Annual Review 2010/11

Report on Directors' remuneration

This report sets out BBC Worldwide's remuneration policy and details the remuneration receivable by the members of the current Board of Directors in respect of 2010/11. BBC Worldwide has no statutory requirement to prepare a Directors' Remuneration Report. Nevertheless, the requirements of the UK Companies Act 2006 and Schedule 8 of the Large- and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 have been followed, where relevant, in preparing this report. The BBC Worldwide Remuneration Committee ("the committee") also used as a benchmark the requirements of the Listing Rules.

Remuneration Committee

Composition

During the year the BBC Worldwide Remuneration Committee comprised Robert Webb (Chairman) and Zarin Patel, both of whom are Non-executive Directors. On 1 April 2011 Charlotte Hogg was appointed to the committee as a Non-executive Director.

Summary terms of reference can be found in the Corporate Governance report.

Advisors

The committee obtains advice from various sources in order to ensure it makes informed decisions. The committee's main advisors are set out below:

At the invitation of the committee, the Chief Executive, the Chief Financial Officer, the Human Resources Director, the Company Secretary and both the BBC's Director of People and Head of Reward provided assistance to the committee during the financial year.

No individual is responsible for setting his/her own remuneration.

Activities in 2010/11

The committee's activities included:

• Determining individual award levels for the BBC Worldwide Executive Committee based on benchmarking of roles and the market.
  
  
• Setting Annual Bonus targets for 2010/11.
  
  
• Approving performance against targets for the 2010/11 Annual Bonus and long-term incentive schemes, and the resulting payments to individuals.
  
  
• Approving the design and implementation of a new long-term Profit Sharing Plan to replace the existing Long-term Incentive Plan.
  
  
• Oversight of the implications for BBC Worldwide staff of changes to the BBC Pension Plan.

Executive Directors

Click here for full details of the composition of the BBC Worldwide Executive Committee. This report summarises the remuneration of the relevant BBC Worldwide Board members.

Changes to the BBC Worldwide Board, Executive members

On 17 June 2010, Neil Chugani tendered his resignation following his decision to join Shine Group. It was agreed that it was no longer appropriate that Mr Chugani should continue to fulfil his operational responsibilities and he was placed on a period of garden leave until 31 August 2010.

Philip Vincent was appointed acting CFO on 17 June 2010 and was formally appointed to the Board as CFO on 1 December 2010.

Full details of both individuals' remuneration during the year are disclosed opposite.

There were no other changes to the Executive Directors of the BBC Worldwide Board.

Components of reward

The following table summarises the key fixed and variable components of reward:

<sup>1. Based on operating profit before specific items
2. Based on Profit after Interest and Tax</sup>

The diagram below illustrates the balance between fixed and variable remuneration (excluding pension) for the Executive Directors of the BBC Worldwide Board for the current financial year.

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.

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

Annual base salaries of those Executive Directors currently serving on the BBC Worldwide Board from 1 April 2011

Annual incentives

Annual incentives are provided through the BBC Worldwide Annual Bonus Scheme in which all staff participate*. The Chief Executive is eligible to receive a core bonus of up to 55% of base pay and the CFO is eligible for a core bonus of up to 40% of base pay. The performance conditions are weighted 25% against individual objectives with 75% determined by the performance of BBC Worldwide against stretching profit targets.
^{*Other than those on sales schemes.}

Following a review of the company's incentive schemes, the following changes have been made to BBC Worldwide's Annual Bonus Scheme:

• Revision of the methodology for setting Annual Bonus targets. The scheme now seeks to reward for delivering absolute growth in profitability year on year, rather than exceeding a target based on the current year budget.
  
  
• Modification of the performance conditions so that, for senior employees, 75% of the bonus opportunity is conditional upon the delivery of profit performance of BBC Worldwide and the balance is dependent upon individual performance against pre-determined objectives.
  
  
• A new element has been added to the scheme to reward senior managers for delivering financial performance beyond the already stretching targets set out in the Annual Bonus Scheme. This is self funding and achieved by creating a pool, calculated as a percentage of profits achieved above the annual bonus target: 80% of this pool is shared across participating members. All senior managers (above a defined grade) are eligible to participate in this element of the scheme. The remaining 20% is awarded on a discretionary basis for outstanding performance. Both John Smith and Philip Vincent are eligible to participate in this.
  
