Remuneration and terms of employment for Executive Directors and other SET members
Illustration of fixed and variable performance-related remuneration
Based on AstraZeneca's remuneration policy, the Components of remuneration - expected value basis charts illustrate the potential weighting given to fixed and variable performance-related elements of the remuneration package at Executive Director level. Variable performance-related elements of the package are shown on an 'expected value' basis, and in the event that performance conditions are not met, such elements would not deliver any value. The 'expected value' approach considers the range of possible outcomes and the probability attached to each, in order to provide a value that represents the average that would be delivered if the arrangements were operated over many years. The 'expected value' for bonus payment is taken to be the target payout level.
Fixed remuneration
Both Executive Directors' terms and conditions are UK-based and are benchmarked against external UK comparators, apart from David Brennan's pension and health insurance arrangements, which are described below.
Base salary
The base salary for Executive Directors and other SET members is determined by the Committee. Salary decisions reflect the experience and performance of the individuals to whom they apply, taking account of market competitiveness and the level of increases applicable to employees in the wider Group. The Committee has again decided that in the case of the CEO and those SET members (other than the CFO) whose responsibilities are unchanged, there will be no salary increases for 2010. For Executive Directors and other SET members, the policy has been to position salaries at the median of the relevant market. In accordance with this policy, and given that his base salary has remained at the same level since he was appointed as an Executive Director in 2007, Simon Lowth (CFO) has been awarded a base salary increase, effective from 2010, illustrated in the Executive Directors’ base salaries in 2009 and 2010 table.
The base salaries of Executive Directors are set out Executive Directors' base salaries in 2009 and 2010 table.
Pension arrangements
The table in the Defined benefit arrangements section gives details of the changes in the value of the Executive Directors' accrued pensions during 2009.
CEO's pension arrangements
David Brennan is a member of the AstraZeneca US Defined Benefit Pension Plan (US DBP), by virtue of his membership of pension plans applicable to legacy Astra Merck employees. On his appointment to the Board, the rules of the US DBP were amended so as to remove bonus payments from the calculation of his pensionable pay. Benefits for members of the US DBP are delivered on a tax-qualified basis, with accrued benefits that exceed specific limits under the plan's formula and the US Tax Code being delivered through a supplementary, non-qualified plan.
The normal pension age under the US DBP is 65. However, on leaving or retiring from employment, David Brennan is eligible to take a pension or lump sum equivalent based on accrued service and final pensionable pay (ie without actuarial reduction) due to his satisfaction of a condition in the pension plan relating to the combined age and service exceeding 85 years, as previously disclosed.
David Brennan's participation in the US DBP is subject to a service cap at 35 years' service, which will be attained in January 2011, after which no further service accrual can be earned.
Members and, in the event of death, surviving spouses/dependants can elect, in relation to those benefits delivered on a tax-qualified basis under the US DBP, to take pensions in lump sum form based on actuarial valuation. Members or spouses/dependants may not make such an election in relation to any supplementary non-qualified benefits.
In addition, David Brennan (as a US citizen) is a contributing member of the US 401(k) savings plan1. He also contributes to an associated non-qualified plan, as described in the Defined contribution arrangements section.
- 1
- The 401(k) savings plan is a qualified plan to which eligible employees may make salary-deferral contributions on a post-tax and/or pre-tax basis. Employers may also make matching or non-elective contributions to the plan. There is a supplementary non-qualified plan in place for all eligible employees whose earnings exceed specific limits.
In the event of a US participant becoming incapacitated then permanent health insurance cover will provide continuation of a proportion of salary, subject to the satisfaction of certain medical criteria. In the event of the death of a participant prior to retirement, a life assurance policy will provide surviving spouses/dependants with a lump sum equivalent to one times salary (such salary being capped at the maximum pensionable salary under the plan).
UK Executive Directors' pension arrangements
UK Executive Directors have the option to participate in a UK pension plan according to their eligibility, or to take a cash allowance in lieu of pension. The cash allowance is consistent with the appropriate value of the alternative gross pension benefit.
John Patterson (formerly Executive Director, Development) elected to take the cash allowance in lieu of pension for the option year 1 July 2008 to 30 June 2009 (as detailed in the Defined contribution arrangements section).
