2015 Annual Report on Remuneration

The following section provides detail in respect of remuneration paid to the Directors during the year in line with the Remuneration Policy approved by the shareholders at the Annual General Meeting held on 24 October 2014. KPMG LLP have audited this Directors' Remuneration Report unless indicated otherwise.

Single Total Figure of Remuneration

The table below sets out the total remuneration for each person who has served as a Director in the period ended 30 June 2015. The table shows the remuneration for each such person in respect of the year ended 30 June 2015 and the year ended 30 June 2014:

Salaries & Fees
£0001
Benefits
£0002
Annual Bonus
£0003
Long Term Incentives
£0004
Pension
£0005
Total
£000
201520142015201420152014201520142015201420152014
Ian Page4404405337352352887698662621,7941,589
Anne-Francoise Nesmes30930017172472403823024342998901
Tony Griffin722023229311761863232628774477
Mike Redmond126106126106
Ishbel Macpherson43394339
Dr Chris Richards45424542
Julian Heslop45414541
Total1,2281,20099857757781,5921,0001311323,8253,195

Please note the following methodologies have been used in respect of the above table:

  1. Salaries & Fees – this is the cash paid or received in respect of the relevant period.
  2. Benefits – this represents the taxable value of all benefits paid or received in respect of the relevant period. The benefits provided include the use of a fully expensed car, medical cover and life assurance. SAYE options granted in the year have also been included in the benefits column. These have been valued using the fair value as per note 25 to the Group's financial statements.
  3. Annual Bonus – this is the amount of cash bonus paid in respect of the relevant period.
  4. Long Term Incentives – this is the value of any long term incentives vesting where the performance period ended in the relevant period.
  5. Pension – this is the cash value of the employer contribution to the Group stakeholder personal pension scheme or, in the case of Tony Griffin, defined contribution pension plan plus the value of any salary supplement paid.
  6. The 2014 value assigned to the long term incentives for Ian Page was shown in last year's Annual Report as an estimate, with the value determined by reference to a share price of £6.95 (being the average market value of a share over the last quarter of the Company's financial period ended on 30 June 2014). This has been restated to show the actual value determined by reference to a price of £7.525 (being the market value of a share on 8 September 2014, the date of vesting).
  7. Tony Griffin's remuneration is paid in Euros but reported in Sterling for the purpose of this table. The exchange rate used for this purpose was 1.20 for 2014 and 1.3045 for 2015. His salary was €286,554 for 2015 and €278,208 for 2014.

Additional Disclosures in Respect of the Single Figure Table

Salaries & Fees

As disclosed in the Directors' Remuneration Report in the 2014 Annual Report on Remuneration the Executive Directors' base salaries, excluding Ian Page, were increased by 3% with effect from 1 July 2014. This was broadly in line with the average increase awarded to employees in the wider Group. Ian Page elected to waive a review of his salary for the year ended 30 June 2015.

The Committee's approach to Executive Directors' salaries for the year ending 30 June 2016 is summarised below.

The Chairman and other Non-Executive Directors are paid a fee for their role and additional fees for chairmanship of the Remuneration Committee and Audit Committee. As disclosed in the 2014 Directors' Remuneration Report, the Chairman's fee was increased with effect from 1 July 2014 to a level more commensurate with his experience, performance and overall contribution to the business together with that paid for chairmen of companies of a similar size and complexity to Dechra. The other Non-Executive Directors received an increase in their base fees for the year ended 30 June 2015 and the fees paid for the Chairmen of the Remuneration and Audit Committee were also increased. In addition, it was agreed that a fee be introduced for the Senior Independent Director for the year ended 30 June 2015. The Non-Executive Directors' fees for the year ended 30 June 2015 and 30 June 2014 were determined on the following basis.

Office2015
Fee
£000
2014
Fee
£000
Chairman126106
Non-Executive Director4039
Remuneration Committee Chairmanship additional fee53
Audit Committee Chairmanship additional fee53
Senior Independent Director additional fee3

The approach in relation to the Chairman and Non-Executive Directors' fees for the year ending 30 June 2016 is summarised below.

