Remuneration Report

This report covers the year ended 30 April 2011 with comparative figures provided for the year ended 30 April 2010. It has been prepared in compliance with the Listing Rules of the Financial Services Authority and the Companies Act 2006. In accordance with the Companies Act, a resolution to approve the remuneration report will be proposed at the Company’s AGM. Details of the resolution may be found in the Notice of Meeting accompanying this Annual Report. The vote will be advisory and will be considered carefully by the members of the Remuneration Committee in the formulation and approval of the Company’s future remuneration policies.

Unaudited information

The role of the Remuneration Committee

The Remuneration Committee, which consists entirely of independent directors, determines and agrees with the Board the framework and policy for the remuneration of the Chairman, the Chief Executive, the executive directors, the Company Secretary and other members of the senior executive management of the Company. It also determines the policy for, and scope of, pension arrangements and approves the design of performance-related pay schemes, sets the targets for such schemes, and approves payments under such schemes.

The Committee reviews the design of all share incentive plans for the approval of the Board and the shareholders. It determines each year whether awards will be made and if so, the overall amount of such awards, the individual awards to be made to executive directors and other senior executives, and the performance targets to be used.

The terms of reference of the Remuneration Committee are published on the Company’s website.

Membership

The Remuneration Committee was chaired by George Kennedy. Jim Dick, Dr William Jenkins and Dr Lynn Drummond (from 9 February 2011) were members of the Remuneration Committee.

No Remuneration Committee member has any day-to-day involvement in the running of the Company.

The Remuneration Committee met three times during the year, attended by all its members in each case. The Chairman, the Chief Executive and the Director of Group Human Resources were invited to attend some or all of the meetings. In addition, Deloitte LLP and Hewitt Associates Limited were engaged to advise the Remuneration Committee with regard to long-term incentive arrangements for executive directors and senior executives. Eversheds LLP also provided legal advice to the Company on its long-term incentive and share option schemes.

Policy on executive directors’ and senior executives’ remuneration

The Company’s policy on remuneration for executive directors and senior executives is to ensure that the components and overall value of the Company package will:

  • attract and retain executives of the highest quality;
  • motivate them to achieve performance levels consistent with the best interests of the shareholders;
  • reflect annual and long-term performance of the Company as measured against targets set by the Committee; and
  • be appropriate by comparison with the remuneration of other groups of employees within the Company.

Components of executive directors’ remuneration

Base salary
The annual salary of each executive director and senior executive is determined by the Committee and is reviewed with effect from 1 August each year. As part of the annual review, the competitive position of each executive’s base salary is assessed against the appropriate market rate.

Annual bonus
An annual discretionary bonus is payable to the executive directors and senior executives, determined by reference to the performance of the Company, as measured against targets agreed by the Committee. The bonus comprises both a cash element and a deferred element payable under the Deferred Bonus Plan (see below).

For the year ended 30 April 2011, the Chief Executive was entitled to a maximum potential (cash and deferred) bonus of 150% of base salary. For the Group Finance Director and Group Corporate Development Director, the maximum potential (cash and deferred) bonus was 110% of base salary. For other senior executives maximum potential (cash and deferred) bonus was 100% of base salary. Bonus entitlement for the executive directors and senior executives was determined by reference to a combination of the Group’s annual financial performance and personal objectives.

The Committee’s policy in respect of bonuses for the 2011/12 financial year is again to base awards on a mix of financial and operating objectives.

Long-term incentives
The Company’s Long Term Incentive Plan (LTIP) scheme, introduced in 2005, with the inclusion of guidelines on senior executive shareholding requirements, aligns the interests of senior executives with those of shareholders on a long-term basis. The Company’s policy is to:

  • reinforce such alignment of interests between senior executives and shareholders by making regular LTIP awards which are subject to performance conditions based on future financial performance; and
  • promote wider employee share ownership through its saving-related share option scheme and share incentive plan.

Executive directors are expected to accumulate a shareholding equivalent to one times annual salary over a five-year period, and to maintain this level of shareholding. Other senior executives are expected to accumulate a lower level of shareholding over a similar timeframe.

LTIP awards are satisfied in the form of shares, providing a means for senior executives to achieve shareholding goals through the attainment of performance conditions. The scheme confers the award over a number of Consort Medical plc shares which will vest at the end of a three-year performance period, subject to the performance conditions being met.

Under the LTIP scheme structure, the Remuneration Committee is able to grant either Performance Shares or share settled Share Appreciation Rights (SARs) or a mixture of the two:

  • Performance shares are a form of share option with an exercise price of nil.
  • SARs comprise awards which produce a similar outcome to share options. They give the executive the right to benefit from any increase in the value of a fixed number of shares calculated from the date the SAR is awarded to the date when the SAR is exercised. However, unlike a share option, the executive only receives shares to the value of the aggregate price increase of the shares less any shares withheld to satisfy income tax and National Insurance obligations. This will be the market value of the shares as at the time of exercise less the market value of the shares at the date of the award.
  • The Committee expects to maintain an emphasis on Performance share grants. The Remuneration Committee takes professional advice at the time of each grant to re-assess the appropriate value ratio of share grants and SARs.

