Directors’ remuneration report

Pensions

The main features of the Northumbrian Water Pension Scheme are set out in note 25 to the financial statements. Basic salary is the only pensionable element of the executive directors’ remuneration packages.

The executive directors’ pensions were modified with effect from 1 January 2008, in line with the changes proposed for the pension scheme as a whole, and the executive pension arrangements were closed to new entrants on that date. The accrued defined benefit pensions and corresponding transfer values for the executive directors are set out in Table 5.

Annual bonus

The annual bonus plan has been designed to reflect the interests of all of the Company’s stakeholders. Consistent with prior years, maximum annual bonus potential for the executive directors for 2009/10 is 70% of salary, which is apportioned as follows:

Actual performance against the 2008/09 targets was as follows:

Bonus metric	Max bonus (% of salary)	John Cuthbert Actual bonus (% of salary)	Chris Green Actual bonus (% of salary)
PBT	40	–	–
OPA rating	5	1.0	1.0
Percentage lost time through sickness	5	1.5	1.5
Bespoke personal targets	20	15.0	15.0
Total	70	17.5	17.5
		£51,625	£39,375

Notes:

1. The PBT bonus is based on actual PBT performance compared to the budget PBT set by the Board at the beginning of the year. PBT has been chosen because it is a primary financial measure for the Company, for which the executive directors are accountable. In 2008/09, PBT was below budget.
2. NWL’s estimated OPA score for 2008/09 is 356, against a range for bonus purposes of 341 to 419, being the published range of performance across the ten water and sewerage companies in 2007/08. NWL’s score was adversely affected by sewer flooding.
3. The year end percentage of time lost through sickness was 2.94%, against a range for bonus purposes of 2.6% to 3.1%.
4. In 2008/09, John Cuthbert’s personal targets related principally to managing the PR09 process, maintaining key financial ratios and measures, ensuring that good relationships are maintained with major investors and analysts, implementing the agreed approach to succession planning, ensuring that investment needs are properly quantified and the investment programme is delivered with regulatory outputs met and identifying further opportunities to impact the cost base of NWL and improve its efficiency ranking. Chris Green’s personal targets were focused mainly on managing the PR09 process, maintaining key financial ratios and measures, relationships with major investors and analysts, positioning NWL to respond to Ofwat’s proposals on accounting separation, ensuring that investment needs are properly quantified and the investment programme is delivered with regulatory outputs met and identifying further opportunities to impact the cost base of NWL and improve its efficiency ranking.
5. The Remuneration Committee has decided that, in respect of the bonus for 2009/10 and beyond, the calculation of PBT performance will be adjusted to exclude the impact of any variance between the actual and budget interest charge on index linked bonds issued by Northumbrian Water Finance plc, which depends entirely on RPI in July of each year and is, therefore, outside of management control.