Performance related pay – LTIP November 2022 grant Our LTIP award for 2022–2025 will be granted following our full year results in September 2022 and, in line with the Remuneration Policy and last year’s grants, the Committee intends to make awards of 175% of base salary for the CEO and 150% for the CFO. These will vest after three years to the extent that demanding performance conditions are satisfied. NCC is continuing to pursue its growth strategy, and has reviewed targets and weightings in order to incentivise growth, maintain high levels of cash conversion, and take into account market expectations. As a result of the review, the Committee has proposed changes which will result in more weight on relative TSR, continued use of challenging EPS stretch targets, and more stretching cash conversion targets. The outcome of the review and the proposed changes for the performance period FY23 to FY25 are set out below: 1. R elative TSR (20% weighting): the weighting on relative total shareholder return will be increased from 10% to 20% in order to further encourage above-market returns. 2. C ash conversion (20% weighting): the target range has been increased from 80% to 90% compared to 70% to 80% for last year’s grant. This will encourage the maintenance of the current strong levels of cash conversion. The weighting on cash conversion will be reduced from 30% to 20%. 3. E PS growth (60% weighting): the EPS performance metric is currently measured on average performance over three years. Instead, the Committee has decided to use a compound annual growth rate (CAGR) methodology, which is more exacting and more common in the market. The Committee has set the range for the FY23 to FY25 performance period to ensure that the stretch target is substantially above the consensus forecast. Taking account of the current consensus forecast, the stretch performance requirement will be 18% CAGR, which is around 5% pts higher than the median for FTSE 250 companies, and the threshold growth requirement of 6% CAGR, which compares to a FTSE 250 median of 5% to 6% CAGR. These targets could be modified prior to grant if there is a material change in outlook prior to the grant date. If the EPS metric varies materially from that shown above, we will disclose this in the RNS at the time of the LTIP grant, and report fully on the metric in next year’s Remuneration Report. These changes should also be seen in the context of NCC’s low vesting percentage at threshold performance, which is 15% of maximum for all metrics, compared to the market norm of 25% of maximum. These changes will provide more focus on delivering above-market TSR, retain stretching EPS growth targets, increase the cash conversion targets, and maintain a conservative level of vesting at threshold performance. Furthermore, the stretch EPS target of 18% CAGR remains above the stretch level, calculated on a CAGR basis, for the LTIP awards granted before the increase in quantum approved under the 2021 policy.
Clawback and malus provisions are in place for the LTIP. The Committee has the discretion to make a downwards adjustment to LTIP vesting levels in the event that there have been unjustified windfall gains, unrelated to performance or resulting from abnormally depressed share prices at the time of grant. In exercising this discretion, the Committee will take account of all the relevant circumstances and the wider remuneration outcomes for the relevant Executive Directors. In order to further align executives with shareholders, executives are required to retain any LTIP vested shares (net of tax) for a period of two years. After this holding period, all vested shares must also be retained if the shareholding requirement has not been met. In addition, our post-employment shareholding policy requires executives to retain the lower of the value of their holding on cessation or 200% of salary for the first year following cessation, reducing to 100% of salary for the second year following cessation. This will be managed through a restricted account maintained by NCC’s registrars and the Company Secretariat. Conclusion During the coming year, we intend to focus on further embedding our 2021–2024 Remuneration Policy along with continuing to focus on the Committee’s responsibilities under the 2018 UK Corporate Governance Code (the ‘Code’). This includes: • Ensuring that the Remuneration Policy continues to support and incentivise the achievement of our strategy and further developing the incorporation of environmental and social sustainability measures • Setting the remuneration for the Executive Committee (i.e. the layer of senior management immediately below Board level) and monitoring the success of the below-Board Restricted Share Plan • Overseeing the wider remuneration policy for the workforce, taking account of colleague feedback on this policy, and considering wider workforce remuneration when setting Directors’ remuneration policy and practice The 2022 Directors’ Remuneration Report will be put to the usual, annual advisory vote at the AGM on 2 November 2022. The Committee is committed to engagement and transparency and I welcome the opportunity for discussion of the Group’s remuneration with shareholders, at our AGM or at any other time during the year.
Jennifer Duvalier Chair, Remuneration Committee 6 September 2022
NCC Group plc — Annual report and accounts for the year ended 31 May 2022
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