In respect of pension accrued up to his retirement, he remained a member of the AstraZeneca main UK defined benefit pension plan (AstraZeneca Pension Fund). The normal pension age under this plan is 62. However, a member's accrued pension is available from age 60 without any actuarial reduction. John Patterson retired from the AstraZeneca Pension Fund on 6 April 2009 aged 61 and was eligible to take a pension based on accrued service and final pensionable pay. He opted to take a commutation lump sum on retirement, in lieu of part of his pension entitlement. This lump sum was calculated and granted in accordance with the rules of the AstraZeneca Pension Fund and amounted to £785,000. This reduced his pension entitlement after commutation to £303,000 per annum.
Pensions in payment are increased annually in line with inflation, as measured by the UK Retail Prices Index, up to a maximum of 5%.
Simon Lowth (CFO) is eligible to join the AstraZeneca main UK defined contribution pension plan (UK Defined Contribution Plan) at a company contribution rate of 24% of annual base salary or, alternatively, to take the company contribution as a cash allowance. For the option years 1 July 2008 to 30 June 2009 and 1 July 2009 to 30 June 2010, he elected to take the cash allowance (as detailed in the Defined contribution arrangements section).
In the event of a senior employee in the UK Defined Contribution Plan (or where an alternative cash allowance has been taken) becoming incapacitated, then permanent health insurance cover provides continuation of a proportion of salary subject to the satisfaction of certain medical criteria. In the event of death prior to retirement, dependants are entitled to a pension and/or lump sum secured from a multiple of 10 times salary.
Benefits
In conjunction with the majority of employers, certain benefits are made available to Executive Directors and other SET members via local benefits programmes offered by AstraZeneca. Benefits under these programmes typically include healthcare, insurances and facilitated car purchase arrangements.
Variable performance-related remuneration
Executive Directors and other SET members are eligible to participate in different elements of variable performance-related pay, which are described below. The decision as to whether or not in any given year they receive any or all of their elements of variable pay is determined by the Committee, which will typically have regard to the performance of the individual and the Group and will consider the elements of variable pay applicable to senior employees in other comparable organisations in making such a determination.
Short-term bonus
Performance criteria
Executive Directors and other SET members are eligible for a short-term bonus. The basis for the payment of any short-term bonus is determined by reference to a range of factors linked to the underlying performance of AstraZeneca's business, the performance of the functional area for which the individual is responsible and the performance of the individual in his or her role.
Structure and assessment of performance
As set out in the 2008 Directors' Remuneration Report, following a review by the Committee in 2008 of the performance criteria for the determination of annual bonuses for Executive Directors and other SET members, the performance criteria were adjusted in 2009 to align more closely with the current objectives and measures that are used by the business, and this approach will continue to apply for 2010. For 2010, the bonus ranges are the same as for 2009. The bonus deferral requirements, described in more detail below, are also unchanged for 2010. Executive Directors' and other SET members' bonuses for 2009 were based on performance criteria linked to the following targets:
- 60% by reference to EPS, cash flow targets and the objectives in each of the strategic priority areas identified by the Board for the business, the key elements of which are set out in the Strategy, objectives and 2009 performance table and which are monitored as part of the QBR against targets set by the Committee at the beginning of the year and taking into account external expectations of performance; and
- 40% by reference to individual measures and initiatives which link to the business objectives relevant to the individual's functional accountability (or, in the case of the CEO, the average of these individual outcomes).
These measures reinforce AstraZeneca's emphasis on individual and business accountability. The key measures referred to above are clearly set out in the Strategy, objectives and 2009 performance table, whereby Group and functional objectives and measures are managed in a robust and consistent way and assessed by the SET as part of the QBR. The outcome of this process is rigorously scrutinised by the Board.
Bonus ranges for 2010
For 2010, the bonus ranges for each Executive Director are shown below and are the same as for 2009.
| Executive Director | Bonus range for 2010 % |
|---|---|
| David Brennan | 0-180 |
| Simon Lowth | 0-150 |
Bonus outcomes for 2009
In assessing bonuses for 2009, the Committee took into account the strong EPS (excluding restructuring and synergy costs) and cash flow performance, which in both cases significantly exceeded budget, together with overall business and financial outcomes and relevant functional performance against clear measures and initiatives set at the beginning of the bonus year. The key elements of these strategic priorities and business objectives are set out in the Strategy, objectives and 2009 performance table, in relation to the following categories, which the Committee believes are consistent with delivering shareholder value:
- Strengthen the pipeline
- Grow the business
- Reshape the business
- Promote a culture of responsibility and accountability.
