Directors' Remuneration Policy and Intended Implementation

As a consequence of the COVID-19 pandemic impact on the business in March 2020 and a change to the Board’s immediate priorities, the Remuneration Committee felt it appropriate to roll over the 2017 Remuneration Policy for a further year, notifying shareholders that we would return with a new Remuneration Policy for shareholder approval in 2021. The 2020 rolled over policy was broadly unchanged save for additional commitments to align with good practice including our approach to pension contributions. Last year, we also provided shareholders with details of our intended salary progression for Matthew Pratt who took over as CEO on 1 July 2020, having previously been COO of the Group. As a reminder, Matthew’s salary upon becoming CEO was set significantly below market levels at £540,000 with a view to increasing his salary to £625,000 from 1 July 2021 subject to performance in his role over the 2021 financial year. The Remuneration Committee was pleased to receive 95% and 99% support on the remuneration policy and remuneration report respectively at last year’s AGM.

As a result of his strong performance in his role as CEO, the Committee has proceeded with increasing Matthew’s salary to £625,000. The Committee believes this increase is appropriate, having considered Matthew’s exceptional performance since taking on the role of CEO, demonstrated by:

• Redrow’s robust financial performance over the course of the year with full year turnover of £1.94bn and a total order book of £1.43bn in line with June 2020. The business has ended the year with a strong cash position (a net cash balance of £160m) and dividends were resumed at the half year.
• The industry leading COVID-19 safe working practices and communication which enabled a swift and safe return to production.
• Successfully exiting the London assets following the strategic decision to scale our London operation back to just the core Colindale development.
• Significant development of our digital interface with customers which has enabled the business to continue successfully and safely trading throughout lockdown periods.
• The launch of Redrow 2025, an ambitious plan to ensure that sustainability is woven into the strategy and culture of the business with a focus on innovation and new ways of working.
• The commitment to talent for the future with an increase in graduates and sponsored degree students, resulting in over 330 trainees within the business.
  
  

Matthew’s salary reflects the completion of changes to the Board with John Tutte stepping down and Richard Akers taking on the role of a traditional non-executive Chairman and ensures Matthew is rewarded fairly. Furthermore, our commitment to developing talent and promoting from within requires the confidence and trust of our next generation of leaders to develop at Redrow. Setting a competitive salary structure at the top helps to achieve this and ensures there is room for promotion and salary progression further down the organisation.

Barbara Richmond’s base salary will be increased in line with the increase provided to the general workforce (3.1%).

Remuneration Policy changes

In undertaking the review of executive directors’ pay, the Remuneration Committee wished to ensure that our executive team is rewarded appropriately for future delivery. The primary objectives of the new policy were to ensure that:

• executive directors are rewarded fairly and competitively for the delivery of strong performance,
• it takes into account the need to attract, retain and motivate executives of a high calibre and to provide an appropriate balance between short and long term incentives,
• it considers a range of factors including competitiveness against our peers, market practice, the performance of the Group, the calibre of the executive team and remuneration practices elsewhere in the Group, and
• incentive schemes are subject to stretching performance criteria with full vesting or pay-outs requiring exceptional performance.
  
  

Annual bonus

Traditionally, the Remuneration Committee has taken a conservative approach to pay with modest levels of annual bonus and LTIP opportunities compared with businesses in our sector and similarly sized FTSE companies. This has raised concerns over our ability to attract and retain executive directors and other senior executives. The Committee, consistent with the policy objectives set out above, wishes to address this but recognises the sensitivities associated with increases to both incentive schemes at the same time. We are therefore proposing an increase to the 100% of base salary bonus maximum which has been in place for some years.

It is proposed that the bonus opportunity is increased to 150% of salary. The Remuneration Committee believes a 150% of salary maximum opportunity is commensurate with the size, scale and complexity of the Redrow business and ensures high calibre executives are appropriately incentivised. Benchmarking data was used to inform the Committee’s deliberations but only formed one part of a much broader consideration which considered relativities with the bonus opportunities below the Board, the need to support talent management and succession planning activities and reflecting the performance culture of the business.

While the vast majority of investors were comfortable with this proposal, the Committee reflected on the combined impact on total pay of the increase to the CEO’s base salary and an increase in bonus opportunity and has decided to apply a lower bonus opportunity of 125% of salary in 2022 and then increase this to 150% of salary for the remainder of the three-year policy period.

The 2021/22 annual bonus will be based 50% on profit before tax, 20% on outlets opened, 12.5% on customer satisfaction, 12.5% on health and safety and the remaining 5% on ESG. With an exceptionally strong order book, turnover over the next few years will be dependent on a strong pipeline of outlets opening throughout 2021/22, hence the decision to include outlets opening as a bonus measure. Customer satisfaction and health and safety continue to remain very important objectives, while the new ESG measure will be based on developing and implementing a comprehensive ESG framework. The LTIP quantum remains unchanged and the performance measures for the 2021/22 award will continue to be earnings per share and return on capital employed, each with a 50% weighting.

Pension provision

The 2020 rollover policy provided a commitment for all executive directors to be aligned with the workforce pension contribution rate from the start of the 2023/24 financial year. The 2021 policy brings forward the alignment date by six months to 1 January 2023 in line with good practice in this area.

