UKG100049021
UKGI00049021
OFFICIAL-SENSITIVE PERSONAL a
Department for
Business, Energy
& Industrial Strategy
Date: 19 January 2021
SCS clearance: Tim Mcinnes (Executive Director, UKGI)
Approval of POL CFO Exit Package
[To Approve IBEIS Secretary of State (SoS)
[To Approve Minister Paul Scully MP
[To Clear Special Advisers
Role, Partner Organisation {Chief Financial Officer (CFO), Post Office Ltd.
Prime Minister's interest list_ No
Lead Official / Policy & Siv Rajeswaran (UKGI)
[Telephone [Tim McInnes (UKGI) -.
Beth White (BEIS) +
Unique Reference Number 87
Summary: BEIS previously agreed to a request from POL for it to end the employment of its
CFO. The last submission noted that POL’s proposal for the terms of the CFO's exit package
would follow once initial Ministerial feedback was provided. This submission sets out the
options POL has to exit the CFO and a recommended course of action comprising a severance
payment compliant with the £95k exit payment cap regulations and a transition period to ensure
both an orderly handover and the CFO’s ongoing participation in the Horizon IT Inquiry. A letter
from POL’s Chair is included at Annex B and sets out the options in more detail.
Timing: For clearance from Minister Scully and Special Advisors by 22 January, ahead of
submission to SoS for clearance by 29 January.
Recommendation:
e Reject POL’s request for an exemption to the £95k exit cap regulations and Agree
that officials can relay this to POL if Ministers accept the advice to approve Option 2.
e Approve POL’s proposed Option 2 exit package, with scope to offer ‘good leaver’
status for bonuses payable in relation to the period before his special leave starts.
e Agree that no bonuses should accrue in relation to the period of special leave and that
bonuses payable in relation to the period before special leave are contingent on the
outcome of the Horizon IT Inquiry.
e Note that if POL fail to reach agreement by end-March, a new approval will be sought.
Advice:
1) In November the Minister (per delegation from SoS) agreed to a request for POL to end
its employment relationship with its CFO, Alisdair Cameron (Al). The submission noted
that POL’s proposal for the terms of an exit package would follow once initial Ministerial
feedback was provided. In his feedback the Minister indicated that he wanted to see an
exit package that reflected VfM and be in some way conditional on: (i) the incumbent's
participation in the Horizon IT Inquiry; and (ii) being found to have done no wrongdoing
when the inquiry concludes. POL have now responded with three options.
Option 1 Option 2 Option 3
Exit Date Exit Today In 6 months Exit Today
Payment on Exit £316,000 £156,200 £156,200
UKG100049021
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OFFICIAL-SENSITIVE PERSONAL a
Department for
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& Industrial Strategy
£95k Exit Cap Exemption Required No Exemption I No Exemption
Earnings in Special Leave None £159,800 None
‘Leaver’ Status for Bonus Good To Be Agreed Bad
2) Al'scontract entitles him to 12 months’ notice of £244,800. POL are also proposing to pay
an additional £71,200 (comprised of 12 months’ Payment In Lieu Of Pension and other
benefits) which, while not contractual, is consistent with POL’s custom and practice, and
is therefore considered by POL
Is also aware of this practice, of paying these
benefits to other senior leavers in recent years. The sum of these two equals £316,000.
3) Option 1 I
accept that this payment would require an exemption under the £95k exit cap regulations
and that this is unlikely to be the preferred course of action for BEIS (i.e. BEIS did not
approve POL’s request for an exemption in late 2020 in relation to redundancies).
Consistent with other leavers, Al would also be a ‘good leaver’ for bonuses which means
he would retain his entitlement to STIPs and LTIPs accrued during his employment (the
last of which would pay out in August 2022). Bonus entitlements are not subject to the
£95k exit cap regulations. See Annex A.
4) Note that any refusal by BEIS to grant a request for an exemption from the £95k exit cap
regulations should be formally documented, so that this can be made clear in negotiations
with Al. This would arise if you do not agree to approve POL's preferred Option 1.
