Remuneration Report
The directors submit their Remuneration Report for the year ended 31 March 2007. The information given, is audited.
The Remuneration Report sets out the Company’s policy on the remuneration of executive and non-executive directors with details of their remuneration packages (including share incentive scheme awards), service contracts and disclosable interests in the issued share capital of Man Group plc in respect of the year ended 31 March 2007. The Report will be put to an advisory vote of the Company’s shareholders at the Annual General Meeting to be held on 12 July 2007.
The Remuneration Committee comprises only independent non-executive directors: Dugald Eadie (Chairman), Jon Aisbitt, Alison Carnwath and Glen Moreno. Jonathan Nicholls was also a member of the Committee until his resignation from the Board in July 2006. It is responsible for setting the remuneration of all executive directors and the Chairman of Man Group plc. It is also responsible for determining the framework and policy for the remuneration of senior executives below Board level across Man Group. The full terms of reference of the Committee are available on the Group’s website.
Executive remuneration policy
The Group aims to attract, motivate and retain high calibre executives
by rewarding them with competitive salary and benefit packages which
are linked to (a) the achievement of agreed individual objectives; (b)
the achievement of the Group’s key financial targets (as set out in
the Financial Review); and (c) the creation of long-term shareholder
value. In assessing the competitiveness of remuneration, salaries and
bonuses have been reviewed against available external market data provided
by independent professional consultants. To retain flexibility in the
application of its remuneration policy on an annual basis, the Committee
seeks to give a high proportion of total annual compensation in the
form of variable bonus payments. The Committee does not consider it
appropriate to establish any maximum percentage of salary payable by
way of annual bonus. It is also policy to align the interests of executive
directors and senior executives with the Group’s shareholders through
the promotion and encouragement of share ownership, by offering participation
in share-based long-term incentive schemes, details of which are set
out in this report. The Committee’s general policy with regard to the
remuneration of executive directors is not expected to change in the
current year.
The remuneration of executive directors consists of annual salary, car allowance, health and disability benefits, an annual cash bonus scheme, pension contribution and participation in long-term incentive schemes. In the case of executive directors who are relocated to overseas offices, an additional housing allowance may be paid. Only base salary is pensionable. Details of each individual director’s remuneration, shareholding and, where applicable, share options and long-term incentive plan benefits are set out in this report.
Service contracts
The Group has service agreements with its executive directors. The service
contracts do not have a fixed term but provide for termination on the
expiry of not more than 12 months’ written notice by either party or
at the end of the month during which the director has attained the age
of 60. The effective dates of the service agreements are: Peter Clarke
1 April 1997 and Kevin Davis 1 April 2000. Stanley Fink’s service contract
dated 24 March 2000 was replaced by a letter of engagement as a non-executive
director on 30 March 2007 following his appointment as non-executive
Deputy Chairman. The service contracts contain no contractual entitlement
to be paid any fixed amount of bonus or right to participation in any
of the Group’s share-based incentive schemes, participation in which
is at the Committee’s discretion.
To protect the Group’s business interests, executive directors’ service contracts contain non-compete covenants designed to be applicable to the extent permitted under the law of the relevant jurisdiction. The executive directors’ service contracts do not include any fixed provision for termination compensation. The Committee is mindful of the need to consider what compensation commitments, if any, are appropriate in the event of the termination of executive directors’ service contracts, bearing in mind the Group’s legal obligations and the individual’s ability to mitigate their loss. The Committee must approve in advance any proposed termination payments.
The non-executive directors are appointed by the Board. Details of their terms of appointment are set out in the Corporate Governance Report.
As stated in the Directors’ Report, the Company has purchased and maintained throughout the year Directors’ and Officers’ liability insurance in respect of itself and its directors.
Salaries and fees
Salary ranges are established by reference to those prevailing in the
employment market generally for executives of comparable status, responsibility
and skills. Particular regard is paid to salary levels within other
leading companies in the financial services sector and the need in many
cases to secure the services of senior executives who have international
experience and flexibility in job location. These comparisons are made
with the assistance of available independent remuneration surveys. Salaries
are reviewed annually.
The fees of the non-executive directors are determined by the Board within the limits contained in the Articles of Association. The basic fee is £75,000. Additional fees of £10,000, £20,000 and £20,000 were paid to the Chairman of the Remuneration Committee, Chairman of the Audit and Risk Committee and senior independent director respectively, to reflect their additional responsibilities.
