Annual report 2016

Remuneration report CHAIRMAN'S INTRODUCTION


I am pleased once again to be able to summarise the company’s remuneration policy, the way in which it has been implemented during the last financial year and the way it will be implemented this forthcoming year.

The remuneration committee remains very mindful of investor interest in executive remuneration and has again sought to ensure that the remuneration policies and practices at Greene King drive appropriate behaviours by management that are in the long term interests of the company and its shareholders.

Lynne Weedall
Chairman of the remuneration committee

Annual statement

Shareholders approved the remuneration policy for the company’s directors at the 2014 AGM, and in line with the regulations on directors’ remuneration, the company will next submit its policy to shareholders for approval in 2017. Whilst the policy is not required to be presented this year, it has been set out in full in this report to assist you in reviewing the implementation of the policy in the 2015/16 financial year, details of which are set out in the annual report on remuneration. This latter report is subject to an advisory shareholder vote at the forthcoming AGM.

Decisions during the year

As I highlighted in last year’s directors’ remuneration report, given the significant changes to the size and complexity of the group as a result of the acquisition of Spirit Pub Company, the remuneration committee gave a commitment to review executive director base salary levels and other elements of the directors’ remuneration policy during 2015/16.

Following the completion of the review, the main conclusions reached were that no changes should be made to the directors’ remuneration policy at this time although a number of decisions were made in respect of the operation of the policy.

In particular, in the light of a detailed review of the changes in the size and complexity of the group as a result of the Spirit acquisition, the progress that management was making in respect of the integration and the individual performance of the two executive directors, the remuneration committee awarded base salary increases of 13% and 7% to the chief executive and chief financial officer respectively, with effect from 19 October 2015, the half year point. Further details are set out below. It should be noted however that no further increase to the executive directors’ base salary was made in May this year, and no further changes will be considered until May 2017.

In addition, the committee reviewed the various outstanding long-term incentive plan (LTIP) award performance targets to ensure that it was satisfied that the EPS and ROCE target ranges provide an appropriate level of stretch in light of the acquisition of Spirit. As such, targets for the 2013 and 2014 awards have been adjusted to take into account the anticipated impact of the Spirit acquisition (excluding synergies) and, given that the performance targets for the 2015 LTIP awards were set without taking into account the expected impact of Spirit, the committee has significantly toughened the targets in respect of these awards. Consistent with best practice, major investors were consulted in respect of the adjustments, which are explained below.

Pay for performance

Bonus pay outs for this year were 97.5% of eligible salary for the chief executive and 77.5% of eligible salary for the chief financial officer, reflecting the stretching targets set at the beginning of the year. The LTIP awards granted in 2013 are expected to vest in August this year at 100% of the maximum for the core LTIP award and 76% of the maximum for the growth LTIP award.

We are happy to receive feedback from shareholders at any time in relation to our remuneration policies and hope to receive your support for the resolution referred to above at the forthcoming AGM.

Lynne Weedall
Chairman of the remuneration committee
28 June 2016

Policy report

This section of the report sets out Greene King’s current remuneration policy which was approved at the 2014 AGM by 96% of shareholders who voted. No changes are being made to the policy this year and, therefore, the policy is set out below for information only. Details of actual remuneration paid, LTIP awards granted and the associated performance conditions are set out in the annual report on remuneration.

Policy overview

The key objective of the company’s remuneration policy is to provide a remuneration structure that is aligned with shareholder interests and that enables us to attract, motivate and retain talented and high quality individuals able to deliver continued growth of the business and achieve the group’s strategic aims. The remuneration package is designed to be competitive but not excessive and to contain an appropriate balance between fixed and variable remuneration and, for the variable remuneration, between short-term and longer-term performance.

The committee has considered whether there are any aspects of the policy which could inadvertently encourage executives to take inappropriate risk and is satisfied that this is not the case. The committee has also ensured that the incentive structure for executive directors and senior management does not raise environmental, social or governance risks by inadvertently motivating irresponsible behaviour.

Details of each element of remuneration, their purpose, link to strategy and their operation and performance metrics are set out below.

Policy table

Element of remuneration
Purpose and link to strategy Operation Maximum opportunity Performance metrics
Salary To recruit, reward and retain high calibre executives with an appropriately competitive base salary.

Base salaries are reviewed annually or when a change in responsibility occurs, to reflect the executive's responsibilities, market value and sustained performance level. In setting pay levels, the committee considers current market practice and makes comparisons against a selection of other companies determined by reference to turnover, market capitalisation and operational details.

When reviewing base salaries, the committee is mindful of the gearing effect that increases in base salary will have on the potential total remuneration of the executive directors.

