Directors' Remuneration Policy
As reported on last year, the overarching philosophy for remuneration within Vesuvius is to attract, retain and motivate individuals of the calibre necessary to successfully implement our business strategy. In particular, we ensure that incentives are appropriate to encourage enhanced performance and to avoid underperformance being rewarded. In reviewing and setting Vesuvius' remuneration policy, the Committee seeks to balance the interests of our employees and those of our long-term shareholders, to support Company strategy and foster a high performance culture, where a meaningful portion of remuneration is performance linked and subject to clawback.
In setting our policy for Executive Directors and senior managers the Committee seeks to emphasise pay for performance and to account for the broad international scale and nature of the Company's operations. We also consider the approach taken to the pay and employment conditions of other Company employees, together with UK governance requirements and developments in governance practice issued by leading shareholders and shareholder advisory bodies.
The Committee reviews information on the remuneration of comparable roles at similar companies to provide a point of reference for determining remuneration levels. Given that there is not a clear comparator group of companies for Vesuvius, this is judged in the context of other FTSE 250 companies and other relevant international sector-specific companies to reach a rounded judgement and deliver remuneration that is competitive.
Although Vesuvius is in its early stages as an independent company, the Committee is satisfied that the flexibility within the policy, and the ability to exercise discretion and judgement, will allow the Committee to ensure that an appropriate balance between the interests of employees and shareholders is maintained.
A separate resolution will be put to shareholders at the AGM to approve the Remuneration Policy which, if approved, will take effect from the date of the AGM on 15 May 2014.
Remuneration Policy for Executive Directors
|Helps to recruit and retain key employees.|
Reflects the individual's experience, role and contribution within the Company.
|The individual's performance is reviewed annually, with changes to base salary appraised over a two to three year period. Any change will be effective from 1 January in the year of the increase.|
Base salary is positioned to be market competitive when considered against relevant international and FTSE 250 companies (excluding Investment Trusts).
Paid in cash, subject to local tax and social security regulations.
|In considering any increase in base salary, the Committee will consider|
(1) the role and value of the individual,
(2) changes in job scope or responsibility, (3) progression in the role (e.g. for a new appointee), (4) a significant increase in the scale of role and/or size, value or complexity of the Group, (5) the need to maintain market competitiveness, and (6) increases paid to the wider global employee population in the Company's most significant locations.
In line with the 2-3 year period for base salary appraisal, individual increases when paid are likely to be in excess of those for the wider population of employees for that year.
|Any increase will take into account the individual's performance, contribution and increasing experience.|
|Provides normal market practice benefits.||A range of standard benefits including, but not limited to: car allowance, private medical care (including spouse and dependent children), life assurance, disability, health insurance together with relocation allowance and expatriate benefits.||The Committee retains the discretion to adjust the value of benefits where:|
(1) there is a significant change in the individual's circumstances, (2) there is an increase in existing cost beyond the Company's control, (3) there is a change in benefit provider(s), or (4) there is a change in an individual's location; and to amend the type of benefits to reflect the above and market practice.
Standard benefits remain a small percentage of total remuneration.
|Helps to recruit and retain key employees.|
Ensures income in retirement.
|An allowance is given as a percentage of base salary. This may be used to participate in Vesuvius' pension arrangements, invested in own pension arrangements or taken as a cash supplement (or any combination of the above options).||30% of base salary.||None.|
|Incentivises Executive Directors to achieve key short term financial, and strategic, targets of the Group.||Entire bonus amount payable in cash with no deferral.|
The Committee has the discretion to determine that actual incentive payments should be lower than levels calculated by reference to achievement against targets if it considers this to be appropriate.
Subject to clawback.
|Below threshold: 0%.|
On-Target: 62.5% of base salary for the Chief Executive and 50% of base salary for other Executive Directors.
Maximum: 125% of base salary for the Chief Executive and 100% of base salary for other Executive Directors.
