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© GrantThornton
Post Office Limited
Interim report - Remuneration Committee
Final
1 Dec 2023
2 GrantThornton
For the attention of Rachel Scarrabelotti / Amanda Burton
Post Office Limited
100 Wood Street
LONDON EC2V 7ER
1 December 2023
In accordance with the Statement of Work dated 12 October 2023 we present our
interim report (Interim Report or Phase 1} on the effectiveness of the
Remuneration Committee's ‘As-Is’ governance practices at Post Office Limited
(POL).
This Phase 1 piece of work has been undertaken in the context of our overarching
assignment (Phase 2) covering a review of governance design, procedures and
practices at POL to identify any gaps and provide considerations as to how they
may be bridged in the context of the wider change programmes which are being
unified internally under Project Ethos. The purpose is also to confirm that
practices are in alignment with the role of DBT and its duties and general
comparable good governance practice in the market.
This overall review does not seek to investigate and comment on any perceived or
actual past failings. It is concerned with establishing whether the current
governance approach meets the appropriate standards and is fit for the future,
based on the Company's unique position including, its ownership structure,
fulfilment of social purpose and its strategy to ensure the interests of its
stakeholders are properly served.
Appropriate standards considered for the purposes of this review are, the UK
Corporate Governance Code 2018 (the Code) mapped against the Central
Governance Code 2011 (the Government Code) and the governing shareholder
documents, in addition to good practice as observed from other relevant
organisations of similar size and complexity.
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Grant Thornton UK LLP
30 Finsbury Square
EC2P 2¥U
For clarity, the observations and recommendations contained in this Interim Report
will continue to be informed by our work on the overall governance construct and
we will incorporate a final version of this report into our final Phase 2 report.
This Interim report is confidential and has been prepared exclusively for you. To the
fullest extent permitted by law, we do not accept or assume responsibility to
anyone other than POL for our work, our report and other communications, or for
any opinions we have formed. We do not accept any responsibility for any loss or
damages arising out of the use of the report by the addressee for any purpose
other than in connection with the scope set out in the Statement of Work.
We would like to thank you and the various employees and Non-Executive Directors
involved in this initial piece of work for their commitment in giving their time to
provide honest and insightful feedback which, has supported the review process.
If there are any matters upon which you require further clarification, please contact
Jonathan Houston I”
Yours sincerely
Gant Toon tr bleLiP
Sarah Bell
Chartered Accountants
Grant Thornton UK LLP iso limited ably portnership registered in England ond Wales: No.OC307742. Registered office: 0 Finsbury Squore, London EC2 UG. lis of membersis available from our registered office. Grant Thornton UK LLP is
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Contents
Section Page
1. Context and background 4
2. Executive summary 7
Appendices
+ Appendix 1 - Foundational governance documents 4
+ Appendix 2 - Practical application 18
+ Appendix 3 - Benchmarking 23
+ Appendix 4 - Progress with Review Report 33
recommendations
+ Appendix 5 - Interviewees 36
+ Appendix 6 - Documentation 37
+ Appendix 7- Glossary 39
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Section 1
Context and background
Context and background
POL is wholly owned by the
Secretary of State for Business
and Trade (‘the Shareholder’ or
‘DBT’), the ownership rights of
which are preserved in the
Company's Articles of
Association.
The relationship between the
Shareholder, its representative,
UK Government Investments Ltd
(UKGI or the Shareholder
Representative) the Company,
and the Shareholder’s
expectations of the Company,
are governed by the Shareholder
Relationship Framework
Document (March 2020) and are
further supplemented by an
annual letter from the Minister
setting out the Government's
broad objectives for POL.
(© 2023 Grant Thornton UK LLP. Confidential and information only.
POL is a commercial retail company with a social purpose.
Through its partnerships it provides to the public, via its
nationwide network of c.11,500 branches, a variety of
products including postage stamps, travel and banking
offerings.
The POL 2025 strategy and vision is built around seven key
pillars. These pillars have been further synthesised into three
key themes which we understand inform the operational
focus of the Company namely; rebuilding trust,
transforming technology and improving branch profitability.
Government funding remains a key element which
underpins the delivery of the strategy and the continuing
viability of the organisation. Funding requirements are
negotiated with the Shareholder on a 3-year cycle, with the
current period due to end December 2024. One of the key
aims of POL is to become financially sustainable however,
this needs to be balanced against its social purpose being a
critical infrastructure element to the UK community: ‘We're
here, in person, for the people who rely on us’.
Against this backdrop:
* POL works in a dynamic retail and banking environment
which is changing at pace
* there is the continuing Horizon IT Inquiry into the past
governance fallings at POL
+ there is a major IT transformation on-going
Context to the report
In May 2023, the newly appointed Chair to the POL Rem Co
was asked by the POL Board to conduct a review of the
circumstances which led to the Horizon IT Inquiry Support
Target
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wording in the POL Transformation Incentive Scheme (TIS) and
Annual Report and Accounts; TIS was a one-off incentive and did
not form part of the usual STIP/LTIP.
Following that report, in June 2023, DBT commissioned
Simmons & Simmons to undertake an independent review into
the governance practices and decisions made by POLs Rem Co
in relation to this metric.
Both the Rem Co Chair and Simmons & Simmons reports (The
Review Reports) recommended as part of their response that
POL undertakes a review of governance structures, processes
and systems at Rem Co to improve and record effective decision
making and ensure alignment with the foundational shareholder
governance documents.
Recommendations from the Review Reports largely align and
are accepted by POL, which is seeking to address all nine
recommendations at pace, with two on the project plan marked
as complete and seven in progress (Refer to Section 2). In
addition to these recommendations, the Rem Co Chair made
two further suggestions namely,
+ that POL re-engage with the Shareholder
* Rem Co should not award any element of bonus specifically
relating to the Horizon IT Inquiry both now and going forward.
Both recommendations have been actioned
Accordingly, it is within the context of the future ambitions,
recent challenges and the Review Report recommendations in
addition to a relatively newly formed Rem Co in terms of
Committee membership and new Chief People Officer (CPO),
that we focus our comments and recommendations.
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Section 2
Executive summary
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Context and background
(continued)
Limitations
Clearly there are a number of actions being undertaken by POL to address
the gaps in governance at Rem Co (and within the wider organisation). Given
the limited time provided to undertake this review and acknowledging that the
Review Reports both cover wider governance aspects to Rem Co’s ways of
working, our intention is not to repeat previous analysis into root causes but
to focus on the actions since the Review Reports were issued to assess
whether;
* steps being undertaken to address recommendations are appropriate and
will enhance future decision making in the context of POL’s operating
model
* any further potential gaps remain giving consideration to the Code, the
Government Code and good market practice
With only three Rem Co meetings occurring since release of the Review
Reports in addition to a relatively new Rem Co membership and CPO, it is
difficult to conclude on the effectiveness of the practical application of many
of the proposed changes. Much of the work to remedy the identified gaps in
the Review Reports is still in the design or implementation phase and time is
needed to allow changes to bed-in to avoid overengineering the governance.
During the period within which we have undertaken this interim review, we
have been unable to observe a meeting of the Rem Co, and/or spoken to the
Group Executive so we cannot comment on its overall effectiveness in this
wider context and will consider this further in our Phase 2 work.
For completeness, this review does not constitute an audit and the
observations and conclusions outlined in this initial report have been arrived
at following document review, interviews and discussions with certain
members of the Rem Co, Senior Leadership team and members of the People
Function (refer to Appendix # and 5 for details).
