to be held on 13 May 2015 at 13:00 in the Boardroom (‘Wakefield’
Strictly Confidential
POST OFFICE LIMITED
(Company Number 2154540)
Meeting of the REMUNERATION COMMITTEE of the Board
Finsbu
Street, London, EC2Y 9AQ
REMUNERATION COMMITTEE
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Dials, 20 Finsbur
Time Subject Papers Lead
13:00 I 1 I Minutes of the last meeting and Minutes of the meeting held on 10 NM
matters arising November 2014
13:05 I 2 I STIP outturn for 2014/15 Paper detailing the impact on Executive KM
13:15 I 3 I LTIP outturn for 2012/13 to Paper detailing the impact on Executive KM
2014/15 plan
13:20 I 4 I Shareholder Executive Draft Shex Submission KM
submission
13:50 I5 I Directors’ Remuneration Report Draft Directors’ Remuneration Report KM
14:10 I 6 I New employees with a base Noting paper KM
pay of over £125k
14:15 I 7 I Recruitment of David Hussey, Noting paper KM
Transformation Director
14:20 I 8 I Alisdair Cameron — 2015, six Paper showing short-term objectives for KM
month objectives Chief Financial Officer
14:25 I 9 I Any other business and date of The next meeting is scheduled for 8" July I NM
next meeting 2015 at 10:00.
14:30 I 10 I Meeting Closes
Members attending:
Secretary:
Attendees:
Neil McCausland, Alice Perkins, Virginia Holmes
Alwen Lyons, Company Secretary
Neil Hayward, Group People Director
Keith Murdoch, Head of Reward and Pensions
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POST OFFICE LTD REMUNERATION COMMITTEE
Post Office Short Term Incentive Plan Outturn and Payments for 2014/15
1.1 Purpose
The purpose of this paper is to:
1.1 Approve the payment of the Short Term Incentive Plan (STIP) for Paula
Vennells, Chief Executive for the financial year ending 2014/2015.
1.2 To approve the payment of the STIP for Alisdair Cameron, Chief Financial
Officer for the financial year ending 2014/2015.
1.3 To note the STIP payment to Chris Day, Chief Financial Officer (until 30 January
2015) for the financial year ending 2014/2015.
14 To note the percentage outturn of the STIP for the Group Executive, RemCo,
and SLP.
21 Background
2.1 The STIP for the Chief Executive and the Chief Financial Officer(s) is based 80%
on the Post Office Scorecard and 20% on performance against personal
objectives.
22 For reference the STIP payments for financial year 2013/2014 were £76,608 for
Paula Vennells and £54,042 for Chris Day.
3.1 Scorecard Outturn
3.1 The Post Office Scorecard for 2014/2015 was based on the four sections of
Growth, Customer, People, and Modernisation.
3.2 Details of the targets and performance against these are shown in Appendix 1.
Chief Executive
3.3 The STIP payment to be made to Paula Vennells, Chief Executive, based only on
the results of the scorecard, and therefore excluding payments in respect of
performance against personal objectives, is £68,832. It has been determined
that the Chief Executive has achieved 80% of her personal objectives, equating
to £19,200. This results in a total STIP for 2014/2015 of £88,032.
Paula Vennells’ personal objectives for 2014/2015 are shown in Appendix 2.
Chief Financial Officer (Alisdair Cameron)
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3.4 The STIP payment to be made to Alisdair Cameron, Chief Financial Officer,
based only on the results of the scorecard, and therefore excluding payments in
respect of performance against personal objectives, is <£13,174. The Chief
Executive has agreed 50% of his personal objectives, equating to £2,297. This
results in a total STIP for 2014/2015 of £15,471. Figures shown have been pro-
rated to reflect that Alisdair was in the business for just under three months from
5 January to the end of the 2014/2015 financial year.
Chief Financial Officer (Chris Day)
3.5 The STIP payment to be made to Chris Day, Chief Financial Officer, based only
on the results of the scorecard, and therefore excluding payments in respect of
performance against personal objectives, is <£41,108 (double check on
audited numbers)>. It was agreed as part of Chris's Compromise Agreement
that he would receive a performance rating of ‘3’ for the year 2014/2015. This
would equate to a payment of 50% in relation to his personal objectives, equating
to £7,167. This results in a total STIP for 2014/2015 of £48,275. The figures
shown have been pro-rated to reflect that Chris was in the business for ten
months from the start of the 2014/2015 financial year to the end of January 2015.
Chris Day’s personal objectives for 2014/2015 are shown in Appendix 3.
3.6 For the Group Executive population, excluding the Executive Directors the STIP
outturn was 20.16% of base salary, this being a performance of 67.2% of the
target of 30%. For the Group Executive a personal performance multiplier range
is applied to the bonus outturn. The personal performance multiplier is
expressed as a range depending upon the employee’s PDR rating.
Table 1 - PDR Rating and Bonus Multiplier Range
PDR Rating Bonus Multiplier
1 0
2 0.25 — 0.74
3 0.75 — 1.24
4 1.25 — 1.74*
5 1.75 — 2.00*
* The bottom of the range may extend to 1.00 depending on the numbers of
people awarded a score of 4 or 5 and the requirement to remain within
budget.
4. Recommendation
41 The Remuneration Committee is asked to note the outturn of the Post Office
Scorecard for 2014/2015 in relation to STIP payments for the Group Executive in
June 2015.
4.2 The Remuneration Committee is asked to confirm the percentage of personal
objectives achieved by Paula Vennells, Chief Executive and to approve the STIP.
payment.
Neil Hayward
May 2015
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44
45
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The Remuneration Committee is asked to approve the STIP payment for Alisdair
Cameron, Chief Financial Officer.
The Remuneration Committee is asked to note the STIP payment to be paid to
Chris Day, formerly Chief Financial Officer.
The Remuneration Committee is asked to note the percentages to be applied to
the Group Executive, Remco, and SLP populations.
Neil Hayward
Group People Director
May 2015
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Appendix 1 — STIP Performance 2014/2015
% of % Outturn %
target Threshold Target Stretch I 2014/2015 Achieved I of target
Growth
Total Revenue (excluding NSP) £m 20.0% 915.0 925.0 945.0 870.0 0.0% 0.0%
Operating profit £m 25.0% 99.0 99.0 119.0 100 103.3% 25.83%
Customer
Easy to do business with 15.0% 47.0% 47.0% 49.0% 26% 0.0% 0.0%
People
Engagement Index % 15.0% 58.0% 58.0% 60.0% 62% 166.7% 25.0%
Modernisation
Crown Profit/(Loss) £m 12.5% 0.0 0.0 3.0 (3.0) 0.0% 0.0%
None), Conversions (Mains & 12.5% 1,650 1,650 4,750 2,039 I 166.7% I 20.83%
Total 71.7%
Notes:
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For the Chief Executive and the Chief Financial Officer the performance measures above comprise 80% of the target bonus. The payment delivered
by the scorecard measures, therefore, is 57.7% of target bonus.
The ‘% Achieved’ column assumes the stretch of two-thirds for Executive Directors. The stretch for other members of the Group Executive is 33% and
so the figures will be different where an element exceeds target.
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Appendix 2 — Personal Objectives for Paula Vennells, 2014/2015
1. Building capability and talent in the senior leadership team
a) Continue to reshape the Executive Committee, in line with the strategy and
timetable agreed with the Nominations Committee and Board, ensuring the top
team has the capabilities needed to deliver the 2020 strategy, and that they are
well motivated and supported to do so.
b) Personally sponsor the new SLT development programme being rolled out from
Q1. Working with the Group People Director, ensure there are clear plans in
place for increasing the capability and diversity of the SLT, to facilitate the
delivery of our commercial objectives and to raise the bench strength for
Executive Committee succession.
2. Driving through culture change including mutual ways of working
a) Ensure the Post Office delivers against the milestones to mutualisation identified
in the 2020 Strategic Plan, including:
i. Ensuring the business strongly supports and makes full use of the Post
Office Advisory Council following its launch in March 2014;
ii. Announcing the Post Office’s public purpose with mutualisation
milestones, in Q1 of 2014/15, and then working with the Board and
Executive Committee to ensure a successful first year of accounting for
performance against this definition;
iii. Championing the development of new working relationships with the
NFSP, the unions, sub-postmasters and staff to support the delivery of
our collective long-term financial interests; and
iv. Personally leading the Executive Committee's drive to “connect to the
edges”, achieving greater visibility across the business through regular
visits to branches and other parts of the organisation beyond 148 Old
Street.
b) Lead the delivery of the other cultural changes identified in our 2020 Strategic
Plan, with a particular focus on modelling and embedding the commercial
disciplines, customer focus and retailer mindset needed to secure the Post
Office’s financial sustainability.
3. Transforming the business
a) Chair the Transformation Committee, at least for the first six months of 2014/15
(reviewing the position at the end of H1), ensuring the organisation is clearly
focussed on delivering the key transformational programmes consistent with the
timescales and outcomes needed to secure our 2020 strategy.
b) Stay closely involved in the work to reform the organisation's operating model
(the ‘Business Transformation’ programme), ensuring this is progressed at pace
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and with the right thought leadership needed to drive our strategic cost reduction
agenda and promote innovative ways of working.
c) Support and challenge others in the Executive Committee team who have lead
accountabilities to deliver the revenue growth and cost reductions that are
required to underpin our strategic plan, both in 2014/15 and beyond.
