Annual Report and Accounts for the year ended 30 June 2023
Remuneration
Geeta Gopalan
Remuneration Committee Chair
Letter from the Remuneration Committee Chair
7
Remuneration Committee Meetings Held
Areas of Focus This Year
Review of compensation across the Group, including the Executive Directors
Review of Chair’s fee
Executive Director and Senior Executive Team (SET) Performance Objectives, including ESG targets
Key responsibilities
To determine the remuneration, bonuses, long term incentive arrangements, contract terms and other benefits in respect of the Executive Directors, the Chair and SET
To oversee any major changes in employee benefit structures
To approve the design of any employee share scheme
To oversee workforce pay policies
Dear Shareholder
I am pleased to present the Directors’ Remuneration Report for the year ended 30 June 2023. Having joined the Board on 1 January 2023, I was appointed as Chair of the Committee with effect from 1 March 2023 succeeding Ishbel Macpherson, who I would like to thank for her considerable contribution as Chair of the Committee.
There have, of course, been two key considerations for the Committee during the 2023 financial year: the renewal of our Directors’ Remuneration Policy and the proposed acquisition of the Company by Freya Bidco Limited (a newly formed company to be indirectly owned by (i) EQT X EUR SCSp and EQT X USD SCSp, each acting through its manager (gérant) EQT Fund Management S.à r.l., and (ii) Luxinva S.A.) (the Proposed Acquisition).
- In line with the usual position, our Directors’ Remuneration Policy which was approved by shareholders at the 2020 Annual General Meeting is due for renewal at the 2023 Annual General Meeting. As we reported last year, during the course of the 2023 financial year we reviewed the policy approved in 2020 to ensure that it continues to support our strategic priorities. We consulted with shareholders during the year in relation to our proposals. I have set out below further information in relation to our approach to the new Directors’ Remuneration Policy.
- The other key development in the 2023 financial year is the Proposed Acquisition. This impacts our approach to remuneration in respect of the 2024 financial year, and I comment further on that below. Assuming the acquisition completes during the 2024 financial year, “in-flight” incentive awards held by Executive Directors (including the deferred bonus awards granted in respect of bonuses for the 2023 financial year) and other colleagues will be treated in accordance with the applicable incentive plan rules, the Cooperation Agreement entered into in respect of the potential acquisition and, where relevant, the applicable Directors’ Remuneration policy.
Following this letter we have set out the following additional information:
- Our Pay Principles, which we adopted in 2020, and our approach to wider workforce remuneration.
- Remuneration Philosophy: The link between our Directors’ Remuneration Policy and our Strategy.
- Governance: The alignment of the Policy with the requirements of the UK Corporate Governance Code.
- Remuneration at a Glance: Summary of Executive Directors’ Total Remuneration for the 2022 and 2023 financial years.
There then follow the two principal sections of the Remuneration Report: the Directors’ Remuneration Policy (the Policy) for which approval is proposed to be sought at the 2023 Annual General Meeting subject to the Company remaining listed at the time of the proposed Annual General Meeting and the Annual Report on Remuneration. The Annual Report on Remuneration provides details of the amounts earned in respect of the 2023 financial year and subject to the impact of the Proposed Acquisition how the Policy will be implemented in the 2024 financial year.
The Directors’ Remuneration Report (excluding the Policy) will be subject to an advisory vote at the 2023 Annual General Meeting. The Policy will be subject to a binding vote at the 2023 Annual General Meeting to the extent that the same will be held.
Our Proposed New Directors’ Remuneration Policy
The Policy was approved by shareholders at the Annual General Meeting on 27 October 2020, with 90.81% of all votes cast in favour. During the 2023 financial year, we reviewed that policy to ensure that it continues to support our strategic priorities. We were satisfied that its overall structure remained appropriate and continues to support the delivery of our strategy. We consulted with shareholders in relation to our proposed new Policy. Although the Proposed Acquisition will, if it completes, impact the implementation of the new Policy in the 2024 financial year, we have set out in this report the full new Policy in the usual way. I have summarised below the principal differences between the proposed new Policy and the policy approved at the 2020 Annual General Meeting; other changes have been made to reflect the appropriate amendments referred to below and to take account of the practical operation of the Policy.