(© 2023 Grant Thornton UK LLP. Confidential and information only.
Our report divides into the following sections:
* Section 2 - Executive summary which provides an overview of
recommendations
We have included our observations and findings from our document review,
interviews and discussions as follows;
+ Appendix 1 - The effectiveness of the foundational governance documents
and any recent mark-ups i.e. the Shareholder Agreement, Articles of
Association, ToRs
* Appendix 2 - The effectiveness of the practical governance elements such as;
minutes, MI, roles, capability and capacity etc; and
+ Appendix 3 - Progress on Review Reports recommendations
+ Appendix 4 - Update of the Review Recommendations
+ Appendix 5- Interviewees
* Appendix 6 - Documentation
+ Appendix 7 - Glossary
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Executive summary
The arrival of a new Rem Co
Chair, Shareholder
Representative, new CPO and
Reward Director over the last 6
months provides the
opportunity to reset
expectations with stakeholders
at Rem Co.
Equally, the Review Report
recommendations also provide
a roadmap to rebuilding an
effective governance platform.
Nevertheless, for the reset at
Rem Co to have sustainable
impact it needs to be done in
the context of a defined
strategic ambition and culture
of the Group, which currently is
not clear.
Overview
The historical lack of clarity and concerns around the
responsibilities and information accuracy has raised the
cost of decision making at Rem Co. It has also diminished
genuine accountability and effectiveness within the
Committee and the governance hierarchy between the
workforce, Rem Co and the Shareholder. This is further
affected by the public profile of POL both within
Government and the wider public context which continues
to negatively impact trust and transparency within the
Company.
In response POL is taking steps to remedy how the
governance environment contributes, first to rebuilding trust
among its stakeholders through addressing governance
policy and procedures, and second through improving
consistency of insights and ways of working.
Specific to the Rem Co, in the short term, the new Chair is
focused on; getting to grips with the most urgent issues
around the historic reward schemes and ways of working to
reduce the noise and create capacity to focus on the
effective and timely agreement and communication of
future reward schemes to the organisation.
Our initial impression is that much of the work at Rem Co,
both through the direction provided by new capability and
support and the on-going work in response to the Review
Report recommendations will, if embedded, address many
of the governance gaps.
(© 2023 Grant Thornton UK LLP. Confidential and information only.
We note however, whilst many of the policies seem in line
with good practice, the practical application against
policies has historically been inconsistent. Equally it is clear
that retaining a CPO and building capability and capacity
in the People function, which is critical to support Rem Co’s
work, has been challenging over the last four years.
To address this, behaviours and culture, what living the
strategy looks and feels like, are critical elements which
require consideration. It is not apparent, at this stage of our
review, that there is ownership, at the top, around the wider
workforce agenda, culture framing and monitoring in
addition to a metric definition of the ambition of the
strategy at Group level. These frameworks provide a critical
reference point for governance design work to support
turning strategy into action through decisions, providing
clarity, building trust and framing accountability.
This, in addition to frequent and robust communication,
talent mapping and performance management need to be
addressed to properly shift the impact of Rem Co.
Clearly there are a significant number of competing
priorities at Group, particularly given the Horizon IT Inquiry
and systems change, but capacity to consider a broader
and more forward-looking agenda needs to be created and
is critical to the future viability of the organisation. We have
seen aspects of this with the introduction of new Board-level
Committees, the skills and aptitude of new NEDs, the
introduction of a deputy CEO role and improved attention
to areas such as agendas and minutes, the impact of which
we will explore further in Phase 2.
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Key items to address
Rem Co and management are taking steps to address gaps in the foundational governance platform and time is needed to allow the new
capability at Rem Co and within the People function to address and embed the Review Report recommendations. To enhance future
effectiveness of governance at Rem Co, consideration is needed at Board regarding critical framing documents such as culture and strategy.
Specific to Rem Co, further consideration is needed on the practical application of the governance primarily centred around clarity,
accountability and creating the right capacity, which must be driven by the Chair.
Clarity of roles and responsibilities between stakeholders
In addition to the Review Report St bral lati hi di ti recat
recommendations, we consider the narenolader relationsnip ana incentive approach rese
outcomes driven by governance can be
further enhanced over the next 12-month
period by considering the practical
application aspects of governance which
largely underpin the “how” of decision
making Create capacity for forward-looking discussion
Confirm accountability around delivery and monitoring
of governance change - understanding capability and
capacity to deliver
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Key items to address
Issue Detail Work in Timescale Refer
flight? page
fb Citeriiy elias elie] Clarify Rem Co's role and authority namely:
responsibilities between agree with members, in the context of the governance documents and the Code, where Rem Co is seeking to
Rem Co stakeholders shape and take a proactive role versus areas where it will take more of an assurance role 0-3 months 1617
+ Address cultural issues around accountability through a RACI matrix aligned to the 12-month agenda/ToR items
and update Dod if appropriate at Rem Co and within the People function
Clarify (both practically and within documentation) the role and impact of the Shareholder Representative at Rem
Co. As part of this review:
+ debate the application of the Code, which recommends all Rem Co members should be independent. In the 0-3 months 16,26
event the role remains, consider challenges to independence and how these can be mitigated
* assess whether description of the role, as set out in the Shareholder Agreement, requires further clarity.
The purpose of informal engagement outside of Rem Co to be agreed given optics around independence.
Management to be encouraged to deliver more robust assessments, and design of reward schemes to allow for
more effective discussions at Committee. In the event of informal input, Management to report back to Rem Co
where input has been taken onboard and/or excluded to ensure optics of independence are maintained.
0-3 months ai
Referring to the Code, agree how Rem Co approaches broader aspects of its role including alignment/
engagement with the wider workforce and the narrative with broader stakeholders through channels such as the 0-6 months 24-30
Annual Report disclosures.
Agree ToR and understand next steps on the Shareholder Agreement which was due for review 2023. Yes 0-3 months 15,17
Clarify the role and remit of Internal Audit in support of Rem Co's work. 0-6 months 17, 20-21
Remuneration strategy (development and reporting) to be led by the CPO. RAC! to reflect this aspect. Yes 0-3 months 7
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Key items to address
(continued)
Deta' Already Timescale I Refer
flight page
2, Srersnaltar Establish the set of principles by which schemes are designed, taking account of latest best practice, the Ministers annual
: " letter and appropriate ambition. Agree whether LTIPs remain an appropriate approach/measure in the absence of a metric- Yes 0-3 months 17, 24-25
(OSS defined strategic ambition.
Engage with the Shareholder to establish the overall remuneration philosophy - the position and guiding principles of Yes <l2months 15-17, 24-
total remuneration relative to the requirements of the Shareholder, the operations and stakeholders, good governance 26
guidance and the marketplace - wider key aspects which will deliver future value such as leadership capacity and
culture should be considered as part of this exercise.
Agree clear timelines for the delivery of schemes prior to the new financial year. Yes 0-3 months
Stress test new schemes and consider involvement of internal audit to review process and potential outputs. 0-6 months 7
WTW to provide information on historic schemes. Yes 0-3 months
Possible need to interview ex staff members further where possible and practicable. 3-6 months
3. Create Review the rolling 12-month agenda (with Committee members) to ensure it creates capacity and accountability to consider
wider objectives beyond remuneration setting (and review quarterly). As part of this exercise agree what the Rem Co wants 0-3 months 20
capacity for
forward looking
- inewesiions Ensure actions in minutes include an indicative timeline for completion. Average time to resolution to be monitored and oSamtn a
reviewed on a quarterly basis to understand root cause for any delays.
to achieve over the next 12 months with the Chair, to focus on driving the aspired direction of travel.