5) Option 2 which sees Al working about half of
his 12 month notice on special leave and, at end-September, he would receive £156k
which is consistent with the £95k exit cap regulations (which permits 3 months payment
in lieu of notice in addition to 0° lara enalama
2, as Al would remain on POL’s payroll, it would ensure
a comprehensive handover and participation in the Horizon IT Inquiry’. Subject to BEIS
approval, POL propose to open discussions with Al on this option without offering ‘good
leaver’ status for bonuses though they do want
i: 3. Even though this is the lowest cost option, it would
land the absence of ‘good leaver’ status for bonuses would be
inconsistent with previous comparable exits of senior management from POL, the terms
of which Al would be familiar with in his role as CFO.
' Clause 16 of Al's employment contract allows POL to require Al to remain at home for all of his Garden Leave
period performing such duties as POL may reasonably specify.
UKG100049021
UKGI00049021
OFFICIAL-SENSITIVE PERSONAL a
Department for
Business, Energy
& Industrial Strategy
7) If Al is granted ‘good leaver’ status for bonuses, subject to targets being met, he could
receive benefits after leaving of up to £182,920. This is made up of £97,920 from POL’s
Transformation Incentive Scheme (an 18-month scheme that replaced the 20/21 STIP)
and £85,000 pro-rated from POL’s 19-22 LTIP. Both the Transformation Incentive
Scheme and LTIP are in progress. These incentive schemes would pay out in March
2022 and August 2022 respectively.
8) If Option 3 is followed, Al would be highly likely to [ns
9) POL's I Option 2 with scope to offer ‘good leaver’ status for bonuses, is
considered preferable to a ‘bad leaver’ Option 2 and Options 1 and 3. It is consistent with
the £95k exit cap regulations, it ensures both an effective handover and Al’s compliance
with the Horizon IT Inquiry and it is preferable in Value for Money terms. It is also
considered to have a low level of legal risk.
10) We recommend you approve Option 2, with scope for POL to offer ‘good leaver’
status, subject to: (i) any bonuses payable in relation to the period before his
special leave starts being contingent on the outcome of the Horizon IT Inquiry; (ii)
no bonuses accruing in relation to the period of Al’s special leave; and (iii) POL
reaching agreement by end-March, otherwise POL should seek a new approval.
Handling:
11) There is continued media interest in POL particularly around the long-running Horizon
dispute and the Horizon IT Inquiry. As such, Al’s departure and any payments made to
him are likely to attract press and parliamentary attention (while he only joined POL in
2015, he is one of two Board members who were around during the full litigation period).
12) While Al’s exit is a matter for POL, as he is a Ministerial appointment, we would expect
BEIS to receive inbound enquiries, and as such we will work with POL to prepare reactive
lines and a Q&A at the appropriate time. Pursuing an option that allows POL to reach a
settlement agreement with Al (i.e. Options 1 or 2) would help to mitigate handling risks.
UKG100049021
UKGI00049021
OFFICIAL-SENSITIVE PERSONAL a
Department for
Business, Energy
& Industrial Strategy
Annexes:
A- Exit Package Options
B - Draft Letter from Tim Parker to Secretary of State
Contributors
This advice does have financial considerations, and has been cleared with Daniel Heath.
This advice does not draw on analytical evidence, as approved by Eleanor Brooks.
This advice raise legal issues and has been cleared with Jane Corera.
This advice does not have parliamentary handling implications, as agreed with Eleanor Brooks.
UKG100049021
UKGI00049021
OFFICIAL-SENSITIVE PERSONAL a
Department for
Business, Energy
& Industrial Strategy
Annex A — Exit Package Options
Table 1 sets out Al's legal entitlement on exit. Al is the last senior executive on an ‘old-style’
contract, which gives him a 12 month notice period. Nick Read, POL’s CEO, was appointed in
December 2019 on a ‘new-style’ contract with a 6 month notice.
Table 1: Alisdair Cameron’s Legal Entitlement on Exit
Legal Entitlement
Contractual Notice Period £244,800
(i.e. 12 months’ Base Salary)
Other legal entitlement to employment benefits £71,200
(ie, Payment in Lieu of Pension, and other benefits)
Total Entitlement £316,000
Table 2 provides additional detail on the three options outlined in the submission setting out
the amount Al would receive on exit (i.e. this would be disclosed in POL’s annual report in
Autumn 2021 for Option 1 and Option 3 as Al would exit in the 2020/21 financial year and in
Autumn 2022 for Option 2 as Al would exit in the 2021/22 financial year) and, for Option 2, also
the amount earned during Al’s special leave. Since this would be paid through payroll it would
not be disclosed as an exit payment in POL’s annual report.
