Governance

Remuneration Report

This report has been prepared in accordance with the Directors’ Remuneration Report Regulations 2002 (the Regulations). As required by the Regulations, a resolution to approve the report will be proposed at the Company’s AGM at which the Financial Statements will be presented for approval.

This report has been divided into separate sections for unaudited and audited information. The Regulations require the independent auditors to report to our shareholders on the ‘audited information’ section of this report and to state whether, in their opinion, that part of the report has been properly prepared in accordance with the Companies Act 1985 (as amended by the Regulations).

Unaudited information

Remuneration committee

Our Remuneration Committee at the year-end comprised Sir Peter Williams, Lord Boyce, James Morley, Raj Rajagopal and Ed Wallis. Fiona Clutterbuck joined the committee on 15 June 2009. Sir Peter Williams, Lord Boyce, Fiona Clutterbuck, James Morley and Raj Rajagopal are independent non-executive directors. Ed Wallis, our chairman, was considered independent on his appointment as a director. The Committee is chaired by Sir Peter Williams. Details of attendance at Committee meetings can be found in Table 1 of the Corporate Governance Report.

The Committee reviews the remuneration policy for the chairman and executive directors and, more generally, the remuneration policy of the Group. It determines the level of remuneration, incentives and other benefits, compensation payments and terms of employment of the chairman and each executive director. The Committee seeks to provide appropriate incentives to enhance performance and align the interests of the executive directors with those of shareholders. It also reviews the salaries and benefits of members of the Group Executive, the company secretary and other senior managers reporting directly to the chief executive. The terms of reference of the Committee are available for review on the Company’s website or on request from the company secretary.

The Committee appointed, and continued to use, Hewitt New Bridge Street (HNBS) to provide advice on structuring executive remuneration packages and benchmarking. HNBS does not provide any other services to the Group. However, Hewitt Associates, of which HNBS is a specialist division, provided standalone benchmarking services to the Company’s Indian subsidiary during the year. The Committee is satisfied that this does not compromise HNBS’s independence. In determining remuneration, the Committee also consults the chief executive, Keith Clarke, the Group HR director, Alun Griffiths, and, where required, the company secretary, Richard Webster, about its proposals. No director or senior manager participates in discussions about their own remuneration.

Remuneration policy

The objectives of the Group’s remuneration policy are to attract, retain and incentivise management with the appropriate professional, managerial and technological expertise to realise our business objectives and to align their interests with those of our shareholders. We continue to strive to link total remuneration to performance and thereby create a performance culture. A significant proportion of the executive directors’ total remuneration is linked to performance through participation in the performance bonus plan and long-term share incentives.

To ensure that we offer the best available incentive to enhance shareholder value, the committee continued to assess the following constituent elements of the remuneration of the executive directors and review the same for members of the Group Executive and senior managers:

A. salary and other benefits
B. performance bonus payments
C. long-term share incentives
D. all-employee share plan
E. retirement benefits.

In determining remuneration, consideration is given to reward levels throughout the organisation as well as in the external employment market. The Committee aims to reward all employees fairly based on their role, their performance and salary levels in the wider market. The remuneration policy described below will be kept under review, but the current intention is that the policy should continue to apply in future financial years.

A. Salary and other benefits

The Committee reviews the salaries of the executive directors, members of the Group Executive and senior managers annually to ensure they remain appropriate and competitive. A wide range of data is utilised, together with assistance from HNBS as appropriate.

Keith Clarke, Robert MacLeod and Alun Griffiths have salaries of £425,000, £315,000 and £200,000 respectively. Mr MacLeod’s salary was increased from £300,000 with effect from 1 October 2008 following a detailed appraisal of market data. The Group’s annual pay review, which is usually implemented on 1 April each year, has been postponed until October 2009. In line with the approach taken for all Group employees, the salaries of the executive directors were not reviewed in April 2009. However, in light of the current economic circumstances, each of Keith Clarke, Robert MacLeod and Alun Griffiths requested that 10% of their salaries for the financial year ending 31 March 2010 be waived. This waiver does not affect the underlying reference salary used to calculate related benefits such as bonus, long-term share incentives and pension entitlement.

Heath Drewett, who was appointed as director on 15 June 2009 and will replace Mr MacLeod as Group finance director when he leaves the Group, will receive an annual salary of £250,000.

Other benefits for executive directors include a car allowance or a car and payment of its operating expenses, life assurance and entitlement to a non-contributory private healthcare scheme.

