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EXECUTIVE COMMITTEE
AGENDA
for the meeting to be held on 12 November 2013
in Room 501
Present: Paula Vennells (Chair), Martin Edwards, Mark Davies, Chris Day, Sue Barton, Fay Healey, Nick
Kennett, Chris Aujard, Kevin Gilliland, Martin George
Apologies: Alwen Lyons, Lesley Sewell
In Attendance: Aidan Alston
Start time: 9.00
End: 12.30
Time Item ExCo Sponsor/Presenter
09.00 - 09.30 Prosecutions paper Chris Aujard
09.30 - 10.30 Senior Management Talent Review Fay Healey/Aidan Alston
10.30 - 10.45 BREAK
10.45 - 12.00 SLT Talent Review Fay Healey/ Aidan Alston
12.00 - 12.15 Performance Management Update Fay Healey
12.15 - 12.30 Cost Reduction Update Fay Healey
12.30 CLOSE
20F42
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POST OFFICE AUDIT, RISK AND COMPLIANCE COMMITTEE
Prosecutions Policy
1. Purpose
The purpose of this paper is to:
11
1.2
update the ExCo/ARC with respect to certain aspects of Project Sparrow; and
request approval to adopt an approach to prosecutions different to that which has
previously been adopted.
2. Background
21
2.2
2.3
24
2.5
Prosecution Policy
November 2013
In the last (October) CEO report to the Board, an update was given on Project Sparrow
in which it was noted that “... a paper [will be submitted] to the November ARC
reviewing our overall policy for investigating and prosecuting future cases.” For
convenience, a copy of the relevant section of that report is set out in Appendix 1.
Since that update, Brian Altman QC has prepared two separate reports, one
commenting on “[POUs] strategy and process for reviewing past and current criminal
prosecutions in light of Second Sight's Interim Report” (the “backward looking report”)
and the other making recommendations as to the future approach to the conduct of
prosecutions (the “forward looking report”). This second report did not seek to
comment on whether continuing with prosecutions was itself a sensible course of
action, either from a business or reputational perspective, simply whether it was an
effective use of resources from a criminal law perspective, and if so, whether there was
scope for improvement.
The headline conclusion of the backward looking report is that the “...review [of the
cases that had been prosecuted over the last few years] is fundamentally sound” and
that no “systemic or fundamental flaws in the review process” were detected. In
addition, a number of relatively small procedural recommendations were made
regarding matters such as document retention etc.
The forward looking report is similarly positive in tone, with Brian Altman commenting
that he had “.... seen no evidence to suggest that Post Office Ltd exercises its
investigations and prosecution function in anything other than a well-organised,
structured and efficient manner, through an expert and dedicated team of in-house
investigators and lawyers, supported by Cartwright King solicitors and their in-house
counsel...” That said, it was noted that “Post Office Ltd’s prosecution role is perhaps
anachronistic...”, and that “POL is the only commercial organisation (albeit Government
owned) I can think of (apart from RMG who retains a residual prosecuting function) that
has a prosecution role, and it is, to that extent, exceptional if not unique.”
An important fact to emerge from the 2 reports is that Post Office does not have any
special statutory power to bring prosecutions, rather it brings prosecutions in a purely
“private” capacity further to section 6(1) of the Prosecution of Offences Act 1985, which
Chris Aujard
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gives all individuals and companies the right to bring a private prosecution, should they
see fit. To that extent, therefore, the decision to undertake prosecutions is
discretionary: no legislation or regulation requires Post Office to undertake
prosecutions, nor is there any legislative policy that mandates that prosecutions should
be brought. That is not to say that the standards of evidence are in any way reduced, or
that the process is less rigorous than would be the case with a public prosecution, it
simply that the Post Office steps in to assume a function that typically would be
undertaken by the CPS, after the referral to it of a case by the police.
2.6 The reasons why Post Office developed a private prosecutorial capability are historical;
reasons given for its retention include:
. It serves as a “deterrent” i.e. it provides a clear signal to the whole network that
offences of dishonesty will be taken seriously;
. It assists Post Office with its relationship with insurers; and
° It re-assures employees that “securing the company’s assets will be taken
seriously”.
No empirical evidence has been given in support of the above, though from first
principles it would seem doubtful that the cost of, or the terms on which, insurance can
be obtained would be materially impacted by the existence, or non-existence, of a
prosecutorial capability.
27 In addition, it has been said that it is quicker and more efficient to recover debts due to
Post Office using the criminal process (in particular the Proceeds of Crime Act). This is
clearly true, though the criminal recovery process, albeit very efficient, is a fairly blunt
and sometimes brutal process that involves the forcible sale of assets against the
backdrop of a criminal conviction and possible prison sentence. In the case of sub-
postmasters that are in financial distress, this may well involve the sale of their main
residence.
28 A similar outcome could be achieved using the civil recovery process, though making
claims through the civil courts is a more cumbersome process, and the ability to obtain
orders “freezing” assets ahead of trials is much more restricted than it is in criminal
cases (in criminal cases, a “prosecuting authority” has the right to request a judge to
make an order freezing the defendant’s assets once the investigation has commenced,
but before that it has gone to court).
