Alun Griffiths
Chair of the Remuneration committee
Number of meetings
4
Members
Alun Griffiths (Chair)
Kevin Whiteman
Tony Osbaldiston
Louise Hardy
Rosie Toogood
Mark Pegler (from his appointment in October 2022)
2023 key achievements
Reviewing the remuneration policy and incentive framework.
Full alignment of executive pension contributions with the wider workforce.
Assessed performance against the bonus targets and the PSP targets for the year ended 25 March 2023.
Oversaw further remuneration package improvements for the wider workforce.
This year we undertook a thorough review of our remuneration policy and incentive framework for executive directors and the senior management team to ensure that they support the Group's long term strategic objectives and purpose and are competitively positioned. This included consultation on proposed changes with the top 10 shareholders and proxy voting agencies. We also completed the alignment of executive pension contributions with the wider workforce.
Dear shareholder
As chairman of the remuneration committee, I am pleased to present our directors' remuneration report (the 'report') for the year ended 25 March 2023.
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 6 September 2023 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 25 March 2023 and how it will be implemented for the year ending 30 March 2024. The annual report on remuneration will be subject to an advisory shareholder vote at the forthcoming AGM.
I will be retiring from the board shortly and will be succeeded as committee chair by Louise Hardy who is a well-established member of the board and remuneration committee and is currently our workforce engagement director.
Remuneration policy review
This year the committee undertook a thorough review of our remuneration policy and incentive framework for executive directors and the senior management team to ensure they support the Group's long term strategic objectives and purpose and are competitively positioned. The committee consulted with its 10 major shareholders (representing approximately 61 per cent of the Company's issued share capital) and three proxy voting agencies. After careful consideration and confirming support from major shareholders, the committee proposes two key changes to the remuneration policy.
1. Replace the current PSP with a restricted share plan
The committee believes that restricted shares alongside an annual bonus arrangement will better support our high-performance culture and is the right approach for Severfield. In particular:
Restricted shares provide a more meaningful approach to incentivising the delivery of long-term sustainable performance and protecting shareholder value throughout the industry cycle and enabling participants to build up their shareholding – therefore further promoting effective stewardship of the business.
As a business, we will need to flex our financial and non-financial priorities in order to continue to deliver long term sustainable returns in an uncertain macro and geo-political environment. This incentive structure provides the committee with an agile means of incentivising against key financial and non-financial priorities (through the annual bonus), which ultimately support the long-term success of the business.
It is a simpler and more transparent incentive structure.
2. Increase the maximum annual bonus opportunity from 100 per cent to 125 per cent of salary
A maximum bonus opportunity of 100 per cent of salary has been in place for over nine years. Under the direction of the leadership team, the Group continues to successfully deliver against its sustainable growth strategy, enhancing its UK and European order book with a broad diversity of sectors, geographies and clients. This includes moving into the nuclear and infrastructure market following the acquisitions of Harry Peers in 2019 and DAM Structures in 2021, making the strategically significant acquisition in Europe of Voortman Steel Construction in 2023, building a modular offering, and continued development of its operations in India. Over the last five years, the Group has delivered 16 per cent CAGR in revenue and 15 per cent CAGR in order book . Furthermore, the Group is well positioned to continue to build on this success. This has undoubtedly resulted in an increase in the Group's size and complexity over recent years.
With this in mind, and to ensure that the remuneration arrangements remain competitive against both FTSE SmallCap companies of a similar size and complexity and industry peers, the maximum bonus opportunity under the new policy has been increased to 125 per cent of salary for all executive directors. We will also be including an ESG metric alongside our health and safety bonus target.
Overview of changes to the incentive framework
| Current policy | Proposed approach under new policy |
| ANNUAL BONUS |
| Maximum opportunity | 100 per cent of salary. | Increased maximum opportunity to 125 per cent of salary. |
| Deferral | 50 per cent of amount earned is deferred into shares for three years. | Maintain the current level of deferral in absolute terms. Meaning that, when considered alongside the increase in maximum opportunity to 125 per cent of salary, 40 per cent of any bonus earned is deferred into shares for three years. I.e. if the maximum bonus is earned, 50 per cent of salary is deferred (40 per cent of 125 per cent of salary).
