This report sets out the remuneration paid to the Directors for the year ended 30 June 2014 and sets out the remuneration policy for the forthcoming financial year and beyond.
Composition and role of the remuneration committee
The Board have established a Remuneration Committee which currently consists of Simon Bennett, independent Non-executive Director, who is Chairman of the committee and Terry Roydon, the Company's Non-executive Chairman. The role of the Remuneration Committee is to determine the specific remuneration package for each of the Executive Directors and no Director is involved in any decisions that will affect his own remuneration. The Remuneration Committee has access to information provided by the three Executive Directors of Inland Homes, namely Stephen Wicks, Chief Executive, Nishith Malde, Finance Director and Paul Brett, Land Director and independent advice from external consultants where it considers this to be appropriate.
The Remuneration Committee meets formally three times a year and on such other occasions as may be required.
Policy for executive directors' remuneration
The policy for Executive Directors' remuneration is designed to attract, motivate and retain high calibre individuals with a competitive remuneration package. The remuneration policy takes into account the overall performance of the Company and the individual Executive Directors and the prevailing pay structures in the markets in which Inland Homes operates.
The Executive Directors' remuneration is designed to provide a balance between fixed and variable rewards, although it is recognised that it is common industry practice for total remuneration to be significantly influenced by annual bonuses and long term incentive plans. Consequently, remuneration packages for individual Executive Directors comprise a basic salary, deferred bonus plan, a long term incentive plan and benefits in kind. In agreeing the basic salary and annual bonuses, in addition to the factors outlined above, the Remuneration Committee takes into account the aggregate remuneration to be received by the individual Executive.
In 2013, in line with best corporate governance and market practice, the Remuneration Committee introduced a new deferred bonus plan and a long term incentive plan for the Company's Executive Directors, which have been designed to incentivise the Executive Directors to grow the business and maximise returns to shareholders. The latter is known as The Inland Homes plc 2013 Growth Plan ("2013 LTIP"), which will operate for a period of six years and which was approved by shareholders in general meeting in December 2013. The key elements of the scheme are set out below.
The basic salaries of the Executive Directors are reviewed on an annual basis. The Remuneration Committee seeks to establish a basic salary for each position commensurate with the individual's responsibilities and performance, taking into account comparable salaries for similar companies of a similar size in the same market.
Deferred bonus plan
The Deferred Bonus Plan came into effect on 1 July 2013. Executive Directors can earn up to 100% of basic annual salary as an annual bonus. The plan provides for 50% of an Executive Director's bonus to be mandatorily deferred into ordinary shares in the Company. Under these arrangements, bonuses would be based on a percentage of the individual Executive Director's base salary as follows:
- 50% of salary for "on target" performance; and
- a further 50% of salary for "out-performance".
For example, for achieving 90% of on target performance there will be a discretionary bonus of up to 25% of salary (and pro-rata between 90% and 100% of on target performance) and there will be no bonus for less than 90% of on target performance.
The target is measured by reference to two equally weighted performance measures, namely:
- profit before taxation as compared with brokers' market forecasts following the announcement of the preliminary results of the previous accounting period; and
- net debt levels.
Once the quantum of the Executive Directors' bonuses has been calculated, these will be settled as to 50% in cash and as to 50% by the issue of ordinary shares of the Company. The issue of any ordinary shares awarded under the Deferred Bonus Plan will be deferred for three years and will be subject to forfeiture in the event that an Executive leaves the Company as a "bad leaver", but would not be subject to further performance conditions.
Long term incentive plans
The Company operates both an unapproved share option scheme, which is open to all employees of Inland Homes and the recently introduced 2013 LTIP for the Executive Directors.
Awards under the unapproved share option scheme are made on a periodic basis to the Company's Executive Directors and employees. The share options in this scheme vest three years after the date of grant and have an exercise period of seven years. The schemes are equity-settled.
The following is a summary of the principal features and terms of the 2013 LTIP:
1. Creation of Growth Shares
The plan operates by reference to rights attached to a special class of share in a newly established intermediate holding company between the Company and the Group's current trading subsidiaries. The special class of shares are called "Growth Shares". The Growth Shares are qualifying shares for the purposes of the Employee Shareholder Status scheme, a recently introduced proposal by the Government, the aim of which is to provide tax benefits to employees and Directors who achieve growth for their employing companies.
The vesting of the Growth Shares will be subject to performance targets ("Performance Targets") and when such Performance Targets are achieved, a relevant proportion of the Growth Shares will vest.
2. Vesting and Exchange of Growth Shares
Subject to the Performance Targets being met, the Growth Shares will only vest three years after their award and thereafter annually if and when each Performance Target is met. After vesting, the Growth Shares may be realised by being exchanged for a fixed number of the Company's ordinary shares.
The Growth Shares will not carry any entitlement to dividends, capital or voting unless and until they vest and are exchanged for shares in the Company.
3. Performance Targets
Vesting will only occur if specific Performance Targets (which are linked to the share price of Inland Homes plc over six consecutive performance periods) are met or exceeded for 15 working days in the relevant performance period. The first performance period will end 20 working days after the announcement of the Company's preliminary results for the year ended 30 June 2014, being 27 October 2014. The second performance period will commence on the day following the expiry of the first performance period and will end 20 working days after the announcement of the Company's preliminary results for the year ended 30 June 2015 and so on. It is expected that the announcement of preliminary results for each year will be in September. Accordingly, each performance period is likely to end in October.
The target share prices for the 2013 LTIP are based on compounded growth being achieved and accordingly, if the Performance Target is missed in one period, the participants' awards can still vest if the required compound percentage of growth is achieved in subsequent periods. For instance, if in the first period the Performance Target for that period is not met, then the related number of Growth Shares which could have vested may still vest in the following period or periods, provided that the Performance Target for those periods is achieved, as the target gets increasingly more stretching.
The first Performance Target has been set as a price of 60.5 pence per ordinary share (the "First Target Performance Price"), which has been set at a 30% premium to the share price of 46.5 pence per ordinary share (the "Initial Base Price"), being the mid price at the close of business on 20 December 2013, the date 2013 LTIP was adopted.
The table below shows the accounting periods and the total number of ordinary shares in the Company that would be issuable on exchange for vested Growth Shares assuming the Performance Target for each year of the respective years is achieved: