Report on directors' remuneration

Blockquote1

The purpose of BBC Worldwide is set out clearly elsewhere in this Review: to supplement the licence fee and support the BBC's mission through the successful commercialisation of BBC programmes, and other high-quality British content, around the world.

To do this well, the company must be able to hire and keep high calibre people at all levels and in a range of markets. However, this needs to be balanced with its status as a commercial subsidiary of the BBC, an organisation funded by, and serving, the public, meaning that:

  • it is neither appropriate nor desirable to lead the market on pay; and

  • remuneration policies and practices should be as transparent as possible.


The Committee believes that the framework and policies it has espoused meet the needs of BBC Worldwide's shareholder for appropriateness, while enabling the company to incentivise in a way that is sufficiently competitive to underpin current and future returns to the parent - returns that will directly benefit the licence fee payer.

Despite significant growth in profit performance, the Chief Executive decided that, in the present economic climate, it would not be appropriate to accept any increase in his total compensation this year. The Committee, and the BBC Remuneration Committee, accepted his decision.

We aspire to set tough performance standards for incentive payouts and this is reflected in the fact that the 2011/12 payout level for the annual bonus was 78.1% of the target opportunity for executives. Overall, the ratio of fixed salary to variable incentive pay declined again, reflecting the intention to tie an increasing proportion of senior executive pay to performance.

The Committee has also begun the process of simplifying executive compensation, initially by modifying the Profit Share Plan, and intends to continue the process of simplification and consolidation as and when existing schemes come to an end. The changes embody BBC Worldwide's continuing commitment to remuneration based on criteria that are objective, transparent and fair.

The Remuneration Committee approved a new reward strategy in the year, designed to support BBC Worldwide's future international growth plans, enabling suitably attractive and commercial reward packages, while adjusting for the varying strength of the BBC's brand, mission and values around the world.

In summary, the Committee has spent considerable time considering how to ensure that remuneration is pitched appropriately for BBC Worldwide, where pay is attractive, suitably aligned with the business strategy, and linked to sufficiently stretching performance standards.

The Remuneration Committee
 

Blockquote2

Remuneration Committee

Composition

There were several changes during the year in the composition of the BBC Worldwide Remuneration Committee. Charlotte Hogg was appointed to the Committee as a Director on 1 April 2011. Robert Webb QC was Chairman until 29 February 2012 and was succeeded on an interim basis by Zarin Patel.

Summary terms of reference can be found here in the Corporate Governance section.

Advisors

The Committee obtains advice from various sources in order to ensure it makes informed decisions. In the early part of the year, the Committee's main advisor was Deloitte. In December 2011, the Committee agreed a change to Towers Watson, which for the remainder of the year both provided comparative benchmark data on executive remuneration and was retained, on a consultancy basis, to advise on the effectiveness of current reward arrangements and propose improvements to accord with best practice.

At the invitation of the Committee, the Chief Executive, the Chief Financial Officer, the People Director, the Head of Reward, the Company Secretary and both the BBC's Director of People and Head of Reward provided assistance to the Committee during the year.
No individual is responsible for setting his or her own remuneration.

Activities in 2011/12

The Committee's activities included:

  • Reviewing and refining the BBC Worldwide Reward Strategy.

  • Determining individual award levels for WEx based on benchmarking of roles and the market.

  • Approving performance against targets for the 2011/12 annual bonus and long-term incentive schemes, and the resulting payments to individuals.

  • Setting annual bonus targets for 2012/13.

  • Developing proposals and schemes to simplify executive compensation.

  • Considering the implications of the forthcoming UK regulations on executive pay, with a view to aligning BBC Worldwide practices and disclosures, where appropriate, to upcoming legislation.


Executive Directors

This report summarises the remuneration of the relevant BBC Worldwide Board members.

Reward Strategy

The Remuneration Committee reviewed and agreed a new Reward Strategy for senior executives. Many elements of the Strategy are applicable at all levels within BBC Worldwide and are being cascaded accordingly. It is aimed at ensuring maximum alignment between the BBC mission and BBC Worldwide objectives of developing and commercialising brand and content internationally.

The Company's reward strategy is designed to ensure that reward arrangements continue to support the delivery of its evolving global business model, in order to generate growing and sustainable returns to the BBC, to the benefit of the licence fee payer. To do this, it needs to attract and retain key talent through the following key principles:

  • Total direct compensation (base pay plus all cash incentives) should be positioned:
    - In the UK, at no more than the market median
    - Within 10%, below or above, of the local market median outside the UK, where the BBC brand is less well-established, but where recruiting and retaining staff is essential for the Company's internationally focused growth business strategy

  • The relevant comparator group in the UK is FTSE 250 companies.