Rationale: The committee considers that this approach is appropriately aligned with market practice (circa 40 per cent of FTSE SmallCap companies that operate bonus deferral require at least one third but less than one half of any bonus to be deferred). Additionally, until the shareholding guideline of 200 per cent of salary has been met, executive directors are required to retain all shares from deferred bonus awards and long term incentive awards that vest (net of tax). |
| LONG TERM INCENTIVE |
| Form of award | PSP awards | Restricted share awards |
| Maximum opportunity | Awards in recent years have been granted at 100 per cent of salary for the Chief Executive Officer and Chief Operating Officer and 75 per cent of salary for the Chief Financial Officer and Managing director of JSSL. Overall maximum opportunity of 150 per cent of salary. | Awards granted to executive directors in 2024 will be equal to 50 per cent of salary.
Rationale: The committee is mindful of market practice and shareholder expectations as regards setting restricted share award levels at 50 per cent of the maximum PSP opportunity. However, the committee considers that the maximum PSP opportunity granted to the Chief Financial Officer and Managing director of JSSL in recent years is below the lower end of market practice compared to FTSE SmallCap companies of a similar size and complexity and industry peers. Therefore, in 2023, all executive directors will be granted restricted share awards equal to 50 per cent of salary which represents a 50 per cent discount to the face value of PSP awards recently granted to the Chief Executive Officer and Operating Officer, and provides alignment across the executive director cohort.
Overall maximum opportunity of 75 per cent of salary.
Rationale: Represents a 50 per cent discount to the overall maximum PSP opportunity under the current policy. Ensures that there is flexibility during the three year policy period to provide competitive remuneration packages taking into account the size and complexity of the Group and potential changes to business needs. Should the committee propose an increase in the award level (i.e. above 50 per cent of salary) during the life of the policy, we will engage with shareholders as appropriate. |
| Timeframe | Three year performance period, two year holding period. | Three year vesting period, two year holding period. |
| Performance | Awards granted in recent years have been subject to EPS performance. | Awards will be subject to underpins based on the financial stability of the business, sustainability of the Group's underlying performance, risk management, safety performance and ESG performance. |
Impact of changes on total compensation
The committee has been mindful of the impact of the proposed changes on the value of the executive directors' remuneration packages. Following the proposed changes, the executive directors' total target compensation opportunities are broadly positioned between the lower quartile and median compared to FTSE SmallCap companies of a similar size and complexity and industry peers.
The committee is also mindful that salary positioning for the Chief Executive Officer and Chief Financial Officer is positioned towards the lower end of market practice compared to FTSE SmallCap companies of a similar size and complexity and industry peers and the committee will keep this under review during the life of the policy.
Remuneration for the wider workforce
Incentives and benefits provision for the wider workforce were reviewed in 2022 and 2023 with the aim of achieving a more consistent offering. Key changes were as follows:
The number of employees participating in the annual bonus has increased by circa 63 per cent. Participants now include directors, senior managers and selected employees in specialist critical roles.
Employees who do not participate in the annual bonus receive a discretional £750 payment in the December payroll.
The number of employees who receive Private Medical Insurance has increased by circa 69 per cent.
The employer pension opportunity available to the wider workforce has recently been increased to 7 per cent of salary, which is now aligned to executive directors.
All employees are currently paid at or above the Real Living Wage.
A number of these points were raised and discussed at the 'MyVoice' forum.
Performance and reward 2023
The Group has delivered on strategic and operational priorities during the year resulting in strong financial performance and a robust forward order book. The Group continues to strengthen its presence in new markets and is well positioned to optimise longer term growth opportunities. This is testament to the quality and commitment of our executive leadership team.
