In this section, we report on the implementation of our policies in the year ended 31 March 2014 as well as how the policy will be implemented for 2014/15.
IMPLEMENTATION OF POLICY FOR 2013/14
Membership, meetings and attendance
The Group has an established remuneration committee which is constituted in accordance with the recommendations of the UK Corporate Governance Code.
The members of the remuneration committee who served during the year are shown below together with their attendance at remuneration committee meetings:
|Number of meetings attended|
|Keith Elliott (chairman)||4/4|
The Group considers all members of the committee to be independent. Executive directors may attend remuneration committee meetings at the invitation of the committee chairman, but do not take part in any discussion about their own remuneration.
The terms of reference for the remuneration committee are available from the Company secretary.
Advisers to the committee
The committee retained New Bridge Street (an Aon plc company) as an independent adviser to the remuneration committee throughout the period. New Bridge Street are a member of the Remuneration Consultants Group and are a signatory to its code of conduct. Neither New Bridge Street nor any other part of Aon plc provided other services to the Group during the year. The fees paid to New Bridge Street in respect of work carried out in the 12 months to 31 March 2014 totalled £40,000.
Directors' earnings for the 2013/14 ﬁnancial year (audited)
Remuneration received by the directors
|Year ended 31 March 2014|
|Ian Lawson (from 1/11/13)2||146||50||—||8||29||—||233|
|John Dodds (until 1/11/13)1||204||85||—||—||—||—||289|
|Ian Cochrane (from 5/6/13)||227||169||—||1||41||—||438|
|Peter Emerson (until 5/6/13)||81||—||—||4||—||—||85|
|John Dodds (from 1/11/13)1||—||—||42||—||—||—||42|
Taxable benefits include the provision of company cars, fuel for company cars, car allowances and private medical insurance. PSP awards reflect those vesting based on performance to 31 March 2014.
- John Dodds operated as executive chairman until 1 November 2013 when he reverted to his previous role of non-executive chairman. The salary he received as an executive director and the fees he received as a non-executive director have been disclosed separately.
- Ian Lawson has reached his lifetime pension limit and receives a cash alternative of 20 per cent of basic salary in lieu of pension contributions.
- Chris Holt served as chairman of the nomination committee for part of the year for which he was paid an additional fee of £5,000.
- Retired from the board on 18 July 2014.
|15 month period ended 31 March 2013|
|Tom Haughey (until 23/1/13)1||367||—||—||29||54||—||450|
|John Dodds (from 23/1/13)2||61||—||—||1||—||—||62|
|Peter Emerson (until 5/6/13)||341||—||—||32||—||—||373|
|John Dodds (until 23/1/13)2||—||—||99||—||—||—||99|
|Geoff Wright (until 31/12/12)||—||—||45||—||—||—||45|
Taxable benefits include the provision of company cars, fuel for company cars, car allowances and private medical insurance. PSP awards reflect those vesting based on performance to 31 March 2013.
- Tom Haughey received compensation for loss of office of £423,000 (which includes pension contributions and other taxable benefits of £82,000) on his resignation as chief executive officer on 23 January 2013. These payments represent amounts to which the Group was contractually obliged.
- John Dodds operated as non-executive chairman from 1 January 2012 until 23 January 2013 when he was appointed executive chairman. The fees he received as a non-executive director and the salary he received as an executive director have been disclosed separately.
Past directors/loss of office payments (audited)
There have been no payments made to past directors (including Peter Emerson) or any payment for loss of office.
How pay linked to performance in 2013/2014
The past year has been one of transition for the Group as the balance sheet was rebuilt, the executive team strengthened and the business restructured. This is reflected in the decisions reached by the committee with respect to the bonuses paid to the executive directors.
No bonus was awarded to Derek Randall or Alan Dunsmore. Ian Lawson and Ian Cochrane received a bonus of £50,000 and £169,068 respectively, of which 50 per cent has been paid in shares deferred for three years. John Dodds was paid a bonus of £85,000 in relation to his interim executive position.
