Annual Report 2013

Directors’ Remuneration Report


Dear Shareholder,
In accordance with new requirements, this year’s remuneration report is split into two parts: the directors’ remuneration policy and the annual report on remuneration for the 2013 financial year. Both elements, will be subject to an advisory shareholder vote at the AGM on 28 May 2014.

The Remuneration Committee has, I believe, been conservative and restrained in relation to executive pay. No bonuses were awarded in 2012 or 2013, in recognition of challenging corporate performance, despite our Executive Directors performing well on individual indicators of great importance to the Company. Nor have salaries increased beyond cost of living adjustments.

Directors’ Remuneration Policy

The Committee has focused in recent months on ensuring that Kenmare’s remuneration policy is appropriately structured to drive corporate performance and deliver value to shareholders, while also incentivising senior management and rewarding results.

We are proposing some significant changes to our approach on remuneration. The proposed structure is intended to apply for three years from the 2014 AGM date and is detailed in the Directors’ Remuneration Policy Report in the following pages.

We were prompted to carry out the remuneration review at this time, taking into account:

  • The new UK legislation on remuneration reporting. As an Irish company, Kenmare is not legally obliged to comply with this framework, but its shares are listed on the London Stock Exchange and it is our policy to follow best practice corporate governance. We intend to put our policy to an advisory vote at the AGM.
  • A desire to introduce a simplified remuneration policy and structure that supports business strategy and, for Executive Directors, to move away from the current share option scheme which has been in place since 1987.
  • A desire to align the interests of executives more closely with shareholder returns over the longer term and to increase Executive Directors’ shareholdings.
  • The need to address the intense competition for experienced and talented senior executives in the global mining industry.

Our work has been guided by the principles of fairness, alignment to shareholders’ interests, management control over metrics, and appropriateness to the Company’s stage of development including being flexible and robust enough to remain relevant across the next three years.

The proposed structure:

  • Does not lead to any increase in the total remuneration of the Executive Directors, and provides for a greater proportion of total pay to be linked to corporate performance and deferred into equity, to lock in management and provide a focus on long-term sustainable value;
  • Demonstrates our commitment to a simple and transparent structure which is in the best interest of the Company by balancing the interests of shareholders and executives;
  • Ensures that incentive payments and vesting of shares is linked to both:
    • - Short term performance metrics which support the business strategy in a dynamic and evolving environment;
    • - Shareholder returns over the longer term;
  • Allows the Committee to set annual performance metrics in a challenging business environment which, at this time, makes setting sensible multiple-year corporate targets in advance difficult. Targets will be disclosed at the end of the financial year, providing shareholders with full transparency on remuneration outcomes. This enables the Committee to build on performance and to use the targets to drive continuous improvement.

Finally, the manner in which executive pay was previously reported was not a fair reflection of actual benefits received. Whilst share option values previously disclosed were based on a Black-Scholes valuation model, this overstated the value delivered to the executives and from now on there will be greater clarity and transparency.

2013 Report

The past year saw our executives succeed in confronting many challenges and perform well on an individual basis. However, corporate performance was difficult due largely to world market prices for our products. In view of this, bonuses have not been awarded for a second year running, despite the achievement of targets, including production, to threshold levels. In addition, no share options were awarded to the Executive Directors in 2013.

With the change to the new compensation structure, this creates a two year gap, which goes against our objective of incentivising Executive Directors with performance-conditional share awards and increasing their stake in the Company. We propose to bridge this gap by an initial KIP award to Executive Directors, which will vest after three years subject to total shareholder return performances and be released between three and five years from grant.

Conclusion

We are grateful to our investors for their feedback and interaction in the development of this new structure. I also thank my fellow members of the Remuneration Committee for their work and appreciate the very positive inputs and cooperation of our Executive Directors. Our next step will be to review the remuneration policy for senior management.

I hope that you will vote in support of the proposed directors’ remuneration policy, the initial KIP award and the annual report on remuneration for 2013.

Elizabeth Headon,

Chairman of the Remuneration Committee

 

DIRECTORS’ REMUNERATION POLICY REPORT

Principles +-

Kenmare’s remuneration policy is designed to maintain levels of remuneration that attract, motivate and retain Executive Directors of the highest calibre who can contribute their experience to the Group’s operations. The Board seeks to align the interests of Executive Directors with those of shareholders, within the framework set out in the UK Corporate Governance Code. Central to this policy is the Group’s belief in long-term, performance based incentivisation. The Remuneration Committee seeks to ensure:

  • that executives are rewarded in a fair and balanced way for their individual and team contribution to the Group’s performance;
  • that executives receive a level of remuneration that is appropriate to their scale of responsibility and individual performance;
  • that the overall approach to remuneration has regard to the sector within which the Group operates and the markets from which it draws its executives; and
  • that risk is properly considered in setting remuneration policy and in determining remuneration packages.

Shareholder Vote +-

The legislative framework that underpins the UK Department for Business, Innovation and Skills Regulations does not apply to Kenmare as an Irish company. However, the Company is listed on the London Stock Exchange and it is our policy to follow best practice corporate governance. As a result this policy will be put to an advisory vote of shareholders at the 2014 Annual General Meeting (AGM) and is intended to apply for three years beginning on the date of approval at the AGM.

