Annual Remuneration Report

The following sets out our Annual Remuneration Report. The Annual Remuneration Report shall be subject to an advisory shareholder vote at the AGM on 4 September 2014. Where information is audited this has been stated. Other information in this report is unaudited.

This reports includes:

  • Details of how remuneration policy will be applied in FY2015;
  • The single figure of remuneration and details of how remuneration policy was applied in FY2014;
  • Details of share awards granted in the year;
  • Details of outstanding share awards and shareholding guidelines;
  • Other supplementary disclosure; and
  • Details of the role and activities of the Remuneration Committee

How Remuneration Policy will be Applied in FY2015

The following section outlines how the Committee intends to apply remuneration policy for FY2015.

Executive Directors

Base salary

Base salary for executive directors and other senior executives is reviewed annually by the Remuneration Committee and any increases are effective from 1 August.

Base salaries with effect from 1 August 2014 will be as follows:

Base salary
(from 1 August 2014)
Increase
(%)
CEO (Jonathan Glenn)£434,7003.5%
CFO (Richard Cotton)£282,5003.5%

The increases awarded are in line with the average increases received throughout the Group.

Base salaries will next be reviewed with effect from 1 August 2015.

Benefits

Executive directors will continue to receive a car allowance, life assurance, private medical insurance and personal health insurance. The CEO also receives a fuel card.

Retirement benefits

For FY2015, the Company will continue to provide executive directors with retirement benefits through the Group Personal Pension Plan. To the extent that the aggregate of the employee and employer contributions exceed the annual allowance, a taxable cash supplement will be provided. The level of the cash supplement is reduced to take into account the fact that the amount is subject to employer's national insurance.

The aggregated level of the Company's contribution/cash supplement for the executive directors for FY2015 (as a percentage of base salary) is shown below (before reduction for employer's NI). These are unchanged from FY2014.

Company
contribution/cash supplement
CEO (Jonathan Glenn)20%
CFO (Richard Cotton)17.5%

Annual bonus for FY2015

The CEO and CFO's maximum bonus opportunities are 150% and 110% of salary respectively. For the CEO, up to 100% of salary will be in cash, and up to 50% of salary will be in shares which are deferred for three years. For the CFO, up to 75% of salary will be in cash, and up to 35% will be in shares which are deferred for three years. This is illustrated below:

For the cash portion of the bonus, 80% will be based on PBT before special items and 20% will be based on the Committee's assessment of success against personal strategic objectives. Awards under the deferred share element will continue to be subject to the Committee's assessment of performance against the Group's strategic goals, but subject to underlying PBT (before special items) performance hurdles being met. Personal objectives for the CEO are focused on innovation and development of the product portfolio either organically or through acquisition and achieving key regulatory and commercialisation timelines. Personal objectives for the CFO are focused on managing working capital and cash whilst maintaining tight control on cost. The Committee considers that this combination of measures provides an appropriate balance of focus on improving financial performance and wider business strategic goals.

The strategic measures for the bonus have been selected on the basis that they represent areas that are important for the long-term success of the Company and include matters such as growth, new value creation, broadening the depth and range of the product portfolio, innovation and diversification into adjacent markets while keeping tight controls on cost.

The Committee considers that when taken together, the cash and deferred elements strengthen the alignment between shareholders and executive directors' interests, and encourage a longer-term focus on shareholder value, by requiring a three year deferral of a portion of the annual bonus which is payable in shares.

The performance measures for the cash and deferred share element are summarised below:

Cash elementDeferred share
element
PBT (80%)Strategic objectives
PBT underpin
(100%)
Individual measures linked to the operational and strategic goals of the business (20%)

The performance targets for the FY2015 annual bonus have not been disclosed as they are considered by the Board to be commercially sensitive on the basis that they could give away details of our budgeting and our strategic goals to competitors.

Long-term Incentive Plan ("LTIP")

During FY2015 the Committee intends to grant executive Directors awards of 100% of salary under the Consort Medical 2005 Long-term Incentive Plan subject to the performance conditions outlined below. The awards will be subject 50% to TSR performance compared to the FTSE Small Cap, excluding investment trusts, finance, property and insurance companies and 50% subject to earnings per share performance.