  
• Total individual reward under the Annual Bonus Scheme is capped at 100% of salary.

The company element of the annual bonus awards to be paid in respect of 2010/11 performance reflects the strong performance of BBC Worldwide during the year, including headline profit growth of 10.3%.

Long-term incentives

Bonus Matching Scheme

In previous years up to 2009/10, Executive Directors could voluntarily invest up to 75% of their annual bonus into the now closed Long-term Incentive Plan (LTIP) which would be eligible for a matching award based on the subsequent performance of the company. Two awards remain outstanding under this plan: the conditional award relating to the period 2007/08 to 2010/11 which will be paid out in June 2011 and the final award, made in 2008/09 which will vest in 2011/12.

Although the LTIP has now been replaced, performance of the outstanding deferred bonus awards continues to be determined in accordance with the original LTIP criteria. Two measures: Profit Growth (75% weighting) and Return on Sales Growth (25% weighting) over a three-year period will be used to rank BBC Worldwide performance relative to a comparator group of at least 15 other international media companies.

The comparator group was selected for its mix of business, industry, size and geographical representation. In the current year the composition of the Group was updated to ensure it continues to reflect as closely as possible BBC Worldwide's business.

The constituent companies of the comparator group

• British Sky Broadcasting Group plc
• Cablevision Systems Corporation
• Comcast Corporation
• CKx Inc
• Entertainment One Ltd
• Fuji Television Network Inc
• Grupo Televisa
• ITV plc
• Mediaset SpA
• M6-Metropole Television SA
• News Corporation
• Pearson plc
• ProSiebenSat.1.Media AG
• Reliance MediaWorks
• RTL Group
• Singapore Press Holdings
• Special Broadcasting Service Corporation
• The Walt Disney Corporation
• UBM plc
• Village Roadshow Ltd
• Vivendi Group

Matching will be determined on a straight line basis with the top ranking delivering a 100% match and the bottom ranking resulting in the forfeit of 50% of the total amount deferred.

From 2009/10 a new scheme has been introduced, under which Directors can defer up to 50% of their annual bonus for three years. The deferred amount is then eligible for a 25% matching award at the end of three years, subject to a cumulative Return on Capital Employed (ROCE) threshold of 40% over the period having been met.

Profit Sharing Plan

During the year the company's Long-term Incentive Plan (LTIP) was replaced with a new Profit Sharing Plan (PSP).

The new plan was introduced to better align reward to BBC Worldwide's long-term strategy, drive profit performance and deliver strong returns to the BBC. Participants receive an award of units which entitles them to a share of a profit pool each year over the life of the plan. The profit pool is calculated as a percentage of profits achieved above a set of absolute profit hurdles, derived from the company's strategic five-year plan. Annual payments commence after three years of participation and equate to 50% of the accumulated pool. A balancing payment is then due at the end of the five-year period.

Profit after Interest and Tax is used as the profit basis for the plan as it aligns management's interests with a key measure for the shareholder. To enable the scheme to be introduced with immediate effect and to replace the pre-existing LTIP scheme, the new scheme has been backdated to 2008/09 with its first performance payout due in June 2011 for the three-year performance period 2008/09 to 2010/11. Balancing payments are due to be made at the end of the plan. Both current Executive Directors waived their outstanding awards from the pre-existing Long-term Incentive Plan to participate in this new scheme.

The annual cash PSP payout is capped at 100% of base pay for each participant.

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, adjusted in line with inflation up to retirement. However, with effect from 1 April 2011, all future increases in pensionable salary will be limited to a maximum of 1% per annum, reflecting the recent changes to the BBC Pension Scheme. For employees in this group the normal pensionable age is 60. Pension contribution rates for these employees were increased from 1 April 2010 to 7.5% (6.75% at 1 April 2009) with a corresponding reduction 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. As before, with effect from 1 April 2011 all future increases in pensionable salary will be capped at 1%. Participating employees contribute 4% of their pensionable salary to the Pension Scheme. For employees in this group the normal pensionable age is 65.

John Smith and Philip Vincent both have a normal pensionable age of 60 but may continue in employment to age 65. Philip Vincent's pensionable earnings are subject to a maximum cap of £123,600. No maximum annual cap 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 of £1.80m (£1.75m 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

The notice period of Board Directors serving during the year is detailed in the table above. These are subject to earlier termination for cause. No payments are made to Directors on termination other than as contractually required. If termination arises through redundancy, Board Directors are entitled to one month's pay for each year of continuing service, subject to a 24-month cap.

