Long-term incentive arrangements

Performance-based long-term incentive plans (LTIPs) closely align executive directors’ and senior executives’ interests with those of shareholders, and are therefore an important component of the overall package.

During the year ended 31 March 2011, the Company operated an LTIP, the Tate & Lyle 2003 Performance Share Plan (PSP). There are some remaining awards that were made under earlier plans that are no longer in operation or have been suspended.

Performance Share Plan (PSP)

2008 PSP award

As shown in the graph on the right, for the performance period from 1 April 2008 to 31 March 2011 in relation to the PSP awards made in 2008, Tate & Lyle’s share price growth and dividend yields resulted in a total shareholder return (TSR) that ranked Tate & Lyle at 26th position (69th percentile) in the comparator group of companies (being the occupying positions 50 to 130 of the FTSE rankings at the beginning of the performance period). This is second quartile performance at which level the performance condition specifies that 81% of the conditional award made in 2008 is eligible for release with effect from the determination of the performance conditions.

The performance condition also specifies that, before any shares can be released, the Committee must be satisfied that the underlying financial performance of Tate & Lyle over the performance period justifies the participants receiving their shares. For the award made in 2008 under the PSP, the Committee considers that the underlying financial performance of Tate & Lyle over the performance period does justify the participants receiving their shares.

2008 PSP award Total Shareholder Return (graph)

Historical performance criteria and vesting

Relative TSR performance was used as the sole performance criterion until 2009, when an earnings per share (EPS) performance condition was introduced alongside relative TSR for 50% of the award. The following table shows the vesting levels of awards granted from 2003 up to 2008. Awards made under the PSP in 2005, 2006 and 2007 did not vest because the threshold performance conditions were not met.

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Year of award

Year of vesting

Level of vesting

2003

2006

84%

2004

2007

100%

2005

2008

0%

2006

2009

0%

2007

2010

0%

2008

2011

81%

Maximum award level

Following shareholder approval of the changes to the PSP at the 2010 AGM, executive directors and other senior executives are awarded, at the discretion of the Committee, a conditional right to receive a number of Tate & Lyle ordinary shares in value up to 250% of base salary per annum, with flexibility for the Committee to make awards of up to 300% of base salary where necessary to ensure market competitiveness, taking account of Company performance.

Javed Ahmed received special long-term incentive (LTI) awards to facilitate his recruitment, detailed in the annual report 2009, and also in the Share awards section. Although these were not granted under the PSP, they have similar terms, including the same performance conditions, to PSP awards.

Performance conditions – 2010 awards

The number of shares a participant ultimately receives depends on the Group’s performance during the three-year performance period beginning on 1 April in the year of the award. For the 2010 awards, the performance conditions comprised two elements:

a) Adjusted diluted Earnings Per Share (EPS) (50% of total award)

Performance is measured by comparing the compound annual growth rate (CAGR) of the Company’s adjusted diluted EPS from continuing operations over the three-year performance period against predetermined targets. The Committee selected this metric as it is a key determinant of shareholder value creation.

b) Adjusted Return On Capital Employed (ROCE) (50% of the total award)

Performance is measured by the adjusted ROCE on continuing operations achieved at the end of the three-year performance period against the predetermined targets. The original targets of 13.0% at threshold and 16.0% at maximum vesting, as disclosed in the Notice of Meeting for the 2010 annual general meeting, were revised following the sale of EU Sugars on 30 September 2010 to 13.4% and 16.4% respectively, in each case representing an increase of 100 basis points and 400 basis points, respectively, relative to the adjusted ROCE (which was also revised on a like for like basis), achieved in the year ended 31 March 2010. The Committee selected this metric as it is a good indicator of the effectiveness of strategic investment decisions and of the quality of earnings generated. Importantly the ROCE outcome is adjusted downward by adding back any asset impairments into capital employed; this is to encourage a prudent investment strategy. For this reason, in the event of there being an impairment of assets, the ROCE figure for PSP purposes can be significantly lower than the unadjusted ROCE number reported in the Company’s accounts.

The two metrics referred to above provide better line of sight for participants than relative TSR, as Tate & Lyle has few, if any, directly comparable peers that can be used to create a peer group.

Shares awarded under the PSP in 2010 vest in accordance with the following schedule:

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Percentage of award vesting

CAGR of adjusted diluted EPS during the performance period
(50% of award)

Adjusted ROCE at end of performance period
(50% of award)

1

In accordance with the special arrangements that were put in place to facilitate the Chief Executive’s recruitment, 25% of his award vests at threshold performance.

0%

Below 6%

Below 13.4%

15%1

6%

13.4%

On a straight line between 15% and 100%

Between 6% and 15%

Between 13.4% and 16.4%

100%

15% or more

At 16.4% or above

There is no retesting of the performance conditions.

Before any shares become eligible for release, the Committee must also be satisfied that this is justified by the underlying financial performance of the Group over the measurement period. Subject to the Committee’s approval, the conditional award is then converted into a nil-cost option to acquire the appropriate number of shares.

Deferred Bonus Share Plan (DBSP) (suspended scheme)

Awards were made under the DBSP from 2005 to 2008, and it was suspended in 2009. Under the DBSP, executives had the opportunity to defer up to 50% of their annual cash bonus (after deduction of tax, national insurance or other social security payments) and invest the amount deferred in the Company’s shares. Subject to the satisfaction of a performance condition over the performance period, participants received awards of matching shares based on the number of shares which could have been acquired from the gross bonus amount deferred by the participant (lodged shares). The performance conditions attached to past awards is the same as that attached to PSP awards made in the same year. The performance conditions attached to the PSP awards made in 2008 are described in the 2008 PSP award section. Accordingly, 88% of the maximum matching shares available under the DBSP conditional award in 2008 is eligible for release.