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 Remuneration Report Corporate Governance Business Opportunity & Business Risk Management Financing Policy & Risk Management Directors & Officers Group Executives & Advisers Corporate Responsibility Report of the Directors Report of the Auditors |
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Remuneration ReportUnaudited informationThe Remuneration Committee throughout the year consisted of: Sir Derek Higgs, Chairman of the Remuneration Committee, Lord Burns, Dr Christopher Gibson-Smith and David Michels.The Remuneration Committee took advice during the year from John Ritblat, John Weston Smith, Anthony Braine and from Hewitt Bacon & Woodrow. The Remuneration Committee appointed Hewitt Bacon & Woodrow as adviser to the Committee. In addition Hewitt Bacon & Woodrow acts as actuary to the British Land Group Final Salary Pension Scheme and gives advice on share scheme and personnel policy matters to the company. Statement of company’s policy on directors’ remunerationThe company has developed over the years a policy that involves each director having a remuneration package consisting of several remuneration components. The fixed part of the package is a combination of basic salary and benefits. In addition, the company has an annual incentive plan and a long-term incentive plan. The policy is tailored to support the strategic objective of delivering long-term value to shareholders.i Basic salary and benefits Basic salary and benefits in kind for each executive director are reviewed annually by the Remuneration Committee and take into account individual responsibility, experience and performance as well as the market-place for similar positions in comparable companies. Benefits normally include the provision of a car, fuel, private medical insurance and permanent health insurance. Pensions are provided under approved and unapproved schemes. The aim has been to provide executives with at least 20 years service at age 60 with benefits equivalent to a pension at that age of two-thirds of basic salary less the single person’s basic state pension. The company policy will need to be reviewed if the Inland Revenue proposed changes to pensions set out in the Budget Statement of March 2004 are enacted. ii Annual incentive plan The annual incentive plan consists of a cash bonus payable to executive directors reflecting the individual’s contribution to the company during the preceding year and team performance. Target award levels are 40% of base salary for above satisfactory performance and 75% of salary for outstanding performance. The awards are not contractual and are not pensionable. In assessing corporate performance the Remuneration Committee looks at a number of performance measures as appropriate to the particular year. All of the performance measures are consistent with the long-term growth of the net asset value of the company. iii Long-term incentives The Long-Term Incentive Plan approved by shareholders last year permits either market value options or performance shares, which are similar to restricted shares, to be awarded, as may suit the company from time to time. The option section of the Plan comprises an Inland Revenue approved part and an unapproved part. The company has been advised that options have a present value equivalent to approximately one third of the value of performance shares. Under the Plan, the company may award a maximum limit of 150% of base salary in performance shares each year or 450% of base salary in options each year (the latter under current estimations being equivalent in value to 150% of base salary awarded as performance shares). The annual limit will be set under both the options and performance shares components of the Plan taken together. The present intention of the Remuneration Committee is that the award each year will be given as to one half in the form of performance shares and one half in the form of options. However, the Remuneration Committee may vary this allocation from time to time in response to changes in market circumstances, changes to the taxation system affecting options and shares, or in any other circumstances considered to be exceptional but on the basis that at least one third of any award made each year would consist of either performance shares or options. Awards will normally be over ordinary shares, however, the Remuneration Committee may make up to 50% of the value of an award of performance shares in the form of Bonds. Such Bonds will not be used for the option component of the Plan. Grants made under the Plan are subject to a prescribed performance condition upon which the exercise of options and the vesting of performance shares will be contingent except that grants may be made without any performance condition to facilitate the recruitment of a new executive.  Back to top
The performance condition attaching to options and share awards measures the growth in the company’s net asset value per share against the capital growth component of the Investment Property Databank Annual Index, over a performance period of three years commencing the year in which the options and share awards are granted. Growth in the company’s net asset value per share will need to exceed that of the Index for a minimum proportion of the options to be exercised and/or performance shares to vest with more stretching achievements required for each additional tranche of shares. The performance hurdles are:
