I am pleased to present the Directors’ Remuneration Report for the year
ended 30 June 2021.
Following this letter we have set out the following additional information:
Our Pay Principles, which we adopted in 2020, together with
a summary of the market reference points considered by the
Committee and our approach to wider workforce remuneration.
Remuneration Philosophy: The link between our Directors’
Remuneration Policy and our Strategy.
Governance: How our Remuneration Policy is aligned with the
requirements of the UK Corporate Governance Code.
Remuneration at a glance: Summary of Executive Director Total
Remuneration for the 2020 and 2021 financial years.
There then follows the two principal sections of the Remuneration
Report: the Annual Report on Remuneration followed by an abbreviated
form of the Directors’ Remuneration Policy(the full version can be found
at www.dechra.com). The Annual Report on Remuneration provides
details of the amounts earned in respect of the 2021 financial year and
how the Directors’ Remuneration Policy(the Policy) will be implemented
in the 2022 financial year.
The Directors’ Remuneration Report(excluding the Policy) will be subject
to an advisory vote at the 2021 Annual General Meeting.
Our 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, and will
remain in force until 2023. We review the application of this Policy
regularly, with a view to it remaining appropriate, linked to strategy and
reflective of developing market practices.No changes to the Policy are
proposed for the forthcoming year.
Further details on how the Policy was implemented during the 2021
financial year and our approach to the implementation of the Policy
in the 2022 financial year, including our approach to performance
measures for the annual bonus and LTIP awards are described later
in this letter.
Remuneration Committee Decisions in 2021
In last year’s Remuneration Report we reported that we had decided to postpone the next remuneration review until later in the 2021 financial year to
allow the Committee time to review any impact on the business of COVID-19. We are pleased to report that the business has continued to perform
strongly and successfully managed to remain operational throughout the COVID-19 period.In the 2021 financial year, the Group has delivered
revenue of £608.0 million, representing an increase of 21.0% (at constant exchange rates) on the prior year, and underlying operating profit of
£162.2 million, which represents an increase of 29.2% (at constant exchange rates) on the prior year.In addition, we have:
- not furloughed any of our employees;
- not taken advantage of, or utilised, any government assistance in any country; and
- not undertaken any redundancy programmes related to the pandemic.
The Committee has been concerned for some time that certain of our senior executives’ base salaries have not kept up with the growth of the Group
and its complexity and have become uncompetitive. As a result of this concern the Committee resolved to undertake a business wide review of
remuneration, focusing in particular on the lowest paid in our organisation and the top 60 Senior Leaders (the Review).
By way of context, in the last four years:
- underlying operating profit has grown by 18.8% on a compound annual growth rate basis;
- dividends have grown by 17.2% on a compound annual growth rate basis; and
- market capitalisation (12-month average) has increased by 315% (September 2016 to August 2021); and
acquisitions have been made including manufacturing activities in Brazil and in the US, as well as of products, most recently Osurnia and
The Group has operations in 25 countries; markets products in 68 other countries; has over 5,600 product registrations; and has a market
capitalisation of over £5.7 billion (as at 27 August 2021). The scope and complexity of the Executive Director roles have therefore increased
Over this period, Ian Page, our Chief Executive Officer, has had one base salary increase of 4% in the 2020 financial year. Ian Page’s salary had not
previously been increased since 2016. Ian’s decision to waive increases in line with the workforce, combined with the increased complexity of the
role means that his current base salary is significantly below the lower end of the market competitive benchmark reference points.
We considered the conclusions of the Review in the context of the Dechra Pay Principles, which we adopted in 2020.
The Review identified where our pledge to become a Living Wage Employer required increases in employee pay. This has been implemented globally
with effect from 1 January 2021 for all of our lower paid employees. In countries where there is no equivalent of the Living Wage, we have used the
OECD formulation, or pay at least twice the local/federal minimum wage. In addition to implementing our Living Wage Employer changes a year
earlier than originally planned in the UK and even earlier in the rest of the world, we paid all of our site based employees (noting that the majority of
our lowest paid staff work in manufacturing or logistics) a bonus to reward their commitment during the COVID-19 period. In March 2021, we were
pleased to be accredited as a Living Wage Employer in the UK.
