Remuneration Report

Introduction

The Group’s remuneration policies and amounts for all employees including Executive Directors and Non-executive Directors are set out in this report. Information on pages 43 to 44 comprise the audited parts of the Remuneration Report and form an integral part of the Group’s financial statements. The Group employed a total of 336 shore-based staff (2017: 335) at 31 December 2018 and approximately 3,800 seafarers (2017: 3,400) during the year.

Group’s Remuneration Policy

The Board, through the Remuneration Committee, seeks to attract and retain personnel with the skills, experience and qualifications needed to manage and grow the business successfully. We achieve this by providing remuneration packages, including bonuses, which are competitive, consistent with market practice, and reward performance and align employees and shareholders’ interests.

The Board has taken into consideration a number of relevant factors when considering remuneration adjustments and annual bonuses, such as making reference to the prevailing market conditions, local market practice, salaries paid by comparable companies, the levels of emolument of existing staff of the Company, job responsibilities, duties and scope, performance of individuals and the market demand for their skills. The business of shipping is highly cyclical. It is inappropriate to impose straight financial measures for both salary adjustments and bonus determination as to do so would likely generate meaningless results and potentially damaging consequences. The Board seeks to obtain a balance of all the above mentioned factors.

Discretionary equity awards by way of restricted share awards are provided through the Company’s Share Award Scheme which is designed to provide Executive Directors and other employees with long-term financial benefits that are aligned to and consistent with the creation of shareholder value as an incentive and recognition for their contribution to the Group. The number of share awards granted each year is based on the performance, role and responsibilities of the individual eligible participant and approved by the Remuneration Committee.

The Group’s principal retirement benefit scheme is the Mandatory Provident Fund Scheme, a defined contribution scheme provided under the Hong Kong Mandatory Provident Fund Schemes Ordinance for those staff employed under the jurisdiction of the Hong Kong Employment Ordinance. Other locations provide pension contributions in line with the local regulations. Key components of remuneration are set out below.

Key Remuneration Components	Executive Directors and All Employees	Non-executive Directors
Fixed Based Salary:	Salaries are reviewed annually taking into account prevailing market conditions and local market practice, as well as the individual's role, duties, experience, responsibilities and performance	No
Annual discretionary cash Bonus	Discretionary cash bonuses are determined based on the overall performance of the individual and the Group. Bonuses for Executive Directors are assessed by the Remuneration Committee and those of all other staff are assessed by the Chief Executive Officer. Bonuses to Executive Directors and other employees are expected to be no more than 12 months' salary equivalent	No
Long-term equity award	Discretionary awards are determined based on the performance, role and responsibilities of eligible participants. Awards typically vest annually over a three year period. New Awards for existing awardees are considered each year by the Remuneration Committee to maintain the incentive period, in which case they vest at the end of the third year	No
Retirement benefit	In line with local legislation and market practice	No
Fixed annual director's fee	No	In line with market practice

Remuneration for the Years Ended 2018 and 2017

31 December 2018	Directors fee US$'000	Salaries US$'000	Bonuses US$'000	Pension US$'000	Total payable US$'000	Share-based compensation US$'000	Total payable and charged US$'000
Executive Directors
David M. Turnbull	-	375	95	2	472	251	723
Mats H. Berglund	-	1,044	520	2	1,566	578	2,144
Peter Schulz¹	-	495	250	2	747	476	1,223
	-	1,914	865	6	2,785	1,305	4,090
Independent Non-executive Directors
Patrick B. Paul	102	-	-	-	102	-	102
Robert C. Nicholson	96	-	-	-	96	-	96
Alasdair G. Morrison	89	-	-	-	89	-	89
Daniel R. Bradshaw	89	-	-	-	89	-	89
Irene Waage Basili	95	-	-	-	95	-	95
Stanley H. Ryan	100	-	-	-	100	-	100
	571	-	-	-	571	-	571
Total Directors' remuneration	571	1,914	865	6	3,356	1,305	4,661
Other Employees	-	127,720²	6,932	2,945	137,597	3,960	141,557
Total remuneration	571	129,634	7,797	2,951	140,953	5,265	146,218