Develop a skills matrix to inform both talent mapping, succession and the annual learning and development plan. <12 months 22
Develop a clear communication plan to signal any material changes to approach, outcomes, expectations etc. across the Yes 0-3 months 19,20
organisation and with wider stakeholders.
Explore the output from the benchmarking results; particularly the benefit in seeking to comply with the spirit of the Code
and reflect whether it needs to drive a shift in terms of internal practices and/or reporting disclosures and/or that non- 0-3 months 24-32
compliance is agreed and understood, with outputs included in any future induction pack.
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Key items to address
(continued)
Issue Detail Already I Timescale I Refer
in flight? page
3. Create
capacity for MI to support strategic discussion and decisions. MI needs to evolve to provide a dashboard on people matters and wider
forward looking _ workforce pay alongside a narrative to explain strategic importance and highlight priorities. Include SMART indicators 0-6 months 2
discussions which provide forward-looking projections and set expectations for the future around reward.
Rem Co to champion a consistent framework to measure and monitor governance recommendations with progress, 0-6 months
closure and on-going impact captured and measured - to be included as a rolling agenda item and captured as part of
the RACI work under recommendation 1 to clarify accountabilities for the workstreams which will build off the Review
Report recommendations.
4. Governance
change
Establish the capability and capacity of the People function to support the change: 0-18 months 22
* undertake a skills audit/baselining exercise to establish the levels of capability, capacity, historic knowledge and
talent
+ internal repositioning/role definition and external recruitment for key gaps
+ clearly define roles and accountabilities and review training and development
+ in the medium-term, revisit the principles of performance management and appraisal processes.
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Appendices
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Appendix 1
Foundational governance documents
Appendix 1
Foundational Governance documents
Key documents of reference
* Articles of Association
* The Shareholder Relationship Framework Document, dated March 2020
(‘the Shareholder Agreement’
* The Rem Co Terms of Reference (ToR)
* Delegated Authorities (DoA)
* Remuneration strategy
Work in flight
The Shareholder Relationship and Agreement
The current Shareholder Agreement took effect from 1 April 2020, and the
expectation, as set out, is for it to be reviewed on a three-year basis. POL’s
expectation, therefore, is for the review to be undertaken in 2023. As yet there
remains no set date for a formal review.
The document sets out certain parameters within which POL is expected to
operate; certain obligations with which POL is expected to comply; and certain
aspects of the relationship between the Shareholder, the Shareholder’s
Representative and POL. The Shareholder Agreement references POL’s Articles
of Association and Rem Co’s ToR and all three documents should align to
ensure that roles and responsibilities are correctly documented, given recent
mark-ups of the ToRs as an example.
In line with good corporate governance practice, the Shareholder sets out the
Government's broad objectives for POL, through the annual letter from the
responsible Minister. Within this context, specific proposals are then to be
shaped, agreed and approved by Rem Co, and taken to the Board for
approval
Following Rem Co approval of remuneration or incentive schemes (and
subsequent approval by the Board) there is a process of submission to UKGI
for its approval and then to the DBT for final sign off before communication
back to POL.
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Whilst this process is broadly in line with what we would expect to see, the
current relationship between POL and UKGI/DBT has been strained in recent
years. This has negatively impacted Rem Co's work and driven additional
and sometimes ineffective workloads, blurring of lines, confusion on
responsibilities and unclear accountabilities.
We consider this to be a major impediment to Rem Co’s effectiveness.
Therefore, resetting the relationship, building trust and improving
communication and clarity of roles and accountabilities between the parties
should be a key aim over the next 12 months. The Rem Co Chair is taking
steps to seek to address this issue and we would encourage this.
ToR
Rem Co's duties are set out in the ToR. This document requires Rem Co to
undertake an annual review of its performance and the continued relevance
of the terms in the context of the business model and strategy. The outcome
of these reviews are recommended to the Board for approval.
Following the publication of the Review Reports (August 2023), a review of the
ToR was undertaken, led by Rem Co Chair, who sought input from the
Reward Director, WTW (external advisors to the Committee), and the
Company Secretary. Feedback from all parties has been considered and
where relevant incorporated into a proposed revised ToR.
The proposed revisions to the ToR largely seek to address the Review Report
recommendations. As part of this review exercise the UKGI also provided
sample Terms of Reference for other Government assets, and we understand
these were also considered as part of this process.
The latest review of the ToR (version 4.0) was presented at the September
2023 Rem Co meeting. After discussion, the Committee agreed that
references in the document to wider governance policies/procedures of
relevance and the role of the Committee in approving exit packages should
be further amended to provide greater clarity. We understand the revised
wordings of the ToR will be drafted and distributed to the Rem Co for
consideration at its next meeting.
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Appendix 1
Foundational Governance documents - observation and findings
Overviev Observations Recommendations
Articles and + POL's Articles (Articles + The Shareholder Representative (Lorna Gratton) sitson + Whilst we recognise that a Shareholder Representative
Shareholder 50 to 52) set out the the POL Board in addition to all the Board level sitting at Rem Co is a similar construct for other major
Agreement principles to be followed Committees government investments, it is worth, as part of any
in relation to directors’
remuneration, gratuities
and pensions
These principles are
amplified by the
Shareholder Agreement
which states that the
Rem Co shall
recommend to the POL
Board the remuneration
policy and any changes
to individual elements of
the remuneration
packages for members
of POL’s Board
In accordance with the
Articles, the
remuneration of all
Board members requires
approval by the
Shareholder.
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+ Historically, the Shareholder Representative has played
a significant role at Rem Co in shaping and influencing
the set-up and structure of the reward schemes. Whilst
historically this has been done in the spirit of bolstering
capability at POL, it has in fact blurred the lines of
accountability and increased the level of noise at and
around Rem Co. It has also created uncertainty in terms
of Rem Co's overall role and accountability
+ Itis envisaged in the Articles and Shareholder Agreement
that the structure of the incentive schemes should
initially be the preserve of Rem Co ahead of taking to
Board for approval then onto the Shareholder
* From the description in the Shareholder Agreement, we
are not convinced that the Shareholder Representative
role is clear. The Shareholder Agreement outlines the role
of the Shareholder Representative, but this description is
drafted from the viewpoint of UKG''s ‘representative
director’ whose role ‘supports and supplements’ the role
of UKGI. There is minimal acknowledgement the role is
covered by the same legal fiduciary responsibilities as
any other NEDs, and therefore is expected to promote
the success of the company first and foremost
+ We do note however that the Shareholder Representative
appointment letter and the UKGI’s opening statement to
the Horizon IT Inquiry provide this clarity. The role has the
specific aim of bringing an enhanced line of sight into
POlLs activities, while bringing a government perspective
to POL to aid its Board’s decision-making. The same legal
fiduciary responsibilities and ability to participate in
collective decision-making, as apply to POL's other
directors, also apply to the Shareholder Representative.
reset, reflecting/debating the Code provision which
note all members should be independent [Provision
32, P]. Whilst there may be limited ability to change
this construct, consideration should be given to the
optics and ways of working with mitigating actions
captured to address potential independence challenge
from stakeholders
We note, in the event of any change, Rem Co also has
the benefit of advice and guidance, should it need it,
from the Shareholder Representative at Board, on the
acceptability or not of principles in general
There have been various changes over the past three
years, i.e. the Shareholder Agreement references POL’s
funding arrangements, previously described under a
separate Funding Agreement, which are no longer
applicable. In our view the Shareholder Agreement
should be reviewed and updated, as soon as practical
to provide clarity to stakeholders
A governance charter/library specific to Rem Co which
captures in one place the foundational governance
documents and maintains an audit trail around any
future changes to key documents (and rationale of
any change) should be developed. Completeness and
accuracy of this library should be reviewed as part of
the annual Committee effectiveness review.
