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| Target incentive (as a % of salary) |
Maximum incentive (as a % of salary) |
|
Weighting of target incentive objectives |
||
|---|---|---|---|---|---|
| Corporate | Individual | ||||
| Mr Matthew Emmens Chief Executive Officer |
65% | 115% | 80% | 20% | |
| Mr Angus Russell Chief Financial Officer |
55% | 100% | 70% | 30% | |
The incentive payments awarded to each executive Director for 2005 reflect the corporate and individual achievements and amounted to 115% of salary for Mr Emmens and 70% of salary for Mr Russell.
These incentive awards are consistent with the overall performance of the Company in 2005, which included:
- revenue growth of 17%;
- the acquisition of TKT;
- the in-licensing/acquisition/co-promotion of four new products (NRP104, ELAPRASE, DYNEPO, GA-GCB);
- the launch of four new products (FOSRENOL, EQUETRO, XAGRID, PENTASA 500mg);
- highly successful achievement of R&D milestones including the filing of MESAVANCE and ELAPRASE in the US and the reinstatement of ADDERALL XR in Canada; and
- the highly successful implementation of other Scorecard objectives focused on the continuing growth of the Company.
Changes to the Annual Incentive Plan for 2006 following the remuneration review and subsequent consultation with shareholders
As part of the remuneration review and following consultation with the Company's major shareholders and investor bodies (including the ABI and RREV), the Committee proposed some changes to the Annual Incentive Plan.
As described in last year's remuneration report, in 2005, the Company ceased the matching share portion of the Plan (by discontinuing the Deferred Bonus Plan). For the financial year 2006, a restricted share element has been added to the Plan, so the Plan effectively has two components: a cash component and a share component.
The target cash incentive for the Chief Executive Officer and the Chief Financial Officer remain respectively at the 2005 levels of 65% and 55% of salary and the maximum cash incentive amounts remain respectively 115% and 100% of salary.
The new restricted share element will be set as follows: for the Chief Executive Officer, the target restricted share element is 20% and the maximum restricted share element is 65%. For the Chief Financial Officer, the target restricted share element is 15% and the maximum restricted share element is 55%. Awards of restricted shares will be made in the same manner as awards of cash under the Plan, utilizing the same operational objectives and measures (per Company's Balanced Scorecard and individual objectives). The levels of target and maximum restricted shares have been set to be competitive in both the UK and US and to enable Shire to operate a common framework for the senior executive team irrespective of location. The restricted share element is earned at the same time as the cash portion of the incentive, but is deferred for three years. As discussed with the Company's major shareholders and investor bodies, this restricted share element is taken into account for the purposes of determining competitive levels of share-based and total compensation. The table below compares the previous and the new Annual Incentive Plan structure.
| Previous Annual Incentive Plan - cash only |
|
New Annual Incentive Plan - cash plus restricted shares |
|||
|---|---|---|---|---|---|
| Target incentive (as a % of salary) |
Maximum incentive (as a % of salary) |
Target incentive (as a % of salary) |
Maximum incentive (as a % of salary) |
||
| Mr Matthew Emmens Chief Executive Officer |
65% | 115% | |
65% cash 20% shares |
115% cash 65% shares |
| Mr Angus Russell Chief Financial Officer |
55% | 100% | |
55% cash 15% shares |
100% cash 55% shares |
3 Long-term Incentives
(a) Share options
During 2005, discretionary grants of share options under the Company's 2000 Executive Share Option Scheme* were made to executive Directors to align their interests with those of shareholders and to promote sustained long-term Company performance. The face value of annual option grants under the Scheme was capped at three times salary. In order for options to vest, stretching performance targets must be met. For 2005 grants, the performance target is based on real growth in diluted Earnings Per Share (EPS) as reported under US GAAP adjusted to ensure a consistent basis of measurement, as approved by the Remuneration Committee, including the add back of significant one time items.
The earnings per share based measure was introduced in 2002 following consultation with major institutional shareholders and, during the course of the consultation process, the performance test for executive Directors' options was toughened compared to that for other employees.
The minimum performance required in order for executive Directors' options to vest is that Shire's EPS grows by 15% in excess of the Retail Price Index (RPI) (or 5% on average a year) in the three years following the date of grant. In the case of an annual grant of options worth three times salary, Shire's EPS must grow by 21% in excess of RPI (or on average 7% a year) in the three years following the date of grant for all the options to vest.
| Options with a value on grant as a % of salary |
Three-year EPS growth |
|---|---|
| Up to 100% | RPI plus 15% (for executive Directors) (RPI plus 9% for all other employees) |
| 101% to 200% | RPI plus 15% |
| 201% to 300% | RPI plus 21% |
| Over 301% of salary | RPI plus 27% |
The 2000 Executive Share Option Scheme, which was approved by shareholders in 2000, contained an unlimited retesting feature from the date of grant. The Remuneration Committee decided, after consultation with some of the Company's major institutional shareholders in 2003, that for options granted under the scheme from 2004 onwards, the performance condition should be retested once only, five years after the grant and then only where Shire's EPS growth has not met the minimum level of performance over the first three years. The level of EPS growth over the five-year period needs to be commensurately higher to meet the retest.