When assessing the performance of the business in these categories, the Committee noted that during 2009 there had been three significant regulatory approvals across various jurisdictions, four regulatory submissions, the agreement of three major late-stage in-licensing deals and the announcement of four co-promotion collaborations. These achievements were underpinned by a continuing emphasis on reshaping the business and annualising the benefits from restructuring, the strong sales performance of the Group despite the ongoing challenging economic environment and a level of employee engagement which was above the industry average.
Having assessed the Company's performance against all the measures set out above, the Committee is satisfied that the bonus payments that have been earned against stretching performance targets are fully justified.
The bonus outcomes for the Executive Directors for 2009 are shown in the table below.
Bonus outcomes for 2009
| Short-term bonus (delivered as a combination of cash and shares, as shown in the Directors' emoluments in 2009 section)1 |
||
|---|---|---|
| Executive Director | £000 | % of salary |
| David Brennan | 1,751 | 180 |
| John Patterson2 | 187 | 138 |
| Simon Lowth | 825 | 150 |
- 1
- Bonuses for Executive Directors are not pensionable.
- 2
- John Patterson's bonus for 2009 was considered by the Committee in January 2010 and his bonus was based on his eligible earnings for the period in 2009 prior to his retirement on 31 March 2009.
Bonus share deferral requirements
Consistent with best practice, the Committee has put in place a requirement that certain proportions of any short-term bonus payment (as specified below) be deferred and invested into Ordinary Shares or ADSs. Broadly, these are acquired on the open market at the prevailing market price and held for a period of three years from the date of acquisition before being delivered to individual Executive Directors and other SET members. This arrangement is one of the ways in which, over time, Executive Directors and other SET members will be able to build up a significant shareholding in the Company. The proportion currently deferred into shares is one-third of the pre-tax bonus for Executive Directors and one-sixth for other SET members. On leaving, participants would normally have to wait for the shares to be released at the end of the three-year period. For Executive Directors and other SET members who cease employment for reasons other than that of good leaver (for example, those who are dismissed), the deferred bonus award will lapse, unless the Committee decides otherwise before the cessation of employment.
LTI plans
During 2009, Executive Directors and other SET members were eligible to be granted share option awards under the SOP and performance share awards under the PSP. The grant of such options and award of such shares were determined by the Committee, as were the performance targets that apply to their vesting and/or exercise. The PSP and the SOP were intended to align the interests of Executive Directors and other SET members with those of shareholders. For share option awards granted under the SOP, it is the expectation of the Committee that Executive Directors and other SET members will retain the net number of shares from the exercise of options for a period of not less than six months from the date of exercise. No further share option awards will be granted under the SOP and this plan will expire at the end of its 10-year life in May 2010. The Company will not be seeking re-approval of the SOP by shareholders. Those share option awards granted to date under the SOP will remain exercisable until those options lapse. For further information on the SOP, see the AstraZeneca Share Option Plan section.
Shareholding guidelines
For Executive Directors and other SET members, the Committee has established target shareholding guidelines, under which it is expected that they build up their own shareholding in the Company. For 2009, the Committee's expectation was a shareholding with a market value approximately equivalent to their base salary. As a result of the review of the remuneration of SET members carried out in 2009, the Committee concluded that the target should be increased from 2010, such that the CEO will be expected to hold shares in the Company with a market value approximately equivalent to 200% of his base salary. For other Executive Directors and SET members, the guideline is a shareholding with a market value approximately equivalent to 125% of their base salaries. It is expected that these shareholding targets will be reached over a period of five years through shares delivered from the various LTI plans as well as the deferred part of the short-term bonus (described above).
AstraZeneca Performance Share Plan
The PSP was approved by shareholders at the AGM in 2005 and provides for the grant of performance share awards (Share Awards) over Ordinary Shares or ADSs (together, Shares).
Basis of participation
The Committee is responsible for setting the policy for the way in which the PSP should operate, including agreeing performance targets, identifying which employees should be invited to participate in the PSP and the level of Share Awards. Participation is highly selective and tends only to include senior employees on the basis of their performance. Share Awards are not pensionable and may not generally be assigned or transferred.
Generally, Share Awards can be granted at any time (although in practice they are awarded annually), but not during a close or prohibited period of the Company. In 2009, the main grant of Share Awards was made on 27 March, with other Share Awards approved by the Committee in relation to, for example, new appointments, promotions or assignments being granted on 28 August. The value of Shares subject to a Share Award is determined by reference to the market price of Shares over the three-day period immediately preceding the date of grant.
Details of Share Awards granted to Executive Directors are shown in the Performance Share Plan table.
Performance conditions
Save in exceptional circumstances, which are prescribed in the PSP rules, the vesting of Share Awards is contingent on the satisfaction of specified performance targets and continued employment with the Group. In addition to the satisfaction of these performance targets, Share Awards will generally not vest until the third anniversary of the date of grant, although Share Awards may vest in part on a time pro-rated basis where a participant ceases to be in relevant employment under certain circumstances during the vesting period, to the extent that the performance targets have been met.
Performance period and vesting dates
In the case of all Share Awards granted to date, the performance target relates to the three-year period commencing on 1 January of the year of grant. Therefore, for the Share Awards made in 2009, the performance period runs from 1 January 2009 to 31 December 2011. The vesting date is the third anniversary of the date of grant.
Performance targets
For all Share Awards granted so far to Executive Directors and other SET members, including Share Awards granted in 2009, the performance target is the Company's TSR over the relevant three-year period compared with the TSR of a selected peer group of pharmaceutical companies for the same period. For share awards granted up to and including 2007 these companies were: Abbott Laboratories, Inc., BMS, Eli Lilly & Company, GlaxoSmithKline plc, Johnson & Johnson, Merck, Novartis AG, Pfizer Inc., F. Hoffmann-La Roche Ltd, Sanofi-Aventis, Schering-Plough Corporation and Wyeth Inc. As a result of corporate actions in the pharmaceutical sector during 2009, Schering-Plough Corporation and Wyeth Inc. have been removed from the peer group. As a result of this, the Committee has decided the following in relation to outstanding unvested awards:
- Share Awards in 2007: the TSR performance for Schering-Plough Corporation and Wyeth Inc. was adjusted from a date a week before the announcement of the relevant corporate action to the end of the relevant performance period so as to track the TSR of the acquiring companies (Merck in the case of Schering-Plough and Pfizer Inc. in the case of Wyeth Inc.).
- Share Awards in 2008 and 2009: Schering-Plough Corporation and Wyeth Inc. were removed from the peer group thus reducing the size of the peer group to 10 companies (excluding AstraZeneca). For these awards, AstraZeneca's TSR will be compared with the TSR for the 10 companies remaining in the peer group in respect of the relevant performance period.
TSR measures share price growth and dividends re-invested in respect of a notional number of shares, from the beginning of the relevant performance period to the end of it, and ranks the companies in the selected comparator group by reference to their TSR achieved over that period. The rank which the Company's TSR achieves over the performance period will determine how many Shares will vest under the relevant Share Award. For the purposes of future communications to shareholders and PSP participants, payouts against performance in relation to TSR for all existing and future Share Awards will be expressed as a percentage of the maximum Share Award currently payable, shown within a range of 0 to 100%. This new presentation is shown in the table below.
| TSR ranking of the Company | Vesting percentage (%) |
|---|---|
| Below median | 0 |
| Median | 25 |
| Upper quartile | 75 |
| Between median and upper quartile | Pro rata |
| Significantly above upper quartile | Up to 100 |
To alleviate any short-term volatility, the return index is averaged in the TSR calculations for each company over the three months prior to the start and end of the relevant performance period.
In addition to the TSR performance target being met for each Share Award as set out above, the Committee also has to satisfy itself that achievement of the TSR performance target is a genuine reflection of the Company's underlying financial performance and has the discretion to prevent Share Awards from vesting or only to allow them to partially vest where this appears to the Committee to be warranted.
