Introduction

This part of the Directors' remuneration report sets out the Directors' remuneration paid in respect of the 2014 Financial year. It sets out actual payments to Directors and details on the link between Company performance and remuneration of the Chief Executive Officer. This part, together with the Description of the Remuneration Committee section constitutes the Annual report on remuneration, and will be subject to an advisory shareholder vote at the Company's AGM.

Highlights for 2014

This table briefly summarises the highlights of the Directors' remuneration arrangements for the Financial year.

Base pay and benefitsPensionAIPLong-term incentivesAll-employee schemes

Base pay increase of 3% to 3.6% for the Executive Directors and 22% for the Chief Executive Officer.

Pay increases for the Non-Executive Directors.

No change to benefits.

No changes made to Company contributions to pensions for Executive Directors.

Total bonus earned for 2014 based on 54% to 56% of target achievement resulting in £793,090 less aggregate bonus payments than 2013 for the Executive Directors.

Awards were granted under the LTIP and GIP.

No LTIP awards vested during the period.

Final tranche of JSOS vested during the period. No share interests were sold or realised by the Executive Directors and remain in the EBT.

No awards or options vested under any all-employee share schemes during the period.

Certain options exercised under ESOS and Sharesave, where options were due to expire.

Ongoing participation in the SIP scheme.

Further information:
See Base Salary (Audited)See Base Salary (Audited)See Annual Incentive Plan (Audited)See Share Plans (Audited)See Share Plans (Audited)

Total Director remuneration (audited)

The total remuneration paid to all of the Directors during the period was £3,171,000 (not including any amount attributable to the JSOS). The detailed remuneration breakdown for the Executive Directors and the Non-Executive Directors is set out separately.

Executive Directors

Total Remuneration (audited)

The total remuneration for the period for each of the Executive Directors is set out in the table below. Total remuneration (excluding any amount attributable to the JSOS) paid to the Executive Directors was £2,656,000, which was 21% lower than 2013 (£3,367,000).

Tim SteinerJason Gissing1Neill AbramsDuncan Tatton-BrownMark Richardson
2014
£'000
2013
£'000
2014
£'000
2013
£'000
2014
£'000
2013
£'000
2014
£'000
2013
£'000
2014
£'000
2013
£'000
Salary517417144278282226337310337258
Taxable Benefits1111111111
Pensions4133122223181992721
Total Fixed Pay559451157301306245357320365280
AIP385528307156257184307187307
Total Remuneration in cash944979157608462502541627552587
Share Plans – requiring investment
JSOS – theoretical gain5,5033,6692,2272,9372,562
Share Plans – awards
LTIP
GIP
ESOS
2014 ESOS
SIP
Sharesave3232
Total for Share Plans5,503323,6692,227322,9372,562
Recovery of sums paid
Total Remuneration6,4471,0113,8266082,6895343,4786273,114587
  1. Jason Gissing retired from the Board at the Company's annual general meeting on 7 May 2014.

Explanation of JSOS: The JSOS amounts set out in the total remuneration table represent a theoretical gain on interests in the fourth tranche of JSOS shares purchased by the Executive Directors. None of the Executive Directors have realised any of their JSOS share interests and therefore no money has been received by any of the Executive Directors in this regard.

The JSOS scheme which was put in place prior to the Company's Admission in 2010, involves the Executive Directors investing their own funds to purchase a shared interest in the Company's shares at the market value at that time. These investments were made in 2010 (in the case of Tim Steiner, Neill Abrams and Mark Richardson) and in 2012 (in the case of Duncan Tatton-Brown and Mark Richardson again). The Executive Directors invested from their own resources. The purchased interests entitle the Executive Directors to a return only if, in the future, the share price exceeds the relevant hurdle rate. If the share price remains below the hurdle until the end of the scheme, the Executive Directors will lose their investment. For a detailed description of the JSOS scheme refer to pages 249 to 252 of the Prospectus.

The fourth and final tranche of JSOS shares vested in the period, on 1 January 2014. The calculation of the amount shown in the total remuneration table is based on the Company's share price on the next trading day, 2 January 2014, being 447 pence per share. This price was above the hurdle price of 228 pence per share for the fourth tranche (and above the hurdle price of 180 pence per share in respect of the additional fourth tranche held by Mark Richardson and Duncan Tatton-Brown) of JSOS share interests. Consequently, amounts of JSOS remuneration for 2014 are shown in the total remuneration table. This compares to zero in 2013 in respect of the third tranche of JSOS share interests, as on the equivalent vesting date in 2013 (being 2 January 2013) the Company's share price was 84.75 pence per share, below the hurdle price of 208 pence per share for the third tranche (and below the hurdle price of 170 pence per share in respect of the additional third tranche held by Mark Richardson and Duncan Tatton-Brown) of JSOS share interests. The third tranche of JSOS share interests at the 2013 vesting date had a value of zero and would have been rendered worthless had the share price remained at that level until the end of the scheme. Consequently no remuneration is shown for JSOS in 2013 in the total remuneration table.

An explanation of each element of remuneration paid in the table is set out in the following section.

The Company has obtained a written confirmation from each Executive Director that they have not received any other items in the nature of remuneration from the Group, other than those already disclosed in the total remuneration table.

Base Salary (audited)

During the period, the Remuneration Committee reviewed the salaries of the Executive Directors. After taking into account a number of relevant factors which are discussed in more detail below, the Remuneration Committee recommended that all basic salaries (other than Jason Gissing's) be increased. The following table shows the change in each Executive Director's salary.

DirectorSalary 2014
(£)
Salary 2013
(£)
Effective from
Tim Steiner550,000450,0001 April 2014
Neill Abrams285,000275,0001 April 2014
Mark Richardson340,000330,0001 April 2014
Duncan Tatton-Brown340,000330,0001 April 2014
Jason Gissing1330,000330,000
  1. Jason Gissing received no increase in base salary in light of his retirement on 7 May 2014.

