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TSB Bank plc today announces its new reward strategy - including its Executive Remuneration Policy - which it plans to implement post IPO. This is another important step in TSB's mission to bring more competition to UK banking and deliver the sort of bank that consumers tell us they want.
TSB's new reward strategy is designed to be simple and fair and deliver shareholder value by putting customer service at the heart of everything it does. It focuses on customer service and rebalances the proportions of "fixed" and "variable" pay for senior executives. This will mean that TSB will comply with the 1:1 fixed:variable remuneration cap prescribed by the PRA and the EU.
In developing the new reward policy, TSB has reviewed the policies of other banks and taken inspiration from a range of retail businesses, most notably the John Lewis Partnership. The new strategy has been endorsed by TSB's Remuneration Committee, chaired by Dame Sandra Dawson.
TSB's new reward structure will apply to CEO, Paul Pester, and CFO, Darren Pope, from the completion of TSB's IPO, and be introduced for the Bank Executive Committee later this year.
TSB is also currently consulting with its three Trades Unions about plans to roll out new arrangements to all its 8,600 staff, with an aspiration to have new arrangements in place for all staff in 2015. In implementing the new strategy TSB will seek to ensure that no member of staff's anticipated overall reward is materially reduced and that the overall reward cost to the business will not be materially impacted.
A Partnership Model
TSB is keen to shift its focus from product sales towards customer service. TSB believes that one of the key ways to encourage consistently outstanding customer service is to make all staff a "Partner" in the business.
To this end, all 8,600 staff of TSB will be granted £100 of TSB shares at IPO and become "TSB Partners". It is envisaged that in order to encourage a culture of partnership the long-term ownership of these shares will, under normal circumstances, be required to ensure eligibility for performance-related rewards.
Commenting on the new reward strategy TSB CEO Paul Pester said: "I believe a sense of shared ownership amongst TSB staff is key to delivering a consistently great customer service - and to building a thriving TSB Bank. I'm therefore delighted that all of our staff will receive £100 of TSB shares and become "TSB Partners".
Customer Service Focus
Consistent with this shift in focus from product sales towards customer service, following consultation with staff and trades unions, TSB intends to replace its existing bonus structure with two new reward schemes:
The TSB Award and The Sustainable Performance Award (SPA)
The TSB Award
The TSB Award is an annual performance-related reward that, if awarded, would pay to all recipients a percentage of annual salary, determined on the same basis for everyone, from CEO to front-line branch staff. For the award to be paid TSB Bank and individual TSB Partners must achieve key customer service metrics and the Bank must be profitable.
The target award would normally be capped at 10% of salary but there would be scope for this to increase to a maximum of 15% for outstanding performers at all grades
The TSB Sustainable Performance Award
The TSB Sustainable Performance Award (SPA) is a discretionary, executive reward plan that, if triggered, would deliver awards in a mixture of TSB shares and cash. Any awards would normally vest in five equal tranches on the first five anniversaries of the date they were granted.
The vesting of each tranche would be subject to continual performance against customer service and other key metrics and be at the discretion of the TSB Remuneration Committee. This is designed to ensure consistent and sustainable performance. Depending on a Partner's grade, the on-target award levels envisaged for the SPA would range from 25% to 62.5% of annual salary. The maximum award for outstanding, above target performance, would range from 35% to 100% of salary.
Rebalancing fixed and variable reward for senior executives
By replacing the Annual Bonus and Long Term Incentive Plan (LTIP) awards, currently received by TSB senior executives, with the TSB Award and TSB Sustainable Performance Award (SPA), TSB will rebalance executive remuneration away from variable reward and towards fixed reward. It will also mean that TSB will comply with the 1:1 fixed:variable remuneration cap prescribed by the PRA and the EU.
CEO Reward Structure
In line with the approach of rebalancing fixed to variable pay, from IPO, CEO Paul Pester's base salary will increase from £600,000 per annum to £700,000 per annum, frozen until 2016. Even after accounting for this increase, he will see a material reduction in his maximum potential earnings.
His fixed annual reward, comprising base salary, pension and other benefits will total £877,500. Under the new TSB policy, the CEO's variable reward will be £507,500 for on-target performance or a maximum of £805,000 for outstanding performance. Combining these variable rewards with his fixed pay gives an on-target total of up to £1.385 million and maximum reward of £1.683 million per annum.
