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CO-OPERATIVE GROUP:
TURNAROUND TO REBUILD
The Remuneration Supplement
Contents
Introduction ........................................................................................................................................ 2
The Remuneration Policy Votes .......................................................................................................... 2
Overall Reasoning for 2015 onwards .................................................................................................. 2
Fair Pay ............................................................................................................................................ 2
Competitive Pay with Rewards for Successes ................................................................................. 2
Pay Levels for Colleagues ................................................................................................................ 2
Pension Changes from October 2015 ................................................................................................. 3
Rebalancing Executive Salaries ........................................................................................................... 3
The Annual Incentive Plan (AIP) changes........................................................................................ 3
The Long Term Incentive Plan (LTIP) changes ................................................................................. 3
Comparison with Previous Long Term Incentive Plans ................................................................... 4
Reduced Notice Periods A Work in Progress ................................................................................... 4
Garden Leave .................................................................................................................................. 5
Notice Period Pay ............................................................................................................................ 5
The Chief Executives Pay Reduction .................................................................................................. 5
Fixed Pay Cut, from July 2016 ......................................................................................................... 5
Annual Incentive Plan and Long Term Incentive Plan cuts, from January 2017 ............................. 5
What These Changes Will Mean Once All Are In Force .................................................................. 6
Other Payments to Executives ............................................................................................................ 6
Relocation Payments ...................................................................................................................... 6
Forfeiture of Previous Incentive Type Rewards .............................................................................. 7
Payments on Leaving the Group ..................................................................................................... 7
Non-executive Directors Remuneration ............................................................................................ 7
Introduction
This is a summary of the first report from the Co-operative Groups new Remuneration Committee, a
report which informs the reader that it was written with members concerns about the existing
remuneration policy in-mind.
The new remuneration report includes a separate element which focusses on policy itself, rather
than just its results. Whilst the vote upon that policy element of the Committees report is not
binding, if members should happen to oppose it then the Committee will try to address those
concerns before putting it to any future vote.
The current remuneration structure will remain in place until 2017, but with some policy changes
that have already taken place and which are included in this report.
Fair Pay
As and when executives hit the targets set for them, the total remuneration for executives will be in
the middle of the range of pay packages offered by similarly sized businesses, for similarly
challenging roles.
The standardised goals for the 2015-2017 Long Term Incentive Plan are as follows:
40%
Is based on the net debt:EBITDA ratio; the ratio usually used to determine a businesss
ability to pay-off its debts. The formula is: Debt - Cash EBITDA. EBITDA is a business's total
Earnings Before Interest, Taxes, Depreciation and Amortization.
25%
Colleague Engagement
25%
Membership Spend
10%
Brand Health
Fixed pay is not increasing for 2015 or 2016; also, any new Executive that joins the Group will
start with a lower ratio of fixed to goal-based pay than the present Executives currently receive.
At present the pay-out from the Long Term Incentive Plan, where there was none in the
previous year, has resulted in significantly higher total pay packages for the current Executive.
Garden Leave
When the Group deems it necessary to keep an executive under a contract of employment, but not
have them work their notice (for example: if they are under an open investigation); that executive
will be placed on garden leave. Whilst an executive is on garden leave they will only receive the
payments that the Group is contractually obliged to pay them.
Annual Incentive Plan and Long Term Incentive Plan cuts, from January 2017
These represent significant pay package reductions for the Chief Executive and they will be more
significant because of the reduction in their base/fixed salary which will take full effect from 2017.
Annual Incentive Plan and Long Term Incentive Plan payments are calculated on the base/fixed
salary of the executive, so a reduction in base pay will automatically mean a reduction in Annual
Incentive Plan pay from 2016. In addition, Annual Incentive Plan payments that the Chief Executive
can earn will be reduced as a percentage of their base salary from 100% to 40% in 2017. The
maximum level of Long Term Incentive Plan payments that the Chief Executive can earn will also be
reduced from 100% of their base salary to 50% of their base salary.
You can see what these changes to the Chief Executives pay will mean in real terms in the chart
below:
2015
Pay Year
2016
2017
2018
2019
-
500
1,000
1,500
2,000
2,500
3,000
3,500
Value in (000's)
*LTIP awards are set scheme by scheme, with each scheme lasting 3 years, Maximum LTIP refers to the maximum
possible pay-out level if the CEO exceeds his targets by 100%.
Relocation Payments
Relocation payments are provided to new executives, at the Remuneration Committees discretion,
in order to help them to move closer to their new place of work. If executives dont have to travel
too far to get to work, or have to live away from their families in order to get to work, then they are
more likely to stay working with the Co-operative Group, rather than looking for another job closer
to home.
In order to establish how the Group Directors fees compare to our competitors I looked first to the
nearest competitor (of a roughly similar size) that might be considered to be a co-operative. This
comparison wasnt highly illuminating as the John Lewis Partnerships accounts are less transparent
than those of the Group. Then I turned to the 2015 Annual Report of the Nationwide Building Society
(p. 91), given its status as a registered mutual:
Fee policy
Chairman
375,000
310,000
Basic fee
62,000
62,000
30,000
30,000
35,000
35,000
15,000
12,500
30,000
25,000
15,000
12,500
3,000
3,000
* The Senior Independent Director fee of 30,000 from 2014/15 is inclusive of committee membership fees. Committee
Chairman fees will continue to be paid.
In terms of areas to monitor over the coming years, on the current evidence, executives
remuneration packages would appear to have more areas that could create cause for concern than
the non-executive directors pay.
Overall, despite misgivings highlighted in this report, the proposed remuneration policy represents
significantly better value for money and a few more co-operative elements, than the previous one.
The official information needed to produce this report was also more accessible than that of
previous Remuneration Reports published by the Group, due in no small part to the increase in
explanatory information.