Remuneration Policy for 2014 onwards +-

This remuneration policy set out below covers the three year period between the 2014 AGM and the 2017 AGM and complies, on a voluntary basis, with the regulations set out in the UK’s Large and Medium-sized Companies and Groups (Accounts and Report) (Amendment) Regulations 2013 (“the Regulations”).

This section of the Remuneration Report contains the general principles of the Company’s Directors’ Remuneration Policy which will underpin the Company’s future executive remuneration. The Remuneration Committee aims to maintain a remuneration policy, consistent with the Company’s business strategy and objectives, which:

  • attracts, retains and motivates individuals of high calibre;
  • is responsive to both Company and personal performance; and
  • is competitive within relevant employment markets.

The remuneration policy is built on the following philosophy:

  • remuneration packages are structured to support business strategy and conform to current best practice;
  • appropriate rewards are given for meeting specific target objectives set at the beginning of each year;
  • incremental compensation is achieved for attaining stretch performance targets;
  • objectives are measured on metrics designed to be consistent with sustainable long-term business performance;
  • promotion of long-term alignment with shareholders through satisfaction of incentives in shares and employee shareholding;
  • all decisions are made taking into account the diversity of our people at Director level; and
  • monitoring of pay and employment conditions elsewhere in the Group.

The total remuneration levels of the Executive Directors are reviewed annually by the Remuneration Committee, taking into account:

  • performance of the executive against specific targets set at the beginning of each year;
  • competitive market practice and remuneration levels; and
  • the general economic environment.

The Remuneration Committee has, in the design and application of the incentive plan, incorporated mechanisms to encourage consistent and sustainable levels of Company performance and to ensure, when selecting performance conditions and the level of challenge within those conditions, that they support the long-term future of the Company. In reviewing its policy and determining remuneration, the Committee also considers the wider economic conditions and pay and reward packages elsewhere in its sector and within the business.

Going forward, the Executive Directors’ remuneration package is made up of the following components:

Base Salary + Kenmare Incentive
Plan
+ Pension and Other
Benefits
= Remuneration
Package

 

These main components of the remuneration policy and how they are linked to and support the Company’s business strategy are summarised in the table below.

Component

Purpose and link to strategy

Operation and performance measures

Payment levels, maxima and at threshold

Base Salary

To attract and retain the talent needed to lead our business.

Reviewed annually with adjustments effective from 1 January.

Executive Directors’ salaries for 2014 will be increased in line with Irish inflation.

In reviewing base salary, reference is made to benchmarking data of other UK- and Irish-listed companies of similar market capitalisation, practice in the global mining sector and Company performance.

Other factors taken into account when considering whether or not to award a base salary increase:

  • the performance of the Executive over the previous twelve months;
  • the salary review budget for all employees for the coming year; and
  • retention risk and the ability to replace higher value skills if needed in the market.

Base salaries for Executive Directors are generally increased for cost of living and with consideration to general Company increases.

The only exceptions to this rule are where:

  • There is a significant movement in the benchmarking data for that role; or
  • An individual is brought in below market level and there is a requirement to increase base pay to reflect proven competence in role; or
  • There is a material increase in scope or responsibility of the Executive Director’s role.
 

Component

Purpose and link to strategy

Operation and performance measures

Payment levels, maxima and at threshold

Kenmare Incentive Plan

Rewards achievement of in-year performance targets aligned to the needs of the business.

Ensures reward only for sustained performance via significant deferred share component with subsequent performance thresholds.

Aligns the interests of shareholders and Executive Directors more closely over the longer term by providing a greater exposure to share price movements.

For the year to 31 December 2014, the Kenmare Incentive Plan will replace both the Annual Bonus and Company Share Option Scheme.

Annual awards under the KIP will have a cash element (30% of the overall award for 2014) and a separate share element (70% of the overall award for 2014).

Both the cash element and the share element will be based on a number of in year performance targets.

Based on the level of achievement against these targets, the cash element will be paid shortly after the end of the relevant financial year.

The share element will vest after a further three years with part of the shares subject to a further two year holding period. The share element will be subject to vesting conditions as follows:

  • Continuation of employment: 25%
  • Median relative total shareholder return (“TSR”): 25% (equal weighting against FTSE 250 and FTSE/MSCI Mining Index)
  • Absolute TSR exceeding a future target: 50%

Unvested shares are subject to cancellation in circumstances such as a material misstatement of accounts, or an event causing serious harm to the Company’s reputation.

The following in-year performance conditions, used to determine the initial grant of awards, will apply for 2014:

  • Operational measures: 45% of award;
  • Financial measures: 20% of award;
  • Strategic/personal measures: 25% of award; and
  • HSE: 10% of award.

Performance measures and targets will be determined at the start of each year and weights between metrics can be adjusted for future years to reflect the needs of the business. The balanced scorecard will be weighted towards the operational and financial measures.

