TIDMOSB
Directors' Remuneration Report
Annual Statement by the Chair of the Group Remuneration Committee
2019 was a transformational year for OSB following the Combination with
CCFS.
Dear Shareholder,
I am pleased to present the 2019 Directors' Remuneration Report which
sets out details of Directors' remuneration in respect of 2019, our new
Policy for financial years 2020 to 2022 and how
we intend to implement the Policy in 2020.
New Remuneration Policy
The Combination of OSB and CCFS completed with effect from
4 October 2019. This is transformational for OSB, nearly doubling its
size and enhancing its ability to compete in its core markets. As a
result, the Board and Group Remuneration Committee have considered the
Remuneration Policy for the newly formed Group Executive team, which
comprises both legacy CCFS and OSB Executives.
The current Directors' Remuneration Policy was approved at the AGM in
May 2018 and we had planned to operate it for the full three years;
however, the Combination will accelerate the Bank becoming a FCA Level 2
Firm under the regulations applicable to the financial services sector.
Accordingly, we will be seeking shareholder approval for a new Policy in
line with the more
stringent regulatory requirements applicable to FCA Level 2 Firms at the
May 2020 AGM, a year earlier than planned.
We are also taking the opportunity to incorporate into the Policy, the
recommendations in the 2018 UK Corporate Governance Code and latest
investor guidance on matters such as executive pension and executive
shareholdings.
The key change to the Policy as a FCA Level 2 Firm is that the value of
variable pay (annual bonus and performance shares) is limited to one
times the value of fixed pay (base salary, benefits and pension). This
limit may be increased under the FCA regulations from one times to two
times fixed pay, with
shareholder approval. Accordingly, alongside seeking shareholder
approval for the new Policy, we will also be seeking shareholder
approval to increase this regulatory limit imposed on variable pay to
two times fixed pay. In order to retain the competitiveness of the
overall total remuneration package, a direct consequence of this
regulatory requirement means that the package had to be
re-weighted so that the annual bonus and performance shares are reduced
from 150% of salary each, to 110% of salary each with a corresponding
increase to base salaries.
We will also be required to comply with the FCA regulations on deferral
and holding requirements for variable pay, as follows:
-- At least 60% of variable remuneration will be deferred over a seven year
period, with no vesting earlier than three years after the award is
granted, and pro-rated for the remaining years.
-- When each tranche of deferred remuneration vests, shares will be required
to be held for a further year.
In practice this means that:
-- In most instances annual bonus will be paid at least 50% in shares and
the remainder in cash following the publication of the audited results,
with the shares subject to a holding period. Whilst under the FCA
regulations the shares are only required to be held for a minimum of one
year, to enhance the shareholder alignment of Directors' pay further,
this has been extended to three years (in line with the current bonus
deferral horizons).
-- Performance Share Plan ('PSP') awards will continue to be subject to a
three-year performance period, with vesting pro-rated between years three
and seven. Shares delivered
on each vesting date will also be subject to a one year holding period,
taking the overall time horizon for each PSP award to eight years.
The structure of the deferral and holding requirements is set out in the
diagram below.
There will be enhanced clawback and malus for up to seven years after
the grant of an award (ten years in exceptional circumstances).
Other structural changes to ensure compliance with the Code and investor
guidelines are as follows:
- The pension provision for the Executive Directors has been reduced
from 13% of salary to 8% of salary, which is at the same percentage
level as the majority of the workforce.
For any new Executive Directors, the Policy will be the same.
- The minimum required shareholding level will remain at 250% and 200%
of salary respectively, for the CEO and CFO. Added to this will be a new
requirement so that after ceasing employment, Executive Directors will
be required to retain
a shareholding at the lower of the in-service shareholding requirement
and the actual level of shareholding on cessation, for a two year
period.
Operation of the Policy for 2020
As well as restructuring the packages as a consequence of becoming a
Level 2 Firm, which of itself would result in a re- weighting of the
package from variable pay to fixed pay; subject to shareholder approval,
we are increasing the overall level of remuneration in light of the
increased scope of the roles and increased legal and fiduciary
responsibility entailed in managing and overseeing a significantly
larger business. In particular,
this includes leading a series of long-term strategic initiatives to
ensure that the full anticipated benefits of the Combination are
actually realised.
The Board considers that Andy Golding and April Talintyre, our CEO and
CFO respectively, have been instrumental in the
exceptional performance delivered to shareholders since OSB's Initial
Public Offering ('IPO') and will be critical in relation to the
successful integration of CCFS and delivering the longer-term strategy
for the combined business. Since the IPO in 2013, the CEO and CFO have
overseen continued growth in underlying earnings of OSB, with an
attractive net interest margin and loan
book growth achieved whilst providing ongoing investment in the business
and controlling costs. Significant shareholder value
has also been delivered since listing, well above the FTSE All Share
Index despite uncertain economic times and Brexit headwinds specifically
affecting our market.
The Committee has carefully considered the appropriate pay levels for
the roles of CEO and CFO of the combined Group that will be appropriate
for the scope of the roles following the integration of the two
businesses. As a consequence of becoming a FCA
Level 2 Firm, even if the value of the total package was to remain
unchanged, there would still need to be a significant increase
to base salary to offset the required reduction in bonus and PSP
opportunity, from 150% of salary each, to 110% of base salary. On top of
this adjustment, the salary will be increased further, to deliver the
targeted overall level of remuneration, recognising that the value of
the salary increase flows through to the other elements of the package.
For the CEO, rather than moving to the targeted package immediately from
1 January 2020, following investor feedback during the consultation, we
are proposing a two-stage increase, with the first stage representing
50% of the increase. On this basis, from 1 January 2020 his overall
package will increase by just over 12%. The Committee will validate the
second stage increase, which will be effective from 1 January 2021,
taking into account (i) the performance against the integration plan,
(ii) the level of cost savings against published guidance, (iii) whether
the desired culture and customer focus has been delivered across the
whole organisation and (iv) the performance against the compliance plan.
For the CFO, where the increase to the overall package is lower, we
propose to increase the package in one step, by just over 13%.
On this basis, subject to shareholder and regulatory approval, we
propose that the remuneration packages would change as summarised below:
Maximum Maximum
Annual PSP Increase
Salary Pension Bonus Award to total
GBP'000s (% salary) (% salary) (% salary) remuneration
--------------- ------------------
Chief
Executive
Officer
Current
package GBP520 13% 150% 150%
With
effect
from 1
January
2020 GBP735 8% 110% 110% 12.1%
With
effect
from 1
January
2021 GBP815 8% 110% 110% 24.2%
Chief
Financial
Officer
Current
package GBP350 13% 150% 150%
With
effect
from 1
January
2020 GBP500 8% 110% 110% 13.2%
Proposed changes to Directors' remuneration packages
The Committee recognises the stakeholder sensitivity in increasing
Executive Directors' pay and has debated this issue at length and
consulted with significant shareholders. We believe that the proposed
new packages are commensurate with the additional complexity of each
role and greater responsibility for managing a significantly larger and
more complex business and, as part of this, delivering the successful
integration of the two businesses. Following the Combination, the
combined business will have total assets of GBP21.4bn (GBP10.5bn
previously), total headcount of around 1,800 employees (around 1,000
previously), an increase in the number of products offered, an increase
in the number of customers served and a near doubling of shareholders'
funds for which we are responsible. The combined business will also be
subject to materially higher regulatory scrutiny, including being a FCA
Level 2 Firm.
The proposed remuneration levels also ensure that there are appropriate
relativities compared to other Executives within the combined Group and
the rest of the workforce where, within prudent cost constraints, other
employees' packages are being adjusted, as appropriate, for increased
role complexity and responsibility.
We have also considered carefully pay levels within the limited number
of peers in the financial services sector and the FTSE more generally
and we are comfortable that the proposed packages would deliver a total
remuneration equivalent to
a broadly mid-market position.
In summary, we believe that this level of pay is appropriate
remuneration for the task in hand and will be appropriately competitive
to ensure that their services are retained.
Overview of 2019 performance
2019 was a transformational year for OSB following the Combination with
CCFS, which completed on 4 October 2019. The business maintained
momentum during the extended transaction process and has made strong
progress in the period since the Combination. Statutory pre-tax profit
was up 14% to
GBP209.1m, although statutory basic EPS decreased 5% as a result of the
increased share count post Combination. During 2019, OSB also returned
to the securitisation market through the Canterbury Finance programme,
and the Combination with CCFS strengthened our expertise in the area.
Financial results were delivered whilst maintaining a focus on customers
(customer NPS of +66 at OSB and +72 at CCFS) and we were included in
The Sunday Times 100 Best Companies to Work For list.
Incentive outcomes for 2019
The 2019 Executive Bonus Scheme was based 90% on the Business Balanced
Scorecard, which measures corporate performance against financial,
customer, quality and staff metrics and 10% on personal objectives.
Targets for each measure were set and assessed by the Committee
following the end of the financial year. As the Combination completed
late in the year, performance was based on OSB alone, with the Committee
having the ability to adjust the outcome to reflect the overall combined
Group performance for the remainder of the year, if appropriate.