The new Portfolio Share Plan does not allow re-testing.
The table below sets out the share options that were granted to executive Directors during 2005.
| Executive Director and share opion scheme |
Date of grant | Number of ordinary shares |
Exercise Price £ |
|---|---|---|---|
| Mr Matthew Emmens Chief Executive Officer |
May 2005 | 295,000 | 5.585 |
| Mr Angus Russell Chief Financial Officer |
May 2005 | 195,000 | 5.585 |
Details of the Company's share option schemes are set out in Note 31 to the consolidated financial statements. Performance conditions attaching to previous executive option grants are detailed in the audited section of this Report.
*The Portfolio Share Plan has replaced both the 2000 Executive Share Option Scheme and the Long-term Incentive Plan
(b) Long-term Incentive Plan
The Long-term Incentive Plan (LTIP) was adopted at the Company's 1998 Annual General Meeting and amended in 2000. Under the LTIP, the Remuneration Committee has discretion to make awards of shares subject to a maximum of 100% of salary a year.
The performance condition attached to the vesting of awards under the LTIP is Shire's Total Shareholder Return (TSR) relative to the FTSE 100 Index over a three-year period. The Committee considers that this measure is a reliable and appropriate measure of the Company's performance and that the FTSE 100 is an appropriate benchmark given that the Company is a member of the Index.
Under the LTIP:
- all shares vest if Shire's TSR is in the top 10% of the FTSE 100;
- 20% of the shares vest if Shire's TSR is at the median of the FTSE 100, with vesting between these points on a linear basis; and
- no shares vest if Shire's TSR is below the median of the FTSE 100.
The Remuneration Committee determines whether and to what extent the performance condition has been met on the basis of data provided by an independent third party. To date, all awards made under the LTIP have been made as a 'conditional allocation', thereby allowing, at the Remuneration Committee's discretion, for a cash equivalent to be paid on maturity of the award. Whilst the performance period is measured over three years, an award is normally transferred after the fourth anniversary of grant, to the extent the performance condition has been met.
Directors were granted awards under the LTIP in 2005 as a 'conditional allocation' (as defined in the LTIP), as follows:
| Date of award |
Value of conditional award at grant date $(i) |
Total number of ordinary shares |
Earliest date on which an award can be transferred to a Director |
|
|---|---|---|---|---|
| Mr Matthew Emmens | May 2005 | 1,024,504 | 97,468 | May 2009 |
| Mr Angus Russell | May 2005 | 664,486 | 63,217 | May 2009 |
(i) Translated from £ into $ at the average exchange rate during May 2005.
(c) The New Portfolio Share Plan
As part of the remuneration review, the Committee proposed a number of changes to existing equity plans. Following consultation with the Company's major shareholders and investor bodies including the ABI and RREV the Committee made changes to its initial proposals consistent with shareholder feedback and submitted the new Plan for shareholder vote in October 2005. The Plan was approved by an overwhelming majority of shareholders. This new Plan, The Portfolio Share Plan (the Plan), was adopted by the Company's shareholders on October 28, 2005. This Plan replaces the 2000 Executive Share Option Scheme and the Long-term Incentive Plan. The Company will make no further awards to executive Directors or any other employee under the previous plans.
The purpose of the Plan is to enable the Company to motivate and reward its workforce by reference to share price performance, and to link the interests of participants with those of our shareholders. The Plan is designed to align the interests of selected employees of the Company with long-term value creation for shareholders. Participation in the Plan is discretionary. Under the Plan, awards granted to executive Directors will be subject to a performance target, which must, in normal circumstances, be met before the award vests. Performance targets will normally be measured over a period of not less than three years. Special rules apply in the event of the participant's employment terminating early or on a change of control of the Company.
The Plan is split into two parts, which can be operated separately.
Under Part A of the Plan, Stock Appreciation Right (SAR) Awards can be granted. A SAR Award is the right to receive shares (or ADSs) in the Company linked to the increase in value of a specified number of shares over a period between three and five years from the date of grant and, in the case of executive Directors, subject to the satisfaction of performance targets. SAR Awards will normally vest three years after the date of grant, subject to the satisfaction of performance targets in the case of executive Directors, and can be exercised up until the fifth anniversary of the date of grant.
