This section of the report sets out the proposed directors' remuneration policy ('policy'). This policy will be put forward to shareholders for their approval at the AGM on 6 September 2023 and, if approved, will be effective from this date. It is intended that the policy will remain in place until the 2026 AGM.
The Annual Report on Remuneration details how the existing directors' remuneration policy has been implemented over FY23 and how the policy will be implemented in FY24.
Decision making process
The committee has undertaken a comprehensive review of the remuneration policy to ensure that it continues to incentivise executive directors and senior management to achieve the Group's strategic objectives and deliver long-term sustainable returns to shareholders. In determining the changes to the remuneration policy the committee followed a robust process which included discussions on the content of the remuneration policy and remuneration structure at three committee meetings. The committee considered input from management and our independent advisers and consulted with major shareholders. Management did not take part in any decision making discussions as regards changes to the remuneration policy in order to avoid any conflicts of interest. The key changes to the remuneration policy are set out in the Directors' Remuneration Report.
How the committee addressed the factors in Provision 40 of the UK Corporate Governance Code
The committee ensures that the remuneration structure for executive directors is aligned with our key remuneration principles, which incorporate the principles of clarity, simplicity, risk, predictability, proportionality and alignment to culture set out in the 2018 UK Corporate Governance Code.
| Clarity and simplicity | We operate a simple and transparent remuneration framework, made up of three key elements: fixed pay (including base salary, benefits and pension); annual bonus; and the Restricted Share Plan.
The structure is simple to understand both for participants and shareholders. |
| Alignment to strategy and culture | The remuneration structure supports the Group's business strategy through a balanced mix of short and
long-term performance related pay.
The remuneration principles encourage behaviours expected of executive directors in terms of setting the standards and promoting a healthy culture across the Group. |
| Risk is appropriately managed | Annual bonus opportunities and targets are positioned to reward strong performance, but not to encourage inappropriate business risk taking.
Executive directors are subject to within-employment and post-employment shareholding guidelines to further support sustainable decision making.
Malus and clawback provisions apply to annual bonus and restricted share awards and the committee has the means to apply discretion and judgement to vesting outcomes. |
| Proportionality | A significant proportion of executive remuneration is linked to performance through the incentive framework, with a clear line of sight between performance against the selected performance conditions and the delivery of long-term shareholder value. Performance conditions and the underlying targets for the annual bonus are reviewed by the committee each year to ensure that they are directly aligned with the Group's strategic priorities.
Through the all-employee share plans we encourage and enable long-term share ownership for all employees, supporting the long-term nature of our business and its returns. |
| Predictability | The 'illustration of the application of the policy' chart in the Directors' Remuneration Report indicates the potential values that may be earned through the remuneration structure. |
Policy table for executive directors
| Base salaries | |
Purpose and link to strategy
To provide the core reward for the role recognising knowledge, skills and experience, in addition to the size and scope of the role.
Sufficient to recruit and retain directors of the calibre necessary to execute the Group's strategy. | |
Operation
Base salaries are normally reviewed annually by the committee, with changes typically effective from 1 July.
Base salaries are pensionable.
The salary review takes into account the levels of increase across the broader workforce, changes in responsibility, Group and personal performance and a periodic remuneration review of comparable companies. | |
Maximum opportunity
There is no prescribed maximum base salary or salary increase.
Salary increases (in percentage of salary terms) will ordinarily be considered in relation to those applied to the broader workforce. The committee retains discretion to award higher increases in certain circumstances including, but not limited to: significant changes in the scope and/or responsibilities of the role; a material change in the size and scale of the Group; an executive director's development or performance in role (e.g. to align a new appointment's salary with the market over time); and/or to take account of relevant market movements. | Performance conditions
None, although the committee considers individual salaries each year having regard to the factors noted in the 'operation' section. |
| Benefits | |
Purpose and link to strategy
Cost-effective benefits, sufficient to recruit and retain directors of the calibre necessary to execute the Group's strategy. | |
Operation
Benefits include, but are not limited to: life assurance at four times salary; medical insurance for self with option to purchase for family; and company car and fuel allowance.
Relocation expenses may be offered if considered appropriate and reasonable by the committee.
In circumstances where an executive director 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. Any reasonable business-related expenses can be reimbursed (including the tax thereon if determined to be a taxable benefit).
