DIRECTORS’ REMUNERATION REPORT
Adam Walker’s joining awards
Professor Richard Parry-Jones CBE Chairman of the Remuneration Committee
Part of the joining award granted to Adam Walker in 2014 to compensate him for the long-term incentive arrangements he forfeited on leaving his former employer was also dependent on the Group’s performance to 31 December 2015. This had the same EPS growth target as the 2013 SEP core award and has therefore lapsed with no pay-out.
Other key decisions during 2015 Salary increases
In June 2015 we approved annual salary increases for the executive Directors ranging from 2.6% to 3%. We carefully considered their performance, scope of responsibilities at that time, average salary increases awarded to employees in the UK (2.6%) and globally (3.6%), and market reference points. In October 2015, we approved a further increase to Adam Walker’s salary of 10% to take account of the significant increase in his responsibilities following his appointment as Chief Executive GKN Land Systems in addition to his role as Group Finance Director.
Andrew Reynolds Smith’s leaving arrangements
The Committee had a busy year during 2015. In addition to our normal activities we reviewed our remuneration framework to ensure that it still supports the long-term success of the Group. In this letter I have shared some of the main findings from that review, as well as describing our other activities during the year.
Andrew Reynolds Smith resigned from his role as Chief Executive GKN Automotive and executive Director on 25 September 2015. He did not receive any bonus payment in respect of 2015 and all of his outstanding SEP awards lapsed on leaving.
Review of our remuneration framework
Performance outcome for 2015 Annual incentive plan (STVRS)
As described in the strategic report, GKN made pleasing progress in 2015, performing well against its markets. STVRS payments to executive Directors amounted to 67% of salary. Given that the Group delivered on expectations against a backdrop of some challenging market conditions, this outcome reflects the stretching targets we put in place at the start of 2015.
During 2016 we reviewed our incentive plans to ensure that the targets continue to be appropriate in light of shareholder expectations and remain an effective tool for attracting, retaining and incentivising our top executives in highly competitive international markets. These incentive plans are not just for the executive Directors and Executive Committee members; we apply a very similar approach to all of our senior management population with almost 320 executives taking part in the SEP. The Committee remains comfortable that the base salaries of GKN’s executive Directors are appropriately positioned against the market. They are not excessive and do not in themselves create a significant risk in terms of our ability to recruit and retain top talent. However, our review highlighted the following key factors, which together suggest that our current incentive plans leave an uncomfortably high risk in our succession planning. • For many years annual bonus pay-outs as a percentage of salary have been well below the market competitive range, including in years when GKN has performed strongly. The average bonus paid to our executive Directors over the last five years has been approximately 60% of salary, around half the median average pay-out of our UK comparators. Pay-out levels reflect both our relatively low maximum opportunity of 110% of salary compared to the UK market and the very stretching performance targets which we set at GKN.
Long-term incentive plan (SEP)