3. Activities/Current Situation
3.1. Typically, some 250 investigations are conducted each year into cases of suspected
fraud or unexplained loss. In turn, this leads to around 50 prosecutions being brought
against sub-postmasters, all of which result in a conviction. The most common charge is
“false accounting”, itself a very serious offence carrying a maximum tariff (7 years) not
dissimilar to theft (10 years); this offence of false accounting is technically committed
every time the end-of-day return is made on the Horizon system declaring that the sub-
postmaster’s books balance when the sub postmaster knows they do not. Indeed, more
often than not, criminal investigations are started when the books have not balanced.
The internal “Network Support/Audit and Training” team (a team of around 200, some
of whom are charged with responsibility for undertaking stock-takes in the network)
identifies the fact that there is an unexplained cash or stock shortfall, and that the
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books don’t balance. In turn that team then notifies the security team which mounts an
investigation and decides whether or not prosecute.
3.2 Prosecutions, however, are only brought to the extent that they fit within the internal
prosecution policy. This policy focuses on 2 factors: sufficiency of evidence and
likelihood of conviction — latterly a third factor has been added, which is the quantum
of the loss (amounts below £S5k are now not pursued). The highest “risk” group of
offenders appears to be those sub-postmasters who have been in post for less than 5
years but more than 18 months. Amounts involved are generally less than £20,000,
though there are a handful of high value cases involving outright theft of cash or very
large stock deficiencies.
3.3. Immediately following the Second Sight report, work was done to rationalise and
consolidate the pre-existing prosecution policy. That said, the consolidated policy is in
substance no different to that which has been applied previously; in any event, it has in
essence been held in abeyance and no further prosecutions have been initiated.
4. Options Considered
41 At a practical level, there are a number of alternatives to mounting our own criminal
investigations and undertaking private prosecutions. In particular, most companies
when faced with theft from employees, or agents, would simply contact the police, and
if fraud were a persistent problem, develop processes for engaging with them.
4.2 Alternatively, it is open to companies (effectively) to bypass the police and go directly
to the local prosecuting authority (e.g. the CPS in England and the Procurator Fiscal in
Scotland); indeed for technical reasons, this is the approach that is adopted by Post
Office in Northern Ireland and Scotland. The experience in those 2 jurisdictions,
however, is that there is reluctance to prosecute all but the most serious, or the most
clear-cut, cases, as it is seen as a debt recovery (i.e. civil) matter. We have been
advised by Brian Altman that should Post Office go down the route of referring matters
to the police or the CPS, there would be a limited appetite to prosecute, even if all the
preparatory work (witness statements, fact finding etc.) had been done by Post Office
in house.
4.3 Inlight of the above, four broad options were considered:
a) Preserving the status quo — i.e. retaining prosecutorial capability and
continuing with a prosecutions policy that is not dissimilar to that which has
been used in the past;
b) Pursuing a prosecutions policy focussed only on high value cases/cases
involving vulnerable members of society, and engaging with the police in
relation to other matters;
c) Ceasing all prosecutorial activities but instead actively involving the police/CPS
etc where it is felt that they are likely to take matters forward; and
d) Ceasing all prosecutorial activities as per option c) BUT coupled with work (as
yet not formally defined but some of which has already started as part of
project Sparrow and NT):
° to gather better MI from the network;
. to improve the overall control framework around the branch network;
and
° to provide more support to sub-postmasters.
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This option is perhaps closest to that adopted by banks and others organisations
facing serious losses through fraud and criminal activity.
44 As part of the evaluation process, however, consideration was given to broader policy
factors, including:
¢ Post Office’s brand image;
e Whether undertaking prosecutions is consistent with a commercial franchisor-
franchisee relationship; and
© The overall drive to develop better stake-holder engagement and a more mature
working relationship with sub-postmasters.
In light of these considerations:
Option a) above was felt to be, at best, sub-optimal and was not explored to any
great extent, other than to ask the question of Brian Altman whether it was
“efficient” in terms of the criminal process (which it is);
. Option b) carried with it the risk that any residual prosecutions undertaken by Post
Office would be conducted so infrequently (probably only a handful each year) as
to mean that it was not efficient to maintain an internal team to handle them.
Accordingly, it too was discounted; and
. Option c) was rejected as carrying an unacceptable risk of fraud and loss given the
scale of the “losses” currently suffered through theft and false accounting.
5. Proposal
5.1 __ It is proposed that Option d) be adopted and that, at an appropriate point in time, Post
Office no longer exercise prosecutorial rights against sub- post masters. It is further
proposed that:
a) Work now commence to ascertain the scope, and estimate the cost, of any
additional work that would need to be undertaken to gather better MI from the
network, improve the overall control framework, and provide better support to
sub-postmasters whilst protecting public funds. Part of this work could also be
focussed on exploring additional (non-criminal) sanctions that could be used against
sub-postmasters who have committed fraud; and
b) An analysis be undertaken of the ways in which civil proceedings can be used more
effectively to reduce the financial impact once Post Office becomes unable to
continue to use the Proceeds of Crime Act to recover money that has been mis-
appropriated.