The Executive team delivered strong performance across the Business
Balanced Scorecard with above-target levels of
performance in all categories other than the cost to income ratio and
broker satisfaction. In particular, underlying profit before tax of
GBP199.1m was achieved against a target of GBP196.9m (an increase of
c.3% versus 2018), with an improved customer satisfaction score and low
levels of complaints. There were also no 'high severity' operational
incidents in the year and a low number
of overdue management actions and staff metrics for diversity and
employee engagement were both achieved in full. As such, the Executive
Directors earned 65.89% out of the 90% of bonus assessed against the
scorecard.
As previously noted, given the Combination with CCFS completed late in
the year, the scorecard was assessed based on OSB's performance as a
standalone entity. The Committee maintained discretion to adjust the
outcome based on performance of the Group as a whole; however, having
considered this, confirmed that the outcome did not require adjusting
and was reflective of Group performance over the period. In combination
with strong
performance against individual targets, the Committee determined that
75.89% of the bonus was earned by each of the CEO and CFO. Full details
are provided on page 137. As in previous years, 50% of the bonus will be
deferred into shares for three years.
The 2017 Award under the PSP will vest in March 2020 at 75.1% of maximum
based on performance over the three-year performance period ending on 31
December 2019. As most of the three year performance period relates to
the performance of OSB before the Combination, the earnings per share
('EPS') performance relates to OSB alone. The total shareholder return
('TSR') performance will naturally include the share price impact
of the transaction over the final three months of the performance
period. Performance against the EPS targets exceeded the maximum
threshold and so 100% of the EPS part of the award vested. The TSR of
37.4% placed OSB between the median and upper quartile of the FTSE 250
peer group and 50.2% of the TSR part of the award vested. Overall, the
Committee is comfortable that there has been a clear and strong link
between reward and performance and that discretion should not be
exercised to adjust the incentive outcome.
Implementation of Policy in 2020
As explained above, the CEO's salary will be increased from
GBP520,000 to GBP735,000, as the first stage of a planned increase; and
the CFO's salary will be increased from GBP350,300 to GBP500,000.
The pension contribution has been reduced from 13% to 8% of base salary
under the new Policy, aligning the rate with the majority of the
workforce.
The 2020 annual bonus will be subject to a maximum limit of 110% of
salary and will be based on 90% of performance against the Business
Balanced Scorecard and 10% on personal objectives. Across all measures
there will be a strong focus on the successful integration of the two
businesses. 50% of any bonus will be delivered in shares, which may not
be sold for at least three years.
PSP awards of 110% of salary will be made to the Executive Directors
with performance being measured over the period to 31 December 2022
based on TSR (35% weighting), EPS growth (35% weighting), return on
equity ('ROE') (15% weighting), and as required by the regulations
applicable to a Level 2 Firm, a newly- introduced risk-based measure
(15% weighting). Furthermore,
at the time of vesting the Committee will assess whether the formulaic
vesting outcome is aligned with the underlying
performance, risk appetite and individual conduct over the period.
The targets for each measure are set out in this report and the
Committee is satisfied that these provide the appropriate
stretch, taking into account the business plan, external operating
environment and market expectations.
Awards will vest 20% each year between three and seven years after grant,
with each vested tranche subject to a one year holding period.
Chairman and Non-Executive Director fees
The Committee also reviewed and agreed the fees payable to the Chairman
and Deputy Chairman following the Combination and these are set out on
page 144 along with the details of the NEDs' fees, which were agreed by
the Board.
Consideration of shareholder views and response to the new UK Corporate
Governance Code
The Committee undertook extensive engagement with shareholders during
the review of the Policy and made several changes to the Policy
following investor feedback.
The Committee has also considered the updated UK Corporate Governance
Code (the 'Code') and updates to shareholder
and proxy advisor guidelines and we believe that the new Policy is fully
in line with the Code requirements and the latest investor guidelines.
Consideration of employee policies and views
I am pleased to have been appointed as the NED representing the
workforce on the Board. As a result, I regularly meet with employees,
individually and through forums such as the Primary Talent Group, the
Women's Networking Forum and the newly established Workforce Advisory
Forum, known as OneVoice, to understand their views and report those to
the Board. Further details on the activities of OneVoice can be found on
pages 146 and 147.
As part of the Policy review connected with the Combination, the
Committee oversaw a review of pay and benefits across the Group to
ensure coherence with the Executive Directors' Policy and FCA Level 2
regulatory compliance.
Concluding remarks
I would like to welcome new members to the Committee; Noël Harwerth
and Rajan Kapoor who have joined since completion of the Combination;
and Sarah Hedger who joined in March 2020. Rod Duke has stepped down
from the Committee and I would like to thank him for the significant
contribution he made to the formulation of these Policy proposals.
I look forward to your support for the binding resolutions to approve
the new Remuneration Policy; the increase of the limit to variable pay
to two times fixed pay and the advisory resolution to approve the Annual
Report on Remuneration at the 2020 AGM.
Mary McNamara
Chair of the Group Remuneration Committee
19 March 2020
Remuneration Policy
This section describes our Directors' Remuneration Policy, for which
shareholder approval will be sought at the AGM on
7 May 2020 and will formally come into effect from that date. It is
intended that this Policy will last the three financial years, 2020 to
2022.
Changes to the Policy
The following changes have been made to the Remuneration Policy.
Base salary
The salary review date will be changed from 1 April to 1 January, to
align Executive Directors' pay with the financial year.
Pension
The pension contribution rate (for incumbent and new Directors) has been
reduced to 8% of base salary, in line with the rate applicable for the
majority of the workforce.
Annual bonus
The maximum limit has been reduced from 150% to 110% of salary.
In line with the regulations applicable to a Level 2 Firm, the policy on
deferral will be changed so that instead of 50% of any bonus being
deferred in the form of an award over shares, which vest after three
years, the shares will be subject only to a holding period for the same
length of time. In the event of a
near maximum bonus there could be an additional requirement that part of
this bonus would need to be deferred in line with the deferral
arrangements for the PSP described below in order to comply with the FCA
requirement that 60% of total variable pay must be deferred over a seven
year period.
Performance Share Plan
The maximum value of PSP awards has been reduced from 200% to 110% of
base salary.
Instead of PSP awards vesting after three years and then being subject
to a two year holding period, awards will vest from the third
anniversary of grant and in tranches of 20% over years three to seven. A
one year holding period will apply following the vesting of each
tranche.
Share ownership guidelines
A requirement has been added so that the CEO and CFO must retain shares
equivalent to the in-service shareholding guideline requirement (250% of
salary for the CEO and 200% for the CFO) or, if lower, the actual
shareholding on cessation of employment, for two years after cessation
of employment (other than in exceptional circumstances).
Clawback and malus
Enhanced provisions ensure that incentive payments may be recovered for
up to seven years (ten years in exceptional circumstances).
Policy overview
This Policy has been prepared in accordance with the Large and
Medium-sized Companies and Groups (Accounts and Reports) Regulations
2008, as amended in 2013. The Policy has been developed taking into
account a number of regulatory and governance principles, including:
- The 2018 UK Corporate Governance Code
-- The regulatory framework applying to the Financial Services Sector
(including the Dual-regulated firms Remuneration Code and provisions of
CRD IV)
-- The executive remuneration guidelines of the main institutional investors
and their representative bodies
Approach to designing the Remuneration Policy
The Committee is responsible for the development, implementation and
review of the Directors' Remuneration Policy. In addressing this
responsibility the Committee works with management and external advisers
to develop proposals and recommendations. The Committee considers the
source of information presented to it, takes care to understand the
detail and ensures that independent judgement is exercised when making
decisions. The Group Risk Committee considers whether the Remuneration
Policy and practices are in line with the risk appetite and the Group
Audit Committee confirms incentive plan performance results, where
appropriate.
The Code sets out principles against which the Committee should
determine the Remuneration Policy for Executives. These are shown in the
first column of the table below, together with the Committee's approach,
in the second column:
Principle Committee approach
Clarity -- remuneration
arrangements should be -- We aim to set out our approach to remuneration in
transparent and promote this report as transparently as possible.
effective engagement with
shareholders and the workforce. -- We will engage with our Workforce Advisory Forum
(OneVoice) to explain the alignment of the Executive
Director Remuneration Policy with that of the
workforce.
Simplicity -- remuneration -- Within the required regulatory framework and in line
structures should avoid with investor guidance, we have structured the
complexity and their rationale Remuneration Policy to be as simple as possible.
and operation should be -- We have a simple policy offering pension at the same
easy to understand. rate as employees, an annual bonus plan which
cascades to most employees and, for senior employees,
performance shares to provide alignment with
longer-term performance.
-- There is however, a degree of complexity required for
Executive Director packages to ensure a robust link
to performance and to avoid reward for failure and to
comply with investor and Code requirements.
Risk -- remuneration arrangements } We have mitigated these risks through careful
should ensure reputational policy design, including long-term performance
and other risks from excessive measurement, the use of specific risk-based measures,
rewards, and behavioural deferral and shareholding requirements (including
risks that can arise from post cessation of employment) and discretion and
target-based incentive clawback provisions if incentive payment levels
plans, are identified are inappropriate.
and mitigated.
Predictability -- the } We look carefully each year at the range of likely
range of possible values performance outcomes for incentive plans when setting
of rewards to individual performance target ranges for threshold, target
directors and any other and maximum payouts and would use discretion where
limits or discretions necessary where this leads to an inappropriate
should be identified and pay outcome.
explained at the time
of approving the Policy.
