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. Norman Lamb
: BIS
From: Robert Faull, ShEx (tel jaw
Department for Business
Date: 12 June 2012 _ Innovation & Skills
Purpose:
How to reply to Alice Perkins’ letter of 3 May which, while not proposing any action at this
stage, lays the ground for future proposals on increasing Paula's base salary (Annex A).
Recommendation:
While you do not need to give a substantive reply, we recommend that you reply noting
Paula's significant pay increase last year (c11%); recognising that her pay should be
based on her track record; and agreeing this should be considered by the new POL
Remuneration Committee (pointing out that this should be done in the context of Paula’s
overall remuneration package), all within the context of public sector pay constraint. A
draft letter is attached at Annex B.
Timing:
By 15 June given Alice wrote on 3 May.
Summary:
1. POL's benchmarking (to equivalent FTSE 250 companies) shows that her salary is
around half of that at the median level (£510k) and below the lower quartile (454k).
While we might debate with POL the precise details of the most appropriate
benchmark businesses, we do recognise that Paula Vennells’ base salary of £250k is
low when compared to the pay of CEOs in equivalent sized companies.
2. We are, however, currently discussing with POL proposals for a Short Term Incentive
Plan (STIP) and a Long Term Incentive Plan (LTIP) for Paula and Chris Day (the
Finance Director). The POL team is looking at this in the context of Paula's current
salary. We would, therefore, want to consider any future proposals on Paula's salary
in the context of what we agree on the STIP and LTIP.
3. A submission on the incentive plans will follow once we have concluded our
discussions with the POL Team. We will, of course, discuss POL's proposals with the
SROC before submitting advice.
Copied to:
cc PS/Cable; Martin Donnelly; Roger Lowe; Rachel James; Will Gibson; Jane Hoy; Tim
Mcinnes; Mike Whitehead; Katie Wake; Peter Batten; Josh Coe; SPADs
Advice received from:
Finance SpAds Press Legal Analysts
N/A N/A N/A N/A N/A
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Annex A
Post Office Ltd
148 Old Street
London EC1V 9HO..
. Tet{™
ee
Norman Lamb MP
Minister for Empioyment Relations,
Consumer and Postal Affairs
Department for Business innovation & Skills
1 Victoria Street
London
SW1H OET 3" May 2012
dear Manatee,
Chief Executive's Remuneration
As you well know, the Post Office 'S Now running as a separate business from Royal
Mail with Paula Vennells as its Chief Executive.
I fully appreciate that the 'Ssue of remuneration continues to be a very difficult one for
the Government, But I do feel it is necessai
ry to draw the issue of Paula's remuneration
to your attention although, at this stage, ! am not asking for any action on it.
Paula was appointed as the Managing Director of
her predecessor was moved unexpected!
because she was involved in very diffic
it
‘ult negotiations with Moya Greene, her boss at
the time, about the future commercial
arrangements between the two businesses.
Since I arrived last August, ! have seen Paul;
bounds. Both I and our Senior independent
here almost as long as I have)
believe she is well placed to le
la develop into her current role in leaps and
Director, Neil McCausland, (who has been
are very pleased that she is our Chief Executive and
sad the Post Office through its transformation.
We are, however, both ve
Ty struck by the level of her salary given the complexity and
Scale of the business and
the challenge of our change agenda.
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Post Office Ltd
148 Old Street
London EC1V 9Hn.
Te 0
Paula's current salary is £250,000 - increased from £215,000 as a step to recognise
her promotion to the role of Managing Director of the Post Office while it was still a
Division of the Royal Mail. That was. in itself, well below the comparator salaries for
The position is significantly worse now she is the CEO. Earty indications suggest that
her salary is Toughly half the median salary of people who she would view as her
Peers, as is her total remuneration Package including her likely bonus and LTIP.
Now that the membership of the PO Board is almost complete, we will be setting up
the Board Committees, including the Remuneration Committee. One of the first things
which I shall be asking that Committee to do is to consider Paula's remuneration,
largely because it is essential to retain and motivate her fully to develop and deliver
Our strategy, and partly because of the knock-on effects which her salary level has on
the salaries we can offer her direct Teports,
In the meantime, I simply want to draw this to your attention because I thought it
wouid be helpful for you to have advance warning of this issue and because it would
seem odd not to raise it at the Point of our separation from Royal Mail,
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Annex B
DRAFT REPLY TO:
Alice Perkins
Chairman
Post Office Limited
148 Old Street
London
EC1V 9HQ
CHIEF EXECUTIVE'S REMUNERATION
Thank you for your letter of 3 May about Paula Vennells’ remuneration. I should begin by
saying I agree with your assessment of Paula’s leadership of Post Office Limited over the
past few months. Much has been accomplished recently, not least Post Office Limited's
independence from Royal Mail, and these are exciting times for the business.
As you know, executive remuneration across the business community is very much in the
public spotlight at the moment. For Government-owned companies, this issue also has
to be considered in the context of the need for public pay restraint. But I am also mindful
of the need to preserve and grow value in Government-owned businesses like Post
Office Limited, and therefore of the importance of recruiting and retaining top
management talent.
I have noted the points that you have made in your letter about Paula's base salary. As
you note in your letter, Paula received a significant increase in her base salary last year
to reflect her establishment in the post as Post Office Limited’s Managing Director.
I agree that it will be important for us to ensure that Paula continues to be paid
appropriately, taking account of her position as Chief Executive of the newly independent
Post Office Ltd. The separation of the Post Office from Royal Mail is an important
milestone in the development of the business. In any deliberations around remuneration,
we would need to understand fully the nature of the changes to her role brought about by
separation. We should also consider not only market trends and the public sector context
but also Paula’s track record in the new role, just as has been done to date. I therefore
agree with your approach in taking some time to consider this issue in the round through
the newly-constituted remuneration committee. This will allow the remuneration
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committee the time to consider Paula’s ongoing development into the role and to collate a
compelling evidence base for its recommendations (on which the requisite Board decision
will rely). That evidence base will also need to inform any required Ministerial approval for
changes to Paula’s remuneration, which will also reflect the need for public sector pay
restraint.
The remuneration committee will need to take into consideration the arrangements for
short and long term incentives for Post Office Limited executives which your team and my
officials are currently considering in the context of current base remuneration rates.