POLB(12)1st
POLB12/01-17
Present:
Alice Perkins
Neil McCausland
Les Owen
Paula Vennells
Chris Day
In attendance:
Alwen Lyons
Susannah Storey
Matthew Starks
Susan Crichton
Nick Kennett
Martin Moran
Mike Young
POLB12/01
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Post Office Limited — Strictly Confidential
Post Office Limited
(company no. 2154540)
Minutes of the meeting of the Board of Directors
held at 148 Old Street, London EC1V 9HQ on 12” January 2012
(a)
Chairman, Post Office Ltd
Senior Independent Director, Post Office Ltd
Non Executive Director, Post Office Ltd (items POLB12/01-12)
Managing Director, Post Office Ltd
Chief Financial Officer, Post Office Ltd
Company Secretary, Post Office Ltd
BIS (Item No. POLB12/01a)
Acting HR Director (Item No. POLB12/01 and POLB12/07)
Legal & Compliance Director (Items No. POLB12/06 -14)
Director, Financial Services (Item No. POLB12/09)
Commercial Director (Item No. POLB12/10)
Chief Operating Officer (Item No. POLB12/13)
POL REMUNERATION
Feedback from ShEx (Susannah Storey)
The Chairman welcomed Susannah Storey to the meeting and
explained that she had invited Susannah Storey to put the process
for approval of Post Office Board remuneration into context from a
Shareholder perspective.
Susannah Storey explained that after separation the controls
currently existing in the RMH articles would be incorporated into
POL articles and this would mean that matters relating to Board
remuneration (base salary and incentives) would need the
Shareholder's consent. She stressed that the authorisation process
can take some time and emphasised the need to ensure any
proposal put by Remco to the Government was properly justified
and benchmarked to enable decisions to be taken. The personal
objectives on which any bonuses were predicated needed to be
justifiable and not seen as “just doing the job”.
Susannah Storey explained that recent history shows significant
over achievement against stretch targets and this has inevitably
called into doubt whether the targets were challenging enough.
Les Owen highlighted that both Royal Mail Group and Post Office
Ltd dealt with small profit targets but calculated from significant
revenue and cost figures, and that this could lead to large
variances. He suggested the Business needed to find a measure
which was more aligned to share price for its long term incentive.
(b)
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The Chairman stressed the need to get proposals into the
Government early and ensure that individuals were genuinely
incentivised but not over rewarded.
Susannah Storey emphasised that only the remuneration of the
Board needed to go to ShEx, but that included any salary changes
and any short or long term incentive proposals.
Matthew Starks asked what is the Shareholder view of paying a
bonus for performance below the target. Susannah Story explained
that there was no set view and that the Business needed to argue
its case but that Ministers had very publicly stated that they would
not reward failure, so any proposal needed to bear this in mind.
Susannah Storey left the meeting.
LTIP
The Chairman asked Les Owen for his input on the LTIP paper
POLB(12)01 as he had experience of the RMG scheme. Les Owen
reported that from his private sector experience he was used to
seeing the bonus expressed on an annual basis but that the three
year amounts appeared to be appropriate and reasonable. He
emphasised the need to find a less volatile metric for the financial
target.
Chris Day explained that the Business had only just hit the last LTIP
targets and that the next three years profit targets were very
stretching. Les Owen explained that he was not suggesting the
Business always over achieves its profit target but that the number
was volatile and susceptible to large negative and positive
variances.
The Chairman emphasised the need for very different measures for
the short term and long term targets. Neil McCausland suggested
that the LTIP should target the Business outputs and focus on being
financially sustainable. Paula Vennells explained why the Network
Conversions were important in changing the Business cost base
and therefore should be a gateway to any LTIP bonus payment.
The Board agreed that the Network Conversion gateway target
should be set at 5400 (90%) which aligned to the MDA agreement.
The Chairman asked the Board if they believed bonuses should be
paid for delivering below 100 of the profit target. Les Owen
accepted the perception of rewarding failure but highlighted the
danger of ‘cliff vesting’ as this could drive the wrong behaviours in
the Business. He suggested a gradation around the target point
with significant increase for achieving the target. Neil McCausland
agreed.
