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Dear Shareholder
I am writing to you in my capacity as the Chair of the Remuneration Committee (the “Committee”) of Ocado Group plc to provide an update on the Company’s response to several of the 2019 Annual General Meeting (“AGM”) voting outcomes in May this year. We note that all resolutions were successfully passed with the requisite majority, although there was a significant minority vote against four resolutions which are outlined in further detail below.
Resolutions 2 and 19 - Directors’ Remuneration Policy and Ocado Value Creation Plan
Ocado’s Remuneration Policy (“Policy”) was approved at our AGM in May 2019 with broad shareholder support of 75.8% of votes in favour and 24.2% of votes against the Policy. The Company understands that this outcome was attributable, in large part, to concerns regarding the implementation of a Value Creation Plan (“VCP”) and the potential level of quantum available to Executive Directors under this Plan. It was therefore expected that the votes in favour of Resolution 19 (the Ocado Value Creation Plan, 75.7%) would be similar to that for the Policy.
Ocado’s 2019 Policy was subject to an extensive consultation with all major shareholders and investor bodies prior to the AGM. We would like to thank investors for their time and input during this consultation process. It was important to us to meet as many shareholders as possible and to hear their views on such an important topic. It was apparent at the time of the consultation that there were differing views amongst shareholders on the suitability of a VCP, which were ultimately reflected in the vote against these particular resolutions.
During our engagement with shareholders, feedback was carefully considered and, where appropriate, reflected in subsequent amendments to the Policy and the VCP. Examples of these amendments include a reduction in the CEO’s share of the VCP and increasing the hurdle of the VCP. Further details on the consultation process and discussions can be found in the Company’s 2018 annual report on pages 110 - 111. I was encouraged that the majority of our shareholders understood Ocado’s need for a non-standard incentive plan that aims to drive strong and sustainable growth over the long-term, whilst simultaneously motivating and rewarding a highly entrepreneurial leadership team. The Company believes that the VCP is aligned with Ocado’s strategy and business needs and hence remains the right vehicle to remunerate our Executives. Pay-outs under the VCP are directly linked to Company performance, whereby substantial growth must first be delivered to shareholders before Executives are rewarded. For example, for any vesting to occur in year 3 of the VCP, the Company's share price must be greater than or equal to £18.33, which represents c. 31% growth since the launch of the VCP (when the share price was £13.97).
In conclusion, we fully understand why some shareholders were unsupportive of these resolutions and therefore have undertaken no additional shareholder consultation following this outcome, given the extensive consultation that was carried out at the time. In line with the majority of our shareholders, we firmly believe that the 2019 Remuneration Policy is fit for purpose and in the best interests of the Company and its shareholders. Therefore the Committee and the Board believe any modifications to the Policy at this time would not be the right course of action for Ocado.
Resolution 3 - Directors’ Remuneration Report
In relation to the annual approval of the Directors’ Remuneration Report, the Committee has received feedback for a number of years from shareholders around the limited disclosure of annual bonus and LTIP targets. It is our understanding that the primary reason that 25.4% of shareholders voted against this resolution (74.6% voted for) was due to a lack of satisfaction with the level of disclosure of the targets under both incentive plans. The Committee recognises that the Company has historically struggled with balancing the conflicting needs for both commercial confidentiality and transparency in relation to targets. However, the new Remuneration Policy approved at the 2019 AGM provides for full transparency to shareholders under the new AIP and VCP with regards to performance conditions and their satisfaction. Therefore, the Committee is confident that the concerns of these shareholders will be addressed going forward.
Resolution 23 - Chairman’s Share Matching Award
The Board noted that 77.0% of shareholders voted for the amendments to the Chairman’s Share Matching Award. At the time, after substantial consideration, Ocado’s Remuneration Committee and the Board determined that it was reasonable to remove the sale restrictions on Lord Rose’s “Acquired Shares”, given six years had elapsed since the shares were purchased by him and in light of the Chairman’s dedication to the Company over this period. The Committee continue to believe this is the case, and no further engagement has been had with shareholders since due to the extensive engagement prior to the AGM. We also note that the Chairman’s “Matching Shares” continue to be subject to an ongoing sale restriction for one year post his ceasing to be a Director of the Company. This post-cessation holding requirement is in line with the new UK Corporate Governance Code and whilst its application is not common for a Non-Executive Chairman, the Committee believes that this approach ensures long-term alignment. There is no intention to remove the restrictions on the Matching Shares in the future, thereby ensuring that the interests of the Chairman and those of the Company continue to be aligned going forward.
Conclusion
The Remuneration Committee notes that the Company was fully aware, prior to voting, of the above concerns of a minority of shareholders due to the extensive shareholder consultation process that was conducted prior to the issuance of the AGM Notice. The Committee is however encouraged by the support of the majority of its shareholders and believes its remuneration proposals continue to be appropriate to incentivise and retain a highly entrepreneurial Executive Team over the next stage of the Company’s development. The Company continues to be committed to governance best practice and will continue its policy of continually keeping remuneration under review and proactively engaging with shareholders and advisory bodies on such matters. As part of this ongoing engagement, we recently wrote directly to our biggest shareholders to update them on outcomes and decisions under the implementation of the Directors’ Remuneration Policy for FY19 and FY20. We welcome any further input and invite you to reach out should you have any comments/questions.
Yours sincerely
Andrew Harrison - Chair of the Remuneration Committee
Further information
For further information please visit www.ocadogroup.com
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