- Governance
Remuneration Report
Prior to the Merger, the remuneration packages of the Executive Directors and senior management in both Taylor Woodrow and George Wimpey included a significant element of performance related incentive remuneration, set against challenging business performance objectives. This remains a key component of the new Remuneration Policy and Philosophy. The chart opposite shows the proportion of fixed to performance based remuneration for 2007 and 2008. Fixed remuneration comprises base salary. Performance based remuneration comprises an annual cash bonus and long term incentive plan. The chart illustrates the mix of remuneration assuming target levels of annual bonus (including the synergy bonus) are met and the annualised expected value of long term incentive provision.
Non Executive Director positions
Subject to Board approval and provided that such appointments are in accordance with the requirements of the Combined Code, Executive Directors are permitted to take on non executive positions with other companies. Executive Directors are permitted to retain their fees in respect of such positions. During 2007, Peter Johnson was a non executive director of (i) Shanks Group plc and received fees of £40,000 and (ii) Oriel Securities Limited where he received fees of £25,000. Ian Smith (a Director of the Company until the Merger) was a non-executive director of Galiform plc where he received fees of £40,000 up to the date of the Merger. As set out in the Corporate Governance report the Board has recently reviewed the external interests of all Directors.
Base salary
The Committee reviewed the base salaries of Executive Directors at the time of the Merger in order to align salaries competitively with external market practice and ensure that Executive Directors were fairly compensated against FTSE peers. As part of this process the Committee took detailed advice from Mercer who provided specialist advice as well as benchmarking data to the Committee based on relevant peer groups. The review also took into account the personal performance of each Director and the additional size and complexity of the combined business following the Merger.
As part of the review, the Remuneration Committee considered market data from two peer groups as described below with regard to both base salaries and remuneration practices generally:
- Sector Based Peer Group: this Group is used in order to enable the Committee to track compensation policy and structures so as to assist it with design decisions primarily around incentive structures and performance measures. Sector Based Peers are selected based on comparability of financial profile (using sales and asset ratios) and business activities;
- Size Based Peer Group: this cross sector Group is used in order to assist the Committee with decisions on appropriate compensation quantum in order to reflect the importance of Company size on executive compensation levels. Size based peers are selected based on market capitalisation and sales and asset ratios in order to ensure similar business profile.
Following the review, Pete Redfern’s base salary was increased with effect from the Merger from £480,000 to £700,000 per annum, Peter Johnson’s base salary was increased from £406,000 to £440,000 per annum and Ian Sutcliffe’s was increased from £320,000 to £400,000 per annum. This positioned Executive Director base salary levels to fall within a range of 96 per cent to 103 per cent of market median at the time of the review, with the base salary level for Pete Redfern set marginally below the market median. This positioning on base salaries is considered appropriate in order to ensure that the Company continues to be able to attract and retain the talent required to drive the business forward.
The Remuneration Committee will review the two Peer Groups on a regular basis in order to ensure changes both within the business and the external market environment are accurately reflected in Taylor Wimpey’s compensation practices.
The Committee will review salaries on an annual basis with increases normally to take effect on 1 January. Due to the post Merger review, the Committee, at the request of the Executive Directors, decided in December 2007, not to implement any increases for the Executive Directors for 2008.
Executive Directors’ contracts of service, which include details of their remuneration, will be available for inspection at the Annual General Meeting and also available as described in the Notice of 2008 Annual General Meeting.
Other benefits, including benefits-in-kind
The Executive Directors receive additional benefits including a Company provided car or an allowance in lieu, life assurance and private medical insurance. Benefits-in-kind are not pensionable.
Bonus arrangements
The Company offers Executive Directors and senior managers the opportunity to earn performance related bonuses. Following the Merger, the Committee undertook a full review of short term incentive arrangements in place within Taylor Woodrow and George Wimpey.
The Committee concluded that the bonus arrangements already in place for Executive Directors should apply for the period 1 January 2007 to 30 June 2007 with the half year performance of each legacy business measured against targets previously established in respect of each for the year as a whole and pro rated.