We have increased our employer pension contribution from 4% to 6% with effect from July 2021 in the UK and intend to increase the employer
pension contribution again to 8% on 1 July 2022.
The Review of our top teams (which includes the Senior Executive Team and their direct reports) revealed that a number of them were not on
a competitive level of base pay. The affected executives were almost all longer serving colleagues, whose base pay had not kept pace with the
business’ growth nor the marketplace. In order to honour our Dechra Pay Principles commitment, and to satisfy ourselves
on internal integrity, 40 Senior Leaders below Board received increases in base salary above the average 3% awarded to the wider workforce (other
than those impacted by our Living Wage pledge). These increases were between 5% and 20% of basic salary and effective from 1 January 2021.
The approach adopted when setting these base salary levels was to pay 90% of the benchmarked median base salary level.
In addition, we have decided to increase the annual bonus potential of the direct reports of the Chief Executive Officer from 50% to 75%. This will still
leave them behind the benchmark median, but we feel takes this group to the level which will mitigate the risk of flight.
Executive Director Remuneration Decisions
The Review highlighted that the base pay of our Chief Executive Officer, Ian Page, and our Chief Financial Officer, Paul Sandland, was significantly
below the lower end of the market competitive range (looking at companies ranked 51 to 150 in the FTSE350 and companies with a market
capitalisation of £2.5 billion to £4.5 billion. The base salary of our third Executive Director, Tony Griffin, which was also benchmarked locally, is already
at a competitive level.
The Committee believes that the base salary of our top Executives should be positioned appropriately for a number of reasons:
- we are fortunate to have an exceptional top management team and wish to lock in continuity for at least the next three years;
unless we raise salaries to an appropriate level, we are at risk of salary compression below Board level, which will impact our ability to recruit
successfully, particularly in the US and Europe;
- appropriate remuneration for our top executives is important to our succession planning, at and below Board level; and
the Committee, having embraced Dechra’s Pay Principles, believes that these principles should apply at every level in the organisation.
With this in mind we undertook extensive engagement with our shareholders to discuss:
increasing the base salary for our Chief Executive Officer and Chief Financial Officer with effect from 1 January 2021 in order to bring their base
salaries closer to the market median (consistent with the approach being adopted for executives below Board level as described above); and
increasing the bonus potential for the Executive Directors to 125% of salary for the 2022 financial year. This is below the maximum of 150% of
salary approved by shareholders when our Policy was approved last year.
Although we have used benchmarking as a guide; this is not the primary driver for the increases. As detailed above, over the last four years the
Group’s business has not only increased significantly in scale and profitability but has also increased in complexity. The scope and complexity of the
Executive Director roles have therefore increased significantly.
Furthermore, on his appointment in October 2019, the base pay for our Chief Financial Officer, Paul Sandland, was set at circa 19% less than that of
his predecessor. This was deliberately set at below market to allow him to prove himself in the role. It is the unanimous view of the Board that Paul
has excelled as our Chief Financial Officer, particularly during the COVID-19 period. In addition, he has taken on additional responsibility for IT and
our ESG strategy.
Responding to Shareholder Feedback
The consultation period with our largest shareholders has been important to us. Over a four month period we had a number of conversations with
investors and we had feedback from 35 shareholders, representing over 60% of our share capital. I am pleased to report that the vast majority of
shareholders consulted were supportive of the proposed increases.
Responding to the feedback received, the Committee decided to phase the base salary increases for both our Chief Executive Officer and Chief
Financial Officer over two financial years as detailed in the table below.
|Previous base salary
|1 January 2021*
|1 January 2022**
Ian Page – Chief Executive Officer
Market positioning for
Chief Executive Officer
Significantly below lower quartile
12% to £582,400
Around lower quartile
circa 5% to £612,000
Around 90% of market median
Paul Sandland – Chief Financial
Market positioning for
Chief Financial Officer
Significantly below lower quartile
20% to £360,000
Below lower quartile
12.5% to £405,000
Around 90% of market media
* The increases were effective 1 January 2021, but were paid post year end following the end of the consultation with our shareholders.