Under Part B of the Plan, Performance Share (PSP) Awards can be granted. A PSP Award is the right to receive a specified number of shares (or ADSs) three years from the date of grant. In the case of executive Directors, performance targets must be satisfied before a PSP Award vests. Upon vesting of the PSP Award, shares will be released to the participant automatically without any action on the part of the participant.
The Plan contains individual grant limits set at six times base salary for SAR awards in any one year and four times base salary for PSP awards in any one year. It is the Company's intention for awards granted under the Plan to executive Directors to be comprised of either or both a SAR Award and a PSP Award. For 2006, it is the Company's intention to provide grants to the Chief Executive Officer and Chief Financial Officer with face values (calculated by reference to the average share price over the prior 12-month calendar period) as follows:
- for the Chief Executive Officer, equivalent to approximately four times base salary in SARs and three times base salary in PSPs; and
- for the Chief Financial Officer, equivalent to approximately 2.2 times base salary in SARs and 1.6 times base salary in PSPs.
Performance criteria
Awards under the Plan will normally vest on the third anniversary of the date of grant. In the case of executive Directors, awards will only vest if the Committee determines that the performance conditions have been satisfied and that, in the opinion of the Committee, the underlying performance of the Company is sufficient to justify the vesting of the award.
Performance criteria will be based on relative Total Shareholder Return (TSR) measured against two comparator groups. Vesting of one-third of an Award will depend upon the Company's performance relative to the TSR performance of FTSE 100 constituents, excluding financial institutions. The vesting of the remaining two-thirds of an Award will depend upon the Company's performance relative to the TSR performance of a group of international companies from the pharmaceutical sector (see below). Vesting will be as follows:
- performance below the median versus the comparator companies and the FTSE 100-0% vesting;
- performance at median versus the comparator companies and the FTSE 100-33 1/3% vesting; and
- performance between median and upper quartile versus the comparator companies and the FTSE 100 - straight-line vesting from 33 1/3% to 100% for at or above upper quartile performance.
The comparator group of international companies from the pharmaceutical sector will initially include the following companies:
Allergan, Altana, Biovail, Cephalon, Forest Labs, King, Kos, Lundbeck, Medicis, Novo Nordisk, Schering AG, Sepracor, Serono, UCB, Valeant, Watson.
The Committee has the discretion to amend this group of companies to ensure that the group stays both relevant and representative; however, the change must not have the effect of making the performance criteria either materially easier or materially more difficult to achieve, in the opinion of the Committee, than it was or they were immediately before the circumstance in question.
TSR performance will be measured using an averaging period of three months. In addition, the Committee will have regard to the same calculation using an averaging period of six months as part of a fairness review to ensure that vesting properly reflects underlying performance.
If the performance conditions are not met, awards will lapse.
(d) The implementation of share ownership guidelines The Remuneration Committee believes that executive Directors and certain other members of senior management should be encouraged to own shares in the Company in order to ensure the alignment of their interests with those of the Company's shareholders. The Committee discussed this matter with shareholders during its consultation process in 2005, and has developed share ownership guidelines which came into effect in 2006.
The Executive Share Ownership Guidelines are administered by the Remuneration Committee and are based on the following principles:
- the Committee believes that share ownership is an important element of an executive's role in running the Company and represents both a commitment by the executive as well as an alignment of the executive's interests with those of shareholders;
- the Committee believes that share ownership by executives should be strongly encouraged, but not mandated;
- the Committee understands that, depending on personal and other circumstances, an executive may not be able to achieve the desired level of share ownership;
- the Committee believes that executives should understand the importance of share ownership in the stewardship of the Company, and both appropriate time and latitude will be provided to executives to achieve desired share ownership levels, where possible; and
- share ownership levels will be reviewed annually for each executive.
Executives are encouraged, within a five-year period following the later of either the initiation of these guidelines, or their appointment or election, to attain and hold an investment position no less than the multiples of base salary set forth below.
The following are the guideline share ownership levels for the executive Directors:
- Chief Executive: 2 x Base Salary
- Chief Financial Officer: 1.5 x Base Salary
All shares beneficially owned by an executive (excluding unexercised vested Stock Options or SARs) count towards achieving these guidelines.
The Remuneration Committee will review share ownership levels for each executive on an annual basis. The Committee will discuss with each executive Director their plans for share ownership on a regular basis; the Chief Executive Officer will discuss with each of the remaining executives their plans for share ownership on a regular basis.
4 Pension and other benefits
The Company's policy is to ensure that pension benefits are competitive in the markets in which Shire operates. Shire contributes 30% of the Chief Executive Officer's annual salary to a Supplemental Employee Retirement Plan (SERP) and 401(k) Plan in the US. The SERP is an unfunded defined benefit scheme; the benefits are payable to certain senior US employees as lump sums on leaving the Group's employment or earlier due to death, disability or termination. The amount of benefit is based on the value of notional contributions adjusted for 'earned' investment returns as if they were invested in investments of the employees' choice.