Pension provision
The Group operates pension and retirement benefit schemes for its employees
in a number of countries. Base salary is the only component of remuneration
which is pensionable. All executive directors are eligible to participate
in the Group’s pension arrangements generally operating in the jurisdiction
in which they work. Alternatively, the Group will, at the executive
director’s request and subject to applicable limits and regulations,
make a contribution of up to 10% of pensionable salary to a private
pension plan nominated by the director. The Remuneration Committee has
considered the provisions of the Finance Act 2004 (Simplification) and
Pensions Act 2004 and the Group’s pension arrangements are being amended
to be fully compliant.
Performance-related cash bonuses
All executive directors and senior executives are eligible for an annual
performance-related cash bonus, which is non-pensionable. Although the
Committee does not consider it appropriate to establish any maximum
percentage of salary payable by way of annual bonus, total bonuses available
across the Group for distribution to eligible employees (including executive
directors) are determined by reference to the pre-tax profit of each
business unit after making certain adjustments, including a charge for
the capital allocated by the Group to the operation of that business
and any credit usage.
Bonuses for executive directors are discretionary. In considering the appropriate level of bonus for each director, the Committee considers (a) the extent to which the individual has achieved their agreed personal objectives for the year and (b) the extent to which the Group has achieved its stated financial targets. The Group’s longstanding key targets are: significant growth in diluted underlying earnings per share (which was up 42% in the year); and maintaining a high level of post-tax return on equity (which was 30.9% for the year). The bonus of each executive director, as determined by the Remuneration Committee against these measures on an individual basis, is shown in the table on page 75. Bonuses for senior executives below Board level are discussed with the Committee and reviewed by it.
Although the bonus is paid in cash, executive directors and senior executives are encouraged to defer a portion of the bonus into shares in order to receive conditional awards of matching shares under the LTIP (see below).
Long-term share-based incentive schemes
Man Group has always sought to facilitate significant equity ownership
by directors and senior management, principally through schemes which
encourage and assist the purchase of shares with their own money or
by way of bonus sacrifice. The Board and employees worldwide together
currently own an estimated 9% of the Company’s share capital, either
directly or through employee trusts established and funded for this
purpose. The Board alone directly holds 4% of the issued capital. The
Employee Trusts are included in the Group’s consolidated financial statements.
Executive directors are currently eligible to participate in the Performance Share Plan, Assisted Purchase Scheme and Executive Share Option Scheme, in each case at the Committee’s discretion. Both the Board and the Committee believe that it is inappropriate to use short-term share price movements as a measure of management performance; true long-term shareholder value will be created through long-term growth in earnings per share and the maintenance of high levels of post-tax return on capital. For this reason, these two measures form the basis of the performance criteria applicable to the Group’s long-term share-based incentive schemes. The Committee is not aware of any listed companies of substantial size whose main business activities are comparable in nature and scale to that of the Man Group, and accordingly the Committee does not see any merit in trying to benchmark performance criteria against other companies.
The following is a summary of the long-term share-based incentive schemes that is intended will be operated by the Group during the forthcoming year.
Performance Share Plan (‘PSP’)
The PSP is a long-term incentive plan. The PSP has been updated to reflect
the changes in corporate governance best practice over the past decade
and these changes were approved at the AGM in July 2006. The first grants
under the new PSP will be made following the announcement of the 2007
results. Awards under the PSP are performance-related over a three-year
measurement period based on the level of post-tax return on average
shareholders’ funds (‘Return on Equity’) achieved by the Group throughout
that period. Return on Equity, for this purpose, is defined as the post-tax
profit for the year divided by the average of the monthly equity shareholders’
funds. Entitlements are subject to an additional one-year restriction
on transfer to participants dependent upon continued employment with
the Group.
Each year, participants are eligible to receive awards of performance shares up to a maximum of 100% of base salary. Additionally the PSP allows participants to invest part or all of their annual performance-related cash bonus in shares in the Company (‘invested shares’). In return, a participant is provisionally allocated such number of additional shares as represents the amount of their investment gross of personal tax and social security liabilities (‘matching shares’). In addition, shares purchased under the Assisted Purchase Scheme (see opposite) are eligible for an allocation of matching shares under the PSP on a one-to-one ratio. In the event of sale of any invested/purchased shares before the end of the three-year performance period the number of matching shares will be reduced proportionally.
No award will be transferred unless the Group maintains an average annual Return on Equity of at least 20% across the performance period. For average annual Return on Equity of 20%, 10% of the shares vest. Awards will be transferred at levels above this on a linear sliding scale. Full benefits of an award can only be transferred when annual Return on Equity has averaged 30% or more. These targets are considered by the Committee to be both challenging and appropriate given the regulated nature of the Group’s business.
