Our Philosophy - Aligning Reward with Performance

Our Remuneration strategy remains unchanged – it is designed to reflect the needs of a UK based, capital intensive house builder, with ambitious growth plans. We make long-term investments, which are differentiated by the constant innovation and quality of our product. Successfully acquiring land, achieving planning consent, opening outlets, building quality homes and selling and handing them over on time, are all critical success factors and feature as part of our management incentive programmes.

We adopt clear, simple and market competitive remuneration arrangements. The alignment of executive remuneration with the objectives of our shareholders has been the principal focus, ensuring remuneration structures are fully attuned to the business strategy. We aim to balance the short, medium and long term components of our remuneration, to ensure that we motivate and retain our executives and keep them focused on delivering long-term sustainable growth. The annual bonus encourages performance in key areas of strategic focus for the business and the Long Term Incentive Plan (LTIP) reflects our market related growth and return ambitions.

Based on these principles, our remuneration framework includes the following components:

2018 Outcomes - An Outstanding Year

As described in detail on pages 1 to 59 of this Annual Report, 2018 was another outstanding year for Redrow, which saw:

• Record profit before tax of £380m, up 21%
• Revenue exceeding £1.9bn, up 16%
• Earnings per share up 22% to 85.3p
• ROCE improving further to 28.5%
• Dividend up 65% to 28p

The alignment between performance and reward which underpins our executive remuneration framework, is reflected in the outcomes for the annual bonus and LTIP:

• 2017-18 Annual bonus: Based on exceptional performance, with the targets for maximum payment exceeded for three of the annual bonus measures (PBT, ROCE, land holdings) and performance on outlet openings significantly above target but short of the stretch target, the Committee determined that the annual bonus should pay out at 96.7% of salary for both of the Executive Directors. 50% of this will be paid in shares and half of these will be deferred for a period of one year and the remaining half deferred for two years; and
• 2015 -18 LTIP: EPS of 0p and ROCE of 28% in 2018 were both significantly above the targets for maximum vesting of 76.3p and 22%, respectively. The Committee therefore determined that the 2015 LTIP award should vest in full on 14 September 2018.
  
  

The 2018-19 annual bonus targets are disclosed on page 86.

We have and will continue to set stretching target ranges for our incentive awards. Shareholders will note from our disclosure that historical targets set were stretching and payments have reflected absolute and relative outperformance in market terms for financial returns and for the strategic objectives of quality land holdings and strong order book.

Remuneration Decisions for 2019

The Committee has decided to award salary increases to the Group Chief Executive and Group Finance Director of 2.5%, effective from 1 July 2018. This is below the average increase for all other employees across the business which was 3.5%.

The annual bonus and LTIP will operate in line with our Remuneration Policy.

The annual bonus will continue to be based on a balanced scorecard of performance measures – PBT, ROCE, a measure based on the number of outlets opened and land acquired.

The EPS and ROCE target ranges for the 2018-21 LTIP award are set out on page 86 of this report.

As reported last year, all variable pay elements were removed from the Chairman’s package and therefore Steve Morgan was not invited to participate in the 2017/18 annual bonus scheme nor granted an LTIP in 2017.  Further, following his move to Non-Executive Chairman on 1 October 2017, his salary of £499k was reduced to an annual fee of £300k. He takes a nominal payment of £10k, which he donates via payroll giving to the Steve Morgan Foundation and the remainder is donated directly by the Company to the Steve Morgan Foundation.

Corporate Governance

The Remuneration Committee continues to monitor developments in respect of the Government’s corporate governance reforms including the recently announced changes to the UK Corporate Governance Code (the “Code”).  During the coming year the Committee will review Redrow’s compliance with the remuneration aspects of the Code and will make amendments where necessary.

Performance Evaluation

The Committee completed a performance evaluation during the financial year by the members of the Committee and those who regularly attend by invitation, including the Chairman, Group Finance Director and Group HR Director, completing a self-assessment questionnaire. A report was compiled by the Group Company Secretary from the results and it was presented to the Committee and discussed. It was concluded that the Committee had fulfilled its remit and had in place appropriate Terms of Reference. The report also concluded how the Committee would ensure that the succession planning of the Chair of the Committee would work, including a detailed handover plan.