5.2 This last piece is important. Under the terms of the sub-postmasters contract, sub-
Prosecution Policy
November 2013
postmasters are liable to Post Office for all “losses” of stock/cash etc. Accordingly, a
“fraud” involving the loss of stock or cash gives rise to receivable in the hands of Post
Office, which if not recovered leads to a bad debt. Anecdotal evidence suggests that up
to 75% of all bad debts are recovered via the criminal debt recovery process, and that
around £1.5m is recovered annually. It is likely that a civil recovery process would lead
toa slower, and slightly lower, recovery rate, possibly of the order of £1 to £1.2m.
Chris Aujard
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6. Commercial Impact/Costs
6.1 See 5.2 above. There may well be an offsetting impact on the headcount in certain
areas, in particular the security team and the legal team, though this has yet to be
quantified. However, there will be additional costs associated with enhancing the MI
and control framework, but these too have yet to be quantified and may to some
extent fall within BAU budgets (for example to the extent that they form part of the
audit function, they may be part of that budget).
7. Key Risks/Mitigation
7.1. These pertain mainly to the potential increased risk of fraud, and being seen to be
“soft” with public money, but should be capable of being addressed by enhanced MI
and improvements to the control framework etc.
8. Long term considerations — horizon scan
8.1 Not taking action now in relation to the prosecutions policy could lead to, or
exacerbate, the impact of further adverse publicity regarding Post Office’s treatment of
sub-postmasters.
8.2 Taking this action may assist in developing better stakeholder engagement.
9. Communications Impact
9.1. The communications team are already heavily involved in Project Sparrow, and it is
proposed to manage the communications of the above through that channel. A key
issue will be to ensure that any change of policy is properly positioned with MPs, the
JFSA and the wider Network.
10. Recommendations
The ExCo/ARC is asked to:
10.1 note the update set out above; and
10.2 approve proposals set out in paragraph 5.1 above.
Chris Aujard
8 November 2013
Prosecution Policy Chris Aujard
November 2013 Page 5 of 6
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Appendix 1
8. Project Sparrow
.
The Mediation Scheme has received 64 applications from sub-postmasters since it was opened at
the end of August, with more expected before the deadline of 18 November. The Working Group
overseeing the running of the scheme is now reviewing these applications to decide which should
be accepted onto the scheme, which should be excluded and which require further information
before a decision can be made. The aim is to get a few cases started on the mediation process
before the end of 2013 with the majority happening between January and March next year. Sir
Anthony Hooper has now been appointed as the Chair of the Working Group, and will lead his
first meeting on 25 October.
We are in the process of developing our internal settlement policy for the scheme, the purpose of
which is to ensure that a consistent approach is taken to each case based on a clear
understanding of the potential range of costs and outcomes from the process. A first draft will be
discussed by the ExCo in November, although it will be subject to further refinement in light of
the additional information that emerges about the caseload and our initial experiences of the full
mediation process.
Our external firm of criminal solicitors, Cartwright King (CK), has now completed a review of 301
cases subject to past prosecution to identify whether we have a duty to disclose the findings of
the Second Sight report and associated issues. CK has concluded that disclosure is appropriate in
10 of these cases, and a short letter has therefore been sent to each of the defence teams to
bring their attention to the report. It is now a matter for the defence in each case to determine
what action, if any, they might take in light of this additional information. We are also awaiting
an unknown number of further historical prosecution files from Royal Mail, although at this stage
we have no reason to believe these will substantially increase the number of actual disclosures. In
view of the potential interest from the Criminal Cases Review Commission, we have also asked
our criminal barrister, Brian Altman QC, to conduct an independent review of the overall process
we have taken to review past cases, reaching the conclusion that our approach is “fundamentally
sound”.
We will submit a paper to the November ARC reviewing our overall policy for investigating and
prosecuting future cases. This will be informed by a separate report that Brain Altman is
preparing on the effectiveness of our current prosecutions approach from a criminal law
perspective, but will also take into account wider business considerations such as value for
money and reputational impacts.
The first stage of the workstream looking at improvements to our sub-postmaster training and
support processes will be completed in November, identifying the key gaps and shortcomings in
our current approach, a detailed plan for delivering ‘quick wins’ and an overarching plan for
taking forward the more fundamental reforms to our organisational structure and culture over
the next 6-12 months. The process will be informed by the new Branch User Forum, the
inaugural meeting of which will be convened in November once the recruitment process for sub-
postmasters has been completed.
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November 2013 Page 6 of 6
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Senior Management
Talent Review Pre-
Reading
November 12% 2013
©
Post Office® 07 November 2013
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Introduction &
* As part of our talent strategy we aspire to develop a greater proportion of our senior
managers internally (currently 66% of hires at grade 3A and above are external)
N
* This is why we have introduced a greater emphasis on talent identification as part of the
performance management process
* In October, 449 senior manager (grades 3A/4) had a career development discussion which
enabled line managers to allocate an individual potential rating
* These ratings were then mapped onto a 9 Box performance / potential matrix which
Directorate teams calibrated
* From this we have now identified our ‘Top Talent’ (individuals with PDR of 4 or 5 and
potential rating of A)
ExCo are asked to discuss and review the provisional list of ‘Top
Talent’. Each Director is asked to talk about their respective ‘Top
Talent’ - providing an overview of their potential (including
aspirations), possible future roles and key development needs.