There is no prescribed maximum annual increase. The committee is guided by the general increase for the broader employee population but on occasions may need to recognise, for example, an increase in the scale, scope or responsibility of the role.
Annual performance bonus To incentivise executive directors to deliver superior performance during the course of a year, and to promote retention and stability amongst the senior management team. Performance measures and targets are designed to reinforce strategic priorities for the year. Performance measures and targets are set at the beginning of each financial year to ensure that the measures and weightings are appropriate and support the business strategy. Bonuses are payable after the end of each financial year, based on performance against those targets. Bonuses are non-pensionable. A clawback mechanism applies in the event of a material misstatement of the group's accounts, error or gross misconduct. A maximum of 100% of salary can be earned by the executive directors, with no bonus payable for below threshold performance and up to 75% of salary for target levels of performance. Payment of bonuses is dependent on a mixture of financial targets and specific personal targets. In relation to the financial targets, awards are made on a straight-line basis for performance between threshold and target and on a separate straight-line basis for performance between target and maximum. Performance is measured relative to challenging targets in key financial measures. Details of measures and weightings for the 2015/16 financial year and of the proposed measures and weightings for next year's annual bonus, are set out in the annual report on remuneration. An explanation of how the performance measures were chosen is given in the notes below.
Long term incentive plan ("LTIP") To incentivise the executive directors to deliver superior levels of long-term performance for the benefit of shareholders, thereby aligning their interests with those of our long-term shareholders. The committee normally makes an annual LTIP award, usually in the form of nil-cost options. The awards are subject to suitably stretching performance conditions set by the committee, which are reviewed annually. Awards normally vest on the third anniversary of grant, subject to performance, and will be exercisable until the tenth anniversary of grant. A clawback mechanism applies in the event of a material misstatement of the group's accounts, error or gross misconduct. A maximum of 200% of salary can be awarded each year, 100% as a core LTIP and 100% as a growth LTIP. Dividend equivalents will be paid on any shares that vest. The core LTIP will be subject to a suitably stretching EPS target and the growth LTIP to a suitably stretching ROCE target. Performance will normally be measured over a three year period. Vesting will generally be subject to continued employment. The committee retains the discretion to scale back the vesting levels of the growth LTIP award in appropriate circumstances.
Shareholding policy To align the interests of the executive directors with shareholders and to promote a long-term approach. Executive directors are required to build and retain a shareholding of at least 100% of salary. To the extent that the shareholding requirement has not been met, executives will be expected to retain at least 50% of the net exercised LTIP awards until the requirement is met.
Pension To offer market competitive levels of benefit. The company contributes to defined contribution pension arrangements for the executive directors or provides cash in lieu where appropriate. Current company contribution levels are 25% for the chief executive and 20% for the chief financial officer.
Benefits To be appropriately competitive with those offered at comparator companies. Benefits comprise the provision of company cars (or cash allowances in lieu thereof), fuel for company cars, life assurance, permanent health insurance and private medical insurance. Benefits are reviewed periodically in line with market practice and are not pensionable.
All employee share schemes All employees, including executive directors, have the opportunity to build their shareholding in a tax-efficient way by participating in the company's HMRC approved sharesave scheme. Employees are invited to participate in the sharesave in January each year provided that they have the requisite service. The maximum saving under the sharesave scheme will be no more than HMRC approved limits, allowing employees to buy company shares at up to a 20% discount at the end of a three or five year savings period.

Notes:

  1. A description of how the company intends to implement the policy set out in this table for 2016/17 is set out in the annual report on remuneration.
  2. The choice of performance metrics applicable to the annual bonus scheme reflect the committee’s belief that the compensation should be appropriately stretching, but achievable, and tied to both the delivery of profit growth, key financial metrics and specific individual objectives.
  3. The EPS performance condition underpinning the core LTIP award was selected by the committee on the basis that it would reward the delivery of long-term financial growth and is the most widely understood profit-based measure across the business. ROCE was chosen as the performance condition to apply to the growth LTIP award as it will ensure that management focuses on generating the necessary returns in excess of the cost of capital and because it provides a more strategic measure of long term performance, where capital needs to be re-deployed in order to focus on Pub Company. The performance targets are set by the committee following a detailed review of the company’s projections and are believed to be appropriately stretching.
  4. The policy and practice for the remuneration of employees generally differs from that for the executive directors as follows:
    • A lower level of maximum annual bonus opportunity (or zero bonus opportunity) may apply to employees other than the executive directors and certain senior executives and targets may differ by business unit and by employee.
    • Other employees may receive fewer or lower levels of benefits than those for executive directors. Company car benefits are only offered where required for the role or to meet market norms.
    • Pension contribution levels may be lower for employees generally compared with those for the executive directors.
    • Participation in the core LTIP is limited to the executive directors and around 40 senior managers. Participation in the growth LTIP is limited to an even smaller senior management population. These differences generally arise from the development of remuneration arrangements that are market competitive for various categories of employees. They also reflect the fact that, in the case of executive directors and senior executives, there is a greater emphasis on performance related pay.
  5. Subject to the achievement of the applicable performance conditions, executive directors are eligible to receive payment from any award made prior to the approval and implementation of the remuneration policy detailed in this report.

