Report of the Directors
Governance

Remuneration Report

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Section 2 – Summary of Remuneration Policy for 2013/14

This section describes the future policy in respect of each element of directors’ remuneration. This policy applies from 1st April 2013.

Future Policy Table

The key goal of remuneration policy remains to obtain the best value for shareholders. This requires that the pay and benefits structure is competitive within the sector whilst simultaneously providing stretching targets that require significant outperformance to maximise incentive payments.

The table below provides detail on each element of directors’ remuneration packages for 2013/14.

Purpose and link to strategy Operation (and changes if appropriate)   Opportunity and performance metrics for 2013/14

Base salary

Retains and motivates, takes account of individual performance, complexity and scale of director’s duties, length of time in post, and cognisance of market levels in the appropriate sector.

  • The positioning of base salaries is set with reference to the performance of the individual executive director against a broad set of parameters including financial, environmental, social and governance issues, length of time in post, as well as comparison against similar roles in an appropriate comparator group (the comparator group comprises 20 other FTSE 100 companies in the industrial and service sectors, excluding natural resources, retail and financial service companies, and which have over 50% of revenue from overseas sales, with ten companies above and ten companies below Johnson Matthey’s market capitalisation).
 

Base salaries at the last review are shown below:

Director Salary as at
1st August 2012
£
Salary as at
1st August 2011
£
% increase
Neil Carson 803,400 776,250 3.5
Robert MacLeod 435,750 421,000 3.5
Larry Pentz 417,800 403,650 3.5
Bill Sandford 375,000 357,100 5

Base salaries will be reviewed during the year ending 31st March 2014. Any increases will take into account salary increases awarded to the wider Johnson Matthey workforce, as well as individual performance and length of time in post.

Benefits

Provision of non-cash benefits to directors in line with wider employee policy.

  • Directors are entitled to private medical insurance and a company car.
  • Directors with non-UK citizenship or domiciled outside the UK are assisted with relevant tax advice relating to matters such as normal pension arrangements and the filing of annual tax returns.
  • Non-UK domiciled directors may be provided with assistance regarding accommodation in the UK, in cases where they are expected to spend substantial time away from their country of domicile.
  • Other benefits such as relocation benefits may be awarded as part of a relocation package for new directors.
  • This policy remains unchanged from 2012/13.
 

n/a

Annual bonus

Provides a strong short term incentive for delivery of budget in the relevant year.

  • The annual bonus provides a strong short term incentive for delivery of budget in the relevant year. Whilst the LTIP target encourages business managers and the executive directors to set ambitious three year targets, the annual bonus allows the board to ensure that those plans are properly reflected in stretching but achievable annual budgets.
  • This policy remains unchanged from 2012/13.
 

Maximum bonus opportunity

Chief Executive – 150% of base salary (75% of salary for on target performance, 22.5% of salary for threshold performance. 33.3% of any bonus is deferred and awarded as shares).

Other executive directors – 125% of base salary (62.5% of salary for on target performance, 15% of salary for threshold performance. 20% of any bonus is deferred and awarded as shares).

Performance conditions

The annual bonus is based on achievement of the group’s budgeted underlying PBT. Threshold performance is at 95% of budget. Maximum payment is at 110% of budget.

LTIP

Incentivises above average performance and growth over the longer term.

  • The LTIP is designed to incentivise above average performance and growth over the longer term. Shares allocated under the terms of the LTIP are released on the third anniversary of the allocation date with the release being subject to targets based on compound annual growth in the company’s EPS.
  • EPS growth is considered to be the simplest, most transparent and most appropriate target because it reflects the full total of company activities.
  • The maximum individual allocation in any financial year is 200% of base salary, allowing the MDRC to take account of evolution of market practice as required. The actual allocation levels for 2013/14 are shown in the column to the right.
  • This policy remains unchanged from 2012/13.
 

Maximum opportunity

Chief Executive – 175% of base salary.

Other executive directors – 140% of base salary.

Performance conditions

The LTIP is based on compound annual growth in underlying EPS over the three year performance period.

Threshold vesting is 15% of maximum opportunity and occurs where compound annual growth in underlying EPS is 6%. Maximum vesting occurs where compound annual growth in underlying EPS is 15%.

Pension

Provides post-retirement remuneration and ensures that the total package is competitive.

  • The company provides executive directors with membership of its pension scheme – the Johnson Matthey Employees Pension Scheme (JMEPS). The benefits provided to executive directors through JMEPS are the same as for all other UK employees.
  • Where directors cease to accrue pensionable service in JMEPS, they are entitled to a cash supplement equal to 25% of base salary.
  • This policy remains unchanged from 2012/13.
 

Neil Carson and Bill Sandford withdrew from pensionable service on 31st March 2006, Robert MacLeod withdrew on 31st March 2011 and Larry Pentz withdrew on 31st October 2012. No pensionable service in JMEPS has been accrued by these directors since these dates. They will receive a cash supplement of 25% of base salary in lieu of pension accrual.

Recruitment

  • The policy of the board is to recruit the best candidate possible for any board position and to structure pay and benefits in line with executive remuneration policy. At the time of new directors joining from external companies, the MDRC retains discretion to make LTIP awards and to consider short term bonus awards that reflect equivalent loss of opportunity at the previous company, or that achieve rapid alignment with Johnson Matthey’s strategic targets. LTIP awards made under this policy will not exceed 200% of salary.
  • This policy remains unchanged from 2012/13.
 

New directors would be recruited with terms and conditions in line with this policy.

New directors will normally commence at lower level salary and progress towards higher salaries with experience and good performance in the role.

Non-executive director fees

Retains and motivates non-executive directors with the required knowledge and experience.