Payments made between threshold and on-target and between on-target and maximum are prorated.
|Annual Incentive is measured on targets set at the beginning of each year. Currently, it is based on Group Headline Earnings Per Share which accounts for 100% of the performance measure, with an adjustment based on the Group's working capital performance. The effect of this is to reduce payments by 10% if specified working capital targets are not met. The adjuster also increases payout by 10% if targets are exceeded, but not above the plan maximum. Going forward the plan may include other financial or non-financial measures comprising KPIs, corporate objectives and personal performance.|
The Committee establishes threshold and maximum performance targets for each financial year, set by reference to the Group budget and other objectives for that year.
Actual performance targets will be disclosed after the performance period has ended. They are not disclosed in this policy due to their commercial sensitivity.
|Vesuvius Share Plan|
|Flexible "umbrella" Plan.|
Aligns Executive Directors' interests with those of shareholders through the delivery of shares.
Rewards Executive Directors for achieving the strategic objectives of growth in shareholder value and earnings.
Assists retention of Executive Directors over a three-year performance period.
|Awards may be granted as:|
Individuals are entitled to an aggregate annual maximum amount of awards. If more than one type of award is granted, the individual limit for all awards is reduced to remain within the maximum.
- Performance share awards;
- Deferred share bonus awards;
- Restricted share awards, and
- Market-price options.
Awards vest three years after their award date subject to the achievement of specified conditions.
The Committee has the discretion to award participants the equivalent value of dividends accrued during the vesting period on any shares that vest.
Subject to clawback.
The Committee will only made awards of Performance Shares to Executive Directors under the Plan, and will consult with shareholders prior to granting other types of awards, excluding Restricted Share awards authorised under the recruitment policy.
|Executive Directors are eligible to receive an annual award with a face value of up to 200% of base salary in performance share awards.||Vesting of 50% of performance share awards is subject to the Company's TSR performance versus the FTSE 250 (excluding Investment Trusts), with:|
- 0% vesting for below median performance;
- 12.5% of the total award vesting at median performance;
- 50% of the total award vesting at upper quintile performance; and
- Pro rata vesting between median and upper quintile
Vesting of the remaining 50% of performance share awards is subject to the growth in the Company's EPS. The Committee decides on the appropriate EPS growth targets each year, taking into account the Group's prospects and the broader global economic environment.
The Company reserves the right only to disclose EPS performance targets after the performance period has ended due to their commercial sensitivity.
Prior to any vesting, the Remuneration Committee also reviews the underlying financial performance of the Company over the performance period to justify the vesting.
|Legacy Cookson Group||Share Schemes|
|Used to align Executive Directors' interests with those of shareholders through share ownership.||Awards granted prior to the demerger remain outstanding.|
No further awards will be made under these plans.
|Subject to achieving the relevant vesting criteria, the Company will satisfy awards as they arise.||Performance and other conditions set at the time of award continue to operate.|
|Restricted Share Award|
|A one-off award to compensate for prior employer long-term incentive awards forfeited on appointment at Vesuvius.||Dated 5 November 2012 to the Chief Financial Officer. Half of the award vested on first anniversary of joining (11 October 2013). Remainder vests on second anniversary.||Shares to the face value of one-times base salary (108,805 Vesuvius Shares), together with shares or cash to the value of dividends that would have accrued on the shares between date of award and vesting.||None. Holder must remain employed and not be under notice of termination.|
Selection of Performance measures
Measures for the Annual Incentive are selected to reflect key strategic aims and the need for a rigorous focus on working capital management. Each year the Committee will agree challenging targets to ensure that underperformance is not rewarded.
