Executive Directors' Remuneration

This note provides information on the remuneration of BW executive directors that in part repeats and in part supplements and adds to the information published annually in the Directors Remuneration Report pages of the Annual Report and Accounts of BW.

The role of the BW Board

The terms of Executive Director's remuneration packages are determined by the Board of BW that is independent of the Executive Directors. The members of the Board of BW are all non-executive and are appointed by the Secretary of State for Environment, Food and Rural Affairs or (in the case of two board members) Scottish Ministers. The Secretary of State, or Scottish Ministers as appropriate, determines board members' fees.

Reporting to the Board, but not board members, are the Executive Directors who have responsibility for management and for the development of business strategy and policies, subject to approval and general oversight by the Board.

The Remuneration Committee

The Board has a Remuneration Committee responsible for determining and reviewing the terms of employment and remuneration for executive directors. The remuneration principles established for them also provides the framework for remuneration policy within the business. The Committee comprises from three to five board members – current membership is shown in the Annual Report and Accounts.

In determining appropriate remuneration packages, the Committee commissions specialist independent advice, surveys conducted by external consulting firms and remuneration information on comparable organisations. Executive Directors' roles are independently evaluated, with responsibility levels assessed and compared with organisations of similar size in the public and private sectors. Towers Perrin were the remuneration consultants until 2007 and Kepler Associates were appointed as independent consultants to advise the Committee from 2008.

Remuneration Policy

The Committee follows a Remuneration Policy designed to reflect BW's business requirements taking into account the specialist independent advice received.

The Remuneration Committee's overriding objective is to ensure that BW's remuneration policy and remuneration packages are sufficient, taking account of BW's significant dependency on its directly earned commercial income and the wider remuneration context in the business, to attract, retain and motivate a high quality team of executive directors to deliver the business strategy.

Based on the information and recommendations provided by independent remuneration consultants, the Committee have agreed that BW should benchmark remuneration packages to market median levels for the comparator organisations mentioned above.

Since the introduction of this policy the value of BW executive directors remuneration packages have generally been between 5% and 10% below the market median levels for those benchmark organisations.

Unlike the majority of benchmark organisations, a long term performance related incentive plan has not been an element of executive remuneration at BW. Although the Committee has recognised that as the business strategy develops, it may be appropriate to introduce a long term incentive plan at a future stage, it has put on hold any plans to do so in the present economic and funding environment.

The Remuneration Package

Each element of the remuneration package is set out below.

1. Basic salary

   Basic salaries are normally reviewed annually on 1 July and increases are determined by reference to comparator information taking into account each director's contribution during the year. Details of basic salary levels for each executive director are shown are shown in the tables contained in the Directors Remuneration Report pages of each Annual Report and Accounts from 2002/03. These are available for download from the download section of the BW website.

   No increase in Executive Directors' salary levels is planned for 2009/2010.

2. Performance related pay

   An element of each Executive Director's remuneration package is ‘at risk' performance related pay that is payable annually as discretionary annual ‘bonus'. When payable, this is paid in July by reference to performance in the previous financial year.

   This performance related pay is payable by reference to performance targets, both corporate and personal, set by the Remuneration Committee each year. The performance related bonus payments paid to each executive director are shown in the tables in the Remuneration Report part of the Annual Report and Accounts for each year since 2002/03.

   The directors decided collectively in February 2009 that they would not accept any bonus for 2008/09 which would otherwise have been paid on 1 July 2009 and reported in the 2009/10 accounts. The bonus payments made in July 2008 relate to the previous financial year 2007/08.

   Measures of safety and customer satisfaction are in place that have to be satisfactorily achieved before consideration is given to any performance related payment. Even where threshold measures are met, the Remuneration Committee reserves the discretion to award or withhold performance related payments taking account of any mitigating factors.

   • 2.1 Corporate Performance Element

     The corporate performance element of the targets was set by reference to revenue contribution before tax (CBT) for 2008/09 and by reference to both CBT and Economic Value Created (EVC) for 2007/08. In 2007/08 up to 2/3rds of the total available performance related bonus could have been earned by reference to the corporate performance target and for 2008/09, up to one half could have been earned (though directors have waived bonus for that year).

   • 2.2 Personal Performance Element

     The personal performance element of the performance related bonus payments is assessed by reference to a range of stretching targets set by the Remuneration Committee to encourage each director to achieve performance levels over and above the normal expectations of their role. Targets are directly linked to the achievement of key strategic business activities.

     The Remuneration Committee has decided to publish the targets by reference to which any performance related bonus may have been paid at the same time as details of the payment of the performance related bonus is published (which usually is in the Annual Report and Accounts for the financial year in which the payments are made). Since no formal assessments of performance against targets for the purpose of determined payments needs to be made for 2008/09 (given the waiver of such payments by the directors), the targets for that financial year have been published earlier than normal.

     The executive directors' targets for 2007/08 and 2008/09 may be downloaded from the download pages of the BW website.

3. Other Benefits

   The executive directors are entitled to a company car (or an allowance in lieu of a company car), health insurance and critical illness insurance.

4. Pensions

   All executive directors with over 2 years service participate in the BW Pension Fund which provides a pension on a defined benefit basis and based on basic salary. Details of the accrued pension levels are shown in the tables in the Remuneration Report part of the Annual Report and Accounts.

5. Notice Period

   Executive directors are entitled to 12 months notice of termination of contract by BW. Directors are required to give BW 6 months notice.