The on-target total is equivalent to 59 times the current average pay of non-managerial TSB staff, whilst the maximum is equivalent to 65 times. On salary alone it is 36 times.
TSB Chairman, Will Samuel, said: "I am grateful to Dame Sandra, the Remuneration Committee and the Executive Team for their considerable work in designing the new policy.
"We believe the new policy strikes the right balance in rewarding sustained performance and high levels of conduct over the longer-term, whilst retaining and motivating TSB's excellent workforce."
Commenting on TSB's new executive remuneration policy as a whole, Dame Sandra Dawson, chair of TSB's Remuneration Committee, said: "TSB recognises that executive pay is an emotive topic so the Board and Remuneration Committee have gone to great lengths to address these concerns.
"By ensuring there is a direct link between staff remuneration, conduct and customer service our pay policy aims to facilitate the recruitment, retention and motivation of suitably qualified and like-minded people who want to be part of Britain's challenger bank, whilst ensuring the interests of our staff, customers and shareholders are aligned."
Detailed Executive Remuneration arrangements for CEO
Summary of new TSB policy for Paul Pester
Pensions and Benefits
CEO Paul Pester will be provided with a cash car allowance of £9,500 per annum, and the company-wide flexible benefits scheme (equivalent to 4% of salary). He will also be entitled to 30 days holiday plus Bank Holidays, private health cover, health screening and life assurance cover. The company will pay a pension contribution equivalent to 20% of salary.
Share ownership guidelines
CEO Paul Pester will be required to hold shares equivalent to 200% of salary.
Legacy Awards from Lloyds Banking Group (LBG)
CEO Paul Pester is eligible for a one-off discretionary cash payment on completion of agreed milestones in the separation of TSB from Lloyds Banking Group and the IPO (the Verde Completion Award). The payment, from LBG, will be made after the first anniversary of the IPO.
Paul Pester also currently holds outstanding share awards granted by LBG which are due to vest over the next three years.
Summary of legacy Lloyds Awards (at maximum) for CEO
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Notes to editors
TSB Bank plc is a British bank which provides customers with a range of services and products such as current accounts, savings, credit cards, loans, mortgages and insurance.
With a presence on 631 high streets right across Britain, TSB Bank plc has approximately 8,600 staff looking after over £23 billion on behalf of its 4.6 million customers. Our purpose is to support safe and sustainable economic growth in the surrounding communities, serving only individuals and local business customers.
For further information about TSB Bank plc, please visit our website www.tsb.co.uk.
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This announcement does not constitute or form part of any offer or invitation to sell or issue, or any solicitation of any offer to purchase or subscribe for any securities to any person in Australia, Canada, Japan, South Africa, the United States or in any other jurisdiction to whom or in which such offer or solicitation is unlawful nor shall it (or any part of it) or the fact of its distribution, form the basis of, or be relied on in connection with, or act as an inducement to enter into any contract or commitment whatsoever. The IPO and the distribution of this announcement and other information in connection with the IPO in certain jurisdictions may be restricted by law and persons into whose possession this announcement, any document or other information referred to herein comes should inform themselves about and observe any such restriction. Any failure to comply with these restrictions may constitute a violation of the securities laws of any such jurisdiction.
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This announcement may include statements that are, or may be deemed to be, "forward-looking statements" with respect to TSB Banking Group plc ("TSB "). These forward-looking statements may be identified by the use of forward-looking terminology, including the terms "believes", "estimates, "plans", "projects", "anticipates", "expects", "intends", "may", "will" or "should" or, in each case, their negative or other variations or comparable terminology, or by discussions of strategy, plans, objectives, goals, future events or intentions. Forward-looking statements reflect the Group's current view with respect to future events and are subject to risks relating to future events and other risks, uncertainties and assumptions relating to the Group's business, results of operations, financial position, liquidity, prospects, growth and strategies. Forward-looking statements speak only as of the date they are made and cannot be relied upon as a guide to future performance. Save as required by law or regulation, TSB does not undertake to release publicly the results of any revisions to any forward-looking statements in this announcement that may occur due to any change in its expectations or to reflect events or circumstances after the date of the announcement. TSB expressly disclaims any obligation or undertaking to update, review or revise any forward-looking statement contained in this announcement whether as a result of new information future developments or otherwise.