Table 3: Comparison of Exit Payments and Total Payments Related to Exit
Option 1 Option 2 Option 3
Payment in Lieu of Notice £244,800 £61,200 £61,200
Other Legally Binding Entitlements £71,200 - -
Additional Permitted Payment - £95,000 £95,000
Total Payment on Exit £316,000 £156,200 £156,200
Earnings in Special Leave - £159,800 -
Total Payments £316,000 £316,000 £156,200
Under Option 1 and potentially under a ‘good leaver’ Option 2, Al would be granted ‘good
leaver’ status in relation his accrued bonuses, which means these would be paid as they fall
due. These payments are outside the scope of the £95k exit cap regulations as they are earned
during an individual’s employment and payment is not triggered by or made on exit, and they
would be disclosed in the annual report for the year which they relate to.
Table 3 sets out these entitlements assuming that ‘good leaver’ status is granted on all accrued
bonuses and that POL achieves ‘on-target’ targets in relation to these bonuses in future years
(i.e. POL’s bonus schemes have three payout tiers: (i) threshold target; (ii) on-target; and (iii)
stretch target).
UKG100049021
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OFFICIAL-SENSITIVE PERSONAL ee
Department for
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Table 3: STIP / LTIP Entitlement as a ‘Good Leaver’
Option 1 Option 2 Option 3
Exit on 31-Mar-21 Exit 30-Sep-21 Exit on 31-Mar-21
(aoe es after
Transformation Incentive Scheme (mar-22 payout) £97,920 £97,920 -
Total Short-Term Bonus Payments £97,920 £97,920 -
LTIP
LTIP 2018-21 (Aug-21 payout) Target Miss Target Miss -
LTIP 2019-22 (aug-22 payout) £85,000 £85,000 -
LTIP 2020-23 (Aug-23 payout) No Scheme No Scheme -
LTIP 2021-24 (aug-24 payout) - - -
Total LTIP Payments £85,000 £85,000 -
Total STIP and LTIP Payments £182,920 £182,920 -
UKGI00049021
UKGI00049021
OFFICIAL-SENSITIVE PERSONAL a
Department for
Business, Energy
& Industrial Strategy
Annex B — Draft Letter from Tim Parker to BEIS Secretary of State (as at 18 January
2021)
DRAFT TEXT OF LETTER TO BE SENT TO THE SECRETARY OF STATE
The Right Honourable
Secretary of State for Business, Energy & Industrial Strategy
1 Victoria Street
London
SW1H OET
United Kingdom
Dear Secretary of State,
Departure of CFO — Post Office Limited ("Post Office” / “POL”)
UKG1000490
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Department for
Business, Energy
& Industrial Strategy
2 (Al's is one of the few remz egacy Group Executive employment contracts with a 12-month notice period. New
executives are given 6-month notice periods).
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Department for
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& Industrial Strategy
3 This is a practice that current Remco’s under our new CEO have sought to depart from by revisiting the rules around
leavers” under the bonus schemes and by requiring a change in culture.
UKG100049021
UKGI00049021
Department for
Business, Energy
& Industrial Strategy
UKG100049021
UKGI00049021
Department for
Business, Energy
& Industrial Strategy
UKG100049021
UKGI00049021
Department for
Business, Energy
& Industrial Strategy
UKG100049021
UKGI00049021
Department for
Business, Energy
& Industrial Strategy
UKG100049021
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OFFICIAL-SENSITIVE PERSONAL a
Department for
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Kind Regards
Tim Parker
Chairman
Post Office Limited
Appendices attached
UKG100049021
UKGI00049021
OFFICIAL-SENSITIVE PERSONAL ee
Department for
Business, Energy
& Industrial Strategy
Appendices
Table 1 - Exit Cost Comparison
Option 1 Option 2 Option 3
Exit on 31-Mar-21 Exit on 31-Mar-21. Garden Exit on 31-Mar-21
Leave 1-Apr-21 to 30-Sep-
21.
Exemption to Exit Cap Y N N
Regs required?
Annual Base Salary £244,800 £244,800 -
Annual Payment in Lieu £61,200 £61,200 .
of Pension
Other Annual Benefits £10,000 £10,000 -
Total Annual Contractual £316,000 £316,000 .