Post cessation shareholding guideline

In line with emerging market practice and investors’ guidelines, a post-cessation shareholding guideline will be introduced as part of the new Directors’ Remuneration Policy. Executive Directors will be required to hold (unless exceptional circumstances apply) the lower of (i) the value of their shareholding at cessation of employment and (ii) 200% of salary, being the current in-employment guideline for a period of two years after ceasing employment. In calculating an executive’s shareholding under this guideline, vesting from share awards granted after the approval of the new policy will count but purchased shares will not. The Remuneration Committee believes this is appropriate to ensure executives are not discouraged from purchasing Redrow shares.

Shareholder engagement

The Committee is grateful for the feedback received from shareholders. This resulted in changes to our original proposals and demonstrates we have given careful consideration to the views heard from shareholders and wider stakeholders.

We believe the changes are appropriate, balanced and support our objectives of rewarding our executives fairly but not excessively for the role being undertaken. The CEO’s proposed base salary positioning reflects his strong performance and development in the role of CEO to date. The phased increase to bonus opportunity ensures a prudent approach to pay is taken in the current financial year and ensures we remain competitive in the second and third years of our Directors’ Remuneration Policy period, thereby helping to support internal succession planning.

Appointment of Non-Executive Chairman

On 12 May we announced that Richard Akers would join Redrow as a Non-Executive director and Chair-designate on 1 June. Richard is working closely with John Tutte during a handover period and Richard will assume the role of Chair following our annual results announcement on 15 September 2021, at which time John will stand down from the Board. Richard’s fee for taking on the Chair role has been set at a lower rate of £250,000 p.a.

Performance Outcomes for the Year Ended June 2021

We began the new financial year with the country in lockdown and with the business having implemented a range of strict social distancing measures as it implemented a phased return to construction. The new construction protocols put in place, together with extended customer handover procedures, lengthened build times and impacted the pace of output in the early weeks of the financial year. The prospects for the wider economy and its impact upon the new homes market was very uncertain. In the context of the trading environment and expectations at the start of the year, stretching annual bonus targets were set for PBT (50%), Group revenue (24%), Customer Service (14%) and health and safety underpinned by COVID-19 compliance at our sites (12%). 

The Group delivered a strong performance during the year having entered the year well-prepared to take advantage of any bounce-back in demand following the first lockdown. The order book was at a record level and work in progress carried forward was higher than normal. A stronger market than anticipated emerged from the lockdown driven by the Stamp Duty holiday and, in the earlier part of the year, by keen demand from buyers who would be excluded from the Help to Buy scheme after March 2021. Also, long-term social trends continued to underpin demand for our premium homes and places. Customers attached additional value to our larger, mainly detached family homes designed to offer flexible and modern living. COVID-19 also highlighted the growing desire of homeowners to live within our prime locations, created with our own market-leading placemaking principles.

These factors contributed to performance exceeding expectations and has resulted in the bonus targets being met in full. The Committee considered the outcome in relation to the wider stakeholder experience and was comfortable that the result was warranted based on the strong financial and non-financial performance across a broader range of factors. The Committee considered carefully the beneficial impact on our financial results arising from Government’s extension to the Help to Buy loan scheme to 31 May 2021 and the Stamp Duty Land Tax holiday to 30 June 2021. The Committee concluded that the benefit was not material to the bonus outcome and that no adjustment was necessary.

In contrast, the impact of the pandemic on our business resulted in the EPS and ROCE measures under the 2018 LTIP not being met and these awards will therefore lapse in full. This is the second consecutive year of nil vesting under the LTIP. Overall, the Remuneration Committee believes the outcomes under the bonus and LTIP are fair and reasonable with the LTIP reflecting the shareholder experience and the annual bonus outcome aligned with a strong recovery and resilient operational performance following the significant shock to the business. The Remuneration Committee did not apply any discretion to adjust the incentive outcomes.

I hope that you have found this annual statement informative. I am grateful for the engagement and support provided by our shareholders during these challenging times and I look forward to your support at the upcoming AGM. If you would like to provide any feedback, please contact me via the Company Secretary.

NICKY DULIEU

Chair 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.

Directors' Remuneration Policy

This part of the Directors’ Remuneration Report sets out the proposed Directors’ Remuneration Policy (“the Policy”) for the Group and has been prepared in accordance with Schedule 8: The Large and Medium sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2008 (as amended) and the UK Listing Authority’s Listing Rules. This new Policy will be put to a binding shareholder vote at the AGM on the 12 November 2021 and, subject to its approval, will be formally effective from the date of approval.

Remuneration Strategy

The Remuneration Committee designed the Policy with the following aims in mind:

• executive directors are rewarded fairly and competitively for the delivery of strong performance;
• it takes into account the need to attract, retain and motivate executives of a high calibre and to provide an appropriate balance between short and long term incentives;
• it considers a range of factors including competitiveness against our peers, market practice, the performance of the Group, the calibre of the executive team and remuneration practices elsewhere in the Group; and
• incentive schemes are subject to stretching performance criteria with full vesting or payouts requiring exceptional performance.
  