Awards under the LTIP may also be linked to an award granted under the Company’s CSOP (as described below). Such LTIP awards are intended to fund the exercise price of an award granted under the CSOP.

The maximum aggregate value of Performance shares and SARs that may be granted to executive directors is one times salary.

Performance conditions are imposed on all awards granted under the LTIP. The performance conditions for awards granted during the year are based on Total Shareholder Return (TSR) over a three-year timeframe:

  • TSR growth must be at least equal to the mean TSR growth of a specified comparator group of companies for any award to vest.
  • For full vesting to occur, TSR growth must be in the upper quartile of the comparator group of companies or must exceed the mean TSR growth of the comparator companies by at least seven percentage points, if this is lower.
  • If TSR growth is between these two figures, the proportion of the award which vests will be calculated on a straight-line basis between these two points.

The comparator group constituents have been selected on the basis of the constituents of the FTSE Small Cap Index, excluding investment trusts, finance, property and insurance companies, as at 1 May 2010, as well as the Company and is subject to adjustment by the Committee in certain circumstances.

The Remuneration Committee has discretion to amend the performance conditions in certain circumstances, for example where the performance conditions are determined to be impractical, provided always that the amended conditions are not more difficult to satisfy than the original performance conditions.

In respect of LTIP awards granted prior to 2009, vesting is subject to the satisfaction of performance conditions comprising a combination of TSR conditions and conditions relating to earnings per share.

LTIP awards were granted in August 2010 and September 2010. Certain of these awards are linked to awards made under the CSOP in September 2010 (see below).

2002 Executive Share Option Scheme
No further awards were made under the 2002 scheme following the adoption of the new LTIP described above.

The operation of the scheme has been discontinued except in relation to options already granted at the time of discontinuance.

1996 Executive and Company Share Option schemes
The operation of the 1996 share option schemes was discontinued except in relation to options already granted at the time of such discontinuance.

Company Share Option Plan 2010
The Company introduced a Company Share Option Plan (CSOP) in September 2010 following approval by shareholders at the 2010 AGM. The CSOP is a HM Revenue & Customs approved share option plan and as such is subject to certain statutory limitations, including a limit on the maximum value of shares which may be subject to option. Initial awards were made under the Plan in September 2010 and will vest in September 2013 subject to performance conditions being met. The performance conditions imposed on the initial awards were identical to those imposed on the LTIP awards granted on the same date.

Deferred Bonus Plan 2010
The Company introduced a Deferred Bonus Plan (DBP) in 2010 to facilitate a three year deferral of a proportion of the annual discretionary bonus payable to executive directors and senior executives. The deferred element of the annual discretionary bonus is delivered as an award under the DBP. An award under the DBP is structured as an option to acquire Consort Medical plc shares which will vest on a date specified at grant. Vesting of DBP awards is not subject to the satisfaction of performance conditions. It is intended that the first DBP awards for the 2010/11 financial year will be made in 2011.

Pension and other benefits
The Company provides executive directors with a Group Personal Pension Plan, which includes the benefit of a life assurance policy. Other customary benefits such as car allowances, health benefits, the Share Incentive Plan and the UK Savings-Related Share Option Scheme (which are available to all eligible UK employees) are made available to executive directors. Benefits in kind are not pensionable. The Committee reviews the individual components and the balance of these components from time to time.

Components of senior executives’ remuneration

There are eight members of the Group Executive Committee which includes the chief executives of the Bespak and King Systems Divisions. The reward structure of the senior executives is similar to that of the executive directors.

Service contracts

All executive directors have contracts terminable by the Company on one year’s notice and with earlier termination for cause. The policy of the Remuneration Committee is to treat each case on its merits, in accordance with applicable law and any further policy that the Committee may adopt. In the event of early termination other than for cause, the relevant executive director’s current salary and contractual benefits would be taken into account in calculating the liability of the Company.

The principal contractual benefits provided in addition to salary are car allowance, pension and life assurance. Annual bonuses and long-term incentives are discretionary and dealt with in accordance with the rules of the applicable schemes.

Specific contracts

Mr. Glenn’s contract is dated 26 July 2006; Mr. Woolrych’s contract is dated 24 June 2008; and Mr. Higgins’ contract is dated 4 January 2010. The contracts may be terminated by the Company giving one year’s notice and by the director on six months’ notice.

There are no other provisions for compensation payable on early termination of the above contracts.