Les Owen pointed out that it would be important for the Remco to
have some discretion in relation to the LTIP because it is impossible
to be certain in advance that all relevant matters have been
anticipated when agreeing the scheme.
ACTION:
Matthew Starks
ACTION:
Matthew Starks
ACTION:
Matthew Starks
(c)
(4)
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The Chairman asked if the forthcoming TUPE of staff from RMG to
POL would effect the remuneration proposal. Matthew Starks
explained that any changes to peoples’ terms and conditions
needed to be deemed of a reasonable nature and had to pass the
“substantially equivalent” test, and that the longer the time between
the TUPE and the change the better. The Business would test any
proposal with the TUPE lawyers. Paula Vennells hoped we could
design something which would be acceptable for the long term
rather that have to make further changes in the short term.
Paula Vennells and Chris Day left the meeting whilst their
remuneration was discussed. Discussions were not minuted.
Paula Vennells and Chris Day rejoined the meeting.
The Chairman asked that a proposal be brought back to the Board
based on the discussions to date (including higher ranges for CEO
and CFO) with a gateway for Network Conversions; a small reward
for achieving 90% of the financial target; but with the main bonus at
100% and significant rewards for hitting stretch targets. It was
agreed that the work needed to be completed as quickly as possible
to enable a proposal to the Shareholder before the end of the
financial year.
Remuneration Structure
The Board discussed the STIP (short term incentive scheme)
structure. Paula Vennells clarified that the PDR score related to the
annual performance review against personal objectives and that
approximately 15% of employees were graded as 1 or 2. Neil
McCausland asked to see the distribution of scores for the last 2
years, which would be circulated to the Board.
Neil McCausland emphasised the need to focus on financial
measures and those drivers which effect financial performance. Les
Owen proposed a structure where greater bonus was attributed to
profit or sales, but where other targets such as Health and Safety
had to be passed or the bonus achieved would be reduced.
The Chairman asked that customer measures play a significant part
in any calculation but stressed the need for measurable targets.
Neil McCausland added that moving the Business towards
performance related pay as well as bonus would be beneficial.
Managers Pay 2011-12
Matthew Starks updated the Board on the CMA pay negotiations.
Crown Managers have been offered 1.4% to mirror the CWU grade
award, and admin managers have been offered 1.6% plus £400
cash payment to be paid against specific objectives. This award is
greater than that offered by RMG but has been cleared with RM
CEO. Discussions are continuing with the CMA and Matthew
Starks will update the Board if there are any significant changes or
the pay deal is agreed.
POLB12/02
ACTION:
Chris Day
POLB12/03
ACTION:
Alwen Lyons
POLB12/03
ACTION:
Chris Day /
Kevin Gilliland
ACTION:
Alwen Lyons
(a)
(b)
(c)
(a)
(b)
(a)
(b)
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Neil McCausland asked if this gave the Business a gap in its plan
over the next 3 years. Chris Day confirmed this and that the
increase would need to be included in the commercials and
assumptions in the Crown Plan.
MINUTES OF PREVIOUS MEETINGS
The minutes of the meeting of 13'" December 2011 were agreed;
the minutes of the POFS Board (POFS(11)5") were noted;
Les Owen asked what issues were driving the red status of the MI
migration programme and whether it should be of concern to the
Board. Chris Day agreed to investigate and send a note out as
soon as possible.
The minutes of the FRES Board (FRES(11)4") were noted.
MATTERS ARISING — Status Report
No.11b (POLB11/60(e)): The Chairman commented that the UKBA
action was intended to refer to the external (rather than the internal)
communications plan. Paula Vennells agreed and ensured the
Board that the FOoG update at the next Board meeting would
include FOoG external communication plan.
No.4c (POLB11/71(h)): Paula Vennells reported that Lord Freud
had postponed this meeting. This will now be picked up within the
Front Office of Government work as a meeting on this has already
been scheduled for April
MANAGING DIRECTOR’S REPORT
Network Transformation
Neil McCausland congratulated Paula Vennells on the response to
the survey and asked how the Business intended to prioritise the
offices as the models had very different commercial implications.
Paula Vennells assured the Board that this would be included in the
next Board update due in March.
