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Long-term incentive plan
Since 1993, Reuters has operated a long-term incentive plan under which annual awards of restricted shares or, commencing in 1995, rights exercisable for shares on a one-for-one basis (share rights), are made to executive directors and certain key executives. Vesting of the awards depends on performance in terms of total return to shareholders over a defined period. Awards vesting under the plan which covers the executive directors are not released until at least five years from the date of grant.
Under the terms of the plan the number of share rights awarded to each senior executive is determined by dividing each executive’s annual salary by the average of the daily closing price of Reuters shares for the previous year. Commencing with the 1997 awards, the share rights granted in the UK (which include those granted to the executive directors) are at an exercise price equivalent to the market value of the underlying shares on the date of grant, and are linked with a cash bonus equal to such exercise price. The share rights and linked cash bonus vest and are exercisable only in tandem. No awards were made under the plan during 1998.
| The table below shows the number of shares underlying awards to each executive director: |
| No. of Awards | | Value at 31 December 1998 |
| | | | |
| Year of grant | At 31 December 1997 |
Released during year | Lapsed during year |
At 31 December 1998 | Gains on release
£000 |
Vested
£000 | Non-vested range
£000 |
Date of release or exercisable period if vesting occurs |
|
| P Job |
| Restricted shares | 1993 | 77,920 | 77,920 | – | – | 464 | – | – | Feb 1998 |
| Restricted shares | 1994 | 82,056 | – | – | 82,056 | – | 518 | – | Feb 1999 |
| Share rights | 1995 | 66,092 | – | 49,569 | 16,523 | – | 104 | – | Feb 2000–Dec 2001 |
| Share rights | 1996 | 61,218 | – | – | 61,218 | – | – | 0–386 | Feb 2001–Dec 2002 |
| Share rights | 1997 | 68,812 | – | – | 68,812 | – | – | 0–434 | Feb 2002–Dec 2003 |
|
| | 356,098 | 77,920 | 49,569 | 228,609 | 464 | 622 |
|
| J-C Marchand |
| Restricted shares | 1993 | 41,216 | 41,216 | – | – | 245 | – | – | Feb 1998 |
| Restricted shares | 1994 | 34,464 | – | – | 34,464 | – | 217 | – | Feb 1999 |
| Share rights | 1995 | 27,681 | – | 20,760 | 6,921 | – | 44 | – | Feb 2000–Dec 2001 |
| Share rights | 1996 | 38,805 | – | – | 38,805 | – | – | 0–245 | Feb 2001–Dec 2002 |
| Share rights | 1997 | 48,994 | – | – | 48,994 | – | – | 0–309 | Feb 2002–Dec 2003 |
|
| | 191,160 | 41,216 | 20,760 | 129,184 | 245 | 261 |
|
| J M C Parcell |
| Restricted shares | 1993 | 36,064 | 36,064 | – | – | 215 | – | – | Feb 1998 |
| Restricted shares | 1994 | 30,176 | – | – | 30,176 | – | 190 | – | Feb 1999 |
| Share rights | 1995 | 25,737 | – | 19,302 | 6,435 | – | 41 | – | Feb 2000–Dec 2001 |
| Share rights | 1996 | 25,207 | – | – | 25,207 | – | – | 0–159 | Feb 2001–Dec 2002 |
| Share rights | 1997 | 32,342 | – | – | 32,342 | – | – | 0–204 | Feb 2002–Dec 2003 |
|
| | 149,526 | 36,064 | 19,302 | 94,160 | 215 | 231 |
|
| R O Rowley |
| Restricted shares | 1993 | 47,652 | 47,652 | – | – | 284 | – | – | Feb 1998 |
| Restricted shares | 1994 | 51,284 | – | – | 51,284 | – | 324 | – | Feb 1999 |
| Share rights | 1995 | 41,211 | – | 30,908 | 10,303 | – | 65 | – | Feb 2000–Dec 2001 |
| Share rights | 1996 | 38,171 | – | – | 38,171 | – | – | 0–241 | Feb 2001–Dec 2002 |
| Share rights | 1997 | 42,663 | – | – | 42,663 | – | – | 0–269 | Feb 2002–Dec 2003 |
|
| | 220,981 | 47,652 | 30,908 | 142,421 | 284 | 389 |
|
| D G Ure |
| Restricted shares | 1993 | 54,092 | 54,092 | – | – | 322 | – | – | Feb 1998 |
| Restricted shares | 1994 | 55,388 | – | – | 55,388 | – | 349 | – | Feb 1999 |
| Share rights | 1995 | 44,554 | – | 33,415 | 11,139 | – | 70 | – | Feb 2000–Dec 2001 |
| Share rights | 1996 | 41,268 | – | – | 41,268 | – | – | 0–260 | Feb 2001–Dec 2002 |
| Share rights | 1997 | 44,728 | – | – | 44,728 | – | – | 0–282 | Feb 2002–Dec 2003 |