In the UK, Shire operates a defined contribution scheme. The Company contributes 25% of salary for the Chief Financial Officer to pension benefits. The implications of the forthcoming UK pension tax reforms, which become effective in 2006, will be considered during the course of the year and the Committee will agree any policy changes necessary in respect of the pension arrangements of the Chief Financial Officer and other UK executives.
In addition to salary, the executive Directors receive certain benefits in kind, principally a car or car allowance, life insurance, private medical insurance and dental cover. These benefits are not pensionable.
Service contracts
The Remuneration Committee continues to believe that executive Directors' service contracts should be for a rolling term and, for UK contracts, incorporate notice periods of 12 months. The Committee also believes that the Company should retain the right to make a payment in lieu of notice to a Director. The contracts contain obligations on the executive Directors in respect of intellectual property, together with post-termination restrictions. The Committee's view is that, in the event of early termination, executive Directors should be treated fairly but paid no more than is necessary. Moreover, there should be no element of reward for failure.
The executive Directors' contracts of employment, which were revised following consultation with some of the Company's major shareholders in 2003, are dated March 10, 2004 in the case of Mr Russell and March 12, 2004 in the case of Mr Emmens. Both agreements were revised on November 21, 2005 to provide for Shire plc being established as the new holding company for the Shire Group. Mr Russell's contract requires him to give the Company 12 months' notice and expires on him reaching 65. Mr Emmens' contract requires him to give the Company six months' notice and no age is specified for retirement. The Company is required to give Mr Russell 12 months' notice of termination, other than if termination is for cause, whereas it is not obliged to give Mr Emmens any notice. If Mr Emmens' contract is terminated without cause the Company is required to pay him one year's salary and the cash equivalent of one year's pension, car and other contractual benefits.
In the event of termination of employment within twelve months of a change of control, the amount payable in respect of each of Mr Emmens and Mr Russell is one year's salary and the cash equivalent of one year's pension, car and other contractual benefits. Any incentive payable is at the discretion of the Remuneration Committee and is capped at the contractual maximum incentive.
The amount of incentive payable upon termination of employment in any other circumstances, other than for cause, is at the discretion of the Remuneration Committee and is capped at the contractual target incentive.
Non-executive Directors and the Chairman
Each Non-executive Director is paid a fee for serving as a Director and additional fees are paid for membership or chairmanship of the Audit, Remuneration and Nomination Committees. The Chairman of the Company receives an inclusive fee. Fees are determined by the Board, with the exception of the Chairman's fee which is determined by the Remuneration Committee and confirmed by the Board. Fees are benchmarked against Non-executive Director fees of comparable companies. The fees paid to Non-executive Directors are not performance-related. Details of fees paid to the Chairman and Non-executive Directors in 2005 are set out below.
The Non-executive Directors are not eligible to join the Company's pension scheme.
Non-executive Directors do not participate in any of the Company share schemes or other employee benefit schemes and no options have been granted to Non-executive Directors in their capacity as Non-executive Directors of Shire. On the merger of Shire with BioChem Pharma Inc. in 2001, options were granted to The Hon James Grant in replacement for Mr Grant's BioChem Pharma options. The grant of these replacement options and the original BioChem Pharma option grant were made on the same terms as applied to other employees at the time, including that these options are not subject to any performance conditions.
Non-executive Directors are appointed ordinarily for a term of two years, subject to shareholder approval. Non-executive Directors who have served on the Board for nine years or more are appointed for one year terms and, in accordance with the Combined Code on Corporate Governance, are subject to annual re-election by shareholders. Re-appointment of Non-executive Directors following the expiry of their term of appointment is subject to Board approval.
Details of the unexpired terms of the letters of appointment and notice periods are as follows:
| Director | Date of appointment |
Date of term expiry |
Notice period |
|---|---|---|---|
| Dr James Cavanaugh | 24.03.05 | 23.03.07 | 3 months |
| Dr Barry Price | 25.01.06 | 24.01.07 | 3 months |
| The Hon James Grant | 11.05.05 | 10.05.07 | 3 months |
| Mr Ronald Nordmann | 23.12.05 | 22.12.06 | 3 months |
| Mr Robin Buchanan | 30.07.05 | 29.07.07 | 3 months |
| Mr David Kappler | 06.04.04 | 05.04.06 | 3 months |
| Mr Patrick Langlois | 11.11.05 | 10.11.07 | 3 months |
The fee policy structure for Non-executive Directors, effective January 1, 2006, is presented in the table below.
| $ | |
|---|---|
| 2006 Board membership annual basic fees(i) | |
| Chairman of the Board (inclusive of all Committees) | 409,725 |
| Senior Non-executive Director (inclusive of NED fee) | 81,945 |
| Non-executive Director | 72,840 |
| Committee membership fees | |
| Audit Committee chair | 36,420 |
| Remuneration Committee chair | 22,763 |
| Nomination Committee chair | 22,763 |
| Audit Committee member | 18,210 |
| Remuneration Committee member | 13,658 |
| Nomination Committee member | 9,105 |
(i) Denominated in £ sterling and translated into $ at the average exchange rate prevailing in 2005.
