Statement from Stephen Williams
The topic of executive remuneration continues to be one of real focus for both shareholders and the public in general. In the last year or so both the Financial Reporting Council and the Institute of Business Ethics have issued guidance on the topic. These are initiatives which we warmly welcome and which will inform our thinking here at Whitbread.
As you know, we are currently in the third year of the Remuneration Policy approved by shareholders at the AGM in 2014. This approval expires at the AGM in 2017, so we have begun the process of reviewing all aspects of our Remuneration Policy.
Leadership succession incentive
As reported last year, we added a new measure within the 2015/16 incentive scheme to incentivise leadership succession. Executives were able to earn up to 10% of base salary for the achievement of the stretching personal targets, and details of the performance of the executive directors can be found on page 83 of the Annual Report and Accounts.
This new incentive is in keeping with our philosophy that there are no barriers to entry and no limits to ambition and overall, I am pleased to say that this new measure has already driven improvements in Whitbread’s talent pipeline programmes. I am sure that we will see the benefits in years to come as the next generation of Whitbread’s leaders progress through the organisation.
Remuneration linked to strategy
Whitbread’s strategy is to invest in growing its leading brands, Premier Inn and Costa. The current policy has developed targets which, if delivered successfully, will create significant shareholder value.
Along with profit and returns targets, as well as the new leadership succession target, the WINcard remains a key element of our remuneration structure. It measures performance against both financial and non– financial targets and executives are incentivised based on the achievement of these targets.
As we said last year, the Whitbread Business Model shows how we intend to deliver our strategic aims. The diagram on page 77 of the Annual Report and Accounts shows how elements of the remuneration package are linked to this model.
For some years now a significant proportion of the incentives available to executives has been paid in shares, a material element of which is deferred. This remains core to our remuneration arrangements. The Committee believes that executives should be required to build a significant shareholding in the Company in order to provide greater alignment between executives and shareholders.
Annual Incentive Scheme
In prior years we have chosen not to disclose the profit targets in relation to the Annual Incentive Scheme on the grounds of commercial confidentiality, particularly as some of our competitors are private companies with no similar reporting requirements.
However, in the interest of transparency we believe that any non–disclosure should be limited to the year just ended. We must try to be as open as we can be in providing shareholders with information on targets and performance — without inadvertently damaging their own interests. This is demonstrated by the KPI disclosures which can be found on pages 50 to 53 of the Annual Report and Accounts.
As a consequence, we have decided to disclose our profit targets for the 2013/14 and 2014/15 financial years, together with our performance against those targets and this information can be found on page 82 of the Annual Report and Accounts.
Whitbread has produced another good set of results in 2015/16, with underlying profit before tax up by 11.9% to £546.3 million and underlying basic EPS up by 11.7% to 238.65 pence. Group return on capital is down from 15.7% to 15.3%. I am pleased to say that the Company remains on track to meet its growth milestones.
However, despite this good performance, Whitbread did not quite achieve its own stretching targets this year, partly due to headwinds in the last quarter. As a result, incentive payments to executives, as a percentage of the maximum available, are around 48% pts lower than last year. We believe that this demonstrates Whitbread’s determination to strive for excellence and the Committee’s determination that high rewards should only be achieved when performance is truly outstanding.
In framing Alison’s package the Committee was determined that the approved policy should be honoured and there was no cause to exercise any of the Committee’s discretions. Alison received two LTIP awards, each to the value of 175% of salary, in order to partially compensate her for awards lost as a result of leaving her previous employer.
These awards are on the same terms as the awards made to other executives in 2014 and 2015. Alison will be entitled to an annual LTIP award to the value of 200% of salary, the vesting of which will be dependant on the achievement of performance conditions, and to participate in the Annual Incentive Scheme on the same terms as the other executive directors. Her salary is £775,000 per annum.
The year ahead
As I said at the start of this report, the Committee’s priority for the year ahead will be to develop an updated Remuneration Policy to be put to shareholders at the next AGM.
We have already started this process with a session where all Committee members, together with Alison Brittain, began by ‘thinking out loud’ about the role of remuneration in driving the right behaviours and sustainable performance at all levels of the business.
The meeting was a forum for open discussion and drew the principal conclusion that Whitbread’s remuneration policies should be an expression of our culture and values.
This culture certainly rewards outstanding performance in the service of the long–term interests of the business. However, more than that, it is a culture that demands transparency in the operation of all reward policies, equity in their application and proportionality in the absolute scale of reward.
Our ambition therefore is that one of the hallmarks of the policy to be put before shareholders next year will be that it is grounded in what the Board believes is the long–term good of the Company.
I would welcome hearing from fellow shareholders with your views on this topic and look forward to presenting the updated policy to you all in 2017.
Thank you for your support.