  

In seeking to achieve the above objectives, the Committee is mindful of the views of a broad range of stakeholders in the business and accordingly takes account of a number of factors when setting remuneration. This includes market conditions, pay and benefits in relevant comparator organisations, terms and conditions of employment across the Group, the Group’s risk appetite, the expectations of institutional shareholders and feedback from shareholders and other stakeholders. Whilst the views of other stakeholders are considered as part of the process, the Committee manages any potential conflicts of interest and retains the ultimate decision making authority.

This Policy has considered guidance provided by investors and proxy voting agencies. We have also taken into account the principles and provisions of the 2018 UK Corporate Governance Code and in particular the following six factors:

Clarity

• The Policy has a clear aim; to incentivise and reward for the delivery of our strategy
• The Policy is well understood by our Directors and senior executives
• Each component of remuneration is clearly explained in the Policy table, including its purpose, how it is operated, the maximum potential and any relevant performance measures
• Full disclosure of performance measures and assessments is provided for shareholders’ consideration
  
  

Simplicity

• The Policy reflects standard UK market practice, with the operation of an annual incentive and a single long-term share plan, full details of which are set out in the Policy table
• All payments are in the form of cash or Redrow plc shares, there are no artificial structures used to deliver remuneration
  
  

Risk

• The Policy and our approach to target setting seek to discourage any inappropriate risk-taking
• The Committee has the ability to use its discretion to override the formulaic outturns of the incentive plans if it is felt appropriate
• Comprehensive malus and clawback provisions operate in both incentive plans, providing the ability to recover or withhold payments if appropriate
  
  

Predictability

• Appropriate individual (and where necessary aggregate) limits are set out in the Policy and within the respective plan rules so outcomes can be predicted
• The possible reward outcomes under different performance scenarios are shown in the “Illustration of Remuneration Policy” section on page 139
• In operating the Policy, the Committee continually monitors the performance of in-flight incentive awards so that it is well aware of potential outcomes
  
  

Proportionality

• The outcomes of our incentive plans are directly aligned to the delivery of our strategy
• Outcomes are assessed against multiple metrics to ensure performance is considered on a broad basis
• The Committee has the ability to use its discretion to override the formulaic outturns of the incentive plans if it is felt appropriate
  
  

Alignment of culture

• A key focus of our Policy is to promote long-term sustainable performance which is reflective of the business culture
• Incentive outcomes rely on strong performance across a broad selection of measures which are important to our stakeholders
  
  

Key changes to the Directors’ Remuneration Policy

The key changes from the Policy that was approved at the 2020 Annual General Meeting are:

• All executive directors will have a pension contribution rate aligned with the workforce by no later than 1 January 2023 (the previous Policy had an alignment date of 1 July 2023)
• The annual bonus opportunity for Executive Directors will be increased from 100% of salary to 150% of salary (although a 125% of salary opportunity will apply in the first financial year of the policy (2021/22)).
• A post cessation shareholding guideline will be introduced requiring executive directors to hold the lower of the value of their shareholding on cessation and the current in-employment guideline (200% of salary) for a period of 2 years after ceasing employment.

Policy Table for Executive Directors

The Committee reserves the right to make any remuneration payments and payments for loss of office (including exercising any discretions available to it in connection with such payments) notwithstanding that they are not in line with the Remuneration Policy set out above where the terms of the payment were agreed (i) before 10 November 2014 (the date the Company’s first shareholder approved Remuneration Policy came into effect); (ii) before the Remuneration Policy set out above came into effect, provided that the terms of the payment were consistent with the shareholder-approved Remuneration Policy in force at the time they were agreed; or (iii) at a time when the relevant individual was not a director of the Company and, in the opinion of the Committee, the payment was not in consideration for the individual becoming a director of the Company. For these purposes “payments” includes the Committee agreeing awards of variable remuneration and, in relation to an award over shares, the terms of the payment are “agreed” at the time the award is granted. The Committee may make minor amendments to the Remuneration Policy (for regulatory, exchange control, tax or administrative purposes or to take account of a change in legislation) without obtaining shareholder approval.

Choice of performance measures and target setting

For the annual bonus and LTIP, performance measures are chosen which help to drive and reward the achievement of the Group’s strategy and also provide alignment between employees and shareholders. The Committee reviews measures each year to ensure they remain appropriate and reflect the future strategic direction of the Group. Targets for each performance measure are set by the Committee with reference to internal plans and external expectations. Performance is typically measured on a ‘sliding scale’ so that incentive payouts increase pro-rata for levels of performance in between the threshold and maximum performance targets.

Consideration of employment conditions elsewhere in the Group

The principles applied to the remuneration of Executive Directors are essentially the same as those for the Company. The difference between pay for Executive Directors and employees is that for Executive Directors the variable pay element forms a greater proportion of the overall package and the total remuneration opportunity is higher to reflect the increased responsibility of the role. While remuneration practices vary across the full employee population, they are based on the same broad principles which underpin the policy for Executive Directors set out above.

The Remuneration Committee is regularly briefed on pay and employment conditions across the Group and takes this into account when setting directors’ remuneration.