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Appendix 1
Foundational Governance documents - observation and findings (continued)
Overview
bservations
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Recommendations
Revised draft
ToR
Remuneration
strategy
Rem Co’s duties are set out in
the ToR. The ToR requires Rem
Co to undertake an annual
review of its performance and
the associated terms included
within the ToR. The outcome of
these reviews are to be
recommended to the Board for
approval.
The POL remuneration strategy
is based on the following:
attracting, motivating and
retaining the right talent
within an agreed policy to
lead and deliver the
strategic plan
using incentives
appropriately to reward the
achievement of strategic
business goals and promote
the long-term viability of the
organisation
reinforcing a oulture of
sustainable performance,
partnership and mutual
ways of working
providing a transparent
approach to the disclosure
of pay.
(© 2023 Grant Thornton UK LLP. Confidential and information only.
We have reviewed the
ToR against the
foundational
governance documents,
the Code, and the
Government Code, as
well as those of other
major corporations and
consider it to be in
accordance with these
and with general good
practice in all material
respects.
We consider these
objectives largely align
with the Principles and
Provisions of the Code
around remuneration
although we comment
further on this within
Appendix 3 below.
On conclusion of the latest review of the ToR, a RACI matrix should be prepared
(guided by the agenda/ToR) to clarify roles and responsibilities for each area
Consideration to be given to either embedding the relevant Code provisions in
the Committee’s ToR (Principal P Provision 40) ; clarity, simplicity, risk
predictability, proportionality, alignment to culture, and/or within the annual
effectiveness check/internal audit review to ensure principles are appropriately
considered on a comply or explain basis for internal purposes. Equally, in the
presentation of any scheme to Rem Co, management should demonstrate how
principles have been considered/applied.
CPO to lead development and reporting of the remuneration strategy (including
incentive schemes) - as opposed to other senior executive members to ensure
accountability, transparency, objectivity and consistency in process
Rem Co should consider the benefits of engaging with internal audit to assure
the incentive plans are not inadvertently pushing the wrong outcomes and they
are not having an adverse effect on the culture. Equally, it may be worth also
considering its views on the effectiveness of the work associated with the Review
Report recommendations. This approach will support the expansion of corporate
memory around remuneration schemes and promote accountability. Key
questions to consider:
- what results are incentive plans intended to drive and are they properly
aligned to the strategy and purpose?
- by design what do they include and exclude?
- what are the potential unintended consequences?
The current 2025 strategy does not appear to have Group metrics against its key
pillars. Any future strategic development should consider this, as it would provide
a useful guide to Rem Co on ambition when developing and agreeing
particularly, LTIPs. The appropriateness of LTIPs given this, should be debated.
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Appendix 2
Practical application
Appendix 2
Practical application
Overview
Given the complexity of the environment within which POL operates and the
relatively small interview pool, unsurprisingly we have heard divergent views
with regards to the work of Rem Co in the past. Whilst the ToR of the Rem
Co outlines its formal role and responsibilities, we understand from
discussions with Rem Co members that the practical operation is somewhat
different. Our impression is that there is a lack of shared understanding as
to the role and accountabilities of different stakeholders in Rem Co’s
workings and therefore Rem Co’s role itself.
Equally personnel changes at Rem Co over the last few years have
evidently not helped in the effectiveness of Rem Co’s work and there has
been a considerable loss of ‘corporate memory’ around the make-up of
incentive schemes and the rationale for decisions taken. This has created
significant noise and impacted on ways of working and driven an
environment of ineffective decision-making.
The work of Rem Co has further been hindered by:
* inadequate record keeping, poor and/or inconsistent MI
* unclear accountabilities which has driven additional and perhaps
sometimes ineffective workloads which have either delayed or paralysed
decision-making
* the lack of capability and capacity within the People function with a
number of CPO changes over the last four years
We understand that, with the time usually taken to agree scheme metrics,
and with several schemes being considered at the same time, there tends to
be limited clarity on where the Rem Co is with the approvals process. In
response to this, a reference document has recently been developed by
management which will hopefully assist the Committee with its work.
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The new Chair seems to have the credibility to provide effective board
leadership with the desire to monitor, challenge and provide much needed
direction. Equally, the new CPO appointment is positive but will need time
to get up to speed for the benefits to come through but there is a desire to
drive accountability and review ways of working. Whilst both have
significant expertise, they have not worked in organisations with the
nuances of POL’s. As such, leading the reset of the relationship with
Shareholder and ensuring they have the right balance between
commercial and public sector skills within their teams will be key.
Wider communications with the organisation and signalling any change
will be a critical factor to consider. Culture is clearly a key aspect of
governance. Understandably, with incentive schemes not agreed until well
into the year in question, there is likely to be significant impact within the
business in terms of clarity, security and behaviours. We will explore the
potential impact and considerations of this further in our Phase 2 work.
A further key aspect to Rem Co's work going forward will be ensuring that
not just the foundational aspects of governance are clear, but the
application of governance which underpins the quality and diversity of
generative dialogue and decision-making, such as capability, MI, minutes
and agendas are fit for purpose. We cover this further overleaf.
Rem Co governance effectiveness I December 2023
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Appendix 2
Practical application - Observations and findings
Agenda We consider that the rolling agenda Prepare a rolling 12-month agenda, in consultation with Rem Co members, to ensure it creates
is limited and requires review capacity and accountability to consider wider objectives and supports the right balance of focus. To
Agendas should be utilised to be reviewed quarterly in the agenda
intentionally create capacity to The following subject areas should be considered (at different points and frequency) throughout the
consider broader aspects of Rem year when reviewing the annual agenda:
Co's scope and/or bring formality - ways of working
and accountability to certain critical - status of Shareholder engagement
topics - governance and impact - review the progress and impact of workstreams such as the Review
We note that during our interviews Report recommendations and how they interconnect with wider programs under Project Ethos
there was some confusion as to - update on historic scheme closures
whether two of the nine Review - future scheme design and communications [if necessary, with the wider organisation)
Report recommendations were - succession and learning and development
viewed as complete. Considering this, - effectiveness reviews - either the annual ToR review, Committee effectiveness review and/or
Rem Co may want to put in place a internal audit report
more formal reporting structure to - wider workforce overview
ensure it has oversight and - communication plan to the wide organisation to signal any material changes to approach as POL
assurance as to the progress of shifts from reset, to rebuild and renew
implementation, the continuing Thought to be given as to how the above can be captured in a dashboard by management and
measurement of impact and that integrated in the MI packs
stakeholders are clear when Consider the benefit of holding a deeper dive session(s) on areas such as; future ways of working, the
recommendations have been met. appropriateness/risk of LTIPs as an incentive mechanism given the wider complexities around strategy
setting and funding requirements and/or separately consider the impact of a new/different
government in terms of Shareholder relationship and consider opportunities and mitigations to any
risks
We understand over the last 12 months there have been significant ad-hoo or special meetings
required. As things settle, meeting cadence to be reviewed as it allows stakeholders to address the
broader objectives for Rem Co, brining strategic and insightful information. Purpose of ad-hoc
meetings to be understood.
