Corporate Governance – Compensation Committee
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| J.D. McCourt | J.M. O'Dwyer |
Throughout the financial year ended 31 December 2009, the Company has complied with the provisions relating to directors’ remuneration contained in the Listing Rules of the Irish Stock Exchange.
Composition and terms of reference of compensation committee
Throughout 2009, the compensation committee comprised solely of the independent non-executive directors, J D McCourt (Chairman) and J M O'Dwyer. These directors have no financial interest other than as shareholders in the matters to be decided, no potential conflicts of interest other than as shareholders in the matters to be decided, no potential conflicts of interest arising from cross-directorships and no day to day involvement in the running of the business. J D McCourt is a non-executive director of Blackrock International Land plc, in which Fyffes plc has a 40% stake.
The terms of reference of the compensation committee are:
- to establish the Company’s policy on executive directors and senior management remuneration;
- to establish the terms of service agreements, remuneration packages and employment conditions of executive directors;
- to approve the grant of share options to executive directors and employees and to determine whether the conditions as set out in the share option scheme have been met;
- where appropriate to recommend to shareholders the establishment of medium or long term incentive schemes, to set appropriate performance targets for such schemes, to define the basis of participation in such schemes and to determine the grants of awards under such schemes;
- if necessary, to establish the amount and constituents of termination payments to be made to executive directors; and
- to report to shareholders on directors’ remuneration in accordance with the requirements of the Irish Stock Exchange and Company Law.
The Chairman of Fyffes is consulted about the remuneration of the other executive directors and the compensation committee is authorised to obtain professional advice, if deemed appropriate.
Remuneration policy
The Group's policy on executive directors' remuneration recognises that employment and remuneration conditions for senior executives must properly reward and motivate them to perform in the best interests of the shareholders.
The recurring elements of the remuneration package for executive directors are basic salary and benefts, annual incentive bonus, short term incentive plan, pensions and participation in the Company's share option scheme and profit sharing scheme. It is policy to grant options to senior executives to encourage identifcation with shareholders’ interests. Employees are encouraged to hold shares for a further period after the exercise of their options, subject to the need to finance any cost of acquisition and associated tax liability.
Executive directors’ basic salary and benefits
Basic salaries of executive directors are reviewed annually with regard to personal performance, Group performance and competitive market practice.
Performance related bonus
The Group pays performance related annual bonuses to executive directors. The level earned in any one year depends on an assessment of individual performance and the overall performance of the Group.
Pensions
Pensions for executive directors are calculated on basic salary only and provide for two-thirds of pensionable salary for full service (40 years) at retirement.
Short term incentive plan
As in previous years, the compensation committee authorised a Short Term Incentive Plan ("STIP") for the executive directors and senior management for the year ended 31 December 2009, in addition to the annual performance bonus arrangements. Under the terms of the STIP, an incentive award may be payable, subject to the achievement of a one year performance target based on the increase in total shareholder return (as measured by the annual capital appreciation plus dividends paid), bench-marked against a peer group of public companies. Mainly as a result of the 84% increase in the Fyffes plc share price during 2009, STIP awards were triggered in respect of 2009 for the first time since 2005. Details of the amounts paid to the executive directors under the 2009 STIP are included in the analysis of directors' remuneration on page 34 of our Annual Report.
Employee share option scheme
It is the Group's policy to grant share options as an incentive to enhance performance and to encourage employee share ownership in the Company. The current employee share options scheme was approved by shareholders in 2007 to replace the previous share option scheme which had expired after ten years of operation. The percentage of share capital which can issue under the employee share option scheme and individual limits comply with institutional guidelines. The amount of ordinary share capital over which options may be granted in any ten year period is limited to 5% of the aggregate of the issued ordinary share capital. At 31 December 2009, options had been granted but not yet exercised over 12,143,246 (2008: 8,835,365) ordinary shares at prices ranging from €0.06 to €1.59, or 3.3% (2008: 2.4%) of the issued ordinary share capital of the Company. Details of the share options held by the executive directors and company secretary are set out on page 37 of our Annual Report.
Employee profit sharing scheme
The Company has an employee profit sharing scheme which appropriated shares at market value for directors and other employees of the Group during the year. In December 2009, 55,216 ordinary €0.06 shares were appropriated on behalf of the executive directors and 27,608 ordinary €0.06 shares on behalf of the company secretary. These transactions took place at the market price on that day of €0.46 (total cost €38,000). Such shares held by the directors at the year end are included in the directors' share interests disclosed on page 36 of our Annual Report. Non-executive directors do not participate in this scheme.
Service contracts
No service contracts existed between the Company or any of its subsidiaries and any executive or non-executive directors during the year except in the case of C Bos.