Therefore, for the first half of the year, the bonus arrangements for Peter Johnson and Ian Smith (a Director until 3 July 2007) were based on the first half performance of Taylor Woodrow in respect of the targets summarised below. Similarly, Iain Napier who left the Company on 30 April 2007, was paid a pro rated bonus based on his leaving date calculated by reference to the first half performance of Taylor Woodrow. The bonus structure in place for this period within Taylor Woodrow incorporated a target bonus of 50% of base salary and a maximum bonus of 100%.
Targets for Messrs Johnson, Smith and Napier for the period 1 January to 30 June 2007:
- Achievement of specified levels of profit before tax with a significant element of the bonus dependent on this target;
- Achievement of improvement in health and safety performance, measured through safety management performance and site inspection results;
- Achievement of specified customer satisfaction ratings;
- Other important and relevant business measures, including return on capital employed, divisional operating profit and specific personal objectives.
For Messrs Redfern and Sutcliffe for the period 1 January 2007 to 30 June 2007, the applicable scheme was the George Wimpey Plc annual incentive scheme, pro rated for that period. The structure of this scheme is based on a target bonus of 60 per cent of base salary and a maximum bonus opportunity of 150 per cent of base salary, with a compulsory three year deferral of 50 per cent of any bonus into shares of the Company. There is no share matching element. With regard to Pete Redfern, the scheme established stretching targets relating to the George Wimpey Group PBT and specific personal objectives. In the case of Ian Sutcliffe, his performance targets were based on specific George Wimpey UK housing division targets consisting of: growth in PBIT, volume of houses sold, number of plots achieved with planning permission and customer care.
For the period from 1 July 2007 to 31 December 2007 bonuses for the Executive Directors were aligned and based on the performance of Taylor Wimpey for the year as a whole. The structure consists of a target bonus of 60 per cent of base salary and a maximum bonus opportunity of 150 per cent of base salary, with a compulsory three year deferral into shares requirement of 50 per cent of any bonus payment. There is no share matching element. This replaced the previous structure within Taylor Woodrow as outlined above in relation to Peter Johnson. For Pete Redfern and Peter Johnson their bonuses for this period were based on stretching targets for Group pre exceptional pro-forma profit before tax and personal objectives (20 per cent). Ian Sutcliffe’s bonus for this period was based on the combined Taylor Wimpey UK housing division and linked to stretching targets relating to PBIT (40 per cent), operating margin (40 per cent) and plots with planning permission (20 per cent).
Bonus awards for Executive Directors for 2007 ranged from 61 per cent to 67 per cent of basic 2007 salary (2006: 92 per cent to 99 per cent). For other senior executives who are members of the Executive Committee but who are not Directors, namely the Group Company Secretary and General Counsel and the President and CEO of Taylor Morrison, bonuses ranged from 83 per cent to 251 per cent of basic 2007 salary (2006: 79 per cent to 97 per cent). Bonuses for the first half of the year were based on base salaries in place as at 1 January 2007 and for the second half of the year were based on the base salaries that were put in place upon completion of the Merger.
For 2008, bonus targets for Pete Redfern and Peter Johnson have been set by the Committee based on Group PBT, UK operating margins, average capital employed and personal objectives. The targets for Ian Sutcliffe are similar except that they are all based on the performance of the Taylor Wimpey UK housing division and relate to PBIT, operating margins, average capital employed and customer care. Following consultation with major shareholders, the Remuneration Committee has determined that performance targets that are non financial in nature should not exceed 20 per cent of the maximum bonus potential.
In line with the Association of British Insurers’ Guidelines on Responsible Investment Disclosure the Remuneration Committee will ensure that the incentive structure for Executive Directors and senior management will not raise environmental, social or governance (‘ESG’) risks by inadvertently motivating irresponsible behaviour. More generally, with regard to the overall remuneration structure there is no restriction on the Committee which prevents it from taking into account ESG matters.