- Annual bonus and Long Term Incentive Plan headroom: The current policy provides for an overall incentive opportunity of 350% of salary, consisting of an annual bonus of up to 150% of salary and an LTIP of up to 200% of salary.
The 150% of salary bonus opportunity was introduced when the current policy was approved at the 2020 Annual General Meeting, in substitution for the previous 100% maximum. However, none of that additional headroom was utilised in the 2021 financial year; only part of it was utilised in the 2022 financial year (when the opportunity was increased to 125% of salary); and the full headroom has only been utilised in the 2023 financial year (for which Ian Page and Paul Sandland have bonus opportunities of 150% of salary, with Tony Griffin’s bonus opportunity remaining at 125% of salary).
The 200% of salary LTIP opportunity has been in place since our first binding directors’ remuneration policy was approved in 2014. Our current practice is to grant at 200% of salary for Ian Page, 150% of salary for Paul Sandland and 100% of salary for Tony Griffin.
The new Policy increases the overall incentive pay opportunity from 350% of salary to 400% of salary. Within this overall limit, further limits are set such that the annual bonus cannot exceed 175% of salary and the LTIP cannot exceed 250% of salary, or 300% of salary in exceptional circumstances. The inclusion of this additional headroom is to ensure there is appropriate flexibility in the Policy to take account of increases in the size and complexity of the business over its potential three year life. This additional headroom will also be balanced with the inclusion of the changes to the new Policy set out below. - None of the additional headroom will be utilised in respect of the 2024 financial year. Annual bonus opportunities for that year will remain 150% of salary for Ian Page and Paul Sandland and 125% of salary for Tony Griffin. As noted below, no LTIPs are currently intended to be granted in respect of the 2024 financial year; if that were to change, the grants would remain at the level of 200% of salary for Ian Page, 150% of salary for Paul Sandland and 100% of salary for Tony Griffin.
- Stretch in performance conditions: If relevant for any future year, the Committee would review the stretch in the performance targets (also taking into account market conditions at the time) to ensure that any increase in quantum is commensurate with an appropriate level of stretch in the performance targets.
- Increase in the percentage of bonus deferred: If relevant for any future year, were we to increase the annual bonus opportunity in line with the additional headroom in the new Policy the level of deferral would increase to 50% of the bonus earned if the bonus opportunity increased to the maximum of 175% of salary.
- In-service shareholding guideline: Under the current policy, this is set at 200% of salary. In the new Policy, the in-service requirement is set as the higher of the Executive Director’s usual annual LTIP award or 200% of salary.
- Post-employment shareholding requirement: The current policy applies a post-employment shareholding guideline on a tapered basis; 100% of the in-service requirement must be retained for the first year after employment, and 50% for the second year. In the new Policy, we have removed this tapering approach for any newly appointed Executive Director, for whom the 100% of the in-service requirement will apply for the full two year period.
- Enhanced malus and clawback provisions: The recovery (malus and clawback) provisions in the current policy already reflect best practice. However, a change has been made in the new Policy to further enhance them, including an explicit reference to their application being possible in the event of a material failure of risk management.
- LTIP performance measures: Our current policy requires that financial performance measures be used for the LTIP. Recognising the importance of ESG, which is integrated into the way we work at Dechra, the new Policy permits the utilisation of non-financial measures, but with a requirement that financial measures account for at least 70% of the LTIP award.
Remuneration Committee Decisions in 2023
We delivered a robust performance in the first half of the 2023 financial year; however the second half of the year proved more challenging. On remuneration, our aim is to always consider the wider workforce, our shareholders and other stakeholders by taking a fair, prudent and balanced approach. The table below summarises the implementation of the Policy for Executive Directors in respect of the 2023 financial year.
Chair’s Fee and Non-Executive Directors’ Fees
The Committee considered the Chair’s fee at the same time as the Executive Directors’ salaries in line with the usual wider workforce salary review timetable. At that time, the Board reviewed the Non-Executive Directors’ base fee. The Chair’s fee and Non-Executive Directors’ base fees were increased by 3% with effect from 1 January 2023. No change was made to the supplementary fees for Non-Executive Directors’ additional duties. Details of the fees with effect from 1 January 2023
Forward Looking: Implementation of Policy for 2024 Financial Year
As noted above, the Proposed Acquisition impacts our approach to remuneration in respect of the 2024 financial year. However, I have summarised below our proposed approach assuming the 2023 Annual General Meeting is held and the Policy is approved at that meeting and taking into account, where relevant, the proposed acquisition.
Salary
In line with our usual practice, it is currently intended that Executive Directors’ salaries will continue to be reviewed in January 2024, along with those of the wider workforce.
Pension
The employer pension contribution for Ian Page and Paul Sandland will be 8% of salary. The employer contribution for Tony Griffin will be 7.7% of salary, in line with the wider Dutch workforce. Executive Directors may continue to take a cash payment in lieu of employer pension contributions.
Bonus
As noted above, notwithstanding the increased headroom in the new Policy, the annual bonus opportunity for 2024 will remain at 150% of salary for Ian Page and Paul Sandland (with a 33% deferral) and 125% of salary for Tony Griffin (with a 20% deferral).
Bonuses will be based on a mix of stretching underlying profit before tax targets (in respect of a bonus of up to 130% of salary for Ian Page and Paul Sandland and 105% of salary for Tony Griffin), personal objectives (in respect of a bonus of up to 10% of salary) and an ESG measure (in respect of a bonus of up to 10% of salary).
LTIP
Due to the Proposed Acquisition the Committee will not be granting any awards for the 2024 financial year. Should the acquisition not complete then the Committee will consider whether to grant awards later in the year, with information on performance conditions and targets disclosed at the time of grant.
Chair and Non-Executive Directors
It is currently intended that a review of the Chair and NonExecutive Directors’ base and additional fees will also be undertaken in January 2024 (if Dechra remains a listed company at that point) along with the pay review process for the wider workforce.
Wider Workforce Remuneration and Employee Engagement
We recruit and promote people on the basis of their personal ability, contribution and potential. We are committed to promoting, supporting and maintaining a culture of fairness, respect and equal opportunity for all. We are also committed to fair employment practices and comply with national legal requirements regarding wages and working hours. Our approach to salaries with effect from 1 January 2023 is summarised above.
The Group aims to provide a remuneration package that is competitive in an employee’s country of employment and which is appropriate to promote the long term success of the Group. During the 2023 financial year we enhanced our UK employee offering with the introduction of:
- an online GP service to support the health and well-being of the workforce;
- a cash plan for medical benefits; and
- a reduction in the working week by 1.5 hours for our UK manufacturing employees via reduced working week or a nine day fortnight, whilst maintaining pay and benefits at current levels.
In addition, in July 2022, we increased the employers contribution to the UK Company Pension Scheme to 8% of base pay and introduced flexibility as to the permitted level of employee contribution to address cost-of-living pressures.
As the Non-Executive Director designated under the 2018 Code for employee engagement, Lisa Bright engages directly with employees on a range of topics of interest to them. Workforce engagement activities during the 2023 financial year included meeting the Future Facing Leaders, the THRIVE champions and employees at Skipton. These have provided an upward channel for views, comments and debate, as well as an opportunity to provide positive feedback on the Group’s decision to adopt a more flexible approach to the working week in the UK. The Committee provided an update on the Remuneration Review, including the Executive Directors’ remuneration increases, to the wider workforce via the OneDechra intranet. The Remuneration Review update compares the various elements of remuneration of the Executive Directors, Senior Executive Team and the wider workforce to enable the wider workforce to ascertain how the executive remuneration aligns with the wider Company pay policy.
Gender Pay
We are pleased to report that, as a result of our proactive management with regards to our gender pay gap in Dechra Limited (which employs 68.0% of our UK employees), the gap has reduced from 17.7% in 2017 to 1.3% in 2022.
Looking Ahead: Key Focus Areas for the Committee for 2024
Our approach in the 2024 financial year will depend upon the outcome of the Proposed Acquisition. I have set out our intended approach in this letter and the later sections of this Directors’ Remuneration Report. If Dechra remains a listed company at the end of the 2024 financial year, we will provide further information in the Directors’ Remuneration Report for that year as to the approach we adopted.
In Conclusion
We greatly appreciate the feedback and the level of support we have received from shareholders regarding our approach to remuneration.
We remain committed to a responsible approach to executive pay, as I trust this Directors’ Remuneration Report demonstrates. We believe that the directors’ remuneration policy operated as intended and consider that the remuneration received by the Executive Directors in respect of the 2023 financial year was appropriate, taking into account Group performance, personal performance and the experience of shareholders and employees.
Should you have any queries in relation to this report, please contact me or the Company Secretary.
Geeta Gopalan
Remuneration Committee Chair
12 October 2023
Workforce Remuneration
| Executive Directors | Senior Executive Team | Wider Workforce | |
|---|---|---|---|
| Base Salary | Increases considered in the context of business wide review of remuneration, focusing on the lowest paid in our organisation. | We are accredited as a Living Wage Employer in the UK and have implemented the equivalent elsewhere in the world. | |
| Pension | Ian Page and Paul Sandland: 8% of base salary in line with the employer pension contribution rate for the UK wider workforce. Tony Griffin: 7.7% of base salary pension contribution in line with the employer pension contribution for the wider Dutch workforce. | Between 8% and 12% of base salary dependent on length of service. | We increased our minimum employer pension contribution from 6% to 8% with effect from 1 July 2022 in the UK*. |
| Bonus | 150% of base salary for the 2023 financial year for Ian Page and Paul Sandland and 125% for Tony Griffin. Ian Page and Paul Sandland: Targets for the 2023 financial year: personal (up to 10% of salary), ESG (up to 10% of salary) and financial (up to 130% of salary). Tony Griffin: Targets for the 2023 financial year: personal (up to 10% of salary), ESG (up to 10% of salary) and financial (up to 105% of salary). | 75% of salary for 2023 financial year. Targets: for 2023 financial year, financial, ESG and personal. | All senior managers and professionals. Maximum 40% of base salary. Targets: financial and personal. |
| Long Term Incentive Plan | Maximum 200% of base salary. Currently 200% of base salary for Ian Page, 150% of base salary for Paul Sandland and 100% of base salary for Tony Griffin. Three year performance period, two year holding period. Target: TSR (one third), underlying diluted EPS (two thirds) and ROCE underpin. | Maximum 100% of base salary. Three year performance period. Target: TSR and underlying diluted EPS with a ROCE underpin. | All senior managers and professionals. Discretionary awards. Market value options, three year performance period. Target: EPS growth 12% above inflation. |
| Sharesave† | Up to £500 per month | ||
* Data provided for UK only.
† Austria, Belgium, Brazil, Canada, Croatia, Denmark, Finland, France, Germany, Ireland, Italy, Netherlands, Norway, Poland, Portugal, Slovenia, Spain, Sweden, UK and USA.
