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The Nominations
and Remuneration Committee of the Board determines the remuneration
of executive directors including their annual bonus targets and grants
of share options. Its constitution and practice accord with the relevant
provisions of the Combined Code, as defined in the Listing Rules of the
UK Listing Authority (the Code).
The Committee seeks to maintain a competitive programme that enables the company to attract and retain the highest calibre of executive. The Committee consults with the Chief Executive and has access to external remuneration consultants, which enables wide-ranging comparisons to be made. In reviewing its remuneration policy the Committee has given full consideration to the Code and considers that there are no matters which should be submitted for approval to this year's Annual General Meeting, at which the Chairman of the Committee will be present to answer questions. The remuneration of directors is set out in tables below. Salaries are reviewed annually. The Committee takes into account individual performance and experience, the size and nature of the job, the relative performance of the company, pay policy within the company and the salary available in comparable companies. Benefits include a company car, pension, health insurance and, where appropriate, relocation expenses, generally in line with benefits available for executives in similar positions in other aerospace and engineering companies. Bonuses are based on successful performance and are paid only on the achievement of carefully considered targets and objectives. All bonuses are capped. Under a deferred share scheme, established in 1992, executive directors may use their after-tax bonus to buy the company's shares at the prevailing market price; if they retain those shares for three years they may exercise options over a matching number of shares for a nominal sum. Income tax is payable on the market value of the matching shares when the option is exercised. In December 2000 executive directors participated in the scheme in respect of their 2000 bonuses and were granted options over shares as shown in the table Directors' share options. The annual bonus and any gains under share option schemes are not pensionable. Pensions. The company pays monthly salary supplements, as money purchase contributions, to some of the directors. For the other directors, final salary schemes provide a pension of up to two thirds of final pensionable salary, subject to Inland Revenue limits. Where Revenue limits apply, the difference between the pension payable on the cap and that payable on two thirds of final salary is, after taking into account any retained benefits from previous employment, provided by the company. Details of the money purchase contributions and the pension provisions are set out in the tables below. Contract terms. Five executive directors, including two directors who joined from the Board of TI Group plc at the time of the merger in December 2000, have agreed to relinquish their two-year rolling contracts and to be employed in future on terms including a one-year rolling period of notice. The remaining two executive directors, who joined the Board in February and April 2000 respectively, are already subject to one-year notice periods (after the completion of an initial two-year term). This is consistent with the company's previously stated commitment to phase out two-year contracts for all executive directors. The terms of the one-year contracts include provision for the payment of predetermined damages in the event of termination of employment in certain circumstances.The four executive directors who, as stated in the Directors' Report, are to be proposed for re-election at the AGM are employed on one-year rolling contracts. The two TI Group directors referred to above, Mr J Langston and Mr D P Lillycrop, have also agreed to relinquish certain rights arising under their TI service agreements as a consequence of the merger. These include the right, in each case, to receive a sum of approximately £1.5m upon termination of employment in any circumstances, including termination without notice by the director concerned. In return for relinquishing these rights each of these directors has received a special payment (identified as a 'TI contract payment' in the emoluments table) of £200,000 and has become contingently entitled to receive a number of Smiths Group shares without cost on 26 September 2004 if still employed by the company on that date (or sooner in certain limited circumstances). The number of shares in question is as shown below the directors' interests table. By these means the company has secured the continued employment of these two executives. Non-executive directors were paid a total of £341,000 (including £176,000 in fees) in the year to 31 July 2001. Their remuneration is determined by the Board within the limits set out in the articles of association. They are not eligible for bonuses or participation in share schemes and no pension contributions are made on their behalf. The non-executive directors, including those who, as stated in the Directors' Report, are to be proposed for re-election at the AGM, do not have service contracts. Directors' interests in the company's shares The interests
of directors in the issued share capital of the company are set out in
the directors' interests table .
The executive share option scheme approved at the AGM in 1995 covers approximately 335 executives. Awards are approved by the Committee. In awarding share options the Committee has regard to guidelines published by investor protection committees, the individual performance of participants and any evidence that the scheme has encouraged option holders to become shareholders. Options granted under the 1995 Scheme may only be exercised after three years if a performance requirement, determined by the Committee, has been met. Under the terms of the merger with TI Group plc and the rules of the various TI Group share option schemes, holders of TI Group share options were able to exchange their options over TI Group shares for options over Smiths Group shares during the period ended 4 June 2001. All exchanged options remain subject to the rules of the TI Group share option scheme under which they were originally granted. Details of the exchanged options outstanding at 31 July 2001 are shown on note 28. The Save-As-You-Earn share option scheme, which is open to all UK employees with 12 months' service, is subject to UK legislation as to the amount that can be saved. Participants save a fixed sum per month for three or five years and may use the sum generated by their savings contracts to exercise the options which are usually granted at a 20% discount to the market price. In the year to 31 July 2001, executive directors exercised share options and at 31 July 2001 held unexercised options as described in the directors' share options table. Mr Langston and Mr Lillycrop elected to exchange all their options over TI Group shares for options over Smiths Group shares on 14 March 2001. Details of their post-exchange options are shown in the table. There were no changes in the options held by directors between 31 July 2001 and 25 September 2001. The Register of Directors' interests (which is open to inspection) contains full details of directors' shareholdings and options to subscribe for shares in the company. Subject to the overriding requirements of the company, the Committee is prepared to allow executive directors to accept external appointments where it considers that such appointments will contribute to the directors' breadth of knowledge and experience. Directors are permitted to retain fees associated with such appointments. The total remuneration
of directors, excluding the value of shares to which certain directors
may become entitled under the deferred share scheme (shown in the emoluments
table) and also defined benefit pension arrangements, is as follows:
The comparative
figures shown above include the remuneration of Mr N V Barber (who retired
on 31 July 2000) and Mr G M Kennedy (who retired on 4 August 2000).
