TSB Banking Group today announces the level of executive remuneration for 2014, including CEO Paul Pester's total remuneration for the past year.
This is the first announcement of full-year executive pay since TSB introduced its new reward policy for Executive Directors Paul Pester, Darren Pope (CFO) and other Bank Executive Committee members on 26 June 2014. The new reward policy has been in place for all TSB Partners since 1 January 2015.
TSB's reward policy
, which was announced on 5 June 2014, is designed to be simple and fair and deliver shareholder value by putting customer service at the heart of everything it does. It aims to reinforce TSB's difference as Britain's challenger bank by rewarding sustained performance over time, whilst cultivating behaviours that ensure the delivery of consistently great customer service.
One key feature of the approach is that at admission of TSB's shares to trading on the London Stock Exchange, all employees were made 'Partners' and awarded £100 of TSB shares. The new reward policy removes the link between product sales and reward and rebalances the proportions of "fixed" and "variable" pay for Partners. This means that TSB will comply with the 1:1 fixed:variable remuneration cap prescribed by the PRA.
Detailed Executive Remuneration arrangements for CEO
The following table sets out the total remuneration for Paul Pester for the whole of 2014. For the period from 26 June to 31 December 2014, remuneration was subject to TSB policies. For the period from 1 January 2014 to 25 June 2014, pay was subject to LBG's policies and is included in the interests of full transparency. Explanation of TSB's reward schemes can be found below the table.
|Paul Pester||LBG Policy|| TSB Policy||Total Remuneration 2014 |
|1 January to 24 April||25 April to 25 June ||26 June to 31 December|| |
|Basic Salary||£190,000||£100,000 ||£361,588||£651,588|
|Legacy LBG Bonus
4||£247,000 ||£130,000 || ||£377,000|
5|| || ||£36,167||£36,167 |
|LBG 2012 LTIP
6||£515,322 ||£37,202||£115,871||£668,395 |
|Pension||£38,000 ||£20,000||£72,318||£130,318 |
|Sub Total||£998,918 ||£291,485|| || |
|Total || £1,290,403||£599,297||£1,889,700|
The single figure total remuneration for Paul Pester from 24 April 2014 to 31 December 2014 (the period for which it is a statutory requirement for TSB to disclose remuneration
) is £890,782. For the full year, including the period in which remuneration was determined by LBG policies, the total remuneration figure is £1,889,700.
As disclosed in the prospectus at TSB's IPO, and in line with the approach of rebalancing fixed to variable pay, Paul Pester's basic salary was increased, with effect from the date of IPO, from £600,000 a year to £700,000 a year. Even after accounting for this increase, which is frozen until 2016, he will see a material reduction in his maximum potential earnings compared with his previous LBG arrangements.
His fixed annual reward calculated on his basic salary of £700,000 totals £877,500. This is comprised of his basic salary, a 20% of basic salary pension contribution or cash alternative, 4% of basic salary for flexible benefits or cash alternative, and a cash car allowance of £9,500.
In pursuit of a remuneration model that delivers the sort of bank that consumers tell us they want and which fosters sustainable business growth, TSB replaced the two LBG bonus and long term incentive plans in place prior to its IPO with two new award schemes:
The TSB Award
The Sustainable Performance Award
The TSB Award
The TSB Award is a discretionary annual performance-related reward that, if relevant performance targets are met, has the same percentage of basic salary reward opportunity for all Partners in the bank, from CEO to those on the front line. For the award to be funded, the bank must achieve key customer service and other financial, strategic and risk management metrics and must have made sufficient profit. The TSB Award was implemented for all TSB Partners on 1 January 2015.
The on-target TSB Award is 10% of basic salary. The award fund in an exceptional year could increase to a maximum of 15% of aggregated basic salaries, and the very best performers may be eligible for a 'pioneer' award of up to twice the core percentage paid to other Partners. This means that in an exceptional year the TSB Award for a pioneer Partner could be up to 30% of basic salary.
The TSB Sustainable Performance Award (SPA)
The SPA is designed to support achievement of targets by senior Partners based on sustained business performance. It is a discretionary reward plan that, if relevant performance targets are met, is awarded in a mixture of TSB shares and cash. The SPA is only funded where there is sufficient profit to justify the award after the costs of the TSB Award have been met.
Any award made vests in five equal tranches to the extent that continuing performance conditions are met from the first to fifth anniversary of the date the SPA is granted. Vesting is at the discretion of the Remuneration Committee.
