This section of the report sets out Halfords' remuneration policy for all of the Executive Directors and Non-Executive Directors, explaining the purpose and principles underlying the structure of remuneration packages and how the Policy links remuneration to the achievement of sustained high performance and long-term value creation.
As our Directors' Remuneration Policy (the "Policy") is unchanged from that approved by shareholders at the 2014 Annual General Meeting, we have provided a summary of the Policy to give context to decisions taken by the Remuneration Committee (the "Committee") during the year. The full Policy was in last year's Report and Accounts and can be found on our website www.halfordscompany.com
A summary of the Policy is provided in the following tables.
KEY ELEMENTS OF EXECUTIVE DIRECTORS' REMUNERATION POLICY
| Base salary | |
|---|
| Base salary is set at an appropriate level to attract and retain management of a high calibre with the necessary financial, retail, customer service and digital skill sets required to deliver a sustainable business model and drive shareholder returns. |
| Key policy features | Implementation of the Policy in the period |
|---|
| Base salaries are reviewed annually, typically with effect from 1 October, with increases broadly aligned to those in the wider workforce. Occasionally, larger increases may be considered to take account of changes in an individual's role or responsibilities, individual progression or experience or external market trends. | With effect from 1 October 2014, the salaries of the CEO and CFO were increased by 2%, mirroring the increase generally awarded to colleagues in the Support Centre. |
| Changes made |
|---|
| None |
| Benefits | |
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| To provide Executive Directors with market competitive benefits consistent with the role. |
| Key policy features | Implementation of the Policy in the period |
|---|
| Executive Directors receive various benefits as part of their package, such as a fully expensed car (or a cash allowance and a fuel card), private health insurance and life assurance. Where an Executive Director relocates to take up a role, other benefits may be proposed, such as relocation expenses, a housing allowance and school fees. | Executive Directors continued to enjoy the same benefits package as they had in the prior year. No allowances or benefits were increased. |
| Changes made |
|---|
| None |
| Pensions | |
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| To provide Executive Directors with an appropriate allowance for retirement planning. |
| Key policy features | Implementation of the Policy in the period |
|---|
| Defined employer contribution funding to the Halfords Pension Plan or payments into a personal fund or a cash allowance for Executive Directors to make their own pension arrangements. The maximum payable by the Company will be 20% of base salary. | The CEO received 20% of base salary, whilst the CFO received 15% of base salary. |
| Changes made |
|---|
| None |
| Annual Bonus | |
|---|
| To incentivise Executive Directors to achieve annual financial targets and performance against strategic goals. |
| Key policy features | Implementation of the Policy in the period |
|---|
The maximum annual bonus opportunity is 150% of base salary.
The annual bonus is based on a mix of financial and strategic measures. Measures are selected each year by the Committee to ensure continued focus on the Company's strategy. At least 50% of the bonus will be based on financial measures.
Generally the annual bonus is paid in cash, but the Committee might determine that it be paid in shares or in a mixture of cash and shares.
The Committee may require a portion of any bonus earned to be deferred. Deferred bonus awards are normally made in the form of nil cost options, which normally vest three years from award. The Committee may decide to pay dividends on those shares during the vesting period, either as cash or as additional shares.
Malus provisions apply to any deferred shares, allowing the Committee to scale back any award before exercise in circumstances that the Committee determines is appropriate such as a material misstatement of the Company's results, serious reputational damage to the Company, or where the Company suffers serious losses. | In the period, the CEO's maximum bonus opportunity was 150% of base salary, 1/3rd of which will be paid in shares and deferred for three years (with dividends reinvested), and the remainder paid in cash. The CFO's maximum bonus opportunity was 100% of base salary, paid in cash. |
| Changes made |
|---|
| During the period the Committee considered changing market practices and, accordingly, the FY16 Executive Bonus and Deferred Bonus Plan will reinforce existing malus provisions in relation to any deferred element and introduce clawback provisions for any paid element, giving the Company the power to seek redress from any individual for material misstatement, employee misconduct, serious reputational damage or miscalculation of metrics leading to an award under either scheme. |
| PSP | |
|---|
To attract and retain Executive Directors of a high calibre.
To incentivise and reward long-term performance and align Executive Directors' interests with those of our shareholders. |
| Key policy features | Implementation of the Policy in the period |
|---|
The PSP comprises annual awards, usually in the form of nil-cost options, with vesting based on performance against pre-determined conditions over a minimum three-year period.
The maximum core award is 150% of base salary. A participant has the opportunity to earn up to 1.5 × core award for exceptional performance and, therefore, the maximum annual face value of awards is 225% of base salary. | Awards granted in 2015 will vest subject to the achievement of stretching Revenue and EBITDA targets.
The vesting of 25% of the awards will be determined by the growth in the Group's Revenue and the vesting of 75% of the award will be determined by the growth in the Group's EBITDA over a three-year performance period.
In addition to achieving these targets, the vesting of awards will be subject to meeting a net debt underpin.
The core award for the CEO and CFO in the period was 150% of base salary. |
| Changes made |
|---|
| The PSP rules expire in 2015, having been in place for 10 years. The new PSP rules that shareholders are being asked to approve at the AGM will restate existing malus provisions and introduce clawback provisions, each giving the Company the power to seek redress from any individual for material misstatement, employee misconduct, serious reputational damage or miscalculation of metrics leading to an award under the PSP. |
| CEO Co-Investment Award |
|---|
| This one-off award was implemented to recruit and retain Matt Davies as CEO, aligning his interests with those of our shareholders and to reward growth in the share price. |
| Key policy features | Implementation of the Policy in the period |
|---|
A one-off award made on the appointment of the CEO. The CEO was required to invest £500,000 in Halfords shares to receive a matching share award.
The CEO was granted an award of matching shares in the form of a nil cost option that may vest in tranches following the Committee's assessment of performance.
The maximum number of matching shares which may be acquired under the award (excluding dividend equivalents) is 3.5 times the number of investment shares acquired (574,196 shares). | As Matt Davies, CEO, tendered his resignation in the period, all matching share awards were forfeited upon his leaving in April.
As previously committed, the scheme was not utilised in the recruitment of Jill McDonald, successor CEO. |
| Changes made |
|---|
| None |
KEY ELEMENTS OF NON-EXECUTIVE DIRECTOR REMUNERATION POLICY
| NED Fees | |
|---|
| Fee levels are designed to attract and retain high-calibre individuals to serve as Non-Executive Directors. |
| Key policy features | Implementation of the Policy in the period |
|---|
Fee levels are set to reflect the time, commitment and experience of the Chairman and the Non-Executive Directors, benchmarking fees against UK listed retail comparators.
The fees of Non-Executive Directors are normally reviewed every two years by the Board, following a recommendation from the CEO. The Chairman's fees are determined by the Remuneration Committee, again following a recommendation from the CEO.
The Chairman's fee includes a sum for chairing the Nomination Committee but other Committee Chairmen may receive an additional fee for that role, as does the Senior Independent Director.
The fees are normally paid in cash quarterly but may be paid in shares if this is considered appropriate. | Fees for Non-Executive Directors remained static in the period, the annual fee being £48,000, with an additional annual allowance of £5,000 for chairing the Audit or Remuneration Committee. The role of Senior Independent Director attracts a further annual allowance of £15,000.
The Chairman's annual fee remained unchanged at £176,000.
The Chairman and Non-Executive Directors do not currently receive other benefits but reasonable benefits may be provided in the future if appropriate.
Reasonable travel and subsistence expenses were reimbursed. |
| Changes made |
|---|
| None |
