Remuneration Policy Report

The following sets out our Directors' Remuneration Policy (the "Policy"). This Policy will be put forward for shareholder approval at the 2014 AGM in accordance with section 439A of the Companies Act 2006. This Policy will apply to payments made from the AGM on 4 September 2014.

The Annual Remuneration Report includes further details on how this Policy will be operated for the FY2015 financial year.

Consort Medical's Executive Remuneration Principles

Our key principle is to provide remuneration packages for executive directors which:

  • are sufficiently attractive to enable the Company to recruit and retain talented individuals with the necessary skills and expertise to support the development of Consort Medical and grow long-term value for our shareholders;
  • contain levels of performance related variable pay such that they are aligned with the long-term interests of our shareholders; and
  • provide appropriate motivation for executives to execute the strategy agreed by the Board and to develop and grow the Company and shareholder value, whilst taking account of internal and external risks.

The following outlines the Company's remuneration policy which the Committee believes achieves this objective. The key features are:

  • providing a remuneration opportunity that is market competitive compared to relevant peers reflecting individuals' experience, performance and responsibilities;
  • operating of an annual bonus, with a long-term deferred share element to align interests with shareholders over the longer term, where annual performance targets are aligned with business strategy;
  • offering participation in a long-term incentive plan which rewards executives for delivering shareholder value creation; and
  • expecting executive directors to build up and maintain a holding of Company shares thus promoting alignment of directors' interests with those of shareholders.

Policy table

ElementPurpose and link to strategyOperationMaximum opportunityPerformance measures
Base salaryThe core element of a competitive remuneration package.
  • The Committee sets base salary taking into account:
  • The individual's experience, responsibility and performance;
  • Salary levels at relevant comparators and at companies of a similar size and complexity;
  • Remuneration of different groups of employees within the Company.
  • Where appropriate, it is the policy of the Committee to pay upper quartile base salaries where the incumbent is of a proven calibre, along with demonstrable and sustained success in the role.
  • Base salary is normally reviewed annually with changes effective from 1 August although salaries may be reviewed more frequently or at different times of the year if the Committee determines this is appropriate.
  • In determining salary increases the Committee considers the factors outlined in the 'operation' column. While there is no maximum salary level, salary increases will normally be in-line with the typical level of increase awarded to other employees in the Group.
  • However, the Committee retains the discretion to make increases above this level in certain circumstances, for example, but not limited to, an increase in the individual's scope of responsibilities; in the case of new executive directors who are positioned on a lower initial salary whilst they gain experience in the role, where the Company has significantly increased in size, or where the Committee considers that the current salary does not reflect the Company's policy of upper quartile salary positioning for experienced executives.

Salaries with effect from 1 August 2014 are:
  • CEO (Jonathan Glenn) — £434,700
  • CFO (Richard Cotton) — £282,500
None
Annual Incentive Scheme
  • To motivate and reward superior performance measured against annual financial, strategic and operational goals of the Company which reflects critical success factors.
  • The deferred share award element of the annual bonus ensures that part of the value of payments earned remains tied to the Company's share price for a three year period, thus embedding long-term alignment with the interests of our shareholders within the annual bonus plan.
  • The Committee considers that when taken together, the cash and deferred share elements strengthen the alignment between shareholders' and executive directors' interests and encourages a longer-term focus on shareholder value.
  • The Committee determines the maximum incentive opportunity taking into account the responsibilities of the role and market practice at comparable companies.
  • Performance is assessed over a financial year.
  • The Committee determines the level of bonus paid at its discretion taking into account performance against targets, the underlying performance of the business and executive directors' management of, and performance in, all of the business issues that arose during the year.

