Annual Review 2009/10

This report sets out the BBC Worldwide remuneration policy and details the remuneration receivable by the members of the current Board of Directors in respect of 2009/10. BBC Worldwide has no statutory requirement to prepare a Directors' Remuneration Report. Nevertheless, on a voluntary basis, the requirements of the UK Companies Act and Schedule 8 of the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 have been taken into account in preparing this report. The BBC Worldwide Remuneration Committee also used as a benchmark the requirements of the Listing Rules.

Letter from the Chairman of the Remuneration Committee

Remuneration Committee

The BBC Worldwide Remuneration Committee was established on 21 January 2010 to determine the remuneration policy for BBC Worldwide following a review of the Group's Corporate Governance structure. It comprises Robert Webb (Chairman) and Zarin Patel, both of whom are Non-executive Directors. During the year under review, Committee members had no personal financial interest in matters to be decided, no potential conflicts of interest arising from their respective roles within or outside the BBC, and no day-to-day involvement in running the business.

The BBC Executive Remuneration Committee has responsibility for setting the remuneration package of BBC Worldwide's Chief Executive Officer, including the review and agreement of base pay, bonus awards, and benefits (including pension arrangements), although John Smith stepped down from the BBC Executive Board on 30 September 2009. His remuneration as CEO of BBC Worldwide is disclosed in the BBC Annual Report and Accounts 2009/10 up to 30 September 2009. The report herein includes his remuneration as CEO of BBC Worldwide for the full financial year.

For the purposes of this report, the term "Committee" refers to the body responsible for determining the remuneration policy for BBC Worldwide. Summary terms of reference can be found in the Governance section of this Review.

Advisers

No Executive Director determines his own remuneration. The Chief Executive Officer, the Chief Financial Officer, the Director of Human Resources, the Company Secretary and the BBC's Director of People and Director of Reward provided assistance to the Committee during the financial year and attended by invitation. In addition, PricewaterhouseCoopers LLP and Deloitte LLP provided independent advice in respect of remuneration strategy and market benchmarking.

Executive Directors

The BBC Worldwide Board was restructured during the year to align it more closely with the 2008 Combined Code; further details of these changes are set out in the Governance Report.

Remuneration policy

The company's policy is to provide remuneration and other benefits to attract, retain and motivate Executive Directors of the experience and calibre required, having regard to commercial organisations with which BBC Worldwide competes for talent on a global level, whilst maintaining cost effectiveness. While BBC Worldwide must be competitive it accepts that it should not lead the market on executive pay in the media sector.

High performance is increasingly incentivised through a mix of short and long term variable awards, designed to reward stretch performance, maximise value to the BBC and retain key staff. The design of these incentive schemes seeks to balance the public purposes of the BBC with a high-performance culture, by incentivising individuals to optimise profits. In the course of 2009/10, the Committee increased the emphasis placed on variable pay, which may now account for up to 41% of total Executive Director compensation.

The charts illustrate the balance between fixed and variable remuneration (excluding pension) for Executive Directors. They also illustrate the mix at both target and maximum performance, over the short and longer term, based on contractual entitlements at 1 April 2010.

 

Target remuneration Average of Executive Directors	Maximum remuneration Average of Executive Directors

Notes to chart

• Target performance assumes target annual bonus and threshold vesting under LTIP
• Maximum performance assumes maximum annual bonus and maximum vesting under LTIP
• LTIP excludes reinvestment opportunity
• Other benefits excludes pensions

Base salary

In determining base pay the Committee takes into account the base pay of the other organisations with which BBC Worldwide competes for talent, the affordability of executive rewards, individual responsibilities and the performance of the executive.

Base salaries are referenced to the median of the market. A Board restructure in the year prompted a benchmarking review of executive salaries, which revealed some shortfall versus median. Against a backdrop of top-quartile performance, base salaries were subsequently adjusted to bring them into line with policy.

The Committee reviews salaries annually. Any change in base salary is usually effective from 1 July.

Annual bonus scheme

A bonus of up to 55% of base pay for which the Chief Executive Officer is eligible is determined by the performance of BBC Worldwide against profit targets. The Chief Financial Officer is eligible for a bonus of up to 40% of base pay, 75% of which is determined by the performance of BBC Worldwide against profit targets whilst 25% is performance driven and assessed against his individual objectives.

Based on strong performance of BBC Worldwide during the year, including profit growth of 36.5%, bonus awards will be paid out in full. An additional payment was made during the year to the CEO in respect of the individual performance element of his 2008/09 bonus.