The changes to base salary were made in line with the Directors' remuneration policy. The Executive Directors (except the Chief Executive Officer) received an increase in base pay of £10,000 each which was in line with the percentage salary increases for the monthly paid employees of the Group in the period. The Remuneration Committee decided to increase the base salary of the Chief Executive Officer more significantly than this after taking into account the changes in the complexity and scale of the role due to the transaction with Morrisons, which was completed in July 2013. The increases, which position the salaries broadly around the market median for a company of the Company's size and complexity, also aim to help retain the Executive Directors.

Taxable benefits (audited)

The Executive Directors received taxable benefits during the period, notably private medical insurance. The Executive Directors also received other benefits, which are not taxable, including life assurance and Group-wide employee benefits, such as an employee product discount. The remuneration arrangements for the Executive Directors do not include a company car or car cash allowance.

Pensions (audited)

The Company made pension contributions on behalf of the Executive Directors to the defined contribution Group personal pension scheme (which is administered by Standard Life). The employer contributions to the pension scheme in respect of each Executive Director are made in line with the Group personal pension scheme for all employees (the rates being, for employees and Executive Directors joining the pension scheme before May 2013, from 3% up to 8%, and for employees joining the scheme after May 2013, from 3% up to 6%, depending on the number of years the employee or Executive Director has participated in the scheme). The contributions during the period made on behalf of the Executive Directors were 8% of base salary, except in the case of Duncan Tatton-Brown, which was 6% of base salary during the period, and has subsequently increased to 7% effective from January 2015, in accordance with the generally applicable rules of the scheme.

These contributions were made in line with the Directors' remuneration policy which allows the Company to make employer contributions of up to 30% of base salary.

During the period the Remuneration Committee reviewed this policy and the Company's pension arrangements, including the employer contribution rates for the Executive Directors. The market data illustrated that the existing Company pension contributions are materially below the market median rate when compared with similar senior executive roles in companies of a similar size and complexity to the Company.

The Remuneration Committee recommended to the Board that all pension contribution rates for the Executive Directors not be changed. In reaching its decision the Remuneration Committee took into account the Director's remuneration policy, relevant market data (presented by Deloitte), the overall remuneration package of the Executive Directors (presented by management) and the recent changes made to the remuneration of the Executive Directors, including the introduction of long-term incentive arrangements. The Company's overall policy is to seek to position a larger proportion of the remuneration package as equity-based and performance-related in order to support the Company's strategic objectives of high growth and expansion and to create shareholder alignment. The recent introduction of the LTIP and the GIP supports this emphasis in the policy. So while the alignment of the Company's pension arrangements with the market may become crucial in future to ensure the Company remains competitive, an increase in pension contributions for the Executive Directors was not considered appropriate at this time.

During the period, the Remuneration Committee agreed to allow pension contributions to be made to the Executive Directors as a cash allowance where the Executive Director has reached either the HMRC annual limit or HMRC lifetime allowance limit for pension contributions. Such change was provided for in the Directors' remuneration policy.

Annual Incentive Plan (audited)

The Remuneration Committee re-examines the design of the AIP each year to incentivise the delivery of key business objectives and individual performance for that financial year. The 2014 AIP was based on the performance targets and weightings set out below.Financial performance measures, namely Gross sales and EBITDA, were the primary targets, with 80% of the annual bonus being determined by performance against targets set by the Remuneration Committee at the start of the financial year, by reference to the Company's budget for the period. Of the balance, 20% related to individual objectives for each of the Directors, largely independent of the financial objectives. Each target was discrete and could be earned separately. The Chief Executive Officer had a maximum bonus opportunity of 125% of salary and the other Executive Directors had a maximum opportunity of 100% of salary.

Tim SteinerDuncan Tatton-BrownMark RichardsonNeill Abrams
Financial objectives
EBITDA (% of total target)40404040
Gross sales (% of total target)40404040
Individual objectives
(% of total target)20202020
Examples of business
area objectives
1.Develop strategic plans for the internationalisation of the Company
2.Drive efficiency,
capacity and
increased capability
within the business
Prepare and execute
financing strategy
to include UK
and international
requirements
Improve productivity
at CFC2 to
agreed level
Implement
recommendations
of KPMG corporate
governance review
3.Analyse and act
on strategic
opportunities
Continue to operate
an efficient and
effective finance
function
Effectively lead
the technology
function
Develop and
implement a
CR policy

Financial targets and individual targets

Each Executive Director had between five and eight individual objectives, with different weightings, under the plan. They related to specific programmes relevant to each Executive Director's business area for which they have primary responsibility. All of the Executive Directors had an individual objective which concerned the development of strategic plans for internationalising the business. The Remuneration Committee also considered environmental, social and governance issues when setting the individual objectives, in particular for Neill Abrams who has responsibility for the Group's CR policy. The Remuneration Committee reviewed the performance of each Executive Director against the measurable performance metrics and based their assessment on a report by the Chief Executive Officer and the Chairman and on the Remuneration Committee's judgement of the performance against these individual objectives.

The Group's Gross sales for the period were £1,026.5 million, which was above the ''threshold" set under the 2014 AIP. The Group's EBITDA for the period was £71.6 million, which was above the "threshold" set under the 2014 AIP. The Remuneration Committee, in assessing performance, took into account the level of the Group's trading performance compared with UK grocery retail peers and the Group's progress against its strategic objectives.

Achievement against the objectives was between 54% and 56%.

Disclosure of targets

The achievement against the AIP targets has been disclosed. Although the Remuneration Committee is conscious of the 2014 Code requirement that performance targets should be transparent, the Remuneration Committee considers that the targets were and remain commercially sensitive to the Company and if disclosed could damage the Company's commercial interests. The actual AIP targets, therefore, have not been disclosed. The Remuneration Committee does not expect to disclose this information at a later date. The Remuneration Committee believes that the targets were stretching and have been rigorously applied.