The Committee believes this combination of measures provides an appropriate balance between measuring performance against the Company's peers and incentivising management to grow earnings for shareholders over the long-term. The performance schedules below give the percentage of each element vesting for various levels of performance.

Relative TSR performanceVesting schedule (% of element)
Company TSR less than mean annualised comparator TSR0%
Company TSR equal to mean annualised comparator TSR25%
Company TSR greater than the lower of:
Mean annualised comparator TSR +7%; and
upper quartile annualised comparator TSR
100%
EPS growth (aggregate performance over the
three years from 1 May 2014 to 30 April 2017)
Vesting schedule
(% of element)
Less than 153p0%
153p25%
177p100%

Vesting will occur on a straight-line basis between threshold and maximum vesting.

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. The directors are entitled to keep the fees from external appointments. Neither of the executive directors currently holds any external appointments.

How Remuneration Policy was Implemented in FY2014

The following section describes how remuneration policy was implemented in FY2014.

The following information is audited:

Single Total Figure of Remuneration

The following table sets out the single figure for total remuneration for executive directors for the FY2014 and FY2013 financial years:

Salary
£000
Benefits
£000
Bonus
£000
LTIP
£000
Pension
£000
Total
£000
Jonathan GlennFY201441716417743831,676
FY2013140416506858771,861
Richard CottonFY20142711419445524
FY20132191220746484
  1. Subsequent to the FY2013 financial year £27,000 was reclassified from benefits to pension to better reflect the nature of the expense. There is no impact on the total figure reported in FY2013.

Notes to the Table

The following section sets out details of how the numbers included in the single figure table above have been prepared.

Base Salary

The base salary for the CEO was increased by 2.9% to £420,000 and the CFO's salary was increased by 3% to £273,000 with effect from 1 August 2013. The figures included in the single figure for FY2014 are slightly lower than these salaries as the single figure represents salary paid during FY2014. As salaries were increased on 1 August 2013 the single figure includes three months of the 2013 salary and nine months of the 2014 salary.

Benefits

Benefits include a car allowance, life assurance, private medical insurance and personal health insurance. The CEO also received a fuel card.

Annual Bonus

The following section summarises the annual bonuses paid to the CEO and CFO based on performance delivered in FY2014.

The table below shows the annual and deferred bonus opportunity for the executive directors in FY2014, and the required level of performance against budgeted PBT.

In determining the actual bonus awarded, the Committee also made an assessment of individual performance against strategically important goals both at a corporate and personal level to ensure that the overall level of bonus paid is appropriate.

ThresholdTargetMaximum
PBT hurdle90% of budgeted PBT100% of budgeted PBT105% of budgeted PBT
Cash %
of salary
Shares %
of salary
Total %
of salary
Cash %
of salary
Shares %
of salary
Total %
of salary
Cash %
of salary
Shares %
of salary
Total %
of salary
CEO25%7%32%80%29%109%100%50%150%
CFO18.75%5%27.75%60%20%80.5%75%35%110%

As noted above, the award of deferred shares depends on achievement against strategic objectives. In addition, the PBT hurdles outlined above must be met before the relevant portion deferred shares can be awarded. If less than 90% of budgeted PBT is delivered no deferred shares can be earned. If PBT is less than budget then the maximum amount of deferred shares that can be awarded is 29% of salary to the CEO and 20% of salary to the CFO.

PBT Targets — 80% of Cash Element

Actual profit before tax and special items performance for FY2014 was £17.527m. This was between threshold and target and the cash element relating to that PBT performance was 63.6%.