O
& Post Office®
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- Senior Manager (Level 3A / 4)
Performance —- Potential Matrix
Potential Rating
13/14 HY
A
Has potential to
progress toa
larger/broader rol
within the next 2
years and then
beyond
Top Talent
( 4% (17 people)
B Asset
Potential to progress
toa larger/broader
role within the next 2 23% (103 people)
8 years
c Asset Asset
Likely to remain at
oe ete 42% (188 people) 10% (44 people)
next 2 years
lor2 3 4or5
Performance Rating 12/13 FY
C
LY
Post Office® *PDR Ratings used from full 12/13 FY to obtain levelled and sustained rating
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Senior Manager ‘Top Talent’ (1) &
(Individuals with PDR rating of 4 or 5 and potential rating of A)
N
Kim Lindsay Product Manager Commercial
Piero D’Agostino Lawyer Legal
§ Jayaan Tank Senior Development Manager FS
é (Savings)
Antonio Jamasb Branch IT Service Manager Strategy (IT)
O
Post Office®
a
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Senior Manager ‘Top Talent’ (2) &
(Individuals with PDR rating of 4 or 5 and potential rating of A)
N
Pam Heap
Martyn Lewis
Manager
ge
Finance
Senior Finance Analyst
Adam Page
reg
Fay Chandler Senior Procurement Manager Finance
(Procurement)
O
Post Office®
Ee
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Top Talent Next Steps
[Date __I Activity
November Line Managers feedback to individuals on their on-going development. This includes telling
12 onwards _ people they are ‘Top Talent’ and will be invited to apply for the senior management talent pool
January/Feb ‘Top Talent’ attend development centre to assess their potential (facilitated by Hay Group):
- Direct feedback provided to individual and line manager
- Recommendation on potential of individual to develop to SLT
This information will be used to make a decision on who will be included in senior
management talent pool programme.
C=
=
Post Office®
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SLT 9 Box Performance : Potential Matrix (DRAFT)
AY
46 SLT allocated mid-year performance and potential ratings by their Director Es
(© where potertiat ratings were tentative [i.e A/8} the lower rating has beer used to ensure robust an clear diferentiation of Wigh-potertal
Potential Rating
a Coe 7
A ana Renner
Hes potential to. : 7
progress toa i New S17 Appointments [no POR
larger/oroader role i rating)
within the next 2 years f
and then beyond :
rewarkFox-Mils Harry Clarke JatashaWikon 8
B lan Smith liule George Jane Hill A
aul Havenhand sarah Hal ichelle Ranger 8
Potential to progress ick Sambnidge ibian De Peborah setts
to larger/broader od ismey TTT ah Flemington sarahMalone A
role within the next 2 ike Granvile Julie Thomas Tec
years ickHougham (Hay)
=] Jan Crumpton 8 (Hay)
ean sale “Tee tomer TPerersele Dave Hubert
jeremy Woodrow IMichael Urn 2 UT Leavers (no potential rating)
c chard Suri lake Gain I
iris Colquhoun mon Baker F
Likely to remain at e" Goodman Russell Honesck
current level for the sicoim Zack [Dave Harcourt
next 2 years isi Ennis Richard Walden
atl Wiking Than Miler
eth Rann Hohn Score
lor2 3 4or5s
PDR RATINGS (2012/13 MID YEAR)
KEY AND DISTRIBUTION
Top Talent (736)
Asset (24%)
Asset (29%) Asset (956)
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POST OFFICE LTD EXECUTIVE COMMITTEE / BOARD
Approach to Performance Management — Noting Paper
41. Purpose
The purpose of this paper is to update the Executive Committee / Board on:
1
1.2
Analysis of employee turnover across management grades
The actions in place to drive a culture of high performance
The paper was discussed at the NomCom on 6 November 2013.
2. Introduction
24
In order for the Post Office to achieve its strategic objectives and journey
towards a culture fit for mutualisation, it needs to create a high performance
culture.
2.2 To achieve this, we must have a robust performance management approach
which aligns employee performance and behaviours with organisation goals and
objectives, differentiates and rewards great performance whilst ensuring that
under performance is effectively addressed.
3. Employee Turnover Statistics — the current situation
3.1 All data covers 12 months from September 2012 — September 2013.
3.2 Overall turnover and employer driven turnover is highest in the SLP population
(16% and 12% respectively) following the assessment exercise for that group
over the last year.
3.3 Below SLP, lower rates of turnover are evident for managerial and non-
managerial employee groups (see table 1 below). By comparison, the median
rate of employee turnover in the public sector was measured at 9.4% and across
the UK overall (all sectors) at 11.9% according to the CIPD Resourcing and
Talent Planning Annual Survey Report 2013.
Overall Average Employee Driven Employer Driven Turnover
Grade Area Headcount Turnover Turnover Overall
SLP+ 1% 4% 12% 16%
Manager 24% 3% 5% 8%
Non-manager 75% 4% 4% 8%
Overall 100% 4% 4% 8%
Table 1: Post Office employee turnover in the year ending September 2013
Approach to Performance Management Fay Healey, Chief HR Officer Page 1of 37" November 2013
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3.4 Employer driven turnover shown below is higher for Middle Managers (6%) than
for Senior Managers (3%), with overall turnover at 8% for both managerial grade
groups.