Strengthening our external relationships
Continue to strengthen relationships with key stakeholders to facilitate the
implementation of the 2020 Strategic Plan. Focus in particular on building strong,
strategic level relationships with key commercial partners, including:
a) Royal Mail — holding regular meetings at CEO level to ensure that both
organisations are appropriately focussed and working collaboratively in pursuing
the growth opportunities in the parcels market (e.g. collections and returns).
b) Bol - ensure that the Post Office manages its relationship with the Bank
effectively to deliver our growth ambitions in FS, including through:
. holding regular meetings at CEO/Chair level;
. sponsoring continued joint team building initiatives, including considering
the case (by end Q3) for closer structural integration;
. ensuring clear joint milestones are in place by end Q1 for FSSC
oversight.
c) Retailers and Multiples — ensure the organisation is continuing to strengthen the
way it manages its relationship with key retail partners, engaging them at the
tight level and in the right way to maximise the successful delivery of both the
network transformation and network expansion programmes, consistent with the
commitments made to the Government, and also to pursue opportunities around
collections and returns where appropriate. Ensure all major multiples/retailers are
visited at CEO or Director level during the year.
Project Sparrow
Personally lead the programme to ensure the risks and issues are being tightly
managed, keeping the Board closely updated on progress. Ensure there is a clear plan
in place by end Q1 for managing the risks and challenges associated with the mediation
scheme, and that it is then implemented.
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Appendix 3 — Personal Objectives for Chris Day, 2014/2015
1.
Managing business performance — hitting the numbers and driving commercial
value:
a) Hold Commercial Committee / ExCo to account for the delivery of all key
financial outcomes
i) Total net income £925m
ii) EBIT £99m / EBITDAS (£61m)
iii) Cost: income ratio improvement to < £106%
b) Accelerating delivery of Financial Services transformation:
i) Complete full FS P&L (H1)
ii) Sustain and increase personal commercial challenge through Board
FSSC / BOI SEC / Commercial Committee / QBRs
STRETCH TARGET: De-risk FS budget / exceed top line by £5m
c) Maximise commercial value of Mails business:
i) Ensure PO is not disadvantaged though MSA/ DA contractual review
ii) Accelerate focus on:
a. Collections & returns
b. Parcels market
c. SME's — Commercial Committee
STRETCH TARGET: De-risk Mails budget / exceed top line by £6m
d) Seek alternative sources to create income contingency (GS / Telephony)
Cost reduction — reducing fixed costs tactically and strategically (by > 20% by
19/20):
a) Deliver £34m of ‘tactical’ cost savings in budget
STRETCH TARGET: £2m direct savings v budget
b) Deliver FY14/15 Business Transformation programme cost effectively
STRETCH TARGET: Identify BTr £3m in year savings
Delivering an effective Corporate Financial Strategy, setting the course for
financial self-sufficiency:
a) Treasury
i) Uprated focus on cash management / working capital to (a) reduce
volatility of controllable cash, and (b) monitor release of cash (Finance
Committee)
STRETCH TARGET: further £25m improvement in government facility
‘headroom’
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b)
c)
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Tax
i) Secure HMRC agreement to 2 55% VAT recovery rate
STRETCH TARGET: £3m contribution to EBIT in excess of budget
Insurance
i) Optimise (a) insurance cover / excess agreement for three ‘core’ policies,
and (b) organisational / governance arrangements (with GC)
Maximise the functional effectiveness of new wider responsibilities:
a)
b)
c)
Challenge and support CIO to deliver IT Transformation on time and to budget
Deliver Finance system separation from RMG with uprated MI completed on time
(Sept 2014) and within budget
Further improve Procurement ‘in-life’ contract management
STRETCH TARGET: £2m direct savings v budget
Building a FTSE100 — standard finance function to further drive commercial value
and ensure value for money on all spend:
a)
b)
c)
Further enhance external reputation to support talent attraction / retention
(speaking events / networking / award nominations) (ongoing)
Develop FLT leadership capability and succession plans for all L4 roles and
above (Q3)
Complete roll-out and adoption of Finance Competencies (Q2)
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POST OFFICE LTD REMUNERATION COMMITTEE
Post Office Long Term Incentive Plan Outturn and Payments for 2014/15
Purpose
The purpose of this paper is to:
21
3.1
1.1 Approve the payment of the Long Term Incentive Plan (LTIP) for Paula Vennells,
Chief Executive and Chris Day, Chief Financial Officer (until 30" January 2015).
1.2 To note the outturn of the LTIP for the Group Executive, Remco, and SLP
populations.
Background
21 Paula Vennells, Chief Executive, and Chris Day, Chief Financial Officer, were
granted LTIP awards dated April 2012. The awards have been tested for
performance in the financial year 2014/2105, the last year of the performance
cycle.
2.2 The award for Paula Vennells was based on 70% of her base salary, with a
potential award for stretch performance of 98% of base salary.
23 The award for Chris Day was based on 35% of his base salary, with a potential
award for stretch performance of 49%. It was agreed as part of Chris’s
Compromise Agreement that he would receive 34/36ths of the 2014/2015 LTIP.
outturn, representing his pro-rata time in the business.
[Note that Chris Day will not receive payments in respect of any future LTIPs.]
LTIP Outturn
3.1 The LTIP was subject to two pre-determined performance conditions to be tested
in financial year 2014/2015. The overriding condition is operating profit which is
to be paid out depending on the second, ‘gateway’ condition of Network
Transformation Conversions.
3.2 Details of the targets and performance against these are shown in Appendix 1.
3.3. The LTIP payment to be made to the Chief Executive (Paula Vennells) is
£112,000, equating to 44.8% of base salary. The LTIP payment to be made,
after being pro-rated by 34/36ths, to the former Chief Financial Officer (Chris
Day) is £45,484 (after time adjustment for 34/36 months) equating to 22.4% of
base salary (before pro-rata applied).
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3.4 The LTIP awards for the other populations in receipt of LTIP were:
Group Executive/RemCo- 22.4%
SLP 12.8%
Recommendation
4.1 The Remuneration Committee is asked to approve the LTIP payments for Paula
Vennells, Chief Executive and Chris Day, Chief Financial Officer (until January
2015).
4.2 The Remuneration Committee is asked to note the percentages to be applied to
the Group Executive, Remco, and SLP populations in June 2015 in accordance
with the plan rules.
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Group People Director
May 2015
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Appendix 1 — LTIP Targets 2012/13 to 2014/2015
Operating Profit Performance for the
Financial Year 2014/15
% Award Pay Out
Less than £69.3 million (70% of £99 million)
0% Pay Out
£69.3 million (70% of £99 million)
70% Pay Out
£69.3 million to £99 million (70% to 100% of
£99 million)
70% to 100% Pay Out (straight-line sliding
scale)
£99 million
100% Pay Out
£99 million to £118.8million (100% to 120%
of £99 million)
100% to 140% Pay Out (straight-line sliding
scale)
> £118.8 million (120% of £99 million)
140% Pay Out
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For 2012 to 2015 the operating profit performance was 100.0 meaning that the % award under
the operating profit measure was 102.0%,
cumulative transformation conversions.
to be adjusted by the ‘Gateway’ measure of
Number of cumulative Network
Transformation conversions for the
Financial Year 2014/15
% Pay Out under the Operating Profit
Performance Condition
Less than 4,800 (80% of 6,000)
0% Pay Out
4,800 (80% of 6,000)
50% Pay Out
4,800 to 6,000 (80% to 100% of 6,000)
50% to 100% Pay Out (straight-line sliding
scale)
> 6,000 (100% of 6,000)
100% Pay Out
For 2012 to 2015 the number of network transformation conversions was 5,105 meaning that a
62.7% adjustment was applied to the % award under operating profit measure.
This results in an LTIP award of 62.7% * 102.0% = 64.0%
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POST OFFICE LTD
Post Office Proposal for the Executive Remuneration Framework 2015/2016
Purpose
The purpose of this paper is to
11 To recommend the level of base pay for Executive Directors for 2015/2016;
1.2 To seek approval on the proposed measures in the Post Office Scorecard for 2015/2016
which are bonus worthy measures;
1.3 To seek approval on the proposed measures for the Long Term Incentive Plan (LTIP)
award date April 2015, pay-out March 2018;
Background
21 Post Office is continuing the journey to transform and modernise the network, and to
create a sustainable business moving forwards; however there remain significant
challenges in ensuring the financial future of the organisation.
2.2 It is essential that the correct strategy and framework are set to ensure continued
success and create a profitable future for Post Office. The Remuneration Committee has
aligned pay with strategy.
2.3 A rigorous and robust process has been applied when setting the targets for the
proposed measures. Stretch targets, which deliver additional awards, continue to be
used to incentivise overachievement, which will, in turn accelerate turnaround and be of
benefit to Post Office and its stakeholders. Income remains the only measure with a
threshold for bonus delivery.
