Rolls-Royce has reduced the deficit of its defined benefit (DB) pension schemes and is to launch a deferred shares bonus plan for executive directors and senior managers.
Its Annual financial report showed that, during 2013, the net deficit of the pension schemes fell by £49 million, principally due to the movements in the assumptions used to value the underlying assets and liabilities in accordance with IAS 19.
The reduction in the deficit followed an agreement to fund additional pension increases in the Rolls-Royce Pension Fund at a cost of £64 million.
The report stated that overall funding of the pension scheme has improved in recent years as Rolls-Royce has adopted a lower risk management strategy that reduces volatility going forward and enables the funding position to remain stable.
It also stated the organisation’s funding of its DB pension schemes is expected to increase modestly in 2014, largely as a result of funding of the discretionary benefits.
New bonus plan
The report also included Rolls-Royce’s remuneration report, which set out its bonus and pay plans for executive directors and senior managers.
It stated that there will be no basic pay increase for most of the organisation’s senior leadership team.
It also announced the launch of the new Rolls-Royce Deferred Share Bonus Plan, which will be put forward to shareholders at its annual general meeting.
It will also put forward a new performance share plan (PSP), because the previous plan, approved by shareholders 10 years ago, will expire in 2014.
The new PSP will be broadly unchanged from its predecessor, except for the following exceptions:
- The new plan will contain malus and clawback provisions to enable the withdrawal or amendment of share grants before vesting and the right to reclaim awards that have been vested or their proceeds in the case of serious non-compliance with the group’s Global Code of Conduct.
- The directors will be obliged to retain half of all PSP shares released to them until a multiple of salary is reached. The shareholding requirement has been increased to 250% of salary for the chief executive and 200% of salary for the other executive directors.
Dame Helen Alexander, chair of the remuneration committee, wrote: “An important principle of the bonus plan is that no bonus can be paid unless the entire group has achieved a base level of business performance.
“There will be no increase in basic pay for most of the senior leadership team in 2014. We remain satisfied that the existing remuneration arrangements continue to align with the group’s strategy and there are no plans to change the current arrangements significantly.”