A focused strategy
for a lifetime of
learning
Annual report and accounts 2022
We are the world’s leading
learning company
Use this QR code to visit our Pearson plc
website where you can find the online
version of this report.
https://plc.pearson.com/en-GB/
investors/2022-annual-report-accounts
Strategic report
At a glance 2
Highlights 6
Chair’s note 7
Chief Executive’s review 10
Our strategy 12
Our business model 16
Key Performance indicators (KPIs) 18
Financial review 20
Stakeholder engagement 26
Sustainability 30
Risk management 43
Governance report
Corporate governance 53
Directors’ remuneration report 88
Additional disclosures 120
Financial statements
Independent auditor’s report to the members of Pearson plc 126
Consolidated financial statements 134
Company financial statements 202
Other information
Five-year summary 213
Financial key performance indicators 215
Shareholder information 220
ESG performance data 221
The strategic report, up to and including page 52, was approved for
issue by the Board on 15 March 2023 and signed on its behalf by:
Sally Johnson
Chief Financial Officer
“At Pearson, we're connecting our different products and brands to support
people in their learning journey and create real-life impact. We're forming an
exciting lifelong digital learning ecosystem that provides people with
affordable learning throughout their lifetime. By increasing our scale and
customer reach, investing in new opportunities and expanding the
interconnectedness between our divisions, we're uncovering great things.
The possibilities are vast for Pearson as we embrace the future of learning.”
We have a focused
strategy for a
lifetime of learning
Andy Bird, Chief Executive
“At Pearson, we're connecting our different products and brands to
support people in their learning journey and create real-life impact.
We're forming an exciting lifelong digital learning ecosystem that
provides people with affordable learning throughout their lifetime. By
increasing our scale and customer reach, investing in new opportunities
and expanding the interconnectedness between our divisions, we're
uncovering great things. The possibilities are vast for Pearson as we
embrace the future of learning.”
Annual report and accounts 2022 Pearson plc 1
Our
purpose
is to add
life to a
lifetime of
learning.
Because learning isn’t
just what we do – it’s
who we are.
Our vision
We want everyone
to realise thelife
they imagine
through learning..
Our mission
Create vibrant and
enriching learning
experiences
designed for real-
life impact.
Our values begin with ‘we’ because
they apply to all of us. They help guide
how we show up every day for our
customers, each other, and the
communities we serve.
1. We ask ‘why’?
We challenge the status quo by
challenging ourselves.
2. We ask ‘what if’?
We spark curiosity to innovate new
possibilities for everyone.
3. We earn trust.
We build credibility by acting with integrity
every day.
4. We deliver quality.
We hold our customers and consumers in
the highest regard, and our work to the
highest standards.
5. We make our mark.
We execute with speed and agility to leave
a lasting impact on everyone we serve.
Our values
At a glance
“We’ve
redefined
our
purpose to
meet this
moment in our
world where
learning is becoming
more fluid and
exists inside and
outside of formal
education.”
Lynne Frank, Chief Marketing
Officer and Co-President,
Direct-to-Consumer
2 Pearson plc Annual report and accounts 2022
Our strategy
Our strategy is to create trusted relationships with consumers
throughout their lifelong learning journeys. We want to empower
them to realise their goals and potential, by developing their skills
across multiple stages of their learning lifetime, encompassing not
only formal primary, secondary and higher education, but also,
increasingly, the world of work.
Our strategy places consumers at the heart of everything we do, and
we are integrating our products to create a learning ecosystem that
reaches our consumers across all their life stages.
English Language
Learning
Higher
Education
Virtual Learning
Workforce Skills
Assessment
& Qualifications
Read more on page 12
Learner
profile
Annual report and accounts 2022 Pearson plc 3
At a glance continued
Assessment & Qualifications
We provide the assessments,
qualifications, certifications and licences
that enable people to demonstrate their
knowledge, skills and aptitude across a
lifetime of learning – from school to
professional careers. We play an integral
role in a host of technology certifications,
in areas such as cloud computing and
cyber security, that power growth and
innovation across the global economy.
We deliver numerous medical certification
and licensing examinations around the
world, giving governments and the public
the assurance that their providers have
met the standards for care. Exam delivery
volumes in the Information Technology
sector increased by 12% from 2021
to 2022.
Our growth will be fuelled by our unrivalled
breadth of offering and global scale across
both physical and digital assessment,
combined with the growing market need
for accreditation and certification in the
professional market, more effective
formative and summative assessment in
the school market, and increased demand
and spend across the education landscape
in mental health and wellbeing.
Our interconnected
divisions
2022 Highlights
Read more on pages 8 and 22 Read more on pages 15 and 22
— Pearson VUE test volumes grew 16% to
19.4m with particularly strong growth
in the IT and healthcare segments. VUE
also won major contracts across its
portfolio and expanded its presence in
the US federal market.
— Announced the intention to acquire
Personnel Decisions Research
Institutes (PDRI) which has significant
expertise in providing assessment
solutions to the US federal
government, one of the largest
employers in the US with more than 4
million employees.
— Clinical Assessment had a strong
performance due to good government
funding and continued focus on health
and wellbeing.
— UK and International Qualifications
2022 revenue was driven by the return
to full testing and growth in
qualifications and assessment
contracts internationally.
— US Student Assessment had strong
revenue growth with a full testing cycle
in 2022 and new contract wins.
£1,444m
2022 Revenue
Higher Education
We provide around 18 million higher
education students every year with vibrant
digital content, assessments and enriching
experiences, leading to positive learning
outcomes. We provide a significant entry
point for a lifetime of learning in the
Pearson ecosystem. We intend to remain
the Higher Education content market
leader by deepening our relationships with
students beyond instructor and faculty
required course materials. By enhancing
product features and investments into
Pearson+, we enable students to succeed
in achieving their goals across disciplines
and academic paths. We will drive growth
through increasing market share and
recapture of the secondary market,
particularly through enhancements to our
suite of digital products including
Pearson+, MyLabs, Mastering and Revel. In
addition, we will invest in growth in the
large international higher education
market and capitalise on increased
demand in Inclusive Access.
— Inclusive Access sales to not-for-profit
institutions was up 9% in 2022, with the
total number of institutions increasing
to 1,040, due to the attractive price
point and immediate ‘day one’ access
for students.
— A three-fold increase compared to
prior year Fall semester in Pearson+
paid subscriptions, expanding our
reach through US college bookstores:
— Pearson+ paid subscriptions
compared to prior year Fall
semester up 205% to 406k
(2021: 133k)
— Pearson+ registered users
compared to prior year Fall
semester increased 3% to 2.83m
(2021: 2.75m)
— Launched Pearson+ Channels (with 18
study channels) in Autumn 2022 to
help students understand complex
concepts and prepare for exams in the
toughest college courses, whether they
are using a Pearson eTextbook or not.
This increases the total addressable
market for Pearson+.
£898m
4 Pearson plc Annual report and accounts 2022
Workforce Skills
We’re building a world where everyone is
prepared for the future of work and
people are recognised for what they know
and what they can do. Our newly launched
talent investment platform uses workforce
analysis and assessment to realise
untapped potential, mobilise talent, and
help enterprises and individuals close the
workforce skills gap, helping everyone find
the right work for them. We will grow by
connecting consumers, enterprises,
recruiters, and learning partners to a
marketplace for verified skills. We can also
capitalise on employers’ increasing need to
reskill and develop their workforce to
protect against shifts in both growing and
shrinking markets and in response to the
high speed of economic and technology
change. We need to respond to and
enable the accelerating convergence
between previously disconnected parts of
the HR technology market, particularly
Learning and Development, Recruitment,
and Talent Management.
Read more on page 22 Read more on pages 14 and 22 Read more on pages 14 and 22
— Acquired Credly, a leading digital
credentials business, giving us a strong
foothold and user base in the
workplace credentials space.
— Developed our talent investment
platform which provides accurate,
real-time access to employee skills.
— Integrated Faethm and Credly into
the Workforce Skills division, creating
single enterprise go-to-market and
product teams.
— We launched Skills Accelerator, a suite
of peer-supported, project-based
learning courses that help people
complete business-critical projects
while developing future skills.
Virtual Learning
We offer highly effective online learning for
every age and stage of education. Our
users can learn where, when, and how
they learn best, in a way that is tailored to
their needs and propels them forward in
their lives and careers. Our vision in Virtual
Schools is to provide a holistic, academic,
and innovative learning experience to our
students, while being a trusted best-in-
class partner for our schools and families.
We will grow by continuing to focus on the
core learning experience, including
individualised learning and curriculum
transformation, while innovating and
adapting to both industry and market
changes to stay ahead of the competition.
Our career readiness solutions will fuel
growth by providing pathways for students
beyond high school, be it in the job market
or further study. We will also capitalise on
increased awareness and openness to
virtual learning and the demand for
alternative education mediums driven by
parents’ new hybrid and remote working
schedules. Our Online Program
Management (OPM) business is currently
under strategic review.
— Increased retention rates and
Net Promoter Score, now +67, for
Virtual Schools, which will drive
enrolment growth.
— Opened our first virtual school in
Virginia focusing on grades 6-10
students, expanding to grades K-10
in 2023.
— Helped enact new legislation in
Missouri, facilitating easier access to
publicly funded virtual learning, leading
to a doubling of our virtual school
enrolments within that State.
£820m £204m
English Language Learning
There are 1.4 billion English language
learners across the globe. We have the
courseware and assessments to help them
achieve their goals, including digital and
blended English solutions for educational
institutions and the flagship Pearson Test
of English, in over 150 countries. Our vision
is to become the world’s leading
destination for committed learners to build
and prove their proficiency in English. We
are growing through creating an
interconnected suite of personalised
products across direct to consumer,
institutional, enterprise language learning
and assessments, and online language
learning through Mondly. This will allow us
to expand our addressable market,
increase market penetration, and create
more repeatable, personal relationships
with language learners, capturing more of
their lifetime spend. We are also
capitalising on a consistent market need
for English proficiency in global
employment and education, a growing
demand for online language learning, and
renewed global mobility.
— Pearson Test of English (PTE) test
volumes up 90% and underlying
revenue up 72%, particularly driven by
border reopenings and gaining market
share in India, where investment in our
agent network and successful market
campaigns have helped to drive
growth.
— Completed the acquisition of Mondly
and entered the Online Self-Study
language learning space. See our
Strategy in Action for more detail on
how Mondly is helping us to grow.
— Transformed our institutional business
through initiatives such as Pearson
English Connected Learning, which
creates personalised, connected
solutions including courseware,
assessment and certification to
fast-track learning.
— Enhanced our user experience to
ensure that our courseware is the most
engaging and effective on the market,
leveraging our partnerships with major
corporations including Disney and
the BBC.
£321m
Annual report and accounts 2022 Pearson plc 5
A year of
strategic and
operational
progress
2022 highlights
Launched 18
study channels on
Pearson+
Completed the
disposal of our
international local
courseware
publishing businesses
Acquired Mondly
and Credly to
support the
growth strategy
across the
Pearson
ecosystem
Read more on page 13
Announced £120m
of cost efficiencies,
accelerating our
improved margin
expectation to 2023
from 2025
Achieved underlying sales
growth of
5%
and adjusted operating profit
growth of
11%
on an underlying basis, ahead
of expectations
Read more on page 13
Read more on page 15
Launched our
people strategy
with a focus on
engagement and
high-performance
Read more on page 31
Enterprise Learning
reaching
c.2000
enterprise clients across
Workforce Skills and
Pearson VUE
“The role Pearson
VUE plays helping
professionals get
certified is a critical
element of
delivering our
enterprise learning
strategy.”
Art Valentine,
President – Assessment
& Qualifications
6 Pearson plc Annual report and accounts 2022
I believe we are well-
positioned to continue to
grow profitably and to deliver
long-term success, creating
value for all our stakeholders.
Omid Kordestani, Chair
2022 dividend growth
5%
Return on capital in 2022
8.7%
Chair's note
“What drew me to this fantastic company was the
incredible opportunity to be globally consequential
and the important role we can play in improving
society through lifelong learning.”
Annual report and accounts 2022 Pearson plc 7
Chair's note continued
Overview
I’m delighted to be writing my first letter to you as Chair of Pearson.
It’s a privilege to join Pearson at this exciting time. What drew me to
this fantastic company was the incredible opportunity to be globally
consequential and the important role we can play in improving
society through lifelong learning. We have a tremendous opportunity
to capitalise on this, benefiting all our stakeholders, particularly with
the significant potential in digital learning. It is also exciting to see that
we are delivering particularly on enterprise learning, in ways we never
have before, as the workplace becomes the new heart of many
people’s learning journey.
2022 has been a year of strategic and operational development as
we continue to create a digital learning ecosystem, fit for the future
of learning. We have made considerable progress in executing our
direct to consumer, lifelong learning strategy as we reshape our
portfolio for profitable growth, adding capabilities and increasing
interconnectivity between divisions.
Financial and operational highlights
We delivered a strong performance in 2022 with sales increasing on
an underlying basis by 5% and our adjusted operating profit margin
increased from 11% to 12%. This resulted in our adjusted operating
profit increasing to £456m.
We have also made good strategic and operational progress as we
build further lifelong learning potential. We’ve been disciplined in
right sizing the company to our strategic direction. We have taken
bold actions to make Pearson a more efficient, focused company
and through this we will accelerate our improved margin
expectations to 2023 from 2025.
We have also retained a strong balance sheet and liquidity position
that will enable us to continue to invest in our comprehensive
growth strategy.
As a result of the strong performance in 2022, the Board
recommends a final dividend of 14.9 pence per share. The final
dividend will be paid on 5 May 2023 to shareholders on the register
on 24 March 2023.
Environmental, social and governance
Pearson has a clear purpose adding life to a lifetime of learning
that links naturally to our potential to make a significant positive
impact on our society and our planet. Our products and services
enable more engaging and stimulating learning experiences.
They are accessible to more people, and with a smaller carbon
footprint. We continue to make good progress against our ambitious
climate targets, and we recognise the role that top talent plays
in driving our long-term growth. This year, we also launched
a people strategy focused on employee engagement as a driver
of performance. We also ensure that we continue to operate
as a responsible business and will always act in the best interests
of our customers.
Our people make Pearson’s success
Our people are fundamental to our success and strong performance.
I would like to take this opportunity to thank everybody for their
commitment. I appreciate their incredible work, operational
discipline, and focus over 2022. We cannot underestimate how this
difficult environment has affected our people, I’m very proud of them
all. Taking care of our employees, and ensuring we keep our positive
culture is vital. Their efforts have, and will, continue to underpin the
company’s performance as we take advantage of the significant
growth opportunities ahead.
I also want to thank all our customers for their continued support.
We will continue to provide them with engaging ways of learning that
reflect today’s world, as we look to deliver the needs of both
employers and employees.
Making a difference for global IT enterprises
IT enterprises continue to face significant challenges. As cloud
adoption, AI advancements, and cyber security threats generate
highly specialised jobs, the demand for tech skills is present
throughout the global economy. At the same time, global talent
needs abound, and consumer and inclusivity expectations continue
to surge.
Pearson VUE, part of our Assessment & Qualifications business,
helps the world’s leading IT organisations address the persistent skills
gap and shortage of qualified talent by providing the learning
opportunities and credentials essential to keep pace with the
ever-increasing advances in technology.
— AWS chose Pearson VUE as its exclusive assessment provider to
certify AWS Cloud knowledge and skills. Now the tech giant can
provide their global IT professionals with more convenient testing
options and the best experience possible.
— With (ISC)
2
, a leading provider of cyber security credentials, we
deliver credentialing assessments that certify the professionals
who work tirelessly to provide a safer, more secure cyber world
for individuals and organisations around the globe.
— Through our partnership with Microsoft, we helped the Austin
Lighthouse - Travis Association for the Blind make IT certification
exams more accessible to people with disabilities, preparing and
enabling them to join the tech workforce.
Strategy in action
8 Pearson plc Annual report and accounts 2022
Leading for the future
We have a strong performance culture at Pearson, with a high level of
execution and operational excellence. We also have a wonderfully
diverse Board in terms of both experience and backgrounds.
Ensuring we continue to have a diverse set of views and perspectives
at Board and leadership level is key to our success. We need different
types of leadership and operational talent to execute against our
strategy. We will keep monitoring this as Pearson continues to
transform so we have the right skill sets for our future, as well as
managing succession planning for any upcoming departures.
On the Board, we will miss Linda Lorimer, who steps down at
Pearson’s upcoming Annual General Meeting (AGM) after serving
nearly ten years on the Board. Linda has been an amazing force
throughout her tenure, most recently as Chair of our Reputation &
Responsibility Committee.
At the executive level, we saw new leaders join the leadership team
with Marykay Wells being elevated internally to Chief Information
Officer. Marykay is working with the Board and leadership team
to build a technology strategy that supports a coordinated,
cross functional approach to data, content delivery, and product
development. Sulaekha (Sue) Kolloru Barger also joined us to
become our new Chief Strategy Officer. Since joining, Sue has been
focused on driving strategic planning across the company and
charting the course for future growth.
Engagement is fundamental
As a Board and leadership team, it is critical we engage frequently
with all our stakeholders. We want to ensure that our strategy is
clear, that the way we’re operating is well understood, and to identify
any gaps in our approach. This enables a constructive and positive
relationship and helps us understand the views and perspectives of
our stakeholders. It also ensures our team is focused on the right
approaches, policies, and activities.
This year, we undertook a comprehensive review of Pearson’s
executive remuneration framework, with the proposed new
Directors’ remuneration policy detailed on page 112. The
Remuneration Committee and the Board have spent significant time
rigorously reviewing the policy and its implementation to ensure it
remains fit for purpose. This review considered Pearson’s renewed
strategy, the recent strong performance of the business, and the
views and expectations of our shareholders, their advisers, and other
stakeholders. I believe the proposed policy is the best way to
continue to drive a strong pay for performance culture. It also
responds to the needs of the global talent market for digital
innovators, whilst remaining mindful of the UK governance
environment and the views of our shareholders.
Confident in our potential
In March, the company announced that the Board had received and
rejected, in total, three unsolicited, preliminary, and highly conditional
takeover approaches from investment firm Apollo. Under Sidney
Taurel as Chair, the Board considered the right response for Pearson
and our shareholders. While the Board deliberated the approaches
with all due focus and attention, our confidence in the strategy that
Andy and the leadership team are pursuing led us to unanimously
vote against the approaches. We believe they all significantly
undervalued the company and its future prospects. I would like
to thank our shareholders for their support for the Board’s position.
Outlook
We start 2023 in a challenging macro environment, but we have
a clear focus on execution. I have every confidence in our ability
to deliver as we continue to transform because:
1. The company is confident of its strategy.
2. We have a strong executive team that has been established
to execute on that strategy, and
3. The company will be very disciplined in measuring how to achieve
success and to deliver results for shareholders.
Pearson has an opportunity to educate the world and be a good
citizen, as a business that acts responsibly and sets the right tone.
We take our duties seriously and drive a level of execution that
brings us closer to our promise of lifelong Learning: our ‘North Star’.
I believe we are well positioned to continue to grow profitably and
to deliver long-term success, creating value for all our stakeholders.
Omid Kordestani
Chair
Pearson has an opportunity to
educate the world and be a
good citizen, as a business that
acts responsibly and sets the
right tone.
Annual report and accounts 2022 Pearson plc 9
Chief Executive’s review
Another year of significant
strategic, operational and
financial progress.
Andy Bird, Chief Executive
Underlying sales growth
in 2022
5%
Underlying adjusted
operating profit growth
in 2022
11%
“Over the last year, a new Pearson has emerged
-streamlined, interconnected, and more agile.
This new Pearson is expanding our market
opportunities, driving value for our stakeholders
and making a positive impact on our world.”
10 Pearson plc Annual report and accounts 2022
Dear shareholders,
I am pleased to report to you on another year of significant strategic,
operational, and financial progress, one that has strengthened our
foundations for a future of increasing sustainable growth.
Over the last year, a new Pearson has emerged - streamlined,
interconnected, and more agile. This new Pearson is expanding
our market opportunities, driving value for our stakeholders,
and making a positive impact on our world.
Our 2022 financial results demonstrate the strong momentum
we’ve been building. For a second consecutive year, our financial
performance was ahead of our expectations, with underlying sales
growing by 5% and underlying adjusted operating profits increasing
by 11% to £456m. This reflects excellent progress across the Group,
driven by our strategic initiatives.
Delivering on our strategy
Our strategy focuses on a lifetime of learning and building a company
that is digital-first, puts the consumer at its heart, and delivers high
quality learning products at scale. A major focus this year has been
enhancing the interconnectivity between our divisions, making
more parts of Pearson more relevant to each other while driving
financial and operational benefits. Because of this, our business
model is moving from standalone products and services to
connected learning applications, centered around our trusted
relationships with consumers.
At the start of 2022, I identified four clear priorities for Pearson:
— Deliver sales and profit growth
— Increase our focus on execution, quality, and trust
— Embed customer and consumer insights across the company
— Scale and grow Pearson+
We delivered on those priorities and much more, including
significantly evolving our overall proposition and our go-to-market
strategies. Critically, we remain on track to deliver approximately
£120m of cost efficiencies in 2023, accelerating our improved margin
expectations to 2023 from 2025. We reshaped our portfolio with the
acquisitions of Credly and Mondly, and announced the intention to
acquire Personnel Decisions Research Institutes (PDRI), to drive
growth. In addition, we completed the sale of our international
courseware local publishing businesses and initiated the strategic
review of our Online Programme Management (OPM) business.
We saw strong growth in Pearson+ paid subscribers, launched
the new Pearson+ Channels feature, and integrated Mondly
into the service. As we do all of this, we are growing our universe
of consumer relationships. In 2022, our products and services
impacted the lives of around 160 million global users.
A future focused on a lifetime of learning
While we continue to work with the full spectrum of learning
institutions, the workplace is now the heart of many people’s learning
journey. Enterprise learning has long been foundational to our
business but 2022 saw us scale that in new ways. Credly added
about 70,000 new users each week, for the past 12 months, a strong
signal of the need for individual upskilling. We now have more than
2000 enterprise learning clients. This part of our business is, and will
continue to be, the subject of strategic investment. We have been
hard at work developing our new Workforce Skills talent investment
platform, a combination of Credly and Faethm capabilities that aims
to help enterprises solve their talent planning, upskilling, and
recruiting challenges. As it goes to market in 2023 and beyond,
this new product has the potential to greatly accelerate the growth
of our Workforce Skills division. In addition, we continue
to expand our Pearson VUE offerings, and we are capitalising
on the demand for English learning as a gateway to employment.
Beyond our workforce offerings, the progress of Pearson+ continues
to point to an exciting future. In the calendar year 2022, our first full
year in the market, Pearson+ had c.600,000 paid subscribers and 4.8
million registered users. We now have more than 1,800 e-textbook
titles in Pearson+ and we have introduced 18 study Channels to
provide students with supplemental video and learning content. In
the Fall of 2022, students viewed nearly 2 million minutes of
Channels video content and utilised 1 million practice problems-
impressive engagement activity. Between new content, the
integration of Mondly, and broadened distribution through college
bookstores, we continue to expand our total addressable market and
prove the product market fit of Pearson+. We still see Pearson+ as
the springboard for our Higher Education business and our bigger
ambitions across a lifetime of learning. In our broader Higher
Education business, we’re making excellent progress building the
tools to return that division to top line growth. This effort centres on
going to market more effectively and ensuring we have engaging
products that faculty and students love to use.
As we’ve demonstrated throughout the year, the cross over between
our businesses is accelerating, which is creating synergies and
forming the foundations of our digital learning ecosystem. We are at
a critical moment where we can combine our capabilities to benefit a
vast number of people. We believe there is enormous power in an
ecosystem that brings our products together, with a consumer
profile at its heart. As we move into 2023 and beyond, you will see
us push further into a business model that connects consumer led
learning into one Pearson experience.
Looking forward with confidence
As we turn this concept into reality, we continue to work hard
every day to deliver what consumers demand: vibrant, impactful,
frictionless learning solutions that will help them progress in their
lives. As we deepen relationships with our consumers, they can
move with ease between our products as their learning needs
evolve. That creates lifetime value for learners, for Pearson,
and for all our stakeholders.
We are delivering on what we have promised to our stakeholders,
and we will continue to do that. The level of activity around the
business is unprecedented. But it is also focused and better
executed, resulting in better delivery of our strategic goals. I’d like to
take this opportunity to thank each and every Pearson employee for
their unwavering dedication to our purpose and our strategy. Led by
their drive, determination, and unparalleled expertise, we are in a
strong position to capture the opportunities in front of us.
Andy Bird
Chief Executive
Annual report and accounts 2022 Pearson plc 11
An integrated strategy
In 2022, our products and services reached
more than 160 million users around the world.
Our strategy
Our strategy is to grow both by increasing our scale and customer reach. We are deepening our investment in opportunities across our divisions,
and are expanding the interconnectedness between our divisions, to uncover and capitalise on further potential. We are confident that there are
vast possibilities to expand our reach by linking our different learning capabilities into one experience as we move from standalone to connected
learning applications.
We have a well-diversified global consumer base, coming from direct individual customers and institutional, enterprise and government relationships.
Of our 160 million users, 15 million are registered with us. It is incumbent upon us to make every interaction with our consumers more meaningful by
building relationships. We aim to provide all our audiences with the ability to move between our products as their learning needs evolve.
Total users*: Consumers who utilised a Pearson
product or service within a stated period.
Paid registered users*: Monetised consumers
where Pearson holds identifying information
provided by the user (e.g. registered for the
product / registered for an account).
Our consumer base
Our strategy is underpinned by an interconnected approach to product
Our global consumer base cuts across our
portfolio of businesses addressing multiple
ages and stages of learning.
160m
Total
15m
Paid
Registered
English Language
Learning
Higher
Education
Virtual
Learning
Workforce
Skills
Assessment
& Qualifications
Integrate more Intermediate & Advanced Content / Institutional & Global Scale of English alignment
/ Pearson+ Integration / UI & UX Enhancements
PTE for Canada Migration
2023 2024 2025+
Additional features / international markets / integration with broader Pearson portfolio
P+ Channels (more disciplines and skills)
Product refresh (Freehand Grader, Adaptive Diagnostics, Next Gen Learning Experiences)
Cloud migration
Mastering
&
Pearson-built curriculum
Value chain expansion
Geographic expansion
Vertical market expansion
Learner
Profile
* Counts do not reflect unique users across the Pearson portfolio.
Pearson English Skills Certificate with Credly badging
Pearson Workforce
Solutions
Launch talent investment platform and product suite.
Integrate skills services for consumers
Expand skills services & talent
network
Standards based reporting
Course Customization Capabilities for teachers
12 Pearson plc Annual report and accounts 2022
We are driving successful
change through targeted
investment, acquisitions,
and disposals.
Sulaekha (Sue) Kolloru Barger, Chief Strategy Officer
Strategic progress in 2022
Pearson has evolved from a matrixed holding company to the
focused end-to-end learning company we are today, as we integrate
our businesses and products to form a lifelong digital learning
ecosystem. As we better understand our consumers, we are
embedding our insights to unlock synergies, build relationships
and provide more relevant and inspiring products.
We are reshaping our product portfolio to meet increasing demand
from consumers. Their needs are evolving to place a higher
importance on skills and continuous learning, and they are
consequently turning to their employers for support in upskilling
and reskilling to ensure their relevancy in a dynamic workplace.
More employers are investing in talent and we are working with
them to provide the training and upskilling for their employees to
help them progress.
Our 2022 results are evidence that our strategy is delivering results
for our consumers and shareholders alike. We made good progress
in 2022 both strategically and operationally, which is reflected in our
strong financial performance: underlying sales growth was up 5%
and underlying adjusted operating profit up 11%. Our new operating
model has enabled us to identify approximately £120m of efficiencies
in 2022, which we will deliver in 2023 and beyond. In turn, this will
help us deliver our improved mid-teens margin target in 2023 - two
years earlier than expected.
Our strong progress in the face of macroeconomic headwinds
demonstrates the benefits of our well-diversified business, coupled
with the fundamental lifelong need to learn.
Interconnectivity is at the core
Product & technology synergy
Go-to-market synergy
Content synergy
GED & BTEC
delivery; Credly
badging
AI scoring;
PTE delivery
Enterprise
joint GTM
Credly badging;
Global Scale of
English + Faethm
integration
Work-ready content
exploration
Consumer
pipeline
Mondly via P+
MindHub &
CertPrep content
sharing
Our strategy is increasingly
connecting our businesses around
lifelong learning opportunities.
Credly badging;
Career Readiness
Connections Academy +
US Student Assessment
Career
readiness
Virtual Learning
Higher Education
English Language
Learning
Workforce Skills
Assessment &
Qualifications
We are driving successful change by regularly reviewing and
refining our portfolio through:
Significant organic investment, bringing new capabilities
— We have invested in new capabilities for Pearson+, including
Channels functionality.
— Expanded the reach of our VUE remote proctoring solution
to include an in-country China solution
— Workforce Skills launched Skills Accelerator, a suite of peer-
supported, project-based learning courses that help people
complete business-critical projects while developing future skills
— Developed our MondlyWORKS capabilities and go-to-market
approach to grow our presence in the enterprise language
learning market.
— Virtual Learning began building an enhanced career readiness
solution for K-12 students expected to launch later in 2023
Acquisitions to bolster our capabilities and enter new markets
— Recent acquisitions include Credly (Workforce Skills), Mondly
(English Language Learning), Navvy (Assessment & Qualifications),
and ClutchPrep (Higher Education), and we have signed an
agreement to acquire PDRI (Assessment & Qualifications).
Strategic disposals to refine our portfolio
— We completed the strategic review of our international
courseware local publishing business, resulting in successful exits
of our Europe, French Canadian, South Africa and Hong Kong
local K12 publishing businesses.
Annual report and accounts 2022 Pearson plc 13
Our strategy continued
Enterprise / Workforce Skills
Our opportunity
Our ambition is to enable a world where people and organisations
can achieve their full potential in the new skills economy. We believe
that is no longer just about what you’ve done, but what you can do.
Our objective is to provide solutions that help employees thrive and
empower employers to maximise the value of their most important
asset: their people.
The £200bn global Workforce Skills market is comprised of several
different sub-markets including employee learning and development,
talent management, and pre-hire recruitment services. This market
is in the midst of widespread disruption, driven by seismic change
in the workplace. The World Economic Forum estimates that over
1 billion people will need reskilling by 2030.
Organisations are struggling to navigate this change because they
lack a comprehensive understanding of the skills their employees
have, or the skills they need, to achieve their commercial goals. And
without this understanding, their investments into current learning
and development services are not delivering the results that they
should be.
Progress so far
We have built integrated product and engineering teams,
re-engineered our product portfolio and tech stack, developed
a new product roadmap, launched new products, created a single
global sales team and built a state-of-the-art global marketing and
sales tech stack.
We have reshaped our Workforce Skills portfolio to serve an
expanding remit, building on Pearson’s existing strong foundation
with Enterprise consumers (c.16% of Group sales). To focus on the
needs of our different customer segments, we have organised our
Strategy in action
English Language Learning
Our opportunity
We operate in a c.£6 billion addressable market, which integrates
three key market segments:
1. Institutional English Language Learning: an addressable market of
approximately £3 billion. We offer digital and blended courseware
solutions to academic institutions, private language schools and
enterprises across the globe.
2. Online self-study language learning, an addressable market of
c.£2 billion with double-digit growth, which we have entered
through our acquisition of Mondly.
3. High Stakes Assessments: an addressable market of c.£900
million. Our flagship product PTE is a verified, secure certification
of English proficiency for international migrants and students.
A substantial element of our Institutional business is in K-12, which
is generally government funded and backed, making it stable in a
variety of macro-economic environments. For PTE, we believe that
there will be a strong desire for people to invest in their education
and to study in our key destination markets. We aim to acquire more
new and existing language learners, and capture more of their
lifetime spend on language learning, through cross-selling English
Language Learning solutions. We are dedicated to growing the
business through improving customer experience, which has already
been successful in 2022, with a 24% increase in underlying revenue
and 33% increase in underlying profit, and with the potential to gain
further share over the next few years.
a. Our institutional business plays an important strategic role.
It provides the potential to form relationships with millions
of institutional learners as well as corporate learners, and it
lends invaluable reputation and credibility in the language space
to our entire product portfolio It is also a large lead-generator
for our suite of assessment products and Mondly, both of
which are complementary products that enhance the
student experience.
b. Mondly gives us more opportunities to reach more committed
learners: a foothold in the fast-growing direct to consumer
online language learning market, and the MondlyWORKS
platform for enterprise language learning.
c. PTE and Mondly give us more direct relationships with
consumers, which is strategically important
to the division and our ability to cross-sell within Pearson.
Progress so far
In 2022, we developed the Pearson English Skills Certificate, a new
mid-stakes English exam which will complement the PTE to capture
more of the English assessments market, and which will launch
in 2023. We prioritised aligning Pearson products to the Global Scale
of English (GSE), our proprietary scale that allows more granular
understanding of English ability, furthermore, working to align
Workforce Skills’ Faethm product, laying the ground for future
collaboration. Finally, in addition to finding ways to use our
institutional content to bolster Mondly material, particularly
in the intermediate and advanced levels, we integrated Mondly
with Pearson+, welcoming over 10,000 new users through this route.
Workforce Skills division into two parts: Vocational Qualifications
and Workforce Solutions.
Vocational Qualifications offers high quality vocational qualifications
that allow learners to build the knowledge, skills and behaviours they
need for career success. Whether it’s a Higher National Diploma in
Computing, a BTEC in Health and Social Care, or training as part of
the TQ Construction Academy, these provide the skills and
qualifications that our economy needs now and in the future.
Workforce Solutions is our enterprise and consumer-focused
business. It brings together our two recent acquisitions – Credly and
Faethm – with our existing portfolio of products and capabilities
in GED, Talentlens and Accelerated Pathways. We have moved quickly
this year to restructure and integrate these businesses into a single
global entity. Workforce Solutions’ portfolio of services has been
specifically designed to meet the needs of enterprises and
institutional customers, but with a core focus on the needs
of the individual consumers upon which the success of any
organisation depends.
Throughout 2022, we continued to grow our revenue, including
our SaaS subscriptions, expanding our customer base by 133%,
and accelerating our reach by adding 4.7m new users to our
Credly platform.
We firmly fit into Pearson’s wider strategy, with products that can
interconnect with others across the Pearson ecosystem, supporting
and accelerating Pearson’s lifelong learning ambition.
For example, we have a library of certified preparation content
and courses for IT professionals in Professional Learning and
Development which is relevant for learners in the workplace.
English is the globally recognised language of business, so we have
added English to Faethm’s skills framework, as well as offering Credly
badges for Pearson’s range of English assessment products.
14 Pearson plc Annual report and accounts 2022
“The growing skills gap is
putting enormous
pressure on the labour
market, making verified
credentials more essential
than ever.”
Mike Howells, President,
Workforce Skills
Strategy in action
“Mondly gives us an
exciting foothold in direct
to consumer English
learning and expands our
reach and scale in the
language learning market.”
Giovanni Giovannelli, President,
English Language Learning
Spotlight on Credly
— Credly is an end-to-end solution for organisations to issue
and manage digital credentials
— It adds an established, well-known credentialing service to
our workforce analytics, learning & assessment capabilities
— It has a network of 3,000 certification and badge issuers
— It generates 70,000 new users every week
— It has issued more than 50 million credentials
Pearson+
Our opportunity
We are a leader in the Higher Education courseware market, with
millions of students enrolled in courses using Pearson eTextbooks.
We want to leverage this market dynamic in two phases:
1. Shift eTextbook consumption for students directly to Pearson+,
and improve monetisation
2. Engage and retain students with relevant and valuable services
beyond eTextbooks, and maximise consumer lifetime value
Pearson+ is currently monetised through paid access to eTextbooks
by students where faculty adopt Pearson content in their courses.
Our existing Higher Education business provides a large, efficient
customer acquisition funnel for Pearson+. Additional content beyond
eTextbooks, such as Pearson+ Channels, will encourage further
use of the application. Over time, Pearson+ users can be further
monetised through cross-selling other relevant Pearson products
and services.
Progress so far
In 2022, we started to scale users and expand product features.
During the fall back-to-school period, we launched Pearson+
Channels to engage students with supplemental study content.
This feature offers short-form videos and practice to help students
understand complex concepts and prepare for exams in the
toughest college courses, whether they are using a Pearson
eTextbook or not. We now offer nearly 20 channels, with thousands
of learning videos and practice problems to help students succeed
in their courses.
“Adding curated video
and tutorials to Pearson+
delivers on our promise
to bring vibrant learning
experiences to even
more people.”
Tim Bozik, Chief Product Officer
Spotlight on Mondly
— Global language learning app
— 100m+ downloads
— 446k paid subscriptions
— Highly-rated app both on mobile and VR
— 41 languages offered, with more than 1,300 possible
language pairs (learners can learn a target language
from any other language)
This allows consumers to prove their language proficiency to
employers. The connection between students and work is an obvious
collaboration point with Pearson+ and there are fantastic opportunities
to connect our services with Pearson VUE, to maximise the value that
Pearson can bring to our enterprise customers and consumers.
Annual report and accounts 2022 Pearson plc 15
Committed people and partners
From our brilliant and dedicated employees to our fantastic authors, we are the
home for the best talent. We have a broad range of partners across our business
who we expect to share our Pearson values. Our relationships with governments,
customers, non-governmental organisations (NGOs) and other global
organisations help us to increase our impact on consumers around the world.
Our foundations
Strong market fundamentals
We are well placed to benefit from structural tailwinds in the global learning
market including three big market opportunities:
An integrated business to
support customers through
their learning journey
R&D and product innovation
Our product team, with expertise in learning science, has a focus on learning
outcomes. Through ongoing innovation and Research and Development (R&D)
we are committed to creating learning products which offer a great user
experience and that demonstrate measurable learning progress.
Financial assets
Our shareholders entrust us with their capital in order to invest on their behalf
for the long term.
Our physical footprint
Our products and services are available in most countries and territories around
the world and are focusing on simplifying our property portfolio to enable digital
and flexible ways of working.
Data and insight
As we move to a direct to consumer business we are able to know our customers
better – and serve them more effectively – through the effective and responsible
use of data. We are also building out our capabilities in data analytics and AI
through acquisitions including Faethm, which enable us to use data insights to
help identify skills gaps and provide compelling solutions to workforce challenges.
Online and digital
tools for schools
and education
Solutions to
evaluate and
address workforce
skills gaps
Academic and
professional skills
accreditation and
certification
1 2 3
Direct-to-Consumer
Increasing Direct to Consumer products and services
is an important initiative that spans all our divisions.
For example, we are growing Pearson+, our digital
learning service in Higher Education, alongside our
acquisition of Direct to Consumer language learning
platform Mondly. Both of these services will be an
important customer acquisition tool underpinning
our Direct-to-Consumer offerings across the Group.
Our Direct-to-Consumer strategy also means that our
business model needs to evolve. We now go directly
to consumers as well as through our existing models
whereby we reach the consumer via an educational
institution, employer or other partner.
Creating value
Our business model
See overleaf for examples of how our businesses
support customers through their learner journeys
English Language
Learning
Learner
profile
Higher
Education
Virtual
Learning
Workforce
Skills
Assessment
& Qualifications
16 Pearson plc Annual report and accounts 2022
Consumers
We provide superior learning
products and services to meet
the needs of consumers all
over the world.
Employees
We intend to maximise the
value of Pearson’s own
human capital by giving our
people opportunities to learn
and verify new skills aimed
toward professional growth
and success.
Employers
Our aim is to partner with
more employers to create
shared value and to ensure
more people succeed in the
future world of work.
Educators
We work with teachers,
instructors, faculty and
institutions across all
stages of education to
improve outcomes, grow
and succeed together.
Governments
We partner with governments
at a local, federal and national
level to create learning
solutions for people
around the world.
Shareholders
We aim to provide long-term
shareholder value creation.
Business partners
Our long-term business
partnerships are built on
shared values, deep
relationships and mutual trust.
Communities
Education plays a crucial
role in society and Pearson
is a driving force behind the
evolving education market as
we look to meet the changing
need of today’s learners, not
just in this moment but for the
foreseeable future.
How we create long-term
stakeholder value
Sustainability
We have a roadmap to become net carbon zero and we
continue to enhance our reporting structures according to TCFD,
SASB and GRI principles (see pages 30-42 and pages 221-226).
Our unique business model will enable us to reach our purpose
at Pearson which is to add life to a lifetime of learning for people
around the globe. Learning is one of the greatest drivers of
human progress, so as we fulfil our purpose, we help transform
lives, livelihoods, and societies.
Measuring progress
We measure our progress against five non-financial KPIs:
Digital Growth
Consumer Engagement
Product Effectiveness
Culture of Engagement and Inclusion
Sustainability
Partners and support functions
Technology is enabling consumers to learn virtually and learning
materials to be delivered digitally. This means we can reach a larger
market at a lower cost and be at the forefront of the evolving learning
marketplace.This gives us the ability to reach our ambition to be a
digital media learning company that will occupy a place at the heart
of the global learning ecosystem
Read more on pages 18-19
Credly
Earn Credly badges for completed credentials
English
Language
Learning
(Institutional
Courseware):
Use Disney Kids
Readers to start
to learn English
English
Language
Learning
(Pearson Test
of English):
apply for
immigration
using the
Pearson Test of
English to prove
English
proficiency
English
Language
Learning
(Mondly):
learn a new
language to
study abroad
Virtual
Learning
(Virtual
Schools):
attend
virtual K-12
school
Workforce Skills
(Credly):
leveraging new IT
badge to secure
new job through
Credly
TalentMatch
Assessment &
Qualifications
(VUE): enroll in
IT training
course and
passes AWS
certification test
Workforce
Skills
(TalentLens):
take
psychometric
test for job
application
Workforce
Skills (GED):
Pass GED to
gain high
school
equivalency
diploma
Higher
Education
(Courseware /
Pearson+):
Learn college
level materials
through
Pearson+
alongside
MyLab and
Mastering
homework
platform
Workforce
Skills (Faethm):
through
employer, create
learning and
career goals,
identify skill gaps
and develop a
learning plan
Annual report and accounts 2022 Pearson plc 17
Virtual Schools US
enrolments
106k
(2021: 111k)
OPM student
enrolments
270k
(2021: 275k)
OnVUE volumes
3.0m
(2021: 3.0m)
PTE volume
827k
(2021: 436k)
Higher Education US
digital registrations
9.9m
(2021: 11.1m
a
)
Monitoring progress
Underlying Growth in group digital
and digital-enabled sales
+9%
(2021: +9%)
Digital sales*
Digital Growth
Objective: Drive
digital revenue
growth
Non-financial measures
Key performance indicators
‘22
‘21
‘20
‘19
‘18
Digital: 43%
Digital-enabled: 31%
Total digital: 74%
Digital: 45%
Digital-enabled: 28%
Total digital: 73%
Digital: 36%
Digital-enabled: 30%
Total digital: 66%
Digital: 34%
Digital-enabled: 28%
Total digital: 62%
Non-digital: 26%
Non-digital: 27%
Non-digital: 34%
Non-digital: 38%
Digital: 44% Digital-enabled: 35%
Total digital: 79%
Non-digital: 21%
R
See how this aligns strategy to management reward: pages 98 & 99
R
NPS for Connections
Academy
+67
(2021: +62)
NPS for PTE
+52
(2021: +56)
Mondly paid
subscriptions
446K
(2021: n/a)
Workforce Skills
registered users
c
4.7m
(2021: n/a)
Pearson+
registered users
b
2.83m
(2021: 2.75m)
Consumer
Engagement
Objective: Create
engaging and
personalised
consumer experiences
PTE speed of
score return
1.3 days
(2021: 1.2 days)
VUE Test
volumes
d
19.4m
(2021: 16.8m)
VUE partner
retention
e
99.9%
(2021: 99%)
Workforce Skills
number of enterprise
customers
f
1,503
(2021 : 645)
Workforce Skills
enterprise customer
net retention rate
74%
(2021: n/a)
Higher Education
Product usage -
text units
4.8m
(2021: 5.4m)
Product
Effectiveness
Objective: Improve the
effectiveness of our
products to deliver
better outcomes
Culture of
Engagement
and Inclusion
Objective: Build an
inclusive culture and
increase diverse
representation
Employee Engagement
Pearson uses the
Gallup Q
12®
survey
to measure
engagement,
annually
3.96
grand mean on a 5
point Likert scale
(2021: n/a)
Investing in diverse talent
The % of responses who
agree or strongly agree to
Gallup Q
12®
survey
questions
In the last six months,
someone at work has talked
to me about my progress
67%
(2021: n/a)
This last year, I have had
opportunities at work to
learn and grow
72%
(2021: n/a)
Culture of inclusion index
The grand mean of 3 Gallup Q
12®
survey questions
— At work, I am treated with
respect
— My company is committed to
building the strengths of each
employee
— If I raised a concern about ethics
and integrity, I am confident my
employer would do what is right
4.12
grand mean on a 5 point
Likert scale
(2021: n/a)
Increasing diverse talent
% of people in leadership
development and mentoring
programmes who are diverse.
75%
(2021: n/a)
% of people in succession
plans for leadership who
are diverse
Women
52%
People of
Colour/BAME
26%
(2021: 72%) (2021: 24%)
R
R
Sustainability
Strategy
Objective: Achieve net
zero carbon by2030
Reduction in total
tCO
2
in 2022
33%
vs 2018
g
Reduction in total
tCO
2
in 2021
31%
vs 2018
g
R
Progress against achieving net zero carbon by 2030,
as measured through percentage carbon reduction
a. 2021 US digital registrations restated from 11.4m to 11.1m due to recategorising 0.3m of registrations from US to International.
b. Pearson+ registered users represents the number of unique user accounts added over an academic year.
c. Workforce Skills registered users represents the number of net new user accounts on a trailing 12-month basis and includes net new user accounts from Credly pre-acquisition.
d. VUE test volumes include GED tests.
e. VUE Partner retention is based on revenue mix.
f. Workforce Skills number of enterprise customers represent the number of customers at period end.
g. Net zero carbon figures have been restated in 2021 to reflect acquisitions, disposals and data improvements. The net zero carbon figures have been assured by an independent
third-party, Corporate Citizenship.
* Historical figures restated to exclude Wall Street English and US K-12 Courseware (sold in 2018, and 2019 respectively).
Please find further details on our Strategic KPIs here https://plc.pearson.com
18 Pearson plc Annual report and accounts 2022
Sales
b
£3,841m
This is our revenue as reported in our
income statement.
Adjusted operating profit
a
£456m
A non-GAAP financial measure that enables
management to consistently track the
underlying operational performance of
the Group.
Net debt
a
£557m
This is a non-GAAP financial measure and is
used by management to assess the Group’s
cash position.
Operating cash flow and
cash conversion
a
£401m (88%)
Operating cash flow is an adjusted measure
and is presented in order to align the cash
flows with corresponding adjusted operating
profit measures.
Net cash generated from
operations
b
£527m
This is our net cash generated from
operations as reported in our cash
flow statement.
Dividend per share
21.5p
This is the proposed full year dividend.
Our dividend policy is to be progressive
and sustainable.
Adjusted earnings per share
a
51.8p
A non-GAAP financial measure used to
evaluate performance.
Operating profit
b
£271m
This is our operating profit as reported
in our income statement.
Basic earnings per share
b
32.8p
A measure of the amount of profit that can be
allocated to one share of our common stock.
Total shareholder returns
c
57.16%
Return on Capital
a
8.7%
This is a measure of financial performance
of shares over time.
A non-GAAP measure of how efficiently we
are generating returns from our asset base.
a. See page 215 for an explanation of these
alternative performance measures.
b. Statutory measure.
c. Source: Bloomberg.
d. Comparative amounts have been restated, see
note 1 of the financial statements for further details.
Note: See page 215 for full reconciliation of the
alternative performance measures to the equivalent
statutory measure.
0 1000 2000 3000 4000 5000
‘22
‘21
‘20
‘19
‘18
£3,841m
£3,428m
£3,397m
£3,869m
£4,129m
‘22
‘21
‘20
‘19
‘18
£456m
£385m
£313m
£581m
£546m
‘22
‘21
‘20
‘19
‘18
£350m
£463m
£1,016m
£557m
£143m
‘22
‘21
‘20
‘19
‘18
34.9p
28.7p
57.8p
70.3p
51.8p
‘22
‘21
‘20
‘19
‘18
£183m
£411m
£275m
£553m
£271m
‘22
‘21
‘20
‘19
‘18
23.5p
d
43.7p
d
34.0p
75.6p
32.8p
‘22
‘21
‘20
‘19
‘18
£388m (101%)
£315m (101%)
£418m (72%)
£513m (94%)
£401m (88%) ‘22
‘21
‘20
‘19
‘18
£570m
£450m
£480m
£547m
£527m
‘22
‘21
‘20
7.9%
6.6%
00.0%
00.0%
8.7%
0.0 4.3 8.6 12.9 17.2 21.5
‘22
‘21
‘20
‘19
‘18
20.5p
19.5p
19.5p
18.5p
21.5p
1 year
3 year
5 year
57.16%
60.73%
45.52%
See how this aligns strategy
to management reward: pages 98 & 99
R
R
R
R
R
R
R
Financial measures
For more information on our KPI measures, including why and how we measure them, please refer to the glossary on our website.
Annual report and accounts 2022 Pearson plc 19
Financial review
We saw continuing momentum
in 2022, with 5% underlying sales
growth and adjusted operating
profit of £456 million.
Sally Johnson, Chief Financial Officer
Financial summary
Business performance
£ millions 2022 2021 Headline growth CER growth Underlying growth
Sales 3,841 3,428 12% 3% 5%
Adjusted operating profit 456 385 18% 6% 11%
Operating cash flow 401 388
Adjusted earnings per share 51.8p 34.9p
Net debt (557) (350)
Statutory results
£ millions 2022 2021 Headline growth
Sales 3,841 3,428 12%
Operating profit 271 183
Profit for the year 244 178*
Cash generated from operations 527 570
Basic earnings per share 32.8p 23.5p*
Dividend per share 21.5p 20.5p
Throughout this section: a) Growth rates are on an underlying basis unless otherwise stated. Underlying growth rates exclude currency movements and portfolio changes; b) The ‘business
performance’ measures are non-GAAP measures, and reconciliations to the equivalent statutory heading under IFRS are included in the financial key performance indicators section on
pages 215–219; c) Constant exchange rates are calculated by assuming the average FX in the prior year prevailed through the current year.
* Comparative amounts have been restated, see note 1b to the financial statements for further details.
20 Pearson plc Annual report and accounts 2022
Operating results
Sales increased on a headline basis by £413m or 12% from £3,428m
in 2021 to £3,841m in 2022 and adjusted operating profit increased
by £71m or 18% from £385m in 2021 to £456m in 2022 (for a
reconciliation of this measure see note 2 to the consolidated
financial statements).
The headline basis simply compares the reported results for 2022
with those for 2021. We also present sales and profits on an
underlying basis which exclude the effects of exchange, the effect of
portfolio changes arising from acquisitions and disposals and the
impact of adopting new accounting standards that are not
retrospectively applied. Our portfolio change is calculated by
excluding sales and profits made by businesses disposed in either
2021 or 2022 and by ensuring the contribution from acquisitions is
comparable year on year. Portfolio changes mainly relate to the
disposals of our international courseware local publishing businesses
in Europe, French-speaking Canada, South Africa and Hong Kong in
2022, the sale of the Sistemas business in Brazil in 2021 and the
acquisitions of Credly and Mondly in 2022 and of Faethm in 2021.
All figures in £ millions 2022 2021
Operating profit 271 183
Add back: Cost of major restructuring 150 214
Add back: Intangible charges 56 51
Add back: UK pension discretionary
increases 3 –
Add back: Other net gains and losses (24) (63)
Adjusted operating profit 456 385
On an underlying basis, sales increased by 5% in 2022 compared to
2021 and adjusted operating profit increased by 11%. Currency
movements increased sales by £296m and increased adjusted
operating profit by £46m. Portfolio changes decreased sales by £37m
and decreased adjusted operating profit by £13m. There were no
new accounting standards adopted in 2022 that impacted sales or
operating profits.
Adjusted operating profit includes the results from discontinued
operations when relevant but excludes charges for intangible
amortisation and impairment, acquisition related costs, gains and
losses arising from disposals, the cost of major restructuring and
one off-costs related to the UK pension scheme. A summary
of these adjustments is included below and in more detail in
note 2 to the consolidated financial statements.
In August 2022, the Group announced a major restructuring
programme to run in 2022. The programme includes efficiencies
in product and content, support costs, technology and
corporate property.
2023 outlook
We are confident of further group underlying sales growth of low to
mid-single digit, excluding OPM and the strategic review businesses,
with adjusted operating profit and tax in line with current market
expectations
1
. Our interest charge is expected to be c.£35m.
— Assessment & Qualifications revenue growth of low to mid-single
digit with increased margins.
— In Virtual Learning, Virtual Schools revenue to decline by
mid-single digit impacted by the COVID-19 cohort unwind in the
2022/23 academic year, as well as the loss of a major school. We
expect margins to increase. We remain confident in the long-term
performance of this division and will launch Career Academies
aimed at supporting teenagers who wish to gain career education
and experience. Four Career Academies will operate in the
2023-24 school year in four states and enrolment is underway.
OPM continues to be under strategic review.
— Higher Education revenue to decline, by low-single digit, with
increased margins.
— English Language Learning revenue growth of high-single digit
with increased margins.
— Double-digits revenue growth in Workforce Skills, underpinned by
our talent investment platform, with improved margins.
2025 ambition
We continue to expect the Group to achieve mid-single digit
underlying revenue 3-year CAGR from 2022 to 2025 and for margins
to be mid-teens in the near term, as we invest to drive growth,
improving by 2025.
1. 2023 consensus on the Pearson website as at 28
th
November 2022; median
adjusted operating profit of £585m at £:$ 1.14, tax rate 24%.
Financial expectations
Segment
2022 revenue
(£m)
Margins
2022*
2023
expectations
Revenue
2023
expectations
Margins*
Underlying revenue
3-year CAGR
2022 to 2025
Margins
2025*
Assessment & Qualifications 1,444 18% Low to mid-single digit Increase Low to mid-single digit Increase
Virtual Learning 820 9%
Virtual Schools 519
Mid-single
digit decline Increase Low-single digit Increase
OPM 301
– – – – – – – – – – – – Under strategic review – – – – – – – – – – – –
Higher Education 898 10% Low-single digit decline Increase
Low to
mid-single digit Increase
English Language Learning 321 8% High-single digit Increase High-single digit Increase
Workforce Skills 204 (1)% Double-digits Improve Greater than 20% Increase
Strategic review 154 10%
Group 3,841 12%
Excluding OPM and
Strategic review: Low to
mid-single digit Mid-teens
Mid-single
digit
Upper end of
mid-teens
* Adjusted operating profit margins.
The restructuring costs in 2022 of £150m mainly relate to staff
redundancies and impairment of right-of-use property assets. In
2021, restructuring costs of £214m mainly related to the impairment
of right-of-use property assets, the write-down of product
development assets and staff redundancies. The 2022 charge
includes the impact of updated assumptions related to the
recoverability of right-of-use assets made in 2021.
Intangible amortisation charges in 2022 were £56m compared
to a charge of £51m in 2021. This is due to increased amortisation
from recent acquisitions partially offset by a reduction in
amortisation from intangible assets at the end of their useful life
and recent disposals.
UK pension discretionary increases in 2022 relate to one-off pension
increases awarded to certain cohorts of pensioners in response to
the cost of living crisis.
Annual report and accounts 2022 Pearson plc 21
Financial review continued
Other net gains and losses in 2022 relate to the gains on the disposal
of our international courseware local publishing businesses in
Europe, French-speaking Canada and Hong Kong and a gain arising
on a decrease in the deferred consideration payable on prior year
acquisitions, offset by a loss on disposal of our international
courseware local publishing businesses in South Africa due to
recycled currency translation adjustments and costs related to
disposals and acquisitions. Other net gains and losses in 2021 largely
related to the disposal of PIHE and the disposal of the K12 Sistemas
business in Brazil offset by costs related to the acquisition of Faethm
and the wind down of certain strategic review businesses.
The reported operating profit of £271m in 2022 compares to a profit
of £183m in 2021. The increase in 2022 was driven by operating
leverage on revenue growth, property cost savings and a lower
restructuring charge, partially offset by inflation and a reduction in
other net gains and losses from business acquisitions and disposals.
Divisional results
£ millions 2022 2021
Headline
growth
CER
Growth
Underlying
growth
Sales
Assessment &
Qualifications
1,444 1,238± 17% 8% 8%
Virtual Learning 820 713 15% 4% 4%
Higher Education 898 849 6% (4)% (4)%
English Language
Learning
321 238 35% 28% 24%
Workforce Skills 204 172 19% 16% 7%
Strategic review 154 218± (29)% (30)% (16)%
Total 3,841 3,428 12% 3% 5%
Adjusted operating
profit
Assessment &
Qualifications
258 219± 18% 6% 6%
Virtual Learning 70 32 119% 88% 88%
Higher Education 91 73 25% 12% 12%
English Language
Learning
25 15 67% 47% 33%
Workforce Skills (3) 27 (111)% (104)% (67)%
Strategic review 15 19± (21)% (26)% 0%
Total adjusted
operating profit
456 385 18% 6% 11%
± Comparative amounts have been restated to reflect the move between
operating segments.
Assessment & Qualifications
In Assessment & Qualifications, sales increased 8% on an underlying
basis and 17% on a headline basis. Adjusted operating profit
increased 6% in underlying terms due to operating leverage on
revenue growth partially offset by inflation and 18% in headline terms
due to this and currency movements.
Pearson VUE sales were flat in underlying terms with test volumes
increasing 16% to 19.4m with particularly strong growth in the IT and
healthcare segments, offset by the known headwind resulting from
the DVSA contract change, as previously announced in 2021. Within
VUE test volumes, we still capture the volume for all three DVSA
regions, given we provide the central platform for test delivery. We
retained all our major contracts that were up for renewal and
increased our contract renewal rate to 99.9% across the business.
In US Student Assessment, sales increased 17% in underlying terms
due to a combination of the commencement of new contracts, which
were won in 2020 and 2021, a return of volumes with full state
testing commencing post COVID-19, and the addition of new services
to existing contracts.
In Clinical Assessment, sales increased 7% in underlying terms
due to good government funding and continued focus on health
and wellbeing.
In UK and International Qualifications, sales increased 16% in
underlying terms as exams resumed following COVID-19.
Virtual Learning
In Virtual Learning, sales increased 4% on an underlying basis and
15% on a headline basis. Adjusted operating profit grew 88% in
underlying terms due to operating leverage on revenue growth and
efficiency improvements in Virtual Schools and OPM, more than
offsetting the investment in our Virtual Schools’ platform and
teaching costs, and increased 119% in headline terms due to this and
currency movements.
Virtual Schools sales were up 4%, driven by firm retention rates in the
2021/22 academic year and favourable revenue mix, partially offset
by a 5% decline in enrolments for the 2022/23 academic year and
lower district partnership renewals. We opened new full-time online
partner schools in Colorado, Missouri and Virginia which partially
offset the planned exits of partner schools in Washington, Colorado,
Missouri and one of two schools in Tennessee. As at December 2022,
this brings the 2022/2023 total number of partner schools to 46 in
31 states.
In OPM, sales were up 4% driven by enrolment growth in our UK and
Australia programs, which were offset by an enrolment decline in our
North America programs.
Higher Education
In Higher Education, sales declined 4% for the full year on an
underlying basis and increased 6% on a headline basis due to
currency movements. Adjusted operating profit increased 12%
in underlying terms driven primarily by cost savings, partially offset
by trading performance, and increased 25% in headline terms due
to this and currency movements.
In the US, we saw a decline in enrolments and a loss of adoptions to
non-mainstream publishers, including open educational resources,
partially offset by improved pricing. There was continued momentum
in Inclusive Access with 9% sales growth to not-for-profit institutions
and the total number of institutions increasing to 1,040. Pearson+
performed well in the Fall semester with 2.83m registered users and
406k paid subscriptions, representing a threefold increase compared
to the prior year Fall semester.
English Language Learning
In English Language Learning, sales were up 24% on an underlying
basis and 35% on a headline basis. Adjusted operating profit
increased by 33% in underlying terms due to increased revenue
partially offset by increased investment and increased 67% in
headline terms due to this and currency movements.
PTE volumes were up 90% driven by border re-openings, as well
as market share gain in India. Within Institutional, there was strong
growth in Latin America and the Middle East, offset by the impact
of government reforms in China.
Workforce Skills
In Workforce Skills, sales were up 7% on an underlying and 19%
on a headline basis. Adjusted operating profit declined by 67%
in underlying terms due to investment in the business across
Faethm, Credly and our talent investment platform and decreased
111% in headline terms due to this, currency movements and
portfolio changes.
Revenue growth was driven by growth in BTEC and Apprenticeships,
GED and TalentLens. The Vocational Qualifications business
(previously known as the Performance business) grew by 5% in
underlying terms. The Workforce Solutions business (previously
known as the Transformation business) grew by 12% in underlying
terms. Pearson has 1,503 enterprise clients in its Workforce Skills
portfolio, up 133% on last year, with the acquisition of Credly
underpinning this growth.
22 Pearson plc Annual report and accounts 2022
Strategic review
Sales in our international courseware local publishing businesses
under strategic review declined 16% on an underlying basis and were
down 29% on a headline basis for the full year. Following the
announcement of the sale of our international courseware local
publishing businesses in Europe, French speaking Canada, Hong
Kong and South Africa, these financials are no longer included in our
underlying performance measures.
Net finance costs
Net interest payable reflected in adjusted earnings in 2022 was £1m,
compared to £57m in 2021. The difference is primarily due to the
release of £35m of interest recorded in respect of provisions for
uncertain tax positions where the related interest was recognised in
this line in the income statement. In addition, interest charges have
reduced due to the reduction in gross bond debt and increased
interest income on cash balances given interest rate rises.
Net finance income relating to retirement benefits has been
excluded from our adjusted earnings as we believe the income
statement presentation does not reflect the economic substance of
the underlying assets and liabilities. Also included in the net finance
costs (but not in our adjusted measure) are interest costs relating to
acquisition or disposal transactions, fair value movements on
investments classified as fair value through profit and loss, foreign
exchange and other gains and losses on derivatives. Interest relating
to acquisition or disposal transactions is excluded from adjusted
earnings as it is considered part of the acquisition cost or disposal
proceeds rather than being reflective of the underlying financing
costs of the Group. Foreign exchange, fair value movements and
other gains and losses are excluded from adjusted earnings as they
represent short-term fluctuations in market value and are subject to
significant volatility. Other gains and losses may not be realised in
due course as it is normally the intention to hold the related
instruments to maturity (for more information see notes 6 and 8 to
the consolidated financial statements). Interest on certain tax
provisions is excluded from our adjusted measure in order to mirror
the treatment of the underlying tax item.
In 2022, the total of these items excluded from adjusted earnings was
income of £53m compared to income of £51m in 2021. Net finance
income in respect of retirement benefits increased from £4m in 2021 to
£9m in 2022 reflecting the comparative funding position of the plans at
the beginning of each year and higher prevailing discount rates. Interest
costs in respect of deferred and contingent consideration are £5m in
2022 due to recent acquisitions. In 2022, there were no finance charges
relating to the revaluation of the K12 disposal proceeds compared to
income of £6m in 2021 as the outstanding amount has been fully
repaid. Fair value gains on investments in unlisted securities are £28m in
2022 compared to £20m in 2021. In addition, there were similar gains
year on year on long-term interest rate hedges and an interest charge
on tax provisions of £5m has been recognised in 2022 in relation to the
State Aid matter.
£ millions 2022 2021
Net interest payable (1) (57)
Finance income in respect of retirement
benefits 9 4
Fair value remeasurement of
investments held at FVTPL 28 20*
Other net finance costs 16 27
Net finance costs 52 (6)*
Taxation
The reported tax charge on a statutory basis in 2022 was a charge of
£79m (24.5%) compared to a credit of £1m* (0.6%) in 2021. The tax
charge for the period has been impacted principally by two items:
— The release of tax risk provisions totalling £72m following the
expiry of the statute of limitations for certain periods in the US.
This release impacts both statutory and adjusted earnings with
a £37m credit to adjusted earnings and the remainder only
impacting statutory results.
— As previously disclosed, the European Commission determined
that the United Kingdom controlled foreign company group
financing partial exemption partially constituted State Aid. This
decision was appealed by the UK Government and other parties.
On 8 June 2022, the EU General Court dismissed the appeal.
Following the EU General Court’s negative decision, the UK
Government and other parties have submitted appeals to the
European the Court of Justice. At 31 December 2021, the potential
risk associated with this issue was disclosed as a contingent liability,
however, following the dismissal of the first appeal the prospects of
successfully challenging the European Commission’s decision are
now considered to be such that a provision is required.
— On that basis a tax provision of £63m plus £5m of associated
interest has been recorded. The provision represents an estimate
of the expected value which has been calculated by considering a
range of possible outcomes and applying a probability to each,
resulting in a weighted average outcome. The possible outcomes
considered range from no liability through to the full exposure
(£105m excluding interest). Due to the large and unusual nature
of the provision and the specific one-off nature of the issue, the
provision is excluded from adjusted earnings. There is no cash
impact in 2022 as a payment on account was made during 2021.
The provision of £63m has been offset on the balance sheet
against the payments previously made. As the provision is less
than the payments made there is a remaining non-current tax
receivable of £41m disclosed on the balance sheet.
The tax on adjusted earnings in 2022 was a charge of £71m
(2021: £64m), corresponding to an effective tax rate on adjusted
profit before tax of 15.6% (2021: 19.5%). The decrease in the
effective rate is primarily due to the release of tax risk provisions
following the expiry of the statute of limitations in the US. For a
reconciliation of the adjusted measure see note 7 to the
consolidated financial statements.
In 2022, there was a net tax payment of £109m (2021: £177m).
Theoverall amount decreased primarily due to the 2021 payment
of £97m related to the ongoing EU Commission investigation which
is non-recurring. Excluding this payment, tax payments increased
primarily due to increased operating profits and legislative changes
in the US.
A net deferred tax asset of £20m is recognised in 2022 compared to
a net £17m deferred tax asset in 2021. The current tax creditor
principally consists of provisions for tax uncertainties. There are
contingent liabilities in relation to tax as outlined in note 34 to the
consolidated financial statements.
Earnings per share
Adjusted earnings includes adjusted operating profit and adjusted
finance and tax charges. The reconciling items between the statutory
inputs to earnings per share and the adjusted inputs are discussed in
the previous sections.
Adjusted earnings per share is 51.8p in 2022 compared to 34.9p in
2021. The increase is primarily driven by an increase in adjusted
operating profit, a reduction in net finance costs, a reduction in the
adjusted effective tax rate and a decrease in the number of shares
following the share buy back.
Basic earnings per share is 32.8p in 2022 compared to 23.5p* in
2021. The increase in 2022 is mainly due to increased operating
profits, reduced interest charges and a decrease in the number of
shares following the share buy back, partially offset by increased
tax charges.
* Comparative amounts have been restated, see note 1b to the
financial statements for further details.
Annual report and accounts 2022 Pearson plc 23
Other comprehensive income
Included in other comprehensive income are the net exchange
differences on translation of foreign operations. The gain on
translation of £330m in 2022 compares to a loss in 2021 of £6m.
Thegain in 2022 arises from an overall strengthening of the
currencies to which the Group is exposed and in particular the
relative strength of the US dollar. A significant proportion of the
Group’s operations are based in the US and the US dollar
strengthened in 2022 from an opening rate of £1:$1.35 to a closing
rate at the end of 2022 of £1:$1.21. At the end of 2021, the US dollar
had strengthened from an opening rate of £1:$1.37 to a closing rate
of £1:$1.35. The loss in 2021 was driven by this movement in the US
dollar, offset by the weakening of other currencies used by the Group.
Also included in other comprehensive income in 2022 is an actuarial
gain of £54m in relation to the retirement benefit obligations of the
Group. The gain arises largely from a decrease in liabilities driven by
higher discount rates and changes to demographic assumptions,
partially offset by losses on associated matching assets and
experience losses. The actuarial gain in 2022 of £54m compares to
an actuarial gain in 2021 of £149m.
Fair value gains of £18m have been recognised in other
comprehensive income and relate to movements in the value of
investments in unlisted securities held at FVOCI. In 2021, fair value
gains of £4m* were recognised.
In 2022, a loss of £5m (2021: £4m gain) was recycled from the
currency translation reserve to the income statement in relation to
businesses disposed.
Cash flow and working capital
Our operating cash flow measure is an adjusted measure used to
align cash flows with our adjusted profit measures (see note 33 to
the consolidated financial statements). Operating cash inflow
increased on a headline basis by £13m from £388m in 2021 to
£401m in 2022. The increase is largely explained by the drop-through
of increased operating profits offset by unfavourable working capital
movements driven by the timing of the disposals of the international
courseware local publishing businesses and an increase in capitalised
product development.
The equivalent statutory measure, net cash generated from
operations, was £527m in 2022 compared to £570m in 2021.
Compared to operating cash flow, this measure includes
restructuring costs but does not include regular dividends from
associates. It also excludes capital expenditure on property, plant,
equipment and software, and additions to right-of-use assets as well
as disposal proceeds from the sale of property, plant, equipment and
right-of-use assets (including the impacts of transfers to/from
investment in finance lease receivable). In 2022, restructuring cash
outflow was £35m compared to £24m in 2021.
In 2022, there was an overall £394m decrease in cash and cash
equivalents compared to a decrease of £176m in 2021. The decrease
in 2022 is primarily due to payments for acquisitions of subsidiaries
of £228m, repayments of borrowings of £171m, dividends paid of
£157m, share buyback programme of £353m, other own share
purchases of £37m, tax paid of £109m, capital expenditure of
£147m, and repayments of lease liabilities of £93m. These were
offset by the cash inflow from operations of £527m and proceeds
from disposals of businesses and investments of £350m.
£ millions 2022 2021
Net cash generated from operations 527 570
Dividends from joint ventures
and associates 1 –
Net capital expenditure on PPE
(including right-of-use assets)
and software (162) (206)
Add back: costs paid for major
restructuring projects 35 24
Operating cash flow 401 388
Liquidity and capital resources
The Group’s net debt increased from £350m at the end of 2021 to
£557m at the end of 2022. The increase is largely due to the £350m
share buyback programme and dividend payments, partially offset by
strong operating cash flow and net proceeds from M&A activity.
In May 2022, the Group repaid the remaining $117m (£95m) of its
2022 US dollar bond upon maturity. In December 2022, the Group
repaid the remaining $94m (£76m) of its 2023 US dollar bond. In May
2021, the Group repaid the remaining €195m (£167m) of its €500m
Euro 1.85% notes.
At 31 December 2022, the Group had approximately £1.4bn in total
liquidity immediately available from cash and its Revolving Credit
Facility maturing February 2026. In assessing the Group’s liquidity
and viability, the Board analysed a variety of downside scenarios
including impacts from macro economic factors and other risks. Even
under a severe downside case where declines in profitability
compared to 2022 are modelled in 2023 and 2024, the Group would
maintain comfortable liquidity headroom and sufficient headroom
against covenant requirements during the period under assessment
even before modelling the mitigating effect of actions that
management would take in the event that these downside risks were
to crystallise. In all scenarios it is assumed that the Revolving Credit
Facility is available.
At 31 December 2022, the Group was rated BBB- (stable outlook)
with Fitch and Baa3 (stable outlook) with Moody’s.
Net debt
£ millions 2022 2021
Cash and cash equivalents 558 937
Overdrafts (15) –
Investment in finance leases 121 115
Derivative financial instruments (6) (2)
Bonds (610) (767)
Lease liabilities (605) (633)
Net debt (557) (350)
Post-retirement benefits
Pearson operates a variety of pension and post-retirement plans.
Our UK Group pension plan has by far the largest defined benefit
section. We have some smaller defined benefit sections in the US
and Canada but, outside the UK, most of our companies operate
defined contribution plans.
The charge to profit in respect of worldwide pensions and post-
retirement benefits amounted to £66m in 2022 (2021: £58m), of
which a charge of £75m (2021: £62m) was reported in operating
profit and income of £9m (2021: £4m) was reported in other net
finance costs. In 2022, a charge of £3m (2021: nil) related to one-off
discretionary pension increases has been excluded from adjusted
operating profit.
The overall surplus on UK Group pension plans of £537m at the end
of 2021 has increased to a surplus of £573m at the end of 2022. The
increase has arisen principally due to the actuarial gain noted above
in the other comprehensive income section. In total, our worldwide
net position in respect of pensions and other post-retirement
benefits increased from a net asset of £471m at the end of 2021 to a
net asset of £520m at the end of 2022.
Businesses acquired
In January 2022, the Group acquired 100% of the share capital in
Credly Inc (Credly), having previously held a 19.9% interest in the
company. Total consideration for the acquisition was £149m
comprising upfront cash consideration of £107m, Pearson’s existing
interest valued at £31m and £11m of deferred consideration. The
deferred consideration is payable in 2 years.
Financial review continued
* Comparative amounts have been restated, see note 1b to the financial statements for further details.
24 Pearson plc Annual report and accounts 2022
Additional contingent amounts are also payable in 2024 if certain
revenue and non-financial targets are met, and dependent on
continuing employment, and therefore these additional amounts will
be expensed over the period and are not treated as consideration.
Net assets acquired of £44m were recognised on the Group’s
balance sheet including £49m of acquired intangible assets. Goodwill
of £105m was also recognised in relation to the acquisition.
In April 2022, the Group acquired 100% of the share capital of ATI
STUDIOS A.P.P.S S.R.L (Mondly). Total consideration for the
acquisition was £135m comprising upfront cash consideration of
£105m, and deferred consideration of £30m. The deferred
consideration is payable over the next two years. In addition, a
further $29.6m (c£24m) of cash and $10m (c£8m) in shares will
be paid over the next four years, dependent on continuing
employment, and therefore will be expensed over the period
and are not treated as consideration. Net assets acquired of £38m
were recognised on the Group’s balance sheet including £50m of
acquired intangible assets. Goodwill of £97m was also recognised in
relation to the acquisition.
In 2022, the Group also made two smaller acquisitions for total
consideration of £11m. In December 2022, the Group announced
that it had signed a deal to acquire 100% of Personnel Decisions
Research Institutes, LLC, the transaction has not yet completed.
The cash outflow in 2022 relating to acquisitions of subsidiaries was
£228m. In addition, there was a cash outflow relating to the
acquisition of associates of £5m and investments of £12m.
In September 2021, the Group completed the acquisition of 100% of
the share capital of Faethm Holdings Pty Limited (‘Faethm’), having
already held 9% of the share capital previously. Total consideration
for the acquisition was £65m comprising cash consideration of £49m,
£6m related to the Group’s existing interest in Faethm and £10m of
contingent consideration. Net assets acquired of £27m were
recognised on the Group’s balance sheet including £21m of acquired
intangible assets. Goodwill of £38m was also recognised in relation to
the acquisition. Contingent consideration amounts have been settled
during 2022 resulting in the recognition of an £8m gain in the income
statement within other net gains and losses.
In 2021, the Group also made two smaller acquisitions for total
consideration of £11m and acquired interests in two associates,
Smashcut and Academy of Pop, for total consideration of £17m.
The cash outflow in 2021 relating to acquisitions of subsidiaries was
£55m. In addition, there was a cash outflow relating to the acquisition
of associates of £10m and investments of £4m.
Businesses disposed
In March 2021, the Group announced that it was launching a
strategic review of its international courseware local publishing
businesses. In 2022, the Group disposed of its interests in the
Canadian educational publisher (ERPI), Pearson Italia S.p.A, Stark
Verlag GmbH, Austin Education (Hong Kong) Limited, Pearson South
Africa (Pty) Ltd and various other South African companies. Total cash
proceeds received was £287m resulting in a pre-tax gain on disposal
of £42m. All entities disposed of were previously in the Strategic
Review segment. £5m of losses arose from other immaterial
disposals and costs related to the wind-down of certain businesses.
None of the disposed businesses meet the criteria to be presented
as discontinued operations.
In February 2021, the Group completed the sale of its interests in
PIHE in South Africa resulting in a pre-tax loss of £5m. In October
2021, the Group completed the sale of its K12 Sistemas business in
Brazil resulting in a pre-tax gain of £84m.
The cash inflow in 2022 relating to the disposal of businesses was
£333m mainly relating to the disposals described above and the
receipt of deferred proceeds from the US K12 Courseware sale
in 2019.
In 2021, the cash inflow from disposals of £83m mainly related to the
disposal of the K12 Sistemas business and the receipt of deferred
proceeds from the US K12 Courseware sale in 2019.
In addition, proceeds of £17m (2021: £48m) were received in relation
to the disposal of investments.
Dividends
The dividend accounted for in our 2022 financial statements totalling
£156m represents the final dividend in respect of 2021 (14.2p) and
the interim dividend for 2022 (6.6p). We are proposing a final
dividend for 2022 of 14.9p bringing the total paid and payable in
respect of 2022 to 21.5p.
This final 2022 dividend which was approved by the Board in March
2023, is subject to approval at the forthcoming AGM. For 2022, the
dividend is covered 2.4 times by adjusted earnings.
Share buyback
On 24 February 2022, the Board approved a £350m share buyback
programme in order to return capital to shareholders. The
programme commenced on 4 April 2022 and completed in
December 2022. Approximately 42.3m shares have been bought
back and cancelled at a cash cost of £353m. The nominal value of the
cancelled shares of £10m has been transferred to the capital
redemption reserve.
Climate change
The Group has assessed the impacts of climate change on the
Group’s financial statements. The assessment did not identify any
material impact on the Group’s significant judgements or estimates,
the recoverability of the Group’s assets at 31 December 2022 or the
assessment of going concern for the period to June 2024.
Post balance sheet events
In February 2023, the Group renegotiated its revolving credit facility,
reducing the maximum facility to $1bn.
Pearson holds investments in unlisted securities with a value at 22
December 2022 of £133m. Some of the businesses relevant to this
investment, bank with Silicon Valley Bank which collapsed in early
March 2023. Given the US Government has announced that it will
guarantee all deposits held at Silicon Valley Bank, any subsequent
risk to the valuation of these investments is considered by
management to be low, but possible.
Conclusion
We delivered a strong financial performance, despite the challenges
arising from economic and geopolitical uncertainty, and have identified
margin improvements that bring our profitability target of mid-teens
margins forward by two years. My colleagues across finance have
helped the business successfully respond to opportunities and
challenges that have arisen, through appropriate financial control,
critical insights and value creation. I would like to thank them for their
hard work and commitment throughout the year.
“Given these strong
results, and our
confidence in the
outlook for the
Group, the Board
are proposing a 5%
increase in the full
year dividend
to 21.5p.”
Sally Johnson
Chief Financial Officer
Annual report and accounts 2022 Pearson plc 25
Learning from our stakeholders
Learning is at a pivotal moment, where it is becoming more fluid and exists
inside and outside of formal education. Our purpose – to add life to a lifetime of
learning – sits at the heart of everything we do. Our digital-first strategy aims to
meet these evolving needs of learners at multiple points in their lives.
Stakeholder engagement
Consumers
Why we engage
Our products and services
are designed for real-life
impact. Consumer
engagement helps us to
understand their needs
and evolve our products to
create that impact.
As more people use digital learning products such as Pearson+ and
Mondly we can listen to and learn from consumers, informing our
innovation and driving better lifelong learning. For example, we
know from our 4.8 million Pearson+ Channels registered users that
they have engaged in nearly 2 million minutes of video content and
1 million practice problems.
Groups including our Pearson Campus Ambassadors allow us
to engage directly with college students about their needs and
preferences. Feedback from users of Mondly is helping us refine
and improve our AR/VR offering, which ranks highly among
Occulus users.
Across the company, custom consumer research and insight
studies are also playing a greater role in understanding the
attitudes of today’s consumer and how people consume learning
content, use digital products, and purchase learning materials.
How we engage
Understanding how and why our
consumers use our products leads to
the development of features that make
them more engaging and user friendly.
As we study the engagement data in
Pearson+, we continue to increase our
understanding of consumer behaviour
and preferences. This is allowing us
further evolve Pearson+, exploring new
types of content, enhancing features
such as Pearson+ Channels, and
tailoring other offerings like the student
friendly marketing partnerships that
launched in 2022.
In Mondly, understanding the barriers
that consumers face during language
learning, particularly the difficulty in
accessing in person tutors, led us to
pilot a new conversational AI platform
to help support learners practice needs.
Our consumer-focused products, such
as Mondly have features and content
that meet the needs of today’s
consumer for affordable, accessible,
and direct to consumer learning.
Outcomes
Educational institutions and educators
Why we engage
Educators are a
cornerstone of our
business and our partners
in content creation.
Their feedback helps us
improve the teaching and
learning experience.
In our US Higher Education business, our Faculty Advisor group
feeds back on the needs of educators and students. They also act
as ambassadors for our products with existing and potential
customers, carrying out regular campus visits and webinars.
Our authors, often educators themselves, are increasingly active in
reviewing our digital products and product features, such as the
development of Pearson+ and Channels.
In the UK, after a difficult experience with BTEC results, we have
made a particular effort this year to seek input from educators
about how we should improve the process for awarding BTECs.
How we engage
Our work with educators provides us
with unique insights that reflect
experiences of both teachers and
students. In many cases, feedback from
educators leads to concrete change
that informs our products and services.
This is the case for BTECs, where we are
changing specific elements of our
awarding process to ensure a smoother
experience for students and educators.
Outcomes
Our ability to succeed depends, in part, on how we engage with and mobilise a diverse group of stakeholders – consumers, employees, shareholders,
educators, employers, business partners, and governments.
This year, we have continued our many partnerships with stakeholders to respond to the needs of our audiences as they move through different life
stages, helping to transform lives, livelihoods, and societies, while making a positive impact on our business.
26 Pearson plc Annual report and accounts 2022
Employers
We are serving a world
where people want to
and need to learn in
the workplace.
We work closely with
employers so people can
learn as they earn, and
employers get the best out
of their teams.
Pearson has a strong foothold in enterprise learning, with more
than 2,000 clients. Enterprise learning accounted for about 16%
of our revenue in 2022 and provides us with a major touch point
with employers that need a well-trained workforce.
We engage with employers through our Assessment &
Qualifications, Workforce Skills, and English Language
Learning divisions.
Not only do employers trust us to deliver high-quality products and
services, but our strong track record has led to stable long-term
relationships, which underpins our business. Long term Pearson
VUE relationships with industry organisations in the healthcare and
cyber security space help employees advance in their careers and
make our world safer with credentialed workers.
We also work together to develop our products and services, to
create more impact for their teams. For example, as we develop our
new talent investment platform, we have tested the technology &
key value propositions with several enterprises. Their feedback has
been critical in understanding customer challenges, developing
product features, and prioritising future product enhancements.
As we engage with employers, we are
seeing growth in newer areas, such as
Credly, which awards employees and
workers trusted digital credentials and
is averaging 70k+ new users a week,
driven by the need for reskilling.
The IT and healthcare sectors continue
to perform well for Pearson VUE. On
a more personal level, we are seeing
breakthroughs such as 177 Amazon
employees who earned their GED
with Pearson, proving that the impact
of learning is important, no matter
the scale.
Why we engage How we engage Outcomes
Investors/shareholders
Our investors play an
important role in providing
us with access to capital to
ensure that we can
operate and add life to a
lifetime of learning for
people around the world.
We have strong and constructive relationships with our key
institutional investors, and regularly communicate with them on key
issues, at our financial results, our AGM and at investor meetings
and conferences. Over 2022, we held 373 meetings with 192
institutions, both virtually and in person. We discuss financial,
operational, and strategic matters, including progress against our
new direct to consumer, lifelong learning strategy.
Our investors appreciate the time we
spend with them to give them updates
on our strategy and progress, and we
continue to develop how we
communicate effectively across a range
of formats.
In 2022, our dedicated website for
investors, www.pearsonplc.com, won a
Gold award for the Best Corporate
Website - FTSE 100 at the Corporate
and Financial Awards.
We are constantly updating our
disclosures to enhance understanding
and transparency of our business.
We are evolving our results
presentations to make them more
interactive and engaging, with
heightened use of video, photography,
and social assets.
Why we engage How we engage Outcomes
Annual report and accounts 2022 Pearson plc 27
Stakeholder engagement continued
Government and regulators
Governments around the
world are charged with
implementing policies to
expand learning
opportunities so their
citizens can achieve
life goals.
As the world’s leading
learning company, we use
our experience and
expertise on issues related
to all facets of education,
to inform political and
educational leaders.
The economic and employment environment in many countries
featuring labour shortages, and a rapidly evolving workforce, has
spurred policymakers to develop wide-scale programmes to attract,
train and upskill workers.
By engaging with policymakers, we work to ensure that learners of
all ages have access to high-quality educational opportunities,
leading to better prospects for individuals, as well as improved
economic outcomes for society.
Given governments’ need of support,
we engaged with governors across the
US, outlining data on future skills needs,
learning loss, and success of online
learning in their regions, to inform
policy decisions on areas of focus in
education, skills, language training,
and recruitment.
Outside the US and UK, many more
countries and students want access to
technical education certifications,
English language courses and
proficiency. In 2022, we engaged with
UK and US embassies in Central and
South America and Asia to support
countries’ efforts in this area.
Why we engage How we engage Outcomes
Employees
Pearson’s people are its
greatest asset. Our
success as a business and
our ability to make a
positive impact are highly
dependent upon our
colleagues.
Our managers play a
pivotal role in driving
engagement throughout
Pearson, and we are
empowering them with
new tools and training
to support them and
their teams.
In 2022, we launched a new employee engagement survey to better
understand our employees’ needs and to benchmark ourselves
globally. We also launched a new digital employee experience
platform to improve communication across Pearson.
We communicate regularly with our managers and leaders through
interactive forums and newsletters and hold global town halls and
virtual meet-ups available to all colleagues. Our employee
engagement network meets regularly with Non-Executive Directors.
To read more about the Board's engagement with employees, see
the Governance report on page 53.
Our people actively engage in feeding
back, and in 2022, 72% of colleagues
participated in our new engagement
survey. An average 2,000-3,000
colleagues join our global town halls
live, and more than 34,000 users have
already accessed our new digital
employee experience platform.
We know that employee engagement
fuels performance and has a direct
impact on customer loyalty,
productivity, profitability, and their
wellbeing. We’re using our engagement
survey results as a baseline to measure
engagement at a local level, and to drive
change in the areas that matter most to
our people.
Why we engage How we engage Outcomes
Business partners and institutions
Our suppliers, channel
partners, venture partners,
and authors play a vital
role in helping us execute
our business and product
strategies, bringing
specialised services and
expertise to accelerate
our work.
Supplier diversity and responsible procurement are key priorities
for the company. This year we added two new supplier portals that
provide access to over 1 million diverse accredited suppliers.
In Assessment & Qualifications, our mentor-protege programme is
designed to help small and minority owned suppliers grow their
business inside and outside of Pearson. Pearson provides additional
support to enhance their professional development and business
growth, so they can improve their competitive position across the
marketplace. This helps Pearson improve the diversity of our suppliers
and promotes responsible and sustainable procurement practices.
Additionally, we continue to add business partners who contribute
to the diversity of our workforce. In 2022, those new partners
included People of Colour in Tech, a recruitment platform that
connects under-represented groups with tech jobs and the
Hispanic Association on Corporate Responsibility, which works to
advance the inclusion of Hispanics in corporate America.
Our work with outside partners is
one way we’re building a culture that
values diversity, environmental
stewardship, and social impact,
alongside business growth.
We have made a public commitment
to support diverse accredited suppliers
and have grown our 2022 spend
in this area.
We are also working towards sourcing
100% of our paper ethically.
Why we engage How we engage Outcomes
28 Pearson plc Annual report and accounts 2022
Communities
We strive to make a
positive and meaningful
impact in the communities
in which we operate.
Learning opportunities
and outcomes are closely
linked to the prosperity
of local communities
and inclusive global
development. Our
global communities are
interested in widening
access to education
through innovation,
and the steps we are
taking to have a positive
impact on society and
the environment.
In addition to maintaining relationships with key organisations, we
participate in multi-stakeholder initiatives to promote lifelong
learning opportunities for all and ensure the lasting protection of
our planet.
Our global volunteering policy enables all our people to take up to
five paid volunteer days off to donate their time to what matters
most to them and their local communities.
Learning and acquiring new skills are
some of the greatest drivers of positive
social mobility. The biggest impact we
have on society is by delivering our
products and services such as
Connections Academy, Accelerated
Pathways, GED, and BTECs to name
a few.
This year, we also responded to the
crisis in Ukraine, with Pearson and our
employees committing over £1.25
million in humanitarian support and
providing additional help to Ukrainians
and others affected to continue their
education during this conflict.
More detail on page 38 on how we
invest with purpose.
Why we engage How we engage Outcomes
Directors’ duties statement
In accordance with Section 172 of the Companies Act 2006 (see below
right), the Directors fulfil their duties to promote the success of the
company through a well-established governance framework. Typically, in
large and complex businesses such as Pearson, this framework includes
delegation of day-to-day decision-making to employees of the Group.
This governance framework, summarised throughout this document,
is far more than a simple delegation of financial authority, and includes
the values and behaviours expected of our employees and business
partners, including the standards to which they must adhere; how we
engage with stakeholders, including understanding and taking into
account their views and concerns; and how the Board ensures that we
have a robust system of control and assurance processes in place.
In this annual report, we provide examples of how the Directors
promote the success of Pearson while taking into account the
consequences of decisions in the long-term, building relationships
with stakeholders (including our 8 key stakeholder groups, as mentioned
previously), and ensuring that business is conducted
ethically and responsibly.
While there are many parts of this annual report which illustrate how
the Directors do this, with the support of the wider business, the
following sections in particular are relevant:
— Learning from our stakeholders (pages 26-29), which outlines:
— how we serve and engage with each of our 8 key stakeholder
groups, listen to their key concerns and provide our responses
— how we have adapted our business to meet their needs
— how we have had regard to the need to foster the company’s
business relationships with each of the stakeholder groups
— Understanding our stakeholders (pages 67-68), which summarises:
— how Directors have engaged with employees and shareholders,
and had regard to their interests
— Sustainability (pages 30-42), which describes:
— Initiatives through which we strive to enable more engaging
learning experiences, that are accessible to more people, and
with a smaller carbon footprint
— Our commitment to creating a culture that prioritises human
rights, our employees, DE&I, and socially responsible sourcing
— How we align with widely accepted ESG reporting frameworks
including GRI, SASB and TCFD. For further details on TCFD
reporting, please see page 39
A continued understanding of the key issues affecting stakeholders is
an integral part of the Board’s decision-making process. The insights
that the Board gains through its engagement mechanisms form an
important part of the context for all the Board’s discussions and
decision-making processes. For an insight into how the Board has
considered the interests of various stakeholders in its decision-
making, and what matters the Directors considered when trying to
align and mitigate opposing views, please see our case study on the
acquisition of Mondly on page 69.
Section 172 of the Companies Act
In summary, as required by Section 172 of the Companies Act
2006, a Director of a company must act in the way they
consider, in good faith, would most likely promote the success
of the company for the benefit of its shareholders as a whole.
In doing this, the Director must have regard, among other
matters, to:
— the likely consequences of any decisions in the long term,
— the interests of the company’s employees,
— the need to foster the company’s business relationships
with suppliers, customers and others,
— the impact of the company’s operations on the community
and environment,
— the company’s reputation for high standards of business
conduct, and
— the need to act fairly as between members of the company.
Annual report and accounts 2022 Pearson plc 29
Our purpose
Add life to a lifetime of learning
Driving learning for
everyone with our products
Achieved through:
— consumer engagement*
— product effectiveness*
— digital growth*
— responsible and sustainable content
— affordability and access
Empowering our people
to make a difference
Achieved through:
— culture of engagement and inclusion*
Leading responsibly
for a better planet
Achieved through:
— reducing our environmental impact*
— investing with purpose
— cyber security and data management
* See our non-financial KPI section for more on how these link to our strategy.
Read more on page 32 Read more on page 33 Read more on page 36
1 2 3
Our sustainable business pillars
Robust governance, a strong culture and effective policies
Driving sustainability
Sustainability
2022 progress
— Pearson+ expanded registered users,
extending digital content offering, reach,
and accessibility.
— Mondly integrated into Pearson+,
offering expanded access to digital
language learning.
— In Higher Education, we are now Global
Certified Accessible™. We provide ‘born
accessible’ digital learning (eBook) options
to expand access to learning content
and materials.
— 70% of content partners are now trained
in editorial guidelines released for
Pearson’s authors, reviewers, and editors
to ensure meaningful, diverse
representation in content.
2022 progress
— Launched our people strategy with a focus
on engagement and high-performance.
— Invested in learning: upskilled and
reskilled Managers to drive engagement
and high performance, leveraged new
acquisitions like Credly to certify employee
skills, developed leaders via McKinsey
accelerator programmes, coaching, and
Board mentoring opportunities.
— Focused on building a culture of inclusion
and increasingly diverse representation.
Employees acquired diversity, equity and
inclusion knowledge and skills via our
inclusive learning experience, and diverse
participants in our leadership development
and mentoring programs.
2022 progress
— In 2022, we launched a new Privacy
Centre for consumers which will be linked
to all our products and a newly developed
universal preferences centre.
— We have reduced our scope 1, 2
and 3 GHG Emissions by 33% against
our 2018 baseline.
— In 2022, we have spent £46.7m with
diverse-accredited suppliers, certified and
non-certified. We have provided access to
two diverse supplier portals: WEConnect
and Supplier.io. The databases combined
provide access to over 2 million
diverse-accredited suppliers.
The Sustainable Development Goals (SDGs) linked to our ESG framework:
Our ESG framework
30 Pearson plc Annual report and accounts 2022
Why sustainability matters to Pearson
Learning is a powerful enabler and a driver of progress. Our goal is to
help learners gain the knowledge and skills they need to advance and
thrive sustainably and responsibly in our rapidly changing world. By
diagnosing skills gaps, helping people learn and verifying
qualifications, we aim to help mobilise talent that is well equipped to
build a greener, more responsible economy.
Our ESG framework
In 2021, we introduced three pillars to our ESG framework, driving
learning for everyone, empowering our people and leading
responsibly. These represent the areas where Pearson can make
the biggest positive impact and where we believe our main
responsibilities lie towards society and the environment.
Underpinning our three pillars is Pearson’s robust corporate
governance, strong culture and a range of effective policies to
ensure we achieve our ambitions.
Our non-financial KPIs, see page 18, have a natural fit with these
pillars and are a key measurement of our progress. They are included
in both our corporate and sustainable business strategies and will
evolve in line with the business. The Board reviews our non-financial
KPIs regularly, and these are also linked to remuneration. More
information on Directors' remuneration reporting (DRR)
requirements can be found on page 88, and a link to our
remuneration policy can be found in our non-financial and
sustainability statement below.
During 2022, we updated our materiality assessment, see: https://plc.
pearson.com/en-GB/purpose/our-esg-reporting, which confirmed
that the views of our external stakeholders and our key priority areas
are well aligned. The findings highlighted the importance of assessing
and developing the skills of our learners and colleagues, protecting
our users’ data, and our role in driving positive change through
climate change education.
Driving learning for everyone with our products
The natural alignment between our business strategy and the
positive impact we make through driving learning for everyone is a
key strength for Pearson. It is hugely motivational and reflected in the
selection of three of our non-financial KPIs: digital growth, consumer
engagement and product effectiveness. All three are interlinked in
driving the business and are key enablers in helping more learners,
learn more. As we increasingly connect our products to offer a
lifelong learning ecosystem, we will strengthen our ability to track and
evidence the social impact achieved by our products and services.
We therefore, foresee our metrics evolving over time.
We are excited to see the opportunities that arise for all our
stakeholders through digital growth and the intelligent application of
technology to learning. These dynamics will enable us to deliver
inclusive, vibrant, and engaging products for all types of learners,
throughout their lives. Digitisation broadens access to our products,
enables more relevant, up-to-date content (e.g., on the green
economy and social issues) and helps develop deeper engagement
with learners, see page 32.
Empowering our people to make a difference
In 2021 we appointed a new Chief Human Resources Officer, who is
spearheading our refreshed people strategy. It has three core areas:
employee engagement, investing in talent, as well as driving diversity,
equity and inclusion, all of which are reflected in our non-financial
KPIs. We are using our own learning products to develop skills
throughout our workforce and in turn, this will maximise our people’s
contribution to Pearson’s success, and accelerate innovation.
Not only is our people’s learning and development experience a
valuable showcase for the business, but it can also support employee
engagement and retention, develop a performance and purpose-led
culture of adding life to a lifetime of learning, and ultimately drive
Pearson’s own growth, see page 33.
Leading responsibly for a better planet
We are also focused on driving positive change through leading
responsibly, while limiting our own impact on the world’s scarce
resources. Our carbon footprint is relatively light, and reflects our
business model, but as responsible leaders we recognise that
we have a significant duty to reduce our carbon impact as much
as possible.
We have carbon reduction commitments in place and are
implementing actions to achieve our net zero carbon goals. The
increased digitisation of our products reduces our environmental
footprint, and we are also factoring suppliers' carbon reporting
maturity into our sourcing decisions. This ensures we work with
partners who are aligned to our Net Zero commitments to further
reduce our overall impact.
Additionally, data privacy and security are becoming more important
for all our stakeholders, and this is a key priority for Pearson as part
of our digitisation and evolution to a more consumer-facing business.
A strong governance structure
Pearson has a strong governance structure that underpins our
sustainability strategy. It is imperative we continue to evolve how we
govern sustainability matters, to ensure our structures remain fit for
purpose in this fast-moving landscape.
In 2022, we reviewed and adjusted the remit of the Reputation &
Responsibility Committee (RRC) to strengthen its focus on ESG topics.
Pearson’s other Board Committees work alongside the RRC on
several ESG topics as shown below, and we introduced cross-
Committee membership by amalgamating the Remuneration &
Reputation Committees specifically to ensure that there was a good
link between incentives and ESG. Read more about our governance
approach on page 53.
As a standing board committee, the RRC meets at least three times
per year, and discusses a wide range of topics, including:
— product efficacy
— people and culture
— reputational risks including data
— employee engagement
— ESG materiality review
— progress with Pearson’s climate transition plans
— ESG remuneration metrics
The RRC circulates its conclusions and minutes to the Board, and the
Chair is responsible for ensuring action points are followed up. In
2022, the RRC validated Pearson’s materiality review, and received a
reporting update in alignment with the evolving regulatory landscape.
Priorities for 2023 include the publication of Pearson’s climate
transition plan, in addition to the launch of various activities to
empower our people to make a difference through behavioural
learning opportunities and skill-based volunteering. For more
information please see pages 78-79.
“Our goal is to help
learners gain the
knowledge and skills they
need to advance and
thrive sustainably and
responsibly in our rapidly
changing world.”
Cinthia Nespoli,
Chief Legal Officer and Executive Leader for Sustainability
Annual report and accounts 2022 Pearson plc 31
Driving learning for
everyone with our products
How our products create a more
sustainable world
Our success as a company is dependent upon the success of our
products in enabling people to develop and learn new skills, realising
their potential through a lifetime of learning. At Pearson, we are
leveraging our business strategy and innovation capabilities to
increase access to education around the world, engage more directly
with consumers and augment our positive impact on society.
Digital product growth and the intelligent application of technology
have significant positive benefits across both environmental and
social impact areas. Group digital and digital-enabled sales in 2022
grew by 9% (2021: 9%).
From a content perspective, Pearson is harnessing the growing
demand for sustainability-led products and developed new courses
and content in 2022 to address this opportunity. We have also made
good progress in embedding accessibility in our product design and
development processes, alongside continually strengthening our
actions on editorially responsible content.
The evolution of learning
Our digital and direct-to-consumer products enable us to deliver
more inclusive, vibrant, and engaging products for all types of
learners, throughout their lives.
Pearson+ had a successful first year since it launched in 2021 and
has reduced costs for users considerably, when compared to buying
stand-alone textbooks. With its new ‘Channels’ feature it enhances
the learning experience of all learners, offering thousands of tutor
videos and practice questions bringing life to learning. Pearson+ is
also partnering with organisations that share our values such as
Headspace, together offering consumers affordable mental wellness
content at a discounted student rate.
We also want to empower learners by giving them the control and
the flexibility to fit learning into their lives. The recent acquisition of
Mondly is another example of how we are investing in personalised
learning. The integration of Mondly into Pearson+ brings the world of
language learning to Pearson+ users at just a click of a button.
Responsible and sustainable content
We have a clear role to play in creating content, products and
services that help solve the major environmental and societal issues
of our time. These will encompass formal primary, secondary and
higher education, but also, the world of work, to meet increasing
demand from consumers who are upskilling while employed to
improve their capabilities and opportunities for both themselves and
their employers.
For example, we have developed online sustainability courses for the
Smith School of Enterprise and the Environment, University of
Oxford, in partnership with Pearson. Both courses, The Future of
Sustainable Business: Enterprise and the Environment course, and
the Law and Sustainability: Tackling Global Environmental Challenges
course are eight-week courses that certify participants upon
completion. Through these courses we have already equipped 232
learners with fundamental skills in sustainability, leadership and
systems thinking. During 2023, we aim to expand our reach, and are
exploring a bespoke implementation of these courses internally.
Our new project-based experiential learning platform, Pearson's Skills
Accelerator is another great example. Starting in 2023, we will see
enterprise customers offered three courses focusing on tackling
climate change, peace-building and conflict prevention. These
courses, developed in partnership with the One Young World,
through our Workforce Skills division, will help future leaders gain the
knowledge and the know-how to solve business-critical challenges,
leading to outcomes that accelerate the impact to build a fair and
sustainable world.
In Pearson Edexcel, we are using our position as an awarding body to
co-create a new Design Education Curriculum for UK schools that will
centre on themes such as design thinking, systems thinking, creativity
and innovation. This new curriculum will require all state schools to
teach towards a to-be-designed set of qualifications that will support
the move to circularity in design and technology, and empower
learners to make more sustainable choices.
We have also launched Embedding Sustainability: A Support Guide for
BTEC Nationals. This guide will support the delivery of BTEC National
qualifications and will help schools and colleges to meet their own
sustainability targets. In addition, we have developed an internal
sustainability competency framework, which aims to inspire more
content teams and authors, and lays out what learners need to know
to bring about a more sustainable future.
Accessibility in our product and content development
We strive to incorporate accessible thinking into everything we do,
from ensuring accessibility is woven into our culture and training, to
innovating and using technology to design and deliver our products.
We have made good progress in building accessibility throughout our
product development process, including in the early stages of
planning and design. Our learning design principles (LDPs) are a
portfolio of learning science research summaries, paired with design
recommendations intended to include everyone. Over the past year,
we have refreshed our LDPs to include a specific section on how to
ensure an equitable application of our design recommendations.
These updated LDPs will be part of our product designs from 2023.
In our Higher Education Division, we are now Global Certified
Accessible™. We provide ‘born accessible’ digital learning (eBook)
options for students with disabilities, which are designed so all
learners, no matter their ability, have the same access to learning
content and materials. Accessibility training is a requirement for key
employees, who also complete courses in disability fundamentals,
basic web and document accessibility, and disability etiquette. We
have built processes and systems to ensure that we are delivering
compliant tools and content to both learners and instructors.
Our Global Content and Editorial Policy (GCEP) suite is a range of
tools and guidance to support our employees and business partners
as we improve our content standards. It includes content guidelines
on the representation and inclusion of disability, gender, ethnicity
and race and LGBT+ communities in our content, among other
guidance and tools. In 2022, approximately 70% of our identified
content business partners received an orientation to the GCEP
training, representing over 6,000 businesses and freelancers. We
provided mandatory training to over 11,000 colleagues across the
globe who are involved with our content. During 2023, we will
develop additional online and live training and embed our maturity
model and health assessment, which will allow us to track and
monitor the implementation and impact of our content standards
initiatives on our business.
Sustainability continued
32 Pearson plc Annual report and accounts 2022
Empowering our people to
make a difference
Pearson’s people are our greatest asset. As we transition to a digitally
led, consumer-facing company, our success, and our ability to make a
positive impact on the world, is highly dependent upon our
colleagues. Our goal is to be a world-class place to work. We want to
offer an inclusive, high-performing environment, where everyone can
leverage their strengths. This is crucial to our people’s engagement,
growth, and sense of belonging, and to our future success.
Following our Chief Human Resources Officer’s appointment in 2021,
we have refreshed our people strategy, with three focus areas:
1. Employee engagement: Driving better employee engagement
and high performance.
2. Investing in talent: Providing continuous learning, growth, and
progress for our people.
3. Diversity, equity, and inclusion: Driving a culture of belonging
and aiming for increasingly diverse representation throughout
the company.
Our non-financial KPIs measure how well we are delivering on our
people strategy. We also track a wide range of internal outcomes and
metrics to understand our people progress and we further
supplement these quantitative metrics with qualitative insights from
our people.
The metrics update for 2023 can be found with our financial and
non-financial KPIs on pages 18-19.
Prioritising employee engagement
throughout Pearson
Following the launch of our new purpose, vision, mission, and values
in Q1, we brought them to life for employees via a campaign inspiring
them to imagine a future of work built on a foundation of
engagement as a performance advantage. The goal was to leverage
the strengths of all our employees to deliver on our purpose and
drive company growth.
We launched a company-wide focus on engagement and high
performance as part of our refreshed people strategy, with a new
global employee engagement survey, increased manager upskilling
and a new digital employee experience platform. Our new survey
includes 12 core engagement questions from our survey partner
Gallup. It also includes questions on inclusion and coaching, which
are key areas of focus for us. Gallup’s approach to engagement is
backed by rigorous science, linked to integral performance outcomes,
and actionable at the local level. The approach is simple, has been
proven to work and provides access to global benchmarks to
measure progress. It is encouraging to see a significantly higher
number of respondents for our 2022 survey than Pulse surveys run
in previous years, and a Gallup GrandMean result of 3.96 on a
5-point scale.
The results tell us where we are now and where we can improve. Our
highest-ranking questions, compared to Gallup’s database, were: “My
manager, or someone at work, seems to care about me,” and: “My
co-workers are committed to doing quality work.” This is a great
position from which to start our conversations with one another, as it
shows our people care for each other's experiences and are
committed to doing great work together. Our opportunities to
improve include clarifying roles and demonstrating recognition, and
we also need to ensure we continue to emphasise the importance of
having regular performance conversations.
Manager development to support engagement
As our managers play a pivotal role in employee engagement, in
2022, we had a key focus on building employee engagement via
manager upskilling and reskilling. For example, for new-to-role
managers we developed a programme called iManage Foundations,
a 6-month learning experience focused on developing foundational
management and leadership skills across four critical skill areas. We
are pleased to report that 286 colleagues enrolled. Across the four
modules delivered, 80% of respondents who provided feedback said
they had learned at least one new skill and on average 86% said they
would apply the skills in their daily work.
In parallel with investing in new managers, we are also investing in
upskilling and reskilling for all existing managers. From Q4 2022, all
managers were given access to Pearson’s Managers Corner
Academy. This online resource includes solutions to support
managers with employee engagement, performance, and
development, including access to a suite of resources aligned to the
questions in the engagement survey available via Gallup Access.
Our employee resource groups (ERGs) are voluntary, employee-led
groups whose aim is to foster a diverse, inclusive and equitable
workplace culture for Pearson employees. They continue to support
leadership to champion inclusive efforts and promote collaboration
and a community between all Pearson employees. We have
restructured our nine ERGs to better align with our DE&I strategy,
address the needs of our community, and contribute to progress
throughout the organisation.
Pearson’s employee engagement network is the key feedback
mechanism between the Board and the workforce, enabling the
Board to hear directly from employees and creating additional insight
on how to enhance employee satisfaction and engagement levels. In
2023, we’ll evolve our approach to ensure an even wider range of
employee voices are heard, and to provide even more varied
opportunities for engagement with our Board members.
During 2022, we launched a new digital employee experience
platform to focus on and improve communication across all levels of
the organisation. We communicate regularly with our managers and
leaders through both interactive forums and newsletters, along with
global town halls and virtual meet-ups available to all employees.
Investing in talent
As we transform to a digitally-led, direct-to-consumer model, we are
purposefully evolving our organisational makeup and investing in
talent to drive our ongoing success. We are hiring people with digital
skills, upskilling and reskilling people to support their learning,
growth, and progress, while also taking action to retain our current
colleagues. Each of these investments is critical to fuel our
organisational evolution and ongoing business transformation.
Annual report and accounts 2022 Pearson plc 33
Turnover
Our Group staff turnover was 33% (22% voluntary/11% involuntary).
This was in line with expectations and comparable to 2021. There
were two areas of high voluntary turnover. The first area was in our
retail model businesses (Pearson VUE), which makes up 34% of
voluntary exits. VUE roles are more transient and have an expected
higher turnover rate.
The second area was geographical: Sri Lanka and the Philippines
where we saw a higher than corporate average increase in voluntary
exits in 2022. Roles in these locations are typically front-line
operational and technical specialists managing scalable, repeatable
transactions. The increased turnover reflects the demand for talent
in outsourced service locations. We are mitigating risks in this regard
by reviewing rewards and benefits in these locations and looking to
diversify the geographic locations of these roles.
Acquisition of skills
We are evolving our suite of learning and career development
solutions to fuel skills development, and we are focused on upskilling
and reskilling all our people to develop talents needed for the future
of work and to provide them with more opportunities for continuous
learning and growth.
In 2022, we sold the majority of our K-12 publishing business in
international markets, and made two significant acquisitions in Credly
and Mondly. This activity accelerated the acquisition of key underlying
skills in our employees, including: digital content development
(multimedia production, application management services and
content development); technology (software development, software
quality and cloud hosting services); and in digital sales and marketing
(channel and special market sales).
In the UK and US, where 73% of our workforce is based, we are
developing additional pathways into Pearson, especially in these
areas of high demand. As of 31 December 2022, our Pearson
Campus Ambassadors programme in Higher Education now has
146 ambassadors, our internship programmes currently have 100
interns, and we have 160 apprentices across the company. All
participants acquire professional skills by working side-by-side with
experts, and can apply for permanent jobs within Pearson.
Reskilling and upskilling
We value upskilling highly and during 2022 we used Faethm’s
proprietary AI to continue to refine our capabilities framework to
drive enterprise-wide transformation through capability building and
develop the skills needed for the future of work. The framework
currently spans business and leadership skills, with technical skills to
be added in 2023. Employees use the capabilities framework to plan
their own learning journeys to help them upskill and reskill, learn, and
grow as individuals.
In parallel with our investments in manager upskilling and reskilling,
we are evolving our solutions for all our people to upskill and, in
2022, expanded our flagship global Learning at Work Week to a
monthly series. Each month, we focus on a priority skill from the
capabilities framework, with a programme of live and on-demand,
video-based micro-learning. Last year, we covered engagement,
consumer culture and empathy, and inclusion. We feature live
sessions with external experts, Pearson authors, Pearson leaders as
teachers, and we curate learning pathways and provide team guides
to support self-directed learning.
In 2022, we also gave our people free access to more commercial
learning opportunities, including our direct-to-consumer apps
Pearson+ and Mondly, and via our pilot of digital credentials powered
by Credly. These joint offerings include Pearson eTextbooks via
VitalSource, Golden Personality Profiler, Accelerated Pathways
and Apprenticeships.
If our US-based people wish to continue formal education, we will
reimburse tuition costs for up to 18 credit hours if their education
programme is related to a job or skills needed within Pearson.
Tuitioncosts are reimbursed after pupils successfully complete a
course with a grade C or better, or equivalent mark.
In our 2022 employee engagement survey, 72% agreed or strongly
agreed they had had access to opportunities to learn and grow over
the past six months. We also asked our people what job-related skills
they wanted to develop, and we are using the findings to drive our
pipeline, e.g. for the 2023 Learning at Work series.
Building an inclusive culture with increasingly diverse
representation
Transforming learning starts with transforming ourselves, which
is why much of our work in diversity, equity and inclusion (DE&I)
is focused on what we can do within Pearson. From how we select
candidates to how we help them grow, our goal is to add more
vibrant and enriching experiences at more moments for more
people at Pearson, so we can do the same for more people on
the world.
Our DE&I approach has four parts: recruitment and promotion;
retention; inclusive culture; and social impact. In each part, we have
planned outcomes over a set time frame. Each division and
corporate function has developed plans for the four parts that reflect
its DE&I ambitions and to operationalise our organisational goals.
Our non-financial KPIs, see page 18, will also help us to build an
inclusive culture and increase diverse representation.
We lead from the top. Our business leaders and CEO champion the
link between DE&I and business performance and have made
inclusion a personal priority. Since becoming CEO, Andy Bird has
increased both gender and ethnicity representation on the executive
leadership team. We have increased female representation by 32%
(38% to 50%) with ethnicity remaining the same year-on-year. At
Board level, female and diverse representation remains at 50%
female, including our CFO, and ethnic diversity (US/UK only) has
increased from 20% to 30%. Further detail on our Diversity figures
can be found in the ESG performance section pages 224-226, in
accordance with FCA listing rules and both the Parker and the
Hampton-Alexander reviews.
The percentage of diverse employees in leadership roles, featuring in
succession planning and participating in leadership development and
mentoring programmes are key measures of our DE&I targets. In
2022, we exceeded our targets for diverse representation in
leadership development programmes and met our succession plan
objectives, with 52% women and 26% people of colour across our
succession plans (target 50% women: 20% people of colour). Evolving
a pipeline of talent takes time, but we are excited to see the
upcoming team of colleagues participating in Board mentoring,
executive coaching, the McKinsey Management Accelerator
programme and executive leadership programmes.
Our data shows females make up 59% of our workforce, but we want
to achieve parity of female representation at VP-and-above levels. We
are currently at 43%. We also want to increase diverse representation
at all career levels. Pearson is in line with the UK national average for
employing under-represented people of colour – 18%, but in the US,
we are below the national average with Pearson at 32%. We will
continue to invest in increasing recruitment of people of colour at all
career levels, and of women at senior levels, by providing specific
upskilling for managers on inclusive hiring practices and Inclusive
Partnerships by working specifically with organisations such as
People of Color in Tech, and Historically Black Colleges and
Universities (HBCU) Connect.
Also, we give full and fair consideration to all applicants and support
the continued employment of disabled persons, having regard to
their aptitudes and abilities, and making reasonable adjustments
to address individual needs. Recruitment, promotion, and training
are conducted on the basis of merit, against objective criteria
that avoid discrimination. We are also proud that‘Disability:
IN’ (https://disabilityin.org/what-we-do/disability-equality-
index/2022companies)recognised Pearson as a Best Place
to Work on its 2022 Disability Equality Index.
Sustainability continued
34 Pearson plc Annual report and accounts 2022
Skill-based volunteering to create sustainability and
social impact
We also continue to invest in our talent through our volunteering
programme. Our volunteering policy applies to full- and part-time
colleagues. All people who participate in a charitable or community
initiatives may claim up to five days (35 hours) of paid leave from
work in a calendar year, pro-rated for people working less than five
days a week.
As we enter 2023, we want to find new ways to mobilise the social
impact of our talent through volunteering, to face the challenges of
today and the future. We will evolve our volunteering policy to enable
our people to make an impact in their communities by bringing their
unique skill sets, interests, and professional development goals to
not-for-profit organisations.
We are developing a skills-based programme that will sit at the
intersection of volunteering, learning and development. The
programme will leverage the skills of our employees to create social
impact, and in turn, we will use our unique digital credentialling
capabilities to verify and recognise the application of skills through
volunteering in real-world contexts.
Reward, benefits and wellbeing
In 2022, we made financial wellness a priority. This built on the
foundations of our Global WELL initiative and was in recognition of
the challenging macro-economic conditions many countries are
facing. Changes were made to the way UK employees interact with
their retirement arrangements, giving them greater choice, clear
information on their investments and more efficient ways to save. In
the US, Roth and true-after tax features were added to the 401(k)
plan, further expanding saving options for employees.
We also continued to invest in other aspects of wellbeing: e.g. via the
introduction of Sword, a virtual physical care package for back, joint
and muscle pain that you can do from the comfort of home. It
combines the best in human care with easy-to-use technology that is
more convenient than traditional in-person physical therapy. Sword
matches you with a physical therapist who learns about you over a
video call and designs a customised programme. Employees then get
a digital therapist computer tablet and motion sensor to track
exercise progress, give feedback and help correct your form in
real-time, as well as adjusting your programme as your needs change
so employees get better, faster.
Outlook
Our priority in 2023 is to drive progress against engagement baseline
measures and our other non-financial KPIs:
— Employee engagement: by doubling down on our focus on
manager development to enable all our managers to operate as
coaches with a focus on goals, feedback, and recognition.
— Investing in talent: enhancing how we support career
development by further resourcing managers to have
conversations about progress, learning and growth. We will also
continue to test and scale the integration of our commercial
solutions (especially digital credentialling) in support of developing
the core business, leadership, and technical skills our employees
need for the future of work.
— Diversity, equity, and inclusion: by further integrating a focus on
inclusivity into how we develop our managers and leaders, and
linking increases in diverse representation to Executive reward.
“As we transform to a
digitally-led, direct-to-
consumer model, we
are purposefully
evolving our
organisational makeup and
investing in talent to drive our
ongoing success. We are acquiring
people with digital skills, upskilling
and reskilling people to support
their learning, growth, and
progress, while also taking action
to retain our skilled colleagues.
Each of these investments is critical
to fuel our organisational evolution
and ongoing business
transformation.”
Ali Bebo,
Chief Human Resource Officer
72%
of employees agreed or strongly agreed they had access to
opportunities to learn and grow over the past six months
2 significant acquisitions
(Credly and Mondly)
accelerated the acquisition of skills in digital content development,
technology, digital sales and marketing
Annual report and accounts 2022 Pearson plc 35
As one of the world’s most prominent learning companies, Pearson
has a duty to lead responsibly in all areas of its business and
operations. Our stakeholders rely on us to provide excellent
products, created with the utmost integrity to millions of individual
learners, educational institutions, governments and enterprises
around the world, whilst also looking after our own 20,400
employees to the highest possible standards see page 33.
As Pearson’s business becomes more digital and consumer-facing,
we are prioritising the safety and security of our customers’ personal
data, evolving our processes and governance to address this
significant duty of care. We must also use our position to educate
people with editorially responsible, sustainable content (see page 32),
through products created and delivered with an ever-decreasing
environmental footprint. Our ambitious carbon reduction targets
reflect our commitment to minimise Pearson’s impact on the planet
as much as possible.
In 2022, Pearson made progress against several sustainability
priorities, which are summarised below and include data privacy,
cyber security, customer safeguarding, carbon emission reductions
and responsible supply chain management and sourcing. We also
continued to contribute to local communities around the world
through our ‘investing with purpose’ initiatives, and we proudly
matched our employees’ contributions to several charities in support
of the victims of the Ukrainian conflict.
Customer data and safeguarding
Data privacy and cyber security
Pearson holds personal data on individuals worldwide, including
schoolchildren, teachers and learners in the workforce. We are
committed to the highest standards of data management and these
will naturally evolve with our business as we continue our digital
transformation.
Pearson’s Executive team has overall responsibility for data privacy
and security. Our reporting and risk management structure feeds
upwards from individual businesses to Board level.
In 2022, we built on our seven data security and privacy principles
introduced in 2021 and established clearer lines of accountability
and better reporting. This enables senior management executives
and divisional privacy owners to have greater visibility over managing
data privacy and security risks. Our clear system of escalation gives
them awareness and oversight of key areas and activities. We also
provide all colleagues with training on our updated and strengthened
data privacy and cyber security principles and processes. More detail
on the role our Board Committees play in data privacy and cyber
security, and their focus areas in 2022, is on page 82.
In 2022, several operational initiatives contributed to our
strengthened processes in data privacy and cyber security:
• we increased transparency around what happens to an
individual’s data and their choices. This helps us develop our
digital products with the confidence that customers can easily
exercise control over the use of their personal information.
In 2022, we launched a new Privacy Centre for consumers,
linked to all our products to a newly developed universal
preferences centre.
• we also strengthened our internal resources to help drive a
culture of data privacy at Pearson. Senior leaders in each of our
divisions and corporate functions have been appointed as Privacy
Owners. They are accountable for, and direct the activities of,
designated Privacy Leads who are responsible for implementing
Pearson's global privacy programme on a day-to-day basis, and
all of those involved in this effort have been trained on how to
deliver on their responsibilities under that framework.
• as the risk of cyber security breaches continues to grow, we
stepped up our engagement programmes with divisional leads
on the potential risks from digitalisation to ensure awareness and
preparedness. Several parts of our business are already certified
to international standards for information security, such as ISO
27001. More detail on our approach to cyber security risk
management, including our lines of defence, is in the Principal
risks on pages 45-50.
Safeguarding our customers against online harms
Our safeguarding programme is undergoing rapid change, driven
both internally by new product development and externally by
changes in technology and legislation. The protection of our learners
against online harms is particularly important to Pearson as the
company continues its transition from traditional ‘bricks and mortar’
schools and colleges to a more digital, direct to consumer model,
such as that delivered through our online schools, tutoring and
Pearson+ products. To ensure that our systems and processes
support a positive user experience, while reducing the risk of online
harms, we have:
• strengthened our data collection regarding
safeguarding incidents.
• established a set of 10 safeguarding standards, including around
social media, live-streaming and user-generated content.
• implemented a process for business lines to assess themselves.
• progressed our 'Safety by Design' programme to engage with
product teams to ensure safety against online harms and
compliance with standards like the UK Age-Appropriate Design
Code is embedded in our products.
Leading responsibly for a
betterplanet
Sustainability continued
36 Pearson plc Annual report and accounts 2022
Driving operational change
Operational actions
Carbon emissions awareness and environmental considerations are
progressively being embedded into most aspects of Pearson’s
operations. Seeking to align our business and investments with low
carbon, we have provided carbon data at divisional level, to enable
decision-making by senior executives with oversight of internal P&Ls.
We are also integrating key environmental criteria such as
Greenhouse Gases (GHGs) emissions into our product design and
development processes. This will help us analyse the carbon
footprint (including scope 3) of our digital products as our portfolio
continues its transition from print to online.
Employee awareness and engagement actions
Achieving our climate goals will naturally require engagement
throughout Pearson. The executive team’s commitment to our
climate agenda has been a key enabler for the implementation of our
plan going forward. But equally, employee engagement is critical to
the success of any sustainability programme. See page 33 to see how
during 2023 we aim to integrate sustainability into learning and
development activities in our people strategy.
Our journey to net zero
Pearson began its decarbonisation journey many years ago, and is
transitioning from one of the world’s largest print publishers to
becoming a digital-first organisation. In 2018, we set ambitious
carbon targets to reflect this transformation opportunity. In addition
to our approved commitment under the Science Based Targets
initiative to reduce scope 1, 2 and 3 emissions by 50% by 2030
against a 2018 baseline, we have committed to becoming net zero by
2030, a goal which is one of our Group non-financial KPIs.
We continue to make steady progress in reducing our carbon
emissions and at the end of 2022 they had reduced by 33%
compared to the 2018 baseline. In 2022, we reduced carbon
emissions by 3.3% compared to 2021, through actions such as
continuing to shift from print to digital products and rationalising our
property footprint. These reductions were achieved despite a bounce
back in operations following the pandemic and associated increased
emissions in energy, travel and transport of goods.
We present our carbon footprint and progress against our target in
two separate tables in this report:
• Our carbon footprint in the TCFD Report see page 39.
• Our ESG performance table, global emissions see page 223.
Carbon reduction and our net zero roadmap
During 2022, we conducted a detailed forecast of Pearson’s
emissions to 2030 and 2050. This confirmed that, based upon the
current business digitalisation strategy, global decarbonisation trends
and specific operational actions, Pearson is on track to reduce its
scope 1, 2 and 3 emissions by 50% against the 2018 baseline. More
than 90% of our carbon emissions are scope 3, of which c.70% are
from purchased goods and services, such as paper and IT services.
Our net zero action plan identifies the key programmes of work and
timescales needed to reach our net zero goal, focused on our supply
chain, operations and governance. Our full action plan can be viewed
at: https://plc.pearson.com/en-GB/purpose/our-esg-reporting.
Building sustainable supply chains
Paper and printing actions
Pearson’s shift from physical books to digital media continues to
accelerate. During 2022, we purchased 24,187 tonnes of paper
(2021: 29,056) and we expect the amount to continue to reduce over
the years as more of our products move online.
Nonetheless, we are reorganising our print supply chain to drive
efficiencies and are shifting to printing on demand and better
forecasting to reduce our inventory of print products. We are also
rationalising our paper suppliers to significantly increase our use of
responsibly sourced paper from the Forestry Stewardship Council
(FSC ) and the Programme for the Endorsement of Forest
Certification (PEFC) schemes, which both work for the protection of
forests and biodiversity, alongside recognised national schemes such
as the Sustainable Forestry Initiative (SFI). This year, FSC certified
paper accounted for 33% of our paper consumption; in addition to
20% PEFC certified paper, and 9% SFI certified.
Supplier engagement actions
It is paramount that we engage with our suppliers to help deliver
further change and reduction in our scope 3 emissions. Working in
partnership with other corporates, we are understanding the
decarbonisation plans of our top 50 suppliers, who account for over
20% of our total emissions. Many of our suppliers have their own
ambitious environmental plans and climate reduction targets. In
2023, we will develop tailored engagement plans for those suppliers
that need support to drive change, and from 2024, we will integrate
environmental criteria into supplier selection.
Key actions with our suppliers
— Business partners follow our Code of Conduct and Responsible
Procurement Policy, and comply with national environmental
laws and regulations.
— Our net zero strategy goes hand in hand with ethically sourcing
materials, and ultimately protecting biodiversity. Our paper
and print suppliers are integrated to the Book Chain Project
platform, which monitors and tracks actions to protect
biodiversity. It analyses the origins of tree fibres to ensure
no paper is coming from protected species, and it also tracks
the content of chemicals and components in printed materials.
Finally, the platform enables us to ensure that international
environmental, human rights and safety regulations
are followed.
— We aim to increase diverse representation of suppliers
and spend with underrepresented business owners. In 2022,
we spent £46.7 million with diverse-accredited suppliers,
representing approx. 2% of total spend. We have provided our
purchasing teams with access to two diverse supplier portals:
WEConnect and Supplier.io. The databases, taken together,
provide access to over 2 million diverse-accredited suppliers.
— For the first time in 2022, we asked our key suppliers to
participate in an EcoVadis sustainability assessment (or
equivalent). We reviewed performance across environmental
and human rights areas to ensure that they align to Pearson’s
standards. Our key suppliers performed well, with an average
score of 57.3/100 (average supplier’s score of 44.9/100). We
engaged poorly performing suppliers to implement corrective
actions, and they will be reassessed. Our educational
environmental material is available to help them progress.
— Our own sustainability performance was assessed by EcoVadis,
and we scored in the top 11% of our industry, earning a Silver
medal. We also received a B score across our CDP (formerly the
Carbon Disclosure Project) responses, which includes the areas
of climate, forest and water.
— We mapped the emissions of our top 50 suppliers assessed by
a third party, as described below.
Annual report and accounts 2022 Pearson plc 37
Strengthening governance
We describe in detail the steps we have taken to strengthen our
governance of climate change in our TCFD report see page 39. Our
Net Zero Steering Committee is responsible for implementing our
climate action plan, based on the key principle that Pearson’s
operating units have ownership of targets and include
decarbonisation as a core business objective. Work is also underway
to assess the most effective long-term investment options in
high-quality environmental projects to enable Pearson to meet its net
zero goal by 2030.
Resource use
Our digital growth is much less reliant on raw materials such as
paper, and more dependent on green energy for improving our
footprint. Our renewable energy is purchased through green energy
tariffs or renewable energy certificates (RECs) in the country of
consumption. This accounts for 99% of our electricity use.
During 2022, we have seen an increase in our water and waste data
for the year. Our total water consumption was 538,556 m3 (2021:
152,702 m3); and there were 1298t of waste generated (2021: 875t)
A bounce back in operations, and our estimations methodology are
the main drivers behind this sharp upward trend. Pearson reports
estimated water and waste in some of its properties by applying an
intensity ratio per sqm based on all actual data available. This year,
we extended the scope of sites with actual data that are included in
2022 figures.
Investing with purpose
Social bond
In 2022, we allocated the remaining £110m of the £350m education
bond we launched in June 2020 in support of Pearson Connections
Academy. Connections Academy is a tuition-free online public school
that provides a lifeline to learners who need an alternative to a
traditional ’bricks and mortar school’ and who may otherwise miss
out on a formal education. We have so far supported over 100,000
learners, with 94% of learners completing their course. The net
promoter score for Connections Academy was also up in 2022 (2022:
+67; 2021: +62), indicating how important a role it plays in students
lives. Our latest Education Bond report provides more information
and can be found on our website: https://plc.pearson.com/en-GB/
investors/debt-investors/social-bond-framework.
Investing in our global communities
Learning outcomes are closely linked to the prosperity of local
communities. Pearson continues to lend its support to people
impacted by the conflict in Ukraine, and as part of our commitment,
we provided financial and in-kind support to make a difference in the
lives of those affected by the hostilities.
Through our match-giving programme, employees rallied
behind three global charitable organisations delivering in-country
and refugee relief in Ukraine and surrounding countries: the
International Rescue Committee (IRC), World Central Kitchen, and
the International Committee of the Red Cross (ICRC). Pearson made
an initial £1 million donation, and our colleagues made over 1,400
donations to those organisations, totalling £130,000. Pearson
matched their donations, providing a further £130,000.
In addition to grant giving, our in-kind donations included providing
free access to electronic materials, for example, launching a webpage
where teachers can find information on Pearson's support for
Ukrainian refugee students by offering free materials (subject to legal
restraints). Pearson and the charity Talent Beyond Boundaries have
also partnered to offer free English language tests to refugees. Over
600 refugees have so far benefited from the partnership.
Sustainability continued
Earth Day campaign
For Earth Day 2022, we highlighted
to both our consumers and
colleagues the actions we are taking
at Pearson to reduce our own
carbon emissions, leading
responsibly for a better planet.
MSCI ESG
As of 2022, Pearson received
an MSCI ESG rating of AA.
Clean200
Among the largest 200 public
companies ranked by clean
economy revenue.
Stonewall WEI
Pearson is recognised as a
Stonewall Top 100 company
for LGBT+ inclusion. For 2022,
we ranked 19
th
.
Dow Jones
Sustainability Indices
(DJSI)
Pearson is a constituent of
the Dow Jones Sustainability
Indices (DJSI), and member of
the 2022 Sustainability
Yearbook.
Moody’s ESG Solutions
Robust performance awarded
by Moody’s ESG Solutions.
Disability: IN
Pearson was named to DE&I
Index with a 100 score in
the US.
Human Rights
Campaign (HRC)
Pearson was named to the
HRC Corporate Equality Index.
FTSE 4 Good Index
Pearson remains a
constituent of the FTSE 4
Good Index series.
Rankings and recognition
38 Pearson plc Annual report and accounts 2022
Summary
Our commitment to operate our business more sustainably is
demonstrated by our ambitious target to reduce our absolute
scope 1, 2 and 3 carbon emissions by 50% by 2030 (validated by
the Science Based Targets initiative) using a 2018 baseline, and
our goal to be net zero by 2030, with investments in carbon
removal solutions.
Below we set out our climate-related financial disclosures compliant
with the four Task Force on Climate-related Financial Disclosures
(TCFD) recommendations, and 11 recommended disclosures in the
2017 report ‘Recommendations of the Task Force on Climate-related
Financial Disclosures’, together with its subsequent annex and
implementation guidelines.
We assess climate change risk as an integral part of our risk
management process, and in 2022, we updated our assessment of
the financial impact of climate risks and opportunities under multiple
future climate change scenarios. This identified a number of physical
and transitional risks as described below, however none of the risks
identified were material or required further action beyond what the
management teams are already planning. We concluded that while
climate change was not a principal risk for Pearson for the year
ending 31 December 2022, the climate transition continues to be an
emerging risk due to its intensifying importance to all stakeholders.
In making this assessment, we considered the actions needed to
achieve our commitment to net zero by 2030, as well as the strategic
and financial impact of potential physical and transition risks. We
concluded that these did not have a material impact on the carrying
value of any assets and liabilities as at 31 December 2022, as we
explain in further detail in note 1d. to the financial statements. During
2022, we also strengthened our governance of climate change,
introducing a central steering committee and working groups to
manage and execute our climate plans and actions.
To advance our net zero action plan, please see: https://plc.pearson.
com/en-GB/purpose/our-esg-reporting. Our key priorities for 2023
are to drive further change within our supplier network, fully plan our
emissions reduction strategies, and embed the cost of carbon into
business planning decisions. We will also continue to develop
climate-related opportunities such as new content and products that
educate and inform Pearson’s employees and customers on the
threats and challenges from climate change. In 2024, we will also
publish a standalone climate transition plan in alignment with the UK
Transition Plan Taskforce.
Governance
The Board continues to have ultimate oversight of Pearson’s climate
change strategy and achievement of our targets. Sustainability forms
part of the company’s strategic non-financial KPIs, see page 18. The
Board reviews progress against these targets six times per year. Daily
responsibility is delegated to the Board’s Reputation & Responsibility
Committee (RRC). Members of the RRC include the Group Chief
Executive and three Non-Executives Directors. Our Chief Legal Officer
(the executive leader responsible for the development, monitoring
and execution of Pearson’s sustainability strategy) is a regular
attendee. Reductions in Pearson’s carbon footprint contribute to the
annual incentive plan for all eligible employees within the
organisation, as detailed on page 88.
The RRC meets three times a year to develop plans for delivering and
embedding the sustainability strategy across the Group (including the
climate strategy), monitor and track progress against plans, support
Group leadership and functions on sustainability-related matters,
and discuss recommendations for the Board. Had any significant
actions arisen as a result of our assessment of the climate risks,
these actions would have been taken for discussion and approval to
the RRC.
During the year, we established additional management committees
to communicate progress against climate-related issues and
implement our climate transition plans as follows:
— A steering group (meeting quarterly and including our Chief
Financial Officer, Chief Legal Officer and Head of Procurement)
which oversees our overall carbon reduction plan and objectives.
The outcomes of the committee are subsequently shared with
Executive Management.
— Working groups (meeting monthly) which oversee our key
drivers of carbon reductions both at a central and individual
business level, and ensure actions and change are being
implemented successfully.
The sustainability team regularly reports on the work of these
committees into the RRC. For examples of topics the RRC discussed
during 2022 and what decisions were made, please see the
governance section of this report on page 53.
Risk Management
Our organisational risk management process provides a framework
for identification and analysis of, and response to, various forms of
risk, including emerging regulatory requirements related to climate
change. Itestablishes tolerances for risk and creates processes
intended to mitigate, monitor and manage risks within these
thresholds. Climate-change-related risks are reviewed as part of
thefull-year review of the Group’s risk profile.
Climate change does not represent a principal risk for Pearson, but
we have identified the climate transition as an emerging risk.
Emerging risks are those which we believe are well mitigated in the
short term, but may represent a future opportunity or threat. The
relative significance of climate-related risks in relation to other risks
can be found on pages 40-41 of the risk management report.
During 2022, the results of the latest scenario analysis, conducted
by specialist consultancy, ERM, and described below, were discussed
at the steering group and the RRC, and shared with the Pearson
executive management team for inclusion in its long-term
strategic planning.
Strategy
Pearson’s shift from physical publishing to digital media continues to
shape our environmental footprint. During our baseline year (2018),
our physical book value chain was the largest contributor to our
carbon emissions. Since then, the key elements of book production
(paper, printing and distribution) have declined sharply and
accounted for only 19% of our carbon footprint in 2022; we expect
this trend to continue. This year, we have reduced our emissions by
33% against our 2018 baseline, while our products and services
reached more than 160 million users around the world.
Task Force on Climate-related
Financial Disclosures
Annual report and accounts 2022 Pearson plc 39
For a description of how we are driving learning for everyone with
our products please see page 32 of this report.
Amid this digital transformation, we commissioned the specialist
consultancy ERM to undertake a climate risk assessment to identify
and quantify the potential impacts of climate change risks and
opportunities on our businesses, strategy and financial planning.
Theanalysis ran across multiple time periods up to 2050, to help
us assess the speed of impact on our business model of various
scenarios, and to reflect the critical future dates for reducing
carbon emissions.
The physical risk of Pearson’s business was assessed using both the
RCP 2.6 scenario (low GHG emissions that keep the world below 2 °C
warming by 2100, aligned to current commitments under the Paris
Climate Agreement), and the RCP 7 scenario (high GHG emissions
with average warming greater than 3 °C by 2100). Six physical assets
were assessed for exposure to material physical risk. These were
chosen because they represent a sample of assets providing a range
of critical Pearson services that, if disrupted, could result in delivery
failures caused or aggravated by climate physical risks. Each physical
hazard was mapped on a materiality matrix and changes in
materiality from 2022 present day to 2050 were projected.
The analysis concluded that Pearson’s business is moderately
vulnerable to climate change from physical risks in the medium and
long term. The main areas of exposure are climate-change-driven
extreme heat and water scarcity which may affect the operations of
cloud-based data centres that play a central role in our business
strategy. Some of Pearson’s physical locations, such as testing
centres, are also moderately vulnerable to wildfires or flooding that
could impact normal business operations. However, we have
business contingency plans, including insurance, in place to reduce
our potential financial exposure to such impacts.
The transition risk of Pearson’s business was also assessed,
using four scenarios from the IEA’s World Energy Outlook 2021,
(WEO-2021). The analysis concluded that Pearson is minimally
vulnerable to transition risk in the 2030 time frame, but risk
increases for longer time horizons across all risk categories.
The main transition risks include the reputational risk associated
with the use of carbon offsets, and the increasing cost of carbon
and ethically sourced paper.
All of the above risks are largely mitigated by the opportunities also
identified in the analysis. They include the further digitisation of our
business, developing climate-related educational content and
services, and adopting more ambitious reduction plans as discussed
in pages 36-38 of this report.
Climate-related risks and opportunities
Risks/Opportunities
Scale of Risk/
Opportunity* Pearson actions
Physical risks
Facility or data centre damage due to
flooding and hurricanes
Time frame – short
Likelihood – possible
Magnitude of impact - low
• Shifting services to alternative locations or servers
• Employees working from home (although this would cause an
increase in office-based risk)
• Insurance cover
Wildfire interruptions to in-person testing Time frame – medium
Likelihood – likely
Magnitude of impact – low
• Shifting tests to alternative locations
• Rescheduling tests
• Moving to digital on-screen assessments
• Insurance cover
Water scarcity: may affect Pearson globally,
but Pearson’s consumption levels are
small overall
Time frame – medium
Likelihood – likely
Magnitude of impact – low
• Property updates
• Consumption levels remaining minimal
Increased paper cost due to adverse
weather events
Time frame – long
Likelihood – likely
Magnitude of impact – low
• Short-term pricing changes reflected in operational and
strategic plans
• Medium-term digital product/services alternatives will be available
Transition risks
Increased service charges, reflecting building
efficiency standards in the US andEU
Time frame – short
Likelihood – likely
Magnitude of impact – low
• Fixed lease agreements in the short-term
• Selection criteria well above building efficiency minimal requirements
for newly leased properties
• Property strategy including reduction of property area, leasing/
sub-leasing and service charging
• Flexible working policy
Procurement costs of
sustainably-certified paper
Time frame – medium
Likelihood – likely
Magnitude of impact – low
• Paper use reduction based on ongoing digitalisation strategy, and
availability of digital alternatives
• Improved product design and greater pricing pass-through
Increased EU ETS price burden Time frame – medium
Likelihood – possible
Magnitude of impact –
moderate**
• Digitalisation assumes a lower ETS exposure level
• Product design and pricing pass-through from pulp and paper mills
Reputational risks tied to offsetting Time frame - long
Likelihood - likely
Magnitude of impact - low
• Active plans to reduce the amount of carbon sequestration/ offsets
required: https://plc.pearson.com/en-GB/purpose/our-esg-reporting.
• Currently developing offsetting strategy centred around portfolio
of high quality activities and projects that remove carbon from
the atmosphere.
• Effective communication plans of net zero progress and
sequestration strategy
Sustainability continued
40 Pearson plc Annual report and accounts 2022
Risks/Opportunities
Scale of Risk/
Opportunity* Pearson actions
Opportunities
Continuous decarbonisation of Pearson’s
products and operations through digitisation,
energy efficiency, and flexible working policy
• Please refer to the Leading Responsibly section on pages 36-38 of
this report
Increase in consumer demand for
sustainability-related learningcontent
• Please refer to the Responsible and sustainable content section on
page 32 of this report
* Impact scales:
Time frame
Short: within 5 years
Medium: between 5 – 10 years
Long: more than 10 years
Likelihood
Possible
Likely
Magnitude of Impact
Low: below £5m
Moderate: £5m - £20m
High: £20m or above
Time frames were selected in relation to our 2030 target date.
** Due to the nature of the risk, and the degree of external variables affecting the matter, it is difficult to meaningfully quantify the risk. However, if not managed
effectively, costs associated with offsetting carbon emissions which cannot be fully reduced, may lead to decreased margins.
Metrics and targets
Our primary targets are to reduce our absolute scope 1, 2 and 3 carbon emissions by 50% by 2030 (validated by the Science Based Targets initiative)
using a 2018 baseline; and our internal goal to be net zero by 2030. We have made good progress with our targets, achieving a 33% reduction in
emissions since 2018. The Leading responsibly pillar on page 36 highlights the steps Pearson is taking to achieve our targets. Our full set of
environmental data can be found in the ESG performance tables on pages 221-226, and categories of scope 3 emissions included in our targets are
also detailed in our independent assurance statement, see https://plc.pearson.com/en-US/purpose/our-esg-reporting. Our emissions data can be
summarised as follows:
Our emissions data
tCO
2
e 2021* 2022
Scope 1 8,342 4,622
Scope 2 (location-based) 22,801 29,034
Scope 2 (market-based) 440 182
Scope 3 370,853 362,473
Total – location-based 401,995 396,128
Total – market-based 379,634 367,276
Intensity ratio – tCO
2
e/sales
(Scopes1,2market-based and 3) 110.7 95.6
* Figures have been restated to reflect acquisitions, disposals and data improvements, assured by an independent third-party, Corporate Citizenship..
Table of contents
Section Section Page Reference
Governance
Board’s oversight of climate-related risks and opportunities 66, 78-79
Management’s role in assessing and managing climate-related risks and opportunities 39
Strategy
Climate-related risks and opportunities over the short, medium and long term 36-41
Impact of climate-related risks and opportunities 36-41
Pearson’s resilience taking into consideration different climate-related scenarios 39-41
Risk management
Processes for identifying and assessing climate-related risks 30, 39-41, 43-52
Processes for managing climate-related risks 36-41, 43-52
Integration of climate-related risks into the organisation’s overall risk management 36-41, 43-52
Metrics and targets
Metrics used to assess climate-related risks and opportunities 18, 41, 221-226
Scope 1, scope 2, and scope 3, greenhouse gas (GHG) emissions 41,221-226
Performance against targets 18, 36-41, 221-226
Annual report and accounts 2022 Pearson plc 41
Non-financial and sustainability
statement
In accordance with Sections 414CA and 414CB of the Companies Act 2006, which outline requirements for non-financial reporting, the table below
signposts to content in this strategic report, relevant to the management, performance and position of the company, and the impact of our activities
in specific non-financial areas.