Employees’ salary levels are determined by taking into account prevailing industry rates and the Remuneration Committee takes into account the workforce salary increase when determining the increases that should apply to Executive Directors’ salaries.

The Workforce Engagement group provides feedback to the nominated non-executive director for workforce engagement on employment conditions and pay.

The Company operates a SAYE scheme available to all employees with the ability to become shareholders in the Company and thereby providing the ability to comment on executive directors’ pay as with all other shareholders.

Employees can raise issues through the divisional engagement groups and the national Workforce Engagement group, at performance appraisals and can write directly to the nominated non-executive director by email.

When setting the Remuneration Policy for Executive Directors, the Committee has regard to the pay and employment conditions of employees within the Company. The Committee did not consult directly with employees when formulating the Remuneration Policy for Executive Directors. The Committee considers salary increases within the business but does not formally consider any other comparison metric.

Consideration of shareholder views

The Committee engaged with all major independent shareholders and shareholder advisory groups, when developing this Remuneration Policy. Views expressed during this engagement were taken into account by the Committee and helped shape the final proposals. The Committee subsequently informed all of those consulted of the revised changes as a result of the consultation and the final proposed Policy. The Committee is grateful for the feedback received.

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. Awards made from 2019/20, included additional triggers relating to an error in the calculation of a performance condition and circumstances which the Committee considers sufficient to have, or had potential to have, caused reputational damage will also apply.

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.

For deferred bonus plan awards, in the event of a material misstatement of the Company’s audited financial results or employee misconduct, any unexercised awards will lapse immediately and the participant will forfeit any shares previously acquired under awards made under that plan.

Corporate events

Unvested awards under the deferred bonus plan and LTIP will normally vest early in the event of a takeover or winding-up of the Company and, in the case of the deferred bonus plan, if the Company goes into administration or a voluntary arrangement is proposed with its creditors. In these circumstances, deferred bonus awards vest in full and LTIP awards vest taking into account the relevant performance conditions and, unless the Committee determines otherwise, time pro rating to reflect the proportion of the performance period that has elapsed. Awards may also be rolled over for equivalent awards in a different company. If the Company is or is likely to be affected by a demerger, special dividend, delisting or other event which in the Committee’s opinion, may affect the current or future value of the Company’s shares, the Committee may allow some or all of the awards to vest. The extent to which LTIP awards vest in these circumstances will be calculated on the same basis as set out above for a takeover. The terms of awards may be (a) in the event of any variation of the Company’s share capital, delisting, special dividend or distribution, demerger or other event which may in the Committee’s opinion, affect the current or future value of the Company’s shares, adjusted or (b) amended in accordance with the plan rules.

Illustration of remuneration policy

The charts below illustrate the potential value of the remuneration packages for the Executive Directors under the following scenarios (no share price growth is assumed):

• Minimum – reflects fixed pay only (base salary and pension contributions as at 1 July 2021 and benefits included using the disclosed values for the year ended 27 June 2021;
• Target – reflects fixed pay, target bonus (50% of maximum) and LTIP awards vesting at threshold (i.e. 20% of salary); and
• Maximum – reflects fixed pay, maximum bonus (125% of salary) and maximum LTIP awards (being 150% of salary for the CEO and FD).
• Maximum plus share price growth – as for Maximum above, but with the value of 50% share price growth included within the LTIP element

ILLUSTRATIONS OF APPLICATION OF REMUNERATION POLICY

Approach to remuneration for recruitment of a new executive director

On the appointment of any new Executive Director, the Committee would seek to offer a remuneration package which can secure an individual with the necessary skills and experience to lead the business and deliver the strategy.

Executive Directors would be appointed within the remuneration framework set out in the Policy Table for Executive Directors. Salaries would typically be set at an appropriately market competitive level to reflect skills and experience, although, if appropriate, the Committee may set salaries towards the lower end of the market range to allow future salary progression to reflect performance and development in the role. A higher salary than the departing director’s salary may be appropriate in certain circumstances, particularly where the experience and calibre of the individual warrants such a positioning. In accordance with the Policy Table, the Committee also has discretion to include other benefits such as housing or relocation benefits, if relevant to reflect specific individual circumstances. The maximum level of variable remuneration which may be awarded (excluding any compensatory awards referred to below) would be as set out in the Policy Table.

Depending on the timing and responsibilities of the appointment, it may be necessary to set different annual bonus/LTIP performance measures and targets for initial awards from those applicable to other Executive Directors.

Where an individual forfeits outstanding incentive awards with a previous employer, the Committee may offer compensatory awards to facilitate recruitment. These awards would be in such form as the Committee considers appropriate, taking into account all relevant factors including the form, expected value, anticipated vesting and timing of the forfeited awards. The value of any compensatory awards would be no higher, in the opinion of the Committee, than the value forfeited.

Any share awards referred to in this section will be granted as far as possible under the Company’s existing share plans. Share awards may be granted under the Company’s LTIP in excess of the limits set out in the Policy Table above to provide compensatory buyout awards only (which may be subject to any performance conditions the Committee considers appropriate), in accordance with the terms above. If necessary, awards may be granted outside of these plans as currently permitted under the Listing Rules, but within the limits set out in this section.

