The structure of the 2008 Annual Incentive Plan was set out in last year's Remuneration report and summarised below.
Financial performance
2008 was another very successful year, building on the strong performance of recent years. Stretch performance targets on EPS, profit and cash were each achieved at the plc, UK/RoW and BAE Systems, Inc. levels. At the individual business level, the major businesses achieved stretch on most but not all their targets with notable performances in Land & Armaments and Military Air Solutions. Three of the smaller businesses did not meet their targets on one or other of the profit and cash elements.
Non-financial performance
The Executive Committee's Top Ten objectives for 2008 and the assessment of performance against these are set out in Strategy section, whilst the Responsibility section provides more detailed information on Objective 10, which relates to the Corporate Responsibility agenda, and the performance against this.
Significant progress was made against the ethics objective, including developing the Global Code of Conduct and rolling this out to all employees from January 2009, and the Group is on plan with its programme to implement the Woolf Committee recommendations. The Committee awarded the full stretch payout to the executive directors in respect of that part of the annual incentive driven off ethics performance.
On safety, all major operational sites (other than those acquired during the year) achieved Level 3 against the five-level Safety Maturity Matrix and have submitted plans to achieve Level 5 by the end of 2011. Senior Leaders undertook formal training and completed safety audits. Regrettably, there were five employee fatalities during the year, two on company sites and three deployed on active service with the US armed forces. The gap between Group performance and external benchmarks on days lost to work-related injuries was closed by 9% during the year, falling short of the target of 10%. The Committee awarded only one-third of the potential payout on that part of the annual incentive driven off safety performance.
On other objectives supporting the Group Strategy, significant progress was made against all the eight remaining Top Ten objectives and the Committee agreed an overall assessment of 7 out of 8. The Committee also reviewed the individual directors' overall performance and their behavioural performance.
Accordingly, the Committee determined the payout under the 2008 Annual Incentive Plan as follows:
| 2008 annual incentive payout | Mike Turner | Ian King | Walt Havenstein | George Rose |
| % of stretch |
93.7% |
94.7% |
92.7% |
93.9% |
|---|
| % of base salary |
140.5% |
150.0% |
208.5% |
117.3% |
|---|
| Amount |
£1,405,000 |
£1,275,000 |
$1,876,500 |
£695,200 |
|---|
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In addition:
- The real growth in EPS over the three years to 2008 exceeded 5% pa so that the awards of share options granted in 2006 vest in full.
- The Company's TSR for awards of shares made in June 2005 under the Performance Share Plan exceeded the upper quintile position when compared against the comparator group of 18 other defence and aerospace companies. The Committee has satisfied itself that there has been a sustainable improvement in the underlying performance of the Group over the three-year performance period and so this award has vested in full.
- The TSR for the PSP award made in December 2005 fell just short of the upper quintile position and accordingly 97.1% of the award vested.
The Committee also determined that the performance conditions attached to the special incentive awarded to Mike Turner in October 2007, which related to continuing the successful implementation of the Company's business strategy, satisfaction of leadership objectives set by the Committee, achieving an orderly handover of key external relationships, and facilitating an orderly succession to the Chief Executive role, had been met in full. Accordingly the whole of the award vested. This comprised an award of 231,618 shares and a cash payment of £1,181,250. Half the shares and cash were released on his retirement on 1 September 2008 with the remaining half due to be released a year later. The share award is included in Table B and the cash award is included in Table C: Directors' remuneration.
| Annual incentive as a percentage of base salary for 2008 | Mike Turner | Ian King2 | Walt Havenstein | George Rose |
| Measure | Base target | Stretch target | Base target | Stretch target | Base target | Stretch target | Base target | Stretch target |
| Group EPS |
20% |
50% |
15.5% |
38.8% |
15% |
37.5% |
16.6% |
41.5% |
|---|
| Group cash |
20% |
50% |
15.5% |
38.8% |
15% |
37.5% |
16.6% |
41.5% |
|---|
| Business EBITA1 |
- |
- |
5.5% |
13.8% |
15% |
37.5% |
- |
- |
|---|
| Business cash |
- |
- |
5.5% |
13.8% |
15% |
37.5% |
- |
- |
|---|
| Ethics and safety |
Up to 18% |
Up to 19% |
Up to 27% |
Up to 15% |
|---|
| Other objectives supporting the Group's strategy |
Up to 32% |
Up to 34% |
Up to 48% |
Up to 27% |
|---|
1 Earnings before amortisation and impairment of intangible assets, finance costs and taxation expense. 2 Ian King's figures represent the total arising from pro-rating his figures for his periods as Chief Executive and Chief Operating Officer – UK/RoW. |