2.4 Incentive scheme targets for the last financial year (2014/2015) continued the theme of
stretching targets. Significant progress was made in delivering our transformation
program and last year saw us increase our focus and challenge to the cost base. We
shall continue as a business to set stretching targets in order that the business focuses
on fulfilling ts obligations to its shareholder.
Base Pay
3.1 For the first time since her appointment, we propose to increase the salary of the Chief
Executive. The proposal is to increase the base salary by 8% from £250,000 to
£270,000 a year. The proposal is made in the context of internal pay rises, a significant
gap now with independent external benchmarking (both of which factors define the level
of the proposed increase), salary compression, and the requirement to motivate the
Chief Executive in a role where the challenge and complexity has increased since the
last increase prior to separation from the Royal Mail Group. Appendix 1 contains details
of the proposal.
3.2 Anew Chief Financial Officer was appointed in January 2015 on a base salary of
£240,000, which represented an increase of 11.6% on the previous base salary for Chris
Day.
3.3 The percentage against the market median of the Executive Director's base pay is
shown below in table 1.The Chief Executive's base pay is 53.9% of the market median
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previously it was 60%. The Chief Financial Officer's base pay is now 84.8% of the
market median. The base salary positions for both the Chief Executive and Chief
Financial Officer remain below the lower quartile. The same set of comparator
companies have been used in both sets of benchmarking data.
Table 1 Base pay percentage against market median
% of median Date of Benchmark
Chief Executive 53.9% December 2014
Chief Financial Officer 84.8% June 2014
(appointed Jan 2015
Short Term incentive Plan (STIP)
41 It is proposed for the financial year 2015/2016 the design of the STIP for the Chief
Executive and Chief Financial Officer will continue to be based on 80% of award on the
Post Office Scorecard (see appendix 2) and 20% of award on the achievement of
personal objectives.
4.2. The principle of maintaining challenging targets has been applied by making the income
target more challenging and being progressively tougher, thus ensuring the stretch is
achievable whilst maintaining the motivation of the leadership team to over perform. The
threshold is also the target for all measures with the exception of net income.
4.3 The personal objectives of both the Chief Executive and Chief Financial Officer are
detailed in appendices 3 and 4. See 6.1 for a breakdown of the quantum of award.
Measures
4.4 The STIP proposal for 2015/2016 retains the four categories from 2014/2015, although
‘Growth’ is re-titled ‘Commercial Sustainability’. The weightings between the four
categories remain broadly the same as for last year, although 5% has been reallocated
from ‘Modernisation’ to ‘Commercial Sustainability’. The measures and targets are
shown in greater detail in the Post Office Scorecard (Appendix 5 below).
Commercial Sustainability - EBITDAS, Total Net Income, and Digital Net Income
Customer — Customer Effort and Net Promoter Score (FS)
People — Engagement Index
Modernisation — Crown Profit and Loss, and Network Branch Openings
Each measure on the scorecard is assigned an individual weighting. The financial
indices contained within ‘Commercial Sustainability’ remain at the heart of Post Office’s
challenge for the coming year and have the highest weight. In line with the strategy we
need to ensure that the drive is focused on the right measures and behaviours; therefore,
there have been changes within the detail of the measures in two of the four categories.
4.5 Commercial Sustainability
The series of measures formerly grouped under ‘growth’ are now referred to as
‘commercial sustainability’ reflecting the requirement for profitable growth and utilising
the Post Office’s improved reporting capabilities in this area.
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The weighting for ‘Commercial Sustainability’ is increased from 45% in 2014/15 to 50%
for 2015/16.
Earnings before Interest, Tax, Depreciation, Amortisation, and Subsidy (EBITDAS)
Although EBITDAS is already in focus under the Long Term Incentive Plan (LTIP)
arrangements, in recognition that it forms the key metric of our strategy, we feel that the
added short-term focus is important. The target figure of -£35m aligns with the strategic
plan.
Income
It is proposed that for 2015/16 the weighting given to total net income should reduce from
20% (2014/15) to 10%. Income clearly remains important, but the focus now needs to
move to generating income which is profitable in order to ensure the commercial
sustainability of the Post Office.
The target figure for net income is the budget figure of £875m. The principle of
maintaining a threshold is important and for 2015/16 the threshold is set at £870m in line
with the anticipated outturn for 2014/15.
The income target in the financial plan is consistent with the EBITDAS target of -£35m.
Digital Net Income
The growth in income from digital outlets represents a vital strategic feature of the Post
Office’s long-term strategy. As such it is right to include digital net income as a specific
measure for 2015/16.
Digital net income will be the product of sales volumes and income factors, where
income factors are set at the product level and sales volumes reflect both online sales
and branch sales via the Horizon system.
It is expected that from next year onwards, digital net income will be refined to include:
‘packbook’ sales to reflect revenue from sales in previous years (especially relevant for
FS products); and the impact of multichannel sales which might begin in branch but be
concluded online.
Customer Measures
For 2015/16 we propose to increase the number of customer measures to two. Our
inclusion of Net Promoter Score (NPS) is judged right for our Financial Services
businesses but not for the rest of the business where we will retain ‘Effort’ as our
measure. This is reflective of the different markets in which we offer, namely the more
traditional role of the Post Office counter offerings and our growth sector of financial
services. where customer perceptions differ and different measures are both appropriate
and provide us with the best opportunity to gain customer intelligence and devise and
implement action plans to improve the customer experience.
The overall weighting for ‘Customer’ remains at 15% and will be divided between
Customer Effort (10%) and Net Promoter Score for Financial Services (5%).
Customer Effort Score
Customer Effort is an updated version of ‘Easy to do Business With’ (ETDBW). It
continues to produce a measure of customer advocacy which is closely aligned with
commercial performance.
Net Promoter Score (Financial Services/Post Office Money)
NPS is a measure commonly used within Financial Services, where customer perception
and satisfaction is an important driver of commercial opportunity. We feel that the time is
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right to introduce this measure in a genuinely competitive market to ensure we focus on
elements which will drive future business growth and retention.
4.7. People Measures
The engagement index is a critical measure as it enables us to track progress on the
engagement agenda. Highly engaged workers create better business outputs, more
loyal customers and better financial performance. The importance of this index as a key
component of the Strategic Plan is recognised by maintaining the increased weight of
15% from the 2014/15 scorecard.
As Post Office continues to change the people challenges remain to the fore. Carrying
our people with us on the journey to creating a modern, sustainable business remains
critical and so an ambitious target of 64% has been set for 2015/16, which is four
percentage points higher than for 2014/15 and 1 percentage point higher than the
outturn for 2014/15.
Post Office remains committed to engaging with its sub-postmasters. It was originally
intended to include the Sub-postmaster Engagement Index as a bonusable measure for
2015/16; however, concern over being able to guarantee a representative sample size
means this has been held over with the intention that sub-postmasters will form part of
the measurement for 2016/17.
48 Modernisation Measures
The weighting for modernisation will decline from 25% to 20%. With break-even for the
Crown Branches being anticipated during 2015/16, the proposal is to shift the focus from
‘run rate’ to ‘Crown Profit’.
Network Transformation
Although Network Transformation has been a success story, 2015/16 represents an
important year in the continuing push to a transformed network. The proposal is to retain
the focus on branches opening, rather than contract signatures. The target for branches
opening in 2015/2016 is 1,800 with a stretch of 1,900.
Crown Profit
Although the break-even run rate target was not met in March 2015, indications are that
if those branches which had been franchised, had been included in the results, ie a like
for like basis to the beginning of 2014/15, that target would have been met. As the Post
Office seeks to become a sustainable business it is important to focus now on the
profitability of the remaining Crown branches.
4.9 The rules of the STIP remain unchanged.
4.10 The personal objectives of the Chief Executive and Chief Financial Officer have been
designed to drive the company strategy and turnaround. See appendix 2 and 3.
Long Term Incentive Plan (LTIP)
5.1 The LTIP is designed to reward sustained performance over the long term. An award
(bonus) is promised subject to agreed performance conditions at the end of a specified
period. The award may increase or decrease dependent on the achievement of targets
as agreed in the performance conditions. Typically the award period is 3 or more years
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5.2
5.3
5.4
5.5
5.6
5.8
5.9
5.10
5.11
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and incentivises Senior Leadership to focus on the long term viability of the organisation,
creates value for the organisation and is measured in the final year of the award period.
To provide continuity and focus on maintaining the branch network and a strong link to
financial sustainability the proposal is to retain the performance conditions of Access
Criteria and EBITDAS (Earnings before Interest, Tax, Depreciation, Amortisation and
Subsidy).
The first proposed performance condition will remain Access Criteria as set out in the
funding Agreement with the Government and this will act as a gateway. If the Access
Criteria is not met no payment will be made under the scheme.
The proposed performance condition remains EBITDAS. EBITDAS is effectively the
controllable element of the existing operating profit measure and a target of £28m is
proposed for the year ending March 2018.
Threshold £5m
On-target £28m
Stretch £55m
The target for EBITDAS is consistent with the our strategic objective to become a
commercially sustainable business.
The design of the Post Office LTIP includes a threshold target with the setting of the
‘start to earn’ point at somewhere below target performance. For the 2015/16 plan the
gap between this threshold and the target has been narrowed. The scheme is aligned to
the Strategy Plan and seeks to deliver the targets agreed over a three year horizon.