Any incentive awards granted to employees prior to their promotion to the Board will be permitted to vest on their original terms.

The remuneration package for a newly appointed Non-Executive Director would normally be in line with the structure set out in the Policy Table for Non-Executive Directors.

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 appointments after 1 July 2017, 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. This policy applies to Matthew Pratt who was appointed to the Board on 1 April 2019.

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.

¹ John Tutte was appointed Non-Executive Chairman on an interim basis and will step down after the Company's 2021 Full Year Results on 15th September 2021, at which time Richard Akers will assume the role.

Copies of the Directors’ service contracts and letters of appointment are available for inspection at the Company’s registered office.

Policy on payments following Directors’ termination of service

On termination of a Director’s contract, the Committee’s objective is to agree an outcome which is in the best interests of the Company and its shareholders, taking into account the specific circumstances and performance of the individual, as well as any relevant contractual obligations and incentive plan rules.

As described in the section above, contractual payments in lieu of notice would be limited to salary and contractual benefits and may be made in instalments subject to mitigation.

The Committee has discretion to make a payment under the annual bonus in respect of the year of leaving where an individual is designated a “good leaver” (as described below). In such circumstances, the maximum bonus opportunity would normally be reduced pro-rata to reflect the portion of the year served. Any payment would remain subject to performance against the original targets and, if practicable, would be assessed and paid (in cash) as part of the normal year end assessment process. Outstanding awards under the deferred bonus plan and the LTIP would be treated in accordance with the relevant plan rules. Under these rules, if the participant leaves as a “good leaver”, then the treatment of outstanding awards will be as follows:

• Deferred bonus: Nil-cost options will be exercisable for a period of six months following the date of cessation. Options will be exercisable in full unless (for awards made in respect of 2015 and subsequent financial years other than in the case of death) the Committee may exercise discretion to reduce the awards pro-rata to reflect the extent to which the vesting period had elapsed at the date of cessation; and
• LTIP: Awards will normally continue to the original vesting date although the Committee may determine that awards vest following cessation. Where a holding period applies, awards will normally continue to be subject to that holding period following cessation. Unless the Committee determines otherwise, awards will be reduced pro-rata to reflect the extent to which the performance period has elapsed at the date of cessation and time served as an executive. The Committee will decide the extent to which the award vests in these circumstances. If an individual dies, their LTIP awards will normally vest shortly following their death and their LTIP awards will only be time pro-rated if the Committee considers it appropriate.
  
  

Circumstances in which a participant will be considered a “good leaver” are: death, ill-health, injury, disability, redundancy, retirement or the sale of the individual’s employing company or business outside of the Group.

Where an individual leaves the Company for any other reason, deferred bonus and unvested LTIP awards will lapse.

The Committee retains discretion to make additional exit payments where such payments are made in good faith in discharge of an existing legal obligation (or by way of damages for breach of such an obligation) or by way of settlement or compromise of any claim arising in connection with the termination of a director’s office or employment or for any fees for outplacement assistance and/or the director’s legal and/or professional advice fees in connection with their cessation of office or employment. The details and rationale for any such payments would be disclosed in the Annual Remuneration Report.

Non-Executive Director Fees

ANNUAL REPORT ON REMUNERATION
IMPLEMENTATION OF POLICY FOR 2022

This section summarises how the Committee intends to operate the Remuneration Policy for the year ending 30 June 2022.

Salary

In last year’s report we set out the approach to progressing Matthew’ Pratt’s base salary in his role as Chief Executive. Matthew took up the role of Chief Executive on 1 July 2020 and following an extensive consultation with shareholders, the Committee decided to phase Matthew’s base salary over time to enable him to gain experience and develop into the role. Accordingly, Matthew’s salary for FY2021 was set at £540,000 with a view to increasing his salary to £625,000 from 1 July 2021 subject to performance in his role.

Matthew’s performance since taking on the role of CEO has been exceptional, demonstrated by:

• Robust financial performance in financial year 2021, delivering a strong cash position which has enabled a resumption of dividends.
• The industry leading COVID-19 safe working practices and communication which enabled a swift and safe return to production.
• Successfully exiting the London assets following the strategic decision to scale our London operation back to just the core Colindale development.
• Significant development of our digital interface with customers which has enabled the business to continue successfully and safely trading throughout lockdown periods.
• The launch of Redrow 2025, an ambitious plan to ensure that sustainability is woven into the strategy and culture of the business with a focus on innovation and new ways of working.
• The commitment to talent for the future with an increase in graduates and sponsored degree students, resulting in 330 trainees within the business.
  