Strategic Measures — 20% of Cash Element and Deferred Share Element

For FY2014 the CEO's objectives were to continue to drive the strategy of the Group including progressing the current development pipeline, developing the innovation portfolio and continued diversification. The CFO's objectives were focused on financial integrity and management of the business. This included areas such as treasury management forecasting and reporting, risk assurance and controls, pensions and Investor Relations as well as ensuring costs continued to be tightly controlled. During the year the Group achieved the following strategic goals: The Chiesi NEXThaler® supply contract was expanded; the Company obtained regulatory approval and launched its first auto-injector for Dr Reddy's; the Company was awarded a major multi-year exclusive supply contract for DEV610; the Company was awarded its first commercial drug handling licence for Voke inhaler; the Atlas cartridge manufacturing line was completed and is now operational and the PatchPump® development and contract from Steadymed was awarded. The Committee assessed performance against these metrics and determined that 100% of the personal portion of the cash element and 58% of the deferred share element would be paid to the CEO and 90% of the personal portion of the cash element and 57% of the deferred share element to the CFO.

Overall, the Committee determined that 70% of the maximum cash bonus opportunity would be paid to the CEO and 68% of the maximum cash bonus opportunity would be paid to the CFO.

Annual bonus targets have not been disclosed as they are considered by the Board to be commercially sensitive on the basis that they could give away details of our budgeting and our strategic goals to competitors.

The total bonuses awarded to executive directors were therefore as follows:

RoleTotal bonusCash elementDeferred
share element
(deferred until
June 2017)
CEO£416,500£295,570£120,930
CFO£194,198£139,998£54,200

In respect of FY2013, the CEO received a bonus of 125% of base salary and the CFO received a bonus of 92% of base salary.

LTIP Awards

2011 Awards Vesting Based on Performance to FY2014

LTIP awards granted in 2011 were subject to TSR performance compared to the FTSE Small Cap, excluding investment trusts, finance, property and insurance companies. 25% of the award vested for TSR equal to mean annualised TSR of the comparator group with 100% vesting if TSR was greater than the lower of the mean annualised TSR of the comparator TSR group +7% and the upper quartile TSR of the Group.

TSR performance was assessed over the period 1 May 2011 to 30 April 2014. Consort Medical's TSR increased by 25.08% per annum over this period. This performance exceeded the mean annualised TSR of the comparator group by more than 7% per annum and therefore this award vested in full. The CEO's award consists of 76,176 (70,169 initial award plus 6,007 accrued dividends). For the purpose of the single figure table the award has been valued based on the three month average share price from 1 February 2014 to 30 April 2014 of £9.7524.

2010 Awards Vesting Based on Performance to FY2013

TSR performance targets for awards granted in 2010 were met in full and therefore 100% of shares vested based on performance from 1 May 2010 to 30 April 2013. 2010 LTIP Awards were granted on two dates with the second portion being granted in conjunction with a linked award under the CSOP. For the purpose of the single figure 95,935 (86,900 shares plus 9,035 dividend shares) have been valued on the date of vesting of 2 August 2013 based on a share price on that date of £8.295. The second portion of the LTIP awards and the linked CSOP award vested on 20 September 2013. Jonathan Glenn had an economic interest in 7,422 shares (6,726 shares plus 696 dividend equivalents) through LTIP and CSOP shares. These have been valued based on the share price on the date of vesting of £8.425.

Richard Cotton joined the Company on 25 June 2012. As such, no LTIP awards granted to him vested in either FY2013 or FY2014.

Share Awards Granted During FY2014

This section sets out details of the share awards made to the Executive Directors during FY2014:

Awards Granted Under the LTIP

Type of awardDate of GrantNumber of
shares granted
Face value*
(£)
Face value
(% of salary)
Threshold
vesting (% of
face value)
Performance period
TSREPS
Jonathan GlennLTIP
Nil cost options
19/06/201351,974£407,996100%25%19 June 2013 to
18 June 2016
1 May 2013 to
30 April 2016
Richard CottonLTIP
Nil cost options
19/06/201333,757£264,992100%25%19 June 2013 to
18 June 2016
1 May 2013 to
30 April 2016

* Face value calculated using the average price of the three days prior to the date of grant of £7.85 (14 June, 17 June and 18 June).

During the year the Committee consulted with shareholders regarding the introduction of an EPS performance condition for LTIP awards to ensure that management continue to be focused on improving earnings. 2013 LTIP awards are therefore subject 50% to TSR performance compared to the FTSE Small Cap, excluding investment trusts, finance, property and insurance companies and 50% subject to earnings per share performance.