B. Performance bonus payments

Executive directors were eligible to receive bonuses of up to 90% of their salary for achieving Group financial and individual performance targets in respect of the year ended 31 March 2009. The Committee has the discretion to increase the bonus to pay out up to 100% of salary in exceptional circumstances. Following the performance of the Group, the Committee has resolved to pay a bonus of 100% of salary to each of Keith Clarke and Robert MacLeod. Alun Griffiths will receive a bonus of 90% of salary.

The targets against which bonuses are paid include challenging financial objectives and consideration of Group performance in respect of health and safety and staff retention. The Committee conducted a thorough review of remuneration during the financial year to determine what changes, if any, should be made to both the levels and structure of the total reward package of each executive director and concluded that any changes should be deferred in light of the current economic circumstances. Executive directors will be eligible to receive a bonus of 90% of their salary for on-target performance for the year ending 31 March 2010. The Committee may also increase the bonus to pay out up to 100% of salary in exceptional circumstances.

Executive directors are required to take one-third of any bonus in the form of an award over shares under the terms of the Atkins Deferred Bonus Plan (DBP). The DBP is designed to aid retention, with the award being subject to forfeiture on resignation within three years of grant. There are no further performance conditions once the award has been made. Dividends declared on DBP awards are rolled up and delivered to participants in cash on release of the award to align their interests further with those of shareholders. Members of the Group Executive must also take one-third of any bonus they receive via an award made under the Atkins Retention Bonus Plan (RBP), which is similar to the DBP but which allows for a flexible vesting period. In prior years the vesting period for RBP awards has been set at two years but for bonuses earned in relation to the financial year ending 31 March 2010 this has been set at three years. The DBP expires in early 2010 and the Committee will replace it with a deferred bonus plan on similar terms.

Bonus awards are non-pensionable and non-contractual.

The Company’s bonus and long-term incentive plans seek to provide executive directors and members of the Group Executive with the opportunity to increase overall remuneration levels to the upper quartile for comparable businesses but only following demanding performance targets being achieved.

C. Long-term share incentives

The Atkins Long-Term Incentive Plan (LTIP) seeks to motivate and retain the executive directors, members of the Group Executive and other senior executives. Under the LTIP, awards to executive directors and members of the Group Executive are made on the following basis:

• 50% of the award is subject to the Company’s total shareholder return (TSR) performance relative to the constituents of the FTSE 250 Index (excluding investment trusts) on the date of award. Full vesting is achieved if the Company ranks in the upper quartile, 30% for a median ranking, and pro rata vesting for intermediate performance. No vesting occurs for a ranking below median.
• 50% of the award is subject to the Group’s real growth in normalised earnings per share (EPS) over the performance period. An increase in EPS of more than 10% per annum above the UK retail price index (RPI) over the three-year performance period enables the shares to vest in full; an increase of 4% per annum above the UK RPI will result in 30% of the shares vesting; no shares vest for an increase of less than 4% per annum above the UK RPI. Pro rata vesting operates for growth in EPS between 4% and 10% above the UK RPI.

Awards made to other participants may be subject solely to the EPS condition as set out above.

Dividends declared on shares subject to LTIP awards are rolled up and delivered to executives in cash on release of the underlying award.

The Committee believes that EPS growth provides a closer ‘line of sight’ between management performance and reward than can be achieved via TSR alone.

This year the Committee intends to make LTIP awards at around 100% of salary to the executive directors following the announcement of the Group’s preliminary results. As in previous years, the number of shares subject to the awards will be based on a share price on 1 April 2009. The upper limit in the LTIP is 150% of salary. The Committee has considered the impact of the £7.0m tax benefit from the purchase of prior year consortium relief from the Metronet companies on EPS for the year ended 31 March 2009. It has concluded that the non-trading nature of this benefit is not a fair reflection of underlying earnings. Excluding this tax benefit, normalised basic EPS for the year ended 31 March 2009 was 76.4p. This lower EPS figure has been used to calculate the vesting of the awards made under the LTIP in 2006 and will also be used as the base for the 2009 awards.

A full summary of the performance conditions attaching to existing share plan awards can be found in note 32 to the Financial Statements.

The LTIP allows for the use of market purchase, new issue and treasury shares to satisfy awards. To date all vested LTIP awards have been satisfied using shares purchased in the market. The Committee reviews the method by which outstanding awards under the LTIP and other discretionary share plans are satisfied on a regular basis.