Annual Bonus

The Company operates an annual cash incentive scheme for the Executive Directors. Annual bonuses were awarded by the Committee in respect of 2015 financial year having regard to the performance of the Group and personal performance objectives for the year.

The amount achieved for the year ended 30 June 2015 against targets for 2015 financial year is as follows:

2015 Financial Year TargetsAmount Achieved for the Year Ended 30 June 2015
Underlying profit before tax performance: 10% of salary payable upon the achievement of 95% of Group profit target rising to 90% of salary payable upon the achievement of 110% of Group profit targetThe underlying profit before tax target was £42.9 million. Actual underlying profit before tax was £45.1 million. This converted into an achievement of 105% of the profit target when translated at constant exchange rate resulting in a payment worth 70% of salary
Personal objectives: up to an additional 10% of salary was payable to Executive Directors upon the achievement of personal objectives*Actual performance resulted in payment worth 10% of salary. The objectives are based on key aspects of delivering the Group's strategy*
Total Annual Bonus Earned for the Year Ended 30 June 201580% of salary

*The Committee considers that the actual objectives are commercially sensitive as they give our competitors insight into our business plans and therefore are not detailed in this report.

The personal objectives of each Executive Director are set on an individual basis and are closely linked to the corporate, financial, strategic and other non-financial objectives of the Company. This enables the Committee to reward the Executive Directors' contribution to both the annual financial performance and the achievement of specific corporate, financial, strategic or other non-financial objectives. The Committee reviewed the performance of each Executive Director against their specific objectives based on a report by the Chief Executive Officer and with respect to the Chief Executive Officer, a report by the Chairman. This assessment included consideration by the Committee of the Company's progress in a number of areas including product pipeline targets, geographic expansion, acquisition opportunities evaluated as well as control environment and supply chain improvements.

The Committee's approach to Executive Directors' annual bonus opportunities for the year ending 30 June 2016 is summarised below.

LTIP Awards Vesting in Respect of the Year Ended 30 June 2015

The LTIP Awards granted on 5 March 2013 are due to vest on 5 March 2016. Ian Page and Tony Griffin were granted LTIP Awards on 5 March 2013, the performance targets for which are as follows: 50% of the Award is subject to a performance condition based on the Company's total shareholder return (TSR) performance over the performance period relative to the constituent companies of the FTSE 250 index (excluding investment trusts) over the performance period as follows:

TSR PerformanceVesting Percentage
Below median0%
Median25% of the TSR portion will vest
Between median and upper quartilePro-rata vesting between 25% and 100% based on the Company's ranking in the comparator group
Upper quartile100% of the TSR portion will vest

50% of each Award is subject to a performance condition based on the Company's underlying diluted Earnings per Share (EPS) in the final year of the performance period as follows:

EPSVesting Percentage
<33p0%
33p25% of the EPS portion will vest
Between 33p and 40pPro-rata vesting between 25% and 100%
40p100% of the EPS portion will vest

Each of the TSR element and the EPS element is subject to an additional Return on Capital Employed (ROCE) performance measure. Unless the Company's ROCE is 10% or more in the final year of the performance period, the Awards will lapse in full regardless of TSR and EPS performance. The percentage vesting will be reduced by 10% by every 1% that ROCE falls below 15%.

The EPS targets originally agreed for the LTIP Awards granted in March 2013 were set for organic growth, with the intention that they would be appropriately adjusted for the impact of any acquisitions and divestments. Therefore, as reported in the Directors' Remuneration Report for the years ended 30 June 2013 and 30 June 2014 and following a consultation with major shareholders at the beginning of November 2013, the performance conditions for those Awards were adjusted in accordance with the LTIP rules to take account of the disposal of the Services Segment in August 2013 so as to ensure that performance was measured on a fair and consistent basis over the performance period. The EPS and ROCE performance measures detailed above are as adjusted to reflect the divestment of the Services Segment. As described below, the 2015 EPS (39.90 pence) represents 23.3% compound annual growth (from a rebased 2012 EPS figure of 21.28 pence) in EPS.