Summary of bonus earned

The Remuneration Committee has, in accordance with the Directors' remuneration policy and the rules of the 2014 AIP, recommended an aggregate bonus payment of £912,415 (2013: £1,705,505) under the plan for the period. The Remuneration Committee believes that the level of bonus payment appropriately reflects the performance of the business and individual performance during the period, which saw strong trading performance for the Group in a very competitive market and good progress with the development of the Group's strategic objectives. The table below summarises the bonus payments for each Executive Director for the 2014 AIP. The cash payments are expected to be made in February 2015. No amount has been deferred to a later date given that under the rules of the AIP deferral does not apply as all of the Executive Directors have met the minimum shareholding requirements under the Directors' remuneration policy.

DirectorMaximum Opportunity
(% of salary)
Achievement against objectives
(%)
Total
bonus
earned
1
(£'000)
Tim Steiner12555.98385
Duncan Tatton-Brown10054.18184
Neill Abrams10054.88156
Mark Richardson10054.98187
  1. The applicable salary used for calculating the bonus payment under the rules of the 2014 AIP is the applicable base salary on the date of payment.

Share plans (audited)

Awards granted under long-term incentive plans only count towards the total remuneration figure for the period in which they vest. Awards under most of the Company's share plans are subject to three-year vesting periods and therefore awards made or exercised during the period will not necessarily be reflected in the total remuneration figure for this period. Further details on all the existing share incentives held by the Executive Directors are set out below.

JSOS

The fourth and final tranche of JSOS shares vested in the period, on 1 January 2014. All four tranches of the JSOS share interests in the scheme have been retained by each Executive Director and no money has been received by the Executive Directors in this regard. See an explanation of the JSOS.

LTIP

As the second year of operation for the LTIP was 2014, no awards vested during the period. Therefore no value is shown in the total remuneration table for the period.

GIP

The awards made under the GIP are expected to vest in May 2019 (if and to the extent that the vesting criteria are met). Therefore no value is shown in the total remuneration table for the period.

ESOS

No awards under the ESOS vested during the period. Accordingly, no value is shown in the total remuneration table for the period.

2014 ESOS

No awards have been granted to the Executive Directors under the 2014 ESOS, and the Remuneration Committee does not have any intention of making an award of options under the 2014 ESOS scheme to the Executive Directors. Accordingly, no value is shown in the total remuneration table for the period.

SIP

Free and matching shares awarded under the SIP are subject to a three-year forfeiture period starting from the date of grant. This means that if an Executive Director ceases to be employed by the Group during the three-year period, the free and matching shares will be forfeited. As 2014 was the first year of operation for the SIP, no such forfeiture period had expired in respect of free or matching shares awarded to the Executive Directors. Partnership shares purchased under the SIP are not included in the total remuneration table as these are purchased by the Executive Directors from their salary, rather than granted by the Company as an element of remuneration. Therefore, no value is shown in the total remuneration table for the period.

Sharesave

No awards under the Sharesave vested during the period. Accordingly, no value is shown in the total remuneration table for the period.

Recovery of sums paid (audited)

No sums paid or payable to the Executive Directors were sought to be recovered by the Group.

Non-Executive Directors

Total fees (audited)

The fees paid to the Non-Executive Directors and the Chairman during the period are set out in the remuneration table below. With the exception of the Chairman (who has received the Chairman's Share Matching Award) and Robert Gorrie (who receives other remuneration as set out below), the Non-Executive Directors received no remuneration from the Group other than their annual fee.

FeesTaxable
benefits
Pension
entitlements
Annual bonusLong-term
incentives
Recovery of
sums paid
Total remuneration
Non-Executive Director2014
£'000
2013
£'000
2014
£'000
2013
£'000
2014
£'000
2013
£'000
2014
£'000
2013
£'000
2014
£'000
2013
£'000
2014
£'000
2013
£'000
2014
£'000
2013
£'000
Lord Rose1200118200118
David Grigson67626762
Ruth Anderson57505750
Robert Gorrie45404540
Jörn Rausing45404540
Douglas McCallum56475647
Alex Mahon45404540
  1. Lord Rose was paid £40,000 per annum for the period from appointment as an independent Non-Executive Director on 11 March 2013 to the date of becoming Chairman on 10 May 2013, and £200,000 per annum thereafter.

As explained in the 2013 annual report, the remuneration arrangements for the Non-Executive Directors (except the Chairman) were reviewed by the Executive Directors and the Chairman during the period. It was recommended that all base fees and certain Board committee chairman fees be increased, with such changes to take effect in April 2014. The following table shows the change in each Non-Executive Director's annual fees.

Non-Executive DirectorBase element
£'000
Committee chair
element
£'000
Senior Independent
Director element
£'000
Total
£'000
20142013201420132014201320142013
David Grigson48407715157062
Ruth Anderson484012106050
Robert Gorrie48404840
Jörn Rausing48404840
Douglas McCallum48401286048
Alex Mahon48404840

The review was carried out by the Executive Directors and Chairman in accordance with the Directors' remuneration policy and accordingly took into account the increased responsibility and time commitments of the roles of the Non-Executive Directors and Board committee chairmen given the growth of the Group, the improved financial position and trading performance of the business, and the appropriate benchmark data (obtained from third party providers) for comparable roles for companies of equivalent size and complexity to the Company.

The Chairman's fees were not subject to review in 2014 as it was agreed on appointment that the Chairman's fee would not be reviewed by the Remuneration Committee for a minimum of three years from appointment.

Other Remuneration (audited)

In addition to the fees, the Non-Executive Directors are entitled to the staff product discount in line with the Group's employees.

The Chairman received the Chairman's Share Matching Award on becoming Chairman in May 2013. 

Robert Gorrie provides consultancy services to the Group and chairs the meetings of the Ocado National Council, in addition to his role as a Non-Executive Director. He provides these services through Robert Gorrie Limited (of which he is the sole shareholder) and is paid a per diem fee for these services. These fees are included in the related party transactions with key management personnel in Note 5.4 to the consolidated financial statements.

The Company has obtained a written confirmation from each Non-Executive Director that they have not received any other items in the nature of remuneration from the Group, other than those already referred to in this report.

Recovery of sums paid (audited)

No sums paid or payable to the Non-Executive Directors were sought to be recovered by the Group.