The targets and actual levels of performance will be disclosed retrospectively within the implementation section of the Company’s Directors’ Remuneration Report. In addition, if the Remuneration Committee, in exceptional circumstances, believes that the cash element is not an appropriate use of the Company’s cash it will instead be able to make an award of deferred shares of equivalent value. Such deferred shares would not be subject to forfeiture, but could not be sold until three years from grant.

Awards for on-target performance in 2014 and 2015 will be (as a percentage of salary):

  • Managing Director: 125%
  • Financial Director: 125%
  • Technical Director: 75%

Maximum awards will be 250%, 250% and 150% of salary respectively for above-target performance.

At the beginning of each year from 2016, the Remuneration Committee will have discretion to review the level of maximum award opportunity for above-target performance, if necessary taking into account prevailing market conditions.

Each quantitative performance condition will have threshold, on-target and maximum targets set at the beginning of each year, with threshold and above-target performance in each area rated at respectively half or double performance at on-target level.

 

Component

Purpose and link to strategy

Operation and performance measures

Payment levels, maxima and at threshold

Initial KIP Award

To be used as an initial award in 2014, on recruitment and otherwise in truly exceptional circumstances.

To align shareholder and Executive interests by bridging the gap caused by a transition to the new KIP.

The new Initial KIP Award is proposed as a structure that resolves retention issues caused by the introduction of the new KIP that will not grant shares until early 2015.

The award will be the equivalent of 200% of base salary for all Executive Directors (with the number of shares awarded being determined using a share price of Stg26.5p, the price at which equity was issued in October 2013). These awards will vest after three years against TSR performance as follows (as a percentage of award):

  • Against FTSE 250: 50%
  • Against FTSE/MSCI Mining Index: 50%

TSR will be measured from the date of grant to the third anniversary of the date of grant. The date of grant will be as soon as practicable after the 2014 AGM date.

Subject to performance conditions being met, the shares will be released as follows (as a percentage of vesting):

  • After 3 years: 60%
  • After 4 years: 20%
  • After 5 years: 20%

No further Initial KIP Awards will be granted to existing Executive Directors.

Awards in shares of up to the equivalent of 200% of salary for Executive Directors.

Vesting against achievement against each metric will be (as a percentage of award):

  • Nil below median
  • 25% for median performance
  • 100% for upper quartile or better performance

Percentage of vesting will rise on a straight-line basis between points.

Pension

To ensure Executive Directors’ total remuneration remains attractive and competitive.

Each Executive Director is entitled to receive a payment of 10% of their base salary into the Company’s group personal pension plan or their private pension arrangements.

Maximum pension contribution is 10% of salary.

 

Component

Purpose and link to strategy

Operation and performance measures

Payment levels, maxima and at threshold

Other benefits

To ensure Executive Directors’ total remuneration remains attractive and competitive.

Each Executive Director is entitled to 25 days’ annual leave, family health insurance, permanent health insurance, life assurance and an annual health check.

The Managing Director has a company car.

The Group also reimburses the Executive Directors in respect of all expenses reasonably incurred by them in the proper performance of their duties.

The Company may introduce new benefits that are, or become, prevalent in a jurisdiction in which it operates and in which a Director is located.

Where an individual is relocated, benefits may be provided such as: relocation expenses, travel, accommodation, tax equalisation, professional advice, post-retirement medical expenses, in line with Company policy for relocations to the jurisdiction to which the individual is relocated where an ex-pat policy, rather than local policy, is being adopted.

The maximum opportunity for the benefits is defined by the nature of the benefit itself and the cost of providing it. As the cost of providing such insurance benefits varies according to premium rates and the cost of other benefits is dependent on market rates and other factors, there is no formal maximum monetary value.

Shareholding requirement

Introduction of a shareholding requirement of 100% of salary for all Executive Directors, to be built up over a five year period.

All beneficially held shares will count towards the requirement.

Legacy Incentive Awards

Annual Bonus

Aligns individuals with key strategic priorities.

The Annual Bonus will be replaced by the Kenmare Incentive Plan.

Historically this has been determined by personal and Company key performance indicators.

50% of the bonus payment is deferred for three years and is subject to continued employment with the Company.

The release of this deferred element remains part of the remuneration policy.

Payout for overall achievement against the basket of metrics since 2012 is (as a percentage of salary):

  • At threshold: 25%
  • On-target: 50%
  • Stretch or better: 75%
 

Component

Purpose and link to strategy

Operation and performance measures

Payment levels, maxima and at threshold

Share Option Scheme

To encourage Executive Directors to generate returns to shareholders in excess of the market generally.

Executive Directors were eligible for grants of options under the Company’s Share Option Scheme, granted as market value options.

No options were granted in 2013 under the Share Option Scheme.

Options granted in 2012 vest in 2015 and are subject to the achievement of annual KPIs relating to Health & Safety, Operations and Financial Performance in each of 2012, 2013 and 2014.

Options granted prior to 2012 were not subject to any performance conditions.

The release of shares already granted under the Share Option Scheme remains part of the remuneration policy.

No prescribed maximum.

