Implementation of policy 2023

Remuneration committee

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:

The Group considers all members of the committee to be independent. Executive directors and the Group HR director 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 Company secretary acts as the secretary to the remuneration committee.

The terms of reference for the remuneration committee are available on the Company's website.

Advisers to the committee

Wholly independent and objective advice on executive remuneration is received from the committee's external advisers.

Deloitte were appointed in December 2020 following a tender organised by the committee. Deloitte is one of the founding members of the Remuneration Consultants Group and is a signatory to its Code of Conduct. Fees charged by Deloitte provided to the committee for the year ended 25 March 2023 amounted to £69,650 (excluding VAT).

Directors' earnings for the 2023 financial year (audited)

Remuneration received by the directors

1 Appointed 5 October 2022.

2 Taxable benefits include the provision of company cars, fuel for company cars, car allowances, accommodation and living allowances and private medical insurance.

3 PSP awards granted in 2020 will in vest in full in December 2023 as the maximum EPS performance target was achieved (see Directors' Remuneration Report).

Directors' earnings for the 2022 financial year (audited)

1 Appointed 15 June 2021

2 Taxable benefits include the provision of company cars, fuel for company cars, car allowances, accommodation and living allowances and private medical insurance.

3 PSP award granted in 2019 lapsed in full.

Base salary increases received by the directors

The directors received a 4 per cent salary increase effective from 1 July 2022, which was in line with that received by our colleagues (excluding those weekly paid in our factories). Due to a number of reviews of weekly pay rates across our factory locations the average increase for this population was 11 per cent.

Past directors/loss of office payments (audited)

There have been no payments made to past directors or for loss of office during the year.

How pay linked to performance in 2023 (audited)

Bonus

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 PBT performance and 20 per cent based on safety performance.

The targets and the performance against these targets are set out below:

For all directors (excluding Derek Randall)

* For underlying Group PBT, 'threshold' represents 0 per cent, 'on-target' represents 50 per cent and 'maximum' represents 100 per cent of the bonus opportunity.

** For Group IFR, 'threshold' represents 0 per cent, 'on-target' represents 50 per cent and 'maximum' represents 100 per cent of the bonus opportunity.

Derek Randall (MD of JSSL)

* Derek Randall's profit based component is split 50:50 between underlying Group PBT and JSSL PBT. For underlying Group PBT and JSSL PBT, 'threshold' represents 0 per cent, 'on-target' represents 50 per cent and 'maximum' represents 100 per cent of the bonus opportunity.

** For JSSL AFR, no 'threshold' or 'on-target' targets were set. 100 per cent of the bonus opportunity is earned on achieving a score of below 0.08.

The executive directors will receive the bonuses set out in the table below, of which 50 per cent will be paid in shares deferred for three years.

PSP awards vesting in respect of 2023

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 the achievement of an EPS performance condition measured over the three financial years ended 25 March 2023. Details of the EPS performance condition and performance outcome are set out below. The awards will vest in December 2023 and vested shares will be subject to a two year holding period.

1 The 2020 PSP awards include dividend equivalent terms such that additional shares are awarded based on the value of dividends payable on the number of vested shares between the grant date and vesting date. The value of the dividend equivalents has been calculated based on the period between the grant date and 25 March 2023 but will be recalculated on vesting.

2 Calculated based on the three month average share price to 25 March 2023 (62.5p).

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 (69.0p) and the three month average share price to 25 March 2023 (62.5p). No discretion has therefore been applied by the Committee to adjust the formulaic vesting outcome of the annual bonus or PSP awards.

Deferred bonus awards granted in 2023 (audited)

On 28 June 2022 the committee granted awards under the Group's Deferred Share Bonus Plan to executive directors in relation to the 2022 bonus outcome. The awards will vest on 28 June 2025, subject to continued employment.

1 Face value calculated using the average mid-market share price for 24 and 27 June 2022 (62.5p).

PSP awards granted in 2023 (audited)

Awards were granted on 11 July 2022 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 targets set are intended to incentivise management to maintain forward momentum and will require the Group to deliver EPS which at the time of grant equated to an underlying PBT range of £31.5m to £38.0m for the financial year 2025. The committee considers that this represents a vesting range which is realistic, whilst remaining appropriately stretching, particularly in the context of current expectations of the external market over the next performance cycle.

Details of the awards made to the executive directors are summarised below.

1 Face value calculated based on the pre-grant date share price of 60.6p on 8 July 2022.

2 Performance conditions are based on EPS targets of 7.5p (minimum performance – 25 per cent vests) to 8.8p (maximum performance – 100 per cent vests) with linear interpolation in between. This represents an underlying PBT range of £31.5m-£38.0m.

The committee retains discretion to adjust the formulaic vesting outcome if it is not considered to be appropriate, taking into account wider Group performance during the performance period. This includes consideration of any 'windfall gains' at the point of vesting. In assessing whether there is any 'windfall gain' , the committee will take into account a number of factors, including share price performance over the vesting period, financial performance of the business, and any significant events which have impacted the Company's share price or market as a whole.

Outstanding share awards at the year-end (audited)

Details of share awards under the PSP to the executive directors which were outstanding at the year-end are shown in the following table:

Performance conditions are based on a range of EPS targets as follows:

1 Represents an underlying PBT range of £25.5m – £32.5m.

2 Represents an underlying PBT range of £30.0m – £40.0m.

3 Represents an underlying PBT range of £31.5m – £38.0m.

* Vesting date is June/July in the relevant years other than 2023 when it is December.

