respect of the directors was £16,666 (2007/08: £nil).
Signed and approved on behalf of the Board
Charles Gurassa
Chairman, Remuneration Committee
27 April 2009