Alun Griffiths
Chairman of the remuneration committee

Number of meetings

6

Members and committee attendance
  • Alun Griffiths (chairman)6/6

  • Kevin Whiteman6/6

  • Tony Osbaldiston6/6

  • John Dodds6/6

  • Louise Hardy*3/3

2020 key acheivements
  • Reviewed and updated the remuneration policy in the context of changes to the Code and guidance issued by the main institutional investor bodies for approval at this year's AGM and application of the policy.
  • Setting and reviewing directors' remuneration and benefits including the basic salary increases across the Group.
  • Assessed performance against the bonus targets and the PSP targets for the year ended 31 March 2020.
  • Reviewed and adapted remuneration policy in the light of the economic impact of the COVID-19 pandemic on the Group and on shareholder value in particular:
    • deferred consideration of the 2020 bonus until at the earliest October 2020 after the half year;
    • deferred consideration of pay review for the majority of the executive directors until at the earliest October 2020 after the half year; and
    • deferred consideration of the 2021 bonus scheme and the 2021 PSP scheme.

Overview

Remuneration policy continues to provide strong alignment with the interests of our shareholders and other stakeholders in incentivising management to meet demanding short-term targets and to deliver sustainable long-term value creation, whilst ensuring that high safety standards are achieved.

Dear shareholder

As chairman of the remuneration committee, I am pleased to present our directors' remuneration report (the 'report') for the year ended 31 March 2020.

The report is split into the following two sections:

  • Part 1, the remuneration policy report, which is being submitted to a shareholder vote at the forthcoming AGM on 3 September 2020 as part of our regular three-year cycle, and which sets out the remuneration policy for the executive and non-executive directors; and
  • Part 2, the annual report on remuneration, which discloses how the remuneration policy was implemented for the year ended 31 March 2020 and how it will be implemented for the year ending 31 March 2021. The annual report on remuneration will be subject to an advisory shareholder vote at the forthcoming AGM on 3 September 2020.

Our policy was last approved at our 2017 AGM, with 99.66 per cent of votes cast in favour.

Overall, the committee considers that the policy continues to support our business strategy and provides an appropriate link between performance and reward. In determining the policy we have taken careful note of the guidance issued by shareholders and by the investment community as a whole. Where appropriate, remuneration policy for directors is in line with remuneration of the Group as a whole.

The management team performed well during challenging UK market conditions, influenced in part by Brexit uncertainty, and met demanding Group strategy targets. The impact of the COVID-19 pandemic was not felt by the Group until the last two weeks of the 2020 financial year and whilst the Group's bonus targets were partially met, as were the India bonus targets, consideration of bonus entitlement has been deferred until the half year.

Summary of proposed amendments to our directors' remuneration policy for 2021

Last year we undertook a thorough review of our policy, taking into account the 2018 update to the Code, the FRC's revised Guidance on Board Effectiveness and the Companies (Miscellaneous Reporting) Regulations 2018. We implemented a number of improvements last year and this year some further modifications to the policy are being proposed to ensure that the policy remains fit for purpose to deliver appropriate rewards and drive performance for the next three-year cycle and to take account of emerging best practice. Our conclusion is that the current remuneration structure continues to drive the right behaviours and no fundamental changes to the overarching policy are being proposed.

We have taken note of the investor guidance for alignment of pension contribution rates for executive directors with those available to the wider workforce and are proposing a number of changes in order to achieve compliance:

  • Immediately on approval of the policy, pension allowances for new executive director appointments will be reduced to the level of the majority of the UK monthly paid workforce in the United Kingdom; currently 7 per cent of base salary.
  • Pension allowances for existing executive directors will be reduced to 15 per cent of salary on a phased basis over the next three years as the first stage towards full alignment, with full alignment by the end of the next policy period. There are currently a number of legacy pension provisions in place across the Group. We are reviewing the different provisions and will be engaging with our employees and trade unions to implement the required changes. Further details will be included in next year's directors' remuneration report.
  • A formal post-cessation shareholding policy has been introduced requiring executive directors to retain a shareholding equal to the full in-employment shareholding for a period of two years post-employment. This requirement will apply to shares acquired (net-of-tax) under awards granted after this policy has come into effect. Shares purchased from the executives' own funds would not be included to avoid discouraging the purchase of shares in the future. We have clarified our policy such that directors are required to retain all deferred bonus and vested PSP shares until the shareholding requirement has been met.