Entitlement
Pro-rated remuneration
package until Last Day of :
Service (for 2021 calendar £79,000 £237,000
year)
Bonus (detailed
breakdown shown below £182,920 £182,920 -
in Table 2)
£244,800
PILON Payable (although Al will argue £61,200 £61,200
for £316,000)
# months PILON 12 3 3
Additional Permitted . £95,000 £95,000
Payment
Total Exit Payment £244,800 £156,200 £156,200
Total Exit Payment Inc.
salary and lower PILON £506,720 £576,120 £156,200
amount until LDOS
Total Exit Payment Inc.
salary and higher PILON £577,920* £576,120 £156,200
amount until LDOS
*May need to use this payment sum following negotiations on PILON figure.
Treatment of Bonus
Any payments of STIP/LTIP are exempt from the £95k Exit Cap Regulations because they are
not payments that arise in consequence of an exit. As part of the exit negotiations, it is open to
Post Office to call Al a “good leaver” for the 18/21 and the 19/22 LTIP schemes as per the
scheme rules prior to April 2020. Al's current likely maximum payment due is £106,250 based
on the current projected leave date and assuming on target performance of POL, which would
only be paid if the 19/22 LTIP target is achieved by POL, however this figure is subject to further
approval from the Remuneration Committee who have already provisionally agreed to a
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UKGI00049021
OFFICIAL-SENSITIVE PERSONAL a
Department for
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& Industrial Strategy
payment of up to £85k based on circumstances presented at the time. If POL performs at a
higher target, then the contractual payment due could be higher.
If “good leaver’” status is agreed, the likely on-target pay outs are detailed in Table 2.
Although it is technically possible for us not to give Al good leaver status under these
schemes, it is highly likely that Al will expect to be included as per custom and practice of
which he is aware. Rather than not make these payments we would be inclined to pay them
but to ensure that they could be cancelled or clawed back in the event of certain adverse
findings of the public enquiry.
Tables 2 below details the overall potential on target payments for each option.
Table 2 - STIP / LTIP Entitlement as a ‘Good Leaver’
Option 1 Option 2 Option 3
Exit on 31-Mar-21 anion taave s.24 Exit on 31-Mar-21
to 30-Sep-21.
STIP
2020/21 (Mar-22 pay-out) £97,920 £97,920 -
2021/22 (aug-22 pay-out) - - -
Total STIP Payments £97,920 £97,920 -
LTIP
LTIP 2018-21 (Aug-21 pay-out) Target Missed Target Missed -
LTIP 2019-22 (Aug-22 pay-out) £85,000 £85,000 -
LTIP 2020-23 (aug-23 pay-out) No Scheme No Scheme -
LTIP 2021-24 (aug-24 pay-out) - - -
Total LTIP Payments £85,000 £85,000 -
Total STIP and LTIP Payments £182,920 £182,920 :
Notes:
e Amounts shown are OTE based on interim CEO salary of £255k
e¢ Good leaver status is at the discretion of the REMCO if not related to a redundancy or DIS
situation.
¢ STIP 2020-21 is the Transformation Incentive scheme.
e LTIP 2018-21 scheme is unlikely to pay out due to EBITDAS threshold being missed. Any
payment subject to discretion by the RemCo.
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OFFICIAL-SENSITIVE PERSONAL a
Department for
Business, Energy
& Industrial Strategy
e LTIP 2019 - 22 scheme. Current target may change as the EBITDA threshold and business
performance are not yet confirmed, subject to Remco. Any payment subject to RemCo setting
an EBITDA target above £50m.
e LTIP 2020-23 scheme not launched.
e LTIP 2021-24 scheme. Predicted business performance not yet known, and current target
may change. Any payment subject to discretion by the RemCo.
Table 3 - Summarised View of Options Presented
Option Pros Cons
1) OPTION 1-
Contractual
expectations in
respect of what
constitutes his
legally binding
contractual
entitlement, early
exit (requirement for
exemption from Exit
Cap Regs)
2) OPTION 2-
Contractual
entitlement, garden
leave and exit
payments of up to
£95k
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OFFICIAL-SENSITIVE PERSONAL a
Department for
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3) OPTION 3-
Terminate contract
under SOSR
dismissal and
defend claims