Up to 2009/10, Executive Directors could voluntarily invest up to 75% of their annual bonus into the Long Term Investment Plan (LTIP) which is then eligible for a matching award based on the performance of the company. Further details are provided in the LTIP section below.

From 2009/10, Directors can commit up to 50% of their annual bonus for three years as part of a new Deferred Bonus Plan. The committed amount will be eligible for a 25% matching award at the end of three years subject to a return on capital employed (ROCE) threshold having been met. For the first award under this new plan, the ROCE hurdle has been set at an annual average of 40% over three years.

Long Term Incentive Plan (LTIP)

The Executive Directors participate in a Long Term Incentive Plan (LTIP) which is a cash incentive plan designed to align remuneration with the strategy of the company.

The maximum payout under the LTIP is 25% of base pay for the Chief Executive Officer and 20% of base pay for the Chief Financial Officer, plus a potential 100% match of any annual bonus deferred from previous years. Awards, including the matching element, made under the scheme are subject to two performance measures: Profit Growth (75% weighting) and Return on Sales Growth (25% weighting), measured over a three-year period and relative to a comparator group of at least 15 other international media companies. The companies are ranked according to their performance. The comparator group is selected for their mix of business, industry and geographical representation. These measures were chosen as they are the most applicable to a group with activities as diverse as BBC Worldwide's, represent the key performance indicators for the business, and support the objectives of BBC Worldwide.

The constituent companies of the comparator group:
Aegis Group plc	Mediaset SpA
Axel Springer AG	Arnoldo Mondadori Editori SpA
British Sky Broadcasting Group plc	M6-Metropole Television SA
Cablevision Systems Corporation	News Corporation
Comcast Corporation	Nippon Television Network Corporation
Dentsu Inc	Pro SiebenSat.1 Media AG
The Walt Disney Company	Pearson plc
Eastman Kodak	Publicis Groupe
Fuji Television Network inc	RCS Mediagroup SpA
Havas Group	SBS Corporation
Informa plc	TF1 Groupe
Interpublic Group	Vivendi SA
ITV plc	WPP Group plc
JCDecaux Group	Yell Group plc

BBC Worldwide must be ranked at least at the median of the comparator group for the target award to vest. Maximum vesting is achieved for a ranking at the upper quartile or above. There is a straight-line vesting scale between each vesting point. The vesting schedule is shown below.

Performance ranking for BBC Worldwide	LTIP payment
Upper quartile or above	20%1 of base salary, and 100% match of deferred bonus
Median2	10% of base salary, and 50%
Below median3	Nothing vests

¹ 25% for the Chief Executive Officer
² Straight line pro-ration applies between each of the vesting points above
³ 50% of the amount of any deferred annual bonus is also forfeited if performance is below the lower quartile

Defined Benefit Schemes

Executive members of the Board are eligible to participate in the BBC Pension Scheme, which provides for pension benefits on a defined benefit basis.

For an employee joining the Pension Scheme before 1 November 2006, the accrual rate is 1/60th of the final pensionable salary for each year of service with pensionable salary being base pay, but not including any bonuses or other payments. For employees in this group the normal pensionable age is 60. Contribution rates for these employees increased from 1 April 2010 to 7.5% (6.75% at 1 April 2009) with a corresponding decrease in employer contributions.

For an employee who joined on or after 1 November 2006 the accrual rate is 1.67% of their pensionable pay for each year of service, adjusted in line with inflation up to retirement. Participating employees contribute 4.0% of their pensionable salary to the Pension Scheme. For employees in this group the normal pensionable age is 65.

John Smith has a normal pensionable age of 60 but may continue in employment to age 65. The normal retirement age for Neil Chugani is 65 as he joined the Pension Scheme after 1 November 2006. As he also joined the Pension Scheme after 31 May 1989 Neil Chugani's earnings are subject to a maximum annual limit (£123,600 per annum for 2009/10) and he is therefore entitled to a cash supplement of 20% of base pay above the annual limit. No maximum annual limit is applied to John Smith, who joined the BBC before 31 May 1989. The Pension Scheme provides for early retirement on medical grounds and life assurance of four times pensionable pay up to a prescribed limit.

Any participating employee who reaches or exceeds the statutory Lifetime Allowance (£1.75m for 2009/10) may opt out of the Pension Scheme and instead receive a cash supplement.

Other benefits

In addition to pension, the other main contractual benefits are a car allowance and private health insurance.

Employment contracts

Employment contracts of Executive Directors have a notice period of a maximum of 12 months, and are subject to earlier termination for cause. No payments are made to Directors on termination other than as contractually required. On termination of their contract, Executive Directors are entitled to one-month pay for each year of continuing service, subject to a 24-month cap.

