This excerpt taken from the ICI 6-K filed Mar 21, 2007.
Long-Term Incentives Grant Policy
Executives are granted a mix of options and PGP awards. There is flexibility for the Remuneration Committee to alter the mix between the two different types of long-term incentive, subject to individual limits within the PGP and option plan rules. The Committee reviews this mix annually to ensure it remains appropriate.
Following three annual grant cycles under the ESOP and six under the PGP, the Remuneration Committee undertook a detailed review of the long-term incentive plans. The Committee wanted to ensure the design and structure of the long-term incentive plans remained fully aligned with the principles of the remuneration policy as set out earlier in this report and that they continued to reflect both best practice and external market norms.
The Remuneration Committee believes that for 2007 the balance of the total long-term incentive package should be changed so that PGP awards form a greater proportion of the long-term incentive package, with a scaling back of option grants. This change will place a greater emphasis on achievement of sustained long-term performance relative to ICIs peer group and also reflects evolving market practice, which is showing a greater emphasis on long-term incentive plans, such as ICIs PGP, rather than share option schemes.
The proposed changes to the grant levels are set out below for the Executive Directors.
To further increase the leverage in the PGP awards, the threshold vesting level for the PGP for achieving median TSR performance versus the peer group will be reduced from its current level of 40% of the maximum award to 20% of the maximum award level set out in the above table. Maximum payment will be achieved for upper quartile performance versus the peer group. These changes are designed to increase the linkage between pay and business performance. The Remuneration Committee will keep this leverage under review and will make further adjustment in the future, where appropriate.
The change to the mix between options and PGP and the changes to the vesting schedule have increased the value of the long-term incentives marginally, but the leverage in the package has been changed markedly through a significant reduction in the level of vesting at threshold performance (from 40% to 20% of the maximum award) to increase the emphasis at the upper end of the performance range.
In addition to changing the balance between PGP awards and options, PGP awards granted from 2007 will have a right to the value of dividend payments over the vesting period, to the extent that awards ultimately vest. The Remuneration Committee believes that this will improve alignment between executives packages and investors interests and has taken into account the additional value when determining the mix of awards, performance conditions and the grant levels under each plan. This change is also in line with the guidelines on long-term incentives published by the Association of British Insurers.
The individual limit in the PGP Rules currently restricts awards over shares to no more than 100% of base salary (200% of salary for US-based employees) and the Rules do not permit the value of dividends over the vesting period to be paid. Therefore, it is proposed to seek shareholder approval at this years AGM to increase the individual limits which apply to awards to UK and US executives and allow for the payment of dividends on vested shares. Details of these and other proposed changes to the PGP are disclosed in the Letter to Shareholders and Notice of Annual General Meeting 2007.