46 Dialog Semiconductor Plc | Annual report and accounts 2012 |  Section 3 | Management and governance Directors’ remuneration report Introduction from the Committee Chairman Unuadited information The Remuneration and  Nomination Committee  Remuneration review and approach  to benchmarking This year, for the first time and in my capacity as Chairman of the Dialog Semiconductor Remuneration and Nomination Committee, I have decided to  include an introductory letter to the Directors’ remuneration report to provide some detail on the Dialog approach to remuneration and to address some  of the concerns raised in the context of our 2012 AGM. Last year, Shareholders gave a strong signal to the Company that there were elements of our approach to remuneration and, in particular, our disclosure  in our Directors’ remuneration report, with which they were not entirely happy. This was reflected in the number of votes cast against the report at the  AGM and the proposed introduction of the new share plan not being approved. The Committee, and the Board, took that signal very seriously, and embarked on a major review of both our approach to remuneration and our  disclosure. As part of this, we sought further feedback from Shareholders and proxy advisers before finalising any changes to our remuneration plans. This year, you will see that the Directors’ remuneration report has been extensively expanded, with a focus on describing our arrangements more fully  and transparently; and demonstrating how opportunity and realised pay links both to Dialog’s strategy and to performance. We believe that our remuneration approach for the executive Director remains fit for purpose and propose no material changes for 2013. However, as a result of Shareholder feedback from last year and as a result of this year’s review we introduced a deferral element to the 2012 annual bonus. The first deferral will happen in 2013.  We have reviewed and amended the terms of the share plan that we proposed for Shareholder approval at the 2012 AGM and are seeking approval for that plan this year. The material differences in the proposal this year are: Finally, subject to Shareholders’ approval, fees to non-executive Directors will be paid entirely in cash in the future. All outstanding non-executive Director options that were exercisable in the year were exercised. We believe that these changes directly address Shareholder concerns and will make the plan acceptable to Shareholders. It is an important addition to the existing share plan arrangements for employees below executive Director level. Chairman, Remuneration and Nomination Committee Russ Shaw During 2012, the Committee reviewed its  remuneration objectives and determined that  these principles remain fit for purpose. It  believes that a simple approach is the most  effective, so the package comprises of three  principal elements: For information on the Remuneration and  Nomination Committee and its responsibilities,  refer to page 45. The Committee believes that, in order to align  with Shareholder interests and “pay for  performance”, a significant portion of the CEO’s  remuneration should be linked to, and paid in,  Company shares. The Committee believes that  the CEO should also hold a meaningful level of  shares personally. Each of these aspects is set out in more detail in the relevant sections of this report.  In response to the level of Shareholder approval  of last year’s Directors’ remuneration report, the  Committee embarked on a fundamental review  of its approach to CEO remuneration and consulted  with Shareholder proxy advisers in advance of  finalising its arrangements for 2013. It is committed  to ongoing dialogue with Shareholders and  Shareholder proxy advisers in this regard. While the Committee determined that its overall  approach to remuneration remains appropriate,  certain changes were made during 2012 to the  operation and application of the pay arrangements  to address issues raised around the 2012 AGM  and closer align with best practice: The Committee reviews the CEO’s remuneration  package annually both in the context of  Company performance and against a range of peer companies. In reviewing the CEO’s pay  arrangements the Committee takes into account: ■ The history and growth of the Company; ■ The Company’s UK incorporation and associated  corporate governance expectations; ■ Fixed pay, including base salary, benefits  and pensions; ■ Annual bonus; and ■ Long-term incentive. 1 To ensure that it is structured so as to attract  and retain executives of a high calibre, with  the skills and experience necessary to  develop the Company successfully; and 2 To reward executives in a way that aligns  with Shareholder interests and promotes the creation of sustained value for the  Company’s Shareholders. ■ Annual bonus now includes a formal  maximum (previously performance above  target was discretionary); ■ Annual bonus will now include a deferral  mechanism into Company shares with  clawback provisions; and ■ The level of grant under the long-term  incentive has been formalised and linked  more tangibly to both CEO performance and his investment in Company shares. The primary objectives of the Company’s policy  on executive Director remuneration are: Executive Director remuneration policy ■ The CEO is expressly excluded from participation; and ■ Share dilution will be limited compared to the previously agreed levels.