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## Directors’ remuneration report continued 

## Share price: 25% of the award 

This part of the award is banked or lapses depending on the Dialog share price at the anniversary date of the award throughout the three-year holding period. At the end of the three-year holding period, the banked portion of the award will vest. 

This is illustrated in the diagram below: 

<img src='content_image/202251.jpg'>

Vesting is dependent on ongoing employment with the Company at the time of vesting. Certain “good leaver” provisions apply. 

## Performance standards for the 2012 award 

As noted above, as part of the approval for the EIP given by Shareholders, the Company undertook to disclose on a retrospective basis, the annual performance standards that had been set, together with the level of performance achieved. This is set out below. 

## EBIT and revenue 

The performance standards for these metrics in 2012 were as follows: 

<img src='content_image/202250.jpg'>

EBIT and revenue achieved in 2012 were both above the exceptional level of performance in 2012. 

## Share prices 

The share prices (using 30 business day averages) at the beginning and end of the performance period were €16.39 and €13.86 respectively, meaning that none of the award would be banked. 

## Other long-term incentive schemes 

The Company has in the past operated the Executives’ Long-Term Incentive Plan (LTIP). Awards to the CEO were made up to 2010. 

No awards have been made since then and the plan has now expired, Details of outstanding awards under this plan are set out in the table below, with further details at Note 21 B of the consolidated financial statements. 

## Dilution 

The Company operates under a general Shareholder-approved dilution limit of 15% of issued share capital. This approval stems from a time when the Company was in an early stage of its turnaround when cash preservation was key, yet with a need to incentivise employees with share-based remuneration. 

The Committee recognises that the Company has grown to a scale where Shareholders have an expectation that this limit may need to be reduced over time, with the aim of being managed within UK corporate governance norms. 

Although the Company has not reached the existing 15% limit, in recognising concerns expressed last year by some Shareholders, the Committee has determined, for all awards made with effect from the approval of this report, dilution will be managed using an average annual flow rate of 1% per annum. This means that the Company will be able to move dilution towards a rolling 10% in 10 years in a measured way over time. 

Shareholders will note that the Company is seeking approval of a new share plan to operate below executive Director level, which will include provisions to comply with this updated approach to dilution. The EIP will also be subject to this new overall flow rate limit for new awards. 

## Share ownership guidelines 

The CEO is required to establish and hold a shareholding of at least 100% of salary. Consistent with the other changes to the annual bonus and granting of awards under the EIP in 2012, this has been increased to 200% of salary, and excludes unvested awards from the calculation. The CEO currently complies with this new requirement. 

## Contract terms 

The CEO’s contract provides for six months’ notice on either side (which is extendable to 12 months’ notice in the case of a change of control) during which only basic pay and benefits are payable, and a bonus if he is employed at year end. 

There is no acceleration of bonus on a change of control. The CEO has no entitlement to a bonus if his employment is terminated before the end of the bonus year unless his employment is terminated in lieu of notice after 1 October in any year. In this case he is entitled to a pro rata bonus for that year. 

## Non-executive Directors’ remuneration 

Historically, non-executive Directors were paid their base fee two-thirds in cash and one-third in market value shares (as nominal price options as set out on page 51), which had a three-year holding period under an arrangement approved by Shareholders. Any additional fees were payable in cash. Non-executive Directors are not eligible for incentives, pensions or other benefits. 

Following feedback from Shareholders and proxy advisers, it was determined that the way in which non-executive Directors would be remunerated would be reviewed. Following this review, it was determined that, subject to Shareholder approval, the structure of the non-executive Directors’ fee structure would change. The proposed change is to pay fees only in cash, consistent with UK corporate governance norms and no new share grants will be made. The fees paid to non-executive Directors are as follows: 

Chairman: flat fee of £110,000. 

Other non-executive Directors: basic fee of £80,000 plus additional fees of £10,000 for chairing the Board Committees, currently the Audit and Remuneration and Nomination Committees and for 2013 onwards the Strategic Transaction and Technology Committee. 