** Subject to continued strong performance of the Group and excellent individual performance.
Implementation of the Policy for Executive Directors in respect of the 2021 financial year.
As set out on page 121, Ian Page’s salary has been increased to £582,400 and Paul Sandland’s to £360,000. The
increases were effective from 1 January 2021, but were paid post year end following the end of the consultation with
our shareholders. The 2021 base salary increase for Ian Page moves his base to around the lower quartile of the market
range. The 2021 increase for Paul Sandland moves his base towards (albeit below) the lower quartile. Tony Griffin’s salary
was increased by 2.9% to €373,830 which was broadly in line with the average range of increases awarded to employees
throughout the Group.
Company pension contribution/cash in lieu of pension of 14% of salary for Ian Page, 11% for Tony Griffin, and 4% of salary
for Paul Sandland. In line with the commitment made in our 2020 Remuneration Report, these are being aligned to that of
the workforce by the end of 2022 (this includes enhancing the UK wider workforce rate alongside a reduction in the rate for
Executive Directors). Paul Sandland’s pension is already aligned with the wider workforce, and reflects a reduction in the
contribution rate on his appointment to the Board.
Maximum opportunity for the 2021 financial year of 100% of base salary.
The bonus for the 2021 financial year was based on underlying profit before tax (as regards 85% of the opportunity),
personal objectives (10%) and ESG measures (5%).
We have delivered underlying profit before tax during the year of £150.1 million, an improvement of 27.2% at constant
exchange rates (25.0% at actual exchange rates) on the prior year. Reflecting the performance of the Group in relation to
profit targets and the performance of Executive Directors against personal objectives and ESG measures as described on
page 131, bonuses for the year equal to 100% of salary have been earned by Ian Page and Paul Sandland.
The profit element of Tony Griffin’s bonus is calculated by reference to the underlying operating profit of Dechra Veterinary
Products EU (50%) and Group underlying profit before tax (50%). His bonus for the year is 83% of salary which reflects the
financial performance, his personal objectives and ESG measures.
The Committee considers the level of payout is reflective of the overall performance of the Group in the year and is
The annual bonus is subject to malus and clawback provisions.
Awards of 200% of base salary for Ian Page, 150% of base salary for Paul Sandland and 100% of base salary for Tony
Griffin were granted during the 2021 financial year. All of these awards are subject to a two year holding period.
LTIP awards granted to Ian Page and Tony Griffin on 26 October 2018 are scheduled to vest on 6 September 2021:
- as to 100% of the TSR element (one third of the total award) reflecting upper quartile performance; and
- as to 60.7% of the underlying diluted EPS element (two thirds of the total award) reflecting that the compound annual
growth in the underlying diluted EPS at 13.2% was below the maximum threshold of 19% (with the assessment of EPS
taking into account the Akston licensing agreement, as referred to below).
In aggregate, taking into account the ROCE underpin (reflecting that the ROCE at 18.8% had not fallen below 10.0%), the
LTIP awards will vest as to 73.8%. The Committee considers the level of payout is reflective of the overall performance of
the Group over the three year performance period ended 30 June 2021 and is appropriate.
See page 132 for further details.
Awards made under the LTIP are subject to malus and clawback provisions.
Performance Conditions for LTIP Awards
As detailed in the Directors’ Remuneration Report last year, the impact of the Akston licensing agreement is relevant for the 2019 Grant (three year
performance period to 30 June 2021) and 2020 Grant (three year performance period to 30 June 2022). In order to measure performance on a
fair and consistent basis, the Committee has adjusted the final year EPS for the 2019 Grant to reflect the actual Akston R&D costs incurred at the
vesting date. This adjustment recognises that these R&D costs were not included in the base year of the performance period and maintains the
overall level of stretch in the targets so the targets are not less difficult to satisfy.