For the Vesuvius Share Plan, at the demerger, Vesuvius stated that the performance measures would be similar to those for the Cookson LTIP, to focus Executive Directors on the execution of long-term strategy and also align their rewards with value created for shareholders. On this basis, the performance conditions for the Vesuvius performance share awards are based half on TSR performance and half on EPS performance. The comparator for the TSR performance condition will be reviewed annually to ensure its continuing relevance for the Group. In 2014 the Committee agreed the continuation of comparison to the FTSE 250 (excluding Investment Trusts). In respect of the EPS measure, the Committee wished to align the target with the Company's ambitions to grow ahead of end markets. As an international company, a global metric was deemed important by the Committee, and in 2013 an EPS target, based upon outperforming global Gross Domestic Product ("GDP") growth was adopted. This has been carried through to 2014. Within the policy period, the Committee will continually review the performance conditions used, including EPS and other financial measures, used to ensure that awards are made on the basis of challenging targets that clearly support the achievement of the Group's strategic aims.
Illustration of the Application of the Remuneration Policy for 2014
The charts below show the total remuneration for Executive Directors for minimum, on-target and maximum performance. The fixed elements of remuneration comprise base salary, pension and other benefits, using 2014 salary data. The assumptions on which they are calculated are as follows:
Minimum: Fixed remuneration only
On-Target: Fixed remuneration plus on-target Annual Incentive and threshold vesting (i.e. median performance for TSR and threshold for EPS) for performance share awards (made at 200% of base salary) under the Vesuvius Share Plan
Maximum: Fixed remuneration plus maximum Annual Incentive and 100% vesting for performance share awards (made at 200% of base salary) under the Vesuvius Share Plan
On appointment or promotion of a new Executive Director, the Committee will typically use the above policy to determine ongoing remuneration. However, the Committee retains the discretion to make appropriate remuneration decisions outside the standard policy to meet specific circumstances.
Base salary levels will generally be set in accordance with the policy taking into account the experience and calibre of the appointee. If it is appropriate to appoint an individual on a base salary initially below what is adjudged to be market positioning, contingent on individual performance, the Committee retains the discretion to realign base salary over the one to three years following appointment, which may result in a higher rate of annualised increase than might otherwise be awarded under the policy. If the Committee intends to rely on this discretion, it will be noted in the first Directors' Remuneration Report following an individual's appointment. Other than in exceptional circumstances, other elements of annual remuneration will, typically, be set in line with this Policy. The Committee retains the discretion to make the following exceptions:
- In the event that an internal appointment is made, the Committee may continue with existing remuneration provisions where appropriate;
- If necessary and appropriate to secure an appointment from an international pool of candidates, the Committee may make additional payments linked to relocation, above those outlined in the Policy Table and would authorise the payment of a relocation allowance and repatriation, as well as other associated international mobility terms. Such benefits would be set at a level which the Committee considers appropriate for the role and the individual's circumstances; and
- In order to provide an immediate interest in the Company's performance, the Committee may grant, on recruitment, an award of Performance Shares (with a market value of up to 200% of salary) under the Vesuvius Share Plan and/or an individual award agreement (under Listing Rule 9.4.2(2)) on similar terms. Performance conditions for any such award will be set in line with the policy and the Committee will determine the vesting period that will apply to such awards at the time of award, taking into account the strategy and business circumstances of Vesuvius.
Service contracts will be entered into on terms similar to those for the existing Executive Directors, summarised in the service contract section below.
In addition to the annual remuneration elements noted above, the Committee may consider buying out incentive awards that an individual forfeits in accepting an appointment with Vesuvius. The Committee will have the authority to rely on Listing Rule 9.4.2 (2) or to apply the existing limits within the Vesuvius Share Plan to make Restricted Share awards on recruitment. In making any such awards, the Committee will review the terms of any forfeited awards, including, but not limited to, vesting periods, the expected value of such awards on vesting and the likelihood of the performance targets applicable to such awards being met, while retaining the discretion to make any buy out award the Committee determines is necessary and appropriate. The Committee may also require the appointee to purchase shares in Vesuvius to a pre-agreed level prior to vesting of any such awards. The value of any buy out award will be capped, to ensure its maximum value is no higher than the value of the awards that the individual forfeited on joining Vesuvius. Any such awards will be subject to clawback.