Appendix 5 demonstrates the steep upward trend in profitability and the threshold target
has been set out 80% ensuring focus is maintained in the early years of the plan. It is
important to note that maintaining the threshold is vital at this stage in our turnaround as:
a) the LTIP is projecting 3 years out
b) the budgeted rate of EBITDAS improvements remains challenging
c) itis important to keep management motivated to make the changes necessary to
return to a sustainable business model.
Payment against the target will be on a straight line sliding scale assuming the first
condition has been met. Stretch will be a factor of 1.4. The quantum of the target award
for the Chief Executive remains at last year’s level of 70% (stretch 98%) of salary. The
target award for the Chief Financial Officer has been increased to 50% (stretch 49%) of
salary.
The proposal is for an award to be made in 2015 (backdated to 1 April 2015), with pay-
out being measured against the predetermined performance conditions at the end of the
2017/2018 financial year.
The three year time horizon of the Long Term Incentive Plan encourages planning and
investment in the business to deliver a future-proof sustainable business. The plan also
aids retention of senior leaders, and will contribute towards the Post Office having
continuity of leadership which will aid delivery of the strategic plan.
All awards will be paid in cash and paid via payroll ensuring the correct PAYE tax and
National Insurance Contributions are paid.
The rules of the LTIP remain unchanged.
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Quantum of Award
6.1 The value of the annual bonus and LTIP at threshold, on-target and stretch are shown in
the table 2.
Table 2 Quantum of award for both STIP and LTIP
LTIP pay out at different Annual bonus pay out at
performance levels different performance levels
% of salary % of salary
Threshold I On- Stretch Threshold I On- Stretch
Target Target
Chief Executive 56% 70% 98% 4.8% 48% 80%
Salary £250K £140K £175K £245K £12K £120K £200K
Chief Executive 56% 70% 98% 4.8% 48% 80%
Proposed Salary I £151.2K I £189K £264.6K £12.96K £129.6K £216K
£270K
Chief Financial 40% 50% 70% 4% 40% 67%
Officer £96.0K £120.0K I £168.0K £9.6K £96.0K £160.8K
Salary £240K
6.2 In relation to the STIP, Income is the only target which has a threshold therefore if all
other 5 measures did not hit target but Income reached the threshold target of £870m,
5% of the on target bonus is payable (half of the bonus attributed to the Income measure
is payable).
Recommendations
7.1 The Shareholder Executive on behalf of the Special Shareholder is asked to approve the
proposed increase to the Chief Executive's salary.
7.2 The Shareholder Executive, on behalf of the Special Shareholder, is asked to approve
the STIP and LTIP awards as described in this paper for the Chief Executive and Chief
Financial Officer for the financial year 2015/2016.
Neil McCausland
Remuneration Committee, Chair
May 2015
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Appendix 1
Proposal to increase Base Salary for the Chief Executive (Paula Vennells)
1. Proposal
1.1 To increase the base salary of the Chief Executive by 8% with effect from 1 July 2015.
The proposed increase is in line with increases for other staff groups within the Post
Office over the four years since her base salary was last increased and this has led to a
compression of salaries within the business. During the last four years the role has
grown significantly following the separation from Royal Mail and independently supplied
comparator data shows a significant shortfall to the market. It is also felt important to
recognise the contribution made by the Chief Executive who is leading the transformation
of the Post Office into a sustainable business.
2. Background
21 The base salary for the Chief Executive has remained at the same level since 1° April
2011.
2.2 During the same period, Post Office compounded salary increases for other groups have
moved as follows:
Supply Chain: compound increases of 11.2% inclusive of 2015/16.
Crown Operations: 7.4% excluding 2015/16 which has yet to be agreed. In addition,
circa 15% of non-consolidated increases have been paid.
Crown Middle Management: non-consolidated increases amounting to circa 12.0%, with
an increase of 3% agreed to be effective 2015/16.
Senior Managers: non-consolidated awards totalling circa 10.5%, inclusive of 2015/16.
SLP — no increases have been given to this population.
3 Chief Executive Pay and Comparator Data
3.1 The table below compares the current salary and benefits for the Chief Executive with
those in the Post Office’s comparator group.
The comparator group comprises: Mutuals (5); Publically Accountable (6); and FTSE 250
companies with a similar footprint to the Post Office (10).
The overall findings are summarised in the table below. The complete benchmarking is
shown in Appendix 2.
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3.2 Figures in £000s a year
Lower Median Upper PV current PV
Quartile Quartile proposed
Salary 369 464 531 250.0 270.0
Benefits 14 19 25 9.5 9.5
Pension 74 105 117 62.5 67.5
Total Fixed 491 593 649 322.0 347.0
Pay
Tgt Bonus 102 308 387 120.0 129.6
EV of LTIP 35 240 440 175.0 189.0
Total Target 667 1,108 1,464 617.0 665.6
Remuneration
Analysis and Rationale
4.1 An 8% increase is reflective of increases for other groups in the Post Office over the four
year period since the salary for the Chief Executive was last reviewed.
4.2 The current base salary has fallen in relation to our comparator group to a level where it is
now only 67.8% of the lower quartile (53.9% of the median). Although the position is
improved slightly in terms of total target remuneration, it remains below the lower quartile.
This proposed base salary would still be only 73.2% of the lower quartile of the
comparator group (58.2% of the median). Proposed total fixed pay would increase to
£347k (70.7% of the lower quartile), and proposed total target remuneration to £665.6k
(broadly equal to the lower quartile).
4.2 The need recently to recruit externally for senior positions (Chief Financial Officer, General
Counsel) has highlighted the difficulties in competing on pay in the external market without
suffering serious compression between the salary levels of the Chief Executive and her
direct reports.
Recommendation
5.1. The recommendation is to increase the base salary of the Chief Executive by 8% from
£250,000 to £270,000.
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Appendix 2
Proposed Post Office Scorecard for 2015/2016
Key Performance Indicators BO Tbstolkionosals
Weight Threshold Target Stretch
Total
Commercial Sustainability 50%
Earnings before Interest, Depreciation, Amortisation, and Subsidy 30.0% as target (£35m) (£30m)
Total Net Income (excl NFSP) 10.0% £870m £875m £895m
Digital Net Income 10.0% as target £21.5m £25m
Total
Customer 15%
Customer Effort (Easy to do Business with) 10.0% as target 64% 66%
Net Promoter Score (Financial Services only) 5.0% as target 25 27
Total
People 15%
Engagement Index % 15.0% as target 63% 65%
Total
Modernisation 20%
Crown Profit/Loss 10.0% as target tba tba
NT Branches Transformed in Year 10.0% as target 1,800 1,900
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Post Office Scorecard for 2014/2015 Results
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" 2014-15 Scorecard
Key Performance Indicators
Weight Threshold Target Stretch Result Contribution
Total
Growth 45%
Operating Profit 25.0% as target £99m £119m £100m 25.8%
Total Net Income (excl NFSP) 20.0% £915m £925m £945m £870m 0.0%
Total
Customer 15%
Easy to do Business with 15.0% as target 47% 49% 26% 0.0%
‘Effort’ (bonus measure for 2015) 0.0%
Total
People 15%
Engagement Index % 15.0% as target 58% 60% 62% 25.0%
Total
Modernisation 25%
Crown Run Rate 12.5% as target £0m £3m -£3m 0.0%
NT Branches Transformed in Year 12.5% as target 1,650 1,750 2,039 20.8%
Crown P&L (bonus measure for 2015) 0.0%
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Appendix 3
Personal Objectives for the Chief Executive [2014/15 objectives shown for reference]
Building capability and talent in the senior leadership team
a) Continue to reshape the Executive Committee, in line with the strategy and timetable
agreed with the Nominations Committee and Board, ensuring the top team has the
capabilities needed to deliver the 2020 strategy, and that they are well motivated and
supported to do so.
b) Personally sponsor the new SLT development programme being rolled out from Q1.
Working with the Group People Director, ensure there are clear plans in place for
increasing the capability and diversity of the SLT, to facilitate the delivery of our
commercial objectives and to raise the bench strength for Executive Committee
succession.
Driving through culture change including mutual ways of working
a) Ensure the Post Office delivers against the milestones to mutualisation identified in the
2020 Strategic Plan, including:
h Ensuring the business strongly supports and makes full use of the Post Office
Advisory Council following its launch in March 2014;
ii. Announcing the Post Office’s public purpose with mutualisation milestones, in Q1
of 2014/15, and then working with the Board and Executive Committee to ensure
a successful first year of accounting for performance against this definition;
iii. Championing the development of new working relationships with the NFSP, the
unions, sub-postmasters and staff to support the delivery of our collective long-
term financial interests; and
iv. Personally leading the Executive Committee's drive to “connect to the edges’,
achieving greater visibility across the business through regular visits to branches
and other parts of the organisation beyond 148 Old Street.
b) Lead the delivery of the other cultural changes identified in our 2020 Strategic Plan, with
a particular focus on modelling and embedding the commercial disciplines, customer
focus and retailer mindset needed to secure the Post Office’s financial sustainability.
