This part of the Directors' Remuneration Report sets out implementation of the Directors' Remuneration Policy for 2016.
Summary of Changes for Executive Directors
This table briefly summarises the proposals for the Directors' remuneration arrangements for 2016 when compared to the arrangements for the period.
|Base Salary and Benefits||Pension||AIP||Long-Term Incentives||All-Employee Schemes|
|Base salary will be subject to annual review.||No changes proposed outside of the policy.||No change to the maximum opportunity, measures or structure of 2016 AIP.||No change to the maximum opportunity or measures for 2016 LTIP awards.||New invitation to participate in Sharesave.|
Ongoing participation in the SIP.
Base Salary and Benefits
The Remuneration Committee expects to finalise its annual review of the Executive Directors' base salaries later in 2016, in line with the timing of pay reviews for all of the Group's employees.
The benefits in kind offered to the Executive Directors are expected to remain unchanged.
Pension contributions for the Executive Directors are expected to remain in line with the Directors' Remuneration Policy.
The Remuneration Committee approved the implementation of an AIP for the Executive Directors applicable to the 2015/2016 financial year. This plan broadly reflects the framework of the 2015 AIP and is line with the Directors' Remuneration Policy.
The bonus potential for the Executive Directors is 100% and for the Chief Executive Officer is 125% of base salary for "maximum" performance, which is the same as the 2015 AIP.
The weighting of objectives in the 2016 AIP is the same as the 2015 plan, with 35% for a Gross Sales target, 35% for a Group EBITDA target and 30% for performance measured against role-specific objectives. The Gross Sales target relates to the Group's retail sales and does not include any income or benefits from the Morrisons operation. The rationale for setting these performance measures has not changed from 2015. For an explanation, see the Annual Report on Remuneration.
The actual performance targets are not disclosed due to their commercial sensitivity on the basis that if disclosed it would likely damage the Company's commercial interests. The Company will disclose achievement against the targets after the end of the performance period, provided such disclosure is not considered commercially sensitive at the time.
2016 LTIP Awards
The Remuneration Committee approved the making of awards under the LTIP for the Executive Directors for the 2015/2016 financial year. The amount of the LTIP awards is based on a percentage of salary, expected to be broadly in line with the percentages agreed for the 2015 LTIP awards and in line with the Directors' Remuneration Policy.
As with the 2015 LTIP awards, the Remuneration Committee proposes to make 2016 LTIP award grants subject to earnings before tax and Revenue performance conditions in respect of the retail business, as well as two measurable financial targets linked to the economic efficiency of the new proprietary infrastructure solution. Each performance condition will have a 25% weighting.
No LTIP award will vest unless a "threshold" level of performance condition has been achieved. At "threshold" performance for a performance target, 6.25% of an LTIP award will vest and at "maximum" performance, 25% of an LTIP award will vest. Full vesting will occur where exceptional performance levels have been achieved and significant shareholder value created.
The actual performance targets are not disclosed due to their commercial sensitivity on the basis that if disclosed it would likely damage the Company's commercial interests. The Company will disclose achievement against targets after the end of the performance period, provided such disclosure is not considered commercially sensitive at the time.
The Executive Directors are expected to continue their participation in the SIP scheme in 2016.
The Executive Directors will be invited to participate in the next offer of Sharesave, expected to be made in 2016.
Changes for Non-Executive Directors and Chairman
The review of remuneration of the Non-Executive Directors and the Chairman will be finalised in line with the timing of pay reviews for all of the Group's employees.
Shareholder Approval and Votes at AGM
The 2015 Directors' Remuneration Report will be subject to a shareholder vote at the AGM. Entitlement of a Director to remuneration is not made conditional on this resolution being passed.
The Remuneration Committee Chairman is committed to ongoing shareholder dialogue on Directors' remuneration and takes an active interest in voting outcomes. In the event of a substantial vote against a resolution in relation to the Directors' Remuneration Report, the Directors' Remuneration Policy or a new share scheme, the Company would seek to understand the reasons for any such vote and would detail in the announcement of the results of voting any actions it intends to take to understand the reasons behind the vote result and also note this in the next annual report. The Remuneration Committee considers that a vote against that exceeds 20% should be considered significant and requires explanation.
The Directors' Remuneration Report received significant shareholder votes against it (19.39%) at the annual general meeting in May 2015 (see the table on the opposite page for the voting outcomes for the resolutions regarding remuneration at the previous annual general meeting). The Chairman had consulted with many of the Company's larger shareholders on the Directors' Remuneration Policy and other key remuneration changes prior to the 2015 annual general meeting. Accordingly, the Company was aware of some shareholders' ongoing primary concerns with the Company's remuneration arrangements, including transparency of the AIP and LTIP performance conditions. The Remuneration Committee reviewed its policy concerning target disclosure and agreed to provide additional target disclosure. The Remuneration Committee agreed to a new policy, namely that the Company provide retrospective disclosure of actual targets for Executive Director incentive schemes, provided that such disclosure did not comprise commercially sensitive targets. The Company Secretary sought feedback from a number of larger shareholders who had voted against the Directors' Remuneration Report resolution at the annual general meeting in May 2015, on the proposal to provide greater share scheme target transparency. The additional target disclosure is set out in this Annual Report.
The Remuneration Committee will continue to seek the views of shareholders on any significant changes to the Directors' remuneration arrangements or any proposed exercises of discretion in relation thereto.
The table below sets out the actual voting in respect of resolutions regarding remuneration at the three previous annual general meetings.
|Resolution text||Votes for||% For||Votes Against||% Against||Total Votes||Votes Withheld|
|Approve the 2014 Directors' Remuneration Report||377,215,710||80.61||90,709,506||19.39||476,384,487||8,459,271|
|Approve the 2013 Directors' Remuneration Report||399,764,910||80.04||99,701,426||19.96||499,693,161||226,825|
|Approve the Ocado Growth Incentive Plan||365,970,183||73.24||133,721,017||26.76||499,693,271||2,071|
|Approve the 2014 ESOS||481,882,997||97.10||14,373,969||2.90||499,692,971||3,436,005|
|Approve the 2012 Directors' Remuneration Report||349,776,432||76.54||107,184,194||23.46||461,418,179||4,457,553|
|Approve the Ocado Long Term Incentive Plan||360,235,983||86.40||56,698,838||13.60||461,418,179||44,483,358|
|Approve the Chairman's Share Matching Award||384,380,959||83.30||77,037,220||16.70||461,418,179||0|
Basis of Preparation and Audit Review
This report is a Directors' Remuneration Report for the 52 weeks ended 29 November 2015, prepared for the purposes of satisfying section 420(1) and section 421(2A) of the Companies Act. It has been drawn up in accordance with the Companies Act and the Code, the Regulations, the Listing Rules and the Disclosure and Transparency Rules.
In accordance with section 497 of the Companies Act and the Regulations, certain parts of this Directors' Remuneration Report (where indicated) have been audited by the Company's auditors, PricewaterhouseCoopers LLP.
A copy of this Directors' Remuneration Report will be available on the Company's corporate website.
This Directors' Remuneration Report is approved by the Board and signed on its behalf by
Chairman of the Remuneration CommitteeOcado
2 February 2016