Composition

Kate Rock chairs the Remuneration Committee, made up of independent non-executive directors, which met six times in FY14.The membership and attendance of meetings in FY14 are set out below. In addition to the Committee members the Chairman and Chief Executive Officer may be invited to attend meetings, except in instances where their own remuneration is discussed, or other circumstances where their attendance would not be appropriate.

 

Committee members

Kate Rock (Chair)
David Anderson
Gilles Delfassy
 

Given their diverse business experience, the independent non-executive directors who make up the Committee offer a fair and balanced view in relation to the remuneration matters for the Group.

 

Responsibility

The Committee determines the remuneration policy and rewards for the executive directors and, in his absence the Chairman. The Committee also reviews the remuneration packages of those at the next most senior level of management and has regard to levels of pay across the Group.

 

Salaries and fees

Our policy is to set salaries in line with market median, when comparing similarly sized companies, and individual performance. The Committee is of the view that the salary of the CEO is consistent with this policy. Sir Hossein Yassaie consequently received a salary increase of 4.32% in April 2014, which mirrored the average employee increase across the Group. However, in the case of our CFO, his basic salary is in the lower quartile compared to the market and the Committee will be taking steps in the coming years to bring this in line with market median. When Richard Smith joined Imagination Technologies in 2011, a conscious decision was taken to set his salary lower than his predecessor, to reflect that he was new to the role. Since Richard joined three years ago the Committee and the Board are pleased with his performance during a time where the Group has expanded considerably. Taking these factors into account the Committee has increased Richard’s salary by 10% with effect from 1 April 2014.

 

Annual Bonus Plan

Performance measures for the Annual Bonus Plan are set annually. Each year the Committee considers the most appropriate metrics to apply for the following financial year. These metrics are currently Group revenue budget and adjusted operating profit. A performance multiplier is then applied related to the achievement of the financial elements. The annual bonus also includes a 25% element based on personal performance. Each executive director is set a number of personal objectives in relation to clear strategic, operational, or relationship imperatives aligned to the Group’s overall strategy.

The Committee is of the opinion that the financial targets and personal objectives for the Annual Bonus Plan are commercially sensitive and as such it would be detrimental to the Group to disclose them in advance of or during the relevant performance period. Business targets are set as predefined ranges around budget and individual targets are set taking account of strategic priorities under the control of the executive.

 

Long-Term Incentive Plan

Performance measures for the LTIP were selected after careful consideration and following consultation with larger shareholders and advisory bodies. The Committee believes that the use of both TSR and EPS measures provides the best measure of the success of the execution of the Group’s strategy and encourages, reinforces and rewards the delivery of sustainable shareholder value.

The TSR element (which accounts for 50% of awards) considers Imagination’s performance against two relevant comparator groups (sector and size-based) to reward sustainable shareholder value creation relative to alternative investment opportunities for our shareholders. Targets are in line with typical market practice, requiring ranking at median to deliver threshold vesting increasing on a straight-line basis to full vesting for ranking within the upper quartile.

The normalized EPS growth performance condition (which accounts for 50% of awards), has been set following independent analysis by the Group’s advisors and brokers. Based on this analysis, the compound annual growth in EPS targets were set for FY14 as follows:

  • 0% pay out below 10% growth;
  • 25% pay out at 10% growth;
  • 100% pay out at 20% growth or greater; and
  • Linear progression between 25% and 100% thresholds.

The Committee intends to review the targets annually. Changes will be made only if the targets become inappropriate due to changing market conditions.

 

External Committee advisers

The Committee has access to independent professional advice on remuneration matters, Towers Watson were appointed by the Committee in 2012, and Committee members continue to be satisfied that their advice is objective and independent and their fees are in line with market practice. Access to their global database and expertise is an important factor in considering remuneration matters across the EMB. Work undertaken by Towers Watson in FY14 included advice on the structure and targets for the new LTIP and annual cash bonus plan and assistance in formally drafting the remuneration policy, for which total fees of £25,000 were paid. The Committee also receive advice from JPMC who provided independent verification of the Total Shareholder Return (TSR) calculations for the LTIP.

