Information not subject to audit
This report provides the information required by the Directors’
Remuneration Report Regulations 2002 (the Regulations). It also
describes how the principles of the Combined Code in relation to
executive directors’ remuneration are applied by the Company.The
Company confirms that it complies with the requirements of the
The Group operates in a highly competitive, international market. Its business is complex, technologically advanced and has long time horizons. The Group is committed to achieving sustained improvements in performance and this depends crucially on the individual contributions made by the executive team and by employees at all levels. The Board therefore believes that an effective remuneration strategy plays an essential part in the future success of the Group by providing incentives which create a close identity of interest with shareholders.
A resolution will be put to shareholders at the Annual General Meeting (AGM) on May 4, 2005 inviting them to approve this report.
The remuneration committeeThe remuneration committee has responsibility for making recommendations to the Board on the Group’s policy towards executive remuneration. The committee determines, on the Board’s behalf, the specific remuneration packages of the executive directors and a number of senior executives. A copy of the committee’s terms of reference is available in the Investors section on the Group’s website at www.rolls-royce.com.
The committee consists exclusively of independent, non-executive directors. It was chaired by Mr C G Symon throughout the year and its other members were Mr P J Byrom and Mr C-P Forster. Sir John Weston served as a member of the committee until his retirement from the Board on December 1, 2004. With effect from February 9, 2005 the membership of the committee was changed and it currently comprises the Hon A L Bondurant, Mr P J Byrom, Mr C-P Forster and Sir John Taylor,with Mr C G Symon continuing to serve as chairman of the committee.
In 2004 Lord Moore of Lower Marsh and Sir John Rose attended meetings by invitation but were not present during any discussion of their own emoluments.
The committee met on four occasions in 2004 and details of members’ attendance are set out in the Report of the directors.
Advice to the remuneration committeeThe committee appoints its own consultant to provide it with independent advice.During 2004 the committee’s consultant was Mercer Human Resource Consulting (Mercer). Mercer also provided advice to the Group on insurance and pension matters.
The committee may also call for information and advice from other advisers inside and outside the Group. In 2004, Lord Moore and Sir John Rose made recommendations to the committee relating to the performance of their direct reports and on the appropriateness of particular remuneration proposals to the Group’s needs. Internal support was provided primarily by the Director – Human Resources, Mr J R Rivers, advised by Deloitte & Touche LLP. The Company Secretary, Mr C E Blundell, also provided support to the committee. Ad hoc advice has been provided by employees from Human Resources, Finance and Business Development when required.
The committee also received advice on remuneration matters from Deloitte & Touche LLP and the Company’s lawyers, Freshfields Bruckhaus Deringer. During 2004,Deloitte & Touche LLP also advised the Group on corporate tax, transfer pricing and customs duties.
The Board has adopted, on the recommendation of the committee, a
remuneration policy reflecting the following broad principles which
it will continue to apply in 2005:
The policy framework
- the remuneration of executive directors and other senior executives should reflect their responsibilities and contain incentives to deliver the Group’s performance objectives; it must also be capable of attracting and retaining the individuals necessary for business success;
- a significant proportion of total remuneration should be based on Group and individual performance, both in the short and long term; and
- the system of remuneration should establish a close identity of interest between senior executives and shareholders through measures such as encouraging the acquisition of a significant shareholding in the Company.
The committee regularly reviews both the competitiveness of the Group’s remuneration structure and its effectiveness in incentivising executives to enhance value for shareholders over the longer term. It considers that a successful remuneration policy needs to be sufficiently flexible to take account of future changes in the Group’s business environment and in remuneration practice.
The main components of remuneration
The main components of remuneration comprise: base salary, annual
incentive arrangements, long-term share based incentives and
pension and life assurance benefits. Executive directors and senior
executives are also entitled to a company car or car allowance,
private medical insurance, financial counselling and, in the case
of Mr J M Guyette, a housing allowance.
The committee considers that there should be a continuing emphasis on those elements of remuneration, such as annual and long-term incentives, which directly influence the performance of senior executives.
Base salariesIn determining the relative importance of these elements of remuneration, the committee believes that base salaries should be set at levels required to recruit and retain high quality senior executives.
The committee believes that base salaries should be set with reference to the median-level of the relevant marketplace. All salary increases must be justified on the basis of performance and are not automatic.
Other benefits are generally at the median of market practice.
Performance-related incentive plans should provide the opportunity
of increasing total earnings to the upper quartile of the
marketplace if performance justifies it. Executive directors and
senior executives participate in the Annual Performance Related
Award plan (APRA). Under APRA as operated in 2004, they were
eligible for awards of up to 80 per cent of base salary on the
achievement of predetermined targets. In the case of the Chief
Executive the maximum was 100 per cent. It is possible for these
maximum awards to be increased by 20 per cent to reflect
exceptional personal performance. APRA awards do not form part of
pensionable earnings. The APRA performance targets set by the
committee are based on the Group’s annual operating plans. For
2004, the measures for executive directors included underlying
profit, average cash balance, cash flow and personal performance
through specific personal objectives. Forty per cent of any APRA
bonus depends on personal performance against these specific
objectives. In the case of Mr C H Green,who is a member of the
Board, the award also reflected the performance of the business
sector for which he is responsible.
