Carphone Warehouse 2016 Annual Report Download - page 59

Dixons Carphone plc Annual Report and Accounts 2015/16
Corporate Governance
Remuneration Report
57
Chairman’s statement
On behalf of the Board, I am pleased to present the 2015/16
Directors’ Remuneration Report which sets out our philosophy
and proposed future policy for directors’ remuneration, together
with the activities of the Committee for this financial year ended
30 April 2016.
Policy review
The integration has gone well and the strong performance of this
year validates the bringing together of the two businesses. Our
focus now on developing our Connected World Services and
Knowhow businesses, complementing our core retail and
services offering, brings with it exciting opportunities, supporting
long-term earnings growth. Against this background, over the last
few months, the Committee has been reviewing the Group’s
approach to executive remuneration and following consultation
with our major shareholders is proposing a new long term incentive
plan and will be seeking approval for this new plan from
shareholders at the AGM in September this year.
The current long term plan (the ‘Share Plan’) has been a key
element of the policy to date seeking to incentivise management
to deliver superior shareholder returns through the Merger and
integration of our two businesses. The performance of the Share
Plan will be measured in July 2017 when, subject to performance,
60% of the shares will vest, with the remaining 40% vesting
12 months later.
The Committee had previously indicated that it would not seek to
either make new awards under the Share Plan, or introduce a new
plan, until awards under the current plan had fully vested in 2018.
However, on taking over the role as Chairman of the Committee,
we reviewed issues around the recruitment and development of
management in our business and came to the clear view that
having no long term scheme in place that would follow on from the
existing scheme would be detrimental to the business and our
shareholders. We also felt that the Company had now reached the
stage that it was appropriate to move to a more standard
annualised award of performance shares. These will be based on
EPS growth and relative TSR and is a material change in the way
the Committee is seeking to operate directors’ (and other senior
executives’) remuneration in the Company.
We have consulted with our major shareholders and reflected their
feedback into the design of the proposed Remuneration Policy.
The details of the new long term incentive plan are in the Policy
section of this Report, but in summary are:
• an annual award of performance shares, with a normal
maximum grant of 275% of base salary, with the ability to make
awards of up to 375% of base salary in exceptional
circumstances, e.g. recruitment;
• three-year vesting period, with a subsequent two-year holding
period of any net of tax vested shares for executive directors;
• for 2016/17, performance measured equally against relative
TSR, using the FTSE 51-150 peer group and adjusted EPS
over the three year period; and
• robust withholding and recovery provisions, as with the
Share Plan.
Proposed award levels for executive directors are set out on
page 71 and will, subject to shareholder approval, be granted
shortly after the AGM in September 2016.
The Committee recognises that proposing a common salary
multiple for the long term incentive plan award to all executive
directors is relatively unusual, but this is reflective of the close
working relationship and contributions of the executive director
team, which have been key to the success of the Group.
Whilst relative TSR and adjusted EPS have been chosen as the
performance measures for the awards to be made in 2016/17, the
Committee will retain the discretion to introduce a third measure in
future years, if appropriate, to enhance focus on a particular aspect
of business performance. In the event that the Committee decided
to do this, major shareholders would be consulted and also the
TSR component would not be weighted less than 40%, to ensure
ongoing focus on shareholder value creation.
We have also been very mindful of the current environment in
executive remuneration, base pay increases for 2016 being in line
with those for the wider workforce and no other changes are
proposed to the Remuneration Policy other than:
• the removal of the ability to pay a retention bonus to executive
directors under the loss of office provisions; and
• capping of any long term incentive plan award on recruitment
to 375% of base salary, in line with exceptional awards under
the new long term plan.
In conclusion, the Committee believes that the introduction of the
new long term incentive plan and its design are right for the Group
as it moves into a post-Merger operating environment. It is aligned
to our overall aim to have a remuneration policy which promotes
the long-term success of the business through the attraction and
retention of executives who have the ability, experience and
dedication to deliver outstanding returns for our shareholders. The
Committee is also very aware that much of the Group’s success is
down to the dedication and hard work of all our employees and we
are delighted with the ongoing success of the Dixons Carphone
Sharesave plan, in which we now have 25% of our UK & Ireland
workforce participating.
The proposed new Remuneration Policy as set out in this
Annual Report and Accounts will be put to shareholders for
a binding vote at the AGM on 8 September 2016, where
shareholders will be asked to approve the policy for a period
of three years.
Pay and performance for 2015/16
As set out in the Strategic Report this has been a year of strong
financial and operational performance. Headline pro forma EBIT
increased by 13%, average net debt was ahead of target and there
were improvements in ROCE, customer net promoter and
employee engagement scores. This must be considered a very
strong performance in a difficult and competitive market. The
Committee approved annual bonus payments of 68.4% of base
salary (73.7% of maximum opportunity) for the executive directors,
which reflected the strong performance, but also the stretching
nature of the targets set by the Committee.
Full details of the performance targets and actual performance
assessed are provided in the Annual Remuneration Report
on page 76.
Ian Livingston
Chairman of the Remuneration Committee
28 June 2016
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