Proportionality -- the -- Incentive plans are determined based on a proportion
link between individual of base salary so there is a sensible balance between
awards, the delivery of fixed pay and performance-linked elements.
strategy and the long-term -- There are provisions to override the formula-driven
performance of the Company outcome of incentive plans deferral and clawbacks to
should be clear. Outcomes ensure that poor performance is not rewarded or if
should not reward poor incentive payments are too high for the performance
performance. delivered, in the view of the Committee.
-- As illustrated by the chart showing our TSR
performance and historic CEO remuneration on page
140, we believe that there has been a strong link
between Directors' pay
and
performance.
Alignment to culture -- } The Business Balanced Scorecard used for the
incentive schemes should annual bonus is based on a wide range of measures
drive behaviours consistent linked to financial performance, customer, quality
with company purpose, and employees,
values and strategy. to ensure that payments are aligned to Company
culture and values.
} Bonus plans operate widely throughout the Company
and are approved by the Committee to ensure consistency
with Company purpose, values and strategy.
How the views of employees and shareholders are taken into account
The Committee does not formally consult directly with employees on
Executive pay but receives updates in relation to the remuneration
structure throughout the Group and salary and bonus reviews each year.
As set out in the policy table, in setting remuneration for the
Executive Directors, the Committee takes note of the overall approach to
reward for employees in the Company and salary increases will ordinarily
be in line (in percentage of salary terms) with those of the wider
workforce. Thus, the Committee is satisfied that the decisions made in
relation to Executive Directors' pay are made with an appropriate
understanding of the
wider workforce.
The Committee undertook extensive engagement with shareholders during
the review of the Policy. The Committee will seek to engage with major
shareholders and the main shareholder representative bodies and proxy
advisory firms when it is proposed that any material changes are to be
made to the Remuneration Policy or its implementation. In addition, we
will consider any shareholder feedback received in relation to the AGM.
The Remuneration Policy for Executive Directors
The table below and accompanying notes describe the Policy for Executive
Directors.
Purpose and link Operation and performance
Element to strategy conditions Maximum
Salary To reward Executives Paid monthly. Increases will generally
for the role and Base salaries are usually be broadly in line with
duties required. reviewed annually, with the average of the workforce.
Recognises individual's any changes usually effective Higher increases may
experience, responsibility from 1 January. be awarded in exceptional
and performance. No performance conditions circumstances such as
apply to the payment of a material increase in
salary. However, when setting the scope of the role,
salaries, account is taken following the appointment
of an individual's specific of a new Executive (which
role, duties, experience could also include internal
and contribution to the promotions) to bring
organisation. an initially below-market
As part of the salary review package
process, the Committee takes in line with the market
account of individual and over time or in response
corporate performance, increases to market factors.
provided to the wider workforce
and the external market
for UK listed companies
both in the financial services
sector and across all sectors.
Benefits To provide market The Company currently provides: There is no maximum cap
competitive benefits -- car allowance on benefits,
to ensure the -- life assurance as the cost of benefits
well-being of employees. -- income protection may vary according to
-- private medical insurance the external market.
-- other benefits as appropriate for the role
Pension To provide a contribution Directors may participate In line with the rate
to retirement planning. in a defined contribution receivable by the majority
plan, or, if they are in of the workforce, which
excess of the HM Revenue is currently 8% of salary.
& Customs ('HMRC') annual
or lifetime allowances for
contributions, may elect
to receive cash in lieu
of all or some of such benefit.
Annual To incentivise and The annual bonus targets The maximum bonus opportunity
bonus reward individuals will have a 90% weighting is 110% of salary per
for the achievement based on performance under annum.
of pre-defined, an agreed balanced scorecard The threshold level for
Committee-approved, which includes an element payment is up to 25%
annual financial, of risk appraisal. Within of maximum for any measure.
operational and the scorecard, at least
individual objectives 50% of the bonus will be
which are closely based on financial performance.
linked to the corporate 10% of the bonus will be
strategy. based on personal performance
targets.
The objectives in the scorecard,
and the weightings on each
element will be set annually,
and may be flexed according
to role. Each element will
be assessed independently,
but with Committee discretion
to flex the payout (including
to zero) to ensure there
is a strong
link between payout and
performance. On top of this,
there is a general discretion
to adjust the outturn to
reflect other exceptional
factors at the discretion
of the Committee.
50% of any bonus earned
will be delivered in shares,
subject to a three year
holding period.
In exceptional circumstances
of high bonus payments there
may be a requirement to
defer a proportion of bonus
with vesting staggered over
three to seven years, in
line with the deferral arrangements
for the PSP described below.
Updated clawback/malus provisions
apply, as described in note
1 overleaf.
Remuneration Policy
Purpose and link Operation and performance
Element to strategy conditions Maximum
---------------------------
Performance To incentivise and PSP awards will typically The maximum PSP grant
Share Plan recognise execution be made annually at the limit is 110% of salary
of the business discretion of the Committee, in respect of grants
strategy over the usually following the announcement in any financial year.
longer term. of full year results. The threshold level for
Rewards strong financial Usually, awards will be payment is 25% for any
performance over based on a mixture of internal measure.
a sustained period. financial performance targets,
risk- based measures and
relative TSR. At least 50%
of the PSP award will ordinarily
be based on financial and
relative TSR metrics.
The performance targets
will usually be measured
over three years.
Any vesting will be subject
to an underpin, whereby
the Committee must be satisfied;
(i) that the vesting reflects
the underlying performance
of the Company; (ii) that
the business has operated
within the Board's risk
appetite framework; and
(iii) that individual conduct
has been satisfactory. On
top of this, there is a
general discretion to adjust
the outturn to reflect other
exceptional factors at the
discretion of the Committee.
Awards granted after 1 January
2020 will vest in five equal
tranches of 20%, following
the Committee's determination
of performance and annually
thereafter. At the time
each tranche vests, a one
year holding period will
apply. (Awards granted before
this date will vest
in accordance with the terms
of the previous Policy).
Clawback and malus provisions
apply as described in note
1 below.
---------------------------
All-employee All employees, including Tax-favoured plan under Maximum permitted savings
share plan Executive Directors, which regular monthly savings based on HMRC limits.
(Sharesave are encouraged to may be made over a three
Plan) become shareholders or five year period and
through the operation can be used to fund the
of an all-employee exercise of an option, where
share plan. the exercise price is discounted
by up to 20%.
---------------------------
Share ownership To increase alignment Executive Directors are At least 250% of salary
guidelines between Executives expected to build and maintain for the CEO and at least
and shareholders. a minimum holding of shares. 200% of salary for the
Executive Directors must CFO or such higher level
retain at least 50% of the as the Committee may
shares acquired on vesting determine from time to
of any share awards (net time.
of tax) until the required The net of tax value
holding is attained. of any unvested deferred
On cessation of employment, awards (which are not
Executive Directors must subject to any future
retain the lower of the performance condition)
in-service shareholding may count towards the
requirement, or the Executive definition of a shareholding
Directors' actual shareholding, for this purpose.
for two years.
---------------------------
1. Clawback and malus provisions apply to both the annual bonus,
including amounts deferred into shares, and PSP awards. These provide
for the recovery of incentive payments within seven years in the event
of; (i) a material misstatement of results, (ii) an error, (iii) a
significant failure of risk management, (iv) regulatory censure, (v) in
instances of individual gross misconduct, (vi) corporate failure, (vii)
reputational damage or (viii) any other exceptional circumstance as
determined by the Board. A further three years may be applied following
such a discovery, in order to allow for the investigation of any such
event. In order to effect any such clawback, the Committee may use a
variety of methods: withhold deferred bonus shares, future PSP awards or
cash bonuses, or seek to recoup cash or shares already paid.
Choice of performance measures for Executive Directors' awards
The use of a balanced scorecard for the annual bonus reflects the
balance of financial and non-financial business drivers across the
Company. The combination of performance measures ties the bonus plan to
both the delivery of corporate targets, risk measures and
strategic/personal objectives. This ensures there is an appropriate
focus on the balance between financial and non-financial targets and
risk, with the scorecard composition being set by the Committee from
year to year depending on
the corporate plan.
The PSP is based on a mixture of financial and risk measures and
relative TSR, in line with our key objectives of sustained growth in
earnings leading to the creation of shareholder value over the long term
within an appropriate risk framework. TSR provides
a close alignment between the relative returns experienced by our
shareholders and the rewards to executives.
There is an underpin in place on the PSP to ensure that the payouts are
aligned with underlying performance, financial and non-financial risk
and individual conduct.
Annual bonus and PSP targets are set taking into account the business
plans, shareholder expectations, the external market and regulatory
requirements.
In line with HMRC regulations for such schemes, the Sharesave Plan does
not operate performance conditions.
How the Group Remuneration Committee operates the variable pay policy
The Committee operates the share plans in accordance with their
respective rules, the Listing Rules and HMRC requirements where
relevant. The Committee, consistent with market practice, retains
discretion over a number of areas relating to the operation and
administration of certain plans, including:
- Who participates in the plans.
-- The form of the award (for example, conditional share award or nil cost
option).
-- When to make awards and payments; how to determine the size of an award;
a payment; and when and how much of an award should vest.
-- Whether share awards will be eligible to receive dividend equivalents and
the method of calculation.
-- The testing of a performance condition over a shortened performance
period.
-- How to deal with a change of control or restructuring of the Group.
