On behalf of the board I am pleased to present the directors' remuneration report for the year ended 31 March 2014, our first under the Accounts and Reports Regulations. The report is set out in two sections: the directors' remuneration policy and the annual report on remuneration.
Performance and remuneration in 2013/14
Keith Elliott Chairman of the remuneration committee
2013/14 was a difficult and transitional year. Performance problems on several major projects had seen the incumbent chief executive officer step down at the end of the previous year. Our chairman took control of the business as executive chairman until November 2013 when a new chief executive officer was appointed. Mid-year a new chief operating officer was also appointed following the retirement of the previous incumbent. A successful rights issue at the start of the year rebuilt the balance sheet and the performance problems and value at risk on projects were brought under control by year-end. We have returned to underlying profitability and the expectation of future growth and stability for next year and beyond.
Executive salaries are set at the same levels as set out in last year's annual report and we were able to secure the services of our new chief executive officer, Ian Lawson and new chief operating officer, Ian Cochrane during the year on comparable salaries to their respective predecessors.
The Group-wide performance targets set under the bonus plan for the whole year were not met and amongst the current executive directors bonuses will be only paid for this year to Ian Cochrane whose performance target for UK profitability was met and to Ian Lawson whose personal objectives were met. In addition, no PSP awards vested in relation to performance for the year ended 31 March 2014. As predicted in last year's annual report no awards under that scheme have vested now for four consecutive years. A one-off discretionary bonus payment to John Dodds for the period during which he acted as executive chairman was made.
Key remuneration issues for 2013/14
Unconnected with performance problems the committee undertook during 2013/14 an overhaul of directors' remuneration policy resulting in significant changes. Our guidelines were best practice compliance, consistency (with shareholder interests), market alignment and simplification. The resultant changes included:
- Deferment: 50 per cent of annual bonus to be paid in shares deferred for three years.
- Introduction of clawback provisions for incentive based remuneration.
- Standardisation of pensions and benefits in line with market norms.
- New service agreements for all directors incorporating current best practice.
Changes in remuneration policy for 2014/15 and beyond
The committee continuously reviews directors' remuneration policy to test its fitness for purpose in the context of attraction, retention and motivation of the high quality executives who can deliver our strategies and provide returns to our shareholders.
Our remuneration policy is linked to our key objectives as set out in the strategic report. The performance targets for our incentive based remuneration are linked to profit and health and safety, reflecting the primacy of those criteria in meeting our business objectives.
Based on the changes implemented in 2013/14 we are satisfied that current policy is fit for purpose for the coming year. Looking ahead three years we foresee no major changes to the structure but will refine the operation of the policy within the approved parameters to align with performance, market conditions and shareholder returns. Any significant changes to the policy would only be made after consultation with our major shareholders and approval at the annual general meeting.
I wrote to our ten largest shareholders in July/August 2013 to seek their views on the proposed changes identified in our remuneration policy and the feedback I received was broadly supportive. The committee will continue to maintain an open and constructive dialogue with shareholders on an ongoing basis.
This report will be my last as chairman of the remuneration committee and the Company is fortunate to have found such a suitable replacement in Alun Griffiths. I have consulted with Alun since his appointment on 1 May 2014 and I know that this policy and the contents of this report have his approval.
Chairman of the remuneration committee
11 July 2014
What is in this report
This report sets out details of the remuneration policy for executive and non-executive directors, describes the implementation of that policy and discloses the amounts paid relating to the year ended 31 March 2014. The report complies with the provisions of the Companies Act 2006 and Schedule 8 of The Large and Medium-sized Companies and Groups (Accounts and reports) (Amendment) Regulations 2008 as amended in 2013. The report has been prepared in line with the recommendations of the UK Corporate Governance Code and the requirements of the UKLA Listing Rules. The remuneration committee has also taken into consideration guidelines published by institutional investor advisory bodies such as the ABI and the NAPF.
The directors' remuneration policy will be put to shareholders for approval in a binding vote at the AGM. The effective date of the policy is 2 September 2014 which is the date shareholder approval is being sought for the policy for the first time under the new reporting rules. The policy remains consistent with that operated during the 2013/14 financial year and approved at the 2013 AGM under the previous reporting framework, following extensive consultation with shareholders. In practice the policy will be applied from 1 April 2014. It is intended this policy will remain in place for three years until the 2017 AGM.
The annual statement by the chairman of the remuneration committee (set out above) and the annual report on remuneration will be subject to an advisory vote at the AGM.
The regulations require the auditor to report to the Group's shareholders on the auditable part of the directors' remuneration report and to state whether, in its opinion, that part of the report has been properly prepared in accordance with the Companies Act 2006. The relevant sections subject to audit have been highlighted in the annual report on remuneration.
Ensuring that the current remuneration policy and incentive arrangements properly meet the requirements of the Group remains high on the committee's agenda."