Cadbury Schweppes PLC

Report of the Remuneration Committee

• 1. The committee
• 2. Remuneration Policy
• 3. Directors' Emoluments
• 4. Directors' Interests in Ordinary Shares and Share Options

1. The Committee
The Non-Executive Directors of the Company serve as members of the Remuneration Committee chaired by Mr T O Hutchison, the Deputy Chairman. The Group Secretary acts as Secretary. The Chairman, the Group Chief Executive and the Group Human Resources Director attend meetings at the invitation of the Committee.

The Committee reviews and approves the annual salaries, incentive arrangements, service agreements and other employment conditions for the Executive Directors. Information prepared by independent consultants and appropriate survey data on the remuneration practices of comparable companies is taken into consideration. The Company has complied with Section A of the best practice provisions annexed to the Stock Exchange Listing Rules throughout the year.

2. Remuneration Policy
The policy of the Remuneration Committee is to ensure that the remuneration practices of the Company are competitive, thereby enabling the Company to attract and retain high calibre executives and at the same time protect the interests of Shareholders. In framing its remuneration policy, the Remuneration Committee has given full consideration to Section B of the best practice provisions annexed to the Stock Exchange Listing Rules.

The Remuneration Committee receives advice from external consultants. This advice includes information on the remuneration practices of consumer products companies of a size and standing similar to the Company, including competitors and other businesses which trade on a worldwide basis. This information also includes data on a broad range of companies with operations in many different lines of business.

1. Salaries for Executive Directors
   In setting the basic salary of each Director the Remuneration Committee takes into account the pay practices of other companies and the performance of each individual Director.
   
   
2. Annual Incentive Plan
   Annual incentive targets are set each year to take account of current business plans and conditions, and there is a threshold performance below which no award is paid. In 1997 annual incentive awards for Directors were based on the achievement of real growth in net profit. Those annual awards are based on objective financial tests subject to appropriate adjustments as determined by the Remuneration Committee. The target incentive award for Executive Directors is 60% of basic salary, except for J F Brock whose target is 75% of basic salary. However, in the case of exceptional results the annual incentive payment may increase up to a maximum amount of 90% of basic salary and 112.5% for Mr Brock. In 1998 Mr Brock's annual incentive plan targets will be the same as the targets for the other Executive Directors. Incentive awards to Executive Directors for 1996 and 1997 averaged 48% and 73%, respectively, of basic salary. The Chairman does not participate in the Annual Incentive Plan.
   
   The Bonus Share Retention Plan ("BSRP") is applicable to Annual Incentive Plan awards for 1997.
   
   128 senior executives, including five Directors, are eligible to participate in the BSRP. The BSRP enables participants to defer all or part of their Annual Incentive Plan award and receive such award in the form of Cadbury Schweppes Ordinary Shares ("deferred shares") rather than cash. After a three year period the Company will provide participants with three additional shares for every five deferred shares. All share awards under the BSRP will be purchased in the market and held in trust for such three year period. If a participant leaves the Company during such a three year period, such participant will forfeit part of the additional shares and in certain cases it is possible that all of the additional shares and the deferred shares may be forfeited.
   
   
3. Long Term Incentive Plans
   Following approval by Shareholders at the Annual General Meeting held on 8 May 1997, the Company adopted the 1997 Long Term Incentive Plan (the "1997 LTIP"). The 1997 LTIP operates over a three year performance cycle with a new cycle starting each year. The first performance cycle started with the calendar year 1997. The 1997 LTIP replaces the prior Long Term Incentive Plan (the "Old LTIP"). Basic terms and conditions for the Old LTIP were set out in the Annual Report 1996. Awards for the 1995-1997 cycle were made under the Old LTIP. The 1997 LTIP provides for annual awards to 29 senior executives, including six directors, based on total shareholder return (ie share price growth plus re-invested dividends) and the achievement of real growth in earnings per share measured over a three year cycle. The Remuneration Committee determines to what extent awards have been earned following the publication of annual results for the last year of the cycle. 1997 LTIP awards are based on objective financial tests subject to appropriate adjustments as determined by the Remuneration Committee. For the initial operation of the 1997 LTIP, one award will be based on total shareholder return (the "TSR award"). This award will be linked to TSR subject to a minimum requirement that the growth in the Company's earnings per share over the cycle must exceed the rate of inflation over the same period by at least 2%.
   