With respect to the performance conditions relating to the LTIP Award due to vest on 5 March 2016, the Company's TSR performance was over 129.8% compared with a 137.4% TSR for the upper quartile company in the comparator group. Therefore 87.2% of the TSR element will vest. In addition, the Group's underlying diluted EPS for 2015 was 39.90 pence. Accordingly, 98.9% of the EPS element will vest. Overall, taking into account that ROCE performance for 2015 was 20%, the LTIP Awards will vest as to 93.1% of maximum opportunity. In the single figure table above, the value attributable to this Award is calculated by multiplying the number of shares in respect of which the Award is expected to vest by £10.086 (being the average market value of a share over the last quarter of the Company's financial period ended on 30 June 2015).

Recruitment Award for Anne-Francoise Nesmes Vesting in Respect of the Year Ended 30 June 2015


As disclosed in the 2014 Directors' Remuneration Report, on her appointment the Committee agreed to award Anne-Francoise Nesmes two LTIP Awards, each to the value of 100% of her base salary. The first Award vested in full on 30 June 2014, the details of which were disclosed in the 2014 Annual Report. The vesting of the second of those Awards was subject to the same performance conditions as those applying to the LTIP Awards granted on 5 March 2013, as detailed above. Therefore this second Award vested as to 93.1% on 30 June 2015. In the single figure table above the value attributable to this Award is calculated by multiplying the number of shares in respect of which the Award vested, 38,859, by £9.83 (being the market value of a share on 30 June 2015).

The details of the LTIP Awards granted during the year ended 30 June 2015 are set out below. The Committee's approach to Executive Directors' LTIP awards for the year ending 30 June 2016 is summarised below.

The aggregate gain made by the Executive Directors on share options and LTIP Awards exercised during 2015 was £1,024,971 (2014: £883,249).

Pension

All Executive Directors (excluding Tony Griffin) were members of the Dechra Pharmaceuticals PLC Group Stakeholder personal pension scheme throughout the year. Tony Griffin is a member of a defined pension plan in the Netherlands. Contributions made by Dechra Pharmaceuticals PLC, on behalf of the Executive Directors during the year equated to no more than 14% of pensionable salary.

The annual allowance for tax relief on pension savings for individuals reduced from £50,000 to £40,000 on 6 April 2014. Both Ian Page and Anne-Francoise Nesmes have elected to receive a salary supplement in lieu of the employer contribution over and above the £40,000 limit for the entire period under review.

Tony Griffin is a member of the Basispensioen, a defined benefit scheme established in the Netherlands. The table below sets out the arrangements for Tony Griffin for the period under review.

Accrued benefit at 1 July 2014€9,704
Increase in accrued benefit excluding inflation allowance€10,161
Increase in accrued benefit including inflation allowance€10,161
Transfer value of benefit accrued during the period less member contributions€37,000
Transfer value at 1 July 2014€154,000
Transfer value at 30 June 2015€192,000
Increase in transfer value over the period after member contribution€38,000

Following the implementation by the Dutch government of a reduction in the cap on maximum amount of pensionable income to €100,000, Tony Griffin elected to receive a salary supplement in lieu of the pension premium entitlement for earnings above €100,000. This was effective from 1 January 2015.

Chief Executive Officer Remuneration for Six Previous Years

Year endedTotal single
figure
remuneration
£000
Annual bonus
payout (%
of maximum
opportunity)
LTIP vesting
(% of
maximum
number of
shares)
30 June 20151,7948093.1
30 June 20141,58980100.0
30 June 20131,20136100.0
30 June 2012682600
30 June 20119846071.1
30 June 201076844100.0

Percentage Change in Chief Executive Officer Remuneration

The table below sets out in relation to salary, taxable benefits and annual bonus the percentage change in pay for Ian Page and the average percentage change for all UK based employees comparing pay in respect of the year ended 30 June 2014 and the year ended 30 June 2015. For these purposes, UK employees were chosen as a comparator group reflecting that Ian Page is UK based and the number of UK employees was sufficiently large to provide a robust comparison. Employees outside the UK were not included in the comparator group since country specific differences could distort the comparison.

Chief Executive OfficerAverage per all UK based Employees
2015
£000
2014
£000
Increase
%
2015
£000
2014
£000
Increase
%
Salary1440440030293.4%
Taxable benefits25233452.91.51.6(6.3%)
Annual bonus35235202.92.83.6
  1. Ian Page elected to waive his salary increase for the 2015 financial year.
  2. Excludes SAYE options granted in the financial year.
  3. The increase in Ian Page's taxable benefit is related to his fully expensed car.