Relative TSR performanceVesting
schedule
(% of element)
Company TSR less than mean annualised comparator TSR0%
Company TSR equal to mean annualised comparator TSR25%
Company TSR greater than the lower of:
Mean annualised comparator TSR +7%; and
upper quartile annualised comparator TSR
100%
EPS growth (aggregate performance over the
three years from 1 May 2014 to 30 April 2017)
Vesting
schedule (% of
element)
Less than 138p0%
138p25%
160p100%

Awards Granted Under the Deferred Bonus Plan

In June 2013 the following awards were made under the deferred bonus plan. These awards were granted based on performance delivered during FY2013.

Type of awardDate of GrantNumber of
shares granted
Face value*
(£)
Face value
(% of salary)
Jonathan GlennDeferred shares19/06/201323,187182,01845%
Richard CottonDeferred shares19/06/20139,06571,16032%

* Face value calculated using the average price of the three days prior to the date of grant of £7.85 (14 June, 17 June and 18 June).

Deferred share awards are not subject to any further performance conditions and vest on 19 June 2016.

Scheme Interests

The table below provides details of outstanding awards under share incentive plans:

Date of grantPlan
shares at
01/05/13
Awarded
during
period
Exercised
during
period
Lapsed
during
period
Total Plan
shares held
at 30/04/14
Market
price at
date of
grant
Earliest
date of
exercise
Latest date of
Exercise
Jonathan Glenn
LTIP02/08/1086,9009,035(95,935)£3.855August 2013
20/09/106,726*696(4,219)(3,203)£4.460September 2013
01/08/1170,16970,169£5.615August 2014September 2014
19/06/1263,44663,446£6.210June 2015July 2015
19/06/1351,97451,974£7.850June 2016July 2016
CSOP20/09/106,726(6,726)£4.460September 2013October 2013
Deferred bonus shares01/08/1122,20622,206£5.615June 2014July 2014
19/06/1231,13931,139£6.210June 2015July 2015
19/06/1323,18723,187£7.850June 2016July 2016
Richard Cotton
LTIP25/06/1235,98735,987£6.530June 2015August 2015
25/06/124,594*4,594£6.530June 2015August 2016
19/06/1333,75733,757£7.850June 2016July 2016
CSOP25/06/124,5944,594£6.530June 2015August 2016
Deferred bonus shares19/06/139,0659,065£7.850June 2016July 2016

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

None of the plan shares held at the year end have vested.

LTIP and CSOP awards are all subject to performance conditions.

At 30 April 2014 there were 425,843 shares in the Company's share ownership trust (2013: 511,378).

Statement of Directors' Shareholding and Share Interests

Executive directors are expected to accumulate a shareholding equivalent to one times base salary over a five-year period and to maintain this level of shareholding. The vesting of awards from the Company's various equity related incentive arrangements can provide a means to develop this shareholding. Only ordinary shares that are beneficially held by the executive director (or their spouses, civil partners, children and step children) count towards the shareholding guideline.

Number of shares counting towards shareholding guidelinesValue of shares
counting towards
shareholding
guidelines1
Shareholding guidelineShareholding guideline met
Jonathan Glenn51,367£453,057
108% of salary
100% of base salaryYes
Richard Cotton14,454£127,484
47% of salary
100% of base salaryRichard joined the Company on 25 June 2012 and has 5 years (i.e. to June 2017 to build up his shareholding).

1Calculated based on the share price on 30 April 2014 of £8.82.

The beneficial interests of the directors on 30 April 2014 (including beneficial interests of their spouses, civil partners, children and step children) in the ordinary shares of the Company are shown below:

SharesPerformance
shares1
SAYE2CSOP3Deferred
Bonus shares4
Total
2014201320142013201420132014201320142013
Jonathan Glenn51,36717,393185,589227,2411,2821,2826,72676,53253,345314,770
Richard Cotton14,45414,28074,33840,5811,2094,5944,5949,065103,660
  1. PSP awards remain subject to performance.
  2. SAYE is the Company's Save As You Earn employee share option scheme. These options are not subject to performance conditions. This is an all-employee share scheme governed by specific tax legislation.
  3. CSOP linked awards are market value options and they are subject to the same performance measures as the PSP.
  4. Deferred bonus shares are subject to continued employment only.