   The Company's TSR over the performance cycle will be compared with a weighted average TSR performance of a peer group of both UK and non-UK Fast Moving Consumer Goods ("FMCG") companies (weighted 75% and 25% respectively). These companies have been selected to reflect the global nature of the Company's business. No part of the TSR award will be earned if the performance is below the 50th percentile of the peer group. If this threshold is exceeded, awards may be earned in increasing amounts from 20% of basic salary (or 40% of basic salary for an Executive Director). For performance at or above the 80th percentile the award will be earned in full. The maximum value of the TSR award will be 75% of basic salary for Executive Directors.
   
   For the second award (the "EPS award"), the performance target will be linked to the Company's earnings per share. The EPS award will be earned in full if over the performance cycle the growth in earnings per share exceeds the rate of inflation over the same period by at least 4% per annum. The maximum value of an EPS award will be 25% of basic salary for an Executive Director.
   
   If either award is not earned in accordance with the performance requirements above, it will be deferred on an annual basis for up to three years until the performance requirement is achieved by comparing the same performance requirements over the period of four, five and six years. Should an award not be earned after six years, the award will lapse.
   
   The Remuneration Committee has the discretion as to whether the earned amount of any award shall be paid in Ordinary Shares of the Company after the end of the performance cycle and/or as a contingent share award. A contingent share award is the right after a further period (the "deferral period") to receive or acquire Ordinary Shares of the Company. The Committee's present intention is that the earned amount in respect of the initial awards will be paid half in shares and half in the form of a contingent share award to be released or exercised after a further two year deferral period.
   
   Contingent share awards will normally be satisfied by the transfer of shares to participants by the trustees of the Cadbury Schweppes Employee Trust (the "Trust"). The Trust is a general discretionary trust whose beneficiaries include employees and former employees of the Company, and their dependants. The principal purpose of the Trust is to encourage and facilitate the holding of shares in the Company by or for the benefit of employees of the Group. The Trust may be used in conjunction with any of the Company's employee share schemes.
   
   In Section 3 of this Report of the Remuneration Committee the interests of the Executive Directors, who served during the year, in the LTIP at the beginning of the year (29 December 1996), at the end of the year (3 January 1998) and changes during the year, are set out. At 3 January 1998 Executive Directors had interests in the Old LTIP in respect of the 1995-1997 and 1996-1998 cycles. They had interests in the 1997 LTIP in respect of the 1997-1999 cycle. In March 1997 the Remuneration Committee approved awards which had been earned for the 1994-1996 cycle. Release of awards in respect of the 1992-1994 cycle (together with accrued share dividends) was made in April 1997.
   
   
4. Retirement Benefits
   The Company operates a number of retirement programmes throughout the world. Pension benefits reflect local competitive conditions and legal requirements.
   
   Sir Dominic Cadbury, J M Sunderland, D J Kappler and D R Williams participate in the UK pension arrangements. J F Brock and R J Stack participate in the US pension arrangements, and I D Johnston participates in the Australian pension arrangements. Further details of these arrangements are set out below and under Pensions.
   
   In the UK, annual incentive awards of up to 20% of basic salary are pensionable. The percentage of overall pay which is dependent on performance is substantial and has increased over recent years. Given the increase in the total proportion of remuneration which is variable pay, the Remuneration Committee considers that it is appropriate for a portion of such pay to be pensionable. Pension arrangements in the US provide that incentive awards under the Annual Incentive Plan are pensionable. In Australia the pension programme provides that annual incentive awards of up to 50% of basic salary are pensionable. The pensionability of such incentive awards in the UK, US and Australia is consistent with long standing arrangements for the Company's other senior executives.
   