Annual bonus outcome
Executive directors were granted an annual bonus opportunity equal to 100 per cent of salary. 80 per cent of the award was based on underlying PBT2 performance and 20 per cent based on safety performance.
The Group achieved underlying PBT of £32.5m which was above the maximum bonus target and this element will pay out in full. Notwithstanding our very strong safety performance relative to the sector in which we operate, with rates well below the industry average, the stretching IFR targets set for FY23 for the Group were not met and this element of bonus will not pay out. The UK based executives therefore earned a bonus of 80 per cent of salary, 50 per cent of which is deferred into shares for three years.
Derek Randall, as MD of JSSL, is assessed on Group underlying PBT and JSSL PBT (split 50:50) and JSSL AFR in relation to safety performance. JSSL PBT was on target and JSSL AFR was above the maximum bonus target. Therefore, Derek Randall earned a bonus equal to 81 per cent of salary, 50 per cent of which is deferred into shares for three years.
See Directors' Remuneration Report for details
PSP vesting
Awards were granted on 18 December 2020 equal to 100 per cent of salary for the Chief Executive Officer and the Chief Operating Officer and 75 per cent of salary for other executive directors. The grant of the awards was deferred by circa six months due to the uncertainty caused by the COVID-19 pandemic. The awards were subject to EPS targets for the year ended 25 March 2023, which at the time were considered appropriate in the uncertain economic climate that prevailed. The Group achieved EPS of 8.48p which was above the maximum target of 8.36p. The awards will therefore vest in full in December 2023. Vested shares will be subject to a two year holding period. See Directors' Remuneration Report for details.
The Committee considers the vesting outcome of the annual bonus and PSP awards to be appropriate, recognising that the Group has continued to perform strongly, both financially and strategically, in a challenging economic environment over the last three years. Furthermore, in respect of the PSP awards, the Committee is satisfied that no adjustment for potential windfall gains is required taking into account the share price at grant and current share price. No discretion has therefore been applied by the committee to adjust the formulaic vesting outcome of the annual bonus or PSP awards.
Implementation of policy for 2024
Base salaries and fees
Salaries for the executive directors were reviewed in June 2023 and have been increased by 5 per cent. The overall salary increases for the wider workforce ranged from 5-7 per cent of salary.
The chairman and non-executive director fees are currently under review.
Annual bonus
The maximum annual bonus opportunity will be 125 per cent of salary for all executive directors. Given the Group's focus on sustainability, an ESG performance metric has been introduced alongside the underlying PBT and safety performance metrics. 80 per cent of the annual bonus is subject to PBT performance, 15 per cent is subject to safety performance and 5 per cent is subject to ESG performance.
Restricted share awards
It is the committee's intention to grant restricted share awards at 50 per cent of salary to all executive directors, subject to shareholder approval of this change in policy. Awards will vest after three years subject to the satisfaction of performance underpins. Vested awards will be subject to a two year holding period. Details of the performance underpins are set out on Directors' Remuneration Report.
Conclusion
The committee greatly appreciates the feedback and level of support received from shareholders regarding the remuneration policy review. We strongly believe that the proposed changes are in the best interests of the business and its shareholders.
We remain committed to a responsible approach to executive pay. We believe that the policy operated as intended in respect of the financial year ended 25 March 2023 and consider that the remuneration received by the executive directors was appropriate taking into account Group and personal performance, and the experience of shareholders and employees.
I look forward to answering any questions shareholders might have, and your continued support.
Alun Griffiths
Chairman of the remuneration committee
14 June 20231
1 This report complies with the provisions of the Companies Act 2006, the Large and Medium-sized Companies and Groups Regulations 2008 as amended in 2013, the UK Corporate Governance Code 2018 and the UKLA Listing Rules and the Disclosure and Transparency Rules. The remuneration committee has also taken into consideration guidelines published by institutional investor advisory bodies such as the Investment Association and ISS.
2 A reconciliation of APMs is provided in note 31.