At the discretion of the Committee, more than 75% of the maximum Share Award may vest, up to the limit of the maximum award, if the Company's TSR performance is substantially better than that of the upper quartile of the comparator group. For Share Awards to vest at this level, the Company would need to have sustained a level of performance significantly in excess of upper quartile over a period of years and the Committee would need to be satisfied that this was warranted. The number of any additional Shares that may vest in this way may not exceed 25% of the total number of Shares made the subject of a Share Award on the date of grant.
For those Share Awards to be made in 2010, 50% of the Share Awards will continue to be based on relative TSR against a selected peer group of pharmaceutical companies. The remaining 50% will vest subject to performance against an adjusted free cash flow target. In respect of these awards, the relevant peer group for the TSR measure will be: Abbott Laboratories, Inc., BMS, Eli Lilly & Company, GlaxoSmithKline plc, Johnson & Johnson, Merck, Novartis AG, Pfizer Inc., F. Hoffmann-La Roche Ltd and Sanofi-Aventis. Further information about the applicable free cash flow target will be set out in the Notice of AGM and shareholders' circular.
Individual limit
In respect of any financial year of the Company, the maximum market value of Shares that may be put under a Share Award in respect of an employee is 500% of that employee's base salary.
The actual individual limits that apply under the PSP, subject to this maximum, are set by the Committee from time to time.
Performance under the PSP in 2009
The TSR graphs show, for each Share Award, how the Company's TSR performance has compared with the TSR for the companies in the comparator group from the first day of the relevant performance period to 31 December 2009 and how the Company ranks against those other peer companies on this basis. We will continue to report on the performance of each Share Award against the relevant performance target during the relevant vesting period.
Change of control provisions
On a change of control of the Company as a result of a general offer to acquire all of the Ordinary Shares in the Company, Share Awards will vest pro-rata to the time elapsed between the date of grant of the Share Award and the date of the change of control to the extent that the relevant performance targets have been met up to the date of the change of control (or the most practicable earlier date). The Committee will, however, have discretion to take into account any other factors it believes to be relevant in determining the extent to which Share Awards will vest in these circumstances.
AstraZeneca Share Option Plan
The SOP was approved by shareholders at the AGM in 2000 and provided for the grant of share option awards (Option Awards) over Shares. The SOP was approved for a period of 10 years and will expire in May 2010. The Company will not be seeking re-approval of the SOP by shareholders.
Basis of participation
The Committee was responsible for setting the policy for the way in which the SOP should operate, including agreeing performance targets and identifying which employees should be invited to participate and the level of Option Awards. Participation was highly selective and tended only to include senior employees on the basis of their performance (except in the US where for reasons of custom and practice, participation in the SOP was more widespread). Option Awards were not pensionable and may not generally be assigned or transferred.
In 2009, the main grant of Option Awards was made on 27 March, with other Option Awards approved by the Committee in relation to, for example, new appointments, promotions or assignments being granted on 28 August. The exercise price was fixed by reference to the market price of Shares over the three-day period immediately preceding the date of grant.
Details of Option Awards granted to Executive Directors are shown in the Share options table.
Performance conditions
The SOP rules require that the Committee, before agreeing to grant an Option Award to Executive Directors and others, considers whether or not the underlying performance of the Company justifies a grant. In addition, it must also be satisfied that each individual nominated is performing to the necessary standard.
In agreeing grants of Option Awards in 2009, the Committee took into account strong underlying financial performance and progress towards achieving longer-term goals.
The Committee also sought and received assurances that each individual proposed for the grant of an Option Award has been performing in a manner that justified a grant to them. There was some variation in the level of grants being proposed between individuals, to reflect differing levels of performance and their seniority within the business.
As well as taking into account these performance considerations at the point of granting Option Awards, the Committee imposed performance conditions in respect of the exercise of such Option Awards by SET members (including the Executive Directors) which, in the view of the Committee, were considered appropriately stretching. In order for Option Awards to vest, the EPS of the Group must increase at least in line with the UK Retail Prices Index plus 5% per annum on average, over a three year period, the base figure being the EPS for the financial year preceding the date of grant, with no retesting. In addition, since the review of executive remuneration in 2004, the Committee has included a condition that, if an event occurs which causes material reputational damage to the Company, such that it is not appropriate for the Option Awards to vest and become exercisable, the Committee can make a determination to reflect this.