For the 2021 Grant (three year performance period to 30 June 2023) and future years, the Committee is mindful that the base year will have some
R&D actual costs from the Akston deal. Therefore, the actual Akston R&D costs will be adjusted for both the base year and the year of vesting
to enable performance to be measured on a like-for-like basis. The Committee believes that this is the right approach as the payments for the
development of Akston are lumpy and uncertain as to timing between financial years.
Forward Looking: Implementation of Policy for 2022 Financial Year
We will apply the Policy in the 2022 financial year as follows
Salary: Executive Directors’ salaries will continue to be reviewed in January. As detailed above we are intending to make a further increase to
the base salary for Ian Page to £612,000 and Paul Sandland to £405,000 from 1 January 2022 which would move their base salaries closer to
(albeit below) market median. This second increase will be subject to the continued strong performance of the Group and excellent individual
performance. It is planned that any increases to Tony Griffin’s salary will be in line with the range of any increases proposed for the wider
Pension: In order to align the pension contributions/cash in lieu of pension for Ian Page and Tony Griffin to that of the workforce, from 1 July
2022, the pension contributions for Ian Page and Tony Griffin will decrease to 8%. Reflecting the enhanced employer contribution rate for wider
workforce rate, Paul Sandland’s pension increased to 6% from 1 July 2021 and will increase to 8% when the employer pension contribution rate
for the UK wider workforce increases to 8% on 1 July 2021.
Bonus: Our Executive Directors’ current annual bonus opportunity is 100% of salary. Our Policy, approved by shareholders at the 2020 Annual
General Meeting, allows for a maximum opportunity of 150% of base salary. As noted above, for the 2022 financial year, we propose to utilise
some, but not all, of the additional headroom in our Policy. The maximum bonus opportunity for the 2022 financial year will increase from 100%
to 125% of salary, which still remains below lower quartile of the market range.
In line with our Policy for Executive Directors, we will also introduce bonus deferral, requiring that 20% of any bonus earned (and not just any
additional bonus earned) is deferred into Dechra shares for two years. In connection with the introduction of bonus deferral, we are seeking
shareholder approval at the 2021 Annual General Meeting for a new Deferred Bonus Plan, the principal terms of which are summarised in the
Notice of Annual General Meeting. As we explained in the Directors’ Remuneration Report last year, the level of deferral is set so that amount of
cash earned for any level of performance is not increased by the increase in the opportunity. Therefore, for instance, the level of deferral would
increase to 33% of bonus were the bonus opportunity be raised the 150% of base salary permitted by our Policy. The bonus will be based on
a mix of stretching underlying profit before tax targets (in respect of a bonus of up to 110% of salary), 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 5% of salary). For Tony Griffin, and consistent with the approach for
the 2021 financial year, half of the opportunity based on underlying profit (i.e. up to 55% of salary) will be assessed by reference to the underlying
operating profit of Dechra Veterinary Products EU, reflecting his responsibility for that part of our business, and the other half of the profit based
opportunity by reference to Group profit in line with the other Executive Directors, and so that a significant part of the profit based opportunity is
aligned with the shareholder experience in respect of overall Group performance.
The increase in the annual bonus opportunity for the 2022 financial year recognises the increase in the size and complexity of the Group. The
Committee has also reviewed the level of stretch in the annual bonus targets to reassure themselves that the higher maximum opportunity for
the 2022 financial year will only be earned for delivery of higher levels of performance. For the 2022 financial year the maximum bonus will only
be earned for materially improved year on year performance from a strong 2021 base year where we delivered 25% year on year improvement in
underlying profit before tax (on a constant currency basis). The threshold to maximum range has been set at 95% to 110% of a stretching target
level of performance in order to align the maximum level of potential reward with the achievement of more stretching performance targets.