   
5. Share Schemes
   Details of the share schemes are provided in the Report of the Directors and in Note 30 on the Accounts.
   
   The Executive Directors have participated as appropriate in the Share Option Scheme 1984 for Main Board Directors and Senior Executives, the Share Option Scheme 1986 for Senior Management Overseas and in the Cadbury Schweppes Option Plan 1994 (the "1994 Plan").
   
   From 1994 to 1996 inclusive, options under the 1994 Plan were generally granted to Executive Directors annually to a value equivalent to 1 to 1 1 /3 times annual salary subject to individual subscription limits set by institutional guidelines. The number of shares under option is reduced on a pro-rata basis if the Director leaves the Company within three years of the option grant. When the 1997 LTIP was introduced it was decided that Executive Directors would no longer participate in the 1994 Plan.
   
   Each Executive Director has also participated, as applicable, in the savings-related share option scheme operated in the country in which his contract of employment is based.
   
   
6. Service Contracts
   All of the Executive Directors of the Company have service contracts with the Company. Their contracts require two years' notice of termination by the Company. Under the secondment arrangements Mr Brock, Mr Stack and Mr Johnston are entitled to six months' employment by their employing company in their home country if there are no suitable opportunities for them when their secondments end. The contracts for Directors provide for liquidated damages equal to the lesser of two times basic salary and the salary due from the date of notification of termination to normal retirement date.
   
   The Committee believes that the current form of contract is appropriate in order to retain and recruit Directors of an appropriate calibre. The Committee will, however, keep this and further developments under review.
   
   The Non-Executive Directors do not have service contracts with the Company. It is the policy of the Company to appoint Non-Executive Directors for an initial period of three years. Unless otherwise determined by the Board the maximum term is nine years. These appointments are subject to appointment and re-appointment at the relevant Annual General Meeting.
   
   
7. Executive Directors - Outside Appointments
   The Company recognises the benefits to the individual and to the Company of involvement by Executive Directors of the Company as Non-Executive Directors in companies not associated with Cadbury Schweppes plc. Subject to certain conditions, Executive Directors are permitted to accept appointment as Non-Executive Directors in another company. The Executive Director is permitted to retain any fees paid for such service. Unless otherwise determined by the Board, Executive Directors may not accept more than one such Non-Executive Directorship.
   
   
8. Fees for Non-Executive Directors
   The remuneration of each of the Non-Executive Directors is determined by the Board as a whole within the overall limits set by the Articles of Association. The Non-Executive Directors do not take part in discussions on their remuneration.

3. Directors' Emoluments

Summary for year	1997 £000	1996 £000
Directors' Remuneration
Total remuneration		.
Fees as Directors	204	212
Salaries and other benefits	2,799	2,732
Annual bonus/BSRP	1,181	1,055
LTIP	133	238
Compensation for loss of office	366	-
	4,683	4,237
Pension contributions:
Defined benefits	732	1,104
Payments for former Directors or their dependants
Pensions	23	22
Other	112	10
	5,550	5,373

During the year the Company provided pension contributions on behalf of Sir Dominic Cadbury as Chairman and J F Brock as the highest paid Director of £56,000 (1996: £262,000) and £125,000 (1996: D R Williams £174,000) respectively.

Pay and benefits

Individual Details	Basic Salary/Fee £000	Annual Bonus/BSRP £000	1997 LTIP £000
Sir Dominic Cadbury	560	-	62
JM Sutherland	429	305	21
JF Brock	341	364	10
ID Johnston	307	157	7
DJ Kappler	294	210	12
RJ Stack	213	145	7
DR Williams (a)	44	-	14
TO Hutchison	56	-	-
RS Braddock (b)	31	-	-
IFH Davison	26	-	-
FB Humer	26	-	-
Mrs A M Vinton (c)	9	-	-
GH Waddell (c)	9	-	-
Sir John Whitehead	26	-	-
Baroness Wilcox (d)	21	-	-
Former Directors	-	-	-