Employee Driven Employer Driven Turnover
Grade Turnover Turnover Overall
Senior Managers 5% 3% 8%
Middle Managers 2% 6% 8%
Table 2: Employee Turnover in the year ending September 2013 split by Senior Manager and
Middle Manager grades.
3.5 Of the manager grade employees who received a high PDR rating of ‘4’ or ‘5’ at
year end 2012/13, only 2% have left the business (as of 30 September 2013).
3.6 Of the manager grade employees who received the lowest PDR ratings at year
end 2012/13, 57% of those rated with a PDR ‘1’ and 14% of those with
consecutive PDR ‘2’ at mid-year and year end, have left the business (as of 30
September 2013). Appendix 1 provides details of these exits.
3.7 Whilst we have reasonable turnover across management grades, more needs to
be done to ensure that we are adequately addressing under performance.
4. Actions to support the creation of a high-performing work-force
44 Advisor Plus (My HR Help) line manager support calls: With sponsorship
from SLT members and support from HR Business partners, line managers of
individuals who received a PDR rating ‘1’ or a consecutive PDR rating of ‘2’ will
be contacted by an Advisor Plus (My HR Help) specialist in a planned outbound
calling campaign following the current Mid-Year performance review process.
These calls will offer guidance and support, ensuring managers understand and
can apply the options available to them to support their underperformers.
Actions will be monitored and progress tracked, providing clear visibility to SLT
members.
4.2 Improving Performance Procedure (IPP) for managers process: Following
the NomCom meeting there was an additional action to review this process.
Manager feedback has indicated the time required for an individual to complete
the formal stages of the procedure is excessively long. The current process
requires 18 weeks of formal performance monitoring (which follows at least 4
weeks of informal monitoring). Guided by this feedback, along with comparison
benchmarking with other organisations, a proposed shorter timescale will be
outlined for the formal monitoring stages. Individuals will receive focused
development plans and support, encouraging them to demonstrate an
improvement in performance in a shorter, but still reasonable timeframe. The
existing process was agreed with the CMA, therefore any change will require
union consultation. A plan for implementation is outlined in Appendix 2.
4.3 Driving Performance through Honest Conversations Workshop: This
workshop will target selected first line managers, with the objective of building
capability and confidence in effectively managing underperformance and difficult
Approach to Performance Management Fay Healey, Chief HR Officer Page 20f3 7" November 2013
4.4
45
46
47
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situations with their team members, helping address any issues immediately.
There is a planned series of workshops that will be rolled out by 31 March 2014.
Introduction of Discovery Day 2 for new line managers: All managers who
are new to the Post Office, or new to the role of managing others, attend a two
day workshop created to ensure that all their line management responsibilities
and the associated processes are understood.
FY 2013/14 Mid-Year focus on personal and career development: To support
our belief that everyone in the Post Office has the potential to grow and to
continue building a high-performing and engaged work-force, we introduced a
greater focus on personal and career development, with targeted development
plans in our performance management process.
Talent development: We are able to identify managers who show potential
through the Mid-year review process and nurture them through our talent
initiatives. The aim is to ensure we have bench strength at all layers in the
organisation and that we pay attention to stretching and developing talent to
raise organisational capability.
Crown Leadership Programme: a key part of the plan to bring the Crown
network back to profit is investing in our managers to enable them to lead,
inspire and transform their branches. This represents a huge investment in
developing capability to ensure managers have the support, development and
confidence to lead their branch as part of the back-to-profit vision. Launched
this year, part of the programme includes managers creating their personal
development plan, with modules focused on key aspects of leading and
managing teams, including performance management.
5. Conclusion
5.1
5.2
5.3
The focus of performance management in the Post Office is to build a capable
workforce to support delivery of business goals. This will help ensure a healthy
turnover that supports creation of opportunities for new and existing talent in the
business
Our employee turnover position is slightly lower than other organisations. We
will continue to provide direct support to those managers who are managing
underperformers.
Sponsorship from SLT is required for the line manager support calls campaign
following the current half-year performance review process.
6. Recommendations
6.1
The Executive Committee / Board are asked to note the update and actions set
‘out above.