 

Notes to the future policy table +-

Performance measures and targets

The Remuneration Committee selected performance conditions for the KIP which are central to the Company’s overall strategy and are the key metrics used by the Executive Directors to oversee the operation of the business.

The performance targets are determined annually. The Remuneration Committee is of the opinion that the performance targets for the KIP are commercially sensitive in respect of the Company and that it would be detrimental to the interests of the Company to disclose them before the start of the financial year. The targets will be disclosed after the end of the relevant financial year in that year’s remuneration report.

Key changes to remuneration policy from that operating in 2013

For the year 2014, for the Executive Directors, the Annual Bonus Scheme and Share Option Scheme (SOS) that were in operation in 2013 will be replaced by the Kenmare Incentive Plan (KIP).

A transitional award of shares (the Initial KIP Award) is proposed to be granted in 2014, which will vest after three years subject to TSR performances, and be released between three and five years from grant.

The Technical Director will receive 10% of base salary into the Company’s group personal pension plan or his private pension arrangement, in line with other Executive Directors. In addition, all Executive Directors will now be entitled to permanent health insurance, life assurance and an annual health check.

A shareholding requirement of 100% of salary for all Executive Directors to be built up over a five year period will be introduced.

It is intended that service contracts for the Executive Directors aligned with the proposed policy will be entered into during the course of 2014.

Differences between remuneration of Executive Directors and employees generally

Remuneration arrangements throughout the organisation differ depending on the specific role being undertaken, the level of seniority and responsibilities, the location of the role and local market practice. However, remuneration arrangements are designed based on the principle that rewards should be set at a level which is appropriate to retain and motivate individuals of the necessary calibre to fulfil the roles without paying more than is considered necessary to achieve this. The reward framework is designed to incentivise employees to deliver the requirements of their roles and add value for shareholders.

The Group operates a bonus scheme and share option plan for employees. The performance targets for the bonus scheme are aligned with those of Executive Directors.

Approach to recruitment remuneration

Components

Policy

General

The Committee’s approach to recruitment remuneration is to pay competitively to attract the appropriate high calibre candidate to the role. Our principle is that the pay of any new recruit would be assessed following the same principles as for the Executive Directors.

Base salary and benefits

The base salary will be set taking into account the responsibilities of the individual and the salaries paid to similar roles in comparable companies as per our base salary policy.

The Executive Director will be eligible to receive benefits in line with Kenmare’s benefits policy as set out in the remuneration table.

Pension

The Executive Director will be eligible to receive pension benefits in line with Kenmare’s pension policy as set out in the policy table.

Kenmare Incentive Plan

New Executive Directors will be entitled to a pro-rata KIP payment in their first year of employment.

Sign on payments/recruitment awards

Payments to an Executive Director may be made on a case-by-case basis and where considered by the Remuneration Committee to be necessary. Where deemed appropriate, payment can be made via the Initial KIP Award up to 200% of salary.

Share buy-outs/ replacement awards

Awards may be granted to replace those forfeited by the Executive Director on taking up the appointment where considered by the Remuneration Committee to be appropriate.

The Committee will seek to structure any replacement awards such that overall they are no more generous in terms of quantum or vesting period than the awards due to be forfeited. In determining quantum and structure of these commitments, the Committee will seek to replicate the value and, as far as practicable, the timing and performance requirements of remuneration foregone.

Relocation policies

In instances where the new Executive Director is required to relocate or spend significant time away from their normal residence, the Company may provide one-off compensation to reflect the cost of relocation for the Executive Director. The level of the relocation package will be assessed on a case-by-case basis but will take into consideration any cost of living differences / housing allowance / schooling.

Service contracts

The Company’s policy is that Executive Directors should have a notice period of no more than twelve months. The notice periods are, in the case of Mr M. Carvill and Mr T. McCluskey, twelve months’ notice from the Company and three months’ notice from the Director and in the case of Mr T. Fitzpatrick, six months’ notice from the Company and three months’ notice from the Director.

In the event of termination, the Remuneration Committee will agree an appropriate termination payment for the relevant individual reflecting the circumstances, service and existing contractual terms and conditions.

Kenmare has the right, or may be required in certain circumstances, to make a payment in lieu of notice of termination, the amount of that payment being base salary and benefits that would have accrued to the Executive Director during the contractual notice period. In addition, the Remuneration Committee reserves the right to allow continued participation in the KIP during the notice period.

Mr M. Carvill serves as Non-Executive Director for a number of subsidiary undertakings in the Vico Group and Carvill Group Limited; he does not receive a fee for his services. This release to serve as a Non-Executive Director was granted a number of years ago. All other Executive Directors do not serve as Non-Executive Directors elsewhere.

Policy on payment for loss of office

Components

Policy

General

When determining any loss-of-office payment for a departing individual, the Committee will protect the Company’s interests and reflect the circumstances in place at the time.

Good leaver

In general, good leaver will apply in the case of death, retirement, ill-health, injury or disability or any other reason determined by the Remuneration Committee. In addition, in the case of Mr M. Carvill and Mr T. McCluskey, they will be considered good leavers upon termination by them provided no event of gross misconduct or gross negligence has occurred and they do not take up employment or office with a competitor.