The Committee reviews these performance conditions on a regular basis to ensure they are both sufficiently stretching and they remain relevant to the company’s strategic objectives. The Long-Term Incentive Plans that have been used in the past are an Executive Share Option Scheme and a Restricted Share Plan. No further awards will be made under the Executive Share Option Scheme or the Restricted Share Plan, following the adoption of the new Long-Term Incentive Plan by shareholders at the 2003 Annual General Meeting. Under the Executive Share Option Scheme, market value options were granted at the discretion of the Committee. Options became exercisable after three years (or five years in certain cases), dependent on the performance target being met. The performance target, agreed following consultation with the Association of British Insurers and the National Association of Pension Funds, requires growth in net asset value per share over a rolling three year period equal to or exceeding the growth in the capital growth component of the Investment Property Databank Annual Index. No options have been granted under this scheme since 1996. Under the Restricted Share Plan, executives and directors were granted provisional interests in securities of the company that vest according to performance against a target, agreed following consultation with the Association of British Insurers and the National Association of Pension Funds. This target requires growth in net asset value per share over a rolling three year period equal to or exceeding the growth in the capital growth component of the Investment Property Databank Annual Index. There is a stepped incentive scale in bands of achievement as follows:
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The following summarises the annual package and relative importance for an index base salary of 100 for each executive director.
In addition annual grants under the Long-Term Incentive Plan are targeted at 100-150. Robert Bowden, Nicholas Ritblat and Graham Roberts also receive pension benefits as set out further below. Performance measure for current long-term incentives The company has given much thought as to the most appropriate performance measure to use to align the interest of the executive with that of the company, and to strengthen links between individual and shareholder interests. The company considers that the most relevant measure of success in determining whether its strategy has been achieved is by reference to growth in net asset value per share. In benchmarking performance the company compares its net asset value per share performance with the capital growth component of the Investment Property Databank Annual Index. The Investment Property Databank Index is the standard benchmark for investors to analyse the performance of property in the UK market and thus provides a straightforward and well recognised comparison. The company is geared whilst the index is not and therefore stretching out-performance is required for the entire award to vest. Hewitt Bacon & Woodrow undertakes the measurement of performance and submits a report to the company showing the results for each specific award. Directors’ contracts The general policy of the company is to have service contracts with notice periods of one year. However, it is sometimes necessary when recruiting a new director to give a service contract with an initial term of longer than one year. In such circumstances it is the policy of the company that the notice period should reduce to one year after an initial period of service. The company applies the principle of mitigation in the event of early termination of service contracts. John Ritblat, John Weston Smith and Robert Bowden do not have service contracts with the company, as they have reached age 60. Nicholas Ritblat has a service contract dated 12 November 1991 and amended by side letters dated 9 June 1997 and 29 May 2002. It is a rolling contract providing for one year’s notice. Graham Roberts joined the company in January 2002 as an executive director under a service contract dated 19 November 2001. It is a rolling contract providing for one year’s notice. There are no further provisions for compensation payable on termination of service contracts of directors. There has been no compensation paid to departing directors during the year. The British Land Company PLC Total Return Index vs FTSE Real Estate Sector Total Return Index (Rebased 1 April 1999) for the five years ending 31 March 2004  d Performance graph The graph above is prepared in accordance with The Directors’ Remuneration Report Regulations 2002. It shows the company’s total return and that of the FTSE Real Estate Sector Total Return Index for the five years from 1 April 1999 to 31 March 2004. The FTSE Real Estate Sector Index was chosen because that is where the shares of the company are classified. Hewitt Bacon & Woodrow prepared the graph based on underlying data provided by Datastream. Non-executive directors The remuneration of the non-executive directors is a matter for the executive members of the Board. Their remuneration comprises a standard director’s fee, a fee for additional responsibilities and an attendance fee based on the number of meetings attended during the year. The remuneration provided takes into account the level of responsibility, experience and abilities required and the marketplace for similar positions in comparable companies. Back to top
Audited informationDirectors’ emoluments
Directors and their interests in share and loan capital Beneficial interests of the directors in the share and loan capital of the company.