  • The market median is positioned midway between that of stand-alone companies and subsidiary business units of comparable size.

  • Remuneration packages should reward both short-term achievement and sustained growth over the longer term.

 

Components of reward

The following table summarises the current, key, fixed and variable components of reward for executives and employees:

Element Objective Performance period Performance conditions
Base Salary Maintain a competitive package, at the agreed position for the relevant local market, recognising individual contribution and the scope of the role. Not applicable Reviewed annually, taking into account the industry in which BBC Worldwide operates, location, individual performance and responsibilities, and affordability.
Annual Incentives Reward achievement of short-term strategic goals and profit growth. 1 year Subject to achievement of agreed profit targets1.
Bonus Matching Scheme Align interest of management with the performance of the company and ultimately the BBC over the longer term. 3 years Eligible participants are invited to defer up to 50% of their annual bonus for three years with a potential matching award of up to 25% of the deferred amount, subject to the achievement of a Return on Capital Employed threshold.
Profit-sharing Plan Drive profit performance and returns to BBC Worldwide's shareholder over the long term, while promoting the retention of key management. 3 years The original scheme provided eligible participants with a share in profits2 above a set of absolute profit hurdles linked to the five-year strategic plan. Annual payments commenced after three years of participation in the plan, with balancing payments made at the end of the five-year period.

Under the simplified 2011/12 scheme, a single payment, calculated as a percentage of base pay, depending on the level of achievement against a cumulative profit2 target, will be made at the end of the three-year period.

1 Based on headline profit (operating profit before specific items).
2 Based on profit after interest and tax.

In a tough trading year, BBC Worldwide achieved year-on-year growth of 13.0% in profit before tax excluding gains on disposals, and headline profit growth of 7.9%. This result delivered 95.4% of our stretching profit target, set by the Remuneration Committee at £159.5m (headline profit), resulting in annual bonus awards of 78.1% of the target bonus opportunity for members of the BBC Worldwide Executive.

Business growth notwithstanding, the Chief Executive decided that, in the present economic climate, it would not be appropriate to accept any increase in his total compensation this year and, to that end, waived a significant proportion of his remuneration for the year. Details are shown in the Remuneration table.

The diagram below illustrates the balance between fixed and variable remuneration as percentages of total direct compensation, before any deferral into the matching bonus scheme or remuneration waiver, for the Executive Directors of the BBC Worldwide Board for the current financial year. It shows that more than 50% of the Chief Executive's remuneration is dependent on the company's performance.

CEO performance

Base Salary

In determining base pay, the Committee takes into account the base pay of organisations with which BBC Worldwide competes for talent. It also considers individual performance, experience and competence, the criticality of the role, its value to the business and affordability.

The Committee reviews salaries annually. Any change in base salary is usually effective from 1 July.

Annual base salaries of those executive Directors currently serving on the BBC Worldwide Board as at 1 April 2012:

John Smith
Chief Executive
£448,800
Philip Vincent
CFO
£275,000

Annual Incentives

Annual incentives are provided through the BBC Worldwide annual bonus Scheme in which all staff participate (other than those on sales schemes). The Chief Executive is eligible to receive a core bonus of up to 60% of base pay and the Chief Financial Officer is eligible for a core bonus of up to 40% of base pay. The Chief Executive's bonus is wholly dependent on the performance of BBC Worldwide as this is deemed to be the most appropriate indicator of his own performance. His bonus opportunity and targets are set and agreed annually by the BBC Executive Remuneration Committee.

In addition, the Scheme rewards senior managers for delivering financial performance beyond the already stretching targets. This is self funding and achieved by creating a pool, calculated as a percentage of profits achieved above the annual bonus target: 80% of this pool is shared across participating members. All senior managers (above a defined grade) are eligible to participate in this element of the scheme. The remaining 20% is awarded on a discretionary basis for outstanding performance. Both John Smith and Philip Vincent are eligible to participate in this but no payments were due under this element of the Scheme in 2011/12.

Long-Term Incentives

Bonus-matching scheme

In previous years up to 2009/10, Executive Directors could voluntarily invest up to 75% of their annual bonus into the now closed Long-Term Incentive Plan (LTIP) which would be eligible for a matching award based on the subsequent performance of the company. The final award under this plan - relating to the period 2009/10 to 2011/12 - was made in June 2012 and is disclosed in the Remuneration table.

