Post Office Board Agenda
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I 18 August 2022
18:00 - 19:00 hrs
I Finsbury Dials, 20 Finsbury
Street, London EC2Y 9AQ and
via Microsoft Teams*
“Other Attendees I
© Tim Parker (Chairman) © BrianGaunt (NED)- I © Dean Brindley (Senior Assistant
Tentative Company Secretary) Strategy & Delivery Director)
* Nick Read (CEO) © Carla Stent (NED) ‘© Martin Roberts (Group Chief I © Tim Mcinnes (Strategy and
Retail Officer) Transformation Director)
* Elliot Jacobs (NED) © Saf Ismail (NED) © Richard Taylor (Group ‘© Tracy Marshall (Retail
Corporate Affairs, Brand and Engagement Director -
Communications Director) Postmaster Effectiveness)
@ Lisa Harrington (NED) I © Zarin Patel (SID) ‘© Paul Liddiard (Head of
Postmaster Remuneration
Development)
* Tom Cooper (NED)
(CFO)
© Alisdair Cameron
© Ben Tidswell (NED)
‘Apologies: N/A
‘Needed
Chairman
1 Noting
2. Postmaster Remuneration Discussion Martin Roberts
18:00 - 19:00
3. Any Other Business Noting and Input Chairman hrs
4. Date of next scheduled ordinary meeting: Noting Chairman
27° September 2022
participation in the meeting was entirely via Microsoft Teams from participants’ personal addresses. In such
circumstances the Company's Articles of Association (Article 64) require that the location of the meeting be
deemed as the chairman's location. However, it was not deemed appropriate to record personal addresses on
the Company record. As such, the Registered Office is recorded as the meeting location.
2 This meeting is an addition to the scheduled meetings so standard items such as minutes and mattes arising
have been carried over to the meeting on 27‘ September 2022.
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POST OFFICE LIMITED BOARD REPORT
Title: Remuneration improvements Meeting Date: I 18' August 2022
Author: Martin Edwards, Network Strategy Sponsor: Martin Roberts, Group Chief Retail
* I & Delivery Director P : Officer
Input Sought: Decision
The Board is asked to approve the proposed package of remuneration improvements for
announcement on 23 August.
Previous Governance Oversight
Remuneration improvements were discussed at the Board awaydays in both2021 and 2022
and at successive 3 Year Plan (3YP) and budgeting discussions, including in March 2022.
Executive Summary
Given intensifying concerns from postmasters about the inflationary pressures impacting their
branches, we are proposing to bring forward the announ: of a long-planned package of
banking and other remuneration measures worth around
Questions addressed
1. Why are we proposing to bring forward a remuneration announcement now?
2. What is our proposed package of remuneration improvements?
3. What other options were considered?
4. What are the financial impacts?
5. What are the plans for announcement?
Report
Why are we proposing to bring forward a remuneration announcement now?
1. Successive postmaster surveys have identified remuneration and profitability as the
network's top concern and our own analysis (shared with the Board last July) highlighted
that {IRRELEVANT!of branches are either unprofitable for our franchisees or provide a
contribution of less than £5k pa. This clearly poses major risks to network stability.
2. We have therefore discussed the need for remuneration improvements at successive
network strategy and 3YP Board sessions, and indeed the 2022/23 budget included a
allocation for rate increases. We have been signalling to postmasters since last
autumn that we would use BF3 as the opportunity to review banking remuneration, and
we were planning to finalise a decision and announcement on this in September.
3. However, over the past month we have seen a marked increase inthe levels of postmaster
concern around -the viability of their branches. While average remuneration per branch is
growing at! seve -YOY since April, this compares against NLW growth of 6.6% and double-
digit inflation in energy and other costs, resulting in a further deterioration in the already
precarious position of many branches.
4. Alongside the increasingly vociferous feedback we are receiving from individual
postmasters and the NFSP, at the end of July a new grouping called ‘Voice of the
Postmaster’ mobilised via social media, growing to over 600 members with representation
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from across the network. The group is calling for urgent action from the Post Office to
address the cost-of-living crisis facing postmasters, with the threat of unofficial strikes or
other symbolic acts such as non-segregation of mails.
5. Given this context, we believe it is right to bring forward an announcement on the banking
increase alongside other targeted measures. Holding firm to our original late September
timetable risks allowing the campaign to grow out of control, undermining our efforts to
rebuild trust with postmasters and protect network stability.
What is our proposed package of remuneration improvements?
6. The core objective of our remuneration policy is to support our network strategy,
maximising our ability to attract and retain the franchisees needed to deliver our
commercial and social objectives. Outside of wholesale reform of remuneration (which we
agreed last year should be deprioritised until after the Inquiry and NBIT migration), our
focus is on prioritising our limited resources on increasing the product lines and areas
which we believe will deliver best ‘bang for buck’ in stabilising the network. This judgement
is based on two main inputs!:
¢ Quantitative analysis of the distributional impact, i.e. does the increase target the
branches we are most concerned about commercially (which applies to a large
proportion of the network, but especially larger Mains); and
¢ Qualitative analysis of which areas are most impacting franchisee sentiment, drawn
from a wide range of sources, including the postmaster NEDs & Director, the NFSP,
the Regional Forums and our direct engagement with individual postmasters.
