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## Directors’ remuneration report 

## Introduction from the Committee Chairman 

This year, for the first time and in my capacity as Chairman of the Dialog Semiconductor Remuneration and Nomination Committee, I have decided to include an introductory letter to the Directors’ remuneration report to provide some detail on the Dialog approach to remuneration and to address some of the concerns raised in the context of our 2012 AGM. 

Last year, Shareholders gave a strong signal to the Company that there were elements of our approach to remuneration and, in particular, our disclosure in our Directors’ remuneration report, with which they were not entirely happy. This was reflected in the number of votes cast against the report at the AGM and the proposed introduction of the new share plan not being approved. 

The Committee, and the Board, took that signal very seriously, and embarked on a major review of both our approach to remuneration and our disclosure. As part of this, we sought further feedback from Shareholders and proxy advisers before finalising any changes to our remuneration plans. 

This year, you will see that the Directors’ remuneration report has been extensively expanded, with a focus on describing our arrangements more fully and transparently; and demonstrating how opportunity and realised pay links both to Dialog’s strategy and to performance. 

We believe that our remuneration approach for the executive Director remains fit for purpose and propose no material changes for 2013. However, as a result of Shareholder feedback from last year and as a result of this year’s review we introduced a deferral element to the 2012 annual bonus. The first deferral will happen in 2013. 

We have reviewed and amended the terms of the share plan that we proposed for Shareholder approval at the 2012 AGM and are seeking approval for that plan this year. The material differences in the proposal this year are: 

■ The CEO is expressly excluded from participation; and 

■ Share dilution will be limited compared to the previously agreed levels. 

Finally, subject to Shareholders’ approval, fees to non-executive Directors will be paid entirely in cash in the future. All outstanding non-executive Director options that were exercisable in the year were exercised. 

We believe that these changes directly address Shareholder concerns and will make the plan acceptable to Shareholders. It is an important addition to the existing share plan arrangements for employees below executive Director level. 

## Russ Shaw 

Chairman, Remuneration and Nomination Committee 

## Unuadited information 

## The Remuneration and Nomination Committee 

For information on the Remuneration and Nomination Committee and its responsibilities, refer to page 45. 

## Executive Director remuneration policy 

The primary objectives of the Company’s policy on executive Director remuneration are: 

1 To ensure that it is structured so as to attract and retain executives of a high calibre, with the skills and experience necessary to develop the Company successfully; and 

2 To reward executives in a way that aligns with Shareholder interests and promotes the creation of sustained value for the Company’s Shareholders. 

In response to the level of Shareholder approval of last year’s Directors’ remuneration report, the Committee embarked on a fundamental review of its approach to CEO remuneration and consulted with Shareholder proxy advisers in advance of finalising its arrangements for 2013. It is committed to ongoing dialogue with Shareholders and Shareholder proxy advisers in this regard. 

During 2012, the Committee reviewed its remuneration objectives and determined that these principles remain fit for purpose. It believes that a simple approach is the most effective, so the package comprises of three principal elements: 

■ Fixed pay, including base salary, benefits and pensions; 

■ Annual bonus; and 

■ Long-term incentive. 

The Committee believes that, in order to align with Shareholder interests and “pay for performance”, a significant portion of the CEO’s remuneration should be linked to, and paid in, Company shares. The Committee believes that the CEO should also hold a meaningful level of shares personally. 

While the Committee determined that its overall approach to remuneration remains appropriate, certain changes were made during 2012 to the operation and application of the pay arrangements to address issues raised around the 2012 AGM and closer align with best practice: 

■ Annual bonus now includes a formal maximum (previously performance above target was discretionary); 

■ Annual bonus will now include a deferral mechanism into Company shares with clawback provisions; and 

■ The level of grant under the long-term incentive has been formalised and linked more tangibly to both CEO performance and his investment in Company shares. 

Each of these aspects is set out in more detail in the relevant sections of this report. 

## Remuneration review and approach to benchmarking 

The Committee reviews the CEO’s remuneration package annually both in the context of Company performance and against a range of peer companies. In reviewing the CEO’s pay arrangements the Committee takes into account: 

■ The history and growth of the Company; 

■ The Company’s UK incorporation and associated corporate governance expectations; 

