Directors' Remuneration Report (Unaudited)
There is no requirement for companies quoted on AIM to produce a formal remuneration report. As a consequence, this Remuneration Report is produced for information purposes in order to give shareholders and other users of the financial statements greater transparency about the way in which the Directors of Inland Homes are remunerated and is not included within the scope of the audit.
This report sets out the remuneration paid to the Directors for the year ended 30 June 2015 and sets out the remuneration policy for the forthcoming financial year and beyond.
Composition and role of the Remuneration Committee
The Board has 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, Group 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 at least 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 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 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 ended 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 commenced 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.
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 was set as a price of 60.5 pence per ordinary share (the "First Target Performance Price"), which was 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:
|Start date of accounting period||Performance target (Inland Homes plc share price)||Total number of|
Inland Homes plc
|1 July 2013||30% above Initial Base Price||2,000,000|
|1 July 2014||15% compounded||2,000,000|
|1 July 2015||10% compounded||2,000,000|
|1 July 2016||10% compounded||2,000,000|
|1 July 2017||10% compounded||2,000,000|
|1 July 2018||10% compounded||1,350,504|
The total number of shares in the Company which may become issuable on the exchange of Growth Shares (assuming vesting in full) is 11,350,504, equivalent to 5.6% of the current issued share capital of the Company. In order for the maximum of 11,350,504 ordinary shares in the Company to become issuable under the 2013 LTIP, the price for each Inland Homes ordinary share, in the absence of a takeover, will have had to have more than doubled before the end of the final performance period (being 20 working days after the announcement of the preliminary results for the year ending 30 June 2019), when compared with the Initial Base Price of 46.5 pence per ordinary share. This increase is approximately equivalent to a 14% annual compound rise in the ordinary share price.
5. Change of Control
The 2013 LTIP will allow realisation from three years after the award, provided the Performance Targets have been met. As is customary, the 2013 LTIP does provide for early vesting of Growth Shares in the event of a takeover of Inland Homes before the expiry of the plan, such that all the Growth Shares will vest, provided that the offer price is greater than the share price required to achieve the Performance Target for the relevant performance period in which the takeover occurs.
The Executive Directors who will participate in the 2013 LTIP and their allocations of Growth Shares are as follows: Stephen Wicks 47%, Nishith Malde 38% and Paul Brett 15%. In addition, any awards to the Executive Directors under the 2013 LTIP are subject to good and bad leaver provisions.
Depending on the exact terms of each individual Executive Director's service contract with the Company, they are entitled to a range of benefits including either a car allowance or a fully expensed company car, contributions to pension schemes, private fuel, private health care insurance, permanent health insurance and death in service insurance.
Service contracts and notice periods
All of the Executive Directors are employed on rolling contracts subject to one year's notice from either Inland Homes or the Executive Director in relation to Stephen Wicks and Nishith Malde, and three months' notice in relation to Paul Brett, and which contain confidentiality provisions and restrictive covenants for the Company's protection.
The Executive Directors' service contracts do not provide specifically for any termination payments, although the Company might make payments in lieu of notice. For this purpose, such payments would consist of basic salary and other benefits for the relevant period and depending on the circumstances, any awards due under the 2013 LTIP.
Inland Homes has two independent Non-executive Directors, namely Terry Roydon, the Chairman and Head of the Audit Committee, and Simon Bennett, Head of the Remuneration Committee. Both Non-executive Directors have letters of appointment, initially for a three year period and thereafter on six months' notice from either Inland Homes or the individual and contain confidentiality provisions for the Company's benefit.
The Non-executive Directors' letters of appointment do not provide specifically for any termination payments, although the Company might make payments in lieu of notice.
Non-executive Directors' fees are determined by the Executive Directors, having regard to the requirement to attract high calibre individuals with the right experience, the time requirements and the responsibilities incumbent on an individual acting as a Non-executive Director for a company, such as Inland Homes, listed on AIM. The Non-executive Directors are not eligible for annual discretionary bonuses and do not participate in the Company's long term incentive plans.
The current service contracts of the Executive Directors, the letters of appointment of the Non-executive Directors and the Rules of the 2013 LTIP are available for inspection at the Company's registered office during normal office hours and at the Company's Annual General Meeting ("AGM") until the conclusion of the AGM.
Directors' emoluments for the year ended 30 June 2015
A review of the financial results for the year ended 30 June 2015, as more fully set out in the Chairman's Statement, the Chief Executive's Review and the Finance Director's Review, demonstrates that Inland Homes has had another year of outstanding performance with record profits for the year and a £14.5m uplift in investment properties at Wilton Park. The financial results have been equally strong with revenue having increased by 94% and, excluding the revaluation of investment properties, operating profit up 158% and profit before tax for the year up 167%. Net assets per share up 48%, which excludes any unrealised profits within the land bank and dividends up 67%.
In light of the excellent results recorded by the Group, the following bonuses have been awarded by the Remuneration Committee to the Executive Directors, as follows:
In accordance with the rules of the Deferred Bonus Plan, further details of which are set out above, these bonuses will be settled as to 50% in cash and as to 50% in ordinary shares of the Company. The ordinary shares awarded in respect of these bonuses will be deferred for three years and will be subject to forfeiture in the event that an Executive Director leaves the Company as a bad leaver, but are not subject to any further performance conditions. The award of ordinary shares of the Company will be granted on terms that, when they vest, the number of ordinary shares subject to the award shall be increased by deeming the net dividends paid on the ordinary shares from the date of the award until the date of vesting to have been cumulatively reinvested in additional ordinary shares.
DIRECTORS' REMUNERATION TABLE (unaudited)
The remuneration of each of the Directors during the year ended 30 June 2015 is set out in detail below:
|Total remuneration £000||Social security|
& social security
|S D Wicks*||348||204||29||—||581||94||675||715|
* S Wicks and N Malde have taken their pension entitlement as part of their salaries. No share options were exercised during the year and no LTIPs vested.
DIRECTORS' INTERESTS IN SHARES AND THE UNAPPROVED SHARE OPTION SCHEME AND THE 2013 LTIP (audited)
Directors' interests in the Company's ordinary shares are disclosed in the Directors' Report. The share options held by the Directors in the unapproved share option scheme are set out below:
|Stephen Wicks||Nishith Malde||Paul Brett|
|Options exercisable 28 March 2010 to 27 March 2017 at 50.0p||—||—||700,000|
|Options exercisable 17 December 2012 to 16 December 2019 at 16.5p||—||—||400,000|
|Options exercisable 22 November 2013 to 21 November 2020 at 18.25p||—||1,500,000||—|
|Total options outstanding at 30 June 2014||—||1,500,000||1,100,000|
|Exercised during the year||—||—||—|
|Total options outstanding at 30 June 2015||—||1,500,000||1,100,000|
The initial price for determination of awards under the 2013 LTIP was 46.5 pence per ordinary share. The share price performance of Inland Homes over the last 18 months has been strong and I can report that both the initial performance target of 60.5 pence per ordinary share and the next target performance target of 69.5 pence per ordinary share have now been achieved. As a result, 4,000,000 of the 11,350,504 ordinary shares, representing approximately 35.2% of the total number of ordinary shares that can be issued in exchange for vested Growth Shares, have now been earned. These shares, which do not vest until December 2016, will then be allocated in accordance with the rules of the 2013 LTIP scheme, as follows:
|Ordinary shares of|
The next target performance target under the 2013 LTIP, to earn the equivalent of a further 2,000,000 ordinary shares, will be achieved once the Inland Homes share price has reached 76.5 pence per ordinary share for the qualifying period.