Succession We are not aware that any specific We recommend the Rem Co Chair keeps in mind the make-up of the Committee and the desirability of
and induction
attention has been given to
succession planning
(© 2023 Grant Thornton UK LLP. Confidential and information only.
continuity of both members and key executive attendees, such that any future changes are better able
to be anticipated and potential succession discussed and planned for with the POL Chair.
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Appendix 2
Practical application - Observations and findings
Remuneration +
Committee
dynamics .
>rvations
We attended the Remuneration Committee meeting held on 28
November 2023
Meeting started at 9.38 am and finished at 11 am, which was broadly
in line with scheduled time
The agenda felt relatively packed with a number of items to be
approved and discussed. A couple of items were postponed for a
following meeting due to time constraints
Overall, the discussion was dominated by a debate on the objectives
for the CEO and the incentive plans.
We observed a very robust debate in relation to the objectives of the
CEO, with the Chair of the Board and the Shareholder Representative
expressing some very strong views
Similarly, the LTIPs and STIPs, and future plans in relation to their use,
were subject to a comprehensive discussion
We could see that the new Chair of the Remuneration Committee is
keen to implement more longer-term approach when it comes to the
incentive plans. We consider this positive.
(© 2023 Grant Thornton UK LLP. Confidential and information only.
Whilst we acknowledge the importance of the topics that were
discussed at the meeting we observed, the Committee should also
look to introduce some business-as-usual regular agenda items, such
as regular updates on people matters, culture, talent management,
diversity and inclusion, recruitment and retention, etc.
We would also encourage the Chair of the Committee to be more
assertive in leading the discussion; at times it felt that certain
individuals were dominating the debate
Consider extending the duration of the meeting so that sufficient time
is dedicated to each agenda item.
Rem Co governance effectiveness I December 2023
Appendix 2
Practical application - Observations and findings (continued)
MI
Minutes.
Observations
Historically MI has been poor due partly to inadequate record keeping,
perceived capability gaps, coupled with a loss of corporate memory due to
churn in personnel
There has clearly been insufficient detailed design work undertaken within
the People function including inconsistent MI to support Rem Co in
proactively debating and agreeing the design of incentive schemes in an
effective manner. This has precipitated the need for many informal
discussions (mainly with the Shareholder Representative)
Rem Co has reviewed WTW’s support and agreed to extend the contract
for one year and thereafter will consider the benefits of a tender process to
understand the value of a fresh perspective
Internal support has also been assessed and work is in progress to ensure
that the business provides wider support to the work of the Committee. The
recent appointment of the new CPO has helped this although, it needs time
to bed-in to comment on practical impact (refer to further comments in
capability and capacity).
Improvements to the review process for the minutes have been put in place
along with an SLA of 5 days for draft minutes to be produced, although it is
too early to judge progress
From interviews we understand that, historically, actions may remain
unclosed for an extensive period of time with some concerns raised that
actions are removed due to age rather than completion.
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Recommendatio:
Ml is key to setting up effective discussion at Rem Co
Accordingly, papers to evolve to provide a metric dashboard on
people matters and wider workforce pay alongside a narrative to
explain strategic importance and highlight priorities - there should
be a linkage between strategy, risk, value creation and people
As part of this exercise, the role and risk of informal discussions to
be considered, with management encouraged to deliver more
robust assessments and plans to Rem Co, to reduce the need for
informal discussion and benefit from diverse views and debate in
the formal Committee setting
We acknowledge the approach is now shifting with the arrival of
the new Shareholder Representative, Rem Co Chair and CPO. In
the event of informal discussions, which do have a role,
Management to report back to Rem Co where input has been
taken on board and/or excluded to ensure optics of independence
are maintained and members are clear on the drivers of the
evolution of schemes, optimising clarity and corporate memory
SMART indicators are needed to provide consistency and not only
report on historic performance, but also provide forward looking
projections and set expectations for the future around reward.
Minuting should triangulate with the agenda themes and MI to
capture discussion and decisions taken and provide an audit trail
around this and the open and closed actions. Internal audit could
consider their effectiveness during the annual review
Ensure actions in minutes include an indicative timeline for
completion. Average time to resolution to be monitored and
reviewed on a quarterly basis to understand root cause for any
delays.
Rem Co governance effectiveness IDecember 2023 22
Appendix 2
Practical application - Observations and findings (continued)
Capability °
and capacity
Skills matrix .
Given the historic issues with reporting and MI, the People function, in terms of
capability and capacity, needs review in the context of the governance design and
strategic priorities to ensure envisaged changes can be delivered in a timely and
sustainable manner
There needs to emerge a clear understanding of individual roles in the achievement of
strategy and accountability in that regard
Rem Co need to have a thorough understanding of POL and the forces that shape
Directors’ remuneration and need to reflect on this through learning and development
plans.
Rem Co members should ideally have the following skills and experience:
+ understanding of executive compensation:
+ knowledge of corporate governance
+ financial expertise
+ industry expertise
+ strategic thinking
+ communication skills
+ independence: remuneration
The Committee members are not specialists in all the areas outlined above with some
not having previously sat on a Remuneration Committee before becoming a POL Rem
Co member. We note, however, that in addition to their extensive experience of senior
management roles which they bring to the discussions, Rem Co members can rely on
the expertise and guidance of the independent advisors from WTW, who have been
advising the Committee for some years.
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ommendations
Consider undertaking
- askills audit/baselining exercise to establish the
levels of, capability, capacity, historic knowledge
and talent within the People function. Under the
guide of stop/start/keep doing, develop a future
talent strategy orientated around the change
programme and strategic priorities
- aninternal repositioning and role definition within
the team
Clearly defined roles and individual accountabilities
to be embedded within role descriptions and
performance management
Consequence management to be clear and applied
consistently.
During discussions, it was highlighted a few times that
Rem Co may benefit from increased public sector
expertise
An assessment should be made of members’ training
needs and the appropriate action taken to enhance
their knowledge and skills as necessary in line with the
DBT’s general expectations as set out in its annual
letter on strategic priorities for POL, general market
practice and strategic priorities/risks of the business.
Rem Co governance effectiveness I December 2023 23
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Appendix 3
Benchmarking
Appendix 3
Benchmarking
Overview
To supplement the understanding of the current ‘As-Is’ operational governance
structure for POL gained through our limited fieldwork, we have benchmarked
the Rem Co disclosures made in the Annual Report year end 27 March 2022
(released March 2023), to establish how practices align with the Code and the
general market of organisations of similar size and complexity. We will
undertake a wider benchmark of other key governance pillars during the
Phase 2 of our work.
In developing our methodology, we use the Code as a blueprint to developing
the propriety questions and scoring. We believe the Code is a good proxy for
measuring underlying corporate governance as it is widely seen as a
distillation of best practices evolved by the UK’s largest listed companies in
trying to retain and create value for all stakeholders. Further details of the
methodology is provided on page 32.
Ultimately the Annual Report provides a window into a company and is a key
method of communication with wider stakeholders. Stakeholders will assume
that the way in which an organisation portrays governance in its Annual
Report is accurate. Furthermore, the way in which an organisation discloses its
governance arrangements usually provides insight into the internal culture
and values. The objective of this work is to provide guidance on potential areas
of strength and weakness at POL for consideration.