  

Therefore, the Committee has determined that Matthew’s salary should be increased to £625,000 and is satisfied that this salary reflects the level of responsibility and scope of the role in a challenging market and in the context of the stated strategy to rebuild and grow. The Remuneration Committee also took into account the following factors in making its decision:

• Our commitment to developing talent and promoting from within requires the confidence and trust of our next generation of leaders to develop at Redrow. Setting a competitive salary structure at the top helps to achieve this and ensures there is room for promotion and salary progression further down the organisation.
• The £625,000 salary to take effect in July 2021 represents a 2.5% increase on John Tutte's Executive Chairman salary which was determined as at July 2019. While benchmarking is not a driver of the increase, the Committee took comfort from the fact that the proposed salary sits comfortably against comparable home construction and FTSE 250 companies; and
• The need to ensure Matthew is rewarded fairly and remains motivated and incentivised to fulfil the Group’s ambitions to rebuild and grow the business.
  
  

Barbara Richmond’s salary will be increased by 3.1% in line with the wider workforce increase provided on 1 July 2021. The general workforce also benefitted from an interim increase of 2.5% made in January 2021.

The salaries for 2021 are effective from 1 July 2021 and are as follows:

Pension

Matthew Pratt’s pension contribution will be 7% of salary which is in line with the workforce contribution rate and Barbara Richmond’s will be 20% of salary. As set out in the Policy, all executive directors’ will have workforce aligned pension contribution rates from 1 January 2023. This alignment date was brought forward from 1 July 2023 following feedback received from shareholders during the consultation on changes to the Policy.

Annual Bonus

Subject to approval of the policy by shareholders, the annual bonus opportunity for executive directors will be 125% of salary for 2021/22 (within an overall Policy limit of 150% of salary). The decision to apply a lower bonus opportunity for FY2022 takes into account feedback received from a very small minority of shareholders who wished to see phasing of the bonus opportunity increase at a time when the CEO’s salary is being increased.

Consistent with last year, 50% of the bonus will be based on PBT targets. Customer service remains of paramount importance as does the health and safety of our employees and subcontractors. Accordingly, 12.5% of the bonus will be based each on customer service targets and health and safety.

With an exceptionally strong order book, turnover over the next few years will be dependent on a strong pipeline of outlets opening throughout 2021/22, and therefore outlets opening will determine 20% of the annual bonus. The final 5% will be based on developing and implementing a comprehensive ESG framework.

These measures are felt to be appropriately aligned with our current priorities. A sliding scale of targets will apply for each measure except ESG with 20% of maximum payable for achieving a demanding threshold target. The ESG metric will involve a qualitative assessment. It is the current intention that the targets will be disclosed in the FY2022 Remuneration Report provided the Committee is comfortable they are no longer commercially sensitive at the time.

LTIP awards to be granted during FY2022

It is expected that LTIP awards in the 2022 financial year will be made at the level of 150% of salary to Matthew Pratt and Barbara Richmond.

Consistent with previous years, half of the awards will be based on an EPS measure and half on ROCE applying to performance in FY2024. The following targets will apply:

The Remuneration Committee believes the targets are stretching and delivering EPS of 103p is in line with our pre-pandemic three-year aspirations (being the stretch figure of 115p applying to the 2019 LTIP, noting that corporation tax has increased from 17% to 25%). The Committee will adjust the targets to ensure they are no more or less challenging in the event of changes to the corporation tax rate for FY2024.

The ROCE targets have been based on our guidance level of land creditors and the Committee will consider, at the time of vesting, whether it is appropriate to apply any downwards discretion in the event that land creditors are materially ahead of the Company’s guidance.

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

Non-Executive Director Fees

The Board excluding the non-executive directors conducted an annual review of non-executive director fees and awarded a 2.5% increase from 1 July 2021 meaning the base fee for a Non-Executive Director will increase from £55,000 pa to £56,375 pa. This increase will not be applied to John Tutte or Richard Akers.

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.

John Tutte will step down as non-executive chairman at the AGM and his fee will remain at £300,000 until that date. Richard Akers will become the new chairman and his fee has been set at £250,000 p.a.

Outcomes in Respect of 2021

The tables below set out the remuneration for the Directors in respect of 2021. Further discussion of each of the components is set out on the pages which follow. Where indicated, these disclosures have been audited.

Single Total Figure of Remuneration Table (Audited)

The remuneration of the Executive Directors in respect of 2021 is shown in the table below (with the prior year comparative):

⁽ⁱ⁾ Matthew Pratt was appointed to Chief Operating Officer on 1 April 2019 and became Group Chief Executive on 1 July 2020.

⁽ⁱⁱ⁾ Executive Directors took a voluntary 20% salary and pension deduction from 1 April 2020 to 18 May 2020 with John Tutte maintaining the deduction throughout his remaining period as Executive Chairman.

⁽ⁱⁱⁱ⁾ John Tutte served as Executive Chairman from 1 April 2019 to 6 November 2020 when he became Non-Executive Chairman.

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

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

^(vi) Annual bonus represents the full value of the bonus awarded in respect of the relevant financial year. Details of outcomes against the performance targets are set out below.

^(vii) LTIP represents the value of the LTIP award which vests in respect of the 3-year performance period ending in the relevant financial year. The award made in November 2017 lapsed as the vesting threshold was not met and the awards granted in September 2018 which are capable of vesting in September 2021 will also lapse due to the vesting threshold not being reached.

The fees of the Non-Executive Directors in respect of 2021 are shown in the table below (with the prior year comparative).