Between 30 April 2014 and 16 June 2014 Jonathan Glenn and Richard Cotton acquired 34 partnership shares through payroll deductions under the all-employee Share Incentive Plan. There were no other changes in share interests.

The following information is unaudited:

Change in Remuneration of the Chief Executive between FY2013 and FY2014

The table below illustrates the percentage change in salary, benefits and annual bonus for the Chief Executive compared to other senior executives and all Group employees between FY2013 and FY2014. Information for senior executives and all Group employees is shown on an average basis.

% change in
base salary
% change in
benefits*
% change in
annual bonus
Chief Executive2.9%1.9%(17.1%)
All Group employees3.0%1.0%(10.0%)

* The difference in benefits increase is fuel card related only.

Historic TSR Performance and the Remuneration Outcomes for the Chief Executive

The graph below compares the TSR of Consort Medical against the FTSE Healthcare Sector and the FTSE Small Cap for a five-year period. The FTSE Healthcare Sector has been chosen due to sector relevance, whilst the FTSE Small Cap has been chosen so as to provide a wider market comparator constituting companies of an appropriate size.

The table below the chart illustrates the Chief Executive single figure for total remuneration, annual bonus payout and PSP vesting as a percentage of maximum opportunity for the same five year period.

Tsr chart

The chart below illustrates the Chief Executive single figure for total remuneration, annual bonus payout and PSP vesting as a percentage of maximum opportunity for the same five year period.

FY2010FY2011FY2012FY2013FY2014
Chief Executive single figure of remuneration7338721,0411,8611,676
Annual bonus payout(% of maximum)100%79%96%83%67%
LTIP vesting(% of maximum)0%0%0%100%100%

Relative Importance of Spend on Pay

The table below illustrates the year on year change in total remuneration compared to distributions to shareholders and profit before tax for FY2014 and FY2013.

Distributions
to shareholders
Total
employee pay
PBT before
special items
FY2014£5.780m£28.293m£17.527m
FY2013£5.500m£27.290m£15.916m
% change5.1%3.7%10.1%

Total employee pay includes wages and salaries, social security costs, pension costs and share-based payments for employees in continuing operations. Further details are provided in note 4 to the accounts on page 66 for FY2013 and note 4 for FY2014. Staff costs increased by £1.0m to £28.3m in FY2014 (FY2013: £27.3m) reflecting 3.7% increase. After stripping out the impact of the technical accounting requirements in respect of share-based payments and elements of the defined benefit pension charge, underlying wages and salaries and related social security costs decreased by 0.1%.

For FY2013, distributions to shareholders included an aggregate dividend of £2,016,000 paid on 15 February 2013 and an aggregate dividend of £3,659,000 paid on 25 October 2013. For FY2014, distributions to shareholders includes an aggregate dividend of £2,120,000 paid on 14 February 2014. It is proposed that a dividend of 13.35p per share be paid on 24 October 2014. Further details are provided in note 12 to the accounts for FY2013 and FY2014.

PBT before special items has been shown in the table above as it forms the basis on which the cash portion of the bonus is calculated.

Remuneration of Non-Executive Directors

Non-Executive Director Fees for FY2015

For FY2015, the fees for the Chairman and Non-Executive Directors will remain at the level set with effect from 1 May 2013. Fee levels are set out in the table below:

RoleFees
Chairman£130,000
Basic non-executive director fee£38,500
Additional fees:
Additional fee for Senior Independent Director£7,500
Additional fee for Chairman of the Audit Committee£7,500
Additional fee for Chairman of the Remuneration Committee£7,500
Additional fee for Chairman of the Corporate Responsibility Committee£5,000

The following information is audited:

Fees Paid to Non-Executive Directors in FY2014

The following table sets out the single figure of remuneration for non-executive directors for FY2014:

Fees paid in
respect of
FY2014
£
Fees paid in
respect of
FY2013
£
Dr Peter Fellner (Chairman)130,000125,000
Steve Crummett46,00039,000
Dr Lynn Drummond38,50044,000
Dr William Jenkins53,50045,000
Ian Nicholson43,50036,000
Chris Banks15,000
Jim Dick14,000

Mr Banks and Mr Dick retired as non-executive directors on 30 August 2012.