With respect to the appointment of a new Chairman or Non-executive Director, appointment terms will be consistent with those currently adopted. Variable pay will not be considered. With respect to Non-executive Directors, fees will be consistent with the policy at the time of appointment.
Exit Payment Policy
Vesuvius has the option to make a payment in lieu of part or all of the required notice period for Executive Directors. Any such payment in lieu will consist of the base salary, pension contributions and value of benefits to which the Director would have been entitled for the duration of the remaining notice period, net of statutory deductions in each case. Half of any payments in lieu of notice would be made in a lump sum, the remainder in equal monthly instalments commencing in the month in which the midpoint of their forgone notice period falls (and are reduced or extinguished by salary from any role undertaken by the departing executive in this time). Executive Directors are subject to certain non-compete covenants for a period of nine months, and non-solicitation covenants for a period of 12 months, following the termination of their employment. Their service agreements are governed by English law.
Neither of the Executive Director's contracts contains any change of control provisions and they both contain a duty to mitigate should the Director find an alternative paid occupation in any period during which the Company must otherwise pay compensation on early termination.
The table below summarises how the awards under the annual bonus and Vesuvius Share Plan are typically treated in different leaver scenarios and on a change of control. Whilst the Committee retains overall discretion on determining 'good leaver' status, it typically defines a 'good leaver' in circumstances such as retirement with agreement of the Company, ill health, disability, death, redundancy, or part of the business in which the individual is employed or engaged ceasing to be part of the Group. Final treatment is subject to the Committee's discretion.
|Event||Timing||Calculation of vesting/payment|
|Annual Incentive Plan|
|Good leaver||Paid at the same time as to continuing employees||Annnual bonus is paid only to the extent that any performance conditions have been satisfied and is prorated for the proportion of the financial year worked before cessation of employment|
|Bad leaver||Not applicable||Individuals lose the right to their annual bonus|
|Change of Control||Paid on the effective date of change of control||Annual bonus is paid only to the extent that any performance conditions have been satisfied and is prorated for the proportion of the financial year worked|
|Vesuvius Share Plan|
|Good Leaver||On normal vesting date (or earlier at the Committee's discretion)||Unvested awards vest to the extent that any performance conditions have been satisfied and a prorata reduction applies to the value of the awards to take into account the proportion of vesting period not served|
|Bad leaver||Unvested awards lapse||Unvested awards lapse on cessation of employment|
|Change of Control 1||On the date of the event||Unvested awards vest to the extent that any performance conditions have been satisfied and a prorata reduction applies for the proportion of the vesting period not served|
- In certain circumstances, the Committee may determine that unvested awards under the Vesuvius Share Plan will not vest on a change of control but will instead be replaced by an equivalent grant of a new award, as determined by the Committee, in the new company.
If employment is terminated by the Company, the Committee retains discretion to settle amounts reasonably due to the Executive Director, for example to meet the legal fees incurred by the Executive Director in connection with the termination of employment, where the Company wishes to enter into a settlement agreement (as provided for below) and where the individual must seek independent legal advice. The Company would pay any amounts to which the departing Director was legally entitled. In certain circumstances, the Committee may approve new contractual arrangements with departing Executive Directors including (but not limited to) settlement, confidentiality, restrictive covenants and/or consultancy arrangements. This would only be used where the Committee believed it was in the best interests of the Company to do so.
The Committee will periodically review the contractual terms for new Executive Directors to ensure these reflect best practice. Service contracts currrently operate on a rolling basis and are limited to a 12 month notice period.
François Wanecq is employed as Chief Executive of Vesuvius pursuant to the terms of a service agreement made with Cookson Group plc dated 17 October 2012. Chris O'Shea is employed as Chief Financial Officer pursuant to the terms of a service agreement with Cookson Group plc dated 10 September 2012. Both service agreements were assigned to Vesuvius upon completion of the Demerger on 19 December 2012. Each Executive Director's appointment is terminable by Vesuvius on not less than 12 months' written notice, and by each Executive Director on not less than six months' written notice.