Transforming the business
a) Chair the Transformation Committee, at least for the first six months of 2014/15
(reviewing the position at the end of H1), ensuring the organisation is clearly focussed on
delivering the key transformational programmes consistent with the timescales and
outcomes needed to secure our 2020 strategy.
b) Stay closely involved in the work to reform the organisation’s operating model (the
‘Business Transformation’ programme), ensuring this is progressed at pace and with the
right thought leadership needed to drive our strategic cost reduction agenda and promote
innovative ways of working.
c) Support and challenge others in the Executive Committee team who have lead
accountabilities to deliver the revenue growth and cost reductions that are required to
underpin our strategic plan, both in 2014/15 and beyond.
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Strengthening our external relationships
Continue to strengthen relationships with key stakeholders to facilitate the implementation of the
2020 Strategic Plan. Focus in particular on building strong, strategic level relationships with key
commercial partners, including:
a)
b)
°)
Royal Mail — holding regular meetings at CEO level to ensure that both organisations are
appropriately focussed and working collaboratively in pursuing the growth opportunities
in the parcels market (e.g. collections and returns).
Bol - ensure that the Post Office manages its relationship with the Bank effectively to
deliver our growth ambitions in FS, including through:
. holding regular meetings at CEO/Chair level;
. sponsoring continued joint team building initiatives, including considering the
case (by end Q3) for closer structural integration;
. ensuring clear joint milestones are in place by end Q1 for FSSC oversight.
Retailers and Multiples — ensure the organisation is continuing to strengthen the way it
manages its relationship with key retail partners, engaging them at the right level and in
the right way to maximise the successful delivery of both the network transformation and
network expansion programmes, consistent with the commitments made to the
Government, and also to pursue opportunities around collections and returns where
appropriate. Ensure all major multiples/retailers are visited at CEO or Director level
during the year.
Project Sparrow
Personally lead the programme to ensure the risks and issues are being tightly managed,
keeping the Board closely updated on progress. Ensure there is a clear plan in place by end Q1
for managing the risks and challenges associated with the mediation scheme, and that it is then
implemented.
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Appendix 4
Draft Personal Objectives for the Chief Financial Officer 2015/2016
Objective
Action to achieve objective
Measure
Results
+ Hit profit target
+ Deliver cost savings
+ Agreement on future direction of big cost decisions
+ EBITDAS at -£34m
+ Costs delivered in line with plan with new governance
established and working effectively
* Confidence of cost plans delivering £10m ahead of current
plans for 2016-17
Step change in numerical
understanding across the
business
+ Embed FDs in the businesses
+ Agreed set of KPls ernbedded to show how product income
is delivered
+ Product profitability is in use across the commercial teams
+ Digital reporting is established as a consistent measure
with a plan for usage or replacement
+ Embed a greater understanding of cashflow
+ Planning for 2016-17 income has clear numerical drivers
+ Product profitability is affecting decisions in 2015-16 as well as
being a bedrock of planning for 2016-17
+ Adigital income measure is agreed by the Board for the 2016-
17 scorecard with clear improvement targets
+ Define scorecard measure, debate it at Board and GE, agree
how it can be improved in 2016/17 and get it included on the
bonusable scorecard
Establish an effective
strategy function
+ Agree an integrated business strategy
+ Clear strategy for supply chain
+ Greater clarity on the commercial options around the
network and government support
+ Team in place led by a Strategy Director
+ Feedback from June Board awayday
+ Board agreement on the future of supply chain
* Strategy Director appointed
+ Clear narrative presented to new government
Develop into playing a full
role at GE and the Board and
with third parties
+ Establish relationships with key government departments
+ Establish working relationships with Bol and RMG
+ Play a full role at GE and Board, getting the right balance
of challenge and being challengeable
+ Effective working relationships with BiS, SHEX, Treasury, DWP,
BOl, RMG
+ PV feedback
+ Board feedback
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Appendix 5
LTIP EBITDAS Targets 2015/16 to 2017/18
100
50 SS ade ”~
26
0
2012-13 = 2013-14 vA 2017-18 <Sethreshold
-50 6 Target
—t-Stretch
-200
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DRAFT DIRECTOR’S REMUNERATON REPORT 2014/15
Statement by the Chair of the Remuneration Committee
I welcome the opportunity to outline our progress on Executive Remuneration during
our third year as an independent business. This has been another tough year for the
Post Office but we have continued to make progress towards our strategic
objectives. Our remuneration framework reflects the challenging environment in
which we operate.
The Post Office continues to follow its clear strategy, set for the remainder of the
decade, to create a thriving business with a strong purpose. The strategy will reduce
our reliance on the taxpayer and deliver a business which is financially sustainable,
whilst continuing to provide a network which is used and accessed by all sectors of
the population.
The performance criteria for the 2014/15 incentive scheme reflected the business
strategy, and continued to be stretching. The short-term bonus performance in
2014/2015 was similar to that in 2013/14 and was driven by significant progress in
transforming our network, engaging with our employees and developing mutual ways
of working, and a sustained focus on managing costs.
The remuneration framework for 2015/16 will continue to maintain the broad principle
of having stretching measures and targets. The short term incentive plan measures
have been reviewed to ensure continued alignment with our business objectives and
strategy as they progress. The performance measures in the long-term incentive
plan remain the same to ensure continued and consistent focus on achieving the
long term business strategy.
The Executive Directors have not received an increase to base pay for four years. A
benchmarking exercise was carried out for the recruitment of a new Chief Financial
Officer during the recruitment phase and a further benchmarking exercise was
carried out towards the end of 2014 for the Chief Executive. We were able to recruit
a new Chief Financial Officer on a fixed remuneration package in line with the lower
quartile of our comparator group. The pay for the Chief Executive pay remains
significantly below lower quartile (circa 30% for fixed remuneration). The shortfall
has resulted in salary compression as other employees in the Post Office receive
salary increases.
The Post Office is owned by the Government and we maintain a regular dialogue
with our Special Shareholder on all matters related to the remuneration of our
Executive Directors.
The Remuneration Committee is comfortable that the current policy provides the
strong link between reward and performance to continue the transformational
journey and return the Post Office to profitability. I commend this report to our
stakeholders.
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The Remuneration Report
This report has been prepared in accordance with the provisions of the Large and
Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008, as
amended in 2013, to the extent that they are applicable for Post Office in its capacity
as an unlisted company.
The remuneration report has been split into two sections. The Remuneration Policy
Report sets out the Committee's policy for remuneration and its link to the business
strategy. The Annual Report on Remuneration sets out how this policy was applied
during the year under review, the remuneration received by directors in the year
under review and how the Committee intends to implement the policy in the current
financial year.
Both sections of the report (pages xx to xx) have been approved by the
Remuneration Committee and the Board.
Neil McCausland
Chair, Remuneration Committee
2.
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Remuneration Policy report
The Committee is responsible for setting the remuneration packages for the Chief
Executive and Chief Financial Officer and determining the overall remuneration
policy for the Group Executive, which reports into the Chief Executive.
The Committee’s intention is that the remuneration policy aligns with the business
strategy and risk profile so that individuals are motivated to deliver the Post Office’s
objectives and protect its value. The Post Office remuneration strategy is based on
the following:
e Attracting and retaining the right people within an agreed policy to lead and
deliver the strategic plan;
e Using incentives appropriately to reward the achievement of the turnaround
strategy and promote the long-term viability of the organisation;
e Reinforcing an emerging culture of mutual ways of working and partnership;
and
« Providing a transparent approach to the disclosure of pay.
Remuneration policy summary
The table [overleaf] describes the current remuneration and the breakdown of the
packages for the Executive Directors, which comprise fixed pay (base salary,
benefits and cash in lieu of pension contributions) and pay at risk (STIP and LTIP).
The remuneration framework for the Executive Directors requires consent from the
Special Shareholder each year.
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Remuneration policy table
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Element I Link to strategy Operation Maximum values
Base Determined by reference to the Directors’ salaries are reviewed annually in July I There is no formal cap set on
salary skills and responsibilities of the of each year. The external pay benchmarking salaries. However, when
individual. group is a basket of comparators, selected and reviewing salaries, the
agreed with the Special Shareholder. Committee also pays close
When determining base salary attention to the level of salary
increases, consideration is given increases across the rest of the
to (i) pay and employment workforce.
conditions elsewhere in the Post
Office and (ii) market data on
comparable roles.
Benefits Participation in life and health The value of the benefits package is monitored The value of the core benefit is
assurance schemes, company by the Committee and benchmarked against reasonable and in proportion
car and private medical schemes I comparator organisations. with the market.
are part of Post Office-wide
benefit programmes.
Pension Pension provision is provided by I A contribution in lieu of pension is paid as a cash I 25% of salary
the Post Office and is available supplement to the Chief Executive and Chief
to all employees to help them Financial Officer.
meet their retirement needs and
provide a competitive
remuneration package.
Executive Directors receive a
salary supplement in lieu of
pension scheme membership.