Related party transactions
Details of transactions relating to Dr James Cavanaugh, The Hon James Grant, who is a partner of a Canadian law firm with which the Company incurred professional fees during the year and with Dr Francesco Bellini, a former Non-executive Director, are given in the Directors' report in the Downloads section.
Performance graph
The graphs below set out the Total Shareholder Return (TSR) for the three and five years ending December 31, 2005. The graphs compare the performance of a hypothetical £100 holding of the Company's shares with that of a holding of shares in the FTSE 100 index (excluding financial institutions) and with a holding in a group comprised of the following pharma companies: Novo Nordisk, Schering AG, Serono, Altana, UCB, Lundbeck, Forest Labs, Allergan, Sepracor, Cephalon, Watson, Biovail, King, Valeant, Medicis and Kos. This comparator group is a blend of US and UK companies with sector, size, complexity and international characteristics similar to those of the Company. These comparisons will also be used to determine achievement of performance conditions relating to the Annual Incentive Plan and Portfolio Share Plan.
The three-year graph tracks the TSR performance since the Company started to implement its new strategic plan under new management.
Three-year historical TSR performance. Change in value of a hypothetical £100 holding over three years.
Five-year historical TSR performance. Change in value of a hypothetical £100 holding over five years.
Other remuneration
The Company believes there are benefits to executive Directors' participation at the Board level at other companies, including crossindustry and cross-company exposure and the added perspective of outside views. It is therefore the Company's policy to allow executive Directors to take up Non-executive positions at other companies and retain associated earnings as long as such appointments are expressly permitted by the Board of Directors. Mr Emmens was appointed as a Non-executive Director of Vertex Pharmaceuticals Inc during 2004. In this capacity he was paid $37,917 in 2005, which he will retain.
Mr Russell is a Non-executive Director of The City of London Investment Trust plc (and its associated companies, The City of London European Trust Limited, The City of London Investments Limited and The City of London Finance Company Limited). In this capacity, he was paid £17,500 ($31,868 equivalent) in 2005, which he will retain.
Audited information
Aggregate Directors' remuneration
The total amounts for Directors' remuneration were as follows:
| 2005 $'000 |
2004 $'000 |
|
|---|---|---|
| 4,971 | 5,576 | |
| Emoluments | 4,289 | 4,751 |
| Money purchase pension contributions | 488 | 450 |
| Gains on exercise of share options | 194 | 216 |
| Amounts receivable under long-term incentive schemes | - | 159 |
| Compensation for loss of office | - | - |
Directors' emoluments
| Salary $'000 |
Incentive $'000 |
Fees $'000 |
Cash benefits in kind $'000 |
Non-cash benefits in kind $'000 |
Total 2005 $'000 |
Total 2004 $'000 |
|
|---|---|---|---|---|---|---|---|
| Total | 1,701 | 1,623 | 900 | 55 | 10 | 4,289 | 4,751 |
| Executive | |||||||
| Mr Matthew Emmens(i)(v) | 1,049 | 1,208 | - | 29 | - | 2,286 | 2,601 |
| Mr Angus Russell(ii) | 652 | 415 | - | 26 | 10 | 1,103 | 1,126 |
| Dr Wilson Totten(ii)(vi) | - | - | - | - | - | - | 469 |
| Total executive | 1,701 | 1,623 | - | 55 | 10 | 3,389 | 4,196 |
| Non-executive | |||||||
| Dr James Cavanaugh(i) | - | - | 364 | - | - | 364 | 137 |
| Dr Barry Price(iii) | - | - | 132 | - | - | 132 | 110 |
| The Hon James Grant(i) | - | - | 82 | - | - | 82 | 73 |
| Mr Ronald Nordmann(i) | - | - | 114 | - | - | 114 | 99 |
| Mr Robin Buchanan(iii) | - | - | 87 | - | - | 87 | 73 |
| Mr David Kappler(iii) | - | - | 109 | - | - | 109 | 63 |
| Mr Patrick Langlois(iv)(vii) | - | - | 12 | - | - | 12 | - |
| Total Non-executive | - | - | 900 | - | - | 900 | 555 |
Notes
(i) Paid in $.