The committee may offer executive directors other employee benefits on broadly similar terms as those offered to other employees from time to time. This includes participation in any all-employee share plans operated by the Group, in line with the prevailing tax legislation and HMRC guidelines (where relevant). | |
Maximum opportunity
The value of insured benefits can vary from year to year based on the costs from third party providers. The committee reviews the cost of the benefits provision on a regular basis to ensure that it remains appropriate. The total value of benefits (excluding relocation and international assignment allowances) will normally not exceed more than 15 per cent of salary in any year. The maximum level of participation for all-employee share plans, if relevant, is subject to the limits imposed by HMRC from time to time (or a lower cap set by the Group). | Performance conditions
No performance conditions apply to benefits. |
| Pension | |
Purpose and link to strategy
To provide an appropriate level of retirement benefit. | |
Operation
Group contribution to defined contribution scheme (own or the Group's), a cash supplement or a combination of both. | |
Maximum opportunity
The maximum pension contribution or cash supplement (or combination of both) for executive directors is aligned with the contribution available to the wider workforce (currently 7 per cent of salary). | Performance conditions
No performance conditions apply to pension. |
| 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. | Performance conditions
At least 50 per cent of the annual bonus will be based on financial performance conditions.
The committee will review the appropriateness of performance conditions on an annual basis taking into account the business objectives and strategy at the time.
For financial performance conditions, vesting will normally apply on a scale between 0 per cent and 100 per cent with up to 50 per cent vesting for on-target performance.
For non-financial performance conditions, vesting will normally apply on a scale between 0 per cent and 100 per cent based on the committee's assessment of the extent to which the relevant condition has been met.
The committee has discretion to adjust the bonus outcome if it is not deemed to reflect the underlying performance of the Group, the performance of the individual or the experience of shareholders or employees during the performance period. |
Operation
Annual awards based on performance conditions (typically measured over a financial year) set by the committee usually at the beginning of each financial year.
Up to 60 per cent of any amount earned is paid in cash with the remainder deferred into shares for three years.
Dividends may accrue on deferred bonus shares. Any dividend equivalents would normally be delivered in shares.
Malus and clawback provisions apply (see table on Directors' Remuneration Report). |
Maximum opportunity
Maximum opportunity of up to 125 per cent of base salary in respect of a financial year. |
| Restricted Share Plan ('RSP') | |
Purpose and link to strategy
Reward for long-term sustainable performance and provide alignment with shareholders' interests. | Performance underpins
Performance underpins are determined by the committee on an annual basis.
If one or more of the performance underpins are not achieved, the committee will assess an appropriate reduction to the vesting outcome.
In addition, the committee has discretion to reduce the vesting outcome if it is not deemed to reflect the underlying performance of the Group, the performance of the individual or the experience of shareholders or employees during the vesting period. |
Operation
Annual awards will be granted in the form of nil-cost share options or conditional share awards.
Awards are subject to continued service and the achievement of performance underpins normally measured over a three-year period. The awards will vest following the assessment of the performance underpins.
Vested awards will be subject to a two-year post-vesting holding period.
Dividends may accrue on awards. Any dividend equivalents would normally be delivered in shares.
Malus and clawback provisions apply (see table on Directors' Remuneration Report). |
Maximum opportunity
Maximum opportunity of up to 75 per cent of base salary in respect of a financial year.
For the year ending 30 March 2024, the maximum opportunity will be equal to 50 per cent of base salary for each executive director. |
| Shareholding guidelines | |
Purpose and link to strategy
To strengthen the alignment between the interests of the executive directors and those of shareholders. |
Operation
Within-employment
Executive directors are expected to build up and retain a shareholding equal to 200 per cent of salary. Executive directors are required to retain shares acquired under equity incentive schemes, net of tax, until such time as they have built up the expected holding.
Post-employment
Executive directors who step down from the Board are normally expected to retain a shareholding in 'guideline shares' equal to 200per cent of salary (or their actual shareholding at the point of stepping down if lower) for two years following stepping down from the Board.
'Guideline shares' do not include shares that the executive director has purchased, shares that have been acquired under all-employee share plans or shares that have been acquired pursuant to the vesting of performance share plan awards or deferred bonus awards granted prior to 1 April 2020.
