The Financial Conduct Authority (the “FCA”) in the Prudential sourcebook for MiFID Investment Firms in the FCA Handbook (“MIFIDPRU”) sets out the detailed prudential requirements that apply to CD&R LLP (“CD&R” or the “Firm”). Chapter 8 of MIFIDPRU (“MIFIDPRU 8”) sets out public disclosure rules and guidance with which the Firm must comply.
CD&R is classified under MIFIDPRU as a small and non-interconnected MIFIDPRU investment firm (“SNI MIFIDPRU Investment Firm”). As such, the Firm is required by MIFIDPRU 8 to disclose information regarding its remuneration policy and practices.
This document has been prepared by CD&R in accordance with the requirements of MIFIDPRU 8 and is approved by the Firm’s Governance Committee. Unless otherwise stated, all figures are as at the Firm’s 31 March financial year-end.
Remuneration Policy and Practices
Overview – approach to remuneration
As an SNI MIFIDPRU Investment Firm, CD&R is subject to the basic requirements of the MIFIDPRU Remuneration Code (as laid down in Chapter 19G of the Senior Management Arrangements, Systems and Controls sourcebook in the FCA Handbook (“SYSC”)). The purpose of the remuneration requirements is to:
- Promote effective risk management in the long-term interests of the Firm and its client;
- Ensure alignment between risk and individual reward;
- Support positive behaviour and a healthy firm culture; and
- Discourage behaviour that can lead to misconduct and poor customer outcomes.
The Firm’s clients are Clayton Dubilier and Rice, LLC (“CD&R”), and certain of its subsidiaries, to which it provides private equity investment advisory and other services in relation to executing portfolio company sales and disposals. CD&R manages private equity funds. The objective of the Firm’s remuneration policies and practices is to establish, implement and maintain a culture that is consistent with, and promotes, sound and effective risk management and to ensure that its remuneration policies and practices are aligned with the interests of CD&R and CD&R’s funds under management.
The Firm’s staff comprises Partners, Managing Directors and Principals (who are members of the Firm) and Associates, Analysts and other staff (who are employees of the Firm).
The Firm ensures that its business strategy, objectives and values do not create a culture where individuals are incentivised to place their own, or the Firm’s, interests ahead of those of CD&R or CD&R’s funds.
In addition, CD&R recognises that remuneration is a key component in how the Firm attracts, motivates, and retains quality staff and sustains consistently high levels of performance, productivity, and results. As such, the Firm’s remuneration philosophy is also grounded in the belief that its people are the most important asset and provide its greatest competitive advantage.
CD&R is committed to excellence, teamwork, ethical behaviour, and the pursuit of exceptional outcomes for its clients. From a remuneration perspective, this means that performance is determined through the assessment of various factors that relate to these values, and by making considered and informed decisions that reward effort, attitude, and results.
The Firm ensures that individual performance, the assessment process and any variable remuneration awarded is non-discriminatory and gender-neutral.
Characteristics of the Firm’s Remuneration Policy and Practices
Remuneration at CD&R is made up of fixed and variable components. The fixed component is set in line with market competitiveness at a level to attract and retain skilled staff. Fixed remuneration is agreed at the point of hiring the individual and is in line with prevailing market conditions for the specific person. Salaries are reviewed at least annually. Overall compensation is compared to market benchmarks annually to ensure remuneration is in line with other comparable private equity sponsors and financial service companies.
Variable remuneration is paid on a discretionary basis and takes into consideration the Firm’s financial performance and the financial and non-financial performance of the individual in contributing to the Firm’s and CD&R’s success.
Fixed remuneration may comprise:
- Salaries (in respect of employees of the Firm);
- Fixed profit shares (in respect of members of the Firm, including drawings by members as advances of profits);
- Regular and non-discretionary pension contributions; and
- The value of other non-discretionary benefits that are not linked to performance criteria.
Variable remuneration may comprise:
- Cash bonuses;
- Discretionary pension contributions;
- Sign-on bonuses, retention bonuses, buyout awards, and severance pay; and
- The value of carried interest on the date of award.
All staff members are eligible to receive one or more types of variable remuneration. Variable remuneration is based on performance or, in exceptional cases, other conditions. Where based on performance, variable remuneration reflects the long-term performance of the staff member as well as performance in excess of the staff member’s job description and terms of employment.
In deciding each individual’s total compensation (fixed and variable), the Firm pays due regard to setting an appropriate balance between fixed and variable remuneration. The fixed component represents a sufficiently high proportion of the total remuneration to enable the operation of a fully flexible policy on variable remuneration. This allows for the possibility of paying no variable remuneration component, which the Firm would do in certain situations, such as where the Firm’s profitability performance is constrained, or where there is a risk that the Firm may not be able to meet its capital or liquidity regulatory requirements. Poor performance by an individual may result in the Firm not paying any variable remuneration.
Decision making on the total amount of remuneration is based on a combination of the assessment of the performance of the individual and his or her overall contribution to CD&R, the overall results of the Firm and CD&R, the long term performance of CD&R’s funds, and non-financial criteria. Non-financial criteria assessed by CD&R are compliance with CD&R’s policies and procedures, including adherence to risk management procedures and CD&R’s environmental, social and governance policy, and leadership and teamwork.
The measurement of performance used to calculate variable remuneration also includes the consideration of an individual’s performance in the role assigned to them as well as an adjustment for current and future risks, and considers the quality of services provided to the Firm’s client. The measurement of performance used to calculate variable remuneration components or pools of variable remuneration components includes a comprehensive adjustment mechanism to integrate all relevant types of current and future risks.
Governance and Oversight
This Firm’s remuneration policy and practices are overseen by its Governance Committee. The Governance Committee has regard to input on the functioning of the Policy from the business functions and the Compliance function. The Firm’s compliance function is consulted as part of the design process of the remuneration policies and practices, providing input based upon the rules, conduct of business risks and staff adherence to the Firm’s compliance framework. The Governance Committee reviews the Firm’s approach to remuneration at least annually.
Quantitative Remuneration Disclosure
For the financial year 1 April 2022 to 31 March 2023, the total amount of remuneration awarded to all staff was £13,963,643, of which £5,540,692 comprised the fixed component of remuneration, and £8,422,951 comprised the variable component.