Remuneration report 2007
Equity Compensation Plan 2000
Key employees receive part of their earned bonus in the form of deferred awards under the Equity Compensation Plan on terms designed to align their interests with shareholders and to retain their services in the Group. The level of mandatory deferral is determined by the Committee in accordance with a matrix that is agreed in advance of the annual compensation review.
These awards do not give rise to any immediate entitlement but will vest in full on the third anniversary of the grant date provided that the participant continues to be employed within the Group. This Plan allows deferred awards to be granted in either share awards, fund awards or a combination of both. At the third anniversary the original grant is increased by 20 per cent.
Share awards
Share awards can be granted over either ordinary or non-voting ordinary shares in the Company and are normally structured as rights to acquire shares at nil cost. Historically, awards under this Plan were made over non-voting ordinary shares. As a result of a resolution approved at the 2006 Annual General Meeting share awards for 2006 and 2007 are in respect of ordinary shares.
If a participant resigns before the three years have elapsed then the following forfeiture provisions apply as at the date of resignation:
| Completed years of service from date of award |
Less than 1 | ≥ 1 and <2 | ≥ 2 and <3 | 3 |
| Percentage of share award forfeited |
100% | 72% | 44% | 0% |
These awards do not attract dividends. To the extent that the employee chooses to leave share awards within the Equity Compensation Plan for a further two years after vesting, the employee is rewarded with additional shares of 11.1 per cent. of the number of shares which vest at the third anniversary. This compensates for dividends foregone during this period. A resolution is being proposed at the 2008 Annual General Meeting to enable awards to be adjusted to reflect the dividends paid on shares during the period starting with the fifth anniversary of grant and ending with the date on which the award is exercised.
Fund awards
Fund awards are notional investments in a range of Schroders' investment funds and can be granted by the Committee as an alternative to share awards. They give holders a personal interest in the performance of Group funds. Fund awards have a three-year vesting period, with no option to extend, and have the following forfeiture provisions as at the date of resignation:
| Completed years of service from date of award |
Less than 1 | ≥ 1 and <2 | ≥ 2 and <3 | 3 |
| Percentage of fund award forfeited |
100% | 66.6% | 33.3% | 0% |
These fund awards will be re-valued in line with the performance of the selected products and will be paid out in cash at the end of the deferral period.
In respect of 2007 the first £60,000 of the deferred bonus award was delivered in share awards and any balance, above a minimum level, was generally delivered equally in share awards and fund awards.
Equity Compensation Plan awards are not subject to further performance conditions as they are considered as already having been earned by reference to performance.
Share Option Plan 2000
Under the Share Option Plan 2000, the Company has granted market value share options over non-voting ordinary shares. Options usually become exercisable if the option holder remains with the Group for at least three years and, for executive Directors, if the performance target has been met at the third anniversary. Share options granted to other employees have no performance conditions.
In line with market practice, the performance target is that the Company's earnings per share growth (defined as the earnings per ordinary share before any items considered exceptional, as derived from the Company's Annual Report and Accounts) must be at least four per cent. per annum above the increase in the Retail Price Index over a three-year period. There is no re-test if the target is not met after three years. This performance target is a general condition and standard for each executive Director. New Bridge Street Consultants LLP assesses the performance criteria calculations annually for the Committee based on audited results.
Outstanding awards held by executive Directors under these Plans are disclosed in the tables in Remuneration report. This year the value of those awards that are still subject to some degree of forfeiture are disclosed.
Employee shares
Of the total variable compensation awarded to all employees in the Group in 2007, the proportion that was deferred amounted to 32.1 per cent.
The Share Incentive Plan that was introduced in 2006 for all UK-based employees is also helping to broaden the number of employee shareholders. Each of the executive Directors and 579 other employees are now members of the Plan (representing 51 per cent. of UK employees).
Total employees' rights to ordinary and non-voting ordinary shares in all of Schroders' employee share plans, as a percentage of the total ordinary and non-voting ordinary shares in issue, were 6.7 per cent. as at 31 December 2007.
Personal shareholding policy
In order further to align the interests of the most senior employees with those of shareholders, each of the executive Directors and the other members of the Group Management Committee is required, over time, to acquire and retain a target holding of Schroders' shares and/or rights to shares, equivalent to 300 per cent. of annual base salary. This target has been achieved for each of the executive Directors. Despite the recent increase in base salaries for the executive Directors the Committee determined not to alter the shareholding target.
Performance graph
The following performance graph shows the Company's total shareholder return performance, comprising share price movements plus the value of dividends reinvested, compared with that of the FTSE 100 Index. This index was chosen by the Committee because it represents the principal index in which the Company's shares were quoted throughout the majority of the performance period and is still perceived as the most relevant index.
