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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 the outcome of the 2020 Annual General Meeting (“AGM”) in May this year. We note that all resolutions were successfully passed with the requisite majority, although there was a significant minority vote against two resolutions which are discussed in further detail below.
Resolutions 2 and 10 - Directors’ Remuneration Report and Re-appointment of Andrew Harrison
Ocado’s Remuneration Report (the “Report”) was approved at our AGM in May 2020 with 70.24% of votes in support of the resolution. The Company understands that this outcome was broadly attributable to concerns around the performance of the Growth Incentive Plan (“GIP”), the implementation of a Value Creation Plan (“VCP”), and the approach to Executive Directors’ salary progression.
The Remuneration Committee seeks to ensure that the quantum of remuneration provided to Executive Directors is both fair and competitive, in order to support the long-term success of the business and sustainable long-term shareholder value. We are also committed to regular engagement with shareholders on this topic, and aim to maintain open dialogue on such decisions. We have sought to provide additional clarity on the three areas of concern below.
The GIP was a one-off incentive plan granted in 2014 and vested in May 2019. The outcome of the GIP was subject to discussion with shareholders in November 2019, and was raised as one of the main reasons why some shareholders voted against this resolution. The Committee discussed this outcome and feels the value of this award, earned over a five year period, reflects the outstanding returns received by shareholders. The Committee notes that it also took into consideration the structure of the GIP (which enabled such values to be paid in a single year) when designing the VCP. In contrast to the GIP, the VCP is designed to ensure any payments to management would be spread over a longer time period going forward.
In terms of the salary progression, the Committee awarded salary increases above the average employee due to a set of unique circumstances. The salary increases reflect the rapid growth and resulting increase in complexity and scale of the Executive Directors’ roles. Following the increases, the Executive Directors’ salaries are positioned broadly around the lower quartile of the FTSE 100. This is in line with our remuneration philosophy which aims to set fixed pay at the lower quartile of the market, and only offer substantial comparative reward, via the VCP, for transformational performance.
Ocado’s new long-term incentive plan, the Value Creation Plan (“VCP”) was approved at our AGM in May 2019 with shareholder support of 75.72% of votes in favour of the VCP. At that time, the Company understood that that outcome was attributable, in large part, to concerns regarding the implementation of the VCP and the potential level of quantum available to Executive Directors under this Plan.
Ocado’s 2019 Policy was subject to an extensive consultation with all major shareholders and investor bodies prior to the AGM in 2019 and we would again like to thank those investors who gave their time and input during this process. It was apparent at the time of the consultation that there were differing views amongst shareholders on the suitability of the Policy, which were ultimately reflected in the voting at the AGM in 2019. We note that at the time, all shareholder feedback received was carefully considered and as a result, multiple changes were made to the operation of the VCP to reflect suggestions made by shareholders. These changes were in turn explained in the annual report. In November 2019, I wrote to the Company’s largest shareholders and held further consultations regarding the implementation of the Policy for FY19 and FY20. Further details on the consultation process and discussions can be found in the Company’s 2018 annual report on pages 110 to 111. Given the extensive consultation process we undertook regarding the Company’s remuneration, we feel we understand why shareholders voted as they did at this year’s AGM.
The Company understands that the 19.65% of votes cast against Resolution 10 (my re-appointment) at the AGM this year were linked to the above outcomes.
Next steps
The Remuneration Committee has reviewed the voting outcomes and believes that the current Policy continues to be aligned with Ocado’s strategy and business needs and hence remains the right vehicle to remunerate and retain our Executives. We feel that we understand the main areas of concern for shareholders, and the response at the AGM was in line with our expectations from the consultation exercise.
The Company continues to be committed to governance best practice and will continue its policy of keeping executive remuneration under review and proactively engaging with shareholders and advisory bodies on such matters to ensure it is aligned to the shareholder and employee experience. We welcome any further input from shareholders and look forward to again discussing our remuneration strategy in future.
Yours sincerely
Andrew Harrison
Chair of the Remuneration Committee
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