Remuneration Committee Chairman's Letter

Dear Shareholder,

On behalf of the Board, I am pleased to present Consort Medical's FY2016 Directors' Remuneration Report.

This report details the remuneration outcomes in respect of FY2016 and outlines how we intend to apply the remuneration policy in FY2017.

Shareholder consultation on remuneration during FY2016

The Remuneration Committee values shareholder engagement and is mindful of investors' views when designing and implementing the Company's remuneration policy.

The voting outcome at the 2015 AGM indicated that, overall, shareholders remained supportive of our remuneration structure – this was demonstrated by the voting in respect of our future Remuneration Policy and new Performance Share Plan which received 94% and 98% support respectively. Although the majority of our shareholders also voted in favour of our Annual Remuneration Report, selected shareholders voiced unease regarding certain elements of the package.

During the year, the Remuneration Committee undertook an engagement exercise to fully understand shareholders' concerns. The Committee has sought to actively respond to shareholder feedback and subsequently two key changes have been approved by the Committee.

Firstly, this year's report sets out enhanced disclosure in respect of the annual bonus outcome for FY2016, providing full retrospective disclosure regarding the financial targets set at the start of the year. This disclosure is intended to provide greater transparency regarding the basis of awards.

Secondly, selected shareholders raised concerns in relation to the methodology used to assess TSR performance for the Company's long-term incentives. Previously, full vesting for the TSR element required the Company to outperform the lower of: (i) the mean annualised comparator TSR +7%; and (ii) upper-quartile annualised comparator TSR.

In response to shareholder feedback, the Committee has determined that for future awards TSR will be assessed on a simpler and more conventional basis. For the 2016 award, threshold vesting (25% of the element) will occur for performance in line with the median of the comparator group, with full vesting requiring upper-quartile performance.

I hope that the changes set out above clearly demonstrate how the Committee has taken on board feedback from investors and how we continue to value the support of our major shareholders.

FY2016 Incentive Payouts

The business has once again performed very well during the year, and has made good progress against a number of key strategic priorities. Further details are set out in the Strategic Report. Profit performance was strong and the Company delivered profit before tax and special items of £32.3m. Taking into account performance against the targets set at the start of the year, the Committee determined that outcomes under the annual incentive scheme for the executive directors would be between target and maximum.

Over the past three years, the Company's TSR performance has been very strong, with significant outperformance of the market. For the 2013 award, the current expectation is that Consort Medical's TSR performance is likely to significantly outperform the comparator group. In addition, strong financial performance over the period has resulted in outperformance of the EPS targets. Subsequently, this award is expected to vest in full. Further details are provided in the Annual Remuneration Report.

In the context of sustained strong company and share price performance, the Committee is satisfied that the outcomes are fully deserved.

Approach for the coming year

The overall remuneration structure continues to provide an effective link between pay, performance and the experience of shareholders. The changes made this year have provided additional simplicity and transparency to our approach.

Subsequently, no major changes to the package have been proposed for the coming year:

  • Salaries for executive directors will be increased by 2.5% in line with employees in the wider organisation
  • In response to changes in the taxation of pensions in the United Kingdom, pension allowances in future years may be paid in the form of a cash allowance. The maximum value of the pension allowance will remain unchanged from prior years
  • Maximum incentive opportunities for the annual and long-term incentives will remain unchanged
  • The 2016 awards under the Performance Share Plan will continue to be based on relative TSR and EPS performance

I trust you will find this report informative, and I look forward to receiving your support.

Dr William Jenkins
Chairman of the Remuneration Committee