Other remuneration disclosures (audited)

Executive Directors' service contracts

Each of the Executive Directors has a service contract with the Group. The terms of these contracts are consistent with the Directors' remuneration policy, though the contracts provide for payment in lieu of notice of one times basic salary only (and do not include other fixed elements of pay, which are permitted by the policy). The service contracts for each of the Executive Directors are continuous until terminated by either party (on 12 months' notice if terminated by the Company, or six months' notice if terminated by the Director).

Non-Executive Directors' letters of appointment

The Chairman and the Non-Executive Directors do not have service contracts and were appointed by letter of appointment for an initial period of three years, subject to annual reappointment at the annual general meeting. There are no provisions in the letters of appointment for payment for early termination. A Non-Executive Director appointment may be terminated on one month's notice, except in the case of the Chairman, which requires six months' notice. A copy of a pro forma Non-Executive Director letter of appointment is available on the Company's corporate website. Copies of the letters of appointment and the service contracts of the Directors are available for inspection at the Company's registered office.

director retirement arrangements

Jason Gissing, a founder of the business and Commercial Director, retired from the Board at the Company's annual general meeting on 7 May 2014. The Remuneration Committee determined, in accordance with the Directors' remuneration policy, that the arrangements (set out in the table below) should apply in relation to Jason Gissing's remuneration on retirement.

Element of remunerationTreatment
Remuneration paymentsAll outstanding salary and pension entitlements were paid up to 7 May 2014 in accordance with Jason Gissing's terms of employment.

There were no payments, pension contributions, provision of benefits or pay in lieu of benefits made after the date of Jason Gissing's retirement. There is no intention to make any such payments in the future.

The staff product discount has been retained by Jason Gissing post retirement date.
Payment for loss of officeNo payment for loss of office or other remuneration payment was made or is to be made.
AIPPayment of £306,900 was made in March 2014 in respect of the 2013 AIP. This bonus payment was accrued in respect of the 52 weeks ended 1 December 2013 and was paid at the discretion of the Remuneration Committee provided pursuant to the terms of 2013 AIP rules.

Jason Gissing was not a participant in the 2014 AIP.
LTIPThe award of 533,536 conditional shares made to Jason Gissing under the 2013 LTIP had not vested prior to retirement and consequently were forfeited. Jason Gissing had no other LTIP awards.
JSOSAll four tranches of JSOS share interests had vested prior to retirement and so were retained by Jason Gissing after his retirement (subject to the rules of the scheme including with respect to leavers).
ESOSThe 200,000 ESOS options held by Jason Gissing had vested and were exercised by Jason Gissing in April 2014. Jason Gissing had no other ESOS options outstanding.
SharesaveThe 9,846 options held by Jason Gissing under the Sharesave had not vested and so lapsed on his retirement. Accumulated savings made under the Sharesave were returned to Jason Gissing as required by the Sharesave scheme rules. No other options or amounts were held by Jason Gissing under the Sharesave.

Payments to past Directors

The Company does not have any arrangements for payments to any former Directors of the Company, including Jason Gissing, who retired during the period.

Payments outside the Directors' remuneration policy

The Company has not made any payments to a Director outside of the Directors' remuneration policy.

External remuneration for Executive Directors

As at the date of this Annual Report:

  • In addition to his role as Executive Director of the Company, Neill Abrams is an alternate non-executive director of Mr Price Group Limited, listed on the Johannesburg Stock Exchange. The role does not involve any remuneration paid or payable to Neill.
  • In addition to his role as Executive Director of the Company, Duncan Tatton-Brown was, up until May 2014, an independent non-executive director of Rentokil Initial plc, listed on the London Stock Exchange. For his services to Rentokil Initial plc Duncan was paid a fee of £70,000 per annum. On 1 May 2014 Duncan became an independent non-executive director, senior independent director and audit committee chairman of Zoopla Property Group plc, listed on the London Stock Exchange. For his services to Zoopla Property Group plc Duncan is paid a fee of £50,000 per annum.

Director shareholdings (audited)

The beneficial interests in the Company's shares of Directors serving at the end of the period, and their connected persons, as shareholders and as discretionary beneficiaries under trusts, were:

Ordinary shares of 2 pence
each held at 30 November 2014
Ordinary shares of 2 pence each
held at 1 December 2013
DirectorDirect holdingIndirect holdingDirect holdingIndirect holding
Tim Steiner14,404,14514,291,31414,396,40014,291,200
Lord Rose750,000750,000
Robert Gorrie415,660690,660
Neill Abrams560,0541,313,8531557,0541,308,900
Douglas McCallum10,00068,000
Duncan Tatton-Brown97,86560,163250,00060,000
Ruth Anderson80,00055,000
David Grigson35,00015,000
Alex Mahon11,0992,000
Jörn Rausing69,015,60269,015,602
Mark Richardson208
Former Directors
Jason Gissing39,857,6005,276,2009,657,6008,326,200
  1. This includes a holding by Caryn Abrams (wife of Neill Abrams) who holds 79,745 (2013: 75,000) ordinary shares, and is a discretionary beneficiary of a trust holding 133,100 (2013: 133,100) ordinary shares.
  2. This includes a holding by Kate Tatton-Brown (wife of Duncan Tatton-Brown) who holds 60,000 (2013: 60,000) ordinary shares. The 2013 annual report erroneously showed Duncan Tatton-Brown as holding 60,000 shares and Kate Tatton-Brown as holding 50,000 shares, rather than as correctly stated in the table above, in respect of 2013.
  3. This shows Jason Gissing's interests in the Company's shares as at the date of his retirement, being 7 May 2014.

Additional disclosure:

  • There have been no changes in the Directors' interests in the shares issued or options granted by the Company and its subsidiaries between the end of the period and the date of this Annual Report, except shares held pursuant to the SIP. There have been no changes in the Directors' beneficial interests in trusts holding ordinary shares of the Company.
  • No Director had an interest in any of the Company's subsidiaries at the beginning or end of the period.
  • On 17 May 2013, in respect of various contracts for the transfer of shares (as described on pages 235 and 238 of the Prospectus), Tim Steiner, Jason Gissing and Neill Abrams delayed the date on which completion under the contracts for transfer would take place to 30 June 2016, or such later date as the parties may agree.
  • Where applicable, the above indirect holdings include partnership shares held under the SIP, which are held in trust.