All executive directors therefore have a high proportion of their annual remuneration at risk. For the Chief Executive, his 100 per cent maximum bonus opportunity means that up to 50 per cent of his combined basic pay and bonus is directly related to annual financial and personal performance. In 2004 the level of achievement against the financial measures was sufficient to generate the maximum level of bonus for individual participants who also achieved all their personal objectives.
In 2005, to emphasise the importance of the corporate result, the APRA bonus pool available for distribution to all participants will be generated solely by the financial performance of the Group and no bonus will be paid to any participant unless the Group achieves predetermined performance targets. These continue to be based upon profit and cash.
In previous years, for participants employed within business sectors, the pool was generated partly by Group performance and partly by the business sector; the performance of the business sector remains a factor in that it determines the extent to which executives employed in a business sector have access to the pool created by corporate performance.
Performance against personal objectives will also be a factor in determining total payments from the pool for all participants.
There is a long-term incentive element in APRA as one third of the value is delivered in the form of a deferred award in the Company’s shares. A participant who is granted a deferred share award under APRA must normally continue to hold these shares and remain an employee of the Group for two years from the date of the award in order to retain the full number of shares, although shares will be released early in certain circumstances including retirement or redundancy.
The value of any deferred share awards is derived from the annual bonus criteria and is therefore dependent on Company and business financial performance; the release of deferred share awards is not dependent on the achievement of any further performance conditions. The deferred share element operated for 2004, resulting in the share awards described below. The committee intends to maintain the deferred share element in respect of 2005 and future years. This arrangement provides a strong link between performance and remuneration,promotes a culture of share ownership amongst the Group’s senior management and encourages decisions in the long-term interest of shareholders.
The same targets set for APRA are used for the All Employee Bonus Scheme which enables all employees worldwide to receive a bonus of up to two weeks’ pay, based on corporate and business performance.
A deferred share incentive plan (DSIP) was operated for 2002 which was restricted to a small number of key executives, including executive directors. No awards under the DSIP were made in 2004 and it is not intended that the plan will be operated again. DSIP grants made in 2002 have not yet vested.
Long-term incentivesIn 2003 the committee completed a review of long-term incentive arrangements and concluded that the introduction of a new plan, the Rolls-Royce Group plc Performance Share Plan (PSP), would provide stronger incentives to improve Company performance than executive share options. Shareholders gave their approval to the introduction of the PSP at the 2004 AGM. In light of this, the committee does not intend to make further grants under the Rolls-Royce 1999 Executive Share Option Plan.
Rolls-Royce Group plc Performance Share Plan
The PSP has the following principles:
– annual grants of awards in respect of a given number of shares to each participating executive;
– a three-year performance period;
– the number of shares released is dependent on the achievement of pre-determined corporate performance criteria;
– the release of the shares is contingent on the executive’s continued employment within the Group during the performance period (except in specified circumstances such as retirement or redundancy. In these circumstances or on a change of control, shares can only be released pro rata to service during the performance period and only to the extent justified by performance against the criteria);
– there is no re-testing of performance criteria and no automatic vesting in the event of a take-over; and
– executives are required to retain at least one half of any released shares after tax until they retire from the Group.
The performance criteria established by the remuneration committee are intended to incentivise performance against three measures considered to be particularly important in generating shareholder value. These measures are cash generation, earnings and total shareholder return.
The performance criteria are as follows:
No shares will be released unless the growth in the Company’s Earnings Per Share (EPS), as defined by Financial Reporting Standard 14 (FRS 14), exceeds the UK retail price index by three per cent per year over the performance period.
The number of shares released (if any) will be determined in accordance with Cash Flow Per Share (CPS) targets, which will not be adjusted for inflation.
CPS is defined as:
Cash flow after interest, taxation and capital expenditure, but before cost of business acquisitions or proceeds of disposals and dividends, divided by the weighted average number of shares in issue calculated in accordance with FRS 14.
Shareholders have authorised the committee to set CPS performance targets for future grants provided that, in the committee’s reasonable judgement, the targets are no less challenging in the light of the Group’s business circumstances and its internal forecasts than the targets for the initial grant in 2004 as approved by shareholders.
|Aggregate CPS over
three-year performance period
maximum award released
The committee believes that these CPS targets are no less challenging than those applied in 2004 and that the performance necessary to achieve the awards towards the upper end of the range is particularly stretching. They should not, therefore,be interpreted as providing guidance on the Group’s expected performance over the relevant period.
Intermediate levels of performance will attract pro rata releases. The shares released will be determined by the total CPS generated over the three-year period.
The Company’s Total Shareholder Return (TSR) over the performance period will be compared with the TSR of the companies constituting the FTSE 100 index on the date of grant. This comparison will be carried out by an external independent agency. If the Company’s TSR exceeds the median of that group of companies, the number of shares due to be released to an executive following achievement of the EPS and CPS targets will be increased by 25 per cent. EPS and TSR performance measures are calculated from a base year which is the year before grant.
It is intended that the Chief Executive will receive annual grants of shares with a market value at the time of grant of 100 per cent of his annual salary. In accordance with the principles above, exceptional performance could result in shares being released which are equivalent to 125 per cent of his salary at the time of grant. In the case of other executives it is intended that the annual grant will be 66.6 per cent for executive directors and 50 per cent for other members of the Group Executive. The PSP permits grants up to 200 per cent of annual salary.