Deferred share element:
  • The deferred share element may be structured as a nil-cost option or a conditional award of shares. Awards structured as nil-cost options may be exercised within 40 days of vesting.
  • The deferred share awards will normally vest three years from award (unless the Committee determines an alternative vesting period is appropriate).
  • The vesting of deferred share awards will normally be subject to continued employment.
  • Dividend equivalents may be awarded during the vesting period. Dividend equivalents may be determined by the Committee on a cumulative basis and may assume reinvestment of dividends in the Company's shares.
  • For awards granted on or after 1 June 2013, in the event of a material misstatement in Consort Medical's financial results the Committee may, at its discretion apply malus to outstanding awards. The Committee may reduce the number of outstanding shares to reflect the number of shares that would have vested if the misstatement had not occurred.
  • The Committee may adjust and amend the terms of the deferred share awards in accordance with the Consort Medical plc Deferred Bonus Plan 2010.
  • CEO — Maximum opportunity of up to 150% of base salary (100% cash, 50% deferred into shares)
  • CFO — Maximum opportunity of up to 110% of base salary (75% cash, 35% deferred into shares)
  • For the cash element of the bonus, payments starts being earned for entry level performance from 25% of maximum, if target levels of performance are delivered with the full incentive being paid for delivering maximum levels of performance.
  • For the deferred share element, the Committee determines the approach level of pay taking into account performance in the round.
Cash element:
  • The cash element of the bonuses is determined based on performance against financial performance metrics and personal objectives.
  • Currently 80% of the bonus is based on financial measures with 20% based on individual personal objectives. The Committee may adjust this weighting in future years to ensure executives are appropriately incentivised to deliver key strategic goals. In any year financial performance metrics will always account for at least 70% of the bonus.
  • The Committee sets targets each year to ensure that they are appropriately stretching in the context of the business plan.

Deferred share element:
  • The award of the deferred shares is subject to the Committee's assessment of performance against the strategic goals of the Group. The deferred share element will not be awarded unless the Committee is satisfied that a minimum level of financial performance has been achieved.
  • The strategic measures for the bonus are assessed each year and represent areas that are important for the long-term success of the Company including but not limited to matters such as growth, new value creation, broadening the depth and range of products portfolios, innovation and diversification into adjacent markets while keeping a tight control on costs.

For further details of metrics for the FY2015 annual bonus please see Annual Remuneration Report.
Long-term Incentive Plan
  • To reinforce the alignment of the interest of executive directors and shareholders.
  • To motivate long-term business performance and shareholder value creation.
  • To help retain our critical executive talent.
  • Award of shares which normally vest based on performance over a period of three years or such other period as the Committee may determine.
  • Under the LTIP rules awards may be granted in the form of performance share awards (a conditional award of shares or a nil cost option) or a share appreciation right (share settled market value options).
  • The Committee may grant awards as "Approved LTIP" awards (granting an LTIP award in conjunction with an HMRC approved Company Share Option Plan award) to enable the director and the Company to benefit from HMRC-approved tax treatment on part of their award without increasing the pre-tax value delivered to participants. When a director has been granted an option under the 2010 Share Option Plan, a director may at the same time receive an award of a set value of shares to fund the exercise price for that option or the value of an award on vesting may be reduced if the HMRC-approved option is exercised.
  • The Committee shall determine the extent to which the performance measures have been met, which may include making adjustments to the metrics used to assess the performance conditions to reflect any relevant factors.
  • Dividend equivalents may be awarded during the vesting period. Dividend equivalents may be determined by the Committee on a cumulative basis and may assume reinvestment of dividends in the Company's shares.
  • For awards granted on or after 1 June 2013, in the event of a material misstatement in Consort Medical's financial results the Committee may at its discretion apply malus to outstanding awards.
  • The Committee may adjust and amend the terms of awards in accordance with the Consort Medical 2005 Long-term Incentive Plan rules. The rules were approved by shareholders in 2005.
  • The maximum award is 100% of salary.
  • Where awards are in the form of share appreciation rights the Committee will determine an appropriate value.
  • Any shares subject to an HMRC-approved option do not count towards these limits.
  • Awards vest based on relative total shareholder return and earnings performance measures. These measures will normally be equally weighted but the Committee may determine that an alternative weighting is appropriate. In any case, either measure will have no less than a 25% weighting.
  • For threshold levels of performance 25% of the award vests, increasing to 100% of the award for maximum performance. There is straight-line vest of awards between these points.
  • The Committee determines targets each year to ensure that targets are stretching and represent value creation for shareholders while remaining motivational for management.
  • If events happen which cause the Committee to consider that a performance condition has become unfair or impractical, it may amend that performance condition provided that the amended performance condition is not more difficult to satisfy than the original performance condition.
  • For share awards, in the event of a variation of the Company's share capital or a demerger, delisting, special dividend, rights issue or other event, which may, in the Remuneration Committee's opinion, affect the current or future value of shares, the number of shares subject to an award and/or any performance condition attached to awards, may be adjusted.
Pension
  • Part of a competitive package by providing a retirement benefit.
  • The Company provides executive directors with a Group Personal Pension Plan. To the extent that the aggregate of the employee and employer contributions exceed the annual allowance, a taxable cash supplement is provided.
  • The Committee may determine that alternative pension provisions will operate for new appointments to the Board. When determining pension arrangements for new appointments the Board will give regard to the cost of the arrangements, market practice and the pension arrangements received elsewhere in the Group.
  • The Company's maximum contribution/cash supplement for the executive directors is as follows:
  • CEO — 20% of base salary
  • CFO — 17.5% of base salary
None
Benefits
  • Part of a competitive package.
  • Benefit policy is to provide an appropriate level of benefit taking into account market practice at similar sized companies and the level of benefits provided for other employees in the Group.
  • Core benefits — Benefits currently include car allowance, fuel card, life assurance, private medical insurance (for the executive and his family) and personal permanent health insurance.
  • All-employee share plans — Executives are eligible to participate in the Company's all-employee share schemes on the same terms as UK colleagues up to HMRC-approved limits. The Company currently operates the Savings Related Share Option Plan and Share Incentive Plan.
  • Relocation policy – In the event that an executive were required to relocate from their home location to undertake their role, the Committee may provide an additional reasonable level of benefits to reflect the relevant circumstances (on a one-off or ongoing basis).
  • Benefits are reviewed by the Committee in the context of market practice from time to time and the Committee may introduce or remove particular benefits if it is considered appropriate to do so.
  • The cost of benefit provision will depend on the cost to the Company of providing individual items and the individual's circumstances and therefore there is no maximum value.
None

