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Remuneration Committee

 
 
 

 

Overall approach to remuneration

The Committee follows the following broad principles when considering the design, implementation and assessment of remuneration in line with the recommendations set out in Provision 40 of the 2018 UK Governance Code:

Clarity – remuneration arrangements should be transparent and promote effective engagement with shareholders and the workforce

The Company’s remuneration policy is designed to support the delivery of the Group’s strategic objectives which are aligned with the long-term interest of both shareholders and key stakeholders. The Committee is committed to being transparent in respect to the elements of remuneration, quantum, the rationale for targets set and performance outcomes. The Committee engages with shareholders and is keen to understand their views and priorities when considering key remuneration issues and any major changes.
 

Simplicity – remuneration structures should avoid complexity and their rationale and operation should be easy to understand

The Committee believes the current arrangement for executive directors to be simple and these consist of three elements:

  • A fixed element that comprises salary, pension and taxable benefits.
  • A variable element that is subject to performance conditions and comprises:
    • short-term goals via the annual bonus plan; and
    • long-term goals via the Long-Term Incentive Plan.
 

The Committee has made a number of changes to remuneration policy over the last few years to remove complexity and reflect market practice and considers that the current arrangements are clear, easy to understand and provide an appropriate balance.

Risk – remuneration arrangements should ensure reputational and other risks from excessive rewards, and behavioural risks that can arise from target-based incentive plans, are identified and mitigated

Targets are reviewed to ensure they reflect the overall risk appetite set by the Board and do not encourage inappropriate behaviours or excessive risk taking.

Mitigation is provided through the recovery provisions that apply to both the cash and share elements of the annual bonus plan and the recovery and withholding provisions that apply to the LTIP. The Committee reviewed arrangements for all elements of remuneration in the financial year to update the malus and clawback provisions in line with current best practice expectations. This included introducing additional trigger events in the event of corporate failure and/or material damage to the Company’s business or reputation and the LTIP rules have been updated to include a discretion to override the vesting result in exceptional circumstances.

In addition, holding periods are in place for awards under the Deferred Bonus Plan and LTIP.
 

Predictability – the range of possible values of rewards to individual directors and any other limits or discretions should be identified and explained at the time of approving the policy

The Committee assesses the potential outcome of future reward by reference to potential pay-outs that can be received at a range of outcomes (minimum, mid-point and maximum). In addition, the effect of future share price growth under the LTIP is also considered based on a 50% increase in share price over the period.
 

Proportionality – the link between individual awards, the delivery of strategy and the long-term performance of the company should be clear. Outcomes should not reward poor performance

As referred to under ‘Alignment to culture’ below, the Committee seeks to ensure that targets for annual bonus and long-term incentives are aligned with the Group’s strategy and the long-term sustainable development of the business.

The focus of our remuneration strategy is on rewarding performance – the majority of executive remuneration (approximately 70% at maximum) is variable and only payable if demanding performance targets are met. The majority of variable pay is payable in the form of shares.

When setting targets for variable elements of pay the Committee carefully considers the targets to minimise the risk of excessive reward by reference to the maximum potential award that could be achieved.

When assessing performance against annual bonus and LTIP the Committee also considers:

  • the overall performance of the business;
  • the quality of earnings when assessing the achievement of financial targets; and
  • the market in which the Company operates.
 

The Committee retains discretion to override formulaic outcomes produced by the performance conditions where, in the Committee’s view, they do not reflect the performance of the business over the period, individual performance or where events happen that cause the Committee to determine that the conditions are unable to fulfil their original intended role.

Alignment to culture – incentive schemes should drive behaviours consistent with company purpose, values and strategy

As part of the preparation of the 2020 Remuneration Policy the Committee reviewed the overall design of the Group remuneration strategy and believes that it is consistent with the Company’s purpose, values and strategy and is aligned with the Group’s culture. When setting the annual goals for the annual bonus and LTIP award, the Committee considers a range of different potential measures in order to select those that it believes are most likely to drive the successful delivery of the Group strategy and are aligned with shareholders’ interests to deliver earnings growth and improved shareholder value in the medium-term.
 

Senior management and the wider workforce

The remit of the Committee already includes the oversight of remuneration for senior management (who are defined as the Group’s Executive Leadership Team) and has been extended to include the review of workforce remuneration and related policies, and the alignment of incentives and rewards with culture.

Remuneration for executive directors is set within the wider context of the Group’s remuneration policy for the wider workforce. The key differences of quantum and structure in pay arrangements across the Group reflect the different sizes of roles and levels of accountability required for the role and that executive directors and senior management have a much greater emphasis on performance-based pay through the annual bonus and the LTIP.

Salaries for management grades are normally reviewed annually (currently in July each year) and take account of both business and personal performance. Specific arrangements are in place at each site and these may be annual arrangements or form part of a longer term arrangement and the Board is kept regularly updated on these arrangements.

The Committee reviews the level of salary increases for colleagues not involved in collective bargaining and also reviews and approves the annual bonus plan for the general management population. Financial objectives for executive directors and the management population are aligned and strategic objectives cascaded down the management structure. In 2018/19, the Committee approved changes to the management scheme to make it more competitive and aid recruitment and retention. Senior management participate in long-term incentive arrangements reflecting their contribution to Group performance and enhancing shareholder value. All employees are encouraged to own shares in the Company via the Sharesave Plan and executive directors through our shareholding guidelines.
 

Share ownership, vesting and retention periods

To align executive directors’ interests with those of shareholders they are expected to retain 50% of shares from vested awards under the Deferred Bonus Plan (DBP) and the LTIP (other than sales to settle any tax or NICs due) until they reach a value at least equal to 200% of their annual salary (valued at the time of purchase or vesting). In addition, to encourage a focus on the long-term sustainable development of the business, retention periods have been introduced for both the annual bonus scheme and Long-Term Incentive Plan. One-third of any annual bonus award is deferred into shares for three years under the DBP. In addition, any shares which vest under LTIP awards granted since 2018 will be deferred for a further two-year period.
 

Non-executive directors

Fees payable to non-executive directors are determined by the Board. The level of fee is set in the context of the time commitment and responsibilities required by the role. As a result, additional fees are payable to the Chairs of the Audit and Remuneration Committees and also for the role of Senior Independent Director. These are reviewed on an annual basis. No change has been made to the basic NED fee since 2009.



A copy of the 2019/20 Director's Remuneration Report, which includes the 2020 Director’ Remuneration Report which is being submitted to shareholders for approval at the 2020 AGM, is available here: Directors' Remuneration Report 2019/20