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Report of the Remuneration Committee

Information not subject to audit

Members: Jim Lawrence (Chairman), Maarten van den Bergh and Alison Reed.

Committee and advisers

At the Annual General Meeting in July 2009, Dr Martin Read retired from the Board and Jim Lawrence was appointed Chairman of the Remuneration Committee in his place.

The Company’s Remuneration Committee determines on behalf of the Board, within the agreed terms of reference (which were amended during the year and can be found on the Company’s website,, the overall remuneration packages for the Chairman, the Executive Directors and the other members of the Management Team (as defined in the Committee’s terms of reference). Its members are all independent Non-executive Directors of the Company, none of whom has any personal financial interest, other than as a shareholder, in the matters to be decided.

The Committee’s main duties can be summarised as:

  • To determine the framework or broad policy for the remuneration of the Chairman, the Executive Directors and the other members of the Management Team including incentive compensation plans and equity-based plans;
  • Within the terms of the agreed policy, to determine the total remuneration packages for the Chairman, the Executive Directors and the other members of the Management Team; and
  • To determine the policy for and scope of pension arrangements, service agreements, termination payments and compensation commitments, undertaking direct supervision of such matters in relation to the Executive Directors and other members of the Management Team.

The Committee has three main meetings every financial year. The first meeting, typically held in the first quarter of the financial year, assesses performance in the prior year and considers bonus awards in relation to that year, reviews salary levels and determines the level of awards to be granted under the long-term incentive schemes. The second meeting, typically held in the third quarter of the financial year, is a planning meeting for the next year to review the market trends and issues of interest to investors. Initial proposals for any new remuneration schemes would be considered at this meeting. The third meeting, typically held in the fourth quarter of the financial year, considers the bonus and long-term incentive targets for awards to be made in the following year. Additional meetings are held as required.

The Company currently participates in four main salary survey sources – run by Hay, PricewaterhouseCoopers (PwC), Hewitt New Bridge Street (Hewitt) and Towers Watson. Data is extracted from each of these in determining the Company’s approach to base-pay market rates, and identifying competitive market practice in respect of the other remuneration elements. The Remuneration Committee is, however, aware of the risk of an upward ratcheting of remuneration that can result from over reliance on pay surveys.

Hewitt is the advisor to the Remuneration Committee and provided advice to the Committee that materially assisted it. Its terms of reference are available for inspection on the Company’s investor relations website. During the year, the Committee put the contract for its advisory work out to tender in a competition which was won by the incumbent, Hewitt.

The Chairman, Chief Executive, Chief Financial Officer, Secretary, Director – People and Organisational Effectiveness and Head of Reward, all assisted the Committee in its deliberations but none of them participated in any decisions relating to their own remuneration. None of those who materially assisted the Committee in its deliberations was appointed by the Remuneration Committee other than Hewitt. Hay provided no services to the Company other than advice on remuneration matters during 2009/10. In addition to its advice on remuneration, Hewitt also provided some advice to the Company on general employee reward and on pensions and PwC also provided minor advisory services.

Towers Watson provides actuarial advice to the Trustees of the British Airways pension schemes.

Where appropriate, the Committee consults with major investors about its proposals.

Executive Directors


The Company’s remuneration policy is to provide compensation packages at market rates which reward successful performance and attract, retain and motivate managers. The Company aims to provide remuneration packages which are broadly comparable with other UK-based international businesses of similar size.

In fixing packages, the Committee has regard to the compensation commitments which would result in the event of early termination and takes account of pay and employment conditions of employees elsewhere in the Group.

The Committee is satisfied that the compensation packages, which are set by reference to market base salary and incentive pay levels and take account of the Company’s Key Performance Indicators, do not raise any environmental, social or governance risks by inadvertently motivating undue risk taking.

The Remuneration Committee is well aware of the challenging economic environment and its severe impact on the Company’s finances, but it also recognises that it is very important to incentivise and retain management to drive the business forward. It is worth noting that the Company has significantly reduced headcount at senior management levels and is demanding higher levels of performance from those who remain. It also continues to need to attract top talent from outside the organisation.

The Committee is also aware that the Company’s senior management faces a series of key strategic challenges over the next year, including execution of the planned merger with Iberia, the conclusion of the Joint Business Agreement with American Airlines and Iberia, a satisfactory resolution to the pension funding issue and improving employee relations.

Against this background, the Committee has considered how best to structure future incentive arrangements, in particular the design of the annual bonus plan for 2010/11 and the nature of the performance criteria that should apply to Performance Share Plan awards scheduled to be granted in 2010. The Committee’s policy (which has been discussed with the Association of British Insurers (ABI), Risk Metrics and some major investors) is described below. Recognising that there have been some signs of improvement in the economic environment and performance of the Company, the Committee has decided to increase the potential level of annual bonus awards in relation to 2010/11 from 50 per cent of the normal maxima applying before 2009/10 to two-thirds of those maxima and make awards for 2010/11 under the Performance Share Plan at the same percentage level of salary as has been applied since 2008.

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