Corporate Governance – Compensation Committee
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| J.D. McCourt | J.M. O'Dwyer |
Throughout the fnancial year ended 30 December 2007, 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 2007, the compensation committee comprised solely of non-executive directors. From the beginning of the year until 30 April, the members were R B Hynes, J D McCourt and G B Scanlan (Chairman). Following the retirement from the Board on 30 April 2007 of R B Hynes and G B Scanlan, W M Walsh was appointed to the compensation committee and J D McCourt assumed the role of Chairman. Following his appointment to the Board on 24 September 2007, J M O’Dwyer joined the compensation committee. With effect from 31 October 2007, W M Walsh retired from the Board. These directors have no fnancial interest other than as shareholders in the matters to be decided, no potential conficts of interest other than as shareholders in the matters to be decided, no potential conficts 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 defne 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 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 proft 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 fnance any cost of acquisition and associated tax liability.
Executive directors’ basic salary and benefts
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 salary for full service (40 years) at retirement.
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 June 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 30 December 2007, options had been granted but not yet exercised over 10,321,615 (2006: 9,661,750) ordinary shares at prices ranging from €0.06 to €1.59, or 2.8% (2006: 2.7%) of the issued ordinary share capital of the Company.
On 12 January 2007, the compensation committee approved a €0.70 reduction in the price of all outstanding options following the demerger of the Group’s General Produce and Distribution business to Total Produce plc. In the case of certain outstanding options, this would have reduced the option price below the nominal value of the Company’s ordinary €6 cent shares. As a result, the committee approved an adjustment to the number of those options, in accordance with the rules of the scheme, so as to ensure their value was not diluted by this demerger. This resulted in the granting of an additional 540,232 share options. The purpose of this adjustment was to maintain the benefts held under such awards rather than to offer any additional benefts to employees.
Employee proft sharing scheme
The Company has an employee proft sharing scheme which appropriated shares at market value for directors and other employees of the Group during the year. On 13 December 2007, 39,684 ordinary €6 cent shares were appropriated on behalf of the executive directors and 13,228 ordinary €6 cent shares were purchased by the company secretary under this scheme in respect of 2007. These transactions were at the market price on that day of €0.96. Non executive directors do not participate in this scheme. Such shares held by the directors at the year end are included in the directors’ share interests disclosed on page 39.
Service contracts
No service contracts existed between the Company or any of the Group’s 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 material 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 | ||||
|---|---|---|---|---|---|---|
| 2007 €’000 |
2006 €’000 |
2007 €’000 |
2006 €’000 |
2007 €’000 |
2006 €’000 |
|
| Basic salaries | 1,633 | 2,177 | - | - | 1,633 | 2,177 |
| Fees | - | - | 260 | 300 | 260 | 300 |
| Performance bonuses | 695 | 1,006 | - | - | 695 | 1,006 |
| Other benefts | 80 | 96 | - | - | 80 | 96 |
| Pension contributions | 383 | 629 | - | - | 383 | 629 |
| 2,791 | 3,908 | 260 | 300 | 3,051 | 4,208 | |
| Consultancy fees to past directors | 628 | 276 | 32 | 43 | 660 | 319 |
| Total remuneration | 3,419 | 4,184 | 292 | 343 | 3,711 | 4,527 |
| Number of directors (average) | 4 | 6 | 4 | 5 | 10 | 11 |
In accordance with IFRS 2 Share-based Payment, a further expense of €27,000 (2006: €73,000) has been recognised in the income statement in respect of share options granted to directors in March 2004. In accordance with IAS 19 Employee Benefts, the pension expense recognised in the income statement for executive directors amounted to €263,000 (2006: €522,000) compared with cash contributions of €383,000 (2006: €629,000). Actuarial gains recognised in the statement of recognised income and expense, in respect of pension benefts of executive directors, amounted to €1,444,000 (2006: €1,646,000). In January 2007, certain executive directors exercised 1,966,304 share options (see page 40). The market price at the date of exercise of all these options was €1.15 and the exercise price was €0.06, giving rise to an aggregate gain of €2,143,000.