The PSP is designed to provide awards which are at the median of the marketplace for UK companies of similar size and complexity to the Company. It will also be applied to other executives below Board level with awards being made on a pro rata basis.
In line with the committee’s established policy, it is envisaged that existing issued shares will be used to satisfy awards,but in order to provide flexibility, the PSP rules permit the issue of new issue shares,within standard limits.
Executive share option planFollowing the introduction of the PSP it is not intended to continue the practice of granting executive share options.
The exercise of options granted prior to the introduction of the PSP is
subject to a performance condition that the Company’s growth in EPS, as defined by FRS 14, must exceed the UK retail price index by an average of three per cent per annum over a rolling three-year period. These performance conditions apply to all the executive directors. Achievement of the EPS target is reviewed annually by the committee.
In 2001, in order to help meet a series of demanding challenges, key members of the executive team, including the executive directors, received a larger than normal level of grant.As described in the Company’s 2001 Annual Report, this award had more demanding performance criteria and personal share ownership requirements.
Long-term incentive planThe Company has in place a long-term incentive plan, the Rolls-Royce Restricted Share Plan,which was approved by shareholders in 1997. There are no grants outstanding under this plan. It is not intended that further grants be made.
Share retention policyThe committee requires participants in the PSP to retain at least one half of any shares released from the PSP until their retirement, except that shares may be sold within one year before the normal or agreed retirement date or on leaving for any other reason once a committed date has been agreed. This exception is intended to ensure that participants are not disadvantaged under Capital Gains Tax rules on leaving employment.
All employee share plansThe committee believes that share-based plans make a significant contribution to the close involvement and interest of all employees in the Group’s performance.
Executive directors are eligible to participate in the Company’s all-employee share schemes on the same terms as other employees. There are three main elements to these arrangements:
- the Sharesave Scheme – a savings-related share option scheme available to all employees.This scheme operates within specific tax legislation (including a requirement to finance the exercise of the option using the proceeds of a monthly savings contract). The exercise of the option is not subject to the achievement of a performance target;
- the ‘Free Share’element of the Share Incentive Plan, under which UK employees receive shares of up to the equivalent of one week’s pay as part of the Company component of any bonus paid for 2004; and
- the ‘Partnership Share’element of the Share Incentive Plan under which UK employees may make regular purchases of shares from pre-tax income.
International Financial Reporting StandardsThe committee intends to work closely with the audit committee to monitor and react appropriately to any impact which the introduction of International Financial Reporting Standards may have on the performance measures under annual and long-term incentive plans.
The committee’s policy is that executive directors appointed to the
Board are offered notice periods of 12 months. The committee
recognises that in the case of appointments to the Board from
outside the Group, it may be necessary to offer a longer initial
notice period,which would subsequently reduce to 12 months after
that initial period.
The committee has a defined policy on compensation and mitigation to be applied in the event of a UK director’s contract being prematurely terminated.
In these circumstances, steps are taken to ensure that poor performance is not rewarded. When calculating termination payments, the committee takes into account a range of factors such as age, length of service contract and the director’s obligation to mitigate his or her own loss.
Sir John Rose and Mr C H Green have service agreements with Rolls-Royce plc dated December 4, 1992 and March 1, 1991 respectively.
Rolls-Royce plc has the discretion to terminate the service agreement by paying salary and the value of all other contractual benefits in lieu of notice or pro rata in lieu of any unexpired period of notice. As a result of the voluntary agreement of Sir John Rose and Mr C H Green,with effect from January 1, 2004, the notice required to be given by Rolls-Royce plc reduced from 24 months to 12 months.
The written notice required to be given by Sir John Rose and Mr C H Green remains six months. In the event of the executives’contracts being terminated by Rolls-Royce plc other than in accordance with the contracts’ terms, they are entitled to receive a liquidated sum calculated as 12 months’ salary and benefits. Performance related payments are not covered under this arrangement, although an annual bonus may be paid if the executive is in post at the end of the year.
The executives are entitled to participate in the Group’s performance related bonus arrangement with a maximum bonus of 100 per cent of basic salary in the case of Sir John Rose and 80 per cent of basic salary in the case of Mr C H Green.
One third of the value of any bonus is paid in the form of Rolls-Royce Group plc shares. The executives are eligible to participate in the PSP and are entitled to membership of an appropriate Group pension scheme and life assurance benefits. They are provided with a company car (the Group bearing maintenance and running costs), or a monthly car allowance, cover under the Group’s private health scheme (for the executive, his wife and dependent children) and financial counselling.
Mr J P Cheffins has a service agreement with Rolls-Royce plc dated May 4, 2001 terminable by 12 months’written notice by Rolls-Royce plc and six months’ written notice by Mr J P Cheffins. Eligibility for performance related bonus arrangements, the PSP, pensions and benefits are identical to those described above for Mr C H Green.
Mr J M Guyette has a contract, dated September 27, 1997, with Rolls-Royce North America Inc., drawn up under the laws of the State of Virginia. It is for an indefinite term and provides that on termination without cause he is entitled to 12 months’ severance pay without mitigation and in addition appropriate relocation costs. He is entitled to participate in the Group’s performance related bonus arrangement with a maximum bonus of 80 per cent of his salary. One third of the value of any bonus is paid in the form of Rolls-Royce Group plc shares.