Although the LTIP has now been replaced, performance in respect of this final award has been determined in accordance with the original LTIP criteria. Two measures - profit growth (75% weighting) and return on sales growth (25% weighting) over a three-year period - were used to rank BBC Worldwide performance relative to a comparator group of other international media companies.

The comparator group (see below) was selected for its mix of business, industry, size and geographical representation.

Matching was determined on a straight line basis with the top ranking delivering a 100% match and the bottom ranking resulting in the forfeit of 50% of the total amount deferred.

Since 2009/10, directors have been able to defer up to 50% of their annual bonus for three years. The deferred amount is then eligible for a 25% matching award at the end of three years, subject to a cumulative return on capital employed (ROCE) threshold of 40% over the period having been met.

The constituent companies of the comparator group
British Sky Broadcasting Group plc News Corporation The Walt Disney Corporation
Cablevision Systems Corporation Pearson plc UBM plc
Comcast Corporation ProSiebenSat.1.Media AG Village Roadshow Ltd
Grupo Televisa RTL Group Vivendi Group
ITV plc Scripps Networks Interactive
Mediaset SpA Singapore Press Holdings
Profit Share Plan

The Company's original Profit Share Plan (PSP), which covers the five-year period beginning in 2008/09, provided participants with a share in profits above a set of absolute profit hurdles linked to the five-year strategic plan. Annual payments commenced after three years of participation in the plan, with balancing payments made at the end of the five-year period. For eligible participants, the payments shown on the Remuneration table will be made in June 2012. Any payment due for the final year of the plan will be made in the summer of 2013. Any balancing payments due will be made in 2014 and 2015.

The revised PSP, also in operation during the year, covers the three-year period 2011/12 to 2013/14.

Profit after interest and tax is used as the basis for both plans, as it aligns management's interests with a key measure for the shareholder. The annual cash PSP payout is capped at 100% of base pay for each participant.

Pension

Executive members of the Board are eligible to participate in the BBC Pension Scheme (the Scheme), which provides for pension benefits on a defined benefit basis. The Scheme, which has a number of sections, operating on different bases, is now closed to new entrants and any executives appointed to the Board and who are not already members of the Scheme will be eligible to participate in the BBC's defined contribution pension plan.

For an employee who joined the Scheme before 1 November 2006, the accrual rate is 1/60th of the final pensionable salary for each year of service, with pensionable salary being base pay only. With effect from 1 April 2011, future increases in pensionable salary are limited to a maximum of 1% per annum. For employees in this group, the normal pensionable age is 60. The contribution rate for these employees is 7.5% of pensionable salary.

For an employee who joined on or after 1 November 2006 and before 1 December 2010, the accrual rate is 1.67% of his or her pensionable pay for each year of service, adjusted in line with inflation up to retirement. As before, with effect from 1 April 2011, all future increases in pensionable salary are limited to a maximum of 1% per annum. Participating employees contribute 4% of their pensionable salary to the Scheme. For employees in this group the normal pensionable age is 65.

To provide a lower cost and lower risk option for the BBC, members of the Scheme were given the opportunity to transfer to a new Career Average Benefits section (CAB2011) for future pension build-up, and have their accrued pension entitlement to date deferred into the scheme. This deferred pension would build up broadly in line with inflation. Under CAB2011 there is no 1% per annum limit on increases in pensionable salary, and employee contributions to the Scheme are 6%. The normal pension age is 65. Transfers had to be made before 31 December 2011.

John Smith participates in the original defined benefit section of the Scheme and Philip Vincent now participates in the Career Average Benefits section (CAB2011). Philip Vincent's pensionable earnings are now subject to a maximum cap of £127,800 (rising to £135,000 for the 2012/13 tax year). No maximum annual cap is applicable to John Smith who joined the BBC before 31 May 1989. The Scheme provides for early retirement on medical grounds and life assurance of four times life cover pensionable salary up to a prescribed limit.

Other benefits

In addition to pension, the other main contractual benefits are a car allowance and private health insurance.

Employment Contracts

Date of appointment to
BBC Worldwide Board
Notice period
from Company
Notice period
from Director
John Smith 18 March 2005 12 months 12 months
Philip Vincent 1 December 2010 6 months 6 months

The notice periods of Board Directors serving during the year are detailed in the table above. These are subject to earlier termination for cause. No payments are made to Directors on termination other than as contractually required. If termination arises through redundancy, Board Directors are entitled to one month's pay for each year of continuing service, subject to a 24-month cap.

