Implementation of the remuneration policy in the year ended 31 March 2014

Single total figure of remuneration (audited information)

Salary/
fees
£'000
Taxable
benefits(1)
£'000
Bonus(2)
£'000
Long-term
incentives
£'000
Pension(5)
£'000
ShareBuy(6)
£'000
Total
£'000
For the year ended 31 March2014201320142013201420132014(3)2013(4)201420132014201320142013
Executive directors
Steve Mogford(7)6756592121687723843n/a149145012,3751,549
Russ Houlden(7)42641623264334566211549492011,5971,145
Non-executive directors
Dr John McAdam27426711n/an/an/an/an/an/an/an/a275268
Dr Catherine Bell666311n/an/an/an/an/an/an/an/a6764
Mark Clare(8)25n/a1n/an/an/an/an/an/an/an/an/a26n/a
Paul Heiden(9)247310n/an/an/an/an/an/an/an/a2573
Brian May693411n/an/an/an/an/an/an/an/a7035
Nick Salmon696801n/an/an/an/an/an/an/an/a6969
Sara Weller696500n/an/an/an/an/an/an/an/a6965

Notes:

  1. For executive directors taxable benefits include: a car allowance of £14,000; health, life and income protection insurance; travel costs and communication costs.
  2. 50 per cent of bonus was deferred into shares for three years under the Deferred Bonus Plan (DBP). Malus and clawback provisions apply - see Directors' Remuneration Policy section.
  3. The performance period for the 2011 Performance Share Plan (PSP) and Matching Share Award Plan (MSAP) awards ended on 31 March 2014. The final vesting of those awards was 93.5 per cent. See the section 'Additional requirements in respect of the single total figure table' below for further information.
  4. The performance period for the 2010 PSP and MSAP awards ended on 31 March 2013 and the awards vested on 21 May 2013. The final vesting of those awards was 35.3 per cent. Russ Houlden received 19,581 vested shares (including dividend equivalents) and the value of these shares shown in the table above has been calculated using the closing share price on date of vesting, which was 787 pence per share. Steve Mogford joined the company in January 2011 and so did not participate in the 2010 PSP and MSAP awards.
  5. Cash allowance of 22 per cent of base salary paid in lieu of pension.
  6. The company offers a one-for-five match on partnership shares bought by employees under ShareBuy. These matching shares cease to become forfeitable one year after they are awarded. The figures shown in the ShareBuy column are the value of matching shares which vested in the year, valued using the closing share price on the day they vested.
  7. The company recognises that its executive directors may be invited to become non-executive directors of companies outside the company and exposure to such non-executive duties can broaden experience and knowledge, which would be of benefit to the company. Any external appointments are subject to board approval (which would not be given if the proposed appointment was with a competing company, would lead to a material conflict of interest or could have a detrimental effect on a director's performance). Steve Mogford is the senior independent director of Carillion PLC for which he receives and retains an annual fee of £60,200. Russ Houlden has been appointed as an independent member of the supervisory board, and audit committee chairman, of Orange Polska SA for which he receives and retains fees estimated annually at 320,000 Polish Zloty (around £63,000).
  8. Mark Clare joined the board on 1 November 2013.
  9. Paul Heiden retired from the board on 26 July 2013.

Additional requirements in respect of the single total figure table (audited information)

Executive director base salaries and non-executive directors' fees

Executive director salaries were increased by 2.5 per cent with effect from 1 September 2013 as shown below:

Executive directorBase salary £'000
1 Sept 20131 Sept 2012
Steve Mogford682.0665.5
Russ Houlden430.5420.0

This was in line with the headline increase applied across the wider workforce.

Non-executive director annual fees were increased with effect from 1 September 2013 as shown below:

RoleFees £'000
1 Sept 20131 Sept 2012
Base fees: Chairman277.0270.0
Base fees: other non-executive directors59.8558.40
Senior independent non-executive director10.010.0
Chair of audit committee15.015.0
Chair of remuneration committee10.010.0
Chair of corporate responsibility committee8.05.0

Performance against performance targets for 2013/14 annual bonus

Annual bonus payments were determined with reference to performance over the financial year ended 31 March 2014. The performance measures, targets and outcomes are set out below:

