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Annual Report on Remuneration

Committee Members

Jane Hinkley (Committee Chair)
Nelda Connors
Jeff Hewitt

The Remuneration Committee

The Remuneration Committee (the "Committee") comprises all independent Non-executive Directors of the Company, and as such complies with the obligations of the UK Corporate Governance Code for composition of Remuneration Committees. Each of the members brings a broad experience of international businesses and an understanding of their challenges to the work of the Committee. I was appointed to the Committee on 3 December 2012 and became its Chair following the AGM held in June 2013. Nelda Connors joined the Committee on her appointment on 1 March 2013. Jeff Hewitt brings his significant experience of Vesuvius to the Committee, and both Nelda and I add extensive international business experience to the Committee's deliberations. John Sussens and Jan Oostervelt retired from the Committee on their retirement as Directors of the Company at the AGM held on 4 June 2013. The Company Secretary is Secretary to the Committee. Members' biographies set out within the Board of Directors.

Meetings

The Committee met seven times during the year with full attendance, other than in respect of one meeting where Nelda Connors was prevented from attending due to adverse weather conditions in the US disrupting her travel. The Group Chairman, Chief Executive, CFO and Group VP HR were invited to each meeting, together with Christer Gardell, our non-independent Non-executive Director, though none of them participated in discussions regarding their own remuneration. This attendance supported the work of the Committee, giving critical insight into the operational demands of the business and their application to the overall strategy of remuneration within the Group. I reported the outcome of our meetings to the Board.

The Committee operates under formal terms of reference which were reviewed and updated during the year and approved by the Board. The terms of reference are available on the Group website (www.vesuvius.com). The Committee and its members are also empowered to obtain outside legal or other independent professional advice (at the cost of the Company) in relation to its deliberations (powers which were not exercised during the year) and to secure the attendance at its meetings of any employee or other parties should it be considered necessary.

Role and Responsibilities

The Committee is responsible for:

  • Setting the appropriate remuneration for the Chairman, the Executive Directors and the Company Secretary;
  • Recommending and monitoring the level and structure of remuneration for senior management, being the first layer of management below Board level and their direct reports; and
  • Overseeing the operation of any Executive share incentive plan.

A copy of the Remuneration Committee's Terms of Reference is available on the Group's website (www.vesuvius.com).

Key activities in 2013

During the year, the overall objectives for the Committee were to set the tone for remuneration in Vesuvius' first year as an independent public company.

In addition to the usual routine Committee matters, the Committee discussed and agreed changes in the following material key matters:

  • Receiving the proposed vesting schedules and reviewing the appropriateness of the out-turn of share-based awards against overall financial performance to ensure that awards made under the 2010 LTIP and Deferred Share Bonus Plan were in line with financial performance;
  • Reviewing, debating and approving financial performance criteria for Annual Incentive (cash bonus) awards and changes to the performance metrics for EPS under the Vesuvius Share Plan to compare with nominal global Gross Domestic Product growth rather than an absolute target;
  • Aligning share-based incentive awards for members of the Group Executive Committee to those for Executive Directors, by including them in the Vesuvius Share Plan;
  • Approving the payment of incentive awards in shares rather than cash to senior managers in the MTP; and
  • Adopting longer-term horizons (of 2-3 years) for base salary increases for Executive Directors and senior managers.

Regulatory Compliance

The Remuneration Policy in this report has been prepared in accordance with the Companies Act 2006 and The Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013. It also meets the requirements of the UK Listing Authorities Listing Rules and the Disclosure and Transparency Rules. The Annual Report on Remuneration sets out how the provisions of the UK Corporate Governance Code are applied by the Company in relation to matters of remuneration. We are happy to confirm that the Company has complied with these governance rules in the year under review.

Share Usage

Under the rules of the Vesuvius Share Plan, as approved by shareholders on 26 November 2012, the Company has the discretion to satisfy awards either by the transfer of existing shares or by the allotment of newly issued shares, Treasury shares or other shares. Awards made to senior managers by the Company over shares pursuant to the Medium Term Plan must be satisfied out of shares held for this purpose by the Company's employee share ownership trust ("ESOT"). The decision on how to satisfy awards is taken by the Board, which considers the most prudent and appropriate sourcing arrangement for the Company.

At 31 December 2013 the Company held 7,271,174 ordinary shares in Treasury. As at 31 December 2013, 1,025,484 Vesuvius shares were held in the ESOT. The Trustee of the ESOT purchases shares in the open market or can subscribe for newly issued shares as required, to meet obligations for the provision of shares to satisfy options and awards that vest.

