Directors’ remuneration report
Equity incentive schemes
The Company currently operates four equity incentive schemes for directors and employees. These are:
- The International Personal Finance plc Incentive Plan (‘the Incentive Plan’);
- The International Personal Finance plc Performance Share Plan (‘the Performance Share Plan’);
- The International Personal Finance plc Exchange Share Scheme 2007 (‘the Exchange Scheme’); and
- The International Personal Finance plc Employee Savings-Related Share Option Scheme (‘the SAYE Scheme’).
The schemes were put in place in June 2007 shortly before the demerger from Provident Financial plc (‘PF’) on 16 July 2007 and were individually approved by the shareholders of PF.
The Incentive Plan
Awards under the Incentive Plan were granted to the Chairman, the executive directors and certain senior executives following the demerger. In 2008 some further awards were made to three newly promoted senior executives. Additionally, a top-up award was made to John Harnett in October 2008 when he became Chief Executive Officer. The Incentive Plan provides a one-off incentive to 15 people in the period following demerger. If absolute total shareholder return (‘TSR’) growth of 30% is achieved over a three-year performance period, starting from the demerger, and employment conditions are met, awards under the Incentive Plan will enable participants, according to their seniority, to share in a pool of up to 3% of the total growth in value (‘the earned value pool’) delivered to shareholders. The committee believes that absolute TSR is a simple and objective measure of shareholder value creation, given the lack of comparable companies. All benefits under the Incentive Plan will be delivered in shares, with 50% delivered shortly after the end of the performance period and delivery of the further 50% deferred for a further 12 months.
The Performance Share Plan
Contingent awards of shares were made under the Performance Share Plan following the demerger to key senior managers who did not participate in the Incentive Plan. The awards will vest after a three-year performance period, starting from the demerger date, with vesting determined by a range of TSR growth targets and by employment conditions. TSR is calculated on the same basis as for the Incentive Plan. No award will vest if TSR growth is less than 30%. 50% of the award will vest if TSR growth is 30% and 100% will vest if TSR growth is 60%. If growth in TSR is between 30% and 60%, vesting will be on a straight-line basis. 50% of vested awards will be released after the end of the performance period, with 50% deferred for an additional 12 months. No awards to directors have been made under this Plan.
In 2008, to achieve consistency of objectives, some further awards were made to new senior managers by reference to the original performance period and target. Awards were made based on either 150% or 75% of salary, depending on seniority, but on a pro rata basis.
New policy on Grants
The vesting of the awards made under the Incentive Plan in July 2007 will be determined in July 2010 and at that point it will be necessary to grant further equity incentives to the executive directors and senior executives. It is therefore proposed that the Performance Share Plan should be used for this purpose and this will mean that the executive directors and senior management will all participate in one plan. The performance target will be determined by the committee at the time of grant. It is expected that awards of up to 100% and 75% of salary will be made in 2010 and thereafter for executive directors and other senior managers.
The Exchange Scheme
Awards were made following the demerger to the executive directors and 55 other Group senior managers who held options under the Provident Financial Executive Share Option Scheme 2006, which lapsed at the demerger, and awards under the Provident Financial Long Term Incentive Scheme 2006 which were cancelled, in return for the grant of new equivalent awards under the Exchange Scheme. These options / awards under the PF Schemes were valued as at 30 June 2007 and awards were made in the form of contingent rights to acquire shares in the Company with an equivalent value for £nil consideration, which would normally vest on the third anniversary of the date of grant of the original award. The remuneration committee of Provident Financial plc determined this to be the most appropriate approach in all the circumstances. No further awards will be made under the Exchange Scheme.
The SAYE Scheme
The executive directors (together with other UK group employees) may participate in the SAYE Scheme, which has been approved by HM Revenue and Customs. Participants save a fixed sum each month for three or five years and may use these funds to purchase shares after three, five or seven years. The exercise price is fixed at up to 20% below the market value of the shares at the date directors and employees are invited to participate in the scheme. Up to £250 can be saved each month. This scheme does not contain performance conditions as it is an Inland Revenue approved scheme open to employees at all levels.
Service agreements
The current policy is for executive directors’ service agreements to provide for both the Company and the director to give one year’s notice. No director has a service agreement containing a liquidated damages clause on termination; in the event of the termination of an agreement, the Company would seek mitigation of loss by the director concerned and aim to ensure that any payment made is the minimum which is commensurate with the Company’s legal obligations.
Other directorships
The Company will normally permit a full-time executive director to hold one non-executive directorship and to retain the fee from that appointment, subject to the prior approval of the board.
Shareholding policy
In 2008 a shareholding policy was introduced for directors and senior managers. Over a five-year period they should acquire a beneficial shareholding with a value equal to a percentage of their gross basic annual salary (or, in the case of non-executive directors, fees) as follows:
| Category | Percentage of salary / fee |
|---|---|
| Executive director | 200% |
| Non-executive director | 100% |
| Participants in the Incentive Plan | 100% |
| Senior participants in the Performance Share Plan | 50% |
Senior management remuneration
The committee considers the structure and level of pay of the 13 most senior members of the management team below board level. Two-thirds currently have salaries ranging from £125,000 to £150,000 and one-third has salaries ranging from £150,001 to £250,000.
Changes to the remuneration policy
The remuneration policy is normally reviewed once a year and is scheduled to be reviewed again in December 2009.