Relative Importance of Spend on Pay

The following table sets out the percentage change in distributions to shareholders by way of dividend and share buyback and total remuneration paid to or receivable by all Group employees comparing the year ended 30 June 2014 and the year ended 30 June 2015.

Year ended
30 June 2015
£000
Year ended
30 June 2014
£000
% change
Distributions to shareholders by way of dividend and share buyback14,90013,50010.4
Overall expenditure on pay — continuing operations45,61341,6249.6
Overall expenditure on pay — discontinued operations1,4611N/A
  1. The Services Segment was divested during August 2013. The 2014 pay therefore includes 1.5 months of Services.

Total Shareholder Return (TSR) Graph

The graph below shows the TSR performance of the Company over the past six financial years compared with the TSR over the same period for the FTSE 250 Total Return Index. Throughout the financial year ended 30 June 2015 the Company has been a constituent member of the FTSE 250; for this reason it is considered that the TSR performance of the FTSE 250 Index is given in this report.

TSR graph

Long Term Incentive Arrangements and Share Schemes:

LTIP Awards Made During the Year Ended 30 June 2015

Awards were granted to the Executive Directors on 15 September 2014, on the following basis:

Type of awardMaximum opportunityNumber of sharesFace value
at grant1
% of award vesting at thresholdPerformance period
Ian PageNil cost option under the LTIP200% of salary115,334£879,99825%1 July 2014 – 30 June 2017
Anne-Francoise NesmesNil cost option under the LTIP150% of salary60,747£463,50025%1 July 2014 – 30 June 2017
Tony GriffinNil cost option under the LTIP100% of salary29,937£228,419
 
25%1 July 2014 – 30 June 2017
  1. For these purposes, the face value of the award is calculated by multiplying the number of shares by £7.63 (being the average share price used to determine the number of shares comprised in the Awards).

50% of each Award is subject to a performance condition based on the Company's TSR performance over the performance period relative to the constituent companies of the FTSE 250 index (excluding investment trusts) over the performance period as follows:

TSR PerformanceVesting Percentage
Below median0%
Median25% of the TSR portion will vest
Between median and upper quartilePro-rata vesting between 25% and 100% based on the Company's ranking in the comparator group
Upper quartile100% of the TSR portion will vest

50% of each Award is subject to a performance condition based on the growth in the Company's underlying diluted EPS over the performance period as follows:

EPS compound annual growth rateVesting Percentage
<8% CAGR0%
8% CAGR25% of the EPS portion will vest
CAGR between 8% and 13%Pro-rata vesting between 25% and 100%
13% CAGR100% of the EPS portion will vest

Both the TSR element and the EPS element is subject to an additional ROCE performance measure. Unless the Company's ROCE is 10% or more in the final year of the performance period, the Awards will lapse in full regardless of TSR and EPS performance. The percentage vesting will be reduced by 10% by every 1% that ROCE falls below 15%.

SAYE Options Granted in the Year

The following Directors were granted SAYE options on 13 October 2014:

Number of
options
Option
price
Exercise
date
Ian Page1,465£6.14December 2017
Anne-Francoise Nesmes1,465£6.14December 2017

Payments to Past Directors (Unaudited):

It was agreed to pay for six months' private medical cover on behalf of Ed Torr and his family for the period to 31 July 2015. Ed Torr fully reimbursed the Company. There were no other payments made to past Directors during the period.

Payments for Loss of Office (Unaudited):

There were no payments for loss of office made to Directors during the period.

Shareholding Guidelines and Statement of Directors' Shareholdings and Interests:

Executive Directors

By the third anniversary of their appointment to the Board, Executive Directors are required to have acquired and retained a holding of Dechra shares equivalent to the value of at least 100% of their base salaries. Thereafter, by the fifth anniversary of appointment, the Chief Executive Officer and the Chief Financial Officer are required to have acquired and retained a holding equivalent to the value of at least 200% and 150% respectively of their base salary. The holdings of the Executive Directors and their families as at 30 June 2015 are as follows:

NameAppointment
date
Ordinary
shares
Number
Ordinary
shares
£000*
% of
salary
Ian Page13 June 1997955,7019,3952,135
Anne-Francoise Nesmes22 April 201322,06221770
Tony Griffin1 November 201220,07719790

*Calculated using the share price as at 30 June 2015.

