Report on Directors’ Remuneration and Interests

Composition and Role of the Remuneration Committee
The Remuneration Committee currently comprises three independent non-executive Directors, Leslie Van de Walle (Chairman), Róisín Brennan and David Byrne, and the Chairman of the Board, Michael Buckley. Mr. Van de Walle joined the Committee on 8 November 2010 and became Chairman on 5 April 2011, following Mr. Maurice Keane's retirement from the Committee.

 

The role and responsibilities of the Remuneration Committee are set out in its written terms of reference, which are available on request and on the Company’s website www.dcc.ie. The principal responsibilities of the Committee are:

determining the policy for the remuneration of the Chairman, the Chief Executive, the other executive Directors and certain senior Group management;
determining their remuneration packages, including salary, bonuses, pension rights and compensation payments;
the oversight of remuneration structures for other Group and subsidiary senior management; and
the granting of awards under the Company’s long term incentive schemes.

 

Group Remuneration Policy
DCC’s remuneration policy is designed and managed to support a high performance and entrepreneurial culture, taking into account relevant benchmarking. The Board seeks to align the interests of executive Directors and other senior Group executives with those of shareholders, within the framework set out in the Combined Code on Corporate Governance. Central to this policy is the Group’s belief in long-term performance based incentivisation and the encouragement of share ownership.


The Remuneration Committee seeks to ensure:

that the Group will attract, motivate and retain individuals of the highest calibre;
that executives are rewarded in a fair and balanced way for their individual and team contribution to the Group’s performance;
that they receive a level of remuneration that is appropriate to their scale of responsibility and individual performance;
that the overall approach to remuneration has regard to the sectors and geographies within which the Group operates and the markets from which it draws its executives; and
that risk is properly considered in setting remuneration policy and in determining remuneration packages.


DCC’s strategy of fostering entrepreneurship requires well designed incentive plans that reward the creation of shareholder value through organic and acquisitive growth while maintaining high returns on capital employed, strong cash generation and a focus on good risk management. The typical elements of the remuneration package for executive Directors and other senior Group executives are base pay, pension and other benefits, annual performance related bonuses and participation in long term performance plans which promote the creation of sustainable shareholder value.

 

The Remuneration Committee supports the objectives of the EU Commission’s recommendations on “fostering an appropriate regime for the remuneration of directors of listed companies” which were issued in December 2004 and supplemented by additional recommendations in April 2009. This is reflected in the disclosures in this Report in relation to the Group’s remuneration policy, the remuneration of individual Directors and share-based remuneration.

 

While the Remuneration Committee’s specific oversight of individual executive remuneration packages extends only to the Chief Executive, the other executive Directors and a number of senior Group executives, it aims to create a broad policy framework to be applied by management to senior executives throughout the Group.


Since 2009, the Report on Directors’ Remuneration and Interests is put to a shareholder vote at the Annual General Meeting. There is no legal obligation to put such a resolution to shareholders, so it is an ‘advisory’ resolution and is not binding. However, DCC believes that such a resolution is good practice and is an appropriate acknowledgement of a shareholder’s right to have a ‘say on pay’.

 

Review of Remuneration Policy and Structures
Following a comprehensive review in the prior year of Group executive remuneration policy and remuneration structures, the Remuneration Committee established a framework for remuneration policy in respect of the senior executive cadre in the DCC Group.
This framework was set out in last year’s Annual Report, as follows:

(i) That the key reference group for overall remuneration purposes would be the market capitalisation comparison group. The other comparator groups would be used as secondary reference points;
(ii) That the basic policy objective would be to have top quartile overall remuneration for top quartile performance;
(iii) That the aim would be to have basic pay rates and the short term element of incentive payments at the median of the market capitalisation comparator group;
(iv) That the aim would be to have long term incentive rewards at the top quartile of the market capitalisation comparator group for top quartile performance;
(v) That the overall policy aim would be, over time, to have the longer term elements of total remuneration constituting at least half of the total for maximum performance and somewhat less than half for on target performance;
(vi) That insofar as adjustments to existing policies are needed to achieve these aims, the adjustments would be carried out over the medium term;
(vii) That any increase in the maximum annual bonus potential would be accompanied by:
appropriately stretched targets for qualifying for the increased element of the maximum potential bonus;
the introduction of a deferral mechanism for part of the bonus payments awarded, with the deferral element being represented by shares held in trust (thus to increase the longer term element of total remuneration and to align with Group share ownership policy);
a wider range of financial targets for qualification for various levels of bonus (threshold, target and maximum); and
a general provision for subsequent clawback of bonus, in certain circumstances.
(viii) That a formal shareholding policy would be introduced for the senior executive cadre. Because share ownership has been encouraged for many years in the Group, current executive Directors’ shareholdings are substantial and exceed the benchmarks used in comparable companies, but such a policy would be built with a view to a future cadre of senior managers.


