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Directors' Remuneration Statement

BOARD REMUNERATION

Introductory Statement

As Chair of the Remuneration Committee and on behalf of the Board of Directors, I am delighted to present our report on remuneration for the year ended 31 October 2019.

Our approach to remuneration

The Committee conducted a full review of the Group’s Remuneration Policy in 2018 with the assistance of RSM Tax & Advisory Services LLP, and as a result implemented a number of changes to the remuneration of Executive Directors with a focus on ensuring that:

i. the remuneration packages offered are competitive within the marketplace that the Company operates, allowing it to attract and retain the talent necessary to deliver the results demanded by the Board and the Company’s shareholders;
ii. the performance-based elements of remuneration are sufficiently aligned with the Group’s strategic objectives, with stretching performance measures that reward exceptional performance whilst avoiding rewarding poor performance; and
iii. the remuneration structures provide the mechanisms necessary to protect shareholders where necessary and adopt a sufficiently long-term basis for aligning the interests of executive directors with those of investors.

The Committee’s approach to remuneration is based on offering a competitive but not excessive reward package for Executive Directors that aligns their pay with the strategy of the Group. We seek to encourage, incentivise and motivate those behaviours in our Executive Directors which we believe will deliver long-term success for the Group and strong returns for its shareholders. In addition to seeking to align the interests of Executive Directors with those of shareholders, our Policy seeks to adopt best practice and comply with all relevant laws and corporate governance regulations, giving the Group a sound basis for long-term growth and progression.

Committee decisions on remuneration

During the 2018 review, the Committee introduced a new long-term incentive arrangement for Executive Directors and other Senior Managers in the form of a Performance Share Plan (“PSP”) which is based on annual awards with a performance period of three years and a further holding period of two additional years. In line with good corporate governance practice, the new PSP includes malus and clawback provisions. Having reached a view on the preferred structure of a long-term incentive scheme, the Committee decided that it wished to obtain shareholder approval for the new PSP before granting any awards. A resolution was therefore put to the Company’s Annual General Meeting in March 2019, which was overwhelmingly supported. The Committee now intends to grant the initial awards under the new scheme immediately following the announcement of the 2019 financial results in January 2020. For the Executive Directors, the structure of the 2020 awards will be based on nil cost options over a number of shares equating to 40% of the individual’s base salary divided by the market price of shares on the day before the grant. The number of shares eligible to vest after three years will depend on stretching performance targets based on diluted earnings per share growth (75%) and the Group’s return on capital employed (25%).

On a similar basis, the Committee reviewed the Annual Performance Bonus schemes for Executive Directors during 2018 and, introduced new arrangements for 2019 (APB). These contain ambitious performance criteria which include targets based on profit before tax (75%) and stretching, specific and measurable strategic and/or individual objectives (25%).

In line with comparable companies, the Committee proposes that under the Remuneration Policy:

• the maximum bonus opportunity in the APB will be 100% of base salary in the case of all Executive Directors; and
• the maximum bonus opportunity in the ABP will be 100% of base salary in the case of all executive directors; and
• the maximum award opportunity under the PSP will be over shares with a market value at grant of 100% of base salary.

The performance criteria attached to all awards will ensure that the maximum opportunity will only be realised in the event of exceptional performance, and no payments will be made where performance has been inadequate.

The Remuneration Committee remains fully committed to an open and honest dialogue with our shareholders, and we welcome your views on any aspects of remuneration at any time.

Board Remuneration Policy

All matters relating to remuneration of the Directors of the Company are determined by the Remuneration Committee whose decisions are made with a view to achieving the broad objective of rewarding individuals for the nature of their work and the contribution they make towards the Group achieving its business objectives. Proper regard is given to the need to recruit and retain high quality and motivated staff at all levels and to ensure the effective management of the business. The Committee will be cognisant of comparative pay levels after taking into account geographic location and the operations of the business, and takes appropriate external professional advice where considered necessary. During the year the Committee commissioned RSM Tax and Advisory Services LLP to consider and advise on current remuneration packages.

The remuneration policy for Directors is set so as to achieve the above objectives and is broadly split into Executive and Non-Executive categories, and consists of the following components in each sub category:

Executive Directors:

Basic Salary Purpose: To provide an appropriate amount of basic fixed income to enable the recruitment and retention of effective management to implement Group strategy.

Operation: The Committee reviews base salaries on an annual basis, consistent with the reviews conducted for other employees. The review takes into account:
• absolute and relative Group profitability;
• any changes to the scope of each role and responsibilities;
• any changes to the size and complexity of the Group;
• salaries in comparable organisations;
• pay increases elsewhere in the Group; and
• the impact of any increases to base salary on the total remuneration package.

Maximum opportunity: The Remuneration Committee has set no overall maximum on salary increases, as it believes that this creates an anchoring effect for executive directors and other employees.

Performance measures: None, although individual performance, skills and experience are taken into consideration by the Remuneration Committee when setting salaries.

Annual Bonus Plan (ABP)

Purpose: To incentivise the executive directors to deliver the Group’s corporate strategy by focusing on annual goals that are consistent with longer-term strategic objectives.

Operation: Annual bonus targets are reviewed and set on an annual basis. Pay-out levels are determined by the Remuneration Committee after the year-end, after completion of the audit, based upon a rigorous assessment of performance against the targets.

Malus provisions apply for the duration of the performance period and any deferral period allowing the Remuneration Committee to reduce to zero any unvested or deferred awards. Clawback provisions apply to cash amounts paid and shares or cash released for three years following payment or release, allowing the Remuneration Committee to claim back all or any amount paid or released.

The circumstances in which malus and/or clawback provisions may be triggered include:
• if the assessment of any performance condition was based upon erroneous or inaccurate or misleading information;
• if a material misstatement is discovered that results in the audited accounts of the Group being adjusted; or
• in the event of any action or conduct of a participant that amounts to fraud or gross misconduct.

Maximum opportunity: The maximum annual bonus opportunity that can be earned for any year is capped at 100% of base salary for all executive directors. Payments at or approaching these levels would require an exceptional level of performance.

Performance measures: The payment of awards under the ABP is dependent upon performance conditions based upon:
• profit before tax (PBT) after accrual for bonus payments (75% weighting); and
• stretching, specific and measurable strategic and/or individual objectives. (25% weighting).

The Remuneration Committee believes the chosen metrics are suitably aligned with the Group’s strategy and are focused on delivering long-term growth and shareholder return.

Wynnstay Profit Related Pay

Purpose: An all-employee scheme in which the executive directors participate on the same basis as all other employees, designed to encourage achievement of profit budgets within main trading subsidiaries.

Operation: An employee scheme to reward all staff with a pro-rata profit share, based on a pre-set formula. Paid in February following the announcement of the financial results for the previous year, after completion of the annual audit.

Performance measures: Based upon the pre-tax profit of the trading subsidiaries, adjusted for commodity inflation and subject to a cap on the overall all-employee pay-out of 10% of profits of the participating companies.

Performance Share Plan (PSP)

Purpose: To incentivise executive directors to focus on the long-term strategic objectives of the Group and to deliver substantial shareholder value, aligning their interests with the interests of shareholders.

Operation: Awards may be granted annually under the PSP and will consist of rights over shares, calculated as a percentage of base salary. Vesting is subject to the Group’s performance, measured over three years and is followed by a holding period in respect of 50% of the vested shares, of which one half are released after a one-year holding period and one half after a two-year holding period. Malus provisions apply for the duration of the performance period and shares held under deferral arrangements, allowing the Remuneration Committee to reduce to zero any unvested or deferred awards. Clawback provisions apply until two years after the date upon which any entitlement becomes unconditional, allowing the Remuneration Committee to claim back all or part of the value of any shares vested.

The circumstances in which malus and/or clawback provisions may be triggered are as stated in relation to the ABP above.

The principal terms of the PSP will be submitted for shareholder approval at the 2019 AGM.

Maximum opportunity: The maximum PSP award opportunity per executive director, in respect of any financial year, is limited to rights over shares with a market value at grant of 100% of base salary.

Performance measures: The vesting of all awards made under the PSP is dependent upon performance conditions based upon:

• EPS growth (75% weighting)
• Return on capital employed (25% weighting)

The Remuneration Committee believes the chosen metrics are suitably aligned with the Group’s strategy and are focused on delivering long-term growth and shareholder return.

All-employee share plans

Purpose: To align the interests of the broader employee base with the interests of shareholders and to assist with recruitment and retention.

Operation: The Group currently operates an HM Revenue and Customs-approved Save As You Earn plan. In accordance with the relevant tax legislation, the executive directors are entitled to participate on the same basis (and subject to the same maximums) as other Group employees.

Maximum opportunity: As determined by the statutory limits in force from time to time.

Performance measures: None.

Pension

Pension Purpose: To provide an income for executive directors during their retirement and enable the Group to recruit and retain suitable individuals.

Operation: Fixed company contributions expressed as a percentage of current basic salary for each individual are paid into a personal pension scheme held in that individual’s name. In addition, death in service cover provides for four times current annual salary paid into trust, where death occurs during the term of the Director’s employment contract.

Benefits

Benefits Purpose: To attract and retain suitable executive directors and assist executive directors in the performance of their duties.

Operation: The benefits provided by the Group to executive directors are currently restricted to the provision of a company car and private medical insurance.

Maximum opportunity: Dependent upon the cost of providing the relevant benefits and the individual’s personal circumstances. The Remuneration Committee examines the cost of benefit provision and will only agree to provide benefits that are in line with market practice and cost-effective for the Group.

Performance measures: None.

The executive director’s remuneration terms are detailed in individual contracts of employment and associated amendment documentation, which amongst other points contain standard details as follows:
- Notice period to be given by the Company is twelve months.
- Notice period to be given by the Director is six months.
- Paid holiday entitlement of 23 days plus bank holidays.
- Post employment restrictive covenants lasting twelve months.
- Standard non-compete restrictions during employment.

Non-Executive Directors:

Basic Annual Fee

Purpose: To attract and retain a balanced skill set of individuals to ensure strong stewardship and governance of the Group.

Operation: Fees are set so as to reflect the factors pertinent to respective positions, taking into account the anticipated amount of time commitment, and comparative rates paid by other companies of a similar size. The non-executive directors do not participate in share option awards, performance bonuses or pension arrangements. Fees are reviewed by the Remuneration Committee on an annual basis.

Travelling Expenses Purpose: To reimburse legitimately incurred costs of attending necessary Board and associated meetings.

Operation: Pre-set rates used to reimburse mileage, travel, accommodation and other incurred expenses in line with those used for other employees.

Medical Insurance Benefit Purpose: To assist Directors in the completion of their duties.

Operation: Benefits restricted to the provision of private medical insurance for those directors who do not have alternative arrangements in place.

The non-executive director’s remuneration terms are detailed in individual letters of appointment, which amongst other points contain standard details as follows:
- Initial appointment for a period of twelve months.
- Renewal of appointment for a fixed period of three years after initial twelve months.
- Post employment restrictive covenants lasting twelve months.

 

REMUNERATION REPORT

Executive Director Remuneration

A review of remuneration arrangements for executive directors and senior executives was carried out by the Remuneration Committee following advice received from RSM Tax and Advisory Services LLP in 2018. This review resulted in the implementation of current packages which are designed to ensure both the continued competitiveness of remuneration levels, and the satisfaction of current investor expectations with regard to governance arrangements for Long-Term Incentive Plans.

Therefore, in line with the above policy, the Remuneration Committee have approved the following details of executive director remuneration:

Basic Salaries. A current annual salary effective from November 2019, is shown in the table below in column A. The previous annual salary, where relevant, is shown in column B, with the actual amounts received during the last financial year shown in column C.

 

Annual Performance Bonuses and Profit Related Pay.