Observations and findings
Overall, the Rem Co’s role and responsibilities as outlined in the report largely
align with market practice except for the review and oversight of the wider
workforce remuneration and related policies (Provision 33). This responsibility
and remit of the Rem Co is important for two reasons namely,
+ it ensures that wider workforce pay, and related policies are aligned to the
desired culture and that they are incentivising the delivery of this culture
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+ the different perspective it provides, when designing and setting the
policy for Executive Director remuneration to ensure alignment from
cultural and strategic lenses, transparency, and proportionality, which
should also have the benefit of aiding and supporting engagement with
the wider workforce around executive pay (Provisions 40, 41)
Benchmarking against selected retailers
This benchmarking assessment focuses specifically on the disclosures in the
report supporting remuneration governance and the Remuneration
Committee, resulting in a weighted average score of 66% for the
remuneration disclosures of POL. The average weighted score within the
Consumer Staples industry (refer to population details overleaf} for
remuneration governance benchmarking is 91% and within a smaller,
selected peer group of more closely comparable organisations, 90%.
ei) ange tem Prior Yar @ scence
Om paamrnnge -“--o------=-@---
o%
100%,
“1008% 50% 50% 100%
Rem Co governance effectiveness I December 2023 25
Appendix 3
Benchmarking (continued)
This creates a delta of approx. 25% between the remuneration governance
disclosures of POL and its two identified peer groups and therefore places
these disclosures significantly below industry and peer averages.
Below is a graph provided demonstrating the position discussed above
visually in relation to the select peer set described.
Areas of strength
* independence of the Board Chair as a Committee member (Provision 32)
* non-executive remuneration and remuneration decision-making process
(Provision 34)
* some clarity as to processes to ensure predictability and manage risk (i.e.
maximum bonus available to the CEO and the ability to engage
malus/claw within the scheme) (Provision 37, Provision 40)
+ the Committee reviews the alignment of executive remuneration and
rewards with culture (Provision 40)
* engagement with Shareholder and impact (Provision 41)
* good practice - personal introduction from the incumbent Chair's
predecessor
* ability to use discretion to override formulaic outcomes (Provision 37)
Areas potentially being addressed
Many of the recommendations made throughout this report will support and
result in improvements to the remuneration governance and therefore should
be considered in future disclosures:
* _re-considering the role and responsibilities of the Committee
* Committee composition
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* clarity, focus and timing of the design and implementation of separate Executive
Director and Group Executive Leadership and Senior Management remuneration
schemes including the metrics involved, alignment to strategy, means for measuring
achievement, and alignment with long-term sustainable delivery through the use of if
any) appropriate LTIPs and pension alignment.
+ additionally, where disclosures could be strengthened through the provision of best
practice guidance and toolkits, such as in relation to the strategic rationale for
Executive Directors’ remuneration policies, structures and performance metrics, and
engagement with stakeholders (i.e. shareholders, wider workforce), we have provided a
remuneration focused best practice toolkit in the following pages.
Areas for consideration
In 2018, changes to the Code initiated reforms to broaden the remit of boards and
remuneration Committees to require more attention, beyond executive pay, to people
management issues such as culture, fair, aligned and proportionate workforce pay,
and employee engagement. The COVID-19 pandemic and the spotlight that has put
on social and economic inequalities has also shone a light on corporate pay and
employment practices. This and the points below should be debated, considered and
minuted as to whether it should be considered as part of Rem Co's remit:
+ the explanation of the strategic rationale for executive directors’ remuneration
policies, structures and performance metrics (Principle P, Provisions 40, 41)
* the policy on Executive remuneration and determining Director and senior
management remuneration, including a lack of in clarity around how performance
targets are identified as achieved and how they will be calculated and
implemented in the coming year (Principle Q)
* engagement with the workforce to explain how executive pay aligns with wider
company pay policy (Provisions 40, 41)
* appropriate use of long-term schemes and post-employment requirements, as
share awards may be inappropriate, to support sustainable delivery of strategy
and the alignment of executive director and shareholder interests (Provision 36)
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Appendix 3
Benchmarking (continued)
Areas for consideration (continued)
+ Committee composition: good practice requires only independent NEDs to be
Committee members (Provision 32). The inclusion of non-independent NEDs, i.e. the
Shareholder Representative may impact the exercise of Director’s independent
judgement and discretion (Principle R)
* review of wider workforce remuneration and related policies (Provision 33)
* alignment of Executive pension contributions (or payments in lieu) with those
available to the wider workforce (Provision 38).
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Appendix 3
Remuneration best practice
Strategically linked executive
pay commentary
remuneration.
(© 2023 Grant Thornton UK LLP. Confidential and information only.
Network Rail AR 2022
‘National Dashboard fr 2021722
ecge ck mien pened or deny thea
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nlngerpreaneng ne proper ot eloyte eed
‘eipanted Encuesta custo on enagere
‘eatery ty i en
rots pusbouwoscs Alors Pw pes bt
Prssene Sefty TAR
Meooes stern ey rene nd metic tree
var acer TARE sraae pot minncre es atine
ages tania hove ae aren phen
rac pooner ero oa MY
Ineasuen no payment ale meen get cy pofemance newt whch fo accede meme
Petomance nortan eget ens ans meee tse pong aga sty we ase nee snore st
{esha meses ong revered nd edvong perfomance eoangy. nig plenty 076.
‘ne gunner pce of PP wt be detemine by an niu peemence sng Ths proves ret nt of
rt tctncen te achmvenareomsuaialSpecties ana PD Fr exec eto ardempuyers grad oe
‘atonal Sostooa te Sg abe demas hw mF aut
National Grid Plc AR 2022
Link to remuneration
araerion er Ease rice, ance eplyen, Wlas sccaehs Sarr satay We a area fr KP
‘rain potermance Pewusts a Sous eases materia Pa hn Petorrarce Pan (2 arc Lang ar Petra Pan LTPP
Shcmes fr Castve Deets Whe ot heh Wad AP ang IPP ptorares ren Dw eae KPa! and abe
Sutemarce ae contiee Fer tt ctl Deare tes ar Deuter RaraeratenReprten pages 10813.
Alignment of remuneration with our business strategy
‘ont oufartrvare ac ermrt arunerton A a TP tou eats
‘ar tar ant tcc egy hae
ee ——
ene Ga OG aoe
oe 0 ny O SS SS
© cveraree
ey poncpies of eurremuneraionsateay
‘Arers eroy tte Gea slog tr tat irl, rapa, and yredio ntokies rats
pan peformarc amu the way Nand Ged are beau carder, what no ncervensethng racare
«+ Retect and undp tha Comers ga ad -tsbe 10 Lacey
“ono etre mares
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Appendix 3
Remuneration best practice (continued)
Strategically linked executive
pay commentary
(© 2023 Grant Thornton UK LLP. Confidential and information only.
Diageo Ple AR 2022
Alignment of incentives with strategy / global market
competitiveness
‘Our ambition is to be one of the best performing, most trusted and
respected consumer companies in the world. Our strategic priorities to
drive the company forward are unchanged: sustain quality growth,
embed everyday efficiency, invest smartly, promote positive drinking,
champion inclusion and diversity and pioneer grain-to-glass
sustainability.
The performance measures in the incentive plans align with the
strategy and the key performance indicators on pages 32-34. The
financial measures for the annual incentive focus on net sales growth,
‘operating profit (both of which represent critical measures of growth for
Diageo) and operating cash conversion (which recognises the criticality
of strong cash performance and cash containment, particularly in the
current challenging market conditions). The IBO component adds focus
‘on key individual strategic and financial objectives.
The measures under the long-term incentive plans continue to reflect
the company's strategic priorities and key drivers of long-term growth
by incorporating organic net sales, organic profit before exceptional
items and tax, free cash flow, TSR and key Environmental, Social and
Governance (ESG] measures (greenhouse gas reduction, water
efficiency, positive drinking and gender and ethnic diversity).