Director shareholding requirement (audited)

The table below shows current compliance with the Director shareholding requirements in the Directors' remuneration policy as at the date of this Annual Report.

DirectorMinimum shareholding
requirement (% of
base salary or fee)
Complied with
shareholding
requirement?
Basis for compliance
Tim Steiner150YesIndirect and direct shareholdings
Duncan Tatton-Brown100YesIndirect and direct shareholdings
Neill Abrams100YesIndirect and direct shareholdings
Mark Richardson100YesJSOS and SIP interests
Lord Rose100YesDirect shareholdings
Robert Gorrie100YesDirect shareholdings
Douglas McCallum100NoDirect shareholdings
Ruth Anderson100YesDirect shareholdings
David Grigson100YesDirect shareholdings
Alex Mahon100YesDirect shareholdings
Jörn Rausing100YesIndirect shareholdings

The assessment for compliance is based on the current annualised salary or fee (as set out in the total remuneration tables) which applied on 20 January 2015 (being the last practicable date prior to the publication of this Annual Report) and the higher of the original purchase price(s) or the current market price (being 403.4 pence per share on 20 January 2015), of the relevant shareholdings. Mark Richardson satisfies the requirement through his holding of vested JSOS share interests in the EBT, based on the share price on 20 January 2015. Douglas McCallum sold shares during the period, on 25 February 2014. At the time of the share sale Douglas McCallum remained compliant with the Director shareholding requirement in the Directors' remuneration policy. But owing to a subsequent decline in the Company share price and an increase in his annual base fee in April 2014 (the result of which is to increase the minimum shareholding), his current shareholding falls below the minimum Director shareholding requirement as at 20 January 2015. Douglas McCallum expects to purchase additional Company shares in due course which would be intended to satisfy the Director shareholding requirement.

Director interests in share schemes (audited)

JSOS (audited)

At the end of the period the Executive Directors' interests in ordinary shares in the Company pursuant to the Group's JSOS were as follows:

DirectorDate of issue30 November
2014
1 December
2013
Hurdle price
(£)
Exercise period
Tim Steiner03/02/102,513,1002,513,1001.7301/01/11 – 01/01/19
03/02/102,513,1002,513,1001.9101/01/12 – 01/01/19
03/02/102,513,1002,513,1002.0801/01/13 – 01/01/19
03/02/102,513,0002,513,0002.2801/01/14 – 01/01/19
Neill Abrams03/02/101,017,2001,017,2001.7301/01/11 – 01/01/19
03/02/101,017,2001,017,2001.9101/01/12 – 01/01/19
03/02/101,017,2001,017,2002.0801/01/13 – 01/01/19
03/02/101,017,1001,017,1002.2801/01/14 – 01/01/19
Duncan Tatton-Brown01/11/12365,000365,0001.7001/01/13 – 01/01/19
01/11/121,100,0001,100,0001.8001/01/14 – 01/01/19
Mark Richardson03/02/10223,300223,3001.7301/01/11 – 01/01/19
03/02/10223,300223,3001.9101/01/12 – 01/01/19
03/02/10223,300223,3002.0801/01/13 – 01/01/19
03/02/10223,200223,2002.2801/01/14 – 01/01/19
30/11/12711,975711,9751.7001/01/13 – 01/01/19
30/11/12776,700776,7001.8001/01/14 – 01/01/19
Former Directors
Jason Gissing03/02/101,675,4001,675,4001.7301/01/11 – 01/01/19
03/02/101,675,4001,675,4001.9101/01/12 – 01/01/19
03/02/101,675,4001,675,4002.0801/01/13 – 01/01/19
03/02/101,675,3001,675,3002.2801/01/14 – 01/01/19

Granted: No awards of JSOS shares interests were made during the period. The Remuneration Committee does not, as at the date of this Annual Report, have any intention of making a further award of share interests under the JSOS scheme to the Executive Directors. Most share interests held by the Executive Directors under the JSOS were granted prior to the Company's listing in 2010.

Vested: Details of JSOS interests which vested during the period can be found in the total remuneration table.

Sold: No JSOS share interests have been sold by an Executive Director since inception of the scheme.

LTIP (audited)

At the end of the period the Executive Directors' total LTIP awards were as follows:

DirectorType of interestDate of grantBasis on
which award
is made (% of
salary)
Number of
shares
Face value (£)End of
performance
period
Tim SteinerConditional shares23/07/134001,371,9511,800,00029/11/15
Conditional shares05/02/14200174,588900,00003/12/16
Mark RichardsonConditional shares23/07/13280469,512616,00029/11/15
Conditional shares05/02/1415096,023495,00003/12/16
Neill AbramsConditional shares23/07/13200304,878400,00029/11/15
Conditional shares05/02/1412064,016330,00003/12/16
Duncan Tatton-BrownConditional shares23/07/13300685,975900,00029/11/15
Conditional shares05/02/1415096,023495,00003/12/16
  • In its first year of operation, LTIP awards were made in respect of both 2012 and 2013.
  • 533,536 conditional shares awarded under the LTIP were forfeited by Jason Gissing on his retirement on 7 May 2014.

Granted: LTIP awards were made in respect of 2014 of up to 150% of annual base salary and in the case of the Chief Executive Officer, an LTIP award with a total market value of 200% of annual base salary. Such awards were made in accordance with the Directors' remuneration policy. The number of shares subject of an LTIP award was determined based on a price of 515.5 pence per share, being the volume weighted average price of the Company's ordinary shares on the three trading days prior to 5 February 2014 (being the LTIP grant date).

The 2014 LTIP awards are conditional awards under the rules of the LTIP, which are a right to receive free shares in the Company, subject to the achievement of two equally weighted performance conditions over a three-year performance period, which are the levels of earnings per share and Group Revenue. These measures replace the EBIT measure that was used for the 2013 awards and were selected following feedback from the shareholder consultation carried out in March 2013.