Steve
Mogford
Russ
Houlden
MeasureTargets
Threshold-Stretch
Outcome% of
maximum
achieved(1)
Max
%
Actual
%
Max
%
Actual
%
Underlying operating profit(2)£757.9m–£807.9m£802.9m9030.027.030.027.0
Customer service in year
Service Incentive Mechanism - Qualitative4.58–4.694.56010.00.010.00.0
Service Incentive Mechanism - Quantitative141–1111355710.05.710.05.7
Maintaining and enhancing services for customers
Regulatory capital expenditure(3)£814m +/- 6% to £814m +/- 2%£814m +1.6%1008.08.08.08.0
Time, cost and quality of capital programme (TCQi)(4)85%–95%98%1008.08.08.08.0
Sustainability of service and corporate responsibility
Serviceability (four measures) Requirement: Stable or ImprovingThreshold: 3 out of 5 Stretch: 5 out of 55 out of 510020.020.020.020.0
Dow Jones Sustainability Index rating (one measure) Requirement: World Class
Bad debt recovery2.2%–2.0%2.2%254.01.04.01.0
Personal objectives10.08.510.08.5
Total as % bonus maximum100.078.2100.078.2
Total as % base salary130.0101.7130.0101.7
Total £'000(5)687433

Notes:

  1. 25 per cent for Threshold performance; 50 per cent for Target performance; 100 per cent for Stretch performance. Straight-line vesting applies between these points.
  2. Underlying operating profit is subject to a number of adjustments, principally in regard to infrastructure renewal expenditure.
  3. Regulatory capital expenditure in UUW is subject to adjustment in relation to transitional investment in AMP5 for AMP6. The committee increased the regulatory capex spend targets in June 2013 to align them to the accelerated capital programme which was announced to shareholders in May 2013.
  4. TCQi is an internal measure which measures the extent to which we deliver our capital projects on time, to budget and to the required standard. It is expressed as a percentage, with a higher percentage representing better performance.
  5. Under the Deferred Bonus Plan, 50 per cent of the bonus was deferred in shares for three years.

Performance for long-term incentives vesting by reference to performance in 2013/14

The long-term incentive amount included in the 2013/14 single total figure of remuneration is in respect of the Performance Share Plan (PSP) and Matching Share Award Plan (MSAP) awards granted in 2011. Vesting was dependent on performance over the period 1 April 2011 to 31 March 2014 and continued employment to 31 March 2014. The overall vesting outcome was 93.5 per cent of maximum, as shown below:

 

Relative Total Shareholder Return (TSR)
  • Company's comparative TSR against a TSR index over the performance period.
  • Index is a weighted average of TSR for the following companies (weights in brackets): Severn Trent (100), Pennon Group (75), National Grid (25), Scottish & Southern (25), Northumbrian Water (75)(1).
  • For the purpose of calculating TSR, the TSR index is averaged over the three months prior to the start and end of the performance period.
  • TSR is independently calculated by New Bridge Street.
Weighting

50%
Target
Stretch: 100% vesting for outperforming the index by 6.3% or more (on a multiplicative basis)

Threshold: 25% vesting for TSR performance equal to the index

0% vesting if company's TSR is below the index

Straight-line vesting between threshold and stretch performance
Achievement
48.0% out of 50.0%.

Between threshold and stretch. Company TSR of 50.0%, compared to index TSR of 41.5% and stretch target of 50.4%.
Opex outperformance
  • Cumulative operating expenditure outperformance versus Ofwat's allowed operating costs over the 2011–14 period.
Weighting

37.5%
Target
100% vesting if stretch outperformance over the performance period is achieved

50% vesting if intermediate outperformance over the performance period is achieved

25% vesting if Ofwat's allowed operating costs over the performance period ('threshold') are achieved

0% vesting if threshold is not achieved

Straight-line vesting between threshold and intermediate, and intermediate and stretch performance
Achievement
33.0% out of 37.5%.

Between intermediate and stretch.
Capex outperformance
  • Cumulative capital expenditure outperformance versus Ofwat's capital expenditure allowance over the 2011–14 period.
Weighting

12.5%
Target
100% vesting if stretch outperformance is achieved

50% vesting if Ofwat's capital expenditure allowance over the performance period is achieved ('intermediate')

25% vesting for threshold performance

0% vesting if threshold is not achieved

Straight-line vesting between threshold and intermediate, and intermediate and stretch performance
Achievement
12.5% out of 12.5%.

Stretch.

Note:

  1. Following its delisting in 2011, Northumbrian Water Group was replaced in the index by Centrica with a weighting of 25.

 

The directors consider it commercially sensitive to disclose the opex and capex outperformance targets at this stage of the Asset Management Period (AMP). We will disclose the targets in next year's annual report and accounts, after the end of the AMP.

The awards that vested in respect of each executive director were as follows:

Performance Share Plan - 2011 awards

DirectorNumber of
shares awarded
Number of
dividend
equivalent
shares
Number of
shares before
performance
conditions
applied
Number of
shares vesting
Value of shares
vesting £'000(1)
Steve Mogford75,02011,67886,69881,062692
Russ Houlden46,1667,18553,35149,883426

Note:

  1. Calculated using closing share price on 20 May 2014 (date of vesting) of 854 pence per share.

Matching Share Award Plan - 2011 awards

DirectorNumber of
shares awarded(1)
Number of
dividend
equivalent
shares
Number of
shares before
performance
conditions
applied
Number of
shares vesting
Value of shares
vesting £'000(2)
Steve Mogford16,3132,53718,85017,624151
Russ Houlden21,1403,28924,42922,841195

Notes:

  1. These awards related to the 2010/11 bonus payments and reflect their respective part-year earnings. Steve Mogford joined the company in January 2011 and Russ Houlden joined in October 2010.
  2. Calculated using closing share price on 20 May 2014 (date of vesting) of 854 pence per share.

Scheme interests awarded during the year ended 31 March 2014 (audited information)

During the year ended 31 March 2014 awards were made to executive directors under the DBP and LTP. Details of these awards are provided below.

Deferred Bonus Plan - 2013 awards

Executive directors were required to defer 50 per cent of their 2012/13 bonus into shares for three years under the DBP in June 2013. There were no service or performance conditions attached, however deferred bonuses are subject to malus provisions. See directors' remuneration policy for further information.

DirectorBasis of awardFace value
£'000(1)
Number of
shares granted
End of deferral period
Steve Mogford50% of 2012/13 bonus36249,57317.6.16
Russ Houlden50% of 2012/13 bonus22831,27817.6.16

Note:

  1. The face value has been calculated using the closing share price on 14 June 2013 (the dealing day prior to date of grant) which was 730 pence per share.

Long Term Plan - 2013 awards

Long Term Plan awards were granted in July 2013. The awards are conditional shares with a three-year performance period and an additional two year holding period for executive directors. Malus provisions apply. See the directors' remuneration policy for further information.

DirectorBasis of awardFace value
£'000(1)
%
vesting at
threshold
Number
of shares
granted
Performance period
Steve Mogford130% of salary865.225120,7461.4.13 to 31.3.16
Russ Houlden130% of salary546.02576,2031.4.13 to 31.3.16

Note:

  1. The face value has been calculated using the closing share price on 26 July 2013 (the day prior to date of grant) which was 717 pence per share.

 

The performance conditions for the 2013 LTP awards were selected following an extensive review and shareholder consultation process. Summary details about the 2013 LTP performance measures are shown in the following table:

Performance measure (weighting)Key features
Relative Total Shareholder Return

(one-third)
  • TSR measured over a three-year performance period
  • Relative to the FTSE 100 (excluding Financial Services, Oil & Gas and Mining companies)
  • No payment for below median performance
  • Threshold vesting (25%) at median performance
  • Stretch vesting (100%) at 1.15x median (or greater)
  • 'Straight-line' vesting between Threshold and Stretch
  • For the purpose of calculating TSR, the TSR index is averaged over the three months prior to the start and end of the performance period
Sustainable dividends

(one-third)
  • Comprises two elements – dividend growth and dividend cover
  • For 2013 where the performance period straddles two regulatory periods, dividend cover will operate as an underpin, with dividend growth (over the three-year period) providing the payout range based on Threshold (25% vesting) to Stretch (100% vesting) targets
  • Given the commercial and shareholder sensitivity of forecasting the outcome of the ongoing regulatory price review process, the committee strongly believe that disclosing precise targets for this measure in advance could be seriously prejudicial to shareholder interests. Actual targets, performance achieved and awards made will be published retrospectively so shareholders can fully understand the basis for any payouts.
Customer service excellence

(one-third)
  • Based on Ofwat's customer service measure (currently the Service Incentive Mechanism)
  • Vesting based on ranking position in final year compared to the other water and wastewater companies (currently 19 companies including United Utilities)
  • No payment for below median performance
  • Threshold vesting (25%) for median position
  • Intermediate vesting (80%) for upper quartile position
  • Stretch vesting (100%) for upper decile position
  • 'Straight-line' vesting between these points

The committee will have the flexibility to make appropriate adjustments to the performance targets in exceptional circumstances, to ensure that the award achieves its original purpose.

Any vesting is also subject to the committee being satisfied that the company's performance on these measures is consistent with underlying business performance.

ShareBuy - 2013/14 awards

Both executive directors are participants in the company's all-employee share scheme, ShareBuy. During the year:

  • Steve Mogford purchased 209 partnership shares and was awarded 42 matching shares (at an average share price of 718 pence per share).
  • Russ Houlden purchased 209 partnership shares and was awarded 41 matching shares (at an average share price of 718 pence per share).

Statement of directors' shareholding and share interests (audited information)

Executive directors are expected to build up and maintain a shareholding in the company of at least 100 per cent base salary within five years of appointment. There is also an expectation that they will continue to build a shareholding throughout their period of employment with the company, after the guideline is reached.

Details of beneficial interests in the company's ordinary shares as at 31 March 2014 held by each of the directors and their connected persons are set out in the table below along with progress against the targeted shareholding guideline level. The table shows that both Steve Mogford and Russ Houlden have already exceeded the target shareholding.

Number
of shares
required to
meet share-
holding
guideline(1)
Shares counting towards shareholding guidelines at
31 March 2014
Share-
holding as
% of
base
salary at
31 March
2014(1)
Share-
holding
guideline
met at 31
Marc
2014
Unvested
shares
subject to
performance
conditions(4)
DirectorNumber
of shares
owned
outright
(including
connected
persons)
Unvested
shares not
subject to
performance
conditions(2)
Total shares
counting
towards
shareholding
guidelines (3)
Executive directors
Steve Mogford(5)91,667118,811152,273199,535218%Yes358,479
Russ Houlden(5)57,86372,59776,035112,915195%Yes236,603
Non-executive directors
Dr John McAdamn/a1,837n/an/an/an/an/a
Dr Catherine Belln/a7,000n/an/an/an/an/a
Mark Claren/a7,628n/an/an/an/an/a
Brian Mayn/a3,000n/an/an/an/an/a
Nick Salmonn/a1,004n/an/an/an/an/a
Sara Wellern/a10,531n/an/an/an/an/a

Notes:

  1. Share price used is the average share price over the three months from 1 January 2014 to 31 March 2014 (744 pence per share).
  2. Unvested shares subject to no further performance conditions such as matching shares under the 'ShareBuy' scheme and the matched share incentive schemes. Includes shares only subject to malus provisions such as the DBP shares in the three-year deferral period and LTP shares in the two-year holding period.
  3. Includes unvested shares not subject to performance conditions (on a net of tax and national insurance basis), plus the number of shares owned outright.
  4. Includes unvested shares under the PSP, MSAP and LTP.
  5. In the period 1 April 2014 to 21 May 2014, additional shares were acquired by Steve Mogford (34 ordinary shares) and Russ Houlden (34 ordinary shares) in respect of their regular monthly contributions to the 'ShareBuy' scheme. These will be matched by the company on a one-for-five basis. Under the scheme, matching shares vest provided the employee remains employed by the company one year after grant.

Details of share awards under the 2011 PSP and MSAP are given in the Annual report on remuneration. Further details of the executive directors' other unvested share awards at 31 March 2014 are shown in the table below.

