Corporate Governance

The Remuneration Committee is satisfied that the pay that can be earned is appropriate for a company of comparable size and complexity at each level of performance and that the pay structure is aligned with the Company’s purpose, strategy and culture. This includes encouraging our executives to promote and demonstrate the right behaviour and take appropriate decisions in line with our Guiding Principles.

The long-term growth of shareholder value is a key objective of our remuneration policy. Over 40% of our shares are held by the Directors and senior management and their families. All of the Executive Directors and many of our senior managers have significant exposure to the Company’s share price, through a combination of their personal investments in our shares and through options granted under our employee share schemes. Stephen Hemsley, as co-founder of the Company, has a significant personal shareholding in the Company, but does not participate in our employee share schemes.

The vesting of options granted under our employee share plans are subject to a performance condition requiring a pre-determined and challenging rate of compound annual growth in diluted adjusted earnings per share, which the Board regards as a key performance metric. As a result, there is a clear incentive to sustain EPS growth over the longer term and to mitigate downside risks that could affect the Company’s profitability. We have chosen to use market-value options to deliver this reward, meaning that value can only arise for the executives if they have delivered share price growth for shareholders. Reputational risks could reasonably be expected to affect the share price, which means that share plan participants are further incentivised to mitigate these exposures to maximise the potential value of their awards.

• Fixed pay (base salaries and benefits in kind) – base salaries are determined by the Committee, taking into account the salaries paid in AIM-quoted companies of similar size and complexity and the tenure and performance in role of the individual. Benefits in kind include provision at an appropriate level of a car or car allowance, healthcare and life assurance.
• Pensions – the Company operates a defined contribution scheme available to all employees including the Executive Directors, or a cash supplement if executives are unable to participate in the scheme. Only basic salaries are pensionable and no Executive Director is offered an employer contribution different from that available to employees generally.
• Short-term incentives – our annual cash bonus plan extends to a range of senior executives and managers, including the Executive Directors. The plan operates by calculating a bonus pool as a percentage of Adjusted EBITDA achieved beyond budget or the City consensus expectation. Our belief is that senior executives should not receive a bonus payment for delivering an on-budget performance. Individual entitlements are generally linked to the delivery of Adjusted EBITDA in the part of the business for which the executive is accountable, with an element dependent on the delivery of personal goals, which can include non-financial objectives. No individual bonus can exceed 50% of salary. Bonus payments are non-pensionable.
• Long-term incentives – the Company operates a share option scheme covering permanent employees (including the Executive Directors, other than Stephen Hemsley). Subject to achieving compound EPS growth targets, options can vest no earlier than the third anniversary of the date of grant and, once vested, may be exercised until the tenth anniversary. The exercise price of the options is set at the market value of the Company’s shares at the time of grant, so that the individual only benefits if there has been share price growth. The only exception to this is for an historic (and now discontinued) matching scheme, where certain Directors were granted nominal value options if they purchased an equal number of shares in the market. Those nominal value options could only vest if the same EPS growth performance targets were met. All of our share option schemes are overseen by the Committee, which determines the terms under which eligible individuals may be invited to participate, including the level of awards.

We have chosen to use Adjusted EBITDA as the profit metric as that best reflects outcomes under the control or influence of operational management, excluding the effects of corporate funding and accounting decisions taken by the Board. It also complements the Adjusted EPS target used in determining the vesting of share options.

The maximum bonus payable to any one individual, including the Executive Directors, is capped at 50% of salary, with lower levels of maximum bonus set for some Management Board members (primarily those with functional, rather than business responsibilities). Targets are set for delivery of Group profitability, the delivery of profits in any part of the business for which the relevant executive is accountable, and personal elements linked to specific deliverables.

The rules of our bonus plan include market-normal malus and clawback provisions.

All options and awards are granted with an exercise price set at the market value of the Company’s shares at the date of grant. In each case, vesting is (or has been) subject to our standard performance conditions, requiring material growth in the Company’s audited Adjusted diluted EPS. Value only accrues to the participant to the extent that there has been growth in the Company’s share price.

The rules of the ESOP include market-normal malus and clawback provisions, which apply to all options and awards issued after January 2024.

The Senior Independent Director and the Audit Committee Chairman each receive a supplement to recognise the additional contributions that they have each been asked to provide. The NEDs receive no benefits in kind, no pension contributions and no performance-related pay. They are not eligible to participate in any of the Company’s incentive arrangements.

The NEDs are retained under letters of engagement which may be terminated by the Company (i) giving three months’ notice or (ii) immediately, in the event that the Director is not re-elected by shareholders at an AGM.