Dates of appointment to BBC Worldwide Board	Notice period from Company	Notice period from Director
John Smith	18 March 2005	12 months	12 months
Neil Chugani	3 December 2007	12 months	12 months

Outside interests

Where there is no potential for conflict of interest, and with the prior agreement of the Chairman, Executive Directors of the Board may now hold one paid external directorship. Remuneration which arises from Directorships may be retained by the Executive member. This policy is to encourage the take-up of external Non-executive appointments as part of the Executive Directors' development as well as bringing broader business skills to BBC Worldwide.

During the year, John Smith served as a Non-executive Director of Burberry (appointed 1 December 2009). Fees paid for this directorship are shown in the table below. It is recognised that BBC Worldwide's own Non-executive Directors are likely to have other directorships and the restriction regarding paid external directorships applying to Executive Directors do not apply to them.

External directorship fees

Company	Payment received £000s
John Smith	Burberry Plc	18

Non-executive Directors

The BBC Non-executive Directors, Nicholas Eldred, Zarin Patel, Sharon Baylay and Jana Bennett (who resigned on 30 September 2009), do not receive remuneration from BBC Worldwide for the services provided to BBC Worldwide. The other Non-executive Directors receive a fee, determined by the BBC Trust, reflecting the complexity of the role and the time required to execute the role effectively. The fee levels are set with reference to rates paid by other UK corporations, but at a level such that the Non-executive Directors would not be financially dependent on BBC Worldwide. The fee levels are reviewed annually on 1 September, the next review being effective from 1 September 2010. An increase of 2% came into effect during the year. Each Non-executive Director who is entitled to remuneration receives a base fee (currently £35,700pa).

Etienne de Villiers served as Chairman of the Board for the six months to his resignation on 30 September 2009. This followed publication of a new governance framework by the BBC Trust earlier that month, which included the recommendation that the Chairman of BBC Worldwide should also be a Non-executive Director of the BBC. He also served as Chairman of BBC Worldwide's intermediate parent company, BBC Commercial Holdings Ltd, during that same period. For the six months ended 30 September 2009, he received a total fee of £62,500 (annual fee of £125,000) plus £12,500 for private office expenses (annual allowance of £25,000) in respect of services to BBC Worldwide and BBC Commercial Holdings. In addition he received £150,000 on leaving office, due under the terms of his service contract, and was available for consultancy to BBC Worldwide during the changeover to the new governance arrangements. He also received fees from BBC Worldwide's parent company in relation to membership of the BBC Commercial Holdings Remuneration Committee.

Robert Webb was appointed as Chairman of the Board on 1 October 2009 and receives a fee of £90,000 for this role and that of Chairman of BBC Commercial Holdings. This is in addition to fees received from the BBC in respect of his Non-executive position on the BBC Executive Board. Further details are available in the BBC Annual Report and Accounts.

Sharon Baylay and Tim Weller, who were appointed as Non-executive Directors on 1 February and 26 April 2010 respectively, each hold a two-year fixed term contract. Simon Clift and Thomas Geitner, who were appointed as Non-executive Directors on 1 November 2006 and 1 February 2007 respectively, initially held three-year fixed contracts. These contracts were extended by 12 months following a review of the composition of the Board and the appointment of Robert Webb as Chairman.

Non-executive Directors must maintain a register of all external interests that might be seen to affect their ability to perform their independent duties. This register includes declarations of all positions of employment, directorships and voluntary positions as well as interests of close family members if relevant and is approved by the BBC Worldwide Board at least annually.

The table below sets out the current fees of Non-executive Directors to whom a fee is payable:

Fees from 1 April 2010
Robert Webb	£90,000
Thomas Geitner	£35,700
Simon Clift	£35,700

Detailed Information
Remuneration earned in the year ended 31 March 2010

£'000	Fee/ base pay	Annual bonus	LTIP	Taxable benefits	Compensation for loss of office	Pension allowance(4)	Total rem'n 2009/10	Total rem'n 2008/09
Executive Directors
John Smith1 2 5	420	141	248	14	-	-	823	560
Neil Chugani3 5	291	125	63	9	-	33	521	467
Total Executive Directors	711	266	311	23	-	33	1,344	1027
Non-executive Directors
Sharon Baylay6 9	-	-	-	-	-	-	-	-
Jana Bennett6 10	-	-	-	-	-	-	-	-
Simon Clift	35	-	-	-	-	-	35	35
Nicholas Eldred6	-	-	-	-	-	-	-	-
Thomas Geitner	35	-	-	-	-	-	35	35
Zarin Patel6	-	-	-	-	-	-	-	-
Etienne de Villiers7 11	75	-	-	-	150	-	225	150
Robert Webb8 11	45	-	-	-	-	-	45	-
Total Non-executive Directors	190	-	-	-	150	-	340	220
Total Executive Board	901	266	311	23	150	33	1,684	1247