Remuneration Philosophy
The Link between our Directors’ Remuneration Policy and our Strategy
The table below describes how certain remuneration elements are linked to our strategy.
| Remuneration Element | Strategic Growth Driver and Enabler | Link to our Key Performance Indicators | |
|---|---|---|---|
| Annual Bonus | Our annual bonus incentivises the delivery of the long term strategy through the achievement of short term objectives. Up to 130% of salary can be earned based on a stretching profit target, which requires performance above budget and market expectations to trigger the payment of a maximum bonus. Up to 10% of salary can be earned based on the achievement of personal objectives, which reflect the priorities of the business, achievement of which is necessary to deliver the longer term strategy. Up to 10% of salary can be earned based on ESG measures. |       | Sales Growth |
| Long Term Incentive Plan | The LTIP is designed to reward the generation of long term value for shareholders. Performance measures reflect our long term objectives, including sustainable profit growth and the enhancement of shareholder value. Awards are based on growth in underlying diluted EPS and the delivery of shareholder returns. For the 2022 and 2023 financial year awards, the weightings are two thirds underlying diluted EPS and one third total shareholder return. The application of a ROCE underpin focuses Executives on using capital efficiently and appropriately to allow the business to capitalise on growth opportunities in new territories and markets, whilst maintaining returns. The post vesting holding period aligns management with the long term interests of shareholders and the delivery of sustained performance. The performance conditions for LTIP awards made in respect of the year ended 30 June 2022 and future years include discretion to override formulaic outcomes. | | Underlying Diluted EPS Growth Return on Capital Employed New Product Sales |
Alignment of Policy with Code
In determining the Policy, the Committee took into account the principles of clarity, simplicity, risk, predictability, proportionality and alignment to culture, as set out in the Code.
Clarity
Our remuneration arrangements are transparent and aligned with our Purpose, Values and Strategy and our disclosures are clear to both our shareholders and our employees. Performance targets are set in line with Group budgets and plans and reviewed and tested by the Committee.
Simplicity
We believe that our remuneration structures are as simple as they practicably can be. We follow a standard UK market approach to remuneration with established variable incentive schemes that operate on a clear and consistent basis.
Risk
- Both the annual bonus and LTIP are subject to malus and clawback provisions, and the Committee has discretion to override formulaic outcomes, which may not accurately reflect the underlying performance of the Group.
- LTIP awards are subject to a two year post-vesting holding period, and any bonus opportunity in excess of 100% of salary requires deferral into shares also applies. Each of these factors provides longer term alignment with shareholders’ interests.
- The post-employment shareholding requirement means that alignment with shareholders’ interests continues after an Executive Director has left Dechra.
Predictability
The range of possible values of rewards and other limits or discretions can be found in the full Policy on here, and the Risk section above refers to limits and Committee discretion.
Proportionality & Alignment to Culture
The variable elements of awards are linked to base salary. The performance targets are closely linked to the corporate, financial, strategic and other non-financial objectives of the Company. This enables the Committee to reward the Executive Directors’ contribution to both the annual financial performance and the achievement of specific objectives of the Company, so that poor performance cannot be rewarded. In determining the Policy, the Committee was clear that this should drive the right behaviours, reflect our Values and support the Company Purpose and Strategy. The Committee will review the remuneration framework regularly so that it continues to support our Strategy.
Executive Director Total Remuneration
Ian Page
2022
2023
| 2022 | 2023 | ||
|---|---|---|---|
| Fixed | |||
| Salary | 30.9% | 59.9% | |
| Benefits | 3.4% | 5.1% | |
| Pension | 2.5% | 4.8% | |
| Performance-linked (Variable) | |||
| Bonus | 28.4% | 12.0% | |
| LTIP | 34.8%% | 18.2% |
Paul Sandland
2022
2023
| 2022 | 2023 | ||
|---|---|---|---|
| Fixed | |||
| Salary | 42.2% | 64.0% | |
| Benefits | 3.7% | 5.2% | |
| Pension | 2.5% | 5.2% | |
| Performance-linked (Variable) | |||
| Bonus | 38.7% | 12.8% | |
| LTIP | 12.9% | 12.8% |
Tony Griffin
2022
2023
| 2022 | 2023 | ||
|---|---|---|---|
| Fixed | |||
| Salary | 39.8% | 67.5% | |
| Benefits | 1.0% | 1.8% | |
| Pension | 3.1% | 5.1% | |
| Performance-linked (Variable) | |||
| Bonus | 30.2% | 13.5% | |
| LTIP | 25.9% | 12.1% |