He is also eligible to participate in the PSP. He is entitled to membership of an appropriate Rolls-Royce North America pension scheme. Mr Guyette is provided with a company car (the Group bearing the maintenance and running costs), or a monthly car allowance, housing allowance and appropriate club membership fees, cover under Rolls-Royce North America’s private health scheme (for himself, his wife and dependent children), and financial counselling.
Dr M G J W Howse’s service agreement with Rolls-Royce plc dated October 12, 2001 terminated automatically on his 62nd birthday on June 20, 2004. Dr Howse, who is now employed on a rolling contract terminable by 12 months’ written notice by Rolls-Royce plc and 12 months’written notice by Dr Howse, elected to receive retirement benefits under the Rolls-Royce pension arrangements with effect from July 1, 2004 and is not entitled to accrue any further pension under these arrangements. Details of the pension accrued between January 1, 2004 and June 30, 2004 are provided in the table below.
Eligibility for performance related bonus arrangements, PSP and other benefits are identical to those described above for Mr C H Green.
Mr A B Shilston has a service agreement with Rolls-Royce plc dated November 5, 2002 terminable by 12 months’written notice by Rolls-Royce plc and six months’written notice by Mr A B Shilston.Eligibility for performance related bonus arrangements, PSP and other benefits are identical to those described for Mr C H Green above. Mr Shilston participates in Inland Revenue approved pension arrangements in respect of salary up to the Inland Revenue cap (currently £102,000) and in the Rolls-Royce Supplementary Retirement Scheme, a money purchase Funded Unapproved Retirement Benefit Scheme, in respect of the excess of salary over the cap.
Executive directors’ directorships of other companies
During 2004, Sir John Rose was a non-executive director of Eli
Lilly and Company, Mr C H Green was a non-executive director of BAA
plc until his resignation on July 31, 2004, Mr J M Guyette was a
director of the Private Bank and Trust Company of Chicago, Illinois
and of priceline.com Inc and Mr A B Shilston was a non-executive
director of AEA Technology plc until his resignation on July 22,
2004. On November 8, 2004, Mr A B Shilston was appointed as a
non-executive director of Cairn Energy PLC. In all these cases, the
director retained the relevant fees from serving on the boards of
these companies, as shown in the table below:
|Payment received £000|
|Mr C H Green||14|
|Mr J M Guyette1,2||32|
|Sir John Rose 1,3,4||32|
|Mr A B Shilston||23|
|1 Sir John Rose and Mr J M Guyette were paid in US dollars translated at $1.83 = £1.|
|2 In addition to an annual fee, Mr J M Guyette received 8,000 stock options in priceline.com at an option price of US$28.22 per share. He also received 2,000 restricted shares.The value of the shares will be determined at the market rate after vesting when they are exercised. He also received 1,500 stock options in Private Bank at an option price of US$53.78 per share.|
|3 Sir John Rose elected to defer his payment and received 899 deferred shares in Eli Lilly and Company at an average market price of US$66.358 per share.|
|4 In addition to an annual fee, Sir John Rose received stock options under the Lilly Stock Plan for 2,800 shares at an option price of US$73.11 per share. He also received 700 shares under the Lilly Directors’ Deferral Plan at a market price of US$56.59 per share which are payable after service on the Board has ended.|
Non-executive directorsThe non-executive Chairman and the non-executive directors have letters of appointment rather than service contracts. No compensation is payable to the Chairman or to any non-executive director if the appointment is terminated early.
Following a period of illness, Mr D E Baird resigned as Chairman with effect from June 21, 2004.
Lord Moore of Lower Marsh served as Acting Chairman from December 17, 2003 during Mr Baird’s absence due to ill health and on June 21, 2004 was appointed Chairman of the Company on an interim basis. Lord Moore retired from the Board on December 31, 2004. He will continue to chair the Trustees of the Rolls-Royce Pension Fund following his retirement from the Board. Sir John Weston retired as a non-executive director with effect from December 1, 2004.
Mr S M Robertson was appointed non-executive Chairman with effect from January 1, 2005. He served as a non-executive director of the Company from November 5, 2004 to December 31, 2004 prior to his appointment as Chairman.
Sir John Taylor was appointed as a non-executive director with effect from November 5, 2004.
Mr I C Conn was appointed as a non-executive director with effect from January 20, 2005.
Non-executive directors’ feesThe fees paid to non-executive directors (see below) are determined by the Board informed by independent market surveys. In January 2005 a review was undertaken of the non-executive directors’ fees, based on a specially commissioned, independent market survey (see below).The non-executive Chairman and the non-executive directors are not eligible to participate in any of the Group’s share schemes, performance pay arrangements or pension schemes.
A facility is in place which enables non-executive directors to use some or all of their fees, after the appropriate statutory deductions, to make private purchases of shares in the Company on the open market,on a monthly basis.
The Company’s Total Shareholder Return performance over the
previous five years compared to a broad equity market index is
shown in the graph below together with the performance of the
Company compared to the FTSE 100. The FTSE 100 has been chosen as
the comparator index because it contains a broad range of other
leading UK listed companies.