Non-Executive Directors

By the third anniversary of their appointment to the Board, Non-Executive Directors are required to have acquired and retained a holding of Dechra shares equivalent to the value of at least 50% of their annual base fee. The holdings of the Non-Executive Directors and their families as at 30 June 2015 are as follows:

NameAppointment
date
Ordinary
shares
Number
Ordinary
shares
£000*
% of
base fee
Mike Redmond19 April 200173,417722573
Ishbel Macpherson1 February 20135,84857144
Dr Chris Richards1 December 20107,40073182
Julian Heslop1 January 201310,00098246

* Calculated using the share price as at 30 June 2015.

There have been no changes in the holdings of the Directors between 30 June and 7 September 2015.

Executive Directors' Interests under Share Schemes

Long Term Incentive Plan

Awards held under the Long Term Incentive Plan by each person who was a Director at 30 June 2015 are as follows:

Award dateNumber of
shares at
30 June
2014
Granted
during the
year
Lapsed
during the
year
Exercised
during the
year
Number of
shares at
30 June
2015
StatusPerformance
period
Ian Page7 September 201192,811(92,811)Vested2011–2014
5 March 201394,42094,420Unvested2012–2015
27 November 2013129,211129,221Unvested2013–2016
15 September 2014115,334115,334Unvested2014–2017
Anne-Francoise Nesmes27 September 2013141,739(41,739)Vested2013-2014
27 September 2013141,73941,739Vested2012–2015
27 November 201366,07966,079Unvested2013–2016
15 September 201460,74760,747Unvested2014–2017
Tony Griffin5 March 201334,40134,401Unvested2012–2015
27 November 201334,12934,129Unvested2013–2016
15 September 201429,93729,937Unvested2014–2017
  1. These awards are the Recruitment Awards granted to Anne-Francoise Nesmes as referred to above. They were granted outside the rules of the LTIP.

SAYE Scheme

Options held under the SAYE Scheme by each person who was a Director at 30 June 2015 are shown below:

Date of
grant
Number of
options
Option
price
Exercise
date
Ian Page7 April 20141,630£5.52May 2017
13 October 20141,465£6.14December 2017
Anne-Francoise Nesmes7 April 20141,630£5.52May 2017
13 October 20141,465£6.14December 2017

Implementation of the Directors' Remuneration Policy in the Year Ending 30 June 2016 (Unaudited):

The Directors' Remuneration Policy outlined below will be implemented in the year ending 30 June 2016 in line with the way in which it has been implemented in the year ended 30 June 2015.

Malus and Clawback

As referred to in the Remuneration Committee Chairman's statement, to reflect the updated provisions of the UK Corporate Governance Code, in addition to the malus provisions which already apply to the annual bonus and LTIP, clawback provisions have been added to LTIP Awards granted after 1 July 2015 and annual bonuses paid in respect of 2016 and future years. These provisions will enable the Committee to require repayment of some or all of an award for up to two years following payment in the event of material misstatement in the financial statements or gross misconduct on the part of the participant.

Salary and Fees

The next review of Executive Directors' salaries will be undertaken in September 2015, rather than July as in previous years. This change has been implemented for all employees following the alignment of the salary review cycle with the annual performance development review calendar which provides a clearer link between performance and reward. It is planned that the Executive Directors' salaries for 2016 will increase in line with the range of increases awarded to the wider workforce, which is up to 4.5%.

The Chairman and Non-Executive Directors have agreed to waive an increase to their fees this year.

Annual Bonus

No changes have been made to the bonus structure. Executive Directors, therefore, will have a bonus opportunity of 100% of salary for the year ending 30 June 2016, on the same basis as for the year ended 30 June 2015. Details of the bonus structure can be found above.

LTIP

The Committee proposes that LTIP Awards for the year ending 30 June 2016 will be made at the level of 200% of salary for Ian Page, 150% of salary for Anne-Francoise Nesmes and 100% of salary for Tony Griffin. The performance measures remain as per the grant of LTIP Awards made on 15 September 2014, details of which can be found above.