The Company also operates a shareholding guideline — details of this policy can be found in the Annual Remuneration Report.

Malus may apply where stated in the above table. Other elements of remuneration are not subject to clawback or malus.

Prior to 2013 unvested awards under the 2005 LTIP were subject to a TSR performance condition only.

The Committee reserves the right to make any remuneration payments and payments for loss of office (including the exercise of any discretions available to it in connection with such payments) notwithstanding that they are not line with the Policy set out above where the terms of the payment were agreed (i) before the policy came into effect or (ii) at a time when the relevant individual was not a director of the Company and, in the opinion of the Committee, the payment was not in consideration for the individual becoming a director of the Company. For these purposes "payments" includes the Committee satisfying awards of variable remuneration and an award over shares is "agreed" at the time the award is granted.

The Committee may however make minor amendments to the policy set out above (for regulatory, exchange control, tax or administrative purposes or to take account of a change in legislation) without obtaining shareholder approval for that amendment.

Information Supporting the Policy Table

Selection of Performance Measures

The annual bonus contains two elements — the cash element and the deferred share element. The cash portion is based on financial performance and personal objectives for the individual executive directors. The Committee selected these measures to ensure continued focus on delivery of financial performance compared to budget and the achievement of key personal goals which are considered important to drive the performance of the business in the long-term. The level of a deferred share award is based on the achievement of key strategic milestones. In a business such as ours it is important that there is a constant focus on innovation, development and meeting strategic objectives today which will deliver value for shareholders in the future.

The Committee considers that the combination of measures used for the cash and deferred share element provides an appropriate balance of focus on financial and wider business and strategic goals.

The LTIP is based on total shareholder return and earnings performance. Total shareholder return measures share price improvement and dividend returns and therefore is a direct measure of the value we have returned to shareholders compared to key peers. The earnings measures incentivise management to grow earnings for shareholders over the long-term.