Base salary, benefits and pension

In the event of termination, the Executive Director will be entitled to receive compensation equivalent to salary, benefits and company pension contribution they would have received if still in employment for the balance of the applicable notice period.

Where appropriate, the Company may continue to provide benefits for a period post termination.

Kenmare Incentive Plan

Good leavers

If the participant is deemed to be a good leaver then there will be a pro-rated incentive payment. The Remuneration Committee will have the discretion to either:

  • assess performance and make a payment at the time of cessation of employment; or
  • assess performance and make a payment at the end of the relevant financial year in line with the operation of the KIP for other participants.

Unvested share awards will usually vest at the original dates and subject to the original performance conditions, but the number of shares will normally be reduced pro-rata to reflect the proportion of the performance period elapsed. The Remuneration Committee will have the discretion to allow shares to vest immediately (e.g. in case of death) but still subject to the outcome of the performance conditions.

Bad leavers

For a bad leaver all annual incentive payment entitlements and unvested shares will lapse.

Initial KIP Award

Good leavers

All share awards will vest subject to the proportionate achievement of the performance conditions on the date of cessation.

Bad leavers

All awards will lapse.

Deferred Bonus Awards made in 2011 and 2012

All deferred awards will vest immediately, save in the event of resignation or termination for gross misconduct or gross negligence.

Share Option Scheme

Good leavers

If the participant is deemed to be a good leaver then unvested share options will usually vest at the original dates and subject to the original performance conditions, but the number of options may be reduced pro-rata to reflect the proportion of the performance period elapsed. The Remuneration Committee will have the discretion to allow options to vest immediately (e.g. in case of death) but still subject to the outcome of the performance conditions.

Bad leavers

For a bad leaver all unvested shares will lapse.

Policy on payment for change of control

Components

Policy

General

When determining any change of control payment for a departing individual the Committee will protect the Company’s interests and reflect the circumstances at the time.

Base salary, benefits and pension

In the event of termination of employment following a change of control, the Executive Director will be entitled to receive compensation equivalent to salary, benefits and company pension contribution they would have received if still in employment during the relevant notice period.

Kenmare Incentive Plan

On a change of control there will be a final incentive payment based on the relevant achievement against the annual performance metrics as assessed by the Remuneration Committee up to the point of change of control. The Remuneration Committee will have the discretion to pro-rate for the proportion of the year elapsed. Any incentive will be paid immediately in cash.

All unvested share awards will vest immediately, and will normally be subject to satisfaction of any relevant performance conditions. The number of shares vesting will usually be pro-rated to reflect the proportion of the performance period elapsed, but the Remuneration Committee will have the discretion not to apply this pro-rating.

Initial KIP Award

All share awards will vest and will normally be subject to the proportionate achievement of the performance conditions at the date of the change of control.

Deferred Bonus Awards made in 2011 and 2012

All deferred awards will vest immediately.

Share Option Scheme

All unvested share options will vest immediately.


In the event of a compromise or settlement agreement, the Committee may make payments it considers reasonable in settlement of potential legal claims. The Committee may also include in such payments reasonable reimbursement of professional fees in connection with such agreements.

The reimbursement of repatriation costs or fees for professional or outplacement advice may also be included in the termination package, as deemed reasonable by the Committee, as may the continuation of benefits for a limited period.

Other Remuneration Committee discretions

In the event of the following:

  • variation of the share capital of the Company; and
  • demerger of a substantial part of the Group’s business;

the Remuneration Committee may make such adjustments to awards as it may determine to be appropriate under the KIP and Initial KIP Award, in accordance with the plan rules.

The Committee has discretion in several areas of policy as set out in this report. The Committee may also exercise operational and administrative discretions under relevant plan rules approved by shareholders as set out in those rules.

Consideration of employment conditions elsewhere in the Company

The Committee does not directly consult with employees when formulating Executive Director pay policy. However, the Committee does take into consideration information on pay arrangements for the wider employee population when determining the pay of Executive Directors.

Consideration of shareholder views

The Remuneration Committee considers shareholder feedback received in relation to the AGM each year and guidance from shareholder representative bodies more generally. This feedback, together with additional feedback received during meetings from time to time, is then considered as part of the Company’s review of remuneration policy. In formulating the policy for 2014, the Committee consulted with many of the significant shareholders regarding their views on remuneration practice and policies. The views expressed during these consultations were taken into consideration when setting the remuneration structure.

Illustrations of application of remuneration policy

The total remuneration opportunity in 2015, being the first full calendar year that the new policy will be applied, for each of the Executive Directors at three different levels of performance is shown below.

Notes:

Base salary is based on 2014 figures and benefits are based upon 2013 figures. Pension is taken as 10% of salary. The benefits value reflects 25 days’ annual leave and family health insurance.

Target KIP award is 50% of the maximum opportunity available.

Maximum KIP award represents 250%, 250%, 150% of salary for the Managing Director, Financial Director and Technical Director respectively for 2015 awards under the KIP.