Shareholder Engagement

We remain committed to an ongoing and transparent dialogue with our shareholders on executive remuneration. In putting in place our current Policy, we engaged with a number of our major shareholders and their feedback was taken into account by the Committee in finalising the Policy.  We will continue to engage with our shareholders on any significant changes to the Policy.

Last year, 99.96% of votes cast were in favour of the Remuneration Report and 99.97% of votes cast were in favour of the Remuneration Policy. We look forward to receiving your continued support on our approach to remuneration at this year’s Annual General Meeting.

Closing Remarks

Finally, as you will be aware, I will be retiring from the Board following the AGM after 9 years of service as a Non-Executive Director.  It has been a privilege to be a member of the Redrow Board during a period of considerable growth. Assuming her election by shareholders, Vanda Murray will take up the position of Chairman of the Remuneration Committee with effect from 7 November 2018.

Debbie Hewitt

Chairman of the Remuneration Committee

This report has been prepared in accordance with the UK Corporate Governance Code, the relevant provisions of the Listing Rules and Schedule 8 of the Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013.

The Remuneration Policy

The Remuneration Policy became effective following shareholder approval at the 2017 Annual General Meeting.  An extract of the Remuneration Policy table (with updated references, where relevant) and supporting disclosures is reproduced below for information only.  The full Remuneration Policy is contained on pages 79 to 86 of the 2017 Annual Report, which is available in the Investor Relations section of the Group’s website, http://investors.redrowplc.co.uk/.

Policy Table for Executive Directors

Where an individual waives any current or future right or entitlement to a remuneration payment or other benefit, which they would otherwise be eligible to receive under any of the components set out in the Policy Table on pages 82 to 84, the Committee may determine that a charitable donation, which is, in its opinion, equivalent to the value of that payment or benefit, may be made by the Company.

Executive shareholding guidelines

Executive Directors are expected to build and retain a shareholding in the Group at least equivalent to 200% of base salary. Until the shareholding guideline has been met Executives will be required to retain all deferred bonus shares and LTIP shares on a net of tax basis.

Clawback

For awards under the annual bonus plan (including deferred share awards) and awards made since the introduction of the 2014 LTIP, the Committee has discretion to clawback awards in the event of a material misstatement of the Company’s audited financial results or employee misconduct.

In such circumstances, at any time prior to the fifth anniversary of the payment of any cash bonus or vesting of a deferred bonus/ LTIP award, the Committee has discretion to:

• reduce, cancel or impose further conditions on outstanding deferred bonus/LTIP awards; or
• require the participant to repay (in cash or shares) some or all of the value delivered from a deferred bonus/LTIP awards; and/or
• require the participant to repay some or all of any cash bonus received.

Where a charitable donation has been made in accordance with the Remuneration Policy, clawback will not apply.

For deferred bonus plan awards, if a participant’s gross misconduct has resulted in the material misstatement of the Group accounts (or the accounts of one of its subsidiaries), any unexercised awards will lapse immediately and the participant will forfeit any shares previously acquired under awards made under that plan.

Service contracts

The service agreements of the Executive Directors are rolling contracts which were entered into on the dates shown in the table below:

The service agreements provide for formal notice to be served to terminate the agreement, by either the Company or the Executive Director, with the required period of notice shown in the table. The agreements and letters of appointment do not include any provisions for pre-determined compensation for early termination. The Committee may terminate service agreements immediately by making a payment in lieu of notice consisting of base salary, benefits and pension for the unexpired period of notice. At the discretion of the Committee, this payment may be made as instalments over the period, subject to a duty to mitigate, or as a lump sum.

For future appointments, it is the Committee’s policy that notice periods will normally be 6 months from both the Director and the Company initially and thereafter, 12 months from both the Director and the Company, and that payments in lieu of notice will comprise no more than base salary, benefits and pension only over the unexpired period of notice.