Remuneration Arrangements throughout the Group

When assessing remuneration, the Committee takes care to ensure that individuals are not overpaid in relation to their roles and responsibilities, and that packages for senior individuals are appropriate in comparison to the remuneration of other employees within the Company. Remuneration policy throughout the organisation is based on the same principles — that reward should be sufficient to retain and motivate individuals of a sufficient calibre without paying more than is necessary and should encourage individuals to deliver their own objectives and ultimately create value for shareholders. At Consort Medical our employees have a variety of different roles and responsibilities and therefore the reward opportunity and structure of reward necessarily is different to reflect this.

In addition to the executive directors, there are three senior executives who are members of the Group Executive Committee, who participate in the same reward structure. The top 100 people in the organisation all participate in the senior executive bonus plan with the top 20 participating in the LTIP on the same basis as the executive directors. All employees are eligible to earn a bonus each year which can either be taken in cash or in shares through the Share Incentive Plan giving all employees the opportunity to be shareholders. We also offer all employees the opportunity to save and buy shares through the Sharesave Plan.

Remuneration Policy for Non-Executive Directors

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.

Approach to setting feesBasis of feesOther items
  • The fees of the non-executive directors are agreed by the Board.
  • The fee for the Chairman is agreed by the Committee.
  • Fees are normally reviewed every two years but may be reviewed more or less frequently if it is considered appropriate.
  • Fees are set taking into account the level of responsibility, relevant experience and specialist knowledge of each non-executive director and fees at other companies of a similar size and complexity.
  • Non-executive directors are paid a basic fee for membership of the Board with additional fees being paid for being the Senior Independent Director or Chairman of a Board committee to take into account the additional responsibilities and workload. Additional fees may also be paid for other Board responsibilities or roles if this is considered appropriate.
  • The non-executive Chairman receives an all-inclusive fee for the role.
  • Fees are paid in cash.
  • Current fees with effect from 1 May 2013 as are follows:
  • Chairman's fees – £130,000
  • Basic non-executive director fees – £38,500

Supplements:
  • Senior Independent director – £7,500
  • Audit Committee Chairman – £7,500
  • Remuneration Committee Chairman – £7,500
  • Corporate Responsibility Chairman – £5,000
  • Annual bonuses or share-based incentives are not awarded to non-executive directors, but they are encouraged to hold shares in the Company.
  • Non-executive directors do not currently receive any benefits. However, benefits may be provided in the future if, in the view of the Board (for non-executive directors or the Committee for the Chairman), this is considered appropriate.
  • Travel and other reasonable expenses (including fees incurred in obtaining professional advice in the furtherance of their duties) incurred in the course of performing their duties are reimbursed to non-executive directors.
  • Non-executive directors are included on the directors' and officers' indemnity insurance.

Remuneration Policy for New Hires

When determining the remuneration package for a newly-appointed executive director, the Committee would seek to apply the following principles:

  • The package should be market competitive to facilitate the recruitment of individuals of sufficient calibre to lead the business. At the same time, the Committee would intend to pay no more than it believes is necessary to secure the required talent.
  • The structure of the ongoing remuneration package would normally include the components set out in the policy table for executive directors.
  • In addition, the Committee has discretion to include any other remuneration component or award which it feels is appropriate taking into account the specific commercial circumstances, and subject to the limit on variable remuneration set out below. The key terms and rationale for any such component would be appropriately disclosed.
  • Where an individual forfeits outstanding variable pay opportunities or contractual rights at a previous employer as a result of appointment, the Committee may offer compensatory payments or awards, in such form as the Committee considers appropriate taking into account all relevant factors including the form of awards, expected value and vesting timeframe of forfeited opportunities. When determining such 'buy-out' the guiding principle would be that awards would generally be on a 'like for like' basis unless not appropriate.
  • The maximum level of variable remuneration which may be awarded (excluding any compensatory payments or awards referred to above) is 250% of salary (this reflects the current maximum opportunity for the CEO i.e. a bonus of 150% of base salary and an LTIP award of 100% of base salary). This maximum level of variable remuneration includes awards made as part of the ongoing package.
  • Where an executive director is required to relocate from their home location to takeup their role the Committee may provide reasonable assistance with relocation (either via one-off or ongoing payments or benefits).
  • In the event that an internal candidate was promoted to the Board, legacy terms and conditions would normally be honoured, including pension entitlements and any outstanding incentive awards.

