DIRECTORS’ REMUNERATION REPORT continued
Implementation of policy for 2016
As described in the Chairman’s letter, we are changing the way we set EPS targets and, for 2016, the SEP award levels for executive Directors. In order to better align the EPS targets with our strategy to achieve above market growth relative to our end markets, and to ensure that EPS targets are stretching but achievable, EPS performance for 2016 will be assessed relative to the extent to which GKN outperforms actual automotive and aerospace end market growth. The underpin has been expanded to take account of both the quality of earnings (as for previous SEP awards) and EPS performance against shareholder expectation. The 2016 SEP awards will be measured on the vesting schedule set out below using a base year EPS for 2015 of 27.9 pence (which is the 2015 management EPS calculated using book tax rate adjusted to take account of the Fokker acquisition):
EPS growth target Vesting
Growth of 1% above end markets Growth of 5% above end markets
25% 100% Straight line vesting in between
Provided all or part of the core awards vest, the sustainability awards will be measured by reference to the highest level of EPS achieved in any year of the core performance period. The awards will also be subject to malus and clawback provisions. Reliable data on end market growth is reported by well-recognised industry standard providers. For automotive data, we use IHS Automotive and for aerospace data we use Teal. They produce monthly reports on the number of vehicles produced and the value of aircraft sales respectively. We have used this data for many years when compiling annual results and AGM presentations. For the purpose of the 2016 SEP awards, we will calculate the blended market growth rate for our Group using a weighting of 55% automotive and 45% aerospace, which is broadly in line with the profit contribution of our automotive and aerospace divisions. Details of the actual end market growth will be disclosed at the time of vesting. Set out below are the market forecasts published by IHS Automotive and Teal in January 2016, together with the resulting EPS targets that would apply if actual market growth over the performance period for the 2016 SEP is in line with the forecast.
Forecast (3 year CAGR: 2016, 2017 and 2018) Forecast EPS threshold target Forecast EPS maximum target
Aerospace Automotive Group
2.5 2.8 2.7
We are proposing to grant the 2016 SEP awards to our executive Directors with a maximum opportunity of 198% of salary, which is within our remuneration policy but is an increase from the opportunity of 174% of salary awarded in 2015. This will apply for 2016 and is not a precedent for the level of long-term incentive awards to be granted on an ongoing basis.
Prior to the introduction of the SEP in 2012, long-term incentive awards were granted under the GKN Long Term Incentive Plan (LTIP) which targeted EPS growth and the GKN Executive Share Option Scheme (ESOS) which was based on total shareholder return performance. The final LTIP awards were released during the year; this and details of the vested and outstanding ESOS awards are shown on page 86. Since 2012, all long-term incentive awards have been granted under the SEP.
Joining awards for Adam Walker
As disclosed last year, Adam Walker joined the Board on 1 January 2014 and became Group Finance Director on 26 February 2014. In addition to participating in the normal ongoing incentive arrangements (STVRS and SEP), he was granted joining awards in line with the remuneration policy to compensate him for the long-term incentive arrangements he forfeited on leaving his former employer.
Vesting of awards in 2015 (audited)