The Remuneration Committee believes that these two measures provide a more balanced basis for judging performance and earnings per share in particular, better reflecting shareholder interests. The rationale for, and basis of measurement of, the performance metrics was as follows:

Performance targetCommercial rationaleBasis of measurement
Group Revenue (50%)Rewards top line sales growth in line with the Group's strategy; is the primary management measure.Group Revenue for the Group for the 2015/2016 financial year.
Earnings per share (50%)Rewards the creation of financial returns to shareholders.Diluted and adjusted earnings per share for 2015/2016 financial year.

The Remuneration Committee has agreed "threshold" and "maximum" conditions that must be achieved. No LTIP award will vest unless a "threshold" level of the performance condition has been achieved. At "threshold" performance, 25% of an LTIP award will vest and at "maximum" performance, 100% of an LTIP award will vest. Full vesting will only occur where exceptional performance levels have been achieved and significant shareholder value created.

The actual performance conditions are not disclosed due to their commercial sensitivity on the basis that if disclosed it would be likely to damage the Company's commercial interests. The Company will disclose the extent to which the performance conditions are met after the end of the performance period. The Remuneration Committee is conscious of the Regulations and the new 2014 Code requirement for transparent performance targets so will consider at a later date whether it remains appropriate not to disclose such targets in future.

The performance conditions for the 2014 LTIP awards will be tested in relation to the financial year ending in 2016 to determine what percentage of the LTIP awards has been achieved, and will vest during 2017 to the extent that the performance condition has been achieved.

Vested: No LTIP awards vested during the period.

Sold: As no awards under the LTIP have vested, no shares held under the LTIP have been sold by an Executive Director.

Lapsed: The award of 533,536 conditional shares made to Jason Gissing under the 2013 award had not vested prior to Jason's retirement and consequently lapsed.

GIP (audited)

At the end of the period the Executive Directors' total GIP awards were as follows:

DirectorType of interestDate of
grant
Number
of share
options
Face value
(£)
End of
performance
period
Exercise period
Tim SteinerOption with nil exercise price08/05/144,000,00012,744,00008/05/1908/05/19 – 31/05/24
Mark RichardsonOption with nil exercise price08/05/141,000,0003,186,00008/05/1908/05/19 – 31/05/24
Duncan Tatton-BrownOption with nil exercise price08/05/141,000,0003,186,00008/05/1908/05/19 – 31/05/24

Granted: One-off awards under the GIP were made to three of the Executive Directors during the period, as approved by shareholders at the 2014 annual general meeting and made in accordance with the Directors' remuneration policy.

The GIP awards are options over shares in the Company with a nil exercise price. The face value of the options which are the subject of a GIP award was determined based on a price of 318.60 pence per share, being the closing price of the Company's ordinary shares on 8 May 2014 (being the GIP award grant date).

A condition of vesting is that each participant holds, and retains throughout the performance period, shares in the Company. The Chief Executive Officer is required to hold shares equivalent, at the date of the award, to the value of his annual salary. All other participants are required to hold shares equivalent, at the date of the award, to the value of half of their annual salary.

The GIP award is subject to the achievement of a single performance condition to be satisfied over five years commencing on the date of grant of the awards. The share price of the Company is the sole performance measure, and will be assessed relative to the growth of the FTSE 100 Share Index over that period assessed using a three-month averaging period. The performance schedule is set out in the table below.

Performance targetPercentage of award vesting (%)
Growth of less than the FTSE 100 Share Index +5% p.a.0
Growth in the FTSE 100 Share Index +5% p.a.25
Growth in the FTSE 100 Share Index +10% p.a.50
Growth in the FTSE 100 Share Index +15% p.a.75
Growth in the FTSE 100 Share Index +20% p.a. (or more)100

The Remuneration Committee considered that the GIP would aim to incentivise and reward truly exceptional levels of performance over a five-year period. The potential for greater rewards for the Executive Directors was only if shareholders benefited from significant outperformance of the FTSE 100 sustained over a five-year period.

GIP awards will normally become exercisable following the end of the performance period to the extent that any applicable performance and other conditions have been satisfied and to the extent permitted under any operation of malus or clawback provisions. GIP awards will normally remain exercisable until 31 May 2024.

Vested: No awards under the GIP vested during the period. The awards are expected to vest in May 2019 (if and to the extent that the vesting criteria are met).

Sold: As no awards under the GIP have vested, no shares held under the GIP have been sold by an Executive Director.

ESOS (audited)

The Directors have, as at period end, the following options over ordinary shares in the Company which they were awarded (without payment) under the Group's ESOS:

DirectorDate of grant30 November
2014
Exercise price
(£)
1 December
2013
Exercise price
(£)
Exercise period
Tim Steiner16/05/05200,0001.15200,0001.1516/05/08 – 15/05/15
Neill Abrams16/05/05100,0001.15100,0001.1516/05/08 – 15/05/15
Mark Richardson31/05/0970,0001.2070,0001.2031/05/12 – 30/05/19
Duncan Tatton-Brown12/08/139,9233.029,9233.0208/07/16 – 07/07/23
Former Directors
Jason Gissing16/05/051.15200,0001.1516/05/08 – 15/05/15

Granted: The Remuneration Committee does not, as at the date of this Annual Report, have any intention of making a further award of options under the ESOS scheme to the existing Executive Directors. Existing options held by the Executive Directors under the ESOS were granted prior to the Company's listing in 2010 (except those granted in 2013 to new appointee Director, Duncan Tatton-Brown).

Vested: No awards under the ESOS vested during the period.

Exercised: Jason Gissing exercised 200,000 ESOS options with an exercise price of 115.00 pence per option. The gain made by Jason Gissing on the exercise of share options was £470,100.

