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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 2018.

Our approach to remuneration

As set out more fully in our updated Remuneration Policy, 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.

Context and key Committee decisions on remuneration

The Committee notes the commitment shown by the executive directors in running the Group in the best interests of all shareholders and other stakeholders and in prioritising long-term, sustainable, profitable growth. In the context of this, the Committee has sought to implement a Remuneration Policy which equips the Group to retain and, where necessary, recruit the calibre of executive directors required to support its long-term strategy.

During the financial year ended 31 October 2018 the Committee conducted a full review of its Remuneration Policy with the assistance of RSM Tax and Advisory Services LLP, and as a result has made 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.

Having reviewed the base salaries of all executive directors during the period, the Committee determined that salaries had become adrift from comparative market rates and as such, recommended that salaries were increased in the year to ensure that they remained appropriate in the context of the markets in which we operate.

The Committee also reviewed the previous long-term incentive structure and determined that it was no longer fit for purpose or in line with current best market practice. As such, the Committee proposes to implement a new PSP structure, 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 also includes malus and clawback provisions.

Whilst the Committee reached a view on its preferred structure and initial award quanta earlier in the financial year, and although shareholder approval for the PSP is not a legal requirement, the Committee wished to obtain shareholder approval for the new PSP before granting any awards. Should the PSP be approved at the 2019 AGM, the Committee intends that the performance period for the initial awards granted under the plan will be 1 November 2017 to 30 October 2020, with such awards being granted as soon as possible following the 2019 AGM. This has been deemed appropriate to ensure that the executive directors were adequately incentivised during the period awaiting shareholder approval. Further details on the performance conditions introduced are included below.

On a similar basis, the Committee reviewed the Annual Performance Bonus scheme during the year, and determined that it was no longer reflecting best market practice and achieving the alignment with shareholder interests that the Committee wishes to promote. In particular, the Committee was concerned that the Annual Performance Bonus, structured as a fixed percentage of profit (with no threshold) could lead to executive directors receiving substantial bonus payments even when the performance of the Group did not merit such payments.

Following the above review, the Committee proposes to implement new arrangements with stretching and ambitious performance criteria as follows:

• an annual bonus plan (“ABP”) with targets based on profit before tax (75%) and stretching, specific and measurable strategic and/or individual objectives (25%); and
• a performance share plan (“PSP”) with performance targets based upon EPS growth (75%) and return on capital employed (25%). In line with comparable companies, the Committee proposes that under the Remuneration Policy:
• 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.

Performance Share Plan (PSP)

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 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 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

Following the announcement in May 2018 of the appointment of a new Group Chief Executive Officer, the Remuneration Committee carried out a review process with regard to current and future remuneration arrangements for senior executives. This review concluded that a number of adjustments to current packages were required 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. The Remuneration Committee consequently agreed terms for the new Group Chief Executive Officer, reviewed the pay structures for the other executive directors, and commissioned RSM Tax and Advisory Services LLP to devise and implement a new Long Term Incentive Plan, subject to the approval of shareholders at the forthcoming AGM.

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 July 2018, 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, which in respect of Mr K R Greetham and Mr G W Davies relates only to the respective periods when they were members of the Board.

While Mr K R Greetham stepped down from the Board on the 11th July 2018, he remains in the Company’s employment in an advisory capacity during his notice period which runs until 30th April 2019. He continues to receive remuneration for his services during this period on the contractual terms in place as at July 2018.

  • Annual Performance Bonuses and Profit Related Pay. The contractual bonus schemes for K R Greetham and B P Roberts for the financial year 2017/18 are 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 scheme for G W Davies and D A T Evans for the financial year 2017/18 is based on a fixed percentage of the pre-tax Profit of Wynnstay (Agricultural Supplies) Limited. The respective bonus percentages, and the payments made for the financial year ending October 2017, received in March 2018, are shown in the table below in columns A and 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 2017, paid in February 2018, was 3.0% (2017: 2.9%), with the actual PRP paid to each individual executive shown in Column C below. The anticipated rate for 2018 relating to the last financial year is 3.1% of relevant earnings.

The impact of the charges relating to the discontinuation of the Just for Pets Limited business will be reflected in the bonus calculations of the Chief Executive and Finance Director for the year ending October 2017, which are due for payment in March 2018.     

  • 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 2017 of £74,219 (2016: £76,586), and there were 577 (2016: 607) members covered, equating to an average cost of £129 per person (2016: £126).

  • 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 2018 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 2017 is shown below in column B.

  • Long Term Incentives. The Remuneration policy provides for a single long term incentive plan to be in place at any one time. Historic arrangements involved a triennial award of low cost options, with performance criteria targeting an overall maximum financial gain, over the three year life of the scheme, approximating to one year’s basic salary as at the beginning of the scheme, for a 100% achievement of the performance criteria. The last of these schemes matured in October 2017, having been implemented for executive directors in October 2014. The performance conditions related to the earnings per share (“EPS”) and market capitalisation (“MC”) of the Group as at October 2017, with the minimum successful achievement required for any options to be exercisable being an EPS of 36p and an MC of £110m.Upon assessment, after the 31st October 2017, the minimum performance conditions for this scheme were not achieved, and as such, a Nil award was receivable, and no benefits were obtained by any participant.

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:

 

Following advice received from RSM Tax and Advisory Services LLP, a new Performance Share Plan (PSP) has been devised, the rules and terms of which will be tabled for the approval of shareholders at the forthcoming AGM. Whilst the Committee reached a view on its preferred structure and initial award quanta earlier in the financial year, and although shareholder approval for the PSP is not a legal requirement, the Committee wished to obtain shareholder approval for the new PSP before granting any awards. Should the PSP be approved at the 2019 AGM, the Committee intends that the performance period for the initial awards granted under the plan will be 1 November 2017 to 30 October 2020. This has been deemed appropriate to ensure that the executive directors are adequately incentivised during the period awaiting shareholder approval. Further details on the performance conditions introduced are included 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 2018 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 September 2017 and January 2022, with further details provided in the Director’s Report on page 36 and in Note 9 to the accounts. During the year D A T Evans* exercised 8,000 CSOP options at a price of £3.75 per share, and subsequently immediately sold them at a price of £4.8875 per share, realising a disclosable gain on equity-based remuneration of £9,100.

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 reflect 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:

 

PERFORMANCE SHARE PLAN

As reported above, the Remuneration Committee commissioned RSM Tax and Advisory Services LLP during the year, to consider and advise on a replacement Long Term Incentive Plan for senior executives. This followed a review that concluded that the historically used scheme, where options were granted with a fixed three year term, no longer met appropriate compliance requirements. The Board therefore intends to introduce a new long term incentive plan, known as the Wynnstay Performance Share Plan 2018 (the “PSP”) to help recruit and retain key employees and to motivate them to achieve the Group’s business objectives. The PSP has been designed to achieve compliance with the latest principles of sound corporate governance and to bring the Group’s incentivisation arrangements in line with current market practice. Adoption of the PSP is subject to obtaining shareholder approval, a resolution for which will be put to the forthcoming AGM.

Further information relating to the proposed PSP is provided on pages 96-97 of this annual report, and set out in the Rules of the scheme which are published on the Group’s website at https://www.wynnstay.co.uk/corporate-governance/wynnstay-performance-share-plan/

P M Kirkham

Vice-Chairman and Chairman of Remuneration Committee
22 January 2019