Consideration by Directors of Matters Relating to Directors' Remuneration:

Governance

The Board has overall responsibility for the Group's remuneration policy and the setting of the Non-Executive Directors' fees, although the task of determining and monitoring the remuneration packages of the Executive Directors and agreeing the Chairman's fee level has been delegated to the Committee.

Membership

Details of each members' attendance at the Committee's meetings is detailed in the Corporate Governance Report.

The Chief Executive Officer attended all meetings held during the financial year in order to assist on matters concerning remuneration of other senior executives within the Group. However, he was not present during the part of the meetings where his own remuneration was discussed. Furthermore, the Group HR Director has attended all meetings held during the financial year.

Responsibilities

The Committee has its own terms of reference, which are approved by the Board. These are reviewed on an annual basis to ensure that they continue to adhere to best practice. During the 2015 financial year this review took place at the June meeting. Copies can be obtained via the Company website at www.dechra.com. The Committee Chairman and the Company Secretary are available to shareholders to discuss the remuneration policy.

An overview of the Committee's terms of reference are provided in the Corporate Governance Report.

Policy on External Appointments

The Company recognises that Executive Directors may be invited to become Non-Executive Directors of other companies and that this can help broaden the skills and experience of a Director. Executive Directors are only permitted to accept external appointments with the approval of the Board.

The only Executive Director to hold an external appointment is Ian Page. He is Non-Executive Chairman of Sanford DeLand Asset Management Limited, a position which he has held since 7 October 2010. During the year, Ian Page received no remuneration for this appointment.

Advisers

The following have provided advice to the Committee during the year in relation to its consideration of matters relating to Directors' remuneration:

  • Chief Executive Officer, Chief Financial Officer, Group HR Director and Company Secretary;
  • Deloitte LLP (Deloitte).

Deloitte is retained to provide independent advice to the Committee as required. Deloitte is a member of the Remuneration Consultants Group and, as such, voluntarily operates under the Code of Conduct in relation to executive remuneration consulting in the UK. Deloitte's fees for providing remuneration advice to the Committee were £13,700 for the year ended 30 June 2015. The Committee assesses from time to time whether this appointment remains appropriate or should be put out to tender and takes into account the Remuneration Consultants Group Code of Conduct when considering this. Deloitte was appointed by the Committee and has provided share scheme advice and general remuneration advice to the Company. Details of additional services which Deloitte provided to Dechra are detailed in the Audit Committee Report.

Statement of Voting at Last Annual General Meeting

The Company remains committed to ongoing shareholder dialogue and takes an active interest in voting outcomes. The following table sets out actual voting in respect of the advisory vote on the Directors' Remuneration Report and the binding vote on the Remuneration Policy at the Company's Annual General Meeting on 24 October 2014:

ResolutionVotes for% of voteVotes against% of voteVotes withheld
To approve Remuneration Report67,915,36399.76161,7700.24301,814
To approve Remuneration Policy66,935,75398.321,140,3801.68302,814

Directors' Remuneration Policy

Dechra's Directors' Remuneration Policy was approved by shareholders at the Annual General Meeting held on 24 October 2014 with 98.32% of all votes cast in favour. The full Policy can be found at www.dechra.com.

The Policy Tables of the Directors' Remuneration Policy are provided below as it is considered these would be most helpful for shareholders to have repeated here. However, to aid reading in relation to the application of the Policy for 2016 certain date references have been updated.

Policy Table for Executive Directors:

Element: Base Salary
Purpose and link to strategy
Core element of fixed remuneration reflecting the individual's role and experience.

Operation
The Committee ordinarily reviews base salaries annually taking into account a number of factors including (but not limited to) the value of the individual, their skills and experience and performance.

The Committee also takes into consideration:

  • pay increases within the Group more generally; and
  • Group organisation, profitability and prevailing market conditions.
Performance measure
Not applicable.