Non-financial matter and relevant sections of Annual Report Page/Link Reference
Business model Business model: Pages 16 & 17
Stakeholders: Pages 26 to 29
ESG-linked remuneration: Page 98
Environmental matters
Climate
Resource use
Policies: Addressed in the pages below, with full policies for Pearson Plc available at:
https://plc.pearson.com/en-GB/corporate-policies
Position and performance: Pages 30, 36-41
Risks/opportunities: Pages 36-41
KPIs: Pages 18, 221-226
Social and community matters
Driving learning for everyone with our products
Social engagement
Policies: Addressed in the pages below, with full policies for Pearson Plc available at:
https://plc.pearson.com/en-GB/corporate-policies
Position and performance: Pages 30-38
Risks/opportunities: Pages 30-38, 43-52
KPIs: Pages 18, 221-226
Employee matters
Employee engagement
Investing in talent
Diversity, equity and inclusion
Policies: Addressed in the pages below, with full policies for Pearson Plc available at:
https://plc.pearson.com/en-GB/corporate-policies
Position and performance: Pages 30-38
Risks/opportunities: Pages 30-38, 43-52
KPIs: Pages 18, 221-226
Human rights matters
Customer welfare (data privacy, security, and safeguarding)
Empowering our people to make a difference
Sustainable procurement
Policies: Addressed in the pages below, with full policies for Pearson Plc available at:
https://plc.pearson.com/en-GB/corporate-policies
Position and performance: Pages 30-38
Risks/opportunities: Pages 30-38, 43-52, 82-83
KPIs: Pages 18, 221-226
Anti-corruption and bribery matters Policies: https://plc.pearson.com/en-GB/corporate-policies
Position and performance: Page 82
Risks/opportunities: Pages 43-52, 82
KPIs: Page 226
Pearson has a wide range of policies that underpin our sustainability commitments, including:
— Pearson Code of Conduct
— Pearson Business Partners’ Code of Conduct (Partner Code)
— Responsible Procurement Policy; and our Human Rights Statement
— Anti-Bribery and Corruption (ABC) Policy; Raising Concerns and Anti-Retaliation Policy
— Pearson’s safeguarding principles (include data privacy/security)
— Global Content and Editorial Policy; Responsible Advertising Policy
The implementation of these policies are discussed throughout the report and in the prior sustainability section.
Sustainability continued
42 Pearson plc Annual report and accounts 2022
The Board is ultimately responsible for reviewing management’s assessment of the Group’s principal risks and setting the Group’s
risk appetite.
Risk management
The table below sets out the Group’s governance structure for risk management.
The internal audit
function
(Assurance)
The internal audit
function is
responsible for
providing
independent
assurance to
management and
the Audit
Committee on the
design and
effectiveness of
internal controls, to
mitigate strategic,
financial,
operational and
compliance risks.
Personnel across the company are trained in risk management to identify, assess, mitigate and escalate risks.
— Responsible for the Group’s strategy
— Approves the annual budget and long-range financial
plans
— Determines risk appetite in line with Group strategy
— Conducts targeted reviews on key risks
— Provides oversight and assurance to the Board
concerning the integrity of the company’s
procedures for identifying, assessing,
managing, and reporting on risk
— Monitors and evaluates the Group’s
compliance and risk management processes
and control programmes
— Approves the Group risk management
framework
— Approves internal audit plans
— Considers the company’s impact on society and the
communities in which Pearson operates, including
ensuring that risk management processes are in place
to manage relevant risks
Plc Board (oversight)
Audit Committee (oversight) Reputation & Responsibility Committee
(oversight)
— Prepares the risk management framework
— Maintains the Group risk register and the list of
principal risks
— Reviews risks with divisions to assess and monitor risk
exposures
— Prepares a consolidated risk view for the executive
leadership
— Provides oversight over Group risk management
activity
— Reports to the Audit Committee on risks
Group risk function (support and report)
— Financial functions, compliance, controls, legal
Risk management experts (mitigation and assurance)
— Functional leaders are supported by technical
specialists who are responsible for risks that require
corporate oversight
— Divisions are supported by expert risk management
teams that provide operational support, guidance,
policy and advice
Senior leadership (identify, assess and mitigate)
— Senior leadership within each business unit is
responsible for implementing risk mitigations
and reporting on net risk
— Risk committees within each division assess the
principal risks and implement further sub-
committees as appropriate for division-specific
exposures
Technical specialists (identify, assess and mitigate)
Executive leadership (assessment and mitigation)
— Comprises the CEO, CFO, divisional presidents and
functional heads (including finance, strategy,
technology, direct to consumer, legal and HR)
— Accountable for ensuring that risks are mitigated in line
with risk appetite
— Responsible for the execution of the Group’s strategy
— Responsible for reviewing and approving the principal
risks, mitigation plans and controls
Effective risk management is essential to executing our strategy, achieving sustainable shareholder
value, protecting our brand, and ensuring good governance.
Risk
Annual report and accounts 2022 Pearson plc 43
Risk continued
Risk oversight
Risks are managed by members of the Pearson Executive
Management team (PEM), either on a divisional basis or by function
(as set out in the changes in and accountability for principle risks
section on pages 45-50).
Risk owners conduct regular risk reviews with their leadership teams,
consulting others where appropriate, including technical experts,
either within their division or operating in one of the centres of
expertise. Risk reports are shared with key stakeholders, including
the Enterprise Risk Management team, and are discussed at PEM
team meetings.
The Audit Committee has the delegated responsibility for reviewing
the effectiveness of the Group’s procedures for the identification,
assessment, management, and reporting of risk.
Each division is expected to present an overview of its risk register to
the Audit Committee at least annually and to provide an annual deep
dive on key risks, supported by central risk team experts as required.
Deep dive sessions are also held with enterprise-wide functions such
as tax, treasury and cyber security.
The Audit Committee uses these deep dive sessions to understand
the rigour of management’s risk scanning and to challenge any
judgements being made in response to risks.
The internal audit team provides independent assurance to the Audit
Committee on the design and effectiveness of internal processes, to
mitigate strategic, financial, operational and compliance risks. Internal
audit plans are aligned to the principal risks but also consider other
key risk areas and other assurances available. Plans are agreed in
advance with the PEM team and the Audit Committee.
Risk environment
The Group operates in markets in educational content, assessments
and qualifications where it has held leading positions over several
years and where the businesses and markets have progressively
become more digital.
Factors affecting the markets in which the Group operates include a
growing number of digital learning providers, technological change,
the level of education tuition fees, potential recessions in the UK and
US, and the high level of inflation in these markets. The Group seeks
to maximise the opportunities from changing market conditions
while balancing its expansion with appropriate monitoring and
understanding of associated risks.
Our Higher Education division serves learners in the US and
internationally, and performance is dependent on enrolments, the
competitive environment, and changes in consumption. The Higher
Education division served around 18m learners in 2022; and, as
expected, continued to see learners shift to digital methods of
consumption. We saw growth in Pearson+ paid subscribers and our
Inclusive Access offer, but declines in traditional delivery methods,
particularly print and print/eText bundles.
The Group’s Assessment & Qualifications business provides secure
professional, clinical and academic examinations. VUE provides
professional tests in a VUE test centre or online through proctoring.
During 2022, VUE test volumes grew by 16%, with particularly strong
growth in IT and healthcare. US Student assessments are typically
awarded as large contracts by states and nation-states, making the
political climate an important factor in performance in this area
(quantified by Pearson under the heading accreditation risk).
Performance in Clinical Assessment benefited from good availability
of government funding in 2022.
Growth in the Group’s Virtual Learning offering is expected to come
mainly from demand for virtual schools, driven by a strong national
brand and significant scale.
The strategies for our English Language Learning and Workforce
Skills divisions anticipate significant growth. For Workforce Skills,
success in the enterprise-focused Workforce Solutions area will be
contingent on our ability to sell to enterprises and to provide
employees with a consumer-grade learning experience, backed up by
our ability to assess and verify skills. For English Language Learning,
growth is expected to come from direct-to-consumer growth with
Mondly, and through increased adoption of the Pearson Test of
English, our market leading language learning assessment.
Risk identification and monitoring
Our risk identification processes follow a dual approach. Firstly, we
take a top-down view which considers strategic risks relevant across
the whole of Pearson. Secondly, we take a bottom-up approach at a
divisional or functional level, to identify and assess a complete list of
each business units risks, with key risks highlighted in management
reporting and in each division’s long range plan.
Detailed interviews are conducted throughout the year with each
division to assist with risk assessment and management. Risks are
then ranked according to their likely impact as principal risks,
significant near-term risks, emerging risks, or other risks.
Classification as principal risks, significant near-term
risks, and emerging risks
We define our principal risks as those which could have a significant
and ongoing effect on the Group’s valuation by reducing the demand
for or profitability of its products and services. Effective management
of these risks is essential to executing our strategy, achieving
sustainable shareholder value, maintaining our reputation, and
ensuring good governance. However, they do not comprise all the
risks associated with our business, and are not set out in priority
order. Additional risks not known to management, or currently
deemed to be less material, may also have an adverse effect on our
business.
Significant near-term risks are risks which could have a significant
near-term cash impact or affect the Group’s short-term results, but
would not be expected to have a significant ongoing effect on
company valuation.
Emerging risks are risks which we believe are well mitigated in the
short term but may represent a significant future opportunity or
threat. These include company-specific risks and risks affecting the
macro economy.
Principal risks
The Board of Directors has undertaken a robust assessment of the
current risks facing Pearson, in accordance with Provision 28 of the
2018 UK Corporate Governance Code. This assessment identified the
following principal risks, as well as a number of emerging risks and
risks which while more modest could have a significant near-term
impact. For each of our principal risks, the tables below identifies:
— the change in the risk over the last 12 months
— movement and outlook for that risk
— management actions
— the link between the risk and Group strategy
— our risk tolerance
— examples of the risk
— risk ‘contagion’, i.e., the extent to which issues in one area could
increase the risk in other areas
— assessed risk ‘velocity’, i.e., an indication of the speed at which a
risk could materially impact the Group.
44 Pearson plc Annual report and accounts 2022
Accreditation risk
Description
Termination of accreditation due to policy changes or failure to maintain the accreditation of our courses and
assessments by states, countries, and professional associations, reducing their eligibility for funding or attractiveness
to learners.
Movement and outlook
The risk is at a moderate to high level, due to a desire to reduce and/or reform standardised testing in the UK,
Australia and US, as well as increased global political risk.
The outlook is for the risk to remain at a similar level for the foreseeable future.
Management actions
1. Continue to evolve and enhance security, data and governance standards to ensure the Group meets the required
standards to be an accredited provider.
2. Complementary acquisitions to support movement into formative assessment.
3. Continue to grow full-service offering, including online proctoring. This helps to ensure the Group has products
and services that can cater for customers many needs, especially in the global assessment market.
Link to strategy
Ensuring we can participate in satisfying the growing need for accreditation and certification.
Risk tolerance
Low – Pearson seeks to operate in stable, well-regulated markets with known requirements to be accredited, and then
has a low tolerance for taking risks which may jeopardise that accreditation.
Examples of risks
Political and regulatory
Risk contagion
Accreditation risks are likely to have a financial impact but have limited risk of contagion.
Risk velocity
If there were to be major long-term changes in regulation, it is likely that these would occur over a multi-year period.
Capability risk
Description
Inability to meet our contractual obligations or to transform as required by our strategy due to infrastructure or
organisational challenges.
Movement and outlook
This risk remains at a moderately high level, due to the execution risk associated with delivering the Group’s strategy
and high competition for talent, especially in the technology space.
Key initiatives during 2023 include the launch of a new integrated product in workforce, realisation of synergies with
our Mondly language learning offering, and the further development of functionality and content on Pearson+.
The risk is expected to remain at a similar elevated level for the next 12 months as key new requirements of the
strategy are implemented.
Management actions
1. Risk ratings are applied to each system and plans put in place to maintain system uptime, and recovery plans are
in place in the event of downtime to allow customers to maintain as much functionality as possible or to get back
online as soon as possible.
2. Each division conducts ongoing reviews of its key systems and implements updates and remedies where
necessary.
3. Regular patching, activity, employee training and security measures such as multi-factor authentication help to
ensure the stability and security of key Group systems.
4. The divisional structure allows decisions to be made by those closest to each market, to speed innovation and
responsiveness.
5. The Group tracks employee engagement and has a significant focus on employee learning and development to
help retain key talent. Senior management has undertaken leadership capability assessments and changes have
been made to enhance capability, including new hires and development training.
6. Acquisitions such as Credly and Mondly have been made to build the Group’s capability in key strategic areas, such
as Workforce Skills and direct-to-consumer language learning.
Link to strategy
Capability relates to the three priorities to unlock growth:
— Consumer-focused and data-led approach
— Portfolio and organisational structure
— Talent and culture
Risk tolerance
Medium – the Group aims to ensure it has the capability to deliver strategic objectives, requiring strong coordination
and planning, but without stifling innovation.
Examples of risks
Business transformation and change
Talent
IT resilience
Risk contagion
Failures in capability could result in increased reputation and responsibility risk and failures to meet customer
expectations.
Risk velocity
Failures of capability could impact within a six-month period.
Annual report and accounts 2022 Pearson plc 45
Risk continued
Competitive marketplace
Description
Significant changes in our target markets could make those markets less attractive. This could be due to
significantchanges in demand or in supply which impact the addressable market, market share and margins (e.g.,
changes inenrolments, insourcing of learning and assessment by customers, open educational resources, a shift
fromin-person to virtual learning or vice versa or innovations in areas such as generative AI).
Movement and outlook
This risk continues to be significant in our Higher Education business due to declining enrolments and competition
from non-mainstream publishers, including open educational resources. In our other divisions, the risk remains
moderately high, due to the pace of innovation and increased competition, although market growth provides some
mitigation.
The risk is expected to remain elevated for the next 12 months, due to the level of competitor activity being observed,
as well as continued investment in educational technology.
Management actions
1. The Group’s Assessment & Qualifications and Virtual Learning businesses, as service businesses, have a particular
focus on working in partnership with customers, including IP owners, to ensure that their needs are being met,
resulting in high retention rates on the long-term contracts in place.
2. The Group invests in emerging and maturing technologies to lead and respond to changes in market dynamics.
Examples include online proctoring and digital-first scoring in assessments and qualifications, and virtual reality
language learning in Mondly.
3. The Group’s strategy is to address learners wherever they choose to learn, reducing reliance on learners’ choosing
particular institutions. Direct to consumer offerings such as Mondly and Pearson+ can be accessed via
smartphone by anyone, while the developing Workforce Skills division addresses learners in the workplace. This
complements our existing businesses such as Higher Education and US Student Assessment where the Group is
introduced to learners through their college or school.
4. Competitive analysis is undertaken to monitor and respond to competitive threats, with decentralised teams able
to mobilise quickly to maximise opportunities and manage risk.
5. Subscription product launches, including Pearson+, improve the customer value proposition.
Link to strategy
We have identified three big global opportunities and associated marketplaces:
— The rise in online and digital tools for schools and education
— The workforce skills gap
— The growing need for accreditation and certification
Risk tolerance
Medium – This is a strategic risk associated with successfully selecting attractive global opportunities and seizing them.
Pearson seeks to lead the shift to digital ways of learning and consequently to maintain strong market positions.
Examples of risks
— Substitutes
— Product differentiation
— Consumer learning preferences
Risk contagion
Changes in the competitive marketplace could increase portfolio change.
Risk velocity
The changes in the global learning market over a four-year period are expected to be significant. The pace of these
changes is uncertain but could be rapid, especially given the significant disruption and innovation since the spread of
COVID-19.
46 Pearson plc Annual report and accounts 2022
Content and channel risk
Description
Failure to select content and delivery channels to conveniently deliver anticipated learning, resulting in loss of sales.
Movement and outlook
The risk remains at a moderate level. This is due to the increasing commoditisation of content, requiring continuing
development of both content and the method of delivery to be able to provide differentiated products and services.
The risk is expected to remain at a moderate level for the next 12 months, given the ongoing proliferation of methods
for learners to choose for their learning and, the funding still available for educational technology businesses.
Management actions
1. Increasing use of interactivity and multi-channel content, particularly on Pearson+, including by offering podcast
content and videos (Pearson+ Channels).
2. Continuing focus on efficacy to ensure that Pearson products and services help the learner achieve better
outcomes.
3. Actions to reduce piracy and to manage and enforce intellectual property rights.
4. Investment in acquisitions offering new methods for testing or delivering content.
Link to strategy
Managing content and channel risk helps achieve our offering of high-quality, affordable products which lead to better
access and outcomes.
Risk tolerance
Medium – This is a strategic risk and Pearson should be rewarded for successfully developing and delivering products
and services that consumers value. Some risk is accepted to ensure the consumer remains at the centre of what we
do.
Examples of risks
— Intellectual property protection
— Method of delivery
— Balance of content creation and content purchased
Risk contagion
Failure to deliver high-quality and engaging products and services may have an impact on reputation and
responsibility risks and on meeting customer expectations.
Risk velocity
Due to longer-term contracts or the time required for instructors, or consumers themselves, to learn how to use the
new products and services, the impact of changes would have some short-term impact, but is more likely to be fully
felt over the longer-term.
Customer expectations
Description
Rising end-user expectations increase the need to offer differentiated value propositions, risking margin pressure to
meet these expectations and potential loss of sales if not successful.
Movement and outlook
The risk is still at a moderate level, with an expectation from consumers of an increasingly high-quality and engaging
user experience.
The outlook is similar for the next 12 months, with expectations rising in line with other industries.
Management actions
Consumer activity is reviewed via a network of Campus Ambassadors, as well as learner surveys, net promoter scores
and external reports.
Sales teams regularly meet with faculty members, and content and editorial surveys are completed.
The group’s direct to consumer offerings of Mondly and Pearson+ provide valuable insights about usage to help keep
pace with changing customer expectations.
Our service businesses conduct regular reviews with customers to ensure that their expectations are well understood
and met and where gaps arise, steps are taken to address these concerns.
Link to strategy
Focus on direct to consumer will help to successfully meet customer expectations. Direct-to-consumer underpins our
five business divisions.
Risk tolerance
Medium – This is a strategic risk and Pearson should be rewarded for successfully developing and delivering products
and services that consumers value. Some risk is accepted to ensure the consumer remains at the centre of what we
do.
Examples of risks
— Customer experience
— Data architecture and usage
— Accessibility
Risk contagion
Failure to produce products and services meeting customer expectations could also impact reputation and
responsibility risks.
Risk velocity
Typically, one to three years, as long-term contracts run off.
Annual report and accounts 2022 Pearson plc 47
Risk continued
Portfolio change
Description
Failure to effectively execute desired or required portfolio changes to promote scale or capability and increase focus
on key divisional and geographic markets, due to either execution failures or inability to secure transactions at
appropriate valuations.
Movement and outlook
The risk has increased in the last 12 months as the Group has made key strategic acquisitions such as Faethm,
Mondly and Credly, which have been integrated within the company, and with the forthcoming acquisition of PDRI due
to complete in H1 2023.
The risk is expected to remain high in the next 12 months as these transactions are executed and the integration of
recent acquisitions continues.
Management actions
1. Investment plans included in strategic plans, aligning requirements with divisional structure.
2. An experienced Corporate Finance team to execute transactions, supported by a dedicated post-deal Operations
team who oversee the integration and ensure that the required value is achieved.
3. Pearson Ventures allows Pearson to take stakes in early funding rounds supporting growth through innovation
stages that could potentially be leveraged for the wider Group.
Link to strategy
Portfolio and organisational structure to unlock growth.
Risk tolerance
Medium – The Group seeks to balance carefully the opportunity to achieve growth through increasing capability and/
or scale with the execution risk of portfolio change.
Examples of risks
— Identification of requirements
— Achieving value on acquisitions/disposals
— Integration of acquisitions
Risk contagion
Failures in managing portfolio change could impact capability and the ability to meet customer expectations.
Risk velocity
The speed of achieving the full benefits of an acquisition will vary depending on the size and scope of the acquisition,
but typically from six months for a simple small acquisition to two years for a larger complex transaction.
48 Pearson plc Annual report and accounts 2022
Reputation & responsibility
Description
The risk of serious reputational harm through failure to meet obligations to key stakeholders. These include legal and
regulatory requirements, the possibility of serious unethical behaviour and serious breaches of customer trust.
Movement and outlook
The Group’s aim is to operate in a highly reputable and responsible manner and so we intend to maintain strong
mitigations to reputation and responsibility risks. However, numerous threats exist including from those who seek to
do harm to the Group or to its customers, including nation-state actors, organised criminal rings, and ransomware
attackers, so constant vigilance is required.
The risk is considered to be at a moderate to high level, increased since the last year end due to the general increased
proliferation of cyber security and data privacy events and the businesses increasing online presence as well as the
complexity of navigating different regional regulatory environments.
The Group has continued to implement and follow proposals made by the company’s advisers in relation to a
2018 cyber security incident in connection with its AIMSweb 1.0 software, which resulted in a settlement with
the US Securities and Exchange Commission (SEC), including an obligation to pay a civil penalty of $1 million agreed
on 16 August 2021.
Management actions
1. Dedicated risk management teams throughout the organisation monitor and respond to key risks. These teams
provide regular updates to senior management and report to the Reputation & Responsibility Committee or Audit
Committee as relevant.
2. All staff are required to undertake training on educational policy, how to identify cyber threats and data privacy,
amongst other topics.
3. The Group makes significant investments to ensure high levels of IT resilience and to ensure it has tools in place to
repel cyber threats and safeguard customer information.
4. Cyber security and data privacy are topics which are always reviewed as part of the divisional risk deep dive
exercises undertaken and reported to the Audit Committee. This work highlights any issues which have arisen and
the relative vulnerability of platforms and software.
5. Strong financial controls are in place which are monitored by the controls steering committee and compliance
teams as well as local management.
6. Reviews are undertaken after incidents and significant near misses to allow lessons to be learned and any remedial
actions put in place. Internal Audit are asked to provide assurance around remediation actions for key risks in a
timely manner.
Link to strategy
Our reputation and commitment to behaving responsibly underpin our strategy to be a trusted partner for
consumers, businesses and educators.
Risk tolerance
Low – the Group seeks to be a highly trusted consumer learning brand. Any significant failures could negatively affect
our relationship with consumers today and in the future.
Examples of risks
— Compliance with laws and regulations
— Cyber security
— Data privacy
— Safeguarding
— Test failure
— Use of third parties
Risk contagion
Significant failures in this area could increase Pearson’s capability and accreditation risks and weaken our position in
the competitive marketplace.
Risk velocity
Reputational risks could impact within a six-month period.
Annual report and accounts 2022 Pearson plc 49
Changes in and accountability for principal risks
For each of our principal risks (shown in bold), the table below lists the accountable senior executive(s) for each sub-risk. Changes in accountability
since 2021 are marked in the table:
Risks Accountability Change since 2021
Accreditation risk
Political and regulatory Chief Legal Officer and Divisional Presidents No
Capability risk
Business resilience Chief Legal Officer and Divisional Presidents Yes
Business transformation and change Divisional Presidents and Chief Executive Officer No
IT resilience Divisional Presidents and Chief Information Officer No
Safety and corporate security Chief Legal Officer and Divisional Presidents Yes
Talent Divisional Presidents and Chief Human Resources Officer No
Competitive marketplace risk
Consumerlearningpreferences Divisional Presidents No
Market pricing Divisional Presidents No
Product differentiation Divisional Presidents No
Substitutes Divisional Presidents No
Content and channel risk
Effective method of delivery (podcast, video,
test, in-person, online)
Divisional Presidents No
Intellectual property protection Chief Legal Officer and Divisional Presidents No
Products and services – effective investment
inown and third-party content
Divisional Presidents No
Balance of content creation vs content purchased Divisional Presidents No
Customer expectations risk
Customer experience Divisional Presidents No
Accessibility Divisional Presidents No
Customer experience Divisional Presidents and Chief Legal Officer No
Data architecture and usage Chief Data Officer and Divisional Presidents No
Portfolio change risk
Achieving value on acquisitions/disposals Chief Financial Officer and Chief Strategy Officer No
Identification of requirements Chief Executive Officer, Chief Financial Officer
and Chief Strategy Officer
No
Integration ofacquisitions Chief Financial Officer No
Reputation and responsibility risk
Compliance with laws and regulations Chief Legal Officer and Divisional Presidents No
Cyber security Chief Information Officer No
Safeguarding Chief Legal Officer and Divisional Presidents Yes
Test failure Assessment & Qualifications, English Language Learning and
Workforce Skills Divisional Presidents
No
Data privacy Chief Legal Officer and Divisional Presidents No
Use of third parties Chief Financial Officer and Divisional Presidents No
Risk continued
50 Pearson plc Annual report and accounts 2022
Significant near-term and emerging risks
The main near-term and emerging risks are shown in the table below, which also notes accountabilities and where the risk represents a change since
the previous year.
Risks Description Accountability
Classification and change
since 2021
Climate transition
Costs associated with offsetting carbon emissions which
cannot be fully reduced may lead to decreased margins.
Expectations around climate change commitments and
measurements change on a regular basis.
Chief Legal Officer and Divisional
Presidents
Emerging risk. No change.
COVID-19
The risk of future long-term COVID-19-related lockdowns
affecting multiple Pearson major markets appears to be
subsiding. These markets appear to have high levels of
acquired immunity and the political desire for lockdowns
has reduced. Consequently, while the risk remains it is
seen as having less potential to have a significant impact.
Chief Executive Officer Significant near-term risk. No
change.
Inflation
High global inflation risks increasing the cost of production
for Pearson, which the Group may not be able to fully
pass on.
Chief Financial Officer and
Divisional Presidents
Emerging risk. No change.
Recession
Recession in global markets could put pressure on school,
enterprise and consumer budgets, reducing demand for
our products and services. This has particular potential to
negatively impact our English Language Learning and
Workforce Skills divisions, unless disruption in the labour
market encourages more people to retrain.
Our Higher Education division has historically been
counter-cyclical due to the link between unemployment
and learning needs, although it is not known whether this
will be the case in the future.
Our Assessment & Qualifications and Virtual Learning
divisions typically benefit from long-term contracts, often
with state funding, and so are less likely to be affected in
the short term.
Chief Executive Officer New emerging risk.
Supply chain
Disruption at ports globally and challenges for suppliers
may lead to business interruption if not fully planned for
and mitigated.
Chief Financial Officer and
Divisional Presidents
Emerging risk. No change.
Tax
The outcome of State Aid decisions and a potential risk in
Brazil could lead to significant one-off costs or benefits in
the near-term.
Chief Financial Officer Significant near-term risk. No
change.
War in Ukraine
This has resulted in sanctions being imposed on Russia
by numerous countries, and as a result the Group closed
it’s Russian operations during 2022. Pearson’s operations
in Ukraine are small and so any related disruption would
be expected to have an immaterial impact on Group
sales, profits and cash. However, an escalation of the
conflict could lead to a material risk if extended beyond
those countries.
Chief Executive Officer Emerging risk. No change.
Annual report and accounts 2022 Pearson plc 51
Corporate planning process
The Board assessed the prospects of the company using the
company’s long-range plan, reviewing going concern over the period
to 30 June 2024 and viability to 31 December 2026. In 2021 a
five-year strategic plan was produced with financials, which was
revised and updated during 2022, to cover the remaining four-year
period, as the group focusses on executing its strategy. Pearson’s
strategic planning process is discussed by the Board at least annually
and represents the time over which the company can reasonably
predict market dynamics and the impact of additions to the
product portfolio.
The strategic plan takes account of a range of factors including
market conditions, the likely impact of principal risks to the Group,
product and capital investment levels, as well as available funding.
Pearson’s strategy and business model are discussed in more detail
on pages 12-17.
Going concern
Disclosures relating to the going concern process can be found in the
Director’s report on page 120.
Viability assessment approach and outputs
Base case long term plan
In considering going concern and the viability of the company, the
four-year plan was used as the base case model for assessment.
Sales, profits, and cash are forecast to grow in the base case.
Management’s financial expectations by division are shown on page
21. Management would also expect the company to remain
profitable and cash generative beyond the period of assessment.
Liquidity model
As 31 December 2022, the group had available liquidity of £1.4bn
comprising central cash balances and its undrawn $1.19bn Revolving
Credit Facility (RCF) which matures in December 2026. The RCF was
reduced to $1 billion in February 2023 and the same time the
documentation was updated to allow Pearson to request that the
facility be extended by a further year. The first of these options is
exercisable in December 2023 and the model conservatively
assumes that only seven of the group’s eight banks agree to extend
the facility to February 2027. The model also assumes that the PDRI
acquisition completes in H1 2023, and downside scenarios
conservatively assume a further capital allocation outflow of £350m.
Severe but plausible downside model
A severe but plausible model was prepared based on the base case
adjusted for the probability weighted impact of all principal risks as
well as other significant risks. The net impact of the risks modelled
was to reduce adjusted operating profit by around 30% in each year.
Under the severe but plausible downside case, the company would
maintain comfortable liquidity headroom and sufficient headroom
against covenant requirements during the period under assessment.
That is, even before modelling the mitigating effect of actions that
management would take if these downside risks were to crystalise.
Such measures could include discretionary cost cutting measures,
refinancing debt, reducing dividends, reducing the size of the
theoretical capital outflow, and reducing investment.
Reverse stress test
A reverse stress test was modelled to determine the reduction in
adjusted operating profit versus the plan that would be required to
exhaust liquidity (as this was shown to require a lower profit
reduction than would be required to breach covenants). The
consequences of exhausting liquidity would mean that the Group
would no longer be able to service its debt.
Risk assessment of prospects and viability
A reduction in adjusted operating profit of over £300m in each of the
four years of the model would be required, significantly more than
the severe but plausible model, before allowing for potential
mitigation strategies available.
Conclusion
Based on the results of these procedures, and considering the
company’s strong balance sheet, the Directors have a reasonable
expectation that Pearson will be able to continue in operation and to
meet its liabilities as they fall due over the four-year period ending 31
December 2026. Further details of the Group’s liquidity are shown in
the ‘Financial Review’ page 24.
Below are the inputs included in the severe but plausible scenario.
Accreditation Risk
— Risks associated with potential political and regulatory changes in
School Assessments
— Risks associated with potential political and regulatory changes in
Virtual Schools
— Loss of Pearson Test of English recognition in Australia
Capability Risk
— Additional costs to recruit teachers and students due to
market conditions
— Capability challenges in sales and technology reduce sales and
result in increased costs
Competitive Marketplace
— Revenue declines in Higher Education due to enrolment and
competition pressures
— Pearson Test of English declines due to lower immigration
— Competition from lower cost proctoring offerings
Content / Channel Risk
— Additional costs to ensure accessible content
— Loss of sales due to poor choice of content and/or channel
Customer Expectations
— Additional costs to provide higher than planned functionality and
level of user experience
Portfolio Change
— Failure to achieve anticipated acquisition synergies
Reputation and Responsibility
— Potential cyber and data breaches negatively impacting
reputation on an ongoing basis
— Potential safeguarding incidents negatively impacting reputation
on an ongoing basis
Recession and inflation
— Potential for increased costs and lower sales because of a weak
macro environment
Risk continued
52 Pearson plc Annual report and accounts 2022
Governance
Report
Board Governance 54
Nomination & Governance Committee report 74
Reputation & Responsibility Committee report 78
Audit Committee report 80
Directors’ remuneration report 88
Additional disclosures 120
Annual report and accounts 2022 Pearson plc 53
Chair’s Letter
Dear shareholders,
It is a pleasure to introduce our Governance Report for 2022. In my
first year as Chair, I have drawn great confidence from the disciplined
approach to governance at Pearson, and the high calibre of our
Board members. Their expertise and integrity have helped to cement
our strong financial position in 2022 and to advance our purpose: to
add life to a lifetime of learning.
Strategy and performance
The Board has been heavily engaged with the management team in
overseeing the implementation of our growth strategy, with a
particular focus on embedding operational discipline around the new
business divisions. This has helped to ‘right-size’ the business and
achieve significant efficiencies that have accelerated our margin
improvement expectations.
A highlight of 2022 was the completion of the first year of Pearson+.
With 4.8 million registered users in that full calendar year, it is an
important milestone in our journey to realise a digital ecosystem for
lifelong learning. Developing our workforce skills strategy has been
another priority for the Board in 2022. With more than 2,000
enterprise learning clients, it is the next big opportunity for Pearson
to support employers and employees through Assessment &
Qualifications, Workforce Skills, and English Language Learning.
The Board also continued to reshape and refine Pearson’s portfolio
in support of our strategy through both acquisitions and divestitures.
In 2022, we acquired consumer language learning app Mondly, a
cornerstone of our direct to consumer approach in English Language
Learning – you can read more about this acquisition and the Board’s
considerations in relation to it on page 69. Another consumer-
focused acquisition was the digital credentials platform Credly,
through which we are tapping into the vast and growing focus for
learners to be able to evidence their achievements and progress
through digital certification. It is also valued by employers to
encourage skills development in their workforces and has issued
more than 50 million credentials, with some 70,000 new joiners a
week. Additionally, the Board oversaw the sale, through a number
of transactions, of much of our K-12 publishing businesses in
international markets.
The Board was instrumental in assessing and responding to three
unsolicited takeover approaches to the company from investment
firm Apollo Global Management. After careful consideration, the
Board voted unanimously to reject the approaches as we believed
they all significantly undervalued the company. We thank you, our
shareholders, for your support in the Board’s position.
The Board continued to pay close attention to maintaining a strong
financial position, which enabled us to increase the dividend in 2022,
in line with our progressive dividend policy. We were also able to
launch a £350m share buyback programme, while remaining well
placed to pursue strategic opportunities as they arose, such as the
announcement in December of our proposed acquisition of
Personnel Decisions Research Institute (PDRI), which we look forward
to completing subject to receiving the relevant clearances.
As part of monitoring execution and performance, the Board
regularly receives a dashboard that allows Directors to monitor
progress on Pearson’s financial and strategic priorities, supported by
agreed indicators and milestones identified as key measures of
performance. While we work to embed the strategy, we will continue
to refine this dashboard to ensure it includes the right key
performance indicators (KPIs) to monitor our progress. You can read
more about those KPIs on page 18 of this annual report.
The Board’s oversight of performance and risk is underpinned
by the excellent work of our Audit Committee, which you can read
more about on pages 80-87, including a number of strategic risk
deep dives and a particular focus on data privacy and cyber security,
as well as overseeing the important matter of our external audit
transition in 2022.
Sustainability, stakeholder engagement and culture
As the world’s leading learning company, Pearson recognises its
enormous potential to make a positive impact on people and the
planet, as outlined in our environmental, social and governance (ESG)
framework, which you can learn more about on page 30. The
Reputation & Responsibility Committee has primary responsibility for
monitoring and inputting into Pearson’s sustainability strategy and
initiatives on behalf of the Board, with more on this described in the
Committee’s report starting on page 78.
Understanding the views and priorities of all our stakeholders is key
to running a successful, sustainable company that meets the needs
of learners, educators, governments and employers. You can read
more about the Board’s engagement activities in the section
Understanding our stakeholders on page 67. The Board has engaged
extensively with our larger shareholders regarding Pearson’s
proposed new Directors’ remuneration policy to be tabled to
shareholders at the 2023 AGM. More information on remuneration
and the Board’s engagement work, through the Remuneration
Committee, is included in the Directors’ remuneration report starting
on page 88.
Our Employee Engagement Network remained a valuable forum for
the Board to hear employee views in 2022, supported by our Board
members Sherry Coutu and Annette Thomas. Read more about this
engagement, and plans for evolving the Board’s engagement with the
workforce, on page 68. Promoting a diverse and inclusive workforce
environment throughout Pearson remains a Board priority and
relevant KPIs form part of the regular dashboard reviewed by the
Board. We have accelerated our progress on improving our
workforce diversity, but we also recognise there is more to be done.
Talent development and succession planning are also ongoing
themes in the work of the Board and its Committees, and the Board
runs a mentoring programme to support senior talent. The Board
has been working with Ali Bebo, Pearson’s Chief Human Resources
Officer, to assess our culture and employee engagement levels. It is
also supporting the executive management team to drive a culture of
performance and accountability throughout the organisation, which
is covered in more detail on page 65.
“A focus on strategic clarity,
operational discipline and
sustainable success for the
benefit of all stakeholders.”
54 Pearson plc Annual report and accounts 2022
Board composition, succession and evaluation
As a Board, we pride ourselves on the diverse backgrounds,
perspectives and skill sets of our Directors, whose range of expertise
includes digital and direct to consumer strategy and business
models, sustainability, education and workforce learning, and
leadership of global, complex organisations through periods of
transformation and disruption, as well as, of course, financial
acumen. I am excited to contribute my own leadership experience
from Twitter, Google and other tech businesses. You can read more
about the Board’s skills and experience on page 75.
New appointments during 2021 and 2022 significantly enhanced the
diversity of our Board, as you can see on page 59. We will continue to
monitor the Board’s composition to ensure we maintain the range of
skillsets and perspectives needed to support the company’s strategy
and complement our succession planning.
I would like to take this opportunity to thank my predecessor Sidney
Taurel, who led Pearson with distinction for six years, steering its
restructuring and digital transformation. Under his tenure, Pearson
became a more streamlined, agile and interconnected company,
and he leaves us with a strong strategy and a balance sheet primed
for growth.
Likewise, on behalf of all Directors I extend our gratitude to Linda
Lorimer, who reached nine years with the Board in 2022 but, as
explained last year, has stayed on until the 2023 AGM to support
a smooth handover to our new Board members. As Chair of the
Reputation & Responsibility Committee and a member of the
Audit Committee, Linda has been a resounding voice of wisdom
and independent judgement, supported by her insight from 40 years
serving in higher education. We send Linda our very
best wishes for the future. I am delighted that Annette Thomas
has agreed to succeed Linda as Chair of the Reputation &
Responsibility Committee.
Esther Lee joined the Board as a Non-Executive Director in early
2022, bringing significant experience through executive leadership
roles with global consumer-facing brands. Already, she has made a
strong contribution to the Board and as a member of our
Remuneration and Nomination & Governance Committees. Both
Esther and I greatly benefited from the induction processes
organised for us upon joining Pearson, which are described further
on page 70.
The Board is fully engaged in planning for future retirements, and
closely monitors the evolution of skill sets needed to drive the
company forward. More detail about the Board’s succession planning
can be found in the Nomination & Governance Committee report on
pages 74-77.
I was pleased to lead the annual Board evaluation process in 2022,
which is described on pages 71-73. This provided a wonderful
opportunity for me to obtain an overall picture of the Board’s
dynamics and views. We have a robust governance approach that will
be the bedrock of delivering our strategy. At a time of pivotal strategic
development for the company, I have worked with the Board to
assess Board and Committee cadence, to empower the Committee
Chairs to drive their agendas and to support the Board’s
opportunities to engage in rich strategy discussions, while also
ensuring a focus on operational excellence.
As part of this, we have reviewed the remit of each Committee and
how we collaborate on organisation-wide topics, such as culture and
sustainability – more detail on the Board and Committees’
collaboration on ESG oversight is set out on page 66, as part of our
explanation of how the Board is kept informed on relevant matters.
Conclusion
I hope this report explains clearly to you how Pearson is run and how
we align governance and our Board agenda with our strategic
direction. Shareholders are always welcome to put their questions or
feedback to us, either via our website (www.pearsonplc.com) or at
our AGM. Once again this year, shareholders will be able to join us
and vote at our AGM either in person or virtually. Details will be
included in the forthcoming AGM notice.
It only remains for me to thank our shareholders for their continued
support and interest in this fantastic company. It has been a privilege
to step into the role of Chair and I look forward to maintaining our
stakeholders’ confidence as we seek to capture Pearson’s enormous
growth potential as a lifelong digital partner for learners everywhere.
Omid Kordestani
Chair
Compliance with the UK Corporate
Governance Code
The principles set out in the UK Corporate Governance Code (the
‘Code’) emphasise the value of good corporate governance to
the long-term sustainable success of listed companies. The
Pearson Board is responsible for ensuring that the Group has in
place appropriate frameworks to comply with the Code’s
requirements. This governance report and the strategic report
set out how Pearson has applied the principles of the Code
throughout the year.
The Board believes that during 2022 the company was in full
compliance with all applicable principles and provisions of the
Code, save that, as described last year, Pearson is not fully
compliant with Provision 36 of the Code on the basis that the
shares awarded under the Chief Executive’s co-investment award
made in 2020 are subject to a post-vesting holding period until
31 December 2023, rather than the total vesting and holding
period of five years or more required by the Code. Further detail
is provided in the Directors’ remuneration report.
Annual report and accounts 2022 Pearson plc 55
Board of Directors
Pearson Board members bring a wide range of experience, skills and
backgrounds which complement our strategy.
All Board members have strong
leadership experience at global
businesses and institutions.
Our Board members’
biographies illustrate the
contribution each Director
makes to the Board by way of
their individual experience.
Key to Committees
A
Audit
NG
Nomination & Governance
RR
Reputation & Responsibility
R
Remuneration
Committee Chair
Current notable commitments
reflect other listed company
directorships and full-time or
executive roles.
RR
NG
Omid Kordestani
Chair
Aged 59
Omid is an international
businessman who serves on the
boards of Klarna Bank AB and Klarna
Holding AB and is a Council Member
for Balderton Capital. He was
Executive Chair of Twitter, Inc.
between October 2015 and May
2020, and a Board Member until
October 2022. From August 2014 to
August 2015, Omid served as Senior
Vice President and Chief Business
Officer at Google and previously
from May 1999 to April 2009 as
Senior Vice President of Global Sales
and Business Development. From
1995 to 1999, Omid served as Vice
President of Business Development
at Netscape Communications
Corporation. Prior to joining
Netscape Communications
Corporation, Omid held positions in
business development, product
management and marketing at The
3DO Company, Go Corporation and
Hewlett-Packard Company.
First appointed to the Board
1 March 2022
Chair since 29 April 2022
Chief Executive
Aged 59
Andy Bird, CBE
Andy has a long and distinguished
career spanning over 35 years
in the media industry, and he
is an accomplished, strategic
leader of global consumer
content businesses.
Most recently, he spent 14 years
working for The Walt Disney
Company, joining the business as
President of Walt Disney
International in 2004 before being
appointed Chair in 2008. He held this
role for a decade, during which time
he transformed the organisation
into a digital-first, direct to consumer
business, focused on serving the
diverse needs of customers around
the world. In addition, Andy worked
to establish the iconic brand in
China, through the creation of
Disney English, teaching English
language to local families through
immersive learning experiences.
Prior to Disney, Andy worked in a
number of senior positions at AOL
Time Warner, and spent the earlier
part of his career at Piccadilly
Radio, Virgin Broadcasting
Company, BSB Music Channel,
Big& Good Productions, and
Unique Broadcasting.
First appointed to the Board
1 May 2020
Chief Executive Officer since
19 October 2020
Chief Financial Officer
Aged 49
Sally Johnson
Sally joined Pearson in 2000 and has
held various finance and operations
roles across the business, both at a
corporate level and within the
divisions, including The Penguin
Group. She brings to the Board
extensive commercial and strategic
finance experience as well as
expertise in transformation,
treasury, tax, risk management,
business and financial operations,
investor relations and mergers
and acquisitions. She has held
various senior-level roles across
the business, most recently as
Deputy CFO of Pearson. Sally is a
member of the Institute of
Chartered Accountants in England
and Wales and trained at
PricewaterhouseCoopers.
She was also a Trustee for the
Pearson Pension Plan from
2012 to 2018.
Chief Financial Officer since
24 April 2020
Appointment
Skills and experience
Leading the way
56 Pearson plc Annual report and accounts 2022
RR
NG
A
RR
A
NG
R
R
Non-Executive Director
Aged 59
Sherry Coutu, CBE
Sherry is a seasoned non-executive
director with extensive plc
experience in the financial services,
technology, and education sectors
where she has held numerous senior
leadership positions, including Chair,
Senior Independent Director, and
Chief Executive Officer. Prior to her
portfolio career, Sherry founded
several technology companies and
invested in 70 companies and five
venture capital firms.
Presently, Sherry serves as the Chair
of Workfinder, a technology start-up
specialising in AI-based recruitment
services, and Raspberry Pi, a
computer company. Sherry’s
previous non-executive director
experience includes the London
Stock Exchange Group plc, DCMS,
Zoopla plc, and RM plc. She has also
served on the Advisory Boards of
LinkedIn, the National Gallery, the
Royal Society, and NESTA.
Non-Executive Director since
1 May 2019
Non-Executive Director
Aged 64
Esther Lee
Esther brings significant experience
to the Pearson Board through her
prior executive leadership roles in
developing customer strategies to
drive growth, global marketing and
branding; driving digital
transformation; and building
high-performance teams.
She has a long track record of senior
leadership roles working for global
consumer-facing brands. Most
recently, she served as Executive
Vice President – Global Chief
Marketing Officer at MetLife Inc.
Previously, Esther served as Senior
Vice President – Brand Marketing,
Advertising and Sponsorships for
AT&T, and she has served as CEO of
North America and President of
Global Brands for Euro RSCG
Worldwide. Prior to that, she served
for five years as Global Chief Creative
Officer for The Coca-Cola Company.
Esther is a Board member at
TheClorox Company where
shechairs the Nomination
&Governance Committee.
Current notable commitments
The Clorox Company
(Non- Executive Director)
Non-Executive Director since
1 February 2022
Non-Executive Director
Aged 70
Linda Lorimer
Linda is currently a Senior Advisor at
the Boston Consulting Group and
has spent almost 40 years serving
higher education. She retired from
Yale in 2016 after 34 years at the
university where she served in an
array of senior positions, including
Vice President for Global and
Strategic Initiatives. She oversaw the
development of Yale’s online
education division and the
expansion of Yale’s international
programmes and centres. During
her tenure, she was responsible for
many administrative services,
ranging from Yale’s public
communications and alumni
relations to sustainability, human
resources, and the university press.
She also served on the boards of
several public companies, including
as Presiding Director of the
McGraw-Hill companies. Linda is a
member of the Board of Yale New
Haven Hospital, where she chairs the
Nomination & Governance
committee. She also remains on
several consequential advisory
committees at Yale University.
Non-Executive Director since
1 July 2013
Non-Executive Director
Aged 56
Graeme Pitkethly
Graeme is the Chief Financial Officer
and a Board member of Unilever. He
joined Unilever in 2002 and, prior to
his appointment as the CFO, was
responsible for its UK and Ireland
business. He also held a number of
senior financial and commercial
roles within Unilever and spent the
earlier part of his career in senior
corporate finance roles in the
telecommunications industry.
Graeme served as Vice President of
Financial Planning and Vice President
of Corporate Development at FLAG
Telecom and started his career at
PricewaterhouseCoopers. Graeme is
a Vice Chair of the Task Force on
Climate-Related Financial
Disclosures, a Member of the
Strathclyde University Centre for
Sustainable Development and is a
Chartered Accountant.
Current notable commitments
Unilever plc (Chief Financial Officer)
Non-Executive Director since
1 May 2019
Appointment
Skills and experience
Annual report and accounts 2022 Pearson plc 57
Board of Directors continued
R
R
NG
RR
A
RR
A
NG
Deputy Chair and Senior
Independent Director
Aged 62
Tim Score
Tim has extensive experience of the
technology sector in both developed
and emerging markets, having
served for 13 years as CFO of ARM
Holdings plc, the world’s leading
semiconductor IP company. He is an
experienced Non-Executive Director
and was appointed as a Non-
Executive Director of Bridgepoint
Group PLC in 2021, alongside his
roles as Chair of The British Land
Company plc, a Non-Executive
Director of the Football Association,
and a Trustee of the National
Theatre. Tim has garnered extensive
financial and listed company
experience during previous and
current positions. He served on the
board of National Express Group plc
from 2005 to 2014, including time as
interim Chair and six years as SID.
Earlier in hiscareer, Tim held senior
finance roles with Rebus Group,
William Baird, LucasVarity plc and
BTR plc.
Current notable commitments
The British Land Company plc
(Chair), Bridgepoint Group PLC
(Non-Executive Director)
Non-Executive Director
since 1 January 2015
Senior Independent Director
since 30 April 2021
Deputy Chair since 29 April 2022
Non-Executive Director
Aged 57
Annette Thomas
Annette has a 25-year track record in
leading global publishing and data
analytics businesses, across
academic, educational and
consumer media verticals. Most
recently, she served as CEO of
Guardian Media Group, a position
she held until June 2021. Prior to this,
Annette was CEO of the Web of
Science Group at Clarivate Analytics,
a data, analytics and software
business focused on research and
higher education. She has also
served as CEO of Macmillan
Publishers and led the digital and
global transformation of Nature
Publishing Group.
She currently serves as Senior
Advisor to General Atlantic. Her
previous non-executive experience
includes serving as a Trustee of Yale
University, Non-Executive Director
at Clarivate Analytics (2017), and
as a Board member for Cambridge
University Press and Cambridge
Assessment (2019-2020).
She has also previously acted
as an advisor to Creative Commons
and Bain Capital.
Non-Executive Director
since 1 October 2021
Non-Executive Director
Aged 62
Lincoln Wallen
Lincoln has extensive experience in
the technology and media
industries, and is currently CTO of
Improbable, a technology start-up
supplying next-generation cloud
hosting and networking services to
the video game industry. Lincoln was
CEO of DWA Nova, a software-as-a-
service company spun out of
DreamWorks Animation Studios in
Los Angeles, a position he held until
2017. He worked at DreamWorks
Animation for nine years in a variety
of leadership roles including CTO
and Head of Animation Technology.
He was formerly CTO at Electronic
Arts Mobile, leading their entry into
the mobile gaming business
internationally. Lincoln is a
Non-Executive Director of the Smith
Institute for Industrial Mathematics
and Systems Engineering, and Varjo,
a manufacturer of augmented,
virtual and mixed reality headsets
for professionals. His early career
involved 20 years of professional IT
and mathematics research, including
as a Reader in Computer Science
at Oxford.
Current notable commitments
Improbable
(Chief Technology Officer)
Non-Executive Director
since 1 January 2016
Appointment
Skills and experience
58 Pearson plc Annual report and accounts 2022
All of the Non-Executive Directors who served during 2022 were
considered by the Board to be independent for the purposes of the UK
Corporate Governance Code (the Code). The Board reviews the
independence of each of the Non-Executive Directors annually. This
includes reviewing their external appointments and any potential
conflicts of interest, as well as assessing their individual circumstances in
order to ensure that there are no relationships or matters likely to affect
their judgement. In addition to this review, each of the Non-Executive
Directors is asked to provide confirmation of their independence on an
annual basis (as defined by the Sarbanes-Oxley Act, the New York Stock
Exchange (NYSE) listing rules and the Code).
In January 2024, Mr Score will reach nine years’ service on the Pearson
Board. Upon or in anticipation of attainment of nine years’ service by
any Non-Executive Director, the Board undertakes an assessment to
satisfy itself as to the continuing independence of that Director. The
Nomination & Governance Committee gave particular consideration to
Mr Score’s independence in March 2023 ahead of proposing to
shareholders that he be re-appointed for a further year at the
forthcoming Annual General Meeting, recognising that he will reach nine
years’ service during the coming year, if re-elected. In doing so, the
Committee assessed the degree of objective judgement and
constructive challenge demonstrated by Mr Score, and confirmed that
his skills, experience and knowledge contribute to productive Board
discussions. Accordingly, the Board is satisfied that Mr Score remains
independent, and that he continues to provide constructive challenge
and hold management to account.
This data reflects Directors in office as at 31 December 2022. To learn more about Board diversity, please see page 76. For diversity data in the format
prescribed by LR 9.8.6R(10), please see page 225.
1. Ethnicity categories are based on the UK’s Office for National Statistics classification.
Board composition
Gender
Ethnicity
1
Asian/Asian British Mixed/Multiple ethnic groups White
21 7
Female Male
5 5
Nationality Tenure
Under 3 years 3-6 years Over 6 years
2
5
3
American American/British British Canadian
3
4
2
1
In accordance with the Code, Omid Kordestani was considered to be
independent upon his appointment as Chair on 29 April 2022.
As originally described in the 2022 Notice of AGM, Linda Lorimer will be
retiring from the Board at the 2023 AGM and will not be seeking
re-election. In 2022, the Committee assessed Ms Lorimer’s
independence, having regard to, among other factors, the Financial
Reporting Council’s Guidance on Board Effectiveness, and concluded
that Ms Lorimer remained independent. In assessment of her own
independence, undertaken in February 2023 to address the
requirements of the NYSE, Sarbanes-Oxley Act, and the Code, Ms
Lorimer did not declare any matters which may cause her
independence to be questioned.
The Directors can obtain independent professional advice, at the
company’s expense, in the performance of their duties. All Directors
have access to the advice and services of the Company Secretary, whose
appointment and removal is a matter reserved for the full Board.
Independence of Directors
Annual report and accounts 2022 Pearson plc 59
These figures reflect the executive team excluding the Company Secretary. The Chief Executive and Chief Financial Officer have been excluded and are counted in the Board metrics on
page 59. For diversity data in the format prescribed by LR 9.8.6R(10), please see page 225.
1. Ethnicity categories are based on the UK’s Office for National Statistics classification.
PEM Composition
Ethnicity
1
Asian/Asian British Mixed/Multiple ethnic groups White
Other ethnic group
11
1
7
Gender
Female Male
5
5
Ali Bebo Tim Bozik Lynne Frank Gio Giovannelli
Chief Human
Resources Officer
Aged 54
Ali is a senior executive with
over 25years of experience
building culture for
transformative business
performance across multiple
industries. Prior to joining
Pearson, she was an officer
and CHRO for Hologic, Inc., a
global medical technology
company. Prior to Hologic,
she held various HR
leadership roles with the
specialty retail company,
ANN INC. Ali earned her BA in
Political Science from the
University of California,
Los Angeles.
Interim Chief Product
Officer and Co-
President, Direct to
Consumer
Aged 61
Tim has more than 30 years
of extensive leadership
experience in higher
education products and the
business of delivering them
at Pearson. Tim earned a
Bachelor’s Degree from
theUniversity of Notre
Dame and currently serves
on the Board of Directors
for the Association of
American Publishers.
Chief Marketing
Officer and Co-
President, Direct to
Consumer
Aged 56
Lynne has over 25 years of
experience in the media
industry. Previously, she has
worked in companies such as
WarnerMedia, ESPN/Disney
and Turner Broadcasting.
Lynne holds a degree
ineconomics and business,
and a certificate in corporate
board governance from the
University of California, Los
Angeles (UCLA).
President – English
Language Learning
Aged 50
Gio has over 25 years of
international business
experience, including four
CEO roles in Brazil.
Previous board roles include
BOVESPA-listed Natura and
CVC Viagens. Gio graduated
from Bocconi University,
holds an Economics PhD
andis an OPM graduate of
Harvard Business School.
Joined Pearson 13 December
2021
Appointed to the PEM
13 December 2021
Joined Pearson 18 May 1998
Appointed to the PEM
23 May 2013
Joined Pearson 16 November
2020
Appointed to the PEM
16 November 2020
Joined Pearson 1 February
2014
Appointed to the PEM
1 April 2016
Key
Internal appointment
External appointment
Tom ap Simon
President – Higher
Education and Virtual
Learning
Aged 44
Tom has 19 years of
international business and
finance experience. At
Pearson, he has led the
Virtual Schools business,
worked in finance for
theemerging markets
businesses and led M&A
activity in the US. Previously,
he worked in investment
banking at RW Baird. Tom
holds an MAin Economics
and Politics from the
University of Edinburgh.
Joined Pearson 1 December
2004
Appointed to the PEM
1 April 2021
Appointment
Skills and experience
Pearson Executive Management (PEM)
60 Pearson plc Annual report and accounts 2022
External/Internal Appointment
Internal External
6 4
Nationality
American British Italian/Brazilian
Canadian
2
2
5 1
Mike Howells Cinthia Nespoli Art Valentine Sulaekha ‘Sue’
Kolloru Barger
Marykay Wells
President – Workforce
Skills
Aged 46
Mike has more than 20 years
of international business
experience. Previously, he
has worked inthe British
diplomatic network and
the UK Foreign,
Commonwealth and
Development Office.Mike
holds a Master’s degree in
International Lawfrom the
University of Nottingham
and an Anthropology
degree fromUniversity
College London.
Chief Strategy Officer
Aged 47
Sue has more than 20 years
of global strategy and
corporate experience.
Previously, she held
engineering roles at
technology companies. Sue
holds an MBA from The
Wharton School at the
University of Pennsylvania
and a BSc in electrical
engineering from the
University of Ottawa in
Canada. She has served on
several non-profit boards
and councils focused on
diversity and STEM.
Chief Legal Officer
Aged 42
President –
Assessment &
Qualifications
Aged 58
Chief Information
Officer
Aged 60
Cinthia has over 19 years of
international legal
andcompliance experience.
Previously, she
heldleadership roles in legal
and compliance
atmultinational companies.
Cinthia was admittedto the
Brazilian bar in 2004 and
earned her law degree from
Pontifícia Universidade
Católica de Campinas as well
as a post-graduate degreein
tax law from Pontifícia
Universidade Católica de
São Paulo.
Art has more than 30 years of
leadership experience in
assessments, testing, and
technology. Prior to his 16
years at Pearson serving as a
senior leader of Pearson VUE
andasManaging Director of
Pearson Clinical Assessment,
Art worked at Promissor,
which wasacquired by
Pearson in 2006. Art earned
his MS in Mathematical
Science/Computer Science
from the University of North
Carolina Chapel Hill.
Marykay has over 30 years of
strategic planning and large,
global technology
transformation experience.
Prior to joining Pearson,
Marykay had CIO roles at
Nortel, Tekelec (acquired by
Oracle) and Extreme
Networks. Marykay holds a
BS degree in Computer
Information Science from
Clarkson University and is a
member of the organising
committee for the Accenture
Women’s Summit, Salesforce
Advisory Board, Google
Leadership Advisory, and a
member of the Gartner
Research Board.
Joined Pearson 1 December
2020
Appointed to the PEM
1 December 2020
Joined Pearson 16 May 2022
Appointed to the PEM
16 May 2022
Joined Pearson 1 February
2014
Appointed to the PEM
21 May 2020
Joined Pearson 23 January
2006
Appointed to the PEM
1 February 2022
Joined Pearson 14 July 2014
Appointed to the PEM
16 March 2022
Appointment
Skills and experience
Annual report and accounts 2022 Pearson plc 61
Division of responsibilities
The Board
The Board has established four formal Committees. The Committees focus on their own areas of
expertise, enabling the Board meetings to focus on strategy, performance, leadership and people,
governance and risk, and stakeholder engagement, thereby making the best use of the Board’s
time together as a whole. The Committee Chairs report to the full Board at each Board meeting
following their sessions, ensuring a good communication flow while retaining the ability to escalate
items to the full Board’s agenda, if appropriate.
Nomination &
Governance Committee
Reviews corporate governance
matters, including Code
compliance and Board
evaluation; considers the
appointment of new Directors,
Board experience and
diversity; and reviews Board
induction and succession
plans as well as wider
workforce engagement.
Reputation &
Responsibility
Committee
Oversees our sustainability
and ESG framework, including
progress towards our
sustainable business strategy
commitments. Works to assess
and advance Pearson’s
reputation with stakeholders,
including through the areas of
branding, culture, employee
engagement and values.
Audit Committee
Appraises our financial
management and reporting
and assesses the integrity of
our accounting procedures
and financial controls. The
Committee also oversees risk,
compliance and internal audit.
Remuneration
Committee
Determines the remuneration
and benefits of the
Executive Directors and
oversees remuneration
arrangements for the Pearson
Executive Management team,
as well as monitoring
remuneration policies for the
wider workforce.
Chair
The Chair is primarily
responsible for the leadership
of the Board and ensuring its
effectiveness. They ensure that
the Board upholds and
promotes the highest
standards of corporate
governance, setting the
Board’s agenda and
encouraging open,
constructive debate of all
agenda items for effective
decision-making. They regularly
meet the Chief Executive to
stay informed and provide
advice. They also ensure that
shareholders’ views are
communicated to the Board.
Chief Executive
The Chief Executive is
responsible for the operational
management of the business
and for the development
andimplementation of the
company’s strategy, as
agreedby the Board and
management. They are
responsible for developing
operations, proposals and
policies for approval by
the Board, they promote
Pearson’s culture and
standards, and they are
one of the key representatives
of the company to its
external stakeholders.
Deputy Chair and
Senior Independent
Director
The Deputy Chair and
SeniorIndependent Director
supports the Chair on Board
effectiveness and governance
matters. This role includes
meeting regularly with the
Chair and Chief Executive to
discuss specific issues, as
wellas being available to
shareholders generally, should
they have concerns that have
not been addressed through
the normal channels. The
Deputy Chair and Senior
Independent Director also
leads the evaluation of the
Chair on behalf of the
otherDirectors.
Company Secretary
The Company Secretary
advises on governance matters
and compliance with Board
procedures. They are
responsible, under the
direction of the Chair, for
ensuring the Board receives
accurate, clear and high-quality
information, and has adequate
time and appropriate
resources to function
effectively and efficiently.
Theyalso support the Chair
indelivering the corporate
governance agenda, and
organise director induction,
training programmes and the
Board evaluation process.
Standing Committee
A Standing Committee of the
Board is established to approve
certain operational and ordinary
course of business items such
asbanking matters, guarantees
and intra-Group transactions.
They also make routine
approvals relating to employee
share plans. Additional authority
may be delegated on an ad-hoc
basis, e.g. to approve and
conclude corporate transactions.
Pearson Executive
Management
The Pearson Executive
Management team consists
ofthe Chief Executive and their
senior direct reports. They are
the executive leadership group
for Pearson and are responsible
for delivering Pearson’s
strategyunder clearly defined
accountabilities and in line
withagreed governance
andprocesses.
Authorities and duties
The authorities and duties of
theBoard and its Committees,
as well as the roles and
responsibilities of key individuals
on the Board, are clearly set out
in writing. These documents are
reviewed and approved by the
Board on an annual basis and
are available on the company’s
website (www.pearsonplc.com).
62 Pearson plc Annual report and accounts 2022
Board activities
Board meeting focus during 2022
Strategy Performance Leadership & people Governance & risk Shareholder engagement
— Ongoing digital
transformation
— Direct to consumer
strategy
— Pearson+
performance
— Implementation of
Group strategy
— Oversight of
Four-Year Strategic
Plan and approval of
2023 annual
operating plan
— M&A pipeline and
post-acquisition
reviews, as well as
consideration,
approval and regular
updates of major
transactions
— Enterprise and
ecosystem strategic
update
— Data strategy
— 2021 preliminary results
and annual report
and accounts
— 2022 operating plan
performance, including
interim results and
trading updates
— Regular dashboard and
milestone reports
— Continuing review
of forecasts
— Final and interim
dividend proposals
— Talent review, pipeline
development and
succession planning
— Culture
— DE&I initiatives
— Employee
Engagement Network
engagement and
feedback
— Employee survey
assessments
— Purpose, vision,
mission and values
— Workforce learning
and development
— Legal and regulatory
governance compliance
— Data privacy and cyber
security matters
— Board and Committees’
effectiveness evaluation
— Regular review and
annual confirmation of
conflicts of interest
— Approval of Committees’
terms of reference
— Approval of division
of responsibilities
between Chair,
Deputy Chair and Senior
Independent Director,
and Chief Executive
— Risk management
report
— Investor relations
strategy, updates, and
share price
performance
— Shareholder issues
and voting
— AGM and related
shareholder interactions
— Feedback from Board
member meetings with
shareholders
— Major shareholders and
share register analysis
The role and business of the Board
The key responsibilities of the Board include:
— overall leadership of the company and setting the
company’s values and standards, including monitoring
culture and diversity, equity and inclusion (DE&I) initiatives
— reviewing and determining the company’s strategy,
including in relation to environmental, social and
governance (ESG) matters, in consultation with
management, assessing performance against the strategy
and overseeing management’s execution of it
— supervising major changes to the company’s corporate,
capital, management and control structures
— approval of all transactions or financial commitments in
excess of the authority limits delegated to the Chief
Executive and other executive management
— assessment of management performance, Board and
executive succession planning and talent pipeline
— effective engagement with key stakeholders
Strategic planning and decision-making
The Board spends considerable time assessing whether any
proposed action aligns with the strategy and future direction of the
business, while taking into consideration sustainability and impact on
our stakeholders. In addition, the Board regularly holds strategy
discussions, whether in relation to the specific strategies of Pearson’s
five business divisions or the vision and wider strategy of the
company as a whole, both of which enhance the Board’s decision-
making in shaping the company’s strategic and financial plans.
The Board and Committees receive timely, regular and necessary
financial, management and other information to discharge their
duties. Comprehensive papers are circulated to Board and
Committee members approximately one week in advance of each
meeting. The Board receives a regular performance dashboard and
key milestones report, together with updates from the Chief
Executive and Chief Financial Officer. In addition to meeting papers, a
library of current and historical corporate information is made
available to Directors to support the Board’s decision-making
process. For items that require significant consideration and review
in advance of a decision, such as the portfolio changes during 2022
in support of company strategy, the Board’s discussions can take
place over a number of sessions.
The Board is deeply engaged in developing and measuring the
company’s long-term strategy, performance, culture and values. We
believe that Board members provide a valuable and diverse set of
external perspectives and that robust, open debate about significant
business issues brings an additional discipline to major decisions.
Annual report and accounts 2022 Pearson plc 63
Directors’ commitments and conflicts of interest
Under the Companies Act 2006 (the ‘Act’), the Directors have a
statutory duty to avoid conflicts of interest with the company. The
company’s Articles of Association allow the Directors to authorise
conflicts of interest. The company has an established procedure to
identify actual and potential conflicts of interest, including all
directorships or other appointments to, or relationships with,
companies that are not part of the Pearson Group and which could
give rise to actual or potential conflicts of interest. Additionally, in
response to Provision 15 of the UK Corporate Governance Code,
Pearson has developed internal guidance to be taken into account
when considering changes to a Director’s commitments, or when
appointing a new Director, as well as formalising the Board approval
process for such matters.
Once notified to the company, any potential conflicts and
commitments are considered for authorisation by the Board at its
next scheduled meeting or, where necessary in the interests of
timeliness, by a committee comprising the Chair, Senior Independent
Director and Company Secretary. In particular, the Board or
committee considers the type of role, expected time commitment
and any impact this may have on the Director’s duties to Pearson, as
well as any relationships between Pearson and the external
organisation. The interested Director is not permitted to vote on, or
be counted in the quorum for, any resolution relating to their
commitments, conflict or potential conflict. The Board reviews any
authorisations granted on an annual basis.
When making new appointments in 2022, the Board considered
other demands on Directors’ time. Esther Lee’s existing commitment
as Non-Executive Director and Chair of the Nomination &
Governance Committee at The Clorox Company, a NYSE-listed
manufacturing company with a global portfolio, was considered as
part of her appointment process. The Board agreed that Esther’s
existing commitment would not have a negative impact on her ability
to contribute to Pearson.
Omid Kordestani’s existing commitments were considered as part
of his appointment process. The Board was of the opinion that
Omid’s additional notable commitment as a Board Member of
Twitter, Inc. was acceptable as there were no conflicts perceived,
and that his existing commitments would not prevent Omid from
giving the time and attention that his role as the Chair of the Pearson
Board would require.
The Board believes that the experience gained by Directors through
their other commitments brings valuable perspectives to the
Pearson Board.
The Directors recognise their duties towards the shareholders
and other stakeholders as set out in Section 172 of the Companies
Act 2006, and a continued understanding of the key issues affecting
stakeholders is an integral part of the Board’s decision-making
process. You can read more on pages 67-69 about how the Board
engages with stakeholders and takes their views into account when
making decisions.
Portfolio changes
The Board receives regular updates on portfolio and corporate
finance activities throughout the year, including regular updates on
live transactions (disposals, acquisitions and corporate joint venture
activity) and outputs of periodic portfolio reviews. These updates can
take the form of presenting key summaries of information in Board
packs, or oral updates on key matters. These discussions are typically
led by executive and divisional management, supported by the
Corporate Development team and, where necessary, external
advisers. Subsequently, once portfolio transactions have closed, the
Board is also kept informed of the integration or transition progress,
including post-acquisition reviews conducted to assess transaction
success and any learnings to be taken for future projects. In 2022,
such portfolio updates included the significant acquisitions of Credly,
and Mondly (which you can read more about on page 69) and,
subject to closing, PDRI, as well as a review of potential pipeline
opportunities and the disposal, across several transactions, of our
international courseware local publishing businesses.
Board meetings
The Board held six scheduled meetings in 2022, with discussions and
debates focusing on the ongoing implementation and execution of
the strategy, as well as other key strategic issues facing the company.
Major items covered by the Board in 2022 are shown in the table on
page 63. In addition to its scheduled meetings, the Board convenes
as necessary to consider matters of a time-sensitive nature. In 2022,
the Board also met on a number of additional occasions to consider
the unsolicited approaches by Apollo Global Management. The Board
welcomed the opportunity in 2022 to return to a fuller schedule of
in-person meetings but, following its experiences during the
pandemic, also continued to operate effectively in a virtual
environment where needed.
Reflecting on the level and quality of engagement by the Board in
2022, the Board is satisfied that each Director contributed to Board
discussions and demonstrated sufficient commitment to be able to
meet their responsibilities. As shown in the table below, each of the
Non-Executive Directors attended all scheduled Board meetings
during 2022. In addition, the Nomination & Governance Committee
confirmed in its annual assessment that each Director demonstrates
the requisite level of commitment and contribution in accordance
with Principle H and Provision 18 of the Code.
Board attendance
Directors are expected to attend all Board and Committee meetings,
but in certain exceptional circumstances, such as pre-existing
business or personal commitments, it is recognised that Directors
may be unable to attend. In these circumstances, the Directors
receive relevant papers and, where possible, will communicate any
comments and observations in advance of the meeting for raising as
appropriate during the meeting. They are updated on any
developments after the meeting by the Chair of the Board or
Committee, as appropriate.
Individuals’ attendance at Board and Committee meetings is
considered as part of the formal review of their performance. There
was a high level of attendance by the Directors at Board and
Committee meetings in 2022, as shown in the table to the right and
in the Committee reports that follow.
Scheduled meetings attended
Chair
Omid Kordestani
1
4/4
Sidney Taurel
2
3/3
Executive Directors
Andy Bird 6/6
Sally Johnson 6/6
Non-Executive Directors
Sherry Coutu 6/6
Esther Lee
3
5/5
Linda Lorimer 6/6
Graeme Pitkethly 6/6
Tim Score 6/6
Annette Thomas 6/6
Lincoln Wallen 6/6
1. Omid Kordestani joined the Board as a Non-Executive Director on 1 March 2022
and became the Chair on 29 April 2022.
2. Sidney Taurel resigned from the Board on 29 April 2022.
3. Esther Lee joined the Board on 1 February 2022.
Board activities continued
64 Pearson plc Annual report and accounts 2022
How the Board is kept informed
Talent and culture
Ensuring that we have both a talented, engaged workforce that
is focused on delivering our strategy and an inclusive organisational
culture that enables and encourages that delivery, is critical to
Pearson’s success. During the past year, the Board and executive
team have led our focus on making sure Pearson offers a culture and
environment that is inclusive and high-performing, and in which our
people can leverage their strengths. We track Group-wide progress
by our ‘Culture of engagement and inclusion’ non-financial KPI (see
page 18 for more details on our KPIs).
In early 2022, Pearson launched its new purpose, vision, mission and
values (set out on page 2), and the Board was instrumental in their
development. The adoption of our new values by our employees
is a key step in developing our culture to support our strategic vision,
particularly in driving a culture of performance. Our 2022 ‘People
of Pearson’ campaign featured diverse employees throughout
our global workforce, showing how they bring our culture and
values to life.
Recognising the global need for learning, relearning and upskilling at
the heart of our business, our Learning at Work programme provides
an all-employee opportunity to build a more inclusive learning culture
across Pearson, alongside a continued drive for high performance.
This programme is built around Pearson’s capabilities framework,
which the Board and Executive team believe closely matches the
knowledge, skills, mindset and experiences that will enable our
people to drive Pearson’s evolution. Recent modules include
engagement, being customer- and consumer-driven, and strategy,
planning and value.
The Board monitors culture and organisational health together with
its Committees, and receives regular updates from the Chief
Executive and Chief Human Resources Officer. In addition to tracking
culture as a non-financial KPI, the Board monitors other Group-wide
initiatives that underpin our culture (see table below for examples).
During 2022, the Reputation & Responsibility Committee expanded
its remit to include oversight of culture and employee engagement,
increasing the Board-level focus on these matters. The Chief Human
Resources Officer is a frequent attendee at Board meetings, as well
as a standing attendee at the Reputation & Responsibility,
Remuneration, and Nomination & Governance Committees. Her
attendance and contributions, together with the Board’s own direct
engagement with the workforce, ensure that our Directors are
attuned to our culture and employee-related considerations through
multiple lenses, including in strategic decision-making (see our case
study on page 69), and in conducting their business more broadly.