Share Option Scheme
An Inland Revenue Approved and Unapproved Scheme, The Man Group Executive
Share Option Scheme 2001, was established following shareholder approval
at the 2001 AGM. Selected senior employees and executive directors are
eligible to participate. All grants of options are subject to Remuneration
Committee approval. Details of options held by executive directors are
set out in the table in Auditors’ Report.
Individual share option awards are subject to an annual cap of 200%
of base salary. Options issued under the Scheme may normally only be
exercised between three and ten years from the date of grant and are
subject to the satisfaction of performance conditions. For all grants
prior to June 2006, 50% of each option will vest if the Company’s underlying
earnings per share (EPS) growth matches or exceeds the growth in RPI
plus 3% per annum, with the entire option vesting at RPI plus 6% per
annum. For all grants from June 2006 and onwards 50% of each option
will vest if the Company’s underlying earnings per share (EPS) growth
in the single three-year performance period matches or exceeds the growth
in RPI plus 5% per annum, with the entire option vesting at RPI plus
10% per annum. Performance criteria are calculated from the end of the
financial year prior to the grant of option. No re-testing of the EPS
performance targets will take place for options granted since 2005.
Accordingly, if the targets attached to any option are not reached after
three years, the option will lapse. The Remuneration Committee considers
underlying earnings per share (that is earnings from net management
fee income and Brokerage net income, and which therefore excludes net
performance fee income and exceptional items to be an appropriate target.
The effect of performance fee income is excluded as it can be volatile
when comparing between accounting periods.
Assisted Purchase Scheme
The Group has established and contributes to a discretionary trust for
the benefit of employees of the Group (including executive directors)
to facilitate the acquisition of shares in the Company as long-term
holdings. The current trustees, who are not connected with the Group,
are Roanne Trust Company (Jersey) Limited and Ansbacher Trustees (Jersey)
Limited. The trustee acquires shares in the market, which it will sell
on at the prevailing market price on deferred payment terms. In the
case of executive directors, such assistance is subject to prior approval
by the Remuneration Committee. As at 31 March 2007 the directors receiving
such assistance were: Peter Clarke £280,050, payable in November 2007;
Kevin Davis £1,212,800, payable in annual instalments during the period
to November 2010; and Stanley Fink £560,080, payable in November 2007.
Co-Investment Scheme
This is a long-term incentive scheme, designed to encourage senior executives
(excluding directors) to invest a proportion of their cash bonus by
purchasing shares in the Company and to facilitate their retention.
It is a matching scheme whereby the Group matches on an agreed basis
the pre-tax amount of bonus invested in the scheme provided that the
bonus investment shares are retained by the employee for three years.
The matching award can be exercised for no payment after four years
provided that the employee is still employed by the Group. The Scheme
operates on a four-to-one matching basis. The amount a participant can
invest cannot exceed 100% of their bonus.
Other Employee Share Schemes
In 2001, the Group introduced an Inland Revenue approved Sharesave Scheme
in the United Kingdom and an Internal Revenue Code qualifying employee
Stock Purchase Plan in the United States. Both are all-employee plans
and executive directors are entitled to participate, subject to the
relevant terms and conditions. The UK Sharesave Scheme contracts are
for three or five year periods, with each participant permitted to save
up to £250 per month to purchase Man Group plc shares at a discount.
The initial grant was made in October 2001 and further grants in June
2002, June 2003, June 2004, June 2005 and June 2006. The discount was
20% of the market value near the time the option was granted. Under
the US Stock Purchase Plan, each participant is permitted to save up
to $375 per month ($500 per month from 2005) to purchase Man Group plc
shares at a discount, normally after a 24-month period and is subject
to a restriction on transfer of one year following purchase. The initial
grant, for a 17-month period, was made in January 2002 and further grants
for 24-month periods were made in June 2002, June 2003, June 2004, June
2005 and June 2006. The option price was at a 15% discount to the market
value on the date of grant.
Performance graph
The performance graph below compares the Company’s total shareholder
return performance against the FTSE 100 Index. The FTSE 100 comprises
the 100 largest UK quoted companies by market capitalisation. It has
been chosen because it is a widely recognised performance comparison
for large UK companies. The graph shows the change in the hypothetical
value of £100 invested in the Company’s ordinary shares on 31 March
2002, compared with the change in the hypothetical value of £100 invested
in the FTSE 100 Index, at 31 March in each year. This shows that Man
has materially outperformed the FTSE 100 over this period (see
Figure 48).