C Bos’s service contract provides that he shall be entitled to a compensation payment equal to twice his income if his employment is terminated by the Group except in one of the following circumstances: (i) a summary dismissal for an urgent reason immediately communicated to C Bos within the meaning of Dutch law; (ii) after an illness lasting two years (or longer); or (iii) termination of the employment agreement by law on reaching 65 years or such earlier retirement date as provided in his pension scheme. Also, no compensation payment arises where his employment is terminated as a consequence of a dissolution based on important reasons within the meaning of section 7:685 of the Dutch Civil Code at the request of the Company provided that the dissolution is based on a change in circumstances within the meaning of section 7:685 of the Dutch Civil Code. In calculating the compensation payment, C Bos’s contract provides that his income shall be understood to include his annual salary, the vacation allowance payable under his contract and the average bonus paid to him over the three calendar years preceding the termination of the employment.
Directors' interests in contracts
There were no contracts at any stage during the year between the Company or any of the Group’s subsidiaries and any director of the Company.
Directors’ remuneration
Aggregate directors' remuneration for the year was as follows:
| Executive Directors | Non-Executive Directors | Total | ||||
|---|---|---|---|---|---|---|
| 2009 €’000 |
2008 €’000 |
2009 €’000 |
2008 €’000 |
2009 €’000 |
2008 €’000 |
|
| Basic salaries | 1,420 | 1,487 | - | - | 1,420 | 1,487 |
| Fees | - | - | 250 | 233 | 250 | 233 |
| Performance bonuses | 558 | 520 | - | - | 558 | 520 |
| Other benefits | 60 | 66 | - | - | 60 | 66 |
| Short Term Incentive Plan | 710 | - | - | - | 710 | - |
| Payments related to prior years | - | 230 | - | - | - | 230 |
| Pension contributions | 399 | 916 | - | - | 399 | 916 |
| 3,147 | 3,219 | 250 | 233 | 3,397 | 3,452 | |
| Consultancy fees to past directors | 17 | 219 | - | - | 17 | 219 |
| Total remuneration | 3,164 | 3,438 | 250 | 233 | 3,414 | 3,671 |
| Number of directors (average) | 3 | 3.3 | 4 | 3.7 | 7 | 7 |
In accordance with IFRS 2 Share-based Payment, a further expense of €53,000 (2008: €55,000) has been recognised in the income statement in respect of share options granted to directors. In accordance with IAS 19 Employee Benefts, the pension expense recognised in the income statement for executive directors amounted to €281,000 (2008: €199,000) compared with cash contributions of €399,000 (2008: €916,000, including payment of €500,000 to J P Tolan to a defned contribution scheme prior to his resignation as Chief Executive). The pension contributions for the individual executive directors were: D V McCann - €181,000; C Bos - €116,000 and T G Murphy - €102,000 (2008: €170,000, €115,000 and €96,000 respectively, plus €535,000 in respect of J P Tolan who resigned as Chief Executive in April 2008). Actuarial losses recognised in the statement of comprehensive income in respect of pension benefts of executive directors, amounted to €1,782,000 (2008: €991,000).
This is analysed by individual director, in accordance with the rules of the Irish Stock Exchange as follows:
| 2009 | Salary or fees €'000 |
Performance
Bonus €'000 |
Other benefits & consultancy €'000 | Short Term Incentive Plan | Total
2009 €'000 |
|---|---|---|---|---|---|
| Executives | |||||
| D V McCann | 681 | 225 | 21 | 341 | 1,268 |
| C Bos | 407 | 185 | 22 | 203 | 817 |
| T G Murphy | 332 | 148 | 17 | 166 | 663 |
| 1,420 | 558 | 60 | 710 | 2,748 | |
| Non executives | |||||
| Dr P F de V Clüver | 62 | - | - | - | 62 |
| J D McCourt | 82 | - | - | - | 82 |
| J M O’Dwyer | 56 | - | - | - | 56 |
| J P Tolan | 50 | - | - | - | 50 |
| 250 | - | - | - | 250 | |
Sub-total | 2,998 | ||||
| Pension contributions or related payments for executive directors | 399 | ||||
| Past directors | 17 | ||||
| Total directors’ remuneration charged to Income Statement | 3,414 | ||||
| 2008 | Salary or fees €'000 |
Performance
Bonus €'000 |
Other benefits & consultancy €'000 | Payments related to prior years €'000 |
Total
2008 €'000 |
|---|---|---|---|---|---|
| Executives | |||||
| D V McCann | 641 | 225 | 21 | 230 | 1,117 |
| J P Tolan* | 140 | - | 6 | - | 146 |
| C Bos | 394 | 165 | 22 | - | 581 |
| T G Murphy | 312 | 130 | 17 | - | 459 |
| 1,487 | 520 | 66 | 230 | 2,303 | |
| Non executives | |||||
| Dr P F de V Clüver | 62 | - | - | - | 62 |
| J D McCourt | 82 | - | - | - | 82 |
| J M O’Dwyer | 56 | - | - | - | 56 |
| J P Tolan* | 33 | - | - | - | 33 |
| 233 | - | - | - | 233 | |
Sub-total | 2,536 | ||||
| Pension contributions or related payments for executive directors | 916 | ||||
| Past directors | 219 | ||||
| Total directors’ remuneration charged to Income Statement | 3,671 | ||||