DirectorNumber of
options
Exercise price
(£)
Date of
exercise
Gain (£)
Jason Gissing200,0001.1526/03/2014470,100

During the period, Tim Steiner and Neill Abrams each signed an irrevocable instruction electing to exercise, on 13 May 2015, any remaining options held under the ESOS which were granted to them in May 2005, provided that the share price is higher than the exercise price on that date. They also elected to subsequently sell a sufficient number of shares to meet the cost of the exercise and any taxes and other related costs, and retain the balance of the shares outstanding from the exercise of the option and subsequent sale. The options are due to lapse on 16 May 2015. The instructions do not prevent the earlier exercise of the options. As at 20 January 2015, being the last practicable date prior to the publication of this Annual Report, the options had not been exercised earlier.

DirectorDate of grantNumber of
options
Exercise price
(£)
Date to be exercisedMinimum
share price for
sale
Date irrevocable
signed
Tim Steiner16/05/05200,0001.1513/05/20151.1628/11/2014
Neill Abrams16/05/05100,0001.1513/05/20151.1628/11/2014

SIP (audited)

At the end of the period, interests in shares held by the Executive Directors under the SIP were as follows:

DirectorPartnership
shares
acquired in
the year
Matching
shares
awarded in
the year
Free shares
awarded in
the year
Total face value of free
shares and matching
shares awarded in the
year2
Total SIP
shares held
30/11/2014
SIP shares
that became
unrestricted1
in the period
Total
unrestricted
SIP shares
held
30/11/2014
Tim Steiner114161,161£3,6401,291
Duncan Tatton-Brown163231,097£3,4621,283
Mark Richardson208291,097£3,4841,097
Neill Abrams20829919£2,9321,156
  1. Unrestricted shares (which are included in the total shares held as at 30 November 2014) are those which have been held beyond the three-year forfeiture period.
  2. The value of the share awards made under the SIP is based on the middle market quotation of a share on the trading day immediately preceding the date of grant.

Granted: The SIP was implemented by the Company during the period and made available to all employees. The SIP allows for the grant of a number of different forms of awards.

An award of free shares was made to the Executive Directors in September 2014 under the terms of the SIP and the Directors' remuneration policy. "Free shares" are where up to £3,600 of ordinary shares may be allocated to any employee in any year. Free shares are allocated to employees equally on the basis of salary, as permitted by the relevant legislation.

An award of matching shares was made to those Executive Directors who purchased partnership shares (using deductions taken from their gross basic pay) under the terms of the SIP and in accordance with the Directors' remuneration policy. "Partnership shares" are where employees are invited to purchase ordinary shares directly from their earnings. The market value of such partnership shares which an employee can purchase in any tax year currently may not exceed £1,800 (or 10% of the relevant employee's remuneration, if lower). "Matching shares" are additional free shares which may be allocated to an employee who purchases partnership shares. The rules of the SIP reflect current UK legislation and allow for a maximum match of two to one. The matching ratio adopted by the Company for the SIP during the period was a ratio of one matching share for every seven partnership shares purchased, considerably lower than the maximum permitted ratio.

There are no performance conditions attached to awards made under the SIP, although free and matching shares are subject to a three-year forfeiture period, which is described in more detail on page 104. Partnership shares are purchased by the employees and therefore forfeiture does not apply. Free and matching shares awarded under the SIP are subject to a holding period of no less than three years but no more than five years. Partnership shares purchased by employees will not be subject to a holding period.

The Executive Directors continued their membership in the SIP after the end of the period and were therefore awarded further matching shares pursuant to the SIP rules. Since the end of the period and 20 January 2015, being the last practicable date prior to the publication of this Annual Report, the Executive Directors acquired or were awarded further shares under the SIP as set out in the table below.

DirectorPartnership
shares
acquired
Matching
shares
awarded
Free shares
awarded
Face value of
free shares
and matching
shares
Total SIP
shares held
20/01/2015
Tim Steiner7811£41.781,380
Duncan Tatton-Brown7911£41.781,373
Mark Richardson7811£41.781,423
Neill Abrams7811£41.781,245

Vested: No awards under the SIP vested during the period.

Sold: No shares held under the SIP have been sold by an Executive Director.

Sharesave Scheme (audited)

At the end of the period the Executive Directors' option interests in the Sharesave scheme were as follows:

DirectorDate of issue30 November
2014
Exercise price
(£)
1 December
2013
Exercise price
(£)
Exercise period
Tim Steiner01/10/132,9873.012,9873.0101/12/16 – 31/05/17
01/10/101.167,7451.1601/12/13 – 01/06/14
Neill Abrams01/10/132,9873.012,9873.0101/12/16 – 31/05/17
01/10/101.167,7451.1601/12/13 – 01/06/14
Duncan Tatton-Brown01/10/132,9873.012,9873.0101/12/16 – 31/05/17
Former Directors
Jason Gissing19/03/120.919,8460.9101/05/15 – 01/11/15

Granted: No awards under the Sharesave were granted during the period.

Maturity: No awards matured under the Sharesave scheme during the period.

Exercised: Tim Steiner and Neill Abrams both exercised their options under the Sharesave scheme which matured on 1 December 2013, as set out in the table below. The options were originally issued at an option price which was discounted by 10% from the applicable market value of the Company's shares at the date of grant. Like all HMRC approved Save As You Earn schemes, options are issued on the same terms to all employees and therefore are not issued subject to performance conditions as they are not provided for under the scheme rules.

DirectorNumber of
options
Exercise
price (£)
Date of exerciseShare price
on date of
exercise (£)
Value at date
of exercise (£)
Tim Steiner7,7451.1626/03/20144.49234,791
Neill Abrams7,7451.1626/03/20144.49234,791

Neither Tim Steiner nor Neill Abrams sold shares as a result of such option exercises.

No other Executive Directors exercised Sharesave options during the period.

Lapsed: Jason Gissing retired from the Company in May 2014 and consequently the 9,846 Sharesave options held by him lapsed prior to their maturity date of 1 May 2015.

Chairman's Share Matching Award (audited)

At the end of the period, the Chairman's Share Matching Award was as follows:

DirectorType of interestDate of grantNumber of
shares
Face value
(£)
1
End of vesting
period
Lord RoseRestricted shares17 May 2013452,284400,00010/05/2016
  1. The face value of the award has been calculated using a price of 88.44 pence per share, being the volume weighted average share price of the Company's ordinary shares on the three trading days prior to 22 January 2013 (the date of the announcement of the Chairman's appointment). The basis for the award was to match up to £400,000 of Company shares where such shares were acquired by the Chairman.
  2. The award is not subject to any performance conditions other than continued service.