The Vesuvius Share Plan complies with the current ABI guidelines on headroom which provide that overall dilution under all plans should not exceed 10% over a ten year period in relation to the Company's issued share capital, with a further limitation of 5% in any ten year period on discretionary schemes.

Directors Remuneration – Audited

In the year under review, the Chief Executive received a base salary of £550,000 per annum, and the Chief Financial Officer received a base salary of £340,000 per annum. The table below sets out the total remuneration received by Executive Directors in the financial year under review:

François WanecqChris O'Shea
2013
(£000)
2012
(£000)
2013
(£000)
2012
(£000)
Total salary155053034076
Taxable benefits238873163
Pension316515910223
Total fixed pay41,103762458102
Annual Bonus568734076
Long-term incentives713636572588
Total variable pay91,40036559876
Other remuneration
Total102,5031,2271,056178
Total 2013 Executive Director remuneration3,559

During the year under review, Non-executive Directors' fees were set at £45,000 per annum. Supplementary fees of £15,000 per annum were payable to the Chairmen of the Audit and Remuneration Committees. A supplementary fee of £5,000 per annum was also payable to the Senior Independent Director. The Chairman was paid a fee of £185,000 per annum. Neither the Chairman, nor the other Non-executive Directors are members of the Group's pension plans, nor do they participate in the Group's incentive schemes. The table below sets out the fees received by Non-executive Directors in the financial year under review:

20132012
Total
fees
(£000)1
Taxable
Benefits
(£000)2
Total
(£000)
Total
fees
(£000)1
Taxable
Benefits
(£000)2
Total
(£000)
John McDonough1851853232
Nelda Connors3737
Christer Gardell45452424
Jeff Hewitt63635555
Jane Hinkley545444
Jan Oosterveld19194040
John Sussens28285555
Total 2013 Non-executive Director remuneration431
Total 2013 Director remuneration3,990

NOTES

  1. Base salary (or fees, as appropriate) earned during the financial year ended 31 December 2013.
  2. Benefits comprise car allowance, private medical care, life assurance, disability and health insurance (including a one-off relocation allowance for François Wanecq of £361,871).
  3. Executive Directors receive a pension allowance of 30% of base salary.
  4. The sum of basic salary, benefits and pension.
  5. The Annual Incentive cash bonus payments to be made to the Executive Directors for their performance in the year under review, pay out at the maximum amount, being 125% of base salary for the Chief Executive and 100% of base salary for the Chief Financial Officer. This reflected the performance of the Company in the year under review against the target set for the Annual Incentive. In 2013 the maximum financial performance target was Group Headline Earnings per share of 30.0p. Group Headline Earnings per share for the financial year ended 31 December 2013 was 31.9p, thus justifying the maximum incentive payment.
  6. The Cookson Group 2011 LTIP nil-cost awards consisted of both a Performance Share award and a Matching Share Award. The vesting of the award is based upon 50% relative TSR performance and 50% on Headline EPS performance. The TSR performance was based upon Cookson's TSR from 1 January 2011 to 18 December 2012 to which was added to the Vesuvius TSR from 19 December 2012 to 31 December 2013 for a combined figure, being 84.3% (between Median and Upper Quintile), which allows vesting of 28.4% of the Performance Share Award and 1:0.621 for the Matching Share Award. Following the demerger, the 2013 EPS targets, as previously reported, were set at 48.6p at threshold. Headline EPS for the year ended 31 December 2013 was 31.9p. Hence there is no vesting of either the Performance Share Award or the Matching Share Award for EPS performance (and all awards lapse). The Cookson Group LTIP 2011 award (whose performance period ended 31 December 2013) for François Wanecq will vest on 1 April 2014. Following the above performance, 42,105 Performance shares and 91,752 Matching Shares will vest, (and 106,155 Performance Shares and 240,685 Matching Shares will lapse) which, at an average Vesuvius share price (from 1 October 2013 to 31 December 2013) of 478p, provides a total gain of £639,836. Overall, of the total shares awarded, 27.8% will vest (being 133,857 shares) with the balance lapsing (being 346,840 shares). In addition, a further award of shares (15,402 shares, with a market value (at an average market price of 478p) of £73,621) will be made to cover dividends accrued between the date of grant and the date of vesting in accordance with the rules of the Plan. Consequently, in total François Wanecq will receive 149,259 shares under entitlements from the 2011 LTIP to the value of £713,457.
  7. The Cookson Group 2010 LTIP nil cost award for François Wanecq vested on 8 April 2013 and 104,272 Vesuvius shares vested at a share price of 330p, a gain of £344,097. The performance period was 1 January 2010 to 31 December 2012 and overall, 67.2% of the shares vested with the balance lapsing. In addition, the Remuneration Committee also awarded a further 6,392 shares to the value of the dividends paid on the shares between grant date and the date of vesting, with a further market value of £21,094. As part of the same Cookson Group 2010 LTIP award and, in accordance with the demerger agreement, 110,101 shares in Alent plc also vested on 8 April 2013 with a gain of £363,333 at a market price of 362p.
  8. See notes 1 and 2 of the Restricted Share Award for more details.
  9. The sum of annual bonus and the value of long-term incentives.
  10. The sum of basic salary, benefits, pension, annual bonus and long-term incentives where the performance period ended during the financial year.

Pension Arrangements – Audited

In accordance with their service agreements, Messrs Wanecq and O'Shea are entitled to a pension allowance of 30% of base salary, which they can use to participate in Vesuvius' pension arrangements, invest in their own pension arrangements or take as a cash supplement (or any combination of the aforementioned options).

Pension Allowance (£)
Director20132012
François Wanecq165,000159,015
Chris O'Shea102,00022,885

Outstanding Longer-term Pay – Audited

Awards were made to the Executive Directors under the Vesuvius Share Plan on 22 April 2013. The proportion of shares that will vest is based on the Company's performance against specified performance conditions. Vesting of 50% of shares awarded is based upon the Company's three-year TSR performance relative to that of the constituent companies of the FTSE 250 (excluding Investment Trusts), and 50% on Headline EPS growth, as compared with the compound annual growth in Nominal Global Gross Domestic Product over a three-year period. The two measures operate independently. The awards granted are as follows:

François Wanecq
Chief Executive
Chris O'Shea
Chief Financial Officer
Type of interest awardedPerformance SharesPerformance Shares
Basis for awardMaximum entitlement of 200% of salaryMaximum entitlement of 200% of salary
Number of shares341,509 shares211,115 shares
Face value of award£1,100,000£680,000
% that would vest at median performance25%25%
End of performance period31 December 201531 December 2015
Performance measures50% on relative TSR ranking and 50% on EPS growth50% on relative TSR ranking and 50% on EPS growth
Vesuvius Share Plan - performance targets
TSR ranking relative to FTSE 250 excluding Investment trusts
Vesting Percentage
Below Median0%
Median12.50%
Upper Quintile50%
Between Median and Upper QuintilePro rata between
12.5% and 50%
Annual Compound Headline EPS Growth above global GDP
Vesting Percentage
Below 7%0%
7%12.50%
At or above 15%50%
Between 7% and 15%Pro rata between
12.5% and 50%

Cookson LTIP Allocation

Details of François Wanecq's allocation of shares under the Cookson LTIP are shown in the table below.

2011 and 2012 LTIP Awards (as adjusted for the Demerger from awards over shares in Cookson Group plc into awards over shares in Vesuvius plc).

Grant and Type of awardTotal share
allocations
as at
31 Dec 2012
Additional
shares
allocated
during
the year
Shares
vested
during
the year
Total share
allocation
31 Dec
2013
Market price of the shares on the day before award
(as adjusted for the demerger (p))
Performance periodEarliest
vesting date
1 April 20111
Performance shares148,260148,260365.801 Jan 11 -
31 Dec 13
1 Apr 2014
Matching shares332,437332,437365.801 Jan 11 -
31 Dec 13
1 Apr 2014
5 April 20122
Performance shares150,075150,075365.801 Jan 12 -
31 Dec 14
5 Apr 2015
Matching shares61,21261,212365.801 Jan 12 -
31 Dec 14
5 Apr 2015
Total691,984691,984

NOTES

  1. The Cookson Group 2011 LTIP nil-cost awards consisted of both a Performance Share award and a Matching Share Award. See note 6 for full details.
  2. In 2012 François Wanecq received a potential maximum allocation of Performance Shares worth one times his base salary, being 79,619 Cookson Group plc shares (which at the demerger were rolled over into Vesuvius shares at a rate of 1 to 1.88492, giving a Performance Share Award over 150,075 Vesuvius shares). Under the Matching Share award element of the LTIP he used his entire 2011 Annual Incentive payment to purchase 7,856 Cookson Group plc shares, and received a maximum allocation of 32,475 Matching Shares based on this amount which had a maximum potential value on the date of award of c.40% of his base salary. The allocations were made to François Wanecq on 5 April 2012 and were calculated based upon the closing mid-market price of Cookson Group plc's shares on the day before the awards were made. Cookson Group plc's mid-market closing price on 4 April 2012 was 689.5p. At the demerger, the awards over 32,475 Cookson Group plc shares made to François Wanecq, were rolled over into Vesuvius plc shares at a rate of 1 to 1.88492, giving a Matching Share Award over 61,212 Vesuvius shares.

