September 2020. For 2021/22, salaries increased by an average of 3.1% and we increased the CEO’s salary by 3%, taking his base salary to £465,000 with effect from 1 June 2021. For the CFO, recognising that his salary is well below the level that the Committee considers to be appropriate given his performance and experience in the role, we consulted with shareholders to increase his pay over a two year period. In June 2021 his salary increased to £308,000, representing an increase of 4.9% above the average workforce increase (i.e. 8% in total). In June 2022, we also intend to increase his salary by up to 3% above the average workforce figure. While these increases will still result in a below market salary, when combined with the proposed increases to variable remuneration this should bring his overall remuneration closer to market levels. Launch of a new below Board Restricted Share Plan to broaden colleague share ownership As a Board, we remain committed to broadening share ownership throughout the Group, both as a reward and retention tool. During the year, we introduced our Restricted Share Plan (RSP), authorisation for which had been granted at the 2020 AGM. An increased number of colleagues were made a share award dependent on their continuing service within the Group for a period of up to three years. RSPs are extremely common in the technology sector in the USA, where we have increased our presence in the last few years, and we expect to issue more RSPs annually. In addition, we also offered colleagues the opportunity to participate in our Save As You Earn/stock purchase share plans in the UK, the US, Canada, the Netherlands, Australia, Denmark and Spain. Once again, these proved popular in terms of take-up and participation levels. Non-Executive Director and Chairman’s fees In line with our Remuneration Policy, Non-Executive Director fees are reviewed annually. During the year, the Non-Executive Director fees were reviewed (by the Company Chair, CEO and CFO) and increases were proposed with effect from 1 June 2021, being the first increases for three years. In addition, as social distancing restrictions are being progressively removed it was decided to reinstate the travel expense allowance with effect from 1 June 2021. This had been withdrawn in March 2020 at the start of the pandemic when physical Board meetings were not possible. The Remuneration Committee also reviewed the Chairman’s fees using data provided by our remuneration consultants. As a result the Chairman’s fees were increased for the first time since his appointment in 2017. Details of these fees and allowances are given in the Annual Report on Remuneration on page 110. Performance related pay – bonus The annual bonus for the year ended 31 May 2021 for both the Chief Executive Officer and Chief Financial Officer was based on the satisfaction of stretching financial and strategic targets. This resulted in an overall payment of 92% of base salary for the CEO and 87% of base salary for the CFO. With respect to the financial targets, as we reported in the Annual Report 2020, in light of the impact of the pandemic and the difficulty in estimating its short-term impact on the business, we decided to divide the 2020/21 financial year into two, with the first six months of the year qualifying for up to a 30% financial bonus if the half year Adjusted operating profit less a proforma amortisation charge in respect of certain cloud-based software arrangements * achieved £17.0 million, with the financial target for the second half of the year being based on a reforecast which took place in November 2020, and an Adjusted operating profit less a proforma amortisation charge in respect of certain cloud-based software arrangements * of £19.0m being required for a further 30% bonus.
applied our discretion and replaced the formulaic assessment of the financial underpin to the non-financial element of the 2019/20 bonus with a non-formulaic assessment. Secondly, we decided that the non-financial element of the annual bonus for 2020/21 should have a weighting of 40% of the total, compared with the previous year’s figure of 25%. Thirdly, we decided that for 2020/21, we would divide the year in two for bonus target setting purposes, with one set of bonus targets based on the first six months’ performance and a revised target being set for the second half of the year. While many shareholders recognised this pragmatic approach, we were disappointed that a significant minority of others voted against our Annual Remuneration Report in 2020. Immediately after the AGM, I therefore engaged with all major shareholders who voted against the resolutions to better understand their reasons for doing so. There were two main reasons which explained their objections: some did not feel that the application of discretion during the year to replace the annual bonus profit underpin for 2019/20 was appropriate, while others did not support the increased weighting on non-financial measures in the annual bonus from 25% to 40% for 2020/21. The Remuneration Committee acknowledged these views in its statement in early February 2021, and whilst it still considers its decisions were appropriate and pragmatic in the exceptional circumstances of the pandemic, emphasised that the weighting on non-financial measures in the annual bonus would revert to 25% of the total in 2021/22 and that a profit underpin would be applied in future. Development of Remuneration Policy for 2021–24 and separate consultation with shareholders During the 2020/21 financial year, we operated within the Remuneration Policy that was approved by shareholders at the 2020 AGM. With the arrival of the Covid-19 pandemic, changes to the Remuneration Policy last year were minimal and we flagged at the time that we planned on submitting a new Policy this year. The aim of these changes was to reflect the strong performance of the business and development of the senior team over a number of years and ensure that the remuneration of our senior team is appropriately positioned against a highly competitive market for talent within the sectors in which NCC Group operates. We refined some changes with our remuneration consultants and then undertook a period of consultation with shareholders in March and April 2021, who were supportive of our approach. Our proposed new Remuneration Policy can be found in the next section of this report and will be voted upon at our AGM in November. Its main features are to make phased increases to the variable pay opportunity for our CEO and CFO. The first of the proposed changes will take place in 2021/22 and increase the level of LTIP from 100% of salary to 175% and 150% of salary for the CEO and CFO, respectively. Implementation of the second increase will be take place in 2022/23 when the annual bonus opportunity for both the CEO and CFO will increase from 100% to 125% of salary. The Committee considers this phased approach to be appropriate in the current environment and these increases will be balanced by a reduction in the threshold vesting level for the LTIP and an increase to the toughness of the LTIP’s stretch EPS target. At the same time, if the new Policy is approved, we will immediately reduce their pension contributions to the workforce level of 4.5% and adopt a more demanding post-employment shareholding policy. The overall effect of these changes will result in levels of total remuneration that are at or below the market level. Further details can be seen in the next section of the report. With respect to base pay, for the 2020/21 financial year, average salaries in the Group rose by approximately 2.9% but we decided to increase the salary of the CEO and CFO by 1% to take effect from
NCC Group plc — Annual report and accounts for the year ended 31 May 2021
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