Remuneration Policy

This policy took effect from the AGM in May 2016 when it was formally approved by shareholders. The tables below summarise the main elements of the remuneration packages of the Executive Directors.

Base salary (fixed pay)

Link to strategy To pay a fair salary commensurate with the individual’s role, responsibilities and experience and having regard to market rates for similar roles in comparable companies.
Operation The Remuneration Committee reviews basic salaries annually with changes effective from 1 January. This review takes into account practices elsewhere in the Group.
Opportunity There is no prescribed maximum salary or maximum rate of increase. The Committee will take into consideration the general increase for the broader employee population but on occasion may need to recognise changes in responsibility, development in the role or specific retention issues.

 

Benefits (fixed pay)

Link to strategy To provide cost effective benefits to aid recruitment and retention of senior executives and to support the wellbeing of employees.
Operation Benefits comprise, car allowance or company car, private medical insurance, permanent health insurance and other benefits.
Opportunity The benefits are not subject to a specific cap but represent a small element of total remuneration. Costs to provide these benefits are closely monitored.

 

Pension (fixed pay)

Link to strategy To provide market competitive pension arrangements to aid recruitment and retention of senior executives.
Operation The Group will pay a pension allowance or contribute to a pension scheme for all Executive Directors. The Group’s legacy defined benefit plan has been closed to new members and the pensionable salary frozen in 2010.
Opportunity Company contribution of up to 25% of base salary or equivalent cash allowance in lieu (inclusive of employer’s national insurance contribution).

 

Annual incentives (variable pay)

Link to strategy To incentivise performance over a 12 month period based on financial targets and individual performance objectives agreed by the Remuneration Committee.
Operation The bonus is paid in cash based on the audited financial results and the Remuneration Committee’s assessment of delivery against personal objectives. Any bonus award in respect of periods from 2015 is subject to penalty and clawback provisions covering material misstatement of Group results and is in force for 2 years following the award.
Opportunity Maximum bonus potential capped at 100% of basic salary but will remain at 50% for 2016.
Performance measure The performance measures applied may be financial or non-financial and corporate, divisional or individual and in such proportions as the Committee considers appropriate. The annual bonus plan remains a discretionary arrangement and the Committee retains a standard power to apply its judgement to adjust the outcome of the annual bonus plan for any performance measure (from zero to any cap) should it consider that to be appropriate.

 

Long term incentive (variable pay)

Link to strategy To incentivise delivery of strategic targets and sustained performance over the long-term.
Operation Each year conditional awards over shares may be granted which can be earned subject to the delivery of performance goals. The Committee may set such performance conditions on PSP awards as it considers appropriate (whether financial or non-financial and whether corporate, divisional or individual). Performance conditions are for a fixed three-year period and there is no re-setting. Executive Directors are expected to build up a prescribed level of shareholding equivalent to 100% of basic salary. If the prescribed shareholding has not been reached, Executive Directors will be expected to retain a proportion of the shares vesting under the Company’s PSP until the guideline is met.
Opportunity Any award is capped at 100% of basic salary in normal circumstances (200% in exceptional circumstances).
Performance measure Conditional awards will vest based on three-year performance against challenging financial and/or other targets set and assessed by the Committee in its discretion.

 

All Employee Share Plans

Link to strategy To encourage share ownership by employees, thereby allowing them to share in the long-term success of the Group and align their interests with those of the shareholders.
Operation Company may in the future operate a Sharesave scheme and/or Share Incentive Plan. These are all-employee share plans established under HMRC tax-advantaged regimes and follow the usual form for such plans. Executive Directors would be able to participate in all-employee share plans on the same terms as other Group employees.
Opportunity The maximum participation levels for all-employee share plans will be the limits for such plans set by HMRC from time to time.
Performance measure Consistent with normal practice, such awards would not subject to performance conditions.

 

Clawback/malus in both the new LTIP and bonus
Provisions are in place in both the annual bonus and new LTIP to operate malus and/or clawback in certain exceptional circumstances.

Consideration of employment conditions elsewhere in the Group
The Remuneration Committee has not conducted a specific employee consultation exercise on the Directors’ remuneration policy. However, there is a periodic employee survey and the Board receives a regular presentation from the Director of Human Resources, which includes consideration of the Group’s remuneration policies.

Consideration of shareholder views
The Remuneration Committee considers shareholder feedback received as part of any dialogue with shareholders via the Chairman, executive management or the Company’s brokers. Where necessary the Remuneration Committee Chairman will engage pro-actively with shareholders such as during the ongoing proposed renewal of the Performance Share Plan.

Differences between the policy on remuneration for Directors from the policy on remuneration of other employees
While the appropriate benchmarks vary by role, the Company seeks to apply the philosophy behind this policy across the Company as a whole. Where the Company’s pay policy for Directors differs from its pay policies for groups of employees, this reflects the appropriate market rate position and/or typical practice for the relevant roles. The Company takes into account pay levels, bonus opportunity and share awards applied across the Group as a whole when setting the Executive Directors’ Remuneration Policy.