-- Whether a participant is a good/bad leaver for incentive plan purposes;
what proportion of an award vests at the original vesting date or whether
and what proportion of an award may vest at the time of leaving.
-- How and whether an award may be adjusted in certain circumstances (e.g.
for a rights issue, a corporate restructuring or for special dividends).
-- What the weighting, measures and targets should be for the annual bonus
plan and PSP from year to year.
The Committee also retains the discretion within the Policy to adjust
existing targets and/or set different measures for the annual bonus. For
the PSP, if events happen that cause it to determine that the targets
are no longer appropriate, an
amendment could be made so they can achieve their original intended
purpose and ensure the new targets are not materially less difficult to
satisfy.
Any use of the above discretions would, where relevant, be explained in
the Annual Report on Remuneration and may, as appropriate, be the
subject of consultation with the Company's major shareholders.
OSB operates in a heavily regulated sector, the rules of which are
subject to frequent evolution. The Committee therefore also retains the
discretion to make adjustments to payments under this Policy as required
by financial services regulations.
Conflicts of interest
The Committee ensures that no Director is present when their
remuneration is being discussed and considers any potential conflicts
prior to meeting materials being distributed and at the beginning at
each meeting.
Awards granted prior to the effective date
Any commitments entered into with Directors prior to the effective date
of this Policy will be honoured. Details of any such payments will be
set out in the Annual Report on Remuneration as they arise.
Remuneration Policy for other employees
The Committee has regard to pay structures across the wider Group when
setting the Remuneration Policy for Executive Directors and ensures that
policies at and below the executive level are coherent. There are no
significant differences in the overall remuneration philosophy, although
pay is generally more variable and linked more to the long term for
those at more senior levels. The Committee's primary reference point for
the salary reviews for the Executive Directors is the average salary
increase for the broader workforce.
A highly collegiate approach is followed in the assessment of the annual
bonus, with our corporate scorecard being used to assess bonus outcomes
throughout the Group, with measures weighted according to role, where
relevant.
Overall, the Remuneration Policy for the Executive Directors is more
heavily weighted towards performance-related pay than
for other employees. In particular, performance-related long-term
incentives are not provided outside of the most senior executive
population as they are reserved for those considered to have the
greatest potential to influence overall levels of performance.
Although PSPs are awarded only to the most senior managers in the Group,
the Company is committed to widespread equity ownership and a Sharesave
Plan is available to all employees. Executive Directors are eligible to
participate in this plan on the same basis as other employees.
Illustrations of application of Remuneration Policy
The chart below illustrates how the composition of the Executive
Directors' remuneration packages (as it is intended the Policy will be
implemented in 2020) would vary under various performance scenarios.
1. Minimum performance assumes no award is earned under the annual bonus
plan and no vesting is achieved under the PSP -- only fixed pay (salary,
benefits and pension are payable).
2. At on-target, half of the annual bonus is earned (i.e. 55% of salary) and
25% of maximum is achieved under the PSP (i.e. 27.5% of salary).
3. At maximum, full vesting is achieved under both plans (i.e. 110% of
salary under the bonus and PSP).
4. As at maximum, but illustrating the effect of a 50% increase in the share
price on PSP awards.
Other than as noted above, share price growth and all-employee share
plan participation are not considered in these scenarios.
The terms and provisions that relate to remuneration in the Executive
Directors' service agreements are set out below. Service contracts are
available for inspection at the Company's registered office.
Provision Policy
------------------------------------------------------------------------
Notice period 12 months on either side.
------------------------------------------------------------------------
Termination A payment in lieu of notice may be made on termination
payments to the value of the Executive Director's basic salary at
the time of termination. Such payments may be made in instalments
and in such circumstances can be reduced to the extent
that the Executive Directors mitigate their loss. Rights
to DSBP and PSP awards on termination are shown below.
The employment of each Executive Director is terminable
with immediate effect without notice in certain circumstances,
including gross misconduct, fraud or financial dishonesty,
bankruptcy or material breach of obligations under their
service agreements.
------------------------------------------------------------------------
Remuneration Salary, pension and core benefits are specified in the
agreements. There is no contractual right to participate
in the annual bonus plan or to receive long-term incentive
awards.
------------------------------------------------------------------------
Post-termination These include six months post termination restrictive covenants
against competing with the Company; nine months restrictive
covenants against dealing with clients or suppliers of
the Company; and nine months restrictive covenants against
soliciting clients, suppliers and key employees.
------------------------------------------------------------------------
Contract date Andy Golding 12 February 2020, April Talintyre 12 February
2020.
------------------------------------------------------------------------
Unexpired term Rolling contracts.
------------------------------------------------------------------------
Payments for loss of office
On termination, other than for gross misconduct, the Executive Directors
will be contractually entitled to salary, pension and contractual
benefits (car allowance, private medical cover,
life assurance and income protection) over their notice period. The
Company may make a payment in lieu of notice equivalent to the salary
for the remaining notice period. Payments in lieu of notice would
normally be phased and subject to mitigation, by offsetting the payments
against earnings elsewhere.
The Company may also pay reasonable legal costs in respect of any
compromise settlement.
Annual bonus on termination
There is no automatic/contractual right to bonus payments and the
default position is that the individual will not receive a payment. The
Committee may determine that an individual is a 'good leaver' and may
elect to pay a pro-rated bonus for the period of employment at its
discretion and based on full year performance.
Deferred bonus awards on termination
In respect of outstanding awards made under the previous policy,
deferred bonus awards normally lapse on termination of employment.
However, in certain good leaver situations, awards may instead vest on
the normal vesting date (or on cessation of
employment in exceptional circumstances). Good leaver scenarios include;
(i) death; (ii) injury, ill-health or disability; (iii) retirement with
the agreement of the Company; (iv) redundancy; (v) the employing company
ceasing to be a member of the Group; or (vi) any other circumstance the
Committee determines good leaver treatment is appropriate. Shares which
are subject to a holding period will ordinarily be released at the
normal time. Where a portion of the annual bonus is required to be
deferred in line with FCA regulations, the treatment on cessation will
be in line with deferred awards made under the previous policy (as
above).
Performance Share Plan awards on termination
Awards normally lapse on termination of employment. However, in certain
good leaver situations, awards may vest on the normal vesting date and
to the extent that the performance conditions are met. The Committee is,
however, permitted under the PSP rules and FCA regulations to allow
early vesting
of the award to the extent it considers appropriate, taking into account
performance to date. Unless the Committee determines otherwise, awards
vesting in good leaver situations will be pro- rated for time employed
during the performance period. Shares which are subject to a post
vesting holding period will ordinarily be released at the normal time.
Approach to recruitment and promotions
The ongoing remuneration package for a new Executive Director would be
set in accordance with the terms of the Company's approved Remuneration
Policy.
On recruitment, the salary may (but need not necessarily) be set at a
lower rate, with phased increases (which may be above
the average for the wider employee population) as the Executive Director
gains experience. The salary would in all cases be set
to reflect the individual's experience and skills and the scope of the
role. Annual bonus and PSP award levels would be in line with the
Policy.
The Company may take into account and compensate for remuneration
foregone upon leaving a previous employer using cash awards, the
Company's share plans or awards under Listing Rule 9.4.2 as may be
required. This would include taking into account the quantum foregone;
the extent to which performance conditions apply; the form of award; and
the time left to
vesting. These would be structured in line with any regulatory
requirements (such as the PRA Rulebook).
For all appointments, the Committee may agree that the Company will meet
certain appropriate relocation costs.
For an internal appointment, including the situation where an Executive
Director is appointed following corporate activity, any variable pay
element awarded in respect of their prior role would be allowed to pay
out broadly according to its terms.
Should an individual be appointed to a role (Executive or
Non-Executive) on an interim basis, the Company may provide additional
remuneration, in line with the Policy for the specific role, for the
duration the individual holds the interim role.
For the appointment of a new Chairman or NED, the fee arrangement would
be in accordance with the approved Remuneration Policy in force at that
time.
External appointments
Executive Directors may accept one directorship of another company with
the consent of the Board, which will consider the time commitment
required. The Executive Director would normally be able to retain any
fees from such an appointment.
The Remuneration Policy for the Chairman and Non-Executive Directors
Element Purpose and link Operation Maximum opportunity
to strategy
------------------------------
Fees To attract and retain The Chairman and NEDs There is no prescribed
a high-calibre Chairman are entitled to an annual maximum annual increase.
and NEDs by offering fee, with supplementary The Committee is guided
a market competitive fees payable for additional by the general increase
fee. responsibilities including in the non-executive market
the Chair of the Group but on occasion may need
Audit, Group Nomination to recognise, for example,
and Governance, Group change in responsibility
Remuneration and Group and/or time commitments.
Risk Committees and for
acting as
the SID.
Fees are reviewed periodically.
The Chairman and NEDs
are entitled to reimbursement
of travel and other reasonable
expenses incurred in the
performance of their duties.
------------------------------
Letters of appointment
The NEDs are appointed appointment that set out their duties and responsibilities.
by letters of The key terms are:
Provision Policy
Period of appointment Initial three year term, subject to annual re-election
by shareholders. On expiry of the initial term and
subject to the needs of the Board, NEDs may be invited
to serve a further three years. NEDs appointed beyond
nine years will be at the discretion of the Group
Nomination and Governance Committee.
-------------------------------------------------------------
Notice periods Three months on either side.