The bonus payments made to executive directors in March 2019, and therefore during the financial year under review, were in relation to the performance of the business for the fi nancial year 2017/18. These contractual bonus schemes for that period for G W Davies and D A T Evans were based on a fixed percentage of the pre-tax Profit of Wynnstay (Agricultural Supplies) Ltd. The scheme for B P Roberts for the financial year 2017/18 was based on a fixed percentage of the Group pre-tax Profit, which includes the Group’s share of pre-tax profits from joint ventures and associate investments. The respective bonus percentages, and the payments made for the financial year ending October 2018, received in March 2019, are shown in the table below in columns A & B respectively. The Executive Directors also participate in the Wynnstay Profit Related Pay Scheme, (“PRP”) which is a scheme for employees of Wynnstay Group plc and GrainLink Limited, and which pays an annual bonus based on a formula which produces a percentile result which is then applied to the relevant individual’s prior year earnings. The formula calculation is the aggregate of the pre-tax profit of Wynnstay (Agricultural Supplies) Limited and GrainLink Limited divided by the aggregate of the combined revenues. The scheme is subject to a limiting factor preventing the total paid under the arrangements from exceeding 10% of the profits of the participating companies. The relevant rate for 2018, paid in February 2019, was 3.1% (2018: 3.0%), with the actual PRP paid to each individual executive shown in column C below. The anticipated rate for 2019, to be paid in February 2020 relating to the last financial year is 1.6% of relevant earnings.

For the financial year 2018/19, the executive directors will receive bonuses in March 2020 calculated in accordance with the revised Annual Performance Bonus Plan introduced for periods starting that year and described in the Remuneration Policy above. 

Pension and death in service life cover. Individual Company contributions to personal pension plans are based on the value of the Executive Directors basic salary only. The annual defined Company contributions to a personal pension scheme held in the individual’s name, expressed as a percentage of basic salary, and the amounts paid on behalf of each individual for their period of service as a director during the last financial year, are shown in the table below under column A and column B respectively. The death in service life assurance cover is provided in a Group policy covering all members, with individual costs attributed to separate members being unavailable. However, the scheme to which all the executive directors belong, had a total renewal cost at November 2018 of £81,165 (2017: £74,219), and there were 631 (2017: 577) members covered, equating to an average cost of £129 per person (2017: £129).

Benefits in kind. Each executive director is supplied with a company car, primarily for the furtherance of their duties. However these vehicles are available for the executive’s private use and as such have a taxable benefit in kind value calculated in accordance with HMRC rules. These values for the tax year ending April 2019 are shown in the table below in column A. Executives refund the cost of fuel they use for private motoring on a monthly basis. Additionally, the Company pays the cost of providing private medical insurance for the executives to ensure that should they require treatment this is provided as quickly as possible, and minimises any period of potential absence from their duties. The cost to the Company of this cover for each individual in 2018 is shown below in column B.

The Remuneration Policy provides for a Performance Share Plan (PSP) to incentivise executive directors to focus on the long-term strategic objectives of the Group and to deliver substantial shareholder value, aligning their interests with the interests of shareholders. This PSP is intended to grant option awards annually, with rights over shares, calculated as a percentage of base salary. Other conditions are explained in the Remuneration Policy above. No grants of options under this arrangement were made during the 2018/19 financial year, but the Remuneration Committee intend to issue the first awards in January 2020 to the three executive directors each with rights over shares to the value of 40% of their respective annual salaries, as at the date of grant.

Further information relating to the PSP is set out in the Rules of the scheme which are published on the Group’s website here.

Therefore, the number of current options as at October 2018 under various schemes held by executive directors who have held office during the year is shown in the table below:

 

Other Share Schemes. The executive directors participate in the discretionary Approved Company Share Option Plan (CSOP), which is a tax efficient scheme providing the opportunity to hold up to £30,000 of option value, which, if the scheme rules and legislation are complied with, can be exercised free of income tax liability for the holder. The current outstanding options are shown in a table above, and are exercisable up to March 2022 without any performance criteria attached to them. Additionally, the current executive directors are eligible to participate in Save As You Earn (SAYE) option invitations, subject to the scheme and legislative limitations. Such options held by the executive directors, as at October 2019 are shown in the table above, and again do not have any performance criteria attached to them. Depending on the particular scheme, they are exercisable between August 2021 and March 2024, with further details provided in the Director’s Report on page 34 to 35 and in Note 9 to the accounts.

NON-EXECUTIVE DIRECTOR REMUNERATION

The remuneration of the Non-Executive Directors, is and has been paid in accordance with the policy outlined above and has been set so as to refl ect the factors pertinent to their respective positions. Details of the amounts received during the last financial year and the current levels of Basic Annual Fees being paid are given in the table below.

Philip M. Kirkham

Vice-Chairman and Chairman of Remuneration Committee

21 January 2020