To facilitate buy-out awards outlined above, in the event of recruitment, the Committee may grant awards to a new executive director under the Listing Rule 9.4.2 which allows for the granting of awards, to facilitate, in unusual circumstances, the recruitment of an executive director, without seeking prior shareholder approval or under any other appropriate Company incentive plan.

The remuneration package for a newly appointed non-executive director would normally be in line with the structure set out in the policy table for non-executive directors. Remuneration for new hires may be paid in the form of cash or shares.

Remuneration Outcomes in Different Performance Scenarios

The remuneration package at Consort Medical is structured so that the majority of the package is related to the delivery of performance over the short and long-term to ensure that reward is aligned with shareholder value creation.

The charts below show hypothetical values of the remuneration package for executive directors under three assumed performance scenarios:

CEO – jONATHAN gLENN

CFO – RICHARD COTTON

CEOCFO
Annual Bonus150%110%
Maximum award opportunities
% of salary
PSP100%100%
MinimumNo annual incentive pay-out
No vesting under the LTIP
Mid performance50% annual incentive pay-out (75% for the CEO, 60% for the CFO)
25% vesting under the LTIP (25% of salary)
Maximum performance100% annual incentive pay-out (150% for the CEO, 110% for the CFO)
100% LTIP vesting (100% of salary)

No share price growth has been assumed. Potential benefits under all employee share schemes and dividend equivalents have not been included.

Fixed pay is comprised of the following:

Salary
(Salary with effect
from 1 August 2014)
Benefits
(Paid in FY2014)
Pension
(Based on salary with effect
from 1 August 2014)
Total
Fixed Pay
CEO (Jonathan Glenn)£434,700£16,000£86,940£537,640
CFO (Richard Cotton)£282,500£14,000£49,438£345,938

Executive Director Service Contracts and Policy on Payment for Loss of Office

When determining leaving arrangements for an executive director the Committee takes into account any contractual agreements including the provisions of any incentive arrangements, typical market practice and the performance and conduct of the individual.

The service agreements are available to shareholders to view on request from the Company Secretary.