(ii) Salary and benefits in kind paid in £ Sterling and translated into $ at the average exchange rates for the year.
Incentive payable in £ Sterling and translated at the exchange rate at end February 2006.
(iii) Fees paid in £ Sterling and translated into $ at the average exchange rates for the year.
(iv) Paid in Euros and translated into $ at the average exchange rate for the service period.
(v) The Company underwent a major internal reorganization in 2004, which resulted in the Company selecting Philadelphia
as its US corporate headquarters. Mr Emmens was paid $770,000 in connection with costs associated with his relocation
to the Philadelphia area.
(vi) Dr Totten stepped down as a Director of the Company on May 25, 2004.
(vii) Mr Langlois was appointed a Non-executive Director on November 11, 2005.
Cash benefits in kind represent expense allowances (including dental costs). Non-cash benefits in kind consist of private medical insurance.
Details of the exercise of share options are disclosed on below. Non-executive Director remuneration is to/from the date of resignation/appointment.
Directors' pension entitlements
The following Directors are members of money purchase schemes. Contributions made by the Company (not included in emoluments above) in respect of 2005 were as follows:
| Name of Director | 2005 $'000 |
2004 $'000 |
488 | 450 |
|---|---|---|
| Mr Matthew Emmens | 323 | 227 |
| Mr Angus Russell(i) | 165 | 157 |
| Dr Wilson Totten (stepped down as a Director on May 25, 2004) |
- | 66 |
(i) At Mr Russell's request the Company deferred $59,000 of pension contributions earned in 2005, to be paid in 2006.
Directors' shareholdings
Directors who held office at the end of the year had interests in the share capital of the Company as follows (all interests are beneficial):
| Name of Director | 2005 Number of ordinary shares |
2004 Number of ordinary shares |
|---|---|---|
| Dr James Cavanaugh | 412,849 | 412,849 |
| Mr Matthew Emmens | 18,938 | - |
| Mr Angus Russell | 1,882 | - |
| Dr Barry Price | 31,350 | 31,350 |
| The Hon James Grant | 68,269 | 36,410 |
| Mr Ronald Nordmann | 46,966 | 46,966 |
| Mr Robin Buchanan | 7,500 | - |
| Mr David Kappler | 5,000 | 5,000 |
| Mr Patrick Langlois | - | - |
Directors' share options
Aggregate emoluments disclosed above do not include any amounts for the value of options to acquire ordinary shares in the Company granted to or held by the Directors.
Directors and employees have been granted options over ordinary shares under the Shire Pharmaceuticals Group plc 2000 Executive Share Option Scheme (Parts A and B) (2000 Executive Scheme), the Shire Holdings Limited Share Option Scheme (SHL Scheme), the Pharmavene 1991 Stock Option Plan (SLI Plan), the Shire Pharmaceuticals Executive Share Option Scheme (Parts A and B) (Executive Scheme), the Shire Pharmaceuticals Sharesave Scheme (Sharesave Scheme), the Shire Pharmaceuticals Group plc Employee Stock Purchase Plan (Stock Purchase Plan), the Roberts Stock Option Plan (Roberts Plan) and the BioChem Stock Option Plan (BioChem Plan).
Details of options exercised during the year (with prior-year comparatives) are as follows:
| Director | Scheme | Number of options |
Exercise price £ |
Market price at exercise date £ |
Gains on exercise 2005 $'000 |
Gains on exercise 2004 $'000 |
|---|---|---|---|---|---|---|
| The Hon James Grant | BioChem Plan | 31,859 | 1.2400 | 4.9950 | - | 216 |
| 31,859 | 2.5000 | 5.5850 | 176 | - | ||
| 176 | 216 | |||||
| Mr Matthew Emmens | Stock Purchase Plan | 1,928 | 4.0900 | 7.2000 | 11 | - |
| Mr Angus Russell | Sharesave Plan | 1,882 | 5.020 | 7.0400 | 7 | - |
Details of options exercised after ceasing to be a Director are as follows:
| Director | Scheme | Number of options |
Exercise price £ |
Market price at exercise date £ |
Gains on exercise 2005 $'000 |
Gains on exercise 2004 $'000 |
|---|---|---|---|---|---|---|
| Dr Wilson Totten | Executive Scheme B | 141,138 | 3.3850 | 5.2000 | - | 469 |
| 301,775 | 3.3800 | 5.1592 | - | 984 | ||
| 8,862 | 3.3850 | 6.3500 | 47 | - | ||
| 25,000 | 4.7050 | 6.3500 | 75 | - | ||
| 2000 Executive Scheme B | 122,368 | 5.0650 | 6.3500 | 286 | - | |
| 203,612 | 5.2600 | 6.3500 | 404 | - | ||
| 812 | 1,453 | |||||
| Mr Rolf Stahel(i) | Executive Scheme B | 81,918 | 3.3850 | 6.4200 | 476 | - |
(i) On November 23, 2005 a gross payment of $482,103 (paid in £ Sterling and translated into $ at the average exchange rate in November
2005) was made to Mr Rolf Stahel in connection with a share option that was inadvertently allowed to lapse. The option was granted on
March 4, 2002 over 209,211 shares with an exercise price of £5.065 per share. The payment, which was subject to tax and
non-pensionable, was intended to put Mr Stahel in the same position as if he had exercised the option and subsequently sold the
shares on the day on which he notified the Company of his desire to exercise the option.