Those elements of the policy framework relating to base salary have been implemented. No changes to maximum annual bonus potential or the longer term elements of total remuneration have been implemented at this time but they will be kept under review by the Remuneration Committee. A formal bonus clawback policy and share ownership guidelines have been introduced and are set out later in this Report.

 

Benchmarking
The Remuneration Committee uses annual benchmarking to ensure that remuneration structures continue to support the key remuneration policy objectives and to inform them regarding current trends and on actions as required from time to time.

 

The primary comparator group for benchmarking is a group of 60 FTSE companies, 30 of whom have market capitalisations just below DCC’s and 30 of whom have market capitalisations just above DCC’s (‘the market capitalisation comparator group’).

 

The Remuneration Committee also considers it useful to use a set of other comparators as secondary references to ensure rigorous and comprehensive benchmarking, being:

the FTSE 250;
the peer group for the DCC plc Long Term Incentive Plan 2009; and
a group of Irish listed industrial companies which can be taken to be broadly comparable to DCC, though in this group there are limitations on the amount of relevant information available, for instance on the definition of “target” and “maximum” bonus levels.


The Remuneration Committee may modify the composition of these key reference points from time to time with a view to ensuring their relevance.

 

Executive Directors’ Remuneration
The current remuneration package for executive Directors consists of fixed remuneration (base salary), pension and other benefits and performance related remuneration (annual bonus and long term incentives).

 

Fixed Remuneration
Base salaries
With effect from 1 April 2012, the salaries of executive Directors will be reviewed annually on 1 April, rather than on 1 January as was the practice, in order to align them with the Group’s financial year.

 

The reviews take account of personal performance, Company performance and competitive market practice.

 

No fees are payable to executive Directors.

 

Pension Benefits
A small number of senior Group executives, including the executive Directors, are participants in a defined benefit pension scheme which aims to provide, on the basis of actuarial advice, a pension of two thirds of pensionable salary at normal retirement date. Pensionable salary is calculated as 105% of basic salary and does not include any performance related bonuses or benefits.

 

Other senior Group executives participate in a defined contribution pension scheme.

 

Performance Related Remuneration
Annual bonuses
Annual bonuses are payable to the executive Directors and to other senior Group executives in respect of the financial year to 31 March, subject, inter alia, to the achievement of performance targets.

 

The maximum bonus potential, as a percentage of basic salary, for each executive Director and senior Group executive is reviewed and set annually and ranged between 40% and 100% of basic salary for the year ended 31 March 2011.


The performance targets for each executive Director and senior Group executive, which are set annually, are based on growth in Group earnings and in divisional operating profit, measured on a constant currency basis, against a pre-determined range, and overall contribution and personal performance. The weighting of the performance targets varies according to the role of each individual, within the range of 60% to 80% of bonus potential for profit performance and 20% to 40% of bonus potential for personal contribution.

 

The Remuneration Committee has implemented general provisions for subsequent clawback of bonus in certain circumstances, effective from 1 April 2011, which will apply to all annual performance bonuses paid to executive Directors and senior Group executives.

 

Long term incentives
Executive Directors and other senior Group executives are eligible to participate in the Company’s long term incentive schemes.

 

DCC plc Long Term Incentive Plan 2009
The DCC plc Long Term Incentive Plan 2009 (‘the Plan’) was approved by shareholders at the 2009 Annual General Meeting, following the termination of the DCC plc 1998 Employee Share Option Scheme in 2008. The Plan reflects the Group’s culture of long term performance based incentivisation and seeks to align the interests of executives with those of the Group’s shareholders.

 

The Plan provides for the Remuneration Committee to grant nominal cost options to acquire ordinary shares in the Company or to make contingent share awards only to those employees, including executive Directors, of the Company and its subsidiaries whose contribution can have a direct and significant impact on Group value or whom the Company wishes to retain in anticipation of direct and significant contribution to Group value in the future and to a small number of key support staff.


The percentage of share capital which can be issued under the Plan, the phasing of the grant of awards and the limit on the value of awards which can be granted to any individual comply with guidelines published by the institutional investment associations. The Plan provides for the making of awards, up to a maximum of 10% of the Company’s issued share capital over a 10 year period, taking account of any other share award or share option plan operated by the Company.

