Franchise Brands plc Annual Report and Accounts 2018 39 Strategic Report Financial Statements Governance Remuneration policy The objective of the Company’s remuneration policy is to facilitate the recruitment and retention of executives of an appropriate calibre, to ensure that the senior executives of the Company are provided with appropriate incentives to encourage enhanced performance and are, in a fair and responsible manner, rewarded for their individual contributions to the success of the Company. Strategic alignment The Remuneration Committee is satisfied that the pay that can be earned is appropriate for a company of comparable size and complexity, at each level of performance. All of the Executive Directors have significant exposure to the Company’s share price: Stephen Hemsley has a significant personal shareholding in the Company and the other Executive Directors have material personal investments in our shares, supplemented by options granted under our LTIP. The vesting of LTIP options is subject to a performance condition requiring a pre-determined and challenging rate of compound annual growth in adjusted earnings per share, which the Board regards as the key performance metric. As a result, there is a clear incentive to drive earnings per share growth over the longer term and also to mitigate downside risks that could affect the Company’s profitability. Reputational risks could reasonably be expected to affect the share price, so the Executive Directors are further incentivised to mitigate these exposures to maximise the potential value of their options. Remuneration in practice The remuneration that the Company offers to its Executive Directors has three principal components: 1. Basic salaries and benefits in kind – Basic salaries are determined by the Remuneration Committee bearing in mind the salaries paid in AIM-quoted companies of similar size and complexity. Benefits in kind include a car allowance and health care. 2. Pensions – The Company operates a defined contribution scheme available for all Executive Directors and employees. Only basic salaries are pensionable. 3. Equity exposure – The Company operates a share option scheme covering permanent employees (including the Executive Directors, other than Stephen Hemsley). Subject to achieving compound EPS growth targets, options can vest no earlier than the third anniversary of the date of grant and, once vested, may be exercised until the tenth anniversary. The exercise price of the options is set at the market value of the Company’s shares at the time of grant, so that the individual only benefits if there has been share price growth. The share option scheme is overseen by the Remuneration Committee which determines the terms under which eligible individuals may be invited to participate, including the level of awards. The scheme utilises HMRC- approved EMI options to the extent possible. We believe that the mix between fixed and variable pay creates a powerful, but appropriate, incentive and that our approach ensures that pay and performance are directly linked. Directors’ service contracts All Executive Directors are employed under service contracts. The services of the Executive Directors may be terminated by the Company, on the expiry of six months’ notice (nine months, in the case of Tim Harris). The Non-executive Directors are employed under letters of engagement which may be terminated by the Company (i) giving three months’ notice or (ii) immediately, in the event that the Director is not re- elected by shareholders at an AGM. DIRECTORS’ REMUNERATION REPORT