 

Consideration of executive remuneration with the wider Group

When making remuneration decisions for Executive Directors the Committee considers the wider economic environment and conditions within the Group. In particular, the Committee considers pay and employment conditions across the wider workforce and carefully considers the broader employee salary increase budget when making reward decisions for executive directors. The Committee considers wider industry benchmarking material in the context of monitoring its overall position on director and employee pay.

 

Consideration of shareholders views

The Committee welcomes an open and transparent dialogue with shareholders and seeks the views of significant shareholders when any major changes are being made to remuneration arrangements. The Committee will continue to engage with shareholders going forward and will aim to consult on any material changes to the application of the approved remuneration policy or proposed changes to the policy itself.

 

Recruitment remuneration arrangements

When determining the appropriate remuneration package for a new appointment, the Committee will take a number of factors into account. These typically include the candidate’s experience and calibre, their personal circumstances, external market influences and arrangements for existing executive directors. The on-going remuneration package offered to new directors will only include those elements listed within the policy table, which may include specific relocation benefits. On-going variable pay awards will be subject to the limits as set out in the policy table. Full details of the recruitment package for any new executive directors will be set out in the next Annual Report on Remuneration.

In addition to the on-going elements of the remuneration package, the Committee reserves the right to ‘buy-out’ awards being forfeited elsewhere through accepting a role at Imagination. The Committee will give consideration to any relevant factors when determining the value of such awards, including the form of the award (e.g. cash or shares), the proportion of the performance/vesting period outstanding and the potential value of the forfeited remuneration, including performance conditions attached to the awards, the likelihood of those conditions being met, and the timing of any potential payments. It is the intention that such buy-out awards will be made through use of the exceptional LTIP limit. However, the Committee may rely on the relevant Listing Rule exemption if necessary for the purpose of making a buy-out award in the event that the Group appoint an executive director and need to match or pay-off shares they held with their previous company. Where an executive director is appointed from within the organization, the Committee has the power to honour legacy arrangements in line with the original terms and conditions.

 

Service contracts

Our policy is for notice periods for executive directors to be six months duration and each of the executive directors’ service contracts reflect this. These agreements also contain restrictive covenants for periods of three to six months following termination of employment relating to non-competition, non-solicitation of the Group’s customers, no-dealing with customers, and non-solicitation of the Group’s suppliers and employees. In addition, each service contract has an express obligation of confidentiality in respect of the Group’s trade secrets and confidential information and provides for the Group to own any intellectual property rights created by the directors in the course of their employment.

The dates of the service contracts of each person who served as an executive director during the FY14 are as follows:

 

Contract DateNotice period
Geoff Shingles1 November 19956 months’ notice by director or Company
Sir Hossein Yassaie31 March 19986 months’ notice by director or Company
Richard Smith3 May 20116 months’ notice by director or Company

 

In October 2013 the Chairman changed from an Executive Chairman to a non-executive Chairman.

The non-executive directors do not have service contracts and are not eligible to participate in bonus or share incentive arrangements. Their service does not qualify for pension purposes or other benefits, and no element of their fees is performance related. No payments are due on loss of office.

Service contracts for the executive directors and Chairman, and appointment letters for the non-executive directors are available to view at the office of the Company Secretary at the registered office address.

It is the Group’s policy to allow executive directors to hold non-executive positions at other companies and to receive remuneration for their services. The Board believes that experience of the operations of other companies and their Boards and Committees is valuable to the development of the executive directors.

 

Termination of employment

The Committee maintains a discretionary approach to the treatment of leavers, on the basis that the facts and circumstances of each case are unique. When considering a departure event, there are a number of factors which the Committee takes into account in determining appropriate treatment for outstanding incentive awards. These include:

  • the position under the relevant plan documentation;
  • the individual circumstances of the departure;
  • any mitigating factors that might be relevant;
  • the appropriate statutory and contractual position;
  • the performance of the Company/individual during the year to date;
  • the nature of the handover process; and
  • the requirements of the business for speed of change.