The appointments are also terminable with immediate
effect and without compensation or payment in lieu
of notice if the Chairman or NEDs are not elected
or re-elected to their position as a Director of the
Company by shareholders.
-------------------------------------------------------------
Payment in lieu of The Company is entitled to make a payment in lieu
notice of notice on termination.
-------------------------------------------------------------
Letters of appointment are available for inspection at the Company's
registered office. The effective dates of the current NEDs' appointments
are shown in the table below.
Non-Executive Date of appointment
Director
--------------------------------------------------------------
Graham Allatt 6 May 2014
--------------------------------------------------------------
Noël 4 October 2019 (appointed to the CCFS Board in June
Harwerth 2017)
--------------------------------------------------------------
Sarah Hedger 1 February 2019
--------------------------------------------------------------
Rajan Kapoor 4 October 2019 (appointed to the CCFS Board in September
2016)
--------------------------------------------------------------
Mary McNamara 6 May 2014
--------------------------------------------------------------
David Weymouth 1 September 2017
--------------------------------------------------------------
2019 Annual Report on Remuneration
Introduction
This section sets out details of the remuneration received by Executive
Directors and NEDs in respect of the financial year ended 31 December
2019. This Annual Report on Remuneration will, in conjunction with the
Annual Statement of the Committee Chair on pages 122 to 126, be proposed
for an advisory vote by shareholders at the forthcoming AGM to be held
on 7 May 2020. Where required, data has been audited by Deloitte and
this is indicated where applicable.
Membership
The Committee met seven times during the year. Mary McNamara (Chair),
Rod Duke and David Weymouth were members of the Committee throughout the
year. Sir Malcolm Williamson, Noël Harwerth and Rajan Kapoor joined
the Committee on 4 October 2019 following completion of the Combination.
Sarah Hedger joined the Committee in March 2020. Rod Duke and Sir
Malcolm Williamson ceased to be Directors from 4 February 2020. The
attendance of individual Committee members is set out in the Corporate
Governance Report.
The Board considers each of the members of the Committee to be
independent in accordance with the UK Corporate Governance Code.
Responsibilities
The Committee's responsibilities are set out in its terms of reference,
which are available on the Company's website. In summary, the
responsibilities of the Committee include:
- Pay for employees under the Committee's scope:
-- Setting the Remuneration Policy.
-- Determining total individual remuneration (including salary increases,
bonus opportunities and outcomes and LTIP awards).
-- Ensuring that contractual terms on termination, and any payments made,
are fair to the individual, and the Company, that failure is not rewarded
and that the duty to mitigate loss is fully recognised.
-- Approving the design of, and determining targets for, any
performance-related pay schemes operated by the Company and approving
total payments made under such schemes.
Employees under the Committee's scope include Executive Directors, the
Chairman of the Board, the Company Secretary and all employees that are
identified as Material Risk Takers for the purposes of the PRA and FCA's
Dual Regulated Remuneration Code ('Code Staff').
Key matters considered by the Committee
Key issues reviewed and discussed by the Committee during the year
included:
- Significant review of the Remuneration Policy
- Extensive consultation with major investors
- Combination-related remuneration matters
- Leaving arrangements for senior employees
-- All business as usual matters for employees under the Committee's scope:
-- Review and approve salary increases
-- Review and approve bonus awards
-- Determine the grants under the PSP
- Consider and approve the Directors' Remuneration Report.
Advisers to the Committee
Korn Ferry provided independent advice to the Committee during 2019,
having been appointed following a competitive tender process in 2017.
The total fees paid to Korn Ferry in 2019 were
GBP238,632 and were charged on a time and materials basis. This figure
includes a significant amount in respect of support for the Committee
and management in relation to the Combination.
Korn Ferry has no other connection with the Group and therefore the
Committee is satisfied that it provides objective and independent
advice. Korn Ferry is a member of the Remuneration Consultants Group and
abides by the voluntary code of conduct of that body, which is designed
to ensure objective and independent advice is given to remuneration
committees.
The Committee consults with the CEO, as appropriate, and seeks input
from the Group Risk Committee to ensure that any
remuneration or pay scheme reflects the Company's risk appetite and
profile and considers current and potential future risks.
The Committee also receives input on senior executive remuneration from
the CFO and Group HR Director. The Group General Counsel and Company
Secretary acts as Secretary to the Committee and advises on regulatory
and technical matters, ensuring that the Committee fulfils its duties
under its terms
of reference.
No individual is present in discussions directly relating to their own
pay.
Directors' pay outcomes for 2019
Remuneration and fees payable for 2019 -- (audited)
The table below sets out a single figure for the total remuneration
received by each Executive Director and NED for the years ending 31
December 2019 and 31 December 2018.
Annual Amount
Basic Taxable bonus bonus
salary benefits1 Pension paid2 deferred2 LTIP3 Total
Executive Directors Year GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------
Andy Golding 2019 516 21 67 296 296 413 1,609
2018 501 21 65 347 347 321 1,602
---------
April Talintyre 2019 347 16 45 199 199 219 1,025
2018 336 16 44 232 232 227 1,087
---------
1 Taxable benefits received include car allowance (CEO GBP20,000; CFO
GBP15,000) and private medical cover.
1. 50% of bonus is payable in cash and 50% in shares deferred for three
years.
2. The LTIP figure for the year ended 2018 has been restated based on the
share price on vesting of GBP3.9652 for the 2016 PSP.
Total fees GBP'000 2018 2019
Chairman
Sir Malcolm Williamson -- 631
David Weymouth 250 2501
Non-Executive Directors
Graham Allatt 89 91
Eric Anstee 83 88
Rod Duke 78 89
Margaret Hassall 63 71
Sarah Hedger -- 672
Mary McNamara 78 90
Directors appointed from CCFS
-- 263
Tim Brooke Noël Harwerth -- 313
Rajan Kapoor -- 293
Ian Ward -- 283
Former Directors
Andrew Doman 22 --4
Total 663 9235
NEDs cannot participate in any of the Company's share schemes and are
not eligible to join the Company pension scheme.
1. David Weymouth served as Chairman until 4 October 2019, his fee remained
unchanged due to additional responsibilities; Sir Malcolm Williamson
became Chairman from that date.
2. Appointed to the Board on 1 February 2019.
3. From completion on 4 October 2019.
4. Ceased to be a Director on 10 May 2018.
5. An additional amount of GBP5,000 was payable to each NED for significant
extra time spent on matters relating to the Combination.
Executive bonus scheme:
As noted in the Statement from the Committee Chair, given that the
Combination with CCFS completed late in the year, the Committee
determined that the Business Balanced Scorecard should be assessed based
on OSB's performance as a standalone entity. The Committee however,
retained the discretion to adjust the outcome based on performance of
the Group as a whole. The performance is set out below. The Committee
agreed that no adjustments were required and that the outcome was
reflective of underlying performance.
2019 performance against the Business Balanced Scorecard
Targets1
-----------
Threshold Budget Max Actual Outcome Outcome
Category Key performance indicator (25%) (50%) (100%) result CEO CFO
----------- ------------ ------------- ---------- ----------
Financial
(50%) Underlying PBT GBP192.9m GBP196.9m GBP204.9m GBP199.1m 33.44% 33.44%
All-in ROE 21.4% 22.4% 24.4% 23.2%
Cost to income ratio 31.0% 30.0% 28.0% 30.4%
Net loan book growth 16.2% 17.2% 19.2% 20.1%
Customer
(15%) Customer satisfaction 45 50 60 67 11% 11%
Broker satisfaction 27.5 30 35 26.6
Complaints 0.8% 0.5% 0.1% 0.1%
Quality
(15%) Overdue actions 3 2 0 1 11.45% 11.45%
Arrears 1.25% 1.0% 0.5% 0.96%
High-severity incidents 4 3 1 0
Staff (10%) Diversity2 27.0% 28.0% 30.0% 30.9% 10% 10%
Employee engagement3 3 4 6 7
Personal Vary by executive -- see
(10%) section below 10% 10%
Total 75.89% 75.89%
1. Targets -- based on a sliding scale between threshold, target and
maximum.
2. Diversity -- based on the gender diversity of the senior leadership team.
3. Employee engagement -- the employee engagement score represents the
number of categories which showed improvement versus the prior year.
2019 personal performance:
The Executive Directors were allocated up to a maximum of 10% of their
bonus based on their personal performance against agreed objectives.
The priorities for 2019 were identified in our 2018 Annual Report and
objectives built around these. Performance against the objectives for
both Executive Directors was outstanding, as was their overall
leadership of the Bank.
The objectives set at the start of the year and the Committee's
assessment of performance against them are set out below:
Objectives Key achievements
CEO Oversee the progression of Outstanding leadership in relation to the
all established 2019 strategic successful completion of the Charter Court
objectives in line with the transaction, whilst still also delivering
operating plan against BAU objectives
Maintain strong relationships Open and honest relationship with regulators
with all regulators maintained throughout 2019. This was a year
of exceptional regulator interactions in
the context of the Combination transaction
Continue to embed the OSB Outstanding leadership during a significant
Mission, Vision and Values corporate transaction. Externally measured
and the associated activities employee engagement increased
to positively impact on employee
survey results.
