Salaries are reviewed annually, on appointment, or on change in position or responsibility. Base salaries form the basis for all additional performance and non-performance related incentive awards. Therefore in conducting annual reviews of the Executive Directors’ salaries, the Committee considers internal and external factors, including the pay awards and employment conditions across the Group, the Executive Directors’ individual performance and experience, as well as the external competitive levels for comparable positions. 

In addition to salary, the Executive Directors may receive additional benefits covering car allowance, private medical insurance and life cover. Craig Smyth and David McIntosh also received a cash allowance in place of any pension entitlement above the ‘earnings cap’. Paul Dollman has an unfunded pension undertaking from the Company to provide in total the same level of pension as if the ‘earnings cap’ did not apply. David McIntosh also receives a small mortgage subsidy payment.

The basic salaries for the Executive Directors for the year are disclosed in the Directors’ remuneration table in the Company's annual report. Annual salary reviews take place in March each year, with any increase implemented from 1 May. 

The Executive Directors participate in a discretionary bonus scheme which is subject to the achievement of challenging Group, divisional and personal targets designed to encourage excellent performance. Bonus payments are non-pensionable.

The bonus scheme contains performance targets that include threshold and stretch levels derived from a review of the historical and projected performance of the Group and its peers, together with an analysis of City analysts’ expectations. Bonuses at the higher end of the range are payable only for demonstrably superior Group and individual performance and the stretch level represents upper quartile performance.

The maximum annual bonus will be set at 75% of base salary. The award will be split on the following basis:

The share element is subject to a three year retention period. If an executive is dismissed or gives notice of resignation during the three year period the shares are forfeited.

10% of salary will be paid on achieving the threshold level rising to 60% of salary for attaining stretch, with results between threshold and stretch awarding on a straight-line basis.

The Key Result Area (KRA) element will only be payable should 95% of the threshold target be met.

Under the Bonus Co-Investment Plan (‘BCIP’) Executive Directors are invited to invest up to 40% of any cash bonus (net of tax) into the BCIP. From 2010 matching shares are issued on a 1:1 basis with gross invested bonus, and will be released on the attainment of performance conditions following a three-year performance period. In previous years, awards had been made on a 2:1 basis. 25% of the matching shares are paid on achieving threshold level, rising on a straight-line basis to 100% paid at or above stretch targets. 

The performance target for awards made is for real per annum Earnings Per Share (EPS) growth above the Retail Price Index growth over a three-year period, with the number of shares vesting being calculated on a straight-line basis from a 25% award at 3% to a full award for 2010 at 6% or above. In previous years, the stretch level had been set at 8% or above. Any dividends accrued on shares which vest are paid in cash on vesting.

An award made in 2007 had a performance period ended December 2009. The real per annum growth in EPS for the Company over the performance period of the award did not meet threshold levels, and therefore the award lapsed during 2010. The award made in 2008 had a performance period ended December 2010. The real per annum growth in EPS for that period was above the threshold levels and therefore the award will vest in March 2011. 

The Remuneration Committee has asked each Executive Director to build up a shareholding valued at 150% of their base salary within five years.  This target is reviewed annually by the Committee.

2007 Divisional Performance Share Plan

In 2009, following external advice and a market review, the Committee, resolved that, in keeping with best practice, the value of any awards under the 2007 Plan from 2010 onwards should be limited to one times the individual’s salary in Ordinary Shares.

Executive Directors may be awarded a number of conditional shares under the 2007 Plan as determined by the Committee. Attached to any award is a three-year performance period with appropriate targets. From 2010, targets will for Divisional Managing Directors will be based 75% on the Group performance, and 25% of their award set on their own division’s performance measured using Divisional Financial Results (DFR). The 2007 Plan therefore aligns each divisional Director to the performance of both the Group and
future divisional profitability and is appropriate given the structure of the Group to incentivise each Divisional Managing Director. Performance conditions are reviewed for each cycle of the plan.

The DFR are set at threshold and stretch level. At threshold, 25% of the award will be paid to an individual, increasing on a straight-line basis to 100% for stretch or greater achievement. As the disclosure of the DFR targets could be considered a profits forecast and is viewed by the Committee to be both price and commercially sensitive, the Committee has decided that it will retrospectively disclose the threshold and stretch targets for an award in its Annual Report following the end of the performance period.

2009 Performance Share Plan

This one-off plan offered Executive Directors the opportunity to benefit from the potential success of the Company over a three year performance period ending December 2011, as measured by an increase in the Return On Capital Employed (ROCE). It provided for a conditional award to be made of up to 450,000 ordinary shares with a value at award date of £582,750 to be made to Executive Directors.

Threshold vesting is based on attainment of a ROCE rate of 10% for the year ended 31 December 2011, with a stretch level for ROCE of 12.5% or more. Where ROCE is less than the threshold level at the end of the performance period, no award will be made to participants. Achievement of the threshold level will result in 25% of the maximum award vesting, with results equal to or greater than the stretch level achieving 100% of the maximum award. Results greater than the threshold but less than the stretch level will be calculated on a straight-line basis.