7. We have assessed the full range of product areas based on these considerations, arriving
at a proposed package built around three main themes:
a. Increases to banking remuneration, the centrepiece of which is a doubling of
deposit rates which delivers broad-based benefits across the network and recognises
the additional workload, handling and security risks that come with growing volumes;
b. The introduction of payments for certain transactions where we are paid by
the client but do not currently pass this on to postmasters - while modest in
financial terms, clearly these payments are important from a fairness perspective;
c. One-off or temporary additional payments which recognise the immediate
financial pressures facing the network, giving us the time to consider what longer-
term increases may be needed from next April in the context of the wider 3YP.
8. The full package is set out in more detail in the table below. All measures will be
implemented from September trading (October remuneration) unless otherwise stated.
1 While benchmarks like share of income and the cost of serve of each transaction are also considered, we do not
currently have a determinative policy around these metrics. If we did, we might have prioritised bill payments and
cash withdrawals as the two key product lines to increase, because they both compare unfavourably against their
associated direct labour costs. However, relative to the areaswe are recommending, the level of postmaster ‘noise’
around these product lines is lower and the distributionalimpact is less useful (pound for pound, more of the benefit
goes to Locals, which we are relatively less concerned about from a commercial viability perspective).
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Costin © I Congeine Average £ per branch/month
Nee 22/23 cost pa
Banking deposits - double transaction-based rates, recognising
the handling costs for branches of growing deposit volumes
Cash withdrawals - introduce additional rate of fax
the value of withdrawals over £500, benefitting those branches
with business customer doing large withdrawals
Banking “unpaid work” - introduce payments for balance checks
(5p) & various failed transactions (3p to 13p) which are currently
unremunerated but we are paid by the banks
Click & Drop letters under 100g - introduce 5p payment for
processing these items purchased online, passing on 100% of the
fee we receive from RMG
Energy & Cash Payout — double rates, backdated from April 22
and running until end March 23, benefitting the surge in volumes
this year from various Government support measures
One-off payments in Sept based on {=-jof each branch’s mails rem
from April-August 22. Provides immediate boost for all branches,
but especially those more weighted to mails than banking
Total
9. Appendix 1 sets out further analysis on the distributional impact of this package across
the network by size of branch.
10. Weare also exploring with FRES the extension of a travel sales incentive for the remainder
of the year, although this is unlikely tobe a major earner for most branches.
11. While this package represents a material outlay for the business, we should be conscious
that the averag ncrease is likely to be viewed as insufficient by many postmasters,
especially with inflation expected to exceed 13% in the coming months and the inevitable
comparisons with other workforces (e.g. RMG staff striking over a 5.5% pay offer). While
a package which decisively addresses postmasters’ concerns is probably beyond our reach,
we should debate whether we are striking the right balance between credibility and
affordability.
12. We will also continue to provide a discretionary exceptional payments scheme for branches
facing immediate viability challenges. Applications are referred by Area Managers and
considered on a case-by-case basis, with a rigorous process to check all other mitigations
have been exhausted. We have budgeted for a! IRRELEVANT increase in payments this
year, reflecting the challenges with both independent postmasters and Strategic Partners.
13. Beyond remuneration, we are also reintroducing the provision free-of-charge of certain
consumable items related to cash handling (e.g. elastic bands and cash envelopes),
costing C.j!rreevant}pa, a measure of symbolic importance to the network.
What other options were considered?
14. There are several other options we considered as part of our long list but are not
recommending at this stage, in particular.
« Additional lump sum payments worth for the 2k Community branches,
recognising that they stand to gain much less from the increases to variable
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remuneration (as the table above shows). While this would be welcomed by this group
and would help get the NFSP on board, the hard reality is that these branches are less
important to our long-term commercial sustainability and we have spare capacity from
a rural access criteria perspective.
e A profit share mechanism - this would align incentives between POL and
postmasters and pose less financial risk compared with locking in fixed increases to
remuneration. On the other hand, given that it would be months before we are able
to confirm even an initial distribution, it would fail to address the urgency of the
immediate pressures facing postmasters and may be cynically viewed as “jam
tomorrow”. Nonetheless, we propose that this mechanism should revisited as part of
a potential autumn announcement, as a tangible sign of our commitment to genuine
partnership with our franchisees.
« Permanent mails remuneration increases instead of the lump sum payments,
in particular boosting the rates for pre-paid parcels which would support the longer-
time sustainability of branches impacted by the shift to online mails Subject to wider
3YP cost pressures, we propose reviewing this as part of a further round of
remuneration increases in April 2023.
What are the financial impacts of this package?
15. The ticost in 2022/23 represents an additional /irretevant! commitment beyond what
we have budgeted for remuneration increases this year. This should be affordable within
our expected profit upside, although of course anything we spend now reduces the amount
we might have left to distribute in a future profit share arrangement.
16. For later years the increase to deposit rates was already included in the previous draft of
the 3YP, so this package represents an additional pressure which has been
incorporated into the latest draft
What are the plans for announcement?
17. A special Postmaster Conference will be held on the evening of Tuesday 23rd August to
announce these remuneration increases alongside providing branches with practical
information on how to manage the impacts of the RMG strike commencing on Friday 2&h
August. The Conference will be held in London with local Postmasters in attendance and
accessible to all via a livestream, including plenty of time for questions. After the
conference there will be a series of communications to reinforce the headline messages
and a programme of direct communications to postmasters, with Area Managers equipped
to share the specific impacts of the remuneration increases on each branch.
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Appendix 1: current remuneration growth rates and the impacts of the
proposed package by size of branch
Number Ave monthly I 3 Year View Ave Monthly Ave Mails & Payout
Rem Bracket I RemBracket I branches I orem I (12m) I YTDvslY I Increase (£) _IIncrease (%)I__Lump Sums __
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