As reported last year the bonus plan applicable to the executive directors at the time (Alan Dunsmore and Derek Randall) had two separate performance conditions. Eighty per cent was payable based on achieving Group-wide budget PBT with the entry point being 95 per cent of Group-wide budget PBT, rising to 50 per cent of this element being payable for achieving budget and full payout for achieving 120 per cent of budget. Actual Group-wide PBT of £4m was not sufficient to meet the budget set at the beginning of the year so this element of the bonus was not earned. Twenty per cent was payable based on achieving a target AFR. The actual AFR at the year-end was higher than the target so this element was not earned either.
The budget PBT and the AFR target and actual result are considered to be commercially sensitive as they could be used by non-listed peers to gain a competitive advantage and therefore have not been disclosed. If commercial concerns are alleviated in the future, the committee will disclose the targets and actual performance.
Given that Ian Lawson was only in post for the final five months of the financial year, it was not felt appropriate to measure the financial element of the bonus against a budget PBT set at the beginning of the year. Therefore, the financial element of Ian Lawson's bonus (80 per cent of the maximum)was set against a combination of personal and business objectives which related to completing the restructuring of the business for growth and establishment of a new management team. The element subject to the AFR target was not met and therefore is not payable. The committee took a broad assessment of performance against the personal and business objectives and determined that a prorated bonus of £50,000 (or 42.9 per cent of the maximum for this element of the bonus) was payable, of which 50 per cent would be paid in shares deferred for three years.
In the case of Ian Cochrane, his role and responsibilities as Group chief operating officer from appointment on 5 June 2013, were defined as excluding India. Therefore, the committee set his PBT performance target based on the PBT budget for the Group excluding India. As actual UK PBT exceeded the target by over 17 per cent the remuneration committee determined that he should be paid 93.5 per cent of this element of his bonus pro rata for the period that he served in that capacity (i.e. 300 out of 365 days in the financial year). The element subject to the AFR target was not met and therefore would not be payable. The calculation of his bonus was accordingly that £169,068 was payable of which 50 per cent of the bonus would be paid in shares deferred for three years.
In the case of John Dodds and as reported last year his agreement included for a performance related bonus of £50,000 payable on transition to a permanent chief executive officer, which occurred on 1 November 2013. Given that he performed the executive duties for longer than anticipated (i.e. a period of over nine months) and to reflect his exceptional performance during that time he was paid a cash bonus of £85,000. When making this determination the committee considered his leadership and performance during a difficult time for the Company, in particular in driving the Company through a successful rights issue and rebuilding the balance sheet.
No PSP awards vested in 2013/14. The 2011 PSP award was subject to an EPS performance condition measured over the three financial years ended 31 March 2014. The minimum EPS figure required for vesting of 25 per cent of the award was 6.51p (as adjusted after the rights issue in March 2013) which equates to a PBT of c.£24m. This target was not achieved and the awards have lapsed.
PSP awards granted to directors in 2013/14 (audited)
Share awards were made in the year under the PSP scheme for the three year period expiring on 31 March 2016. Details of the awards made to the executive directors are summarised below.
|Type||No. of shares||Face value1 |
(Percentage of salary)
|Performance period||% receivable for minimum performance|
|Ian Lawson||Nil-cost option||549,020||£350,000||(100%)||EPS||3 financial years|
ending 31 March
|Ian Cochrane||Nil-cost option||429,688||£206,250||(75%)|
|Alan Dunsmore||Nil-cost option||353,359||£169,613||(75%)|
|Derek Randall||Nil-cost option||353,359||£169,613||(75%)|
- Face value calculated based on the pre-grant date share price of 48p on 5 June 2013 for all except Ian Lawson which was based on the pre-grant date share price of 63.75p on 31 October 2013.
- Performance conditions for all these awards are aligned, with an EPS range from 2.15p (minimum performance - 25 per cent of award vests) to 4.87p (maximum performance — 100 per cent of award vests) with linear interpolation in between. This equates to a likely PBT range of c.£8m to £17m.