Indicative total remuneration levels

The graphs below provide scenarios for the potential future reward opportunity for each executive director, and the potential split between the different elements of remuneration, under three different performance scenarios – minimum, on- target and maximum.

Chief executive officer

Chief financial officer

Notes:

  1. Minimum relates to the value of the package assuming that current salary, benefits and pension alone are paid.
  2. The on-target annual bonus opportunity, based on stretching performance targets, is 75% of salary for the chief executive and 75% for the chief financial officer.
  3. The on-target vesting level under the core LTIP and the growth LTIP is assumed to be 50% and 50% respectively.
  4. The maximum scenario assumes full bonus payout and full vesting of LTIP awards.
  5. No assumption as to share price growth is made in either the on-target or the maximum scenarios.

Approach to recruitment and promotions

The remuneration package for a new executive director would be set in accordance with the terms of the company’s prevailing approved remuneration policy at the time of recruitment. In particular, the annual bonus potential will be limited to 100% of salary and awards under the LTIP will be limited to 200% of salary.

In the case of an external hire, if required to secure an individual, the committee may offer additional cash and or share-based elements when it considers them to be in the best interests of the company, to take account of deferred remuneration forfeited by the new hire when leaving their former employer. Any such additional payments would be one-off in nature, would reflect where possible the nature, time horizons and performance requirements attaching to that forfeited remuneration and would be limited to the value of the forfeited remuneration.

For an internal promotion to executive director level, any variable pay element awarded in respect of the prior role may be allowed to pay out in accordance with its terms, adjusted as relevant to take into account the appointment. In addition, any other on-going remuneration obligations existing prior to appointment may continue, provided that they are put to shareholders for approval at the earliest opportunity.

For both external and internal appointments, the committee may agree that the company may meet certain relocation and/or incidental expenses as appropriate.

Service agreements and exit payment policy

Newly appointed executive directors are offered a service agreement with a notice period of one year. In the event of the employment of an executive director being terminated, the committee would take into account the commercial interests of the company, pay due regard to best practice and apply usual common law and contractual principles, including the individual’s duty to mitigate their loss.

The payment of any annual bonus in respect of the year of termination is subject to the discretion of the committee, which may determine that an annual bonus is payable with respect to the period of the financial year served, but pro-rated for time served, and not paid until the normal due date for the payment of bonuses.

The vesting of any LTIP awards will be governed by the rules of the LTIP. Awards will normally lapse unless the individual is considered a ‘good leaver’. An individual would generally be considered a ‘good leaver’ if they left the group’s employment by reason of death, injury, ill-health, disability approved by the committee, or retirement, although the committee has the absolute discretion to treat any individual as a ‘good leaver’ for any other reason. In the case of a ‘good leaver’, payments would normally be scaled back to recognise the shorter period of service than the award was intended to cover and remain subject to outstanding performance conditions.

Rooney Anand, whose employment with the company commenced on 6 August 2001, is subject to a one year notice period from the company. His terms of employment do not contain any additional terms relating to compensation for termination of employment. The terms of his appointment as chief executive were agreed and set out in a letter dated 24 December 2004.

Kirk Davis’s employment, which commenced on 3 November 2014, is subject to the terms of a contract dated 29 September 2014. His employment may be terminated by the company on giving one year’s notice, without any additional terms relating to compensation for termination of employment.

There are no obligations on the company contained within the existing directors’ contracts which would give rise to payments not disclosed in this report.

Non-executive director policy table

Non-executive directors are appointed pursuant to letters of appointment for three-year periods. The table below sets out, for each of the current directors, the start and expiry date of their respective appointments.

Director Date of
appointment
Present
expiry date
Philip Yea 2 Feb 16 1 Feb 19
Mike Coupe 26 Jul 11 25 Jul 17
Ian Durant 16 Mar 07 9 Sep 16
Rob Rowley 18 Jul 14 17 Jul 17
Lynne Weedall 11 Oct 12 10 Oct 18

The appointments of all these non-executive directors can be terminated by the company at any time on three months’ written notice, notwithstanding the present expiry dates above.

The table below summarises each of the components of the remuneration package for the non-executive directors. The non-executive directors are not entitled to receive any pension, bonus or long-term incentive benefits from the company in respect of their roles as non-executive directors.