The committee retains discretion to waive this guideline if it is not considered appropriate in the specific circumstances. |
Notes on policy table
Malus and clawback
Malus and clawback provisions apply to annual bonus, deferred bonus awards and restricted share awards over the following time periods:
| Malus | Clawback |
| Annual bonus | To such time as payment is made. | Up to three years following payment. |
| Deferred bonus awards | To such time as the award vests. | No clawback provisions apply (as malus provisions apply for three years from the grant of the award). |
| Restricted share awards | To such time as the award vests. | Up to three years following vesting. |
Malus and clawback may apply in the following circumstances:
Material misstatement of financial results.
The bonus outcome or the number of shares granted or vesting under deferred bonus awards or restricted share awards was based on error, inaccurate or misleading information.
Substantial failure of risk control.
Serious misconduct by the participant.
Corporate failure.
The Group suffers a material downturn in its financial or operational performance which is at least partly due to a material failure in the management of the Group to which the individual made a material contribution.
The Group suffers reputational damage which is at least partly due to a material failure in the management of the Group to which the individual made a material contribution.
Other exceptional circumstances as determined by the committee.
Choice of performance conditions
The performance conditions for the annual bonus reflect the Group's annual financial and strategic priorities. The annual bonus currently incorporates an underlying PBT, ESG and health and safety performance condition. Targets are set taking into account the Group's internal financial forecasts and ESG and health and safety performance expectations at the start of the financial year. This reflects our commitment to maintaining a safe working environment for our people, our commitment to achieving our emission reduction targets and our wider commitments to society.
The committee will review the performance underpins for restricted share awards on an annual basis to ensure that they continue to safeguard the financial stability of the business and provide sufficient focus on strategic priorities, ESG performance and regulatory compliance. Performance underpins will ordinarily be qualitative, and the committee will use its judgement to assess "in the round" whether the level of vesting is appropriate having regard to the underpins and underlying financial and operational performance. The performance underpins applying to the 2023 restricted share awards are set out in the Directors' Remuneration Report.
No performance targets are set for any 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.
The discretions retained by the committee in operating the annual bonus and the RSP
The committee will operate the annual bonus (including the deferred share element) and the RSP according to their respective rules. The committee retains certain discretions, consistent with market practice, relating to the operation and administration of these plans, including:
The timing of the grant and/or vesting of awards.
The quantum of awards (up to plan and policy limits).
The determination of performance conditions, underpins and targets and resulting vesting levels.
The determination of the treatment of individuals who leave employment and the treatment of awards in exceptional events such as a change of control of the Company.
The ability, in exceptional circumstances, to settle share-based awards in cash (for example, where share settlement is not feasible due to regulatory restrictions).
The ability to adjust or set different performance conditions or targets if events occur (such as a change in strategy, a material acquisition and/or divestment of a Group business or a change in prevailing market conditions) which cause the committee to determine that the performance conditions and/or targets are no longer appropriate and the amendment is required so that they achieve their original purpose and are not materially less difficult to satisfy.
The ability to make adjustments to existing awards in the event of a variation in share capital or a demerger, delisting, special dividend or other exceptional event that may affect the Company's share price.
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 Group's major shareholders.
Legacy arrangements
The committee retains discretion to make any remuneration payment and/or payment for loss of office, to exercise any discretion available in relation to such payment, notwithstanding that it is not in line with this policy where the terms of the payment were agreed:
Before 2 September 2014 (the date that the Company's first shareholder approved remuneration policy came into effect).
Before this policy came into effect (provided that the terms of the payment were consistent with the shareholder approved remuneration policy in effect at the time the terms were agreed).
At a time when the relevant individual was not a director of the Company and, in the opinion of the committee, the payment was not in consideration of the individual becoming a director of the Company.
For these purposes, 'payments' includes the satisfaction of variable remuneration and, in relation to an award over shares, the terms of the payment are 'agreed' no later than at the time the award is granted.
The executive directors' legacy arrangements include unvested deferred bonus awards and performance share plan awards (see Directors' Remuneration Report).
Illustration of application of the policy
The remuneration package comprises core fixed pay (base salary, benefits and pension) and performance based variable pay (annual bonus and restricted share awards). The chart below illustrates the composition of the executive directors' remuneration packages under the policy for minimum, target and maximum performance.