Establish and maintain strong Outstanding performance in relation to investor
relationships with key investors, roadshows and securing investor support
brokers and analysts for the transaction, including with new
shareholders following the completion of
the Combination
Undertake all prescribed All responsibilities delivered positively
and additional responsibilities and proactively
allocated under the Senior
Managers Regime
Consistently act as a positive Outstanding leadership in year of significant
ambassador for OSB at all change
times, demonstrating role
model behaviours.
CFO Deliver all Board-approved Outstanding leadership in relation to the
BAU and strategic projects, successful completion of the Charter Court
with a particular personal transaction, which became the single most
focus on Data and MI and important strategic project of the year
People-related initiatives
Complete feasibility assessment Feasibility and project plan completed
and project plan for Bankline
Direct
Continued automation of regulatory Significant progress on automation of regulatory
process and successful go-live process including use of new template during
with new PRA templates a year when resources were otherwise diverted
to the Combination transaction
Delivery of a new procurement Delivered on time and on budget with new
system to facilitate enhanced system operational by year end
Opex reporting and efficiencies
Continue to strengthen relationships Outstanding performance in relation to investor
with shareholders and other roadshows and securing investor support
stakeholders, including regulator for the transaction. Open and honest relationship
with regulators maintained throughout 2019
Effective oversight of the Step change in the Bank's capital and funding
management of the Bank's forecasting and planning capabilities during
capital and funding covering 2019
accurate forecasting, maintenance
of the capital and funding
plans
Successful 2018 year end Smooth delivery of OSB and pro forma combined
and 2019 first half close Group accounts
and delivery to the market.
Includes early finalisation
of subsidiary statutory accounts
Consistently act as a positive Outstanding leadership in year of significant
ambassador for OSB at all change
times, demonstrating role
model behaviours.
Based on this performance, the Committee determined that 10% of a
possible 10% for the individual element of the bonus should be paid to
the each of the CEO and CFO. The CEO and CFO therefore each earned
75.89% of maximum (114% of salary). Half of the bonus will be deferred
into shares for three years.
Long-term incentive plan (audited)
The 2017 LTIP award was granted on 16 March 2017 and measured
performance over the three financial years to 31 December 2019. Awards
will vest after publication of this report, based on the EPS and TSR
performance, at 75.1% of maximum, as set out below.
Given that the Combination with CCFS only completed approximately 33
months into a 36 month performance period, the Committee determined that
the EPS should be assessed against OSB's performance as if the
transaction had not occurred (the adjustments to EPS were agreed by the
Committee and the Chair of the Group Audit Committee).
TSR Vesting
Percentage performance of TSR
of that part EPS element Vesting TSR (50% versus part (50%
Performance of the award (50% of total EPS of EPS of FTSE 250 of total
level vesting award) performance part total award) constituents award)
Below Less than 6% 74 out
'threshold' 0% CAGR 13.6% CAGR 100% Below median of 50.2%
'Threshold' 25% 6% CAGR Median 176
'Stretch' 100% 12% CAGR Upper quartile
The 2017 PSP awards will therefore vest as follows:
Number
of Number Value Total
shares of from share value
Number of due to shares price vesting
Executive Directors shares granted vest lapsed increase1 GBP'0002
--------- -------------
Andy Golding 143,544 107,801 35,743 GBP77,832 GBP413,093
April Talintyre 76,066 57,125 18,941 GBP41,244 GBP218,903
---------
1. Value of share price increase based on a GBP3.11 share price at the time
of grant of the award, to the three-month average share price of
GBP3.8320 to 31 December 2019.
2. Value of shares based on a three-month average share price of GBP3.8320
to 31 December 2019. This value will be restated next year based on the
actual share price on the date of vesting. Dividend equivalents are not
paid under the Performance Share Plan.
The Committee is comfortable that the level of vesting is in line with
underlying performance and shareholder experience over the performance
period.
Executive pay outcomes in context
Percentage change in the remuneration of the CEO (audited)
The table below sets out the percentage change in base salary, value of
taxable benefits and bonus for the CEO compared with the average
percentage change for employees. For these purposes, UK employees who
have been employed for over a year (and therefore eligible for a salary
increase) have been used as a comparator group as they are the analogous
population (based on service and location).
Average percentage change 2018--2019
Taxable Annual
Salary benefits bonus
-------- ------------ ----------
CEO 3.02% 0% (14.7)%
UK employees 6.26% 0% 9.9%
Comparison of Company performance and CEO remuneration (audited)
The following table summarises the CEO single figure for total
remuneration, annual bonus and LTIP pay-out as a percentage of maximum
opportunity for the period between 2013 and 2019:
2013 2014 2015 2016 2017 2018 2019
--------
Andy Golding
Annual bonus (as a percentage
of maximum opportunity) 92.5% 92.63% 93.00% 88.75% 85% 91.75% 75.89%
LTIP vesting (as a percentage
of maximum opportunity) -- -- -- -- 100% 50% 75.1%
CEO single figure of remuneration
(GBP'000) 518 777 848 910 1,614 1,602 1,609
--------
Total shareholder return
The chart below shows the TSR performance of the Company over the period
from listing to 31 December 2019 compared to the performance of the FTSE
All Share Index. This index is considered to be the most appropriate
index against which to measure performance as the Company is a member of
this index.
This graph shows the value, at 31 December 2019, of GBP100 invested in
OneSavings Bank plc on admission (5 June 2014) compared with the value
of GBP100 invested in the FTSE All Share Index on the same date. The
other points plotted are the values at intervening financial year ends.
Source: Datastream (Thomson Reuters)
CEO pay ratios
The ratio of the CEO's single figure of total pay to median employee pay
is set out in the table below. The ratio has been calculated in
accordance with methodology B as it is the same pay data for employees
as is used for the Gender Pay Gap analysis. Full time equivalent pay for
individuals that do not work full time has been calculated by increasing
their pay pro rata to that of a full time individual. The median ratio
has decreased between 2018 and 2019 as a result of a combination of
factors, which result in the total
pay for the median individual within the workforce increasing, including
positive changes to the Group's pay policy and changes in the employee
population between 2018 and 2019. There has been no change to the
Company's employment models between the two years. The decrease in the
ratio between 2017 and 2018 was as a result of the above factors.
Additionally, the total pay for the CEO decreased between 2017 and 2018.
The median ratio is consistent with the pay, reward and progression
policies within the Company.
CEO pay ratio 2017 2018 2019
Method B B B
CEO single figure 1,614 1,574 1,609
Upper quartile 62.1 58.4 63.5
Median 46.1 39.4 37.2
Lower quartile 24.8 21.9 26.2
Basic salary Total
2019 (GBP'000) pay (GBP'000)
-----------------
CEO 516.2 1,609
Lower quartile -- Employee A 22.6 24.6
Median -- Employee B 34.7 41.8
Upper quartile -- Employee C 50.3 61.5
Relative importance of the spend on employee pay (audited)
The table below shows the Company's total employee remuneration
(including the Directors) compared to distributions to shareholders and
operating profit before tax for the year under review and the prior
year. In order to provide context for these figures, underlying
operating profit as a key financial metric used for remuneration
purposes has been shown.
2018 2019
Total employee costs GBP43.6m GBP60.5m
Distributions to shareholders GBP35.7m GBP61.8m
Underlying profit before tax (PBT) GBP193.6m GBP199.1m
Total employee costs vs PBT 22.5% 30.4%
Average headcount 989 1,278
Average PBT per employee GBP195,753 GBP155,790
Other disclosures relating to 2019 executive remuneration
Scheme interests awarded during the financial year (audited)
The table below shows the conditional share awards made to Executive
Directors in 2019 under the PSP and the performance conditions attached
to these awards:
Face value of award Percentage
Executive (percentage of Face value Number of awards End of performance Performance
salary) of of shares1 released period conditions
award for achieving (weighting)
threshold
targets
------------------------- -----------------
Andy Golding 150% GBP780,000 199,959 EPS (40%)
April Talintyre 150% GBP525,450 134,703 25% 31 December TSR (40%)
2021 ROE (20%)
------------- ------------ -------------
1. The number of shares awarded was calculated using a share price of
GBP3.9008 (the average mid-market quotation for the preceding five days
before grant on 14 March 2019).
2. Performance conditions are; (i) 40% TSR versus the FTSE 250 (25% vesting
for median performance increasing to maximum vesting for upper quartile
performance); (ii) 40% EPS (25% vesting for growth in EPS of 5% per annum
increasing to maximum vesting for 10% per annum); and (iii) 20% ROE (25%
vesting for average ROE of 20% increasing to maximum vesting for an
average of 25%). Financial performance conditions have been adjusted as a
result of the Combination to ensure that they are no harder or easier to
achieve than was originally intended when the targets were set. This is
also the case for the 2018 awards. Full details will be provided in the
relevant report at the end of the performance period.
All-employee share plans (audited)
Number
Market of options
price Number as at
Exercise 31 December Exercisable Exercisable of options 31 December
Executive Date of grant price 2019 from to granted 2019
---------------
1 December 1 June
Andy Golding 1 November 2019 GBP2.65496 GBP4.3340 2022 2023 6,779 6,779
April 1 December 1 June
Talintyre 1 November 2019 GBP2.65496 GBP4.3340 2022 2023 6,779 6,779
-------------
Statement of Directors' shareholdings and share interests (audited)
Total shares owned by Directors: Interest in share
Interest in shares awards Shareholding requirements
Subject
Beneficially Without to performance Shareholding Current
Beneficially owned performance conditions requirement shareholding
owned at at conditions as at (percentage (percentage
1 January 31 December at 31 December 31 December of basic of
2019 2019 2019 2019 salary) basic salary)1
-------------- -------------- --------------------- ---------------------
Executive
Andy Golding 680,429 512,941 194,916 523,942 250% 428% (Met)
April
Talintyre 263,001 220,346 132,554 331,774 200% 273% (Met)
Non-Executive
Eric Anstee 4,960 4,960
Rod Duke 80,000 80,000
Rajan Kapoor -- 8,970
Mary McNamara 22,350 22,350
Ian Ward -- 35,882
David Weymouth 13,178 13,178
Sir Malcolm
Williamson -- 71,764
1. Shareholding based on the closing share price on 31 December 2019
(GBP4.3340) and year end salaries.