⁽ⁱ⁾ John Tutte served as Executive Chairman from 1 April 2019 to 6 November 2020 when he became Non-Executive Chairman.

⁽ⁱⁱ⁾ Nicky Dulieu was appointed as Non-Executive Director on 6 November 2019.

⁽ⁱⁱⁱ⁾ Vanda Murray stepped down from the Board on 6 November 2020.

^(iv) Richard Akers joined the Board as a Non-Executive Director on 1 June 2021 and will become Non-Executive Chairman on 15 September 2021.

2021 Annual bonus

The maximum bonus opportunity for the Executive Directors during 2021 was 100% of salary. This was based on the achievement of stretching targets under a balanced scorecard of performance measures. The bonus measures and targets were determined after the impact of the pandemic was first felt, thereby reflecting the challenging environment in place at the time. The following measures and targets applied:

⁽ⁱ⁾ PBT is underlying, pre-exceptionals

⁽ⁱⁱ⁾ This excludes land sales

The financial bonus targets were set in the context of the pandemic and the annual outlook at the time. After targets were set, the Government extended the Help to Buy loan scheme to 31 May 2021 and the Stamp Duty Land Tax holiday to 30 June 2021. However, the Committee concluded that the benefit was not material to the outcome and that no adjustment was necessary.

The accident rate was positively affected by the high volume of completions at our Colindale development. The Committee considered this and concluded there was no requirement to adjust the outcome as the target would have been achieved excluding the Colindale safety record.

The strong and resilient financial, operational and safety performance of the Group has resulted in the bonus targets being met in full. The Committee considered the outcome in relation to the wider stakeholder experience and was comfortable that the result was warranted based on the strong financial and non-financial performance across a broader range of factors.

In line with the Policy, 50% of the bonus will be deferred in shares and these will vest after 12 and 24 months.

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.

The sections below summarise details of the 2018 LTIP awards which were capable of vesting in 2021 and those awards which were granted during the 2021 financial year.

LTIP awards vesting in respect of 2021

The LTIP awards granted in September 2018 were based on performance over the three year performance period ending 27 June 2021. Based on performance against the EPS and ROCE targets set when the award was granted, summarised in the table following, neither of the thresholds were met and therefore these awards will lapse on 10 September 2021.

The below threshold performance reflects the impact of the pandemic on the financial year. As no shares vested the value of these awards is nil and has been included in the 2021 LTIP column of the Single Total Figure of Remuneration table on page 144.

Scheme Interests Awarded During 2021 (Audited)

The following table sets out details of LTIP awards to Executive Directors during the 2021 financial year.

^{*The face value has been calculated using the average share price used to determine the number of shares awarded, being 405.3p (the average, over the three days to the date of grant).}

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

As outlined in last year’s report, setting meaningful LTIP targets at the time of granting the 2020 LTIP awards in September 2020 was challenging due to the uncertainty surrounding COVID-19 and the economic outlook. It was therefore agreed that the measures and targets applicable to those awards would be set within six months of grant. On 21 December 2020, the Committee announced the targets that apply to these awards:

The Remuneration Committee has discretion to adjust the number of shares vesting from the award if it considers that the vesting outcome is not sufficiently reflective of the underlying performance of the Company and to the extent the Committee believes there have been windfall gains.

There was no bonus paid in respect of FY2020 and therefore no Deferred Bonus Plan awards were granted during the year.

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, Barbara Richmond meets this guideline.

As noted above, Matthew is expected to retain all Deferred Bonus Plan and LTIP shares on a net of tax basis until the shareholding guideline is met. Non-Executive Directors are not subject to shareholding guidelines.

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 27 June 2021 and current interests in long-term incentives.

Shareholding as a percentage of salary is calculated using the shareholding and base salary as at 1 July 2021 and the average share price for the final quarter of the 52 weeks ended 27 June 2021.

* Matthew Pratt is building his shareholding in line with the Remuneration Policy and his shareholding is 97% of salary as at 27 June 2021. 

(i) The performance conditions attached to the 2019 LTIP awards were disclosed in the 2020 Directors’ Remuneration Report.

(ii) The performance conditions attached to the 2020 LTIP awards are shown on page 147.

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

(iv) Between 28 June 2021 and 14 September 2021 (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.

(v) Included in the LTIP 2016 awards held at 28 June 2020 in the Annual Report 2020 were 15,876 and 41,497 shares under option for Matthew Pratt and Barbara Richmond respectively which were exercised on 12 September 2019.

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 and Matthew Pratt are deferred members of the Redrow Staff Pension Scheme (now closed to future accrual) and details of entitlements under this plan are set out below. John Tutte also received a pension allowance supplement of 20% of salary up to 6 November 2020 when he became Non-Executive Chairman. Barbara Richmond received a pension allowance supplement equivalent to 20% of salary and Matthew Pratt received a pension allowance supplement equivalent to 7% of salary (2020:10%). The value of these cash supplements is included in the pension column of the Single Total Figure of Remuneration Table on page 144. Barbara Richmond and Matthew Pratt 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:

* At 24 June 2021 being normal retirement date.

John Tutte retired from the pension scheme on 27 June 2021.