Outside Interests

Where there is no potential for conflict of interest, and with the prior agreement of the Chair, Executive members of the Board may hold one paid external directorship. Remuneration which arises from directorships may be retained by the executive. This policy is to encourage the take-up of external Non-executive appointments as part of the Board Directors' development as well as bringing broader business skills to BBC Worldwide.

During the year, John Smith served as a Non-executive Director of Burberry plc, for which he received a fee of £70,000. It is recognised that BBC Worldwide's own Non-executive Directors are likely to have other directorships and the restriction regarding paid external directorships applying to Executive Directors does not apply to them.

Non-executive Directors

The BBC Non-executive Directors Zarin Patel and Mark Thompson (who was appointed Chairman in March 2012) do not, and Nicholas Eldred (who left the BBC on 31 October 2011) did not, receive remuneration from BBC Worldwide for the services provided to the Company. The other Non-executive Directors receive a fee, determined by the BBC Trust, reflecting the complexity of the role and the time required to execute it effectively. The fee levels are set with reference to rates paid by other UK corporations, but at a level such that the Non-executive Directors are not financially dependent on BBC Worldwide. Details are provided on the Remuneration table. The fee levels are reviewed annually on 1 September, the next review being effective from 1 September 2012.

Robert Webb QC received a fee of £68,750 for his role as Chairman of the Board of BBC Worldwide. This was in addition to fees received from the BBC and from BBC Commercial Holdings in respect of his Non-executive positions on their respective boards. Further details are available in the BBC Annual Report and Accounts 2011/12.

Charlotte Hogg was appointed as Non-executive Director on 24 September 2010 for a fixed term of two years. Tim Weller was reappointed on 26 April 2012 for a further two-year term.

Non-executive Directors must maintain a register of all external interests that might be seen to affect their ability to perform their independent duties. This register includes declarations of all positions of employment, directorships and voluntary positions, as well as interests of close family members if relevant, and is approved by the BBC Worldwide Board at least annually.

Current fees of Non-executive Directors to whom a fee is payable from 1 April 2012:

Charlotte Hogg £35,700
Tim Weller £40,800*

* £35,700 in respect of duties as Non-executive Director plus £5,100 in respect of duties as Chair of the Audit Committee.

 

Remuneration Earned in the Year Ended 31 March 2012

£000 Fee/
base
pay
Annual bonus PSP Matching
scheme for
bonuses
deferred from
prior years2
Taxable benefits Earnings waived4 Total 2011-12 Total 2010-11
Executive Directors
John Smith1, 2, 3, 4 447 107 279 102 15 (52) 898 898
Philip Vincent 3, 5 269 92 78 - 10 - 449 146
Non-executive Directors
Nicholas Eldred6, 7 - - - - - - -
Charlotte Hogg8 36 - - - - 36 18
Zarin Patel6 - - - - - - -
Thomas Geitner 10 27 - - - - 27 35
Charlotte Hogg 11 18 18 -
Zarin Patel 7 - - - - - - -
Mark Thompson6, 9 77 - - - - 77 45
Robert Webb10 69 - - 69 77
Tim Weller11 41 - - 41 38
Former Directors 146 - - - - 146 133
- - - - - - 198
Total 862 199 357 102 25 (52) 1,493 1,375
2. The Matching payment shown relates to £88,000 of annual bonus which was invested into the plan in March 2008 and was matched at 52% in view of the company's performance over the 2008-2011 period.
3. Neil Chugani resigned as a Director on 17 June 2010 following his decision to join Shine Group. It was agreed with immediate effect that it was no longer appropriate Mr Chugani should continue to fulfil his operational responsibilities and he was placed on a period of garden leave until 31 August 2010. The disclosure reflects his remuneration up to the 31 August 2010.
4. In the context of Pension contributions Neil Chugani's earnings are subject to a maximum annual limit of £123,600 per annum (£123,600 for 2009/10) and in accordance with his contractual terms he was entitled to a cash supplement of 20% of base pay above the annual limit.
5. Philip Vincent was appointed acting CFO on 17 June 2010 and was formally appointed to the Board as CFO on 1 December 2010. His remuneration detailed in the table above reflects his remuneration for the period since his appointment to the Board on a pro-rata basis.
6. The BBC introduced a salary sacrifice arrangement on 1 June 2008 for Old and New Benefits members who joined the Pension Scheme before 1 November 2006. This arrangement is also applicable to all Career Average Benefit members. Those Directors indicated in the table above participated in the arrangement. From that date, the terms and conditions of employment were changed for those employees opting for the salary sacrifice arrangement and as a result employee pension contributions made via the salary sacrifice have been treated as employer contributions, with a corresponding reduction in salary. Base salaries for Executive Directors have not been adjusted to reflect the impact of the salary sacrifice. The total salary sacrifice by Executive Directors was £38,150 (£33,000 2009/10).
7. The BBC Non-executive Directors, Nicholas Eldred, Zarin Patel and Sharon Baylay, do not receive remuneration from BBC Worldwide for the services provided to BBC Worldwide.
8. Ceased to be a Director on 26 November 2010.
9. Ceased to be a Director on 31 October 2010.
10. Ceased to be a Director on 31 December 2010.
11. Appointed on 24 September 2010.
12. Appointed on 26 April 2010.