Non-Executive Directors’ remuneration

Executive Directors set the remuneration of Non-Executive Directors. The fees paid are set at a level to attract individuals with the necessary experience and ability to make a significant contribution to the Group’s activities, while also reflecting the time commitment and responsibility of the role.

Non-Executive Directors are remunerated by way of Director’s fees. In addition, Ms S. Bianchi and Mr A. Lowrie receive consultancy fees set out in agreements between them and Congolone Heavy Minerals Limited, a subsidiary of Kenmare Resources plc.

Non-Executive Directors do not participate in any annual bonus scheme nor do they hold share options.

None of the Non-Executive Directors had a beneficial interest in any contract to which the Company or any of its subsidiary undertakings was a party during the financial year except the consultancy agreements referred to above.

Non-Executive Directors are not entitled to any compensation on the termination of their appointment. All Directors are subject to annual re-election. No compensation is payable to Non-Executive Directors if they are not re-elected.

 

ANNUAL REPORT ON REMUNERATION 2013

Composition and Role of the Remuneration Committee +-

The Remuneration Committee comprises five independent Non-Executive Directors, Ms E. Headon (Chairman), Ms S. Bianchi, Mr J. Loasby, Mr S. McTiernan and Mr G. Smith. Mr S. McTiernan and Mr G. Smith were appointed to the Remuneration Committee in March 2013. Further details regarding the members of the Remuneration Committee, including their biographies and length of service are set out here. The Company Secretary acts as secretary to the Committee. The Managing Director may be invited to attend meetings of the Committee, except when his own remuneration is being discussed. No Director is involved in consideration of their own remuneration.

The role and responsibilities of the Remuneration Committee are set out in its written terms of reference, which are available on request and on the Company’s website www.kenmareresources.com.

The Committee is responsible for determining the policy for the remuneration of the Managing Director and the other Executive Directors. In this regard the Committee gives full consideration to legal and regulatory requirements, to the principles and provisions of the UK Corporate Governance Code and to related guidance. The Committee also ensures that risk is properly considered in the setting of remuneration policy, by ensuring that targets are appropriately stretched but do not lead to the taking of excessive risk.

The Committee determines the remuneration packages of the Managing Director and the other Executive Directors, including salary, bonuses, share option awards, pension rights and other benefits.

The Remuneration Committee seeks independent advice when necessary from external remuneration consultants. During the year, the Committee received independent external advice from PricewaterhouseCoopers (PwC).

The Committee met four times during the year ended 31 December 2013. The main agenda items included remuneration policy, remuneration trends and benchmarking and the remuneration packages of the Managing Director and the other Executive Directors. Individual attendance at these meetings is set out here.

Directors’ remuneration (Audited) +-

The following table sets out the total remuneration for Directors for the year ended 31 December 2013 and the prior year. None of the Directors received an increase in base salary or fees during 2013 (minor differences in figures in the table reflect movements in conversion rates between Euros and US Dollars at the relevant dates).

Salary and fees

All taxable benefits

Annual bonuses

LTIP

Pension

Total

2013

2012

2013

2012

2013

2012

2013

2012

2013

2012

2013

2012

US$’000

US$’000

US$’000

US$’000

US$’000

US$’000

US$’000

US$’000

US$’000

US$’000

US$’000

US$’000

M. Carvill

726

703

10

10

-

-

-

-

73

70

809

783

J. Deysel (i, ii)

567

453

-

-

-

-

-

-

46

44

613

497

T. Fitzpatrick

302

302

-

-

-

-

-

-

-

-

302

302

T. McCluskey

479

464

5

5

-

-

-

-

48

46

532

515

2,074

1,922

15

15

-

-

-

-

167

160

2,256

2,097

 

 

 

 

 

 

 

 

 

 

 

 

S. Bianchi

101

91

 

 

 

 

 

 

 

 

101

91

I. Egan (i)

83

201

 

 

 

 

 

 

 

 

83

201

S. Farrell (i)

32

73

 

 

 

 

 

 

 

 

32

73

E. Headon

102

98

 

 

 

 

 

 

 

 

102

98

J. Loasby

248

240

 

 

 

 

 

 

 

 

248

240

A. Lowrie

76

73

 

 

 

 

 

 

 

 

76

73

P. McAleer (i)

42

107

 

 

 

 

 

 

 

 

42

107

S. McTiernan (i)

93

-

 

 

 

 

 

 

 

 

93

-

G. Smith (i)

76

-

 

 

 

 

 

 

 

 

76

-

C.Carvill

-

15

 

 

 

 

 

 

 

 

-

15

853

898

-

-

-

-

-

-

-

-

853

898

 

 

 

 

 

 

 

 

 

 

 

 

Total

2,927

2,820

15

15

-

-

-

-

167

160

3,109

2,995

 

 

 

 

 

 

 

 

 

 

 

 

(i) On 12 March 2013, Mr S. McTiernan and Mr G. Smith were appointed to the Board as Non-Executive Directors. On 29 May 2013, Mr I. Egan, Mr S. Farrell and Mr P. McAleer retired from the Board and on 12 December 2013 Mr J. Deysel stepped down as a Director of the Board and became Chief Operations Officer. Their 2013 remuneration relates to the period of their directorships.