External appointments

With the specific approval of the Board in each case, executive directors may accept external appointments as non-executive directors of other companies. None of the executive directors hold any external appointments other than Nick Higgins who was a director of Regenerative Medicine Assets Limited until 11 April 2011. The directors are entitled to keep the fees from external appointments.

Policy on non-executive directors’ remuneration

The Board is responsible for determining the policy on remuneration of non-executive directors. The Company aims to attract non-executive directors who, through their experience, can further the interests of the Company and make an effective contribution to its strategic development. The Board’s policy for the forthcoming and subsequent years is to provide fees at a level commensurate with Consort Medical plc’s size. The Board does not grant share options to non-executive directors. It seeks to encourage non-executive directors to hold shares in the Company, in accordance with legal and regulatory requirements. The level of fees is determined by the Board after taking into account appropriate advice.

Components of non-executive directors’ remuneration

Non-executive directors receive fees paid monthly. Their travel and other reasonable expenses incurred in the course of performing their duties are reimbursed.

Terms of appointment of non-executive directors

The non-executive directors have appointment letters, the terms of which recognise that their appointments are subject to the Company’s Articles of Association and their service is at the discretion of the shareholders. Their appointment letters indicate their expected time commitment and requires that they have sufficient time to meet what is expected of them.

All non-executive directors submit themselves for election at the Annual General Meeting following their appointment and subsequently at intervals of no more than three years. The appointment letters for all non-executive directors, including the Chairman, provide for an initial three-year period of service, and may thereafter be renewed for further three-year terms, subject to the usual rights of removal by shareholders and termination under the Companies Act 2006 and the Articles of Association.

The table below shows the appointment dates of the non-executive directors of the Company:

  • Name
  • Start of appointment
  • Expiry of appointment
  • P. Fellner
  • 14 November 2005
  • 14 November 2011
  • J. Dick
  • 11 April 2006
  • 11 April 2012
  • C. Banks
  • 26 April 2006
  • 26 April 2012
  • G. Kennedy
  • 28 September 2006
  • 28 September 2012
  • W. Jenkins
  • 6 May 2009
  • 6 May 2012
  • L. Drummond
  • 9 February 2011
  • 9 February 2014

Consort Medical plc TSR

The graph below shows the growth in value of a hypothetical £100 invested in Consort Medical plc ordinary shares on 30 April 2006 over five years compared with £100 invested in the FTSE All Share Healthcare Sector Index and £100 invested in the FTSE Small Cap Index over the same period.

Graph

This graph shows the value, by the 30 April 2011, of £100 invested in Consort Medical on 29 April 2006 compared with that of £100 invested in the FTSE All Share Healthcare Sector Index and £100 invested in the FTSE Small Cap Index. The other points plotted are the values at intervening financial year-ends.

Audited information

Remuneration of directors

Remuneration of directors

1 Other benefits include car allowance, fuel, medical and life insurance.
2 Mr. Higgins was appointed as a director on 1 January 2011 and his remuneration has been pro-rated for that period.
3 Dr Drummond was appointed as a non-executive director on 9 February 2011.
4 See also deferred bonus plan below.

Deferred bonus plan

As described above, a proportion of the annual discretionary bonus is intended to be made in shares deferred for a three-year period.

The table below shows the first awards intended to be made under the deferred bonus plan.

  • Executive
  • Portion of 2010/11 bonus to be deferred in share
    £
  • J. Glenn
  • 124,687
  • T. Woolrych
  • 65,362
  • N. Higgins 1
  • 22,575

1 Mr. Higgins was appointed as a director on 1 January 2011 and his remuneration has been pro-rated for that period.

Directors’ incentives

Directors’ incentives

*LTIP awards made to fund the exercise price of the linked CSOP granted on the same date.

All 2005 LTIP awards presented in the table above are Performance Shares.

The closing price of the shares at 28 April 2011 was 578p (30 April 2010: 365p). The highest and lowest middle market prices during the year were 590p and 340p respectively.

At 30 April 2011 there were 231,914 shares in the Company’s share ownership trust (2010: 70,670).

Directors’ Interests (unaudited)

The beneficial interests of the directors (including the beneficial interests of their spouses, civil partners, children and step children) in the ordinary shares of the Company on 30 April 2011, or at date of resignation if earlier, are shown below:

Directors’ Interests

SAYE = Save As You Earn employee share option scheme. These options are not subject to performance conditions as this is an all-employee share scheme governed by specific tax legislation.

Since 30 April 2011, no directors have acquired interests in the ordinary shares of the Company.

None of the directors had a material interest at any time during the period in any contract of significance, other than a service contract, with the Company or any of its subsidiaries.

The Remuneration Report was approved by the Board and signed on its behalf.

George Kennedy
Chairman of the Remuneration Committee
15 June 2011