Fay Healey
7" November 2013
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APPENDIX
Appendix 1: Underperformers and leavers — the current situation for manager grades
Leavers January - September 2013
Total
Resignation Number
FY 2012/13 No. of Compromise to Avoid —_ Voluntary of
PDRratings* Managers Dismissed Agreement Conduct _Resignation Redundancy leavers
Year End PDR
rating ‘1°
Year End PDR
rating ‘2’,
having also
received a ‘2’
rating at Mid-
Year
28 $ 3 ss) 3 4 16
174 1 3 1 1 18 24
** PDR ratings shown for manager grade employees.
Appendix 2: Implementation plan to revise timescales of Improvement Performance
Procedure (IPP) for managers
Activity Date
Finalise proposal for revised IPP timescles November 2013
Engage with CMA union January 2014
Communicate new approach to organisation March 2014
Implement new approach in time for FY 2014/15 Performance April 2014
Management Year
18 af 42
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Content
Part 1: Organisational Performance
* Overview of business wide performance curve
¢ Key conclusions
Part 2: Directorate Performance (Middle Managers)
: * Overview of directorate level performance curve for middle managers
3 ¢ Next steps
I Organisational
Sy Ie 2e
2013/14 Half year overall distribution
Rating I Year End Mid-Year
2012/13 2013/14
142 18% 18%
3 63% 65%
445 19% 17%
Esp
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1400
1200
1000
800
600
400
200
PDR Scores 2013/2014 Half Year
Combined Total
As agreed by ExCo in April this year, for 2013/14 we will not force Directorates to align to a standard
distribution curve and Directorates will be accountable for the curve in their own areas
Senior manager PDRs did not go through formal peer-comparison at half-year, as the focus was on talent and
high-potential identification for this group. Middle manager PDR ratings underwent peer comparison as usual
Overall, little change in performance rating allocation compared to year-end 2012/13. There has been a 2%
decrease in high (4 or 5) performance ratings
Differentiation across whole performance rating spectrum continues to be limited with PDR 1 (1%) and 5 (0.5%)
ratings.
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2013/14 Half year distribution: Senior vs. Middle managers
* Year End FY 2012/13 percentage distribution shown in brackets ( ) in the table for comparison
Half-Year 2013/14
Senior Managers
142, / 9% (12%)*
3 70% (66%)*
4+5 21% (22%)*
350
300
PDR Scores 2013/2014 Half Year
Senior Manager
250
200
150 +
100
56
o de
a= Optirnam
Actual
232 695 2778 69.5 23.2
326 9 2
Half-VYear 2013/14
Middle Manager
21% (20%)*
63% (62%)*
16% (18%)*
Half-Year 2013/14
Overall
18% (18%)*
65% (63%)*
17% (19%)*
POR Scores 2013/2014 Half Year
Middle Manager Total
1
~t-Optimum 68.2 204.6 818.4 204.6 68.2
Actual 45 267 863 211 Ej
nly
higher performance ratings allocated to senior managers (average rating 3.1) compared to middle managers
(2.9) continues (91% of senior managers rated good or above).
Removing peer comparison for senior managers has had little impact on overall rati
of senior managers ailocated a iow rating
Commercial
30
25
PDR Scores 2013/2014 Half Year
Commercial Middle Managers
20
45
10
—w— Optimum
5.7 22.8 57
Actual
4 24 9
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oy 12 8%
Communications
PDR Scores 2013/2014 Half Year
Communications Middle Managers
10
9
8g
7
6
5
4
3
2
4
0
i ~~ Optimum 07 20 78 2.0 0.7
Actual 4 1 9 2 0
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Finance
PDR Scores 2013/2014 Half Year
Finance Middle Managers
—#— Optimum 29 8.7 348 87 29
Actual 0 8 39 10 1
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* Financial Services
PDR Scores 2013/2014 Half Year
FS Middle Managers
—#- Optimum 27 81 32.4 81 2/7
Actual 0 2 41 9 2
HR
PDR Scores 2013/2014 Half Year
HR Middle Managers
12
10
8
6
4
2
0
~~ Optimum 07 24 84 24 07
Actual 0 2 10 2 0
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’ Corporate Services
PDR Scores 2013/2014 Half Year
Corporate Services Middle Managers
~~ Optimum
23 68 27.0 6.8
Actual
0 7 30 7
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Network & Sales
POR Scores 2013/2014 Half Year
Network & Sales Middle Managers
700
600
500
400
300
200
100
0
—a— Optimum 52.5 157.5 630.0 157.5 52.5
Actual 12 228 648 160 2
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_ Strategy
PDR Scores 2013/2014 Half Year
Strategy Middle Managers
70
60
50
40
30
20
10
0
—#- Optimum 46 13.7 54.6 13.7 46
Actual 1 15 61 12 2
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Next Steps
¢ Directors to let their teams know that they can release
final scores to Middle Managers and PDRs completed
in the ORBIT system by 6 December
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POST OFFICE LTD EXECUTIVE COMMITTEE
People implications of cost reduction projects
1. Purpose
The purpose of this paper is to:
1.4.
1.2.
Outline the proposed approach to managing the people implications of the cost
reduction activity. This will apply to affected areas outside of the Crown Network.
Seek agreement from the Executive Committee to implement the proposals,
including the use of compulsory redundancy.
2. Background
21
2.2
2.3
2.4
25
26
In response to the cost challenge, the cost management steering group has
identified potential staff cost savings FY 14/15 of £9.9m, amounting to a headcount
reduction of c.210 FTEs across the business. A detailed summary is shown in
appendix 1.
The following mechanisms for managing staff costs have already been put in place
to support effective cost management:
e No external recruitment without the approval of the HRBP and functional director
« No additions to template without the approval of the CFO and CHRO, with the
underlying principle of one in, one out
e Panel review and approval of requests for new and extensions to contractors
e Contractor Christmas Furlough
Historically, the approach the business has taken to redundancy situations is to
achieve it on a voluntary basis, often through a blanket preference exercise. To
date this has been manageable; however as an independent business moving
towards a smaller organisation, it is critical that we retain people with the capability
and potential to drive the organisation forward and to achieve this will require the
use of compulsory redundancy.
