19th May 2009 12:22
Announcement
19 May 2009
CABLE & WIRELESS ANNOUNCES NEW INCENTIVE PROPOSALS
FOR EXECUTIVE DIRECTORS
Cable and Wireless plc ("Cable & Wireless") today confirms that following consultation with shareholders we will be seeking approval at this year's AGM for a one year extension of the existing Long Term Incentive Plan (LTIP) with reduced payments in earlier years. This extension reflects the delay in our value realisation timetable caused by the unprecedented turmoil in the credit and equity markets. For future awards we will return to using more conventional share based incentive arrangements already approved by shareholders.
In response to shareholder feedback, we will also extend the three year freeze in the base salaries of the Executive Directors for a further year before returning to market rate salaries from April 2010.
Richard Lapthorne, Chairman of Cable and Wireless plc, commented:
"A key factor for a number of our investors has been our ability to retain and appropriately incentivise our senior management after the maturity of the LTIP. Since the LTIP was introduced, we have been the fifth best performer in the FTSE 100 in terms of total shareholder return and the second best performer in the FTSE Global Telecoms Sector Index, creating £1.1 billion of positive shareholder value, when the FTSE 100 has fallen 26%. There has been a genuine alignment of interests between management and shareholders just as we promised and this will remain central to everything we do. The new incentive proposals take the best elements of the LTIP and incorporate them into more conventional structures.
"Through a combination of share based incentive arrangements and the proposed one year extension of the LTIP, we believe we have the best structure to ensure that we both keep our talented team and ensure that they continue to drive hard to create further value for shareholders."
Proposed changes to management incentives
The incentive proposals described below have been designed with four objectives in mind:
Continuing alignment of management and shareholder interests;
Continuing drive for superior shareholder returns;
Taking the best elements of the LTIP and incorporating them into more conventional structures; and
Ensuring senior management continuity and retention with a seamless transition into these conventional arrangements.
The proposals, which were sent to our major institutional shareholders and shareholder representative bodies (the ABI and NAPF) are included as an appendix to this announcement and will be included in the Directors' remuneration section of our Annual Report to be published in June 2009.
Long Term Incentive Plan (LTIP) extension
In order to provide a seamless transition from the original LTIP scheme into the more conventional incentive arrangements and to ensure that management remain absolutely focused on increasing shareholder value, the Company intends to extend the length of the LTIP from four to five years and to delay some of the payments otherwise available to members of the scheme. In particular, John Pluthero, Executive Chairman of Europe, Asia & US, has agreed to delay his payment schedule from 75% in 2009 and 25% in 2010 to one of 67% in 2009, 18% in 2010 and 15% in 2011.
The senior management of both our business units support the proposed changes which they believe underpin their continued commitment to driving the creation of further shareholder value over the coming years. This proposed change will be put to shareholders to vote on at our Annual General Meeting in July 2009.
The LTIP has been a highly successful tool both for driving shareholder value and effecting significant changes to both the Europe, Asia & US and CWI (formerly International) businesses for the long-term benefit of shareholders, employees and customers. In terms of performance since the LTIP was introduced on 1 April 2006 to 31 March 2009, Cable & Wireless has the fifth highest total shareholder return (TSR) in the FTSE 100 index having risen by 44% compared to the overall FTSE 100 index fall of 26%.
As at 31 March 2009, the total value of the LTIP pool is £70 million or 6% of the increase in the shareholder value. A payment of £32 million (£30 million in Europe, Asia & US and £2 million in CWI) will be made to participants in the plan. The payment represents 45% of the total reward pool reflecting the delayed payment schedule as well as units (including those of Tony Rice, Chief Executive of CWI) not having a vesting payment in 2009 and payments previously made to good leavers. Based on a 67% payout, John Pluthero will earn £8.3 million from the 2009 payout, which averages out at £2.7 million per year before income tax and national insurance for the three year duration of the LTIP to date.