Other benefits for executive directors consist entirely of motor expenses. * J P Tolan resigned as Chief Executive on 30 April 2008. He has remained on the Board as a non-executive director. The Board decided not to replace J P Tolan as Chief Executive but rather, the responsibilities of that role were allocated amongst the remaining executive directors and other senior personnel, which will contribute to a significant reduction in aggregate remuneration costs on a full year basis in 2009. | |||||
Pension entitlements of executive directors
The pension benefits attributable to the executive directors during the year and the total accrued pensions at the end of the year were as follows:
| Increase in accrued pension during 2009 (a) €’000 | Transfer value of increase during 2009 (b) €’000 | Total accrued pension at 31 Dec 2009 (c) €’000 | Increase in accrued pension during 2008 (a) €’000 | Transfer value of increase during 2008(b) €’000 | Total accrued pension at 31 Dec 2008(c) €’000 | |
|---|---|---|---|---|---|---|
| D V McCann | 24 | 366 | 217 | 9 | 128 | 194 |
| J P Tolan* | - | - | - | 3 | 28 | 95 |
| C Bos | 7 | 64 | 75 | 7 | 54 | 68 |
| T Murphy | 23 | 304 | 152 | 12 | 152 | 130 |
| Total | 54 | 734 | 444 | 31 | 362 | 487 |
| (a) | The increase in accrued pension during the year excluding infation. |
| (b) | The transfer value of the increase in accrued pension has been calculated on actuarial advice. These transfer values do not represent sums paid or due, but are the amounts that the pension scheme would transfer to another pension scheme in relation to the additional benefts accrued in the year, in the event of a member of the scheme leaving service. |
| (c) | This represents the pension which would be paid annually, on normal retirement date, based on service to the end of this accounting period. |
Directors’ and company secretary’s share interests
The interests of the directors in the issued share capital of the Company are shown below.
| At 31 December 2009 Beneficial number Fyffes plc Ordinary shares of €0.06 |
At 31 December 2008 Beneficial number Fyffes plc Ordinary shares of €0.06 |
|
|---|---|---|
| D V McCann | 1,905,793 | 1,878,185 |
| C Bos | - | - |
| T G Murphy | 532,500 | 504,892 |
| Dr P F de V Clüver | - | - |
| J D McCourt | 50,000 | 50,000 |
| J M O’Dwyer | - | - |
| J P Tolan | 359,290 | 359,290 |
At 31 December 2009, the company secretary, S P Keenan, held 218,257 Fyffes plc ordinary €0.06 shares (2008: 190,649).
Directors’ and company secretary’s interests in share options
Information on directors’ and company secretary’s share options to subscribe for ordinary shares of the Company is set out below.
| Options held at 31 Dec 2008 | Granted | Exercised | Lapsed | Options held at 31 Dec 2009 | Exercise price € | Date from which exercisable (if vested) | Expiry date | |
|---|---|---|---|---|---|---|---|---|
| D V McCann | 265,000 | - - - 1,000,000 |
- - - - | 265,000 - - - |
- 125,000 1,000,000 1,000,000 |
1.19 0.45 0.925 0.4525 |
12/01/02 17/03/07 26/09/10 06/09/12 | 11/01/09 15/03/14 25/09/17 05/09/19 |
| C Bos | 500,000 - | - 600,000 | - - | - - |
500,000 600,000 |
0.925 0.4525 | 26/09/10 06/09/12 | 25/09/17 05/09/19 |
| T G Murphy | 33,334 40,000 50,000 400,000 - | - - - - 600,000 |
- - - - - | 33,334 - - - - |
- 40,000 50,000 400,000 600,000 |
1.19 1.59 0.45 0.925 0.4525 | 12/01/02 25/01/03 17/03/07 26/09/10 06/09/12 | 11/01/09 24/01/10 15/03/14 25/09/17 05/09/19 |
| S P Keenan* |
25,000 20,000 35,000 200,000 - |
- - - - 200,000 |
- - - - - |
25,000 - - - - | - 20,000 35,000 200,000 200,000 |
1.19 1.59 0.45 0.925 0.4525 | 12/01/02 25/01/03 17/03/07 26/09/10 06/09/12 | 11/01/09 24/01/10 15/03/14 25/09/17 05/09/19 |
| * | Company secretary |
Subsequent to the year end, options held by the following directors and company secretary which had an exercise price of €1.59 and an expiry date of 24 January 2010 lapsed:
T G Murphy 40,000
S P Keenan 20,000
There have been no movements in the share interests of the directors or company secretary between the year end and 5 March 2010. In addition, the directors and the company secretary have not been granted, nor have they exercised any options between the year end and 5 March 2010.
Options granted under the 1997 Share Option Scheme are only exercisable when the earnings per share figure, in respect of the third or any subsequent accounting period after the end of the basis year (ie accounting period preceding the date of the grant), is greater than the earnings per share fgure for the basis year by a percentage which is not less than (on a year on year basis) the annual percentage increase in the consumer price index plus 2% compounded during that period. Options granted under the 2007 Share Option Scheme are exercisable on a similar basis except that the hurdle rate for the required increase in earnings per share is based on the increase in the consumer price index plus 5% compounded.