The Non-Executive Directors’ terms of appointment are detailed in formal letters of appointment as shown in the table below. Each appointment is for a fixed initial period of three years although this term is terminable upon either party giving three months’ notice.

* Steve Morgan moved from Executive to Non-Executive Chairman on 1 October 2017. 

** Debbie Hewitt’s appointment was extended on 19 August 2018 to cover the period from this date until the 2018 AGM at which point she will be retiring from the Board.

*** Liz Peace retired from the Board on 31 August 2017.

**** Vanda Murray joined the Board on 1 August 2017.

Annual Remuneration Report
Statement of Implementation for 2019

This section summarises how the Committee intends to operate the Remuneration Policy for the year ending June 2019.

Salary

The Committee’s policy on salary increases, as set out in the Remuneration Policy, is that they should normally be in line with increases for employees within the business. This approach has been applied consistently by the Committee over a number of years.

The average increase for all Redrow employees on 1 July 2018 was 3.5%. The Committee decided to award base salary increases for the Executive Directors of 2.5%, effective 1 July 2018, as follows:

Annual Bonus

For FY 2019, the annual bonus will operate on the same basis as for FY 2018, assessed using the same balanced scorecard of measures as shown on page 88.

It is the current intention that the targets will be disclosed in the FY 2019 Annual Remuneration Report provided the Committee is comfortable they are no longer commercially sensitive.

LTIP awards to be granted during 2019

Subject to shareholder approval of the new Remuneration Policy, LTIP awards in the FY 2019 financial year will be made at the level of 150% of salary and will be subject to the following stretching EPS and ROCE performance targets, measured over the three year period ending in 2021:

In line with our Policy, these awards will be subject to an additional two year post-vesting holding period.

The Committee notes that the ROCE performance target for the scheme which commences in FY19 is below the 2018 actual ROCE performance of 28%, although above the maximum target for the LTIP schemes which have or which are due to vest in FY18, FY19 and FY20. The Committee has discussed this in detail and considers, given the general economic context, that the ROCE target for the 2019 awards is sufficiently stretching.

Non-Executive Director Fees

The base fee for a Non-Executive Director is £55k p.a. from 1 August 2017. In line with current practice the Company pays an additional fee of £10k p.a. to Committee Chairs and an additional fee of £10k p.a. to the Senior Independent Director.  The fee for the Non-Executive Chairman is £300k p.a.

Outcomes in Respect of 2018

The tables below set out the remuneration for the Directors in respect of 2018. Further discussion of each of the components is set out on the pages which follow. Where indicated, these disclosures have been audited.

As Steve Morgan moved from an Executive to Non-Executive role during the course of the financial year, the remuneration that was attributable to each role is shown in the Executive remuneration table and Non-Executive remuneration table respectively.

Single Total Figure of Remuneration Table (Audited)

The remuneration of the Executive Directors in respect of 2018 is shown in the table below (with the prior year comparative):

(i) Steve Morgan served as Executive Chairman from 1 July to 30 September 2017. The disclosure in this table and footnote are in reference to that period.  Steve Morgan drew a nominal annual salary of £15k (2017: £15k) per annum which he donated via Payroll Giving to The Steve Morgan Foundation, a UK registered charity of which Steve Morgan is a trustee.

The Company also made a donation to The Steve Morgan Foundation of £121k in respect of 2018 (2017: £716k). This donation represents Steve Morgan’s notional salary of £499k per annum less the £15k per annum nominal salary for the three months to 30 September 2017. In 2017 the donation was made up of a notional salary of £472k (being the balance of Steve Morgan’s notional annual salary of £487k less the £15k nominal salary) and £244k (being an amount in respect of the cash annual bonus which Steve Morgan waived his entitlement to). The notional cash bonus represented half of the total bonus for 2017, calculated using the notional salary of £487k and a bonus percentage of 100% of maximum, equivalent to that earned by John Tutte and Barbara Richmond.

