Remuneration policies

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The committee has operated a framework of policies, within which it has set the remuneration package for each executive director, applying the principles of Section 1 of the Combined Code. It is satisfied that it has complied with the provisions of Section 1 throughout the year. It is the policy of the committee that executive directors should have 12-month contracts. Current practice complies fully with this policy.

The overall policy of the committee has been to ensure that executive directors and senior managers are rewarded for their contribution to the group’s operating and financial performance at levels which take account of industry, market and country benchmarks. The basic objective of the policy is that members of the executive committee should receive remuneration which is appropriate to their scale of responsibility and performance and which will attract, motivate and retain individuals of the necessary calibre. The committee takes account of the necessity of being competitive in the different parts of the world in which the company operates, particularly with regard to comparators in the USA. The company intends to take this policy forward.

The committee has implemented its policy agreeing a remuneration package for each director comprised of annual base salary, an annual cash bonus plan, long-term incentives through participation in share option and performance share plans, pension contributions, other security and health benefits and benefits in kind. The base salaries, pensions and other benefits provided are intended to establish a level of ‘fixed’ pay which is competitive with its chosen comparators. The variable pay elements provided by short-term and longterm incentives form a significant proportion of executive directors’ pay and are intended to provide superior total pay opportunities if the company’s and each individual’s performance merits that.

The short-term and long-term incentives provided to the executives have been based on multiples of base pay and have been provided under plans, details of which are set out in the following pages. In order to align with the interests of shareholders, share incentives are considered to be critical elements of executive remuneration policy. The committee considers that all elements of the package are of equal importance in supporting the group’s remuneration policy.

In setting remuneration for the executive directors and other members of the executive committee, the committee continued to have regard to the pay levels of UK companies of comparable size to SABMiller plc. It also took into account pay levels and practices in the company’s principal international competitors and in companies in the US and South Africa comparable to its divisions in those countries.

The company has a spread of business across many geographically diverse, developing and developed country markets, often in local partnership in new markets. The committee has taken the view that to report and seek to analyse comparisons between higher and lower paid employees will serve no meaningful purpose.

During the year the committee reviewed its approach to determining pay and the structure of pay arrangements for the executive directors and members of the executive committee, taking account of the views of institutions and feedback on last year’s report. In particular, the committee considered the retesting of the performance condition for vesting of options granted under the company’s Approved and No 2 Schemes (as defined on page 54). It was agreed that, as limited retesting (from a fixed base) had only been introduced in 2002 with the changes in operation of those plans, it was not appropriate yet to move to a single test but this would be kept under review.

In this regard, the committee is mindful that the company’s executives in the Americas, Africa and China have annual performance and potential assessments which directly affect the quantum of share options granted to them annually under the South African and International Share Schemes. In line with US and South African practice, these options have no further performance hurdles but vest on a time basis. The committee is reluctant to increase the competitive disadvantage for the UK (and other) executives, who undergo similar annual assessments but receive performance-conditioned options through the UK Scheme, by removing the limited retesting facility.

There was a continuing debate about the appropriateness of the comparator group of brewers against which SABMiller measures its total shareholder return (TSR) for awards under the Performance Share Scheme (as defined on page 55). Taking account of advice from Mercer and the group chief financial officer, the committee agreed at its meeting in February 2005 to make future performance share awards subject to TSR performance relative to the group of companies listed on page 55 and to keep under review the continued relevance of that group. This adjustment aligns these performance peers with those identified as competitors within or for its markets internationally, allowing for rationalisation in the global beverage industry.

The committee considered the question of adding the value of the dividends paid on shares during the performance period to performance share awards, with a corresponding adjustment to the initial value of awards. It does not intend to do this as it is not clear that there is any net incentive benefit.

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