Share based reward structure
Recognising the improving financial and operational circumstances of Cable & Wireless, we are introducing new long term incentive arrangements using share based schemes that vest from 2012 onwards, rolling annually thereafter. This Performance Share Plan will be based on a Cable and Wireless plc share award capped at four times the Director's market salary with three year vesting subject to stretching performance targets. The level of vesting in 2012 is dependent on absolute TSR during 2009/10, 2010/11 and 2011/12 as follows: zero vesting if TSR is less than 8% compound per annum; 25% vesting if TSR is 8% compound per annum; above 8% compound per annum, vesting increases on a straight line basis up to 100% vesting at 20% compound per annum or above.
As part of the new arrangements, we will continue to freeze the base salaries of the Executive Directors. Salaries have been frozen since 1 April 2006 and are now well below market levels. We will increase salaries on 1 April 2010 to bring them into line with the market after the four year freeze.
We will also increase our shareholding guidance for Executive Directors from two times to four times salary. At 31 March 2009, John Pluthero held 3.7 times salary in Cable & Wireless shares and Tony Rice held 8.1 times salary in Cable & Wireless shares.
Contacts
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CABLE & WIRELESS |
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Clare Waters |
Director of External Affairs |
+44 (0)20 7315 4088 |
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Ashley Rayfield |
Director, Investor Relations |
+44 (0)20 7315 4460 |
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Mat Sheppard |
Manager, Investor Relations |
+44 (0)20 7315 6225 |
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Lachlan Johnston |
Director of Public Relations |
+44 (0)7800 021 405 |
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FINSBURY |
Rollo Head |
+44 (0)20 7251 3801 |
About Cable & Wireless
Cable & Wireless is one of the world's leading international communications companies. It operates through two standalone business units - Europe, Asia & US and CWI (formerly International).
Europe, Asia & US provides enterprise and carrier solutions to the largest users of telecoms services across the UK, US, continental Europe and Asia. With experience of delivering connectivity to 153 countries - and an intention to be the first customer-defined communications services business - the focus is on delivering customers a service experience that is second to none.
CWI operates integrated telecommunications companies in 38 countries offering mobile, broadband, domestic and international fixed line services to residential and business customers, with four major operations in the Caribbean, Panama, Macau and Monaco & Islands. For more information visit www.cw.com
Background on the LTIP
The Long Term Incentive Plan (LTIP) is an innovative scheme designed to align the interests of shareholders and senior managers through rewards based directly on the increase in shareholder value within the managers' respective businesses. The scheme was implemented on 1 April 2006 and reflected the creation of two discrete and self-contained businesses, UK (later renamed Europe, Asia & US) and International (later renamed CWI). Currently, the scheme is based over four years with vesting points after years three and four. The potential reward pool is based on 10% of the difference between the opening values on 1 April 2006, and those at 31 March 2009 and 31 March 2010 adjusted for the cost of capital of at least 8% and any changes to cash remitted to or received from the corporate centre, as determined by the independent auditors to the scheme, PricewaterhouseCoopers LLP.
EXTRACT FROM THE LETTER TO SHAREHOLDERS
Background to Cable & Wireless organisation and remuneration
As you may recall, we instituted a new Group structure effective 1st April 2006, based upon two independent businesses, Europe, Asia & US and CWI Group (formerly International), and reflecting the different characteristics of those businesses.
This new structure was designed to align management and shareholder interests clearly. We adapted our organisation accordingly with the removal of a Group Chief Executive, and with the two business heads reporting directly to the Chairman. We also reduced the Corporate Centre, significantly cutting costs and redefining its role to concentrate on governance, portfolio management, overall finance and value realisation for shareholders.
All of this was underpinned by an innovative incentive scheme designed to reinforce the new strategy and organisation, with a greater proportion of performance related pay to fixed pay. Key elements of Executive directors' remuneration were:
A freeze on base salaries for three years from 1st April 2006;
A reduction in the maximum annual bonus opportunity from 150% to 100%;
The requirement for directors to be significant shareholders;
The award of one-off long term incentive awards in 2006 in the form of the LTIP for the two business heads and share options for the Corporate Centre directors;
A defined contribution allowance for pensions of 25% of base salaries.