Details of the options of Directors who served during the year are as follows:
| Number of ordinary shares | |
Exercise dates | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Director | Scheme | At January 1, 2005 |
Granted | Exercised | Lapsed | At December 31, 2005 |
Exercise price £ |
Earliest | Latest | |
| Mr Matthew Emmens | 2000 Executive Scheme B(iii) |
945,010 | - | - | - | 945,010 | 3.6825 | 18.03.06 | 17.03.13 | |
| 315,777 | - | - | - | 315,777 | 5.26 | 25.03.07 | 24.03.14 | |||
| - | 295,000 | - | - | 295,000 | 5.585 | 11.05.08 | 10.05.15 | |||
| Stock Purchase Plan(v) | 2,098 | - | 1,928 | 170 | - | 4.09 | 22.11.05 | 22.11.05 | ||
| 1,262,885 | 295,000 | 1,928 | 170 | 1,555,787 | ||||||
| Mr Angus Russell | Executive Scheme A(i) |
4,181 | - | - | - | 4,181 | 7.175 | 13.12.02 | 12.12.09 | |
| Executive Scheme B(i) | 45,819 | - | - | - | 45,819 | 7.175 | 13.12.02 | 12.12.06 | ||
| 6,422 | - | - | - | 6,422 | 10.275 | 01.03.03 | 28.02.07 | |||
| 2000 Executive Scheme B(iii) | 69,213 | - | - | - | 69,213 | 12.57 | 05.06.04 | 04.06.11 | ||
| 114,474 | - | - | - | 114,474 | 5.065 | 04.03.05 | 03.03.12 | |||
| 284,024 | - | - | - | 284,024 | 3.38 | 04.03.06 | 03.03.13 | |||
| 195,285 | - | - | - | 195,285 | 5.26 | 25.03.07 | 24.03.14 | |||
| - | 195,000 | - | - | 195,000 | 5.585 | 11.05.08 | 10.05.15 | |||
| Sharesave(ii) | 1,882 | - | 1,882 | - | - | 5.02 | 01.12.05 | 31.05.06 | ||
| 721,300 | 195,000 | 1,882 | - | 914,418 | ||||||
| The Hon James Grant | BioChem(iv) | 31,859 | - | 31,859 | - | - | 2.50 | 14.05.01 | 06.06.05 | |
| 31,859 | - | - | - | 31,859 | 6.26 | 14.05.01 | 04.06.06 | |||
| 2,275 | - | - | - | 2,275 | 6.20 | 14.05.01 | 05.05.07 | |||
| 2,275 | - | - | - | 2,275 | 6.94 | 14.05.01 | 20.04.08 | |||
| 7,964 | - | - | - | 7,964 | 5.70 | 14.05.01 | 10.06.09 | |||
| 13,653 | - | - | - | 13,653 | 6.58 | 14.05.01 | 23.05.10 | |||
| 89,885 | - | 31,859 | - | 58,026 | ||||||
For those options which remained unexercised during the year, no payment was made by any Director in consideration of the grant award. Following the implementation of the Scheme of Arrangement, on November 25, 2005, all existing options to acquire ordinary shares in Shire Pharmaceuticals Group plc (Old Options) were swapped for new equivalent options to acquire ordinary shares in Shire plc (New Options). Any performance conditions attached to the Old Options continue to apply to the New Options.
Notes
(i) Options granted under this scheme are subject to performance criteria and cannot be exercised in full, unless Shire's ordinary share
price increases at a compound rate of at least 20.5% per annum over a minimum three-year measurement period. If Shire's share price
increases at a compound rate of 14.5% per annum over a minimum three-year measurement period, 60% of the options may be
exercised. If these conditions are not met after the initial three years, they are thereafter tested quarterly by reference to share price
growth over the extended period. If the share price does not meet these conditions at any time, none of the options granted become
exercisable.
On February 28, 2000, the Remuneration Committee of the Board exercised its powers to amend the terms of the Executive Share
Option Scheme so as to include a cliff vesting provision. It is intended that no further options will be granted under the Executive
Scheme.
(ii) Options granted under the Sharesave Scheme are granted with an exercise price equal to 80% of the mid-market price on the day
before invitations are issued to employees. Employees may enter into three or five-year savings contracts.
(iii) Options granted under the 2000 Executive Scheme are exercisable subject to certain performance criteria. In respect of any option
granted prior to August 2002, if Shire's ordinary share price increases at a compound rate of at least 20.5% per annum over a minimum
three-year measurement period, the option becomes exercisable in full. If it increases by at least 14.5% per annum over the same
three-year period, 60% of the options granted become exercisable. If these conditions are not met after the initial three-year
measurement period, they will thereafter be tested quarterly by reference to compound annual share price growth over an extended
period.
The performance criteria were reviewed in 2002 to ensure the criteria reflected the market in which Shire operates. Given Shire's
development, it was considered appropriate that an EPS-based measure should be adopted in place of share price growth targets. The
performance criteria are based on real growth in the diluted earnings per share reported in the Company's Form 10-K under US GAAP,
adjusted to ensure a consistent basis of measurement, as approved by the Remuneration Committee, including the add back of
significant one-time items (option EPS). Therefore, the performance criteria were amended so that an option would become exercisable
in full if Shire's option EPS growth over a three-year period from the date of award exceeds the UK Retail Prices Index (RPI) for the
following tranches of grants:
| Options with a grant value of up to 100% of salary | RPI plus 9% (Directors, RPI plus 15%) |
| Between 101% and 200% of salary | RPI plus 15% |
| Between 201% and 300% of salary | RPI plus 21% |
| Over 301% of salary | RPI plus 27% |
The new EPS performance criteria apply to options granted under the 2000 Executive Scheme from August 2002. After consultation with
certain of its institutional shareholders, the Company has decided that for options granted under the scheme from 2004 onwards, the
retest of the performance condition if Shire's option EPS growth has fallen short of the minimum annual average percentage increase
over the three-year period from grant, has been changed. The performance condition will be retested once only, at five years after the
grant. Hence the level of option EPS growth in the next two years needs to be consequentially higher to meet the test.
Six weeks prior to the expiration date, any options that have not become exercisable at an earlier date, automatically vest without
reference to the performance criteria.
It is intended that no further options will be granted under the 2000 Executive Scheme.
(iv) Following the acquisition of BioChem Pharma Inc. on May 11, 2001, the BioChem Stock Option Plan was amended such that options
over BioChem Pharma Inc.'s common stock became options over ordinary shares of Shire. All BioChem Pharma Inc. options, which
were not already exercisable, vested and became exercisable as a result of the acquisition. It is intended that no further options will be
granted under the BioChem Stock Option Plan.
(v) Under the Stock Purchase Plan, options are granted with an exercise price equal to 85% of the fair market value of a share on the
enrolment date (the first day of the offering period) or the exercise date (the last day of the offering period), whichever is the lower. The
offering period is for 27 months.
The market price of the ordinary shares at December 31, 2005 was £7.44 and the range during the year was £5.39 to £7.53.
Long-term Incentive Plan (LTIP)
The following award, granted under the Long-term Incentive Plan lapsed during the year 2005 and no payment was made under it as the performance criteria was not met at the maturity date:
| Director | Date of award | Initial award made |
Actual performace- related award |
Date of maturity |
|---|---|---|---|---|
| Mr Angus Russell(i) | 05.06.01 | 11,535 | - | 06.06.05 |
(i) The performance criteria attaching to awards made under the Long-term Incentive Plan are detailed on above.
Details of current and outstanding awards under the Long-term Incentive Plan for Directors who served during the year are as follows:
| Name of Director | Ordinary shares at January 1, 2005 |
Date of award | Award made 11.05.05 |
Value of award at grant date $'000 |
Ordinary shares at December 31, 2005 |
Earliest date on which an award can be made |
|---|---|---|---|---|---|---|
| Mr Matthew Emmens | 80,960 | 20.03.03 | - | 458 | 80,960 | 20.03.07 |
| 105,259 | 25.03.04 | - | 1,032 | 105,259 | 25.03.08 | |
| - | 97,468 | 1,025 | 97,468 | 11.05.09 | ||
| 186,219 | 97,468 | 2,515 | 283,687 | |||
| Mr Angus Russell | 19,078 | 04.03.02 | - | 180 | 19,078 | 04.03.06 |
| 44,667 | 20.03.03 | - | 252 | 44,667 | 20.03.07 | |
| 65,095 | 25.03.04 | - | 638 | 65,095 | 25.03.08 | |
| - | 63,217 | 664 | 63,217 | 11.05.09 | ||
| 128,840 | 63,217 | 1,734 | 192,057 | |||
The above awards made during the year were all at the price