During the year, the Board and Reputation & Responsibility
Committee considered reflections and insights from the Chief
Human Resources Officer following her first few months post
appointment. Focus areas included cultural themes and principles
that will underpin successful navigation of Pearson’s next phase, and
attributes that are proven to predict performance, accelerate growth
and increase the velocity of innovation – key to instil and hone
throughout the company. The Board also has a particular focus on
the current and future leaders of Pearson, including our talent
pipeline for leadership and other pivotal roles, and we conducted our
annual deep dive into talent and succession planning in December
2022. Read more on page 75.
Read more about how we empower our people to make a difference
on page 33.
The application of our Board and governance processes ensures that our Directors receive
accurate, timely and clear information from a range of sources. This allows the Board and
Committees to monitor and provide feedback on matters of importance, as well as to make
informed decisions in the best interests of the company and its stakeholders.
Cultural indicator How it is overseen
Board level
responsibility
Employee
engagement
The Board ensures engagement through multiple channels, including the new Pearson Engagement Survey in
2022 (the results of which were discussed by the Reputation & Responsibility Committee), our Employee
Engagement Network (EEN), and town hall sessions. Read more on page 68.
RR
EEN
Code of conduct
and training
The Audit Committee is briefed on our annual Code of Conduct programme, including development of the
code, completion rates, training and certification methods. Certification of the code is mandatory and we
achieved a 100% employee completion rate in 2022. We also have mandatory training for all employees on
cyber security and data privacy, and targeted training for employees in certain roles, divisions or geographies.
A
Compliance,
including
whistleblowing
and investigations
The Chief Compliance Officer reports to the Audit Committee at every meeting on new and ongoing
investigations, including matters raised through our SpeakUp process. The Audit Committee considers the
programme’s effectiveness annually, including peer benchmarking. The Audit Committee Chair ensures the
Board has visibility of matters of note. The Board is free to request further information to support its oversight.
A
Internal audit Insights into elements impacting our culture and cultural behaviours are provided where necessary by internal
audit to the Audit Committee as part of the findings and recommendations in its reports.
A
Health and safety
(‘H&S’)
The Reputation & Responsibility Committee receives an annual H&S report, so Directors can monitor the key
strands of our H&S framework, including: oversight of how Pearson is enabled through awareness,
competency, resources and guidance to allow for agile and effective management of H&S risk, while also
receiving comfort that we have controls for compliance and assurance purposes.
RR
Remuneration
practices and
rewarding the
workforce
The Remuneration Committee monitors the wider Employee Reward framework, including incentive target
setting for group plans, fair pay analysis, Chief Executive pay ratios and alignment of Directors’ pension
contribution to the workforce. It also oversees integration of ESG measures into incentive targets. This suite
of activity provides insights into the roles that remuneration and setting performance goals play in promoting
the right behaviours, particularly in driving a culture of performance, and how incentives and rewards align
with culture.
R
Talent attraction
and retention
The Chief Human Resources Officer regularly updates the Remuneration Committee on talent considerations,
including trends on recruitment, retention and staff turnover. Talent attraction and retention plays into our
ability to execute our strategy, so it is considered in strategic discussions by the Board and executive team.
Recognising the importance of our people, Talent is a sub-category of our principal risk, Capability. Read more
about our risk management approach starting on page 43.
R
The Board has a strong interest in all areas relating to Pearson’s talent and culture, and may choose to spend additional time considering the cultural indicators shown in the table, and
others, over and above the input provided by our Committees.
Annual report and accounts 2022 Pearson plc 65
Sustainability
Pearson has a strong governance structure through which the Board and its Committees monitor and oversee the company’s ESG framework.
The company’s ESG framework includes three pillars: driving learning for everyone with our products, empowering our people to make a difference,
and leading responsibly for a better planet. These pillars represent the areas where Pearson can make the biggest positive impact and where our
responsibilities lie towards society and the environment.
The Reputation and Responsibility Committee (RRC) leads the Board’s
oversight of ESG matters.
Given the breadth of topics that feed into our sustainable business
pillars, as well as the fast moving and increasingly complex external
landscape around these matters, a review was undertaken in 2022 to
ensure the Board’s overall governance framework for ESG remained
fit for purpose. In particular, the following steps were undertaken:
— we revised the terms of reference of the RRC to reflect Pearson’s
sustainable business strategy and to acknowledge the RRC’s role
with respect to the requirements of the external ESG landscape
— we formally included employee engagement matters in the RRC’s
remit, alongside culture, with a particular emphasis on diversity
and high-performance
— we further codified the ESG duties of the other Committees,
such as the Audit Committee’s role in overseeing the
integrity and assurance of ESG data, reporting and metrics,
and the Remuneration Committee’s considerations around
incorporation of, and performance against, ESG metrics
in remuneration decisions
— in order to support alignment in approach and information
sharing across all Committees, Annette Thomas, Non-Executive
Director, was appointed to the Remuneration Committee, in
addition to her existing membership of the RRC and Nomination
& Governance Committee
— we held a dedicated session for the Remuneration Committee on
the topic of Pearson’s sustainability strategy, to ensure that it was
fully apprised of key matters in this space as it began work on the
new Directors’ remuneration policy. The session was led by the
Chief Legal Officer and VP – Sustainability, with the Chair of the
RRC, Linda Lorimer, also in attendance.
The graphic above illustrates how the Committees work together to
support the Board in overseeing sustainability at Pearson.
In addition to the specific actions noted above, during the year the
Board and its Committees discussed and monitored a variety of
other topics pertinent to Pearson’s sustainable business strategy.
These included:
— monitoring the performance of Pearson+ and considering the
next steps for its expansion, in support of our aims to extend our
digital content offering, reach and accessibility
— continued oversight of data privacy and cyber security matters by
the Audit Committee. This included monitoring management’s
implementation of actions that were recommended as part of a
review of Pearson’s privacy and security programme,
commissioned by the Board in 2021
— discussion and endorsement of talent, culture and employee
engagement initiatives, as set out on pages 65-68.
You can read more on the sustainability matters covered during 2022
throughout this Governance Report, in particular in the RRC’s report
on pages 78-79.
The Board’s ESG governance structure
Indicative ESG duties falling within remits of Board Committees
Board
Reputation &
Responsibility
Committee
Audit Committee
— Overseeing
sustainability strategy
— Overseeing matters
relating to non-financial
KPIs through the
products, people and
planet pillars
— ESG regulatory
landscape and
external reporting
Remuneration
Committee
Nomination &
Governance
Committee
— Integrity and assurance
of ESG data, reporting
and metrics
— Strategic risk
management
— Compliance elements
of ‘governance’ strand
of ESG
— Considerations relating
to incorporation of ESG
metrics within
remuneration
frameworks
— Performance against
ESG metrics to support
remuneration decisions
— Ensuring requisite
strength of ESG
expertise on Board
— Corporate governance
elements of ESG
How the Board is kept informed continued
66 Pearson plc Annual report and accounts 2022
Understanding our stakeholders
Engagement in 2022
Throughout the year, the Board ensured that it was kept informed of
stakeholder views, concerns, and commentary, through engagement,
both direct and indirect, physical and virtual. This engagement took
place through a variety of ways, including in-person and virtual
meetings, reports and presentations at Board or Committee
meetings, feedback from members of the executive management
team and other employee groups, and interactions with different
functions, teams and advisers, both inside and outside Pearson. The
use of digital technology allowed for broader engagement, helping to
ensure that stakeholders retained a voice within the Boardroom.
A key factor in any decision-making is listening to and considering the
interests of stakeholders. We have set out below examples of the key
employee and shareholder engagement activities undertaken by the
Board and by individual Directors over 2022. A detailed review of our
acquisition of Mondly, and how it relates to our stakeholders and
Pearson’s long-term success, is on page 69.
As required by the UK Corporate Governance Code, the Board
ensures Pearson engages effectively with, and encourages
participation from, its key stakeholders. The Board maintains its
oversight through a variety of direct and indirect mechanisms,
and the Reputation & Responsibility Committee monitors our
stakeholder engagement framework.
The Board recognises that stakeholder views are integral to
decision-making and setting the company’s strategy. More
information on Pearson’s key stakeholders, including the
outcomes of our engagement throughout 2022, is in the
strategic report on pages 26-29. Further information on how
the Directors discharge their duties under Section 172 of the
Companies Act 2006, is on page 29.
Shareholders
Shareholders are a key consideration in the Board’s decision-making.
As the world emerged from the pandemic, we have once more
focused on driving shareholder engagement through in-person
meetings and events, while also using digital technology to reach a
wider base of shareholders.
The Board is committed to fostering shareholder engagement by
making it easier for all types of shareholders to attend annual general
meetings (AGMs), recognising that they represent an opportunity for
shareholders to interact with the Board and share their views,
concerns, and feedback. In 2022, we held our first hybrid AGM, with
shareholders able to attend the meeting in person or virtually. The
digital technology adopted by Pearson also allowed shareholders to
vote and ask questions to the Board, both in-person and online.
We believe that the hybrid approach enables a broader cross-section
of our shareholders to participate in general meetings. Reflecting on
the positive experience of our AGM arrangements in 2022, we will
again be holding a hybrid AGM in 2023, and look forward to
welcoming our shareholders. Further details will be shared in our
notice of the 2023 AGM.
The Board ensured a continued shareholder dialogue throughout
the year. In accordance with the UK Corporate Governance Code, we
engaged with shareholders following a significant minority vote
against our Directors’ remuneration report at our 2022 AGM and
reported back to the market on the major themes discussed. The
Remuneration Committee completed a comprehensive review of
Pearson’s executive remuneration framework ahead of the renewal
of the Directors’ remuneration policy at the 2023 AGM, in line with
the normal three-year cycle in the UK. As part of this process, the
Committee engaged extensively with many of its larger shareholders
and proxy agencies, and held virtual or in-person meetings with a
significant proportion of those it approached. Further information on
the Directors’ remuneration policy, and shareholder engagement
after our 2022 AGM, is on pages 88-91.
A strong understanding of all our stakeholders and their perspectives
is integral to our strategic planning and operational delivery. Our
Board strategy sessions are informed by the views and needs of our
eight stakeholder groups: consumers, educational institutions and
educators, employers, business partners and institutions, government
and regulators, employees, shareholders, and our communities.
Shareholder engagement at a glance
Over 2022, our Chief Executive, Chief Financial Officer and
Divisional Presidents, as well our investor relations team,
participated in meetings, conferences, roadshows and events
across the world. This concluded with an intensive Q4 roadshow
with outreach to over 350 investors and conference participation
across the US, Europe and the UK.
Over
370
meetings
Over
190
institutions
with
Annual report and accounts 2022 Pearson plc 67
Understanding our stakeholders continued
Employees
The Reputation & Responsibility Committee leads on employee
engagement and its evolution on behalf of the Board. The Board
recognises that our employees are one of our most important assets
and are integral to our business and is committed to strengthening
their voice. Examples of how the Board engaged with employees in
2022 to ensure that they are listened to, supported and rewarded,
are illustrated below.
Employee Engagement Network
Our Employee Engagement Network (EEN) acted as a feedback
mechanism, enabling the Board to hear directly from employees.
Representing the voice of our employees, the EEN consisted of a
selected group of active listeners, good communicators, and solid
employee ambassadors across the company and in key geographies.
These individuals included diverse genders, ethnicity groups,
geographies, ages and tenures.
In 2022, the EEN welcomed Annette Thomas as a regular attendee
alongside Sherry Coutu, increasing Non-Executive Director
participation in the EEN.
Between November 2021 and December 2022, our second cohort of
EEN members held five meetings focused on innovation, systems
and processes, reward and recognition, structure and change, and
cross-collaboration. Each meeting was structured to ensure that any
views or feedback on key topics raised by employees could be
passed on to the Board in advance, allowing each Director to review
employee input ahead of Board meetings and consider it in their
decision-making. Following EEN meetings, the Board received an
update on any discussions that had taken place, such as the
network’s collective feedback and several themes that arose as part
of their discussion about reward and recognition.
The Board was also supportive of executive management receiving
regular feedback from the network. In many cases, this feedback
helped reaffirm the case for action in areas that were already being
improved, such as the simplification of staff onboarding and user
experience of internal systems. With the support of the network,
approval escalation for many routine requests has been removed,
reducing an administrative barrier for employees and
their managers.
Looking ahead, the Board believes there is an opportunity to evolve
its approach to employee engagement to ensure we continue to be
inclusive, authentic and representative of our diverse employee base.
The Board has endorsed a wider programme of engagement
activities with employees to be rolled out in 2023, which will
complement existing executive employee engagement and expand
opportunities for direct engagement by Non-Executive Directors. This
programme will include in-person, structured listening sessions, as
well as informal site visits at Pearson locations and virtual events.
Town halls
Throughout 2022, the Chief Executive, Chief Financial Officer and
the executive management team held town hall meetings, which
Pearson employees were invited to attend. These discussions took
place at significant points in the year, such as following key financial
results announcements.
Surveys
In 2022, we launched a new approach to engagement, including our
new Pearson engagement survey. We partnered with Gallup and
used their Q12 survey questions and supporting resources. We
collected actionable feedback at the manager level and benchmarked
ourselves against 12 item areas proven to power engagement. We
heard from over 14,000 employees - an increase in the overall
response rate compared to previous engagement surveys. The
Reputation and Responsibility Committee received a detailed update
on the survey results, including additional insights on the culture of
inclusion, coaching effectiveness, and upskilling, which were also
discussed at Board level. Further information on the outcomes of the
Pearson engagement survey is on page 33.
68 Pearson plc Annual report and accounts 2022
Our Board's decision-making in action
Acquisition of Mondly
This case study on our acquisition of Mondly, which was announced
in April 2022, illustrates how the Directors considered the various
aspects of their statutory duties in making the decisions related to
the acquisition and its implications for stakeholders. This case study
should be read in conjunction with the Directors’ duties statement on
page 29.
Mondly offers consumers high-quality learning in English and 40
other languages through its app, website, and its virtual reality and
augmented reality products. It delivers language courses for personal
and professional learning in a combination of more than 1,300
language pairs alongside enterprise solutions and an award-winning
app that helps children learn languages.
Mondly was Pearson’s first major acquisition in the English Language
Learning (ELL) division since the implementation of the new divisional
structure, and is integral to its growth plans. The Board paid
particular attention in its decision-making to assessing the strategic
rationale, integration plans, and synergies to ensure these were
robust, clear and achievable. The Board was of the view that Mondly’s
technological capability and user experience, combined with the
growing direct to consumer language learning market, could provide
an engine for future growth of the ELL division based on a successful
platform that was well-regarded in the market and had begun to
scale while maintaining profitability.
Alongside these considerations, the modularised, application-based
nature of Mondly’s products had the potential to integrate with
Pearson+. The Board understood that Mondly represented a
potential avenue to link together ELL’s assessment capability and
world-class content through a new channel, as well as noting
potential synergies across the portfolio, such as offering the
opportunity to bundle language learning with upskilling and reskilling
products through Pearson’s Workforce Skills division. The Board was
positive about how these potential synergies could play an important
role in Pearson’s continued commitment to serve the lifelong
learning needs of people around the world.
When considering this acquisition, the Board received detailed
updates from management (with input from specialists within the
business and external advisers) setting out the strategic rationale,
anticipated commercial synergies, due diligence findings, valuation
and returns analysis, stakeholder considerations, structuring
considerations, risks and detailed post-acquisition integration plans.
The Board noted how the broader Pearson organisation could
support Mondly in optimising its content for Pearson’s target
audience of lifelong learners. This was balanced against key risks,
such as the difficulty of profitably scaling a direct to consumer
proposition and the cultural and operational challenges of post-
acquisition integration. Overall, the Board considered Mondly to be
an attractive acquisition opportunity, underpinned by its
management, the skills and transformational potential of the Mondly
team, and strong market fundamentals.
Throughout the decision-making process, the Board considered how
the acquisition could accelerate the company’s strategy and how the
expertise acquired as a result of the acquisition would benefit
Pearson stakeholders, all while ensuring that the acquisition was
financially viable. The Board was mindful that this acquisition could
promote sustainable economic growth and inclusively support
learners in their language learning journey. In its decision-making, the
Board considered Pearson’s key stakeholders in the following ways.
Consumers
Our strong direct to consumer ambitions put consumers at the heart
of our strategic decisions. Mondly’s mission is to build bridges
between people and cultures by making language learning fun and
easy through technological innovation. The ambition to bring people
together sits at the core of Mondly’s work. Furthermore, it
strengthens Pearson’s commitment to its purpose of adding life to a
lifetime of learning, offering learners new experiences and powerful
ways to immerse them in a new language, including, in the long term,
through its AR and VR capabilities. As part of its decision-making, the
Board noted the broader appeal of developing transferable skills,
including foreign language fluency, which can boost employability
and success in life.
Communities
Mondly presented the opportunity to reach learners of all languages
across the world by providing a go-to solution for both adults and
children. In the Board’s view, Pearson could play an important role in
upscaling content by leveraging its existing capabilities, excellent
content, and network of customers and consumers to enhance the
Mondly offering. This could benefit learners at all stages of their
language learning journey - from beginner to advanced - using
different features to make learning fun, engaging and accessible for
users from a wide spectrum of socioeconomic circumstances and
backgrounds globally.
Employees
Pearson and Mondly’s communications and HR teams worked closely
to form an acquisition communications plan for employees and
customers. For example, Pearson employees heard directly from the
Chief Executive about how Mondly aligned with the company’s
strategy, particularly in the ELL space.
The Board viewed people and talent integration as crucial for this
acquisition, noting that it was imperative to retain Mondly employees,
and to maintain their customer-centric approach. In particular, the
Board considered various initiatives to retain the skill set of Mondly
employees, acknowledging that some of Pearson’s existing employee
base might need to pivot their skill set and approach to support the
speed and growth of Mondly and to develop into a multi language
learning business.
Considering the relatively small size of its team, the Directors were
also aware of minimising the strain of integration on Mondly. They
were keen to ensure appropriate acquisition speed and to prepare
for a multiyear gradual and disciplined approach to reach full
integration of Mondly into Pearson, while also remaining mindful of
Mondly’s obligations once part of the Pearson group.
Employers
MondlyWORKS, the language learning solution for businesses offered
by Mondly, provided the opportunity for Pearson to strengthen
Mondly’s appeal by leveraging existing content and assessment
solutions. The Directors also noted that Mondly’s solutions would be
a strong addition to Pearson’s existing language learning products for
corporate customers. The Board considered MondlyWORKS to be
capable of offering commercial synergy opportunities that would
benefit employers through sophisticated language learning content.
Shareholders
In considering the acquisition, the Board paid particular attention to,
among other factors, commercial and revenue synergies, integration
and employee retention costs, the potential financial returns on
investment and the risks involved, the structure of the transaction,
and whether the commercial terms of the acquisition were in the
interests of shareholders as a whole. The Directors agreed that the
acquisition had the potential to be transformative for the ELL division
and could gradually strengthen Pearson’s offering in the Workforce
Skills area and Pearson+, highlighting the already strong returns
profile of Mondly.
Annual report and accounts 2022 Pearson plc 69
On joining the Board, each Director completes a bespoke induction
programme that is guided by the Chair or Deputy Chair and Senior
Independent Director, supported by the Company Secretary, and
overseen by the Nomination & Governance Committee. Every
programme builds on the particular skill set, attributes, and
background of the joining Director, their interests in Board or
Committee roles, and the company’s recommendations.
In addition to background information on the company, every
induction covers a range of topics including Board procedures,
recent operational performance and strategic direction of the
company, purpose and values, key areas of the business, as well as
Directors’ duties and responsibilities. The Directors also cover various
governance-related issues and their legal obligations, including
procedures for dealing in Pearson shares.
Each induction typically includes a series of meetings with the
members of the Board, the executive management team, external
advisers and brokers, and other senior management. Directors
receive a walk-through of the business from senior executives and a
briefing on Pearson’s investor relations programme. A newly
appointed Director will have met some, if not all, fellow Board
members as part of the original search and appointment process,
but additional meetings may nevertheless occur with the same Board
members as part of a rich and thorough induction.
Inductions for Esther Lee and Omid Kordestani
Esther Lee joined the Board on 1 February 2022 and Omid
Kordestani joined as a Non-Executive Director on 1 March 2022,
subsequently becoming the Chair on 29 April 2022. As part of their
onboarding programmes, Esther and Omid received comprehensive
and engaging induction programmes that included a series of
meetings, beginning before their joining the Board and running for
several consecutive weeks.
In addition to meeting the Chair, Chief Executive and Chief Financial
Officer, Esther and Omid met with each of the executive
management team members, key representatives of our corporate
functions, and brokers. Both induction programmes also included
one-to-one meetings with each of their fellow Non-Executive
Directors and a comprehensive introduction to the activities of each
of the Board’s Committees, including their objectives and priorities.
Esther and Omid also held meetings with the company’s legal
advisers to discuss directors’ duties, corporate governance and
external reporting, among other topics.
Directors’ induction
Esther Lee
Appointed to the Board on 1
February 2022
“I welcomed the
opportunity to get to
know other Directors
in advance of my joining
the Board and to
subsequently meet the
executive management.
From governance matters
to divisional deep-dives,
my induction programme
included everything
necessary to understand
the dynamics of the
Board and how to
effectively contribute
to its discussions as a
Non-Executive Director.”
Following the initial phases of her induction, Esther was keen
to understand in greater detail our Workforce Skills division
and reviewed its competitive landscape, acquisition strategy,
market dynamics, and how each of these areas was linked to the
strategic plan. The Nomination & Governance and Remuneration
Committees, her planned contribution to which she discussed with
their respective Chairs, were of particular importance to Esther.
Ameeting with the company’s external consultants on reward
matters was subsequently arranged for Esther to learn more
about the Remuneration Committee’s priority areas and the UK
marketlandscape.
As Chair Designate, Omid held regular meetings with the Chair,
Deputy Chair Designate and Senior Independent Director, as well as
the Chief Executive. Having met the executive management team in
person and following his introductory meetings with the company’s
advisers, Omid was also invited to join the meetings of each of the
Board’s Committees. The table below illustrates the purpose of some
of the meetings that formed part of Omid’s induction programme.
Induction programme participants Meeting purpose
Chair, Deputy Chair Designate and
Senior Independent Director
Introductory meetings to cover the company’s governance structure, the Board’s priority areas and ways of
working, meeting cadence, and ongoing matters considered by the Board.
Chairs and members of the Board’s
Committees
Overview of the responsibilities and composition of the Board’s Committees, their governance, regular
attendees and advisers.
Executive Directors;
Divisional Presidents
Overview of the strategic priorities of the company and each division, key performance indicators, financial
performance and projections, and competitive landscape.
Heads of Corporate Functions Introductions with leadership team members, covering an overview of their business area(s), subject
matter expertise, organisational structure, company culture and values.
Company Secretary;
legal advisers
Induction planning, governance framework, Board and Committee matters, duties and responsibilities of a
company director, the company’s policies and procedures, and other legal and regulatory considerations.
Directors’ training
All Directors receive training on topics of importance for the company. Following takeover approaches to the company from Apollo Global
Management, the Directors received additional training on the application of The City Code on Takeovers and Mergers as well as their
responsibilities under the Market Abuse Regulation.
70 Pearson plc Annual report and accounts 2022
Board evaluation
Following an externally led review in 2020 and an internally facilitated
review in 2021, led by the Senior Independent Director, the 2022
evaluation would normally have been questionnaire-based. However,
given the recent appointment of Omid Kordestani as Chair in April
2022, it was felt that it would be beneficial for a further internally
facilitated evaluation to be conducted during 2022, which Mr
Kordestani agreed to lead.
Typical three-yearly evaluation cycle
Year Methodology
Last
undertaken
1
Questionnaire, tailored to specific needs
of the business
2018
2
Internally facilitated interviews, to be led
by the Chair, Senior Independent
Director and/or Company Secretary as
appropriate
2019,
2021,
2022
3
In-depth evaluation, externally
facilitated
2020
Approach and methodology
The 2022 evaluation was carried out by Omid Kordestani, Chair,
through a series of one-to-one conversations with each Director and
anchored in a set of questions shared with Directors in advance. The
one-to-ones were conducted in a ‘free-format’ style, to allow organic
discussions and to provide ample opportunity for Directors to raise
matters of importance.
Discussion areas included matters that are relevant to Pearson in
particular, as well as those items laid down in the Code and
associated guidance, including:
— the effectiveness of the organisation and dynamics of the Board,
including composition, competencies, diversity, leadership,
agendas, meeting cadence, quality of information provided,
governance and decision-making
— relationships between the Board and senior leaders, and
between members of the Board itself, including the remits of and
interaction among the respective Committees and with the Board
— succession planning and talent pipeline for Executive Directors
and other senior leaders
— the company’s purpose and the Board’s monitoring of
organisational culture, behaviours and employee sentiment
— articulation and implementation of strategy
— understanding of risks facing the company, including likelihood
and mitigation
— understanding of stakeholder views, products and markets
— oversight of sustainability matters, including DE&I
— concerns and areas for improvement.
The Nomination & Governance Committee reviewed the findings
from the evaluation together with the full Board at its meeting in
December 2022. The Committee will develop an action plan to
address areas for improvement and will monitor progress during
the year.
In reporting back to the Board, the Chair noted that conversations
with Board members were positive, there was much consistency in
the feedback provided by individual Directors, and there was
unanimous agreement that the Board operates effectively.
Key findings included:
— Directors are highly motivated and there is a strong diversity of
talent on the Board, with the Board as a whole considered to be
knowledgeable, respectful and fully engaged.
— Board members have relevant skills and experience, albeit the
Board recognised the importance of paying particular attention to
its composition and skill sets in light of expected departures
during 2023 and 2024 as certain Directors reach the end of their
tenure and as the company’s strategy continues to evolve. The
Board acknowledged the strength and variety of contributions
made by all, including its longest serving Directors.
— Board meetings and discussions are considered to be insightful,
with valuable and constructive conversations. The Board is
appreciative of the continued efforts by management to deliver
focused, succinct meeting papers and materials.
— The Board recognised the progress that had been made on
strategy, led by the Chief Executive and the refreshed executive
team, including the new Chief Strategy Officer. The Board is
appreciative of the in-depth conversations that have taken place
on Pearson’s strategy and vision, with the important next step
being to focus on execution.
— The Board appreciates both the openness and transparency of
the Chief Executive and the access to, and engagement with, the
executive management team.
— The Board is supportive of the evolution of the company towards
a more performance-oriented culture and looks forward to
updates from the Chief Human Resources Officer in this regard.
— The Board recognised the work led by the Chief Legal Officer
and her team in respect of Pearson’s sustainability strategies,
with guidance and oversight from the Reputation
& Responsibility Committee.
There was unanimous agreement that the Chair leads the Board in
an effective manner, fulfilling Principle F of the Code. The Directors
agreed that he demonstrates objective judgement, promotes a
culture of openness and debate, and facilitates constructive Board
relations and the effective contribution of all Non-Executive Directors.
This, in turn, supports Non-Executive Directors in fulfilling the
requirements of Principle H of the Code in providing constructive
challenge and strategic guidance, offering specialist advice and
holding management to account.
Board evaluation process
The format of the review was agreed by the Chair and
Deputy Chair & Senior Independent Director (including in
the latter’s capacity as Chair of the Nomination &
Governance Committee).
The scope of the review was finalised by the Chair with
support from the Company Secretary.
The Chair interviewed each of the Directors on a
confidential and unattributable basis.
The output of the evaluation was captured in a report to
the Board in December 2022, with the Board then
discussing the points raised by the review.
Progress on the findings of the evaluation will be
monitored by the Nomination & Governance Committee
throughout 2023.
The Board operates a three-yearly evaluation cycle which employs a
variety of methodologies to ensure the most effective results.
Annual report and accounts 2022 Pearson plc 71
Board evaluation continued
The main areas identified by the Board for particular focus during
2023 were:
— Continued focus on execution of strategy, including clarity on how
the Board can best monitor and measure the execution plan
while maintaining its distance from operational matters.
In particular, the Board identified the importance of ensuring
accountability for execution in the next phase of the
company’s transformation.
— Continued sharing of customer and marketplace insights with
the Board, which is seen as particularly important at this time as
Pearson evolves on multiple fronts.
— Ongoing focus on succession planning and talent review, both
at Board and executive level as well as more broadly, to ensure
Pearson has both the right skill set to deliver on its strategic vision
and a strong pipeline of talent to allow continued execution in
the future.
— A desire to identify and focus on the elements of sustainability
that are particularly relevant and critical for Pearson’s success.
— As Pearson continues to grow in the direct to consumer space,
an ongoing focus on the importance of the risks inherent in the
technology, cyber and online spaces, including information
security, safeguarding and reputation.
— Following a period of significant acquisition activity, a desire for
the Board to focus on post-acquisition integration and evaluation
of the performance of acquired businesses.
— Ongoing development of the Board’s roadmap for market visits
and deep dives to ensure this is aligned with Pearson’s aspirations
and international footprint.
In addition to the annual evaluation exercise, the Chair meets
regularly with the Non-Executive Directors and these sessions
include reciprocal feedback on the functioning of the Board.
Progress on findings of previous evaluation
A number of actions were taken during the year in response to findings from the 2021 Board evaluation process, as set out below. The Board has
confirmed that these items were addressed to its satisfaction, with recommendations having been put into practice or a clear action plan identified for
each to be taken forward in 2023.
Finding or focus area Response or action taken
Continued focus on execution of strategy in each
of Pearson’s five divisions, including clarity on how
the divisions work together and continued
optimisation of the more established businesses.
The Board has considered divisional execution plans as part of its strategy discussions
throughout the past year. Inter-divisional synergies also continued to be assessed and
discussed, including as part of considering acquisition opportunities. Optimisation of
established businesses was also a consideration in the Board’s strategic execution
discussions: e.g. the agreement to acquire PDRI, announced in December 2022 and
subject to completion in 2023, which augments Pearson’s offering to enterprises and US
federal job seekers.
Additionally, the Audit Committee has discussed key strategic risks with the Presidents of
each of Pearson’s five divisions over the past year as part of a suite of strategic risk deep
dives. Read more about the work of the Audit Committee on page 80.
Continued discussions on portfolio, investment
prioritisation, capital allocation and other
corporate finance matters, in support of delivery
of the strategy.
The Board discussed these topics on a regular basis, with input from divisional leadership
and Pearson’s strategy and corporate development teams, resulting in a number of
changes to the portfolio as described elsewhere in this report, including Pearson’s
acquisition of Mondly (read more about this acquisition on page 69). The Board also
determined to undertake a £350m share buyback programme to return capital to
shareholders, which was completed in December 2022 (see page 120).
Involvement in the selection of KPIs, with the Board
having visibility of supporting data to allow
evaluation of relevant metrics.
Strategic KPIs were agreed by the Board in early 2022 and incorporated into the Board’s
regular milestone and dashboard report to allow ongoing oversight and evaluation. The
Board has subsequently discussed with management the metrics and definitions
underpinning certain KPIs and the ways in which these are communicated to stakeholders.
Continued sharing of customer insights with the
Board to aid understanding of the quality of
product, content and services.
Customer feedback was shared with the Board as part of briefing sessions on
developments to the Pearson+ offering. Customer and competitor insights remain an
area of particular interest for the Board in 2023. The Reputation & Responsibility
Committee also considered the sentiment of different consumer audiences towards
the Pearson brand.
Individual evaluation
In addition to the evaluation of the Board as a whole, Executive
Directors are evaluated each year on their overall performance
against goals agreed by the Board, and in respect of strategic
measures under the company’s annual incentive plan. These goals
are linked to the key financial and strategic objectives of the
company. Progress against each of these metrics is reviewed by the
Board on a regular basis, as part of a dashboard of KPIs.
Following his appointment as Chair, Mr Kordestani intends to lead a
formal individual evaluation of each Non-Executive Director every
other year, similar to the practice adopted by the previous Chair,
Sidney Taurel, and he encourages open channels of communication
with Directors on an ongoing basis. In the Board’s opinion, these
ongoing lines of communication, combined with a Group-wide
culture which allows and encourages feedback at any time, provide
the most effective means for evaluation. In assessing the contribution
of each Non-Executive Director, the Chair, with the support of the
Nomination & Governance Committee, has confirmed that each
continues to make a significant contribution to the business and
deliberations of the Board. The Non-Executive Directors, led by the
Deputy Chair & Senior Independent Director, Tim Score, also conduct
an annual review of the Chair’s performance, with Mr Score providing
feedback from this review to the Chair.
Committee evaluation
All Committees undertake an annual evaluation process to review
their performance and effectiveness. For 2022, the Committee
evaluation process was facilitated internally by the Secretary of each
Committee through use of a tailored questionnaire, except for the
Nomination & Governance Committee, the evaluation of which
formed part of the broader Board evaluation process. The findings
from the Committee evaluation process were considered at the next
applicable meeting. Read more in the Committee reports on the
pages that follow.
72 Pearson plc Annual report and accounts 2022
Finding or focus area Response or action taken
Ongoing focus on succession planning and talent
management, at both senior levels and more
broadly, to ensure Pearson has the right skill set to
execute its strategy.
Ali Bebo was appointed as Chief Human Resources Officer in late 2021 and worked with
management throughout 2022 in relation to the organisational design, particularly at
senior levels, and talent management. This was discussed in detail by the Board at its
meeting in December 2022.
New appointments at both Board and Executive level in 2022, as described elsewhere in
this report, have brought valuable additional skills and experience to the company’s
leadership team. Read more about the Executive Management team on page 60.
Refinement of long-range planning in light of the
new strategy and business structure.
Following the appointment of new Chief Strategy Officer, Sulaekha (Sue) Kolloru Barger, in
May 2022, the Board has continued its oversight of substantial strategic planning and
initiatives. In particular, work has been undertaken to refine Pearson’s strategic planning
cadence in alignment with the annual budget cycle.
Ensure work to refresh the risk management
framework continues, particularly given the
increasing importance of information security, data
management and privacy, and cyber risks.
Divisional strategic risk deep dives at the Audit Committee have been well received by
Directors and are proving beneficial for management in developing new ways of thinking
about risk.
Cyber and data-related risks continue to be key topics arising across the work of the Audit
Committee, and the addition of the Chief Information Officer as a regular Audit Committee
meeting attendee will enhance oversight and monitoring of these areas.
Read more about our approach to risk on page 43 and the work of the Audit Committee on
page 80.
Continue to evolve ways of monitoring the culture
and behaviours throughout the organisation, as
well as overseeing the implementation of
Pearson’s new purpose, mission, vision and values.
The Board recognises the progress made by the Chief Human Resources Officer in helping
to drive a company-wide focus on engagement and development of a performance culture.
This has included a new approach to measuring employee engagement, relaunch of a
Learning at Work programme, and the successful roll-out of Pearson’s new purpose,
mission, vision and values. The Reputation & Responsibility Committee will lead oversight of
culture and employee engagement following revisions to its terms of reference in late
2022, further aiding the Board’s oversight of these matters.
The Board is mindful that it is particularly important to pay close attention to culture and
engagement throughout the year, particularly following a period of strategic and
operational transformation. It will, therefore, be attentive to these matters in 2023.
Read more about culture and employee engagement on pages 65-68.
Annual report and accounts 2022 Pearson plc 73
Nomination & Governance Committee report
Role and composition of the Committee
I am pleased to present my first report as Chair of the Nomination &
Governance Committee, having been appointed to the position in
April 2022 following the retirement of Sidney Taurel, Board Chair. I
offer my thanks to Sidney for his substantial contributions to the
Committee’s work, most particularly in ensuring we have a strong and
diverse Board in place to lead our company.
The Committee monitors the composition and balance of the Board
and of its Committees, identifying and recommending to the Board
the appointment of new Directors and/or Committee members. The
Committee has oversight of the company’s compliance with, and
approach to, all applicable regulation and guidance related to
corporate governance matters. The Committee is also available to
support the Board as needed in relation to talent and succession
plans for senior roles.
The Committee currently has five members including me as Chair,
with Omid Kordestani and Esther Lee having joined the Committee
following their appointments to the Board in early 2022. The Chief
Executive and other senior management, including the Chief Human
Resources Officer, attend Committee meetings by invitation.
As Committee Chair, I am available to engage with any shareholders
who would like to discuss the work of the Committee and look
forward to taking any shareholder questions at our forthcoming AGM
in April 2023.
Board succession planning, skills and expertise
A key element of the Committee’s remit is to lead the process for
Board appointments in line with appropriate succession plans. The
company has contingency plans in place for the temporary absence
of the Chief Executive for health or other reasons. The matter of
Chief Executive succession is a regular item for discussion and review
by the Board on an annual basis. Succession planning for the Board
as a whole is considered at least annually by the full Board, and on an
ongoing basis by the Committee.
The Committee has defined a set of specific criteria for potential new
Non-Executive Directors, in particular giving consideration to the
skills, experience and knowledge required in any candidates. Pearson
expects all Non-Executive Directors to demonstrate the highest level
of integrity and credibility, independence of judgement, maturity,
collegiality and also a commitment to devote the necessary time to
the company’s business.
As part of the Committee’s regular succession planning activity, all
Board members are asked periodically to complete a self-assessment
of the skills and experience which they believe they each bring to the
Board. The assessment focuses on those categories of skills and
experience which are relevant to Pearson’s strategy, business model
and particular organisational characteristics. When mapped against
expected retirement dates, the assessment helps the Committee to
identify the areas where it may need to focus any future search
activity. The results of the most recent assessment (shown opposite)
demonstrate that Pearson currently has a strong spread of skills
across all areas identified as being of particular importance.
Having regard to the upcoming retirement of Ms Lorimer from the
Board at the 2023 AGM, as well as looking further ahead to
anticipated Board retirements over the next two to three years, the
Committee agreed to commence a Non-Executive Director search
process in the latter part of 2022. In preparing for this search, the
Committee agreed that it was particularly interested to identify
candidates who would collectively bring a combination of skills and
expertise in the following areas:
— operating experience with subscription and/or enterprise SaaS
business models, at a scale and complexity commensurate
to Pearson
— experience developing innovative digital products and/or driving
digital business transformation
— an active senior finance leader, with a deep understanding of
public company governance standards, ideally from a UK listed or
global business
— capacity to serve on the Audit Committee.
Principal Committee responsibilities
Appointments
Identifying and nominating candidates for Board vacancies.
Balance
Ensuring that the Board and its Committees have the
appropriate balance of skills, experience, independence,
diversity and knowledge to operate effectively.
Succession
Reviewing the company’s leadership needs with a view to
ensuring the continued ability of the organisation to compete
in the marketplace.
Governance
Reviewing and overseeing Pearson’s corporate governance
framework, Board evaluation and training plans, and the Board
Diversity Policy.
Terms of reference
The Committee has written terms of reference which clearly
set out its authority and duties. These are reviewed annually
and can be found in the Governance section of our website
(www.pearsonplc.com).
Committee members and attendance
Attendance by Directors at scheduled Nomination & Governance
Committee meetings throughout 2022:
Committee members Meetings attended
Sherry Coutu 3/3
Omid Kordestani
1
2/2
Esther Lee
2
2/2
Tim Score 3/3
Sidney Taurel
3
1/1
Annette Thomas 3/3
1. Mr Kordestani was appointed to the Committee on 1 April 2022.
2. Ms Lee was appointed to the Committee on 1 April 2022.
3. Mr Taurel resigned from the Board and the Committee on 29 April 2022.
Tim Score - Committee Chair
74 Pearson plc Annual report and accounts 2022
Taking into account the agreed person specification, the Committee
has engaged Spencer Stuart to undertake a search process for new
Non-Executive Directors. In line with the objectives of the Board’s
Diversity Policy, the Committee has asked Spencer Stuart to ensure
that the list of candidates reflects diversity of gender, ethnicity,
geography and age as well as diversity in its broadest sense. You can
read more about the Board Diversity Policy and diversity across
Pearson on page 76. In addition to the Non-Executive Director search
process, Spencer Stuart also undertakes broader executive search
activity for the Group and is a signatory to the Voluntary Code of
Conduct for Executive Search Firms. Spencer Stuart has no
connection with Pearson or members of the Board beyond its
expertise in board and executive search.
Executive succession planning
Succession planning for key positions at executive management level
is primarily overseen by the full Board, with support provided by the
Committee in respect of particular initiatives. The executive team has
a key role to play in our strategic planning process, in the ongoing
development of our talent pipeline and in fostering the culture and
values required to continue to deliver on our strategy. In December
2022, the Board held a discussion on talent, including a succession
planning session focused on the executive pipeline from which the
future leaders of Pearson were likely to emerge, both at Pearson
Executive Management level and for other key roles. A diverse
pipeline of ‘ready now’ and ‘ready later’ emerging talent has been
identified, and plans are in place to accelerate these individuals’
development and path to succession where possible. These
measures include inviting individuals to participate in Board and
Committee meetings, mentoring by Non-Executive Directors, and
encouraging and enabling individuals to take on external non-
executive roles in order to increase their exposure to new areas
of business. The company also has targeted development
programmes for high-potential talent and mentorship programmes
for diverse leaders, as well as development programmes for junior
and middle management.
Other areas of focus during 2022
The Committee oversees the company’s compliance with the UK
Corporate Governance Code and reviews a status tracker to enable it
to consider the appropriateness and maturity of various elements of
our governance framework and to monitor any areas of qualified or
non-compliance. Learn more about Pearson’s compliance with the
Code on page 55.
Other areas of focus for the Committee during the year included:
oversight of composition of the Board’s Committees, assessment of
the independence of Linda Lorimer prior to making a
recommendation for her re-election at the 2022 AGM (recognising
her length of service on the Board), and the annual review of the
contribution of each Director to the Board. As Committee Chair and
Deputy Chair of the Board, I also paid particular attention to the
onboarding and induction of Omid Kordestani as the new Board
Chair. You can read more about the induction process for both Omid
Kordestani and the recently appointed Non-Executive Director Esther
Lee on page 70.
Committee evaluation
The Committee undertakes an annual evaluation process to review
its performance and effectiveness. For 2022, feedback relating
to the Committee was sought from Directors as part of the wider
Board evaluation led by the Board Chair. Topics covered included
the effectiveness and dynamics of the Committee, oversight of
key areas within the Committee’s remit, the quality of papers and
meeting discussions, and the relationships between the Committee
and management.
The findings of the effectiveness review process for 2022
indicated that the Committee is considered to be working well
with appropriate agendas, papers produced to a good standard
and high-quality discussions.
Committee aims for 2023
The Committee’s priorities for the coming year will be to lead
and conclude the current Non-Executive Director search process,
and to oversee the planned externally-facilitated Board evaluation
process. Additionally, together with our colleagues on the Audit
Committee, we will monitor any proposals by the regulator to revise
the UK Corporate Governance Code in light of the UK Government’s
response to the consultation on Restoring Trust in Audit and
Corporate Governance, and will oversee management’s response
to this.
Tim Score
Chair of Nomination & Governance Committee
Skills matrix
This matrix represents the number of Directors with core or supplemental capability in areas that are relevant to Pearson’s strategy, business model
and organisational characteristics. A core capability is one of the strongest areas of a Director’s skill and expertise, where they bring considerable value
to Board discussions. A supplemental capability is an area where the Director is competent or has experience, but is not one of the primary skills or
attributes that they bring to the Pearson Board.
Category
Core capability Supplemental capability
1. Accounting and finance
2. Data and cyber security
governance
3. Digital and technology
4. Disruption management,
including: Talent
leadership through
change, Marketing and
data insights, New
business models and
innovation
5. Direct to consumer
business models
(including consumer
brand and marketing)
6. Education and public
sector
7. Global markets
8. People/general talent
focus, including workforce
learning
9. Policy and government
relations
10. Prior CEO experience,
particularly of
multinational businesses
11. Remuneration
12. Scale and complexity
13. Sustainability
14. UK plc governance
1
2
3
4
5
6
7
8
9
10
11
12
13
14
3
6
6
6
3
3
3
6
1
9
4
5
8
6
4
8
8
1
4
4
10
1
2
2
6
5
4
4
Annual report and accounts 2022 Pearson plc 75
We have been on an intentional journey to redefine what diversity,
equity, and inclusion (DE&I) mean at Pearson and to take action. We
have reshaped our policies, practices, and principles around DE&I
and created a long-term strategy focusing on recruitment and
promotion, retention, inclusive culture, and social impact.
Our ambition is to be an inclusive and high performing place to work
where everyone can leverage their unique strengths. That’s why our
updated people strategy has DE&I as one of our three pillars with the
aim of creating a culture of belonging and increasing diverse
representation throughout the company. As part of our new Pearson
engagement survey, we have a culture of inclusion index to
benchmark and measure against three principles: employees are
treated with respect, managers value employees for their strengths,
and our leaders do what is right.
In addition, Pearson’s Code of Conduct in relation to ethical practices
takes account of gender, age, race, ethnicity, disability, and sexual
orientation, and applies to all employee levels, including the executive
management team. It is underpinned by a global statement on DE&I,
along with country and business-specific policies. Standards are set
consistently worldwide – both internally and externally – as part of
our efforts to make Pearson a great place to work.
Together, our goal is to drive the transformation of learning,
making it more diverse, equitable, and inclusive. It is a continuous
combination of intentional bottom-up and top-down leadership
across all levels of the company to foster a culture where everyone
feels a sense of belonging.
Board diversity
We believe that Board diversity makes us a better and more
sustainable business, contributing to high performance, enhanced
commercial results, and an inclusive leadership culture. Research
indicates that high-performing boards provide an increased
competitive advantage and wider perspectives, while the needs for
greater inclusion and diversity continue to influence global trends.
We are determined that, as a Board, we must be representative of
our employee base and wider society, including the countries in
which we operate. The Board embraces the Code’s underlying
principles with regard to Board balance and diversity, including in
respect of ethnicity, gender and age. The objectives set out in the
Board’s Diversity Policy and our progress towards these are shown in
the table on page 77.
The Nomination & Governance Committee ensures that the
Directors of Pearson demonstrate a broad balance of skills,
background and experience, to support our strategic development
and reflect the global nature of our business. It requires
appointments to be made on merit and relevant experience, while
taking into account the broadest definition of diversity. In any
Non-Executive Director search processes, the Nomination &
Governance Committee encourages the retained search firms to
place an emphasis on putting forward candidates who would
enhance the overall diversity of the Board.
In light of the changes put forward by the Financial Conduct Authority
(FCA), the Nomination & Governance Committee has updated the
objectives that support the Board Diversity and Inclusion Policy, and
which underpin Pearson’s commitment to creating a more equitable
and inclusive company. The current objectives are set out below:
— at least 40% female directors
— at least two directors from an ethnic minority background
— at least one of the Chair, Chief Executive, Deputy Chair and Senior
Independent Director or CFO is a woman
We have also expanded our objectives to confirm that the Board will
consider its own diversity, and that of its Committees, as part of the
annual effectiveness review processes. Further, the Board will
explore expanding its diversity considerations to include
characteristics such as sexual orientation, disability and socio-
economic background.
The Nomination & Governance Committee has confirmed that it will
adopt a principles-based approach to diversity on the Board’s
Committees. It is recognised that it is not necessarily practical to set
meaningful metrics or targets for diverse membership of Committees
due to the notably smaller membership of each of the Committees
compared to the size of the Board. Accordingly, our principles-based
approach endorses the importance of bringing diverse perspectives
to all areas of Board and Committees’ work. As an example of this
principles-based approach in practice, as part of its regular
Committee succession planning activity, the Nomination &
Governance Committee considers the gender and ethnic balance on
each Committee when assessing its composition and future needs.
As at 31 December 2022, 50% of Directors were women (2021: 50%),
exceeding the target of 40% women’s representation by the end of
2025, as recommended by the FTSE Women Leaders Review. We are
also satisfied that, ahead of the target implementation date, we are
compliant with the new FCA requirements stating that boards should
have at least one woman in the Chair, Chief Executive, Senior
Independent Director or Chief Financial Officer role, and that at least
one member of the Board should be from an ethnic minority
background, among other targets. The FCA requirements are
applicable to Pearson with effect from the financial year which began
on 1 January 2023.
One of the topics the Board considered during its evaluation process
conducted in 2022, was the effectiveness of the organisation and
dynamics of the Board, including in respect of diversity. The results
and feedback provided by the evaluation indicated that the Directors
believe the Board’s diversity is strong. The Board recognised the
increasing importance of DE&I and acknowledged the progress being
made. It noted that wider forms of diversity, such as sexual
orientation, disability, age, and socio-economic background, would be
considered when making new appointment decisions.
Diversity and talent at executive level
Five members of our executive team of 10, excluding the Chief
Executive and Chief Financial Officer who are counted in the Board’s
metric, are women (50% as opposed to 37.5% in 2021). Including the
Chief Executive and Chief Financial Officer, this ratio stays at 50% (six
women out of 12 members) (2021: 40%). As of 31 December 2022,
the senior management team (as specified by the UK Corporate
Governance Code), i.e. the executive management team and their
direct reports, including the Company Secretary, contained 53
women, representing 50% of that group (2021: 49%). For diversity
data in the format prescribed by LR 9.8.6R(10), please see page 225.
All leadership and mentoring programmes aim to have 50% of their
candidates from diverse backgrounds. The Nomination &
Governance Committee received updates on two internal mentoring
schemes that it supports. The first scheme pairs a high-potential
leader (typically at Senior Vice President level) with a Non-Executive
Director. The second scheme involves members of the executive
management team sponsoring a small group of individuals at
management level, identified through our talent review process as
potential successors of senior management.
In 2022, we revised our approach to strengthen mentoring schemes
by focusing on the creation of mentoring partnerships based on skill
development needs. We are currently gathering feedback on the
outcomes of Board sponsorship and mentoring schemes in 2022
and are in the process of identifying candidates for opportunities
in2023.
Diversity across Pearson
Nomination & Governance Committee report continued
76 Pearson plc Annual report and accounts 2022
Board diversity objectives
The Nomination & Governance Committee monitors the progress on the company’s DE&I framework, governance and measurement models, and
priority areas. As part of this, the Nomination & Governance Committee reviewed and updated the objectives which underpin the Board Diversity
Policy. The objectives in place during 2022 and Pearson’s performance against them are set out below, together with an indication of the amendments
(highlighted) to the objectives that have been approved in response to the FCA requirements:
Objectives Progress
We will strive to achieve and maintain a Board composition of:
— at least 40% Directors are women
— at least two Directors from an ethnic minority background
— at least one of the Chair, Chief Executive, Deputy Chair and
Senior Independent Director or CFO is a woman
As at 31 December 2022:
50% Directors were women
The Board included three Directors from an ethnic minority
background
One of the Chair, Chief Executive, Deputy Chair and Senior
Independent Director or CFO is a woman
All Board appointments will be made on merit, in the context of the
skills and relevant experience that are needed for the Board to
oversee Pearson’s strategic development and that reflect the global
nature of our business.
Our Non-Executive Director search process considers a wide range
of candidates, including from diverse backgrounds, all of whom were
evaluated on the basis of merit. Our most recent search processes
resulted in the appointment of Esther Lee and Omid Kordestani,
whom the Board believe possess the requisite skills and experience
for their roles.
The Board will continue to incorporate a focus on a diverse pipeline
in its succession and appointment planning, including to prioritise
the use of search firms which adhere to the Voluntary Code of
Conduct for Executive Search Firms (the Voluntary Code) when
seeking to make Board-level appointments.
The Committee actively includes diversity in its search criteria for
Board appointments, and proactively encourages engaged search
firms to include candidates from a range of diverse backgrounds in
its candidate lists.
Spencer Stuart assist Pearson with search activities, including for the
external element of the Non-Executive Director search processes.
Spencer Stuart is a signatory to the Voluntary Code.
The Board will continue to adopt best practice, as appropriate, in
response to the Parker Review, FTSE Women Leaders Review, FRC
Board Director Effectiveness Review, and Financial Conduct
Authority requirements.
The Board is cognisant of the recommendations of the FTSE Women
Leaders Review, which has succeeded the Hampton-Alexander
Review, and the findings of the FRC Board Diversity and Effectiveness
report. The Committee also reflected the new FCA requirements in
respect of gender and ethnic diversity in its review of the Board
Diversity Policy.
The Board will consider its composition and diversity, and that of
its Committees, as part of its consideration of effectiveness in the
Board evaluation review process. The Board will also explore
expansion of these considerations to cover ethnicity, sexual
orientation, disability and socio-economic background
characteristics.
These matters were considered in the 2022 evaluation process.
Read more on page 71.
Where appropriate, we will assist with the development and
support of initiatives that promote all forms of DE&I in the Board,
Pearson Executive Management team and other senior
management.
Six mentees at the Senior Vice President (SVP) level were mentored
by six Non-Executive Directors in 2022. 67% of SVP participants were
female and/or persons of colour (target at 50%).
We will review and report on our progress in line with the policy
and our objectives in the annual report, including providing details
of initiatives to promote DE&I in the Board, Pearson Executive
Management team and other senior management.
Objectives that accompany the Board’s Diversity Policy have been
updated. The Committee continues to monitor developments on
DE&I in the external landscape.
We will continue to make key DE&I information about the Board,
senior management and our wider employee population available
in the annual report, and aim for ongoing transparency in this area
in line with best practice.
This information is included in the annual report. Read more about
DE&I matters in the wider employee population on page 34.
Key
Target achieved
Target not met
New objective for 2023
Annual report and accounts 2022 Pearson plc 77
Reputation & Responsibility Committee report
Committee members and attendance
Attendance by Directors at scheduled Reputation & Responsibility
Committee meetings throughout 2022:
Committee members Meetings attended
Andy Bird 3/3
Linda Lorimer 3/3
Graeme Pitkethly 3/3
Annette Thomas 3/3
Lincoln Wallen 3/3
Principal Committee responsibilities
Stakeholders: Monitoring reputational issues that could
significantly affect Pearson’s reputation with stakeholders,
including consumers, employees, shareholders, educational
institutions and educators, employers, governments and
regulators, communities and business partners.
Sustainability and non-financial KPIs: Overseeing Pearson’s
sustainability strategy including: targets and public
commitments; regulatory landscape, reporting and ratings; ESG
due diligence in our supply chains and business partnerships;
matters relating to the non-financial KPIs linked to the three
pillars of the ESG Framework.
Culture and employee engagement: Overseeing Pearson’s
approach to employee engagement. Monitoring the company’s
culture, which stresses diversity and high performance.
Communications and regulatory matters: Overseeing
Pearson’s communications, strategies, policies and plans
related to reputational issues and the people, processes and
policies that are in place to manage them.
Branding: Oversight of how the company’s brands are
managed and promoted to ensure that their value and the
company’s reputation are maintained and enhanced.
Risk: Pearson’s approach to the reputation aspects of the risk
register and ensuring that clear roles have been assigned for
the management of these.
Linda Lorimer - Committee Chair
Reputation & Responsibility Committee role
The Committee works to assess and advance Pearson’s reputation
across the range of its stakeholders and to maximise the company’s
positive impact on society and the communities in which we work
and serve.
We are the main governance body for sustainability at Pearson,
providing important oversight of our environmental, social and
governance (ESG) framework; this includes climate change
considerations. As part of this role, we promote and oversee
Pearson’s sustainable business strategy and assess progress
against its commitments. We also monitor branding, culture and
values, and provide ongoing oversight and scrutiny across all
reputational matters.
The full Board is kept abreast of the Committee’s work through
reports I make following each of our sessions. These reports include
highlighting any areas of concern and offering specific
recommendations for the Board’s action.
In 2022, we led a comprehensive review of the Board’s governance
framework for ESG matters, and made the following
recommendations for enhancing the Directors’ collective oversight of
ESG matters, all of which were approved by the Board:
— the Audit Committee will assume responsibility for assurance and
integrity of ESG data and metrics
— the Remuneration Committee will formally incorporate ESG
considerations in remuneration frameworks and decisions
— employee engagement will be formally added to this Committee’s
remit, alongside culture. We have invited the Chief Human
Resources Officer to be a regular attendee at our meetings as
a resource on the important topics of employee engagement
and culture.
We also conducted a thorough review of our own terms of reference.
The Committee’s principal responsibilities, as revised, are
summarised to the left of this page and you can read more about our
overall Board framework for ESG governance on page 66.
As Committee Chair, I am available at any time to engage with any
shareholders who would like to discuss the work of the Committee,
and particularly look forward to taking any shareholder questions at
our forthcoming AGM in April 2023.
It has been my privilege to serve as Chair of the Committee since
2016, most notably to have had the opportunity to contribute to
Pearson’s sustainable business strategy as it has matured and to the
development of our ESG framework. I am delighted that the Board
has chosen Annette Thomas to be my successor as Chair; Annette
has shown a real passion for the work of our Committee and has
both experience and expertise in the remit of the Committee.
Committee composition and attendees
The Committee currently has five members, including me as Chair.
The members bring a range of expertise across the key areas of the
Committee’s remit, including sustainability, stakeholder management,
people and talent, and policy and government relations.
In addition, we benefit from the regular attendance of senior
executives whose work is central to the remit of the Committee.
These include the Chief Legal Officer, who is the executive
leader responsible for the development, monitoring and
execution of Pearson’s sustainability strategy; the Chief
Marketing Officer and Co-President of Direct to Consumer;
the Chief Human Resources Officer; SVP – Investor Relations;
and SVP – Corporate Communications.
Sustainability activities in 2022
Throughout the year, the Committee paid particular attention to the
continued evolution of our sustainability strategy, including how it
aligns to our greatest areas of opportunity and challenge as a
business, and how to communicate its tenets to all our stakeholders
in a clear and impactful way.
Terms of reference
The Committee has written terms of reference that clearly set out its
authority and duties. These are reviewed annually and can be found
in the Governance section of our website (www.pearsonplc.com).
78 Pearson plc Annual report and accounts 2022
— we reviewed the annual Modern Slavery Statement with
management prior to recommending that the Board approve the
statement for publication.
Other areas of focus during 2022
In addition to the work relating to the three sustainable business
pillars, we spent time considering a broader range of matters relating
to Pearson’s reputation and key stakeholders, including the following:
— with the help of colleagues and external advisers, the Committee
conducted a horizon scanning exercise to identify key
reputational risks and trends facing Pearson such as critical race
theory, social issues and increased scrutiny of branded content
platforms. This exercise, which we intend to conduct periodically,
helps to ensure that the Committee and our Board is alert to
external factors that may impact our business
— we reviewed a new framework to guide the company about when
it will ordinarily make public statements concerning societal
events. Factors that are part of this decision framework include
whether the event could have a material impact directly on our
business or people and whether the issue is aligned or misaligned
with Pearson’s purpose and values
— after the US midterm elections and the change in the leadership
in the UK, we received a government relations update, which is a
periodic topic for the Committee’s agenda.
Committee evaluation
The Committee undertakes an annual evaluation to review its
performance and effectiveness. For our evaluation in 2022,
Committee members and other key contributors to the Committee
were invited to provide their views by way of a tailored questionnaire.
Topics covered included the effectiveness and dynamics of the
Committee, oversight of key areas within the Committee’s remit, the
quality of papers and meeting discussions, and the relationships
between the Committee and management.
The Committee considered the findings from this process at its
November 2022 meeting and concluded that:
— the Committee is working well with appropriate agendas, papers
produced to a good standard, and high-quality discussions
— some refreshing of the Committee’s remit was warranted to
specify explicitly that employee engagement and the company’s
culture are part of the Committee’s remit as well as expanded
responsibility for ESG and sustainability. This feedback guided the
revisions to the terms of reference review undertaken towards
the end of the year
— it may be beneficial to provide greater exposure for the
Committee to a range of external viewpoints and advice.
In direct response to this suggestion, the Committee welcomed
external advisers to its ESG deep dive session, where external
perspectives were provided on Pearson’s ESG materiality
assessment and ambitions.
The matters identified during the previous year’s evaluation process
have been addressed to the Committee’s satisfaction during the year,
as described elsewhere in this report.
Committee aims for 2023
Our priorities for the coming year include the publication of
Pearson’s climate transition plan and the launch of various activities
to empower our people to make a difference through learning
opportunities and skill-based volunteering. We will continue to
oversee Pearson’s ESG framework including progress under each of
our three sustainable business pillars, as well as overseeing the newly
refreshed approach to employee engagement and culture.
Linda Lorimer
Chair of Reputation & Responsibility Committee
As described in greater detail in our Sustainability report starting on
page 30, our ESG framework comprises three pillars that align with
the interests of stakeholders, and where we can make the biggest
positive impact:
— Driving learning for everyone with our products
— Empowering our people to make a difference
— Leading responsibly for a better planet
These areas are also materially influential in helping Pearson succeed
as a business. The pillars have a clear, natural fit to our non-financial
KPIs, reflecting the common goal of alignment between our
corporate and sustainability strategy. The sustainability strategy is
supported by Pearson’s robust corporate governance, strong
corporate culture and a range of effective policies to ensure we
achieve our ambitions.
The Committee receives regular updates from management on
progress against specific elements of the sustainability strategy. Over
the past year, key activities of the Committee in relation to our three
sustainable business pillars included the following:
Driving learning for everyone with our product
In the course of the year, we had reviews of product efficacy and
learning design; we undertook our annual safeguarding review, which
included our growing attention to digital products and services; and
we assessed the company’s consumer brand equity study.
At each meeting, the Committee receives a report on recent incidents
and issues that could have an impact on the company’s reputation,
including those relating to our products. We consider Pearson’s
responses to coverage on social media and in traditional media,
including paying particular attention to our protocols for responding
to questions about our content, the integrity with which we handle
such situations, and any lessons learned. In response to these
reports, the Committee provided input about addressing the specific
incidents at hand, and made recommendations about how the
company can be responding to the general issues raised.
Empowering our people to make a difference
In the course of the year, the Committee asked the Chief Human
Resources Officer to lead a session devoted to talent, performance
and engagement. We also reviewed new plans for the evolution of
our overall approach to employee engagement and continued our
practice of an annual review of health and safety across the company.
Leading responsibly for a better planet
In the past year, the Committee monitored progress in respect of
climate transition plans, including receiving an update on Pearson’s
decarbonisation journey. As part of this, we provided
recommendations to management on how to approach reduction in
Pearson’s scope 1, 2 and 3 emissions, with reference to the maturity
of climate performance in our supply chain
Given world events, the Committee received an update on the status
of Pearson’s business operations in Ukraine, Russia and Belarus.
ESG governance and policies
Our three sustainable business pillars are underpinned by robust
governance, a strong culture and effective policies. In this regard,
during the year:
— we reviewed an ESG materiality assessment which confirmed that
the views of our external stakeholders align well with our internal
ambitions. With input from management and external advisers,
we noted improvement opportunities for our core business areas
to enhance their impact on Pearson’s sustainability ambitions
— we revised the Board’s ESG governance framework, as noted on
page 66
— we received an update about how the company will be reporting
its ESG progress to external regulatory bodies, including the
approach for our narrative, non-financial KPI reporting and
external data verification, where we work closely with our
colleagues on the Audit Committee. We also noted how
management plans to evolve our reporting in line with
regulatory changes
Annual report and accounts 2022 Pearson plc 79
Principal Committee responsibilities
Financial reporting
The quality and integrity of Pearson’s financial reporting and
statements and related disclosures, including significant
reporting judgements.
Policy
Group financial policies, including accounting policies
and practices.
External audit
External audit, including the appointment, qualification,
independence and effectiveness of the external auditor.
Internal audit, risk and internal control
Risk management systems and the internal control
environment, including oversight of the work and effectiveness
of the internal audit function.
Compliance and governance
Legal and regulatory requirements in relation to financial
reporting and accounting matters, and oversight of compliance
programmes and investigations.
Audit Committee report
My predecessor in the role, Tim Score, remains a valued member of
the Committee and I offer my thanks to Tim for his considerable
contributions as Committee Chair.
The Committee has been established by the Board primarily for the
purpose of overseeing the accounting, financial reporting, internal
control and risk management processes of the company and the
external audit of the financial statements of the company. As a
Committee, we are responsible for assisting the Board’s oversight
of the quality and integrity of the company’s external financial
reporting and statements, and the company’s accounting policies
and practices.
Pearson’s Vice President – Internal Audit has a dual reporting line
to the Chief Financial Officer and to me, and both she and the
external auditors have direct access to the Committee to raise
any matters of concern and to report on the results of work directed
by the Committee. As Audit Committee Chair, I ensure that the full
Board is kept abreast of the business of the Committee in a timely
manner, including highlighting any areas of concern or specific
recommendations. I also work closely with the CFO and senior
financial, risk, legal and internal audit personnel outside the
formal meeting schedule to ensure robust oversight and challenge
in relation to financial control, compliance, investigations and
risk management.
As Committee Chair, I am available to engage with any shareholders
who would like to discuss the work of the Committee, and look
forward to taking any shareholder questions at our forthcoming AGM
in April 2023.
Audit Committee meetings and activities
An important area of focus for the Committee throughout 2022 was
the transition of Pearson’s external audit from
PricewaterhouseCoopers LLP (PwC) to Ernst & Young LLP (EY), who
were selected following a competitive tender process in 2021. The
transition process and first audit by EY have necessitated
considerable efforts by all involved, and I would like to acknowledge
the commitment demonstrated by all Pearson colleagues throughout
the financial year who have supported the audit process. You can
read more about how the Committee has monitored the transition to
EY on page 84.
Other prominent themes in the Committee’s work throughout
2022 included:
— important areas such as data privacy, cyber security and business
and technology resilience. In addition to continuing to increase in
importance at a macro level, these are key factors in the success
of Pearson’s digital and consumer-focused strategy
— a strong focus on risk, supported by a new programme of
business-focused deep dives led by the Divisional Presidents
— oversight of accounting treatment relating to portfolio changes,
including the strategic review of Pearson’s international
courseware local publishing businesses
— continued oversight of Pearson’s key judgements and key areas of
estimation as described in the financial statements.
At every meeting, the Committee also considered reports on the
activities of the internal audit and compliance functions, including the
results of internal audits, project assurance reviews and fraud and
whistleblowing reports. The Committee also monitored the
company’s financial reporting procedures, discussed the finance and
IT controls environment, reviewed the services provided by the
external auditors and considered any significant legal claims and
regulatory issues in the context of their impact on financial reporting,
each on a regular basis. You can view the key activities of the
Committee and read more about our work in these areas on the
pages that follow.
Additional meeting attendees
The Chief Financial Officer, Deputy Chief Financial Officer, Chief Legal
Officer, Chief Information Officer, other executives and senior
managers from across the business also attended meetings during
the year, either as regular invitees of the Committee or to discuss
particular items of business.
Terms of reference
The Committee has written terms of reference which clearly
set out its authority and duties. These are reviewed annually
and can be found in the Governance section of our website
(www.pearsonplc.com).
Committee members and attendance
Attendance by Directors at scheduled Audit Committee meetings
throughout 2022:
Committee members Meetings attended
Linda Lorimer 4/4
Graeme Pitkethly
1
3/4
Tim Score 4/4
Lincoln Wallen 4/4
1. Mr Pitkethly was unable to attend one meeting prior to becoming Committee Chair
due to a pre-existing commitment. He reviewed the papers and provided his
perspectives to the Committee Chair outside the meeting.
Audit Committee role and composition
I am pleased to present my first report as Chair of the Audit
Committee following my appointment to the role on 1 August 2022.
Graeme Pitkethly - Committee Chair
80 Pearson plc Annual report and accounts 2022
This direct contact with key leadership augments the Committee’s
understanding of the issues facing the business as well as helping to
develop Pearson’s talent pipeline through facilitation of Board-level
engagement opportunities for those leaders and managers. The
Committee also meets regularly in private with the external auditors
and with the Vice President – Internal Audit.
In addition to the Committee’s formal meeting schedule, I meet as
needed with the external auditors, Chief Financial Officer, Deputy
Chief Financial Officer, Chief Legal Officer, Chief Compliance Officer
and Senior Vice President – Treasury, Risk and Insurance in order to
keep abreast of all relevant matters within the Committee’s remit.
Audit Committee training and knowledge sharing
The Committee receives technical updates at each meeting, including
on matters such as accounting standards and the audit and
governance landscape, and members are able to request specific or
personal training as appropriate. In particular, we remain attentive to
developments at a legislative and regulatory level, including the
proposals announced in May 2022 by the UK Government’s
Department for Business, Energy and Industrial Strategy (BEIS) in
response to the consultation on ‘Restoring trust in audit and
corporate governance’.
The Committee’s focus areas for 2023 will include:
— Following up on continuing improvements in the external audit
process, as discussed further on page 84.
— Monitoring progress of the UK Government’s proposals on
audit and corporate governance reform, any impacts on the
company’s processes and practices, and consideration of
management’s response.
— Monitoring emerging developments in non-financial reporting,
including proposals from the ISSB, EU and SEC.
— Continuing our attention to technology and cyber risk, through an
increased frequency of cyber security deep dives and the addition
of the Chief Information Officer as a standing attendee at all
Committee meetings.
Committee evaluation
The Committee undertakes an annual evaluation process to review
its performance and effectiveness. For 2022, the Committee
evaluation process was conducted by way of a tailored questionnaire.
The process sought views on an anonymous basis from Committee
members and other key contributors to the Committee, including the
lead external audit partner, the Chief Financial Officer, Deputy Chief
Financial Officer, the Chief Legal Officer, the Vice President – Internal
Audit, and senior financial, risk and compliance management.
Topics covered in the evaluation included the effectiveness and
dynamics of the Committee, the Committee’s oversight of key areas
within its remit, the quality of papers and meeting discussions, and
the relationships between the Committee and management.The
Committee considered the findings from the evaluation at its
November 2022 meeting, including the following key points:
— The Committee is considered by Directors and other contributors
to be working well with appropriate agendas, papers produced to
a good standard and high-quality discussions.
— Respondents welcomed the addition of divisional risk deep dives
to the Committee’s work plan and noted the importance of
dedicating sufficient time to the overview of risk and associated
remediation actions.
— Respondents recognised that it is important for all parts of the
Group’s assurance framework to remain attuned to the changing
risk profile of the company, including data and cyber risk. It
remains important for the Committee to ensure that it continues
to have appropriate levels of support and expertise to assess and
manage these areas.
— Given the quantum of Pearson’s business in the US, there was a
suggestion that at least one meeting per cycle be US-based to
allow the Committee in-person access to US management and
other stakeholders. We expect to be able to reintroduce this
element to the Committee’s annual schedule following the
relaxation of COVID-19 related travel restrictions.
— Responses highlighted the Committee’s role in encouraging
collaboration and alignment between the central corporate
risk assessment and compliance functions and the work of
internal audit.
Actions taken following the previous year’s evaluation
Based on the recommendations from the previous year’s evaluation,
the Committee took the following actions in 2022:
— We assumed responsibility in our terms of reference for matters
relating to assurance of ESG metrics. During the year, the
Committee considered and approved Pearson’s policy on
greenhouse gas emissions re-baselining and restatement. This
policy has established guidelines for the recalculation of the base
year, as well as restatements, for scope 1, 2 and 3 emissions in
the event of significant changes to Pearson’s portfolio.
— Recognising the importance of technology and cyber-related
matters to Pearson’s business and strategy, we invited the Chief
Information Officer to become a standing attendee at the
Committee’s meetings. Previously, the Chief Information Officer
was invited to attend for specific agenda items. This strengthens
the oversight that the Committee has of technology matters and
enables timely engagement with the responsible executive
whenever technology-related topics arise in our discussions.
Fair, balanced and understandable reporting
We are mindful of the Code’s Principle N relating to fair, balanced and
understandable reporting, and we build sufficient time into our
annual report timetable to ensure that the full Board receives
sufficient opportunity to review, consider and comment on the report
as it progresses. Learn more about fair, balanced and
understandable reporting on page 123.
Financial reporting and policies
In February 2023, the Committee considered the 2022 preliminary
results announcement and annual report and accounts, including the
financial statements, strategic report and Directors’ report. The
significant issues considered by the Committee relating to the 2022
financial statements are set out on pages 86-87.
