Report on directors' remuneration
Notes contentsRemuneration policy
This report sets out the company's policy on directors' remuneration that applies to executive directors for 2010 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.
Pearson's goal remains unchanged: to help people make progress in their lives and thrive in a brain-based economy through learning. The basic strategy to achieve that goal is pursued by all Pearson's businesses in some shape or form and has four fundamental parts: long-term organic growth investment in content; adding services to our content; international expansion; and efficiency.
One of the most important measures of our strategy is, of course, financial performance. Here, our goal is to produce consistent growth in three key financial measures – adjusted earnings per share, cash flow and return on invested capital. 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.
The performance conditions that we select for the company's various performance-related annual or long-term incentive plans are therefore linked to the company's strategic objectives set out above and aligned with the interests of shareholders. 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.
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.