The Chairman stressed how vital this work was to the Business and
asked for it to come to the Board earlier if it was available.
Paula Vennells reported that the RMG and POL Communication
Directors were working closely to plan effective communications for
Network Transformation. In future, the joint Communications Action
Group minutes, including the details of the Network Transformation
Programme, would come to the Board for noting.
Front Office of Government
The Chairman stressed the importance of focussing the Business’
best people on the DVLA tender. Paula Vennells agreed and
stressed that the Business was using the lessons learnt from the
UKBA bid.
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ACTION: A full update and detailed project plan, including competitor
Martin Moran analysis, will form part of the Front Office of Government update at
the next Board.
(c) IT Landscape
The Chairman emphasised the need for the IT Board paper to be
clear with practical language and to highlight what the IT changes
ACTION: will mean to the Business on the ground. Paula Vennells
Mike Young suggested that the Board might benefit from an IT deep dive.
ACTION: I
Mike Young i
(e) Consumer Focus
Paula Vennells reported that she had met with Mike O'Connor from
Consumer Focus before Christmas, and although this was before
the unhelpful report in the Daily Mail, she was assured that such
reports were less likely to happen in the future.
ACTION: Nick Kennett to provide a noting paper for the February Board to
Nick Kennett cover communications to customers.
ACTION: /
Paula Vennells / I rre eva n
Alwen Lyons H
POLB12/04 HEALTH AND SAFETY UPDATE
(a) The Health & Safety Update (POLB12/05) was noted.
POLB12/05 7
(a) I I
’ Irrelevant
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sas, Irrelevant
Chris Day H
POLB12/06 POL GOVERNANCE
(a) The Governance paper was presented as a basis for an opening
discussion on this issue; it had not been discussed in advance with
the Chairman who would work with Susan Crichton on it after the
Board
Neil McCausland asked for clarification of delegated authorities
from ShEx alongside the decisions ShEx retained.
Les Owen stressed the need to include ‘Going Concern’
ACTION: discussions as part of the Board’s governance. Chris Day agreed
Chris Day to discuss with Matthew Lester (RMG CFO) and introduce the
necessary reporting process at the Board.
The Chairman explained that she would like to understand the
rationale for proposed delegated authorities and their implications.
Les Owen questioned whether POL would need a Board Pensions
Sub-committee, but Paula Vennells asked to keep this in the short-
term as the sectionalisation, investment and funding strategies
would all need detailed work.
It was suggested that the Health & Safety Sub-committee could be
an Executive Sub-committee and the Board would be updated
through the Managing Director's Report.
Susan Crichton suggested that the Audit Sub-committee should
expand to include risk and compliance as this would give Board
rigour and sub-committee oversight to the reporting of compliance
ACTION: by management.
Susan Crichton Susan Crichton to bring a proposal back to the Board after the
discussion with the Chairman.
POLB12/07 SIGNIFICANT LITIGATION REPORT
- Noting Paper (POLB(12)13)
(a) Les Owen asked for assurance that there was no substance to the
claims bought by subpostmasters which had featured in Private
Eye.
Susan Crichton explained that the subpostmasters were
challenging the integrity of the Horizon system. However the system
had been audited by RMG Internal Audit with the reports reviewed
by Deloittes. The audit report was very positive.
The Business has also won every criminal prosecution in which it
has used evidence based on the Horizon system's integrity.
ACTION: Susan Crichton suggested that she clear the audit report with the
Susan Crichton external lawyers and if it is possible to give the report privileged
status it would be circulate it to the Board.
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POLB12/08
(b)
(c)
(qd);
POLB12/09 EAGLE UPDATE
(a) Heads of Terms
Nick Kennett reported that the Heads of Terms has been signed on
29" December 2011 and the hope was to have the contract in place
by the end of March.
(b) Insurance
The issue of where insurance would sit in the Business is yet to be
resolved. Bol have proposed that this part of the current joint
venture be retained within Midasgrange (which will be wholly owned
by Bol), but with a new Board.
Nick Kennett explained why he thought this structure was too
bureaucratic and suggested an alternative.
The Chairman asked that Nick Kennett provide a paper to the
ACTION: Board setting out his alternative proposal with the negotiations
Nick Kennett mandate he requires.