^{1 Neil Chugani resigned from BBC Worldwide on 17 June 2010}

Outside interests

Where there is no potential for conflict of interest, and with the prior agreement of the Chairman, Executive members of the Board may hold one paid external directorship. Remuneration which arises from directorships may be retained by the Executive. This policy is to encourage the take-up of external Non-executive appointments as part of the Board 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 plc. 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 does not apply to them.

Non-executive Directors

The BBC Non-executive Directors, Nicholas Eldred, Zarin Patel and Sharon Baylay (who ceased to be a Director in November 2010) 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. Details are provided below. The fee levels are reviewed annually on 1 September, the next review being effective from 1 September 2011.

Robert Webb receives a fee of £76,500 for his role as Chairman of the Board of BBC Worldwide. This is in addition to fees received from the BBC and from BBC Commercial Holdings in respect of his Non-executive positions on their respective boards. Further details are available in the BBC Annual Report and Accounts 2010/11.

Tim Weller and Charlotte Hogg, who were appointed as Non-executive Directors on 26 April 2010 and 24 September 2010 respectively, each holds a two-year fixed-term contract. Simon Clift, Sharon Baylay and Thomas Geitner ceased to be Directors on 31 October 2010, 26 November 2010 and 31 December 2010 respectively.

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.

Current fees of Non-executive Directors to whom a fee is payable from 1 April 2011

Remuneration earned in the year ended 31 March 2011

^{1. In addition to his annual bonus, the Chief Executive committed £138,000 or 50% of his annual bonus into the new Deferred Bonus Plan which will vest in March 2014 (subject to performance). Annual bonus is stated net of any deferral into the matching scheme.}

^{2. The Matching payment shown relates to £88,000 of annual bonus which was invested into the plan in March 2008 and was matched at 52% in view of the company's performance over the 2008-2011 period.}

^{3. Neil Chugani resigned as a Director on 17 June 2010 following his decision to join Shine Group. It was agreed with immediate effect that it was no longer appropriate Mr Chugani should continue to fulfil his operational responsibilities and he was placed on a period of garden leave until 31 August 2010. The disclosure reflects his remuneration up to the 31 August 2010.}

^{4. In the context of Pension contributions Neil Chugani's earnings are subject to a maximum annual limit of £123,600 per annum (£123,600 for 2009/10) and in accordance with his contractual terms he was entitled to a cash supplement of 20% of base pay above the annual limit.}

^{5. Philip Vincent was appointed acting CFO on 17 June 2010 and was formally appointed to the Board as CFO on 1 December 2010. His remuneration detailed in the table above reflects his remuneration for the period since his appointment to the Board on a pro-rata basis.}

^{6. 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 £38,150 (£33,000 2009/10).}

^{7. The BBC Non-executive Directors, Nicholas Eldred, Zarin Patel and Sharon Baylay, do not receive remuneration from BBC Worldwide for the services provided to BBC Worldwide.}

^{8. Ceased to be a Director on 26 November 2010.}

^{9. Ceased to be a Director on 31 October 2010.}

^{10. Ceased to be a Director on 31 December 2010.}

^{11. Appointed on 24 September 2010.}

^{12. Appointed on 26 April 2010.}

Deferred bonus potential vesting of outstanding schemes

The potential vesting in 2012, 2013 and 2014 for Executive Directors

Pension entitlements

The movement in joint ventures and associates is as follows:

^{1. The transfer value of accrued pension benefits represents 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 regulations 7 to 7E of the Occupational Pension Schemes Transfer Values Regulations 1996). 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.}

^{2. Neil Chugani resigned as a Director on 17 June 2010 and left the scheme on 31 August 2010. The figures have been calculated at 31 March 2011 and include scheme service up to the leaving date of 31 August 2010. The normal retirement age for Neil Chugani is 65 as he joined the Pension Scheme after 1 November 2006.}

^{3. Philip Vincent was appointed as a Director on 1 December 2010, although he joined the Scheme on 14 December 1998. The figures shown include the period before he was appointed as a Director.}

This report was approved by the
Board of Directors on 10 June 2011
and signed on its behalf by:

Robert Webb QC

Remuneration Committee Chairman,
BBC Worldwide