BEIS0001124
BEISO001124
Department for
Business, Energy
& Industrial Strategy
Proformas for BEIS SCS Recruitment Panel
Red text indicates additions to CST proforma.
Pro forma A: for salaries/remuneration at or above £100,000 per annum (pro-
rata)
Post
Chief Executive Officer (CEO)
Employer or Appointing Authority
Post Office Limited (POL)
Name of Post Holder (if applicable)
N/A
Background
* please confirm that this application is
being made before advertising and provide
details of the proposed timetable.
¢ if the case is being reverted back
following a recruitment exercise please
provide details of the preferred candidate
and attach their CV
POL's current CEO Paula Vennells is leaving
the company to take up a new part-time position
as non-executive Chair of the Imperial
Healthcare NHS Trust, and ministers have
separately approved her exit terms.
Ministers have also approved an outline of the
recruitment process for the new CEO, including
the use of recruitment consultants and the
composition of the selection panel. The
proposed timetable in the submission was for
the advert to open on 8 April, subject to pay
clearance from the SCS Panel, BEIS Ministers
and the CST, and to have a new CEO in place
on 1 September.
* Please provide a brief description of the
role including objectives and budgets that
the role holder will be responsible for
* Please attach any job brief as supplied to
(or intended for supply to) candidates
¢ Please include brief details about the
purpose and objectives of the employing
organisation. For UKGI organisations and
trading funds also include budget and
turnover
Post Office Limited is the organisation
responsible for operating the nationwide
network of 11,500+ post office branches,
providing mails, financial services and
government services.
It has a turnover of c.£1bn per annum and is on
a trajectory of rising profitability. It is 100%
owned by SoS BEIS.
The CEO is responsible for the day-to-day
operations of POL and delivery of its strategy.
Is this a new role? If not what is the value of
the package of the former post holder?
No, the CEO role has been performed by
outgoing CEO Paula Vennells. Her package for
18/19 (maximum opportunity) consisted of
Base pay £255,000
Benefits (car &
medical allowance) £9,900
Cash in lieu of £63,750
pension
STIP (2018-19) £204,000
LTIP (2016-19) £245,900
BEIS0001124
BEISO001124
Department for
Business, Energy
& Industrial Strategy
Total £782,500 (max
opportunity)
The maximum pay-out of the STIP is 80% of
salary, so £204k. The maximum pay-out of the
LTIP is 98% of her salary in 2016/17 (£250k),
so £245k.
Benefits and cash in lieu of pension are part of
the CEO's contractual arrangements (with cash
in lieu of pension set at 25% of base salary).
Please provide details of proposed base Total base pay of £415k. POL proposed base
salary or salary range. For public pay of £325K (an increase of £70k or 28% on
appointments this should include all the outgoing CEO) plus the same allowances as
proposed non-discretionary remuneration. I the outgoing CEO (total of £9.9K) and cash in
lieu of pension of 25% (£81.25k). However,
since these allowances and cash in lieu of
pension do not conform to HMT best practice,
we propose shifting these into base salary,
giving a total base pay of £415k
Taxable allowances and fringe benefits None - see above. To conform with latest best
being proposed. practice we propose to no longer offer these
elements but instead provide a higher base pay
to offset this and ensure that the package is still
competitive.
Proposed performance related pay We believe that the outgoing CEO's STIP of
arrangements. 80% and LTIP of 98% of base pay remain
appropriate.
However, the calculation should_exclude the
increase in salary that occurs simply because
pension and allowances are move into base
salary. We adjusted for this by using POL’s
original base pay proposal of £325k, giving a
maximum pay of £260k for STIP (325k x 80%),
and £318.5k for LTIP (325k x 98%). Based on
these maximums we have calculated STIP and
LTIP on £415k base pay.
STIP max, 80% _I LTIP max, 98%
325 260 (80%) 318.5 (98%)
415 260 (63%) 318.5 (77%)
Adding these to base pay of £415k gives a
maximum pay-out of £993.5k, representing a
27% increase on the maximum pay-out for the
outgoing CEO of £782,500.
For any non-standard terms being The current performance measures for STIP
are:
BEIS0001124
BEISO001124
Department for
Business, Energy
& Industrial Strategy
proposed (in excess of £17,500) please
provide details of objectives against which
payment will be assessed and how they link
with organisational objectives.
« Performance against business
measures and targets (80% of the STIP
opportunity). The business objective is
based on a profit measure, EBITDAS,
with entry, target and stretch measures
to be agreed by Remco, following the
finalisation of POL’s annual budget.
e Performance against personal objectives
(20% of the STIP opportunity —
assessed by the POL Chair at the year-
end)
The structure of the LTIP is currently based on
profitability (EBITDAS) in the financial year
three years after the start of the scheme. le the
LTIP payment for the period [2019-22] will be
based on EBITDAS in FY [2021/22]. Final
targets will be set by Remco following the
agreement of POL’s annual budget.
The performance measures for both the STIP
and LTIP are being reviewed by Remco, who
are considering whether to broaden the metrics
beyond the current reliance on EBITDAS.
Please confirm that tax and NICS will be
deducted at source
Yes
Proposed Pension Arrangements
The successful candidate will not be able to
take cash in lieu of pension. However, we
propose to offer the successful candidate the
option of taking their £415k base pay as as a
combination of salary and contribution to a
pension.