Considerations of conditions elsewhere in the Group in developing policy
The Company does not consult directly with employees on Executive Directors' remuneration arrangements. However, the Remuneration Committee will take into account the pay and employment conditions of other Group employees when determining Executive Directors' remuneration, particularly when determining base salary increases. The Remuneration Committee will also obtain information on the remuneration paid for comparable roles at other relevant companies to provide a point of reference for determining remuneration policy.
Remuneration policy for Executive Directors compared to other employees
The Remuneration Policy for Executive Directors is designed in line with the remuneration philosophy set out at the beginning of this report – which also underpins remuneration for the wider Group. Remuneration arrangements for Executive Directors draw on the same elements as those for other employees – base salary, fixed benefits, and retirement benefits – with performance-related pay extending down into the management cadres and beyond. However, given that remuneration structures for other employees need to reflect both seniority and local market practice, they differ from the policy for Executive Directors. In particular, Executive Directors receive a higher proportion of their remuneration in performance-related pay and share-based payments and individual percentages of fixed versus variable remuneration and participation in share-based structures decline with seniority.
The process for delivering salary increases on a 2-3 year cycle for Executive Directors is also applied to members of the Group Executive Committee and their direct managerial reports. While all employees receive an annual performance appraisal, other employees continue to receive salary reviews on an annual basis.
As with Executive Directors, middle and senior managers participate in the Annual Incentive Plan. For operational employees, any potential award is based upon achieving three measures relating to Group performance, business unit performance, and individual achievement of personal objectives. For functional employees, the award is predominantly based on Group performance, with the remainder awarded against achievement of personal objectives. The awards for middle and senior managers are also adjusted to reflect the level of performance by the business with regard to its working capital management.
For certain senior and middle managers awards are made under the Vesuvius Medium Term Plan ("MTP"). Awards under the MTP are based on the same measures and targets as the Annual Incentive Plan for those managers. Middle managers participate in the MTP at varying percentage levels, with awards being made in cash. Senior managers have their MTP awards made over Vesuvius shares. In each case, awards are granted following the end of the relevant financial year. The MTP share awards vest on the second anniversary of the date of grant, subject to continuing employment. From 2014 onwards members of the Group Executive Committee (who in 2013 were included in the above MTP in shares) will instead participate in the Vesuvius Share Plan and receive awards of Performance Shares, which will vest in accordance with the same measures and targets as those for Executive Directors. Levels of awards will differ from those of Executive Directors.
Consideration of shareholder views
Vesuvius is committed to open and transparent dialogue with its shareholders on remuneration as well as other governance matters. As Chair of the Committee, Jane Hinkley welcomes shareholder engagement and is available for any discussions investors wish to have on remuneration matters. During 2013, Jane Hinkley undertook several meetings with investors for the discussion of remuneration matters, including changes to the EPS measure for the Vesuvius Share Plan and on the change of Remuneration Committee Chair. The feedback was useful and was considered by the Committee. In setting our remuneration policy, we have made no material changes to the way in which the policy has functioned for Executive Directors in 2013 and hence we have not undertaken specific shareholder consultation on the policy contained in this document.
Shareholding Policy (Audited)
The Remuneration Committee encourages Executive Directors to build and hold a shareholding in the Company equivalent in value to at least one times base salary. To this end, Executive Directors will normally be expected to retain at least 50% (measured as the value after tax) of any Performance Share Awards vesting under the Vesuvius Share Plan, until this criterion has been met. New Executive Directors will be allowed four years in which to acquire this shareholding.