External appointments
Andy Golding is a Director/Trustee of the Building Societies Trust
Limited. He receives no remuneration for this position. Andy Golding was
a member of the Financial Conduct Authority's Small Business
Practitioners Panel until his resignation on 17 October 2019.
Payments to departing Directors (audited)
During the year, the Company did not make any payments to past
Directors; neither has it made any payments to Directors for loss of
office.
How we will implement the Remuneration Policy for Directors in 2020
As set out in the Statement from the Group Remuneration Committee Chair,
there will be significant changes in the Directors' remuneration,
largely driven by increased regulatory requirements as a Level 2 Firm
under the PRA/FCA remuneration rules.
In particular, there has been a rebalancing of the package to comply
with the regulations capping variable pay (i.e. bonus + PSP award) at
two times fixed pay (salary + pension + benefits). As such, the CEO's
salary has been increased from GBP520,000 to GBP735,000, as the first
stage of a planned increase and the CFO's salary has been increased from
GBP350,300 to GBP500,000. The pension contribution has been reduced from
13% to 8% of base salary, in line with the rate for the wider employee
population. The opportunity under the annual bonus and the PSP has been
reduced from 150% of salary to 110% of salary to ensure that variable
pay is in line with the cap.
Annual bonus
The 2020 annual bonus will be subject to a maximum limit of 110% of
salary. The performance measures have been set in line with the Business
Balanced Scorecard. Accordingly, the balance of the metrics are as
follows:
Financial Customer Quality Staff Personal objectives
50% of bonus 15% of bonus 15% of bonus 10% of bonus 10% of bonus
opportunity opportunity opportunity opportunity opportunity
Underlying PBT Customer satisfaction Overdue management Diversity Vary by executive
All-in ROE Broker satisfaction actions Employee engagement Details of objectives
Cost to income Complaints Arrears (and performance
ratio Net loan High-severity against these)
book growth incidents Regulatory will be disclosed
compliance retrospectively
in next year's
report
Performance targets are considered to be commercially sensitive so will
not be published in advance. However, there will be full disclosure of
the targets set and the extent of their achievement in the 2020 Annual
Report on Remuneration. The Committee may apply discretion to adjust the
resultant bonus from the Business Balanced Scorecard if the result fails
to reflect broader performance and the wider shareholder experience.
Half of any bonus earned will be paid in shares which cannot be sold for
three years.
Performance Share Plan
PSP awards of 110% of salary will be made to the Executive Directors
with performance being measured over the period to
31 December 2022. The performance conditions will be EPS (35% weighting),
relative TSR (35% weighting), return on equity (15% weighting) and a new
non-financial/risk-based metric (15% weighting).
At the time of vesting, the Committee will assess whether the formulaic
vesting outcome is aligned with the underlying performance, risk
appetite and individual conduct over the period.
The target range for EPS has been increased from the range used for the
full year 2019 PSP award with the growth referenced off the combined pro
forma full year 2019 EPS figure for the two businesses. The minimum
threshold for the ROE target range has, however, been reduced slightly
from a 20% average to a 19% average. This was to ensure delivery of the
threshold, plan and maximum performance levels would result in
appropriate payouts for the performance of the combined business,
recognising that this target range and required performance would still
remain market-leading against the banking sector. The Committee is
comfortable that these provide the appropriate stretch, taking into
account the business plan, external operating environment and market
expectations.
Percentage
Return on of that
TSR element equity (15% Non-financial/risk part of
EPS element (35% (35% of total of total scorecard (15% the award
Performance level of total award) award) award) of total award) vesting
------------
Commercially
Below 'threshold' Less than 5% CAGR Below median Below 19% sensitive 0%
'Threshold' 5% CAGR Median 19% 25%
'Stretch' 12% CAGR Upper quartile 25% 100%
Pro rata vesting in between
the above points
-------------------------------------
For the newly-introduced risk-based measure, the Committee will assess
the risk management performance with regard to all relevant risks
including, but not limited to, conduct, credit, funding, liquidity,
market, operational and regulatory risk. There will be full disclosure
of the Committee's assessment on a retrospective basis.
Awards will vest 20% each year between three and seven years after grant,
with each vested tranche subject to a one year holding period.
Share ownership guidelines
The CEO and the CFO are required to accumulate and maintain a holding in
ordinary shares in the Company equivalent to no less than 250% of salary
and 200% of salary respectively. This is calculated on the basis of the
value of beneficially owned shares plus the net of tax value of deferred
bonus shares or any other unvested share awards which are not subject to
performance. Half of any vested share awards must be retained until the
guideline is achieved. Based on the current share price, the CEO and CFO
hold shares in excess of these levels. Under the new policy, the
guidelines will apply for two years following cessation of employment
Chairman and Non-Executive Director fees
Following the completion of the Combination, the fees for the Chairman
and NEDs were reviewed in light of the changed responsibilities. The NED
fees for 2020 are as follows:
Base fees GBP'000
Chairman 300
Non-Executive Director 70
Senior Independent Director 20
Additional Board Committee fees Chair Member
Group Nomination and Governance Committee 20 5
Board Integration Committee n/a 5
Group Audit Committee 30 5
Group Remuneration Committee 30 5
Group Risk Committee 30 5
Group Models and Ratings Committee 10 5
Statement of voting at the Annual General Meeting
Shareholders were asked to approve the 2018 Annual Report on
Remuneration at the 2019 AGM. The Directors' Remuneration Policy was
approved at the 2018 AGM. The votes received are set out below:
% of
% of votes Votes votes Total votes Votes
Resolution Votes for cast against cast cast withheld
---------------- ------------- ------------ ----------------- ---------------
To approve the 2018 Remuneration
Report (2019 AGM) 184,483,824 91.42 17,322,608 8.58 201,806,432 1,003,684
To approve the Remuneration
Policy (2018 AGM) 164,447,865 83.71 32,004,658 16.29 196,452,523 8,008,753
-------------
The Committee has undertaken extensive engagement throughout 2019 as the
new policy has been formulated. The Committee has considered feedback
and made changes in response to views expressed. The Committee has
continued to engage with shareholders and has written to shareholders
who voted against the Remuneration Policy in 2018 to understand their
rationale, which related to the increase in incentive opportunity. In
response, the Committee will continue to ensure that incentives are
subject to stretching performance conditions commensurate with the
overall level of remuneration payable.
Approval
This report was approved by the Board of Directors, on the
recommendation of the Group Remuneration Committee, on 19 March 2020 and
signed on its behalf by:
Mary McNamara
Chair of the Group Remuneration Committee
19 March 2020
Directors' Report: Other Information
Share capital and rights attaching to shares
The Company had 445,443,454 ordinary shares of GBP0.01 each in issue as
at 31 December 2019. 1,312,862 ordinary shares were issued during 2019;
65,124 at a price of GBP1.34; 5,516 at a price of GBP2.2658; 82,750 at a
price of GBP2.40; 1,573 at a price of GBP3.1454 and 1,157,899 at
GBP0.01. 199,643,055 ordinary shares were issued at a price of GBP0.01
per share for the Combination.
Further details relating to share capital can be found in note 42.
Without prejudice to any special rights previously conferred on the
holders of any existing shares or class of shares, any share in the
Company may be issued with such rights (including preferred, deferred or
other special rights) or such restrictions, whether
in regard to dividend, voting, return of capital or otherwise as the
Company may from time to time by ordinary resolution determine (or, in
the absence of any such determination, as the Directors may determine).
Authorities to allot and pre-emption rights
At the 2019 AGM, shareholders renewed the general authority for the
Directors to allot up to GBP817,184 of the nominal value of ordinary
shares of GBP0.01 each. In addition, shareholders gave authority for the
Directors to grant rights to subscribe for, or to convert any security
into regulatory capital convertible instruments up to GBP294,186 of the
nominal value of ordinary shares equivalent to 12% of issued share
capital.
Repurchase of shares
The Company has an unexpired authority to repurchase ordinary shares up
to a maximum of 24,515,503 ordinary shares. The Company did not
repurchase any of its ordinary shares during 2019 (2018: none).
Employee share schemes
The details of the Company's employee share schemes are set out on pages
129 and 130 in the Directors' Remuneration Report.
Results and dividends
The results for the year are set out in the Statement of Comprehensive
Income on page 162. Our dividend policy for 2020 remains a payout ratio
of at least 25% of underlying profit after taxation to ordinary
shareholders. The Directors recommend the payment of a final dividend of
11.2 pence per share on 13 May 2020, subject to approval at the AGM on 7
May 2020, with an
ex-dividend date of 26 March 2020 and a record date of 27 March 2020.