This is analysed by individual director, in accordance with the rules of the Irish Stock Exchange as follows:
| 2007 | Salary or fees €'000 | Bonus €'000 | Other benefits & consultancy €'000 | Pension contributions or related payments €'000 | Total
2007 €'000 | ||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Executives | |||||||||||
| D V McCann | 575 | 225 | 21 | 125 | 946 | ||||||
| J P Tolan | 400 | 175 | 17 | 85 | 677 | ||||||
| C Bos | 378 | 165 | 25 | 103 | 671 | ||||||
| T G Murphy | 280 | 130 | 17 | 70 | 497 | ||||||
| 1,633 | 695 | 80 | 383 | 2,791 | |||||||
| Non executives | |||||||||||
| Dr P F de V Clüver | 59 | - | - | - | 59 | ||||||
| R B Hynes* | 33 | - | - | - | 33 | ||||||
| J D McCourt | 78 | - | - | - | 78 | ||||||
| J M O’Dwyer*** | 14 | - | - | - | 14 | ||||||
| G B Scanlan* | 32 | - | - | - | 32 | ||||||
| W M Walsh** | 44 | - | - | - | 44 | ||||||
| 260 | - | - | - | 260 | |||||||
| Past directors | - | - | 660 | - | 660 | ||||||
| Total | 1,893 | 695 | 740 | 383 | 3,711 | ||||||
Other benefts for executive directors consist entirely of motor expenses. In 2007, the compensation committee approved payments to certain former directors relating to services provided prior to their resignation from the Fyffes Board on 30 December 2006. | |||||||||||
| 2006 | Salary
or fees €’000 |
Bonus €’000 |
Other
benefts &
consultancy €’000 |
Pension
contributions
or related
payments €’000 |
Total
2006 €’000 |
||||||
| Executives | |||||||||||
| C P McCann */**/*** | 409 | 149 | 16 | 94 | 668 | ||||||
| D V McCann | 478 | 200 | 21 | 102 | 801 | ||||||
| J F Gernon* | 312 | 176 | 17 | 66 | 571 | ||||||
| J P Tolan | 290 | 216 | 17 | 122 | 645 | ||||||
| C Bos | 363 | 165 | 25 | 89 | 642 | ||||||
| R P Byrne* | 325 | 100 | - | 156 | 581 | ||||||
| 2,177 | 1,006 | 96 | 629 | 3,908 | |||||||
| Non executives | |||||||||||
| Dr P F de V Clüver | 58 | - | - | - | 58 | ||||||
| R B Hynes | 68 | - | - | - | 68 | ||||||
| J D McCourt | 54 | - | - | - | 54 | ||||||
| G B Scanlan | 75 | - | - | - | 75 | ||||||
| W M Walsh | 45 | - | - | - | 45 | ||||||
| 300 | 300 | ||||||||||
| Past directors | - | - | 319 | - | 319 | ||||||
| Total | 2,477 | 1,006 | 415 | 629 | 4,527 | ||||||
| * | Resigned 30 December 2006. |
| ** | No pension contributions to the Group’s defned beneft pension scheme were made during 2006 on behalf of C P McCann as his benefts under this scheme are now limited under Irish pension legislation. As a result, the compensation committee approved a cash payment of €93,654 (calculated in accordance with actuarial advice and net of the portion attributable to Blackrock) to C P McCann to compensate him for the value of his pension contributions foregone in 2006, net of employers’ social insurance contributions. |
| *** | C P McCann was elected Executive Chairman of Blackrock following its demerger from Fyffes in May 2006, while also retaining his position as Executive Chairman of Fyffes throughout the year until his resignation on 30 December 2006. In accordance with the terms of the Business Transfer Agreement between Fyffes and Blackrock, Fyffes has recharged a portion of C P McCann’s employment costs to Blackrock to refect the approximate allocation of his time between these two roles. All amounts refected above represent the portion of his remuneration borne by Fyffes in 2006. |
Pension entitlements of executive directors
The pension benefts 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 2007 (a) €’000 | Transfer value of increase during 2007 (b) €’000 | Total accrued pension at 30 Dec 2007 (c) €’000 | Increase in accrued pension during 2006 (a) €’000 | Transfer value of increase during 2006(b) €’000 | Total accrued pension at 30 Dec 2006(c) €’000 | |
|---|---|---|---|---|---|---|
| D V McCann | 8 | 110 | 178 | 7 | 93 | 163 |
| J P Tolan | 9 | 89 | 91 | 4 | 44 | 79 |
| C Bos | 7 | 50 | 60 | 6 | 41 | 54 |
| T Murphy | 11 | 133 | 113 | - | - | - |
| Total | 35 | 382 | 442 | 17 | 178 | 296 |
| (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 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 30 December 2007 Beneficial number Fyffes plc Ordinary shares of €6 cent |
At 30 December 2006 Beneficial number Fyffes plc Ordinary shares of €6 cent |
|
|---|---|---|
| D V McCann | 1,833,625 | 608,140 |
| J P Tolan | 359,290 | 75,595 |
| C Bos | - | - |
| T G Murphy | 460,332 | 163,524 |
| Dr P F de V Clüver | - | - |
| J D McCourt | 50,000 | 50,000 |
| J M O’Dwyer | - | - |
At 30 December 2007, the company secretary, S P Keenan, held 136,089 Fyffes plc ordinary €6 cent shares (2006: 62,296).
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 30 Dec 2006 | Granted* | Exercised | Lapsed | Options held at 30 Dec 2007 | Exercise price € | Date from which exercisable (if vested) | Expiry date | |
|---|---|---|---|---|---|---|---|---|
| D V McCann | 950,000 265,000 200,000 125,000 - | - - 62,257 - 1,000,000 | 950,000 - 262,257 - - | - - - - - | - 265,000 - 125,000 1,000,000 | 0.06 1.19 0.06 0.45 0.925 | 22/09/00 12/01/02 27/03/04 17/03/07 26/09/10 | 21/09/07 11/01/09 25/03/11 15/03/14 25/09/17 |
| J P Tolan | 300,000 131,250 130,000 75,000 - | - - 40,467 - 750,000 | 300,000 - 170,467 - - | - - - - - | - 131,250 - 75,000 750,000 | 0.06 1.19 0.06 0.45 0.925 | 22/09/00 12/01/02 27/03/04 17/03/07 26/09/10 | 21/09/07 11/01/09 25/03/11 15/03/14 25/09/17 |
| C Bos | 50,000 - | - 500,000 | - - | - - | 50,000 500,000 | 0.45 0.925 | 17/03/07 26/09/10 | 15/03/14 25/09/17 |
| T G Murphy | 100,000 33,334 40,000 140,000 50,000 - | - - - 43,580 - 400,000 | 100,000 - - 183,580 - - | - - - - - - | - 33,334 40,000 - 50,000 400,000 | 0.06 1.19 1.59 0.06 0.45 0.925 | 22/09/00 12/01/02 25/01/03 27/03/04 17/03/07 26/09/10 | 21/09/07 11/01/09 24/01/10 25/03/11 15/03/14 25/09/17 |
| S P Keenan** | 50,000 30,000 25,000 20,000 50,000 35,000 - |
- - - - 15,565 - 200,000 |
50,000 - - - 65,565 - - | - - - - - - - | - 30,000 25,000 20,000 - 35,000 200,000 |
0.06 0.67 1.19 1.59 0.06 0.45 0.925 | 22/09/00 21/05/05 12/01/02 25/01/03 27/03/04 17/03/07 26/09/10 | 21/09/07 13/02/08 11/01/09 24/01/10 25/03/11 15/03/14 25/09/17 |
| * | The exercise price of all options refects the adjustments approved by the compensation committee, and reviewed by KPMG, to take account of the impact of the two demergers undertaken by the Group in 2006. In addition, the number of those options granted to the executive directors and company secretary which were due to expire on 25 March 2011 were adjusted as explained on page 36. The options issued to the executive directors and company secretary during the year were granted under the new 2007 Share Option Scheme approved by shareholders in June 2007. |
| ** | Company secretary. |
As noted on page 37 of the Annual Report, the market price of the 1,966,304 options exercised by directors during the year was €1.15.
There have been no movements in the share interests of the directors or company secretary between the year end and 7 February 2008.
In addition, the directors and the company secretary have not been granted, nor have they exercised any options between the year end and 7 February 2008.
Options granted under the 1997 Share Option Scheme are only exercisable when the earnings per share fgure, 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 new 2007 Share Option Scheme are exercisable on a similar basis except that the hurdle rate for the required increase earnings per share is now based on the increase in the consumer price index plus 5% compounded.