1 The Chief Executive committed £107,000 or 50% of his annual bonus into the Deferred Bonus Plan which will vest in March 2015. Annual bonus is stated net of any deferral into the matching scheme.

2 The Matching payment shown relates to £69,000 of annual bonus which was invested into the now closed Long Term Incentive Plan in March 2009 and was matched at 48% in view of the company's performance over the 2008-2012 period.

3 The BBC introduced a salary sacrifice arrangement on 1 June 2008 for Old and New Benefits members who joined the Pension Scheme before 1 November 2006. This arrangement is also applicable to all Career Average Benefit members. Those Directors indicated in the table above participated in the arrangement. From that date, the terms and conditions of employment were changed for those employees opting for the salary sacrifice arrangement and as a result employee pension contributions made via the salary sacrifice have been treated as employer contributions, with a corresponding reduction in salary. Base salaries for Executive Directors have not been adjusted to reflect the impact of the salary sacrifice. The total salary sacrifice by Executive Directors was £42,455 (2011: £38,150).

4 John Smith decided that, in the present economic climate, it would not be appropriate to accept any increase in his total compensation this year and, to that end, waived £52,000 of his earnings.

5 Philip Vincent was appointed as a Director on 1 December 2010. The figure for 2010-11 in the table above outlines his remuneration only for the four-month period between the date of his appointment to the Board and year-end.

6 The BBC Non-Executive Directors in the year, Nicholas Eldred, Zarin Patel and Mark Thompson, did not receive remuneration from BBC Worldwide for the services provided to BBC Worldwide.

7 Ceased to be a Director on 31 October 2011.

8 Appointed on 24 September 2010.

9 Appointed on 12 March 2012.

10 Ceased to be a Director on 29 February 2012.

11 Appointed on 26 April 2010.

 

Deferred bonus potential vesting of outstanding schemes

The potential vesting in 2012, 2013 and 2014 for Executive Directors

Deferred Bonus Potential Vesting of Outstanding Schemes

The potential vesting in 2013, 2014 and 2015 for Executive Directors

Participant End of
performance
period
Bonus invested
£'000
Potential
invested bonus
matching award
(maximum)
£'000
Total potential
payment
(maximum)
£'000
a b a+b
John Smith March 2013 141 35 176
John Smith March 2014 138 35 173
John Smith March 2015 107 27 134
 

Pension entitlements

 

 

Annual values Transfer values1
Executive Directors Age as at 31
March 2012
Total accrued
pension at
31 March 2012
£'000
Increase in
accrued pension
over year
£'000
Transfer value of
accrued pension at
31 March 2012
£'000
Transfer value of
accrued pension at
31 March 2011
£'000
Increase in transfer
value less directors'
contributions
£'000
John Smith 54 208 7 3,803 3,319 484
Philip Vincent 42 28 3 293 234 59

1 The transfer value of accrued pension benefits represents the estimated cost to the Pension Scheme of providing the pension benefits accrued to date. The value is affected by many factors including age, pensionable salary, pensionable service and investment market conditions at the date of calculation (in accordance with regulations 7 to 7E of the Occupational Pension Schemes Transfer Values Regulations 1996, as amended) and any contributions made by the individual. It is not a sum paid or due to the individual and therefore cannot be meaningfully added to remuneration.

This report was approved by the Board of Directors on 1 June 2012 and signed on its behalf by:

Zarin Patel

Interim Chair, Remuneration Committee
TOP