Global pay competitiveness is another key remuneration principle for
the company. Attracting and retaining key talent is critical for our
business and remuneration is an important aspect of being able to
meet our talent objectives. As we operate in a global talent market,
the Committee takes into account global pay practices, including the
US market, when reviewing executive pay. Global pay competitiveness
has been considered by the Committee in the context of a number of
changes in the Executive Committee during the year.
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Appendix 3
Remuneration best practice (continued)
Engagement with and SSE Fie An e0ee
alignment of executive pay
and wider workforce
conditions and pay
‘Remuneration engagement ross he Company How Pay Links to Wider SSE Workforce
ha the remit of their Arange ofvotitay Atameloyees are Aualincertve The Performance
Remuni thewider workforce SHEPS or SEPS tobusiness
pluscontractuolear defined benef performence ~
Sand private mecical pension scheme, 50% fnanciaL
‘Anna creates ae Scheme uniert
‘prea ine wath they have opted
tess than the wider ‘orecashed out
emoyee population. ‘The arangements Saas
linked to strategic
performance
longer term and
those win rect
Inmpact on svategic
Sette ney iy Sn ve ly arene so oa Pri
Base salary levels Arange of volintary Depending on __Allemplayees may
Besuyection—encita ore mvaaatie rote eproportion —parterpate nthe
Regatation with tal 5 such na
Unions and/or are set scheme, a holiday
Inline with market purchase scherne,
requirement heath benefits an
‘cnnanced materay, ipadineash AYE} plan
aresunjectto.—Saopton leave
Regotation
ith referer
orkforce.
the top to the bottom of the
organisation.
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Appendix 3
Remuneration best practice (continued)
Severn Trent Plc AR 2023
Engagement with and
alignment of executive pay
and wider workforce
conditions and pay
COMPANY REMUNERATION
AT SEVERN TRENT
arly ho .
aligned with
irded in the
This al:
hile not
hair engages
through
partners
and aligni
re pay.
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Appendix 3
Remuneration best practice (continued)
Engagement with and Keir Group Ple AR 2023
alignment of executive pay Erpoyees oe rt onmany fenced on ne Execuve Dyes remunerofon and wore nol consuted dug the prperaton ofthe remuneration plese ou above. However the
. Commitee Char attencs the Groups Reward and Employee Senets Forum where ararge of enployee reward and bref sues incudng the Execuove Decors reruneraion
and wider workforce ranges Ie le ol the Commitee and the Poy, an Pow hey lnk wth wider wore pay and benelts win Kl ae Sacunsed sce page 128 frre Wformaton.
— ‘conmace tes ponte yn ansomet onan forges aa Ory an nati eons ne Ena Gc ert mp
conditions and pay tha Comme rvews to Group's atest ends: pay gap nero an, por ering the Exacuve Directors feuneraon, reviews Stale’ ifomaton resting he workeces
‘eruneraon: ase seo poge 122 fuer nies, Win raped bonuaes, te Connie sel argets ecty signed tthe Gelvery of te Groupe med value creston
tian, ts stony and prometen of fs longterm avslanable svecess, Sonus target also ncude a trpet on workore salty and, whan sting Execve Ovecor personal ages,
This example, similarly to the previou ‘the Comittee will consider the inclusion of objectives related to employee engagement and diversity and inclusion.
utlines y Employee benefits
; i Fv2a Werktoree remuneration
jeta
making this assessment and ensurir
that pay is aligned.
mitt
lignment a
on this, to be c1
Now benefits were made avalabie lo employees to assist wih welbeing and the cost of lvng
‘Nytceaaoloans treugha speci pronder wih afigher acceptance te and lowe res rate than ta of aden ender
Spreading he cot of purenasng tech ana we goods snd car repars and mairenence, through payments taken fom salary
Reward & Employee Benelits Forum (the ‘orurn)
‘The Rewarc & Employee Benefits Forum has represert
Wes trom acroes the Groups UK business areas and he Group's inclusivity network. I provides a platform lo discuss a range
‘of employee reward anc benef topics inthe context of atracing, developing and retaining our people. The Forum has considered some ofthe Ke benefits avalable to employees
Incloding rose tat provide vale savings on everyaay family spend. mental and physic heath focused support and Kier pension scheme
‘The Commitee Chair and the Chet People Officer attend the meetings and the Forum recenty discussed how the Executive Drectors remuneraton arrangements are determined
‘he contest and slgnment wi the pay and berets ofthe wider workore, the role of the Non Execitve Directors and the Remuneration Commitee, andthe 2023 Policy
‘The Cha updated the Commtiee onthe ovcome ofthe meeting an the feecback received,
(© 2023 Grant Thornton UK LLP. Confidential and information only. Rem Co governance effectiveness I December 2023 32
Appendix 3
Benchmarking methodology
The benchmarking referenced in this document is taken from the Grant
Thornton governance database (“the CG database” or “database”). The CG
database was founded in 2002 to capture the corporate governance practices
of the FTSE 350 market and other large corporate organisations. The collected
data is focused on measuring how companies apply the provisions of the Code
in practice as determined from the front-end disclosure of Annual Reports.
Our analysis takes the view that the Annual Report provides a window into a
company, It is the one consistent source of ‘assured’ information for all
stakeholders on how decisions are made and the impact that they drive.
Furthermore, the way in which an organisation articulates its governance
arrangements usually provides insight into the leadership, internal culture and
values. Specifically, the database captures:
* the application of the principles and provisions of the Code [as set out in the
2018 UK Corporate Governance Code and/or Listing Rules)
* quality, connectivity, accountability and detail of narrative reporting
requirements (as set out in S414 of the Companies Act 2006).
The database is updated annually through a documentary review of
companies’ Annual Reports. Where there is a requirement for more than a
binary ‘yes’ or ‘no’ (for example, in relation to the approach to culture) we
assess the quality of disclosure using five grades, ranging from ‘none’ to
‘detailed.’
The Code is made up of several provisions spanning five main categories of
corporate governance: leadership and purpose, effectiveness, accountability,
remuneration and shareholder relations. We capture all these elements and
apply a weighted average, based on the emphasis of the Code, to derive an
organisation’s overall corporate governance score. A higher corporate
governance score implies better overall corporate governance practices.
(© 2023 Grant Thornton UK LLP. Confidential and information only.
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In order to test the robustness of our methodology and approach to
measuring strong (and weak governance) we released a White Paper in
2019 (Corporate governance and company performance,
grantthornton.co.uk) which examined 10 years of data (2007-2017) to
assess whether we could prove a link between good governance as
measured in the CG database and subsequent financial performance
and/or how improved governance practices could positively influence
financial performance. Output from our research demonstrated that there
is a strong link between strong governance the creation of value. Our
methodology was validated with several internal and external
stakeholders including being peer reviewed by Professor Mike Saks,
Emeritus Professor at the University of Suffolk.
