This report sets out the company’s policy on directors’ remuneration that applies to executive directors for 2011 and, so far as practicable, for subsequent years. The committee considers that a successful remuneration policy needs to be sufficiently flexible to take account of future changes in the company’s business environment and in remuneration practice. Future reports, which will continue to be subject to shareholder approval, will describe any changes in this policy.
Our goal as a company is to make an impact on people’s lives and on society through education and information. Our strategy to achieve that goal is pursued by all Pearson’s businesses in some shape or form and has four parts: investment in quality content; adding services to this content; working in markets around the world, particularly in the developing world; and efficiency.
An important measure of our strategy is, of course, financial performance. Here, our goal is to achieve sustainable growth in three key financial measures – earnings, cash and return on invested capital – and reliable cash returns to our investors through healthy and growing dividends. We believe those are, in concert, good indicators that we are building the long-term value of Pearson. So those measures (or others that contribute to them, such as operating margins and working capital) form the basis of our annual budgets and plans, and the basis for bonuses and long-term incentives.
We determine whether or not targets have been met under the company’s various performance-related annual or long-term incentive plans based on relevant internal information and input from external advisers.
In light of the prevailing economic conditions and the impact of these on the company’s objectives and strategy, we continue to keep our remuneration policy under review particularly with regard to its approach to annual and long-term incentives.
Our starting point continues to be that total remuneration (base compensation plus annual and long-term incentives) should reward both short- and long-term results, delivering competitive rewards for target performance, but outstanding rewards for exceptional company performance.
The performance conditions that we select for the company’s various performance-related annual or long-term incentive plans are linked to the company’s strategic objectives set out above and aligned with the interests of shareholders.
Generally speaking, we have concluded that no fundamental changes are required to the performance measures used in the company’s annual and long-term incentive plans.
We will however continue to give careful consideration to the selection and weighting of these measures and the targets that apply taking into account the company’s short- and longer term strategy and risk and the impact on the sustainability and future development of the company.
In accordance with the UK Corporate Governance Code, the committee has considered the company’s powers to reclaim variable remuneration in exceptional circumstances of misstatement or misconduct. The company will follow its legal rights and reclaim rewards gained in the event of proven wrong doing which led to misstatement of the company’s accounts.