Individual Details	Allowances & Benefits £000	1997 Total £000	1996 Total £000
Sir Dominic Cadbury	50	672	667
JM Sutherland	17	772	546
JF Brock	214	929	523
ID Johnston	46	517	120
DJ Kappler	15	531	423
RJ Stack	265	630	239
DR Williams (a)	4	62	698
TO Hutchison	-	56	55
RS Braddock (b)	-	31	-
IFH Davison	-	26	25
FB Humer	-	26	25
Mrs A M Vinton (c)	-	9	25
GH Waddell (c)	-	9	25
Sir John Whitehead	-	26	25
Baroness Wilcox (d)	-	21	-
Former Directors	-	-	841

1. Resigned 14 February 1997
2. Appointed 27 June 197
3. Resigned 8 May 1997
4. Appointed 5 March 1997

The allowances and benefits for J F Brock, I D Johnston and R J Stack include housing and other expatriate allowances.

The BSRP award will be used to purchase shares which will be held subject to the terms and conditions of the BSRP as described in Annual Incentive Plan above. At the end of the three year period if the participating Director is still an employee of the Company, he will receive the shares together with the additional shares (in the ratio of three additional shares for every five shares awarded under the BSRP).

Long Term Incentive Plan
Details of the Old LTIP and the 1997 LTIP are described in Long Term Incentive Plans. Ordinary Shares held on behalf of the Directors in trust at 29 December 1996 and at 3 January 1998, in addition to Ordinary Shares awarded to the Directors in 1997, are detailed below together with cash awards made in the year. All awards set out below are in respect of the Old LTIP.

	Shares held in trust at 29 December 1996	Share Awards (b)	Vesting of Share Awards (c) £000
Sir Dominic Cadbury	19,529	8,410	(4,953)
JM Sutherland	4,119	2,277	(949)
JF Brock	3,290	1,665	(783)
ID Johnston	2,178	1,191	(491)
DJ Kappler	1,645	1,264	(234)
RJ Stack	1,711	959	(425)
DR Williams (a)	4,812	Nil	(4,812)

	Share Dividends (d)	Shares held in trust at 3 January 1998
Sir Dominic Cadbury	321	23,307
JM Sutherland	69	5,516
JF Brock	55	4,227
ID Johnston	37	2,915
DJ Kappler	31	2,706
RJ Stack	28	2,273
DR Williams (a)	Nil	Nil

	Value received in year
	Shares £000	Cash £000
Sir Dominic Cadbury	45	46
JM Sutherland	13	12
JF Brock	3	4
ID Johnston	1	1
DJ Kappler	6	6
RJ Stack	2	2
DR Williams (a)	Nil	26

1. D R Williams resigned on 14 February 1997, following which all remaining shares held in trust for him were distributed to him.
2. Awards for the 1994-1996 cycle approved in March 1997. These were included in the Directors' remuneration details in the Annual Report 1996.
3. Vesting of share awards of the 1992-1994 cycle, and accrued share dividends, in April 1997.
4. Shares held in trust increased during 1997 as a result of share dividends.

Pensions
Sir Dominic Cadbury is a deferred member and D R Williams is a pensioner of the Cadbury Schweppes Pension Fund ("CSPF") and the Cadbury Schweppes Supplementary Pension Scheme ("CSSPS"). J M Sunderland and D J Kappler are also members of the CSPF and the CSSPS. These are defined benefit retirement plans with a pension paid on retirement based on salary and length of service. Members contribute 5% of salary and pensionable bonus. The target benefit is two-thirds of pensionable earnings (current rate of salary and three years average of pensionable bonuses). The normal retirement age is 60.

J F Brock and R J Stack are members of the US Supplemental Executive Retirement Plan ("SERP") as well as the US cash balance pension plan and excess plan. The SERP is a defined benefit retirement plan with a pension paid on retirement based on salary and length of service. Combined benefits are 50% of a three year average of final pensionable earnings after 15 years service and 60% after 25 or more years service. Directors may retire at age 60 without a reduction factor applied to accrued benefits.

I D Johnston is a member of the Australian Cadbury Schweppes Superannuation Fund and the Sweetenam Investments Fund. Both are defined benefit plans paying out a lump sum on retirement based on salary and length of service. Mr Johnston's agreed benefits will be 6.896 times the three year average of final pensionable earnings at his normal retirement age of 60.

	Accrued benefit at 3 January 1998
	Pension £000	Lump Sum £000
UK Pension Arrangements
Sir Dominic Cadbury	366	-
JM Sutherland	272	-
DJ Kappler	140	-
DR Williams	240	-
US Pension Arrangements
JF Brock (b)	205	-
RJ Stack (b)	68	-
Australian Retirement Arrangements
ID Johnston	-	1,119

	Increase in year net of inflation £000	Increase in transfer value less member's contribution £000
UK Pension Arrangements
Sir Dominic Cadbury	6	71
JM Sutherland	32	494
DJ Kappler	25	374
DR Williams	2	415 (a)
US Pension Arrangements
JF Brock (b)	18	89
RJ Stack (b)	8	35
Australian Retirement Arrangements
ID Johnston	166	108

 

1. Of this amount £251,000 relates to a contribution from the Company in compensation for loss of office.
2. The pension arrangements for J F Brock and R J Stack are made in US Dollars, and converted for the purpose of this information only at the rate of US$1.64 = £1.

4. Directors' Interests in Ordinary Shares and Share Options
The interests of the Directors holding office at 3 January 1998 ("1997") and at 29 December 1996, the beginning of the year (or the date of appointment if later) ("1996"), in the Share Capital of the Company are detailed below:

	Ordinary Shares of 25p (a)
Table 1	1996	1997	1996
Sir Dominic Cadbury	605,864	688,355	382,232
RS Braddock (f)	Nil	8,000	Nil
JF Brock (e)	13,486	57,890	319,169
IFH Davison (f)	1,778	1,778	Nil
FB Humer (f)	1,043	1,043	Nil
TO Hutchison (f)	8,811	8,811	Nil
ID Johnston	34,212	86,576	250,336
DJ Kappler	21,683	63,266	202,213
RJ Stack (e)	13,496	46,415	163,489
JM Sutherland	45,949	114,033	369,883
Sir John Whitehead (f)	3,671	1,251	Nil
Baroness Wilcox	Nil	2,183	Nil
	749,993	1,079,601	1,687,322

	Options over Ordinary Shares of 25p (b)
Table 1	Granted (c)	Exercised (d)	1997
Sir Dominic Cadbury	3,667	Nil	385,899
RS Braddock (f)	Nil	Nil	Nil
JF Brock (e)	1,420	6,748	313,841
IFH Davison (f)	Nil	Nil	Nil
FB Humer (f)	Nil	Nil	Nil
TO Hutchison (f)	Nil	Nil	Nil
ID Johnston	3,000	82,453	170,883
DJ Kappler	1,466	64,077	139,602
RJ Stack (e)	1,420	1,748	163,161
JM Sutherland	1,466	52,855	318,494
Sir John Whitehead (f)	Nil	Nil	Nil
Baroness Wilcox	Nil	Nil	Nil
	12,439	207,881	1,491,880

1. Directors' holdings of Ordinary Shares include shares held in trust under both the Long Term Incentive Plan and the Bonus Share Retention Plan.
2. Details of the exercise prices and exercise periods of the share option schemes are given in Note 30 on the Accounts.
3. Details of individual grants of options during the year are given in Table 2 below.
4. Details of individual exercises of options during the year are given in Table 3 below.
5. In respect of options exercised see note * to Table 3 below.
6. None of the Non-Executive Directors had any interests in the share option schemes of the Group.