Award
date
Performance
period/vesting date
Performance
conditions
Number
of unvested shares as at
31 March
2014(1)
Steve Mogford
PSP15.6.121.4.12 to 31.3.15
(capex measured over the period 1.4.10 to 31.3.15)
50% relative TSR
37.5% opex outperformance
12.5% capex
73,427
MSAP15.6.121.4.12 to 31.3.15
(capex measured over the period 1.4.10 to 31.3.15)
50% relative TSR
37.5% opex outperformance
12.5% capex
52,878
MSIS(2)27.5.11Vests 5.1.16None100,244
DBP(3)17.6.13Vests 17.6.16None51,987
LTP(4)29.7.131.4.2013 to 31.3.16
(plus additional two-year holding period)
1/3 relative TSR
1/3 sustainable dividends
1/3 customer service excellence
126,626
ShareBuy
matching shares(5)
1.4.13 to 31.3.14Vests 1.4.14 to 31.3.15None42
Russ Houlden
PSP15.6.121.4.12 to 31.3.15
(capex measured over the period 1.4.10 to 31.3.15)
50% relative TSR
37.5% opex outperformance
12.5% capex
46,314
MSAP15.6.121.4.12 to 31.3.15
(capex measured over the period 1.4.10 to 31.3.15)
50% relative TSR
37.5% opex outperformance
12.5% capex
32,596
MSIS(6)1.10.10Vests 1.10.15None43,193
DBP(3)17.6.13Vests 17.6.16None32,801
LTP(4)29.7.131.4.2013 to 31.3.16
(plus additional two-year holding period)
1/3 relative TSR
1/3 sustainable dividends
1/3 customer service excellence
79,913
ShareBuy
matching shares(5)
1.4.13 to 31.3.14Vests 1.4.14 to 31.3.15None41

Notes:

  1. Includes dividend equivalents. All awards are increased by the notional reinvestment of dividends paid over the course of the retention or performance period. Note that these are also subject to performance conditions where applicable.
  2. Full details of the one-off matched share investment award for Steve Mogford, introduced as a necessary part of his terms of appointment, were disclosed in the 2010/11 report. Shares under this scheme will be transferred to him on 5 January 2016, subject to him still being employed by the group at that date.
  3. DBP shares are not forfeitable if an executive director leaves. However, the director will typically have to wait three years from the date of grant to receive the shares, and the shares remain subject to malus provisions over the deferral period.
  4. LTP shares are not forfeitable if an executive director leaves in the two-year holding period. However, the director will typically have to wait until the end of the holding period to receive the shares, and the shares remain subject to malus provisions over the holding period.
  5. Under ShareBuy, matching shares vest provided the employee remains employed by the company one year after grant.
  6. Full details of the one-off matched share investment award for Russ Houlden, introduced as a necessary part of his terms of appointment, were disclosed in the 2010/11 report. Shares under this scheme will be transferred to him on 1 October 2015, subject to him still being employed by the group at that date.

Other information

Performance graph

The chart to the right shows the company's five-year TSR performance against the FTSE100 index. The index was selected because the company is a member of the FTSE100 and it is considered to be the most suitable widely published benchmark for this purpose. The table below the chart shows the CEO's pay over the same five-year period.

 

Five-year history of CEO's pay

Year ended 31 March20102011201220132014
CEOPhilip
Green
Philip
Green
Steve
Mogford
Steve
Mogford
Steve
Mogford
Steve
Mogford
CEO single figure of total remuneration (£'000)1,9923,0733771,4211,5492,375
Annual bonus as % of maximum89.290.890.672.084.478.2
Long-term incentive vesting as % of maximum0(1)28.1(3)n/a(5)n/a(5)n/a(5)93.5(6)
12.5(2)100.0(4)

Notes:

  1. The performance period applicable to the 2007 Performance Share Plan (PSP) ended on 31 March 2010.
  2. The performance period applicable to the 2007 Matching Share Award Plan (MSAP) ended on 31 March 2010.
  3. The performance period applicable to the 2008 PSP and the 2008 MSAP ended on 31 March 2011.
  4. The retention period applicable to Philip Green's matched share investment scheme ended on 12 February 2011.
  5. Steve Mogford was not a participant in any long-term incentive plans that had performance periods ending during 2011 to 2013. For those who did participate in those plans, the vesting as a percentage of maximum was 37.5 per cent for those vesting in 2012 and 35.3 per cent for those vesting in 2013.
  6. The performance period applicable to the 2011 PSP and the 2011 MSAP ended on 31 March 2014.

Percentage change in CEO's remuneration versus the wider workforce

The table below shows how the percentage change in the CEO's salary, benefits and bonus earned in 2012/13 and 2013/14 compares with the percentage change in the average of each of those components for a group of employees.

ItemYear-on-year change CEO(%)(1)Year-on-year employees(%)(2)
Base salary(3) (4)2.44.1
Taxable benefits4.47.2
Bonus-5.14.2

Notes:

  1. See single total figure of remuneration table for more information.
  2. To aid comparison, the group of employees selected by the committee are those who were employed over the complete two-year period.
  3. On 1 September 2013 Steve Mogford received a base salary increase of 2.5 per cent.
  4. Includes promotional increases, and increases associated with a review of pay structures for collectively bargained employees.