LTIP: No changes are proposed to the maximum LTIP opportunity for the 2022 financial year. Awards for the 2022 financial year will be granted
at the level of 200% of salary for Ian Page, 150% of salary for Paul Sandland and 100% of salary for Tony Griffin. Any shares that vest will
be subject to a two year holding period. The performance measures remain as per the grant of LTIP awards made on 22 September 2020,
details of which can be found here. The upper target for the EPS performance condition will be 15% CAGR. Taking account of internal
forecasts of performance over the performance period, the markets in which the Group operates, our long-term growth ambitions and the
expectations of the investment community on the Group’s future potential performance, this upper target is considered to be a stretching and
ambitious upper target which requires significant out-performance. This also reflects the strong performance delivered in the 2021 financial year
which is the base year for the 2022 LTIP grant.
Impact of changes on overall total compensation: The Committee is mindful of the impact of base salary increases on the value of the total
package. However, the value of the total package continues to be modest against the market norm for a company of our size and complexity.
The changes outlined above move the value of total package for our Chief Executive Officer and Chief Financial Officer towards the lower quartile
of the market. The majority of the package continues to be performance related, which is aligned with the interests of our shareholders. We
also recognise that increasing the level of competitiveness in salaries and the annual bonus will require the continued delivery of performance,
coupled with stretching targets for annual variable and long term compensation. The proposed maximum targets for both the 2022 annual
bonus and LTIP grant require continued double digit growth from the strong performance delivered in 2021. This will deliver alignment to
shareholders’ interests as we continue to grow.
Chairman and Non-Executive Directors
We have also taken the opportunity to review our Chairman fee level. We were mindful that the fee for Chairman varies considerably depending on
sector and time commitment. However, at less than £135,000 per annum, the total fee for our Chairman by any measure is very low. The Committee
agreed to increase the Chairman’s fee in two stages, with an increase to £159,000 (which includes the fee for being Chairman of the Nomination
Committee, currently £5,000) from 1 January 2021 and to £188,000 from 1 January 2022. This will position the Chairman’s fee between the lower
end and median of the market.
A committee appointed by the Executive Directors and the Chairman has reviewed fees for the other Non-Executive Directors. Details of the
proposed changes to the fee for the Non-Executives Directors are set out here. These increases bring the fees closer to the market
median (consistent with the approach being adopted for executives below Board level as described above) and reflect the increase in the size and
complexity of the business over the last four years. A review of the Non-Executive Directors’ base and additional fees will be undertaken in January
2022 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.
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. The Company’s SAYE scheme and Employee Stock Purchase Plan (ESPP) encourage share ownership by
qualifying employees and enable them to share in value created for shareholders. In the 2022 financial year we propose to offer the SAYE more
widely than we have in the past, expanding its operation to 18 additional countries and so offering 921 additional employees the opportunity to
acquire shares in Dechra.
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 2021 financial year included five one-to-one
hour discussions with cross function teams in the EU and US. 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 not to furlough employees during the pandemic. The Committee provided
an update on the Remuneration Review, including the Executive Directors’ remuneration increases, to the wider workforce and a channel for further
information and discussion.
We are pleased to report that as a result of our proactive management with regards to our gender pay gap in Dechra Limited (who employ 67.3%
of our UK employees), the gap has reduced from 9.2% in 2018 to 7.4% in 2019 and further again to 5.5% in 2020. This is something that we are
looking to build upon as we continue to make Dechra an increasingly attractive place to work.
We greatly appreciate the feedback and the level of support we have received from our shareholders regarding our approach to remuneration and
the changes outlined above. We are firmly of the view they are in the best interests of the business and its shareholders. Dechra is a high performing
Group and we believe that setting the salaries of our top Executives at more appropriate levels will help to keep it so.
We remain committed to a responsible approach to executive pay, as I trust this Directors’ Remuneration Report demonstrates. We believe that
the Policy operated as intended and consider that the remuneration received by the Executive Directors in respect of the 2021 financial year was
appropriate, taking into account Group performance, personal performance and the experience of shareholders and employees.
On behalf of the Board, I would like to thank you, our shareholders, for your engagement, and I hope that we will continue to receive your support at
the Annual General Meeting later this year. Should you have any queries in relation to this report, please contact me or the Company Secretary.
Remuneration Committee Chairman
6 September 2021