Maximum opportunity
Whilst there is no maximum salary, increases will normally be in line with the level of salary increase awarded (in percentage of salary terms) to other employees in the Group. However, higher increases may be awarded in certain circumstances, such as:

  • on promotion or in the event of an increase in scope of the role or the individual's responsibilities;
  • where an individual has been appointed to the Board at a lower than typical market salary to allow for growth in the role in which case larger increases may be awarded to move salary positioning to a typical market level as the individual gains experience;
  • change in size and complexity of the Group; and/or
  • significant market movement.

Such increases may be implemented over such time period as the Committee deems appropriate.

Element: Pension
Purpose and link to strategy
Help retain and recruit employees and provide appropriate income in retirement.

Operation
The Company operates a Group Stakeholder personal pension scheme that has been effective since 1 July 2005. All Executive Directors excluding Tony Griffin are members of this scheme.

Tony Griffin participates in a defined benefit pension plan which has been established in the Netherlands. This is a funded career average pay arrangement, where pensionable salary is subject to a €50,000 cap. Salary over this cap is paid into a defined contribution pension plan.

Performance measure
Not applicable.

Maximum opportunity
The Company contributes up to 14% of salary to a pension scheme on behalf of the Executive Directors, and/or as a salary supplement in lieu of pension contributions where appropriate.

Element: Benefits
Purpose and link to strategy
Provided on a market competitive basis.

Operation
The Company provides benefits in line with market practice and includes the use of a fully expensed car, medical cover and life assurance scheme.

Other benefits may be provided based on individual circumstances, which may include relocation costs and expatriate allowances.

Performance measure
Not applicable.

Maximum opportunity
Whilst the Committee has not set an absolute maximum on the level of benefits Executive Directors may receive, the value is set at a level which the Committee considers to be appropriately positioned taking into account relevant market levels based on the nature and location of the role and individual circumstances.

Element: Annual Bonus
Purpose and link to strategy
The executive bonus scheme rewards Executive Directors for achieving financial and strategic targets in the relevant year by reference to operational targets and individual objectives.

Operation
Targets are reviewed annually and any pay-out is determined by the Committee after the year end based on targets set for the financial period.

The Committee has discretion to amend the pay-out should any formulaic output not reflect the Committee's assessment of overall business performance.

Performance measure
Operational targets (which may be based on financial or strategic measures) and individual objectives are determined at the beginning of the financial year.

The personal objectives for the Chief Executive Officer are set by the Chairman. The personal objectives for other Executive Directors are set by the Chief Executive Officer.

At least 75% of the bonus opportunity is based on financial measures (which may include profit before tax).

For financial measures, up to 15% of the maximum for the financial element is earned for threshold performance, rising to up to 50% of the maximum for the financial element for target performance and 100% of the maximum for the financial element for maximum performance.

Vesting of the bonus in respect of strategic measures or individual objectives will be between 0% and 100% based on the Committee's assessment of the extent to which the relevant metric or objective has been met.

For 2016, a bonus of up to 90% of salary may be earned based on underlying profit before tax targets and up to 10% of salary based on personal objectives, which include non-financial targets, as described above.

Maximum opportunity
Maximum bonus opportunity for Executive Directors is 100% of base salary.
Element: Long Term Incentive Plan (LTIP)
Purpose and link to strategy
The LTIP provides a clear link between the remuneration of the Executive Directors and the creation of value for shareholders by rewarding the Executive Directors for the achievement of longer term objectives aligned to shareholders' interests.

Operation
The Committee intends to make long term incentive awards under the existing LTIP.

Under the LTIP, the Committee may grant awards as conditional shares, as nil cost options, as forfeitable shares or as cash settled equivalents (or may settle in cash a share award).

An additional payment (in the form of cash or shares) may be made in respect of shares which vest under the LTIP to reflect the value of dividends which would have been paid on those shares during the vesting period (this payment may assume that dividends had been reinvested in Dechra shares on a cumulative basis).

Awards under the LTIP granted in November 2013 are subject to a malus provision enabling the Committee to revoke awards in the event of a material misstatement of the financial statements. For awards granted after 1 July 2014, the malus provision has been extended to provide the ability to revoke, reduce or impose further conditions on unvested awards in the event of serious reputational damage to the Company or if a previous annual bonus opportunity has paid out at a higher level than would have been the case but for the material misstatement or serious reputational damage to the Company.