Correspondence with Financial Reporting Council
In October 2022, Pearson received a letter from the Financial
Reporting Council (FRC) confirming that it had completed a limited
scope review of the company’s 2021 annual report in connection
with their thematic review of deferred tax asset disclosures. There
were no questions or queries to which the FRC required a formal
written response. Two matters were raised regarding possible
improvements to our existing disclosures. These have been
addressed in the 2022 annual report where material and relevant.
The FRC’s role is to consider compliance with reporting standards
and is not to verify the information provided. Therefore, given the
scope and inherent limitations of their review, which does not benefit
from any detailed knowledge of the Group, it would not be
appropriate to infer any assurance from their review that our 2021
Annual Report and Accounts are correct in all material respects.
Risk assessment, assurance and integrity
A key role of the Committee is to provide oversight and assurance to
the Board with regard to the integrity of the company’s procedures
for the identification, assessment, management and reporting of risk.
In fulfilling its remit, the Committee remains mindful that effective risk
management is essential to executing Pearson’s strategy, achieving
sustainable shareholder value, protecting the brand and ensuring
good governance.
In 2022, the Committee had oversight of management’s refreshed
approach towards risk identification and monitoring. Pearson’s risk
management programme has evolved in line with the structure of
the business, which is managed through five global operating
divisions supported by enterprise-wide corporate functions.
Annual report and accounts 2022 Pearson plc 81
Through a series of business-focused risk deep dives, the President
of each operating division provides an overview of its risk register to
the Committee at least annually and leads a session on the key risks
facing their particular division. The process is supported by central
risk team experts as required, providing the Committee with a clear
and consistent framework within which to evaluate the strategic
and business risks to the company, based upon the principal,
emerging and significant near-term risk categories described on
pages 45-51.
The Committee uses these deep dive sessions to understand the
rigour of management’s risk scanning and to challenge judgements
being made in response to risks. The Committee has reviewed the
refreshed risk management approach to ensure it is robust and
proportionate, and continues to facilitate a culture of accountability
and ownership among business leaders. The introduction of
divisional risk deep dives has provided a valuable strategic lens to the
risk management process that has been welcomed by the
Committee and management alike.
During the year, the Committee also conducted a number of deep
dives with selected enterprise-wide functions including data
privacy, cyber security, tax, anti-bribery and corruption, and
business resilience.
Data privacy, cyber security and technology resilience
Prudent management of data privacy, cyber security and Pearson’s
technology estate are fundamental to the company’s success and to
building and maintaining trust with our customers. The Committee
oversees these matters on behalf of the Board from a risk and
assurance perspective and monitors the maturity of Pearson’s
associated governance frameworks. It does this through annual deep
dives, as well as through oversight of the risk-based internal audit
programme, in which these topics are key areas of focus.
Audit Committee report continued
Audit Committee meeting focus during 2022
Financial reporting Policy External audit
Internal audit,
risk and internal control
Compliance
and governance
— Accounting and
technical updates
— Impact of legal claims
and regulatory issues
on financial reporting
— Fair, balanced and
understandable
reporting, going
concern and viability
statements including
supporting analysis
— 2021 annual report
and accounts:
preliminary
announcement,
financial statements
and income statement
— Review of interim
results and trading
updates
— Form 20-F and related
disclosures, including
annual Sarbanes-
Oxley Act Section 404
attestation of
financial reporting
internal controls
— Significant issues
reporting
— Accounting
matters and
Group
accounting
policies
— Treasury Policy
and reporting
— Tax update
— Greenhouse
gas emissions
- policy for
re-baselining
and
restatement
— Oversight of external auditor
transition and first-year audit by
new auditor
— Provision of non-audit services
by external auditor - policy and
regular reporting
— Appointment of
external auditors
— Report on half-year procedures
— Confirmation of
auditor independence
— 2022 external audit plan
— Remuneration and engagement
letter of external auditors
— Review opinion on interim results
— Review of the effectiveness of
external auditors
— EY feedback on
internal controls over financial
reporting
— Receipt of external
auditors’ report on annual
report, Form 20-F and year-end
audit
— EY feedback on
internal controls over financial
reporting
— Internal audit activity
reports and review of
key findings
— 2022 internal audit plan
including resourcing
— Assessment of
the effectiveness of
internal audit function,
internal control
environment and risk
management systems
— Risk management
including Group’s
principal and
emerging risks
— Strategic risk reviews led
by Divisional Presidents
— Group-wide risk deep
dives on cyber security;
data privacy; treasury
and insurance;
anti-bribery and
corruption; and
business resilience and
crisis management
— Controls Centre of
Excellence updates,
including 2022 work plan
— Fraud,
whistleblowing
reports and
compliance
investigations
— Compliance with
accounting and
audit-related aspects
of the UK Corporate
Governance Code
— Audit Committee
and internal audit
function terms of
reference
— Oversight of Group’s
schedule of
delegated financial
authority
— Regulatory briefings,
including proposals
resulting from BEIS
consultation on audit
and corporate
governance reform
— Review of minutes of
the Verification
Committee’s
meetings
As part of the data privacy deep dive led by the Chief Privacy Officer, the
Committee considered developments in the global regulatory landscape
and trends in enforcement actions, focusing on the importance of
transparency and controls around the use of personal information.
These regulatory trends, combined with Pearson’s direct to consumer
strategy, mean that a compelling user experience is imperative.
Accordingly, the Committee discussed the progress that had been made
through the launch of a new public-facing privacy centre, which provides
an effective and customer friendly approach to explaining how Pearson
uses personal information. The Committee also considered the ongoing
enhancements to Pearson’s data privacy governance structure, including
a newly implemented network of designated privacy owners,
strengthening of the internal incident management framework, and
continued focus on data retention programmes with a particular focus
on customer products, platforms and services.
The Committee also considered the status of Pearson’s cyber security
programme, through a deep dive led by the Chief Information Officer
and Chief Information Security Officer. This deep dive was set in the
context of the challenges and threats prevalent in the dynamic global
security landscape. As part of this, the Committee received a report on:
— Pearson’s cyber risk profile, including the status and trend of top
threats and response to these threats, with a particular focus on
strategic products
— Management’s key achievements and focus areas in 2022, which
included: simplifying and updating information security policies to
support Pearson’s digital strategy; enhancement of identity
management capabilities; development of role specific security
training; implementation of supplier security risk management;
and continued attention to best practices for cloud security
— Objectives for the continued enhancement of Pearson’s cyber
security infrastructure and governance frameworks, including the
key achievements in 2022 and aims for the coming year
— Findings of the annual third party assessment of Pearson’s
cyber capability maturity, which continues to demonstrate
year-on-year improvement.
82 Pearson plc Annual report and accounts 2022
Members
As at the date of this report, the Committee comprises four
independent Non-Executive Directors, all of whom have financial
and/or related business experience due to the senior positions
they hold or have held in other listed or publicly traded companies
and/or large organisations. The Committee possesses a good
balance of skills and knowledge with competence and experience
covering all aspects of the sectors in which Pearson operates and
the company’s key markets. Each member is “financially literate”
for the purposes of the NYSE listing standards.
Graeme Pitkethly, Chair of the Committee since August 2022, is
the Committee’s designated financial expert within the meaning
of the applicable rules and regulations of the SEC, having recent
and relevant financial experience, and is a Chartered Accountant.
Graeme is Chief Financial Officer for Unilever plc and serves as
Vice-Chair of the Financial Stability Board’s Task Force on
Climate-related Financial Disclosures (TCFD). Graeme’s full
biography is shown on page 57.
The qualifications and relevant experience of the other Committee
members are detailed on pages 56 to 58. You can read more on
page 59 about the process through which the Board assesses the
independence of Non-Executive Directors.
The Committee has a strong focus on Pearson’s cyber security
maturity and will increase its scrutiny of this topic by conducting two
deep dives each year from 2023. As mentioned elsewhere in this
report, the Chief Information Officer now attends every Committee
meeting, to ensure ongoing focus on matters of both cyber security
and technology resilience, among others.
As indicated in last year’s annual report, the Committee also continued
to monitor management’s implementation of the Board’s agreed
action plan following a 2018 security incident affecting AIMSweb 1.0.
The Committee has concluded that the key workstreams have been
successfully delivered, with the agreed improvements now having
been incorporated into standard company practices.
The Committee also holds a separate annual deep dive, led by the
Chief Information Officer, focusing on Pearson’s technology resilience
capabilities. In 2022, this session included updates on infrastructure
enhancements, management of the end-of-life technology estate,
product availability and incidents, and technology-specific talent risk.
TheCommittee also paid particular attention to the work of
the sanctions team and wider business in response to the war
inUkraine.
Internal audit
The internal audit function is responsible for providing independent
assurance to management and the Committee on the design and
effectiveness of internal controls to mitigate strategic, financial,
operational and compliance risks. The Vice President – Internal Audit
reports jointly to the Chair of the Committee and the Chief Financial
Officer and is responsible for the day-to-day operations of internal
audit and execution of the annual audit plan.
The internal audit mandate is approved annually by the Committee.
The audit plan and any changes thereto are also reviewed and
approved by the Committee throughout the year, and the Committee
is attentive to the resourcing of the internal audit function. The
internal audit plan is aligned to Pearson’s greatest areas of risk, as
identified by the organisational risk management process, and the
Committee considers issues and risks arising from internal audits.
Management action plans to improve internal controls and to
mitigate risks are agreed with the business area after each audit.
Internal audit has a robust process in place for the implementation of
audit actions, which also includes review and testing of evidence to
corroborate action implementation. Progress of management action
plans is reported to the Committee at each meeting. Internal audit
has a formal collaboration process in place with the external auditors
to ensure efficient sharing of insights and outcomes. Opportunities
for reliance by the external auditor on internal audit outcomes are
limited due to strict rules set by the external regulator. Regular
reports on the findings and emerging themes identified through
internal audits are provided to executive management and, via the
Committee, to the Board.
In 2022, internal audit carried out engagements across Pearson’s
business units and corporate functions covering most of the principal
risks. The audit plan changes throughout the year based on changes
in Pearson’s risk profile. Key themes in 2022 related to information
security and data privacy, cyber security, data architecture and usage,
digital safeguarding and business resilience, as well as financial
controls in international businesses.
Internal audit evaluation
At its November 2022 meeting, the Committee considered the
findings of the review of the performance and effectiveness of
Pearson’s internal audit function, a process which is undertaken
annually. The 2022 review was conducted by distributing a
questionnaire to the key stakeholders of the internal audit function
– including Committee members, the lead external audit partner,
members of the executive management team, and senior financial,
legal and operational management.
The evaluation process sought views on an anonymised basis on the
internal audit function’s work programme, resource levels, skills and
expertise, and ways of working. Based on the findings of the 2022
review, the Committee is of the opinion that the quality, experience
and expertise of the internal audit function is appropriate for the
business. The Committee recognised the findings of the review which
noted that the internal audit function continues to improve
collaboration with other teams, including the corporate risk and
compliance teams, and is supportive of the desire to bring a greater
level of data-based insight to add context to the findings of internal
audit’s work. The Committee will remain attentive to the use of
co-sourcing arrangements to supplement the internal audit
function’s resource, particularly to ensure appropriate coverage of
specialist areas.
The Committee will ensure that an independent third-party
assessment of the effectiveness and processes of the internal audit
function is conducted at least once every five years, in line with the
requirements of the Institute of Internal Auditors’ International
Standards for the Professional Practice of Internal Auditing. The most
recent such assessment was undertaken in 2019.
Compliance, fraud and whistleblowing
The Chief Compliance Officer oversees compliance with our Code of
Conduct and works with senior legal, HR and other relevant
personnel to investigate any reported incidents, including ethical,
corruption and fraud allegations. The Committee receives an update
at each meeting on all significant investigations as well as reviewing
data regarding matters raised through our whistleblowing reporting
system. If applicable, any findings of the external auditors with
respect to a particular matter are also considered as part of these
discussions. The Committee may also meet in private if required with
the Chief Compliance Officer. On behalf of the Board, the Committee
considers an annual review of the effectiveness of the whistleblowing
system including through benchmarking against peers and by
monitoring progress against previous years’ findings. The Committee
Chair’s regular reports to the Board include a review of investigations
or whistleblowing matters of note.
The Pearson anti-bribery and corruption (ABC) and sanctions
compliance programmes provide the framework to support our
compliance with various regulations such as the UK Bribery Act 2010
and the US Foreign Corrupt Practices Act. The Committee uses this
framework to conduct a deep dive into the ABC and sanctions
compliance programmes on an annual basis. In 2022, in addition
to its regular review of investigations, the Committee noted the
continued enhancements made to the overall compliance
programme, including ongoing training for staff, development
of a set of FAQs for employees to provide insight into the
investigations process, and enhancements to the ways in which
Pearson monitors third parties with which it does business.
Annual report and accounts 2022 Pearson plc 83
Internal control and risk management
The Board has overall responsibility for Pearson’s systems of internal
control and risk management, which are designed to manage, and
where possible mitigate, the risks facing Pearson, as well as to
safeguard assets and provide reasonable, but not absolute,
assurance against material financial misstatement or loss.
The Board agrees risk management requirements and, in assessing
the effectiveness of the risk management effort, reviews a range
of inputs as described elsewhere in this report. The Board can
and does challenge the reporting it receives and will request further
information as needed to make its assessment.
The Committee monitors the effectiveness of the company’s risk
management and internal control systems on behalf of the Board.
The Committee oversees a risk-based internal audit programme,
including periodic audits of the risk processes across the
organisation. It provides assurance on the management of risk
(including via risk deep dives, as described on page 81), and receives
reports on the efficiency and effectiveness of internal controls with
input from the Deputy Chief Financial Officer and external auditor.
Each business area maintains internal controls and procedures
appropriate to its structure, business environment and risk
assessment, while complying with company-wide policies, standards
and guidelines. These controls and procedures are monitored and
certified through the Group-wide Controls Centre of Excellence and
are subject to testing as part of both the internal and external audit
processes.
The Committee, acting on behalf of the Board, confirms that it has
conducted and continues throughout the year to review the
effectiveness of Pearson’s systems of risk management and internal
control in accordance with Provision 29 of the Code and the FRC
Guidance on Risk Management, Internal Control and Related
Financial and Business Reporting (‘FRC Guidance’). In making its
assessment as to the effectiveness of these systems for 2022, the
Committee had regard to an assurance opinion from the internal
audit function. Factors considered in this process included:
— the outcomes of internal audits completed during the year
— significant changes in Pearson’s strategy, processes and systems
— the wider Pearson risk management and assurance framework
which includes other assurance activities by first and second line
of defence teams, including enterprise risk management, the
Controls Centre of Excellence, divisional and technology
assurance teams
— work conducted by the external auditor
— the organisation’s response to internal audit actions
— whether any fundamental or significant actions have not been
accepted by management and the consequent risk
— whether any limitations have been placed or the scope
of internal audit.
The Committee reviewed the detail underpinning these factors as
part of the 2022 year-end process. The Committee reviewed all
internal control deficiencies identified during the year and noted that
the majority have been remediated during 2022. In particular, the
Committee reviewed the control implications of the issue related to
investments in unlisted securities (see page 87) and were satisfied
that the control deficiency has been remediated. They also
considered feedback on information provided by the entity (IPE) that
underpins control operation. Following this review, the Committee
confirms that Pearson’s systems of risk management and internal
control operated satisfactorily throughout the year.
The Board is ultimately accountable for effective risk management in
Pearson and determines our strategic approach to risk. It confirms
our enterprise risk management framework as well as our risk
appetite targets. The involvement of the Board and Committee in the
design, implementation, identification, monitoring and review of risks
(including setting risk appetite and reviewing how risk is being
embedded in our culture) is outlined in more detail in the Risk
management section on page 43.
External audit
In June 2021, the company announced the Board’s intention to propose
to shareholders that EY be appointed as the company’s statutory
auditor for the financial year ending 31 December 2022. The audit
tender process was described in detail in the 2021 annual report and
EY’s appointment was approved by shareholders at the 2022 AGM.
Following the tender process in 2021, Pearson will put the external
audit contract out to tender at least every ten years and will seek the
rotation of the audit partner in line with regulation and professional
and ethical guidance. The external auditors are required to rotate
the audit partner responsible for the Pearson audit every five years.
The 2022 audit was the first year for the EY lead audit partner, Ben Marles.
A detailed audit plan was received from EY at the beginning of the
audit cycle for the 2022 financial year, which gave an overview of its
approach to the audit, outlining the significant risk areas and in
particular the approach to materiality and scoping of the audit.
The Committee regularly reviewed the significant audit risks and
assessed the progress of the audit throughout the year. The Committee
also received updates throughout the year from both management
and EY on the progress of the first-year audit to allow the Committee
to assess the effectiveness of the transition process and to monitor the
status of specific areas such as EY’s review of internal controls and
their assessment of accounting judgements.
The Committee reviews and makes recommendations to the Board in
respect of the appointment and compensation of the external
auditors. These recommendations are typically made by the
Committee after considering the external auditors’ performance during
the year, reviewing external auditor fees, conducting an effectiveness
review, considering the annual report on audit quality of the intended
external audit firm and confirming the independence, objectivity,
qualifications and experience of the external auditors.
External audit effectiveness review
In conducting its review of the effectiveness of EY, Pearson’s external
auditors for 2022, the Committee had regard to certain factors set out
in the FRC’s guidelines titled ‘Audit Quality Practice Aid for Audit
Committees’ as well as the key areas of importance from a strategic,
operational, reporting and regulatory perspective. In particular, the
Committee considered its own observations and interactions with the
external auditors, the quality of the audit, the auditors’ independence,
the programme of work conducted by the auditors and their reports
on that work.
The review was conducted by distributing a questionnaire to key audit
stakeholders, including members of the Committee and key management
who interact with the external auditors on a regular basis, including the
Chief Financial Officer, Deputy Chief Financial Officer, Senior Vice President
– Treasury, Risk and Insurance, Vice President – Internal Audit, Senior
Vice President – Finance for each business division, and other heads of
corporate functions. The process sought views on an anonymised
basis on many aspects of EY’s work and interactions with the company,
as well as their mindset, skills and knowledge. In the first year of EY’s
tenure as Pearson’s external auditor, there was a particular focus on
the transition process, EY’s review of the control environment, ways of
working between the Pearson and EY teams, and the observations that
EY had made on Pearson’s business, processes, controls and systems.
In considering the independence of the external auditor, the Committee
has regard to, among other things, EY’s challenge to management, the
degree to which they demonstrate professional scepticism, integrity
and judgement in their work, the amount of time passed since a rotation
of audit partner and the level of non-audit work that the external
auditor undertakes (details of which can be found on page 85).
The responses to the evaluation indicated that the external audit
partners and staff exhibit professional scepticism in their work and are
robust in dealing with issues identified during the audit. In particular,
respondents remarked upon the scrutiny demonstrated by EY in
testing the system of internal controls and the Committee noted the
challenge presented to management by the auditors in respect of
accounting judgements from prior years. Overall, having reviewed the
effectiveness and independence of the external auditors during 2022,
the Committee concluded that the auditors provide effective
independent challenge to management.
Audit Committee report continued
84 Pearson plc Annual report and accounts 2022
In early 2022, the Committee asked the outgoing auditor, PwC, to
share its perspectives on outputs from the previous year’s evaluation
process. The purpose of this was to support a smooth transition by
enabling the Committee and EY to take forward the opportunities for
improvement identified in the 2021 review.
The Committee will continue to review the performance of the
external auditors on an annual basis and will consider their
independence and objectivity and the quality of the external audit,
taking account of all appropriate guidelines.
Naturally, given this was a year of transition, a number of
opportunities for further improvement were identified through the
effectiveness review. These primarily related to ways of working
between the Pearson and EY teams. Following the conclusion of the
2022 audit, Pearson and EY, led by the Deputy Chief Financial Officer
and lead audit partner respectively, will work together to develop an
action plan in response to the recommendations. The Committee will
oversee implementation of this plan throughout the coming year.
Compliance with the CMA Order
Pearson confirms that it was in compliance with the provisions of The
Statutory Audit Services for Large Companies Market Investigation
(Mandatory Use of Competitive Tender Processes and Audit
Committee Responsibilities) Order 2014 during the financial year
ended 31 December 2022.
Review of the external audit
During the year, the Committee discussed the planning, conduct and
conclusions of the external audit as it proceeded.
At its April and July 2022 meetings, the Committee discussed and
approved the external audit plan and reviewed the key risks of
misstatement of Pearson’s financial statements. The external
auditors provided an update to the risk assessment at the November
2022 Committee meeting, following the acquisition and disposal
transactions in the second half of the year. These risks were then
confirmed as final at the conclusion of their audit of the financial
statements in February 2023.
The table on pages 86-87 sets out the significant issues considered
by the Committee together with details of how these items have
been addressed. The Committee discussed these issues with the
auditors throughout the audit year.
In November 2022, the Committee discussed with the auditors the
status of their work, focusing in particular on internal controls and
Sarbanes-Oxley testing.
As the auditors concluded their audit, they explained to the Committee:
— the work they had conducted over revenue, including over
contracts in certain of the Group’s businesses in the US and UK
that span the year end, where revenue is recognised using an
estimated percentage of completion based on costs and
judgements in relation to provisions for returns
— their work in evaluating management’s goodwill impairment
exercise, on a value-in-use basis, including assessing assumptions
around the cash-generating unit (CGU) reassessment, goodwill
reallocation, operating cash flow forecasts, perpetuity growth
rates and discount rates
— their work in assessing management’s judgements and
assumptions regarding the impairment of its right-of-use
assets and whether property assets should be classified as
investment property
— their work conducted over the accounting treatment of certain
unlisted securities and their procedures performed over the
restatement of prior year comparative numbers and the
associated control implications in relation to this matter
— their procedures performed to audit the material acquisitions
and disposals completed in the year in addition to evaluating
management’s judgement that the businesses under strategic
review do not meet the IFRS 5 criteria to be held for sale at
31 December 2022
— the work performed over the nature and presentation of
adjusting items, focusing on subjective judgements and the
transparency with which related adjusted measures are
presented, and in particular the exclusion of costs related to
major restructuring programmes
— their work in assessing management's judgements and assumptions
regarding provisions for uncertain tax positions, in particular the
provision made in relation to the EU state aid tax matter
— the results of their controls testing for Sarbanes-Oxley Act Section 404
reporting purposes and in support of their financial statements audit
— the results of their work over the company’s going concern and
viability statement reports
— their work in relation to information provided by the entity (IPE)
disclosures and other material internal control over financial
reporting (ICFR) matters
— their work in relation to other matters which are not classified
as key audit matters, but may give rise to additional
disclosure requirements, such as pensions, restructuring and
asset capitalisation
— the work performed over the carrying value of investments in
subsidiaries for the Pearson plc parent company.
The auditors also reported to the Committee the unadjusted
misstatements that they had found in the course of their work, which
were immaterial, and the Committee confirmed that there were no
material items remaining unadjusted in these financial statements.
Auditors’ independence
In line with best practice, our relationship with EY is governed by our
policy on external auditors, which is typically reviewed and approved
annually by the Committee. The policy establishes procedures to
ensure that the auditors’ independence is not compromised, as well
as defining those non-audit services that EY may or may not provide
to Pearson. Any allowable services are in accordance with relevant
UK and US legislation and auditor standards. The policy takes into
account certain voluntary commitments by EY regarding
independence and applies to all Pearson businesses globally,
including associate companies.
The Committee approves all audit and non-audit services provided
by EY. Our policy on the use of the external auditors for non-audit
services complies with the FRC’s Revised Ethical Standard published
in December 2019. The standard applies restrictions on certain
non-audit services and applies a cap on the level of permitted
non-audit services fees which can be billed in any year. The policy
also reflects the restriction on the use of pre-approval in the 2016
FRC Guidance on Audit Committees and, accordingly, all non-audit
services, irrespective of value, are required to be approved by the
Committee. In particular, we expressly prohibit the provision of
certain tax, HR and other services by the external auditor. We review
non-audit services on a case-by-case basis, including reviewing the
ongoing effectiveness and appropriateness of our policy.
The Committee receives regular reports summarising the amount
of fees paid to the auditors. During 2022, Pearson spent a similar
amount on non-audit fees when compared with 2021. For 2022,
non-audit fees represented 1% of external audit fees (2% in 2021).
For all non-audit work in 2022, EY was selected only after
consideration that it was best able to provide the services we
required at a reasonable fee and within the terms of our policy on
external auditors. Where EY is selected to provide audit-related
services, we take into account its existing knowledge and experience
of Pearson. Where appropriate, services were tendered prior to a
decision being made as to whether to award work to the auditors.
Significant non-audit work performed by EY during 2022 included:
— half-year review of interim financial statements
A full statement of the fees for audit and non-audit services is
provided in note 4 to the financial statements on page 158.
Graeme Pitkethly
Chair of Audit Committee
Annual report and accounts 2022 Pearson plc 85
Audit Committee report continued
Significant issues considered by the Audit Committee
Issue Action taken by Audit Committee Outcome
Goodwill allocation and impairment reviews
— Pearson carries significant goodwill and
other intangible asset balances. As a
result of business disposals and an
associated change in organisation
structure there has been a change in the
determination of cash generating units
and goodwill has been reallocated. There
are significant estimates and
assumptions used in the impairment
review. Pearson has made significant
impairments to goodwill across a variety
of its businesses in past years.
— The Committee considered the impact of
acquisitions, disposals and changes in
organisation design on the determination of
cash generating units and in particular the level
at which goodwill is monitored. The Committee
reviewed the reallocation of goodwill across the
cash generating units including those disposed.
— The Committee monitored the Group’s plans
and forecasts during the year to determine if
there were impairment triggers. The Committee
considered the results of the Group’s goodwill
impairment reviews which were undertaken in
December and refreshed post year end. Key
assumptions – including cash flows derived
from strategic and operating plans, long-term
growth rates and the weighted average cost of
capital – were reviewed and challenged. The
Committee considered the sensitivities to
changes in assumptions and the adequacy of
disclosures required by IAS 36 ‘Impairment of
Assets’ in relation to the Group’s CGUs.
— The Committee is satisfied with the
determination of cash generating units and
the associated goodwill reallocation.
— The Committee is satisfied with the annual
impairment review with confirmation of
sufficient headroom in each of the cash
generating units.
— The Committee is satisfied with the
disclosures relating to goodwill.
Going concern and viability
— The assessment of the Group’s viability
and the appropriateness of the going
concern assumption.
— The Committee reviewed future budgets and
cash flow forecasts to understand the Group’s
available liquidity and ability to continue as a
going concern. The Committee reviewed and
challenged the risks identified to the forecasts.
The Committee reviewed the outcome of the
severe but plausible scenario modelling and
stress testing.
— The Committee is satisfied with the
modelling process and the risks identified. In
addition, the Committee is satisfied with the
stress testing performed and the severe but
plausible scenario modelling. The
Committee noted that in all scenarios the
Group had a high level of liquidity headroom
and sufficient headroom against covenant
requirements.
— The Committee is satisfied with the
assessment of the Group’s viability and is
satisfied that the Group is a going concern.
— The Committee is satisfied with the
disclosures related to going concern
and viability.
Acquisitions and disposals
— Pearson disposed of its interests in its
international courseware local publishing
businesses, disposing of assets in French
speaking Canada, Italy, Germany, South
Africa and Hong Kong. In addition,
Pearson announced a strategic review of
its Online Program Management
business.
— Pearson acquired Credly Inc, increasing
its ownership from 19.9% to 100%.
— Pearson acquired 100% of ATI STUDIOS
A.P.P.S S.R.L (Mondly).
— The Committee reviewed the accounting for the
disposal of the international courseware local
publishing businesses with specific focus on
consideration, net assets disposed and disposal
costs. The Committee also reviewed tax
assumptions relating to the disposal
transactions. In addition, the Committee
reviewed the judgement related to whether the
results and cash flows of the disposed
businesses should be classified and presented
as discontinued operations by reference to the
criteria set out in IFRS 5.
— The Committee reviewed the status of the
strategic review of the Online Program
Management businesses and considered this
against the IFRS 5 criteria to be classified as
held for sale.
— The Committee reviewed the accounting for the
Credly and Mondly acquisitions with specific
focus on the step acquisition accounting for
Credly, consideration, net assets acquired
including the valuation of intangibles and the
recognition of goodwill. The Committee noted
the use of third party valuation experts to value
the acquired intangible assets.
— The Committee determined that disposal
accounting for the international courseware
local publishing businesses had been
appropriately recorded. The Committee is
satisfied with the judgement that the results
and cash flows of the disposed businesses
should not be classified and presented as
discontinued operations and is also satisfied
with the disclosures related to this item.
— The Committee also agreed that the IFRS 5
criteria to be classified as held for sale in
respect of the Online Program Management
businesses had not been met as at 31
December 2022.
— The Committee determined that the
acquisition accounting for Credly and
Mondly had been undertaken appropriately
but notes that it remains provisional as at
31 December 2022.
Audit Committee report continued
86 Pearson plc Annual report and accounts 2022
Issue Action taken by Audit Committee Outcome
Revenue recognition
— Pearson has a number of revenue
streams where revenue recognition is
complex. For some revenue streams
significant judgements and estimates
are required in order to determine
the amount and timing of
revenue recognition.
— The Committee regularly reviews and
challenges revenue recognition practices and
the underlying assumptions and estimates. In
addition, the Committee has visibility of internal
audit findings relating to revenue recognition
controls and processes and routinely monitors
the views of external auditors on revenue
recognition issues.
— The Committee is satisfied that revenue is
being recognised appropriately.
Property asset impairment reviews and classification
— Pearson holds significant right-of-use
assets in relation to leased properties.
The property portfolio has been further
simplified, significantly reducing the
square footage required. The right-of-use
assets have consequently been impaired.
In addition, assumptions made in
previous years regarding the ability to
sublet have been revisited. There are
significant estimates and assumptions
used in the impairment review.
— In light of the changes in use of
Pearson’s property assets from own use
to sublet, the classification of property
assets has been assessed resulting in
recognition of certain assets as
investment property in 2022.
— The Committee monitored the Group’s
property strategy during the year to determine
if there were impairment triggers. The
Committee considered the results of the
Group’s property impairment reviews with
specific focus on the 80 Strand and Hoboken
properties. Key assumptions – including
potential rental value, expected sublease
durations and terms such as rent free periods
– were reviewed and challenged. The
Committee considered the adequacy of related
disclosures. The Committee noted the input of
third party property specialists in determining
the key assumptions.
— The Committee reviewed the assessment of the
property assets against the criteria to be
classified as investment property.
— The Committee is satisfied with the results
of the property impairment reviews and the
subsequent impairment charges recognised
in the income statement.
— The Committee is satisfied that the
charges relate to a major restructuring
programme and so meet the Group’s
criteria to be excluded from adjusted
performance measures.
— The Committee is satisfied with
the disclosures relating to
property impairments.
— The Committee is satisfied with the decision
to classify certain property assets as
investment property and the disclosures
relating to this classification.
Tax
— Pearson holds provisions in relation to
uncertain tax positions.
— In 2021, Pearson paid £105m (including
interest) in relation to the EU state aid
matter and at that time the amount was
recognised as an asset as it was
expected to be recovered in due course.
In 2022, the EU General Court dismissed
the appeal made by the UK Government
in relation to this matter. As a result of
the dismissal, Pearson have concluded
that a provision is now required in
relation to this issue.
— In 2022, Pearson have released tax risk
provisions totalling £72m following the
expiry of the statute of limitations for
certain periods in the US.
— Changes to, and the application of, tax
legislation continues to be a complex
and judgemental area.
— The Committee considered various
developments during the year, including
Pearson’s ongoing response to the European
Commission’s decision that the UK’s Finance
Company Partial Exemption rules constituted
state aid (‘EU state aid’). The Committee noted
that the EU General Court dismissed the UK
Government’s appeal in relation to the EU state
aid matter and concur with management that a
provision is now required for this item.
— The Committee reviewed the release of the
tax risk provisions resulting from the expiry of
the statute of limitations, including the
presentation of these items within adjusted
and statutory earnings.
— The Committee is satisfied with Pearson’s
approach to managing the impact of tax
legislation changes and agreed with the
views of management regarding tax
provisioning levels.
— The Committee is satisfied with Pearson’s
approach to the EU state aid matter
including the provision made in relation to
amounts paid in 2021 and ongoing
disclosure about this matter.
— The Committee is satisfied with the release
of US tax provisions and the presentation of
the items within the income statement.
Investments in unlisted securities
— Pearson holds investments in unlisted
securities. Historically, all of these
investments have been classified as fair
value through other comprehensive
income. On further review of limited life
funds the classification for certain funds
has been changed to fair value through
profit and loss.
— The change in classification represents
an error in the prior year accounts and
prior year comparative numbers have
been restated.
— The Committee considered the classification of
certain limited life funds held by Pearson and
agreed with the reclassification.
— The Committee considered the need for
restatement of prior year comparative
numbers considering both quantitative and
qualitative factors.
— The Committee reviewed the disclosures
relating to the restatement.
— The Committee reviewed the control
implications relating to this matter.
— The Committee agreed with the
reclassification of certain unlisted securities.
— The Committee agreed with the requirement
to restate comparative figures based on
quantitative size but reviewed and agreed
with management’s determination that the
qualitative factors suggest this is not a
material item to users of the accounts.
— The Committee is satisfied with the
accounting treatment in the current year
and the disclosures related to the
restatement of comparative figures.
— The Committee were satisfied that the
control deficiency has been remediated.
Annual report and accounts 2022 Pearson plc 87
Directors’ remuneration report
Key messages from the Remuneration
Committee
— During the year, the Committee undertook a
comprehensive review of the Directors’ remuneration
policy, which is due for its triennial renewal at the 2023
AGM. Following extensive consultation with shareholders, it
was determined that a conventional UK incentive structure
would be retained but with modifications to quantum and
enhancement of key UK governance features.
— The Committee also reviewed the implementation of the
Directors’ remuneration policy for 2023, in particular the
performance framework, to ensure it appropriately
supports delivering Pearson’s forward-looking strategy.
— The Committee spent significant time during the year
considering the inclusion of strategic and ESG priorities in
incentives and benefited from insights provided by Annette
Thomas given her key role on Pearson’s Reputation &
Responsibility Committee. We will introduce a new ESG
metric into the LTIP and remove digital sales from the AIP.
— As Committee Chair, I engaged extensively with shareholders
and their advisers throughout 2022, and all feedback received
was considered by the Committee when finalising the
Directors’ remuneration policy and its implementation
for 2023.
— The Committee considered performance outcomes for
2022. The annual incentive outcome for Executive Directors
is 76% of maximum reflecting strong financial and strategic
progress delivered in 2022. The long-term incentive granted
in 2020 will vest at 58% of maximum considering the
profitable growth and shareholder value created over the
three-year performance period.
— A thorough review was conducted ahead of the release of the
second tranche of the co-investment award for the Chief
Executive, considering performance underpins, broader
company performance, and stakeholders’ experience and it
was determined that this tranche should vest in full.
— The Committee remains focused on ensuring remuneration
policies and practice for all Pearson’s colleagues are
consistent with our need to attract and retain the right
talent for our digital future, and are appropriately aligned to
our forward-looking strategy, our purpose, and our mission,
vision, and values.
— During the year, I engaged with colleagues on executive pay
and wider reward matters through several channels,
including the Employee Engagement Network.
Sherry Coutu - Committee Chair
Terms of reference
The Committee’s terms of reference are in line with the 2018 UK
Corporate Governance Code and are available on the Governance
page of our website at pearsonplc.com (a summary of the
Committee’s responsibilities is on page 111).
Board Committee attendance
There were 7 scheduled meetings of the Remuneration Committee in
2022. Attendance by Directors was as follows:
Committee members Meetings attended
Sherry Coutu CBE 7/7
Esther Lee
1
6/6
Tim Score 7/7
Sidney Taurel
2
2/2
Annette Thomas
3
3/3
1. Esther Lee joined the Remuneration Committee on 1 April 2022.
2. Sidney Taurel stepped down from Pearson’s Board and the Remuneration
Committee at the AGM on 29 April 2022.
3. Annette Thomas joined the Remuneration Committee on 1 August 2022.
Dear Shareholder
On behalf of the Board, I am pleased to present the 2022 Directors’
remuneration report, which includes our 2023 Directors’
remuneration policy.
Pearson completed 2022 ahead of original expectations. The Group
delivered a robust financial performance, with underlying sales up
5% and an underlying increase in adjusted operating profit growth of
11% as well as being on-track to deliver significant cost efficiencies
in 2023.
Pearson made strong strategic progress over the year, including
reshaping the portfolio for growth, adding capabilities and increasing
interconnectivity between divisions to unlock synergies and build
further lifelong learning potential. The Company’s strong strategic,
operational, and financial progress was reflected in the share price
and value delivered to our shareholders. Pearson ended the year as
one of the top performers in the FTSE 100, delivering a total
shareholder return of over 50% in 2022.
The work undertaken by Andy Bird and his new executive team over
the last two years has ensured robust digital foundations for the next
stage of Pearson’s journey which will enable new digital products and
services to be brought to market at pace. Going forward, Pearson
intends to capitalise on the momentum to date and continue to
accelerate the growth of the business through its connected
commercial and consumer strategy.
Directors’ Remuneration Policy review
In line with the normal three-year cycle in the UK, Pearson’s Directors’
remuneration policy will be subject to shareholder vote at the 2023
AGM. In advance of this, the Committee has spent significant time
rigorously reviewing the Directors’ remuneration policy and its
implementation to ensure it remains fit for purpose as Pearson looks
to the future. This review considered Pearson’s renewed strategy, the
strong performance of the business, and the views and expectations
of our shareholders, their advisers, and other stakeholders.
Andy Bird was appointed Chief Executive shortly after the approval of
our existing Directors’ remuneration policy at the 2020 AGM. Under
his leadership, Pearson attracted several new experienced individuals
to lead the business and the whole organisation is energised and
focused on executing our new strategy. Additionally, Pearson has
moved from near the foot of the FTSE 100 to around 60
th
due to the
significant increase in market cap during 2022.
88 Pearson plc Annual report and accounts 2022
The continued execution of the renewed digital-first strategy, through
which Pearson aims to deliver innovative digital learning products
through an integrated commercial and consumer strategy, demands
a highly skilled and experienced management team. Attracting and
retaining the correct calibre of talent has been and will remain crucial
in accelerating the growth of the Company and ensuring it is well
positioned to compete globally and capture market share.
North America is a key talent and growth market for Pearson and
critical to the future success of the business. Pearson needs to be
able to recruit and retain talent from this market, which generates
two-thirds of Pearson’s total revenue, to deliver on its strategy.
However, remuneration practices in the US differ significantly from
the UK both in terms of quantum and structure, particularly with
regard to long-term equity arrangements.
Highlighted by the appointment of Andy Bird, the Committee believes
that the existing executive remuneration framework does not
adequately act as an attraction, retention and incentivisation tool for
US talent. To secure his appointment, the Committee developed a
bespoke one-off co-investment award. This illustrates the challenges
of recruiting in the US market, and the Committee is keen to ensure
that the new Directors’ remuneration policy appropriately rewards
the current Executive Directors, whose skills and experience will be
particularly sought after for their contribution, while also containing
additional flexibility to attract future talent if required over the
three-year life of the Directors’ remuneration policy.
In this context, the Committee is proposing to implement a package
of changes to the Directors’ remuneration policy and its
implementation for 2023.
Initially, the Committee considered various alternative incentive
frameworks, including a hybrid structure comprising both
performance shares and restricted shares, which is very common in
the US market, and operated by Pearson for senior management
below Executive Director level. Feedback from some investors
highlighted a continued preference for performance shares only, and
so the Committee determined that a conventional UK incentive
framework should be retained.
To support the attraction, retention and incentivisation of the critical
executive talent needed to deliver the forward-looking strategy and
ultimately the creation of long-term sustainable value for our
shareholders and other stakeholders, the Committee is proposing to:
— adjust the percentage that pays out under the Annual Incentive
Plan (AIP) and Long-Term Incentive Plan (LTIP) for threshold
performance to 25% and 20% of maximum, respectively
— increase the Policy maximum opportunity level under AIP from
200% to 300% of salary
— increase the Policy maximum opportunity level under LTIP from
350% to 450% of salary.
For 2023, it is proposed that the Chief Executive will participate in the
AIP and LTIP with maximum opportunity levels aligned to these
increased maximums. For the Chief Financial Officer, maximum
opportunity levels for 2023 will be increased to 200% of salary for the
AIP and 300% of salary for the LTIP (an increase from 170% and
245% of salary, respectively). See page 94 for further details on the
market data considered by the Committee in assessing pay
competitiveness at Pearson.
The Committee believes that retaining a UK market-aligned
remuneration framework for the forward-looking Directors’
remuneration policy, but with increased opportunity levels, is the
best way to continue to drive a strong pay for performance culture
and respond to the needs of the global talent market for digital
innovators, whilst remaining mindful of the UK governance
environment and the views of our shareholders.
Performance framework
While the Directors’ remuneration policy contains sufficient flexibility
to adjust performance measures on an annual basis, the Committee
took the opportunity as part of the Directors’ remuneration policy
review to undertake a full review of the performance framework to
ensure it continues to closely align to the forward-looking strategy.
Overall, the Committee considered that current performance
framework principles remain appropriate, although a number of
changes to how this is implemented are being proposed for 2023.
Incorporation of ESG into the incentive framework
Pearson is a purpose-driven Company – we add life to a lifetime of
learning through creating vibrant and enriching learning experiences
designed for real-life impact, so everyone can realise the life they
imagine. We believe learning is one of the greatest forces for change
in the world, and as the world’s leading learning company, we have a
duty to help drive that change and deliver against our purpose. The
strategy and priorities for the business are therefore anchored
around this, and everyday actions and behaviours have a strong
social impact.
The Committee spent a significant amount of time during the year
debating the most appropriate ESG measures for inclusion in
incentives. The strategic element of the AIP already includes relevant
ESG priorities, and this will continue for 2023. In terms of specific ESG
metrics, the AIP will include two targets for 2023 – one focused on
investing in a diverse pipeline and increasing representation of
employees from an ethnic minority background at management
levels, and the other focused on achieving a step change towards our
2030 carbon reduction goal. Reflective of the importance of
delivering against our strategic commitments, the Committee chose,
for the first time in 2022, to prospectively disclose annual
performance targets in respect of strategic measures.
A similar approach has been taken in respect of ESG measures
for 2023.
In addition to the AIP, taking on board feedback from our largest
shareholders and reflecting the fact that progression of our ESG
priorities is integral to long-term sustainable growth of the business,
Pearson is introducing an ESG measure into the LTIP for 2023 with a
weighting of 10%. For 2023, the ESG measure will centre on building
an inclusive culture and increasing female representation at
leadership levels.
When considering specific ESG measures for incentives, the
Committee wanted to ensure strong relevance to the strategy and
that measures should be quantifiable. Pearson is dedicated to
creating bias-free content that reflects the diversity, depth, and
breadth of all learners’ lived experiences. Within its content, Pearson
acknowledges its responsibility to demonstrate inclusivity and
incorporate diverse scholarship so that everyone can achieve their
potential through learning. In this context, an ongoing focus on
diversity, equality, and inclusion at all levels of the Company is
important – embracing diversity throughout our own organisation will
lead to a more diverse and representative Pearson product. The
Committee therefore considers it appropriate that such metrics are
included within both the AIP and LTIP. The focus of each measure
does however differ – the AIP considers ethnicity across a broader
management population, while the LTIP is focused on female
representation in leadership roles.
Proposed changes to other measures
For the AIP, it is proposed that the operating cash flow measure,
which has a weighting of 20%, is replaced with a free cash flow
measure. Free cash flow is a measure preferred by some investors as
it better corresponds to the cashflows available to return to them.
The introduction of this measure reflects the importance of free cash
flow generation to Pearson’s fundamental value, and ensures
executives are incentivised to improve it.
Annual report and accounts 2022 Pearson plc 89
The digital sales metric which formed part of the strategic AIP
measures in prior years will be removed for 2023. Considering the
growth in digital and digitally-enabled sales over the last five years,
and that this now accounts for around three quarters of total sales,
the Committee, with input from key shareholders, determined that
including both a sales metric and a digital sales metric within the AIP
was no longer appropriate. The strategic element of the AIP will
therefore focus solely on ESG measures for 2023, at the same
weighting as in 2022 (10% of the total AIP).
For 2023, in response to the removal of digital sales, the weighting of
the adjusted operating profit measure will be increased to 40% to
further incentivise the drive for profitable growth. The Committee did
consider whether to include an additional strategic measure in place
of digital sales, for example, a measure related to consumer
engagement or product effectiveness. It was however determined
that further work was required to ensure a sufficiently robust metric
which could be linked to incentives, although the current intention
of the Committee is that such a metric will be incorporated in
future years.
Overall, therefore, for 2023, the AIP will be based 40% on adjusted
operating profit, 30% on sales, 20% on free cash flow and 10% on
strategic ESG measures. In line with normal practice, the Committee
will review its approach in advance of each financial year to ensure
that the balance of performance measures remains appropriate and
aligned to the financial and strategic priorities of the Group.
For the LTIP, the majority of the awards will continue to be based on
adjusted EPS, relative TSR and a return measure, with these three
measures equally weighted at 30% each. The introduction of the new
ESG measure, as described above, accounts for the remaining 10%. It
is however proposed that, from 2023, Return on Capital replace net
ROIC as the return measure. Return on Capital is considered a more
appropriate and simpler measure for the business in terms of
measuring how efficiently returns are generated from our asset base
and is more consistent with the approach taken by other companies
in the market.
The Committee also carefully considered the peer group against
which to measure relative TSR performance, reflecting on whether a
bespoke peer group, international index or a sector-specific index
should be used instead of or alongside the FTSE 100. Initially, it was
determined that the FTSE 100 should be retained given its simplicity,
the fact that Pearson is a constituent of the FTSE 100 and subject to
similar market dynamics as other global UK-listed companies.
Further, the Committee was mindful of the challenges of identifying
either an appropriate bespoke peer group or a defined sector group
or index which adequately reflects Pearson’s business mix and
UK-listing.
However, during the shareholder consultation exercise, it became
clear that shareholders held a broad range of views in relation to the
most appropriate TSR comparator group for Pearson. Whilst it was
generally recognised there is no “perfect” comparator group, some
preferred the simplicity of the FTSE 100 whilst others thought an
international or sector-specific comparator group would more closely
reflect Pearson’s strategic ambition. The Committee therefore
re-visited its initial deliberations, and to balance the various
perspectives, it has ultimately been determined that a hybrid
approach will be taken – 50% of the TSR element will continue to be
measured relative to the FTSE 100 while the other 50% will be
measured relative to the S&P 500. For both the FTSE 100 and S&P
500, certain sectors – financial services, energy, basic materials,
utilities and healthcare – will be excluded as companies within these
sectors are subject to very different market forces to Pearson and
are therefore not considered relevant comparators.
Target-setting for 2023
One of Pearson’s remuneration principles, which apply across the
whole organisation, centres on pay for performance, and this is
actively considered by the Committee when determining targets. For
2023, in line with usual practice, a robust target-setting process has
been followed considering Pearson’s strategic plan as well as analyst
consensus to reflect market expectations.
This year, the Committee also considered the increased opportunity
levels under the Directors’ remuneration policy to ensure that any
pay-out will appropriately reflect the performance delivered and
ultimately value created for our shareholders. For maximum pay-out,
performance must be significantly in excess of current market
guidance. Overall, the Committee believes that the 2023 LTIP targets
are appropriately stretching in the context of the business and
external environment and would only result in significant value
delivered to management where there has been significant value
created for shareholders and other stakeholders. See page 99 for full
details of 2023 LTIP targets.
The Committee has a strong focus on pay for performance and a
robust track record of setting stretching targets, as demonstrated by
the targets set in recent years and subsequent incentive outcomes.
The approach taken this year is no different.
Shareholder engagement
Over the last year, as part of the Directors’ remuneration policy
renewal, the Committee has engaged extensively with shareholders
and shareholder representative bodies. I would personally like to
take this opportunity to thank all those who took the time to engage
with us and provided feedback on the executive remuneration
approach at Pearson. As always, your feedback is invaluable.
Since the introduction of the one-off co-investment award, which was
designed to secure the appointment of Andy Bird, a significant
minority of shareholders have continued to vote against Pearson’s
remuneration resolutions, including the 2021 Directors’
Remuneration Report at the 2022 AGM. The Committee is naturally
disappointed with this outcome, but equally is committed to ensuring
Pearson has an executive remuneration framework which allows it to
be competitive.
When developing the new Directors’ remuneration policy, the
Committee took a phased approach to shareholder engagement,
initially seeking the views of our major shareholders on the direction
of travel, before building out more detailed proposals. These initial
conversations with shareholders in June and July 2022 resulted in the
Committee deciding to retain the existing incentive framework rather
than pursue an alternative.
Overall, the Committee received feedback from, or directly engaged
with, approximately 55% of Pearson’s ownership as well as the key
proxy advisors. We highly value the inputs and views of all
shareholders and their advisors and have taken these into account
when finalising our approach. It is worth highlighting, however, that
throughout the engagement process we received a broad range of
feedback, with the views of individual shareholders often differing,
and as a result it is not necessarily always possible to meet the
preferences of all shareholders.
In my conversations, there was a general understanding of the
challenges faced by Pearson – the need, despite being a UK-listed
company, to develop an executive remuneration framework which
adequately acts as an attraction, retention and incentivisation tool for
US talent given that North America is a key talent and growth market
for Pearson, and critical to its future success. That said, the
engagement exercise highlighted specific areas of concern for some
shareholders, and reflective of this, the Committee has modified its
proposals. This includes:
— Introduction of annual bonus deferral. In response to
shareholder feedback, the Committee determined to introduce
annual bonus deferral where an Executive Director has not yet
met the relevant shareholding guideline. In such circumstances, it
is proposed that an Executive Director would defer a third of any
bonus earned into an award of Pearson shares for two years.
— Increase in shareholding guidelines in line with increased LTIP
opportunity. Several shareholders noted that considering the
proposed increase in LTIP opportunity they would expect a
corresponding increase in shareholding guidelines, strengthening
the alignment of Executive Director interests with those of
shareholders. The Committee is therefore proposing that
shareholding guidelines will increase to 450% of salary for the
Directors’ remuneration report continued
90 Pearson plc Annual report and accounts 2022
Chief Executive Officer and 300% of salary for the Chief Financial
Officer, in line with the proposed annual LTIP award levels.
— Reduction of LTIP threshold to 20% of maximum. Our original
proposal was to increase the LTIP percentage that pays out for
threshold performance to 25% of maximum for all measures in
line with market norms. However, combined with an increase in
the maximum LTIP opportunity to 450% of salary, this resulted in
a threshold vesting level in excess of 100% of salary. Mindful of
the higher opportunity level, but in line with the original intention
to align the threshold vesting percentage across all long-term
metrics, the Committee is now proposing to reduce threshold
vesting to 20% of maximum. This will mean that for threshold
performance, LTIP vesting would be 90% of salary for the CEO as
opposed to 112.5% of salary.
— Re-balancing of LTIP measures. Shareholders expressed a
range of views in relation to long-term performance measures,
particularly in relation to our original proposal to reduce the
weighting of Return on Capital in favour of TSR and EPS. Mindful
of this feedback and the focus on capital allocation as Pearson
looks to grow for the future, the Committee determined that TSR,
EPS and Return on Capital should be equally weighted within
the LTIP.
Shareholder feedback also informed the Committee’s decisions in
relation to the TSR comparator group and Executive Director salary
increases for 2023.
Pearson remains committed to a constructive and positive
relationship with all its shareholders and their advisers and will
continue to engage widely as appropriate going forward.
Incentive outcomes for 2022
2022 AIP and 2020 LTIP
The strong financial and strategic progress delivered in 2022 resulted
in a formulaic AIP outcome for Executive Directors of 76% of
maximum. Overall, the Committee was satisfied that the formulaic
outcome was reflective of the performance achieved.
The LTIP granted in 2020 will vest in 2023 at 58% of maximum
reflecting profitable growth and shareholder value created over the
three-year performance period. Only the Chief Financial Officer
participated in this award, and shares vesting will remain subject to a
two-year holding period.
As disclosed in the 2020 Directors’ Remuneration Report, mindful of
the share price volatility at the time the 2020 LTIP was granted, the
Committee exercised its discretion to use a five-day average share
price to 1 March 2020 (573.72p) rather than the share price prior to
the date of grant in May (459.80p). This resulted in approximately
55,000 fewer shares being granted to the Chief Financial Officer.
The Committee considered that the overall vesting outcome reflected
the performance of the business over the three-year period, in
particular the success of the new strategy, and therefore no further
discretion was applied.
Second tranche of the Chief Executive’s
co-investment award
The second tranche of the one-off co-investment award granted to
Andy Bird to secure his appointment vested following 31 December
2022. Vesting was subject to achievement of performance underpins
linked to strategic progress and there being no significant ESG issues
resulting in significant reputational damage. These underpins are
intended to guard against payment for failure, ensuring the
Committee can reduce vesting if in its opinion the performance of
the business or the individual does not support this.
The Committee undertook a rigorous assessment of the relevant
performance underpins as well as a holistic review of broader
Pearson performance and the experience of all stakeholders.
In its assessment, the Committee followed the framework developed
and disclosed in prior years. Overall, the Committee determined
that the second tranche of the award would vest in full and full
disclosure of the Committee’s deliberations in this regard is on
pages103 and 104.
Shares vesting remain subject to a holding period until 31 December
2023. The final tranche of the award will vest following 31 December
2023 subject to the relevant performance underpins, which include
an additional TSR underpin, and Andy Bird’s continued employment
at the vesting date.
Salaries for 2023
For 2023, salary levels for Executive Directors were considered in the
context of general economic and market conditions, the level of
increases made across the Company as a whole, and individual
performance. In addition, the Committee recognised that Andy Bird
had not had an increase in his salary since his appointment in 2020
and that, from an overall package perspective, his remuneration is
significantly below US levels. Mindful of this, and the exceptional
performance of the Company since his appointment, the Committee
felt that it would have been warranted to increase Andy Bird’s salary
significantly, and consulted with shareholders on this basis.
However, cognisant of the current external environment, which over
the last year has steadily become more challenging for our broader
employee population who are more exposed to high levels of
inflation and the associated cost-of-living pressures, and shareholder
feedback and guidance in this area, the Committee determined that
the salary increase for Andy Bird should be 3.5%, in line with the
average salary increase awarded to the US workforce and below the
average rate for the UK workforce and Pearson as a whole.
The salary for the Chief Financial Officer will be increased by 4% in
line with the average increase for the UK workforce.
Remuneration across Pearson
Pearson’s remuneration principles are consistent across the
organisation and are designed to support Pearson’s culture and to
make Pearson an employer of choice and able to attract and retain
talent to execute our digital-first strategy. Remuneration across the
workforce is designed to reflects the role, skills and experience, and
performance of any relevant individual as well as local market
practice. Many of the features of our Directors’ remuneration policy
apply more broadly, for example, over half of all Pearson employees
(c.11,200 employees) participated in an AIP during 2022 which was
funded based on similar performance measures as used for
Executive Directors.
Mindful of the energy crisis which has had a disproportionate impact
on Pearson’s lowest paid employees in the UK and elsewhere in
Europe, Pearson made a one-off cost-of-living payment equal to
£1,000 or €1,000 to these individuals at the end of 2022. As a global
company, Pearson monitors the impact of external worldwide events
on pay competitiveness and makes adjustment where appropriate
to ensure employees are rewarded fairly for their contribution, for
example, targeted pay solutions have been implemented in
markets suffering from acute inflationary pressures such as Sri Lanka
and Turkey.
The Committee receives regular updates on talent matters and wider
workforce considerations and actively considers the approach to
reward throughout the organisation when determining executive
remuneration. In addition, the Committee closely reviews relevant
pay ratios and pay gaps and supports efforts to make progress
against these metrics. Last year, to ensure a more proactive
approach and enable a two-way conversation, the Employee
Engagement Network held a discussion on reward and incentives
at Pearson. The EEN met to discuss how the annual bonus plan
is funded and how we seek to achieve alignment between
Executive Directors and the wider workforce through the use of
consistent measures.
I would like to thank shareholders for their continued support at the
2023 AGM in relation to both our 2022 Directors’ remuneration
report and 2023 Directors’ remuneration policy.
Sherry Coutu, CBE
Chair of Remuneration Committee
Annual report and accounts 2022 Pearson plc 91
1
Aligned to
longer-term
strategy
Reward is linked to
achieving Pearson’s
longer-term
strategy, growth,
and sustainability
2
Pay for
performance
Remuneration
framework and
outcomes are
aligned with
performance
3
Market
competitive
Pay levels are
market competitive,
based on role,
grade, and
contribution, and
ensure individuals
are fairly rewarded
in line with the
market
4
Targeted
differentiation
We operate
targeted
differentiation
of reward across
our employees,
linked to talent
and performance
management
5
Tailored
Our approach
to reward is tailored
in certain
circumstances to
address a specific
market/business
need, and is
consistent with our
underlying reward
philosophy
6
One part of the
employee value
proposition
Remuneration is
one part of our
broader employee
value proposition
– and not the only
reason to work for
Pearson
Pearson’s Remuneration
Framework At a Glance
Our Directors’ remuneration policy and its implementation supports
our Company purpose of adding life to a lifetime of learning, our
strategy and ultimately the delivery of long-term sustainable value
for all stakeholders, including our shareholders.
In developing the forward-looking Directors’ remuneration policy,
the Committee had due regard to the principles outlined within
the UK Corporate Governance Code.
— Pearson’s remuneration principles, as set out above, align with
our culture and position us as an employer of choice, so we can
continue to attract and retain the right talent, and support our
digital future. We recognise that remuneration is only one part
of Pearson’s employee value proposition
— Our forward-looking executive remuneration framework is
designed to be simple, with total remuneration made up of
fixed and performance-linked elements, supporting different
strategic objectives
— Our remuneration framework and outcomes are designed to be
aligned with performance:
— Selected performance measures for the AIP (Annual Incentive
Plan) and LTIP (Long-Term Incentive Plan) are key to achieving
the Group’s strategic objectives. The Committee reviews
performance measures annually to ensure they incentivise
appropriate management behaviours and goals
— The Committee carries out a robust target-setting process
each year, considering Pearson’s strategic plan, as well as
analyst consensus to reflect market expectations. This results
in stretching, yet achievable, AIP and LTIP targets
— Maximum awards under the AIP and LTIP are capped and
clearly disclosed in our Directors’ remuneration policy
alongside predictions of how the Directors’ remuneration
policy may apply in various performance scenarios
— When determining pay-outs, the Committee considers
whether the outcome reflects overall company performance
and the experience of stakeholders over the period, including
shareholders and colleagues. If not, it has the discretion to
adjust outcomes
— The Committee is mindful of reputational and other risks
when implementing the forward-looking Directors’ remuneration
policy and determining outcomes for Executive Directors and
senior management. Pearson has safeguards in place, such as
malus and clawback provisions and a two-year LTIP holding
period, as well as robust shareholding guidelines, which extend
post-employment.
— Before signing off the Directors’ remuneration report, the
Committee reviews drafts and inputs to clarify our disclosures.
In renewing the Directors’ remuneration policy this year, the
Committee engaged extensively with shareholders to ensure
they fully understood the rationale for change, and to give them
the opportunity to feed into the decision-making process and
inform final conclusions.
Remuneration principles
Pearson’s remuneration principles govern pay for the whole organisation. We have developed remuneration arrangements for our Executive Directors
with these principles in mind.
Directors’ remuneration report continued
92 Pearson plc Annual report and accounts 2022
The 2023 Directors’ remuneration policy will be subject to shareholder approval at the AGM to be held on 28 April 2023. This section outlines key
changes to the Directors’ remuneration policy following the Remuneration Committee’s extensive review over the last year. The 2023 Directors’
remuneration policy is set out in full on pages 112 to 119.
Key changes to Directors’ remuneration policy
Key features of the 2020 Directors’ remuneration policy Outline of proposed changes for 2023
Salary
Base salaries reflect level, role, skills, experience, the competitive
market and individual contribution.
Base salaries are normally reviewed annually, with any increases
normally in line with typical increases awarded to other
Group employees.
No changes to policy
Allowances and
benefits
Reflects the local competitive market and may include travel-
related, health-related and risk-related benefits as well as any
other benefits provided to the majority of employees.
The Committee may introduce other benefits if it is considered
appropriate to do so.
No changes to policy
Retirement
benefits
Employees in the UK, including Executive Directors, are eligible
to join the Money Purchase 2003 section of the Pearson
Pension Plan.
The Committee has discretion to put in place retirement benefit
arrangements in line with local market practice.
Executive Directors, who opt out of the pension, can receive a
cash allowance of up to 16% of base salary, in line with the
maximum company contribution as a percentage of salary that
UK employees of a similar age are eligible to receive.
No changes to policy
Annual
incentive
Maximum opportunity of 200% of base salary.
Based on the achievement of annual business goals and strategic
objectives, with financial metrics accounting for at least 75% of
total opportunity.
Normally no payout for threshold performance, with 50% payable
for on-target performance.
Discretion to adjust formulaic outcome where this does not
reflect underlying performance.
Awards paid fully in cash.
Malus and clawback provisions apply.
Increase in maximum opportunity to 300% of base
salary. For 2023, maximum opportunities are:
— 300% for the Chief Executive
— 200% for the Chief Financial Officer
Increase in payout for threshold performance to 25%
of maximum.
Introduction of bonus deferral where shareholding
guidelines have not been met.
Long-term
incentive
Maximum opportunity of 350% of base salary.
Based on achievement of targets for earnings per share, a return
on measure and relative total shareholder return (weighted
equally) over a three-year performance period.
Discretion to adjust formulaic outcome where this does not
reflect underlying performance.
Awards are subject to a post-vesting holding period of two years.
Malus and clawback provisions apply.
Increase in maximum opportunity to 450% of base
salary. For 2023, maximum opportunities are:
— 450% for the Chief Executive
— 300% for the Chief Financial Officer
Proportion of award that vests for threshold aligned
at 20% across all performance measures.
Introduction of ESG into the performance framework.
Shareholding
guidelines
Current in-employment guidelines of:
— 300% for the Chief Executive
— 200% for the Chief Financial Officer
Post-employment shareholding guidelines apply.
Increase in in-employment guidelines
in line with increase LTIP opportunity:
— 450% for the Chief Executive
— 300% for the Chief Financial Officer
2023 Directors’ Remuneration Policy
Annual report and accounts 2022 Pearson plc 93
Consideration of market data in assessing pay competitiveness at Pearson
In determining the 2023 Directors’ remuneration policy proposals and their implementation, the Remuneration Committee considered remuneration
levels at comparable companies both in the UK and US. The approach to market data was to consider multiple different reference points, including
those described below, to provide a rounded view of overall positioning against the market. The Committee has not sought to follow any specific
market reference and is mindful that, whilst the primary talent market is likely to continue to be the US, Pearson is a UK-listed company
and operates a UK market aligned remuneration framework.
Market reference points
Directors’ remuneration report continued
— Executive Director remuneration in UK-listed companies of a similar market capitalisation to Pearson, the FTSE 41 to 100. This comparator
group recognises Pearson’s London listing, the fact that Pearson is a member of the FTSE 100, and that UK investors and proxy agencies
would likely consider competitiveness of remuneration levels at Pearson in this context primarily. Pearson is currently positioned c.60
th
in
the FTSE 100 (based on a three-month average market capitalisation). Market data for the FTSE 100 as a whole was also considered as an
additional reference point given Pearson’s growth in 2022.
— Executive Director remuneration in US-listed companies of a broadly similar financial size and in a similar sector to Pearson. This
comparator group included companies in the broadcasting, interactive media and software sector with similar revenue to Pearson. It
considers what Executive Directors are paid in broadly similar US-listed companies, although it does not directly align to Pearson’s
talent market.
— Remuneration in US-listed companies more closely aligned to Pearson’s talent market and strategic ambitions. This comparator group
comprised US technology, communications, and consumer discretionary companies, in particular those that are at the forefront of
transformative, innovative plays within technology and digital, based on the Nasdaq-100 Index. Recognising, however, that many of these
companies were materially larger than Pearson in terms of financial size, rather than considering remuneration levels for the CEO role, the
market data considered was for roles reporting into the CEO (primarily heads of business units or Chief Executives of subsidiary
businesses) which is analogous to Andy Bird’s previous executive role. This data was only considered in respect of the CEO role at Pearson.
The Committee is mindful of the views of many investors in relation to setting executive pay solely based on market data as well as views on using
international peer groups. The Committee therefore wanted to take a balanced and thoughtful approach which incorporates the views of all key
stakeholders.
94 Pearson plc Annual report and accounts 2022
Illustrations of application of the 2023 Directors’ remuneration policy in different performance scenarios
Chief Executive (Andy Bird) $000 Chief Financial Officer (Sally Johnson) £000
100% 29% 17% 13%
29%
33%
27%
43%
50%
40%
20%
$1,949
$6,800
$11,652
$14,563
Fixed Pay AIP
Share price appreciation
LTIP
Maximum Maximum plus
50% share price
appreciation
Minimum Target
100% 32% 19% 15%
27%
32%
26%
41%
48% 39%
20%
£662
£2,055
£3,449
£4,284
Maximum Maximum plus
50% share price
appreciation
Minimum Target
Fixed Pay AIP
Share price appreciation
LTIP
Pay positioning
Overall, the intention of the Committee was to ensure a package for the Chief Executive which was competitive considering Pearson’s primary talent
market. While it is acknowledged the proposed package for the Chief Executive is towards the top end of market practice from a UK perspective, it is
within the broad range of pay received by executives below CEO level at relevant US-listed companies whom Pearson might look to approach for future
Executive Director roles – total compensation for such roles typically ranged c.$4m to c.$11m at target. This is still well below that of CEOs at similarly
sized US companies.
Chief Executive Officer Chief Financial Officer
UK positioning US positioning UK positioning US positioning
Salary
Towards the top end of
UK practice
Within US market
competitive range
for CEO roles
Within UK market
competitive range
Within US market
competitive range
Annual bonus
opportunity
For CEO roles, the market data illustrated that annual bonus opportunity levels in the US were around double
opportunity levels in the UK. The same picture is not however true for other executive roles, where annual bonus
opportunity in the US is more closely aligned to, although still marginally higher than, UK levels.
Towards the top end of
UK practice
Within US market
competitive range
Within UK market
competitive range
Within US market
competitive range
LTIP opportunity
Long-term incentive opportunity is the key driver in the difference between UK and US remuneration levels. Opportunity
levels in the US are many multiples of UK levels. For CEO roles in US-listed companies in a similar sector and of a similar
financial size to Pearson, many receive long-term incentives with a target opportunity greater than 1000% of salary.
Towards the top end of
UK practice
Substantially below
US levels
Towards the top end of
UK practice
Substantially below
US levels
Conclusions
The market data highlighted the stark difference in pay practices between the UK and US, and the Remuneration Committee applied careful
judgement when considering how remuneration at Pearson should be positioned taking into account the various reference points as well as the
views of shareholders.
The Committee determined, with input from shareholders, that the incentive framework at Pearson for Executive Directors should continue to align to
typical UK practice, and as such incentives remain fully performance-linked, which is not typically the case in the US market where often a significant
proportion of the long-term equity award is delivered in restricted stock with no performance conditions and over shorter time horizons. In addition,
annual bonus deferral and additional holding periods on LTIP awards are uncommon in the US market.
Overall, while it is acknowledged that the 2023 Directors’ remuneration policy proposals and their implementation position Pearson
towards the top-end of the UK market, the Committee has not sought to match US quantum levels or market practice in terms of incentive
design or the overall remuneration framework.
Annual report and accounts 2022 Pearson plc 95
Directors’ remuneration report continued
Discretion framework
When determining performance outcomes, the Remuneration Committee has the ability to adjust payments up or down if it believes that the outcome
does not reflect underlying financial or non-financial performance or if such other exceptional factors warrant doing so. In making this determination
the Remuneration Committee applies the following framework.
Formulaic outcome
considering
performance versus
existing targets
and underpins
Is this consistent
with overall
Company
performance?
Is this consistent
with the wider
stakeholder
experience?
Are there any
significant culture,
ESG or operational
issues to be
considered?
Are there any
one-off or
exceptional events
to be taken into
consideration?
Are outcomes
appropriate or
should an
adjustment be
considered?
Alignment of performance framework to Pearson’s strategy
Annual
Incentive Plan
Adjusted Operating Profit (40%) A key financial performance indicator reflecting the underlying
operational performance of the Group, and measuring Pearson’s
ability to reinvest.
Increased weighting for 2023
Sales (30%) A key financial performance indicator and measure of
top-line growth.
Free Cash Flow (20%) A key financial performance indicator reflecting the importance of
Free Cash Flow generation to Pearson’s fundamental value, and
ensures executives are incentivised to improve cash flow.
Replacing operating cash flow for 2023
Strategic measures (10%) Specific objectives and targets selected annually to reflect
relevant strategic priorities of the Group at the time. For 2023,
this strategic element will focus on Pearson’s ESG priorities, in
particular increasing representation of employees from an ethnic
minority background at management levels and achieving a step
change towards Pearson’s 2030 carbon reduction goal.
Reduced weighting for 2023
Long-term
Incentive Plan
Relative TSR (30%) Total Shareholder Return (TSR) is a measure of value created for
our shareholders. Following a review of the peer group against
which TSR is assessed, a hybrid approach will now be used to
better reflect Pearson’s strategic ambitions. For 2023, TSR will be
measured relative to:
— 50% versus FTSE 100 (excluding certain sectors)
— 50% versus S&P 500 (excluding certain sectors)
Companies within financial services, energy, basic materials,
utilities and healthcare sectors will be excluded as these are
subject to very different market forces to Pearson and therefore
not considered relevant comparators.
Changes to TSR peer group for 2023
EPS (30%) A key financial performance indicator used by management to
evaluate performance and by investors to more easily, and
consistently, track the underlying operational performance of the
Group over time.
Return on Capital (30%) A key financial performance indicator measuring how efficiently
Pearson generates returns from its asset base. This is considered
a more appropriate and simpler measure for the business
compared to net ROIC, and more consistent with the approach
taken by other companies in the market.
Replacing net ROIC for 2023
ESG (10%) Pearson is a purpose-driven Company, and everyday actions and
behaviours have a strong social impact. Progression of our ESG
priorities is integral to long-term sustainable growth of the
business. For 2023, the ESG measure will centre on building an
inclusive culture and increasing female representation at
leadership levels
Introduced for 2023
96 Pearson plc Annual report and accounts 2022
Performance in 2022
A year of strategic and operational progress
Revenue
£3,841m
5% underlying
adjusted growth
on prior year
Strategic highlights
— Significant organic investment, bringing new capabilities
— Acquisitions, including Mondly and Credly to support growth across the Pearson ecosystem
— Completion of the strategic disposal of Pearson’s International Courseware local publishing businesses
— Launch of 18 study channels on Pearson+
— Launch of new people strategy with a focus on engagement and high-performance
— Announcement of £120m of cost efficiencies, accelerating improved margin
Adj. operating profit
£456m
11% underlying
adjusted growth
on prior year
Operating cash flow
£401m
3% growth
on prior year
Adjusted EPS
51.8p
48% growth
on prior year
Net debt
£557m
59% increase
on prior year due
to £350m share
buy back
Dividend per share
21.5p
5% increase
on prior year
Generation of significant returns for shareholders
Pearson TSR performance versus FTSE 100 over 2022
Pearson TSR FTSE 100
June July August September October November DecemberJanuary
80
100
120
140
160
180
February March MayApril
Executive remuneration outcomes for 2022
$0 $1,000,000 $2,000,000 $3,000,000 $4,000,000
Actual
Target
Chief Executive
$3,798k
$3,148k
Fixed pay
Annual bonus LTIP
‘22
Actual
Target
£0 £1,000,000 £2,000,000 £3,000,000
Chief Financial Officer
Fixed pay Annual bonus LTIP
£2,504k
£2,102k
Note 1: Target assumes AIP and LTIP outcome at 50% of maximum.
Note 2:The vesting of the second tranche of the Chief Executive’s co-investment award is not included in the above illustration.
Annual report and accounts 2022 Pearson plc 97
Directors’ remuneration report continued
Implementation of executive remuneration framework for 2023
Base salary
Andy Bird – $1,293,750 (3.5% increase)
Sally Johnson – £557,225 (4% increase)
The salary increase for the Chief Executive is line with the average salary increase awarded to the US workforce and
below the average level for the UK workforce. The salary increase for the Chief Financial Officer is in line with the
increase for the UK workforce.
Allowances and benefits
No change for 2023.
Executive Directors will continue to receive travel, health, and risk-related benefits. Andy Bird will also receive a
contribution towards accommodation costs.
Retirement benefits
For 2023, both the Chief Executive and Chief Financial Officer will receive a cash allowance of 16% of salary in lieu of
pension. This is aligned with the pension provision that UK employees of a similar age are eligible to receive.
As described in relation to the Committee’s review of the remuneration policy for 2023, Pearson has retained a UK
remuneration framework for Executive Directors which does not reflect US practice in terms of plan design or pay
levels. It is therefore considered appropriate that a consistent UK approach is applied with regard to pensions for
the CEO. For US employees below Board level, whilst pension arrangements are in line with local practice, Pearson
adopts US pay practices more broadly – such as grants of restricted shares in addition to performance shares –
which we do not for Executive Directors.
Annual incentive plan
Maximum opportunities of:
— 300% of base salary for the Chief Executive
— 200% of base salary for the Chief Financial Officer
For 2023, the following balanced mix of financial and strategic measures will be used to determine any pay out,
with a third of any bonus paid deferred into shares for two years if an Executive Director has not met their
shareholding guideline.
Adjusted operating profit Sales Free cash flow Strategic measures
40% 30% 20% 10%
Strategic targets are as follows:
Weighting Threshold Target Maximum
Invest in diverse
pipeline and
increase BIPOC/
BAME
representation at all
manager levels
5% 2% increase in
representation of
BIPOC/BAME
employees at
Manager level and
above
+ maintain overall
gender parity as an
underpin
5% increase in
representation of
BIPOC/BAME
employees at
Manager level and
above
10% increase in
representation of
BIPOC/BAME
employees at
Manager level and
above
Reduce carbon
footprint – net
annual reduction
versus 2022
baseline as step
towards 2030 goal
5% 1% reduction 2% reduction 5% reduction
As in previous years, we will apply a financial underpin to the strategic measures. We will disclose financial targets in
full retrospectively following the end of the performance period.
98 Pearson plc Annual report and accounts 2022
Implementation of executive remuneration framework for 2023 continued
Long-Term
Incentive Plan
Maximum opportunities for Executive Directors are:
— 450% of base salary for the Chief Executive
— 300% of base salary for the Chief Financial Officer
Performance measured over three years, with any shares vesting subject to an additional two-year holding period.
For 2023, performance measures and targets are as follows:
% of
total Threshold Stretch Maximum
Payout at
threshold
Payout at
stretch
Payout at
maximum
Adjusted EPS 30% 53.0p 63.0p 68.0p 20% 65% 100%
Return on
Capital
30% 8.5% 10% 11.5% 20% 65% 100%
Relative TSR vs.
FTSE 100 (excl.
certain sectors)
15% Median - Upper quartile 20% - 100%
Relative TSR vs.
S&P 500 (excl.
certain sectors)
15% Median - Upper quartile 20% - 100%
ESG 10% Improve gender
representation
at leadership
levels overall
vs 2022
(VP and above)
Achieve gender
parity at
leadership
levels in
aggregate
(VP and above)
Achieve gender
parity at all
leadership
levels
(VP and above)
20% 65% 100%
Note 1: 2023 LTIP targets have been set at an USD:GBP exchange rate of 1.21.
Note 2: Companies within financial services, energy, basic materials, utilities and healthcare sectors will be excluded from both TSR groups.
Shareholding
guidelines
Shareholding guidelines are:
— 450% of salary for the Chief Executive
— 300% of salary for the Chief Financial Officer
Annual report and accounts 2022 Pearson plc 99
Workforce remuneration
at Pearson
The Committee takes seriously its responsibilities concerning the oversight of remuneration policies and practices for the wider organisation. Our
remuneration principles are consistent for all our colleagues, and applied depending on business need, level, and geography.
The key difference in our executive remuneration, compared to the approach to remuneration across our workforce, is that remuneration for our
Executive Directors is more heavily weighted towards variable pay and linked to the delivering of strategic objectives.
Approach to remuneration across Pearson
Base salary
Set considering economic factors, competitive market rates, roles, skills, experience, and individual performance
Allowances and
benefits
Reflect the local labour market in which colleagues are based.
All eligible colleagues (including Executive Directors) can participate in savings-related share acquisition programmes in the
UK, US and the rest of the world, and these are not subject to any performance conditions
Retirement
benefits
Reflect local market practice.
Pearson colleagues in the UK may participate in the same underlying pension arrangements as the Executive Directors,
subject to certain age bands and legacy arrangements
Annual incentives
Around 11,200 colleagues participate in an Annual Incentive Plan, which is funded based
on similar performance measures to the Executive Directors.
Several other colleagues participate in alternative cash-based annual bonuses, such as
sales incentive and commission plans, based on performance targets and profit-shares
where required for legislative reasons
All colleagues
Over half of all Pearson
employees participate in the
annual incentive plan
Long-term
incentives
Senior management participates in a long-term incentive arrangement, with both
performance shares and restricted shares, recognising the markets in which we
compete for talent. At other levels awards are typically made in restricted shares only.
Approximately 800 colleagues participate in the annual long-term incentive plan
grant, who are selected based on their role, performance, and potential; with other
awards being made from time to time on an ad-hoc basis to certain roles based on
market need.
All colleagues
Around 4% of all Pearson
employees participate in
a long-term incentive plan
During the year, the Committee received reports from the Chief Executive and Chief Human Resources Officer on pay and conditions across Pearson,
and on the recruitment and retention experience. We took these into account when determining Executive remuneration. We have established
channels in place to inform our colleagues and help them understand how executive remuneration and wider pay policies are aligned, although we
continue to develop how best to engage with employees. Further detail on Pearson’s approach to employee engagement is provided on page 33.
Remuneration Committee Chair, Sherry Coutu, CBE is our designated workforce Non-Executive Director. She leads the Board’s engagement with
colleagues, including attending meetings of the Employee Engagement Network (EEN). Annette Thomas, a member of both the Remuneration
Committee and Reputation & Responsibility Committee, also attended meetings of the EEN throughout the year, increasing Non-Executive Director
participation. Feedback received through the EEN is reported to the Board. Views and sentiment expressed by colleagues around matters relating to
reward and culture are taken into consideration by the Remuneration Committee when determining pay for senior management. Last year, to ensure a
more proactive approach and enable a two-way conversation, the EEN held a discussion on reward and incentives at Pearson. The EEN met to discuss
how the annual bonus plan is funded and how Pearson seeks to achieve alignment between Executive Directors and the wider workforce through the
use of consistent measures. See page 68 for more on how the Board engages with employees.
The Committee also considers Pearson’s gender pay gap and ethnicity pay gap in Great Britain. The Committee was pleased to note the improvement
in Pearson’s gender pay gap for 2022, which decreased to 11% (from 13% in prior year), however acknowledged there was still progress to be made in
terms of closing the gap. Pearson continues to review and update its policies and practices relating to the hiring, retention, and development of
women, as well as other diverse talent groups, to ensure equal opportunities for all its people. This year, in line with the commitment as a signatory to
the CBI Change the Race Ratio campaign, Pearson will voluntarily be publishing its ethnicity pay gap for Great Britain for the first time. Building an
inclusive culture and increasing diverse representation is one of Pearson’s six strategic pillars, and reflective of the Company’s commitments in this
area diversity targets have been included in both the AIP and LTIP for Executive Directors for 2023. Further details can be found within our fair pay
report which will be published ahead of the AGM.
Directors’ remuneration report continued
100 Pearson plc Annual report and accounts 2022
Remuneration report for 2022
Certain parts of this report have been audited, as required by the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations
2008 as amended. Those tables subject to audit are marked with an asterisk.
Single total figure of remuneration and prior year comparison*
Total aggregate emoluments for Executive and Non-Executive Directors were £10,738k in 2022. These emoluments are included within the total
employee benefit expense (in Note 5 to the financial statements page 159).
Executive Director ‘single figure’ remuneration
The remuneration received by Executive Directors for the financial years ended 31 December 2022 and 31 December 2021 is set out below.
Overall, the Committee considers that the Remuneration Policy operated as intended during 2022.
Executive Director ‘single figure’ remuneration
Andy Bird
$000s
Sally Johnson
£000s
2022 2021 2022 2021
Base salary 1,250 1,250 533 521
Allowances and benefits 448 373 16 16
Retirement benefits 200 200 64 58
Total fixed pay 1,898 1,823 613 595
Annual incentives 1,900 1,575 692 560
Long-term incentives – – 1,199 –
Co-investment award 4,684 3,708 – –
Total variable pay 6,584 5,283 1,891 560
Total remuneration 8,482 7,106 2,504 1,155
Notes to single figure table*
Base salary
The base salary shown in the single figure table above reflects salary
paid in the financial year as a Pearson Executive Director. Andy Bird is
paid in USD, and Sally Johnson is paid in GBP.
Allowances and benefits
The breakdown of benefits is as follows for 2022:
Andy Bird
$000s
Sally Johnson
£000s
Travel – 14
Health 15 2
Risk-related 2 –
Accommodation 431 –
Travel benefits comprise car allowance and reimbursements of a
taxable nature resulting from business travel and engagements.
Health benefits comprise healthcare, health assessment and dental
care. Risk-related benefits comprise of life and other insurance
policies. Accommodation benefits for Andy Bird relate to a
contribution towards the rental costs of an apartment in New York
used for business purposes. This cost is capped at $240,000 per year
($20,000 per month) prior to any taxes due. The gross value for 2022
is higher due to a higher tax rate compared to 2021.
In addition to these allowances and benefits, Executive Directors may
also participate in company benefit or policy arrangements that have
no taxable value and/or are available to all other colleagues in the
same location. Sally Johnson’s life cover is arranged under an
excepted policy on a similar basis to other employees who are
affected by the lifetime allowance and have opted out of The Pearson
Pension Plan.
Retirement benefits
Further detail on retirement benefits is on page 105.
Annual incentives
The 2022 AIP for the Executive Directors was based on a mix of
financial (80% weighting) and strategic measures (20% weighting).
The 2022 AIP resulted in a 76% of maximum payment for both Andy
Bird and Sally Johnson. Bonus is calculated using salary at 31
December 2022, in line with how bonuses are calculated for all
participants. More detail on performance metrics and performance
against targets in 2022 is on page 102.
Long-term incentives
The 2020 LTIP award was subject to performance conditions
assessed to 31 December 2022. Performance targets were partially
met resulting in the award vesting at 58% of maximum. The 2020
LTIP award for Sally Johnson was granted on 1 May 2020, based on a
share price of 573.7p (five-day average to 1 March 2020). The value
of the 2020 LTIP included in the single-figure table is based on a
three-month average share price to 31 December 2022 of 939.4p.
The proportion of the 2020 LTIP attributable to share price growth is
therefore £466,633 for Sally Johnson. The Remuneration Committee
did not exercise discretion in respect of this share price appreciation.
For further details see page 102.
Co-investment award
The second tranche of the one-off investment award, granted to
Andy Bird to secure his appointment, was subject to performance
underpins assessed to 31 December 2023. It was determined the
second tranche of the award would vest in full. The value disclosed,
which includes an additional amount equal to the value of dividends
payable on the shares vesting, is calculated using the share price at
the date of vesting (being 3 March 2023) of 893.5p and was
converted using a USD:GBP exchange rate of 1.2371 (average
exchange rate for 2022).The award was originally granted based on a
share price of 590.2p, and so $1,512k of the figure included in the
single figure table is attributable to share price growth. The award
has been satisfied using market-purchased shares and shares
retained after tax must be held until 31 December 2023. For further
details see pages 103-104.
Annual report and accounts 2022 Pearson plc 101
Executive Directors’ annual incentive payments for 2022*
Andy Bird and Sally Johnson were eligible to participate in the 2022 AIP. The following table summarises the performance targets (presented on a
consistent basis to the actual results, considering portfolio and currency movements) and performance against these targets, which resulted in a 76%
of maximum payout.
Overall outcome
Performance range Payout
% of total Threshold Target Maximum
Actual
results
% of max bonus
opportunity
Adjusted operating profit 30% £405m £428m £520m £456m 20%
Sales 30% £3,600m £3,725m £3,980m £3,841m 22%
Operating cash flow 20% £300m £315m £390m £401m 20%
Strategic measures 20% See below 14%
100% 76%
Performance against strategic measures
The targets and outcomes for performance against each of the strategic measures are shown in the table below.
Strategic priority Weighting Threshold Target Maximum Outcome
Digital sales growth 10% Plan less 2% Plan Plan plus 2% Met Plan plus 1.8% (9%)
Invest in diverse
pipeline and
increase
representation at
management levels
5%
50% female and ethnic minority
representation in leadership
development and mentoring
programmes + 50% female and
20% ethnic minority representation
in leadership succession plans
Threshold + 5%
increase in female
and ethnic minority
representation at
VP level and above
Threshold + 10%
increase in female
and ethnic
minority
representation at
VP level and above
Achieved threshold of more
than 5% increase in ethnic
minority representation,
but less than 5% increase
in female representation, at
VP level and above (1%)
Reduce carbon
footprint – net
annual reduction
versus 2021 baseline 5% 1% reduction 2% reduction 5% reduction 3.3% net reduction (4%)
Total 20% 14%
Note: Internal Audit provided an independent assessment of the result for the Committee.
Executive Directors’ Long-Term Incentive Plan award vesting for 2022*
In May 2020, Sally Johnson was granted an LTIP award. This award is due to vest based on performance the business delivered over the three-year
period from 2020 to 2022. The targets and performance against these targets are as follows:
Performance range Vesting
% of total Threshold Stretch Maximum
Payout at
threshold
Payout at
stretch
Payout at
maximum Actual
Percentage
achievement
Percentage
of total
award
Adjusted EPS A third 44.2p 51p 58.3p 15% 65% 100% 52.8p 74% 25%
ROIC A third 5.2% 6.2% 7.5% 15% 65% 100% 4.7% 0% 0%
Relative TSR A third Median -
Upper
quartile 25% - 100%
Ranked 10
out of 93 100% 33%
100% Total 58%
Relative TSR was measured against the constituents of the FTSE 100 at the start of the performance period.
In determining the vesting outcome, the Committee carefully considered the portfolio changes over the last three years and made modest adjustments to reflect the impact of these, in
particular the divestment of various businesses under strategic review during the performance period – the adjusted targets and adjusted results are presented in the table above. Overall
the impact on vesting was an increase from 53% to 58% of maximum. The Committee considers such adjustments appropriate to ensure performance is measured on a like-for-like basis
and reflect the principles against which the original targets were set as these did not consider the impact of the portfolio changes.
Overall, 58% of this award will vest on 1 May 2023, and its value is included in the single figure table on page 101. Shares vesting are subject to an
additional two-year holding period to 1 May 2025.
Directors’ remuneration report continued
102 Pearson plc Annual report and accounts 2022
Co-investment award*
To secure the appointment of Andy Bird as Chief Executive, the Committee designed a one-off co-investment award. The grant of this award was
conditional on Andy Bird buying Pearson ordinary shares equal to 300% of his base salary, which he must continue to hold until 31 December 2023.
The co-investment award vests in three equal annual tranches, with shares vesting subject to a holding period until 31 December 2023.
The vesting of each tranche of the award is subject to these performance underpins:
— an appropriate level of continued progress being made in relation to delivering Pearson’s strategy, including the ongoing transition
from print to digital, and
— no significant ESG issues occurring, which relate to Andy Bird’s tenure as Chief Executive, and which result in significant reputational
damage for Pearson
In addition, the vesting of the final tranche of the award is subject to the following TSR underpin:
— Pearson’s TSR from the date of the announcement of Andy Bird’s appointment to 31 December 2023 is either (1) positive; or (2) is at median
or above when compared to the performance of the FTSE 100
If one or more of the underpins are not achieved, then the Committee will consider whether, and to what extent, a discretionary reduction
in the number of shares vesting is required.
Assessment of performance underpins
The second tranche of the co-investment award vested as soon as practical following 31 December 2022. In advance of this, the Committee undertook
a rigorous assessment of the relevant performance underpins, reviewed broader Pearson performance, and evaluated the experience of all
stakeholders. The Committee followed the framework disclosed in the 2020 Remuneration Report.
Initial review of underpins
Progress in delivering
Pearson’s strategy
Significant strategic progress was made during 2022 in the face of macroeconomic headwinds. This included:
— Significant organic investment, bringing new capabilities. For example: invested in new capabilities for Pearson+,
including Channels functionality; expanded reach of VUE remote proctoring solution; launched Skills Accelerator,
developed MondlyWORKS capabilities to grow our presence in the enterprise language learning market.
— Acquisitions to support growth strategy across the Pearson ecosystem. These include Credly, Mondly, Navvy, and
ClutchPrep, and Pearson has also signed an agreement to acquire PDRI.
— Refinement of Pearson’s portfolio through the completion of the strategic disposal of Pearson’s International
Courseware local publishing businesses.
— The delivery of £120m of cost efficiencies, accelerating improved margin expectation.
— Launch of people strategy with a focus on engagement and high-performance
In 2022, there have been no ESG issues which, in the opinion of the Committee, have resulted in significant reputational damage.
Consideration of broader performance and stakeholder experience
Wider stakeholder experience
Revenue
£3,841m
5% underlying
adjusted growth on
prior year
Shareholders
— Strong strategic, operational, and financial progress was reflected in Pearson’s share price and value delivered to shareholders.
Pearson ended the year as one of the top performers in the FTSE 100, delivering a total shareholder return of 57% in 2022.
— Strong financial position has enabled Pearson to grow its dividend (up 5% to 21.5p in 2022), in line with Pearson’s commitment to a
progressive and sustainable dividend. The Board also approved a £350m share buyback programme in February 2022 to return capital
to shareholders.
— Pearson has strong and constructive relationships with its key institutional investors. During 2022, Pearson held 373 meetings with 192
institutions, both virtually and in person.
Adj. operating profit
£456m
11% underlying
adjusted growth on
prior year
Operating cash flow
£401m
3% growth
on prior year
Robust financial performance
Adjusted EPS
51.8p
48% growth
on prior year
Net debt
£557m
59% increase
on prior year due to
£350m share buy back
Annual report and accounts 2022 Pearson plc 103
Employees
— Launch of people strategy with a focus on engagement and high-performance.
— Refresh of non-financial KPIs to measure how well Pearson is delivering on its people strategy, and to cover employee engagement, investing
in talent, and diversity, equity, and inclusion.
— Launch of a new employee engagement survey to better understand employees’ needs and enable Pearson to benchmark itself globally.
In addition, Pearson launched a new digital employee experience platform to improve communication across Pearson. Over 70%
of colleagues participated in the new engagement survey in 2022, and more than 34,000 users have already accessed the new digital
employee experience platform.
— Investment in learning, for example, manager upskilling and reskilling to drive engagement and high performance; new acquisitions such as
Credly to certify employee skills; development of leaders via McKinsey accelerator programmes; and coaching and Board mentoring
opportunities. Over 70% of Pearson’s employees agreed or strongly agreed they had access to opportunities to learn and grow over the past
six months.
— Expansion of Pearson’s flagship Global Learning at Work week to a monthly series focused on priority skills from the Pearson Capabilities
Framework featuring live and on demand sessions with external experts, Pearson authors, Pearson leaders as teachers, and curated learning
pathways and team guides to support self-directed learning.
— Continued focus on building a culture of inclusion and increasingly diverse representation through inclusive learning experience for
employees, and 75% of participants on leadership development and mentoring programs were diverse.
— Evolution of Pearson’s Employee Engagement Network, enabling the Board to hear directly from employees and creating additional insight on
how to enhance employee satisfaction and engagement levels.
Customers
— Pearson+ registered userscompared to prior year Fall grewto 2.83m(2021: 2.75m), and there was a three-fold increasecompared to prior
Fall semesterin Pearson+ paid subscriptions to 406k(2021: 133k). Through increased understanding of consumer behaviours and
preferences, Pearson continues to evolve Pearson+, exploring new types of content and enhancing features such as Pearson+ Channels,
which launched in Autumn 2022.
— In English Language Learning, enhancements were made to the user experience to ensure courseware is the most engaging and effective on
the market, leveraging our partnerships with major corporations including Disney and the BBC.
— In Mondly, development of a new AI virtual tutor to be integrated into the product in 2023 to support where it is difficult for individuals to
access in-person tutors.
— Reshape of Workforce Skills portfolio to better match the suite of products and services with the different needs of our enterprise customers.
— Launch of Skills Accelerator in Workforce Skills – a suite of peer-supported, project-based learning courses – to support people complete
business-critical projects while developing future skills.
— Pearson opened its first virtual school in Virginia and helped to enact new legislation in Missouri facilitating easier access to publicly funded
virtual learning.
— Launch of a new Privacy Centre for consumers which will be linked to all our products and a newly developed universal preferences centre.
— 70% of content partners are now trained in editorial guidelines released for Pearson’s authors, reviewers, and editors to ensure meaningful,
diverse representation in content.
Suppliers & Business Partners
— Supplier diversity and responsible procurement are key priorities for Pearson. In 2022, two new supplier portals were added that
provide access to over one million diverse accredited suppliers. Pearson progressed towards its goal of increasing spend with
diverse-accredited suppliers.
— Continued progress towards Pearson’s goal of ethically sourcing 100% of its paper by 2025. Paper and print suppliers are integrated to the
Book Chain Project platform which monitors and tracks actions and strategies to protect biodiversity. Pearson has also rationalised its paper
suppliers to significantly increase use of responsibly sourced paper from the Forestry Stewardship Council and the Programme for the
Endorsement of Forest Certification schemes.
— For the first time in 2022, we asked our key suppliers to participate in an EcoVadis sustainability assessment (or equivalent). We reviewed
performance across environmental and human rights areas to ensure that they align to Pearson’s standards. Our key suppliers performed
well, with an average score of 57.3/100 (average supplier’s score of 44.9/100).
— Pearson is working in partnership with other corporates to understand the decarbonisation plans of its top 50 suppliers ahead of developing
tailored engagement plans for those suppliers that need support to drive change.
— Pearson continues to add business partners who contribute to the diversity of its workforce. In 2022, new partners included People of Colour
in Tech and the Hispanic Association on Corporate Responsibility.
Directors’ remuneration report continued
Taking all the above into account, the Committee has determined that the second tranche of the co-investment award will vest in full.
104 Pearson plc Annual report and accounts 2022
Long-term incentives awarded in 2022*
The following LTIP awards were granted during the year:
Director
Date
of award
Vesting
date
Number
of shares
Face
value
Face value
(% of base salary)
Value for
threshold
performance
(% of maximum)
1
Performance
period
Andy Bird 3 May 2022 1 May 2025 356,065 £2,775,171 300% 18.3%
1 Jan 22 –
31 Dec 24
Sally Johnson 3 May 2022 1 May 2025 168,415 £1,312,627 245% 18.3%
1 Jan 22 –
31 Dec 24
Note 1: Under the adjusted EPS and ROIC elements, 15% vests for threshold performance; under the TSR element, 25% vests for threshold performance. This is the weighted average of
vesting for threshold.
Face value was determined using a share price of 779.4p (five-day average to 3 May 2022), which is the share price used to determine award values for
LTIP awards for all employees.
Performance targets for the 2022 LTIP awards are:
Adjusted earnings per share (EPS) (one-third) Net return on invested capital (ROIC) (one-third) Relative total shareholder return (TSR) (one-third)
Vesting schedule (% max) Adjusted EPS for FY24 Vesting schedule (% max) Adjusted net ROIC for FY24 Vesting schedule (% max)
Ranked position vs
FTSE 100
15% 48.0p 15% 6.0% 25% Median
65% 55.0p 65% 7.0% – –
100% 64p or above 100% 8.0% or above 100% Upper quartile
Note 1: Straight-line vesting will occur in between the points shown, with no vesting for performance below threshold.
Note 2: Pearson’s TSR performance is measured relative to the constituents of the FTSE 100 Index over the performance period.
The Committee reserves the right to adjust pay-outs up or down before they are released, if it believes the vesting outcome does not reflect underlying
financial or non-financial performance, or for other exceptional factors. In making any adjustments, the Committee are guided by the principle of
aligning shareholder and management interests.
Any shares vesting based on performance to 31 December 2024 will be subject to an additional two-year holding period to 3 May 2027.
Executive Directors’ retirement benefits and entitlements*
Details of the Executive Directors’ pension entitlements and pension-related benefits in 2022 are as follows:
Andy Bird
$000s
Sally Johnson
£000s
Value of defined benefit - 43
Other allowances in lieu of pension 200 21
Total value in 2022 200 64
Accrued pension at 31 December 2022 - 64
Note 1: The value of defined benefit reflects the change in value over the period, less inflation.
Note 2: Other allowances in lieu of pension represent the cash allowances paid.
Note 3: Total value is the sum of the previous two rows and is disclosed in the single figure of remuneration table.
Note 4: The accrued pension at 31 December 2022 is the deferred annual pension to which the member would be entitled on ceasing pensionable service on 31 December 2022. It relates
to the pension payable from the UK Plan. Normal retirement age is 62.
Pension Plans
Andy Bird – Payment in Lieu of Pension
Andy Bird receives a payment in lieu of pension at 16% of his base salary, in line with the pension provision for UK employees of a similar age.
Sally Johnson – The Pearson Pension Plan and Payment in Lieu of Pension (from 1 October 2022)
Sally Johnson was a member of the Final Pay section of the Pearson Pension Plan. Her pension accrual rate is 1/60
th
of pensionable salary per annum,
restricted to the Plan’s earnings cap.
Sally Johnson has now reached her pension lifetime allowance and therefore no further contributions will be made to the Pearson Pension Plan.
Instead, from 1 October 2022, Sally Johnson receives a payment in lieu of pension at 16% of her base salary, in line with the pension provision for UK
employees of a similar age.
Annual report and accounts 2022 Pearson plc 105
Directors’ interests in shares and value of shareholdings*
Shareholding guidelines
Executive Directors are expected to build up a substantial shareholding in Pearson, in line with our policy of encouraging widespread employee share
ownership, and to align the interests of Executive Directors and shareholders.
For 2022, the shareholding guideline was 300% of base salary for the Chief Executive and 200% of base salary for the Chief Financial Officer. These
shareholding guidelines will increase under the 2023 Directors’ Remuneration Policy.
Shares that count towards these guidelines include any shares held unencumbered by an Executive Director, their spouse and/or dependent children,
plus any shares vested but held pending release under a share plan, and any shares unvested but not subject to future performance conditions (on a
net of tax basis). Executive Directors have five years from their date of appointment to the Board to reach the guideline. Once the guideline is met, it is
not re-tested, other than when shares are sold.
Executive Directors are expected to retain their current guideline (or actual shareholding if lower) for two years following stepping down as an
Executive Director. This guideline does not apply to shares purchased by the Director.
The shareholding guidelines do not apply to the Chair, Deputy Chair and Senior Independent Director and Non-Executive Directors. However, a
minimum of 25% of the Chair, Deputy Chair and Senior Independent Director and Non-Executive Directors’ basic fee is paid in Pearson shares, which
the Chair, Deputy Chair and Senior Independent Director and Non-Executive Directors have committed to retain for the period of their directorships.
Directors’ interests
The share interests of the Directors and their connected persons are:
Director
Current
shareholding
(ordinary shares)
at 31 Dec 22
Conditional
shares subject to
performance at
31 Dec 22
Conditional
shares subject to
employment only
at 31 Dec 22
Total number of
ordinary and
conditional shares
at 31 Dec 22
Shareholding
guideline for 2022
(% salary)
Guideline
met?
Chair
Omid Kordestani 32,096 – – – – –
Sidney Taurel 242,770 – – – – –
Deputy Chair
Tim Score 67,475 – – – – –
Executive Directors
Andy Bird 591,983 1,494,289 207,584 2,293,856 300% Yes
Sally Johnson 27,778 543,330 2,357 573,465 200%
n/a
(see note 6)
Non-Executive Directors
Sherry Coutu CBE 10,567 – – – – –
Esther Lee 1,497 – – – – –
Linda Lorimer 18,038 – – – – –
Graeme Pitkethly 10,477 – – – – –
Annette Thomas 2,317 – – – – –
Lincoln Wallen 16,315 – – – – –
Note 1: Share interests are shown as at 31 December 2022. For Directors who stepped down from the Board during the year, share interests are shown as at the date of their stepping
down. Sidney Taurel stepped down from the Board at the AGM on 29 April 2022.
Note 2: Ordinary shares include both ordinary shares listed on the London Stock Exchange and American Depositary Receipts (ADRs) listed on the New York Stock Exchange. The figures
include both shares and ADRs acquired by individuals under the LTIP and any other share plans in which they might have participated.
Note 3: Conditional shares subject to performance means unvested shares, which are subject to performance conditions and/or performance underpins and continuing employment for a
pre-defined period. This includes the LTIP awards granted in 2020, 2021, and 2022 and, in respect of Andy Bird, the second and third tranche of his co-investment award.
Note 4: Conditional shares subject to employment only means unvested shares, which are subject to a holding period and continued employment. For Andy Bird this includes the first
tranche of his co-investment award. For Sally Johnson, this includes share awards granted before her appointment to the Board in May 2020.
Note 5: Sally Johnson held 2,658 options under the Pearson Save For Shares scheme, a savings-related share acquisition programme open to all employees, which she exercised during the
financial year. These were not subject to performance conditions.
Note 6: Sally Johnson has five years from the date of her appointment as an Executive Director on 24 April 2020 to reach the shareholding guideline.
Note 7: The second tranche of Andy Bird‘s co-investment award, 423,786 shares (including 20,832 dividend equivalent shares), vested on 3 March 2023, taking his conditional share subject
to employment only to 407,575 shares (after the sales of shares to cover any tax liability) and conditional shares subject to performance to 1,091,335 shares. The vested co-investment
shares are subject to a holding period until 31 December 2023 and continued employment. There have been no other changes in the interests of any Director between 31 December 2022
and 13 March 2023, being the latest practicable date prior to the publication of this report.
Directors’ remuneration report continued
106 Pearson plc Annual report and accounts 2022
Chair, Deputy Chair and Senior Independent Director and Non-Executive Director remuneration*
Remuneration in 2022
The remuneration paid to the Chair, Deputy Chair and Senior Independent Director and Non-Executive Directors for the financial years ended 31
December 2022 and 31 December 2021 is set out below.
Director
£000s
2022 2021
Total fees Taxable benefits Total Total fees Taxable benefits Total
Omid Kordestani 417 19 436 – – –
Sidney Taurel 167 13 180
500 – 500
Sherry Coutu CBE 100 5 105 92 – 92
Esther Lee 78 7 85 – – –
Linda Lorimer 100 9 109 100 – 100
Graeme Pitkethly 98 4 102 93 – 93
Tim Score 163 3 166 130 – 130
Annette Thomas 90 6 97 21 – 21
Lincoln Wallen 93 6 99 93 – 93
Total 1,305 73 1,378 1,029 – 1,029
Note 1: A minimum of 25% of the Chair, Deputy Chair and Senior Independent Director and Non-Executive Directors’ basic fee is paid in shares.
Note 2: Taxable benefits refer to travel, accommodation and subsistence expenses incurred while attending Board meetings during the period that were paid or reimbursed by the
company, and which HMRC deems taxable in the UK.
Note 3: Omid Kordestani joined the Pearson Board with effect from 1 March 2022. He succeeded Sidney Taurel as Chair on 29 April 2022. Sidney Taurel stepped down from the Board on
29 April 2022.
Note 4: Esther Lee joined the Pearson Board with effect from 1 February 2022.
Note 5: Some figures and subtotals add up to different amounts than the totals due to rounding.
Implementation for 2023
The fee for the role of Chair of the Remuneration Committee has been increased with effect from 1 January 2023 to £27,500 (2022: £22,000). There will
be no other changes in the Chair, Deputy Chair and Senior Independent Director or Non-Executive Directors’ fees for 2023.
Role Fees for 2023
Chair fee £500,000
Deputy Chair and Senior Independent Director fee £175,000
Base fee for Non-Executive Directors £70,000
Role Chair Member
Audit Committee £27,500 £15,000
Remuneration Committee £27,500 £10,000
Nomination & Governance Committee £15,000 £8,000
Reputation & Responsibility Committee £15,000 £8,000
Payments to former Directors*
There were no payments to former Directors in 2022.
Payments for loss of office*
There were no payments for loss of office made to or agreed for Directors in 2022.
Sidney Taurel stepped down from the Board on 29 April 2022. Other than fees payable for the period up to 29 April 2022, he did not receive any
remuneration or payment in connection with ceasing to be Chair.
Service contracts
Terms and conditions of our Directors’ appointment are available for inspection at our registered office during normal business hours and at the AGM.
So that appropriate arrangements can be made for shareholders wishing to inspect documents, we request that shareholders contact the Company
Secretary by email at companysecretary@pearson.com in advance of any visit to ensure that access can be arranged.
The Executive Directors have notice periods in their service contracts of 12 months from the company and six months from the Executives. Their
contracts are dated 23 August 2020 (Andy Bird) and 15 January 2020 (Sally Johnson).
The Deputy Chair and Senior Independent Director and Non-Executive Directors serve Pearson under letters of appointment, which are renewed
annually and do not have service contracts. The Deputy Chair and Senior Independent Director and Non-Executive Directors’ letters of appointment do
not contain provision for notice periods or for compensation if their appointments are terminated. The Chair’s appointment may be terminated on 12
months’ notice.
Executive Directors’ Non-Executive directorships
Neither of the current Executive Directors, Andy Bird nor Sally Johnson, hold any notable external commitments.
Annual report and accounts 2022 Pearson plc 107
John Fallon Andy Bird
2013 2014 2015 2016 2017 2018 2019 2020 2020 2021 2022
Total remuneration
(single figure, £000s) 1,727 1,895 1,263 1,518 1,758 3,094 1,616 855 334 5,167 6,856
Annual incentive (% of
maximum) 34% 51% Nil 24% 44% 45% Nil Nil N/A 63% 76%
Long-term incentive (% of
maximum) Nil Nil Nil Nil Nil 42% 33% Nil N/A N/A N/A
Note 1: Total remuneration is as reflected in the single total figure of remuneration table. The 2021 and 2022 figures for Andy Bird include vesting of the first and second tranches of the
co-investment award.
Note 2: Annual incentive is the actual annual incentive received by the incumbent as a percentage of maximum opportunity.
Note 3: Long-term incentive is the payout of performance-related share awards where the year shown is the final year of the performance period for the purposes of calculating the single
total figure of remuneration.
Note 4: The single figure remuneration for 2022 Andy Bird has been converted using a USD:GBP exchange rate of 1.2371 (average exchange rate for 2022.)
Source: Refinitiv Datastream
Historical performance and remuneration
Total shareholder return performance
Set out below is Pearson’s total shareholder return (TSR) performance, relative to the FTSE All-Share index, on an annual basis over the 10-year period
1 January 2013 to 31 December 2022. We chose this comparison because the FTSE All-Share represents the broad market index within which Pearson
shares are traded. TSR is a measure of returns a company provides for shareholders, reflecting share price movements and assuming reinvestment
of dividends.
Alongside this a summary of the single figure of total remuneration for the Chief Executive over the last 10 years is provided, and a summary of the
variable pay outcomes relative to the prevailing maximum at the time.
2017 2018 2019 2020 2021 20222012 2013 2014 20162015
Pearson TSR FTSE All-share TSR
0
50
100
150
200
250
Directors’ remuneration report continued
108 Pearson plc Annual report and accounts 2022
Relative importance of pay spend
The Committee considers Directors’ remuneration in the context of
the company’s allocation and disbursement of resources to different
stakeholders. Adjusted operating profit measures Pearson’s ability
to reinvest, and dividends are an important element of our return
to shareholders.
All figures in £ 2022 2021
Headline change
£ %
Adjusted operating
profit 456 385 71 18%
Dividend per share 21.5p 20.5p 1p 5%
Share buybacks 353 Nil - -
Total wages
and salaries 1,382 1,180 202 17%
Note 1: Adjusted operating profit is as set out in the financial statements.
Note 2: The Board approved a £350m share buyback programme in February 2022.
Note 3: Wages and salaries include continuing operations only and include Directors.
Chief Executive to employee pay ratio
The table below illustrates the ratio of Chief Executive to employee
pay for 2022. We use the single total figure of remuneration (as
disclosed on page 101), compared to the full-time equivalent total
reward of employees whose pay is ranked at the 25
th
, 50
th
and 75
th
percentiles (as identified by the gender pay gap methodology) in
Great Britain’s (GB) workforce.
Year Method
Chief Executive pay ratio
25
th
percentile
50
th
percentile
75
th
percentile
2022
B: Gender pay gap
methodology 214.3 181.3 117.2
2021
B: Gender pay gap
methodology 150.1 145.0 88.4
2020
B: Gender pay gap
methodology 42.5 31.9 19.5
2019
B: Gender pay gap
methodology 65.9 47.2 36.0
— We used GB gender pay gap data from April 2022 to identify
employees at the 25
th
, 50
th
and 75
th
percentiles, and analysed
data for employees around each quartile figure to ensure there
were no anomalies
Comparative information
The following information provides additional context regarding Directors’ total remuneration.
Relative percentage change in remuneration of Directors and employees
The following table sets out the year-on-year percentage change in base salary/fees, allowances and benefits and annual incentives in respect of all
Directors during the year, compared to the average percentage change for all employees of Pearson. The figures for all Directors are calculated based
on remuneration received in the relevant year as set out in the tables on page 101 and page 107. For base salary/fees, we have annualised part-year
figures for this disclosure. Part-year allowances and benefits are not annualised and are excluded from the table.
While the Committee reviews base pay for the Executive Directors relative to Pearson’s broader employee population, local practices drive our
approach to benefits, and we determine eligibility depending on level and individual circumstances, which do not lend themselves to comparison.
2022 2021 2020
Base
salary/fees
Allowances
and benefits
Annual
Incentives
Base
salary/fees
Allowances
and benefits
Annual
Incentives
Base
salary/fees
Allowances
and benefits
Annual
Incentives
Average employee
1
4% 8% 16% 4% 17% 38% 1% 6% 9%
Executive Directors
Andy Bird 0% 20% 21% 0% – – – – –
Sally Johnson 2.5% 0% 24% 1% – – – – –
Chair and Non-Executive Directors
1
Omid Kordestani – – – – – – – – –
Sidney Taurel 0% – – 0% – – 0% 95% –
Tim Score 25%
2
– – 13% – – 0% -20% –
Sherry Coutu CBE 9% – – 5% – – 5% – –
Esther Lee – – – – – – – – –
Linda Lorimer 0% – – 1% – – 1% 102% –
Graeme Pitkethly 5% – – 1% – – 8% – –
Annette Thomas 7% – – – – – – – –
Lincoln Wallen 0% – – 1% – – 1% -97% –
Note 1: Changes in NED fees during the year are a result of changes in Committee Chairs and membership.
Note 2: Increase due to Tim Score taking over as Deputy Chair in April 2022
Note 3: The Chair and Non-Executive Directors did not receive any benefits in respect of 2021, and therefore it is not possible to calculate the relative change for 2022
Annual report and accounts 2022 Pearson plc 109
— Using the gender pay gap data to identify the quartile
employees gives a general representation of the relevant
employee population at the year end, and is the most
practicable methodology given the timing of the disclosure
and determination of remuneration outcomes for the
wider workforce.
— We compared total remuneration for each employee, calculated
with reference to 31 December 2022, compared to the Chief
Executive’s single figure (this was converted using a USD:GBP
exchange rate of 1.2371 – the average exchange rate for 2022).
— For the quartile employees, we calculated total remuneration on a
similar basis to the Chief Executive’s single figure. We based base
salary, pension and benefits on full-year figures taken from
payroll. Annual bonus figures are based on the relevant manager
recommendations and relate to performance in 2022. None of
the employees at the 25
th
, 50
th
or 75
th
percentile had share
awards vesting in 2022.
— Total remuneration figures for the 25
th
, 50
th
and 75
th
percentile
employees are: £31,998, £37,822 and £58,525. The respective
base salaries are: £29,500, £30,257 and £50,078.
— A significant proportion of the Chief Executive’s pay is linked to
performance and, in respect of the LTIP and co-investment award,
share price performance. Therefore, the Chief Executive’s pay can
vary significantly year-on-year, based on company performance.
— The increase in this year’s pay ratio is a result of a higher payout
under the AIP for the Chief Executive (76% of maximum
compared to 63% of maximum last year) as well as the strong
share price performance over the last year which has resulted in
a higher valuation of the vesting of the second tranche of the
co-investment award.
— The median pay ratio is consistent with our wider policies on
employee pay, reward and progression. The Committee is
focused on ensuring that remuneration for all Pearson colleagues
reflects our need to attract and retain the right talent for our
digital future.
Dilution and use of equity
We can use existing shares bought in the market, treasury shares or
newly issued shares, to satisfy awards under our various share plans.
For restricted stock awards under the LTIP, we would expect to use
market-purchased shares. There are limits on the amount of
new-issue equity we can use. In any rolling 10-year period, no more
than 10% of Pearson equity will be issued, or be capable of being
issued, under all Pearson’s share plans, and no more than 5% of
Pearson equity will be issued, or be capable of being issued, under
Executive or discretionary plans. The headroom available for all
Pearson plans, Executive or discretionary, and shares held in trust is
as follows:
Headroom 2022
All Pearson plans 7.60%
Executive or discretionary plans 4.70%
Shares held in trust 4.70%
The Remuneration Committee in 2022
Role Name Title
Chair Sherry Coutu CBE Independent
Non-Executive
Director
Members Esther Lee Independent
Non-Executive
Director
Tim Score Deputy Chair
Annette Thomas Independent
Non-Executive
Director
Sidney Taurel (until
29 April 2022)
Chair
Internal attendees Omid Kordestani Chair
Andy Bird Chief Executive
Sally Johnson Chief Financial Officer
Ali Bebo Chief Human
Resources Officer
Paul Christian Senior Vice President,
Reward
Graeme Baldwin Company Secretary
External advisers Deloitte LLP
Advisers to the Remuneration Committee
During 2022, the Remuneration Committee received advice from
Deloitte LLP, our independent Remuneration Committee advisers.
Deloitte LLP was appointed by the Committee in July 2017, following
a competitive tender process. It advises the Committee on market
trends and developments, incentive plan design and target setting,
investor engagement and other general executive remuneration
matters. For provision of these services in 2022, Deloitte LLP were
paid fees of £260,150 , based on time spent. During the year,
separate teams at Deloitte LLP also provided Pearson with certain tax
and other advisory and consultancy services.
Deloitte LLP is a founding member of the Remuneration Consultants’
Group and adheres to its Code of Conduct.
The Committee is satisfied that Deloitte LLP’s advice was objective
and independent, and that the provision of other services in no
way compromised its independence. The Committee believes
that the Deloitte LLP engagement partner and team that provides
remuneration advice to the Committee does not have any
connections with Pearson or its Directors that may impair its
independence. The Committee reviewed the potential for conflicts
of interest and believes there are appropriate safeguards against
such conflicts.
Terms of reference
The Committee’s full charter and terms of reference are available on
the Governance page of our website. A summary of the Committee’s
responsibilities is below.
The terms of reference reflect the provisions of the 2018 Code.
Committee responsibilities
Determine and review policy
Determine and regularly review the remuneration policies for the
Executive Directors, Presidents, and other members of Pearson’s
Executive Management who report directly to the Chief Executive.
These policies include base salary, annual and long-term
incentives, pension arrangements, any other benefits, and
termination of employment. When setting remuneration policy,
the Committee considers remuneration practices and related
policies for all employees
Directors’ remuneration report continued
110 Pearson plc Annual report and accounts 2022
Shareholder engagement
Ensure Pearson engages with its shareholders and
shareholder representative bodies on the remuneration
policy and its implementation
Review and approve implementation
Regularly review the implementation and operation of the
remuneration policy, and approve the individual remuneration and
benefits packages of Pearson’s Executive Management team,
including Executive Directors
Approve performance-related plans
Approve the design of, and determine targets for, any
performance-related pay plans operated by the Group for
Pearson’s Executive Management team, and approve total
payments to be made under such plans
Set termination arrangements
Advise and decide on general and specific remuneration
arrangements in connection with the termination of
employment of Pearson’s Executive Management team,
including Executive Directors
Determine Chair’s remuneration
Delegate responsibility for determining the Chair’s remuneration
and benefits package
Appoint remuneration consultants
Appoint and set the terms of engagement for any remuneration
consultants who advise the Committee, and monitor the cost of
such advice
Talent, retention, and gender pay gap
Review updates from management on talent, retention and gender
pay gap
Workforce remuneration
Have oversight of workforce remuneration, policies, and practice
for the wider organisation
Remuneration Committee meeting focus during 2022
During the year the Committee undertook the following activities:
— Reviewed and approved annual and long-term performance and
payouts to Executive Directors and senior management for 2021
— Reviewed and approved incentive arrangements for Pearson, and
how these will apply to Executive Directors and senior
management in 2022
— Reviewed the Directors’ remuneration policy and its
implementation ahead of its renewal at the 2023 AGM
— Engaged extensively with shareholders following the 2022 AGM
and in respect of the Directors’ remuneration policy review.
Reviewed and considered all feedback and considered ongoing
shareholder engagement strategy
— Approved remuneration arrangements for new senior
management appointments
— Received updates on Pearson’s financial performance and
progress against strategic measures. Noted and reviewed the
status of in-flight incentives
— Received updates on pay and conditions across Pearson, and
took these into account when determining executive
remuneration
— Noted updates on corporate governance, including a review of
the 2022 AGM remuneration reporting season, and anticipated
areas of focus in 2023
— Reviewed Pearson’s gender and ethnicity pay gap disclosures and
noted actions to address the respective gaps
— Noted the activity of the Standing Committee on operating
Pearson’s equity-based reward programmes and noted Pearson’s
use of equity for employee share plans
Committee evaluation
Annually, the Committee reviews its performance, constitution,
charter, and terms of reference to ensure it is operating at maximum
effectiveness, and recommends any changes it considers necessary
to the Board for approval. Overall, following its review in 2022, it was
considered that the Committee is operating effectively with high
levels of discussion and questioning. New members of the
Committee brought a different perspective and enhanced visibility
of matters that extend across the different Board Committees.
In 2023, the Committee will continue to focus on ensuring
remuneration arrangements for senior management and the
wider workforce continue to support the attraction and retention
of key talent as well as the delivery of Pearson’s strategy. The
Committee continually assesses how its activities support and
enable Pearson’s progress.
Voting on remuneration resolutions
The following table summarises votes cast for remuneration resolutions:
Votes cast for % of votes
cast for
Votes cast against % of votes
cast against
Votes
withheld
Annual report on Remuneration (2022
AGM) 462,488,192 76.53% 141,832,706 23.47% 3,136,939
2020 Remuneration Policy
(2020 AGM) 586,460,258 95.12% 30,106,736 4.88% 219,641
Amendment to 2020 Remuneration
Policy (2020 GM) 417,060,992 67.22% 203,423,538 32.78% 370,074
Annual report and accounts 2022 Pearson plc 111
2023 Directors’ remuneration policy
The Remuneration Committee presents the 2023 Directors’ remuneration policy (2023 policy), which will be put to shareholders for binding vote at the
AGM to be held on 28 April 2023. Subject to shareholder approval, the effective date of this policy will be 28 April 2023. However, it is proposed,
subject to approval at the AGM, that changes to Executive Director incentives be made effective from the start of the 2023 performance periods. The
intention of the Committee is that the policy will remain in place for three years from the date of its approval.
Review of the Directors’ remuneration policy
In determining the 2023 policy, the Committee followed a robust process which included discussions on the content of the policy at Remuneration
Committee meetings throughout 2022 and in early 2023. The Committee considered the input of management and its independent advisors, while
taking steps to ensure any conflicts of interest were appropriately managed. The Committee also sought the views of Pearson’s major shareholders
and their advisors, considering all feedback received during the extensive shareholder engagement exercise when finalising the 2023 policy. Further
information on the Committee’s decision-making process is set out in the remuneration report.
Changes to policy
The key changes to this 2023 policy compared to the 2020 policy are summarised below:
— Increase in the maximum opportunity under the Annual Incentive Plan to 300% of base salary.
— Increase in the maximum opportunity under the Long-Term Incentive Plan to 450% of salary.
— Increase in proportion of the Annual Incentive Plan that is payable for threshold performance to up to 25% of the maximum opportunity.
— Introduction of deferral under the Annual Incentive Plan where an Executive Director has not met their shareholding guideline.
— Changes to allow for the introduction of strategic measures, e.g. an ESG measure, into the long-term incentive performance framework.
— Increase in shareholding guidelines.
Other minor changes have been made to the drafting of the policy to simplify and aid its operation and to increase clarity.
Policy table for Executive Directors
Total remuneration is made up of fixed and performance-linked elements, with each element supporting different strategic objectives. Remuneration is
normally reviewed annually in the context of business performance and conditions prevailing, taking into account pay levels for similar positions in
comparable companies as well as internal ratios.
Base salary
Purpose and link to strategy
— Helps to recruit, reward and retain.
— Reflects level, role, skills, experience, the competitive market and individual contribution.
Operation Opportunity Performance conditions and period
Base salaries are set to provide the appropriate
rate of remuneration for the job, taking into
account relevant recruitment markets, business
sectors and geographic regions.
Base salaries are normally reviewed annually
taking into account: general economic and market
conditions; the level of increases made across the
company as a whole; particular circumstances
such as changes in role, responsibilities or
organisation; the remuneration and level of
increases for executives in similar positions in
comparable companies in both the UK, US and
internationally; and individual performance.
While there is no maximum salary level or
maximum increase that may be offered, salary
increases will normally be in line with typical
increases awarded to other employees in
the Group.
However, increases may be above this level, for
example, in circumstances including but not
limited to:
— Where a new Executive Director has been
appointed to the Board at a lower than typical
market salary to allow for growth in the role
then larger increases may be awarded to move
salary positioning closer to typical market level
as the Executive Director gains experience.
— Where an Executive Director has
been promoted or has had a change
in responsibilities.
— Where there has been a significant change in
market practice or where there has been a
significant change in the size and/or scope of
the business
None, although performance of both the
company and the individual are taken into
account when determining an appropriate
level of base salary increase each year.
Directors’ remuneration report continued
112 Pearson plc Annual report and accounts 2022
Allowances and benefits
Purpose and link to strategy
— Help to recruit, reward and retain.
— Reflect local competitive market.
Operation Opportunity Performance conditions and period
Allowances and benefits comprise cash
allowances and non-cash benefits which
may include:
— travel-related benefits (such as car allowance,
company car and private use of a driver)
— health-related benefits (such as healthcare,
health assessment and gym subsidy) and
— risk benefits (such as additional life cover and
long-term disability insurance that are not
covered by the company’s retirement plans).
Executive Directors are also eligible to participate
in savings-related share acquisition programmes,
which are not subject to any performance
conditions, on the same terms and to the same
value as other employees.
Where an Executive Director is required to
relocate to perform their role, appropriate one-off
or ongoing expatriate/relocation benefits may be
provided (e.g., housing, schooling, etc.).
The Committee may introduce other benefits if it
is considered appropriate to do so, taking into
account the individual circumstances, the country
of residence of a Director, the benefits available to
all employees and the wider external market.
The cost of the provision of allowances and
benefits varies from year to year depending on
the cost to Pearson and there is no prescribed
maximum limit. However, the Committee monitors
annually the overall cost of the benefits provided,
to ensure that it remains appropriate.
Not applicable
Retirement benefits
Purpose and link to strategy
— Help to recruit, reward and retain.
— Recognise long-term commitment to the company.
Operation Opportunity Performance conditions and period
Employees in the UK are eligible to join the
Money Purchase 2003 section of the Pearson
Pension Plan. Executive Directors are eligible to
join this plan or receive a cash allowance of
equivalent value.
UK Executive Directors who are, or become,
affected by the lifetime allowance may be
provided with appropriate benefits, as an
alternative to further accrual of pension benefits
such as a cash supplement, in line with the
treatment for the employee population.
If any Executive Director is from, or works, outside
the UK, the Committee retains a discretion to put
in place retirement benefit arrangements for that
Director in line with local market practice including
defined benefit pension arrangements operated
by Pearson locally. The maximum value of such
arrangement will reflect local market practice at
the relevant time.
The Committee may also honour all pre-existing
retirement benefit obligations, commitments or
other entitlements that were entered into by a
member of the Pearson Group before that person
became a Director, such as participation in the
Final Pay section of the Pearson Pension Plan
which is now closed to new members.
Executive Directors are eligible to receive pension
contributions or a cash allowance in line with the
maximum company contribution as a percentage
of salary that UK employees of a similar age are
eligible to receive. For UK employees who are over
45, this is currently 16% of base salary.
Current Chief Executive Officer: Andy Bird receives
a payment in lieu of pension at 16% of base salary
in line with the pension provision for UK
employees of a similar age.
Current Chief Financial Officer: Sally Johnson is a
member of the Final Pay section of the Pearson
Pension Plan which she joined prior to becoming
an Executive Director. Her pension accrual rate is
1/60
th
of pensionable salary per annum, restricted
to the Plan earnings cap.
Sally Johnson has reached the lifetime allowance,
and therefore now receives a payment in lieu
of pension at 16% of base salary in line with
the pension provision for UK employees of a
similar age.
Not applicable
Annual report and accounts 2022 Pearson plc 113
Annual incentive plan
Purpose and link to strategy
— Help to recruit, reward and retain.
— Motivate the achievement of annual business goals and strategic objectives.
— Provide a focus on key financial and non-financial metrics.
— Reward individual contribution to the success of the company.
— Align to strategy execution priorities.
Operation Opportunity Performance conditions and period
Measures and performance targets are
typically set by the Committee at the
start of the year with payment usually
made after year end following the
Committee’s assessment of performance
relative to targets.
Annual incentive plans are discretionary.
The Committee reserves the right to
adjust payments up or down if it believes
that the outcome does not reflect
underlying financial or non-financial
performance or if such other exceptional
factors warrant doing so.
Where an Executive Director has not
met their shareholding guideline,
normally a third of any payment would
be deferred into Pearson shares for a
period of two years.
Participants may receive additional
shares representing the gross value
of dividends that would have been
paid on shares that vest during the
vesting period.
The Committee may apply malus and/or
clawback for a period of five years in
certain circumstances, such as financial
misstatement, individual misconduct or
reputational damage to the company.
Annual incentives will not exceed 300%
of base salary.
For 2023, the individual maximum
incentive opportunity that will apply for
the Chief Executive Officer is 300% of
base salary and for the Chief Financial
Officer is 200% of base salary.
The proportion of the award
that is payable for threshold
performance may be up to 25%
of the maximum opportunity.
50% of the maximum opportunity
is payable for on-target levels
of performance.
The Committee has the discretion to select the performance
measures and relative weightings from year to year to ensure
continuing alignment with strategy and to ensure targets are
sufficiently stretching. The Committee sets performance
targets for each measure annually.
Annual incentives will normally be based on financial and
strategic performance targets. Financial metrics will normally
account for at least 75% of the total annual opportunity with
the remaining portion normally being based on strategic and/
or performance against personal objectives. The Committee
would intend to consult with shareholders in advance if there
was to be a significant change in the weighting of financial and
strategic measures.
The plan is designed to incentivise and reward underlying
performance. Actual results may be adjusted to remove the
effect of foreign exchange and portfolio changes (acquisitions
and disposals) and other relevant factors that the Committee
considers do not reflect the underlying performance of the
business in the performance year.
Details of performance measures, weightings and targets will
be disclosed in the annual remuneration report for the
relevant financial year if and to the extent that the Committee
deems them not to be commercially sensitive.
The performance period is one year.
Directors’ remuneration report continued
114 Pearson plc Annual report and accounts 2022
Long-term incentive plan
Purpose and link to strategy
— Help to recruit, reward and retain.
— Drive long-term earnings, share price growth and value creation.
— Align the interests of executives and shareholders.
— Encourage long-term shareholding and commitment to the company.
Operation Opportunity Performance conditions and period
Awards of shares are made on an annual basis,
which vest on a sliding scale based on
performance against stretching performance
targets measured at the end of the three-year
performance period.
Awards are normally subject to a post-vesting
holding period (on an after tax basis) for two years
following the end of the performance period.
Participants may receive additional shares
representing the gross value of dividends that
would have been paid on shares that vest during
the performance period.
The Committee reserves the right to adjust the
vesting outcome up or down before they are
released if it believes that this does not reflect
underlying financial or non-financial performance
or if such other exceptional factors warrant doing
so. In making such adjustments, the Committee is
guided by the principle of aligning shareholder
and management interests.
The Committee may apply malus and/or clawback
for a period of five years in certain circumstances,
such as financial misstatement, individual
misconduct or reputational damage to
the company.
The maximum award is 450% of base salary in
respect of a financial year.
The Committee will determine the
performance measures, weightings and
targets governing an award of shares prior
to grant to ensure continuing alignment
with strategy and to ensure that targets are
sufficiently stretching.
The Committee establishes a threshold
below which no payout is achieved and a
maximum at or above which the award
pays out in full. The proportion of the
award that vests at threshold may be up to
25% of the maximum opportunity.
Awards will normally be subject to the
achievement of financial targets (e.g.,
earnings per share and a return measure),
shareholder returns (e.g., relative total
shareholder return) and strategic
objectives (e.g., an environmental, social
and/or governance measure). Where
strategic objectives are incorporated,
financial targets and/or shareholder
returns will comprise the majority of
the award.
The Committee may determine that
different measures or weightings may
apply for future awards; however, the
Committee would intend to consult
with shareholders in advance if there
was to be a significant change in the
weighting of measures or the performance
measures used.
The performance period is three years.
Shareholding guidelines
Purpose and link to strategy
— Align the interests of Executives and shareholders and encourage long-term shareholding and commitment to the company.
Operation Opportunity Performance conditions and period
Executive Directors are expected to build up a
shareholding in the company.
Executive Directors are expected to reach
the guideline within five years from the date
of appointment.
Post-employment shareholding: Executive
Directors are expected to retain their
shareholding guideline (or actual holding if
lower) for two years following stepping down
as an Executive Director. This provision does
not apply to any shares purchased by the
Executive Director.
The target holding is currently 450% of base salary
for the Chief Executive Officer and 300% of base
salary for other Executive Directors.
Not applicable
Annual report and accounts 2022 Pearson plc 115
Notes to the policy table
Selection of performance measures and target setting
In the selection and weighting of performance measures for the annual and long-term incentive awards, the Committee takes into account Pearson’s
strategic objectives and short and long-term business priorities.
Annual incentive plan
For 2023, the Committee identified sales, adjusted operating profit, free cash flow and key strategic measures as being
relevant measures of Pearson’s performance against its shorter-term strategic objectives and business priorities. Further
details on how these performance measures align to Pearson’s strategy are set out in the remuneration report.
Long-term
incentive plan
For 2023 LTIP awards, the Committee has judged the following to be most closely matched to sustained delivery of
strategy and alignment with shareholders’ interests:
— Adjusted earnings per share (30%) rewards the delivery of the desired outcomes from our strategic growth
objectives and is imperative if the company is to improve our total shareholder return and our return on capital.
— Return on capital (30%) is a measure of how efficiently Pearson generates returns from its asset base and is
considered a fair and robust assessment of management’s performance given the current structure of the business.
— Relative total shareholder return (30%) is used as the Committee believes, in line with many of our shareholders,
that part of Executive Directors’ rewards should be linked to long-term performance relative to comparable
global companies.
— An Environmental, Social and Governance measure (10%) has been selected to reflect that progression of
Environmental, Social and Governance priorities are integral to the long-term sustainable growth of the business.
Performance targets are set to provide a careful balance between upside opportunity and downside risk and are normally set in accordance with the
company’s operating and strategic plans, while also considering analyst consensus to reflect market expectations.
Pre-existing commitments
The Committee reserves the right to make remuneration payments and payments for loss of office (which includes exercising related discretions) that
are not in line with this policy if the terms of the payment were agreed:
— before the policy came into effect, if the payment was agreed or made in line with the policy in force at the time or was otherwise approved by
shareholders; and
— at a time when the recipient was not subject to the policy, provided the Committee does not consider the payment to have been made in
consideration of the recipient becoming subject to the policy.
For these purposes ‘payment’ means any payment that would otherwise be subject to the policy and, in relation to a share award, will not be
considered to have been ‘agreed’ any later than the date of grant.
Remuneration policy for other employees
Pearson has a set of remuneration principles that govern pay for the whole organisation, although how these principles are applied varies by business
need, level and geography as required. The key difference in remuneration for Executive Directors compared to the approach to remuneration across
the workforce is that remuneration for Executive Directors is more heavily weighted towards variable pay and linked to the delivery of Pearson’s
strategic objectives and short and long-term business priorities.
Further details on remuneration across the workforce at Pearson are set out in the remuneration report on page 100.
Pay and performance scenario analysis
The charts below illustrate what each Executive Director could expect to receive under the 2023 policy in different performance scenarios. The relative
weighting of fixed and performance-related remuneration and the absolute size of the remuneration packages for the Chief Executive Officer and the
Chief Financial Officer is shown. Consistent with its policy, the Committee places considerable emphasis on the performance-linked elements (the
annual and long-term incentives) and will continue to review the mix of fixed and performance-linked remuneration on an annual basis.
Directors’ remuneration report continued
Chief Executive (Andy Bird) $000 Chief Financial Officer (Sally Johnson) £000
100% 29% 17% 13%
29%
33%
27%
43%
50%
40%
20%
$1,949
$6,800
$11,652
$14,563
Fixed Pay AIP
Share price appreciation
LTIP
Maximum Maximum plus
50% share price
appreciation
Minimum Target
100% 32% 19% 15%
27%
32%
26%
41%
48% 39%
20%
£662
£2,055
£3,449
£4,284
Maximum Maximum plus
50% share price
appreciation
Minimum Target
Fixed Pay AIP
Share price appreciation
LTIP
116 Pearson plc Annual report and accounts 2022
Performance scenario Elements of remuneration and assumptions
Maximum plus 50% share
price appreciation
— Fixed pay
— Maximum individual annual incentive (300% of base salary for Chief Executive and 200% of salary for Chief
Financial Officer)
— Maximum value of 2023 LTIP award (450% for Chief Executive and 300% of salary for Chief Financial Officer) with
50% share price growth assumed
Maximum
— Fixed pay
— Maximum individual annual incentive (300% of base salary for Chief Executive and 200% of salary for Chief
Financial Officer)
— Maximum value of 2023 LTIP award (450% for Chief Executive and 300% of salary for Chief Financial Officer) with
no share price growth assumed
Target
— Fixed pay
— 50% of the maximum individual annual incentive
— 50% of the maximum value of 2023 long-term incentive award with no share price growth assumed
Minimum
— Fixed pay only
Note 1: Fixed pay includes 2023 base salary ($1,293,750 for the Chief Executive and £557,225 for the Chief Financial Officer); allowances and benefits are the actual amounts incurred in the
2022 financial year. Retirement benefits for both Executive Directors are included at 16% of their base salary.
Note 2: The value of long-term incentives does not take into account dividend awards that are payable on the release of LTIP shares.
Recruitment
The Committee expects any new Executive Directors to be engaged
on the same terms and to be awarded variable remuneration within
the same normal limits and subject to the same conditions as for the
current Executive Directors outlined in the policy.
The maximum level of variable remuneration which may be awarded
(excluding any ‘buyout’ awards) in respect of recruitment is 750% of
salary, which is in line with the current maximum limits under the
annual and long-term incentive.
In setting the basic salary for any new Executive Director, the
Committee will apply a level appropriate to recruit a suitable
candidate, having regard to the factors set out in the policy table.
The Committee recognises that it cannot always predict accurately
the circumstances in which any new Directors may be recruited.
The Committee may determine that it is in the interests of the
company and shareholders to secure the services of a particular
individual which may require the Committee to take account of
the terms of that individual’s existing employment and/or their
personal circumstances. The Committee may do this in the
following circumstances:
— Where an individual is relocating in order to take up the role, in
which case the company may provide certain benefits such as
reasonable relocation expenses, accommodation and assistance
with visa applications or other immigration issues and ongoing
arrangements such as tax equalisation, annual flights home,
schooling and housing allowance.
— Where an individual is required to forego compensation to take
up the appointment or forfeits outstanding variable pay
opportunities or contractual rights at a previous employer as a
result of appointment, the Committee may offer compensatory
payments or awards, in such form as the Committee considers
appropriate taking into account all relevant factors including
where applicable the form of compensation or awards, expected
value and vesting time-frame of forfeited opportunities. The
Committee would require reasonable evidence of the nature and
value of any foregone or forfeited amounts and would, to the
extent practicable, ensure any compensation was provided on a
like-for-like basis and was no more valuable than the foregone or
forfeited amounts.
— Where an individual incurs legal or other professional fees in
connection with their appointment as an Executive Director, the
Committee retains the discretion to compensate for these.
In making any decision on any aspect of the remuneration package
for a new recruit, the Committee would balance shareholder
expectations, current best practice and the requirements of any
new recruit and would strive not to pay more than is necessary to
achieve the recruitment. The Committee would give full details of the
terms of the package of any new recruit in the next annual
remuneration report.
Where an existing employee of the company is promoted to the
Board, the company may honour all existing contractual
commitments including any outstanding share awards and benefits,
including retirement benefits.
Pearson expects any new Chair or Non-Executive Director to be
engaged on terms that are consistent with the general remuneration
principles outlined in the relevant sections of this Policy.
Service contracts and termination provisions
In accordance with long established policy, all Executive Directors
have service agreements under which, other than by termination in
accordance with the terms of these agreements, employment
continues indefinitely.
There are no special provisions for notice or non-share-based
compensation in the event of a change of control of Pearson.
The Chair and other Non-Executive Directors serve under letters
of appointment.
It is the company’s policy that the company may terminate the Chair’s
letter of appointment and the Executive Directors’ service
agreements by giving no more than 12 months’ notice. Other
Non-Executive Directors letters of appointment do not contain
provision for notice periods or compensation if their appointments
are terminated.
Payment in lieu of notice
As an alternative, for Executive Directors the company may at its
discretion pay in lieu of that notice. Payment in lieu of notice may be
made in equal monthly instalments from the date of termination to
the end of any unexpired notice period. Payment in lieu of notice in
instalments may also be subject to mitigation and reduced taking into
account earnings from alternative employment.
For Executive Directors, payment in lieu of notice comprises 100% of
the annual salary at the date of termination and the annual cost to
the company of providing pension and all other benefits. For the
Chair, payment in lieu of notice comprises 100% of the annual fees at
the date of termination.
The company may, depending on the circumstances of the
termination, determine that it will not pay the Director in lieu of
notice and may instead terminate a Director’s contract in breach and
make a damages payment, taking into account as appropriate the
Director’s ability to mitigate his or her loss.
Annual report and accounts 2022 Pearson plc 117
The company may also pay an amount considered to be reasonable
by the Remuneration Committee in respect of fees for legal and tax
advice and outplacement support for the departing Director. The
Committee reserves the right to make any other payments in
connection with a Director’s cessation of office or employment where
the payments are made in good faith, in discharge of an existing legal
obligation (or by way of damages for breach of such an obligation) or
by way of settlement of any claim arising in connection with the
cessation of a Director’s office or employment.
Share awards
On cessation of employment, treatment of unvested shares awards
will be determined based on the rules of Pearson’s share plans.
In respect of unvested deferred annual incentive awards, these will
ordinarily subsist, except in circumstances where an individual is
summarily dismissed. Awards would ordinarily vest on the original
vesting date/be released in line with normal time horizons unless
determined otherwise by the Committee.
In respect of unvested long-term incentive awards, unless otherwise
provided for under the rules of Pearson’s discretionary share plans,
Executive Directors’ entitlements would lapse automatically. In the
case of death, injury, disability, ill-health or redundancy (as
determined by the Committee), where a participant’s employing
business ceases to be part of Pearson, or any other reason if the
Committee so decides in its absolute discretion:
— awards will stay in force as if the participant had not ceased
employment and shall ordinarily vest on the original vesting date/
be released in line with normal time horizons subject to
performance conditions.
— the number of shares that are released shall be pro-rated for
the period of the participant’s service in the vesting period
(although the Committee may in its absolute discretion waive or
vary the pro-rating).
In determining whether and how to exercise its discretion under
Pearson’s discretionary share plans, the Committee will have regard
to all relevant circumstances distinguishing between different types
of leaver, the circumstances at the time the award was originally
made, the Director’s performance and the circumstances in which
the Director left employment.
The rules of Pearson’s discretionary share plans also make provision
for the treatment of awards in respect of corporate activity, including
a change of control of Pearson. The Committee would act in
accordance with the terms of the awards in these circumstances,
which includes terms as to the assessment of performance
conditions and time apportionment.
Annual bonus
On cessation of employment, Executive Directors may, at the
Committee’s discretion, retain entitlement to a pro rata annual
incentive for their period of service in the financial year prior to their
leaving date. Such payout will normally be calculated in good faith on
the same terms and paid at the same time as for continuing
Executive Directors.
Other elements of remuneration
Eligibility for allowances and benefits including retirement benefits
(other than pension payments in connection with subsequent
retirement) normally ceases on retirement or on the termination of
employment for any other reason.
The termination provisions described above may be varied to the
extent necessary to comply with applicable laws, including taxation
laws in the United States.
Individual service agreements and letters of
appointment
Details of each individual’s arrangement are outlined in the table
below. Employment agreements for other employees are determined
according to local labour law and market practice.
Position
Date of letter /
agreement Notice period
Compensation on
termination of
employment by the
company without
notice or cause
Chair Omid
Kordestani,
16 December
2021
12 months
fromthe
Director; 12
months from
the company
Payment in lieu of
notice of 100% of
annual fees at the
date of
termination
Executive
Directors
Andy Bird,
23 August
2020
Sally Johnson,
15 January
2020
6 months
fromthe
Director; 12
months from
the company
Payment in lieu of
notice of 100% of
annual salary at
the date of
termination and
the annual cost of
pension and all
other benefits
Note 1: Under payment in lieu of notice, the annual cost of pension for Executive
Directors is normally calculated as the sum, where applicable, of: an amount equal to
the company’s cost of providing the Executive’s pension under the pension plan based
on the Future Service Company Contribution Rate for the relevant section of the
pension plan as stated in the most recent actuarial valuation (as at the date of
termination of employment) as limited by the earnings cap; and any cash allowance in
lieu of pension or to take account of the fact that pension benefits and life assurance
cover are restricted by the earnings cap.
Executive Directors’ non-Executive Directorships
The Committee’s policy is that Executive Directors may, by agreement
with the Board, serve as non-executives of other companies and
retain any fees payable for their services.
Consideration of employment conditions
across Pearson
Under the Committee’s charter and terms of reference, the
Committee’s remit includes determining remuneration for the Chief
Executive Officer, other Executive Directors and other members of
the Pearson Executive Management team. In addition, the
Committee’s remit includes oversight of certain remuneration
matters below this level and review of remuneration policies and
practices across the broader employee population.
When determining remuneration for Executive Directors and other
members of the Pearson Executive Management team, the
Committee considers reports from the Chief Executive and Chief
Human Resources Officer on pay and conditions for the broader
employee population, including information on the recruitment and
retention of talent, general pay trends in the market and the level of
pay increases and incentives across the company as a whole. This
helps to ensure that remuneration for senior management is
considered in the context of the wider organisation.
There are a number of established channels for consulting with
employees and employee representative bodies – including trade
unions and works councils in some jurisdictions – about the
company’s strategy, competitiveness and performance of the
business and other matters affecting employees. The views of
employees are also sought via the Employee Engagement Network,
feedback from which is reported to the Board, and engagement
surveys. These activities provide employees with the opportunity to
express how they feel about working for Pearson, what they think
about the work they do, the opportunities they have and the rewards
(including pay and benefits) they get.
The Committee has not consulted directly with employees on the
development of the Directors’ remuneration policy.