Element of remuneration Purpose and link to strategy Operation Reward Performance metrics
Fee To recruit and retain appropriately qualified non-executive directors. The chairman and non-executive director fees are typically reviewed every two years. Fees are benchmarked against similar roles in the sector and in other similar sized companies and reflect the time commitments and responsibilities of each role. Non-executive director fees may include a basic fee and a fee for acting as a committee chairman. They are set at a level that is considered appropriately competitive in the light of market practice.
Benefits To be appropriately competitive with those offered at comparator companies. The chairman's benefits include private healthcare and the provision of a company car. Benefits are reviewed periodically in line with market practice. The value of the chairman's benefits will be comparable with those offered to the executive directors.

External directorships

The company’s policy is to allow executive directors to take up one or more non-executive directorships in an external company, subject to board approval. Fees received for serving as a non-executive director of an external company are retained by the executive director.

Consultation

The company engages regularly with shareholders on matters relating to its strategy and business operations. Where necessary, we also engage with shareholders and their representative bodies on matters relating to executive remuneration and it is the committee’s policy to consult with major shareholders prior to making any major changes to its executive remuneration structure.

Consideration of conditions elsewhere in the group

The committee does not consult with employees when deciding remuneration policy, although it does receive information on salary increases and long‑term incentives for employees across the group.

Annual report on remuneration

This section of the report explains how Greene King’s remuneration policy has been implemented during the year.

The remuneration committee

The remuneration committee is appointed by the board. The members are Lynne Weedall (chairman), Mike Coupe, Ian Durant and Rob Rowley. Philip Yea was appointed as an additional member of the committee on 2 February 2016 but stepped down from the committee on 2 May 2016 when he took over as chairman of the company. All of the committee members are regarded by the board as independent non-executive directors.

The role of the committee, as set out in its terms of reference (which are available on the company’s website), includes determining the remuneration policy for the executive directors, the chairman and certain members of senior management. It agrees total individual remuneration packages, considers the granting of awards under the long-term incentive plan and determines bonuses payable to the executive directors and certain senior executives.

It approves the service contracts of the executive directors and any compensation arrangements arising from their termination. The committee is made aware of, and takes into account, the salary levels of the wider senior management team and of the incentive arrangements operating throughout the company.

During the year there were three scheduled meetings of the committee. Attendance at these meetings is shown in the table in the Corporate governance statement.

Advisers to the remuneration committee

The committee has appointed New Bridge Street, part of Aon plc, to provide advice on general remuneration matters and comparator information. Aon plc provides insurance broking and consultancy services to the group. The committee is satisfied that the provision of these services does not in any way prejudice the position of New Bridge Street as independent advisers to the committee. Fees paid during the year to New Bridge Street in respect of advice to the committee, generally charged on a time spent basis, were £35,274.

Rooney Anand, chief executive, attends meetings of the committee by invitation and provides advice to help the committee determine appropriate remuneration and incentive packages for the chief financial officer and the other senior executives, but he leaves the meeting when his own remuneration is being discussed. The chairman of the board also attends meetings of the committee by invitation.

Shareholder voting at the 2014 and 2015 AGM

The table below shows the results of the binding vote on the directors’ remuneration policy at the AGM held in September 2014 and the advisory vote on the 2014/15 directors’ remuneration report at the AGM held in September 2015.

Votes for Percentage Votes against Percentage Votes withheld
Approval of the directors' remuneration policy report – passed in 2014 138,964,449 95.8% 6,047,870 4.2% 2,105,782
Approval of the remuneration report – passed in 2015 209,030,752 99.1% 1,916,795 0.9% 9,342,342

Audited information

Single figure of remuneration

The tables below show the details of the total remuneration paid to each director in 2015/16 and 2014/15.

Salary
or fees
£'000
Taxable
benefits
£'000
Pension-
related
benefits1
£'000
Annual
bonus
£'000
Long-term
incentives2
£'000
Total
£'000
2015/16 (52 weeks) (audited)
Executive directors
Rooney Anand 609 20 152 594 1,172 2,547
Kirk Davis 340 12 68 264 684
Non-executive directors
Tim Bridge 183 34 217
Mike Coupe 46 46
Ian Durant 53 53
Rob Rowley 46 46
Lynne Weedall 53 53
Philip Yea 11 11
Salary
or fees
£'000
Taxable
benefits
£'000
Pension-
related
benefits1
£'000
Annual
bonus
£'000
Long-term
incentives2
£'000
Total
£'000
2014/15 (52 weeks) (audited)
Executive directors
Rooney Anand 554 22 139 332 1,092 2,139
Kirk Davis 160 6 32 118 316
Matthew Fearn 134 11 45 552 742
Non-executive directors
Tim Bridge 174 33 207
John Brady 10 10
Mike Coupe 44 44
Ian Durant 51 51
Rob Rowley 35 35
Lynne Weedall 51 51

Notes:

  1. Pension benefits for the executive directors comprised cash in lieu of pension contributions.
  2. Long term incentives in 2015/16 comprised the value of the awards granted in October 2013, which will vest in October 2016 and which were subject to performance targets measured over the three years to May 2016. The value of the award has been calculated using £8.66, being the average share price for the last three months of the 2015/16 financial year, and also takes into account the value of the dividend equivalent shares which accrued on the award. 100% vesting of the 2013 core LTIP award and 76% vesting of the 2013 growth LTIP has been assumed. For the long-term incentives in 2014/15 the actual share price on the date of vesting has been used (restated from the estimates of £1,088k for Rooney Anand and £550k for Matthew Fearn disclosed in the 2014/15 annual report).