Outstanding share awards at the year-end (audited)
Details of share awards under the PSP to anyone who was an executive director during 2013/14 and which were outstanding at the year-end are shown in the following tables:
Outstanding share awards
|Year of award||Vesting date1|
|No. of shares at|
31 March 20132
|Shares granted in year||Shares lapsed in year||Shares vested in year||No. of shares at 31 March 2014|
|Ian Cochrane total||343,925||429,688||70,686||—||702,927|
|Alan Dunsmore total||611,172||353,359||125,613||—||838,918|
|Derek Randall total||556,245||353,359||70,686||—||838,918|
|Peter Emerson total3||778,146||—||151,471||—||626,675|
* Performance conditions are all based on a range of EPS targets as follows:
- 2010 awards lapsed in June 2013 and 2011 awards lapsed in June 2014.
- 2011 and 2012 awards were adjusted in August 2013 to take account of the dilutive impact of the rights issue.
- Peter Emerson retired on 5 June 2013 and was treated as a good leaver under the PSP rules whereby his awards will be allowed to vest subject to performance being tested at the end of the performance period and prorated to reflect his period of employment.
The directors' current shareholdings (audited):
The following table provides details on the directors' beneficial interests in the Company's share capital as at 31 March 2014:
|Ian Lawson (from 1/11/13)||82,431||—||549,020||631,451|
|Ian Cochrane (from 5/6/13)||2,708,979||7,154||702,927||3,419,060|
- Includes shares owned by connected persons.
- SIP shares are unvested and held in trust.
- PSP shares are in the form of conditional awards which will only vest if at all on the achievement of the performance conditions prescribed at date of grant.
- As at 31 March 2014, in respect of the Company's shareholding guideline Ian Cochrane satisfies the guideline. The other executive directors will be required to retain a proportion of any net of tax shares which may vest from equity based plans until the guideline is achieved.
Position against dilution limits
Severfield plc complies with the ABI Principles of executive remuneration. These principles require that commitments under all of the Company's share ownership schemes (including the SIP and the PSP) must not exceed ten per cent of the issued share capital in any rolling ten year period. The Company's position against its dilution limit as at 31 March 2014 was well under the maximum ten per cent limit at 2.17 per cent.
The following graph shows the Group's performance, measured by total shareholder return, compared with the performance of the FTSE Small Cap Index. It is based on the change in the value of a £100 investment made on 31 March 2009 over the five-year period ended 31 March 2014.
This index was selected as it represents a broad equity market index and an appropriate comparator group of companies over the period.
Chief executive officer remuneration change
The table below shows the total remuneration ﬁgure for the chief executive officer role over the same ﬁve year period. Performance pay includes bonus and the value of PSP awards vesting in relation to performance that ended that year (at the share price at which they vested). The figures for 2013 and 2014 reflect the fact that from 23 January 2013 to 31 October 2013 John Dodds acted as executive chairman and that financial year 2013 was a 15 month period.
|Total remuneration (£000)||1,265||640||701||450||62||289||233|
|Annual bonus (%)||94.8%||50.1%||60.5%||0.0%||N/A||N/A||34.0%|
|LTIP vesting (%)||100.0%||0.0%||0.0%||0.0%||N/A||N/A||N/A|
* John Dodds was appointed executive chairman in an interim capacity following Tom Haughey's resignation as chief executive officer on 23 January 2013 and prior to the appointment of Ian Lawson as chief executive officer on 1 November 2013. During this time he was awarded a discretionary bonus (no maximum was set) but not entitled to any PSP award. These figures do not include his fees as non-executive chairman.
† Appointed on 1 November 2013.
‡ Tom Haughey also received compensation for loss of office in accordance with his contract of £423,000.
How the change in chief executive officer pay for the years compare to that for the Company's employees
The table below shows the percentage change in salary, beneﬁts and annual bonus earned between the year ended 31 March 2014 and the 15 month period ended 31 March 2013 for the chief executive officer compared to the percentage change of each of those components of pay for a group of employees. The committee has selected salaried employees in mainland UK as this geography provides the most appropriate comparator.
|Chief executive officer||2014|
Relative importance of spend on pay
The following table shows the actual spend on pay for all employees relative to revenue and underlying operating profit before the results of JVs and associates:
|Underlying operating profit/(loss)||7,621||(19,218)||139.6%|
|Distribution to shareholders||—||4,462||-100.0%|
* The comparative period represents the 15 month period ended 31 March 2013.
