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## Directors’ remuneration report continued 

Key financial performance achieved during the year was as follows: 

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These three financial metrics make up 50% of the annual bonus (the remainder being commercial and organisational goals, see below). Pay is therefore closely aligned with the financial performance of the Company. 

## Base pay 

As described above, the CEO receives base pay, which is reviewed annually, with any increases effective in July. The CEO’s current annual salary level is £331,800, an increase of 5% on his prior salary. 

## Other benefits 

The CEO receives a cash allowance in lieu of a Company car of £10,200 per annum, medical insurance for himself and his spouse and life and disability insurance. 

## Pension 

Consistent with the approach adopted for all of the Company’s eligible UK employees, the Company contributes 9% of the CEO’s base pay to a defined contribution pension scheme. 

## Annual bonus 

The annual bonus is entirely performance- based and is paid based on the achievement of stretching performance objectives set by the Committee. 

As noted above, prior to 2012, performance above the predetermined target performance level was determined at the discretion of the Committee. We recognise that this approach raised some concerns with Shareholders. As a result, the annual bonus provided for payment of up to 200% of salary for maximum performance, with 100% of salary being paid for target performance. 

Performance is split into the following metrics: 

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In addition to the above metrics, no bonus is payable if a minimum profitability gate is not met and the Committee retains discretion to adjust the overall bonus to take account of performance outside the normal bounds. The exercise of any such discretion will be disclosed in the normal way. 

For the financial metrics, target performance is set consistent with the annual budget, which the Committee considers to be a stretch. 

In order to ensure consistency with our approach to align remuneration with Shareholder interests, a deferral element was introduced in 2012, which operates as follows: 

Performance up to target Paid in cash 

Performance above target Paid in deferred shares 

Deferred shares are held for three years then released. The CEO can request that up to 100% of his bonus be paid in the form of deferred shares. The first deferral will occur in 2013. 

Any deferred shares, whether compulsorily or voluntarily deferred, form the basis for determining the award under the Company’s long-term incentive plan, the Executive Incentive Plan (EIP). Further details of this are set out below. 

This mechanism is considered appropriate because: 

■ It mandates a certain part of the bonus can be deferred into Company shares; 

■ It encourages the CEO to invest and hold Company shares beyond that required under the bonus rules; and 

■ It creates a more tangible link between annual performance and long-term pay opportunity and performance. 

The Committee determined that establishing a separate bonus matching plan was an unnecessary complication and preferred to retain a single, active long-term incentive plan. This approach also provides for clarity of long-term performance metrics. 

Any annual bonus (whether paid in cash and/or shares) is non-pensionable. 

Deferred awards will also be subject to financial clawback provisions in the case of material financial misstatement. 

## Long-term incentives 

The Company currently operates one long-term incentive plan, the Executive Incentive Plan (EIP). The EIP was approved by Shareholders in 2010 (with a five-year life) and the first annual awards were made in 2012. The EIP incentivises participants (the executive team and selected other key senior managers) to deliver Shareholder value through long-term profitability and share price growth. 

The main features of the EIP are summarised below: 

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