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RC(11)13(a)
Royal Mail Holdings pic
REMUNERATION COMMITTEE
EXECUTIVE DIRECTOR BONUSES: ASSESSING EXECUTIVE DIRECTOR PERFORMANCE
AGAINST OBJECTIVES
2010-11 was the first year in which executive Directors received
detailed objectives, including personal objectives. Letters were
sent in early May 2010 to each executive Director setting out the
objectives and bonus potential against each objective.
The purpose of this note is to summarise the achievement of each
executive Director against these objectives and to propose payouts
in accordance with these assessments.
Mark Higson
During the year Mark Higson’s role changed from MD Letters to
Director of Operations and Modernisation. The first four measures
remained appropriate in his new role, but his personal objectives
changed (two of the original personal objectives fell away).
ITEM TARGET ACTUAL COMMENT
% OF ACHIEVED
SALARY
Group Profit 7.2% ad Performance did not
hit threshold
Letters Cash Generation 4.8% - Performance did not
hit threshold
Letters Profit 12% = Performance did not
hit threshold
Quality 12% 7.25% Independent measures
of quality result in
this calculation
Personal Objectives:
e Deliver on-track the 12.5% 5.0% Performance against
letters modernisation each of these
plan as per the KPIs objectives was
* Improve HYS scores 2.5% 1.25% reviewed jointly by
across the Letters the Chairman and the
business 2.5% 2.0% Chief Executive
e Maintain improved
relationships with
the Unions as per the
2010 agreement
e Jointly lead a review
2.5% 1.25%
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of central costs to 20% 9.5%
achieve agreed
savings
e Total Personal
Objectives
TOTAL 16.75% of
salary
Salary £428,400
PROPOSED PAYMENT £71,757
Paula Vennells
Paula Vennells’ role changed twice, from POL Network Director to COO
to MD. To calculate her bonus we have used as a base the letter sent
to Dave Smith, as MD POL. Paula Vennells was appointed MD POL on
14/10/10.
ITEM TARGET I ACTUAL COMMENT
% OF ACHIEVED
SALARY
Group Profit 7.2% 7
POL Cash Generation 4.8% 5.39% Exceeded target
POL Profit 12% 13.48% Exceeded target
Quality 12% 12.0% On target
Personal Objectives:
© Complete and agree 3.0% 2.4% 20/25 points
refresh of 2011-16
strategic plan
* Establish management 2.4% 1.44% 12/20 points
team with clear and
identifiable
accountabilities 1.8% 0.84% 7/15 points
¢ Complete a full
review (gap- «
analysis) to achieve 2.4% 1.2% 10/20 points
planned sales
¢ Establish an agreed I 24 1.2% 10/20 points
e-strategy with
clear deliverables
e Win major government I 12.0% 7.08%
contracts
Total Personal Objectives
TOTAL 37.95% of I For the first 7
salary months Paula’s
put responsibility was
reduces lower and we have
to 33.52% I therefore applied a
of salary I discretionary
reduction of 20% to
7/12 of the bonus,
reflecting her lower
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responsibility
Salary £225,000
PROPOSED PAYMENT £75,426
Dave Smith
As noted above Dave Smith’s target letter was based on his new
appointment as MD POL. In October 2010 he was appointed Chief
Customer Officer. It seems appropriate to use the same criteria as
for Paula Vennells for the first six months, i.e. 37.95% of salary.
For the remaining 6 months he has operated on the basis of a letter
from the CEO which specifies focus on the following personal
objectives:
e Growing our non-regulated business
e Provision of true customer-service excellence
* Reviewing our sales channels to ensure segmented customer
groups are served appropriately
e Smooth introduction of the special price increase delivering
£80m and develop strategies to minimise volume decline
e Taking a full and active role as a Chief Executive Committee
member to influence the wider RMG’s profit maximising
strategies.
These accounted for 12% of salary for on-target performance. The
CEO has recommended that his performance against these objectives
deserves a 75% award.
Accordingly, the table below sets out his performance against
various objectives for the last six months of the year:
ITEM TARGET ACTUAL COMMENT
% OF ACHIEVED
SALARY
Group Profit 12.0% = Performance did not
hit threshold
Group cash generation 12.0% = Performance did not
hit threshold
Quality 12% 7.25% Independent measures
of quality result in
this calculation
Personal Objectives as 12% 9% CEO has recommended
above 75% achievement
TOTAL ANNUALISED 16.25% of
salary
In addition, the CEO raised the issue of an increase in Dave Smith’s
salary to reflect his considerable increase in responsibilities,
with the Minister in October 2010. We are still awaiting
confirmation of this and believe that we should assign the increased
salary from 1 January 2011. Accordingly the following table applies
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the bonus percentages in three different tranches to arrive at the
total figure for Dave Smith:
PERIOD BONUS AS % OF SALARY BONUS PAYABLE
SALARY
Months 1 - 6 37.95% £250, 000 £47, 437
Months 7 - 9 16.25% £250, 000 £10,156
Months 10 - 12 16.25% £315, 000 £12,797
TOTAL £70,390
Moya Greene
Moya joined on 15 July 2010, thus she is eligible for bonus for 75%
of the year. Exceptionally she was given personal objectives only,
with a maximum potential bonus of 100% of salary for just over 9
months.
ITEM TARGET ACTUAL COMMENT
% OF ACHIEVED
SALARY
Personal Objectives:
e Restructure the
management of the 10.0% 9.0% 9/10 points
Group to align
responsibilities
more clearly 10.0% 7.0% 7/10 points
* Complete the senior 15.0% 10.0% 10/15 points
team
e Establish a clear
lan for the .
velationship between I 20.0% I 12.0% 12/20 points
POL and the rest of
the Group
Q 0/45 points
* Achieve the quality I 45-9 0.0% /45 pi
targets as set for
other Executive
Directors
e Decrease the annual
run-rate cost base
below that in the
current budget for
2010-11 subject to
the financeability
of this task;
otherwise achieve
budgeted run-rate at
the year-end
100.0% 38.0%
Total Personal Objectives
TOTAL 38.0%
Salary £498, 000
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PROPOSED PAYMENT
£141,893
After adjustment to
75% of the year
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Matthew Lester
Matthew Lester joined on 24** November 2010. He is therefore
entitled to bonus of one third of the year. His objectives derived
from Moya Greene’s objectives; additionally he agreed to the
following:
© Follow through on the Maxxim study to ensure a more effcient
structure for the finance function.
* Ensure an emphasis on cash generation throughout the business.
* Lead the development of the business plans required for the
various processes associated with the strategic intention to
obtain relief from the historic pension liabilities and the
introduction of private capital.
We believe that the most appropriate treatment given the short
tenure is to award the same level of achievement as the CEO, i.e.
achieving an overall figure of 38% of salary, which when adjusted to
one third of the year gives a figure of 12.67% of salary. Matthew
Lester’s salary is £428,400 and his proposed bonus is therefore
£54,264.
SUMMARY TABLE SHOWING PROPOSED BONUSES
2010-11 2009-10
Moya Greene £141,893 £438,256 ?
Mark Higson £ 71,757 £221,000
Matthew Lester £ 54,264 £184,000 2
Dave Smith £ 70,390
Paula Vennells £ 75,426 £149,000 3
TOTAL £413,730 (5 £992,256 (4
executives) executives)
+ Adam Crozier; ? Ian Duncan; ? Alan Cook
May 25%, 2011
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