This graph shows the annual percentage change in the value over each financial year of an initial amount invested in Schroders plc on 31 December 2002 to 31 December 2007 compared with the same initial amount invested in each of the companies making up the FTSE 100 Index.
Schroders comparative total return index since 31 December 2002
Source: Thomson Financial
Service contracts
The Committee's general policy is that each executive Director should have a rolling contract of employment with mutual notice periods of six months. When recruiting executive Directors, the Committee's policy is that contracts should not contain any provision for compensation upon early termination and that the parties should rely on employment rights conferred by law. In the event that compensation for early termination is payable, the Committee's policy is to seek to keep such compensation at an appropriate level.
The following table provides details of the current executive Directors' service contracts:
| Date of contract(s) | Nature of contract |
Notice period from Company |
Notice period from Director |
|
|---|---|---|---|---|
| Executive Directors | ||||
| Michael Dobson1 | 19 October 2001 | Rolling | 12 months | 6 months |
| Jonathan Asquith | 12 November 2001 | Rolling | 6 months | 6 months |
| Alan Brown | 17 May 2005 | Rolling | 6 months | 6 months |
| Massimo Tosato2 | 27 July 2001 and 1 August 2001 |
Rolling | 6 months | 6 months |
Notes
1If Michael Dobson's employment is terminated by the Company without cause he would be entitled to receive the equivalent of one year's compensation, calculated as the annual average of the aggregate of base salary, discretionary cash bonus and awards under the Equity Compensation Plan received in the preceding three years.
2Massimo Tosato's contract dated 27 July 2001 relates to his UK duties and his contract dated 1 August 2001 relates to his international duties. Upon early termination of these contracts he would be entitled to 12 months'
compensation (calculated as base salary, discretionary cash bonus and any award under the Equity Compensation Plan for the previous year)..
Executive Directors' non-executive directorships
It is the Group's policy to allow executive Directors to retain any fees earned from any non-executive directorships they hold in other external organisations. No such fees were earned during the year.
Non-executive Directors
Each non-executive Director has a letter of appointment in which both the non-executive Director and the Company are required to give reasonable notice to terminate the appointment. Non-executive Directors' appointments are subject to the re-election requirements of the Company's Articles of Association and are without a fixed term. There are no specific contractual provisions for non-executive Directors to receive compensation upon early termination.
The dates of the non-executive Directors' letters of appointment are set out in Directors' emoluments table.
Fees for the Chairman and other non-executive Directors are determined by the Board based on market information supplied by New Bridge Street Consultants LLP, and in accordance with the restrictions contained in the Company's Articles of Association. Non-executive Directors do not participate in decisions concerning their fees. Fees are reviewed annually, although it is anticipated that, in the absence of any significant market movement, fees would remain unchanged for two years. The fees were last formally reviewed in May 2006. No changes to the fees were made during 2007 and the next review will take place during 2008.
The current annual fees payable are as follows:
| Non-executive Directors' fees | Current £ |
|---|---|
| Board chairman | 200,000 |
| Board member | 45,000 |
| Audit Committee member | 12,500 |
| Audit Committee chairman* | 15,000 |
| Nominations Committee member | Nil |
| Nominations Committee chairman | Nil |
| Remuneration Committee member | 10,000 |
| Remuneration Committee chairman* | 12,000 |
The Senior Independent Director receives no additional fee.
Awards from the Group's incentive and pensions plans are not made to non-executive Directors.
Directors' remuneration in 2007
The tables in Remuneration report provide details of each of the Directors' emoluments, pension entitlements, rights to fund awards, rights to shares and share interests. In accordance with the Companies Act 1985 (as amended by the 2006 Companies Act), the tables in Remuneration report, excluding the summary of deferred compensation table, have been audited by the independent auditors.