The emoluments
of the directors are set out below:
1 The proforma
emoluments shown are the emoluments for the directors listed above paid
by the company during the financial year, and the prior financial year,
including payments made to certain directors of TI Group plc prior to
the merger; these figures are shown for illustrative purposes only. TI
contract payments are described above.
2 The deferred share scheme amounts represent shares to which certain directors may become entitled and relate to the previous year's bonus. 3 Benefits for Dr Ferrie and Mr Kinet include payments related to their relocation to the UK from the US. Pensions
An executive
director's normal retirement age is 60. An early retirement pension, based
on actual service completed, may be paid after age 50 and may be subject
to a reduction on account of early payment. On death a spouse's pension
of two-thirds of the director's pension (or for death-in-service his prospective
pension at age 60) is payable. All pensions in excess of the Guaranteed
Minimum Pension (GMP) are guaranteed to increase at the rate of 5% per
annum compound or the annual increase in the Retail Prices Index, if less;
(for Messrs Langston and Lillycrop, guaranteed increases are subject to
a maximum of 7% per annum). There has, however, been a long-standing practice
of granting additional discretionary increases on pensions in excess of
the GMP to bring them into line with price inflation.
Messrs Langston and Lillycrop became executive directors on 4 December 2000. The figures shown for contributions and additional pension cover the period from 4 December 2000 to 31 July 2001. Prior to becoming executive directors they had already accrued pension benefits during their employment with TI Group plc; these benefits are included in the accrued entitlement at 31 July 2001. TI Group arrangements
Mr Langston and Mr
Lillycrop were participants in three-year share performance plans operated
by TI Group plc prior to its merger with the company. Such participation
related to three measurement periods each of which was terminated by the
merger. No award was made in respect of the measurement period 1998-2001.
Awards of shares were made in respect of the measurement periods 1999-2002
and 2000-2003; the total number of Smiths Group shares awarded (or, where
applicable, exchanged for TI Group shares awarded) and the equivalent
total cash value based on the relevant share prices at the time of award
are set out below. The comparative cash value relates to awards made in
May 2000 in respect of the measurement period 1997-2000. No further awards
may be made under these plans.
Four executive directors of TI
Group plc at the time of the merger did not become directors of Smiths
Group. Awards of shares under three-year share performance plans made
to these former TI directors (on the same basis as in the table above)
are set out below. In addition, contractual change of control payments
made to these former directors at or shortly after the dates on which
they ceased to be employed by the company, and emoluments in respect of
the period from the merger until the cessation of employment, are set
out below.
Directors' interests in the company's shares
* indicates share interest at appointment
on 4 December 2000
These interests include beneficial interests in the company's shares held in PEPs and ISAs and holdings through nominee companies. Except as reported below, none of the directors has disclosed any non-beneficial interests in the company's shares. Mr J Langston and Mr D P Lillycrop also both have a technical interest in 7,636,379 ordinary shares in the company as discretionary beneficiaries under the TI Group Jersey Employee Share Trust and the TI Group Employee Share Trust (the 'Trusts'). These shares may be transferred to employees who exercise options granted under the TI Group share option schemes. In addition, Mr Langston has a contingent interest in 125,000 ordinary shares, and Mr Lillycrop has a contingent interest in 100,000 ordinary shares, arising from contractual arrangements as disclosed in the Contract Terms section of the Committee's report. The company has not been notified of any changes to the holdings of the directors, their families and any connected persons between 1 August and 25 September 2001. Directors' share options
Key
Notes
The high and low market
prices of the ordinary shares during the period 1 August 2000 to 31 July
2001 were 984p and 632p respectively.
The mid-market price on
31 July 2000 was 915p and on 31 July 2001 was 772p.
Of the 2,060,481 shares
under options granted to directors under the executive and savings-related
share options schemes operated by the company, 1,965,555 were at exercise
prices above the market price on 25 September 2001, and 94,926 were at
exercise prices below the market price on that date.
No options lapsed during the period 1 August 2000 to 31 July 2001. No options have been granted or exercised or have lapsed during the period 1 August to 25 September 2001. Deferred Share Scheme options were granted on 4 December 2000 at an Exercise Price of 0.1p per share and match shares purchased in the market by the grantee on that day. At 31 July 2001 the Deferred Share Scheme held 266,811 shares for the benefit of senior executives (including the directors as disclosed above). The market value of these shares at that date was £2.06m and dividends of approximately £56,770 were waived in the year in respect of the shares. With the exception of Mr G M Kennedy (who retired on 4 August 2000), no other director held any options over the company's shares during the period 1 August 2000 to 31 July 2001. |
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