What we are trying to achieve

The remuneration committee has responsibility for determining remuneration for the executive directors and the chairman and for oversight of reward strategy and policy for the Group. The committee aims to recruit and retain executives and ensure they are properly motivated to perform in the interests of the Company and its shareholders whilst paying no more than is necessary and operating within an appropriate risk profile.

How executive director remuneration policy relates to the wider Group

In setting remuneration for the executive directors, the committee takes account of market practice for companies of a similar size and complexity, the responsibilities of each individual role, individual performance and an individual's experience. Salary reviews (in percentage terms) will be set in the context of those of the wider workforce.

The overall remuneration of executive directors is more heavily weighted towards Group performance than the wider workforce whose pay is less variable and long-term incentives are restricted to those most able to directly influence overall Group performance. Wider employee share ownership is encouraged through the use of an all-employee share scheme.

How we take into account views of employees and shareholders

The committee does not formally consult with employees on executive pay but is periodically updated by the Group HR director on any developments in pay and employee relations and takes employees' views into account.

The committee considers developments in institutional investors' best practice expectations and the views expressed by shareholders with whom we have regular dialogue. In particular, we consulted extensively with our major shareholders before last year's AGM on our proposed changes to the remuneration policy and they were supportive of these changes which are now reflected in this policy. If any of our major shareholders were opposed to our remuneration policy we would endeavour to meet with them, as appropriate, to understand and respond to any issues they might have.

How remuneration is structured

The following table should be read in conjunction with the recruitment policy and the implementation of policy for 2014/15 section of the annual report on remuneration.

Executive directors

Base salaries
Purpose and link to strategy
To provide the core reward for the role.
Sufficient to recruit and retain directors of the calibre necessary to execute the Group's strategy.
Base salaries are normally reviewed annually by the committee, with changes effective from 1 July.
Our review takes into account levels of increase across the broader workforce, changes in responsibility, and a periodic remuneration review for comparable companies.
Maximum opportunityPerformance conditions
There is no prescribed maximum.
Current salaries are disclosed in the annual report on remuneration.
Increases (as a percentage of salary) are generally limited to the range set for the wider workforce.
However, further increases may be awarded where there have been significant changes in the scope and/or responsibilities of the role or a material change in the size and scale of the Group.
The committee considers individual salaries each year having due regard to the factors noted in operation of the policy.
No recovery provisions apply to salary.
Purpose and link to strategy
Cost-effective benefits, sufficient to recruit and retain directors of the calibre necessary to execute the Group's strategy.
The Company currently provides the following employee benefits:
  • Life assurance at four times salary
  • Medical insurance for self with option to purchase for family
  • Company car and fuel allowance
Relocation expenses would be paid as appropriate for new recruits or a change in role.
In circumstances where an executive is deployed on an international assignment, their arrangements will be managed in a way that is consistent with good practice for international organisations. Additional allowances may also be paid e.g. to cover any increase in cost of living, tax equalisation and/or additional accommodation costs.
The committee may wish to offer executive directors other employee benefits on broadly similar terms as those offered to other employees from time to time, provided within the maximum opportunity limit.
Maximum opportunityPerformance conditions
The value of insured benefits can vary from year to year based on the costs from third party providers.
The total value of benefits (excluding relocation and international assignment allowances) will not exceed more than 15 per cent of salary in any year.
No performance conditions or recovery provisions apply to benefits.
Purpose and link to strategy
Cost-effective long-term retirement benefits, sufficient to recruit and retain directors of the calibre necessary to execute the Group's strategy.
Company contribution to defined contribution scheme (own or the Company's), a cash supplement or a combination of both up to the maximum value.
Director has no obligation to match Company contributions.
Maximum opportunityPerformance conditions
20 per cent of base salary contribution/cash supplement for chief executive officer and 18 per cent of salary for others up to a maximum of £50,000 (with the exception that for executive directors commencing service before 1 November 2013 the Company pays a fixed contribution/cash supplement of £50,000 p.a.).
For international assignments the Company may be required to make additional payments to comply with local statutory requirements.
No recovery provisions apply to pension benefits.
Annual bonus
Purpose and link to strategy
To focus attention on achieving short-term corporate objectives, incentivise outperformance of targets and provide a deferred element to reinforce the impact of long-term performance.
Any annual bonus award is made 50 per cent in cash and 50 per cent in shares deferred for three years under the rules of the Company's deferred share bonus plan ('DSBP') which incorporates a clawback mechanism for instances of financial misstatement, error or gross misconduct.
Dividends may accrue on deferred bonus shares.
Maximum opportunityPerformance conditions
Maximum 100 per cent of base salary per annum.The committee will review the appropriateness of performance measures on an annual basis and consider whether there is a need to re-balance or amend the performance measures and weightings to reflect the business objectives at the time. However, the majority of the annual bonus will be subject to financial targets.
Currently the business uses a combination of underlying profit before tax ('PBT') targets and accident frequency ratio ('AFR') targets.
A minority of bonus will be payable for threshold levels of performance.
The actual measures and weightings are set out in the annual report on remuneration.
Performance share plan ('PSP') (approved by shareholders in 2007)
Purpose and link to strategy
Incentivise and reward for long-term, sustainable performance linked to corporate strategy and provide alignment with shareholders' interests.
Annual grant of performance shares which will, in normal circumstances, vest subject to continued service and the achievement of performance conditions over a three year period.
There is a clawback mechanism for instances of financial misstatement, error or gross misconduct.
Dividends may accrue on vested awards.
Maximum opportunityPerformance conditions
Maximum annual award level is 150 per cent of salary.
The current award policy is, in normal circumstances, for awards of 100 per cent of salary for the chief executive officer and 75 per cent of salary for other executive directors.
The committee will determine each year the appropriate award levels and performance conditions based on the corporate strategy at the time. However, a financial measure such as underlying earnings per share ('EPS') will be used for at least half of any award.
Currently the awards are subject to an EPS growth target, the details of which are set out in the annual report on remuneration.
No more than 25 per cent of an award will vest for performance at the lower threshold of EPS targets.
All-employee share plan
Purpose and link to strategy
To foster wider employee share ownership.
The Group currently operates a share incentive plan and may introduce a sharesave scheme subject to shareholder approval.
Participation in any all-employee share plans operated by the Group is in line with HMRC guidelines. Executive directors are entitled to participate on the same basis as for other eligible employees.
Maximum opportunityPerformance conditions
The Group has discretion under the all-employee share plans to issue awards up to the HMRC approved limits as set from time to time.No recovery provisions apply to all-employee share awards.