The executive directors are encouraged to hold shares in the Company (either directly or through the DBP) equivalent to the level of their annual salary, based on the value of such shares at the time of their acquisition (or award), or their current market value from time to time, whichever is the higher.

D. All-employee share plan

The Company’s Share Incentive Plan, as approved by HM Revenue and Customs, continues to be offered to all eligible UK employees, including the executive directors. The Plan, which was approved by shareholders in 2000, will be presented to shareholders for re-approval at the forthcoming AGM.

E. Retirement benefits

Pension and retirement benefits provided to the executive directors are comparable to those provided by other companies.

Performance graph

The Company’s performance, measured by TSR, is compared with the performance of the FTSE 250 Index (excluding investment trusts) over the past five years. This is considered the most appropriate index against which to measure performance as the Company has been a member of the FTSE 250 for the whole of the five-year period. This is illustrated in Fig.1.

TSR is defined as the return shareholders would receive if they held a notional number of shares and received dividends on those shares over a period of time. Assuming dividends are reinvested into the Company’s shares, it measures the percentage growth in the Company’s share price together with the value of any dividends paid.

External appointments

The Board recognises the benefit which we can obtain if our executive directors serve as non-executive directors of other companies. Subject to review in each case, the Board’s general policy is that each executive director may accept one non-executive directorship with another FTSE 350 company from which any fees received may be retained. Robert MacLeod is currently a non-executive director of Aggreko plc and retains the fees payable, receiving £41,000 in respect of their financial year ended 31 December 2008.

Directors’ contracts

Chairman and non-executive directors

The Chairman and non-executive directors have letters of appointment stating their annual fee and that their appointment is initially for a term of three years subject to satisfactory performance and their re-election at forthcoming AGMs. Their appointment may be terminated with six months’ written notice at any time. Table 1 summarises the dates of appointment and most recent re-election dates for the chairman and each of the non-executive directors.

Copies of the letters of appointment will be available for inspection prior to and during the AGM and are also available for inspection at the Company’s registered office during normal business hours.

The remuneration of the chairman is determined by the committee. The remuneration of the non-executive directors is determined by the Board on the recommendation of the executive directors within the limits set out in the Articles of Association and on the basis of independent advice and the level of fees paid to non-executive directors of comparator companies. The annual fees are specific to each director reflecting their individual commitments to the Board and various Board committees. The current fee structure is shown in Table 2.

The chairman and the non-executive directors are not eligible for pensions, share incentives, annual bonus or any similar payments other than out-of-pocket expenses in connection with the performance of their duties. The chairman and the non-executive directors do not participate in any meeting at which discussions in respect of matters relating to their own position take place.

Executive directors

The service agreements of the executive directors are summarised in Table 3.

In the event of unsatisfactory performance, the notice period for the executive directors is reduced to three months. Their service agreements include a duty to mitigate loss where the agreement is terminated and any payment in lieu of notice may be reduced to take account of such mitigation. No service agreement provides for predetermined amounts of compensation in the event of early termination of service contracts.

The service agreements will terminate when the director reaches the retirement age as determined by the Board and are otherwise terminable on giving 12 months’ notice. Copies of each director’s service agreement will be available for inspection prior to and during the AGM and are also available for inspection at the Company’s registered office during normal business hours.

Audited information

Directors’ emoluments

The remuneration of each director, excluding long-term incentive awards and pensions, during the year ended 31 March 2009 is laid out in Table 4.

Retirement benefits

Keith Clarke has a contractual entitlement to receive an amount equivalent to 25% of his salary as a pension payment. He elected to receive this entitlement as an additional emolument and this is reported in Table 4. Robert MacLeod and Heath Drewett also have a contractual entitlement to receive an annual amount equivalent to 25% of their salaries towards their pension benefits. During the year the Company made payments of £76,875 (2008: £68,250) into Mr MacLeod’s personal pension plan.

Alun Griffiths is 54 and was a member of a final salary arrangement until 30 September 2007 when the scheme was closed to future accrual. As at that date he had completed 21.5 years pensionable service. Since 1 October 2007 he has participated in a defined contribution arrangement on the same terms as other UK-based staff. The value of his accrued benefit under the final salary arrangement at the start of the financial year was £63,953 per annum with a transfer value of the total accrued benefit of £703,523. His accrued pension increased by £6,036 per annum during the year. This sum will continue to increase in line with increases in Mr Griffiths’ salary. The increase in the transfer value of his accrued benefits was £182,897. As at 31 March 2009, the value of his accrued benefit was £69,989 per annum, with a transfer value of the total accrued benefit of £886,420. Transfer values before 1 October 2008 have been calculated in accordance with version 8.1 of guidance note GN11 issued by the actuarial profession. The Trustees of the Atkins Pension Plan (the Plan) revised the transfer value basis with effect from this date in compliance with new legislation. Under the defined contribution arrangement he receives an annual amount equivalent to 13% of his salary. This consists of a 10% ordinary employer contribution and a transitional employer contribution of 3% payable until 30 September 2010. The transitional contribution is payable to all members of the Plan affected by the closure of their defined benefit accrual.