Statement of directors' shareholding (audited)

As at 25 March 2023, all executive directors and their connected persons had a shareholding as follows:

1 The proposed new policy is for all executive directors to have a shareholding requirement of 200 per cent of salary.

2 Value of actual share ownership was calculated with reference to the closing mid-market share price on 24 March 2023 of 61.9p. Actual share ownership includes net of tax figures for DSBP shares granted but still within the three-year deferral period and / or unexercised.

Directors' current shareholdings (audited):

The following table provides details on the directors' beneficial interests in the Company's share capital as at 25 March 2023.

1 Includes shares owned by connected persons and excludes DSBP shares which have been granted but are either still within the three-year deferral period or which consist of unexercised options.

2 SIP shares are unvested and held in trust.

3 The figures consist of the gross number of unexercised nil cost share options and the principal terms of the deferred share bonus plan are described in the Directors' Remuneration Report.

4 PSP shares are in the form of conditional awards which will only vest on the achievement of certain performance conditions. The total includes 2020 awards which have not yet vested.

5 There have been no changes in the directors' interests in the shares issued or options granted by the Company between the end of the period and the date of this annual report. There have been no changes in the directors' beneficial interests in trusts holding ordinary shares of the Company.

Position against dilution limits

Severfield plc complies with the Investment Association's principles of executive remuneration. These principles require that commitments under all of the Group's share ownership schemes (including the share incentive plan ('SIP'), sharesave scheme and the PSP) must not exceed 10 per cent of the issued share capital in any rolling ten-year period. Within this 10 per cent limit, the Group can only issue 5 per cent of its issued share capital to satisfy awards under executive discretionary schemes. The Group was operating within these limits as at 25 March 2023.

Performance graph

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 1 April 2013 over the ten-year period ended 25 March 2023.

This index was selected as it represents a broad equity market index and is considered to be the most appropriate comparator group of companies over a ten-year period commencing April 2013.

Chief Executive Officer remuneration change

The table below shows the total remuneration figure for the Chief Executive Officer role over the same ten-year period. Total remuneration includes bonuses and the value of PSP awards which vested based on performance in those years (at the share price at which they vested).

1 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.

2 Appointed on 1 November 2013.

3 Ian Lawson received compensation of £408,000 for loss of office in accordance with his contract.

4 Alan Dunsmore operated as interim Chief Executive Officer from 1 April 2017 to 31 January 2018, during Ian Lawson's absence due to physical ill health. Alan's appointment to this role was made permanent from 1 February 2018. The figures in the table above represent Ian Lawson's remuneration for this period and Alan Dunsmore's remuneration for the period in which he was both interim and permanent Chief Executive Officer.

How the change in directors' pay for the year compares to that of the Group's employees

The table below shows the percentage change in salary, benefits and annual bonus earned for the directors compared to the percentage change of each of those components of pay of the employees of the Group (calculated by reference to the mean on employee pay on a full-time equivalent basis).

The significant increase in bonus in 2023 is driven by the achievement of the PBT element of the bonus scheme, leading to a pay-out of 80 per cent compared to 17 per cent in 2022. When compared to 2021 (which also paid out at 80 per cent), bonuses have increased by an average of 6 per cent, which is in line with the increase in base salaries. Employees that are not included in the senior management and director bonus scheme received a discretionary £750 festive gift in both financial years.

1 Mark Pegler was appointed to the board with effect from 5 October 2022

2 Rosie Toogood was appointed to the board with effect from 16 June 2021

3 Derek Randall's 2021 benefit included £40,000 of cost-of-living allowance relating to 2020 but wholly paid in 2021

4 Kevin Whiteman was appointed as chairman on 3 September 2020

Chief Executive Officer pay ratio disclosure

1 Option A methodology was selected on the basis that it is a robust approach and is preferred by shareholders and proxy voting agencies. The calculations for the representative employees were performed at the final day of the relevant financial year.

A substantial proportion of the chief executive officer's total remuneration is performance related and delivered in shares. The ratios will therefore depend significantly on the Chief Executive Officer's annual bonus and PSP outcomes and may fluctuate year-to-year.

The median ratio of 26:1 is 100 per cent higher than the median ratio of 13:1 in 2022. This increase in the Chief Executive Officer pay ratio is due to the chief executive officer receiving a higher bonus and PSP vesting outcome in 2023 (bonus: 80 per cent of maximum, PSP: 100 per cent of maximum) compared to 2022 (bonus: 17 per cent of maximum, PSP: 0 per cent of maximum).

The committee has confirmed that the ratio is consistent with the Company's wider policies on employee pay, reward and progression.

Total pay and benefits used to calculate the ratios

Pay details for the Chief Executive Officer and individual whose remuneration is at the median, 25th percentile and 75th percentile amongst full-time equivalent UK-based employees are as follows:

The UK employee percentile total pay and benefits has been calculated based on the amount paid or receivable for the relevant financial year for the full-time equivalent annualised remuneration (comprising salary, benefits, pension, annual bonus and LTIPs) for all UK-based employees of the Group as at the last day of the relevant financial year. The calculations are on the same basis as required for the Chief Executive Officer's remuneration for single figure purposes. The committee selected this methodology as it was felt to produce the most statistically accurate result.

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:

*There were no share buybacks during the year.

Shareholder voting

The results below show the response to the 2022 AGM shareholder voting for the directors' 2022 remuneration report (excluding remuneration policy):

The results below show the response to the 2020 AGM shareholder voting for the directors' 2020 remuneration policy: