This report complies with the provisions of the Companies Act 2006, the Large and Medium-sized Companies and Groups Regulations 2008 as amended in 2013, the UK Corporate Governance Code 2014 and the UKLA Listing Rules and the Disclosure and Transparency Rules. The remuneration committee has also taken into consideration guidelines published by institutional investor advisory bodies such as the Investment Association and the NAPF.

The report is in two sections:

  • the directors' remuneration policy. Shareholders will be asked to approve the new directors' remuneration policy at the AGM on 6 September 2017 and it will, if approved, apply to payments made from this date. Until then the 2014 policy will continue to apply. The new 2017 policy is intended to apply for a period of three years from the AGM. A copy of the 2014 policy can be found on in the 2014 annual report. The proposed Performance Share Plan will be formally effective following shareholder approval at the 2017 AGM. If approved, the PSP will supersede that approved by shareholders in 2007.
  • the directors' annual remuneration report. This section sets out the details of how our remuneration policy was implemented for the year ended 31 March 2017 and how we intend to apply it for the year ending 31 March 2018, and it is subject to an advisory vote at this year's AGM.

PART 1 – REMUNERATION POLICY

Executive directors

Base salaries

Purpose and link to strategy

To provide the core reward for the role.

Sufficient to recruit and retain directors of the calibre necessary to execute the Group's strategy.

Operation

Base salaries are normally reviewed annually by the committee.

Our review takes into account levels of increase across the broader workforce, changes in responsibility, and a periodic remuneration review for comparable companies.

Maximum opportunity

There is no prescribed maximum.

Current salaries are disclosed in the annual report on remuneration.

Increases (as a percentage of salary) are generally limited to the range set for the wider workforce.

However, further increases may be awarded where there have been significant changes in the scope and/or responsibilities of the role or a material change in the size and scale of the Group.

Performance conditions

The committee considers individual salaries each year having due regard to the factors noted in operation of the policy.

No recovery provisions apply to salary.

Change from 2014 policy and rationale

No substantive changes from the 2014 policy.

Benefits

Purpose and link to strategy

Cost-effective benefits, sufficient to recruit and retain directors of the calibre necessary to execute the Group's strategy.

Operation

The Group currently provides the following employee benefits:

  • Life assurance at four times salary
  • Medical insurance for self with option to purchase for family
  • Company car and fuel allowance

Relocation expenses would be paid as appropriate for new recruits or a change in role.

In circumstances where an executive is deployed on an international assignment, their arrangements will be managed in a way that is consistent with good practice for international organisations. Additional allowances may also be paid, e.g. to cover any increase in cost of living, tax equalisation and/or additional accommodation costs.

The committee may wish to offer executive directors other employee benefits on broadly similar terms as those offered to other employees from time to time, provided within the maximum opportunity limit.

Maximum opportunity

The value of insured benefits can vary from year to year based on the costs from third party providers.

The total value of benefits (excluding relocation and international assignment allowances) will not exceed more than 15 per cent of salary in any year.

Performance conditions

No performance conditions or recovery provisions apply to benefits.

Change from 2014 policy and rationale

No substantive changes from the 2014 policy.

Pension

Purpose and link to strategy

Cost-effective long-term retirement benefits, sufficient to recruit and retain directors of the calibre necessary to execute the Group's strategy.

Operation

Group contribution to defined contribution scheme (own or the Group's), a cash supplement or a combination of both up to the maximum value.

Director has no obligation to match Group contributions.

Maximum opportunity

Twenty per cent of base salary contribution/cash supplement for chief executive officer and 18 per cent of salary for others up to a maximum of £50,000 (with the exception that for executive directors commencing service before 1 November 2013 where the Group pays a fixed contribution/cash supplement of £50,000 per annum).

For international assignments the Group may be required to make additional payments to comply with local statutory requirements.

Performance conditions

No recovery provisions apply to pension benefits.

Change from 2014 policy and rationale

No substantive changes from the 2014 policy.

Annual bonus

Purpose and link to strategy

To focus attention on achieving short-term corporate objectives, incentivise outperformance of targets and provide a deferred element to reinforce the impact of long-term performance.

Operation

Any annual bonus award is made 50 per cent in cash and 50 per cent in shares deferred for three years under the rules of the Group's deferred share bonus plan ('DSBP'). The plan incorporates a malus and clawback mechanism for instances of financial misstatement, error, substantial failures in risk control, serious misconduct or any other exceptional circumstances determined by the remuneration committee. The malus and clawback provisions will extend to the cash element of the annual bonus.

Dividends may accrue on deferred bonus shares.

Maximum opportunity

Maximum 100 per cent of base salary per annum.

Performance conditions

The committee will review the appropriateness of performance measures on an annual basis and consider whether there is a need to rebalance or amend the performance measures and weightings to reflect the business objectives at the time. However, the majority of the annual bonus will be subject to financial targets.

Currently the business uses a combination of underlying profit before tax ('PBT') targets and accident frequency rate ('AFR') targets.

A minority of bonus will be payable for threshold levels of performance.

The actual measures and weightings are set out in the annual report on remuneration.

Change from 2014 policy and rationale

Strengthening of malus and clawback provisions to include: (i) introduction of malus provisions; (ii) extension of policy flexibility in which malus and clawback could apply; and (iii) extension of a time frame for which malus and clawback could apply.

Definition of the scenarios when forfeiture would apply to deferred bonus shares rather than the scenarios in which good leaver status would be granted. Forfeiture would apply in the event of dismissal for misconduct, fraud and performance issues and where an executive leaves for alternative employment at a competitor.

Performance Share Plan ('PSP') (approved by shareholders in 2007)

Purpose and link to strategy

Incentivise and reward for long-term sustainable performance linked to corporate strategy and provide alignment with shareholders' interests.

Operation

Annual grant of performance shares which will, in normal circumstances, vest subject to continued service and the achievement of performance conditions over a prescribed period of three years or more.

There is a malus and clawback mechanism for instances of financial misstatement, error, substantial failures in risk control, serious misconduct or any other exceptional circumstances determined by the remuneration committee.

Dividends may accrue on vested awards.

Maximum opportunity

Maximum annual award level is 150 per cent of salary.

The current award policy is, in normal circumstances, for awards of up to 100 per cent of salary for the chief executive officer and the Group finance director and 75 per cent of salary for other executive directors.

Performance conditions

The committee will determine each year the appropriate award levels and performance conditions based on the corporate strategy at the time. However, a financial measure such as underlying earnings per share ('EPS') will be used for at least half of any award.

Currently the awards are subject to an EPS growth target, the details of which are set out in the annual remuneration report.

No more than 25 per cent of an award will vest for performance at the lower threshold of EPS targets.

Change from 2014 policy and rationale

Strengthening of malus and clawback provisions to include: (i) introduction of malus provisions; (ii) extension of policy flexibility in which malus and clawback could apply;and (iii) introduction of a time frame for which malus and clawback could apply.

Increased normal award levels for the Group finance director.

All-employee share plan

Purpose and link to strategy

To foster wider employee share ownership.

Operation

The Group currently operates a share incentive plan and introduced a sharesave scheme in February 2015.

Participation in any all-employee share plans operated by the Group is in line with HMRC guidelines. Executive directors are entitled to participate on the same basis as for other eligible employees.

Maximum opportunity

The Group has discretion under the all-employee share plans to issue awards up to the HMRC approved limits as set from time to time.

Performance conditions

No recovery provisions apply to all-employee share awards.

Change from 2014 policy and rationale

No substantive changes from the 2014 policy.

Notes to the policy table

Choice of performance conditions and metrics

Our role as the remuneration committee includes the establishment of performance goals through long-term incentive plans which are challenging but achievable through superior performance, thereby incentivising and rewarding success.

The long-term incentive plan currently incorporates an EPS performance measure, which is a key financial metric that is aligned with shareholder interests. The committee has considered and taken advice on alternative performance measures, such as total shareholder return ('TSR'), to substitute for (all or part of) the use of the EPS range used in the past. Lack of a suitable peer group of similar listed companies made this approach impracticable and to date we have found no better benchmark.

No performance targets are set for any share incentive plan or sharesave plan awards since these form part of all-employee arrangements that are purposefully designed to encourage employees across the Group to purchase shares in the Company.

Details of all the outstanding share awards granted to existing executive directors are set out in the annual remuneration report.

The discretions retained by the committee in operating the annual bonus and the PSP

The committee will operate the annual bonus (including the deferred share element) and the PSP according to their respective rules and in accordance with the Listing Rules where relevant.

The committee retains discretion, consistent with market practice, in a number of regards to the operation and administration of these plans.

In relation to both the Group's PSP and annual bonus plan, the committee retains the ability to adjust the targets and/or set different measures if events occur (e.g. material acquisition and/or divestment of a Group business) which cause it to determine that the conditions are no longer appropriate and the amendment is required so that the conditions achieve their original purpose and 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 Group's major shareholders.

Illustration of application of the policy

A significant proportion of remuneration is linked to performance, particularly at maximum performance levels. The charts below show how much each executive director could earn under Severfield's remuneration policy (as detailed above) under different performance scenarios.

The following assumptions have been made:

  • Minimum (performance below threshold) — Fixed pay only with no vesting under the annual bonus or PSP.
  • Target (performance in line with expectations) — Fixed pay plus a bonus at the mid-point of the range (i.e. 50 per cent of the maximum opportunity) and a PSP award of 100 per cent of salary for the chief executive officer and Group finance director and 75 per cent of salary for other executives vesting at 50 per cent of the maximum.
  • Maximum (performance meets or exceeds maximum) — Fixed pay plus maximum bonus and maximum PSP award vesting.

Fixed pay comprises:

  • Salaries — salary effective as at 1 July 2017;
  • Benefits — amounts expected to be received by each executive director in the 2018 financial year;
  • Pension — amount that will be received by each executive director in the 2018 financial year based on the policy set out in the table above.

The scenarios do not include any share price growth.

Chief executive officer

Chief operating officer

Group finance director

Executive director

Fixed

Bonus

LTIP

Executive directors' service agreements

All executive directors' service agreements run on a rolling basis. Notice periods of 12 months are required to be given by all parties. Payment to be made in lieu of notice on termination is equal to 12 months' salary or to any proportion of unexpired notice period.

Full details of the contracts of each director, including the date, unexpired term and any payment obligations on early termination, are available from the Company secretary at the annual general meeting.

Provision on payment for loss of office

If an executive director's employment is to be terminated, the committee's policy in respect of the contract of employment, in the absence of a breach of the service agreement by the director, is to agree a termination payment based on the value of base salary that would have accrued to the director during the contractual notice period. The committee will consider mitigation to reduce the termination payment to a leaving director when appropriate to do so, having regard to the circumstances.

The payment of any annual bonus will be at the committee's discretion and will be based on the circumstances of the termination. Any bonus payment will be calculated after assessing the relevant performance conditions and will only be in relation to the service period worked.

The rules of the PSP set out what happens to share awards if a participant ceases to be an employee or director of the Company before the end of the vesting period. Generally, any outstanding awards will lapse on such cessation, except in certain circumstances. If the executive director ceases to be an employee or director of the Company that employs the individual as a result of death, disability, retirement, the sale of the business or company that employs the individual or for any reason at the discretion of the committee, then they will be treated as a 'good leaver' under the plan rules.

Other than in the case of death, a good leaver's unvested awards will vest on the normal vesting date subject to the achievement of any relevant performance condition, with a pro-rata reduction to reflect the proportion of the vesting period served. In determining whether an executive director should be treated as a good leaver and the extent to which their award may vest, the committee may take into account the circumstances of an individual's departure.

Under the rules of the DSBP, as modified, the basis on which awards will generally be forfeited will include dismissal for misconduct, fraud and performance issues and where an executive leaves for alternative employment at a competitor. The three-year vesting period would still apply.

Our recruitment remuneration policy

Base salary levels will be set in accordance with our remuneration policy, taking into account the experience and calibre of the individual and the relevant market rates at the time. Where it is appropriate to offer a lower salary initially, progressive increases (possibly above those of the wider workforce as a percentage of salary) to achieve the desired salary positioning may be given over the following few years subject to individual performance and continued development in the role.