Details of the elements included in the table above are as follows:

Base salary

The base salaries for 2015/16 for Rooney Anand and Kirk Davis (£567,970 and £328,000 respectively) were increased to £645,000 and £351,000 respectively with effect from 19 October 2015, following a detailed review by the committee of the changes in the size and complexity of the group as a result of the Spirit acquisition, the progress that management was making in respect of the integration and the individual performance of the two executive directors. The base fee for the chairman was £183,000, whilst the base fees for the non-executive directors were £46,000 for Mike Coupe, Rob Rowley and Philip Yea and £53,400 for Ian Durant and Lynne Weedall (due to their roles as chairmen of the audit and remuneration committees respectively).

Taxable benefits

Taxable benefits were provided to directors in line with the policy table set out below.

Pension-related benefits

Cash in lieu of pension contributions were in line with the policy table set out on below.

Annual bonus

Executive directors may earn bonuses depending on the company’s performance and their own individual performance. Awards for 2015/16 for the chief executive were based 90% on financial performance and 10% on individual performance, whilst for the chief financial officer the respective percentages were 72.5% on financial performance and 27.5% on individual performance.

For both the chief executive and the chief financial officer, the financial performance measures were based on profit before tax and exceptionals (PBTE), free cash flow and the amount of synergies captured from the Spirit acquisition. The target ranges, outcome and awards (as a % of salary) are included in the table below:

Target range Outcome Maximum
percentage
of bonus
Actual
percentage
of bonus
Rooney Anand
PBTE (excluding fair value accounting adjustments) £243.5m – £249.0m £249.1m 62.5 62.5
Free cash flow1 £26.0m – £32.0m £50.2m 15.0 15.0
Spirit synergies £11.0m – £13.0m £16.7m 12.5 12.5
Personal target2 10.0 7.5
Total 100.0 97.5
Kirk Davis
PBTE (excluding fair value accounting adjustments) £243.5m – £249.0m £249.1m 50.0 50.0
Free cash flow1 £26.0m – £32.0m £50.2m 12.5 12.5
Spirit synergies £11.0m – £13.0m £16.7m 10.0 10.0
Personal target2 27.5 5.0
Total 100.0 77.5

Notes:

  1. Free cash flow significantly out-performed the target range as a result of better than anticipated trading, better than expected working capital from the Spirit business and lower than anticipated interest and pension costs.
  2. The personal target for Rooney Anand related to the strengthening and development of the senior executive team. Following the remuneration committee’s assessment of the personal target and actual performance, 7.5% of salary was awarded.
  3. The personal targets for Kirk Davis related to targets linked to like for like sales growth and the performance of the senior finance team. As the like for like sales growth targets remain commercially sensitive, the target and result have not been disclosed above but will be disclosed next year. Following the remuneration committee’s assessment of the personal targets and actual performance, 5% of salary was awarded against these metrics.

Performance against the combined financial and individual targets resulted in bonuses being paid at £594k (97.5% of eligible salary) for the chief executive and at £264k (77.5% of eligible salary) for the chief financial officer. Eligible salary is salary earned during the relevant financial year.

Disclosure of 2014/15 bonus targets

On the basis that the financial targets and the company’s performance against those targets for the 2014/15 financial year are no longer considered commercially sensitive, details are set out below. The group delivered a strong financial result for the year, achieving record sales and profit, with revenue up 3.0%, notwithstanding underlying retail growth being lower than anticipated and operating profit before exceptional items up 3.8%. Profit before tax and exceptional items fell 0.8% to £168.5m although adjusted earnings per share were up 1.3%. Operating cash flows continued to be strong.

Performance measure Target range Actual
performance
Percentage
of bonus
opportunity
awarded
PBTE £167.9m – £175.9m £168.5m 48%
Free cash flow £44.2m – £50.2m £55.7m 100%

Details of the performance against non-financial targets were disclosed last year.

Long-term incentive plans

The LTIP awards granted on 4 August 2013 were based on a three year performance period ended 1 May 2016. The target ranges, calculated on a straight-line basis from 0% to 100%, are set out below.