 

The market value of the shares which are the subject of any contingent award granted in any period of 12 months may not, at the date of the grant of award, in the case of the Chief Executive exceed 120% of annual basic salary and in the case of other participants exceed a lower percentage, as determined by the Committee.

 

Awards will normally vest no earlier than the third anniversary of the award date and in the case of options cannot be exercised later than the seventh anniversary of the award date.

 

An award will not vest (and in the case of an award in the form of an option, the option will not be exercisable) unless the Committee is satisfied that the Company’s underlying financial performance has shown a sustained improvement in the period since the award date. If this condition is met, the extent of vesting for awards granted to participants will be determined by the performance conditions set out below.


(a) TSR performance condition:
Up to 60% of the shares subject to the award will vest depending on the Company’s total shareholder return (‘TSR’) over a three-year performance period, starting on 1 April in the year in which the award is granted, compared with the TSR of a designated peer group. The peer group in respect of each award comprises the FTSE 250 on the first day of the performance period excluding financial services type companies and a small number of other companies that are not comparable to the Company, as determined by the Remuneration Committee.

 

The extent of vesting will be determined according to the following table:

 

Company’s TSR ranking Proportion of the
total award vesting
Below median 0%
Median 25%
Between median and 75th percentile 25%-60% pro rata
75th percentile or above 60%


TSR shall mean the return that a company has provided for its ordinary shareholders, reflecting share price movements and assuming reinvestment of dividends.

 

The Remuneration Committee may from time to time and at their discretion modify the composition of the peer group with the agreement of the Irish Association of Investment Managers if by reason of any change in the business of any such company, or if any such company ceases to be publicly listed, they consider that it would no longer properly form part of such comparison group for the business of the Company or that any one or more other or additional companies would properly form part of such comparison group.


(b) EPS performance condition:
Up to 40% of the shares subject to the award will vest depending on the growth in the Company’s consolidated adjusted earnings per share (‘EPS’) over a three-year performance period starting on 1 April in the year in which the award is granted compared with the change in the Irish Consumer Price Index (‘CPI’), determined according to the table below. EPS growth year on year will be calculated on a constant currency basis, as set out in the Company’s annual report.

 

Company’s annualised EPS growth in excess of annualised CPI change Proportion of the
total award vesting
Below 3 percentage points 0%
3 percentage points 15%
Between 3 and 7 percentage points 15%-40% pro rata
7 percentage points or more 40%

 

Vesting under the EPS performance condition is also contingent on:

(i) the Company’s average share price over the 30 day period following the annual or half yearly results announcement date prior to vesting being higher than the average share price over the 30 day period following the annual or half yearly results announcement date prior to the award date (subject to any adjustment in accordance with Rule 11 of the Plan to reflect a variation in the Company’s share capital); and
(ii) the Company’s cumulative annualised EPS growth over the three year performance period being positive.


No re-testing of the performance conditions is permitted.

 

The total number of awards granted under the Plan, in the form of nominal cost options, currently amounts to 0.52% of issued share capital.

 

DCC plc 1998 Employee Share Option Scheme
Executive Directors and other senior executives participated in the DCC plc 1998 Employee Share Option Scheme. The ten year period during which share options could be granted under this Scheme expired in June 2008.

 

Over the life of the Scheme, the total number of basic and second tier options granted, net of options lapsed, amounted to 7.1% of issued share capital, of which 2.15% is currently outstanding.

 

Basic tier options may not normally be exercised earlier than three years from the date of grant and second tier options not earlier than five years from the date of grant. Basic tier options may normally be exercised only if there has been growth in the adjusted earnings per share of the Company equivalent to the increase in the Consumer Price Index plus 2%, compound, per annum over a period of at least three years following the date of grant.

 

Second tier options may normally be exercised only if the growth in the adjusted earnings per share over a period of at least five years is such as would place the Company in the top quartile of companies on the ISEQ index in terms of comparison of growth in adjusted earnings per share and if there has been growth in the adjusted earnings per share of the Company equivalent to the increase in the Consumer Price Index plus 10%, compound, per annum in that period.

 

Share Ownership Guidelines
DCC’s remuneration policy has at its core a recognition that the spirit of ownership and entrepreneurship is essential to the creation of long term high performance and that share ownership is important in aligning the interests of executive Directors and other senior Group executives with those of shareholders.