Shares held by Non-Executive Directors at 30 April 2014

The beneficial interest of non-executive directors on 30 April 2014 (including the benefits interest of their spouses, civil partners, children and step children) in the ordinary shares of the Company are shown below:

Shares owned
outright at
30 April 2014
Shares owned
outright at
30 April 2013
Dr Peter Fellner
(Chairman)
4,0004,000
Steve Crummett
Dr Lynn Drummond
Dr William Jenkins1,0001,000
Ian Nicholson

There have been no changes in share interests between 30 April 2014 and 16 June 2014.

None of the directors had a material interest at any time during FY2014 in any contract of significance, other than a service contract, with the Company or any of its subsidiaries.

Non-executive directors are not paid in shares nor are there formal shareholding guidelines, however, they are encouraged to hold shares in the Company.

The following information is unaudited:

The Remuneration Committee

Members

The Remuneration Committee comprises the following independent non-executive directors:

NameRemuneration Committee position
Dr William JenkinsChairman (since 1 March 2013)
Steve CrummettMember (since 6 November 2012)

Ian Nicholson stepped down from the Remuneration Committee on 14 February 2014.

Advisers

The Chairman, the Chief Executive, the HR Director, and the Company Secretary were invited to attend some or all of the meetings to provide advice to the Committee. They did not attend when any matter related to their own remuneration was discussed.

During the period the Committee has received advice from its independent remuneration advisors, Deloitte LLP ("Deloitte"). Deloitte were appointed by the Committee. Deloitte provided advice to the Committee in relation to developments in market practice, the impact of the new reporting regulations and TSR calculations for the purpose of LTIP vesting. Deloitte also provided advice to management in relation to their work in supporting the Committee, principally in relation to the Directors' Remuneration Report. The Remuneration Committee considers that the advice provided by Deloitte is objective and independent. Deloitte is a founding member of the Remuneration Consultants Group and adheres to its Code in relation to executive remuneration consulting in the UK. The Committee is comfortable that the Deloitte LLP engagement partner and team, that provide remuneration advice to the Committee, do not have connections with Consort Medical that may impair their independence. The Committee reviewed the potential for conflicts of interest and judged that there were appropriate safeguards against such conflicts.

Separate teams within Deloitte also provided the Company with advice on the valuation of share awards for IFRS2 purposes and in connection with the Company's risks and controls. Total fees for advice provided to the Committee during the year under review amounted to £34,250.

The Committee also received advice in relation to its share schemes from the Company's lawyers, Eversheds LLP.

Role

The Remuneration Committee's principal role is to determine and make recommendations to the Board regarding the 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 were reviewed during the year and are published on the Company's website.

Activities During the Year

The Remuneration Committee met five times during the year. Details of attendance at the meetings are shown in the table in the Corporate Governance. The key matters discussed at these meetings were:

  • Remuneration of executive directors and senior executives;
  • Determining bonus payouts and setting bonus targets;
  • Determining LTIP award vesting and consideration of LTIP performance criteria;
  • Granting of share awards and setting performance targets for awards;
  • Non-executive directors' fees;
  • Committee terms of reference;
  • Directors' Remuneration Report.

In discussing the above matters, the Remuneration Committee considered the remuneration policies of the Company as a whole.

Shareholder Voting

The table below sets out the results of the vote on the 2013 Remuneration Report at the 2013 AGM held on 2 September 2013:

Votes%
Votes in favour18,870,46196.03
Votes against780,9103.97
Total votes19,651,371100.00

1,885,224 votes were withheld.

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

Dr William Jenkins
Chairman of the Remuneration Committee
16 June 2014