The results below show the response to the 2013 AGM shareholder voting for the directors' 2013 remuneration report:
|Total number of|
|% of |
|Total votes cast (for and against)||238,773,238||100%|
|Total votes (including withheld votes)||240,473,140||N/A|
- A vote abstention is not a vote in law and is not counted in the calculation of the proportion of votes cast 'for' and 'against' a resolution.
IMPLEMENTATION OF POLICY FOR 2014/15
The executive directors' current salaries
Following a review in April 2014 the committee determined that salary increases of 2.25 per cent would be made to executive directors, effective 1 July 2014. These increases are aligned with the overall salary increase budget for the wider workforce.
The executive directors' salaries for the 2014/15 ﬁnancial year are as follows:
|£||1 July 2014|
|1 July 2013|
- Or on appointment.
Benefits and pension
All executive directors will be entitled to a car allowance of £15,000 (chief executive officer: £18,000), a fuel allowance, life insurance cover and medical insurance.
A pension contribution of £50,000 will be offered to each executive director, with the exception of Ian Lawson who will be offered 20 per cent of basic salary.
Rewards for performance in 2014/2015
The annual bonus for 2014/2015 will operate on the same basis as for 2013/2014 (although all directors will be subject to Group-wide targets)* and will be consistent with the policy detailed in the remuneration policy section of this report in terms of the maximum bonus opportunity, deferral and clawback provisions. The measures have been selected to reﬂect a range of ﬁnancial and operational goals that support the key strategic objectives of the Group.
The performance measures and weightings will be as follows:
Profit performance-based component — 80 per cent
The sliding scale range for bonus targets in 2014/15 is as follows:
Maximum bonus based on actual PBT versus budget
|PBT % of budget||% of award|
|95 or below||—|
|120 or better||100|
The committee believes that the budget PBT figures are commercially sensitive metrics and therefore are not disclosed at this time. Actual target figures will be disclosed on a retrospective basis when these sensitivities have been removed.
* Whilst Derek Randall remains in India the profit performance-based component of his bonus will be split 50/50 between PBT (UK) and PBT (India).
Other performance-based component — 20 per cent
AFR (accident frequency ratio) will again be used throughout the Group.†
AFR is an industry recognised and measurable target. The pre-set targets have not been disclosed due to commercial sensitivities. Actual target figures will be disclosed on a retrospective basis when these sensitivities have been removed.
† Whilst Derek Randall remains in India the AFR component of his bonus will be based on AFR (India).
It is the committee's intention to grant PSP awards of 100 per cent of salary for the chief executive officer and 75 per cent of salary for other executive directors.
This year we will set a performance condition for a three year period commencing on 1 April 2014 and ending on 31 March 2017. While we have a good order book, an extensive prospects list and a strong balance sheet helped by the successful rights issue in April 2013, the risks and uncertainties in a three year forecast are clearly substantial.
At the lower threshold, below which no awards will vest, we have set a target EPS equivalent to PBT of £12m. If this level is achieved 25 per cent of the shares granted will vest. At the higher end the target EPS is set at EPS equivalent to PBT of £24m. If this is achieved, 100 per cent of the shares granted will vest. Vesting at EPS levels between the lower and upper thresholds will be calculated by linear interpolation.
These targets will require management to deliver strong, sustainable performance over the period.
How will the non-executive directors be paid in the 2014/15 ﬁnancial year
The fees for the chairman and non-executive directors will be as follows:
|Basic fee for other non-executive directors||40,000||40,000|
|Fees for SID role2||5,000||15,000|
|Chairman of the audit, nomination and remuneration committees3||5,000||5,000|
- The figure for chairman reflects the basic agreed fee for the chairman and does not account for the actual payments made to John Dodds during 2013/14 due to his continued performance of the role of executive chairman from 1 April 2013 to 31 October 2013.
- The lower figure represents the fee agreed with Kevin Whiteman for performance of the role from 19 July 2014 onwards. Keith Elliott's fee is payable until his retirement on 18 July 2014.
- In 2014 Toby Hayward received a discretionary additional payment of £15,000 per annum as chairman of the audit committee.
This report was approved by the board of directors and signed on behalf of the board.
Chairman of remuneration committee
11 July 2014