Industry Group - Consumer Peer Group — selected
Staples comparable peers
Unilever Plc Marks & Spencer Plo
Diageo Ple National Grid Ple
British American Tobacco Ple BT Group Ple
Reckitt Benckiser Group Plo MoneySupermarket.com Group Plc
Tesco Plc
Imperial Brands Ple
Associated British Foods Ple
Coca Cola Hbo Ag
Sainsbury J Plo
Ocado Group Ple
Tate & Lyle Plo
Greggs Ple
Britvic Ple
Cranswick Ple
Premier Foods Ple
Pz Cusson Ple
Hilton Food Group Ple
C&C Group Ple
Bakkavor Group Ple
AG. Barr Ple
Rem Co governance effectiveness I December 2023 33
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Appendix 4&
Update on the Review Report
recommendations
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Appendix 4 - update on Review Report
The Rem Co Chair has taken pro-active steps to improve the work of the Committee, undertaking a detailed review and following
through on the Rem Co Report recommendations. Steps include a review of incentive scheme rules to provide more clarity,
proactive engagement with the Shareholder and taking the decision to de-couple the schemes of the Executive Directors, broader
Group Executive and Senior Leadership groups
Framing
governance
documents
(GT findings
Appendix 1)
Governance
application
(Observations and
findings in
Appendix 2)
Rec 1 - review governance structures, processes
and systems to ensure consistency and
alignment with the role of the Shareholder
Rec 2 - review the organisational support
provided to the Rem Co.
Rec 3 - ensure minuting is accurate and complete
Rec 4 ~ review incentive schemes process
Rec 5 - reduce time between agreement of a
scheme framework and design of metrics
Rec 6 - clarity of scheme rules
Rec 7 ~ ensure scheme rules are applied
appropriately
Rec 8 - ensure design and assessment of
schemes is clear and simple
Rec 9 - application of separate schemes for
various categories of leadership
Rec 10 - schemes are appropriately reviewed on
an ongoing basis
Call set up with the Shareholder for November 2023 to understand how they perceive
shareholder value from the perspective of setting targets in the LTIPs going forward
Rec 2 - Rem Co reviewed WTW’s support and agreed to extend the contract for one
year. Internal support has also been assessed and work is in progress to ensure that
the business provides wider support to the work of Rem Co. The recent appointment
of the new CPO has helped although needs time to bed-in to comment on
effectiveness
Rec 3 - improvements to the review process for the minutes are in place along with an
SLA of 5 days for draft minutes
Rec 4 - ongoing all ‘live’ and new schemes will have greater consideration although it
is not clear exactly what will change
Rec 5 - this is a priority and ways to achieve this being considered. The Rem Co chair
is meeting UKGI to see if communications can be restructured to assist with this aim
Rec 6 - the rules for both STIP and LTIP have been through legal review with
amendments tabled at September's Rem Co for sign-off. Subject to incorporating
suggested amendments raised at the meeting, it was resolved to approve the revised
Annual STIP and LTIP Scheme Rules in the form tabled
Rec 7- Rem Co considers rules are applied fairly and consistently for STIP and LTIP.
The process is subject to peer checking for additional governance around accuracy
Rec 8 - necessary actions understood and in practice now, but schemes are yet to be
finalised for the current year
Rec 9 - this is the intention from 2024/25
Rec 10 - review steps will be built into regular Rem Co meeting cadence, with updates
on YID achievement and run-rates against metrics. This is work in progress.
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Appendix 5
Interviewees
Appendix 5
Interviewees
[_
Benjamin Tidswell
Amanda Burton a
Lorna Gratton q
lan Rudkin P
Karen McEwan a
(© 2023 Grant Thornton UK LLP. Confidential and information only.
Member, Remuneration Committee
Non-Executive Director
Chair, Remuneration Committee
Non-Executive Director
Member, Remuneration Committee
Shareholder Representative
Director of Rewards
Chief People Officer
Date
20 October 2023
23 October 2023
25 October 2023
25 October 2023
31 October 2023
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GT Interviewers
+ Irina Velkova
* Jonathan Houston
* Lande Adesanya
* Sarah Bell
+ Jonathan Houston
+ Lande Adesanya
* Sarah Bell
+ Irina Velkova
* Lande Adesanya
* Sarah Bell
+ Irina Velkova
+ Lande Adesanya
+ Irina Velkova
+ Jonathan Houston
* Lande Adesanya
Rem Co governance effectiveness I December 2023
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Appendix 6
Documentation
Appendix 6
List of documents reviewed
* Legally privileged - draft - POL Corporate Governance Framework PART 1 - 181022
RS.docx
+ Post-office-limited-shareholder-relationship-framework-part-1.pdf
* Funding Agreement - Signed.pdf
+ GF Graphic_202305.pptx
+ POGroup_GoveranceStructureDiagram_WORKINGDOCUMENT_202309.pptx
+ structurechart202305_updated.pdf
+ 20221216_POL_ArticlesOfAssociation_Clean_FINAL.pdf
* 20230329_POL_RemunerationCommittee_GOV_TermsOfReference_APPROVED
_FINAL.docx
+ Remuneration Policy for the Executive Directors.msg
* POL Pay Directive 07 2023 Senior Managers.pdf
* POL Pay Directive 06 2023 Middle Managers_Final.pdf
* POL Pay Directive 04 2023 CWU Grades Final v2.pdf
+ POL_Rem Co_Agenda & Papers_20220927_FINAL.pdf
+ POL_Rem Co_Agenda & Papers_20221206_FINAL.pdf
* POL_Rem Co_Agenda & Papers_20230301_FINAL.pdf
+ POL_Rem Co_Agenda & Papers_20230502_FINAL.pdf
+ POL_Rem Co_Agenda & Papers_20230511_FINAL_Redacted.pdf
+ POL_Rem Co_Agenda & Papers_20230703_FINAL_Redacted.pdf
+ POL_Rem Co_Agenda & Papers_20230926_FINAL_Redacted.pdf
* 20220927_POL_Rem Co_MIN_Signed.pdf
(© 2023 Grant Thornton UK LLP. Confidential and information only.
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20221110_POL_Rem Co_Additional_MIN_Signed.pdf
20221206_POL_Rem Co_MIN_Signed.pdf
20230124_POL_Rem Co_Additional_MIN_Signed.pdf
20230301_POL_Rem Co_MIN_Signed.pdf
20230502_POL_Rem Co_Additional_MIN_Signed.pdf
20230511_POL_Rem Co_Additional_MIN_Signed,pdf
20230522_POL_Rem Co_TIS-Written Resolution_SIGNED.pdf
20230703_POL_Rem Co_Additional_MIN_Signed_Redacted.pdf
20230302 - ToR Approval
Board Effectiveness Report 2022-23
Remuneration Committee Effectiveness Report
280923 - SS and A Burton Report Recommendations Plan September 2023.pdf
Amanda Burton's Report on Remuneration
2022-23 Annual Governance Report
review-of-the-governance-relevant-to-post-office-limiteds-senior-executive-remuneration.pdf
Rem Co governance effectiveness I December 2023 39
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Appendix 7
Glossary
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Appendix 7
Glossary
Abbreviations Full version
cPO Chief People Office, Karen McEwan
all Department for Business and Trade
DoA Delegation of Authority
Execs Executives
MI Management information
NED Non-Executive Director
POL Post Office Limited
Rem Co Remuneration Committee
Rem Co Chair Remuneration Committee Chair, Amanda Burton
Refers to a review undertaken by Amanda Burton in May 2023 as Rem
Review Reports Co Chair and separately Simmons and Simmons in June 2023 on
aspects to the governance practices at Rem Co
Refers to the nine recommendations as outlined in the Review Reports
with a further two additional recommendations made by the Rem Co
~ Chair i
Rem Co Report recommendations
The Code
The Government Code
The Shareholder Agreement
ToR
UKGI
Bie ser Representative
The Horizon IT Inquiry
WIW
(© 2023 Grant Thornton UK LLP. Confidential and information only. Rem Co governance effectiveness IDecember 2023!
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grantthornton.co.uk