Performance and reward 2020

The Group has consolidated its position this year, delivered top and bottom-line growth and made real progress in meeting its strategic objectives, including exceeding the 2020 strategic profit target of £26m. This was achieved through continuing focus on operational improvements, supported by continued investment in people, processes and technology. In addition, the acquisition of Harry Peers has given us additional market share in a strategically significant market.

Annual bonus

The Group financial targets and the profit targets for our Indian joint venture were partially met, and safety targets were also partially met. As a result, an annual bonus pay-out of 61 per cent of the maximum opportunity (or in the case of Derek Randall 70 per cent) would have been earned. Any decision on the affordability of that bonus has been deferred until October 2020 at the earliest due to the impact of the COVID-19 pandemic.

PSP awards

The remuneration policy allows a maximum grant of 150 per cent of salary, and awards of 100 per cent of salary were made in June 2019 for the chief executive officer and the chief operating officer and 75 per cent for other executive directors. All awards are below the maximum permitted by the policy.

PSP vesting

The committee assessed the performance for the 2017 PSP awards vesting in June 2020 and the levels of profit achieved last year resulted in targets for the 2017 PSP award (EPS targets which equated to PBT of between £25m and £29.5m) being met, resulting in the expected vesting of these awards at 85% of their maximum level.

Having reviewed the performance of the PSP, the committee was satisfied that the short and long-term variable pay outturns accurately reflect the wider performance of the Group and has not exercised discretion to override or modify the calculation of the pay-out on the vesting outcomes.

Implementation of policy for 2021

In the light of the uncertainty as to the overall impact of the COVID-19 pandemic on performance and on demand for 2021 we have deferred the implementation of the 2021 bonus and PSP schemes and the salary review as detailed below.

Base salaries

Salaries for the directors would ordinarily have been reviewed and be effective from 1 July 2020 with increases, as a percentage of salary, being limited to those of the wider workforce at 2%. However, due to the COVID-19 pandemic, salary reviews for all executive directors have been deferred until October 2020 at the earliest with the exception of Adam Semple whose salary will be increased to £250,000 this year (an increase of 6%). In the case of Adam Semple, on appointment to his current role on 1 February 2018, on a salary of £220,000, it was agreed that his salary would be reviewed again in July 2019 after which it was agreed that his salary would be increased to £250,000 in two stages, in July 2019 and again in July 2020, based on the achievement of an appropriate performance management programme over the period. As a result, Adam Semple's salary was increased to £235,000 in July 2019 and it is proposed to increase it to £250,000 in July 2020.

There will be no change to the fees paid to non-executive directors.

Annual bonus

For the 2021 financial year, consideration of annual bonus has been deferred until October 2020 at the earliest. However, any bonus scheme adopted will continue to maintain the same balance of financial and non-financial measures, and the remuneration committee will assess the appropriateness of each measure, to ensure that these remain appropriate for the year ahead. To the extent the bonus plan is operated, threshold, target and stretch targets will be disclosed in the relevant year's remuneration report.

PSP

For the 2021 financial year, consideration of PSP awards has been deferred until October 2020 at the earliest. However, any awards made will contain targets which are intended to incentivise management to maintain forward momentum and will represent a vesting range which the committee feels is realistic, whilst remaining appropriately stretching, particularly in the context of current expectations of the external market over the next performance cycle. If we propose to use significantly different metrics to EPS, we would first consult with shareholders.

For any awards made for 2021, the grant levels will not exceed 100%.

Any vested PSP awards will be subject to a two-year post vesting holding period.

Conclusion

The committee continues to seek to strengthen shareholder alignment and ensure that pay remains firmly linked to performance whilst ensuring that the bonus and performance share plans provide a strong incentive for management to deliver superior performance over the short and longer term. At the same time, we are mindful that our remuneration policy should be reviewed in the context of the impact of the COVID-19 pandemic on the Group's operations. We consider our remuneration policy achieves these objectives and takes account of the changes to the Code in 2018 and recent institutional shareholder guidelines.

I hope you find this report to be clear and simple, providing the rationale for our decisions that is helpful in understanding our remuneration policy and practices.

I look forward to answering any questions shareholders might have, and your continued support.

Alun Griffiths
Chairman of the remuneration committee
17 June 2020

* Louise Hardy was appointed on 3 September 2019.