Any non-standard compensation
arrangements
None. The ‘non-standard’ allowances and cash
in lieu of pension forming part of the outgoing
CEOs package have been shifted into the base
salary for the new CEO to conform with best
practice.
Proposed negotiating flexibility on any of
the above package elements.
We recommend that negotiating flexibility is
focused on performance pay. The evidence is
compelling that the current base pay is
significantly below the level at which high quality
candidates could earn elsewhere and well
below the lower quartile.
If you are uncomfortable with the level of the!
maximum pay out, we recommend that you
agree to the increase in base pay but ask POL to
freeze performance pay at the current envelope!
of £453,900. Maximum pay would fall to
£868,900.
BEIS0001124
BEISO001124
Department for
Business, Energy
& Industrial Strategy
POL have also indicated that they would
prioritise STIP rather than LTIP because the
candidates they want to attract are likely to be
taking a hit on annual compensation (base and
short term bonus), and this avoids exacerbating
the issue further. PWC’s benchmarking also
found a greater emphasis on STIP than LTIP in
relevant comparator organisations (para 16).
Type of Appointment (Fixed Term or
Permanent). If a public appointment,
specify the time-commitment and period of
appointment
Permanent, full-time appointment
Justification for proposed package. This
should include:
* Benchmarking data against suitable
comparators in the wider public and private
sector (of similar sector size & industry).
Where private sector is used you should
explain the particular skills and experience
needed and the degree to which the
employing organisation operates in
competition with the private sector.
* To support recruitment and retention
arguments, information on the employing
organisation’s recent performance.
° For preferred candidates, details of their
skills, experience and track record.
* For re-appointments, an assessment of
the risk to delivery of the employing
organisation’s objectives if the existing post
holder is not retained. And the potential
cost of advertising externally, including the
package that would need to be offered.
The maximum pay-out of £993.5k under this
proposed package represents a 27% increase
on the maximum pay-out for the outgoing CEO
of £782,500.
POL’s headhunters Russell Reynolds tested the
market against the existing pay package (ie
base of £255k) and at a higher level proposed
by POL (£325k), which showed a material
difference in the candidates who might consider
joining POL at £325k vs £255k; eight potential
candidates identified all earned above POL’s
current CEO’s base pay of £255k, ranging
between £275k to £508k. RR’s strong advice is
that it could attract a more suitable pool of
candidates to lead the Post Office if base pay
was set at £325k plus the same benefits and
bonus scheme as currently in place. However,
as explained above, to conform with current
HMT best practice, we propose to shift the
benefits (allowances and cash in lieu of
pension) into base pay giving a total of £415k.
Benchmarking analysis suggests POL’s current
CEO is substantially underpaid relative to
comparator organisations, with base pay lying
well below the lower quartile. POL’s Remco
commissioned PWC to carry out specific
benchmarking analysis against similar-sized
organisations in three areas: social purpose,
mail and retail, and challenger banks. PWC
constructed a weighted average of the lower
quartiles of each group, based on a 40/40/20
split. Lower quartile base salary was £429,000,
which is more than two-thirds greater that
received by POL’s current CEO. Pension
contributions would be additional to this. While
benchmarking exercises have their limitations,
BEIS0001124
BEISO001124
Department for
Business, Energy
& Industrial Strategy
we believe this is compelling evidence that base
pay is too low.
A higher base salary also addresses the severe
pay compression at executive level in POL. The
CEO's base pay is currently just 4% above the
CFOO’s. This compares to a pay gap of 57% in
comparable organisations and 54% in the FTSE
250. Pay compression can limit the ability to
attract candidates at lower levels in the
organisation. The proposal would create more
headroom, creating a gap of 32% in the base
pay of CEO and CFO, which we believe is more
appropriate
The performance pay available at POL, while
generous, is also substantially below that in
benchmarked organisations. Benchmarked
organisations in the lower quartile pay bracket
offer an average STIP of 131% and average
LTIP of 81%, compared to POL which pays an
STIP of 80% and an LTIP of 70%.
Name of Permanent Secretary (for civil
servants and public appointments) or Head
of Remuneration Committee (for other
public servants) supporting this application.
[Permanent Secretary support not required
for BEIS SCS Panel]
n/a
Any other evidence / argument deemed
relevant
na
Views of Departmental Minister
[Not required for BEIS SCS Panel]
na
Timing
a. When is the Panel's advice required?
b. When will the Panel next need to be
consulted?
c. When is the next opportunity to revise
performance pay arrangements?
d. When is the next opportunity to revise
the overall structure of the remuneration
package?
a. Urgent. We propose to open the advert on 1
April with the ultimate aim of a candidate taking
up their position by 1 September. In the
meantime, the current CFO will act as CEO but
we wish to minimise this interregnum to give the
business the long-term stability it needs to
develop its ambitious strategy.
b/c — STIP and LTIP is reviewed on an annual
basis for both the CEO and CFOO
d-—the is a permanent appointment so the
overall structure cannot be revised until the next
change of CEO.
Name and post of person submitting this
application
Tom Aldred, Executive Director, UKGI
Contact telephone and email
GRO
Date of Application
“TS March 2019