Steve Morgan’s 2015 LTIP award, also structured as a cash award over notional Redrow shares, will vest in full on 14 September 2018 based on performance to the 2018 financial year (as described in the section below). The value of this award (calculated using the average share price over the last three months of 2018 in accordance with footnote (iv) below) is £582k (2017: £1,022k).

Further details on the donation to The Steve Morgan Foundation are given in the Directors’ Report on page 99 and in note 22 to the financial statements.

(ii) Benefits include a fully expensed company car (or equivalent cash allowance) and private health insurance.

(iii) Annual bonus represents the full value of the bonus awarded in respect of the relevant financial year. Half of the bonus is deferred into Redrow shares, which vests in two tranches of 50% each, on the first and second anniversaries of the grant date, subject to continued employment. For Steve Morgan, deferral is in the form of cash awards over notional Redrow shares. Details of performance targets are set out below.

(iv)LTIP represents the value of the LTIP award which vests in respect of a performance period ending in the relevant financial year. The 2018 column includes the value of the 2015 LTIP award which will vest in full on 14 September 2018, using the average share price over the last three months of 2018. The 2017 column includes the vested value of the 2014 LTIP award (which vested at 100% of maximum), based on the share price on the date of vesting (18 September 2017).

(v) Pension includes the value of the cash allowance paid to John Tutte and Barbara Richmond in respect of the relevant year.

The fees of the Non-Executive Directors in respect of 2018 are shown in the table below (with the prior year comparative).

Annual bonus

The maximum bonus opportunity for the Executive Directors during 2018 continued to be 100% of salary, in line with the Remuneration Policy. This was based on the achievement of stretching targets under a balanced scorecard of four key performance measures. The scorecard combines measures which represent an appropriate balance between ‘backward looking’ financial performance (PBT and ROCE) and ‘forward looking’ strategic and operational measures (land holdings and outlet openings) which support shareholder value creation over the medium to long-term.

As described in detail on pages 1 to 59 of this Annual Report, 2018 was another outstanding year for Redrow. As a result of the targets for maximum payment for three of the PBT, ROCE and Land holdings being exceeded and performance on outlet offerings significantly above target but short of the stretch target, the Committee determined that the bonus should pay out at 96.7%, resulting in bonus awards to the Executive Directors as shown in the Single Total Figure of Remuneration on page 87.

Our policy is to disclose annual bonus targets in the year to which the payment relates, subject to the Committee being comfortable that the targets are no longer commercially sensitive. Accordingly the 2018 targets are disclosed in the following table:

Executive Directors are required to defer 50% of any bonus earned into shares, half of which will vest after one year and the remaining half after two years, subject to continued employment and clawback. Clawback provisions for both the cash and deferred share elements will apply.

Long Term Incentive Plan (LTIP)

The LTIP is designed to motivate and reward long-term performance and delivery of the strategy and provide alignment with Redrow shareholders. In 2018, annual awards were made at the level of 150% of salary, in line with the prevailing policy.

The vesting of LTIP awards is based on performance of EPS and ROCE, pre-exceptional, with 50% relating to performance of each measure.

The Committee believes that these two measures are transparent, are easy to understand, track and communicate, are cost effective to measure and fundamentally aligned to the strategic ambitions that have been communicated to the market:

• EPS ensures that the team delivers strong ‘bottom line’ profitability and growth for shareholders; and
• ROCE provides balance by requiring that profit is delivered efficiently from a capital perspective.
  
  

The Remuneration Committee has discretion to adjust the number of shares vesting from the award if it considers that performance in the metrics above is not sufficiently reflective of the general growth created by the market.

Steve Morgan’s historic awards under the LTIP are receivable in cash but in all other respects mirror the terms and conditions of the LTIP awarded to the other Executive Directors.

The sections below summarise details of the LTIP awards which vested in respect of 2018 (2015 awards) and which were granted during the 2018 financial year.

LTIP awards vesting in respect of 2018

The LTIP awards granted in September 2015 were based on performance over the three year performance period ending in 2018. Based on performance against the EPS and ROCE targets set when the award was granted, summarised in the table below, the Committee determined that the 2015 LTIP awards will vest in full on 8 September 2018. The value of these vested awards is included in the 2015 LTIP column of the Single Total Figure of Remuneration on page 87.

LTIP awards granted during 2018  

The LTIP awards granted in November 2017 will vest in November 2020 based on performance over the three year performance period ending in 2020 as follows:

Scheme Interests Awarded During 2018 (Audited)

The following table sets out details of LTIP awards to Executive Directors during the 2018 financial year.

Awards to John Tutte and Barbara Richmond are made in the form of nil-cost options.

The face value has been calculated using the average share price used to determine the number of shares awarded, being 593.5p (the average, over the three days to the date of grant).

Shareholding guidelines and share interests

Under our shareholding guidelines, Executive Directors are expected to build and retain a shareholding in the Group at least equivalent to 200% of base salary. Until the shareholding guideline has been met, Executives will be required to retain all deferred bonus shares and LTIP shares on a net of tax basis. As shown in the table below, all Executive Directors currently meet this guideline. Non-Executive Directors are not subject to a shareholding guideline.

Statement of Shareholding and Scheme Interests (Audited)

The following table sets out the shareholding (including connected persons) of the Directors in the Company as at 30 June 2018 and current interests in long-term incentives.

(i) Steve Morgan's interest includes those of his connected persons and is broken down as follows:

• 77,636,045 ordinary shares held by Steve Morgan indirectly through Bridgemere Securities Limited;
• 25,950,000 ordinary shares held by The Steve Morgan Foundation, of which Steve Morgan is a trustee, for the beneficiaries of the Foundation; and
• 4,200,000 ordinary shares each held by LKT Investments Limited, MSH Investments Limited, GEM Investments Limited and RSM Investments Limited (controlling 16,800,000 ordinary shares). Each of these entities are run for the benefit of Steve Morgan's children.

(ii) Liz Peace resigned from the Board on 31 August 2017.  The shareholding shown is as at the date of her resignation.

Shareholding as a percentage of salary is calculated using the shareholding and base salary as at 1 July 2018 and the average share price for the final quarter of 2018.

The table below provides details of the interests of the Executive Directors in incentive awards during the year.

i. The performance conditions attached to the 2016 LTIP awards were disclosed in the 2017 Directors’ Remuneration Report.

ii. The performance conditions attached to the 2017 LTIP awards are shown on page 89.

iii. There are no further performance conditions attached to the exercise of the deferred bonus awards.

iv. Between 1 July 2018 and 3 September 2018 (being the latest practicable date prior to the posting of this report), there were no further changes to the directors’ interests set out in the Statement of shareholding and scheme interests above.

All scheme interests held by Steve Morgan are receivable in cash on terms which in all other respects mirror those for other Executive Directors.

Shareholding as a percentage of salary is calculated using the shareholding and base salary as at 1 July 2018 and the average share price for the final quarter of the financial year ended 30 June 2018.

Gains made by Directors on Share Options

The table below outlines the notional gains made by Directors on share options exercised during the year, calculated as at the exercise date.

Pension

John Tutte is a deferred member of the Redrow Staff Pension Scheme (now closed to future accrual) and details of entitlements under this plan are set out below. He also receives a pension allowance supplement of 20% of salary. Barbara Richmond receives a pension allowance supplement equivalent to 20% of salary. The value of these cash supplements is included in the pension column of the Single Total Figure of Remuneration Table on page 87. John Tutte and Barbara Richmond are also covered by fixed term group income protection and death in service benefit.

Total Pension Entitlements (Audited)

Details of the Executive Directors’ pension entitlements under the defined benefit section of the Redrow Staff Pension Scheme are as follows:

The normal retirement date shows the date at which the Director can retire without actuarial reduction. No additional benefit is available on early retirement.

The accrued pension shown above is the amount of pension entitlement that would be paid each year on retirement on the normal retirement date, based on service to 29 February 2012. The Scheme closed the accrual of future benefits with effect from 1 March 2012.