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Short- The STIP drives and rewards The metrics and target ranges are agreed The maximum STIP opportunity
term performance over a single annually with the Board and the Special for the Chief Executive is 73.6%
Incentive I financial year, against a set of Shareholder as part of the annual business and __I of salary (with 48% of salary
Plan key financial and operational budget planning cycle. being payable for on-target
(STIP) targets taken from the balanced performance, with a threshold of
scorecard, set each year 80% of the target STIP award is based on a 4.8% of salary and a minimum
according to the current priorities I balanced scorecard and 20% is based on of 0%).
for the business. individual performance objectives which are
agreed with the Board and require approval by The maximum STIP opportunity
STIP awards are also linked to the Special Shareholder. for the CFO is 61.6% (with 40%
the achievement of personal payable for on-target
performance objectives. The balanced scorecard is set annually to performance, with a threshold of
include a mix of financial and non-financial 4% of salary and a minimum of
measures (including customer, modernisation 0%).
and employee engagement measures). The
precise metrics and their weightings are
determined at the start of each financial year.
STIP awards may be subject to clawback as
described in more detail on page X.
Long- The LTIP is designed to reward Performance measures for the LTIP are drawn The maximum LTIP opportunity
Term and retain key executives and from the Post Office Strategic Plan agreed with for the Chief Executive is 98%
Incentive I senior managers and to the Special Shareholder. of salary for maximum
Plan incentivise the achievement of performance, on target is 70%
(LTIP) longer term performance goals. I LTIP awards are made annually. The of salary the threshold is 56% of
The payout of the award is
based on the achievement of
strategic targets linked to the
longer term development growth
of a sustainable business.
performance targets are agreed with the Special
Shareholder in advance of each grant and will be
described annually in the Report on
Remuneration.
LTIP awards may be subject to clawback as
salary and minimum of 0%.
The maximum LTIP opportunity
for the Chief Financial Officer is
up to 70% of salary for
maximum performance, on
target is 50%, threshold is 40%
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described in more detail on page [ ].
of salary and minimum is 0%.
Non-
Executive
Directors’
fees
To attract and retain a high
calibre Chairman and Non-
Executive Directors.
The fees for the Chairman are reviewed by the
Committee and approved by the Special
Shareholder. The fees of the Non-Executive
Directors are reviewed by the Executive
Directors and submitted to the Special
Shareholder.
The Chairman is paid a single fee to cover all her
duties. The Non-Executive Directors are paid a
basic fee together with additional fees for
chairing Board Sub Committees or the role of
Senior Independent Director. No fees to the
Chairman or Non-Executive Directors are
pensionable.
The fees have not been reviewed since
appointment.
There is no prescribed
maximum annual increase. The
Committee is guided by the
general increase for employees
and the Executive Directors.
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Notes to the policy table
The framework is approved by the Special Shareholder.
Differences in remuneration policy for the Executive Directors and employees generally
The remuneration policy for the Executive Directors takes account of their level of responsibility and their influence over the
Company's performance. Accordingly, a higher proportion of their total remuneration package is at risk and subject to
performance (under the STIP and LTIP). The incidence and potential amounts payable under such incentives across the
workforce are determined by their role and grade within the organisation.
Choice of performance measures and approach to target setting under the STIP and LTIP
Under the STIP, performance is based on achievement against a balanced scorecard and delivery of personal objectives.
The balanced scorecard measures achievement of the Company’s key operational objectives and includes metrics for
financial performance and commercial sustainability, customer, people and modernisation. The Committee reviews the
components of the scorecard each year and varies them as appropriate to reflect the priorities for the business in the year
ahead.
Under the balanced scorecard, a sliding scale of targets is set for each metric to encourage continuous improvement and
challenge the delivery of stretch performance.
Under the LTIP, a minimum level of EBITDAS (Earnings Before Interest, Tax, Depreciation, Amortisation and Subsidy)
must always be met in order for any payment to be made. In addition a ‘gateway’ measure of Access Criteria must be met to
trigger any payment. The metrics were carefully chosen to align with the Company's long-term strategic plan, as agreed with
the Special Shareholder. The metrics are reviewed annually for each new scheme to ensure that they remain aligned to
Post Office’s longer term strategic objectives.
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Performance scenarios 2015/2016
The chart below shows the quantum and composition of the current remuneration
policy for the Executive Directors under three performance scenarios. These are
scenarios showing potential remuneration assuming there is no STIP or LTIP pay-
out, (fixed pay only), on-target performance (STIP and LTIP paying out at a target
level) and maximum performance (full pay-out of STIP and LTIP).
UIP
£800,000 £766,994 aSTIP
£700,000 mFixed pay (salary, benefits &
pension) £638,294
£616,994
£600,000
£525,494
£500,000
£400,000 20% 25%
£321,994 £309,494 18%
£300,000
£200,000
poe) 100% 59% 49%
£100,000
£0
Minimum On-Target Maximum Minimum On-Target Maximum
Paula Vennells Alisdair Cameron
Chief Executive Chief Financial Officer
Approach to recruitment remuneration
The remuneration package for a new Executive Director would normally be set in
accordance with the terms of the Company's remuneration policy in force at the time
of appointment.
The salary for a new Executive Director may be set below the normal market rate,
with phased increases over the first few years as the Executive Director gains
experience in their new role. Sometimes, to facilitate an external recruitment, it may
be necessary to consider reasonable compensation for remuneration relinquished at
a former employer (buyout award). Should this be the case, the terms of any buyout
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award would reflect (as far as is reasonably possible) the nature, performance
conditions and time horizons attaching to the remuneration foregone with the overall
package tailored to the individual. Any such award would require approval by the
Special Shareholder.
For an internal appointment, any variable pay element awarded in respect of their
previous role will be allowed to pay out according to its terms, adjusted as relevant to
take into account their appointment.
Statement of pay considerations elsewhere in the Post Office
The Committee takes into account the pay and employment conditions of employees
elsewhere in the Post Office when setting the remuneration policy for the Executive
Directors. The balanced scorecard used for the STIP for Executive Directors is also
used to assess performance in the annual bonus for Post Office managers, providing
alignment between performance and reward for all employees at manager level and
above.
Contracts and loss of office payment policy
Each of the Executive Directors has a signed contract with the Post Office.
Service contracts normally continue until the Executive Director’s agreed retirement
date or such other date as the parties agree. The service contracts contain
provisions for early termination.
In summary, the contractual provisions are as follows:
Notice period Other than for certain events such as gross
misconduct (in which no notice must be provided by
the Company), twelve months to be given by the Post
Office and six months by the director.
Remuneration-related Payments in lieu of notice of salary only.
provisions
Payments in lieu of notice are not pensionable.
Change of control There are no enhanced provisions on a change of
control
In some circumstances, the Committee may also, at its discretion, pay a bonus to the
Executive Director equivalent to the amount that they would have been entitled to
and earned under the STIP and LTIP, pro-rated over the portion of the year that they
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were in service. The Committee will take into account the reason for the Executive
Director leaving the company and the contribution made to the performance
conditions.
Under the LTIP, the default treatment is that any outstanding awards will lapse on
termination of employment. However, in certain prescribed ‘good leaver’
circumstances, the awards remain subject to performance conditions measured to,
and paid after, the end of the performance period, and reduced pro-rata to reflect the
portion of the period they were employed. The definition of good leaver status is set
out in the rules.
Clawback provision
Executive Directors have clawback clauses in their contracts, as well as the STIP
and LTIP rules, which provide for the return of any over-payments in the event of
mis-statement of the accounts, error or gross misconduct on the part of an Executive
Director. These provisions are structured in line with market best practice.
Non-Executive Directors
Non-Executive Directors’ Letters of Appointment are described in the Corporate
Governance statement (see page XXX).
Statement of consideration of shareholder views
The Chairman of the Committee communicates regularly with the Shareholder
Executive on behalf of the Special Shareholder on all matters concerning executive
remuneration and the Special Shareholder approves all aspects of the framework for
Executive Director Remuneration.
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Annual Report on Remuneration
Remuneration for each director for the Financial Year 2014/2015 (audited)
Name Annualised I Actual Benefits I Cashin STIP LTIP Total Total
salary/fees I salary/fee I 2014/15 I lieu of 2014/15 2014/15 2014/15 2013/14
2014/15 s pension
2014/15 2014/15
Non-Executive
Directors
Tim Franklin £40,000 £42,097 - - - - £42,097 £37,097
Virginia Holmes £40,000 £42,097 - - - - £42,097 £37,097
Alasdair Mamoch £45,000 £45,000 - - - - £45,000 £45,000
Neil McCausland £50,000 £50,000 - - - - £50,000 £50,000
Alice Perkins £100,000 £100,000 I - - - - £100,000 I £100,000
Richard Callard £0 £0 - - - - £0 £0
(Note 1)
Executive
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Directors
Name Annualised I Actual Benefits I Cashin STIP LTIP Total Total
salary/fees I salary/fee I 2014/15 I lieu of 2014/15 2014/15 2014/15 2013/14
2014/15 s pension
2014/15 2014/15
Paula Vennells £250,000 £250,000 I £9,855 £62,500 £88,032 £112,000 I £522,387 I £543,852
(Note 2)
Chris Day (Note 3) I £215,000 £179,167 I £7,880 £44,792 £48,275 £45,484 £325,598 I £373,925
Alisdair Cameron £240,000 £57,419 £2,281 £14,953 £15,471 £0 £90,124 N/A
(Note 4)
Total 2014/2015 £761,583 £765,777 I £20,016 I £122,245 £151,778 I £157,484 £1,217,303 I £1,187,971
(Note 5)
Note 1: Richard Callard is an employee of the Shareholder Executive of the Department for Business, Innovation and Skills.