During this period, employees of Cable & Wireless continued to receive annual pay reviews and share awards as appropriate.
Cable & Wireless achievements since 2006
We are very proud of what has been achieved since 2006. Cable & Wireless is a transformed business, both in terms of financial performance and in how we are viewed by employees, customers and competitors alike. Looking across a range of metrics it has been an unequivocally successful period:
Our financial performance has been exceptional. Group EBITDA has nearly doubled from £411 million in 2005/06 to over £800 million expected by analysts for 2008/09
Our share price and total shareholder return (TSR) performance have been very strong both in absolute and relative terms over the three years to 31 March 2009:
Our share price has increased by 42% from 98p to 139.5p
We have climbed 49 places up the FTSE 100 index from 100th to 51st
We are the fifth best performer in the FTSE 100 out of the 84 companies still in existence, our TSR has increased 44%, whereas the TSR for the FTSE 100 index has fallen 26%
We are the second best performer in the FTSE Global Telecoms Sector Index (GTSI), after China Mobile, out of 27 companies still in existence. Our TSR has increased 44%, whereas the TSR for the FTSE GTSI has increased 15%
In pure value terms we have created £1.1 billion of value for shareholders, compared to a loss of £0.7 billion if we had performed in line with the FTSE 100 index
We have increased our full year dividend from 4.50p in 2005/06 to 7.50p in 2007/08. The analyst consensus for the 2008/09 full year dividend is 8.50p, an increase of 89% over this period.
Management have continued to add to their substantial shareholdings. The Cable & Wireless shareholdings of the Chairman and the two business heads are:
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As at 31st March 2009 |
Richard Lapthorne |
John Pluthero |
Tony Rice |
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Shareholding |
3,612,786 |
1,600,334 |
3,502,018 |
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Value at 139.5p |
£5.0m |
£2.2m |
£4.9m |
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Multiple of base salary |
13.1 x |
3.7 x |
8.1 x |
The LTIP completely aligns the interests of shareholders and management. The LTIP scheme has no targets, instead the design of the scheme ensures it only pays out if total shareholder return has risen and shareholders have benefited, and if the business has exceeded the hurdle rate of at least 8% per annum. At the end of March 2009, we estimate that the total LTIP pool is £70 million* or 6% of the increase in shareholder value. Of this estimated pool, approximately £62 million is attributed to Europe, Asia & US and approximately £8 million to CWI Group.
*NB this is subject to finalisation and approval by the Remuneration Committee
Graph 1 illustrates the alignment between changing market capitalisation over time and the corresponding estimate of the total LTIP pool
To view the announcement in its entirety, including Graph 1, please click on the link below: -
http://www.rns-pdf.londonstockexchange.com/rns/4940S_1-2009-5-19.pdf
The LTIP has been a key tool for ensuring management continuity and strength. We have had no resignations of participants in the LTIP though we have replaced managers as the two businesses change in shape as we transform them.
Proposed changes to management incentives
Our proposals include a one year extension of the existing LTIP with reduced payments in earlier years for which we will be seeking shareholder approval at this year's AGM in July, and a return to more traditional incentive arrangements already approved by shareholders.
As discussed earlier, we have designed these new proposals with four objectives in mind:
Continuing alignment of management and shareholder interests;
Continuing drive for superior shareholder returns;
Introducing more traditional incentive arrangements to reflect our improving financial and operational position; and
Ensuring senior management continuity and retention with a seamless transition into more traditional arrangements.
Long Term Incentive Plan extension
To provide a seamless transition from the original LTIP scheme into the more traditional incentive arrangements and to ensure that management remain absolutely focused on increasing shareholder value, we propose extending the length of the LTIP from four to five years and to delay some of the payments to members of the scheme. This extension also reflects the delay in our value realisation timetable caused by the unprecedented turmoil in the credit and equity markets.