The following assumptions have been made:
Minimum – Fixed pay only with no vesting under the annual bonus or RSP.
Target – Fixed pay plus a bonus outcome of 50 per cent of maximum opportunity (for 2024, 62.5 per cent of salary) and RSP vesting in full (for 2024, 50 per cent of salary).
Maximum – Fixed pay plus a maximum bonus outcome (for 2024, 125 per cent of salary) and RSP vesting in full (for 2024, 50 per cent of salary).
Maximum plus 50 per cent share price appreciation: illustrating the effect of a 50 per cent growth in the Company's share price on the value of the restricted share awards.
Fixed pay comprises:
Salaries effective as at 1 July 2023.
Benefits received by each executive director in respect of 2023.
Pension opportunity for 2024.
The scenarios for minimum, target and maximum performance do not include any share price growth.
Executive directors' service agreements and compensation for departure from office
All executive directors' service agreements run on a rolling basis. Notice periods of 12 months are required to be given by either party. Full details of the service agreements for each director are available from the Company secretary at the AGM.
The principles on which the determination of compensation for departure from office will be approached are set out below.
| Provision | Policy |
| Payments in lieu of notice | Service agreements include a payment in lieu of notice clause which provides that payments may be made based on the value of base salary that would have accrued over the 12 month notice period or unexpired proportion of the notice period.
Payments in lieu of notice are subject to mitigation. |
| Annual bonus | Discretionary payment based on the circumstances of the termination and after assessing performance conditions and normally only for the service period worked.
The committee has discretion to pay the whole of any bonus earned for the year of departure and/or preceding year in cash in appropriate circumstances. |
| Deferred bonus award | The extent to which any unvested awards will vest will be determined in accordance with the Deferred Share Bonus Plan (DSBP) rules.
Unvested awards will lapse where departure is by reason of dismissal for misconduct, fraud, performance issues, taking up alternative employment at a competitor or for any other reason at the committee's discretion.
Where unvested awards do not lapse on departure, they will normally vest on the normal vesting date (other than in exceptional circumstances (for example death) when vesting will be as soon as practicable following departure). |
| Restricted Share Plan | The extent to which any unvested award will vest will be determined in accordance with the Severfield Performance Share Plan rules.
Unvested awards will normally lapse on departure. However, if the executive director departs as a good leaver (death, injury or disability, retirement, the sale of the business or company that employs the individual or for any other reason at the committee's discretion), their unvested awards will vest on the normal vesting date (other than in the case of exceptional circumstances (for example death) when vesting will be as soon as practicable following departure). To the extent that the award vests, a two year holding period would then normally apply (although no holding period will apply in exceptional circumstances).
Vesting will depend on the extent to which the performance underpins have been satisfied and will normally be subject to a pro-rata reduction to reflect the proportion of the vesting period served (although the committee has discretion to disapply time pro-rating if the circumstances warrant it). |
| Change of control | Deferred bonus awards will normally vest in full in the event of a change of control.
Restricted share awards will normally vest in the event of a change of control. The level of vesting will be determined taking into account the extent to which the performance underpins have been satisfied at the date of the relevant event and will be subject to a pro-rata reduction to reflect the proportion of the vesting period served (although the committee has discretion to disapply time pro-rating if the circumstances warrant it). |
| Other payments | In appropriate circumstances, payments may also be made in respect of items such as accrued holiday, outplacement and legal fees.
The vesting of sharesave awards will be determined in accordance with the plan rules.
The committee will have the authority to settle any legal claims made against the Company in connection with the departure. |
Recruitment remuneration policy
The remuneration of a new executive director will normally include base salary, benefits, pension and participation in the annual bonus and RSP in accordance with the policy table for executive directors. The committee also has discretion to include other remuneration elements which it considers appropriate taking into account the specific circumstances of the recruitment, subject to the principles and limits set out below. The key terms and rationale for any such element would be disclosed in the Annual Report on Remuneration for the relevant year.
| Element | Policy |
| Base salary | Base salary levels will be set 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.
Salary will be considered in the context of the total remuneration package. |
| Benefits | 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 | Pension contributions or a cash supplement (or a combination of both) 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. |
| Variable remuneration | The maximum level of variable remuneration which may be awarded to new executive directors, excluding the value of any buy-out arrangements, will be in line with the limits sets out in policy table.