In some cases, the treatment is formally prescribed under the rules of the relevant plan. Where there are ‘good-leaver’ circumstances, awards which would otherwise lapse by default, will vest either on the normal vesting date or on cessation of employment. These circumstances include death, injury, ill-health, disability, redundancy or sale of the Company or business. If the executive dies or leaves due to ill health or injury, awards which have less than 12 months of the performance period remaining or LTIP awards which have less than 12 months of the deferred period to run, vest automatically on leaving. In other leaver circumstances the Committee has discretion to determine when, and to what extent, awards vest. The Committee considers the leaver circumstances along a continuum, ranging from bad leaver’ scenarios such as termination of employment for gross misconduct or resignation, through to the good leaver scenarios outlined above. Accordingly the Committee may apply (or dis-apply) such performance conditions or time pro-rating awards vesting in these circumstances, as it considers appropriate.

 

Remuneration Policy

The Directors’ Remuneration Policy below was approved by shareholders at the Annual General Meeting on 19 September 2014 and is intended to apply for three years from that date. The Policy applies to the executive directors and is intended to apply to any new executive directors who may be appointed during this three year period.

 

Remuneration Policy Table

A summary of remuneration policy is set out below:

Alignment with strategy and purposeOperationMaximum potential valuePerformance framework
Base salary
Recognizes experience, responsibility and performance. Supports recruitment and retention to deliver the Group’s strategy.
Salaries are reviewed annually. Salary increases for executive directors are set out on page 64 of the annual report.Increases are generally applied from April each year.In its annual review the Committee considers the following:

  • Pay levels at companies of a comparative size (by reference to market capitalization and revenue) on a geographical basis
  • External market conditions
  • Aim to achieve market median salaries
  • Pay increases for all employees in the Group
  • Individual performance, skills expertise and potential
  • Corporate performance on social, environmental and corporate governance matters.
Base salaries are set at an appropriate level for each role taking into account the factors illustrated in this table. Generally salaries are no higher than market median, although higher salaries may be paid, if necessary to recruit externally or to retain key executives.In normal circumstances base salary increases will be no more than the average increases for employees across the Group.Greater increases may be approved if there is a substantial change in a
director’s role or responsibilities or if the salary is significantly below the current market rate. In such circumstances, increases may be phased over a number of years and be conditional on performance.
The overall performance of each executive director is considered by the Committee when reviewing base salaries.No recovery provisions apply.
Pension
To provide pension contributions to enable directors to plan for retirement.
Defined contribution plan (with Company contributions set as a percentage of base salary).There are no special arrangements for executives.The Company match the executive contribution up to a maximum of 7.5%.NoneNo recovery provisions apply.
Other benefits
To provide competitive benefits in line with market practice to enable the Group to recruit and retain high-calibre executive directors.
Other benefits are provided as appropriate to the location of the executive director and include car allowance, or car and
fuel allowance, long-term sickness and disability insurance, death in service benefit, and private health and travel insurance for the executives and family.
Reasonable market cost of providing benefit.The Committee reserves its discretion to provide such situation-specific benefits as may be required in the interests of the Group’s business, such as relocation.NoneNo recovery provisions apply.
Annual bonus plan
Delivery of in-year financial performance and key business imperatives.
Bonus, if earned, is paid wholly in cash after the post year-end Preliminary Announcement.Bonus payments are not pensionable.Individual performance measures are focused on objectives that are specific to each executive director, and relate to clear strategic, operational, or relationship imperatives.Maximum bonus: 118% of salary.The bonus is self-funding.No bonus is paid if the Group does not achieve 85% of the adjusted operating profit target.Performance is assessed by the Committee using financial and non-financial measures.The targets are:

  1. Group revenue budget (25%)
  2. Adjusted operating profit (50%), and
  3. Individual performance (25%).

The measures (1) & (2) have the following linear calibration:

% of budget achieved% of target bonus payable
85

 

50

 

100

 

100

 

115
125

The Committee will apply judgement in assessing individual performance based on quantitative and qualitative results.

The Committee retains discretion to adjust bonus targets to reflect intervening events, such as acquisitions or disposals. These will be disclosed accordingly.

No recovery provisions apply.

