Executive Directors’ remuneration
Base salary
Base salaries are reviewed annually with effect from 1 January, and are set primarily by reference to external benchmarking data for other UK listed companies of similar market capitalisation and overseas complexity.
In line with the Group’s policy that there is a significant weighting attached to the performance-related elements of pay, the salaries of the Executive Directors are set below the median against this peer group.
Following the most recent review, the base salary of each Executive Director with effect from January 2009 is:
| Director | 2009 salary | % increase since 2008 |
|---|---|---|
| Aidan Heavey | £666,100 | 4.0% |
| Graham Martin | £376,700 | 4.0% |
| Paul McDade | £376,700 | 4.0% |
| Angus McCoss | £376,700 | 4.0% |
| Ian Springett | £400,000 | 10.4% |
In setting the above salaries, the Committee’s general policy was to keep percentage increases broadly in line with those across the rest of the Group and to continue to ensure that a significant proportion of executive remuneration is linked to performance. However, Ian Springett was appointed in September 2008 on a salary of £362,250 (in line with the other Executive Directors other than the CEO), with a view that this would be formally reviewed in January 2009. His increase reflects this first formal review since his appointment. Following this review, the Committee determined that his base salary should be increased to £400,000 to reflect his specific responsibilities. This increased base salary, in line with Remuneration Committee policy, is still below the median of comparable benchmarks.
Annual bonus
Each Executive Director is entitled to participate in the Executive Annual Bonus Scheme in respect of each financial year of the Company.
Executive Annual Bonus Scheme
The key features of the Annual Bonus Scheme for the Executive Directors are as follows:
- The maximum annual bonus potential for the Executive Directors, for the achievement of outstanding performance, is 150% of salary;
- For meeting target performance, a bonus of 60% of salary is payable (i.e. 40% of the maximum);
- Any bonus earned in excess of 75% of salary is paid in shares and deferred for three years under the Deferred Share Bonus Plan (DSBP);
- In 2008, all the Executive Directors were subject to the same performance targets, which were as follows:
- One third was based on TSR relative to the same Oil & Gas group as is used to measure performance for the PSP awards made in 2008 (see PSP detail) – no bonus will be paid unless median performance is delivered, with the full bonus for upper quartile performance;
- One third was based on growth in absolute TSR, (calculated by comparing Tullow’s average net return index for January 2008 with that of January 2009), with a full bonus payable if Tullow’s TSR grows by 15% over the year; and
- One third was based on certain corporate key performance indicators (KPIs) designed to reflect major strategic and financial targets specific to the Group.
- The Committee also has broad discretion before finalising any award level on the above parameters, to take into account such other factors and circumstances reflecting the general financial condition and the performance of the Group as it considers appropriate.
The Committee believes that these represented a set of challenging, clear and transparent targets for the year to 31 December 2008, which are closely aligned with the interests of shareholders.
Performance under the Annual Bonus Scheme in 2008
The Committee’s assessment of performance under each of the bonus elements for 2008 was as follows:
- Relative TSR: 100% of maximum achievement;
- Absolute TSR: 100% of maximum achievement; and
- Corporate KPIs: 72% of maximum achievement.
Based upon the above performance the bonus awards for all the Executive Directors in 2008 are 135% of salary, reflecting another excellent year of performance against very challenging market conditions.
2009 Annual Bonus Scheme
For 2009, the bonus will operate as set out above, with the exception that the weighting of the targets will be amended as follows:
- One quarter will be based on relative TSR compared to the same Oil & Gas comparator group as is used for the PSP award to be made in 2009;
- One quarter will be based on growth in absolute TSR with the same growth range as for 2008; and
- Half will be based on corporate KPIs, comprising Health, Safety & Environment, Operational & Financial and Project-specific targets.
The objective of increasing the weighting on corporate KPIs is to encourage Executive Directors to be even more focused on executing the corporate strategy and achieving key strategic milestones linked to its ongoing projects. The continued weighting on TSR in both the annual bonus and the PSP ensures that full incentive awards are only delivered for both the execution of the corporate strategy and generating substantial returns to shareholders.
Pension and other benefits
The Executive Directors do not participate in the Group’s pension plans. Each Executive Director is entitled to receive a payment of 10% of his base salary into his private pension scheme which increases to 15% at age 50. Each Executive Director is also entitled to 30 days’ annual leave, permanent health insurance, private medical insurance and life assurance benefits. The Group also reimburses the Executive Directors in respect of all expenses reasonably incurred by them in the proper performance of their duties.
