Remuneration report

Tony Illsley


Statement from the Chairman of the Remuneration Committee

Dear shareholder

On behalf of the Board, I am pleased to introduce the Directors’ Remuneration report for the year ended 31 March 2015, which sets out details of the Remuneration policy, describes how the policy is implemented and discloses amounts paid for the year under review.

This report includes an Annual report on remuneration which describes how the policy was implemented for the year ended 31 March 2015 and how we intend to implement the policy in 2015/16. The Annual report on remuneration together with this annual statement will be put to an advisory shareholder vote at the AGM on 31 July 2015. In addition, to aid clarity, we have included an abridged version of our policy which received binding shareholder approval at the 2014 AGM.

The Committee has continued to review the Remuneration policy in place to ensure that this incentivises the right behaviour and objectives in the Directors, aligns with the expectations of our shareholders and promotes the long-term success of the Company, and remains satisfied that it continues to be fit for purpose.

Structure of pay

It is the Committee’s aim to reward fairly for good performance, with the opportunity for greater rewards for extraordinary performance, whilst ensuring that we do not provide additional reward for performance that is below expectations.

The remuneration of the Executive Directors is made up of base salary, a benefits package and pension provision plus, subject to performance conditions allied to the business strategy, the opportunity to receive cash payments under an annual bonus plan and shares under a Long-Term Incentive Plan (LTIP).

In looking at performance we consider both the current performance of the Group and the longer-term sustainability of the business. This is reflected through operation of the annual bonus linked to the profit performance of the Group in the year and the LTIP that rewards Total Shareholder Return (TSR) performance relative to a comparator group over a three year period. We ensure that the Remuneration Committee has final discretion over the vesting of LTIP awards so that even when vesting would be triggered by the TSR performance measure, the Committee must decide whether the three year performance is indicative of the likely continued success of the business into the future.

Incentive pay is subject to clawback provisions and share ownership guidelines apply to ensure that there is further alignment of interests between Executive Directors and shareholders.

Decisions made

As detailed in the Remuneration report last year, the Executive Directors received a pay increase of 2.75 per cent from 1 July 2014. This decision was reached after looking at the performance of the Group and the Directors individually, as well as the pay conditions and awards made across the Group. This year the Remuneration Committee has again reviewed the pay conditions across the Group, the overall performance of the Group and the benchmark information for similar roles in similar sized companies. Taking all of this into consideration it has been decided that there will be no pay rise awarded to the Executive Directors at this time. This is consistent with the rest of the Group where pay awards are only being made for employees in exceptional cases.

The annual bonus scheme for the forthcoming year has been reviewed by the Committee and it has been agreed to retain the metrics operated for the 2014/15 year, which are set out in more detail in the Annual report on remuneration. During the year the Group did not achieve EBITDA above the target level required to trigger a bonus payment and therefore there are no bonus payments proposed for the Executive Directors. Further information on this can be found in the Annual report on remuneration.

No LTIP awards were due to vest based on performance ending in 2014/15. During the year new awards were granted under the LTIP scheme to each of the Executive Directors, equivalent to 100 per cent of base salary. This is consistent with awards made in the previous year and was considered by the Committee to provide a longer-term incentive to the Executive Directors as these awards will not vest until 2017 and are dependent on relative TSR measured over a three year performance period from the date of grant.

The Committee plans to make further awards to the Executive Directors under the LTIP scheme in July 2015 and plans to increase the level of reward made for 2015/16 to 150 per cent of base salary; this is within the existing policy and is to reflect the fact that the Group is embarking on a period of significant strategic change and the Committee believes that the level of reward should reflect the additional challenge that lies ahead and that successful delivery of the planned transformation will reposition the business and enable the Company to deliver increased returns to shareholders. The Committee has taken into consideration the total remuneration package of the Executive Directors in its decision making process and such an increase in the LTIP award does not increase total remuneration above the market rate for similar roles at similar-sized companies.

The Committee is happy that relative TSR remains appropriate as the performance measure for the LTIP scheme. The business changes are being implemented to improve total shareholder returns and hence the use of relative TSR provides strong alignment with this objective. There is also an underpin in place, such that the Committee must be satisfied that the financial and non financial performance of the Company warrants the level of vesting.

The combination of relative TSR plus the underpin will ensure that the delivery of returns takes into account the market context as well as ensuring consistency between the relative TSR and the absolute measures of the health of the Group.

Views of the shareholders

The views of our shareholders in relation to remuneration are of great importance to us and we believe that they can add real value to the process of policy formulation. Any feedback would therefore be welcomed and may be directed to me or to our Company Secretary, Kathy Smith.

I hope that we can rely on your support for the resolution relating to remuneration at the 2015 AGM.

Tony Illsley

Chairman, Remuneration Committee
17 June 2015