This is in addition to the 2019 interim dividend of 4.9 pence per share
paid during the year (2018: 14.6 pence total dividend).
Directors and Directors' interests
The names of the Directors who served during the year can be found in
the attendance chart on page 102.
Directors' interests in the shares of the Company are set out on page
142 in the Directors' Remuneration Report. None of the Directors had
interests in shares of the Company greater than 0.28% of the ordinary
shares in issue. There have been no
changes to Directors' interests in shares since 31 December 2019.
Equal opportunities
The Group is committed to applying its Diversity and Inclusion Policy at
all stages of recruitment and selection. Short-listing, interviewing and
selection will always be carried out without regard to gender, gender
reassignment, sexual orientation, marital or civil partnership status,
colour, race, nationality, ethnic or national origins, religion or
belief, age, pregnancy or maternity leave or trade union membership. Any
candidate with a disability will not be excluded unless it is clear that
the candidate is unable to perform a duty that is intrinsic to the role,
having taken into account reasonable adjustments. Reasonable adjustments
to the recruitment process will be made to ensure that no applicant is
disadvantaged because of his/her disability. Line Managers conducting
recruitment interviews will ensure that the questions that they ask job
applicants are not in any way discriminatory or unnecessarily intrusive.
This commitment also applies to existing employees, with the necessary
adjustments made, where there is a change in circumstances.
Employee engagement
Employees are kept informed of developments within the business and in
respect of their employment through a variety
of means, such as employee meetings, briefings and the intranet.
Employee involvement is encouraged and views and suggestions are taken
into account when planning new products and projects. The Sharesave
'save as you earn' Scheme is an all-employee share option scheme which
is open to all UK-based employees.
The Sharesave Scheme allows employees to purchase options by saving a
fixed amount of between GBP5 and GBP500 per month over a period of
either three or five years, at the end of which the options, subject to
leaver provisions, are usually exercisable. The Sharesave Scheme has
been in operation since June 2014 and is granted annually, with the
exercise price set at a 20% discount of the share price on the date of
grant.
During the year, a new Workforce Advisory Forum (known as OneVoice or
the Forum) was established to gather the views of the workforce to
enable the Board and Group Executive Committee to consider a broadly
representative range of stakeholder perspectives to guide strategic
decisions for the
future of the Company and its subsidiaries. The Forum consists of
volunteer representatives from each of the various business areas, as
well as permanent members consisting of a designated NED, Mary McNamara,
a member of the Group Executive Committee, Jason Elphick and a
representative from HR Management. Other NEDs and members of the Group
Executive Committee are invited to attend meetings on a rotational
basis.
The first OneVoice meeting was held in November 2019 and provided an
introduction for the nominated employee representatives. In advance of
this meeting, the employee
representatives held drop-in sessions within their business areas in
order to engage with employees and identify topics impacting the
workforce, of which it was felt the Board and Group Executive Committee
should have an awareness. These topics were then raised at the November
2019 meeting and noted as future agenda items. It is anticipated that a
similar process will be followed in advance of each subsequent meeting.
Greenhouse gas emissions
Information relating to greenhouse gas emissions can be found on page 84
in the Strategic Report.
Political donations
Shareholder authority to make aggregate political donations not
exceeding GBP50,000 was obtained at the 2019 AGM. Neither the Company
nor any of its subsidiaries made any political donations this year.
Notifiable interests in share capital
At 31 December 2019, the Company had received the following
notifications of major holdings of voting rights pursuant to
No. of % of issued
ordinary share
shares capital
---------------
Barclays Plc 29,199,962 6.56
Elliot Capital Advisors
L.P. 52,937,640 11.90
Eleva Capital SAS 18,319,400 4.12
JPMorgan Asset Management
(UK) Limited1 13,035,838 5.36
Merian Global Investors
(UK) Ltd 73,911,283 16.64
the requirements of Rule 5 of the Disclosure Guidance and Transparency
Rules:
1. This notification was received in April 2017, no other notifications
have been received since.
% of issued
No. of ordinary share
shares capital
---------------------
BlackRock, Inc.1 21,031,243 4.72
Elliot Capital Advisors
L.P. 43,953,201 9.87
Merian Global Investors
(UK) Ltd 65,938,917 14.80
Since 31 December 2019, the Company received the following
notifications:
1. BlackRock, Inc. also gave notice of financial instruments and
financial instruments with a similar economic effect to qualifying
financial instruments representing 1,192,067 (0.29 per cent) of voting
rights.
Barclays Plc gave notice on 6 February 2020 that its shareholding fell
below the notifiable threshold.
Annual General Meeting
Accompanying this report is the Notice of the AGM which sets out the
resolutions to be proposed to the meeting, together with an explanation
of each. This year's AGM will be held at the offices of Slaughter and
May, One Bunhill Row, London EC1Y 8YY on
7 May 2020. The meeting will start at 11am with registration from
10.30am.
Other information
Likely future developments in the Group are contained in the Strategic
Report on pages 8 to 93.
Information on financial instruments including financial risk management
objectives and policies including, the policy for hedging the exposure
of the Group to price risk, credit risk, liquidity risk and cash flow
risk can be found in the Risk review on pages 52 to 72.
Details on how the Company has complied with section 172 can be found
throughout the Strategic and Directors' Reports and on page 89.
Going concern statement
The Directors have undertaken a going concern assessment in accordance
with 'Guidance on Risk Management, Internal Control and Related
Financial and Business Reporting', published by the Financial Reporting
Council in September 2014.
As a result of this assessment, the Directors are satisfied that the
Group and the Company have adequate resources to continue to operate as
a going concern for a period in excess of 12 months from the date of
this report and have prepared the financial statements on that basis. In
assessing whether the going concern basis is appropriate, the Directors
have considered the information contained in the financial statements,
the latest business plan, profit forecasts and the latest working
capital forecasts.
These forecasts have been subject to sensitivity tests, including stress
scenarios relating to Coronavirus and Brexit. Having reviewed the ICAAP
and ILAAP, the Directors are satisfied that the Group and the Company
have adequate resources to continue in operational existence for a
period in excess of 12 months.
Key information in respect of the Group's SRMF, objectives and processes
for mitigating risks, including liquidity risk, are set out in detail on
pages 54 to 72.
Jason Elphick
Group General Counsel and Company Secretary
OneSavings Bank plc Registered number: 07312896
19 March 2020
Statement of Directors' Responsibilities
in respect of the Annual Report and the financial statements
The Directors are responsible for preparing the Annual Report and the
Group and parent Company financial statements in accordance with
applicable law and regulations.
Company law requires the Directors to prepare Group and parent Company
financial statements for each financial year. Under that law they are
required to prepare the Group financial statements in accordance with
International Financial Reporting Standards as adopted by the European
Union ('IFRSs' as adopted by the
EU) and applicable law and have elected to prepare the parent Company
financial statements on the same basis.
Under company law the Directors must not approve the financial
statements unless they are satisfied that they give a true and fair view
of the state of affairs of the Group and parent Company and of their
profit or loss for that period. In preparing each of the Group and
parent Company financial statements, the Directors are required to:
-- select suitable accounting policies and then apply them consistently;
-- make judgements and estimates that are reasonable, relevant and reliable;
-- state whether they have been prepared in accordance with IFRSs as adopted
by the EU;
-- assess the Group and parent Company's ability to continue as a going
concern, disclosing, as applicable, matters related to going concern; and
-- use the going concern basis of accounting unless they either intend to
liquidate the Group or the parent Company or to cease operations, or have
no realistic alternative but to do so.
The Directors are responsible for keeping adequate accounting records
that are sufficient to show and explain the parent Company's
transactions and disclose with reasonable accuracy at any time, the
financial position of the parent Company and enable them to ensure that
its financial statements comply with the Companies Act 2006. They are
responsible for such internal control as they determine is necessary to
enable the preparation of financial statements that are free from
material misstatement, whether due to fraud or error, and have general
responsibility for taking such steps as are reasonably open to them to
safeguard the assets of the Group and to prevent and detect fraud and
other irregularities.
Under applicable law and regulations, the Directors are also responsible
for preparing a Strategic Report, Directors' Report, Directors'
Remuneration Report and Corporate Governance Statement that complies
with that law and those regulations.
The Directors are responsible for the maintenance and integrity of the
corporate and financial information included on the Company's website.
Legislation in the UK governing the
preparation and dissemination of financial statements may differ from
legislation in other jurisdictions.
Responsibility statement of the Directors in respect of the annual
financial report
} the financial statements, prepared in accordance with the applicable
set of accounting standards, give a true and fair view of the assets,
liabilities, financial position and profit or loss of the Company and
the undertakings included in the consolidation taken as a whole; and
} the Strategic Report/Directors' Report includes a fair review
of the development and performance of the business and the position of
the issuer and the undertakings included in the consolidation taken as a
whole, together with a description
of the principal risks and uncertainties that they face.
Each of the persons who is a Director at the date of approval of this
report confirms that:
-- so far as the Director is aware, there is no relevant audit information
of which the Company's auditor is unaware; and
-- they have taken all the steps they ought to have taken as a Director in
order to make themselves aware of any relevant audit information and to
establish that the Company's auditors are aware of that information.
Approved by the Board and signed on its behalf by:
Jason Elphick
Group General Counsel and Company Secretary
19 March 2020
(END) Dow Jones Newswires
March 31, 2020 13:03 ET (17:03 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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