A summary of options granted during the year is given in Table 1. Details of individual grants of options during the year are given below:

Table 2	Number of shares over which options granted	Exercise Price per Share in pence (unless otherwise stated)
Sir Dominic Cadbury	3,667	470.4
JF Brock	1,344	US$7.4242
ID Johnston	3,000	AUS$9.89
DJ Kappler	1,466	470.4
RJ Stack	1,344	US$7.4242
JM Sunderland	1,466	470.4

Table 2	Date of Grant	Type of Option See Code in Note 30 on the Accounts
Sir Dominic Cadbury	22 October 1997	aa
JF Brock	10 April 1997	ha
ID Johnston	14 April 1997	ga
DJ Kappler	22 October 1997	aa
RJ Stack	10 April 1997	ha
JM Sunderland	22 October 1997	aa

A summary of options exercised during the year is given in Table 1. Details of individual exercises of options during the year, divided between savings-related options and executive options, together with the weighted average market price of the Shares at the date of exercise, are given below:

Table 3	Number of shares	Type of Option See Code in Note 30 on the Accounts
JF Brock	5,000	ca
	1,748*	*
ID Johnston	82,453	ca/cb/cc
DJ Kappler	61,985	bb/bc/bd
	2,092	†
RJ Stack	1,748*	*
JM Sunderland	52,855	ba

Table 3	Weighted average exercise price £	Weighted average market price on exercise £	Notional gain £
JF Brock	3.1973	4.8950	8,489
	3.6463	5.4150	3,092
			11,581
ID Johnston	3.6587	5.4100	144,401
DJ Kappler	4.2518	5.3400	67,451
	3.117	5.1400	4,230
			71,681
RJ Stack	3.6463	5.4150	3,092
JM Sunderland	2.9987	5.3576	124,678

The total notional gains on exercise amounted to £355,433 (1996: £546,941).

* The number of Ordinary Shares acquired by J F Brock and R J Stack under the United States and Canada Employee Stock Purchase Plan 1994 included 1,672 shares originally granted plus 76 shares which were attributable to the interest earned on the savings. The exercise period expired on 19 May 1997.

†Exercise of option was under the Savings-Related Share Option Scheme 1982, the exercise period for which expired on 31 July 1997.

The market prices of Ordinary Shares at 30 December 1996 and 2 January 1998, the first and last dealing days in the year, were 488.5p and 622p respectively.

A summary of grants of options over shares held at the year end is given in Table 1. The weighted average price of grants of options held at the year end, 3 January 1998, are given below:

Table 4	Number of Shares over which Options have been granted	Weighted average Price in pence per share
Sir Dominic Cadbury	385,899	443.70
JF Brock	313,841	424.53
ID Johnston	170,883	468.11
DJ Kappler	139,602	478.29
RJ Stack	163,161	447.11
JM Sunderland	318,494	463.78

There were the following changes in the interests of Directors between 4 January 1998 and 4 March 1998:

1. On 6 January 1998 Sir Dominic Cadbury exercised an option over 645 Ordinary Shares at 325.4p under the Savings-Related Share Option Scheme 1982, retaining the acquired shares.
2. On 6 January 1998 D J Kappler exercised an option over 2,304 Ordinary Shares at 325.4p under the Savings-Related Share Option Scheme 1982, retaining the acquired shares.
3. On 3 February 1998 Sir Dominic Cadbury exercised an option over 5,848 Ordinary Shares at 230.81p under the Savings-Related Share Option Scheme 1982, retaining the acquired shares.
4. As a consequence of the establishment of the QUEST (see page 28 Report of the Directors) the Executive Directors are treated as being interested in any dealings in the Company's Shares by the QUEST. During the period 20 January 1997 to 4 March 1998 the QUEST acquired a total of 5,135,164 Ordinary Shares in the Company by subscription at prices between 230.81p and 762.50p per share. Those Ordinary Shares were all transferred by the QUEST to individuals who had exercised options under the Savings-Related Share Option Scheme 1982. At 4 March 1998 the QUEST held no Ordinary Shares in the Company.

All the interests in this section were beneficial. The non-beneficial interests of Sir Dominic Cadbury were 778,105 Ordinary Shares (1996: 763,105). None of the Directors had any interest in the other securities of the Company or the securities of any other company in the Group.

Save as disclosed above, there have been no changes in the interests of the Directors between 4 January 1998 and 4 March 1998.

The Register of Directors' Interests, which is open to inspection, contains full details of Directors' shareholdings and options.

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