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Directors and their interests in share and loan capital continued
Directors’ options and Restricted Share Plan and Long-Term Incentive Plan interests by date of grant and exercise price(i) 1984 Share Option SchemeBeneficial interests of the directors under the company’s 1984 Share Option Scheme in ordinary shares of the company.
On 8 December 2003 Robert Bowden exercised his option over 80,800 shares. 60,600 had an option price of 380p per share and 20,200 had an option price of 322p per share. The middle market quotation on the date of disposal was 552p per share. 20,200 of these options were linked to a corresponding number of options. Accordingly, the exercise of these options automatically caused the 20,200 counterpart options to lapse. The shares were sold on the day of exercise at a price of 548.3p per share, realising a gain of 168.3p per share on the 60,600 options and 226.3p per share on the 20,200 options. No options were granted to directors under the 1984 Share Option Scheme during the year. * These options are linked to corresponding grants of options. Accordingly the exercise of one linked option over a number of shares automatically causes its counterpart to lapse in respect of the same number of shares; therefore these options do not increase the total number of shares under option. The totals in the table reflect the number of shares under option. All new grants of options are subject to a performance target which has been approved by the Association of British Insurers and the National Association of Pension Funds. The middle market quotation for the ordinary 25p shares of the company at the close of business on 31 March 2004 was 652.5p. The highest and lowest middle market quotations during the year to 31 March 2004 were 661.5p and 398.75p. Back to top
(ii) Sharesave Scheme Beneficial interests of the directors under the company’s Sharesave Scheme in ordinary shares of the company.
* Date of cessation of office. The directors’ participation in the company’s Sharesave scheme, which is not subject to performance criteria, is considered appropriate because the scheme is open to all employees with over two years of service. On 1 March 2004 John Ritblat and John Weston Smith exercised their options over 4,753 shares each at an option price of 355p per share. The middle market quotation per ordinary 25p shares of the company on 1 March 2004 was 658p per share, realising a notional gain of 303p per share, as they both continue to hold these shares. On 1 March 2004 John Ritblat was granted an option over 1,954 shares at an option price of 472p per share and John Weston Smith was granted an option over 3,358 shares at an option price of 472p per share. (iii) Restricted Share Plan Beneficial interests of the directors under the company’s Restricted Share Plan in the ordinary shares of the company.
* These items represent the vesting of the awards made on 8 December 2000 at 150% of their original value on outperformance of the target set. The middle market quotation of the ordinary 25p shares of the company on 8 December 2000 was 448.5p per share. ** The amounts distributed in the year to 31 March 2004 represent the market value of the grant which vested on 8 December 2003 together with dividends arising on the beneficial interests for the year ended 31 March 2004. On release John Weston Smith and Robert Bowden each sold 112,500 shares and Nicholas Ritblat sold 46,125 shares. The middle market quotation of the ordinary 25p shares of the company on 8 December 2003 was 552p per share. Back to top
Upon vesting, shares are transferred out of the British Land Share Ownership Plan (the Trust), a discretionary trust established to facilitate the operation of the incentive schemes. The trustees of the Trust purchase the company’s ordinary shares in the open market and rights to dividends on shares held by the Trust are payable in accordance with their awards to employees participating in the company’s Restricted Share Plan. (iv) Long-Term Incentive Plan
The options, subject to achievement against the performance condition, will become exercisable on the third anniversary of the option grant date at 502p per share. Any option not exercised by the tenth anniversary of its date of grant will lapse. The above performance shares were granted at a price of 502p per share. Upon vesting, performance shares are transferred out of the British Land Share Ownership Plan (the Trust), a discretionary trust established to facilitate the operation of the incentive schemes. The trustees of the Trust purchase the company’s ordinary shares in the open market and rights to dividends on shares held by the Trust, are retained by the Trust and are payable to employees only on the vesting of the employees’ performance shares. The aggregate amount of gains made by directors on the exercise of share options was £176,506 (2003: £1,909). The aggregate value of distributions to directors in relation to the Restricted Share Plan was £3,231,583 (2003: £1,947,705). Directors’ pension benefits for the year ended 31 March 2004 Three executive directors, Nicholas Ritblat, Robert Bowden and Graham Roberts, earned pension benefits in the scheme during the year. Robert Bowden’s and Graham Roberts’ benefits from the tax approved scheme are restricted by the earnings cap and they are, therefore, entitled to benefit from the company’s Funded Unapproved Retirement Benefit Scheme (FURBS). The benefits provided by the FURBS are defined lump sums. Non-executive directors do not participate in any company-sponsored pension arrangement. In consequence of the Directors’ Remuneration Report Regulations 2002, company accounts are subject to two sets of disclosure requirements in relation to directors’ pensions rather than one. The extended Companies Act 1985 requirements have to be observed in addition to, not in place of, the current UK Listing Authority requirements. The requirements differ slightly and these Regulations are expected to remain in force for the time being. The three tables shown opposite provide the details of the directors’ pensions necessary to satisfy the two sets of requirements. The pension benefits earned during the year by Nicholas Ritblat, Robert Bowden and Graham Roberts are shown in the following tables: Companies Act 1985 Disclosure Requirements
* see note (3b) ** Robert Bowden retired from the Scheme and the FURBS on 1 June 2003. The increase in Robert Bowden’s accrued pension and accrued FURBS lump sum are for the period 1 April 2003 to 1 June 2003 (his date of retirement from the scheme). The transfer values of his accrued pension and his accrued FURBS lump sum at his retirement date have been valued as at 1 June 2003. Back to top
UK Listing Authority Disclosure Requirements
* see note (3b) ** Robert Bowden retired from the Scheme on 1 June 2003. The net increase in Robert Bowden’s pension and FURBS lump sum are for the period 1 April 2003 to 1 June 2003 (his date of retirement from the scheme). They have been valued as at 1 June 2003. Notes: 1 The total accrued pension and FURBS lump sum entitlement shown are those that would be paid annually on retirement at 60 based on service to the end of the year. For Robert Bowden, they are the amounts payable from his retirement date. 2 Members of the Scheme have the option to pay Additional Voluntary Contributions. Neither the contributions nor the resulting benefits are included in the above table. 3 The following is additional information relating to directors’ pensions for those included in the above table: Main Scheme a Normal retirement age for pension arrangements is age 60. b Members of the Scheme were not required to pay contributions during the year. c Retirement may take place at any age after 50 subject to the consent of both the company and the Trustees of the pension scheme. Pensions are reduced to allow for their earlier payment. d On death in service, the arrangement provides a capital sum equal to four times salar y and a spouse’s pension of two-thirds of the member’s prospective pension at age 60. If a member is granted a deferred pension, a spouse’s pension of two-thirds of the member’s accrued pension is payable on death before or after retirement. These pensions are paid throughout the spouse’s lifetime or until the youngest child reaches age 18 (or age 23 if in full time education), if later. e Pensions are guaranteed to increase each year in line with the increase in the Retail Prices Index (RPI) subject to a maximum of 5%. The Trustees may grant additional discretionary increases subject to the consent of the company. Statutory increases apply to pensions during deferment. f The transfer values have been calculated on the basis of actuarial advice in accordance with Actuarial Guidance Note GN11. g Transfer value calculations allow for discretionary pension increases such that, in aggregate, pension increases in line with increases in the RPI are valued. FURBS a Normal retirement age for pension arrangements is age 60. b Retirement may take place at any age after 50 subject to the company’s consent. Benefits are reduced to allow for their earlier payment. c On death in service top up lump sums are provided so that, in aggregate, the payee receives broadly the same value of benefits (net of tax) as if the earnings cap did not apply. On death in deferment if a spouse’s or dependant’s pension is payable from the main scheme a lump sum of two-thirds of the member’s accrued lump sum is also payable. d In deferment, accrued lump sums are increased in line with statutory increases on pensions in deferment. This report was approved by the Board on 24 May 2004.  Sir Derek Higgs Chairman of the Remuneration Committee Back to top
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