Notice periodExecutive directors have service contracts with the Company which can be terminated on 12 months' notice by the Company and 6 months' notice by the executive directors.
Jonathan Glenn was appointed on 26 July 2006 and Richard Cotton was appointed on 25 June 2012.
Payment in lieu of noticeThe Company may at its discretion terminate any executive director's contract by making a payment in lieu of notice equal to the base salary, benefits which would have been received during the notice period. The current executive directors are also entitled to an amount in respect of bonus for their notice period (or remainder of the notice period). The Committee has the discretion to determine the level of such bonus. Recently when directors left the business the Committee determined that no bonus should be due for the notice period. The Committee's policy going forward is that when new contracts are agreed with new executive directors that any entitlement to bonus as part of any payment in lieu of notice will be removed. Executive directors are also entitled to a payment in respect of any accrued but untaken holiday at the time of termination of employment. If such a payment were to be made to Mr Cotton, it may be made in instalments over the notice period.
Annual incentivesThe executive director may, at the discretion of the Committee, remain eligible to receive an annual bonus for the financial year in which they ceased employment. Such Annual Incentive Scheme awards will be determined by the Committee taking into account time in employment and performance.
2010 Deferred bonus planDeath
Awards shall vest at the time of death and where awards are in the form of options they may be exercised for a period of 12 months from death.
"Good leaver" by reason of injury, ill-health or disability, redundancy, retirement, the Company for which the participant works leaving the Group and any other reasons determined by the Committee
Awards shall vest in full on the normal vesting date unless the Committee determines that awards should vest on the individual's cessation of employment. Where awards are in the form of nil-cost options they may be exercised during the normal exercise window or, where the Committee has determined that awards should vest on the participant's date of cessation of employment for a period of six months from cessation of employment.
"Good leaver" by reason of the participant's employing business leaving the Group
Awards will vest in full at the time of the business leaving the Group. Awards in the form of options may be exercised for up to six months from the relevant business leaving the Group.
Leavers in other circumstances
Awards will normally lapse.
2005 LTIPDeath
Performance share awards shall vest at the date of death or at the normal vesting date (at the choice of the personal representatives of a deceased participant). Awards will be pro-rated to the date of death and to the extent to which the performance condition has been met.
For awards in the form of stock appreciation rights, personal representatives shall have 12 months from vesting to exercise awards.
"Good leaver" by reason of injury, ill-health or disability, redundancy, retirement, the sale of the participant's employing company and business out of the Group and any other reason determined by the Committee
Performance share awards shall vest on the normal vesting date and shall be pro-rated for the period of time elapsed up to the participant's cessation of employment and the extent to which the performance condition has been met.
For awards in the form of share appreciation rights, participants shall have six months from the normal vesting date to exercise awards which vest as a result of the individual's cessation of employment. Any share appreciation rights which have already vested may be exercised within six months of the individual's cessation of employment.
Leavers in other circumstances
Awards will normally lapse.
2010 CSOP
HMRC-approved plan
Where options vest before the end of any relevant performance period, the Committee may assess any relevant performance condition on such modified basis as the Committee may determine.
Death
Options will become exercisable to the extent that the performance conditions have been met for a period of 12 months following death.
"Good leaver" by reason of injury, ill-health or disability, redundancy, retirement, the Company for which the participant works leaving the Group or any other reasons determined by the Committee
Options which have not vested at the time of cessation vest on the normal vesting date to the extent that the performance conditions have been met. Options which have already vested at the time of cessation may be exercised for six months following cessation of employment.
"Good leaver" by reason of the participant's employing business leaving the Group
The Committee may notify participants when it becomes aware that a relevant business may be leaving the Group. If participants are given at least 14 days' notice of the transfer, options vest to the extent that the performance conditions have been met and may be exercised until the completion of the transfer. If such notice is not given, options vest on the normal vesting date to the extent that the performance conditions have been met and may be exercised for a period of 12 months thereafter.
Leavers in other circumstances
Options will normally lapse.

Change of Control

In the event of a change of control or a voluntary winding-up of the Company:

  1. Awards granted under the 2005 PSP will vest subject to the achievement of any relevant performance conditions (which may be adjusted to reflect the reduced performance period) and if the Committee determines it appropriate, time pro-rating. However, in an internal reorganisation of the Group share awards may be "rolled over" into awards over shares in the acquiring company.
  2. Awards granted under the 2010 deferred bonus plan will vest.
  3. Options granted under the 2010 Share Option Plan will vest and may be exercised within six months of the takeover taking place or the relevant resolution being passed. However, in an internal reorganisation of the Group, options may be "rolled over" into options over shares in the acquiring company.

In the event of a demerger, the Committee may determine that awards under the 2010 Deferred Bonus Plan vest, and options granted under the 2010 Share Option Plan may be exercised early.

Non-Executive Director Letters of Appointment

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 services are at the direction of the shareholders.

All non-executive directors submit themselves for election at the Annual General Meeting following their appointment and at subsequent intervals of no more than three years.

Non-executive directors are not entitled to any payment in lieu of notice.

The letters of appointment are available for shareholders to view from the Company Secretary upon request.

The table below shows the appointment and expiry dates for the non-executive directors:

NameEffective date
of appointment
Expiry of appointment
P Fellner14 November 200514 November 2014
W Jenkins6 May 20096 May 2015
L Drummond9 February 20118 February 2014
S Crummett13 June 201212 June 2015
I Nicholson13 June 201212 June 2015

Considering Employee Views

The Committee generally considers pay and employment conditions elsewhere in the Group when considering pay for executive directors and senior management. When considering base salary increases, the Committee reviews overall levels of base pay increases offered to other employees in the Group.

The Committee does not consult directly with employees regarding executive directors' remuneration. However, the Company has conducted a survey of the views of employees in respect of their experience of working at Consort Medical including their own reward.

Consulting with Shareholders

The Committee believes that it is very important to maintain open dialogue with shareholders on remuneration matters. Where significant changes are proposed to the executive directors' reward framework, the Committee's policy is to consult with major shareholders (unless not practical).