Directors’ remuneration report continued
118 Pearson plc Annual report and accounts 2022
Consideration of shareholder views
The company consults regularly with shareholders on all matters
affecting its strategy and business operations. This includes executive
remuneration. Over the last year, whilst developing the 2023 policy
and considering its implementation, the Remuneration Committee
has engaged extensively with shareholders to ensure remuneration
for Executive Directors is set appropriately, rewards for performance
and aligns management with the shareholder experience.
This engagement exercise included writing to and meeting with many
of Pearson’s shareholders and their advisors, to seek their input on
the proposed changes to the policy. We would like to thank our
shareholders for the time they have spent with us in this regard. All
feedback received, which reflected a significant range of opinions,
was duly considered by the Remuneration Committee as it finalised
the 2023 policy. Further details on the shareholder engagement
exercise can be found in my letter on pages 90-91.
The Committee continues to monitor and respond to best practice
guidelines published by shareholders and their representative
bodies. Pearson remains committed to an open and transparent
dialogue with its shareholders.
Policy table for Chair’s and Non-Executive Directors’ remuneration
The table below summarises the policy with respect to remuneration of the Chair and Non-Executive Directors.
Chair and Non-Executive Director remuneration
Purpose and link to strategy
— To attract and retain high-calibre individuals, with appropriate experience or industry-relevant skills, by offering market competitive fee levels
Operation Opportunity Performance conditions and period
The Chair and Deputy Chair are paid a single fee
for all of their responsibilities.
The Chair and Deputy Chair fee is set at a level
that is competitive considering similar positions in
comparable companies.
The Non-Executive Directors are paid a basic fee.
The Committee Chairs, members of the main
Board Committees and, if relevant, the Senior
Independent Director are paid an additional fee to
reflect their extra responsibilities. Fees for
Non-Executive Directors are determined by the
full Board having regard to market practice.
Additional fees or other payments may be paid to
reflect additional responsibilities, roles or
contribution, as appropriate.
The Chair, Deputy Chair and Non-Executive
Directors are not eligible to participate in any
annual or long-term incentive, nor are they
entitled to any retirement or other employee
benefits. Selected benefits may be introduced, if
considered appropriate.
The company reimburses travel and other
business expenses and any tax incurred thereon,
if applicable.
Normally a minimum of 25% of the Chair’s, Deputy
Chair’s and Non-Executive Directors’ basic fee is
paid in Pearson shares that they have committed
to retain for the period of their directorships.
Shares are normally acquired quarterly at the
prevailing market price with the individual’s
after-tax fee payments.
Fee levels are reviewed on a periodic basis.
The total fees payable to the Non-Executive
Directors (excluding the Chair) are subject to the
limit set out in the Articles of Association of the
company (currently £750,000) and as increased by
ordinary resolution from time to time.
None.
The Directors’ Remuneration Report was approved by the Board on 15 March 2023 and signed on its behalf by:
Sherry Coutu CBE
Chair of Remuneration Committee
Annual report and accounts 2022 Pearson plc 119
Additional disclosures
Pages 54-124 of this document comprise the Directors’ report for the
year ended 31 December 2022.
Set out below is other statutory and regulatory information that
Pearson is required to disclose in its Directors’ report.
Going Concern
The Directors have confirmed that there are no material
uncertainties that cast doubt on the Group’s going concern status
and that they have a reasonable expectation that the Group has
adequate resources to continue in operational existence beyond
30June 2024. The consolidated financial statements have therefore
been prepared on a going concern basis.
Further details on the procedures undertaken may be found on
page147.
Viability statement
The Board assessed the prospects of the company using the
company’s long range plan, together with downside scenarios.
Basedon the result of these procedures and considering the
company’s strong balance sheet, the Directors have a reasonable
expectation that Pearson will be able to continue in operation and to
meet its liabilities as they fall due over the four-year period ending 31
December 2026. Further details may be found on page 52.
Share capital
Details of share issues and cancellations are given in note 27 to the
financial statements on page 191. The company has a single class of
shares which is divided into ordinary shares of 25p each. The
ordinary shares are in registered form. As at 31 December 2022,
715,733,241 ordinary shares were in issue. At the AGM held on
29 April 2022, the company was authorised, subject to certain
conditions, to acquire up to 75,727,045 ordinary shares by market
purchase and to issue up to 504,846,968 ordinary shares.
Shareholders will be asked to renew these authorities, subject to
revised caps, at the AGM on 28 April 2023.
As at 13 March 2023, 2,487 record holders with registered addresses
in the United States held 33,286,790 ADRs which represented 4.65%
of the company’s outstanding ordinary shares. Some of these ADRs
are held by nominees and so these numbers may not accurately
represent the number of shares beneficially owned in the United States.
Share buyback
On 25 February 2022, the company announced its intention to
commence a share buyback programme during 2022, which was
subsequently launched on 4 April 2022 and completed on
7 December 2022. Under the programme, approximately 42.3m
shares were bought back and cancelled at a cost of £353m. The
nominal value of these shares, approximately £10m, was transferred
to the capital redemption reserve. The Board believes that the
company’s strategic priorities, combined with the disciplined
approach to capital allocation, will enable Pearson to create
sustainable, long-term value for every stakeholder.
We have set out clear capital allocation priorities as follows:
— Maintaining a strong balance sheet and solid investment-grade
credit ratings through an appropriate capital structure
— Focused and disciplined approach to investing in the business to
accelerate growth opportunities
— Delivering shareholder returns through a progressive and
sustainable dividend policy
— Returning surplus cash to shareholders as and when appropriate
through buybacks or special dividends
Major shareholders
Information provided to the company pursuant to the Financial
Conduct Authority’s Disclosure Guidance and Transparency Rules
(DTR) is published on a Regulatory Information Service and on the
company’s website.
As at 31 December 2022, the company had been notified under
DTR 5 of the following holders of significant voting rights in its shares.
Number
of voting rights
Percentage as at
date of
notification
Cevian Capital II GP Limited 82,952,354 11.16%
BlackRock, Inc.
1
74,503,339 10.32%
Ameriprise Financial, Inc. and its
group 41,236,375 5.02%
Silchester International
Investors LLP 36,341,993 <5%
Schroders plc 36,003,705 <5%
Libyan Investment Authority
2
24,431,000 3.01%
1. Includes 6,864,838 (0.94%) qualifying financial instruments to which voting rights
are attached.
2. Based on notification to the company dated 7 June 2010. We have not been
notified of any change to this holding since that date. Assets belonging to, or
owned, held or controlled on 16 September 2011 by the Libyan Investment
Authority and located outside Libya on that date, are frozen in accordance with The
Libya (Sanctions) (EU Exit) Regulations 2020.
Between 31 December 2022 and 13 March 2023, being the latest
practicable date before the publication of this report, the company
received a further notification under DTR 5, with the most recent
position being as follows:
Number
of voting rights
Percentage as at
date of
notification
BlackRock, Inc.
3
78,810,810 11.00%
3. Includes 8,847,811 (1.23%) qualifying financial instruments to which voting rights
are attached
120 Pearson plc Annual report and accounts 2022
Annual general meeting
The notice convening the AGM, to be held at 9:30am on Friday,
28 April 2023 at 80 Strand, London WC2R 0RL, is contained in a
circular to shareholders to be dated 24 March 2023.
Registered auditors
In accordance with section 489 of the Companies Act 2006 (the Act),
a resolution proposing the re-appointment of Ernst & Young LLP as
auditors to the company will be proposed at the AGM, at a level of
remuneration to be agreed by the Audit Committee.
Amendment to Articles of Association
Any amendments to the Articles of Association of the company (the
Articles) may be made in accordance with the provisions of the Act by
way of a special resolution.
Rights attaching to shares
The rights attaching to the ordinary shares are defined in the Articles.
A shareholder whose name appears on the company’s register of
members can choose whether his/her shares are evidenced by share
certificates (i.e. in certificated form) or held electronically (i.e.
uncertificated form) in CREST (the electronic settlement system in
the UK).
Subject to any restrictions below, shareholders may attend any
general meeting of the company and, on a show of hands, every
shareholder (or his/her representative) who is present at a general
meeting has one vote on each resolution and, on a poll, every
shareholder (whether an individual or a corporation) present in
person or by proxy shall have one vote for every 25p of nominal
share capital held. A resolution put to the vote at a general meeting
held partly by means of electronic facility or facilities shall, unless the
chair of the meeting determines that it shall be decided on a show of
hands, be decided on a poll. Subject to this, at any general meeting, a
resolution put to the vote at the meeting shall be decided on a show
of hands, unless before, or on the declaration of the result of, a vote
on a show of hands, a poll is demanded. A poll can be demanded by
the chair of the meeting, or by at least three shareholders (or their
representatives) present in person and having the right to vote, or by
any shareholders (or their representatives) present in person having
at least 10% of the total voting rights of all shareholders, or by any
shareholders (or their representatives) present in person holding
ordinary shares on which an aggregate sum has been paid up of at
least 10% of the total sum paid up on all ordinary shares. At this
year’s AGM, voting will again be conducted on a poll, consistent with
best practice.
Shareholders can declare a final dividend by passing an ordinary
resolution but the amount of the dividend cannot exceed the
amount recommended by the Board. The Board can pay interim
dividends on any class of shares of the amounts and on the dates
and for the periods they decide. In all cases, the distributable profits
of the company must be sufficient to justify the payment of the
relevant dividend.
The Board may, if authorised by an ordinary resolution of the
shareholders, offer any shareholder the right to elect to receive new
ordinary shares, which will be credited as fully paid, instead of their
cash dividend.
Any dividend which has not been claimed for 8 years after it became
due for payment will be forfeited and will then belong to the
company, unless the Directors decide otherwise.
If the company is wound up, the liquidator can, with the sanction
of a special resolution passed by the shareholders, divide among
the shareholders in specie all or any part of the assets of the
company and can value assets and determine how the division
shall be carried out as between the shareholders or different
classes of shareholders.
The liquidator can also, with the same sanction, transfer the whole or
any part of the assets to trustees upon such trusts for the benefit of
the shareholders.
Voting at general meetings
Any form of proxy sent by the shareholders to the company in
relation to any general meeting must be delivered to the company
(via its registrars), whether in written or electronic form, not less than
48 hours before the time appointed for holding the meeting or
adjourned meeting at which the person named in the appointment
proposes to vote.
The Board may decide that a shareholder is not entitled to attend or
vote either personally or by proxy at a general meeting or to exercise
any other right conferred by being a shareholder if they or any
person with an interest in shares has been sent a notice under
section 793 of the Act (which confers upon public companies the
power to require information with respect to interests in their voting
shares) and they or any interested person failed to supply the
company with the information requested within 14 days after delivery
of that notice.
The Board may also decide, where the relevant shareholding
comprises at least 0.25% of the nominal value of the issued shares of
that class, that no dividend is payable in respect of those default
shares and that no transfer of any default shares shall be registered
unless the shareholder is not himself in default as regards supplying
the information requested and the transfer, when presented for
registration, is accompanied by a certificate from the shareholder in
such form as the Board of Directors may require to the effect that
after due and careful inquiry, the shareholder is satisfied that no
person in default is interested in any of the ordinary shares which are
being transferred, or the transfer is an approved transfer as defined
in the Articles, or the registration of the transfer is required by the
Uncertificated Securities Regulations 2001.
Pearson operates an employee benefit trust to hold shares, pending
employees becoming entitled to them under the company’s
employee share plans. There were 1,863,202 shares held as at
31 December 2022. The trust has an independent trustee which has
full discretion in relation to the voting of such shares. A dividend
waiver operates on the shares held in the trust.
Pearson also operates nominee shareholding arrangements which
hold shares on behalf of employees. As at 31 December 2022,
there were 2,247,759 shares held in the Sharestore account
administered by Equiniti Limited (Equiniti). The beneficial owners of
shares held in Sharestore are invited to submit voting instructions
online at www.shareview.co.uk. If no instructions are given by the
beneficial owner by the date specified, the trustees holding these
shares will not exercise the voting rights.
As at 31 December 2022, there were 3,028,933 shares held in the
Computershare Share Plan Account (SPA), which is administered
by Computershare Investor Services plc (Computershare).
Beneficial holders of shares held in the Computershare Share Plan
Account (SPA) are invited to submit voting instructions online at
www.equateplus.com. If no instructions are given by the beneficial
owner by the date specified, the nominee holding these shares will
not exercise the voting rights.
Annual report and accounts 2022 Pearson plc 121
Transfer of shares
The Board may refuse to register a transfer of a certificated share
which is not fully paid, provided that the refusal does not prevent
dealings in shares in the company from taking place on an open and
proper basis. The Board may also refuse to register a transfer of a
certificated share unless: (i) the instrument of transfer is lodged, duly
stamped (if stampable) or duly certified or otherwise shown to the
satisfaction of the Board to be exempt from stamp duty, at the
registered office of the company or any other place decided by the
Board, and is accompanied by the certificate for the share to which it
relates and such other evidence as the Board may reasonably
require to show the right of the transferor to make the transfer; (ii) it
is in respect of only one class of shares; and (iii) it is in favour of not
more than four transferees.
Transfers of uncertificated shares must be carried out using CREST
and the Board can refuse to register a transfer of an uncertificated
share in accordance with the regulations governing the operation
of CREST.
Variation of rights
If at any time the capital of the company is divided into different
classes of shares, the special rights attaching to any class may be
varied or revoked either:
(i) with the written consent of the holders of at least 75% in nominal
value of the issued shares of the relevant class or
(ii) with the sanction of a special resolution passed at a separate
general meeting of the holders of the shares of the relevant class.
Without prejudice to any special rights previously conferred on the
holders of any existing shares or class of shares, any share may be
issued with such preferred, deferred or other special rights, or such
restrictions, whether in regard to dividend, voting, return of capital or
otherwise as the company may from time to time by ordinary
resolution determine.
Appointment and replacement of Directors
The Articles contain the following provisions in relation to Directors.
Directors shall be no less than two in number. Directors may be
appointed by the company by ordinary resolution or by the Board.
A Director appointed by the Board shall hold office only until the next
AGM and shall then be eligible for re-appointment. The Board may
from time to time appoint one or more Directors to hold Executive
office with the company for such period (subject to the provisions of
the Act) and upon such terms as the Board may decide and may
revoke or terminate any appointment so made.
The Articles provide that, at every AGM of the company, every
Director shall retire from office and, unless not willing to act, be
eligible for re-appointment.
If a Director is not re-appointed, they shall, subject to the Articles,
retain office until the meeting appoints someone in their place, or, if
it does not do so, until the end of the meeting, or, if the meeting is
adjourned, the end of the adjourned meeting. Where a Director has
been appointed after notice of the annual general meeting has been
given, that Director shall retire at the next annual general meeting of
which notice is first given after his or her appointment as Director.
If there is an insufficient number of appointed or re-appointed
Directors at any of the company’s annual general meetings thus
rendering the Board inquorate, all Directors shall be automatically
re-appointed only for the purposes of filling vacancies and convening
general meetings of the company and to perform such duties as are
appropriate to maintain the company as a going concern and to
enable it to comply with its legal and regulatory obligations. The
Directors are required to convene a further general meeting of the
company as soon as reasonably practicable to allow new Directors to
be appointed, and such Directors who were not appointed at the
original general meeting shall subsequently retire.
The company may by ordinary resolution remove any Director before
the expiration of their term of office. In addition, the Board may
terminate an agreement or arrangement with any Director for the
provision of their services to the company.
Powers of the Directors
Subject to the Articles, the Act and any directions given by special
resolution, the business of the company will be managed by the
Board who may exercise all the powers of the company, including
powers relating to the issue and/or buying back of shares by the
company (subject to authorisation, and any statutory restrictions or
restrictions imposed by shareholders in a general meeting).
Directors’ indemnities
A qualifying third-party indemnity (QTPI), as permitted by the Articles
and sections 232 and 234 of the Act, has been granted by the
company to each of its Directors. Under the provisions of the QTPI,
the company undertakes to indemnify each Director against liability
to third parties (excluding criminal and regulatory penalties) and to
pay Directors’ costs as incurred, provided that they are reimbursed to
the company if the Director is found guilty, the court refuses to grant
the relief sought or, in an action brought by the company, judgement
is given against the Director. The indemnity has been in force for the
financial year ended 31 December 2022 and is currently in force. The
company has purchased and maintains Directors’ and Officers’
insurance cover against certain legal liabilities and costs for claims in
connection with any act or omission by such Directors and Officers in
the execution of their duties.
Significant agreements
The following significant agreements contain provisions entitling the
counterparties to exercise termination or other rights in the event of
a change of control of the company.
As at 31 December 2022, the Group’s principal bank facility, the
$1.19 billion Revolving Credit Facility (RCF) agreement, allowed that
upon a change of control of the company, any participating bank may
require its outstanding advances, together with accrued interest and
any other amounts payable in respect of such facility, and its
commitments, to be cancelled, each within 60 days of notification to
the banks by the agent. The facility was undrawn at year end. The
group’s outstanding fixed rate notes (see note 18 Borrowings for
more information) also contain a provision requiring that, in the
event of a change of control which leads to a downgrade in credit
rating below Baa3 (Moody’s) or BBB- (Fitch Ratings), the company is
required to make an offer to investors to repurchase outstanding
instruments at par plus accrued interest, which investors are not
obliged to accept. For these purposes, a ‘change of control’ occurs if
the company becomes a subsidiary of any other company, or one or
more persons acting either individually or in concert obtains control
(as defined in section 1124 of the Corporation Tax Act 2010) of the
company. In February 2023, the Group renegotiated its Revolving
Credit Facility, reducing the maximum facility to $1 billion.
Shares acquired through the company’s employee share plans rank
pari passu with shares in issue and have no special rights. For legal
and practical reasons, the rules of these plans set out the
consequences of a change of control of the company.
Additional disclosures continued
122 Pearson plc Annual report and accounts 2022
Other statutory information
Other information that is required by the Act and by the Large and
Medium-sized Companies and Groups (Accounts and Reports)
Regulations 2008 (as amended) to be included in the Directors’
report, and which is incorporated by reference, can be located as
follows:
Summary disclosures index See more
Dividend recommendation Page 25
Financial instruments and financial risk
management
Page 178
Important events since year end Page 25
Future development of the business Page 11
Research and development activities Page 16
Employment of disabled persons Page 34
Employee involvement Page 33
Greenhouse gas emissions and energy
consumption data
Page 41
Statement describing employee engagement Page 28
Statement describing regard to suppliers,
customers and other stakeholders’ interests
Page 29
With the exception of the dividend waiver described on page 121
there is no information to be disclosed in accordance with Listing
Rule 9.8.4.
No political donations or contributions were made or expenditure
incurred by the company or its subsidiaries during the year.
Our disclosures are consistent with the recommendations of the
Task Force on Climate-related Financial Disclosures (TCFD) and are
set out on pages 39-41.
Fair, balanced and understandable reporting and
disclosure of information
As required by the UK Corporate Governance Code, we have
established arrangements to ensure that all information we report to
investors and regulators is fair, balanced and understandable. In its
assessment, the Board paid particular attention to a set of criteria
recommended by the Financial Reporting Council, including the use
of straightforward language, focus on content that is important to
investors, and exclusion of irrelevant information.
A process and timetable for the production and approval of this
year’s annual report and accounts was agreed by the Board at its
meeting in December 2022. The full Board then had the opportunity
to review and comment on the report as it progressed. The Audit
Committee is also available to advise the Board on certain aspects of
the annual report and accounts, to enable the Directors to fulfil their
responsibility in this regard.
The Directors consider that the annual report and accounts, taken as
a whole, are fair, balanced and understandable and provide the
information necessary for shareholders to assess the company’s
position, performance, business model and strategy.
Representatives from Financial Reporting, Strategy, Investor
Relations, Corporate Affairs, ESG & Sustainability, Company
Secretarial, Legal, Internal Audit, Risk, HR and Reward teams are
involved in the preparation and review of the annual report to ensure
a cohesive and balanced approach and, as with all of our financial
reporting, a thorough verification of narrative and financial
statements is conducted. We also have procedures in place to
ensure the timely release of inside information, through our Market
Disclosure Committee.
The Directors also confirm that, for each Director in office at the date
of this report:
— so far as the Director is aware, there is no relevant audit
information of which the Group and company’s auditors are
unaware.
— they have taken all the steps that they ought to have taken as
Directors to make themselves aware of any relevant audit
information and to establish that the Group and the company’s
auditors are aware of that information.
Directors in office
The following Directors were in office during the year:
A P Bird G D Pitkethly
S L Coutu T Score
S K M Johnson S Taurel – resigned on
29 April 2022
O Kordestani – appointed on
1 March 2022
A C Thomas
E S Lee – appointed on
1 February 2022
L A Wallen
L K Lorimer
The Directors’ report has been approved by the Board on 15 March
2023 and signed on its behalf by:
Graeme Baldwin
Company Secretary
Annual report and accounts 2022 Pearson plc 123
Statement of Directors’ responsibilities in respect of the financial statements
Statement of Directors' responsibilities
The Directors are responsible for preparing the annual report and
accounts and the financial statements in accordance with applicable
law and regulation.
Company law requires the Directors to prepare financial statements
for each financial year. Under that law, the Directors have prepared
the Group and company financial statements in accordance with
UK-adopted international accounting standards. In preparing the
Group and company financial statements, the Directors have also
elected to comply with International Financial Reporting Standards
issued by the International Accounting Standards Board (IFRSs as
issued by IASB).
Under company law, the Directors must not approve the financial
statements unless they are satisfied that they give a true and fair view
of the state of affairs of the Group and company and of the profit or
loss of the Group for that period. In preparing the financial
statements, the Directors are required to:
— Select suitable accounting policies and then apply
them consistently.
— State whether applicable UK-adopted international accounting
standards and IFRSs issued by IASB have been followed, subject
to any material departures disclosed and explained in the
financial statements.
— Make judgements and accounting estimates that are reasonable
and prudent.
— Prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Group and
company will continue in business.
The Directors are responsible for safeguarding the assets of the
Group and company and hence for taking reasonable steps for the
prevention and detection of fraud and other irregularities.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Group and
company's transactions, and disclose with reasonable accuracy at
any time the financial position of the Group and company and enable
them to ensure that the financial statements and the Directors'
remuneration report comply with the Companies Act 2006.
The Directors are responsible for the maintenance and integrity of
the company’s website. Legislation in the United Kingdom governing
the preparation and dissemination of financial statements may differ
from legislation in other jurisdictions.
Directors’ confirmations
Each of the Directors, whose names and functions are listed in the
Governance report, confirms that, to the best of their knowledge:
— The Group and company financial statements, which have been
prepared in accordance with UK-adopted international
accounting standards and IFRSs issued by IASB, give a true and
fair view of the assets, liabilities and financial position of the
Group and company, and of the profit of the Group.
— The Strategic report includes a fair review of the development
and performance of the business and the position of the Group
and company, together with a description of the principal risks
and uncertainties that it faces.
This responsibility statement has been approved by the Board on
15March 2023 and signed on its behalf by:
Sally Johnson
Chief Financial Officer
124 Pearson plc Annual report and accounts 2022
Financial
Statements
Independent auditor’s report 126
Consolidated financial statements 134
Company financial statements 202
Annual report and accounts 2022 Pearson plc 125
Opinion
In our opinion:
— Pearson plc’s group financial statements and parent company financial statements (the “financial statements”) give a true and fair view of the state
of the group’s and of the parent company’s affairs as at 31 December 2022 and of the group’s profit for the year then ended;
— the group financial statements have been properly prepared in accordance with UK-adopted international accounting standards;
— the parent company financial statements have been properly prepared in accordance with UK-adopted international accounting standards as
applied in accordance with section 408 of the Companies Act 2006; and
— the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
We have audited the financial statements of Pearson plc (the ‘parent company’) and its subsidiaries (the ‘group’) for the year ended 31 December 2022
which comprise:
Group Parent company
Consolidated income statement for the year ended 31 December 2022 Company Balance sheet as at 31 December 2022
Consolidated statement of comprehensive income for the year ended 31
December 2022 Company Statement of changes in equity for the year then ended
Consolidated balance sheet as at 31 December 2022 Company cash flow statement for the year then ended
Consolidated statement of changes in equity for the year ended 31
December 2022
Related notes 1 to 11 to the financial statements including a summary of
significant accounting policies
Consolidated cash flow statement for the year ended 31 December 2022
Related notes 1-38 to the financial statements, including a summary of
significant accounting policies
The financial reporting framework that has been applied in their
preparation is applicable law and UK adopted international
accounting standards, as applied in accordance with section 408 of
the Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with International Standards
on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities
under those standards are further described in the Auditor’s
responsibilities for the audit of the financial statements section of our
report. We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our opinion.
Independence
We are independent of the group and parent in accordance with the
ethical requirements that are relevant to our audit of the financial
statements in the UK, including the FRC’s Ethical Standard as applied
to listed public interest entities, and we have fulfilled our other ethical
responsibilities in accordance with these requirements.
The non-audit services prohibited by the FRC’s Ethical Standard were
not provided to the group or the parent company and we remain
independent of the group and the parent company in conducting the
audit.
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the
directors’ use of the going concern basis of accounting in the
preparation of the financial statements is appropriate. Our evaluation
of the directors’ assessment of the group and parent company’s
ability to continue to adopt the going concern basis of accounting
included:
— We performed our own independent assessment of the risk
around going concern at the planning and year end phases of the
audit.
— In conjunction with our walkthrough of the Group’s financial
statement close process, we confirmed our understanding of
management’s going concern assessment process and engaged
with management early to understand and assess the key
assumptions made in their assessment.
— We agreed the 31 December 2022 cash and debt balances
included in the going concern assessment to the Group’s year
end balances.
— We read the group’s debt agreements to understand the
covenant requirements and tested to check that no covenants
have been breached during the year to 31 December 2022 and
there is no forecast covenant breach in either the base or severe
but plausible downside case scenarios during the going concern
assessment period covering the period to 30 June 2024.
— We checked the logic and arithmetical integrity of management’s
going concern model that includes the cash forecasts for the
going concern assessment period.
Independent Auditor’s Report
Independent Auditor’s report to
the members of Pearson plc
126 Pearson plc Annual report and accounts 2022
— We assessed the appropriateness of the duration of the going
concern assessment period to 30 June 2024 and considered the
existence of any significant events or conditions beyond this
period based on our procedures on the Group’s long-range plan
and knowledge arising from other areas of the audit.
— We considered the appropriateness of the assumptions used to
calculate the cash forecasts under base and plausible downside
case scenarios by reference to historical forecasting accuracy and
comparison to sector benchmarks. We challenged whether the
downside scenarios utilised were sufficiently severe for a going
concern assessment.
— We assessed the reasonableness of the cash flow forecasts
included in the going concern assessment by understanding the
potential impact of the Group’s principal risks as well as any
potential impact from COVID-19, current geopolitical matters and
the impact of climate change have been reflected in the forecasts.
— We evaluated the key assumptions by searching for contrary
evidence to challenge these assumptions, including third party
sector forecasts and analyst expectations. Further, we ensured
these assumptions were consistent with the budget approved by
Pearson’s Board.
— We also challenged the measurement and completeness of the
downside scenario modelled by management by reference to the
Group’s principal risks and uncertainties of the Group.
— We considered the mitigating actions that are within the control
of the Group and evaluated the Group’s ability to control these
outflows if required.
— We considered whether the Group’s forecasts in the going
concern assessment were consistent with other forecasts used by
the Group in its accounting estimates, including goodwill
impairment.
— We considered the Group’s reverse stress testing to identify the
magnitude of decline in revenue and operating profit that would
lead to the Group utilising all liquidity or breaching a covenant
during the going concern assessment period and we have
considered the likelihood of such a decline.
— We reviewed the Group’s going concern disclosures included in
the Annual Report, in note 1(c) to the financial statements, to
assess that they were accurate and in conformity with the
reporting standards.
We observe that in management’s base case and severe but
plausible downside scenarios, there is significant headroom without
taking the benefit of any identified mitigations.
Based on the work we have performed, we have not identified any
material uncertainties relating to events or conditions that,
individually or collectively, may cast significant doubt on the Group
and parent company’s ability to continue as a going concern for a
period to 30 June 2024.
In relation to the Group and parent company’s reporting on how
they have applied the UK Corporate Governance Code, we have
nothing material to add or draw attention to in relation to the
directors’ statement in the financial statements about whether the
directors considered it appropriate to adopt the going concern basis
of accounting.
Our responsibilities and the responsibilities of the directors with
respect to going concern are described in the relevant sections of
this report. However, because not all future events or conditions can
be predicted, this statement is not a guarantee as to the Group’s
ability to continue as a going concern.
Overview of our audit approach
Audit scope
• We performed an audit of the complete financial information of 4 components and audit procedures on specific
balances for a further 11 components. We also performed specified audit procedures on specific balances for a further
4 components.
• The components where we performed full or specific audit procedures accounted for 85% of adjusted Profit before
tax, 89% of Revenue and 95% of Total assets.
Key audit matters
• Fraud risks in revenue recognition
• Valuation of acquired intangible assets
• Uncertain tax provision for EU State Aid case
Materiality
• Overall group materiality of £20.9m which represents 5% of adjusted Profit before tax.
Annual report and accounts 2022 Pearson plc 127
Independent Auditor’s Report continued
An overview of the scope of the parent company and group audits
Tailoring the scope
Our assessment of audit risk, our evaluation of materiality and our
allocation of performance materiality determine our audit scope for
each company within the Group. Taken together, this enables us to
form an opinion on the consolidated financial statements We take
into account size, risk profile, the organisation of the group and
effectiveness of group-wide controls, changes in the business
environment, the potential impact of climate change and other
factors such as recent Internal Audit results when assessing the level
of work to be performed at each company.
The Group operates finance shared service centres in Belfast and
Manila, the outputs of which are included in the financial information
of the reporting components they service and therefore they are
not separate reporting components. Each of the service centres
is subject to specified risk-focused audit procedures, predominantly
the testing of transaction processing and controls testing. Additional
procedures are performed at the scoped components to address the
audit risks not covered by the work performed over the shared
service centres, or where the scoped components are not served by
the shared service centres.
In assessing the risk of material misstatement to the Group financial
statements, and to ensure we had adequate quantitative coverage of
significant accounts in the financial statements, of the 189 reporting
components of the Group, we selected 15 components covering
entities within the UK, US, Brazil and Australia, which represent the
principal business units within the Group.
Of the 15 components selected, we performed an audit of the
complete financial information of 4 components (“full scope
components”) which were selected based on their size or risk
characteristics. For the remaining 11 components (“specific scope
components”), we performed audit procedures on specific accounts
within that component that we considered had the potential for the
greatest impact on the significant accounts in the financial
statements either because of the size of these accounts or their risk
profile.
For an additional 4 components (“specified procedures
components”), we performed certainaudit procedures on specific
accounts within that component that we considered had the
potential for the greatest impact on the significant accounts in the
financial statements, either because of the size of these accounts or
their risk profile. These procedures were undertaken by separate
component audit teams under the primary audit team’s direction.
The audit scope of these components may not have included testing
of all significant accounts of the component but will have contributed
to the coverage of significant accounts tested for the Group.
The reporting components where we performed audit procedures
accounted for 85% of the Group’s adjusted Profit before tax, 89% of
the Group’s Revenue and 95% of the Group’s Total assets. For the
current year, the full scope components contributed 71% of the
Group’s adjusted Profit before tax, 73% of the Group’s Revenue and
88% of the Group’s Total assets. The specific scope components
contributed 14% of the Group’s adjusted Profit before tax, 16% of the
Group’s Revenue and 7% of the Group’s Total assets. The audit scope
of these components may not have included testing of all significant
accounts of the component but will have contributed to the coverage
of significant accounts tested for the Group. We also instructed 4
locations to perform specified procedures over certain balances,
including aspects of revenue recognition.
Of the remaining 170 components that together represent 15% of
the Group’s adjusted Profit before tax, none are individually greater
than 5% of the Group’s adjusted Profit before tax. For these
components, we performed other procedures, including analytical
review, testing of consolidation journals and intercompany
eliminations to respond to any potential risks of material
misstatement to the Group financial statements.
Involvement with component teams
In establishing our overall approach to the Group audit, we
determined the type of work that needed to be undertaken at each
of the components by us, as the primary audit engagement team, or
by component auditors from other EY global network firms operating
under our instruction. The audit procedures performed at the
finance shared service centres were performed by the primary team
with assistance from the Philippines member firm. Of the 4 full scope
components, audit procedures were performed on 1 of these directly
by the primary audit team. Of the 11 specific scope components,
audit procedures were performed on 2 of these directly by the
primary audit team. For the 3 full scope and 9 specific scope
components, where the work was performed by component
auditors, we determined the appropriate level of involvement to
enable us to determine that sufficient audit evidence had been
obtained as a basis for our opinion on the Group as a whole.
The Group audit team followed a programme of planned visits that
has been designed to ensure that each full or specific scope
component was visited by either the Senior Statutory Auditor, or
other senior members of the Group audit team. During the current
year’s audit cycle, visits were undertaken by the Group audit team to
the component teams in the US, Brazil and Australia. These visits
involved discussing the audit approach with the component team
and any issues arising from their work, meeting with local
management, attending planning and progress meetings and
reviewing relevant audit working papers on risk areas. The primary
team interacted regularly with the component teams where
appropriate during various stages of the audit, reviewed relevant
working papers and were responsible for the scope and direction of
the audit process. Close meetings for full, specific, and specified
procedures components (excluding those performed by the primary
audit team) were held via video conference in January and
February2023 and were attended by the Senior Statutory Auditor
and/or other members of the primary audit team. This, together with
the additional procedures performed at Group level, gave us
appropriate evidence for our opinion on the Group financial statements.
Climate change
Stakeholders are increasingly interested in how climate change will
impact Pearson. The Group has determined that the most significant
future impacts from climate change on their operations will be from
physical risks in the medium and long term. These are explained on
pages 39-41 in the required Task Force for Climate related Financial
Disclosures. They have also explained their climate commitments on
pages 37-38. All of these disclosures form part of the “Other
information,” rather than the audited financial statements. Our
procedures on these unaudited disclosures therefore consisted
solely of considering whether they are materially inconsistent with
the financial statements, or our knowledge obtained in the course of
the audit or otherwise appear to be materially misstated, in line with
our responsibilities on “Other information”.
128 Pearson plc Annual report and accounts 2022
In planning and performing our audit we assessed the potential
impacts of climate change on the Group’s business and any
consequential material impact on its financial statements.
The Group has explained in the Basis of Preparation note the key
areas of the financial statements that may be impacted by climate
change and the Group concluded there is no material financial
statement impact from climate change. These disclosures also
explain where governmental and societal responses to climate
change risks are still developing, and where the degree of certainty of
these changes means that they cannot be taken into account when
determining impairment assessments under the requirements of
UK-adopted International accounting standards.
Our audit effort in considering the impact of climate change on the
financial statements was focused on evaluating management’s
assessment of the impact of physical and transition climate risk, their
climate commitments, the effects of material climate risks disclosed
on pages 40 to 41 and whether these have been appropriately
reflected in asset values where these are impacted by future cash
flows and associated sensitivity disclosures, this primarily being
impairment assessments following the requirements of UK-adopted
international accounting standards. As part of this evaluation, we
performed our own risk assessment, supported by our climate
change internal specialists, to determine the risks of material
misstatement in the financial statements from climate change which
needed to be considered in our audit.
We also challenged the Directors’ considerations of climate change
risks in their assessment of going concern and viability and
associated disclosures. Where considerations of climate change
wererelevant to our assessment of going concern, these are
described above.
Based on our work we have not identified the impact of climate
change on the financial statements to be a key audit matter or to
impact a key audit matter.
Key audit matters
Key audit matters are those matters that, in our professional
judgment, were of most significance in our audit of the financial
statements of the current period and include the most significant
assessed risks of material misstatement (whether or not due to
fraud) that we identified. These matters included those which had the
greatest effect on: the overall audit strategy, the allocation of
resources in the audit; and directing the efforts of the engagement
team. These matters were addressed in the context of our audit of
the financial statements as a whole, and in our opinion thereon, and
we do not provide a separate opinion on these matters.
Risk Our response to the risk Key observations communicated to the Audit Committee
Fraud risks in revenue
recognition (revenues of
£3,841m, PY £3,428m)
Refer to the Audit Committee Report
(page 80); Accounting policies
(page145); and Note 3 of the
Consolidated Financial Statements
(page 151).
Given revenue is a key performance
indicator, both in communication of
the Group’s results and for
management incentives, we have
identified a risk of management
override of controls through:
• Manipulation of the rate of
completion for contracts that
span the year end; and
• Topside manual journals
to revenue.
We obtained an understanding and evaluated the
design and tested the operating effectiveness of
controls over the Group’s material revenue processes.
We performed testing over revenue recognition in 4
full scope components, 8 specific scope components
and 4 specified procedures components. We have
performed testing over rate of completion in 2 full
scope components.
The audit of topside manual journals was performed
in all full, specific and specified procedures scope
locations and on consolidation.
For rate of completion, where relevant, we performed
our own independent assessment of the stage of
completion of contracts based on actual and forecast
costs and course completion rates. We have
assessed the forecast costs to complete by contract,
considered historical forecasting accuracy as well as
vouching that all forecast costs aggregate to the
relevant budget amount for each business.
Welooked for contradictory evidence by analysing
contract forecast profitability for outliers.
For manual journals, we instructed our full, specific
and specified procedure scope component teams to
test all manual journals recorded against revenue.
We tested that these journals were appropriately
approved and evaluated supporting evidence.
The Group team tested all manual journals recorded
on consolidation. We tested the completeness
of journals posted and tested that these journals
were appropriately approved and evaluated
supportingevidence.
Revenue for the year to 31 December 2022 has
been recognised appropriately.
Annual report and accounts 2022 Pearson plc 129
Independent Auditor’s Report continued
Risk Our response to the risk
Key observations communicated to the
Audit Committee
Valuation of acquired intangibles
(£110m,PY £27m)
Refer to the Audit Committee Report (page 80);
Accounting policies (page 143); and Note 30 of
the Consolidated Financial Statements (page 193).
During the year, Pearson made two significant
acquisitions: Credly and Mondly.
The identification of acquired intangible assets
requires specialised skills. The valuation involves
complex judgement, due to the estimation
uncertainty and the application of valuation
techniques built, in part, on assumptions around
the future performance of the acquired
businesses, including assumptions impacted by
future events, such as revenue growth rates,
customer churn rates and profitability. Changes
in these assumptions can have a material effect
on the valuation of identifiable intangible assets.
We focused our risk on the most significant
elements of the valuation, namely the
Credly customer relationships and technology
asset and the Mondly technology asset.
The sensitive assumptions for Credly customer
relationships are revenue from existing
customers, retention rate, profitability and
discount rate. For the Credly technology asset,
these are revenue growth and royalty rate.
Forthe Mondly technology asset, these are
revenue growth, obsolescence, profitability and
discount rate.
* and the risk that the acquired intangibles are overstated.
Our audit of the fair values of the acquired assets and
liabilities was performed by the Group audit team.
We obtained an understanding and evaluated the
design and tested the operating effectiveness of
controls over the Group’s process to identify and
value intangible assets, including their use of a
valuation specialist.
We assessed the independence and expertise of
management’s valuation specialist.
We challenged the existence and completeness of
identified intangible assets by involving EY valuation
specialists with the appropriate experience.
We reviewed the valuation methodologies applied, with
the assistance of EY valuation specialists, to validate
that they were appropriate.
We focused our testing of the prospective financial
information included in the valuation calculation on the
key assumptions that are most sensitive to the
valuation
We challenged these assumptions by involving our
valuation specialists where appropriate for
assumptions such as discount rate and royalty rates.
For revenue and profitability assumptions we validated
these by comparison to historical performance,
underlying contractual terms, benchmarking to a range
of peer companies provided by our valuation
specialists and third party sector analysis.
We evaluated the adequacy of the business
combination disclosures to the requirements in IFRS 3.
Based on the procedures
performed, we agree that the
assumptions, valuation of the
acquired intangibles are
appropriate.
Disclosures in Note 30 of the
consolidated financial statements
are appropriate.
Uncertain tax position for EU State Aid
case (£63m, PY £nil)
Refer to the Audit Committee Report (page 80);
Accounting policies (page 145); and Notes 7 and
34 of the Consolidated Financial Statements
(pages160 and 198).
Following an EU General Court Decision on 8
June 2022 on whether certain elements of UK
tax code constituted State Aid, a provision of
£63m has been recorded in the Group financial
statements in respect of a potential tax
exposure. A payment on account to HMRC of
£105m had been made in 2021 for this matter.
The provision has been recorded through
income tax expense against this receivable, with
the balance disclosed as a contingent liability,
Auditing the Group’s recorded £63m provision
at 31 December 2022 required significant
auditor judgement in assessing management’s
expectations of the outcome of matters as there
is a significant range of possible outcomes
between £nil and the maximum exposure of
£105m and therefore a risk of misstatement.
The primary audit team performed full scope
procedures over this matter.
We obtained an understanding and evaluated the
design and tested the operating effectiveness of
controls over the Group’s tax process over uncertain
tax positions.
We understood the background the case by reviewing
correspondence with HMRC.
We reviewed management’s analysis to support their
conclusion that the exposure was now “more likely
than not” following the 8 June 2022 EU General Court
hearing. We reviewed correspondence with
management’s specialist, assessed their independence
and expertise, and held a virtual meeting with them to
discuss their considerations.
We challenged management’s conclusion by involving
an EY EU State Aid specialist to assist us in forming our
own view about whether the exposure was more likely
than not.
We reviewed management’s calculation of the
provision and assessed the appropriateness of the
methodology used. We considered the
appropriateness of the potential outcomes included in
the calculation and the probabilities assigned to each
outcome. We challenged the probabilities by seeking
the input of an EY tax specialist.
We reviewed the disclosures in the Annual Report.
Based on the current status of
proceedings and the opinion of the
Group’s external legal counsel, we
conclude that management’s
provision is appropriately stated.
We agree that disclosure set out in
Notes 7 and 34 of the consolidated
financial statements is appropriate.
130 Pearson plc Annual report and accounts 2022
We apply the concept of materiality in planning and performing the
audit, in evaluating the effect of identified misstatements on the audit
and in forming our audit opinion.
Materiality
The magnitude of an omission or misstatement that, individually or in
the aggregate, could reasonably be expected to influence the
economic decisions of the users of the financial statements.
Materiality provides a basis for determining the nature and extent of
our audit procedures.
We determined materiality for the Group to be £20.9 million , which
is 5% of adjusted Profit before tax. We believe that adjusted Profit
before tax provides us with the most relevant performance measure
to the stakeholders of the Group given the prominence of this metric
throughout the Annual Report and consolidated financial statements,
analyst presentations, and profit metrics focussed on by analysts.
— We determined materiality for the Parent Company to be £44
million , which is 1% of net assets. Where Parent Company
balances were audited as part of the Group audit, they were
audited to an allocation of the Group’s performance materiality.
During the course of our audit, we reassessed initial materiality of
£18.4m and increased it to reflect the actual results for the year.
The previous auditor determined materiality for the Group to be
£18.5m for the year ended 31 December 2021.
Performance materiality
The application of materiality at the individual account or balance
level. It is set at an amount to reduce to an appropriately low level the
probability that the aggregate of uncorrected and undetected
misstatements exceeds materiality.
On the basis of our risk assessments, together with our assessment
of the Group’s overall control environment, our judgement was that
performance materiality was 50% of our planning materiality, namely
£10.5m. We have set performance materiality at this percentage on
the basis that this is our first year as auditors of the Group. Audit
work at component locations for the purpose of obtaining audit
coverage over significant financial statement accounts is undertaken
based on a percentage of total performance materiality. The
performance materiality set for each component is based on the
relative scale and risk of the component to the Group as a whole and
our assessment of the risk of misstatement at that component. In the
current year, the range of performance materiality allocated to
components was £1.8m to £5.0m.
Our application of materiality
Reporting threshold
An amount below which identified misstatements are considered as
being clearly trivial.
We agreed with the Audit Committee that we would report to them
all uncorrected audit differences in excess of £1.05m , which is set at
5% of materiality, as well as differences below that threshold that, in
our view, warranted reporting on qualitative grounds
We evaluate any uncorrected misstatements against both the
quantitative measures of materiality discussed above and in light of
other relevant qualitative considerations in forming our opinion.
Other information
The other information comprises the information included in the
annual report set out on pages 1 to 120, other than the financial
statements and our auditor’s report thereon. The directors are
responsible for the other information contained within the annual
report.
Our opinion on the financial statements does not cover the other
information and, except to the extent otherwise explicitly stated in
this report, we do not express any form of assurance conclusion
thereon.
Our responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent
with the financial statements, or our knowledge obtained in the
course of the audit, or otherwise appears to be materially misstated.
If we identify such material inconsistencies or apparent material
misstatements, we are required to determine whether this gives rise
to a material misstatement in the financial statements themselves. If,
based on the work we have performed, we conclude that there is a
material misstatement of the other information, we are required to
report that fact.
We have nothing to report in this regard.
Opinions on other matters prescribed by the
Companies Act 2006
In our opinion, the part of the directors’ remuneration report to be
audited has been properly prepared in accordance with the
Companies Act 2006.
In our opinion, based on the work undertaken in the course of the audit:
— the information given in the strategic report and the directors’
report for the financial year for which the financial statements are
prepared is consistent with the financial statements; and
— the strategic report and the directors’ report have been prepared
in accordance with applicable legal requirements.
— Profit before tax – £323m
— Add: net £185m adjustments against operating profit, including; cost of restructuring, intangible charges, transaction
costs and profit on disposal of businesses.
— Less: net £56m adjustments against finance income, including; fair value movements and pensions.
— Less; £34m reversal of interest on the release of a historic tax liability
— Adjusted Profit before tax £418m (materiality basis)
— Materiality of £20.9m (5% of materaility basis)
Starting
basis
Adjustments
Materiality
Annual report and accounts 2022 Pearson plc 131
Independent Auditor’s Report continued
Matters on which we are required to report by
exception
In the light of the knowledge and understanding of the group and the
parent company and its environment obtained in the course of the
audit, we have not identified material misstatements in the strategic
report or the directors’ report.
We have nothing to report in respect of the following matters in
relation to which the Companies Act 2006 requires us to report to
you if, in our opinion:
— adequate accounting records have not been kept by the parent
company, or returns adequate for our audit have not been
received from branches not visited by us; or
— the parent company financial statements and the part of the
Directors’ Remuneration Report to be audited are not in
agreement with the accounting records and returns; or
— certain disclosures of directors’ remuneration specified by law are
not made; or
— we have not received all the information and explanations we
require for our audit
Corporate Governance Statement
We have reviewed the directors’ statement in relation to going
concern, longer-term viability and that part of the Corporate
Governance Statement relating to the group and company’s
compliance with the provisions of the UK Corporate Governance
Code specified for our review by the Listing Rules.
Based on the work undertaken as part of our audit, we have
concluded that each of the following elements of the Corporate
Governance Statement is materially consistent with the financial
statements or our knowledge obtained during the audit:
— Directors’ statement with regards to the appropriateness of
adopting the going concern basis of accounting and any material
uncertainties identified set out on page 116;
— Directors’ explanation as to its assessment of the company’s
prospects, the period this assessment covers and why the period
is appropriate set out on page 52;
— Director’s statement on whether it has a reasonable expectation
that the group will be able to continue in operation and meets its
liabilities set out on page 52;
— Directors’ statement on fair, balanced and understandable set out
on page 123 ;
— Board’s confirmation that it has carried out a robust assessment
of the emerging and principal risks set out on page 44;
— The section of the annual report that describes the review of
effectiveness of risk management and internal control systems
set out on page 84 ; and;
— The section describing the work of the audit committee set out on
page 80.
Responsibilities of directors
As explained more fully in the directors’ responsibilities statement set
out on page 124, the directors are responsible for the preparation of
the financial statements and for being satisfied that they give a true
and fair view, and for such internal control as the directors determine
is necessary to enable the preparation of financial statements that
are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible
for assessing the group and parent company’s ability to continue as a
going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless the
directors either intend to liquidate the group or the parent company
or to cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial
statements
Our objectives are to obtain reasonable assurance about whether
the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an
auditor’s report that includes our opinion. Reasonable assurance is a
high level of assurance but is not a guarantee that an audit
conducted in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or
error and are considered material if, individually or in the aggregate,
they could reasonably be expected to influence the economic
decisions of users taken on the basis of these financial statements.
Explanation as to what extent the audit was considered capable
of detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance with
laws and regulations. We design procedures in line with our
responsibilities, outlined above, to detect irregularities, including
fraud. The risk of not detecting a material misstatement due to fraud
is higher than the risk of not detecting one resulting from error, as
fraud may involve deliberate concealment by, for example, forgery or
intentional misrepresentations, or through collusion. The extent to
which our procedures are capable of detecting irregularities,
including fraud is detailed below.
However, the primary responsibility for the prevention and detection
of fraud rests with both those charged with governance of the
company and management.
We obtained an understanding of the legal and regulatory
frameworks that are applicable to the group and determined that the
most significant frameworks which are directly relevant to specific
assertions in the financial statements are those that relate to the
reporting framework (UK-adopted International Accounting
Standards, the Companies Act 2006 and the UK Corporate
Governance Code) and the relevant tax laws and regulations in the
countries in which the Group operates.
We understood how Pearson plc is complying with those frameworks
by making enquiries of management, Internal Audit, those
responsible for legal and compliance procedures and the Company
Secretary. We corroborated our enquiries through review of Board
minutes and papers provided to the Audit Committee and
observation in Audit Committee meetings, as well as consideration of
the results of our audit procedures across the Group
We assessed the susceptibility of the group’s financial statements to
material misstatement, including how fraud might occur and met
with finance and operational management from various parts of the
business to understand where they considered there was
susceptibility to fraud. We also considered performance targets and
their potential to influence management to manage earnings or
influence the perception of analysts. We have determined that there
is a fraud risk with aspects of revenue recognition. We considered
the policies, processes and controls that the Group has established
to address the risks identified, including the design of controls over
each significant revenue stream. We also considered the controls
that the Group has that otherwise prevent, deter and detect fraud,
and how senior management monitors those controls.
Based on this understanding we designed our audit procedures to
identify non-compliance with such laws and regulations. We
performed audit procedures to address the identified fraud risk,
including testing over the specific revenue recognition fraud risk as
noted in the key audit matters section of this report. These
procedures were designed to provide reasonable assurance that the
financial statements as a whole are free from material misstatement,
due to fraud or error. In addition, we completed procedures to
conclude on the compliance of the disclosures in the Annual Report
and Accounts with all applicable requirements. Any instances of
non-compliance with laws and regulations were communicated by/to
components and considered in our audit approach, if applicable.
132 Pearson plc Annual report and accounts 2022
A further description of our responsibilities for the audit of the
financial statements is located on the
Financial Reporting Council’s website at https://www.frc.org.uk/
auditorsresponsibilities. This description forms part of our auditor’s
report.
Other matters we are required to address
— Following the recommendation from the Audit Committee, we
were appointed by the Company at its Annual General Meeting
on 29 April 2022 to audit the financial statements for the year
ending 31 December 2022 and subsequent financial periods.
The period of total uninterrupted engagement including previous
renewals and reappointments is one year, covering the year ending
31 December 2022.
— The audit opinion is consistent with the additional report to the
Audit Committee.
Use of our report
This report is made solely to the company’s members, as a body, in
accordance with Chapter 3 of Part 16 of the Companies Act 2006.
Our audit work has been undertaken so that we might state to the
company’s members those matters we are required to state to them
in an auditor’s report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility to
anyone other than the company and the company’s members as a
body, for our audit work, for this report, or for the opinions we have
formed.
Ben Marles
(Senior statutory auditor)
for and on behalf of Ernst & Young LLP, Statutory Auditor
London
15 March 2023
Annual report and accounts 2022 Pearson plc 133
Financial statements
Consolidated income statement
Year ended 31 December 2022
All figures in £ millions Notes 2022 2021
1
2020
1
Continuing operations
Sales 2,3 3,841 3,428 3,397
Cost of goods sold 4 (2,046 ) (1,747 ) (1,767 )
Gross profit 1,795 1,681 1,630
Operating expenses 4 (1,549 ) (1,562 ) (1,402 )
Other net gains and losses 4 24 63 178
Share of results of joint ventures and associates 12 1 1 5
Operating profit 2 271 183 411
Finance costs 6 (71 ) (68 ) (107 )
Finance income 6 123 62 76
Profit before tax 323 177 380
Income tax 7 (79 ) 1 (50 )
Profit for the year 244 178 330
Attributable to:
Equity holders of the company 242 177 330
Non-controlling interest 2 1 –
Earnings per share attributable to equity holders of the company during the year
(expressed in pence per share)
• basic 8 32.8 p 23.5 p 43.7 p
• diluted 8 32.6 p 23.3 p 43.7 p
1. Comparative balances have been restated – see Note 1b.
134 Pearson plc Annual report and accounts 2022
Consolidated statement of comprehensive income
Year ended 31 December 2022
All figures in £ millions Notes 2022 2021
1
2020
1
Profit for the year 244 178 330
Items that may be reclassified to the income statement
Net exchange differences on translation of foreign operations 330 (6 ) (109 )
Currency translation adjustment disposed (5 ) 4 (70 )
Attributable tax 7 4 10 (13 )
Items that are not reclassified to the income statement
Fair value gain/(loss) on other financial assets 18 4 (12 )
Attributable tax 7 1 (1 ) –
Remeasurement of retirement benefit obligations 25 54 149 (23 )
Attributable tax 7 (12 ) (61 ) 2
Other comprehensive income/(expense) for the year 29 390 99 (225 )
Total comprehensive income for the year 634 277 105
Attributable to:
Equity holders of the company 630 276 105
Non-controlling interest 4 1 –
1. Comparative balances have been restated – see Note 1b.
Annual report and accounts 2022 Pearson plc 135
Financial statements
Consolidated balance sheet
As at 31 December 2022
All figures in £ millions Notes 2022 2021
1
Assets
Non-current assets
Property, plant and equipment 10 250 366
Investment property 10 60 –
Intangible assets 11 3,177 2,769
Investments in joint ventures and associates 12 25 24
Deferred income tax assets 13 57 57
Financial assets – derivative financial instruments 16 43 30
Retirement benefit assets 25 581 537
Other financial assets 15 133 113
Income tax assets 41 97
Trade and other receivables 22 139 129
Current assets
Intangible assets – product development 20 975 894
Inventories 21 105 98
Trade and other receivables 22 1,139 1,257
Financial assets – derivative financial instruments 16 16 2
Income tax assets 9 26
Cash and cash equivalents (excluding overdrafts) 17 558 937
Assets classified as held for sale 32 16 7
Total assets 7,324 7,343
Liabilities
Non-current liabilities
Financial liabilities – borrowings 18 (1,144 ) (1,245 )
Financial liabilities – derivative financial instruments 16 (54 ) (30 )
Deferred income tax liabilities 13 (37 ) (40 )
Retirement benefit obligations 25 (61 ) (66 )
Provisions for other liabilities and charges 23 (14 ) (7 )
Other liabilities 24 (120 ) (95 )
(1,430 ) (1,483 )
136 Pearson plc Annual report and accounts 2022
Consolidated balance sheet continued
As at 31 December 2022
All figures in £ millions Notes 2022 2021
1
Current liabilities
Trade and other liabilities 24 (1,254 ) (1,256 )
Financial liabilities – borrowings 18 (86 ) (155 )
Financial liabilities – derivative financial instruments 16 (11 ) (4 )
Income tax liabilities (43 ) (125 )
Provisions for other liabilities and charges 23 (85 ) (40 )
(1,479 ) (1,580 )
Liabilities classified as held for sale 32 – –
Total liabilities (2,909 ) (3,063 )
Net assets 4,415 4,280
Equity
Share capital 27 179 189
Share premium 27 2,633 2,626
Treasury shares 28 (15 ) (12 )
Capital redemption reserve 28 18
Fair value reserve (13 ) (4 )
Translation reserve 709 386
Retained earnings 881 1,067
Total equity attributable to equity holders of the company 4,402 4,270
Non-controlling interest 13 10
Total equity 4,415 4,280
1. Comparative balances have been restated – see Note 1b.
These financial statements have been approved for issue by the Board of Directors on 15 March 2023 and signed on its behalf by
Sally Johnson
Chief Financial Officer
Pearson plc
Registered number: 00053723
Annual report and accounts 2022 Pearson plc 137
Financial statements
Consolidated statement of changes in equity
Year ended 31 December 2022
All figures in £ millions
Equity attributable to equity holders of the company
Non-
controlling
interest
Total
equity
Share
capital
Share
premium
Treasury
shares
Capital
redemption
reserve
Fair
value
reserve
Translation
reserve
Retained
earnings Total
At 1 January 2022 189 2,626 (12 ) 18 (4 ) 386 1,067 4,270 10 4,280
Profit for the year – – – – – – 242 242 2 244
Other comprehensive income/(expense) – – – – 18 323 47 388 2 390
Total comprehensive income/(expense) – – – – 18 323 289 630 4 634
Equity-settled transactions – – – – – – 38 38 – 38
Taxation on equity-settled transactions – – – – – – 3 3 – 3
Issue of ordinary shares under
share option schemes – 7 – – – – – 7 – 7
Buyback of equity (10 ) – – 10 – – (353 ) (353 ) – (353 )
Purchase of treasury shares – – (37 ) – – – – (37 ) – (37 )
Release of treasury shares – – 34 – – – (34 ) – – –
Transfer of gain on disposal of FVOCI investment – – – – (27 ) – 27 – – –
Dividends – – – – – – (156 ) (156 ) (1 ) (157 )
At 31 December 2022 179 2,633 (15 ) 28 (13 ) 709 881 4,402 13 4,415
All figures in £ millions
Equity attributable to equity holders of the company
Non-
controlling
interest
Total
equity
Share
capital
Share
premium
Treasury
shares
Capital
redemption
reserve
Fair value
reserve
1
Translation
reserve
Retained
earnings
1
Total
At 1 January 2021 188 2,620 (7 ) 18 (4 ) 388 922 4,125 9 4,134
Profit for the year – – – – – – 177 177 1 178
Other comprehensive income/(expense) – – – – 4 (2 ) 97 99 – 99
Total comprehensive income/(expense) – – – – 4 (2 ) 274 276 1 277
Equity-settled transactions – – – – – – 28 28 – 28
Issue of ordinary shares under
share option schemes 1 6 (1 ) – – – – 6 – 6
Buyback of equity – – – – – – – – – –
Purchase of treasury shares – – (16 ) – – – – (16 ) – (16 )
Release of treasury shares – – 12 – – – (12 ) – – –
Transfer of gain on disposal of FVOCI investment – – – – (4 ) – 4 – – –
Dividends – – – – – – (149 ) (149 ) – (149 )
At 31 December 2021 189 2,626 (12 ) 18 (4 ) 386 1,067 4,270 10 4,280
All figures in £ millions
Equity attributable to equity holders of the company
Non-
controlling
interest
Total
equity
Share
capital
Share
premium
Treasury
shares
Capital
redemption
reserve
Fair value
reserve
1
Translation
reserve
Retained
earnings
1
Total
At 1 January 2020 195 2,614 (24 ) 11 39 567 911 4,313 10 4,323
Adjustment (see note 1b) – – – – (31 ) – 31 – – –
At 1 January 2020 (restated) 195 2,614 (24 ) 11 8 567 942 4,313 10 4,323
Profit for the year – – – – – – 330 330 – 330
Other comprehensive income/(expense) – – – – (12 ) (179 ) (34 ) (225 ) – (225 )
Total comprehensive income/(expense) – – – – (12 ) (179 ) 296 105 – 105
Equity-settled transactions – – – – – – 29 29 – 29
Issue of ordinary shares under
share option schemes – 6 – – – – – 6 – 6
Buyback of equity (7 ) – – 7 – – (176 ) (176 ) – (176 )
Purchase of treasury shares – – (6 ) – – – – (6 ) – (6 )
Release of treasury shares – – 23 – – – (23 ) – – –
Dividends – – – – – – (146 ) (146 ) (1 ) (147 )
At 31 December 2020 188 2,620 (7 ) 18 (4 ) 388 922 4,125 9 4,134
1. Comparative balances have been restated – see Note 1b.
The capital redemption reserve reflects the nominal value of shares cancelled in the Group’s share buyback programme. The fair value reserve arises
on revaluation of other financial assets. The translation reserve includes exchange differences arising from the translation of the net investment in
foreign operations and of borrowings and other currency instruments designated as hedges of such investments.
138 Pearson plc Annual report and accounts 2022
Consolidated cash flow statement
Year ended 31 December 2022
All figures in £ millions Notes 2022 2021
1
2020
1
Cash flows from operating activities
Profit before tax 323 177 380
Net finance (costs) / income (52 ) 6 31
Depreciation and impairment - PPE and investment property 136 241 125
Amortisation and impairment - software 125 117 112
Amortisation and impairment - acquired intangible assets 54 50 80
Other net gains and losses (24 ) (63 ) (178 )
Product development capital expenditure (357 ) (287 ) (323 )
Amortisation and impairment - product development 303 279 280
Share-based payment costs 35 28 29
Change in inventories (34 ) 22 35
Change in trade and other receivables 33 (71 ) (1 )
Change in trade and other liabilities (84 ) 37 (26 )
Change in provisions for other liabilities and charges 50 14 (37 )
Other movements 19 20 (57 )
Net cash generated from operations 527 570 450
Interest paid (57 ) (67 ) (63 )
Tax (paid)/received (109 ) (177 ) 2
Net cash generated from operating activities 361 326 389
Cash flows from investing activities
Acquisition of subsidiaries, net of cash acquired 30 (228 ) (55 ) (6 )
Acquisition of joint ventures and associates (5 ) (10 ) –
Purchase of investments (12 ) (4 ) (6 )
Purchase of property, plant and equipment and investment property (57 ) (64 ) (53 )
Purchase of intangible assets (90 ) (112 ) (81 )
Disposal of subsidiaries, net of cash disposed 31 333 83 100
Proceeds from disposal of joint ventures and associates 31 – – 531
Proceeds from disposal of investments 17 48 –
Proceeds from disposal of property, plant and equipment 14 – –
Lease receivables repaid including disposals 18 21 41
Loans repaid by related parties – – 48
Interest received 22 13 13
Dividends from joint ventures and associates 1 – 4
Net cash generated from/(used in) investing activities 13 (80 ) 591
Cash flows from financing activities
Proceeds from issue of ordinary shares 27 7 6 6
Buyback of equity 27 (353 ) – (176 )
Purchase of treasury shares 28 (37 ) (16 ) (6 )
Proceeds from borrowings – – 346
Repayment of borrowings (171 ) (167 ) (230 )
Repayment of lease liabilities (93 ) (88 ) (92 )
Dividends paid to company’s shareholders 9 (156 ) (149 ) (146 )
Dividends paid to non-controlling interest (1 ) – (1 )
Net cash used in financing activities (804 ) (414 ) (299 )
Effects of exchange rate changes on cash and cash equivalents 36 (8 ) (2 )
Net (decrease)/increase in cash and cash equivalents (394 ) (176 ) 679
Cash and cash equivalents at beginning of year 937 1,113 434
Cash and cash equivalents at end of year 17 543 937 1,113
1. Comparative balances have been restated – see Note 1b. In addition, the Group has changed the presentation of the consolidated cash flow statement with the aim of simplifying for the
reader. The reconciliation to net cash generated from operations is now presented above and certain line items have been aggregated and disaggregated. There has been no change to
the classification of cash flows as operating, investing and financing, or to the definition of the Group’s alternative performance measure related to cash flow as set out in note 33.
Annual report and accounts 2022 Pearson plc 139
Financial statements
140 Pearson plc Annual report and accounts 2022
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Financial statements
Notes to the consolidated financial statements continued
142 Pearson plc Annual report and accounts 2022
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Financial statements
Notes to the consolidated financial statements continued
144 Pearson plc Annual report and accounts 2022
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Financial statements
Notes to the consolidated financial statements continued
146 Pearson plc Annual report and accounts 2022
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Financial statements
Notes to the consolidated financial statements continued
148 Pearson plc Annual report and accounts 2022
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Financial statements
Notes to the consolidated financial statements continued
150 Pearson plc Annual report and accounts 2022
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Financial statements
Notes to the consolidated financial statements continued
152 Pearson plc Annual report and accounts 2022
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Financial statements
Notes to the consolidated financial statements continued
154 Pearson plc Annual report and accounts 2022
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Financial statements
Notes to the consolidated financial statements continued
156 Pearson plc Annual report and accounts 2022
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Financial statements
Notes to the consolidated financial statements continued
158 Pearson plc Annual report and accounts 2022
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Financial statements
Notes to the consolidated financial statements continued
160 Pearson plc Annual report and accounts 2022
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Financial statements
Notes to the consolidated financial statements continued
162 Pearson plc Annual report and accounts 2022
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Financial statements
Notes to the consolidated financial statements continued
164 Pearson plc Annual report and accounts 2022
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Financial statements
Notes to the consolidated financial statements continued
166 Pearson plc Annual report and accounts 2022
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Financial statements
Notes to the consolidated financial statements continued
168 Pearson plc Annual report and accounts 2022
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Financial statements
Notes to the consolidated financial statements continued
170 Pearson plc Annual report and accounts 2022
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Financial statements
Notes to the consolidated financial statements continued
172 Pearson plc Annual report and accounts 2022
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Financial statements
174 Pearson plc Annual report and accounts 2022
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Financial statements
Notes to the consolidated financial statements continued
176 Pearson plc Annual report and accounts 2022
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Financial statements
Notes to the consolidated financial statements continued
178 Pearson plc Annual report and accounts 2022
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Financial statements
Notes to the consolidated financial statements continued
180 Pearson plc Annual report and accounts 2022
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Financial statements
Notes to the consolidated financial statements continued
182 Pearson plc Annual report and accounts 2022
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Financial statements
Notes to the consolidated financial statements continued
184 Pearson plc Annual report and accounts 2022
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Financial statements
Notes to the consolidated financial statements continued
186 Pearson plc Annual report and accounts 2022
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Financial statements
Notes to the consolidated financial statements continued
188 Pearson plc Annual report and accounts 2022
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Financial statements
Notes to the consolidated financial statements continued
190 Pearson plc Annual report and accounts 2022
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Financial statements
Notes to the consolidated financial statements continued
192 Pearson plc Annual report and accounts 2022
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Financial statements
Notes to the consolidated financial statements continued
194 Pearson plc Annual report and accounts 2022
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Financial statements
196 Pearson plc Annual report and accounts 2022
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Financial statements
198 Pearson plc Annual report and accounts 2022
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Financial statements
200 Pearson plc Annual report and accounts 2022
38. Accounts and audit exemptions
The Pearson plc subsidiary companies listed below are exempt from the requirements of the Companies Act 2006 relating to the audit of individual
financial statements by virtue of section 479A.
Company number
Aldwych Finance Limited 04720439
Education Development International plc 03914767
Faethm Limited 11842984
Longman Group (Overseas Holdings) Limited 00690236
Pearson Australia Finance Unlimited 05578463
Pearson Canada Finance Unlimited 05578491
Pearson Dollar Finance plc 05111013
Pearson Dollar Finance Two Limited 06507766
Pearson Education Holdings Limited 00210859
Pearson Education Investments Limited 08444933
Pearson Education Limited 00872828
Pearson International Finance Limited 02496206
Pearson Loan Finance No. 3 Limited 05052661
Pearson Loan Finance No. 4 Limited 02635107
Company number
Pearson Loan Finance No. 5 Limited 12017252
Pearson Loan Finance No. 6 Limited 12030662
Pearson Loan Finance Unlimited 05144467
Pearson Management Services Limited 00096263
Pearson Overseas Holdings Limited 00145205
Pearson Pension Trustee Services Limited 10803853
Pearson Professional Assessments Limited 04904325
Pearson Strand Limited 08561316
Pearson Services Limited 01341060
Pearson Shared Services Limited 04623186
Pearson Strand Finance Limited 11091691
PVNT Limited 08038068
TQ Global Limited 07802458
Annual report and accounts 2022 Pearson plc 201
Financial statements
Company balance sheet
As at 31 December 2022
All figures in £ millions Notes 2022 2021
Assets
Non-current assets
Investments in subsidiaries 2 6,738 6,632
Amounts due from subsidiaries 1,667 2,387
Deferred income tax assets 44 27
Financial assets – derivative financial instruments 5 43 30
8,492 9,076
Current assets
Amounts due from subsidiaries 526 548
Current income tax assets 4 9
Cash and cash equivalents (excluding overdrafts) 4 240 310
Financial assets – derivative financial instruments 5 16 2
Other assets 1 –
787 869
Total assets 9,279 9,945
Liabilities
Non-current liabilities
Amounts due to subsidiaries (3,380) (3,605)
Financial liabilities – derivative financial instruments 5 (54) (30)
(3,434) (3,635)
Current liabilities
Amounts due to subsidiaries (1,383) (1,853)
Other liabilities (1) (1)
Financial liabilities – derivative financial instruments 5 (11) (4)
(1,395) (1,858)
Total liabilities (4,829) (5,493)
Net assets 4,450 4,452
Equity
Share capital 6 179 189
Share premium 6 2,633 2,626
Treasury shares 7 (15) (12)
Capital redemption reserve 28 18
Special reserve 447 447
Retained earnings – including profit for the year of £499m (2021: £27m) 1,178 1,184
Total equity attributable to equity holders of the company 4,450 4,452
These financial statements have been approved for issue by the Board of Directors on 15 March 2023 and signed on its behalf by
Sally Johnson
Chief Financial Officer
202 Pearson plc Annual report and accounts 2022
Company statement of changes in equity
Year ended 31 December 2022
All figures in £ millions
Equity attributable to equity holders of the company
Share
capital
Share
premium
Treasury
shares
Capital
redemption
reserve
Special
reserve
Retained
earnings Total
At 1 January 2022 189 2,626 (12) 18 447 1,184 4,452
Profit for the year – – – – – 499 499
Equity-settled transactions
1
– – – – – 38 38
Issue of ordinary shares under share option
schemes
1
– 7 – – – – 7
Purchase of treasury shares – – (37) – – – (37)
Release of treasury shares – – 34 – – (34) –
Buyback of equity (10) – – 10 – (353) (353)
Dividends – – – – – (156) (156)
At 31 December 2022 179 2,633 (15) 28 447 1,178 4,450
All figures in £ millions
Equity attributable to equity holders of the company
Share
capital
Share
premium
Treasury
shares
Capital
redemption
reserve
Special
reserve
Retained
earnings Total
At 1 January 2021 188 2,620 (7) 18 447 1,290 4,556
Profit for the year – – – – – 27 27
Equity-settled transactions
1
– – – – – 28 28
Issue of ordinary shares under share option
schemes
1
1 6 (1) – – – 6
Purchase of treasury shares – – (16) – – – (16)
Release of treasury shares – – 12 – – (12) –
Dividends – – – – – (149) (149)
At 31 December 2021 189 2,626 (12) 18 447 1,184 4,452
The capital redemption reserve reflects the nominal value of shares cancelled in the Group’s share buyback programme. The special reserve
represents the cumulative effect of cancellation of the company’s share premium account.
1. Full details of the share-based payment plans are disclosed in note 26 to the consolidated financial statements.
Annual report and accounts 2022 Pearson plc 203
Financial statements
Company cash flow statement
Year ended 31 December 2022
All figures in £ millions Notes 2022 2021
Cash flows from operating activities
Net profit 499 27
Adjustments for:
Income tax (15) (9)
Net finance costs 48 41
Share-based payment costs 38 28
Impairment charges 5 –
Amounts due to subsidiaries (97) (93)
Net cash generated from operations 478 (6)
Interest paid (44) (66)
Tax received 4 –
Net cash generated from/(used in) operating activities 438 (72)
Cash flows from financing activities
Proceeds from issue of ordinary shares 6 7 6
Buyback of equity (353) –
Purchase of treasury shares (37) (16)
Dividends paid to company’s shareholders (156) (149)
Net cash used in financing activities (539) (159)
Effects of exchange rate changes on cash and cash equivalents 31 –
Net decrease in cash and cash equivalents (70) (231)
Cash and cash equivalents at beginning of year 310 541
Cash and cash equivalents at end of year 4 240 310
204 Pearson plc Annual report and accounts 2022
Notes to the company financial statements
1. Accounting policies
The financial statements on pages 202-212 comprise the separate financial statements of Pearson plc.