  • Non-executive directors are paid a flat fee each year with an additional fee for each committee chairmanship held.
  • This policy remains unchanged from 2012/13.
  • Non-executive fees were reviewed on 1st April 2012 and will be reviewed again no later than 2015
 

Annual base fees

Non-executive Chairman – £300,000.

Non-executive directors – £55,000.

Additional fees

Audit Committee chairmanship fee – £10,000.

MDRC chairmanship fee – £10,000.

Senior Independent Director (SID) fee – £13,000
Where the MDRC chairman is also the SID, no extra fee is paid for chairing the MDRC.

The policy set out above cascades down through the next tiers of senior management with appropriate reductions in opportunity levels based on seniority. 200 of the group’s most senior executives participate in the annual bonus plan (as described above) and 900 of the group’s senior and middle managers participate in the LTIP in line with the same performance conditions.

Remuneration Scenarios

The figures below set out the level of opportunity for each director based on the remuneration policy for 2013/14 both in absolute terms and as a proportion of the total package under different performance scenarios.

Remuneration
Scenario
Neil Carson
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Remuneration
Scenario
Robert MacLeod
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Remuneration
Scenario
Larry Pentz
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Remuneration
Scenario
Bill Sandford
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Statement of Consideration of Pay and Conditions Elsewhere in the Company and Group

The MDRC considers the directors’ remuneration in the context of the wider employee population. Increases in base salary for directors will take into account the level of increases to UK employees and with reference to salary increases of overseas employees. Individual performance, development of responsibilities and length of service in the current role are also taken into account.

In setting directors’ remuneration, the MDRC considers metrics for similar roles in a relevant comparator group. The comparator group comprises 20 other FTSE 100 companies in the industrial and service sectors, excluding natural resources, retail and financial service companies, and which have over 50% of revenue from overseas sales, with ten companies above and ten companies below Johnson Matthey’s market capitalisation. However, it is not the policy of the MDRC to set salaries in line with that data or in line with benchmarks mathematically derived from that data.

The Chief Executive’s base salary increased by 3.5% from 2011/12 to 2012/13. Pay increases for UK, Europe and North American employees were generally in the range 2 to 5%, with an average of 3%. Employees in other countries tended to receive higher raises, in line with local conditions.

Service Contracts and Termination Payments

The table below summarises certain key provisions of executive directors’ service contracts and the treatment of payments on termination of employment.

The full contracts of service of the executive directors (as well as the terms and conditions of appointment of the non-executive directors) are available for inspection at the registered office of the company during normal business hours as well as prior to and during the forthcoming annual general meeting of the company.

Summary of Key Provisions of Executive Directors’ Service Contracts and Treatment of Payments on Termination

  Neil Carson Robert MacLeod Larry Pentz Bill Sandford
Employing company Johnson Matthey
Plc
Johnson Matthey
Plc
Johnson Matthey
Plc
Johnson Matthey
Plc
Date of service agreement 1st August 1999 3rd February 2009 1st June 2006 21st July 2009
Date of appointment as director 1st August 1999 22nd June 2009 1st August 2003 21st July 2009
Contract duration

No fixed term.

Notice period

Not less than 12 months’ notice of termination by the company.

Not less than six months’ notice of termination by the director.

Post-termination restrictions

The contracts of employment contain the following restrictions on the director for the following periods from the date of termination of employment:

– non-compete – six months.

– non-solicitation of customers and suppliers –12 months.

– non-solicitation of employees – 12 months.

Mitigation

The directors’ service contracts do not provide for mitigation for loss of office by directors. However, the MDRC rigorously applies the principle of mitigation where appropriate to reduce compensation on early termination to reflect departing directors’ obligations to mitigate loss.

Summary termination – payment in lieu of notice

The company may, in its absolute discretion, terminate the employment of the director with immediate effect by giving written notice together with payment of:

  • One year’s gross base salary plus the value of one year’s other contractual benefits receivable (or, where prior notice of termination has been given, gross base salary and the value of any other contractual benefits receivable in respect of the unexpired portion of such notice).
Termination payment – change of control

Upon termination by the company, within one year after a change of control of the company, liquidated damages of:

  • Gross base salary plus the value of all other contractual benefits in respect of the 12 months’ notice period for termination by the company, less the period of any notice given by the company to the director.
Termination – treatment under LTIP

Under the company’s LTIP, participants generally forfeit their allocations upon leaving.

Under the LTIP rules, good leavers (i.e. participants who leave early on account of injury, disability or ill health, a sale of their employer or the business in which they are employed, statutory redundancy, retirement or other reasons with the approval of the MDRC) will not lose their awards. In these circumstances, allocations will continue to vest on the normal vesting date subject to the performance target. The extent to which allocations vest is subject to pro-rating based on the time which has elapsed since the date of the allocation to the date of leaving as compared to the period between the allocation date and the normal release date.

Termination – treatment of annual bonus under Executive Compensation Plan (the Plan)

Participation is at the discretion of the MDRC and is subject to the rules of the Plan.

Under the Plan rules, employees voluntarily leaving the company’s employment will not normally receive a bonus, except at the discretion of the MDRC. They will also normally forfeit the share awards relating to the deferred element of bonus which have not achieved the three year deferral period at their date of leaving.

Employees leaving as good leavers will usually be entitled, at the MDRC’s discretion, to a bonus payment, payable at the usual payment date, based on the proportion of the year actually worked, provided they have completed four month’s service in that year. At the MDRC’s discretion, they will also be entitled to any share awards relating to the deferred element of the bonus which have not achieved the three year deferral period. These shares will be released at the normal release date.

Redundancy scheme

The director is not entitled to any benefit under any redundancy payments scheme operated by the company.

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