(ii) In 2013 Mr J. Deysel received a one-off payment amounting to US$100,000 in relation to a four month period when, in addition to his role of Chief Operations Director, he assumed the role of Acting General Manager at the Mine.

(iii) In 2012 the Company reported bonus payments to Executive Directors paid in 2012 which were in respect of performance in 2011. In line with UK Department for Business, Innovation and Skills Regulations (the “Regulations”) bonuses for 2013 and 2012 shown in the table above are the bonuses relating to performance in 2013 and 2012.

(iv) In relation to share options which vested with reference to performance in 2013 and 2012, the exercise price is greater than the share price at the time of vesting and therefore the value shown in the table above is nil. LTIP values previously disclosed were based on a Black Scholes valuation model.

(v) The underlying currencies of Directors’ emoluments are Euro, Sterling and US Dollars.

Assessment of the performance of each executive Director against their KPIs is made using a balanced scorecard approach. The weighting of the performance targets varies according to the role of each individual. The Remuneration Committee applies appropriate discretion in respect of determining the bonuses and share options to be awarded, based on actual performance achieved by each Director and by the Company as a whole. In respect of the year ended 31 December 2013, in spite of the achievement of targets across the range of percentages set out in the KPIs by each Director, considering the difficult conditions prevailing in the market, no bonuses nor share options were awarded to the Executive Directors for the year.

Executive and Non-Executive Directors’ fees for services as Directors provided to the Company and the entities controlled by the Company are US$1.7 million (2012: US$1.6 million) and US$0.7 million (2012: US$0.5 million) respectively. These figures have been calculated based on the requirements of the Regulations. Consultancy fees paid to some Non-Executive Directors are for non-executive services as Directors provided to the Group.

Payments to Past Directors (Audited) +-

Former Directors, Mr I. Egan, Mr S. Farrell and Mr P. McAleer each received US$23,231 during 2013 for their services as members of Kenmare’s Special Advisory Panel.

Directors’ and Secretary’s Shareholdings (Audited)+-

The interests of the Secretary and Directors who held office at 31 December 2013, their spouses and minor children, in the Ordinary Share Capital of the Company were as follows:

Shares Held

Shares Held

Shares Held

11 April 2014

31 Dec. 2013

1 Jan. 2013

 

 

 

J. Loasby (Chairman)

50,000

25,000

-

S. Bianchi

1,603,600

1,603,600

1,603,600

M. Carvill (i)

4,902,030

4,802,030

4,802,030

T. Fitzpatrick

108,807

108,807

108,807

E. Headon

48,773

48,773

48,773

A. Lowrie

5,370,891

4,870,891

4,870,891

T. McCluskey

681,250

606,250

606,250

S. McTiernan

228,990

19,990

19,990

G. Smith

100,000

-

-

D. Corcoran (Secretary)

56,378

56,378

56,378

 

 

 

(i) 750,000 shares held by a Carvill Family Trust for the children of Mr M. Carvill are included in his holding above.

Directors’ and Secretary’s Share Options (Audited) +-

Details of the share options of the Secretary and Directors who held office at 31 December 2013, granted in accordance with the rules of the Share Option Scheme, are as follows:

1 Jan 2013

Granted during 2013

Exercised or transferred during 2013

Lapsed

during

2013

31 Dec 2013

Average

option price

Option Price range

From

Option Price

range

To

 

 

 

 

 

J. Loasby (Chairman)

-

-

-

-

-

-

-

-

S. Bianchi

-

-

-

-

-

-

-

-

M. Carvill

20,691,333

-

-

1,333,333

19,358,000

34c

11c

55c

T. Fitzpatrick

5,400,000

-

-

500,000

4,900,000

29c

11c

55c

E. Headon

-

-

-

-

-

-

-

-

A. Lowrie

500,000

-

500,000

-

-

-

-

-

T. McCluskey

14,550,000

-

-

1,083,333

13,466,667

35c

11c

55c

S. McTiernan

-

-

-

-

-

-

-

-

G. Smith

-

-

-

-

-

-

-

-

D. Corcoran (Secretary)

4,425,000

750,000

-

 

5,175,000

32c

13c

47c

 

 

 

 

 

 

 

 

During the year, 2,916,666 Directors’ share options lapsed by agreement between the Remuneration Committee and the Executive Directors, having considered the challenging market conditions facing the Company. During the year, no Secretary’s share options lapsed. In March 2013, Mr A. Lowrie transferred his share options to his non-minor son. The latest exercise date is August 2019. The share option period may be extended at the discretion of the Board.

The share price at the year-end was £0.21 and the share price range for the year was between £0.18 and £0.37.

 

Total pension entitlements (Audited) +-

Mr M. Carvill received a payment of 10% of his base salary into his private pension plan during 2013. Mr J. Deysel and Mr T. McCluskey received a payment of 10% of their base salary into their Executive Pension Plans during 2013. Fees paid to Non-Executive Directors are not pensionable.