As at 31 December 2013, using the Company's share price at 31 December 2013 of 510p, the Executive Directors' shareholdings against this guideline were as follows:
|Director||Actual share ownership as a percentage|
of salary at 31 December 2013
|Policy share ownership as a|
percentage of salary
|Chris O'Shea||88%||100%||Yes (in the build-up period)|
The Executive Directors are subject to clawback arrangements. In the event that a misstatement is identified in the Company's consolidated financial statements which requires the restatement of a prior year's accounts in order to ensure compliance with the requirements of International Financial Reporting Standards or any applicable law, then such portion as the Remuneration Committee deems appropriate of any variable executive remuneration – being all Annual Incentive and Performance Share awards made under the Vesuvius Share Plan – resulting from a measure of financial performance affected by the misstatement will be subject to clawback provisions. The misstatement must be identified and notified to the individual in writing within three years after the end of the relevant performance period.
Whilst neither of the Executive Directors serves as a Non-executive Director of any other quoted company, subject always to consent being granted by the Company for them to take up such an appointment, were they to so serve, the Company would allow them to retain any fees they received for the performance of their duties.
Policy for Non-executive Directors
The Company seeks to appoint Non-executive Directors who have relevant professional knowledge, and have gained experience in a relevant industry and geographical sectors, to support diversity of expertise at the Board and match the wide geographic spread of the Company's activities.
Non-executive Directors attend Board, Committee and other meetings, held mainly in the UK, together with an annual strategy review to debate the Company's strategic direction. All Non-executive Directors are expected to familiarise themselves with the scale and scope of the Company's business and to maintain their specific technical skills and knowledge.
The Board sets the level of fees paid to the Non-executive Directors after considering the role and responsibilities of each Director and the practice of other companies of a similar size and international complexity. The Non-executive Directors do not participate in Board discussions on their own remuneration. No variable remuneration is available to Non-executive Directors. Non-executive Directors receive reimbursement of reasonable expenses incurred in attending the Board, Committee and other ad hoc meetings.
|To attract and retain Non-executive Directors of the necessary skill and experience by offering market competitive fees.|
No eligibility for participation in incentive schemes, bonus schemes or retirement plans.
|Fees are reviewed biannually by the Board.|
Non-executive Directors are paid a base fee for the performance of their role, payable in cash, plus additional fees for committee chairmanship or acting as the Senior Independent Director.
The Chairman is paid a single fee and receives administrative support from the Company.
|Non-executive Directors and the Chairman will be paid market appropriate fees, with any increase reflecting changes in the market or adjustments to a specific Non-executive Director's role.|
No eligibility for bonuses, retirement benefits or to participate in the Group's employee share plans.
Overall fees paid to Non-executive Directors will remain within the aggregate limit stated in our Articles, currently £500,000.
Terms of Service
The terms of service of the Chairman and the Non-executive Directors are contained in letters of appointment. Each Non-executive Director is appointed subject to their election at the Company's first Annual General Meeting following their appointment and re-election at subsequent Annual General Meetings. None of the Non-executive Directors is entitled to receive compensation for loss of office at any time. During the first year of his appointment the Chairman is entitled to 12 months' notice from the Company; thereafter, he is entitled to six months' notice from the Company. All Non-executive Directors are subject to retirement, and election or re-election, in accordance with the Company's Articles of Association. The current policy is for Non-executive Directors to serve on the Board for a maximum of nine years, with review at the end of the three and six years, subject always to mutual agreement and annual performance evaluation. The Board retains discretion to extend the tenure of Non-executive Directors beyond this time, subject to the requirements of Board balance and independence being satisfied.
The table below shows the date of appointment for each of the continuing Non-executive Directors:
|Non-executive Director||Date of Appointment|
|John McDonough||31 October 2012|
|Nelda Connors||1 March 2013|
|Christer Gardell||31 October 2012|
|Jeff Hewitt1||31 October 2012|
|Jane Hinkley||3 December 2012|
- Jeff Hewitt previously served as a Non-executive Director of Cookson Group plc from June 2005.