Change of control provisions
On a change of control of the Company as a result of a general offer to acquire all of the Ordinary Shares in the Company, any unvested Option Awards vest immediately following the change of control. All outstanding vested Option Awards can be exercised during the period of six months from the date of the change of control. The Company will use its reasonable endeavours to ensure that any Shares acquired from an exercise following a change of control are subject to the same terms as shares of the same class that were acquired under the general offer. Unexercised Option Awards will lapse at the end of the six-month period following a change of control or, if the Option Award is exchanged for an option relating to shares in a different company, the date of exchange, whichever is earlier.
Dilution
The dilutive effect of the grants of Option Awards on the Company's issued share capital was also considered by the Committee, in accordance with its commitment, reflecting the guidance of the Association of British Insurers, that the percentage of the issued share capital that could be allocated under all of the Company's employee share plans over a period of 10 years should be under 10%. This commitment is applied by the Committee in practice as a limit, on average, of under 1% per annum. The Committee concluded that a grant of Option Awards to those SOP participants and individual Executive Directors proposed for a grant was appropriate given the level of performance achieved. None of the other LTI plans currently operated by the Company have a dilutive effect because they do not involve the issue and allotment of new Ordinary Shares but rather rely on the market purchase of Ordinary Shares or ADSs that have already been issued.
Restricted Stock Unit Plans
The RSU Plan was introduced in 2007 and provides for the grant of restricted stock unit awards to selected employees (predominantly in the US). The MedImmune, Inc. Restricted Stock Unit Award Plan (MedImmune RSU Plan) was introduced in 2008 to make restricted stock unit awards to employees of MedImmune. The RSU Plan and MedImmune RSU Plan are used in conjunction with the SOP to provide a mix of restricted stock units and share options. Restricted stock unit awards typically vest on the third anniversary of the date of grant and are contingent on continued employment with AstraZeneca. In 2009, restricted stock unit awards were made under the RSU Plan and the MedImmune Plan on 27 March. Neither the RSU Plan nor the MedImmune RSU Plan are used to make restricted stock unit awards to Executive Directors or other SET members, nor may they operate in respect of newly issued Shares or Ordinary Shares transferred from treasury.
Global Restricted Stock Plan
It is the intention of the Committee that during 2010 two currently operated restricted stock plans (the RSU Plan and the MedImmune RSU Plan) applicable to below SET-level employees will be discontinued. They will be replaced by a single new Global Restricted Stock Plan (GRSP) (again operated only for below SET-level employees and on broadly similar terms to the existing plans) for the purposes of simplifying the administration and operation of restricted stock awards. Awards granted under the GRSP will not involve the issue and allotment of new Ordinary Shares but rather rely on the market purchase of Ordinary Shares or ADSs that have already been issued. There is no intention to increase the overall quantum of awards applicable to target employees through the introduction of the GRSP.
Restricted Share Plan
The AstraZeneca Restricted Share Plan (RSP) was introduced in 2008 and provides for the grant of restricted share awards (RS Awards) to key employees, excluding Executive Directors. RS Awards are made on an ad hoc basis with variable vesting dates and may not operate in respect of newly issued Shares or Ordinary Shares transferred from treasury. The RSP has been used twice in 2009 to make RS Awards to 12 employees. The Committee has responsibility for agreeing any RS Awards under the RSP and for setting the policy for the way in which the RSP should operate.
Zeneca 1994 Executive Share Option Scheme
The Zeneca 1994 Executive Share Option Scheme (Zeneca Plan) was replaced by the SOP. The last grant of options under the Zeneca Plan was in March 2000. Certain Executive Directors and other SET members have options outstanding under the Zeneca Plan, all of which are exercisable, the performance conditions having been satisfied. A description of the Zeneca Plan can be found in Note 24 to the Financial Statements.
Other plans
In addition to the plans described above, the Company operates a Share Incentive Plan and a Savings-Related Share Option Plan in the UK, both of which are HM Revenue & Customs approved plans. Certain Executive Directors and other SET members are eligible to participate in these plans, more detailed descriptions of which can be found in Note 24 to the Financial Statements.