Les Owen agreed and stressed the importance that any new
structure enables POL to have control over products, incentives and
sales campaigns.
Neil McCausland emphasised the need to manage the short term
Junction contract effectively to ensure no penalty was paid. Nick
Kennett reported that Junction were supportive of including the 30k
Van Insurances currently with AVIVA in the portfolio until Sept
2012.
ACTION:
Nick Kennett
ACTION:
Nick Kennett
POLB12/10
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Les Owen asked if Nick Kennett had confidence in the Manager
running the Insurance Business. Nick Kennett reported that the last
two weeks had seen the portfolio grow for the first time in three
years and that he had every confidence in the way the contract was
now being managed. The Chairman asked for a paper to be
brought to the Board covering the Business and the proposals for
the last two years of the Junction contract.
IRRELEVANT I
PREFERRED SUPPLIER — OUTPUT FROM TELEPHONY
TENDER
Martin Moran explained that the Telephony Tender process was
now complete, and that the preferred bidder was Fujitsu.
Neil McCausland questioned the reliance on Fujitsu. Martin Moran
explained that we were their third biggest customer worth circa 5%
of their turnover. But the new contract provided only a small return
for Fujitsu with the bulk of the contract passed through to Talk Talk.
The Chairman asked if there was any scope to reduce the price of
the contract further. Martin Moran explained that it had already
been reduced three times so he would not want to reopen the price,
but that he had negotiated IP rights for Horizon and a £2m
reduction in Horizon change request charges for 2012/13, as well
as step in rights to work direct with Talk Talk etc if Fujitsu failed.
The Board endorsed the recommendation and congratulated Martin
Moran on the deal.
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POLB12/11 BRIBERY ACT
Neil McCausland asked for assurance that the Business is
complying with the Bribery Act required disclosures.
Susan Crichton explained that POL had the same policy in place as
RMG and colleagues were trained when the Act came into force.
The register of Gifts is held in Compliance and shows no significant
ACTION: disclosures. Susan Crichton undertook to revisit the requirements
Susan Crichton at an Executive Team meeting.
POLB12/12 POL STATE AID APPLICATION
Susan Crichton reported that BIS will be submitting a notification to
the EU Commission for POL SGEI State Aid at the end of January.
The process had been underway since May, but because of a
change in the SGEI framework BIS had decided to hold back the
notification.
ACTION: The Chairman asked Paula Vennells to draw the Board’s attention
Susan Crichton / to any concerns and notify them when the notification was
Paula Vennells submitted and agreed.
Les Owen left the meeting.
POLB12/13 MDA/MSA
(a) I Minutes shown at Appendix A because of Conflicts.
POLB12/14 British Postal Museum & Archive (BPMA)
(a) Minutes shown at Appendix B because of Conflicts.
POLB12/15 ANY OTHER BUSINESS
The Chairman informed the Board of several non-executive director
ACTION: candidates, a possible Chair of Audit and that Susannah Storey had
Alwen Lyons agreed to join the Board as a NED. Alwen Lyons to organise her
induction.
POLB12/16 e NOTING PAPERS
(a) ¢ Telecoms Tender — POL Sourcing Council and Group
Investment Committee Business case (POLB(12)11) was
(b) noted.
(c) Insurance Risks (POLB(12)12) was noted.
(d) Insurance Risks (POLB(12)12) was noted.
(e) Pin Pads — Lessons Leant (POLB(12)14) was noted.
Post Office Sealings (POLB(12)15) was noted.
Intelligent Pricing (POLB(12)16) was noted.
POLB12/17 CLOSE
(a) There being no other business, the Chairman closed the meeting.
POLB12/13
ACTION:
Mike Young /
Susan Crichton
ACTION:
Susan Crichton
ACTION:
Susan Crichton
ACTION:
Susan Crichton
ACTION:
All
(e)
(f)
(9)
(i)
()
(k)
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Appendix A to Minutes POLB(12)1st
Irrelevant
10
3
POLB12/14
(a)
(b)
(c)
ACTION:
Paula Vennells
‘GRO
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Appendix B to POLB(12)1st
British Postal Museum & Archive (BPMA)
Irrelevant.
11