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.

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).

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.

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.

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.

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.

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.

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.