Choice of performance conditions and metrics

Our role as the remuneration committee includes the establishment of performance goals through long-term incentive plans which are challenging but achievable through superior performance, thereby incentivising and rewarding success.

The performance metrics that are currently used for our annual bonus and PSP are selected to reflect the Group's key performance indicators which include safety and profitability.

Financial targets (such as profitability) are set based on a sliding scale that takes account of relevant commercial factors, internal budgeting and external forecasts as necessary. Only modest rewards are available for delivering threshold performance levels with maximum rewards requiring substantial outperformance of our challenging plans.

Other measures (such as safety) are incorporated into the annual bonus plan to reflect their operational importance and the key short-term priorities of the Group at that time. The targets are based on internal plans/budgets and in line with a wider commercial perspective.

The long-term incentive plan currently incorporates an EPS performance measure, which is a key financial metric which is aligned with shareholder interests. The committee has considered and taken advice on alternative performance measures, such as total shareholder return ('TSR'), to substitute for (all or part of) the use of the EPS range used in the past. Lack of a suitable peer group of similar listed companies made this approach impracticable and to date we have found no better benchmark.

No performance targets are set for any share incentive plan or sharesave plan awards since these form part of all-employee arrangements that are purposefully designed to encourage employees across the Group to purchase shares in the Company.

Details of all the outstanding share awards granted to existing executive directors are set out in the annual report on remuneration.

The discretions retained by the committee in operating the annual bonus and the PSP

The committee will operate the annual bonus (including the deferred share element) and the PSP according to their respective rules and in accordance with the Listing Rules where relevant.

The committee retains discretion, consistent with market practice, in a number of regards to the operation and administration of these plans.

These include, but are not limited to, the following in relation to the annual bonus and PSP:

  • the participants;
  • the timing of grant/payment of an award;
  • the size of an award (subject to the limits set out in the policy table);
  • the determination of vesting/payment;
  • 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 relevant circumstances;
  • adjustments required in certain circumstances (e.g. rights issues, corporate restructuring events and special dividends); and
  • the annual review of performance measures and weighting, and targets for the annual bonus and to apply to future PSP awards.