Performance measure Performance target Actual
performance
Threshold
vesting
of award
Maximum
percentage
of award
Actual
percentage
of award
Core LTIP – earnings per share1 62.3p – 68.5p 69.9p 0% 100% 100%
Growth LTIP – return on capital employed2 8.85% – 9.55% 9.38% 0% 100% 76%

Notes:

  1. The earnings per share target was adjusted to take account of an increased number of disposals and the acquisition of Spirit which completed in June 2015. No adjustment was made in respect of anticipated synergies arising from the acquisition allowing management to benefit from those that have been delivered. The prior target range was 59.7p – 65.9p. The committee is satisfied that the adjustment was appropriate and that the revised target was a fairer measure of performance and was no more or less difficult to achieve than the previous range.
  2. The ROCE target was adjusted on the same basis as the earnings per share target. The prior range was 9.1% - 9.8%. The committee is satisfied that the adjustment was appropriate and that the revised target was a fairer measure of performance and was no more or less difficult to achieve than the previous range.

The award details for the executive directors are therefore as follows:

Director Type of award Number
of shares
at grant
Number
of shares
to vest
Number
of shares
to lapse
Estimated
value1
£'000
Estimated
value of
dividend
equivalent
shares
to vest2
£'000
Total
estimated
value
£'000
Rooney Anand Core LTIP 68,630 68,630 594 65 659
Rooney Anand Growth LTIP 68,630 52,159 16,471 452 61 513

Notes:

  1. The estimated value of the shares is based on the average share price during the three months to 1 May 2016 (866 p).
  2. The LTIP enables award holders to benefit from the payment of dividend equivalents but only to the extent that the underlying share awards vest. The estimated value has been calculated on the same basis as set out in note 1 above, with an additional estimate for the value of the dividend equivalent shares which will be due in relation to the 2016 final dividend payable in September 2016.

Interests under the LTIP

A summary of the current directors’ interests under the LTIP at the beginning and end of the year, and changes during the year, is below:

Date of grant Type of award Exercise
price
Outstanding
as at
3 May 2015
Granted during
the period
Vested during
the period
Lapsed during
the period
Outstanding
at 1 May 2016
Performance period
Rooney Anand 6-Aug-12 Restricted forfeitable share nil 117,000 117,000
4-Oct-13 Core LTIP nil 68,630 68,630 May 2013 – May 2016
4-Oct-13 Growth LTIP nil 68,630 68,630 May 2013 – May 2016
24-Jul-14 Core LTIP nil 66,361 66,361 May 2014 – May 2017
24-Jul-14 Growth LTIP nil 66,361 66,361 May 2014 – May 2017
10-Aug-15 Core LTIP nil 66,558 66,558 May 2015 – May 2018
10-Aug-15 Growth LTIP nil 66,558 66,558 May 2015 – May 2018
Kirk Davis 10-Aug-15 Core LTIP nil 38,437 38,437 May 2015 – May 2018
10-Aug-15 Growth LTIP nil 38,437 38,437 May 2015 – May 2018

The 2014 LTIP award targets have been adjusted to take into account the impact of the Spirit acquisition. The EPS target applicable to the core LTIP was increased by the forecast net benefit to earnings that Spirit was forecast to generate and the ROCE target applicable to the growth LTIP was adjusted to reflect the expected impact of Spirit on returns. No adjustment was made in respect of delivering the potential future synergies to enable management to benefit should these be delivered as planned. Under the revised targets there will be no vesting of the core award for EPS growth of 26.2% or less above a base of 56.1p, increasing on a straight-line basis to full vesting for growth of 35.3% during the performance period above that base. The prior target range was 22–31% above the 56.1p base. For the growth LTIP award, there will be no vesting for ROCE of 9.25% or less, increasing on a straight-line basis to full vesting for ROCE of 9.85% at the end of the performance period. The prior target range was 9.4–10.0%.

The 2015 LTIP award targets have also been adjusted to take into account the impact of the Spirit acquisition and in the light of feedback received from a number of shareholders following the publication of the 2015 annual report regarding the level of stretch in the targets. Under the revised targets there will be no vesting of the core award for EPS growth of 22% or less above a base of 61.0p, increasing on a straight-line basis to full vesting for growth of 32% during the performance period above that base. The prior target range was 7.5–16.5% above the 61.0p base. For the growth LTIP award, there will be no vesting for ROCE of 9.6% or less, increasing on a straight-line basis to full vesting for ROCE of 10.2% at the end of the performance period. The prior target range was 9.2–9.7%.