In addition to corporate performance conditions, Executive Directors and other senior Partners will only receive a SPA grant if merited by individual performance. Paul Pester's performance in 2014 was rated highly and he will receive a SPA award of £630,000, which is 90% of his maximum entitlement of 100% of basic salary in a grant to be made in March. He will receive no payment under the award until 2016 and then only in the event that pre-determined sustainable performance release conditions are met.
Legacy LBG Awards for CEO
Paul Pester held as at 31 December 2014 outstanding share awards granted by LBG, including awards under all staff share schemes, which are due to vest over the next three years to the extent that relevant performance conditions are met and at the discretion of the LBG Remuneration Committee.
|Verde Completion Award*||Unvested and Subject to Performance Conditions ||Unvested and not subject to Performance Conditions ||Vested but not exercised |
|£405,000 ||2,332,281 shares ||327,166 shares ||22,156 shares |
*Awarded May 2011. Any payments will be made as soon as reasonably practicable after the first anniversary of listing.
All awards subject to LBG performance conditions.
Notes to editors
TSB Banking Group's 2014 Annual Report and Accounts:
1 In developing its reward policy, TSB reviewed the policies of other banks and took inspiration from a range of retail businesses in which good customer service is key. It is designed to be easy to understand, transparent, and to encourage a Partnership culture amongst TSB Partners. A key feature of the approach is that at admission of TSB's shares to trading on the London Stock Exchange, all employees were made 'Partners' and awarded £100 of TSB shares. Partners are expected to retain these shares whilst employed by TSB, ensuring that Partners' interests are aligned with the long-term performance of the bank. Retaining these shares is also one of the conditions to payment of the TSB Award, for which all Partners are now eligible.
2 Because of the deferred nature of the TSB Sustainable Performance Award, in line with PRA regulations the initial award value can be discounted by 9% for the purposes of calculating the cap. This means that Paul Pester's fixed annual reward, when compared to the maximum TSB Award (30% of basic salary) and his maximum SPA award (100% of basic salary), will fall within the 1:1 cap.
3 The numbers in this table differ slightly from those shown in our DRR. The reason for this is that since producing our DRR LBG has informed us that the 2012 LBG LTIP has vested at a level of 96.6% and that the share vesting price is 79.24p. The values for the 2012 LBG LTIP have therefore been adjusted accordingly to show our best estimate of actual vesting values. This also impacts the final totals at the bottom of the table. The table does not include any award under the SPA. According to TSB remuneration arrangements, the first awards under the SPA will be granted in early 2015, based on performance achieved in 2014. Any SPA made for the 2014 performance will vest in five equal tranches from the first to the fifth anniversary of the date the SPA is granted. Vesting will be subject to the achievement of corporate and individual release conditions at each vesting date, and will be included in future years' single total remuneration figures accordingly. The first tranche will be considered for release in 2016.
4 As disclosed in the Prospectus, Paul Pester and the CFO were entitled to receive annual bonus payments under the LBG annual bonus scheme in respect of the period from 1 January 2014 to admission of TSB's shares to trading on the London Stock Exchange but based on TSB performance over this period. Paul Pester has received a bonus payment under this legacy arrangement, 60% of which will be deferred over three years in TSB shares, with the remaining 40% paid in a mix of TSB shares and cash in the course of 2015.
5 The TSB Award has been pro-rated to reflect the period since admission of TSB's shares to trading on the London Stock Exchange when TSB implemented its remuneration arrangements for Executive Directors. The TSB Award is delivered 60% in TSB shares and 40% in cash.
6 The numbers in this table differ slightly from those shown in our DRR. The reason for this is that since producing our DRR LBG has informed us that the 2012 LBG LTIP has vested at a level of 96.6% and that the share vesting price is 79.24p. The values for the 2012 LBG LTIP have therefore been adjusted accordingly to show our best estimate of actual vesting values. This also impacts the final totals at the bottom of the table.
7 On 24 April 2014, TSB Banking Group plc became the holding company for TSB Bank plc and Paul Pester and Darren Pope began providing qualifying services as directors of the company. This is therefore the relevant date from which TSB's single figure for remuneration has been calculated.
8 This absolute maximum applies to all TSB Partners given pioneer status in a given year, including Executive Directors.
9 Depending on a Partners' grade, the on-target award level for the SPA would range from 25% to 62.5% of basic salary. The maximum award for outstanding, corporate and individual performance, would range from 50% to 100% of basic salary. In the event that performance conditions were missed completely then no award would be made.