Information subject to audit
|Annual Performance Related
Award plan (APRA)
|Basic salaries £000||Basic salaries £000||Board and commi-ttee fees £000||Cash bonus £000||Deferred shares £000||Total APRA1 £000||SRS pay-ments2 £000||Taxable benefits3 £000||Aggregate emolu-ments excluding pensions contrib-utions4
|Aggregate emolu-ments excluding pensions contrib-utions4 £000|
|Mr J P Cheffins||390||412||—||224||112||336||—||24||772||693|
|Mr C H Green||364||368||—||173||86||259||—||30||657||641|
|Mr J M Guyette5||380||351||—||175||88||263||—||34||648||631|
|Dr M G J W Howse||305||312||—||165||83||248||—||25||585||514|
|Sir John Rose||627||645||—||421||210||631||—||9||1,285||1,042|
|Mr A B Shilston||331||357||—||243||121||364||41||13||775||618|
|Mr D E Baird6||—||—||49||—||—||—||—||5||54||253|
|Hon A L Bondurant||—||—||36||—||—||—||—||—||36||9|
|Mr P J Byrom||—||—||52||—||—||—||—||—||52||44|
|Mr C-P Forster||—||—||40||—||—||—||—||—||40||9|
|Lord Moore of
|Sir Robin Nicholson||—||—||42||—||—||—||—||—||42||41|
|Mr S M Robertson8||—||—||5||—||—||—||—||—||5||—|
|Mr I C Strachan||—||—||40||—||—||—||—||—||40||9|
|Mr C G Symon||—||—||46||—||—||—||—||—||46||38|
|Sir John Taylor9||—||—||5||—||—||—||—||—||5||—|
|Sir John Weston10||—||—||37||—||—||—||—||—||37||34|
|Sir Ralph Robins11||40||—||—||—||—||—||—||—||—||40|
|1 Shares forming part of the bonus under APRA have been valued at date of award.|
|2 Payments made to Mr A B Shilston in connection with his participation in the Rolls-Royce Supplementary Retirement Scheme (SRS) (see pages 44 and 51), enabling him to discharge the income tax liability incurred by him on the contributions made by the Group into the SRS.|
|3 Taxable benefits include the following: company car or car allowance, private medical insurance and financial counselling, and in the case of Mr J M Guyette, a housing allowance and appropriate club membership fees.|
|4 Details of the directors’ pensions are set out on pages 50 and 51.|
|5 Mr J M Guyette was paid in US dollars translated at $1.83 = £1.|
|6 Mr D E Baird resigned as a director and Chairman with effect from June 21, 2004. He waived the payment of the £257,400 cash element of his annual fee with effect from March 10, 2004.|
|7 Lord Moore of Lower Marsh retired both as a non-executive director and Chairman with effect from December 31, 2004.|
|8 Mr S M Robertson was appointed to the Board as a non-executive director with effect from November 5, 2004 and as non-executive Chairman with effect from January 1, 2005.|
|9 Sir John Taylor was appointed to the Board as a non-executive director with effect from November 5, 2004.|
|10 Sir John Weston retired as a non-executive director with effect from December 1, 2004.|
|11 Sir Ralph Robins retired as a director with effect from January 31, 2003.|
Information not subject to audit
Non-executive directors’ fees
In 2004 each non-executive director received an annual fee of £30,000. In addition, fees of £6,000 per annum were paid to members of the audit, remuneration and nominations committees, with the chairmen of the audit and remuneration committees receiving a further £6,000 per annum.
In February 2005, the Board reviewed the fees payable to the non-executive directors. In carrying out this review, the Board took account of the results of a specially commissioned, independent market survey.
Having taken into account this external advice, the Board concluded that there was a strong case for increasing the non-executive directors’ fees to more competitive levels in order to reflect the increased responsibilities and time commitments which recent changes in corporate governance are imposing on all non-executive directors.
The Board is therefore proposing that with effect from May 2005, the fees should be restructured so that in future a non-executive director would receive a fee of £50,000 reflecting his or her membership of the Board and of Board committees. The chairman of the audit committee would receive an additional fee of £15,000 and the remuneration committee chairman would receive an additional fee of £12,000. The senior independent director would also receive an additional fee of £5,000 for carrying out this role.
The Board will be inviting shareholders at the 2005 AGM to approve a resolution to increase the maximum total amount payable to all the non-executive directors and the non-executive Chairman from £600,000 to £850,000. This increase will enable the fees payable to the non-executive directors to be increased to the levels described above, as well as providing some limited headroom for further increases in fees that may be required in the future in response to movements in the market.
The annual fee payable in 2004 to Mr D E Baird, the former Chairman, was £325,000 (comprising a fee of £257,400 and £67,600 to cover the annualised cost of an apartment made available by the Group for his use). Mr Baird resigned as a director and as Chairman with effect from June 21, 2004. Payment of the cash element of this fee was waived by Mr Baird with effect from March 10, 2004. He therefore received a total cash fee for 2004 of £49,000.
Mr Baird no longer had the use of the apartment following his resignation and the cost of the apartment up to the date of his resignation was £32,000, with related expenses of £2,000 being paid by the Group.
Lord Moore of Lower Marsh, who served as Acting Chairman during Mr Baird’s absence from December 17, 2003, was appointed Chairman on an interim basis with effect from June 21, 2004. He was paid an annual fee of £250,000 in 2004, inclusive of any Board committee commitments or work undertaken in connection with his Chairmanship of the Rolls-Royce Pension Fund. He retired both as a director and as Chairman with effect from December 31, 2004.
Mr S M Robertson was appointed to the Board as a non-executive director on November 5, 2004 and as Chairman with effect from January 1, 2005. As Chairman Mr Robertson will receive total emoluments in the form of an annual fee of £330,000.