The collective agreement relevant in these situations is the ‘Managing the Surplus
Framework’ (MTSF). Whilst MTSF does not discuss compulsory redundancy
explicitly, it does not exclude it as an option.
Post Office has made compulsory redundancies within the management population,
albeit on a limited basis.
To ensure that any dismissals by way of compulsory redundancy are ‘fair’, we will
need to demonstrate that we have consulted with the relevant union, applied
transparent selection criteria, put in place reasonable steps to consider ‘suitable
alternative employment’ for individuals at risk who wish to remain with the business,
prior to making them redundant. The latter step can be built into the notice period
so not adding further time onto the process.
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3. Alternatives Considered
3.1. Continue to effect headcount reduction through seeking volunteers only. By
continuing to reduce headcount on this basis the business would risk losing the
talent it will need going forward. (Not recommended)
3.2. Begin the process by seeking volunteers, moving to compulsory redundancy
at the end of the consultation period for unresolved individuals.
(Recommended)
3.3. Go straight to compulsory redundancy without seeking volunteers. This could
have a negative impact on the culture and integrity of the organisation and does not
support the principle of ensuring people leave the business with dignity and respect.
(Not recommended).
3.4. Avoid redundancy situations altogether by redeploying to any vacancy. This
could mean the business risks mismatching people to roles, meaning we do not have
the right people in the right roles at the right time. In addition, moving to a smaller
organisation in the future may mean sufficient vacancies are not available. (Not
recommended).
4. Organisation Design principles
4.1. The purpose of the Organisation Design principles will be to ensure good
governance of any structural changes within the organisation, maintaining oversight
and ensure alignment of any changes. Any change that affects roles and people will
need to be handled appropriately, with well thought through design and
implementation plans to ensure that long term impacts have been properly
considered and ensure benefits will be realised.
4.2. It is important that organisation design focuses on roles not individuals. The role of
OD governance is to ensure
« A holistic view of the Organisation Design Pan-POL
« Structure follows strategy
« Long term requirements are not compromised with short term gains
* Grade creep/costs are properly managed
« Implementation (costs and process) has also been duly considered and is fit for
purpose
4.3. Further work is on-going regarding the detail of the above and both the principles
and process will be presented to ExCo for agreement by the end of November.
4.4. While the organisation design principles will guide structural change and roles, the
resultant people implications will then need to be considered and managed.
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5. Managing the people implications
5.1.
5.2.
5.3.
5.4.
5.5.
5.6.
Each functional area, working with their HRBP will be accountable for describing and
documenting their revised organisation structure, together with supporting rationale
prior to consultation.
Appointments to the impacted area will be on the basis of capability. Selection
criteria will need to be developed. Whilst talent retention is a key consideration it
cannot itself be a selection criterion. Where roles remain unchanged the principle of
flow through will apply’.
. We will continue to work within the parameters of MTSF, ensuring the business has
a robust process in place to aid the realisation of efficiencies in a timely manner
whilst retaining capability and talent.
Line managers, supported by HR, will be accountable for communicating all
decisions to the people impacted by the change.
Individuals who remain at risk following the selection process will have the option of
electing to leave the business on voluntary redundancy. If at the end of the
consultation period, individuals remain unplaced, they will be made compulsory
redundant. This will apply to managerial and non-managerial grades. It is
anticipated that the cost reduction targets will not be met without the use of
compulsory redundancy.
To underpin this approach HR will ensure:
« There are clear and consistent selection for retention criteria, though detail will
vary according to function/role (these are predetermined under MTSF for non-
management roles)
A robust redeployment process is in place (see section 5)
We comply with collective consultation requirements in accordance with
legislation and our union agreements
e We have a clear and simple process for line managers to follow, ensuring we
comply with individual consultation and notification requirements
There is clear and straightforward supporting documentation and guidelines for
use by line managers
Appropriate support is in place for managers leading on the people implications of
change
' Flow through will only apply where the number of identical roles remains unchanged. Where there is
a reduction in the number of similar roles a selection criteria will be applied.
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5.7. The table below outlines the expected timings of potential redundancies as stated by
each directorate through the cost management steering group.
Month Total
Oct-13 1
Dec-13 1
Mar-14 31
Apr-14 48
‘Aug-14 6
Mar-14 81
TBC 42
Total 210
These numbers will need to be fully scoped and validated by HR and Finance;
however, where possible for the benefit of consultation with the Unions, any
discussions around redundancies should be phased. This will provide a coordinated
response to the Unions and will avoid the potential perception that the business is
undergoing a continuous programme of redundancies rather than a number of small
tranches.
5.8. Appendix 2 outlines an indicative timeline which will need to be followed in order to
ensure these principles are met and that our people are managed in line with our
values.
6. Redeployment & transition support
6.1. As part of the consultation process we will need to demonstrate that consideration
has been given to suitable alternative employment opportunities, prior to making
compulsory redundancies.