Approach to recruitment remuneration
The Remuneration Committee will follow the above policy when setting the remuneration for a new Executive Director. Basic salary will be set at a competitive level appropriate for the role and experience of the Director being appointed. Where there is an external appointment, the Committee may consider it appropriate to recognise awards or benefits that will or may be forfeited on resignation from a previous appointment. This may take the form of cash and/or share awards. The policy is that the maximum payment under such arrangements will be no more than the Committee considers is required to provide reasonable compensation. If the Director is required to relocate then the policy is to provide reasonable relocation, travel and subsistence payments at the discretion of the Committee.

Service contracts and letters of appointment
Executive service contracts have a standard notice period of 12 months. The Committee reserves flexibility to alter these principles if necessary to secure the appointment of an appropriate candidate and if appropriate introduce a longer initial notice period (of up to two years) reducing over time. Executive Directors are entitled to accept appointments outside the Company provided the Board’s permission is obtained. The Board may require the fees from such appointments to be accounted for to the Company. Neither P.D. Atkinson nor J. Love held any external appointments during the year.

Chairman and Non-executive Director appointments are through letters of appointment for periods not exceeding three years subject to re-election at the AGM and contain notice periods of six months and three months respectively.

Directors’ contracts are available for inspection at the Company’s registered office by prior arrangement or immediately prior to the AGM.

Executive Directors Contract commencement date Notice period
P.D. Atkinson 6 October 2003 12 months
J. Love 11 October 1999 12 months
Non-executive Directors Letter of appointment commencement date Notice period
S. Paterson 29 September 2017 6 months
M. Arrowsmith 10 December 2015 3 months
J. Baird 8 January 2018 3 months
R. McLellan 10 March 2016 3 months

 

Illustration of the application of the remuneration policy

The fixed component includes basic salary, pension contributions and benefits in kind and the variable component includes annual bonus.

The performance in line with expectations is based on the current 2016 market expectation of PBT of £7.4 million and full achievement of personal objectives. The PBT target for maximum award has not been disclosed due to commercial sensitivity.

Payment for loss of office
The Remuneration Committee’s policy for an Executive Director whose employment is to be terminated is to agree a termination payment based on the value of the base salary and contractual pension amounts and benefits that would have accrued during the contractual notice period unless there has been a breach of the service agreement by the Director.

The policy is that the departing Director may work or be placed on garden leave for all or part of their notice period or receive payment in lieu of notice in accordance with the service agreement. The Committee supports the principle of mitigation and phased payments relative to any settlement and will take legal advice in relation to any settlements to be proposed. Any share-based entitlements granted to an Executive Director will be determined based on the relevant rule plans as previously approved by shareholders.

 

Chairman

Link to strategy To attract and retain a high calibre Board Chairman by offering a market competitive fee level.
Operation The Board Chairman is paid a single fee for all his responsibilities. The level of fee is reviewed periodically by the Remuneration Committee with reference to other comparable companies.
Opportunity The current fee is £63,678 subject to periodic change under this policy. There is no maximum fee level.

 

Non-executive Directors

Link to strategy To attract and retain high calibre Non-executive Directors by offering a market competitive fee level.
Operation Non-executive Directors are paid a basic fee. The Committee Chairmen may be paid a supplement to reflect their additional responsibilities. The fee levels are reviewed periodically by the Chairman and Executive Directors with reference to other comparable companies.
Opportunity The current basic fee is £31,839 subject to periodic change under this policy. There are currently no supplementary fees and there is no maximum fee level.

 

Committee discretions
The Committee will operate the annual bonus plan and PSP according to their respective rules and the policy tables set out earlier. The Committee retains discretion, consistent with market practice, in a number of respects, in relation to the operation and administration of these plans.

These discretions include, but are not limited to, the following:

  • The selection of participants;
  • The timing of grant of an award/bonus opportunity;
  • The size of an award/bonus opportunity subject to the maximum limits set out in the policy table;
  • The determination of performance against targets and resultant vesting/bonus pay-outs;
  • Discretion required when dealing with a change of control or restructuring of the group;
  • Determination of the treatment of leavers based on the rules of the plan and the appropriate treatment chosen;
  • Adjustments required in certain circumstances (e.g. rights issues, corporate restructuring events and special dividends); and
  • The annual review of performance measures, weightings and targets from year to year.

In addition, while performance measures and targets used in the annual bonus plan and PSP will generally remain unaltered, if events occur which, in the Committee’s opinion, would make a different or amended target a fairer measure of performance, such amended or different target can be set provided that it is not materially more or less difficult to satisfy (having regard to the event in question).

Any use of these discretions would, where relevant, be explained in the Directors’ Remuneration Report and may, where appropriate and practicable, be the subject of consultation with the Company’s major shareholders. In addition, for the avoidance of doubt, in approving this policy report, authority is given to the Company to honour any commitments entered into with current or former Directors prior to the adoption of this policy.

The Committee may make minor amendments to the policy set out above (for regulatory, exchange control, tax or administrative purposes or to take account of a change in legislation) without obtaining shareholder approval for that amendment.