Payments made to former directors of the Company
Following his retirement on January 31, 2003, Sir Ralph Robins was
retained on a consultancy contract until December 31, 2004 to give
support to the planning and organisation of the Group’s centenary
celebrations and for the centennial of powered flight. For these
services he was paid a fee of £25,000 in 2004.
|Ordinary shares||B Shares|
|Mr J P Cheffins||131,572||33,176||164,748||—||123,850||123,850|
|Mr C H Green||157,793||39,003||196,796||—||—||—|
|Mr J M Guyette||151,525||29,457||180,982||—||7,707,750||7,707,750|
|Dr M G J W Howse||72,608||17,480||90,088||—||3,696,750||3,696,750|
|Sir John Rose||246,801||53,817||300,618||—||—||—|
|Mr A B Shilston||125,000||2,948||127,948||—||—||—|
|Mr D E Baird2||357,200||—||357,200||—||—||—|
|Hon A L Bondurant||3,400||—||3,400||—||—||—|
|Mr P J Byrom||142,233||5,877||148,110||—||—||—|
|Mr C-P Forster||—||1,967||1,967||—||—||—|
|Lord Moore of Lower Marsh3||72,441||55,434||127,875||—||—||—|
|Sir Robin Nicholson||17,036||401||17,437||—||—||—|
|Mr S M Robertson4||—||20,000||20,000||—||—||—|
|Mr I C Strachan||11,500||—||11,500||—||—||—|
|Mr C G Symon||6,292||259||6,551||—||—||—|
|Sir John Taylor5||—||—||—||—||—||—|
|Sir John Weston6||4,661||1,474||6,135||—||—||—|
|* or date of appointment if later.|
|§ or date of resignation if earlier.|
|1 Non-cumulative redeemable convertible preference shares of 0.1p each.|
|2 Mr D E Baird resigned as a non-executive director and Chairman with effect from June 21, 2004.|
|3 Lord Moore of Lower Marsh retired as a non-executive director and Chairman with effect from December 31, 2004.|
|4 Mr S M Robertson was appointed as a non-executive director with effect from November 5, 2004 and as Chairman with effect from January 1, 2005.|
|5 Sir John Taylor was appointed as a non-executive director with effect from November 5, 2004.|
|6 Sir John Weston retired as a non-executive director with effect from December 1, 2004.|
Mr J P Cheffins; Mr J M Guyette and Dr M G J W Howse converted their B Share holdings into 50; 3,083 and 1,478 ordinary shares respectively on January 5, 2005.
Mr C-P Forster purchased 390 shares on January 7, 2005 and 371 shares on February 7, 2005 under arrangements made for non-executive directors to purchase shares on a monthly basis using a percentage of their after tax fees. On January 5, 2005 pursuant to elections submitted, Mr J P Cheffins; Mr C H Green; Mr J M Guyette; Dr M G J W Howse; Sir John Rose; Mr A B Shilston; Hon A L Bondurant; Mr P J Byrom; Mr C-P Forster; Sir Robin Nicholson and Mr C G Symon received 2,095; 2,503; 2,302; 1,146; 3,824; 1,627; 68; 1,885; 10; 222 and 84 ordinary shares respectively following the conversion of B Shares. Otherwise there have been no changes in the directors’ interests between December 31, 2004 and February 9, 2005.
In addition the directors are, for Companies Act purposes, technically interested in the 410,747 Rolls-Royce Group plc shares held by the Rolls-Royce Qualifying Employee Share Trust and the 437,130 Rolls-Royce Group plc shares held by the Rolls-Royce Employee Share Trust.
|Shares held in trust under the Annual Profit Sharing Share Scheme1|
|Ordinary shares||B Shares2|
|Mr J P Cheffins3,4||6,307||(2,477)||3,830||—||191,500||191,500|
|Mr C H Green4||6,412||(2,752)||3,660||—||—||—|
|Dr M G J W Howse4||3,905||(1,290)||2,615||—||—||—|
|Sir John Rose4||8,016||(3,655)||4,361||—||—||—|
Shares held in trust under the Share Incentive Plan5
|Ordinary shares||B Shares2|
|Mr C H Green6,7||1,400||696||2,096||—||—||—|
|Sir John Rose6,7||1,400||696||2,096||—||—||—|
|Mr A B Shilston6,7||966||686||1,652||—||—||—|
Shares held in trust under the Share Bonus Scheme8
|Ordinary shares||B Shares2|
|Mr J P Cheffins9,10||3,614||1,297||4,911||—||180,700||180,700|
|Mr C H Green10||3,614||1,382||4,996||—||—||—|
|Dr M G J W Howse10||3,614||85||3699||—||—||—|
|Sir John Rose10||3,614||1,382||4,996||—||—||—|
|Mr A B Shilston10||1,011||1,321||2,332||—||—||—|
|1 Under the profit sharing share scheme, shares vest after three years.|
|2 Non-cumulative redeemable convertible preference shares of 0.1p each.|
|3 On January 5, 2005 pursuant to an election submitted, Mr J P Cheffins converted his B Share holding and received 76 ordinary shares.|
|4 On January 5, 2005 pursuant to elections submitted Mr J P Cheffins; Mr C H Green; Dr M G J W Howse and Sir John Rose received 49; 46; 33 and 55 ordinary shares respectively following the conversion of B Shares.|
|5 Under the Share Incentive Plan, shares vest on the fifth anniversary of each monthly purchase.|
|6 On January 5, 2005 pursuant to elections submitted Mr C H Green; Sir John Rose and Mr A B Shilston received 25; 25 and 19 ordinary shares respectively following the conversion of B Shares.|
