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Remuneration Report to Shareholders
Management Development and Remuneration Committee and its Terms of Reference
The Management Development and Remuneration Committee of the board comprises all the independent non-executive directors of the company as set out in the Board of Directors section and the group Chairman. The Chairman of the Committee throughout the year was Mr R J W Walvis.
The Committee’s terms of reference include determination on behalf of the board of fair remuneration for the Chief Executive, the other executive directors and the group Chairman (in which case the group Chairman does not participate), which, while set in the context of what the company can reasonably afford, recognises their individual contributions to the company’s overall performance. In addition, the Committee assists the board in ensuring that the current and future senior management of the group are recruited, developed and remunerated in an appropriate fashion. The Director of Human Resources, Mr I F Stephenson, acts as secretary to the Committee. The full terms of reference of the Committee are available on the company’s website at www.matthey.com.
Non-executive directors’ remuneration is determined by the board, within the limits prescribed by the company’s Articles of Association. The remuneration consists of fees, which are set following advice taken from independent consultants and are reviewed at regular intervals.
Executive Remuneration Policy
The Committee believes strongly that remuneration policy should be closely aligned with shareholder interests. The Committee recognises that, in order to maximise shareholder value, it is necessary to have a competitive pay and benefits structure. The Committee also recognises that there is a highly competitive market for successful executives and that the provision of appropriate rewards for superior performance is vital to the continued growth of the business. To assist with this, the Committee appoints and receives advice from independent remuneration consultants on the pay and incentive arrangements prevailing in comparably sized industrial companies in each country in which Johnson Matthey has operations. During the year, such advice was received from the Hay Group, which also provided advice on job evaluation, and PricewaterhouseCoopers LLP. PricewaterhouseCoopers LLP also provided expatriate tax advice and other tax advice, tax audit work, completion of overseas tax returns, advice on set up of new overseas operations and some overseas payroll services. A statement regarding the use of remuneration consultants for the year ended 31st March 2010 is available on the company’s website at www.matthey.com. The Committee also receives recommendations from the Chief Executive on the remuneration of those reporting to him as well as advice from the Director of Human Resources. Total potential rewards are earned through the achievement of demanding performance targets based on measures that represent the best interests of shareholders.
The remuneration policy is normally reviewed by the Committee annually and a formal review is undertaken every three years. A triennial review was due to be held in 2009 but was delayed due to the uncertain market conditions at the time. It will be carried out in 2010, with any recommendations being implemented in 2011 subject to shareholder approval where necessary. Remuneration consists of basic salary, annual bonus, long term incentives and other benefits. Salaries are based on median market rates with incentives providing the opportunity for upper quartile total remuneration, but only for achieving outstanding performance.
To ensure the interests of the executive directors remain aligned with those of the shareholders, they are encouraged to build up over time and hold a shareholding in the company equal to at least their basic salary.
Johnson Matthey and FTSE 100 Total Shareholder Return rebased to 100
The following graph charts total cumulative shareholder return of the company for the five year period from 31st March 2005 to 31st March 2010 against the FTSE 100 as the most appropriate comparator group, rebased to 100 at 1st April 2005. Johnson Matthey was ranked 70th by market capitalisation in the FTSE 100 as at 31st March 2010.
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