These company financial statements, have been prepared on the going concern basis and in accordance with UK-adopted International Accounting
Standards and with the requirements of the Companies Act 2006. The company transitioned to UK-adopted IASs on 1 January 2021. The company
financial statements have also been prepared in accordance with IFRSs as issued by the International Accounting Standards Board (IASB). In respect
of accounting standards applicable to the Group, there is no difference between UK-adopted IASs and IFRSs as issued by the IASB.
These consolidated financial statements, and the company financial statements, have been prepared under the historical cost convention as modified
by the revaluation of financial assets and liabilities (including derivative financial instruments) at fair value.
As permitted by section 408 of the Companies Act 2006, the consolidated income statement and statement of comprehensive income have not
been presented.
The company has no employees (2021: nil).
The basis of preparation and accounting policies applied in the preparation of these company financial statements are the same
as those set out in note 1a to the consolidated financial statements with the addition of the following:
Investments
Investments in subsidiaries are stated at cost less provision for impairment, with the exception of certain hedged investments that are held in a foreign
currency and revalued at each balance sheet date.
Lending to/from subsidiaries is considered to be an operating activity and any movements are classified as cash flows from operating activities
in the cash flow statement.
Amounts owed by subsidiaries
Amounts owed by subsidiaries generally mature within five years, but can be called upon on short notice, or are repayable on demand. Amounts owed
by subsidiaries are classified as current if they mature within one year of the balance sheet date or if the company intends to call the loan within one
year of the balance sheet date. All other amounts are classified as non-current. The company has assessed and concluded that these loans will be fully
recovered. Therefore credit losses are considered to be immaterial.
Parent company guarantees
The Company has guaranteed the repayment of bonds and certain other liabilities due by subsidiary undertakings primarily to third parties.
Such guarantees are accounted for by the Company as insurance contracts. In the event of default or non-performance by the subsidiary,
a liability is recorded in accordance with IAS 37.
New accounting standards
No new standards were adopted in 2022.
A number of other new pronouncements are effective from 1 January 2022 but they do not have a material impact on the company
financial statements.
2. Investments in subsidiaries
All figures in £ millions 2022 2021
At beginning of year 6,632 6,619
Distributions (49) –
Currency revaluations 155 13
At end of year 6,738 6,632
There were no impairments in 2022 or 2021.
The recoverability of investments is tested annually for impairment in accordance with IAS 36 ‘Impairment of Assets’. The carrying value is compared to
the asset’s recoverable amount which is generally assessed on a value in use basis. Significant estimation is required to determine the recoverable
amount. The value in use of the assets is calculated using a discounted cash flow methodology using financial information related to the subsidiaries
including cash flow projections in conjunction with the goodwill impairment analysis performed by the Group. The key assumptions used in the cash
flow projections are discount rates, perpetuity growth rates, forecast sales growth rates and forecast operating profits. See note 11 of the consolidated
financial statements for further details.
Annual report and accounts 2022 Pearson plc 205
Financial statements
3. Financial risk management
The company’s financial instruments comprise amounts due to/from subsidiary undertakings, cash and cash equivalents, derivative financial
instruments and current borrowings. Derivative financial instruments are held at fair value, with all other financial instruments held at amortised cost,
which approximates fair value. The company’s approach to the management of financial risks is consistent with the Group’s treasury policy, as
discussed in note 19 to the consolidated financial statements. The company believes the value of its financial assets to be fully recoverable.
The carrying value of the company’s financial instruments is exposed to movements in interest rates and foreign currency exchange rates (primarily US
dollars). The company estimates that a 1% increase in interest rates would result in a £7m increase (2021: £6m increase) in the carrying value of its
financial instruments, with a 1% decrease in interest rates resulting in a £6m decrease (2021: £6m decrease) in their carrying value. The company also
estimates that a 10% strengthening in sterling would decrease the carrying value of its financial instruments by £136m (2021: £117m), while a 10%
weakening in the value of sterling would increase the carrying value by £153m (2021: £139m). These increases and decreases in carrying value would
be recorded through the income statement. Sensitivities are calculated using estimation techniques such as discounted cash flow and option valuation
models. Where modelling an interest rate decrease of 1% led to negative interest rates, these points on the yield curve were adjusted to 0%.
The following table analyses the company’s derivative assets and liabilities into relevant maturity groupings based on the remaining period
at the balance sheet date to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows
(including interest) and as such may differ from the amounts disclosed on the balance sheet.
All figures in £ millions
Analysed by maturity
Total
Analysed by currency
Total
Greater than
one month
and less than
one year
Later than
one year but
less than
five years
Five years
or more USD GBP Other
At 31 December 2022
Rate derivatives – inflows (11) (471) – (482) (24) (170) (288) (482)
Rate derivatives – outflows 1 490 – 491 224 255 12 491
FX forwards – inflows (304) – – (304) – (304) – (304)
FX forwards – outflows 313 – – 313 – 313 – 313
Total (1) 19 – 18 200 94 (276) 18
At 31 December 2021
Rate derivatives – inflows (7) (331) – (338) (9) (150) (179) (338)
Rate derivatives – outflows 12 339 4 355 203 150 2 355
FX forwards – inflows (148) – – (148) – (148) – (148)
FX forwards – outflows 148 – – 148 90 – 58 148
Total 5 8 4 17 284 (148) (119) 17
All cash flow projections shown above are on an undiscounted basis.
Any cash flows based on a floating rate are calculated using interest
rates as set at the date of the last rate reset. Where this is not
possible, floating rates are based on interest rates prevailing at
31 December in the relevant year. All derivative amounts are
shown gross, although the company net settles these amounts
wherever possible.
Fair value hedge accounting
A foreign currency exposure arises from foreign exchange
fluctuations on translation of the company’s investments in
subsidiaries denominated in USD into GBP. The hedged risk is the
risk of changes in the GBP:USD spot rate that will result in changes in
the value of the USD investments when translated into GBP. The
hedged items are a portion of the company’s equity investment in
subsidiaries denominated in USD. The hedging instruments are a
portion of the company’s intercompany loans due from subsidiaries
which are denominated in USD.
It is expected that the change in value of each of these items will
offset each other as there is a clear and direct economic relationship
between the hedge and the hedged item in the hedge relationship.
Hedge ineffectiveness would arise if the value of the hedged items
fell below the value of the hedging instruments; however, this is
unlikely as the value of the company’s investments denominated in
USD is significantly greater than the proposed fair value hedge
programme.
The value of the hedged items and the hedging instruments is
£1.4bn (2021: £1.3bn) and the change in value during the year which
was used to assess hedge ineffectiveness was £155m (2021: £13m).
There was no hedge ineffectiveness.
Cashflows from the €300m EUR 2025 bond are received by the
company from its subsidiary creating a foreign currency exposure
upon the translation from EUR to GBP.Changes in the GBP:EUR spot
rate will result in changes to the value of amounts due from
subsidiaries when translated into GBP.The hedged item is €100m of
this amount due from subsidiaries denominated in EUR. The hedging
instrument is a €100m 2025 cross currency swap.It is expected that
the change in value of these items will move in the opposite
directions as a result of movements in the EUR:GBP exchange rate.
Credit risk management
The company’s main exposure to credit risk relates to lending to
subsidiaries. Amounts due from subsidiaries are stated net of
provisions for bad and doubtful debts. The credit risk of each
subsidiary is influenced by the industry and country in which
they operate; however, the company considers the credit risk of
subsidiaries to be low as it has visibility of, and the ability to influence,
their cash flows.
Notes to the company financial statements continued
206 Pearson plc Annual report and accounts 2022
4. Cash and cash equivalents (excluding overdrafts)
All figures in £ millions 2022 2021
Cash at bank and in hand 240 310
240 310
At the end of 2022, the currency split of cash and cash equivalents was US dollar 79% (2021: 66%), sterling 18% (2021: 32%) and other 3% (2021: 2%).
Cash and cash equivalents have fair values that approximate their carrying amounts due to their short-term nature. Cash and cash equivalents include
the following for the purpose of the cash flow statement:
All figures in £ millions 2022 2021
Cash and cash equivalents 240 310
240 310
5. Derivative financial instruments
The company’s outstanding derivative financial instruments are as follows:
All figures in £ millions
2022 2021
Gross
notional
amounts Assets Liabilities
Gross notional
amounts Assets Liabilities
Interest rate derivatives 437 19 (11) 385 5 (9)
Cross-currency rate derivatives 83 34 (43) 331 24 (21)
FX derivatives 916 6 (11) 430 3 (4)
Total 1,436 59 (65) 1,146 32 (34)
Analysed as expiring:
In less than one year 1,016 16 (11) 393 2 (4)
Later than one year and not later than five years 420 43 (54) 679 30 (26)
Later than five years – – – 74 – (4)
Total 1,436 59 (65) 1,146 32 (34)
The carrying value of the above derivative financial instruments equals their fair value. Derivatives are categorised as level 2 on the fair value
hierarchy. Fair values are determined by using market data and the use of established estimation techniques such as discounted cash flow and
option valuation models.
6. Share capital and share premium
Number of
shares
000s
Share
capital
£m
Share
premium
£m
At 1 January 2021 753,258 188 2,620
Issue of ordinary shares – share option schemes 3,544 1 6
At 31 December 2021 756,802 189 2,626
Issue of ordinary shares – share option schemes 1,199 – 7
Buy-back of equity (42,268) (10) –
At 31 December 2022 715,733 179 2,633
The ordinary shares have a par value of 25p per share (2021: 25p per share). All issued shares are fully paid. All shareholders are entitled to receive
dividends and vote at general meetings of the company. All shares have the same rights.
On 24 February 2022, the Board approved a £350m share buyback programme in order to return capital to shareholders. During the year,
approximately 42m shares were bought back and cancelled at a cost of £353m. The nominal value of these shares, £10m was transferred to the
capital redemption reserve. In 2021, no shares were bought back.
Annual report and accounts 2022 Pearson plc 207
Financial statements
7. Treasury shares
Number of
shares
000s £m
At 1 January 2021 903 7
Purchase of treasury shares 2,158 16
Newly issued treasury shares 2,500 1
Release of treasury shares (3,990) (12)
At 31 December 2021 1,571 12
Purchase of treasury shares 4,513 37
Release of treasury shares (4,220) (34)
At 31 December 2022 1,864 15
The company holds its own shares in trust to satisfy its obligations under its restricted share plans. These shares are treated as treasury shares for
accounting purposes and have a par value of 25p per share.
The nominal value of the company’s treasury shares amounts to £0.5m (2021: £0.4m). Dividends on treasury shares are waived.
At 31 December 2022, the market value of the company’s treasury shares was £18m (2021: £10m). The gross book value of the shares at
31 December 2022 amounts to £15m (2021: £12m).
8. Contingencies
There are contingent liabilities that arise in the normal course of business in respect of indemnities, warranties and guarantees in relation to former
subsidiaries and in respect of guarantees in relation to subsidiaries. The total value of guarantees made by the company in relation to its subsidiaries
is £889m. In addition, there are contingent liabilities in respect of legal claims. None of these claims are expected to result in a material gain or loss to
the company.
9. Audit fees
Statutory audit fees relating to the company were £38,037 (2021: £35,500).
10. Related party transactions
Subsidiaries
The company transacts and has outstanding balances with its subsidiaries. Amounts due from subsidiaries and amounts due to subsidiaries are
disclosed on the face of the company balance sheet.
These loans are generally unsecured and interest is calculated based on market rates. The company has interest payable to subsidiaries for the year of
£137m (2021: £91m) and interest and guarantee fees receivable from subsidiaries for the year of £105m (2021: £32m). Management fees payable to
subsidiaries in respect of centrally provided services amounted to £16m (2021: £11m). Management fees receivable from subsidiaries in respect of
centrally provided services amounted to £34m (2021: £30m). Dividends received from subsidiaries were £605m (2021: £72m), which includes £49m
(2021: £nil) of returns of capital distributed by subsidiaries.
Associates
There were no related party transactions with associates in 2022 or 2021.
Key management personnel
Key management personnel are deemed to be the members of the Pearson Executive Management team.
It is this Committee which had responsibility for planning, directing and controlling the activities of the company in 2022. Key management personnel
compensation is disclosed in note 36 to the consolidated financial statements.
Notes to the company financial statements continued
208 Pearson plc Annual report and accounts 2022
11. Group companies
In accordance with section 409 of the Companies Act 2006, a full list of subsidiaries, partnerships, associates, joint ventures and joint arrangements,
the country of incorporation, the registered address and the effective percentage of equity owned, as at 31 December 2022, is disclosed below. Unless
otherwise stated, the shares are all indirectly held by Pearson plc. Unless otherwise stated, all wholly-owned and partly-owned subsidiaries are
included in the consolidation and all associated undertakings are included in the Group’s financial statements using the equity method of accounting.
Principal Group companies are identified in bold.
Wholly-owned subsidiaries
Registered company name
Country
ofIncorp.
Reg
office
Addison Wesley Longman, Inc. US 3
Addison-Wesley Educational Publishers
Inc.
US 4
AEL (S) PTE Limited SG 73
Aldwych Finance Limited UK 1
ATI Professional Development LLC US 4
ATI Studios A.P.P.S. SRL RO 78
Atkey Finance Limited IE 7
Axis Finance Inc. US 4
Camsaw, Inc. US 4
CAMSAWUSA, Inc. US 11
Centro Cultural Americano Franquias e
Comércio Ltda.
BR 15
Century Consultants Ltd. US 13
Certiport China Holding, LLC US 4
Certiport, Inc. US 4
Clutch Learning, Inc. US 4
Cogmed Systems AB SE 14
Connections Academy of Florida, LLC US 20
Connections Academy of Iowa, LLC US 24
Connections Academy of Maine, LLC US 28
Connections Academy of Maryland, LLC US 29
Connections Academy of Nevada, LLC US 31
Connections Academy of New Mexico,
LLC
US 32
Connections Academy of Oregon, LLC US 37
Connections Academy of Pennsylvania
LLC
US 38
Connections Academy of Tennessee, LLC US 40
Connections Academy of Texas LLC US 41
Connections Education LLC US 4
Connections Education of Florida, LLC US 20
Connections Education, Inc. US 4
Credly, Inc. US 4
Dominie Press, Inc. US 17
Dorian Finance Limited IE 7
EBNT Canada Holdings ULC CA 58
EBNT Holdings Limited CA 57
EBNT USA Holdings Inc. US 4
eCollege.com US 4
Edexcel Limited
†
* UK 50
Education Development International Plc
†
UK 1
Education Resources (Cyprus) Limited CY 51
Educational Management Group, Inc. US 52
Embanet ULC CA 44
Embanet-Compass Knowledge Group Inc. US 20
English Language Learning and
Instruction System, Inc.
US 54
Faethm Holdings Pty. Limited AU 48
Faethm IP Pty. Limited AU 48
Faethm Ltd UK 1
Faethm Pty. Limited AU 48
Faethm USA LLC US 6
Registered company name
Country
ofIncorp.
Reg
office
Falstaff Holdco Inc. US 4
Falstaff Inc. US 55
FBH, Inc. US 4
George (Shanghai) Commercial
Information Consulting Co., Ltd
CN 21
Globe Fearon Inc. US 17
Heinemann Educational Botswana
(Publishers) (Proprietary) Limited
BW 8
IndiaCan Education Private Limited IN 2
Integral 7, Inc. US 4
INTELLIPRO, INC. US 13
Knowledge Analysis Technologies, LLC US 18
LCCIEB Training Consultancy., Ltd CN 64
LessonLab, Inc. US 17
Lignum Oil Company US 4
LION SG PTE. LTD. SG 73
Longman (Malawi) Limited MW 65
Longman Group(Overseas Holdings)
Limited
UK 1
Longman Indochina Acquisition, L.L.C. US 4
Longman Tanzania Limited
*
TZ 68
Longman Zambia Educational Publishers
Pty Ltd
ZM 69
Longman Zimbabwe (Private) Ltd ZW 47
Longmaned Ecuador S.A. EC 71
Lumerit Education, LLC US 41
Major123 Limited* UK 50
MeasureUp of Delaware, LLC US 4
Modern Curriculum Inc. US 17
Multi Treinamento e Editora Ltda BR 60
MZ Development Inc. US 4
National Computer Systems Japan Co. Ltd JP 74
Navvy Education, LLC US 22
NCS Information Services Technology
(Beijing) Co Ltd
CN 75
NCS Pearson Pty Ltd AU 48
NCS Pearson Puerto Rico, Inc. PR 76
NCS Pearson, Inc. US 30
Opinion Interactive LLC US 16
Ordinate Corporation US 17
Pearson (Beijing) Management
Consulting Co., Ltd.
CN 77
Pearson America LLC US 4
Pearson Amsterdam B.V. NL 79
Pearson Australia Finance Unlimited UK 1
Pearson Australia Group Pty Ltd AU 48
Pearson Australia Holdings Pty Ltd AU 48
Pearson Benelux B.V. NL 79
Pearson Books Limited
†*
UK 50
Pearson Brazil Finance Limited* UK 50
Pearson Business Services Inc. US 4
Pearson Canada Assessment Inc. CA 80
Pearson Canada Finance Unlimited UK 1
Pearson Canada Holdings Inc. CA 80
Registered company name
Country
ofIncorp.
Reg
office
Pearson Canada Inc. CA 80
Pearson Central Europe Spółka z
ograniczoną odpowiedzialnością
PL 39
Pearson College Limited UK 1
Pearson DBC Holdings Inc. US 4
Pearson Desarrollo y Capacitación
Profesional Chile Limitada
CL 81
Pearson Deutschland GmbH DE 82
Pearson Digital Learning Puerto Rico, Inc. PR 76
Pearson Dollar Finance plc
†
UK 1
Pearson Dollar Finance Two Limited UK 1
Pearson Educacion de Chile Limitada CL 81
Pearson Educacion de Colombia S.A.S. CO 84
Pearson Educacion de Mexico, S.A.
de C.V.
MX 85
Pearson Educacion de Panama SA PA 86
Pearson Educacion de Peru S.A. PE 87
Pearson Educacion SA ES 88
Pearson Education (Singapore) Pte Ltd
*
SG 5
Pearson Education Africa (Pty) Ltd ZA 47
Pearson Education Asia Limited HK 53
Pearson Education Botswana
(Proprietary) Limited
BW 8
Pearson Education do Brasil Ltda BR 60
Pearson Education Hellas SA GR 26
Pearson Education Holdings Limited
†
UK 1
Pearson Education Indochina Limited TH 89
Pearson Education Investments Limited UK 1
Pearson Education Korea Limited KR 90
Pearson Education Limited UK 1
Pearson Education Namibia (Pty) Limited NA 91
Pearson Education Publishing Limited NG 92
Pearson Education Resources Italia S.R.L. IT 67
Pearson Education S.A. UY 93
Pearson Education SA AR 94
Pearson Education South Africa (Pty) Ltd ZA 47
Pearson Education South Asia Pte. Ltd. SG 73
Pearson Education Taiwan Ltd TW 9
Pearson Education, Inc. US 4
Pearson Educational Measurement
Canada, Inc.
CA 36
Pearson Educational Publishers, LLC US 4
Pearson Egitim Cozumleri Tikaret
Limited Sirketi
TR 61
Pearson Falstaff (Holdings) Inc. US 4
Pearson Falstaff Holdco LLC US 4
Pearson France FR 70
Pearson Funding Four Limited
†*
UK 50
Pearson Funding plc
†
UK 1
Pearson Holdings Inc. US 4
Pearson Holdings Southern Africa
(Pty) Limited
ZA 47
Pearson Hungary LLC HU 25
Pearson India Education Services
Private Limited
IN 23
Annual report and accounts 2022 Pearson plc 209
Financial statements
Registered company name
Country
ofIncorp.
Reg
office
Pearson International Finance Limited
†
UK 1
Pearson Investment Holdings, Inc. US 4
Pearson Israel (P.I.) Ltd IL 66
Pearson Japan KK JP 49
Pearson Lanka (Private) Limited LK 63
Pearson Lanka Support Services
(Private) Limited
LK 12
Pearson Lesotho (Pty) Ltd LS 62
Pearson Loan Finance No. 3 Limited UK 1
Pearson Loan Finance No. 4 Limited UK 1
Pearson Loan Finance No. 5 Limited UK 1
Pearson Loan Finance No. 6 Limited UK 1
Pearson Loan Finance Unlimited UK 1
Pearson Longman Uganda Limited UG 43
Pearson Malaysia Sdn. Bhd. MY 59
Pearson Management Services Limited
†
UK 1
Pearson Management Services
Philippines Inc.
PH 33
Pearson Maryland, Inc. US 11
Pearson Moçambique, Limitada MZ 42
Pearson Netherlands B.V. NL 79
Pearson Netherlands Holdings B.V. NL 79
Pearson Nominees Limited
†
UK 1
Pearson Online Tutoring LLC US 4
Pearson Overseas Holdings Limited
†
UK 1
Pearson PEM P.R., Inc. PR 19
Pearson Pension Nominees Limited UK 1
Pearson Pension Property Fund Limited UK 1
Pearson Pension Trustee Services
Limited
†
UK 1
Pearson Phoenix Pty Ltd AU 48
Pearson Professional Assessments
Limited
UK 1
Pearson Real Estate Holdings Inc. US 4
Pearson Real Estate Holdings Limited
†*
UK 50
Pearson Schweiz AG CH 34
Pearson Services Limited
†
UK 1
Pearson Shared Services Limited
†
UK 1
Pearson Strand Finance Limited
†
UK 1
Pearson Strand Limited UK 1
Pearson Sweden AB SE 14
Pearson VUE Europe B.V. NL 79
Pearson VUE Philippines, Inc. PH 27
Penguin Capital, LLC US 4
PN Holdings Inc. US 4
ProctorCam, Inc. US 4
PT Efficient English Services ID 83
PVNT Limited UK 1
Reading Property Holdings LLC US 3
Rebus Planning Associates, Inc. US 10
Reston Publishing Company, Inc. US 4
Rycade Capital Corporation US 4
Shanghai AWL Education Software Ltd
*
CN 72
Silver Burdett Ginn Inc. US 4
Skylight Training and Publishing Inc. US 52
Smarthinking, Inc. US 4
Sound Holdings Inc. US 4
Sparrow Phoenix Pty Ltd AU 48
Spear Insurance Company Limited
†
BM 45
The Waite Group, Inc. US 17
TQ Catalis Limited* UK 50
Registered company name
Country
ofIncorp.
Reg
office
TQ Clapham Limited* UK 50
TQ Education and Training Limited UK 1
TQ Education and Training Limited SA 56
TQ Global Limited UK 1
TQ Group Limited UK 1
TQ Holdings Limited UK 1
Vue Testing Services Israel Ltd IL 46
Vue Testing Services Korea Limited KR 35
Williams Education GmbH DE 82
* In liquidation.
† Directly owned by Pearson plc.
Notes to the company financial statements continued
210 Pearson plc Annual report and accounts 2022
Subsidiary addresses
The following list includes all Pearson registered
offices worldwide.
Registered office address
1 80 Strand, London, WC2R 0RL, England
2 The HIVE, 3
rd
Floor, No 44, Pilliayar Koil Street,
Jawaharlal Nehru Road, Anna Nagar, Chennai,
TN 600040, India
3 C T Corporation System, 155 Federal St., Suite 700,
Boston, MA, 02110, United States
4 The Corporation Trust Company, Corporation Trust
Center, 1209 Orange Street, Wilmington, New Castle,
DE, 19801, United States
5 9, #13-05/06, North Buona Vista Drive,
The Metropolis Tower One, 138588, Singapore
6 340 Halsa Dr, Chattahoochee Hills, GA, GA 30268,
United States
7 1
st
Floor The Liffey Trust Centre, 117-126 Sheriff
Street Upper, Dublin 1, Ireland
8 Dps Consulting Services Proprietary Limited, Plot
54513, Unit 6a, Courtyard, Village, Gaborone,
Botswana
9 11F, No 209, Sec. 1, Civic Blvd., Datong District, Taipei
City, 10351, Taiwan (Province of China)
10 The Corporation Company, 40600 Ann Arbor Rd
E Suite 201, Plymouth, MI, 48170, United States
11 The Corporation Trust Incorporated, Suite 201, 2405
York Road, Lutherville Timonium, MD, 21093, United
States
12 #1, 3, 5
th
Floor, East Tower, World Trade Centre,
Echelon Square, Colombo, O1, Sri Lanka
13 820, Bear Tavern Road, West Trenton, Mercer,
NJ, 08628, United States
14 Gustavslundsvägen 137, 167 51 Bromma,
Stockholm, Sweden
15 Avenida Francisco Matarazzo nº 1400 Edifício Milano
– 7º andar, Conjunto 72 – Sala 25 de Março – Agua
Branca, São Paulo, 05001 903, Brazil
16 105 E Street #2A, Davis, CA, CA 95616, United States
17 C T Corporation System, 330 N Brand Blvd., Glendale,
CA, 91203-2336
18 The Corporation Company, 7700 E Arapahoe Rd
Suite 220, Centennial, CO, 80112-1268, United States
19 500, 401, Calle de la Tanca Edificio Ochoa, San Juan,
00901-1969, Puerto Rico
20 C T Corporation System, 1200, South Pine Island
Road, Plantation, FL, 33324, United States
21 Suite A7b, 3/F, No. 586 Longchang Road, Yangpu
District, Shanghai, China
22 CT Corportion System, 289 S Culver St, Lawrenceville,
GA, 30046-4805, United States
23 7
th
Floor, SDB2, ODC 7, 8 & 9, Survey No.01 ELCOT IT/
ITES - SEZ, Sholinganallur, Chennai, TN 600119, India
24 C T Corporation System, 400 E Court Ave,
Des Moines, IA, 50309, United States
25 22 B, 13 em, Népfürdő utca, Budapest, 1138, Hungary
26 4 Zalogou Str., 15343 Agia Paraskevi, Athens, Greece
27 27/F Trident Tower, 312 Sen. Gil Puyat Avenue,
Makati City, Metro Manila, Philippines
28 C T Corporation System, 128 State St #3, Augusta,
ME, 04330, United States
29 7 St. Paul Street, Suite 1660, Baltimore, MD, 21202,
United States
30 C T Corporation System Inc., 1010 Dale Street North,
St Paul, MN, 55117-5603, United States
31 The Corporation Trust Company of Nevada,
701 S Carson St, Suite 200, Carson City, NV, 89701,
United States
32 C T Corporation System, 206 S Coronado Ave,
Espanola, NM, 87532-2792, United States
Registered office address
33 7/F North Tower, Rockwell Business Center COR.
Sheridan & United Street, Brgy. Highway Hills,
Mandaluyong, Philippines
34 10 Gewerbestrasse, Cham, 6330, Switzerland
35 21, Mugyo-ro Jung-gu, Seoul, Republic of Korea
36 199 Bay Street, Commerce Court West, Suite 2800,
Toronto, ON, M5L1A9, Canada
37 C T Corporation System, 780 Commercial Street SE,
STE 100, Salem, OR, OR 97301, United States
38 C T Corporation System, 600 N. 2
nd
Street, Suite 401,
Harrisburg, PA, 17101-1071, United States
39 Ulica Szamocka 8 01-748, Warszawa, Poland
40 C T Corporation System, 300 Montvue Rd, Knoxville,
TN, 37919-5546, United States
41 CT Corporation System, 1999 Bryan Street,
Suite 900, Dallas, TX, 75201, United States
42 Numero 776, Avenida 24 de Julho, Maputo,
Mozambique
43 Plot 8, Berkley Road, Old Kampala, Uganda
44 Blakes, Cassels & Graydon LLP, Suite 3500, 855 - 2
nd
Street SW, Calgary, AB, T2P 4J8, Canada
45 Power House, 7 Par-la-ville Road, PO Box 1826,
Hamilton, HM 11, Bermuda
46 Derech Ben Gurion 2, BSR Building 9
th
Floor,
Ramat Gan, 52573, Israel
47 Auto Atlantic, 4
th
Floor, Corner Hertzog Boulevard
and Heerengracht, Cape Town, 8001, South Africa
48 459-471 Church Street, Richmond, Melbourne, VIC,
3121, Australia
49 11F Kanda Square, 2-2-1 Kanda-Nishikicho,
Chiyoda-ku, Tokyo, 101-0054, Japan
50 Kroll Advisory Ltd., The Shard, 32 London Bridge
Street, London, SE1 9SG, England
51 195, Archbishop Makarios III Avenue, Neocleous
House, Limassol, 3030, Cyprus
52 Illinois Corporation Service Company, 700 S 2
nd
Street,
Springfield, IL, 62703, United States
53 18/F, 1063 King’s Road, Quarry Bay, Hong Kong
54 251, Little Falls Drive, Corporation Service Company,
Wilmington, DE, 19808, United States
55 28 Liberty Street, New York, NY, 10005, United States
56 King Fahad Road, Olaya, Riyadh, 58774, 11515,
Saudi Arabia
57 44 Chipman Hill, Suite 1000, Saint Jon, NB,
E2L 4S6, Canada
58 Suite 2600, Three Bentall Centre, P.O. Box 49314,
595 Burrard Street, Vancouver, BC, V7X 1L3, Canada
59 Unit 30-01, Level 30, Tower A, Vertical Business Suite,
Avenue 3, Bangsar South, No 8, Jalan Kerinchi,
59200 Kuala Lumpur, Malaysia
60 Avenida José Luiz Mazzali, nº 450, Sala H, Setor
Módulo 03B, GLP Louveira I, Santo Antônio, Louveira,
SP, CEP 13.290-000, Brazil
61 Nida Kule Kozyatagi, Kozyatagi Mahallesi, Degirmen
Sokak No:18 Kat:6 D:15, Kadikoy, Istanbul, 34742,
Turkey
62 1
st
Floor Christie House, Orpen Road, Maseru,
Lesotho
63 MAGA ONE-Level 22, No. 200, Nawala Road,
Narahenpita, Colombo 05, 11222, Sri Lanka
64 Room 305, Building 2, 6555 Shangchuan Road,
Pudong District, Shanghai, China
65 AMG Global, Global House, Kristwick, Masauko
Chipembere Highway, Blantyre, Malawi
66 Meitar Law Offices, 16 Abba Hillel Rd., Ramat Gan,
5250608, Israel
67 Via Costanza Arconati, 1, Milano, 20135, Italy
68 P O Box 45, IPS Building, Maktaba Street,
Dar es Salaam, Tanzania
Registered office address
69 Plot 1281, Lungwebungu Road, Rhodes Park, Lusaka,
Zambia
70 1er étage, 2 rue Jean Lantier, Paris, 75001, France
71 Andalucía y cordero E12-35. Edificio CYEDE
piso 1, Oficina 11, Sector “La Floresta”, Quito,
Pichincha, Ecuador
72 Suite 302-9,Block 3, No. 333 Weining Road,
Changning District, Shanghai, China
73 15-01, 63 Chulia Street, 049514, Singapore
74 Teikoku Hotel Tower 18F, 1-1-1 Uchi Saiwai-Cho,
Chiyoda-ku, Tokyo, Japan
75 Suite 1201, Tower 2, No. 36 North Third Ring East
Road, Dongcheng District, Beijing, China
76 268 Munoz Rivera Avenue, Suite 1400, San Juan,
00918, Puerto Rico
77 Suite 1208, 12/F, Tower 2, No. 36 North Third Ring
East Road, Dongcheng District, Beijing, China
78 Str. Politehnicii 3, Braşov, 500019, Romania
79 Kabelweg 37, Amsterdam, 1014 BA, Netherlands
80 176 Yonge Street, 6
th
Floor, Toronto, ON, M5C 2L7,
Canada
81 Oficina N°117, edificio Casa Colorada, calle Merced
N°838-A Santiago Centro, Santiago, Chile
82 c/o Pearson Deutschland GmbH, St.-Martin-Str. 82,
Munich, 81541, Germany
83 30
th
Floor, Ratu Plaza Office Tower, Jl. Jend. Sudirman
Kav 9, Jakarta, 10270, Indonesia
84 Carrera 7 Nro 156 – 68, Piso 26, Bogota, Colombia
85 Calle Antonio Dovali jaime #70, Torre B, Piso 6,
Col. Zedec ed Plaza Santa Fe, del. Álvaro Obregon,
Ciudad de Mexico, CP 01210, Mexico
86 Punta Pacifica, Torres de las Americas,
Torre A Piso 15 Ofic. 1517, Panama, 0832-0588,
Panama
87 Cal. Los Halcones, no. 275, Urb. Limatombo, Lima,
Perú
88 16, Ribera del Loira, Madrid, 28042, Spain
89 87/1 Capital Tower Building, All Seasons Place unit
1604 – 6 16
th
floor, Wireless Road, Lumpini,
Pathumwan, Bangkok, Thailand
90 6F Kwanjeong Building, 35, Cheonggyecheon-Ro,
Jongno-gu, Seoul, 03188, Republic of Korea
91 Unit 7 Kingland Park, 98 Nickel Street, Prosperita,
Windhoek, Namibia
92 8, Secretariat Road, Obafemi Awolowo Way,
Alausa, Ikeja, Lagos State, Nigeria
93 Juan Benito Blanco 780 – Plaza Business Center
Montevideo, Uruguay
94 498, Libertador Ave, City of Buenos Aires. 3
rd
floor,
Buenos Aires, Argentina
11. Group companies continued
Annual report and accounts 2022 Pearson plc 211
Financial statements
Partly-owned subsidiaries
Registered company Name
Country
ofIncorp.
%
Owned
Reg
office
Certiport China Co Ltd CN 50.69 1
Educational Publishers LLP UK 85 2
GED Domains LLC US 70 3
GED Testing Service LLC US 70 4
Pearson Education Achievement
Solutions (RF) (Pty) Limited
ZA 97.3 5
Pearson Pension Trustee Limited UK 50 2
Associated undertakings
Registered company Name
Country
ofIncorp.
%
Owned
Reg
office
Academy of Pop LLC US 40 6
Learn Capital Special
Opportunities Fund I, L.P.
‡
US 99.59 8
Learn Capital Venture
Partners II, L.P.
‡
US 72.93 8
Learn Capital Venture
Partners IIIA, L.P.
‡
KY 99 9
Learn Capital Venture
Partners, L.P.
‡
US 99.15 8
Peking University Pearson (Beijing)
Cultural Development Co., Ltd
CN 45 10
Prepona Sistemas de Testagem e
Avaliação S.A.
BR 22.2 7
Pui Man Publishing Limited CN 49 11
Smashcut, Inc. US 25.93 12
The Egyptian International
Publishing Company-Longman
EG 49 13
* In liquidation.
‡ Accounted for as an ‘Other financial asset’ within
non-current assets.
Partly-owned subsidiaries and associated
undertakings company addresses
Registered office address
1 Suite 1804, No.99 Huichuan Road, Changning District,
Shanghai City, China
2 80 Strand, London, WC2R 0RL, England
3 C T Corporation System, 4701 Cox Road, Suite 285,
Glen Allen, Henrico, VA, 23060-0000, United States
4 The Corporation Trust Company, Corporation Trust
Center, 1209 Orange Street, Wilmington, New Castle,
DE, 19801, United States
5 Auto Atlantic, 4
th
Floor, Corner Hertzog Boulevard
and Heerengracht, Cape Town, 8001, South Africa
6 251, Little Falls Drive, Corporation Service Company,
Wilmington, DE, 19808, United States
7 SIS 1107A1112, 35 Rua Pedro Lessa, Centro, Rio de
Janeiro, RJ, 20030-030, Brazil
8 Incorporating Services, Ltd. 3500 S Dupont Way,
Dover, Kent, DE, United States
9 Campbells Corporate Services Limited, Floor 4,
Willow House, Cricket Square, Grand Cayman,
KY1-9010, Cayman Islands
10 Suite 216, No. 127-1 Zhongguancun North Street,
Haidian District, Beijing, China
11 Rua de Pequim No. 230–246 17-L, Macau Finance
Centre, Macau
12 C/o Corporation Service Company, 2711 Centerville
Road, Suite 400, Wilmington, Delaware, 19808, United
States
13 10a Hussein Wassef St, Midan Missaha, Dokki Giza,
12311, Egypt
Notes to the company financial statements continued
212 Pearson plc Annual report and accounts 2022
Five-year summary
All figures in £ millions 2022 2021 2020 2019 2018
Sales: By operating segment
Assessment & Qualifications* 1,444 1,238 1,118
Virtual Learning 820 713 692
English Language Learning 321 238 218
Workforce Skills 204 172 163
Higher Education 898 849 956
Strategic review* 154 218 250
Total sales 3,841 3,428 3,397 3,869 4,129
Adjusted operating profit: By operating segment
Assessment & Qualifications* 258 219 147
Virtual Learning 70 32 29
English Language Learning 25 15 1
Workforce Skills (3) 27 26
Higher Education 91 73 93
Strategic review* 15 19 16
Penguin Random House – – 1
Total adjusted operating profit 456 385 313 581 546
Operating margin – continuing 11.9% 11.2% 9.2% 15.0% 13.2%
Adjusted earnings
Total adjusted operating profit 456 385 313 581 546
Net finance costs (1) (57) (61) (41) (24)
Income tax (71) (64) (35) (89) 27
Non-controlling interest (2) (1) – (2) (2)
Adjusted earnings 382 263 217 449 547
Weighted average number of shares (millions) 738.1 754.1 755.4 777.0 778.1
Adjusted earnings per share 51.8p 34.9p 28.7p 57.8p 70.3p
Prior periods have not been restated to reflect the adoption of IFRS 16 in 2019.
Sales and adjusted operating profit for periods prior to 2020 have not been restated to reflect the new organisational structure including the transfer
of retained English-speaking Canadian and Australian K12 Courseware businesses from Strategic review to the Assessment & Qualifications division.
* Comparative amounts for 2021 and 2020 have been restated to reflect the move between operating segments.
Annual report and accounts 2022 Pearson plc 213
Other information
All figures in £ millions 2022 2021 2020 2019 2018
Cash flow
Operating cash flow 401 388 315 418 513
Operating cash conversion 88% 101% 101% 72% 94%
Free cash flow 222 133 229 213 473
Free cash flow per share 30.0p 17.6p 30.3p 27.4p 60.8p
Net assets 4,415 4,280 4,134 4,323 4,525
Net debt 557 350 463 1,016 143
Return on invested capital
Total adjusted operating profit 456 385 313 581 546
Operating tax paid (95) (60) (10) (9) (43)
Return 361 325 303 572 503
Gross basis:
Average invested capital 10,896 9,857 10,625 11,096 10,672
Return on invested capital 3.3% 3.3% 2.9% 5.2% 4.7%
Net basis:
Average invested capital 7,896 7,161 7,708 8,097 7,544
Return on invested capital 4.6% 4.5% 3.9% 7.1% 6.7%
Dividend per share 21.5p 20.5p 19.5p 19.5p 18.5p
214 Pearson plc Annual report and accounts 2022
Financial key performance indicators
The following tables and narrative provide further analysis of the financial key performance indicators which are described in the financial review
of the annual report on pages 20-25, shown within the key performance indicators on page 19 of the annual report and shown in notes 2 and 8
of the notes to the consolidated financial statements.
Adjusted performance measures
The annual report and accounts reports results and performance on a headline basis which compares the reported results both on a statutory
and on a non-GAAP (non-statutory) basis. The Group’s adjusted performance measures are non-GAAP (non-statutory) financial measures and are also
included in the annual report as they are key financial measures used by management to evaluate performance. The measures also enable investors
to more easily, and consistently, track the underlying operational performance of the Group and its business segments by separating out those items
of income and expenditure relating to acquisition and disposal transactions, major restructuring programmes and certain other items that are also not
representative of underlying performance.
The Group’s definition of adjusted performance measures may not be comparable to other similarly titled measures reported by other companies.
A reconciliation of the adjusted measures to their corresponding statutory measures is shown below.
Sales
Underlying sales movements exclude the effect of exchange, the impact of portfolio changes arising from acquisitions and disposals and the impact
of adopting new accounting standards that are not retrospectively applied. Portfolio changes are calculated by taking account of the additional sales
(at constant exchange rates) from acquisitions made in both the current year and the prior year. For acquisitions made in the prior year, the additional
sales excluded is calculated as the sales made in the period of the current year that corresponds to the pre-acquisition period in the prior year. Sales
made by businesses disposed in either the current year or the prior year are also excluded. Constant exchange rates are calculated by assuming the
average exchange rates in the prior year prevailed throughout the current year. These non-GAAP measures enable management and investors to track
more easily, and consistently, the underlying sales performance of the Group.
All figures in £ millions
Assessment &
Qualifications
Virtual
Learning
English
Language
Learning
Workforce
Skills
Higher
Education
Strategic
Review Total
Statutory sales 2022 1,444 820 321 204 898 154 3,841
Statutory sales 2021 1,238 713 238 172 849 218 3,428
Statutory sales increase/(decrease) 206 107 83 32 49 (64) 413
Comprising:
Underlying increase/(decrease) 95 28 57 12 (33) (5) 154
Portfolio changes – – 9 15 – (61) (37)
Exchange differences 111 79 17 5 82 2 296
Statutory sales increase/(decrease) 206 107 83 32 49 (64) 413
Statutory increase/(decrease) 17% 15% 35% 19% 6% (29)% 12%
Constant exchange rate increase/(decrease) 8% 4% 28% 16% (4)% (30)% 3%
Underlying increase/(decrease) 8% 4% 24% 7% (4)% (16)% 5%
Annual report and accounts 2022 Pearson plc 215
Other information
Adjusted operating profit
Adjusted operating profit excludes the cost of major restructuring; other net gains and losses on the sale or closure of subsidiaries, joint ventures,
associates and other financial assets; and intangible charges, including impairment, relating only to goodwill and intangible assets acquired through
business combinations or relating to associates. Other net gains and losses also includes costs related to business closures and acquisitions. Further
details are given below under ‘Adjusted earnings per share’. Underlying adjusted operating profit movements exclude the effect of exchange, the
impact of portfolio changes arising from acquisitions and disposals and the impact of adopting new accounting standards that are not retrospectively
applied. Portfolio changes are calculated by taking account of the additional contribution (at constant exchange rates) from acquisitions made in both
the current year and the prior year.
For acquisitions made in the prior year the additional contribution excluded is calculated as the operating profit made in the period of the current year
that corresponds to the pre-acquisition period in the prior year. Operating profit made by businesses disposed in either the current year or the prior
year is also excluded. Constant exchange rates are calculated by assuming the average exchange rates in the prior year prevailed throughout the
current year. This non-GAAP measure enables management and investors to track more easily, and consistently, the underlying operating profit
performance of the Group.
All figures in £ millions 2022 2021
Operating profit 271 183
Cost of major restructuring 150 214
Other net gains and losses (24) (63)
Intangible charges 56 51
UK pension discretionary increase 3 –
Adjusted operating profit 456 385
All figures in £ millions
Assessment &
Qualifications
Virtual
Learning
English
Language
Learning
Workforce
Skills
Higher
Education
Strategic
Review Total
Adjusted operating profit increase/(decrease) 39 38 10 (30) 18 (4) 71
Comprising:
Underlying increase/(decrease) 14 28 5 (18) 9 – 38
Portfolio changes – – 2 (10) – (5) (13)
Exchange differences 25 10 3 (2) 9 1 46
Adjusted operating profit
increase/(decrease) 39 38 10 (30) 18 (4) 71
Constant exchange rate increase/(decrease) 6% 88% 47% (104)% 12% (26)% 6%
Underlying increase/(decrease) 6% 88% 33% (67)% 12% – 11%
Adjusted earnings per share
Adjusted earnings includes adjusted operating profit and adjusted finance and tax charges. Adjusted earnings is included as a non-GAAP
measure as it is used by management to evaluate performance and by investors to more easily, and consistently, track the underlying operational
performance of the Group over time. Adjusted earnings per share is calculated as adjusted earnings divided by the weighted average number of
shares in issue on an undiluted basis.
The following items are excluded from adjusted earnings:
Cost of major restructuring – In August 2022, the Group announced a major restructuring programme to run in 2022. The programme includes
efficiencies in product and content, support costs, technology and corporate property. The restructuring costs in 2022 of £150m mainly relate to
severance and impairment of right-of-use property assets. In March 2021, the Group announced a restructuring programme to run primarily in 2021.
The programme includes the reorganisation of the Group into five global business divisions and the simplification of the Group’s property portfolio to
drive significant cost savings. The costs of these restructuring programmes are significant enough to exclude from the adjusted operating profit
measure so as to better highlight the underlying performance (see note 4).
Other net gains and losses – These represent profits and losses on the sale of subsidiaries, joint ventures, associates and other financial assets
and are excluded from adjusted earnings as they distort the performance of the Group as reported on a statutory basis.
Intangible charges – These represent charges in respect of intangible assets acquired through business combinations or relating to associates.
These charges are excluded as they reflect past acquisition activity and do not necessarily reflect the current year performance of the Group.
Financial key performance indicators continued
216 Pearson plc Annual report and accounts 2022
Other net finance income/costs – These include finance costs in respect of retirement benefits, finance costs of deferred consideration, fair value
movements in relation to financial assets held at fair value through profit and loss and foreign exchange and other gains and losses. Finance income
relating to retirement benefits is excluded as management does not believe that the consolidated income statement presentation under IAS 19
reflects the economic substance of the underlying assets and liabilities. Finance costs relating to acquisition transactions are excluded as these relate
to future earn-outs or acquisition expenses and are not part of the underlying financing. Foreign exchange and other gains and losses are excluded as
they represent short-term fluctuations in market value and are subject to significant volatility. Other gains and losses may not be realised in due course
as it is normally the intention to hold the related instruments to maturity.
Tax – Tax on the above items is excluded from adjusted earnings. Where relevant the Group also excludes the benefit from recognising previously
unrecognised pre-acquisition and capital losses. The tax benefit from tax deductible goodwill and intangibles is added to the adjusted income tax
charge as this benefit more accurately aligns the adjusted tax charge with the expected rate of cash tax payments.
In addition, one off items such as the impact of the UK tax rate change and changes in local tax law have been excluded.
All figures in £ millions 2022 2021
Profit for the year 244 178
Non-controlling interest (2) (1)
Cost of major restructuring 150 214
Other net gains and losses (24) (63)
Intangible charges 56 51
Other net finance income (53) (51)
UK pension discretionary increase 3 –
Tax 8 (65)
Adjusted earnings 382 263
Weighted average number of shares (millions) 738.1 754.1
Adjusted earnings per share 51.8p 34.9p
Return on invested capital
Return on invested capital (ROIC) is included as a non-GAAP measure as it is used by management to help inform capital allocation decisions within the
business. ROIC is calculated as adjusted operating profit less operating cash tax paid expressed as a percentage of average invested capital. Invested
capital includes the original unamortised goodwill and intangibles. Average values for total invested capital are calculated as the average monthly
balance for the year. ROIC is also presented on a net basis after removing impaired goodwill from the invested capital balance. The net approach
assumes that goodwill which has been impaired is treated consistently to goodwill disposed as it is no longer being used to generate returns.
All figures in £ millions
2022
Gross
2021
Gross
2022
Net
2021
Net
Adjusted operating profit 456 385 456 385
Operating tax paid (95) (60) (95) (60)
Return 361 325 361 325
Average goodwill 6,490 5,758 3,490 3,063
Average other non-current intangibles 2,012 1,970 2,012 1,970
Average intangible assets – product development 948 892 948 892
Average tangible fixed assets and working capital 1,446 1,237 1,446 1,237
Average invested capital 10,896 9,857 7,896 7,162
Return on invested capital 3.3% 3.3% 4.6% 4.5%
Annual report and accounts 2022 Pearson plc 217
Other information
Return on capital
Return on capital (ROC) is included as a non-GAAP measure of how efficiently we are generating returns from our asset base. ROC is calculated as
adjusted operating profit less adjusted income tax as a proportion of capital, where capital adjusts net statutory assets for net debt, retirement benefit
assets, other post-retirement medical obligations and other non-operating items. These adjustments to net statutory assets have been made to better
reflect the asset base that generates returns.
All figures in £ millions 2022 2021
Adjusted operating profit 456 385
Adjusted income tax charge (71) (64)
Return 385 321
Net statutory assets 4,415 4,280
Adjustments for:
Net debt 557 350
Retirement benefit assets (581) (537)
Other post-retirement medical benefit obligation 25 34
Other non-operating assets 23 (41)
Capital 4,439 4,086
Return on capital 8.7% 7.9%
Operating cash flow
Operating cash flow is calculated as net cash generated from operations before the impact of items excluded from the adjusted income
statement plus dividends from joint ventures and associates (less the re-capitalisation dividends from Penguin Random House); less capital
expenditure on property, plant and equipment (including additions to right-of-use assets) and intangible software assets; plus proceeds from the sale
of property, plant and equipment (including the impacts of transfers to/from investment in finance lease receivable) and intangible software assets;
plus special pension contributions paid; and plus costs of major restructuring paid. Operating cash flow is included as a non-GAAP measure in order
to align the cash flows with the corresponding adjusted operating profit measures.
All figures in £ millions 2022 2021
Net cash generated from operations 527 570
Dividends from joint ventures and associates 1 –
Purchase / disposal of PPE and software (133) (176)
Net addition of right-of-use assets (29) (30)
Net costs paid for major restructuring 35 24
Operating cash flow 401 388
Cash conversion, calculated as operating cash flow as a percentage of adjusted operating profit, is also shown as a non-GAAP measure as this is used
by management and investors to measure cash generation by the Group.
All figures in £ millions 2022 2021
Adjusted operating profit 456 385
Operating cash flow 401 388
Cash conversion 88% 101%
Operating cash flow, operating free cash flow and total free cash flow, which are non-GAAP measures, are disclosed and reconciled in
note 33 of the notes to the consolidated financial statements as they are commonly used by investors to measure the cash performance
of the Group.
Financial key performance indicators continued
218 Pearson plc Annual report and accounts 2022
Net debt and adjusted earnings before interest, tax, depreciation and amortisation (EBITDA)
For information, the net debt/adjusted EBITDA ratio is shown as a non-GAAP measure as it is commonly used by investors to measure balance sheet
strength. Adjusted EBITDA is calculated as adjusted operating profit less depreciation on property, plant and equipment, and amortisation on
intangible software assets.
All figures in £ millions 2022 2021
Adjusted operating profit 456 385
Depreciation (excluding items included in ‘cost of major restructuring’) 88 100
Amortisation on intangible software assets (excluding items included in ‘cost of major restructuring’) 123 113
Adjusted EBITDA 667 598
Cash and cash equivalents 558 937
Overdrafts (15) –
Investment in finance lease receivable 121 115
Derivative financial instruments (6) (2)
Bonds (610) (767)
Lease liabilities (605) (633)
Net debt (557) (350)
Net debt/adjusted EBITDA ratio 0.8x 0.6x
Annual report and accounts 2022 Pearson plc 219
Shareholder Information
Shareholder Information
Pearson ordinary shares are listed on the London Stock Exchange
and on the New York Stock Exchange in the form of American
Depositary Receipts.
Corporate website
The investors’ section of our corporate website www.pearsonplc.
com/investors provides a wealth of information for shareholders.
It is also possible to sign up to receive email alerts for reports and
press releases relating to Pearson at www.pearsonplc.com.
Shareholder information online
Shareholder information can be found on our website at
www.pearsonplc.com/investors.
Our registrar, Equiniti, also provides a range of shareholder
information online. You can check your holding and find
practical help on transferring shares or updating your details at
www.shareview.co.uk. For more information, please contact our
registrar, Equiniti, Aspect House, Spencer Road, Lancing, West
Sussex, BN99 6DA. Telephone 0371 384 2043* or, for those
shareholders with hearing difficulties, text phone number
0371 384 2255*.
Information about the Pearson share price
The company’s share price can be found on our website at
www.pearsonplc.com/investors/performance/share-price-dividend.
It also appears in the financial columns of the national press.
2022 dividends
Payment Date Amount per share
Interim 20 September 2022 6.6 pence
Final
1
5 May 2023 14.9 pence
1. Subject to approval by shareholders at the 2023 Annual General Meeting.
2023 financial calendar
Ex-dividend date 23 March 2023
Record date 24 March 2023
Last date for dividend reinvestment
election
13 April 2023
Annual General Meeting 28 April 2023
Payment date for dividend and share
purchase date for dividend reinvestment
5 May 2023
Payment of dividends to mandated accounts
Should you elect to have your dividends paid through BACS, this
can be done directly into a bank or building society account, with
the dividend confirmation voucher sent to the shareholder’s
registered address. Equiniti can be contacted for information
on 0371 384 2043*.
Dividend reinvestment plan (DRIP)
The DRIP gives shareholders the right to buy the company’s shares
on the London stock market with their cash dividend. For further
information, please contact Equiniti on 0371 384 2268*.
Individual Savings Accounts (ISAs)
Equiniti offers a Flexible Stocks and Shares ISA. For more
information,please visit www.eqi.co.uk or call customer services
on0345 070 0720*.
Share dealing facilities
Equiniti offers telephone and internet services for dealing in Pearson
shares. For further information, please contact their telephone
dealing helpline on 0345 603 7037* or, for online dealing, log on
towww.shareview.co.uk/dealing. You will need your shareholder
reference number as shown on your share certificate.
A postal dealing service is also available through Equiniti.
Pleasetelephone 0371 384 2248* for details or log on to
www.shareview.co.uk to download a form.
ShareGift
Shareholders with small holdings of shares, whose value makes them
uneconomic to sell, may wish to donate them to ShareGift, the share
donation charity (registered charity number 1052686).
Further information about ShareGift and the charities it has
supported may be obtained from their website, www.ShareGift.org,
or by contacting them at ShareGift, PO Box 72253, London,
SW1P9LQ.
American Depositary Receipts (ADRs)
Pearson’s ADRs are listed on the New York Stock Exchange
andtraded under the symbol PSO. Each ADR represents one
ordinary share. For enquiries regarding registered ADR holder
accounts anddividends, please contact BNY Mellon Shareowner
Services, POBox 43006, Providence, RI 02940-3078, telephone
1(866)2592289 (toll free within the US) or 001 201 680 6825
(outside the US). Alternatively, you may email shrrelations@
cpushareownerservices.com.
Voting rights for registered ADR holders can be exercised through
Bank of New York Mellon, and for beneficial ADR holders (and/or
nominee accounts) through your US brokerage institution. Pearson
will file with the Securities and Exchange Commission a Form 20-F.
Share register fraud: protecting your investment
Pearson does not contact its shareholders directly to provide
recommendations or investment advice and neither does it appoint
third parties to do so. As required by law, our shareholder register is
available for public inspection, but we cannot control the use of
information obtained by persons inspecting the register. Please treat
any approaches purporting to originate from Pearson with caution.
For more information, please log on to our website at www.
pearsonplc.com/en-GB/investors/shareholders/shares-shareholding
Tips on protecting your shares
— Keep any documentation that contains your shareholder
reference number in a safe place and shred any unwanted
documentation
— Inform our registrar, Equiniti, promptly when you change address
— Be aware of dividend payment dates and contact the registrar
if you do not receive your dividend cheque or, better still, make
arrangements to have the dividend paid directly into your
bank account
— Consider holding your shares electronically in a CREST account
via a nominee.
* Lines open 8.30 am to 5.30 pm Monday to Friday (excluding UK public holidays).
Shareholder Information
220 Pearson plc Annual report and accounts 2022
About our reporting
This report provides a summary of Pearson’s sustainable business strategy and our environmental, social, and governance (ESG) performance for
the calendar year ended 31 December 2022. Our Reputation and Responsibility Committee, the highest Board Committee responsible for our
sustainability agenda, has reviewed the reported information, including the list of material topics on page 30.
Global Reporting Initiative (GRI)
Our report is in accordance with the GRI standards, using the GRI 1: Foundation 2021 guidance. There is no relevant GRI sector standard for
our industry.
Sustainability Accounting Standards Board (SASB)
We continue to report in line with the SASB’s standards to provide industry-based insights into the most relevant sustainability-related risks and
opportunities for the media, and professional services sectors.
UN Global Compact (UNGC) and the UN Sustainable Development Goals (SDGs)
We were proud to participate in the Early Adopter Programme of the UN Global Communication on Progress (CoP) designed to add value and
streamline sustainability reporting for all participating companies of the UN GC. Our CoP is publicly available on our participant profile at: https://
unglobalcompact.org/what-is-gc/participants/7319-Pearson-plc
Lifelong learning and education have an important role to play in achieving all the UN SDGs, but we focus our efforts on those where we have
the greatest impact. Our priority SDGs are: 4 quality education, 8 decent work and economic growth, and 10 reducing inequalities.
ESG material issues reporting against GRI and SASB
Material issues GRI SASB Page/web reference Comments/omissions
Product
effectiveness
GRI 203-2: significant indirect
impacts
Risks, opportunities, and management
approach: Pages 30-38
Performance: Page 18
Social Bond Reporting: https://plc.
pearson.com/en-GB/investors/
debt-investors/social-bond-framework
Consumer
engagement
GRI 203-2: significant indirect
impacts
Risks, opportunities, and management
approach: Pages 18, 30-38
Performance: Page 18
Digital growth GRI 203-2: significant indirect
impacts
Risks, opportunities, and management
approach: Pages 30-38
Performance: non-financial KPIs -
Page 18
Employee
learning and
development
GRI 404-1: average hours of
training per year, per
employee
GRI 404-2: programmes for
upgrading employee skills
and transition assistance
programmes
GRI 404-3: percentage of
employees receiving regular
performance and career
development reviews
Risks, opportunities, and management
approach: Pages 30-38
Performance: Pages 18, 221-226
We do not report on
average hours of training.
In 2022, we launched a
new approach to
engagement as a
driverof growth and
retention, including a set
of performance
measures. 100% of direct
employeescovered by
Gallup survey.
Employee
engagement
SV-PS-330a.2. (1) voluntary and
(2) involuntary turnover rate for
employees SV-PS-330a.3.
employee engagement %
Risks, opportunities, and management
approach: Pages 30-36
Performance: Pages 18, 221-226
Inclusion and
diversity
405-1 Diversity of
governance bodies and
employees
SV-PS-330a.1. & SV-ME-260a.1.
percentage of gender and racial/
ethnic group representation for:
executive management
(2) professionals
(3) all other employees
SV-ME-260a.2. description of
policies and procedures to
ensure pluralism in news media
content
Risks, opportunities, and management
approach: Pages 30-36
Performance: Pages 18, 221-226
Social Equity portal: https://www.
pearson.com/en-us/social-equity.html
Our performance
ESG data
Annual report and accounts 2022 Pearson plc 221
Material issues GRI SASB Page/web reference Comments/omissions
Reducing our
environmental
impact
GHG Emission scope 1, 2, 3.
Baseline and methodology.
Anyoffsets including type,
amount,criteria
Risks, opportunities, and management
approach: Pages 30, 36-38
TCFD Report: Pages 39-41
Performance: Pages 18, 36-41,
221-226
Data privacy
and cyber
security
GRI 418 -1 Substantiated
complaints received
concerning breaches of
customer privacy, and losses
of customer data
SV-PS-230a.1description of
approach to identifying and
addressing data security risks
SV-PS-230a.2. description of
policies and practices relating to
collection, usage, and retention
of customer information
SV-PS-230a.3.
number of data breaches
percentage involving customers'
confidential business
information or personally
identifiable information
number of customers affected
The following sections of our report
detail:
— our approach to data security risks:
Pages 43-52
— governance of data privacy, cyber
security and technology resilience:
Page 82
— approach to customer data and
safeguarding and training provided:
Pages 30, 36
— consumer-facing privacy center
explaining how Pearson uses
personal information: https://www.
pearson.com/en-us/privacy-center.
html
In the event
of a reportable breach,
we would disclose
information about the
incident and commit to
contact any affected data
subjects in a timely way.
In line with regulations,
we will disclose material
lapses to the relevant
regulators. To the extent
that any relevant
regulator should find
fault with our data
management and/or data
security practices, they
will publish their findings/
sanctions.
GRI General Disclosures Index
Disclosure Page/Location Comment
2-1 Organisational details 120, 140,
150
2-2 Entities included in the organisation’s sustainability reporting 209-211
2-3 Reporting period, frequency and contact point 2022 annual report,
sustainability@pearson.com
2-4 Restatements of information 223
2-5 External assurance https://plc.pearson.com/
en-GB/purpose/our-esg-
reporting
2-6 Activities, value chain and other business relationships 16-17
2-7 Employees 224-226
2-8 Workers who are not employees We do not currently report
on workers who are not
employees, Most common
type of workers are regular
employees (19,051) and
most common type of work
performed is in testing
centres, technology, sales,
customer services, and
prof. development
2-9 Governance structure and composition 56-66
2-10 Nomination and selection of the highest governance body 74-77
2-11 Chair of the highest governance body 56
2-12 Role of the highest governance body in overseeing the management of impacts 56-66
2-13 Delegation of responsibility for managing impacts 65-66
2-14 Role of the highest governance body in sustainability reporting 66
2-15 Conflicts of interest 59
2-16 Communication of critical concerns 65
2-17 Collective knowledge of the highest governance body 56-59
2-18 Evaluation of the performance of the highest governance body 71-73
2-19 Remuneration policies 92-93
2-20 Process to determine remuneration 88-119
2-21 Annual total compensation ratio 109
2-22 Statement on sustainable development strategy 8
2-23 Policy commitments 42
ESG data continued
222 Pearson plc Annual report and accounts 2022
Disclosure Page/Location Comment
2-24 Embedding policy commitments 30-42
2-25 Processes to remediate negative impacts https://plc.pearson.com/
en-GB/corporate-policies
2-26 Mechanisms for seeking advice and raising concerns https://plc.pearson.com/
en-GB/corporate-policies
2-27 Compliance with laws and regulations 80-87
2-28 Membership associations 38 We are also members of the
Global Business Coalition for
Education, and the
Corporate Consultive Group
of the World Resource
Institute (WRI).
2-29 Approach to stakeholder engagement 26-29
2-30 Collective bargaining agreements 68 Our Employee Engagement
Network (EEN) champion the
voice of our employees at
board level. Members
represent diverse genders,
ethnicity groups,
geographies, ages and
tenures.
ESG performance tables
Environment
Re-baselining: Following our re-baselining policy, in line with best practices standards, we have re-based our emissions to reflect the change in
reporting scope and categories, as well as reviewed and updated calculation methodologies for the reporting period 2018 – 2022. This process has
been verified and assured by a third-party auditor, Corporate Citizenship.
Methodology: We follow the requirements from the GHG Protocol Corporate Accounting and Reporting Standard (revised edition) to calculate our
emissions. For scope 2, we use the dual reporting methodology (location and market-based approach), together with some of the latest emission
factors from recognised public sources, including, but not limited to, the UK Department for Business, Energy and Industrial Strategy, the International
Energy Agency, the US Energy Information Administration, the US Environmental Protection Agency, and the Intergovernmental Panel on Climate
Change (IPCC). Energy use includes gas and electricity consumption in MWh and vehicle fuel use converted from mileage into MWh using BEIS
conversion factor. For 2022, we are also using the latest global warming potential from the IPCC's Sixth Assessment Report.
Corporate Citizenship, an independent third party has verified our energy consumption; scope 1, 2 and 3 GHG emissions; and renewable electricity
claims, as well as our social KPIs. See Corporate Citizenship assurance statement here: https://plc.pearson.com/en-GB/purpose/our-esg-reporting
Greenhouse gas (GHG) (carbon dioxide equivalent) emissions overview (metric tons CO
2
e)
2022 2021
2018 rebaselined
figures
2018 previously
reported
Scope 1 4,622 8,342 12,206 12,209
Scope 2 (market-based) 182 440 4,583 4,583
Scope 2 (location-based) 29,034 22,801 40,779 41,586
Scope 3 362,473 370,853 531,663 410,164
Total - Location-based 396,128 401,995 584,648 463,959
Total - Market-based 367,276 379,634 548,452 426,956
Total global scope 1 and 2 (location-based) 33,656 31,143
Total UK scope 1 and 2 (location-based) 5,671 3,829
Total global scope 1 and 2 (market-based) 4,804 8,782 16,789 16,792
Total UK scope 1 and 2 (market-based) 1,662 1,352
Intensity ratio 2022 2021
tCO
2
/ m£ sales revenue (scope 1, 2 market-based and 3) 95.6 110.7 132.8
Energy 2022 2021
% electricity from renewable sources 99% 99%
Total electricity consumption from renewable sources only (MWh) 83,523 57,120
Total electricity consumption from non-renewable sources only (MWh) 957 794
On-site generated electricity (MWh) 184 150
Total gas consumption (MWh) 24,170 23,985
Total fuel oil consumption (MWh) 159 48
Vehicles (MWh) 347 10,437
Total energy consumption (MWh) 109,340 92,535
Global (gas, electricity and transport) 108,997 92,336
UK (gas, electricity and transport) 29,811 17,491
Annual report and accounts 2022 Pearson plc 223
Resource use 2022 2021
Paper used (t) 24,187 29,056
% FSC 33% 29%
% PEFC 20% 28%
% SFI 9%
Waste 2022 2021
Total waste generated (t) 1,298* 875
Share of waste recycled in office space 17.7% 25.9%
Water 2022 2021
Total water consumption (m
3
) 538,556* 152,702
* We report estimated water and waste in some of our properties by applying an intensity ratio per sqm based on all actual data available.
This year, we extended the scope of sites with actual data that are included in 2022 figures.
Social
All employee figures, with the exception of total average number of employees (as noted below) are based on employee volumes as at
31
st
December 2022.
Our Employees 2022 2021
Total average number of employees for the year* 20,438 20,744
Employees by geography (Regional Representation) 20,169 21,350
US as of 31 December 10,694 11,670
UK as of 31 December 3,931 3,826
Rest of World as of 31 December 5,544 5,854
* Total average number of employees is calculated using a Full-time Equivalent (FTE) methodology, as an average across the reporting
period.
Gender diversity breakdown 2022 s 202120 2021
Total number of permanent, regular employees 97% 97%
Male 40% 40%
Female 59% 59%
Non-binary 0% 0%
No data 1% 1%
Total number of temporary, limited term employees 3% 3%
Male 32% 32%
Female 66% 65%
Non-binary 0% 0%
No data 2% 3%
Total full-time, regular, employees 79% 75%
Male 44% 44%
Female 55% 55%
Non-binary 0% 0%
Not Disclosed 1% 1%
Total part-time, regular, employees 21% 21%
Male 27% 27%
Female 72% 73%
Non-binary 0% 0%
Not Disclosed 1% 1%
ESG data continued
224 Pearson plc Annual report and accounts 2022
Board and Executive Team's gender identity or sex
Number of board
members
Percentage of the
board
Number of senior
positions on the
board (CEO, CFO,
SID and Chair)
Number in executive
management*
Percentage of
executive
management
Men 5 50 3 6 54.5
Women 5 50 1 5 45.5
Other categories
Not specified / prefer not to say
Board and Executive Team's ethnic background
Number of board
members
Percentage of the
board
Number of senior
positions on the
board (CEO, CFO,
SID and Chair)
Number in executive
management*
Percentage of
executive
management
White British or other White
(including minority-white groups) 7 70 4 8 72.73
Mixed/Multiple Ethnic Groups 2 20 1 9.09
Asian/Asian British 1 10 1 9.09
Black/African/Caribbean/Black British
Other ethnic group, including Arab 1 9.09
Not specified/ prefer not to say
Female leadership breakdown 2022 2021
Senior leadership 41% 37%
VP & Director 48% 47%
Manager 51% 50%
Percentage of women in technology roles (IT/engineering) 31% 29%
Employee racial and ethnic diversity breakdown 2022 2021
Total workforce (US and UK) 32% (US) / 18% (UK) 31% (US) / 19% (UK)
Senior leadership (US and UK) 19% (US) / 12% (UK) 20% (US) / 9% (UK)
VP and Director (US and UK) 18% (US) / 13% (UK) 17% (US) / 13% (UK)
Manager (US and UK) 25% (US) / 14% (UK) 23% (US) /16% (UK)
Employee racial and ethnic diversity breakdown - US 2022 2021
% of total workforce 32% 31%
Asian 10% 9%
Black or African American 11% 10%
Hispanic or Latino 9% 9%
Other 2% 3%
White 67% 69%
Not Stated 1% 0%
Employee racial and ethnic diversity breakdown - UK 2022 2021
% of total workforce 18% 19%
Asian 10% 10%
Black 4% 4%
Hispanic or Latino 0% 0%
Other 4% 5%
White 66% 70%
Not Stated 16% 11%
* As prescribed by LR9.8.6R(10), for the purpose of this disclosure, the Executive Management includes the Company Secretary.
Annual report and accounts 2022 Pearson plc 225
ESG data continued
% of total management workforce (US and UK) 2022 2021
Asian 10% 10%
Black or African American 4% 4%
Hispanic or Latino 4% 3%
Other 2% 2%
White 77% 78%
Not Stated 3% 3%
Turnover 2022 2021
Turnover rate, total average for the year* 6,974 / 33% 7,232 / 33%
Voluntary turnover 4,658 / 22% 5,062 / 23%
Involuntary turnover 2,316 / 11% 2,170 / 10%
*% calculated using average 2022 H/C of 21,342, not 2022 year end position.
Turnover by gender 2022 2021
Total female 4,233 / 20% 4,512 / 20%
Total male 2,659 / 12% 2,709 / 12%
Non-binary 6 / 0% -
Not disclosed 76 / 0% -
Turnover by age group 2022 2021
Under 30 years old 1,720 / 8% 2,019 / 9%
30-50 years old 3,449 / 16% 3,428 / 15%
Over 50 years old 1,785 / 8% 1,764 / 8%
No date 20 / 0% 21 / 0%
New hires 2022 2021
Total number and rate of new employee hires (number of hires/average headcount)* 5,600 / 26% 5,934 / 27%
Total number of new hires - female 3,378 / 60% 3,528 / 60%
Total number of new hires - male 2,076 / 37% 2,261 / 38%
Total number of new hires - non binary 24 / 0% 0 / 0%
Total number of new hires - not disclosed 122 / 2% 145 / 2%
*% calculated using average 2022 H/C of 21,342, not 2022 year end position.
New hires by age group 2022 2021
Under 30 years old 38% 40%
30-50 years old 44% 42%
Over 50 years old 17% 17%
No date 1% 1%
Employee engagement measures* 2022 2021
Engagement 3.96^ -
Inclusion 4.12^ -
Progress 67% -
Learning and Growth 72% -
*Sourced from Gallup Access.Propriety data.
^GrandMean on a 5-point Likert scale.
Governance 2022 2021
Total number of concerns raised & investigated 92 110
Percentage of employees completing code of conduct certification or training 100% 100%
226 Pearson plc Annual report and accounts 2022
Reliance on this document
The intention of this document is to provide information to
shareholders and is not designed to be relied upon by any other
party or for any other purpose.
Forward-looking statements
This document includes forward-looking statements concerning
Pearson’s financial condition, business and operations and its
strategy, plans and objectives. In particular, all statements that
express forecasts, expectations and projections, including trends
in results of operations, margins, growth rates, overall market
trends, the impact of interest or exchange rates, the availability of
financing, anticipated cost savings and synergies and the
execution of Pearson’s strategy, are forward-looking statements.
By their nature, forward-looking statements involve known and
unknown risks and uncertainties because they relate to events
and depend on circumstances that may occur in the future. They
are based on numerous expectations, assumptions and beliefs
regarding Pearson’s present and future business strategies and
the environment in which it will operate in the future. There are
various factors which could cause Pearson’s actual financial
condition, results and development to differ materially from the
plans, goals, objectives and expectations expressed or implied by
these forward-looking statements, many of which are outside
Pearson’s control. These include international, national and local
conditions, as well as the impact of competition. They also
include other risks detailed from time to time in Pearson’s
publicly-filed documents and, in particular, the risk factors set out
in this document, which you are advised to read. Any forward-
looking statements speak only as of the date they are made and,
except as required by law, Pearson gives no undertaking to
update any forward-looking statements in this document
whether as a result of new information, future developments,
changes in its expectations or otherwise. Readers are cautioned
not to place undue reliance on such forward-looking statements.
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