Supporting Disclosures and Additional Context

Percentage change in remuneration of Group Chief Executive

The table below shows the percentage change in the salary, benefits and annual bonus of the Group Chief Executive and of all Redrow employees who qualify for participation in the Company’s bonus and benefits plans between 2017 and 2018.

Relative importance of spend on pay

The table below shows total employee remuneration and distributions to shareholders, in respect of 2018 and 2017 (and the difference between the two).

Total employee remuneration represents amounts included in note 7a to the accounts in respect of wages, social security, pension and incentive costs for all Group employees. Distributions to shareholders include the total dividend in respect of each financial year (see note 5 to the financial statements). This represents 28 pence per share in respect of 2018 compared to 17 pence per share in respect of 2017.

Performance graph and table

The chart below shows the TSR of Redrow in the nine year period to 30 June 2018 against the TSR of the FTSE 250 and FTSE Small Cap. TSR refers to share price growth with re-invested dividends. The Committee believes the FTSE 250 and FTSE Small Cap indices are the most appropriate indices against which the TSR of Redrow should be measured.

The table below provides remuneration data for the Chairman/Group Chief Executive (as applicable) for each of the nine financial years over the equivalent period.

External non-executive directorships held by Executive Directors

It is the Committee’s policy that, with the approval of the Board, Executive Directors may hold one non-executive directorship at another company in order to broaden their knowledge and experience to the benefit of the Company. The Executive Director may retain any fee received for these duties.

Barbara Richmond is a non-executive director of Lonza Group Ltd and in line with the committee’s policy, she is entitled to retain the fees from this appointment. She received fees of £169k during 2018 (£170k during 2017). This represented 220,000 Euros in both years.

Consideration of directors’ remuneration – Remuneration Committee and advisors

The Remuneration Committee is comprised solely of Non-Executive Directors and comprises Debbie Hewitt as Chairman, Nick Hewson, Vanda Murray and Sir Michael Lyons. Liz Peace stepped down from the Committee on 31 August 2017 and Vanda Murray joined the Committee on 1 August 2017.

The Committee has agreed Terms of Reference detailing its authority and responsibilities. The Terms of Reference of the Committee are kept under regular review and are published on the Group’s website and include:

• determining the Remuneration Policy in respect of the Executive Directors and the Company Secretary (together ‘the Senior Executives’), taking into account the context of the Company’s overall approach to remuneration for all employees and within this Policy determining the total individual package of each Senior Executive;
• determining performance targets and the extent of their achievement for both annual and long-term incentive awards operated by the Company affecting Senior Executives; and
• monitoring and approving the level and structure of remuneration of the Managing Directors immediately below the Senior Executives.
  
  

The Committee meets as often as is required but at least twice per year. The Committee met three times during the course of the financial year ended 30 June 2018 and details of Committee attendance are set out in the table below.

Table of Attendance

* Liz Peace retired from the Board on 31 August 2017.

** Vanda Murray joined the Board on 1 August 2017. 

As announced on 15 June 2018, Debbie Hewitt will retire from the Board following the close of the AGM on 7 November 2018 at which point, assuming election by shareholders, Vanda Murray will become Chair of the Remuneration Committee.

The Committee retained Deloitte LLP as independent advisor to the Committee during the year. Deloitte LLP was originally appointed by the Committee in 2010 following a selection process undertaken by the Committee. Deloitte LLP is a member of the Remuneration Consultants Group and as such voluntarily operates under the Code of Conduct in relation to executive remuneration consulting in the UK. The Committee is comfortable that the Deloitte LLP engagement partner and team that provide remuneration advice to the Committee do not have connections with Redrow plc that may impair their objectivity and independence. The fees charged by Deloitte LLP for the provision of independent advice to the Committee during 2018 were £13,900. Deloitte LLP also provides the Company with tax advisory services but does not have any other connection with the Company.

Statement of voting at Annual General Meeting

At the Annual General Meeting held on 9 November 2017, votes cast by proxy and at the meeting in respect of directors’ remuneration report are shown in the table.

By order of the Board

DEBBIE HEWITT

Chairman of the Remuneration Committee

3 September 2018