Service contracts
Details of the service contracts for each of the Executive Directors, including their notice periods, are set out below. Either the Company or the Executive Director may terminate the service contract on 12 months' notice. It is the Board's intention that, in the event of early termination of an Executive Director's employment, any compensation payable under his/her service contract should not exceed the salary and benefits that would have been received had the contractual notice period been worked and this may be further reduced in line with the Executive Director's duty to mitigate losses. None of the Executive Directors has any provision in their service contracts giving them a right to liquidated damages or an automatic entitlement to bonus for the duration of their notice period. Compensation for any bonus entitlement will be assessed initially as 'on target' but subject to adjustment by the Committee to take account of the particular circumstances of the termination.
Details of Executive Directors' service contracts at 31 December 2009
| Executive Director1 | Date of service contract | Unexpired term at 31 December 2009 | Notice period |
|---|---|---|---|
| David Brennan | 1 January 2006 | 12 months | 12 months |
| Simon Lowth | 5 November 2007 | 12 months | 12 months |
- 1
- Neither of the Executive Directors has any provision in their service contracts giving them a right to liquidated damages or an automatic entitlement to a bonus for the duration of their notice period.
Policy on external appointments and retention of fees
Subject to the specific approval of the Board in each case, Executive Directors and other SET members may accept external appointments as non-executive directors of other companies and retain any related fees paid to them, provided always that such external appointments are not considered by the Board to prevent or reduce the ability of the executive to perform his or her role within the Group to the required standard. Such appointments are seen as a way in which executives can gain a broader business experience and, in turn, benefit the Company.
John Patterson retired as an Executive Director on 31 March 2009. During 2009, he continued to serve as a non-executive director of Cobham plc. In respect of such position, he retained the fees paid to him for his services which, during the period from 1 January to 31 March, amounted to £16,875.
Non-Executive Directors
None of the Non-Executive Directors has a service contract but all have letters of appointment. The effective dates of appointment for each of the Non-Executive Directors are set out in the table below. In accordance with the Company's Articles, following their appointment, Directors must retire at each AGM and may present themselves for election or re-election. None of the Non-Executive Directors has any provision in their letter of appointment giving them a right to compensation payable upon early termination of their appointment. They are not eligible for performance-related bonuses or the grant of share options. No pension contributions are made on their behalf. None of the Non-Executive Directors has participated or will participate in any decision made by the Board in relation to the determination of their own fees. The Chairman's annual fee is £325,000, and the annual fees applicable to other Non-Executive Directors are set out below. In addition to the mandatory shareholding requirement imposed on all Directors under the Articles described in the Directors' shareholding section, in December 2008 the Board agreed that each Non-Executive Director should also be encouraged to build up, over time, a shareholding in the Company with a value approximately equivalent to the basic annual fee for a Non-Executive Director (£60,000) or, in the case of the Chairman, approximately equivalent to his annual fee (£325,000).
Non-Executive Directors' terms and conditions
| Non-Executive Director1, 2 | Effective date of appointment |
|---|---|
| Bo Angelin | 24 July 2007 |
| John Buchanan | 25 April 2002 |
| Jean-Philippe Courtois | 18 February 2008 |
| Jane Henney | 24 September 2001 |
| Michele Hooper | 1 July 2003 |
| Rudy Markham | 12 September 2008 |
| Dame Nancy Rothwell | 27 April 2006 |
| Louis Schweitzer | 11 March 2004 |
| John Varley | 26 July 2006 |
| Marcus Wallenberg | 6 April 1999 |
- 1
- None of the letters of appointment applicable to Non-Executive Directors confers upon them any right to compensation payable on early termination of their appointment.
- 2
- Pursuant to the Articles, the continued appointment of each Non-Executive Director is subject to their election or re-election at each AGM.
Non-Executive Directors' fees
| £ | |
|---|---|
| Basic Fee | 60,000 |
| Senior independent Non-Executive Director | (an additional) 25,000 |
| Membership of the Audit Committee or the Remuneration Committee | 15,000 |
| Chairman of the Audit Committee or the Remuneration Committee | (an additional) 20,000 |
| Membership of the Science Committee | 10,000 |
| Chairman of the Science Committee | (an additional) 7,000 |