In support of this the Remuneration Committee has introduced a set of share ownership guidelines, effective from 1 April 2011, under which the Chief Executive, other executive Directors and other senior Group executives are encouraged to build, over a five year period, a shareholding in the Company with a valuation relative to base salary as follows:

Chief Executive 3 times annual base salary
Other executive Directors 2 times annual base salary
Senior Group executives 1 times annual base salary

 

Non-Executive Directors’ Remuneration
The remuneration of the Chairman is determined by the Remuneration Committee. The Chairman absents himself from the Committee meeting while this matter is being considered.

 

The remuneration of the other non-executive Directors is determined by the Chairman and the Chief Executive.

 

The fees paid to non-executive Directors reflect their experience and ability and the time demands of their Board and Board committee duties. The fees are reviewed annually, taking account of any changes in responsibilities and external advice on the level of fees in comparable companies.

 

The basic non-executive Director fee amounts to €60,000 per annum and additional fees are paid to members and the Chairmen of Board committees. There have been no increases in these fees for the years commencing on 1 April 2009, 1 April 2010 and 1 April 2011.

 

The Chairman, Michael Buckley, received a total fee of €190,000 for the year ended 31 March 2011, inclusive of the basic fee and committee fees.


The Deputy Chairman and Senior Independent Director, David Byrne, received a total fee of €103,000, again inclusive of the basic fee and committee fees.

 

Non-executives Directors do not participate in the Company’s long term incentive schemes and do not receive any pension benefits from the Company. An office is provided for the use of the Chairman.

 

Directors’ Service Agreements
With the exception of Tommy Breen, Chief Executive, who has a service agreement with a notice period of twelve months, none of the other Directors has a service contract with the Company or with any member of the Group.


The information set out at page 66 to 68 forms an integral part of the audited financial statements and is covered by the Report of the Independent Auditors.

 

Executive and Non-Executive Directors’ Remuneration Details
The table below sets out the details of the remuneration payable in respect of Directors who held office for any part of the financial year.

 

            Salary
           and Fees1
         Bonus           Benefits2         Pension
         Contribution3
        Total
  2011
€’000
2010
€’000
2011
€’000
2010
€’000
2011
€’000
2010
€’000
2011
€’000
2010
€’000
2011
€’000
2010
€’000
                     
Executive Directors                    
Tommy Breen 700 700 434 700 30 26 246 248 1,410 1,674
Donal Murphy 374 316 126 274 22 22 129 108 651 720
Fergal O’Dwyer 374 365 227 274 22 22 130 131 753 792
                     
Total for executive Directors 1,448 1,381 787 1,248 74 70 505 487 2,814 3,186
                     
Non-executive Directors                    
Michael Buckley 190 225 - - - - - - 190 225
Róisín Brennan 65 65 - - - - - - 65 65
David Byrne 103 103 - - - - - - 103 103
Maurice Keane4 73 73 - - - - - - 73 73
Kevin Melia 68 68 - - - - - - 68 68
John Moloney 68 68 - - - - - - 68 68
Bernard Somers 80 80 - - - - - - 80 80
Leslie Van de Walle5 26 - - - - - - - 26 -
                     
Total for non-executive Directors 673 682 - - - - - - 673 682
                     
Ex gratia pension to dependant of retired Director                 10 10
                     
Total                 3,497 3,878

 

Notes
1. Fees are payable only to non-executive Directors and include Board Committee fees.
2. In the case of the executive Directors, benefits relate principally to the use of a company car.
3. Executive Director pension contributions in the year ended 31 March 2011 were made to a defined benefit scheme.
4. Maurice Keane resigned as a Director on 5 April 2011.
5. Leslie Van de Walle was appointed as a Director on 8 November 2010.

 

Executive Directors’ Defined Benefit Pensions
The table below sets out the increase in the accrued pension benefits to which executive Directors have become entitled during the year ended 31 March 2011 and the transfer value of the increase in accrued benefit, under the Company’s defined benefit pension scheme:

 

  Increase in accruedpension benefit (excl inflation) during the year1
€’000
Transfer value equivalent to the increase in accruedpension benefit2
€’000
Total accruedpension benefitat year end3
€’000
       
Executive Directors      
Tommy Breen 4 54 352
Donal Murphy 5 43 97
Fergal O’Dwyer 7 233 164
       
Total 16 330 613

 

Notes

1. Increases are after adjustment for inflation over the year, if applicable, and reflect additional pensionable service and salary.
2. The transfer value equivalent to the increase in accrued pension benefit has been calculated on the basis of actuarial advice in accordance with Actuarial Guidance Note GN11. The transfer values do not represent sums paid to or due to the Directors named, but are the amounts that would transfer to another pension scheme in respect of the increase in accrued pension benefit during the year.
3. Figures represent the total accrued pension payable from normal retirement date, based on pensionable service at 31 March 2011.