Relative importance of spend on pay

The chart shows the relative importance of spend on pay compared to distributions to shareholders.

2013/20142012/13% change
Employee costs £m(1)2542453.7
Dividends paid to shareholders £m2382246.4

Note:

  1. Employee costs includes wages and salaries, social security costs, and post-employment benefits.

Dates of service contracts and first appointment to board

Executive directorsDate of service contract
Steve Mogford5.1.11
Russ Houlden1.10.10
Non-executive directorsDate first appointed to the board
Dr John McAdam4.2.08
Dr Catherine Bell19.3.07
Mark Clare1.11.13
Brian May1.9.12
Nick Salmon4.4.05
Sara Weller1.3.12

Implementation of the remuneration policy for the year commencing 1 April 2014

Subject to shareholder approval, the remuneration policy will be implemented with effect from the 2014 AGM on the basis set out in the directors' remuneration policy report.

Fixed pay

Any base salary increases in 2014/15 will be in line with policy and there are no changes expected to benefits or pensions.

Annual bonus measures

The measures and weightings for the executive directors' 2014/15 annual bonus are the same as for the 2013/14 bonus. The performance measures and targets are set out in the table below. Please note that certain targets are considered commercially sensitive, and consequently these will only be disclosed after the end of the financial year in the 2014/15 annual report on remuneration.

MeasureTargets
2014/15
Weighting
(%)
Underlying operating profit(1)Commercially sensitive30
Customer service in year
Service Incentive Mechanism - QualitativeCommercially sensitive10
Service Incentive Mechanism - QuantitativeCommercially sensitive10
Maintaining and enhancing services for customers
Regulatory capital expenditureCommercially sensitive8
Time, cost and quality of capital programme (TCQi)(2)95%–99%8
Sustainability of service and corporate responsibility
Serviceability (four measures)
Requirement: Stable or Improving
Threshold: 3 x Stable or Improving Stretch: 5 out of 520
Dow Jones Sustainability Index rating (one measure)
Requirement: World Class
Bad debt recoveryCommercially sensitive4
Personal objectivesCommercially sensitive10
Total as % bonus maximum100
Maximum bonus as % base salary130

Notes:

  1. Underlying operating profit is subject to a number of adjustments, principally in regard to infrastructure renewal expenditure.
  2. TCQi is an internal measure which measures the extent to which we deliver our capital projects on time, to budget and to the required standard. It is expressed as a percentage, with a higher percentage representing better performance.

Long Term Plan awards

It is anticipated that LTP awards of 130 per cent of salary will be made to the executive directors in 2014. The three-year performance period will start on 1 April 2014 and end on 31 March 2017. Executive directors will have a further two-year holding period before they receive the shares.

The performance measures and targets are expected to be as outlined in the Annual report on remuneration.

How executive directors' incentives align to business strategy

Our aim is to
deliver long-term
shareholder value

The best service
to customers

At the lowest
sustainable cost

In a responsible
manner
Long Term Plan
Relative TSR
Sustainable dividends
Customer service excellence
Additional two-year holding period
Annual bonus
Operating profit
Customer service in year(1)
Maintaining and enhancing services for customers(2)
Sustainability of service and corporate responsibility(3)
Bad debt recovery
Personal
Compulsory deferral of bonus
Shareholding guidelines

Focusing on customer service and corporate responsibility

(1) Customer service in year

This measures our customer service performance over the bonus year, as reported by Ofwat through their measure of customer service.

(2) Maintaining and enhancing services for customers

This measures how effectively and efficiently we deliver projects to improve our region's water and wastewater network. Our capital programme ensures we can provide a reliable service for our customers now and in the future and helps to provide a cleaner environment.

(3) Sustainability of service and corporate responsibility

This measure is made up of two components: serviceability and the Dow Jones Sustainability Index. Serviceability relates to the overall reliability of our assets such as treatment works, water pipes and pumping stations – ensuring that they deliver a stable and dependable level of service to our customers. The Dow Jones Sustainability Index is an assessment of our responsible business practice, measuring economic, social and governance performance.

Consideration by the directors of matters relating to directors' remuneration

Summary terms of reference

The committee's terms of reference were last updated in February 2014 and are available on our website: corporate.unitedutilities.com.

