Annual bonus scheme

Bonus for the year ended 31 March 2011

The annual bonus opportunity for each executive director is shown in the table below.

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% of base salary

 

Threshold

Target

Maximum

1

The portion of bonus that exceeds 100% of base salary is delivered in deferred shares.

Javed Ahmed

10%

75%

150%

Tim Lodge1

0%

50%

175%

Three performance factors were applied to the annual bonus. These are shown in the table below:

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Effective weighting2
(at max bonus)

Performance factor1

Definition

Reasons for selecting

Chief Executive

Chief Financial Officer

1

For bonus purposes all three metrics are measured on the basis of constant exchange rates and subject to adjustments reviewed and approved by the Committee to ensure that the results are a true reflection of the actual performance. Performance is assessed on the Group’s continuing operations.

2

The effective factor weighting at maximum bonus is calculated by reference to the difference in the multipliers that apply to achieve maximum bonus versus those at threshold, calculating the relative weight of these increments.

PBTEA

Profit before tax, exceptional Items and amortisation.

Measures the underlying profits generated by the business and whether management is converting growth into profits effectively.

87.0%

70.8%

Net sales less cost of raw materials

Gross sales net of associated selling costs, less the costs of raw materials used in production.

Measures whether management is growing the business. Growth is taken after cost of raw materials to better reflect value added.

6.5%

14.6%

Cash conversion cycle

The number of days between disbursement of cash and collection of cash, taking account of inventory, payables and receivables.

Measures whether the business is managing its working capital and converting profit into cash effectively.

6.5%

14.6%

The CCC metric is based on a straight average of the four quarter ending numbers (i.e. at 30 June 2010, 30 September 2010, 31 December 2010 and 31 March 2011) to avoid a focus purely on the year-end numbers which may be distorted and not reflect underlying working capital and cash management performance throughout the year.

For each performance factor there is a corresponding multiplier at the threshold, target and stretch level of performance, and sliding scales between them.

How the multiplier works

Multiplier for each performance factor (graph)

The multipliers for the PBTEA factor are more heavily geared than for the other two factors, reflecting the fact that PBTEA is the most important of the three metrics. Before any bonus is payable, a minimum level of profit has to be achieved, regardless of the level of performance in the net sales less cost of raw materials and cash conversion cycle metrics. To achieve the maximum payout, performance against all three factors must be at the stretch level. The multipliers are predetermined by the Committee and the relative weightings reflect the importance of each of the metrics for the coming year in the context of the progress made against the overall long-term strategy.

Once the performance outcome is known for each metric, the relevant multiplier is calculated for each. The target bonus is then adjusted by each of the multipliers to arrive at the final bonus outcome.

The following charts show for the Chief Executive and Chief Financial Officer the weighting of each metric relative to threshold for given levels of actual bonus. All numbers are at constant exchange rates.

Weighting of bonus metrics for Chief Executive and Chief Financial Officer at different levels of bonus % (stacked bar chart)
 

The table below shows, relative to 2010 actual performance: (i) the performance required to achieve maximum bonus; and (ii) the 2011 actual performance. All numbers are shown at constant exchange rates.

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As at 1 April 2011

Performance factor

Performance requirement to achieve maximum bonus

Actual performance

PBTEA

+22.6%

+29.6%

Net sales less cost of raw materials

+0.4%

+2.8%

Cash conversion cycle

+11.9%

+24.8%

The table below shows the actual performance outcome for 2011 relative to the bonus range.

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Performance factor

Actual performance outcome1

Commentary

1

In view of the performance outcomes for the year ended 31 March 2011 in the table above, the maximum annual bonus of 175% of base salary for the Chief Financial Officer and 150% of base salary for the Chief Executive were awarded by the Committee.

PBTEA

Above stretch performance level

The strong growth in PBTEA was driven by higher sales volumes, operational leverage, improved product mix, very strong returns from co-products and lower manufacturing costs for SPLENDA® Sucralose.

Net sales less cost of raw materials

Above stretch performance level

There was good growth in sales volumes across both main businesses. In Speciality Food Ingredients volume growth was 7% although sales value was impacted by reduced selling prices for SPLENDA® Sucralose reflecting the strategy of securing long-term volume incentive contracts with customers. Bulk Ingredients benefited from higher co-product income and an improved performance from the ethanol business offset by lower margins in sweeteners and industrial starches.

Cash conversion cycle

Above stretch performance level

Good progress was made on all working capital items but was offset by rising corn inventories in the USA towards the year end, as the Group sought to manage the supply risk in the coming year following market predictions of low corn inventories prior to the 2011 harvest.

Any bonus amount up to 100% of base salary is paid in cash. Any excess above 100% of base salary is delivered in the form of a conditional award of Tate & Lyle PLC shares, which carry the right to receive an amount equivalent to the ordinary dividend, to be paid in cash or shares as determined by the Committee. The shares are released and the dividend equivalent paid or released after two years subject to the executive remaining in service with the Company. In accordance with the special arrangements that were put in place to facilitate his recruitment, the Chief Executive was entitled to a bonus of up to 150% of base salary for the year ended 31 March 2011, none of which is deferred.

Both the cash award and the share component are subject to ‘claw-back’, which means they may be recouped in whole or in part, at the discretion of the Committee in the exceptional event that results were found to have been misstated or if an executive commits gross misconduct.