6.2. The points below outline the high level approach in order to create a framework to
support our people whose jobs may be affected by business change to find suitable
alternative employment or leave the business.
« Provide tools to assist our people in managing their career within the business by
being job ready to apply for suitable alternative roles to create internal mobility
and retain identified talent
« Reduce the overall cost to the business of managing a surplus population by
invoking CR whilst exploring any other options. ‘At risk’ individuals will be given
access to roles. Suitable alternatives will be assessed on capability. Where a
candidate demonstrates the requisite capability they will be appointed
e Support exiting employees by providing a cost effective outplacement support
service for those who volunteer to go
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6.3.
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Going forward, further suggested supporting mechanisms should include;
e No recruitment or permanent appointments to SLP without approval of CHRO
and CEO
« Active performance management — supporting managers to address weaker
performers (active campaign of support for consistent poor PDR performance)
* No internal recruitment/promotions without the approval of HRBP and functional
director
e ‘Promotions’ only on a temporary basis until redesign and cost reductions
achieved
e No job evaluations unless as a result of redesign enabling cost reduction
7. Proposal outline
71
In summary, following the decision to implement business change:
e Structural re-design and role changes agreed with the OD team
« Appropriate phased consultation with Unions ensuring a coordinated approach
e Selection criteria in place based on retention of capability
« A simple process in place to manage offers of suitable alternative employment
and voluntary redundancy
e Compulsory redundancy on statutory terms will be invoked at the end of the
consultation period for unresolved individuals
8. Risks/Mitigation
* Adverse effect on Industrial relations — Trade Unions may push back against
the use of CR as it will be seen as the first time we have utilised it as an option.
This will be mitigated by early engagement with the unions and a robust
redeployment process, ensuring all other options are explored and exiting
employees are treated with dignity and respect.
e Lack of a co-ordinated approach to redundancy and redeployment across
Post Office Ltd - This will be mitigated by a communications plan supporting
the proposed approach, with phased consultation with the Unions.
* Post Office does not meet legislative requirements, leading to negative
reputational impact and tribunal — Mitigated by the proactive interventions of
the HR Business Partners, ensuring the business meets legislative regulations.
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9. Recommendations
The Executive Committee is asked to:
« Agree to the proposed approach for managing the people implications of the cost
reduction work including the use of compulsory redundancy.
Fay Healey
12th November 2013
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8. Cost Reduction Update
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Appendix 4
Summary table of proposed efficiencies during 2013/15 2
Directorate FY14ii5 FTEs Key initiatives
Impact
* Amalgamate Marketing and Digital (10 FTE)
Commercial £1.2m 18 I, Restructure product teams (8 FTE)
* Refocus Audit & Training team (25 FTE)
« Reorganise Property team (17 FTE)
Network £2.2m 55 * Consolidate support for Branches (7 FTE)
+ Decentralise the Equipment team (5 FTE)
Fewer in FSC Chesterfield roles due to FRP (12 FTE)
Finance £1.5m 27 * Tactical outsourcing of FSC activities (9 FTE)
* Redistribute activity in HO finance (4 FTE)
* New processes at HR Service Centre (10 FTE) and
HR £0.7m 7 other efficiencies (7 FTE)
* Remodel CVIT services (single person operation and
fewer visits) (50 FTE)
Supply Chain £3.6m 88 * Manchester Cash Centre Closure (20 FTE)
* Online cash ordering (12 FTE)
* Consolidate support teams and activities (6 FTE)
Security £0.5m 15 * Decentralise the Security function (15 FTE)
Financial Services £0.2m 4 « Restructure existing teams
Total £9.9m I 210-240
? This excludes Crown Transformation and Network Transformation programmes. Some numbers are
indicative and yet to be validated through process review work.
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90 day noti )
45 day consultation period ay notice perins
Appendix 2
Indicative timeline for redundancy situations
Start TU
consultation and
submit HR1
Resourcing/Redeployment process
21 days Notice period -
Employee consultation Maximum of 13
ulti
ks
oooe eau confirmation of ‘at risk’ weeks
Decision made I **Consideration
rebusiness I given to payment
change in lieu of notice
21 days
Engage with HR 7 days
Business Selection process —
Partner (‘Table top exercise) Blecament
Structural and role
changes signed off identy sia iterative employment or
through Org Design :
governance, inc. role
design
'
Affected Serve notice
population
notified they are
‘at risk’
Assumptions
* The preferred approach for selection would be a table top exercise in order to meet timescales.
Where structural and roles changes mean that new roles exist, interviews would need to be
considered (impacting timescales)
*Any targeted end dates of Apr '14 would require payment in lieu of notice
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Location:
Post Office Ltd
Executive Committee meeting
12 November 2013
Room 501, 148 Old Street, London, England, EC1V 9HQ, United Kingdom
ATTENDANCE LIST
ATTENDEES
SIGNATURE
Alwen, Lyons
Aujard, Chris
Brown, Paul
Chris, Day
Fay, Healey
George, Martin
Kevin, Gilliland
Lesley, Sewell
Mark, Davies
Martin, Edwards
Nick, Kennett
Paula, Vennells
Sue, Barton
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