|7 Mr C H Green, Sir John Rose and Mr A B Shilston purchased 50 and 47 shares each respectively on January 7, 2005 and February 7, 2005 under the Inland Revenue approved Share Incentive Plan.|
|8 Under the share bonus scheme, shares vest after five years.|
|9 On January 5, 2005 pursuant to an election submitted, Mr J P Cheffins converted his B Share holding and received 72 ordinary shares.|
|10 On January 5, 2005 pursuant to elections submitted, Mr J P Cheffins; Mr C H Green; Mr M G J W Howse; Sir John Rose and Mr A B Shilston received 62; 63; 47; 63 and 30 ordinary shares respectively following the conversion of B Shares.|
Information subject to audit
|Mr J P Cheffins||72,250||72,250*||176p||2005|
|Mr C H Green||67,250||67,250||—||176p||232.50p||38||2005|
|Mr J M Guyette||114,581||114,581*||269p||2005-2009|
|Dr M G J W Howse||41,250||41,250||—||176p||233.75p||24||2005|
|Sir John Rose||116,750||116,750*||176p||2005|
|Mr A B Shilston||633,117||633,117||77p||2006-2013|
|* Performance target achieved. Option capable of exercise. All other executive share options listed above are subject to stringent targets which have yet to be achieved.
|1 Unless otherwise indicated all the above options were granted under the Executive Share Option Scheme and are subject to the achievement of performance targets (see page 43). All options granted under the executive share option scheme were granted at the market value on the date of issue and no discount was applied. No options were varied during the year and no consideration was paid for the grant of options. The market price of the Company’s ordinary shares ranged between 167.5p and 269p during 2004. The closing price on December 31, 2004 was 247p.|
|2 Supplementary options – vesting of these options is subject to the attainment of significant personal share holding targets and the requirement that growth in EPS exceeds an average of six per cent year on year as well as exceeding the UK RPI by three per cent per annum over a rolling three-year period. The increases are measured from the year 2000 or the base year of the rolling three-year period, whichever is the more stringent.|
|3 Sharesave schemes.|
|4 Weighted average exercise price of December 31, 2004 balance.|
|Shares held in trust under the Annual Performance Related Award plan1||Shares held in trust under the Deferred Share Incentive plan2|
|Mr J P Cheffins||118,426||(41,007)||42,252||119,671||171,928||—||—||171,928|
|Mr C H Green||102,186||(19,137)||37,934||120,983||160,467||—||—||160,467|
|Mr J M Guyette||124,757||(46,270)||28,253||106,740||174,303||—||—||174,303|
|Dr M G J W Howse||82,373||(21,949)||27,824||88,248||—||—||—||—|
|Sir John Rose||189,479||(65,610)||62,632||186,501||275,086||—||—||275,086|
|Mr A B Shilston||—||—||36,824||36,824||—||—||—||—|
|1 Under the Annual Performance Related Award plan, shares vest after two years (see above). Shares went in to Trust in 2002, 2003 and 2004 at prices of £1.829, £0.7646 and £2.20 respectively. At the date of this report, the amounts stated in the emoluments table on page 46 representing APRA entitlements had not yet been applied by the Trustee to purchase shares. An investment is expected to be made by March 31, 2005 when the Trustee will procure the acquisition of the required number of shares at the prevailing market price.|
|2 Under the deferred share incentive plan shares vest after three years. Shares went into Trust in 2003 at a price of £0.7646.|
|Conditional share awards January 1, 2004||Conditional shares awarded during 2004||Performance period||Market price at date of grant|
|Mr J P Cheffins||—||112,777||Jan 1, 2004 to Dec 31, 2006||232.92p|
|Mr C H Green||—||105,255||Jan 1, 2004 to Dec 31, 2006||232.92p|
|Mr J M Guyette||—||101,654||Jan 1, 2004 to Dec 31, 2006||232.92p|
|Dr M G J W Howse||—||88,017||Jan 1, 2004 to Dec 31, 2006||232.92p|
|Sir John Rose||—||270,640||Jan 1, 2004 to Dec 31, 2006||232.92p|
|Mr A B Shilston||—||95,352||Jan 1, 2004 to Dec 31, 2006||232.92p|
The number of shares released on the achievement of the EPS and CPS targets will be increased by 25 per cent if the Total Shareholder Return exceeds the median for FTSE 100 companies over the three-year performance period.
Mr J M Guyette participates in pension plans sponsored by
Rolls-Royce North America Inc.
All other executive directors under their normal retirement age are members of the Group’s UK pension schemes. These schemes are funded and approved defined benefit pension schemes providing, at retirement, a pension of up to two thirds of final remuneration, subject to Inland Revenue limits.
There is no intention to compensate directors or other senior executives for any additional tax they may be required to pay as a result of the new Inland Revenue pensions regulations which are to be introduced with effect from April 2006.