 

1	In addition to his annual bonus, the Chief Executive Officer committed £141,000 in to the new Deferred Bonus Plan which will vest in March 2013
2	The LTIP payment shown includes £80,000 of annual bonus which was invested into the plan in March 2007 and matched in view of the company's performance over the 2007-2010 period. A detailed vesting schedule for that period is presented below:

Bonus invested £'000	LTIP award vested £'000	Invested bonus matching award vested £'000	Total vested £'000
80	88	80	248

3	The Chief Financial Officer joined the company in late 2007. He was awarded an LTIP payment based on the same performance measures as the LTIP 2007-2010 scheme.
4	Cash supplement in respect of the pension scheme, at 20% of base pay above the annual limit, as a result of the maximum annual limit on earnings, as set out on p57.
5	The BBC introduced a salary sacrifice arrangement on 1 June 2008 for Old and New Benefits members who joined the Pension Scheme before 1 November 2006. This arrangement is also applicable to all Career Average Benefit members. Those Directors indicated in the table above participated in the arrangement. From that date, the terms and conditions of employment were changed for those employees opting for the salary sacrifice arrangement and as a result employee pension contributions made via the salary sacrifice have been treated as employer contributions, with a corresponding reduction in salary. Base salaries for Executive Directors have not been adjusted to reflect the impact of the salary sacrifice. The total salary sacrifice by Executive Directors was £33,000 (£25,000 2008/09).
6	The BBC Non-executive Directors, Nicholas Eldred, Zarin Patel, Jana Bennett and Sharon Baylay, do not receive remuneration from BBC Worldwide for the services provided to BBC Worldwide.
7	Compensation under the terms of a 12 month service contract. Resigned 30 September 2009 following the publication of a new governance framework for BBC Worldwide by the BBC Trust, as set out on in the Governance Report, and was available for consultancy to BBC Worldwide during the changeover period.
8	Appointed 1 October 2009.
9	Appointed 1 February 2010.
10	Resigned 30 September 2009.
11	The remuneration paid to Etienne de Villiers and Robert Webb includes fees for their role as Chairman of BBC Commercial Holdings Ltd as well as Chairman of BBC Worldwide Ltd. A nominal recharge is paid by BBC Commercial Holdings Ltd to BBC Worldwide Ltd.

LTIP potential vesting in 2011 and 2012

Participant	End of performance period	Bonus invested1	Potential LTIP vesting (at target)2	Potential LTIP vesting (at maximum)2	Potential invested bonus matching award (at target)2	Potential invested bonus matching award (at maximum)2	Total potential (at target)2	Total potential (at maximum)2
£000s	£000s	£000s	£000s	£000s	£000s	£000s
a	b	c	d	e	a+b+d	a+c+e
John Smith	March 2011	88	44	88	44	88	176	264
John Smith	March 2012	69	44	110	35	69	148	248
Neil Chugani	March 2011	-	31	63	-	-	31	63
Neil Chugani	March 2012	-	31	63	-	-	31	63

1	For performance below lower quartile 50% of bonus is forfeited.
2	Potential LTIP vesting is based on current earnings and rounded to the nearest £1000.

 

 

Annual values						Transfer values1
Executive Directors	Age as at 31 March 2010	Total accrued pension at 31 March 2010	Increase/ (decrease) in accrued pension over year	Transfer value of accrued pension at 31 March 2010	Transfer value of accrued pension at 31 March 2009	Increase/ (decrease) in transfer value less directors' contributions
£000s	£000s	£000s	£000s	£000s
John Smith	52	183	(26)	3,250	3,673	(423)
Neil Chugani	41	4	2	26	11	15

1

The transfer value of accrued pension benefits represent the estimated cost to the Pension Scheme of providing the pension benefits accrued to date. The value is affected by many factors, including age, pensionable salary, pensionable service and investment market conditions at the date of calculation (in accordance with Actuarial Guidance Note GN 11). It is not a sum paid or due to the individual and therefore cannot be meaningfully added to remuneration. The effect of the investment market conditions on the transfer value varies according to the member's age - for older members the calculation reflects the yields on index-linked gilts, whilst for younger members the dividend yield on the FTSE All-Share Index is the more significant determinant.

 

 

Robert Webb QC

Chairman, BBC Worldwide Remuneration Committee
16 June, 2010