Share price and other option information

The closing market price of the Company's shares as at 28 November 2014, being the last trading day in the period ended 30 November 2014, was 325.00 pence per ordinary share (2013: 409.00 pence) and the share price range applicable during the period was 220.60 pence to 617.00 pence per ordinary share.

No other Directors have options over shares of the Company outside one of the Company's recognised share schemes.

Dilution

Dilution limits

Awards granted under the Company's Sharesave, ESOS, 2014 ESOS and SIP schemes are met by the issue of new shares when the options are exercised or shares granted. The allocation of awards under the JSOS were met by the subscription for new shares by the participant and the EBT. Awards granted under the LTIP and GIP may be met by the issue of new shares, the transfer of shares from treasury, or the purchase or transfer of existing shares by the EBT. The Chairman's Share Matching Award was met by the new issue of shares on the date of grant. The share deferral provisions in the AIP have not been approved by shareholders and accordingly awards will be satisfied only by the purchase of existing shares by the EBT until such shareholder approval is obtained.

There are limits on the number of shares that may be allocated under the Company's share plans. These dilution limits were recommended by the Remuneration Committee and incorporated into the rules of the various share schemes, which have been approved by the Company's shareholders.

The dilution limits restrict the commitment to issue new ordinary shares or reissue treasury shares under all share schemes of the Group to 10% of the nominal amount of the Company's issued share capital and under the JSOS, the LTIP and the GIP (and any other selective share scheme) to 5% of the nominal amount of the issued share capital of the Company in any rolling ten year period. These limits are consistent with the guidelines of institutional shareholders.

The JSOS rules have additional overriding limits on the number of shares that may be allocated under the JSOS. Up to 7.5% of the Company's ordinary issued share capital may be held under the JSOS.

Impact on dilution

The Company monitors the number of shares issued under these schemes and their impact on dilution. The charts below show the Company's commitment, as at the last practical date prior to the publication date of this Annual Report, to issue new shares in respect of its share schemes assuming all performance conditions are met, all award holders remain in employment to the vesting date and all awards are settled in newly issued shares. For these purposes, no account is taken of ordinary shares allocated prior to the Company's Admission.

All Share Plans

All Share Plans

Discretionary Share Plans

Discretionary Share Plans

Review of changes in remuneration and Company performance

This part of the report provides some context for the Directors' remuneration arrangements including information concerning the Company's performance, shareholder returns and the Group's total expenditure on employee pay.

Chief Executive Officer historical remuneration

The table below summarises in respect of the Chief Executive Officer the single figure of total remuneration, the AIP or bonus plan payment as a percentage of maximum opportunity, and the long-term incentives as a percentage of maximum opportunity for the current period and the previous four financial years.

YearChief
Executive
Officer
total
remuneration
(excluding JSOS)
(£'000)
Chief
Executive
Officer
total
remuneration
(including JSOS)
(£'000)
AIP or bonus
payment as
a percentage
of target
achievement
(%)
Value of
AIP or bonus
payment
(£'000)
Long-term
Incentives as
a percentage
of maximum
opportunity
(%)
20149446,44756385100
20131,0111,01193.85280
201248348329.71040
201137998700100
2010599599n/a2200
  • The Chief Executive Officer total remuneration figures prior to the 2013 period represent the previously presented audited information with necessary adjustments for amounts required to be included in the single total figure of remuneration (such as pension amounts).
  • From 2010, the Company had the JSOS as the main form of long-term incentive plan. For the 2012 and 2013 financial years, the JSOS interests did not have any value at the vesting date. In 2014, the final tranche of JSOS shares vested in the period (the value of such remuneration is noted in the single total figure of remuneration table).In 2011, the first tranche of JSOS shares vested in that period. The LTIP was implemented in 2013 but the first award has a performance period ending in 2015 and a vesting date in 2016. The GIP and SIP were both implemented in 2014, but have vesting dates in 2019 and 2017 respectively.
  • For an explanation of JSOS and the theoretical remuneration represented in the Chief Executive Officer's total remuneration, see Explanation of JSOS.

Chief Executive Officer percentage change versus representative employee group

To put the Directors' remuneration into context, the table below sets out the change in salary, benefits, and bonus of the Chief Executive Officer and of all of the Group's UK employees from the preceding period to the current period.

Chief
Executive
Officer
All UK
employees
Percentage change in salary from 2013 to 201422.2%3.58%2
Percentage change in taxable benefits from 2013 to 2014327.4%27.3%
Percentage change in AIP earned from 2013 to 2014(27)%0%1
  1. Most of the Group's employees are not entitled to earn an annual bonus payment as part of their remuneration.
  2. The change in salary data for the Group's UK employees is on a per capita basis.
  3. The change in benefits is due to an increase in the cost of private medical insurance by this proportion.

Relative importance of spend on pay

The following table shows the Company's profit/(loss), and total Group-wide expenditure on pay for all employees for the period and last financial year. The Company has not paid a dividend or carried out a share buyback in the current year or previous year. The information shown in this chart is:

  • Profit/(loss) – Group profit/(loss) before tax taken from the Consolidated Income Statement.
  • Total gross employee pay – total gross employment costs for the Group (including pension, variable pay, share-based payments and social security) as stated in Note 2.5.
30 November
2014
(£m)
1 December
2013
(£m)
Profit/(loss) before tax7.2(12.5)
Total gross employee pay190.5156.7

Total Shareholder Return

The following graph shows the total shareholder return ("TSR") performance of an investment of £100 in the Company's shares from its Admission to the end of the period compared with an equivalent investment in the FTSE 250 Index (which was chosen because it represents a broad equity market index of which the Company is a constituent). The TSR was calculated by reference to the movements in share price. The Company has not paid a dividend since its Admission so the Company's TSR does not factor in dividends reinvested in shares.

Total Shareholder Return