The committee may apply different performance conditions, performance periods and/or vesting periods for initial awards made following appointment under the annual bonus and/or RSP, if it determines that the circumstances of the recruitment merit such alteration.
If an executive director is appointed at a time in the year when it would be inappropriate to provide an annual bonus or restricted share award for that year, subject to the limits on variable remuneration set out in the policy table, the quantum in respect of the period employed during the year may be transferred to the subsequent year. |
| Buy-out arrangements | The committee may offer additional cash and/or share-based elements to replace deferred or incentive pay forfeited by an executive director leaving a previous employer when it considers these to be in the best interests of the Company and its shareholders. It will, where possible, ensure that these awards are consistent with awards forfeited in terms of the form of award, vesting periods and expected value. Such elements may be made under section 9.4.2 of the Listing Rules where necessary. |
| Other elements of remuneration | Other elements may be included in the following circumstances:
- An interim appointment being made to fill an executive director role on a short-term basis.
- If exceptional circumstances require that the chairman or a non-executive director takes on an executive role on a short-term basis.
|
In the case of an internal hire, any ongoing remuneration commitments or variable pay awarded in relation to the previous role will be allowed to continue 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.
External appointments
The Board is supportive of executive directors accepting appropriate outside commercial non-executive director appointments provided the aggregate commitment is compatible with their duties as executive directors. The executive directors concerned may retain fees paid for these services, which will be subject to approval by the board.
Policy table for chairman and non-executive directors
| Fees and benefits |
| Purpose and link to strategy |
| To attract and retain a high-calibre chairman and non-executive directors by offering market competitive fee levels. |
| Operation |
The chairman and the non-executive directors receive a basic board fee, with supplementary fees payable for additional Board / committee responsibilities or exceptional time commitments.
The fee for the chairman is approved by the remuneration committee. The fees for the non-executive directors are approved by the board, on the recommendations of the chairman and the Chief Executive Officer.
The fee levels are normally 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 may take into account changes in responsibility and/or time commitments.
Overall fees paid to the chairman and non-executive directors will remain within the limits set by the Company's Articles of Association.
The chairman and non-executive directors may be eligible to receive benefits linked to their duties. This includes, but is not limited to, the reimbursement of any normal business-related expenses and any taxable benefit implications that may result.
The chairman and non-executive directors do not participate in any of the Group’s incentive arrangements or pension scheme. |
Chairman and non-executive director letters of appointment
The chairman and non-executive directors are subject to re-appointment at each AGM. Notice periods of 1 month are required to be given by either party. The chairman and non-executive directors are not entitled to any compensation on loss of office.
| Date of letter
of appointment | Letter of appointment expiry date (subject to annual re-election at each AGM) |
| Kevin Whiteman | 16th June 2020 | 31st July 2024 |
| Louise Hardy | 26th July 2019 | 31st July 2028 |
| Alun Griffiths | 1st October 2020 | 5th September 2023 |
| Tony Osbaldiston1 | 28th May 2014 | 31st July 2023 |
| Mark Pegler | 3rd October 2022 | 4th October 2031 |
| Rosie Toogood | 15th June 2021 | 14th June 2030 |
1 Tony Osbaldiston will not be proposed for re-appointment at the 2023 AGM
Engaging with our shareholders
The committee engages directly with major shareholders where it considers there to be material changes to the remuneration policy or executive remuneration framework. As part of the remuneration policy review, a comprehensive shareholder consultation was undertaken and the committee carefully considered the feedback received from major shareholders and proxy voting agencies as part of its decision making. The committee is very appreciative of the time taken by shareholders to engage on the remuneration policy and is pleased with the level of support received.
Considerations of conditions and pay levels for workforce and workforce engagement on executive pay
In determining remuneration for executive directors, the committee takes account of general market conditions and pay levels for the workforce as a whole. This includes reviewing wage growth generally and the proportion of earnings paid as bonus to groups of staff at each level – executive directors, senior staff and all other employees (who receive a profit share bonus and are eligible to participate in a sharesave scheme).
The Group recognises a number of trade unions who are consulted regarding wage settlements on a site-by-site basis and seeks employee participation on a range of matters. This includes giving employees the opportunity through the MyVoice forum to discuss how executive remuneration is aligned with the wider Company pay policy.