31 December 2017	Directors fee US$'000	Salaries US$'000	Salaries US$'000	Pension US$'000	Total payable US$'000	Share-based compensation US$'000	Total payable and charged US$'000
Executive Directors
David M. Turnbull	-	377	47	2	426	243	669
Mats H. Berglund	-	1,082	216	2	1,300	547	1,847
Andrew T. Broomhead³	-	524	-	1	525	(167)	358
Chanakya Kocherla⁴	-	157	-	1	158	(371)	(213)
	-	2,140	263	6	2,409	252	2,661
Independent Non-executive Directors
Patrick B. Paul	97	-	-	-	97	-	97
Robert C. Nicholson	90	-	-	-	90	-	90
Alasdair G. Morrison	84	-	-	-	84	-	84
Daniel R. Bradshaw	84	-	-	-	84	-	84
Irene Waage Basili	94	-	-	-	94	-	94
Stanley H. Ryan	94	-	-	-	94	-	94
	543	-	-	-	543	-	543
Total Directors' remuneration	543	2,140	263	6	2,952	252	3,204
Senior Management
Peter Schulz¹	-	208	40	1	249	178	427
Other Employees	-	120,112²	4,175	2,344	126,631	3,871	130,502
Total remuneration	543	122,460	4,478	2,351	129,832	4,301	134,133
Note: (1) Mr. Schulz was appointed Chief Financial Officer on 21 August 2017 and further appointed as an Executive Director on 30 July 2018. The above represents his remuneration for the full year. (2) Salaries of Other Employees includes crew wages and other related costs of US$97.8 million (2017: US$90.7 million), which are classified as cost of services in the income statement. (3) Mr. Broomhead stepped down as an Executive Director on 20 August 2017. (4) Mr. Kocherla retired as an Executive Director on 12 April 2017.

For the year 2018, the five individuals whose emoluments were the highest in the Group were the three Executive Directors and two employees (2017: two Executive Directors and three employees). The emoluments of the highest paid individuals who are not Executive Directors are set out below and fell within the following bands.

	2018 US$'000	2017 US$'000
Salaries	693	906
Bonuses	374	255
Pension	174	130
Total Payable	1,241	1,291
Share-based compensation	445	518
Total payable and charged	1,686	1,809

Emolument bands	2018	2017
HK$3,500,001 to HK$4,000,000	_-	1
HK$5,000,001 to HK$5,500,000	-	2
HK$6,000,001 to HK$6,500,000	1	-
HK$6,500,001 to HK$7,000,000	1	-

During the year, the Group did not pay the Directors any inducement to join or upon joining the Group. No Directors waived or agreed to waive any emoluments during the year.

Accounting Policies on Employee Benefits

Bonuses

The Group recognises a liability and expense for bonuses when there is a contractual or constructive obligation or where there is a past practice that created a constructive obligation.

Retirement Benefit Obligations

Mandatory Provident Fund Scheme

The Group operates the Mandatory Provident Fund Scheme (the “MPF Scheme”) under the Hong Kong Mandatory Provident Fund Schemes Ordinance for those employees employed under the jurisdiction of the Hong Kong Employment Ordinance. The MPF Scheme is a defined contribution scheme, the assets of which are held in separate trustee administered funds.

Under the MPF scheme, the employer and its employees are each required to make regular mandatory contributions to the scheme at 5% of the employees’ relevant income, subject to a cap of monthly relevant income of HK$25,000. The Group also makes voluntary contribution in addition. The Group’s contributions to the scheme are expensed as incurred. When employees leave the scheme prior to the full vesting of the employer’s voluntary contributions, the amount of forfeited contributions is used to reduce the contributions payable by the Group.

Other Defined Contribution Schemes

The Group also operates a number of defined contribution retirement schemes outside Hong Kong in accordance with local statutory requirements. The assets of these schemes are generally held in separate administered funds and are generally funded by payments from employees and by the relevant group companies. The Group’s contributions to the defined contribution retirement schemes are expensed as incurred and are reduced by contributions forfeited by those employees who leave the schemes prior to contributions being fully vested.

Share-based Compensation

The Group operates an equity-settled, share-based compensation scheme. Restricted share awards are recognised as an expense in the income statement with a corresponding credit to reserves, based on the fair value of the shares.

The total amount to be expensed is calculated by reference to the fair value of the equity instruments on the grant date, excluding the impact of any non-market vesting conditions (for example, requirement of an employee to remain in employment for a specified time period). The number of equity instruments that are expected to vest takes into account non-market assumptions, including expectations of an employee remaining in the Group during the vesting period. The total amount expensed is charged through the vesting period. The Company reviews its estimates of the number of equity instruments that are expected to vest based on the non-market vesting conditions if necessary. It recognises the impact of the revision of the original estimates, if any, in the consolidated income statement with a corresponding adjustment to equity.

The grant of share-based compensation by the Company to the employees of subsidiary undertakings in the Group is treated as a capital contribution by the Company to the subsidiaries. The fair value of employee services received, measured by reference to fair value of the shares on the grant date is recognised over the vesting period as an increase in investment in the subsidiary undertakings, with a corresponding credit to equity in the Company’s account. In the accounts of the subsidiaries, such fair value is recognised as an expense in the income statement with corresponding credit to reserve.