Tullett Prebon plc Annual Report 2010
The Remuneration Committee considers that the Company’s remuneration policies are consistent with the measures set out in the business’s compliance manuals relating to conﬂicts of interest. In common with other businesses operating in the sectors in which the Company operates, the Company’s remuneration policies are in some respects distinct from the normal practices of UK listed companies. The majority of the Company’s competitors are not UK listed companies. It is considered to be in the best interests of the Company and the shareholders to pay remuneration in line with market practice in the sectors in which the Company operates. The application of this policy takes account of general practices in the parts of the ﬁnancial services sector in which the Company operates, which is characterised by high levels of remuneration dependent upon the achievement of correspondingly high levels of performance, in contrast to many other sectors. It is considered that failure to do so would not be in the best interests of shareholders. The Company’s remuneration policies for Executive Directors and Senior Management include the following: 1. Remuneration includes high levels of variable rewards that are dependent on performance. The main component of these variable rewards is annual bonuses which are used to motivate and retain staff and to achieve superior returns for shareholders. 2. Salaries are paid monthly and are normally set at a level to provide a reasonable level of ﬁxed remuneration which would be appropriate in circumstances where bonuses are not paid due to weak performance. Salaries are reviewed annually. These reviews give rise to salary increases only if information on comparable sector practice indicates that salary levels are out of line with the market. 3. Performance bonuses are discretionary and not contractual, with the level of annual bonus determined on the basis of judgements on performance relative to the trading conditions and other circumstances and the achievement of objectives. 4. Discretionary bonuses for an individual, and in aggregate for the Executive Director and Senior Management population, are determined taking into account the overall performance of the business and its regulatory capital requirements. As the business does not take any trading risk and does not hold principal trading positions, does not have valuation issues in measuring its proﬁts, and does not retain any contingent risks, it is not necessary for the determination of bonuses to reﬂect an adjustment for risk in reviewing ﬁnancial performance. 5. The payment of discretionary bonuses to the Executive Director and Senior Management population is at least two months after the end of the ﬁnancial year. The business realises its revenues in cash within a short time frame, and all of the reported revenues will have been realised in cash before these bonuses are paid.
6. Discretionary bonus payments to the Executive Directors are subject to deferral through the requirement for an element of the bonuses to be invested in the Company’s shares which are to be held for a period before they can be realised. Given the Company’s risk proﬁle, as discussed above, it is not considered necessary for the discretionary bonuses paid to Senior Managers to be subject to deferral, or to attach claw back conditions to bonuses paid to Executive Directors or Senior Managers. 7. In determining individual performance bonuses, the primary objective is to motivate and retain key staff. While bonuses will reﬂect, to a degree, short term ﬁnancial outcomes against budget, other factors are taken into account. Consequently, it is possible that, in some market circumstances, individual superior performance may not be reﬂected in the achievement of budgets but may merit the payment of signiﬁcant bonuses. This approach is balanced by the Company’s principle that the cost of staff should be sensitive to returns to shareholders. 8. The Remuneration Committee does not believe that the formal capping of performance bonuses is consistent with the delivery of enhanced returns to shareholders. In addition, it is not appropriate to apply percentages or multiples of salary to the determination of bonuses given the policy of paying ﬁxed remuneration of a relatively low proportion of overall remuneration. 9. Long term incentive plans have been utilised in the recent past, where appropriate, to motivate the Company’s executive management. Awards have been structured to reward the achievement of medium term operational objectives, ﬁnancial performance and growth in shareholder value. The Remuneration Committee recognises the importance of aligning the interests of Executive Directors with those of shareholders and equity incentive awards will continue to form part of their remuneration packages. The Remuneration Committee has concluded that the provision of long term equity based incentives to Senior Management is not consistent with market practice in the Company’s key competitor organisations and consequently no further awards will be made to Senior Management under the Long Term Incentive Plan for the foreseeable future. 10. The Company provides deﬁned contribution pension arrangements only and does not pay discretionary pension beneﬁts. 11. The Company provides employees with medical insurance but otherwise seeks to avoid the provision of beneﬁts in kind. The Company’s remuneration policy for Brokers is based on the principle that remuneration is directly based on ﬁnancial performance, generally at a desk team level, and is calculated in accordance with formulae set out in ﬁxed term contracts of employment. These formulae take into account the ﬁxed costs of the Brokers and the commission payments are therefore based on the proﬁts that the Brokers generate for the business. Sign-on bonuses are only paid upfront when a claw back provision is included in the contract of employment. Typically, Brokers receive a ﬁxed salary paid regularly throughout the year, with a signiﬁcant proportion of variable remuneration dependent on revenue, which is paid after the revenue has been fully received in cash. Once cash has been received, revenue is not subject to any remaining contingency.
CHAIRMAN’S STATEMENT & BUSINESS REVIEW