Long-Term Incentive Plan 2014
To incentivize executive directors to achieve performance objectives directly linked to the Group’s long-term financial and strategic goals.To align executive directors’ interests with those of our shareholders through the performance conditions and share retention obligation.
LTIP awards may take the form of nil-cost options, conditional share awards, or restricted shares at the discretion of the Committee. Additional shares may be accrued in lieu of dividends and awarded on any shares which vest.Awards vest on the third anniversary of grant subject to the performance conditions and provided the Director remains in office with the Company.The maximum award level is 250% of salary for the CEO and 175% of salary for the CFO.In exceptional circumstances the maximum opportunity is 600%. This was put in place in case there is a need to recruit a highly experienced executive. To date we have not used the 600% and there are no plans to increase the
opportunity levels for the current executive directors.
The vesting of share awards under the LTIP will depend on three performance conditions:

  1. Adjusted earnings per share (50%),
  2. TSR growth relative to the FTSE All World Technology Index constituents (25%) and
  3. TSR growth relative to the FTSE 350 Index constituents (25%).

The Committee retains discretion to adjust LTIP targets to reflect intervening events, such as acquisitions or disposals. These will be disclosed accordingly.

Malus: The Committee has discretion to reduce a share award, including to zero, prior to vesting where there are exceptional circumstances, which include a material mis-statement in the Company’s published results, misconduct by the executive director that is deemed to have initiated or contributed to a material loss as a result
of reckless, negligent or wilful actions, or inappropriate values or behaviour.

Clawback: The Committee has discretion to clawback shares and executive directors have an obligation under the rules of the LTIP to transfer shares or pay over the proceeds of a share sale in exceptional circumstances (as described above). If sold at less than market value, the obligation is to pay market value at the date of disposal. Clawback would be less any income tax and national insurance paid or due to be paid. The Committee has discretion to set the length of the clawback period, which would normally be two years from acquisition of the shares.

Save As You Earn (SAYE)
To encourage share ownership across the broader employee population.
Executive directors may participate on the same terms as other employees. The option price may be discounted by upto 20%.Accumulated savings may be used to exercise an option to acquire shares.The maximum savings amount is currently £250 per month over a three year period. This may be increased in accordance with changes to UK legislation as applied to all participants in the plan.No performance conditions are permitted by UK legislation for this type of plan.No recovery provisions apply.
Chairman and non-executive directors (NED)
Reflect the time, commitment and responsibilities to the role.
Fees are reviewed on an annual basis, taking into consideration market practice and are set with reference to the sector, FTSE250 and general non-executive directors benchmarking data as appropriate.Fees are approved by the Board upon a recommendation from the executive directors.Non-executive directors’ fees are paid in cash and are not performance related. There are no benefits or on-going incentive schemes for non-executive directors.Fees are set by reference to the policy element.The aggregate value of fees paid will not exceed the limit as approved by shareholders set in the Articles of Association.None.No recovery provisions apply.
LEGACY LONG-TERM SHARE PLANS (AWARDS NO LONGER MADE)
Employee Share Plan (ESP) including Tax-Efficient Employee Share Plan
(in respect of years up to and including
2013)
ESP restricted share awards vest on the third anniversary of grant subject to achievement of the performance measure and provided the Director remains in office with the Company.100% of salaryVesting is based 100% on the percentage growth in the price of a share in the Company compared to the percentage growth of the FTSE techMARK All-Share Index (Index) over the 3 year period commencing on the date of grant.Awards have the following linear vesting schedule:

Out-performance of Index% of shares vesting
<125

 

0
125

 

50

 

≥150
100
Employee Share Plan (ESP)
(in respect of one-off share award for CEO in 2009)
One-off award in 2009 when the Board considered it necessary for retention and motivation purposes.2.26 million shares awardedVesting is based on the annual cumulative growth in the Company’s share price over the third, fourth and fifth year from the date of grant. Awards have the following linear vesting schedule:

% Cumulative share price growth% of shares vesting
<7.5

 

0
≥15

 

100

 

The number of shares vested to date:

December 2012 – 750,000

December 2013 – 280,000
December 2014 – not yet tested (c/f balance to be tested in December 2014)