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, Additional Statutory Information and Additional Context

Percentage change in remuneration of Chief Executive, Directors and All Employees

The tables below show the percentage change in the salary, benefits and annual bonus of the Chief Executive, Directors and of all Redrow employees who qualify for participation in the Company’s bonus and benefits plans between 2020 and 2021. The comparison between 2019 and 2020, where relevant, is shown in brackets.

* Matthew Pratt became Group Chief Executive on 1 July 2020. The change in salary reflects this promotion from COO to CEO.

** Zero bonus was awarded to Matthew Pratt in FY2020. £540k was awarded for FY2021.

* Zero bonus was awarded to Barbara Richmond for FY2020. £370k bonus was awarded for FY2021.

** John Tutte moved to a non-exective role during the year.

CEO Pay Ratio

The remuneration figures for the employee at each quartile were determined with reference to 27 June 2021.

Our CEO pay ratios have been calculated using Option A under the Companies (Miscellaneous Reports) Regulations 2018 as this is the most statistically accurate way. The total remuneration of all UK employees for the 2021 financial year has been calculated and ranked to identify the employees where remuneration places them at the 25th, 50th and 75th percentile points.

The total pay and benefits and salary of the employees paid at the 25th percentile, 50th percentile and 75th percentile are shown in the tables on page 151.

* The employee identified at the 50th percentile is in a sales consultant role which has the opportunity to earn higher remuneration through commission arrangements, hence the base salary is lower than the 25th percentile employee but the total pay and benefits is higher.

** The employee identified at the 75th percentile is in a sales consultant role, which has the opportunity to earn higher remuneration through commission arrangements, hence the base salary is lower than the 50th percentile employee but total pay and benefits is higher.

The pay ratio figures for 2021 have widened compared to those in the prior year. The principal reason is that there was no variable pay in the prior year for the CEO. In the current year, the bonus has been paid in full and as this represents a higher proportion of executive pay than it does in the wider workforce, the ratios have widened. The total pay and benefits payable across the workforce has increased as shown in the table above. Therefore the year on year change in the pay ratio is in line with our expectations. The Committee will continue to monitor longer-term trends in pay.

The Remuneration Committee notes that the Chief Executive’s remuneration package is appropriately more heavily weighted toward variable pay elements, i.e. annual bonus and LTIP, than the general employee population and is therefore likely to result in the ratio fluctuating as a function of the outcomes of incentive plans year on year. However, the Committee will continue to monitor pay ratios, including any longer term trends, as part of its annual agenda.

Relative importance of spend on pay

The table below shows total employee remuneration and distributions to shareholders, in respect of 2021 and 2020 (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 cash returns in respect of each financial year (see note 5 to the financial statements). This represents 24.5 pence per share in respect of 2021 compared to nil pence per share in respect of 2020.

Performance graph and table

The chart below shows the TSR of Redrow in the ten-year period to 27 June 2021 against the TSR of the FTSE 250. TSR refers to share price growth with re-invested dividends. The Committee believes the FTSE 250 index is the most appropriate index against which the TSR of Redrow should be measured, as it is a constituent of the FTSE 250.

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

*   For Steve Morgan, this value includes the nominal salary and benefits disclosed in the Single Total Figure of Remuneration table as well as Company donations to The Steve Morgan Foundation, a UK registered charity of which Steve Morgan is a trustee, reflecting notional salary and waived annual cash bonus in respect of the relevant year. It also includes the value of deferred bonus and vested LTIP cash awards in respect of each relevant year (calculated in accordance with the methodology applicable to the Single Total Figure of Remuneration Table).

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 £188k during 2021 (£205k during 2020). This represented 240,000 Swiss Francs in both years.

CONSIDERATION OF DIRECTORS’ REMUNERATION – REMUNERATION COMMITTEE AND ADVISORS

The Remuneration Committee is comprised solely of Non-Executive Directors. Vanda Murray chaired the Remuneration Committee until she stepped off the Board on 6 November 2020. At that date, Nicky Dulieu became Chair of the Remuneration and the other members during the year comprised Nick Hewson, Sir Michael Lyons and Richard Akers (who joined the Board on 1 June 2021).

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 Executive Committee immediately below the Senior Executives.

The Committee meets as often as is required but at least twice per year. The Committee met five times during the course of the financial year ended 27 June 2021 and details of Committee attendance are set out in the following table:

Table of Attendance

¹ Vanda Murray chaired the Remuneration Committee until 6 November 2020 when she stepped down from the Board and there were no meetings held between the beginning of the 2021 financial year and her retirement date Nicky Dulieu took over as Chair from that date.

² Richard Akers joined the Board and the Remuneration Committee on 1 June 2021 and attended the meeting held from this date to the end of the 2021 financial year.

^* Member considered to be independent. Throughout the 2021 financial year, the Committee was made up of 100% independent members.

Statement of voting at Annual General Meeting

At the Annual General Meeting held on 6 November 2020, votes cast by proxy and at the meeting in respect of directors’ remuneration report are shown in the table.

By order of the Board

NICKY DULIEU

Chair of the Remuneration Committee

14 September 2021