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THE COMMITTEE SEEKS TO APPLY THE REMUNERATION POLICY FAIRLY AND EFFECTIVELY TO ALIGN THE INTERESTS OF MANAGEMENT WITH THOSE OF OTHER STAKEHOLDERS AND TO REWARD MANAGEMENT FOR DELIVERY OF STRETCHING BUSINESS TARGETS.

Alun Griffiths
Chairman of the remuneration committee

Number of meetings

6

Members
Alun Griffiths (chairman)
Kevin Whiteman
Tony Osbaldiston
Louise Hardy
Rosie Toogood (since her appointment on 16 June 2021)
2022 key considerations
  • Setting and reviewing directors' remuneration and benefits, including the basic salary increases across the Group.
  • Assessed performance against the bonus targets and the PSP targets for the year ended 26 March 2022.
  • Approved exceptional pay award to production staff in September 2021.

Overview

We believe that the remuneration policy operated as intended during the year in providing strong alignment with the interests of our shareholders and other stakeholders. However, the committee noted that this was a year in which the Group made good strategic progress as reflected in the growth of the order book and broadening capability in the nuclear, rail and infrastructure markets, but in which the executive directors received limited pay-out against both short and long-term incentives. The committee will undertake a comprehensive review of the remuneration policy ahead of the shareholder vote scheduled for the 2023 AGM. As part of the review, the committee will consider how to best ensure that the incentive framework motivates and incentivises executive directors to make strategic and operational decisions today which support the long-term growth of the business.

Dear shareholder

As chairman of the remuneration committee, I am pleased to present our directors' remuneration report (the 'report') for the year ended 26 March 2022.

The report is split into the following two sections:

  • Part 1, the remuneration policy report, which sets out the remuneration policy for the executive and non-executive directors which was approved at our 2020 AGM, with 94.71 per cent of votes cast in favour; and
  • Part 2, the annual report on remuneration, which discloses how the remuneration policy was implemented for the year ended 26 March 2022 and how it will be implemented for the year ending 25 March 2023. The annual report on remuneration will be subject to an advisory shareholder vote at the forthcoming AGM on 8 September 2022.

Performance and reward 2022

2022 has been another challenging financial year for the Group and all its stakeholders. The Group has continued to perform strongly despite difficult market conditions significantly influenced by inflationary pressures and, towards the end of the financial year, events in Ukraine. Notwithstanding these challenges, the Group has delivered on strategic and operational priorities during the year, resulting in a strong forward order book, a strengthened position in new markets and is well positioned to take advantage of longer-term growth opportunities. This is testament to the quality and commitment of our executive leadership team. However, despite best efforts, there has been no pay-out for our UK-based executive directors on the profit element of bonuses and no PSP awards vested (for the second year in succession), based on the outcome of performance targets. Whilst the remuneration committee considers that the executive directors have performed strongly throughout recent years, we determined that it was not appropriate to apply discretion to adjust the formulaic vesting outcomes when considering the experience of shareholders and other stakeholders in the round.

Annual bonus outcome

As in previous years, executive directors were granted an annual bonus opportunity equal to 100 per cent of salary in line with the remuneration policy. Eighty per cent of the award was based on PBT performance and 20 per cent based on safety performance.

For the UK-based executive directors, Group PBT performance was below the threshold target but safety performance was, however, such as to earn an overall bonus outcome of 17 per cent of salary, 50 per cent of which is deferred into shares for three years.

Derek Randall, as managing director of the Indian joint venture ('JSSL'), is assessed on Group PBT and JSSL PBT (split 50:50) and JSSL AFR in relation to safety performance. On-target JSSL PBT was achieved and the AFR target was achieved. Therefore, Derek Randall earned a bonus equal to 41 per cent of salary, 50 per cent of which is deferred into shares for three years.

PSP vesting

The 2019 PSP awards capable of vesting in June 2022 will lapse in full as the threshold EPS target (which equated to PBT of £31m) for the 2022 financial year was not met.

Implementation of policy for 2023

Base salaries and fees

Salaries for the executive directors were reviewed in June 2022 and have been increased by 4% in line with overall salary increases for the wider workforce.

Annual bonus

The maximum annual bonus opportunity is 100 per cent of salary. 80 per cent of the award is based on PBT performance and 20 per cent based on safety performance. The PBT performance targets will reflect the levels of internal growth forecast as well as the continued market uncertainty in light of the COVID-19 pandemic, inflationary pressures and recent events in Ukraine. The committee reviewed the balance of PBT and safety performance measures, as well as the appropriateness of each measure, and considers that these remain appropriate for the year ahead.

PSP

Awards of 100 per cent of salary will be made for the chief executive officer and the chief operating officer and 75 per cent of salary for other executive directors. The performance targets are intended to incentivise management to maintain momentum and will require the Group to deliver EPS in 2025 which equates to a PBT range of £31.5m to £38.0m. Further details are set out on Directors' Remuneration Report.

Update on pension alignment

This year we accelerated further the timetable towards full alignment of executive directors' pension allowances to the level available to the entire UK workforce, by reducing their allowance to 12 per cent in April 2022 ahead of full alignment by 1 January 2023.

Remuneration policy review

The current remuneration policy was approved by shareholders at the 2020 AGM and is now approaching the end of its three-year term. During the coming year, the remuneration committee will undertake a comprehensive review of the remuneration policy and incentive framework for executive directors and senior management to ensure that it remains fit for purpose. In particular, whilst conscious of the external environment, the committee will consider whether the Group's current remuneration offering is market competitive and supports delivery of the Group's strategic priorities and future growth. The committee will seek consultation with our major shareholders on any proposed material changes.

Conclusion

The committee continues to seek to strengthen shareholder alignment and ensure that pay remains firmly linked to performance whilst ensuring that the bonus and performance share plans provide a strong incentive for management to deliver superior performance over the short and longer term. We strongly believe that the decisions made during the year were appropriate in this regard.

I hope you find this report to be clear and simple, providing the rationale for our decisions that is helpful in understanding our remuneration policy and practices.

I look forward to answering any questions shareholders might have, and your continued support.

Alun Griffiths
Chairman of the remuneration committee

15 June 20221

  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.