Summary directors' remuneration report
Introduction
This summary Directors' remuneration report outlines the Group's remuneration policy and approach as developed by the Remuneration Committee, and provides the annual remuneration of the Board in 2008.
Pound sterling denominated amounts are converted to US dollar amounts at the average exchange rate for the year ended December 31, 2008 of £1:$1.8542 (2007: £1: $2.0010) unless otherwise stated.
Shire's executive remuneration policy and remuneration components
The Committee considers that an effective remuneration policy, aligned to the Group's business needs, is important to the Group's success. It directly impacts the Group's ability to recruit, retain and motivate executives of the highest calibre who will be able to deliver sustained value to shareholders, even in the most challenging times. The Committee also recognizes shareholders' focus on the delivery of results and the creation of long-term value and, as such, the remuneration policy reflects a pay-for-performance philosophy and alignment to shareholder interests.
The Group's compensation and benefits policy for Executive Directors achieves the above goals through a balanced remuneration program based on the following principles:
- base pay is market and performance driven, with reference to a blended US/UK market comparison group. It is targeted at or around the median relative to the comparison group, and varies based on individual performance;
- the Executive Annual Incentive Plan is performance-based and is linked to the achievement of an appropriate mix of corporate and individual performance targets. The Executive Annual Incentive Plan allows the Group to measure and reward progress against its strategic goals and is closely tied to delivery of sustained shareholder value;
- share-based compensation is a key element of the Group's remuneration policy as it aligns the interests of the Group's executives with the interests of its shareholders. This element of compensation also utilises a blended US/UK market comparison to determine the face value of awards to Executive Directors;
- benefits programs are locally competitive and provide for the welfare and well-being of the Group's employees and their families;
- the Committee currently aims for variable compensation to represent over two-thirds of total remuneration; and
- the Committee believes that Executive Directors 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. Share ownership guidelines have been in effect since 2006.
In its assessment of corporate and Executive Director performance, the Committee utilizes a Balanced Scorecard set of objectives which consider both financial and non-financial measures. Financial measures include revenue growth, net sales and contribution, as well as management of expense ratios. Among the non-financial measures are customer care and satisfaction, operational excellence, and the development of people and organizational capabilities.
The Committee regularly monitors the effectiveness of the remuneration policy and reviews this policy based on independent analysis and advice, an understanding of the business drivers and competitive environment in which the Group operates, and on-going dialogue with shareholders. In 2008, the Committee maintained the above principles for Executive Directors and, in addition, agreed to adopt the blended US/UK benchmarking approach for base pay, total cash and total compensation for the below-board executive vice presidents of the Group. This approach will be used for benchmarking remuneration with effect from 2009.
Service contracts
The Committee believes 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 Group 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.
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, Risk & Compliance, Remuneration, Nomination and Science & Technology Committees. The Chairman of the Group receives an inclusive fee. Fees are determined by the Executive Directors and the Chairman, with the exception of the Chairman's fee which is determined by the Committee and confirmed by the Board. Fees are benchmarked against Chairman and Non-Executive Director fees of comparable companies. The fees paid to the Chairman and Non-Executive Directors are not performance-related. Details of fees paid to the Chairman and Non-Executive Directors in 2008 are set out in the table below.
The Non-Executive Directors are not eligible to join the Group's pension scheme. Non-Executive Directors do not participate in any of the Group 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 plc.
The fee policy structure was updated for 2009 to reflect a blended US/UK approach to benchmarking, consistent with that applied to the Executive Directors. Base fees for Non-Executive Directors were increased to $129,794 and the fee for the Chairman of the Board was increased to $630,428; Committee chair and membership fees remain unchanged. In addition, to recognize the travel required for Directors to attend meetings in Ireland or the US, a $9,271 travel allowance was instituted for travel exceeding four hours.
Aggregate Directors' remuneration
The total amounts for Directors' remuneration were as follows:
| 2008 $'000 |
2007 $'000 |
|
|---|---|---|
| Emoluments | 6,609 | 6,846 |
| Money purchase pension contributions | 696 | 542 |
| Gains on exercise of share options | 304 | 4,442 |
| Gains on maturity of LTIP Awards | 2,530 | - |
| 10,139 | 11,830 |
Executive Directors' emoluments
| Salary | Incentive | Cash benefits | Benefits in kind | Total | Pension contributions | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Cash element |
Deferred share element |
||||||||||||||||
| 2008 $'000 |
2007 $'000 |
2008 $'000 |
2007 $'000 |
2008 $'000 |
2007 $'000 |
2008 $'000 |
2007 $'000 |
2008 $'000 |
2007 $'000 |
2008 $'000 |
2007 $'000 |
2008 $'000 |
2007 $'000 |
|||
| Matthew Emmens (i)(ii)(iv) | 625 | 1,156 | 583 | 1,334 | 330 | 750 | 137 | 421 | - | - | 1,675 | 3,661 | 187 | 347 | ||
| Angus Russell (iii)(v) | 971 | 781 | 1,061 | 620 | 599 | 396 | 29 | 28 | 20 | 8 | 2,680 | 1,833 | 414 | 195 | ||
| Graham Hetherington (iii)(v) | 371 | - | 257 | - | 143 | - | 11 | - | 2 | - | 784 | - | 95 | - |
(i) Paid in US dollars.
(ii) Mr Emmens was paid a pro-rated bonus under his contract as CEO, which was based on his 2008 performance whilst CEO and represented his final bonus as CEO prior to him standing down and becoming Chairman on June 18, 2008.
(iii) Pound sterling salary and cash benefits translated into US dollars.
(iv) Pension contributions were made to a SERP and 401(k) Plan in the US up to the date Mr Emmens stepped down as CEO.
(v) Pension contributions were made by the Group into defined contribution schemes.
Mr Emmens' cash benefits include holiday pay, car allowance, executive financial planning and tax return preparation. Mr Russell's and Mr Hetherington's cash benefits comprise car allowances. Benefits in kind consist of private medical insurance and tax return preparation.
Non-Executive Directors' emoluments*
| Fees | ||
|---|---|---|
| 2008 $'000 |
2007 $'000 |
|
| Dr James Cavanaugh(i)(ii) | 265 | 530 |
| Matthew Emmens(i)(iii) | 292 | - |
| Dr Barry Price(i) | 107 | 136 |
| Robin Buchanan(i)(iv) | 65 | 109 |
| David Kappler(i) | 167 | 165 |
| Patrick Langlois(i) | 130 | 129 |
| Dr Jeffrey Leiden(i) | 121 | 04 |
| Kate Nealon(i) | 139 | 125 |
| David Mott(i) | 117 | 16 |
| Dr Michael Rosenblatt(i)(v) | 67 | - |
| The Hon. James Grant(i)(vi) | - | 36 |
*Non-Executive Directors' fees are to/from the date of retirement/appointment.
(i) Pound sterling fees translated into US dollars.
(ii) Dr Cavanaugh retired on June 18, 2008.
(iii) Mr Emmens was appointed Chairman on June 18, 2008.
(iv) Mr Buchanan stepped down from the Board on July 29, 2008.
(v) Dr Michael Rosenblatt was appointed a Non-Executive Director on April 24, 2008.
(vi) The Hon. James Grant stepped down from the Board on May 10, 2007.