During the year the Company made payments of £26,000 (2008: £10,980) under Mr Griffiths’ defined contribution arrangement and a further £1,792 (2008: £nil) in respect of National Insurance contributions the Company would have paid had he not chosen to contribute £14,000 to his defined contribution pension via salary exchange.

All executive directors receive life assurance cover equal to four times their salary.

Directors’ interests

The interests of the directors and their families in the ordinary shares of 0.5p each in the Company as at 31 March 2009 are shown in Table 5.

Details of directors’ share options and long-term incentives as at 31 March 2009 are given in Table 6.

Directors’ share options and long-term incentives

Directors’ emoluments disclosed in Table 4 do not include any amounts for the value of options to acquire ordinary shares in the Company granted to or held by the directors, which are set out in Table 6.

For each share under option that had not expired at the end of the financial year, the mid-market price on 31 March 2009 was 494.50p and the highest and lowest mid market prices during the financial year were 1,089.00p and 423.25p respectively.

Approval

Approved by the Board and signed on its behalf by

Sir Peter Williams

Chairman of the Remuneration Committee
16 June 2009

Fig. 1

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1. Joanne Curin will stand for re-appointment and Lord Boyce will stand for re-election at the AGM to be held on 9 September 2009.
2. James Morley will retire from the Board on 30 June 2009.

1. Mr. Wallis has requested that 10% of his fees for the financial year to 31 March 2010 be waived, reducing the annual fee payable for the year ending 31 March 2010 to £180,000.
2. No fee is paid in respect of membership of the Nomination Committee.

1. Keith Clarke will stand for re-election at the AGM to be held on 9 September 2009.
2. Heath Drewett will stand for re-appointment at the AGM to be held on 9 September 2009.
3. Robert MacLeod has announced his intention to leave the Company on 19 June 2009.

1. Fiona Clutterbuck elected to waive her fee in favour of a charity of her choice until 30 June 2008.
2. Keith Clarke sacrificed £8,173 of the £425,000 in exchange for additional holiday entitlement under the Group’s flexible leave policy.
3. £14,500 of the £200,000 was contributed voluntarily by Alun Griffiths into his defined contribution pension via salary exchange.
4. Amounts payable in cash.
5. Other benefits include such items as company cars or allowances, fuel and medical insurance.
6. Keith Clarke is entitled to a pension payment equivalent to 25% of his salary. He elected to receive this entitlement as a taxable payment.
7. Keith Clarke, Alun Griffiths and Robert MacLeod are required to take a minimum of one-third of their bonus payment in the form of a right to acquire shares under the DBP. Awards of shares to these values will be made following the announcement of the preliminary results pursuant to the rules of the DBP to Keith Clarke and Alun Griffiths. These awards will be disclosed in the directors’ share options and long-term incentives table in the 2010 remuneration report. Robert MacLeod, who will leave the Company around the time the grant is made, will not receive an award and will therefore lose one-third of the total value of his bonus.

1. Changes in directors’ interests of Keith Clarke, Alun Griffiths and Robert MacLeod between 31 March and 16 June 2009 relate to shares acquired via the Atkins Share Incentive Plan.

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1. Plan names: LTIP – Atkins Long-Term Incentive Plan
   DBP – Atkins Deferred Bonus Plan
2. Subject to performance criteria described in note 32 to the Financial Statements.
3. Following the exceptional write down in relation to Metronet, the Company’s EPS for the financial year ended 31 March 2007 was (56.8p). The consequence of this was that any LTIP awards made in 2007 would never be capable of vesting. Pursuant to the rules of the plan, the Remuneration Committee considered that it was appropriate to remove profit in respect of discontinued operations and the exceptional loss in respect of Metronet and that the EPS for the financial year ending immediately before the commencement of the performance period for the 2007 awards be deemed to be 57.3p.
4. All awards granted under the terms of the LTIP and the DBP are structured as options, for which the exercise price is nil.