Chair of the Remuneration Committee
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.
This report sets out the remuneration paid to the Directors for the year ended 30 June 2018 and the remuneration policy for the forthcoming financial year and beyond.
Membership and attendance
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 Remuneration Committee meets formally three times a year and on such other occasions as may be required.
|Terry Roydon||Simon Bennett|
|No. of meetings||3||3|
Role of the Committee
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 Gary Skinner, Managing Director and independent advice from external consultants, where it considers this to be appropriate.
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 considers 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 50% in cash and as 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 Director leaves the Company as a "bad leaver", but would not be subject to any 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.
Awards under the unapproved share option scheme are made on a periodic basis to the Company's 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 (Inland Homes 2013 Limited) between the Company and the Group's 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, the aim of which is to provide tax benefits to employees and Directors who achieve growth for their employing companies.
The awards in relation to 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 be awarded.
2. Vesting and exchange of Growth Shares
Subject to the Performance Targets being met, the awards in relation to the Growth Shares will vest in accordance with the Articles of Association of Inland Homes 2013 Limited 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.
Originally, when the 2013 LTIP was established, the Executive Directors participating in the 2013 LTIP and their allocations of Growth Shares were as follows: Stephen Wicks 47%, Nishith Malde 38% and Paul Brett 15% (collectively the "Participants"). Paul Brett, who remains as a consultant to the Group, stepped down from the Board with effect from 16 April 2018 prior to which he exchanged 79 Growth Shares for 896,689 ordinary shares. Consequently, Mr Brett's allocation of any future Growth Shares has lapsed and the aggregate number of ordinary shares now issuable under the 2013 LTIP has been reduced by 1,702,576 ordinary shares to 9,647,928 ordinary shares (previously 11,350,504 ordinary shares).
Of these, 6,000,000 ordinary shares were available to be issued to the Participants, under the terms of the 2013 LTIP, as the Performance Targets had been met. Of this aggregate number, 896,689 ordinary shares were issued to Paul Brett on 9 April 2018 with 3,311 ordinary shares having lapsed as explained below. As a consequence, at 30 June 2018 there were 9,647,928 ordinary shares available to be issued to the Participants (5,100,000 ordinary shares which have been earned and 4,547,928 available to be earned subject to the performance criteria being met), equivalent to 4.72% of the total issued ordinary share capital at the year end. Following the financial year end, a further 2,814,924 ordinary shares were issued to Stephen Wicks on 19 July 2018 and consequently there are now 6,833,004 ordinary shares available to be issued to the remaining Participants subject, where relevant, to the performance criteria being met. Of this number, 2,285,076 ordinary shares have been earned and 4,547,928 ordinary shares are available to be earned.
Due to an anomaly in the way in which the 2013 LTIP was drafted, fractional entitlement of a Growth Share can't be exchanged for ordinary shares and therefore the actual number of ordinary shares issued to Paul Brett was 896,689 (shown as 900,000 in last year's financial statements) and to Stephen Wicks was 2,814,924 (shown as 2,820,000 in last year's financial statements). It is the present intention of the Remuneration Committee to issue any earned but unallocated ordinary shares created by this anomaly to the existing Participants (which currently total 5,076 ordinary shares) when the 2013 LTIP is closed in accordance with its terms.
Any awards to the Executive Directors under the 2013 LTIP are subject to good and bad leaver provisions and Paul Brett was determined to have been a good leaver and was, as a result, entitled to retain the ordinary shares that he was entitled to in accordance with the rules of the scheme. Gary Skinner, who recently joined the Group Board, will not be entitled to any awards under the 2013 LTIP.
4. 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. Each annual performance period ends 20 working days after the announcement of preliminary results for each year, usually therefore in October of each year.
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 at a price of 60.5 pence per ordinary share (the "First Target Performance Price"), being 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 as at 30 June 2018 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 shares
|1 July 2013||30% above Initial Base Price||1,700,0001|
|1 July 2014||15% compounded||1,700,0001|
|1 July 2015||10% compounded||1,700,0001|
|1 July 2016||10% compounded||1,700,0001|
|1 July 2017||10% compounded||1,700,0001|
|1 July 2018||10% compounded||1,147,9282|
1 Previously 2,000,000 ordinary shares.
2 Previously 1,350,504 ordinary shares.
3 The total number of ordinary shares issuable under the 2013 LTIP has now been reduced by 1,702,576 (previously 11,350,504), as one of the original participants has left the Group as explained more fully in note 3 "Participants".
The total number of shares in the Company which may become issuable on the exchange of Growth Shares (assuming vesting in full) at the year end is 9,647,928 ordinary shares (previously 11,350,504 ordinary shares) and in aggregate 2,814,924 ordinary shares have been issued to the Participants after the year end, leaving a further 6,833,004 ordinary shares to be issued, equivalent to 3.38% of the current issued ordinary share capital of the Company.