In relation to both the Group's PSP and annual bonus plan, the committee retains the ability to adjust the targets and/or set different measures if events occur (e.g. material acquisition and/or divestment of a Group business) which cause it to determine that the conditions are no longer appropriate and the amendment is required so that the conditions achieve their original purpose and are not materially less difficult to satisfy.

Any use of the above discretions would, where relevant, be explained in the annual report on remuneration and may, as appropriate, be the subject of consultation with the Company's major shareholders. The use of any discretion in relation to the Company's share incentive plan and any sharesave plan will be as permitted under HMRC rules and the Listing Rules.

The PSP, under which the share awards are granted, was approved by shareholders in 2007. Further details on how the awards are structured and operated are set out in the plan rules which are available on request from the Company.

Details of share awards granted to existing executive directors which have not vested or lapsed are shown in the annual report on remuneration. These remain eligible to vest based on their original award terms.

Illustration of application of the policy

A significant proportion of remuneration is linked to performance, particularly at maximum performance levels. The charts show how much each executive director could earn under Severfield's remuneration policy (as detailed above) under different performance scenarios.

The following assumptions have been made:

  • Minimum (performance below threshold) — Fixed pay only with no vesting under the annual bonus or PSP.
  • Target (performance in line with expectations) — Fixed pay plus a bonus at the mid-point of the range (i.e. 50 per cent of the maximum opportunity) and a PSP award of 100 per cent of salary for the chief executive officer and 75 per cent of salary for other executives vesting at 50 per cent of the maximum.
  • Maximum (performance meets or exceeds maximum) — Fixed pay plus maximum bonus and maximum PSP award vesting.

Fixed pay comprises:

  • Salaries — salary effective as at 1 July 2014;
  • Benefits — amounts expected to be received by each executive director in the 2014/15 financial year;
  • Pension — amount that will be received by each executive director in the 2014/15 financial year based on the policy set out in the table above.

The scenarios do not include any share price growth or dividend assumptions. All-employee share incentives have been excluded.

Chief executive officer

Chief operating officer

Group finance director

Executive director

Executive directors' service agreements

All executive directors signed new contracts during the year which incorporate current best practice, supersede all existing agreements and will be used consistently for future agreements.

The new service contracts of executive directors run on a rolling basis. Notice periods of 12 months are required to be given by all parties. Payment to be made in lieu of notice on termination is equal to 12 months' salary.

For details of the contracts of each director including the date, unexpired term and any payment obligations on early termination are available from the Company secretary at the annual general meeting.

Provision on payment for loss of office

If an executive director's employment is to be terminated, the committee's policy in respect of the contract of employment, in the absence of a breach of the service agreement by the director, is to agree a termination payment based on the value of base salary that would have accrued to the director during the contractual notice period. The policy is that, as is considered appropriate at the time, the departing director may work, or be placed on gardening leave, for all or part of his notice period, or receive a payment in lieu of notice in accordance with the service agreement. The committee will consider mitigation to reduce the termination payment to a leaving director when appropriate to do so, having regard to the circumstances.

In addition, where the director may pursue a claim against the Company in respect of his/her statutory employment rights or any other claim arising from the employment or its termination, the Company will be entitled to negotiate settlement terms (financial or otherwise) with the director that the committee considers to be reasonable in all the circumstances and in the best interests of the Company.

The payment of any annual bonus will be at the committee's discretion and will be based on the circumstances of the termination. Any bonus payment will be calculated based after assessing the relevant performance conditions and will only be in relation to the service period worked.

The rules of the PSP and DSBP set out what happens to share awards if a participant ceases to be an employee or director of the Company before the end of the vesting period. Generally, any outstanding share awards will lapse on such cessation, except in certain circumstances.

If the executive director ceases to be an employee or director of the Company as a result of death, disability, retirement, the sale of the business or company that employs the individual or any other reason at the discretion of the committee, then they will be treated as a 'good leaver' under the plan rules. Under the DSBP, the shares for a good leaver will normally vest in full on the normal vesting date (or on cessation of employment in the case of death).

Under the PSP, a good leaver's unvested awards will vest (either on the normal vesting date or the relevant date of cessation, as determined by the committee) subject to achievement of any relevant performance condition, with a pro rata reduction to reflect the proportion of the vesting period served (although the committee has the discretion to disapply time prorating if it considers it appropriate to do so).