Directors' emoluments
The emoluments (not including any pension entitlements, rights to fund awards and rights to shares which can be found in Remuneration report) of the Directors of the Company in respect of the period for which they were in office in the relevant year, including their remuneration in respect of subsidiary undertakings, comprised:
| Salary and fees1 £'000 |
Other cash payments2 £'000 |
Benefits– in-kind3 £'000 |
Annual cash bonus £'000 |
2007 Total £'000 |
2006 Total £'000 |
|
|---|---|---|---|---|---|---|
| Executive Directors | ||||||
| Michael Dobson (Chief Executive) | 317 | 58 | 7 | 2,963 | 3,345 | 2,470 |
| Jonathan Asquith | 258 | 29 | 1 | 1,778 | 2,066 | 1,268 |
| Alan Brown | 258 | 33 | 1 | 1,438 | 1,730 | 1,376 |
| Massimo Tosato | 258 | 13 | 38 | 1,938 | 2,247 | 1,627 |
| Non-executive Directors | ||||||
| Michael Miles (Chairman) | 200 | – | 4 | – | 204 | 184 |
| George Mallinckrodt (President)4 | 109 | – | 7 | – | 116 | 113 |
| Andrew Beeson | 68 | – | – | – | 68 | 65 |
| Luc Bertrand | 58 | – | – | – | 58 | 46 |
| Sir Peter Job | 67 | – | – | – | 67 | 63 |
| Merlyn Lowther | 58 | – | – | – | 58 | 55 |
| Kevin Parry | 83 | – | – | – | 83 | 80 |
| Bruno Schroder5 | 73 | – | 5 | – | 78 | 75 |
| Total | 1,807 | 133 | 63 | 8,117 | 10,120 | 7,422 |
Notes
1The annual base salaries for the executive Directors were each increased with effect from 1 June 2007: Michael Dobson from £200,000 to £400,000 and Jonathan Asquith, Alan Brown and Massimo Tosato from £200,000 to £300,000.
2Other cash payments comprise one or more of: cash allowance in lieu of a company car and cash allowance in lieu of pension entitlements.
3The benefits-in-kind provided to Directors comprise one or more of: private use of company chauffeur, company car, private use of taxis, life insurance and private healthcare.
4George Mallinckrodt received an annual fee of £45,000 as a Director, a fee of £64,000 in respect of his services as President of the Company and £7,000 in benefits-in-kind.
5Bruno Schroder received an annual fee of £45,000 as a Director, a fee of £28,000 for his additional services to the Group and £5,000 in benefits-in-kind.
6The dates of the non-executive Directors' letters of appointment are as follows: Michael Miles 17 December 2002, Andrew Beeson 1 October 2004, Luc Bertrand 20 February 2006, Sir Peter Job 23 December 2002, Merlyn Lowther 4 March 2004, George Mallinckrodt 24 December 2002, Kevin Parry 16 December 2002 and Bruno Schroder 24 December 2002.
Directors' pension entitlements
Defined benefit
The following table gives details of the accrued pension benefit at 31 December 2007 for Directors who have participated in the defined benefits section of the Schroders Retirement Benefits Scheme during the year to 31 December 2007. Further information concerning the Group's pension schemes is set out in Notes to the accounts.
| Accrued pension at 31 Dec 2006 £'000 |
Change in accrued pension due to inflation £'000 |
Change in accrued pension excluding inflation |
Accrued pension at 31 Dec 2007 £'000 |
Transfer value at 31 Dec 2006 £'000 |
Increase in transfer value £'000 |
Transfer value at 31 Dec 2007 £'000 |
||
|---|---|---|---|---|---|---|---|---|
| Increase £'000 |
Transfer value £'000 |
|||||||
| Executive Directors | ||||||||
| Michael Dobson1, 2 | 11 | – | – | – | 11 | 182 | 12 | 194 |
| Massimo Tosato | 21 | 1 | 4 | 60 | 26 | 324 | 82 | 406 |
| Non-executive Director | ||||||||
| George Mallinckrodt3 | 216 | 8 | 2 | 19 | 226 | 2,423 | 12 | 2,435 |
| Bruno Schroder4 | 31 | 1 | – | 4 | 32 | 378 | (6) | 372 |
The accrued pension represents the annual pension which each Director would be entitled to receive from normal retirement age after leaving service. The accrued pension would be increased each year until it became payable in accordance with statutory requirements.
The change in accrued pension represents the difference between the accrued pension at 31 December 2006 and 31 December 2007. This is broken down into inflationary increases and increases arising as a result of service for the year concerned, postponement of retirement or any change in salary, where appropriate.
The transfer value represents the current capital sum which would be required, using demographic and financial assumptions, to provide the accrued pension and ancillary benefits at the relevant date. The transfer values have been calculated in a manner consistent with ‘Retirement Benefit Schemes – Transfer Values (GN11)' published by the Institute of Actuaries and the Faculty of Actuaries.
The pension is non-contributory. The accrued pension or transfer value shown above does not include any allowance for additional voluntary contributions made by a Director.
1Michael Dobson ceased further accrual in the Scheme on 31 March 2006. In lieu of this, he receives a taxable cash payment of £34,462 per annum, included in the emoluments table above.
2No contributions were paid by the Company during the year.
3George Mallinckrodt – no contributions have been made by the Company into the Scheme since 19 August 1990. He began to draw his pension from the Scheme on 1 September 1995. The values shown in this table in respect of his pension benefits are notional.
4Bruno Schroder – no contributions have been made by the Company into the Scheme since 17 January 1993. He began to draw his pension from the Scheme on 17 April 2007. The values shown in this table in respect of his pension benefits are notional as at 31 December 2007.
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