 

Executive Directors’ and Company Secretary’s Long Term Incentives
DCC plc Long Term Incentive Plan 2009
Details of the executive Directors’ and the Company Secretary’s awards, in the form of nominal cost options, under the DCC plc Long Term Incentive Plan 2009 are set out in the table below:

 

           Number of options Performance period Earliest exercise date Market price
on award
At 31
March 2010
Granted
in year
At 31
March 2011
             
Executive Directors            
Tommy Breen 53,743   53,743 1 April 2009 – 31 March 2012 20 August 2012 15.63
    39,529 39,529 1 April 2010 – 31 March 2013 15 November 2013 21.25
  53,743 39,529 93,272      
             
Donal Murphy 21,113   21,113 1 April 2009 – 31 March 2012 20 August 2012 15.63
    18,894 18,894 1 April 2010 – 31 March 2013 15 November 2013 21.25
  21,113 18,894 40,007      
             
Fergal O’Dwyer 23,353   23,353 1 April 2009 – 31 March 2012 20 August 2012 15.63
    18,894 18,894 1 April 2010 – 31 March 2013 15 November 2013 21.25
  23,353 18,894 42,247      
             
Company Secretary            
Gerard Whyte 11,756   11,756 1 April 2009 – 31 March 2012 20 August 2012 15.63
    8,647 8,647 1 April 2010 – 31 March 2013 15 November 2013 21.25
  11,756 8,647 20,403      


DCC plc 1998 Employee Share Option Scheme
Details as at 31 March 2011 of the executive Directors’ and the Company Secretary’s options to subscribe for shares under the DCC plc 1998 Employee Share Option Scheme are set out in the table below.

 

  Number of options             Options exercised
        in year
  At 31
March 2010
Granted
in year
Exercised
in year
At 31
March 2011
Weighted
average
option price
at 31
March 2011
Normal Exercise Period Exercise
price
Market
price at
date of
exercise
                 
Executive Directors                
Tommy Breen                
Basic Tier 170,000 - - 170,000 15.53 Nov 2004 – May 2018    
Second Tier 95,000 - - 95,000 10.31 Nov 2004 – Nov 2012    
                 
Donal Murphy                
Basic Tier 65,000 - (5,000) 60,000 16.24 Nov 2004 – May 2018 11.25 20.31
Second Tier 35,000 - (5,000) 30,000 10.33 Nov 2004 – Nov 2012 11.25 20.31
                 
Fergal O’Dwyer                
Basic Tier 117,500 - - 117,500 15.37 Nov 2004 – May 2018    
Second Tier 70,000 - - 70,000 10.32 Nov 2004 – Nov 2012    
                 
Company Secretary                
Gerard Whyte                
Basic Tier 71,000 - (11,000) 60,000 16.03 Nov 2004 – May 2018 11.25 20.31
Second Tier 41,000 - (11,000) 30,000 10.34 Nov 2004 – Nov 2012 11.25 20.31

 

The market price of DCC shares on 31 March 2011 was €22.47 and the range during the year was €17.30 to €24.20.

 

Additional information in relation to the DCC plc Long Term Incentive Plan 2009 and the DCC plc 1998 Employee Share Option Scheme appears in note 10 on page 97.


Executive and Non-Executive Directors’ and Company Secretary’s Interests
The interests of the Directors and the Company Secretary (including their respective family interests) in the share capital of DCC plc at 31 March 2011 (together with their interests at 31 March 2010) are set out below:

 

  No. of Ordinary Shares
At 31 March 2011
No. of Ordinary Shares
At 31 March 2010
     
Directors    
Michael Buckley 10,000 10,000
Tommy Breen 279,395 279,395
Róisín Brennan - -
David Byrne - -
Maurice Keane 5,000 5,000
Kevin Melia 1,250 1,250
John Moloney 2,000 2,000
Donal Murphy 82,313 80,113
Fergal O’Dwyer 254,889 254,889
Bernard Somers 1,000 1,000
Leslie Van de Walle - -
     
Company Secretary    
Gerard Whyte 142,200 137,200

 

All of the above interests were beneficially owned. Apart from the interests disclosed above, the Directors and the Company Secretary had no interests in the share capital or loan stock of the Company or any other Group undertaking at 31 March 2011.

 

The Company’s Register of Directors Interests (which is open to inspection) contains full details of Directors’ shareholdings and share options.

 

Leslie Van de Walle
Chairman, Remuneration Committee
9 May 2011

 

(back to top)