Dec 31, 20041
the year ended
Dec 31, 20042
pension as at
Dec 31, 20043
|Transfer value as
at Dec 31, 2003
at that date3
net of the
|Mr J P Cheffins||43||(34)||347||5,091||4,302||764||(504)|
|Mr C H Green||36||(28)||309||4,505||3,870||614||(411)|
|Dr M G J W Howse5||37||(31)||264||4,182||3,239||934||(495)|
|Sir John Rose||49||(39)||384||5,683||4,944||700||(377)|
|Mr A B Shilston6||2||(2)||4||64||28||91||(86)|
Dec 31, 20041
the year ended
Dec 31, 20049
lump sum as at
Dec 31, 200410
|Transfer value as
at Dec 31, 2003
at that date10
net of the
|Mr J M Guyette8,11||56||(48)||262||262||206||320||(312)|
|1 The figure in brackets is the increase in pension/retirement lump sum during the year ended December 31, 2004 but in this case excluding the effect of inflation.|
|2 The pension entitlement shown is that which would be paid annually on retirement, based on service to the end of the year.|
|3 The transfer values stated represent liabilities of the Rolls-Royce sponsored pension schemes and not sums paid to the individuals. The transfer values have been calculated on the basis of actuarial advice in accordance with Actuarial Guidance Note GN11 (GN11). GN11 covers individual transfer calculations and the above figures have been calculated using assumptions certified by the Actuary as being consistent with GN11. Transfer values calculated on this basis will vary up or down from one year to the next due to changes in financial conditions, principally long-term interest rates, from which the Actuary derives the assumptions used to place a capital value on the pension entitlement. Whilst fluctuating up or down in individual years, transfer values generally trend upwards over time as individuals complete more service and become older. Age is an important factor because shortening the period to retirement significantly increases the capital value of any given amount of pension. Part of the increase in transfer values over 2004 is attributable to falls in the market interest rates on which the transfer value calculations are based. It is also important to view the increase in transfer values quoted above in the context of transfer values having fallen during 2003. Transfer values as at December 31, 2002 can be compared to transfer values as at December 31, 2004 for Mr J P Cheffins, Mr C H Green and Sir John Rose as follows:|
|Dec 31, 2002
|Dec 31, 2004
over two years
|Mr J P Cheffins||4,483||5,091||13.6|
|Mr C H Green||4,233||4,505||6.5|
|Sir John Rose||5,268||5,683||7.8|
|Dr M G J W Howse commenced drawing his pension from July 1, 2004 (see note 5 below). In calculating transfer values in line with GN11, there is a change in methodology in the approach to valuing benefits before and after they come into payment. This change in actuarial method explains why the increase in transfer value during 2004 is larger for Dr M G J W Howse than for other directors.|
|4 The figure in brackets is the transfer value of the increase in pension/retirement lump sum during the year ended December 31, 2004 excluding the effect of inflation, and net of the member’s own contributions.|
|5 Dr M G J W Howse attained normal retirement age on July 1, 2004 and began receiving his pension benefits although he remains an executive director. The increase in accrued pension shown for Dr M G J W Howse therefore relates to the pension accrued over the first six months of the year only.|
|6 The Group operates the Rolls-Royce Supplementary Retirement Scheme (SRS). The purpose of the scheme is to fund pension provision above the pensionable earnings cap which was imposed on approved pension schemes under the 1989 Finance Act. Membership of the scheme is restricted to executive directors and to a limited number of senior executives. The members of the scheme include Mr A B Shilston. He joined the Group after the introduction of the earnings cap and his terms and conditions on joining the Group included a commitment to provide pension and life cover based on total salary, in line with other directors and senior executives. Employer contributions to this plan during 2004 have been added to the increase in transfer value over 2004 for the approved defined benefit plans, and are therefore included in the figures shown in the right hand column of the first table. In addition, the employer has paid £41,000 to Mr A B Shilston directly in order to meet the income tax liability that he will incur on these employer contributions to the unapproved plan.|
|7 Members of the schemes have the option to pay Additional Voluntary Contributions. Neither the contributions nor the resulting benefits are included in the above table.|
|8 Benefits are translated at US$1.83=£1.|
|9 The lump sum entitlement shown is that which would be paid on immediate retirement based on service to the end of the year.|
|10 The transfer values have been calculated on the basis of actuarial advice.|
|11 Mr J M Guyette is a member of two defined benefit plans in the USA, one qualified and one non-qualified. He accrues a retirement lump sum benefit in both of these plans which, as cash balance arrangements, operate on the same basis as defined contribution except a guaranteed minimum rate of interest of four per cent is applied to investments. The aggregate value of the retirement lump sums accrued in these two plans, and the transfer values of these benefits, are shown in the second table. In addition, Mr J M Guyette is a member of two 401(k) defined benefit savings plans in the USA, one qualified and one non-qualified, to which both he and his employer, Rolls-Royce North America Inc., contribute. The aggregate employer contribution invested in the cash balance and 401(k) plans each year is calculated with reference to taxable basic and annual incentive compensation to reflect market practice in the USA. However, this is capped at no more than 26 per cent of basic salary. Mr J M Guyette is also a member of an unfunded non-qualified deferred compensation plan in the USA, to which his employer makes notional contributions calculated with reference to his basic salary. Employer contributions to the 401(k) and deferred compensation plans during 2004 have been added to the increase in transfer value over 2004 for the defined benefit plans, and are therefore included in the figures shown in the right hand column of the second table.|