Restricted Share Award

Details of the restricted share award that Chris O'Shea received upon joining Cookson Group plc (as adjusted for the Demerger from awards over Cookson Group plc shares into awards over shares in Vesuvius plc) are given in the table below.

Date of awardTotal share
allocations
as at
31 December
20121
Shares vested
during the year2
Total share
allocations
as at
31 Dec 2013
Market price of the shares on the day before award
(as adjusted for the demerger (p))
Earliest vesting date
5 November 2012
Restricted Share Award108,80554,40254,403312.4811 Oct 2014

NOTES

  1. On his appointment, Chris O'Shea was granted a restricted share award with a face value of 100% of base salary. Half of the award vested on the first anniversary of his date of joining and the remainder will vest on the second anniversary, subject to him remaining employed by the Company and not under notice of termination. No other performance conditions apply to this award.
  2. Of the 54,402 shares that vested, 25,621 were sold for tax and social security payments, 28,781 were retained, as required under the Shareholding Policy (see above). In addition, the Remuneration Committee also awarded a further 1,685 shares to the value of the dividends paid on the shares between his date of joining and the date of vesting (of which 891 were retained after tax and social security payments). The second and final tranche of Restricted Shares (54,403 ordinary shares, excluding dividends) will vest on 11 October 2014, (assuming continued employment and not being under notice of termination).

Payments to Past Directors – Audited

There were no payments made to a past Director during the year ended 31 December 2013.

Loss of Office Payments – Audited

During the year to 31 December 2013, no payments were made to any Director for loss of office.

Annual Changes in Chief Executive pay vs. Employee Pay

The table below shows the percentage change in the remuneration of the Chief Executive - comprising salary, taxable benefits and annual bonus - and comparable data of UK salaried employees. The UK salaried employee workforce was chosen as a fair representation of a suitable comparator group as François Wanecq, the Chief Executive, is based in the UK (albeit with a global role and responsibilities) and levels of pay vary widely across the Group depending on geography and local market conditions.

Chief ExecutiveUK salaried employee workforce
(average per capita)
2013
(£000s)
2012
(£000s)
% change% change
Salary5505303.8%3.6%
Taxable benefits27159(54%)7.6%
Annual Bonus6870213.0%

NOTES

  1. The figure used for comparison excludes the sum of £361,871 relating to one-off relocation expenses (2012: £13,631) paid during 2013 for François Wanecq.
  2. In 2012, based on Group performance, no bonus was paid to François Wanecq. In the year ended 31 December 2013, a full bonus was paid. Thus the percentage change in bonus does not present a meaningful comparison.

Annual spend on Employee Pay vs. Other Distribution

The charts below shows the annual spend on all employees (including Executive Directors) compared to distributions made to shareholders for 2012 and 2013:

Relative importance of spend on pay (2013)

Relative importance of spend on pay

Relative importance of spend on pay (2012)

Relative importance of spend on pay 2012
Expenditure (£m)
Spend on pay elements20132012Difference in expenditure
Group remuneration of continuing operations318.8316.6+0.7%
Dividends40.739.61+2.8%
Share buyback30.0n/a

NOTE

  1. Dividends relating to 2012 are for the Vesuvius share of the Cookson Group plc interim dividend (£13.2m Vesuvius share of £20.9m Cookson dividend) plus the Vesuvius final dividend (£26.4m).

Chief Executive Pay and TSR Performance Graph

The chart below shows Vesuvius' TSR performance since the demerger which was effective on 19 December 2012. Consequently, the illustrative chart below shows the relevant period from 19 December 2012 to 31 December 2013.

Performance Graph and table

The following graph compares Vesuvius TSR performance to that of the same investment in the FTSE 250 Index (excluding Investment Trusts). This Index has been chosen as the comparator index to reflect the size, international scope and diversity of the Company. TSR is the measure of the returns that a company has provided for its shareholders, reflecting share price movements and assuming reinvestment of dividends. A spot rate has been used for this chart.