Details of the awards granted to the directors on 10 August 2015 are as follows:

Director Scheme Type of award Basis of
award granted
Share price
used for award
purposes1
Number of
shares over
which award
was granted
Face value
of award
Performance period Exercisable between
Rooney Anand Core LTIP nil-cost option 100% of salary
of £567,970
853.33p 66,558 £567,959 May 2015 –
May 2018
11 August 2018 –
9 August 2025
Rooney Anand Growth LTIP nil-cost option 100% of salary
of £567,970
853.33p 66,558 £567,959 May 2015 –
May 2018
11 August 2018 –
9 August 2025
Kirk Davis Core LTIP nil-cost option 100% of salary
of £328,000
853.33p 38,437 £327,994 May 2015 –
May 2018
11 August 2018 –
9 August 2025
Kirk Davis Growth LTIP nil-cost option 100% of salary
of £328,000
853.33p 38,437 £327,994 May 2015 –
May 2018
11 August 2018 –
9 August 2025

Note:

  1. The share price used for award purposes was determined by reference to the average closing share price on the three days immediately prior to the date of the award.

Interests under the executive share option scheme

There are no outstanding interests under the group’s executive share option scheme (under which no awards have been made since September 2008). In the prior year the gain made by Rooney Anand on the exercise of his 74,751 share options amounted to £235k.

Interests under the sharesave scheme

The interests of the directors in options granted under the sharesave scheme were as follows:

Outstanding
as at
4 May 2015
Granted
during
the period
Exercised
during
the period
Lapsed during
the period
Outstanding
as at
1 May 2016
Option price
(p)
Exercise period
Kirk Davis 3050 3050 580 1 April – 30 Sept 2018

In the prior year, the gain made by Matthew Fearn on the exercise of his 2,325 share options amounted to £8k.

Payments to former directors

As disclosed in last year’s directors’ remuneration report Matthew Fearn stepped down from the board and his role as chief financial officer on 29 September 2014. As disclosed last year, he will remain an employee of the company until 24 August 2016 (“date of cessation”). During that time he will not be entitled to any remuneration other than as set out below and will not be required to perform any work for the company.

In accordance with the company’s remuneration policy, an amount equal to £234,802 was paid in the prior year to Matthew Fearn based on 6 months’ salary, the value of his company car and the anticipated cost of private medical cover until his date of cessation. The company also maintained Matthew’s private medical insurance cover until he was able to procure alternative cover on comparable terms at his own cost.

Life assurance cover will be provided until the date of cessation and any permanent health insurance payments will not be paid until after the date of cessation. The company also agreed in the prior year to pay £15,650 plus VAT towards the costs of Matthew’s legal fees incurred in connection with the agreement.

No payments in respect of annual bonus for the 2014/15, 2015/16 or any future financial years was or will be paid.

As set out in last year’s report, the awards granted to Matthew Fearn under the LTIP scheme in 2012 vested at the normal date in August 2015 subject to performance and time pro-rating. The actual value received by him, based on the share price at the date of vesting, is shown in the 2014/15 section of single figure of remuneration table (updated from the estimated amount disclosed last year). In addition, also as disclosed last year, the awards granted to him in 2013 will be permitted to vest at the normal date in October 2016, also subject to performance and time pro-rating. The anticipated value of those awards, calculated on the same basis as set out above in the section headed ‘Long term incentive plans’ is as follows:

Former director Type of award Number
of shares
at grant
Number
of shares
to vest
Number
of shares
to lapse1
Estimated
value
£'000
Estimated
value of
dividend
equivalent
shares
to vest
£'000
Total
estimated
value
£'000
Matthew Fearn Core LTIP 43,290 20,894 22,396 181 13 194
Matthew Fearn Growth LTIP 43,290 15,880 27,410 138 10 148

Note:

  1. Matthew Fearn’s core and growth LTIP awards were both pro rated to reflect time served prior to his departure from the company. The resulting amounts will then vest as to 100% for the core LTIP and 76% for the growth LTIP as a result of the performance of the company against the performance targets.

Directors’ shareholdings and share interests

Under the shareholding guidelines executive directors are required to build and retain a shareholding of at least 100% of salary and must retain 50% of the net exercised value of vested LTIP awards until the requirement is met.

Details of the directors’ shareholdings are set out in the table below.

At 3 May 2015
At 1 May 2016
Director Legally owned Legally owned Subject to
performance
under the LTIP
Total Shareholding
as percentage
of salary as at
1 May 2016
Rooney Anand 467,265 529,041 403,098 932,139 671
Kirk Davis 4,000 76,874 80,874 9
Tim Bridge 1,438,531 1,526,432 1,526,432
Mike Coupe 2,000 3,690 3,690
Ian Durant 22,320 22,320 22,320
Rob Rowley 3,000 3,000
Lynne Weedall 2,000 2,051 2,051
Philip Yea 30,000 30,000

At 1 May 2016, Tim Bridge had a non-beneficial interest in 87,900 (2015: 87,900) shares, in addition to the holding shown above.

The share price as at 1 May 2016 was 818p.

There has been no change in the interests of the current directors since 1 May 2016 to the date of this report.