The Company also has in place a Company Share Option Plan (CSOP). Awards under the CSOP take the form of options to acquire shares, with a per share exercise price equal to the market value of a share at the date of grant.

The Committee may at its discretion structure awards as Approved Performance Share Plan (APSP) awards comprising both a tax qualifying option granted under the CSOP and LTIP award, with the vesting of the LTIP award scaled back to take account of any gain made on exercise of the approved option. Other than to enable the grant of APSP awards, the Company does not intend to grant awards under both the LTIP and CSOP in the same grant period. Where an APSP award is granted, the qualifying option under the CSOP will be subject to a malus provision to the extent permitted in accordance with the applicable legislation.

Performance measure
Performance measures under the LTIP will be based on financial measures (which may include, but are not limited to, earnings per share growth, relative total shareholder return, return on capital employed and free cash flow).

At least 50% of any award will be subject to a performance measure based on earnings per share.

Awards will vest as to 25% for threshold performance, increasing to 100% for maximum performance.

Where an option under the CSOP is granted as part of an APSP award, the CSOP option will be subject to the same performance condition as the LTIP award.

For 2016, LTIP performance targets will be based 50% on total shareholder return (TSR) and 50% on earnings per share (EPS), with each element subject to an underpin based on return on capital employed (ROCE) as described above.

Maximum opportunity
The maximum award level under the LTIP in respect of any financial year is 200% of salary.
For the 2016 financial year, the following award levels will apply:

  • Chief Executive Officer — 200%
  • Chief Financial Officer — 150%
  • Other Executive Directors — 100%

If an APSP award is granted, the option under the CSOP may be granted over shares with a value of up to £30,000, or any other applicable HMRC limit going forward. Because of the scale back of the LTIP element of the APSP award, the value of shares subject to the CSOP option will not count towards the limits referred to above.

Other than where a CSOP option is granted as part of an APSP award, options under the CSOP will not be granted to Executive Directors.

Element: All Employee Share Plans
Purpose and link to strategy
Provision of the SAYE to Executive Directors creates staff alignment with the Group and provides a sense of ownership.
Executive Directors may participate in such other all employee share plan as may be introduced from time to time.

Operation
Tax qualifying monthly savings scheme facilitating the purchase of shares at a discount.

Any other all employee share plan would be operated for Executive Directors in accordance with its rules and on the same basis as for other employees.

Performance measure
Not subject to performance conditions in line with the HMRC qualifying operation of such plans.

Maximum opportunity
The limit on participation under the SAYE scheme will be that set in accordance with the applicable tax legislation from time to time. The contribution limit is £500 per month currently.

The limit on participation under any other all employee share plan would be determined in accordance with the plan rules (and, where relevant, applicable legislation) and would be the same for the Executive Directors as for other relevant employees.

The Committee may amend the terms of awards and options under its share plans in accordance with the plan rules in the event of a variation of Dechra's share capital or a demerger, special dividend or other similar event or otherwise in accordance with the rules of those plans.

Policy Table for Non-Executive Directors:

ElementPurpose and link to strategyOperationOpportunity
Fees and benefits

To provide fees within a market competitive range to recruit and retain Non-Executive Directors of a high calibre with the requisite experience required to achieve success for the Company and its shareholders.

The fees of the Chairman are determined by the Committee and the fees of the Non-Executive Directors are determined by the Board following a recommendation from both the Chief Executive Officer and the Chairman.

Non-Executive Directors are not eligible to participate in any of the Company's share schemes, incentive schemes or pension schemes.

Non-Executive Directors may be eligible to receive benefits such as travel and other reasonable expenses.

Non-Executive Directors are paid a basic fee with additional fees paid for the chairing of Committees.

An additional fee is also paid for the role of Senior Independent Director.

Where benefits are provided to Non-Executive Directors they will be provided at a level considered to be appropriate taking into account the individual circumstances.

This Directors' Remuneration Report, excluding the Directors' Remuneration Policy, will be put to an advisory vote at the Annual General Meeting on 23 October 2015. The Directors' Remuneration Report was approved by the Board on 7 September 2015 and signed on its behalf by:

Dr Christopher Richards

Remuneration Committee Chairman

7 September 2015