Scheme interests awarded during the year (Audited) +-

No share awards were made to Directors during the year.

Payments for loss of office (Audited) +-

No payments for loss of office were made during the year.

Performance graph and table +-

The value at 31 December 2013 of $100 invested in 2008 compared with the value of $100 invested in the FTSE All Share Mining Index is shown in the graph below.

The remuneration paid to the Managing Director in the past five years is set out below.

Year

Name

Single figure of total remuneration

US$000

Bonus pay-out (as % maximum opportunity)

Long term incentive vesting rates (as % maximum opportunity)

2013

M. Carvill

809

0%

0%

2012

M. Carvill

783

0%

N/A

2011

M. Carvill

1,035

37%

N/A

2010

M. Carvill

784

48%

N/A

2009

M. Carvill

896

86%

N/A


Prior to 2013, the Company reported bonus payments to Mr M. Carvill in the year of payment. As bonus awards were generally determined six months after the applicable year-end, the bonus amount disclosed each year related to performance in the previous year. In line with UK Department for Business, Innovation and Skills Regulations (the “Regulations”) figures shown in the table above relate to remuneration for performance each year.

A 75% maximum bonus limit was introduced in 2012 and applied in the table above for bonus pay-out percentage awards.

 

Percentage change in Managing Director remuneration +-

The table below compares the percentage change in the Managing Director’s salary, taxable benefits and annual bonus with the wider employee population, comparing 2013 with 2012.

Salary % change

Taxable Benefits % change

Bonus

% change

 

 

 

Managing Director

0

0

0

Average Employee pay

9

0

0

 

 

 

The underlying currency of the Managing Director’s salary is Euro. There was no change in the Euro salary however the US dollar equivalent used for reporting purposes varies depending on exchange rate fluctuation.

Relative importance of spend on pay +-

 

Significant distributions

Disbursements from profit

Change

2013

US$000

2012

US$000

Overall spend on pay including Directors

52,940

44,168

8,772

Profit distributed by way of dividend or share buyback

0

0

0

Ongoing cash operating costs

150,400

123,400

27,000

 

 

 

Employee numbers throughout the Group increased from 1,017 in 2012 to 1,554 in 2013 principally due to the recruitment of personnel as a result of the expansion of the mine operations.

Ongoing cash operating costs have been included in the table in order to give a context to the spend on pay relative to overall cash operating costs.

 

Statement of implementation of policy in 2014 +-

Base salary

The salaries for the forthcoming year are set out below:

Executive Director

2014

US$000

2013

US$000

% change

M. Carvill

729.6

726

0.5

T. Fitzpatrick

303.5

302

0.5

T. McCluskey

481.4

479

0.5

The underlying currency of Mr M. Carvill and Mr T. McCluskey’s base salaries are Euro. The US Dollar figures shown above for 2014 have been calculated using the average 2013 Euro to US Dollar exchange rate. The final US Dollar figure for 2014 will vary depending on exchange rate movements.

KIP

The incentive opportunity for the Executive Directors under the KIP for 2014 will be as follows:

Executive Director

On-target incentive (% of salary)

Maximum incentive (% of salary)

M. Carvill

125%

250%

T. Fitzpatrick

75%

150%

T. McCluskey

125%

250%

The performance metrics for 2014 and their associated weightings are as follows:

Area

Measure

Weight

 

Operational

Ilmenite and zircon production volume

30%

Operating costs

15%

Financial

EBITDA

10%

Free cash flow

10%

Strategic/Personal

Each Director will have key objectives set by the Committee appropriate to his/her operational responsibilities and assessed at the end of the year on a qualitative basis

25%

HSE

Lost-Time Injury Frequency Rate (LTIFR)

5%

No material environmental breaches

5%

The performance metrics as set seek to deliver ongoing progress in relation to operational performance, cost efficiency and capital expenditure management, health and safety initiatives, and corporate and personal development objectives. Full details of the performance targets associated with these measures are considered by the Directors to be commercially sensitive and will not be disclosed in advance. Target levels of performance and actual outcomes relative to the targets will be disclosed retrospectively in next year’s Directors’ Remuneration Report.

 

Consideration by Directors of matters relating to Directors’ remuneration +-

The Committee seeks and considers advice from independent remuneration advisors where appropriate. During 2013, following a review process, the Committee appointed PwC to provide advice on compensation and remuneration matters including advice on best practice market developments. During the year ended 31 December 2013, fees payable to PwC in respect of these services amounted to Stg£27,500. PwC is a member of the Remuneration Consultants Group and has signed the Code of Practice for remuneration consultants. The Committee is satisfied that the advice it receives from PwC is independent and objective.

Statement of voting at general meeting +-

The table below shows the outcome of the advisory vote on the Directors’ Remuneration Report at the 2013 AGM.

Item

Votes for

%

Votes Against

%

Votes withheld

 

 

 

Advisory vote on 2012 DRR

1,382,398,990

92

124,522,994

8

204,237,829


This report was approved by the Board of Directors and signed on its behalf by:

E. Headon

11 April 2014