In order for all the 9,647,928 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 when the 2013 LTIP was introduced. This increase is approximately equivalent to a 14% annual compound rise in the ordinary share price.
6. 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.
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
Each 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 Gary Skinner, and 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 to Stephen Wicks or Nishith Malde under the 2013 LTIP.
Inland Homes now has four Non-executive Directors, namely Terry Roydon, the Chairman and Head of the Audit Committee, Simon Bennett, Head of the Remuneration Committee, and Laure Duhot and Brian Johnson, who bring a wealth of commercial property experience and who both joined the Board on 27 June 2018.
The Non-executive Directors have letters of appointment, which initially are for a three-year period and thereafter on either three or 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 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 2018
A review of the financial results for the year ended 30 June 2018 as more fully set out in the Chairman's Statement, the Chief Executive's Review and the Finance Director's Review indicate that this financial year has been another good one for Inland Homes, with revenue of £147.4m (2017: £90.7m) up 62.5%, recurring profit before tax of £19.3m (2017: £18.1m) up 6.6%, undiluted EPRA NAV per share of 102.28p (2017: 96.22p) up 6.3% and total dividends of 2.20p for the year (2017: 1.70p) up 29.4%. In light of the 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, the bonuses for Stephen Wicks and Nishith Malde (and Gary Skinner in future years) will be settled as 50% in cash and as 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 bonus for Gary Skinner, who joined the Board at the end of the Group's financial year in May 2018, has been approved on a discretionary basis by the Remuneration Committee and will be settled in cash. In future years any bonuses awarded to Gary Skinner will be treated in the same way as for the other Executive Directors, namely as being part of the Deferred Bonus Plan as set out above. 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.
The basic salaries of Stephen Wicks and Nishith Malde have remained unchanged for the past five years. In recognition of this, with effect from 1 July 2018 the Remuneration Committee have awarded an increase in their basic annual salaries from £290,000 to £320,000 (excluding national insurance contributions), equivalent to a cost of living rise of approximately 2% per annum over a five-year period.
Directors' remuneration table (audited)
The remuneration of each of the Directors during the year ended 30 June 2018 is set out in detail below:
& social security
|S D Wicks1||348||40||29||–||417||55||472||591|
|G Skinner (appointed on 9 May 2018)||42||35||2||1||80||11||91||–|
|P Brett (resigned on 16 April 2018)||156||–||9||16||181||25||206||371|
1 S Wicks and N Malde have taken their pension entitlement as part of their salaries. During the period 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:
|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 2017||–||1,500,000||400,000|
|Exercised during the year||–||–||–|
|Total options outstanding at 30 June 2018||–||1,500,000||400,000|
On 18 July 2018 Gary Skinner was granted options over 250,000 ordinary shares at a price of 67.0 p per share.
The initial price for determination of awards under the 2013 LTIP was 46.5 pence per ordinary share. In aggregate, to date, the conditions for the issue of the following 6,000,000 of the 11,350,504 new ordinary shares that can be issued in exchange for vested Growth Shares have been met in accordance with the rules of the 2013 LTIP are as follows:
|Ordinary shares of|
As explained above, Stephen Wicks was issued 2,814,924 ordinary shares on 19 July 2018 and Paul Brett was issued 896,689 ordinary shares on 9 April 2018. The balance of 3,311 ordinary shares for Paul Brett have lapsed. The balance of 5,076 ordinary shares which have been earned by Stephen Wicks but not yet allocated is intended to be issued to him in the future as described more fully above.
The Performance Target under the 2013 LTIP for the financial year ended on 30 June 2017, which would have earned the equivalent of a further 2,000,000 ordinary shares, was not achieved as the Inland Homes plc share price did not exceed the necessary threshold price of 84.1 pence per ordinary share for the qualifying period. Under the terms of the 2013 LTIP, the awards in this period can be earned in future periods if the share price exceeds the threshold price for the qualifying period. The threshold price for the financial year ended 30 June 2018, which would earn a further 1,700,000 ordinary shares, is 92.5 pence per ordinary share. The threshold price for the new financial year ending 30 June 2019, which would earn a further 1,147,928 ordinary shares, is 101.8 pence per ordinary share.
There remain a total of 6,833,004 new ordinary shares that can be issued in exchange for vested Growth Shares (2,285,076 ordinary shares) and Growth Shares where the conditions have yet to be met in accordance with the rules of the 2013 LTIP (4,547,928 ordinary shares).
This report was approved by the Board on 19 September 2018 and signed on its behalf by:
Chair of the Remuneration Committee