Note 2: The salary for Paula Vennells remained unchanged from 2013/14
Note 3: Chris Day resigned from the Board on 28 January 2015 and left the business on 31 January 2015. In addition to the salary
and benefits shown he received a payment in lieu of notice of £179,167 (see page xxx below)
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Note 4: Alisdair Cameron was appointed to the Board on 28 January 2015. As Mr Cameron joined the Post Office as Chief
Financial Officer (designate) on 5" January 2015, earnings are shown from the time he joined the company.
Note 5: The annualised salary/fees total has been calculated by applying 10/12ths of Chris Day’s annual salary and approximately
3/12ths of Alisdair Cameron’s annual salary, reflecting that Mr Cameron joined on 5" January as Chief Financial Officer (designate)
and there was almost one month’s overlap. All other totals are actual totals.
Benefits comprise a company car (or cash equivalent), participation in life and health assurance schemes and private medical
provision.
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Pay at risk paid to Executive Directors in 2014/15 (audited)
a) Short Term Incentive Plan 2014/15
Performance metrics
The STIP payable to the Executive Directors is based on the 2014/15 Post Office
balanced scorecard (80%) and personal performance (20%). Six measures in the
scorecard were identified for use in the STIP. These relate to financial performance
(45%), customer experience (15%), our people (15%) and achievement of specific
objectives related to the modernisation programme (25%).
Maximum
‘ Payouts as a % of
Opportunity as a Performance Base Salary
% of base salary
ceo I cro I (méicativevs I eg I cro
Measure Target
Net Income 12.8% 10.7% Below target 0% 0%
Operating Profit 16.0% I 13.4% Above target 9.9% 8.2%
Customer Experience 9.6% 8.0% Below Target 0% 0%
People 9.6% 8.0% Above target 9.6% 8.0%
Crown profit loss 8.0% 6.7% Below Target 0% 0%
Modernisation 8.0% 6.7% Above target 8.0% 6.7%
Personal Objectives 9.6% 8.0% 7.7% 4.0%
Total 73.6% 61.6% 35.2% I 26.9%
[Note: The fall in operating profit is explained by the reduction in the government
subsidy. Earnings before interest, tax, depreciation, amortisation, and subsidy
(EBITDAS) increased by 36.5%.]
Specific targets are deemed to be commercially sensitive and are not disclosed.
The personal objectives for the Executive Directors are agreed by the Board and
approved by the Special Shareholder. The Personal Objectives for the Chief Executive
included building capability and talent of the Post Office leadership team, strengthening
external relationships and driving transformation of the business and a culture of
change
The personal objectives for the Chief Financial Officer(s) included a reduction in costs
whilst building a finance function to manage business performance. The Chief Financial
Officer also took on additional responsibilities.
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b) Long Term Incentive Plan awards 2012 — 2015
The LTIP award to pay out this year is based on the three-year performance period
ended 29 March 2015. The award values were as follows:
Executive IType of} Basis of Value of I Maximum value Vesting
award I award award of award if all determined by
granted performance performance
targets are met over
70% of
Paula
(Cash_fsalary target I £175,000 I £245,000
ennells Lsward Three
financial
85% of £71,069 I £99,497 Te ooia
(Chris Day* (Cash __ salary target aie
laward
* 2012/15 LTIP award pro-rated for time in office, Chris Day resigned 28 January 2014
Chris Day was treated as a 'good leaver' under the Scheme Rules for the 2012/2015
award, with performance measured to the usual time and pro-rated for length of service.
Awards under the 2013/2016 and 2014/2017 schemes have lapsed.
The primary performance condition for the 2012 award was operating profit (sliding
scales of targets) based on the strategy plan. The secondary performance condition
was modernisation which also acted as a secondary gateway (the access criteria being
the first gateway).
Operating profit before exceptional items for the year-ended 29 March 2015 (£xx
million) was between the target and stretch level.
The STIP and LTIP paid out to the Chief Executive and Chief Financial Officer
expressed as a percentage of salary is shown below.
STIP (payments as a LTIP (payments as a
% of salary) % of salary)
2013/14 2014/15 2013/14 2014/15
Chief Executive 31% 35% 58% 45%
CFO (Chris Day to 25% 27% 19% 22%
31/1/2015)
CFO (Alisdair Cameron N/A 27% N/A N/A
from 5 Jan 2015)
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The 2014/2015 STIP payments for Chris Day and Alisdair Cameron are pro-rated for
time spent in the business. The percentage figures shown are before the application
of the pro-rata.
Outstanding interests in Long-Term Incentive Plan
Under the remuneration policy, LTIP awards are granted annually. The Chief Executive
and Chief Financial Officer have the following outstanding awards:
Target award I Stretch Performance period
award
Paula Vennells, Chief Executive
2013 LTIP £175,000 £245,000 Three years to 27 March 2016
2014 LTIP. £175,000 £245,000 Three years to March 2017
Alisdair Cameron , Chief Financial Officer
2014 LTIP* £30,000 £42,000 Three years to March 2017
*pro-rated for time in office
Both the 2013 and 2014 LTIP awards are subject to challenging financial and strategic
performance conditions based on business profitability and the financial sustainability in
line with the Special Shareholder's objectives.
As mentioned above, the outstanding 2013 and 2014 LTIP awards for Chris Day (Chief
Financial Officer to 28" January 2015) have lapsed.
Total pension entitlements (audited)
Paula Vennells, Chris Day, and Alisdair Cameron all received a cash supplement of
25% base pay in lieu of pension scheme membership.
Paula Vennells was previously an active member of the Royal Mail Senior Executives
Pension Plan (an HMRC approved defined benefit occupational pension scheme) until 5
April 2012 when she left the scheme. As a result she retains past pensionable service
up until the date she left, any increases in the deferred pension amount is due to
revaluation not new accrual.
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Payments for loss of office
Chris Day left the Company on 30 January 2015. Under the terms of his service
agreement the Company paid £179,167, being 10 month’s salary as compensation
for loss of office as follows:
Chris Day was entitled to 12 month’s pay; however he worked for 2 months of his
notice and was paid for the remaining 10 months.
It was agreed he would retain the entitlement to the 2012/15 LTIP and the STIP for
2014/15 on a pro-rated basis. The LTIP awards for 2013/2016 and 2014/17 have
lapsed.
Relative importance of the spend on pay (audited)
The figure below shows the change in employee costs between 2014 and 2015 relative
to total revenues:
2015 2014 %
increase
Total People Costs £238m £255m (6.67)%
Of which related to Directors’ pay £1.22m £1.19m 2.56%
Total revenue excluding Network Subsidy £976m £979m (0.03)%
Payment
Remuneration of the Chief Executive Officer over time
The table below shows the total remuneration of the Chief Executive Officer over four
financial years, together with her STIP and LTIP payouts in that year:
2012" 2013 2014 2015
ITotal remuneration £456,283 £696,413 £543,852 £522,387
(£7000)
ISTIP (% of maximum) 86% 79% 38% 35%
LTIP vesting (% of No LTIP 89% 59% 45%
Imaximum) vested
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' The Post Office became independent from the Royal Mail on 1 April 2012. The
Committee has chosen to set out the Chief Executive Officer's pay data since this date.
Percentage change in remuneration of director undertaking the role of Chief
Executive Officer
There has been no increase in the level of base salary or benefits since 1 April 2012.
Variations in pay are as a result of differing levels of payment under the STIP and LTIP.
How the Committee intends to implement the remuneration policy in 2015/16
Salaries
The annual base salary for the Chief Executive for 2014/15 was unchanged from the
previous year, at £250,000. The Chief Financial Officer joined the Post Office in
January 2015 on an annual base salary of £240,000.
The next salary review will take place in July 2015 for the Chief Executive.
The Chief Executive has not been awarded any increase in pay since April 2011. There
was no increase in pay in April 2012, when the company began operating
independently from the Royal Mail Group and the role of the Chief Executive
significantly increased. The remuneration of the Chief Executive has been
benchmarked and analysis shows her salary is below the lower quartile of the market.
Performance targets for the STIP and LTIP awards to be granted in 2015 and
beyond
For 2015, the STIP will continue to be based on performance against a balanced
scorecard (80%) and personal performance (20%).
The LTIP targets will continue to operate with a performance target, which is
predominantly linked to the Company's operating profit performance.
The Committee has chosen not to disclose, in advance, the actual targets applying,
as these are deemed to be commercially sensitive.
Recruitment of CFO
Alisdair Cameron was recruited as Chief Financial Officer on a base salary of
£240,000, with standard terms for STIP, LTIP, and benefits. In addition, as part of
Alisdair Cameron's recruitment, he will be able to earn an additional bonus of up to
£75,000 during 2015. This bonus, which is subject to achieving specific
performance conditions during his first 6 months of employment to the end of June
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2015. These performance conditions are deemed to be commercially sensitive and
will be disclosed next year. This arrangement was put in place to partially
compensate for remuneration relinquished at his former employer.