Benefits will be provided in line with those offered to other employees, with relocation expenses/arrangements provided for if necessary.

Should it be appropriate to recruit a director from overseas, flexibility is retained to provide benefits that take account of those typically provided in their country of residence (e.g. it may be appropriate to provide benefits that are tailored to the unique circumstances of such an appointment).

Pension contributions or a cash supplement up to the maximum level indicated in the policy table will be provided, although the committee retains the discretion to structure any arrangements as necessary to comply with the relevant legislation and market practice if an overseas director is appointed.

The aggregate ongoing (i.e. after the year of appointment) incentive opportunity offered to new recruits will be no higher than that offered under the annual bonus plan and the PSP policy to the existing executive directors. In the year of appointment the annual bonus opportunity will be no higher than that offered to existing executive directors, prorated for the period of service (i.e. 100 per cent of salary on an annualised basis). The committee may award up to 150 per cent of salary under the PSP although in exceptional circumstances, in order to facilitate the buy-out of existing awards the committee may go above this limit (see below).

Different performance measures may be set initially for the annual bonus, taking into account the responsibilities of the individual, and the point in the financial year that they joined.

The above policy applies to both an internal promotion to the board and an external hire.

In the case of an external hire, if it is necessary to buy out incentive pay or benefit arrangements (which would be forfeited on leaving the previous employer), this would be provided for, taking into account the form (cash or shares) and timing and expected value (i.e. likelihood of meeting any existing performance criteria) of the remuneration being forfeited. Replacement share awards, if used, will be granted using the Group's existing share plans to the extent possible (including the use of the exceptional limit under the PSP), although awards may also be granted outside of these schemes if necessary and as permitted under the Listing Rules.

In the case of an internal hire, any outstanding variable pay awarded in relation to the previous role will be allowed to pay out according to its terms of grant (adjusted as relevant to take into account the board appointment).

On the appointment of a new chairman or non-executive director, the fees will be set taking into account the experience and calibre of the individual and the expected time commitments of the role. Where specific cash or share arrangements are delivered to non-executive directors, these will not include share options or other performance-related elements.

How are the non-executive directors paid?

The chairman and non-executive directors receive an annual fee (paid in monthly instalments by payroll). The fee for the chairman is set by the remuneration committee and the fees for the non-executive directors are approved by the board, on the recommendations of the chairman and the chief executive officer.

ElementPurpose and link to strategyOperation (including maximum levels)
FeesTo attract and retain a high-calibre chairman and non-executive directors by offering market competitive fee levels.

Current fee levels are disclosed in the annual report on remuneration.

The chairman and the other non-executive directors receive a basic board fee, with supplementary fees payable for additional board responsibilities.

Non-executive directors will be reimbursed for any normal business-related expenses and any taxable benefit implications that may result.

The non-executive directors do not participate in any of the Group's incentive arrangements or pension scheme.

The fee levels are normally reviewed on a periodic basis, and may be increased, taking into account factors such as the time commitment of the role and market levels in companies of comparable size and complexity. Fee increases may be greater than those of the wider workforce in a particular year, reflecting the periodic nature of increases and that they take into account changes in responsibility and/or time commitments. Additional fees may be payable to reflect exceptional time commitments.

No benefits or other remuneration are provided to non-executive directors.

Change from 2014 policy and rationale
There are no substantive changes from the 2014 policy.

What are the terms of appointment of the non-executive directors?

The chairman's and non-executive directors' terms of appointment are recorded in letters of appointment. The required notice from the Company is one month in all cases. The non-executive directors are not entitled to any compensation on loss of office.

Shareholding guideline

Executive directors are required to retain shares acquired under equity incentive schemes until such time they have built up a holding equivalent in market value (at the date of vesting) to a proportion of the executive's base salary (namely 200 per cent in the case of the CEO and the Group finance director and 150 per cent in the case of the other executive directors). Thereafter, the executive directors will be under a continuing obligation to maintain at least such a holding.