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| | 240,030 | 54,092 | 33,415 | 152,523 | 322 | 419 |
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| A-F H Villeneuve |
| Restricted shares | 1993 | 54,092 | 54,092 | – | – | 322 | – | – | Feb 1998 |
| Restricted shares | 1994 | 55,388 | – | – | 55,388 | – | 349 | – | Feb 1999 |
| Share rights | 1995 | 44,554 | – | 33,415 | 11,139 | – | 70 | – | Feb 2000–Dec 2001 |
| Share rights | 1996 | 41,268 | – | – | 41,268 | – | – | 0–260 | Feb 2001–Dec 2002 |
| Share rights | 1997 | 44,728 | – | – | 44,728 | – | – | 0–282 | Feb 2002–Dec 2003 |
|
| | 240,030 | 54,092 | 33,415 | 152,523 | 322 | 419 |
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The gains on release are calculated at the quarter up share price of 595.25p on the date of release used to determine each director’s tax liability on that date. The value of the awards at 31 December 1998 has been based on the closing mid-market share price of Reuters ordinary shares of 631p per share from the Daily Official List for 30 December 1998.
Performance under the long-term incentive plan is measured over a three- to five-year period by comparing the total shareholder return (TSR) of Reuters with that of other companies comprising the FTSE 100 at the beginning of the period. Awards vest only after the expiration of this period. The TSR for each company is determined based on the internal rate of return from cash flows of an investor who bought a share at the beginning of the period, sold it at the end and received dividends and benefited from capital changes during the period. The average of the daily closing prices for the prior calendar year are used as the initial and ending share prices.
The companies comprising the comparator group are ranked according to each company’s TSR for the measurement period with the company having the highest, or best, TSR ranked first. Reuters position on the list determines the extent to which plan awards will vest. The preset vesting criteria for awards are shown in the table below together with the actual ranking for each award as at either the date of vesting or, if not yet vested, at 31 December 1998. Between the two vesting extremes awards vest on a graduated scale. Rankings can change materially during a measurement period.
| Preset vesting criteria |
| |
| Date measurement period commenced | Rankings for 100% vesting | Rankings for zero vesting | Ranking at date of vesting | Ranking at 31 December 1998 |
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| 1 January 1993 | 1 to 40 | 75 to 100 | 18 | – |
| 1 January 1994 | 1 to 40 | 75 to 100 | 7 | – |
| 1 January 1995 | 1 to 30 | 70 to 100 | 60 | – |
| 1 January 1996 | 1 to 25 | 75 to 100 | – | 79 |
| 1 January 1997 | 1 to 26 | 66 to 100 | – | 95 |
| 1 January 1998 | 1 to 26 | 66 to 100 | – | 84 |
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Under the plan rules, if awards do not vest 100%, each participant is permitted either to let the lesser number of shares vest or to elect to extend the measurement period for the entire award for a fourth year without a change to the preset vesting criteria. A similar election may be made at the end of year four. The 1993 and 1994 awards of restricted shares vested 100% at the end of their initial three year vesting periods. The 1993 awards were released in February 1998 and the 1994 awards are due for release in February 1999. The 1995 awards vested 25% based on the 31 December 1997 ranking and the rights become exercisable in February 2000. The three year measurement period for the 1996 awards ended on 31 December 1998 with a zero vesting.
The obligations under the plan, and those of the performance-related share plan discussed below, will be met from shares held by Reuters employee share ownership trusts (ESOTs). The costs charged to profit for these plans are based on the cost of shares purchased by the ESOTs. In 1998 the charge for the long-term incentive plan amounted to £1.3 million (1997 – £1.9 million, 1996 – £1.9 million).
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