Fees for the Chairman and Non-Executive Directors
The Chairman currently receives a single fee of £100,000. The non-executive
directors receive a base fee of between £35,000 and £40,000 together with
additional fees of £5,000 - £10,000 for chairing Board Sub Committees and for the
role of Senior Independent Director.
No annual increase is proposed to the fees to the Chairman and the other Non-
Executive Directors.
Statement of Consideration of Shareholders Views
When setting the Remuneration Policy for the Executive Directors the
Remuneration Committee take into consideration the views of the Special
Shareholder. The policy for pay at risk concentrates on ensuring remuneration is
performance led with targets aligned with those of the Shareholder.
The current economic and political climate is taken into account in terms of restraint
on pay to reflect the current practice in the public sector. All remuneration for the
Executive Directors requires Special Shareholder approval.
Membership of the Committee
The members of the Committee are listed in the table below. All of these are
independent Non-Executive Director. In total the Committee met six times and all
committee members attended each meeting, either in person or by conference call.
Committee members
Neil McCausland
Alice Perkins
Virginia Holmes
The Chief Executive attends the meeting by invitation of the Chairman and assists the
Committee in its deliberations, except in matters relating to her own remuneration. No
directors are involved in deciding their own remuneration. The Committee also receives
advice from the Group People Director, along with other members of the Human
Resources team and external consultants.
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External Advisors
In the year under review, advice on matters related to executive remuneration was
primarily obtained from New Bridge Street (NBS). NBS is part of Aon plc. The total fees
paid to NBS in respect of its services to the Committee during the year were £29,722.
Fees are generally agreed in advance for each piece of work carried out by NBS.
NBS is a signatory to the Remuneration Consultants’ Code of Conduct. The Committee
has reviewed the operating processes in place at NBS and is satisfied that that the
advice that it receives is objective and independent.
Outside directorships
Subject to Board approval, the Executive Directors are permitted to take on Non-
Executive positions with other companies.
Paula Vennells is a Director of Hymns Ancient and Modern and received a fee of
£6,350 in respect of the year ended 31 March 2015.
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1. Purpose
Strictly Confidential
POST OFFICE LTD
Noting Paper
New Employees
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1.1 The Committee is asked to note the employees below who have either started employment with the Post Office since the last
Remuneration Committee on 25 February 2015, or have received an increase which takes their base salary to £125,000 or above.
1.2 The Committee is also asked to note the complete list of employees, excluding the Group Executive, who are in receipt of salaries of
£125,000 or above.
2. People
2.1 The table below indicates those employees who are employed in senior roles and who were offered salary at or above £125k since the
last Remuneration Committee on 25" February 2015.
Name Job Title Directorate Salary per Grade Notes
annum
Geoff Smyth Head of Telecoms Commercial £130,000 SLP Currently on contract. Offer yet to be accepted
and included for information.
Mike Morley- Head of Risk & Assurance I Corporate £170,000 SLP Role combines Heads of Risk and Audit roles.
Fletcher Services Offered but start date to determined.
Mark Ellis Senior Leader Finance £170,000 RemCo Interim Head of Supply Chain
Jim Rawlings Head of Procurement Finance £165,000 RemCo
Henk van Hulle I Head of FS Products Financial £130,000 SLP Internal move. No 2 to Director — Financial
Services Services
Tom Moran Director of Employee People & £130,000 SLP Internal promotion.
Relations & Engagement Engagement
David Hussey Transformation Director Transformation I £210,000 GE Group Executive — see separate noting paper
Neil Hayward, May 2015 Noting Paper — New Employees. Page 1 of 3
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2.2 The table below summarises all employees of the Post Office, excluding those noted above and members of the Group Executive, who
are in receipt of salaries at, or above, £125,000.
Name Job Title Directorate Salary per Grade Notes
annum
Phillip Clarke Principal Commercial Commercial 137,615 I Band 4 No bonus. Pension allowance of 9%.
Manager
Pete Markey Head of Marketing Commercial 150,000 I SLP. Delivery bonus of up to £7,500 a quarter
Mark Siviter Head of Mails and Retail Commercial 165,000 I SLP. Delivery bonus in place for three years.
Colin Stuart Head of Procurement and I Finance 150,000 I SLP
Commercial Finance
FTC -noLTIP. Personal delivery bonus in lieu
Paul Bl ief Techi Fi Pp
aul Bleasby Chief Technology Officer inance (IT) 130,000 I SL of annual bonus. Retention bonus also in place.
Lesley Sewell I Chief Information Officer_I Finance (IT) 150,000 I ExCo Personal delivery bonus in place - £30k subject
to successful delivery of IT transformation.
Neil Wilkinson I Head of IT Transformation I Finance (IT) 130,000 I SLP FTC -no LTIP. Personal delivery bonus in lieu
of annual bonus. Retention bonus also in place.
Harry Clarke Head of Supply Chain yetwork & 130,000 I RemCo
Mark Davies Head of Communications People & 150,000 I ExCo
Engagement
Fay Healey Chief HR Officer People & 130,000 I SLP
Engagement
Alison Head of Change Transformation 130,000 I SLP
Thompson Management
Neil Hayward, May 2015 Noting Paper — New Employees. Page 2 of 3
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3. Recommendation
The Committee is asked to note:
3.1 The employees who have been employed, or received an offer letter, since the last meeting (February 2015) on salaries at or above
£125k.
3.2 All other employees of the Post Office who are employed on salaries at or above £125,000.
Neil Hayward
Group People Director
May 2015
Neil Hayward, May 2015 Noting Paper — New Employees. Page 3 of 3
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2.2
2.3
2.4
25
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POST OFFICE LIMITED REMUNERATION COMMITTEE
Appointment of the Transformation Director
Purpose
The Remuneration Committee is asked to note the recruitment of the Transformation
Director within the terms of the mandate.
Background to process
Odgers was engaged to conduct the executive search for a Transformation Director.
Post Office identified five candidates (4 male: 1 female) from the initial long list.
These five were interviewed at the first stage by Fay Healey and David Ryan and
three were progressed to the next stage of Hay assessment and subsequent
interview Paula Vennells and Neil Hayward.
All three final interview candidates were in demand and are actively being courted in
the marketplace and a negotiating mandate was sought from the Remuneration
Committee in March 2015.
The mandate sought to operate within the range below, based on standard ‘RemCo’
grade terms.
Remuneration (on-target) Amount
Base salary £200,000 - £215,000
STIP Standard — 30%
LTIP Standard — 35%
Pension (cash supplement) Standard — 25%
Benefits £8,777
The preferred candidate was David Hussey, who was recruited to the Group
Executive as Transformation Director on a base salary of £210,000. David's first day
with the Post Office was 20" April 2015. The total package value is significantly
lower than that earned by David Ryan as Interim Business Transformation Director
over the last year.
Mr Hussey is required to provide the Post Office with 6 months’ notice should he wish
to terminate his employment; the Post Office is required to provide 12 months’ notice.
Recommendation
The Remuneration Committee is asked to note the recruitment of the Transformation
Director and the starting salary of £210,000.
Neil Hayward
Group People Director
May 2015
Neil Hayward, May 2015 Page 1 of 1
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1.
2.2
2.3
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POST OFFICE LIMITED REMUNERATION COMMITTEE
Chief Financial Officer — Personal Objectives
Purpose
The Remuneration Committee is asked to approve the objectives pertaining to the
first six months’ employment of the Chief Financial Officer.
Background
In order to structure a competitive offer to Alisdair Cameron, Chief Financial Officer,
the Post Office incorporated a special bonus of up to £75,000, the payment of which
is to be determined by reference to specific objectives to be achieved during the initial
six months’ employment period.
The employment offer was made to Alisdair in October 2014 and he began
employment on 5 January 2015, succeeding Chris Day as Chief Financial Officer on
28 January 2015.
A set of objectives has been discussed between Paula Vennells, Chief Executive and
Alisdair Cameron. These are shown on the following page as Appendix 1.
Recommendation
The Remuneration Committee is asked to approve the six-monthly objectives for
Alisdair Cameron as forming the basis for determining his six-monthly personal
bonus.
Neil Hayward
Group People Director
May 2015
Neil Hayward, May 2015 Page 1 of 2
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Alisdair Cameron - Chief Financial Officer
2015/16 Objectives (Jan to June)
Objective Action to achieve objective Measure
Agree a new Finance org + New structure agreed New structure announced and implemented Q1 15/16
structure, bringing Finance + Capability and capacity issues identified
closer to the business
Deliver core product + Simple, spreadsheet version developed for immediate I New reporting produced and in use for 2015-16
profitability reporting use
Agree the financial plan for + Agree a plan within the business. Board approval for the 2015-16 plan
2015-16 + Obtain GE and Board approval for the plan
Chair Cost Reduction Group + Bi-weekly meetings of CRG held 14/15 cost reduction targets defined and owned by CRG met
to achieve 14/15 staff and + — Cost savings tracked and forecast in full (run rate - £60 pa)
non staff savings.
Develop into playing a full + Day to day working PV feedback and assessment
role at GE and the Board + — Insights profile completed and PDR in place
Neil Hayward, May 2015 Page 2 of 2
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