Other information (unaudited)

Performance graph and chief executive pay

A graph showing the total shareholder return of Greene King relative to the FTSE All-Share Index over the last seven years in shown below. We have chosen this comparator group as it is the most appropriate market index of which the company is a member.

The table below shows the total remuneration for the chief executive over each of the last seven years.

2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16
CEO single figure (£'000) 1,096 1,406 1,248 2,689 2,517 2,139 2,547
annual bonus percentage of maximum 97% 100% 75% 72% 97% 60% 97.5%
LTIP percentage of maximum 0% 0% 0% 100% 100% 100% 88%

Percentage increase in the chief executive’s remuneration

The table below shows the percentage change in the chief executive’s remuneration from the prior year compared to the average percentage change in remuneration for all four-weekly paid employees (which include pub and restaurant managers but exclude colleagues working for them in those pubs and restaurants), who have been selected as the comparator as they participate in similar remuneration arrangements to the executive directors.

Chief executive
% change
Employees
% change
Salary 9.9 6.7
Taxable benefits -9.7 4.8
Annual bonus 78.7 44.8

Relative importance of spend on pay

The following table shows the company’s actual spend on pay (for all employees) relative to dividends and group revenue.

Remuneration from other company directorships

Rooney Anand is non-executive chairman of JB Drinks Holdings Limited and received and retained £56k (2015 – £45k) from that company by way of fees. Since January 2016 he has also been a non-executive director of Wm Morrison Supermarkets plc and received and retained £12.5k from that company by way of fees during the year. Neither company is a related party of the group.

Implementation of remuneration policy in 2016/17

Salary

Although the executive directors’ salaries are generally reviewed annually, as explained above their salaries were increased in October 2015 following the acquisition of Spirit. As a result, there will be no further change to the base salaries of the executive directors for the current financial year. Their salaries with effect from 2 May 2016 (and previous year levels) are as follows:

Name Position From
2 May
2016
Percentage
increase
From
19 October
2015
Percentage
increase
From
4 May
2015
Rooney Anand Chief executive £645,000 0.0% £645,000 13.6% £567,970
Kirk Davis Chief financial officer £351,000 0.0% £351,000 7.0% £328,000

Typical pay rises for the group’s four-weekly paid employees (which include pub and restaurant managers but exclude colleagues working for them in those pubs and restaurants) were 2.0%.

Pension and benefits

The pension contributions and benefits will continue in line with the policy table above.

Annual bonus

The annual bonus opportunity will remain unchanged for 2016/17. The chief executive’s financial performance targets will continue to be based primarily on group PBTE (maximum weighting 62.5%) and free cash flow (maximum weighting 15%). In addition the chief executive will continue to have a financial target relating to the achievement of synergies from the acquisition of Spirit (maximum weighting 12.5%) and a further 10% of his bonus will be based on personal targets relating to the development of his senior management team.

The chief financial officer’s financial performance targets will be based on PBTE (maximum weighting 45%), free cash flow (maximum weighting 10%), the achievement of synergies from the acquisition of Spirit (maximum weighting 10%) and Pub Company like for like sales growth (maximum weighting 15%), and a further 20% of his bonus will be based on personal targets which relate to his performance and that of the senior finance team.

The committee has decided that the bonus targets should not be disclosed prospectively due to commercial sensitivity. The committee expects to publish the performance targets once they have ceased to be commercially sensitive, in the 2017/18 annual report.

LTIP

The awards to be made in 2016 will continue to be based on 200% of the executive director’s base salary (100% for the core LTIP and 100% for the growth LTIP), calculated by reference to the average closing prices on the three business days immediately prior to the date of the award.

The awards will vest three years after the date of the award, subject to continued employment within the group and dependent on performance over the three financial years to April 2019. There will be no vesting under the core LTIP award for EPS growth (from a base of 69.9p) of 16% or less, increasing on a straight-line basis to full vesting for growth of 25%. For the growth LTIP award, there will be no vesting for ROCE of 9.75% or less, increasing on a straight-line basis to full vesting for ROCE of 10.3%. The committee retains the discretion to scale back the vesting levels of the growth LTIP awards in appropriate circumstances.

Chairman and non-executive directors’ fees

The fees payable to the chairman and the non-executive directors in 2016/17 are as set out below. The chairman will not be entitled to any benefits.

Name Position 2015/16
base fee
2016/17
base fee
Percentage
increase
Philip Yea Chairman n/a £250,000
Mike Coupe Non-executive director £46,000 £50,000 8.7%
Ian Durant Non-executive director £53,400 £60,000 12.4%
Rob Rowley Non-executive director £46,000 £60,000 30.4%
Lynne Weedall Non-executive director £53,400 £60,000 12.4%

The increased fee for Rob Rowley reflects the additional time commitments relating to his role as senior independent director.

Approved by the board on 28 June 2016.

Lindsay Keswick
Company secretary