Remuneration in detail
Compliance
This report has been prepared by the Remuneration Committee (the Committee) in accordance with Section 1 of the Combined Code on Corporate Governance, the Companies Act 1985, as amended by the Director’s Remuneration Report Regulations 2002 (the Regulations), and the Listing Rules of the Financial Services Authority. In accordance with the Regulations, this report has been approved by the Board and will be submitted to shareholders for approval at the Annual General Meeting to be held on 17 July 2008.
PricewaterhouseCoopers LLP has audited Tables 54, 55, 56a, 56b, 57, and 59 and associated footnotes.
The Committee
Members of the Committee
The Committee was chaired by Sir Winfried Bischoff throughout the period under review. The other members of the Committee are Paul Myners (Chairman of the Board who was an independent Director at the time of his appointment as Chairman), and independent Non-Executive Directors David Rough, Sir Stuart Rose, Bo Lerenius and Alison Carnwath.
On 1 April 2008, Sir Winfried Bischoff retired from the Board and on that date Alison Carnwath assumed the chair of the Committee.
Sir Winfried Bischoff is the Chairman of Citigroup Inc., the parent company of one of the Group’s principal relationship banks. However, by virtue of his character and experience the Board did not consider this relationship to compromise his independence.
Responsibilities of the Committee
The key responsibilities of the Committee take full account of the recommendations contained within the Combined Code and include the following:
- To determine and recommend to the Board an overall strategy for the remuneration of the Chairman, Executive Directors and senior managers
- To determine and recommend to the Board the individual remuneration packages for the Chairman (who is not present when his own remuneration is discussed), Executive Directors and senior managers
- To oversee any significant changes to employee benefits, including pensions
- To approve the design of and targets for performance-related incentive schemes
- To oversee the operation of all incentive schemes, including the award of incentives, and to determine whether performance criteria have been met.
You can see the Committee’s terms of reference at www.landsecurities.com
Advisors to the Committee
The Group Human Resources Director, Angela Williams, provides information and advice to the Committee. The Committee has appointed and receives advice from Hewitt New Bridge Street (HNBS) and also makes use of various published surveys to help determine appropriate remuneration levels. HNBS has no other connection with the Group.
The Group Chief Executive and Group Human Resources Director are invited to attend meetings of the Committee but no Director is involved in any decisions relating to their own remuneration.
As detailed in the Corporate Governance report, the Committee’s performance is reviewed annually by the Chairman with the assistance of the Company Secretary.
Remuneration policy and philosophy
The Group’s remuneration policy seeks to provide remuneration in a form and amount to attract, retain and motivate high-quality management, recognising that the Group operates in a competitive market for talent. Emphasis is placed on delivering superior reward for achieving and exceeding the Group’s business plan. A substantial proportion of the Executive Directors’ remuneration is delivered through performance related pay. Executive Directors have substantial incentives to out-perform industry performance benchmarks.
A summary of the principal components of Executive Directors’ remuneration is set out below. Chart 49 illustrates the balance between fixed and variable pay at the target and maximum performance levels, assuming maximum participation in the Long Term Incentive Plan (LTIP). This information reflects the policy that operated during the year under review and there was no change in the balance between fixed and variable pay during that period.
The Group's remuneration policy is reviewed regularly, along with the balance between fixed and variable pay, to ensure that it remains appropriate and recognises developments in corporate governance best practice. Performance targets are set to align with Group strategic objectives and key performance indicators (KPIs). Tables 51 and 52 show how these elements are aligned.
During 2007/08, the Committee reviewed and made changes to two areas of remuneration for Executive Directors – the discretionary bonus pool and the additional bonus opportunity for exceptional performance. Further details of these changes are given below. The Committee also gave extensive consideration to remuneration matters associated with the proposed demerger of the Group. Details of these arrangements will be contained in the documentation to be sent to shareholders in connection with this transaction.
2007/08 Directors’ remuneration
Executive Directors’ remuneration comprises:
- Fixed pay, including basic salary, together with pension payments/contributions and benefits in kind; and
- Variable pay, comprising:
– annual bonus
– long-term incentives
Basic salary
ExExecutive Directors receive a salary which reflects their responsibilities, experience and performance. Salaries are reviewed annually with any changes taking place in July. The review process includes the use of comparator information and reports from the Group’s remuneration consultants.
The Group’s policy is to set salary around the mid-market rate, but the Committee is mindful of the need to treat pay comparisons with caution to avoid an upward ratchet of remuneration levels with no corresponding improvement in performance. The Committee also takes account of pay and employment conditions across the Group, especially when determining annual salary increases.
The current salaries of the Executive Directors (and in brackets, revised salaries to take effect from July 2008) are as shown in Table 50.
Chart 49
Chart 49
What was the balance of fixed versus variable pay? (%)
Annual bonus
During the year under review, the Executive Directors had individually tailored annual bonus performance targets that provided the potential to earn up to 300% of base salary.
The annual bonus opportunity was structured in two distinct parts:
- Bonus Opportunity: up to 100% of salary
The performance targets that applied to this part of the Executive Directors’ annual bonus opportunity are set out in Table 51.
table 50
Table 50
What are the Executive Directors salaries?
| |
Current |
From 1 July 2008 |
| £625,000 |
£645,000 |
| £400,000 |
£414,000 |
| £420,000 |
£434,700 |
| £420,000 |
£434,700 |
| £360,000 |
£372,600 |
table 51
Table 51
What were the criteria for the Directors’ 2007/08 bonuses?
| Total returns in excess of WACC |
Group profit |
Performance of all business units |
Strategic Review |
| Total returns in excess of WACC |
Group profit |
Performance of Group support functions |
Strategic Review |
| Total returns in excess of WACC |
Group profit |
Trillium profit |
New business wins/opportunities |
| Total returns in excess of WACC |
Group profit |
Investment performance |
Business unit revenue profit |
| Total returns in excess of WACC |
Group profit |
Investment performance |
Business unit revenue profit |
table 52
Table 52
What were the targets for the Directors’ additional bonus opportunities?
| Performance Measures and Range |
Additional Bonus |
| 2%–4% outperformance of the relevant Retail business total property return (TPR) Benchmark1 |
0%–200% |
| 2%–4% outperformance of the relevant London business total property return (TPR) Benchmark1. Delivery of major office lettings at Ebbsfleet Valley, Kent2 |
0%-200% |
| 4%–6% annual return on total capital employed above Weighted Average Cost of Capital (8%–13% above WACC for geared equity) |
0%-200% |
| Aggregated performance of London and Retail Businesses and Trillium relative to the above measures |
0%-200% |
- 1. The relevant sector benchmarks are provided by IPD and relate to ungeared total property return (reflecting the increase in the value of all assets plus income streams arising from those assets in the year). IPD benchmarks are generally acknowledged as the industry standard.
- 2. Applies only to major office lettings in excess of 50,000 sq. ft. at Ebbsfleet Valley, Kent, subject to profitability criteria
table 53
Table 53
What annual bonus was each Director awarded?
| |
% of year end salary |
Total Bonus
earned 2007/08 |
Total Bonus
earned 2006/07 |
| 212 |
109 |
| 210 |
104 |
| 275 |
71 |
| 285 |
106 |
| 128 |
295 |