Value of a hypothetical investment

NOTE

The above chart shows only one year of comparison, as Vesuvius plc was listed on 19 December 2012.

Chief Executive Pay - Financial Year Ending31 December
2013
31 December
2012
Total Remuneration
(single figure, (£000's))
£2,503£1,227
Annual variable pay
(% of maximum)
100%0%1
Long-term variable pay
(% of maximum)
28%67%

NOTE

  1. Annual bonus was zero for the 2012 financial year.

Operation of Policy in Following Year – 2014

It is the Remuneration Committee's intention that the operation of the policy should remain broadly similar to the current year. No increase has been made to the Executive Director's base salary, cash bonus potential has remained the same (with challenging targets set for maximum pay-out, based on Group Headline Earnings per share) and awards under the Vesuvius Share Plan will be made at 200% of base salary, on the basis of measures for 50% relative TSR and 50% EPS, as with 2013. We will report on these matters in our Annual Report on Remuneration in the 2014 Annual Report.

Prior to seeking shareholder approval to any changes in this Policy, the Remuneration Committee will discuss any proposed material changes by consulting with shareholders.

Directors' service contracts

Each of the Executive Directors, who both put themselves up for re-election at the Annual General Meeting to be held on 15 May 2014, are employed under ongoing service contracts with the Company. These contracts do not have a fixed term of appointment. A copy of each Executive Director's service contract is available at the registered office for inspection.

Statement of Directors' Shareholding

The interests of Directors and their connected persons in ordinary shares as at 31 December 2013, including any interests in share options and shares provisionally awarded under the Vesuvius Share plan and the previous Cookson LTIP Award are presented below:

Beneficial holdingNot subject to performance conditionsSubject to performance conditions
Executive Directors
François Wanecq1,210,3861,033,493
Chris O'Shea58,59754,402211,115
Non-executive Directors
John McDonough (Chairman)100,000
Nelda Connors
Christer Gardell
Jeff Hewitt15,284
Jane Hinkley12,000

Advice Provided to the Remuneration Committee

In March 2013, the Committee appointed the external advisers Towers Watson ("Towers") to assist with its work. The appointment was made following a competitive tender process conducted by the Committee Chairman and Company Secretary. The full Committee approved the selection of Towers. The Committee is also advised by the Chief Executive, the Vice President Human Resources, the Company Secretary, and by the law firm Clifford Chance LLP ("Clifford Chance"). Towers was appointed directly by the Remuneration Committee to provide advice on executive remuneration matters, including remuneration structure and policy, updates on market practices and trends, and guidance on the implementation and operation of long-term incentive plans. Clifford Chance was appointed by the Company Secretary to advise on the share-based incentives. Towers has also provided the Remuneration Committee with remuneration benchmarking data for certain Executive Directors and has provided ongoing calculations of Total Shareholder Return to enable the Committee to be updated on performance of long-term share incentive plans. Clifford Chance provides advice on the operation of executive share plans and the drafting of relevant documentation for incentive plans to the wider Group. Towers is a signatory to the Remuneration Consultants Group Code of Conduct in relation to Executive Remuneration Consulting in the UK.

In addition to work undertaken for the Committee, Towers provides other remuneration and benchmarking advice to the Company, and Clifford Chance provides legal advice to the Company. The Remuneration Committee does not believe that the provision of any of these services to the Company compromises the independence or integrity of the advice that it receives from Towers and Clifford Chance LLP. During the year Towers' fees, charged on a time spent basis, amounted to £111,876. Their work was split between advice relating to the demerger (£8,333), general advice to the Remuneration Committee (£30,563), with the remainder (£72,980) relating to advice on the content and preparation of the Directors Remuneration Report and fees for quarterly monitoring of TSR for awards outstanding under Long Term Incentive Plans. The Committee has considered and concluded that it is satisfied that the advice provided on executive remuneration matters is objective and independent and that no conflict of interest arises as a result of other services provided to the Company.

Statement on Shareholder Voting

Vesuvius was listed on the London Stock Exchange on 19 December 2012 and its first AGM was held on 4 June 2013. In respect of the resolution put to shareholders at the last AGM to approve the Directors' Remuneration Report, Vesuvius received 97% of votes for and 3% of votes against. 16,116 votes were withheld. At the AGM on 15 May 2014, shareholders will be invited to vote on the Remuneration Policy set out in this Report, and, also, to give an advisory vote on the Annual Report on Remuneration.

Jane Hinkley
Chair, Remuneration Committee
4 March 2014