In determining whether an executive director should be treated as a good leaver and the extent to which their award may vest, the committee will take into account the circumstances of an individual's departure.

Our recruitment remuneration policy

Base salary levels will be set in accordance with our remuneration policy, taking into account the experience and calibre of the individual and the relevant market rates at the time. Where it is appropriate to offer a lower salary initially, progressive increases (possibly above those of the wider workforce as a percentage of salary) to achieve the desired salary positioning may be given over the following few years subject to individual performance and continued development in the role.

Benefits will be provided in line with those offered to other employees, with relocation expenses/arrangements provided for if necessary.

Should it be appropriate to recruit a director from overseas, flexibility is retained to provide benefits that take account of those typically provided in their country of residence (e.g. it may be appropriate to provide benefits that are tailored to the unique circumstances of such an appointment).

Pension contributions or a cash supplement up to the maximum level indicated in the policy table will be provided, although the committee retains the discretion to structure any arrangements as necessary to comply with the relevant legislation and market practice if an overseas director is appointed.

The aggregate ongoing (i.e. after the year of appointment) incentive opportunity offered to new recruits will be no higher than that offered under the annual bonus plan and the PSP policy to the existing executive directors. In the year of appointment the annual bonus opportunity will be no higher than that offered to existing executive directors, prorated for the period of service (i.e. 100 per cent of salary on an annualised basis). The committee may award up to 150 per cent of salary under the PSP although in exceptional circumstances in order to facilitate the buy-out of existing awards the committee may go above this limit (see below).

Different performance measures may be set initially for the annual bonus, taking into account the responsibilities of the individual, and the point in the financial year that they joined.

The above policy applies to both an internal promotion to the board or an external hire.

In the case of an external hire, if it is necessary to buyout incentive pay or benefit arrangements (which would be forfeited on leaving the previous employer), this would be provided for taking into account the form (cash or shares) and timing and expected value (i.e. likelihood of meeting any existing performance criteria) of the remuneration being forfeited. Replacement share awards, if used, will be granted using the Company's existing share plans to the extent possible (including the use of the exceptional limit under the PSP), although awards may also be granted outside of these schemes if necessary and as permitted under the Listing Rules.

In the case of an internal hire, any outstanding variable pay awarded in relation to the previous role will be allowed to pay out according to its terms of grant (adjusted as relevant to take into account the board appointment).

On the appointment of a new chairman or non-executive director, the fees will be set taking into account the experience and calibre of the individual and the expected time commitments of the role. Where specific cash or share arrangements are delivered to non-executive directors, these will not include share options or other performance-related elements.

How are the non-executive directors paid?

The chairman and non-executive directors receive an annual fee (paid in monthly instalments by payroll). The fee for the chairman is set by the remuneration committee and the fees for the non- executive directors are approved by the board, on the recommendation of the chairman and chief executive officer.

ElementPurpose and link to strategyOperation (including maximum levels)
FeesTo attract and retain a high-calibre chairman and non-executive directors by offering market competitive fee levels.Current fee levels are disclosed in the annual report on remuneration.
The chairman is paid an all-inclusive fee for all board responsibilities. The other non-executive directors receive a basic board fee, with supplementary fees payable for additional board responsibilities.
Non-executive directors will be reimbursed for any normal business related expenses and any taxable benefit implications that may result.
The non-executive directors do not participate in any of the Company's incentive arrangements or Group's pension scheme.
The fee levels are reviewed on a periodic basis, and may be increased, taking into account factors such as the time commitment of the role and market levels in companies of comparable size and complexity. Fee increases may be greater than those of the wider workforce in a particular year, reflecting the periodic nature of increases and that they take into account changes in responsibility and/or time commitments.
No benefits or other remuneration are provided to non-executive directors.

What are the terms of appointment of the non-executive directors?

The chairman and non-executive directors' terms of appointment are recorded in letters of appointment. The required notice from the Company is one month in all cases. The non-executive directors are not entitled to any compensation on loss of office.

Shareholding guideline

Executive directors are required to retain shares acquired under equity incentive schemes until such time they have built up a holding equivalent in market value (at the date of vesting) to the executive's base salary. Thereafter, the executive directors will be under a continuing obligation to maintain at least such a holding. The requirement underscores the committee's policy to align executive director remuneration and shareholder interests.