In particular, John Pluthero, Executive Chairman of Europe, Asia & US has agreed to delay his payment schedule from 75% in 2009 and 25% in 2010 to one of 67% in 2009, 18% in 2010 and 15% in 2011. Tony Rice, CEO of CWI Group, has agreed to delay his payment calculation schedule from 100% in 2010 to 85% in 2010 and 15% in 2011. These proposed changes will be put to all shareholders to vote on at the Annual General Meeting on 17 July 2009.
The LTIP will continue to be driven by the rules already in place (as described on our website at www.cw.com/shareholder-information) including the hurdle rate of at least 8% per annum before any value accrues to the LTIP pool.
The senior management of both the Europe, Asia & US and CWI Group businesses support the proposed changes which they believe underpin their continued commitment to driving the creation of further shareholder value over the coming years. Additional benefits of extending the scheme include spreading the cost of the LTIP over five years rather than four and lengthening the time period of the LTIP to drive further shareholder value. It also locks management in for an extra year and means that they have 'value at risk' for a longer period too. Finally it means that the LTIP is tied precisely into the three to five year turnaround plan for Europe, Asia & US so that shareholders will be able to judge the success of that programme in tandem with the completion of the LTIP.
Based on a 67% payout, John Pluthero is estimated to earn £8.3 million from the 2009 payout, which averages out at £2.7 million per year before income tax and national insurance for the duration of the LTIP to date. This leaves £4.1 million at risk i.e. the remaining payout will be lower than £4.1 million if the Europe, Asia & US value does not rise by at least the increase in the LTIP hurdle over the next two years.
John Pluthero is the only Executive Director entitled to an LTIP payout in 2009 as Tony Rice was not appointed as CEO of CWI Group until November 2008.
Introduction of more traditional reward structures from 2009
As described earlier, the Remuneration Committee recognises the improving circumstances of Cable & Wireless and, as we have said previously, believes that it is now appropriate to introduce more traditional reward structures. There are four elements that we are proposing:
Salary - we will continue to freeze the base salaries of the Executive Directors for a further year. This decision follows our initial round of shareholder consultation. Salaries have been frozen since 1st April 2006 and are now well below market levels. We will then increase salaries on 1st April 2010 to bring them into line with the market after the four year freeze;
Annual bonuses - we will continue to hold these at below market levels and base them solely on financial performance, using business specific targets. The maximum achievable will remain as 100% of base salary, with the maximum only payable for superior performance and the achievement of the stretching target performance only paying 60%. Historically using the same bonus approach, the bonuses paid as a percentage of salary have ranged between: 2006/07 88% to 100%; and 2007/08 36% to 75%.
Performance share plan - this will be similar in design to other FTSE 100 remuneration schemes and based on an annual Cable & Wireless share award capped at four times director's market salary with three year vesting from 2012 onwards and subject to stretching performance targets detailed below.
The level of vesting in 2012 is dependent on the absolute total shareholder return (TSR) of each business unit or the Group as relevant to each Director during financial years 2009/10, 2010/11 and 2011/12 as follows:
If TSR is less than 8% compound per annum - zero vesting of the award
If TSR is 8% compound per annum - 25% vesting of the award
If TSR is between 8% and 20% compound per annum, vesting increases on a straight line basis, so that 100% vests at 20% TSR compound per annum
Irrespective of the above, the level of vesting to Executive Directors will be subject to the Remuneration Committee being satisfied with underlying performance of the respective businesses over the three year performance period.
These awards will be made under a previously approved Cable & Wireless share plan and as such do not require shareholder approval at the Annual General Meeting.
Shareholding guidelines - we will increase our shareholding guideline for Executive Directors so that their required personal shareholding in Cable and Wireless plc shares increases from two times to four times salary to be financed out of retaining shares from share plans which vest.
Related Shares:
CWC.L