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Remuneration Report

Introduction

This Remuneration Report sets out the Group’s remuneration policies and amounts for all employees including Executive Directors and Non-executive Directors. "Remuneration for the Years Ended 2016 and 2017" and "Accounting Policies on Employee Benefits" 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 335 shore-based staff (2016: 331) at 31 December 2017 and approximately 3,400 seafarers (2016: 3,000) 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.

Equity 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 of the individual eligible participant and approved by the Remuneration Committee. The Board has not granted, and currently has no intention to grant any equity awards to Independent Non-executive Directors as they administer the scheme at their sole discretion.

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.

Below sets out the key components of remuneration:

Key Remuneration
Components
Executive Directors and All EmployeesNon-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 Directors and employees are
expected to be no more than 12 months' salary equivalent
No
Long-term equity awardsAwards 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 benefitIn line with local legislation and market practiceNo
Fixed annual director's feeNoIn line with
market practice

Remuneration for the Years Ended 2016 and 2017

31 December 2017Directors
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-377472426243669
Mats H. Berglund-1,08221621,3005471,847
Andrew T. Broomhead1-524-1525(167)358
Chanakya Kocherla2-157-1158(371)(213)
-2,14026362,4092522,661
Independent Non-executive Directors
Patrick B. Paul97---97-97
Robert C. Nicholson90---90-90
Alasdair G. Morrison84---84-84
Daniel R. Bradshaw84---84-84
Irene Waage Basili94---94-94
Stanley H. Ryan94---94-94
543---543-543
Total Directors' remuneration5432,14026362,9522523,204
Senior Management
Peter Schulz3-208401249178427
Other Employees-120,11244,1752,3441 26,6313,871130,502
Total remuneration543122,4604,4782,351129,8324,301134,133
Note:
(1) Mr. Broomhead stepped down as an Executive Director on 20 August 2017.
(2) Mr. Kocherla retired as an Executive Director on 12 April 2017.
(3) Mr. Schulz was appointed Chief Financial Officer on 21 August 2017.
(4) Salaries of Other Employees includes crew wages and other related costs of US$90.7 million (2016: US$83.6 million), which are classified as cost of
services in the income statement.
31 December 2016Directors
fee
US$'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-378322412219631
Mats H. Berglund-1,13114421,2774691,746
Andrew T. Broomhead-514822598283881
Chanakya Kocherla-468592529256785
-2,49131782,8161,2274,043
Independent Non-executive Directors
Patrick B. Paul97---97-97
Robert C. Nicholson90---90-90
Alasdair G. Morrison84---84-84
Daniel R. Bradshaw84---84-84
Irene Waage Basili95---95-95
Stanley H. Ryan546---46-46
496---496-496
Total Directors' remuneration4962,49131783,3121,2274,539
Other Employees-111,54643,3832,219117,1482,980120,128
Total remuneration496114,0373,7002,227120,4604,207124,667
Note:
(5) Mr. Ryan was appointed as an Independent Non-executive Director on 5 July 2016.

For the year 2017, the five individuals whose emoluments were the highest in the Group were the two current Executive Directors and three employees (2016: four Executive Directors and one employee). The emoluments of the highest paid individuals who are not Executive Directors are set out below and fell within the following bands.

2017
US$'000
2016
US$'000
Salaries906333
Bonuses25576
Pension13031
Total Payable1,291440
Share-based compensation518120
Total payable and charged1,809560
Emolument bands20172016
HK$3,500,001 to HK$4,000,0001-
HK$4,000,001 to HK$4,500 000-1
HK$5,000,001 to HK$5,500,0002-

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 by the Company of share-based compensation 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 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.

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