The committee's main responsibilities include:

  • making recommendations to the board on the company's framework of executive remuneration and its cost;
  • approving the individual employment and remuneration terms for executive directors and other senior executives, including: recruitment and severance terms, bonus plans and targets, and the achievement of performance against targets;
  • approving the general employment and remuneration terms for selected senior employees;
  • approving the remuneration of the Chairman;
  • proposing all new long-term incentive schemes for approval of the board, and for recommendation by the board to shareholders; and
  • assisting the board in reporting to shareholders and undertaking appropriate discussions as necessary with institutional investors on aspects of executive remuneration.

Composition of the remuneration committee

MemberMember sinceMember to
Sara Weller (chair since 27.7.12)1.3.12To date
Nick Salmon4.4.05To date
Dr Catherine Bell1.3.11To date

The committee's members have no personal financial interest in the company other than as shareholders and the fees paid to them as non-executive directors.

Advisors to the remuneration committee

By invitation of the committee, meetings are also attended by the Chairman of the company (John McAdam), the CEO (Steve Mogford), the company secretary (Simon Gardiner, who acts as secretary to the committee), the business services director (Sally Cabrini) and the head of reward (Ruth Henshaw) who are consulted on matters discussed by the committee, unless those matters relate to their own remuneration. Advice or information is also sought directly from other employees where the committee feels that such additional contributions will assist the decision making process.

The committee is authorised to take such internal and external advice as it considers appropriate in connection with carrying out its duties, including the appointment of its own external remuneration advisors.

During the year, the committee was assisted in its work by the following external advisors:

AdvisorAppointed byHow appointedServices
provided to the
committee in year
ended 31 March 2014
Fees paid by company
for these services in
respect of year and
basis of charge
New Bridge StreetCommitteeRe-appointed following committee review in 2013General advice on remuneration matters£95,000
Time/cost basis
Other services provided to the company
  • Benchmarking of roles not under the committee's remit
Deloitte LLPCommitteeCompetitive tender processExecutive incentive review£0
Capped fee (cap reached in prior financial year)
Other services provided to the company
  • Financial Reporting support
  • VAT and corporate tax advisory services
  • Domestic Retail strategy review support

The independent consultants New Bridge Street (a trading name of Aon Hewitt Limited, an Aon PLC company) and Deloitte LLP are members of the Remuneration Consultants Group and, as such, voluntarily operate under the Code of Conduct in relation to executive remuneration consulting in the UK. The committee is satisfied that the advice they received from external advisors is objective and independent.

In addition, the law firms Eversheds and Addleshaw Goddard provide advice on the company's share schemes to the company.

Key activities of the remuneration committee over the past year

The committee met five times in the year ended 31 March 2014.

Regular activities

  • Approved the 2012/13 directors' remuneration report.
  • Reviewed the base salaries of executive directors and other members of the executive team.
  • Reviewed the base fee for the Chairman.
  • Assessed the achievement of targets for the 2012/13 annual bonus scheme, reviewed progress against the targets for the 2013/14 annual bonus scheme, and set the targets for the 2014/15 annual bonus scheme.
  • Assessed the measurement of performance conditions for the long-term incentive awards vesting in 2013 including both Performance Share Plan (PSP) awards and matching shares vesting under the Matching Share Award Plan (MSAP) and set the targets for Long Term Plan (LTP) awards made in 2013.
  • Reviewed and approved awards made under the annual bonus scheme, Deferred Bonus Plan (DBP) and LTP.
  • Monitored progress against shareholding guidelines for executive directors and other members of the executive team.
  • Reviewed the committee's performance during the period.
  • Reviewed the committee's terms of reference.
  • Considered market trends in executive remuneration, including in the wider utilities sector.

Other activities

  • Completed a review of the executive incentive arrangements.
  • Consulted with shareholders on proposed remuneration policy.
  • Reviewed the pay comparator group.
  • Reviewed the new-style remuneration report.
  • Reviewed the executive shareholding guidelines.

Statement of shareholder voting

At the last Annual General Meeting on 26 July 2013 votes on the remuneration report were cast as follows:

ResolutionForAgainstAbstain
%Number%NumberNumber
Approval of 2012/13 directors' remuneration report99.04366,171,1790.963,563,7815,561,260
Approval of 2013 LTP98.33367,836,6621.676,253,4661,212,434

The directors' remuneration report was approved by the board of directors on 21 May 2014 and signed on its behalf by:

Sara Weller
Chair of the remuneration committee