Part A: Unaudited information

(a) Remuneration Committee

Role and operations: The Remuneration Committee's role and duties, together with other information regarding the operation of the Remuneration Committee, are described in the statement of corporate governance, and is incorporated into this Directors' remuneration report by reference.

(b) Remuneration policy

Policy outline: The Company's current remuneration policy for the Executive Directors is to provide remuneration packages for Executive Directors and other senior executive managers in the Group which:

  • align management's interests with those of shareholders by incentivising management to deliver the Group's long-term strategy and enhance shareholder value;
  • provide management with the opportunity to earn competitive remuneration through variable based pay;
  • provide rewards comparable with those of other similar companies to the Group; and
  • enable the Group to attract and retain management of the calibre required to run the business and drive shareholder value creation.

Any Director who is appointed to any executive office shall be entitled to receive such remuneration (whether by way of salary, commission, participation in profits or otherwise) as the Board or any committee authorised by the Board may decide, either in addition to or in lieu of their remuneration as a Director. In addition, any Director who performs services which in the opinion of the Board or any committee authorised by the Board go beyond the ordinary duties of a Director, may be paid such extra remuneration as the Board or any committee authorised by the Board may determine. Each Director may be paid their reasonable travelling, hotel and incidental expenses of attending and returning from meetings of the Board, or committees of the Board or of the Company or any other meeting which as a Director they are entitled to attend, and shall be paid all other costs and expenses properly and reasonably incurred by them in the conduct of the Company's business or in the discharge of their duties as a Director. The Company may also fund a Director's or former Director's expenditure and that of a Director or former Director of any holding company of the Company for the purposes permitted under the Companies Act and may do anything to enable a Director or former Director or a Director or former Director of any holding company of the Company to avoid incurring such expenditure as provided in the Companies Act.

The Board or any committee authorised by the Board may exercise the powers of the Company to provide benefits by the payment of gratuities or pensions or by insurance or in any other manner for any Director or former Director or their relations, dependants or persons connected to him, but no benefits (except those provided for by the Articles) may be granted to or in respect of a Director or former Director who has not been employed by or held an executive office under the Company or any of its subsidiary undertakings or their respective predecessors in business without the approval of an ordinary resolution of the Company.

Performance-related versus fixed remuneration: It is the Company's policy that a substantial proportion of the Executive Directors' remuneration should be variable and performance related in order to encourage and reward superior business performance and shareholder returns and that remuneration should be linked to both individual and Company performance.

Employee share schemes: Currently, the Company's remuneration policy for Executive Directors is that a relatively large proportion of the Executive Directors' remuneration be linked to their shareholding in the JSOS incentive scheme. For the purposes of Listing Rule 9.8.8(10), the Company's current policy is that all employees, including Executive Directors, are issued options under the ESOS shortly after commencing employment with the Group. The Company does not have an arrangement for the annual issue of options or shares to Executive Directors under the existing employee share schemes (namely ESOS and JSOS schemes). Exceptionally, additional options may be granted to senior employees (but not Executive Directors) under the ESOS, from time-to-time. The Company does not have any other long-term incentive schemes.

Review of remuneration policy: Since the end of the period, the Remuneration Committee has appointed new external remuneration advisers, Deloitte LLP, to advise the Remuneration Committee. The mandate, which is expected to commence after the date of this annual report, will entail the review of the Company's existing remuneration policies and the development of a strategy and policy for Executive Director remuneration for the medium-term. The outcomes of this review will be reported to the Remuneration Committee in due course. In the meantime, the Company's existing remuneration policy outlined in this Directors' remuneration report will continue to apply.

Executive Director remuneration: The current remuneration of the Executive Directors consists of the following elements which are outlined in more detail in this report:

  • base pay;
  • bonus pay under the annual incentive plan;
  • pension;
  • incentivisation under the JSOS share scheme as well other Group-wide share schemes namely ESOS and Sharesave Scheme; and
  • various other benefits including Group-wide employee benefits.

This broad remuneration framework did not change from the previous period, except for the introduction of a formal bonus plan (instead of a discretionary bonus plan).

The Remuneration Committee considers that these components in aggregate ensure that there is sufficient balance between reward for short-term success and long-term growth of the Group.

Non-Executive Director remuneration: The Non-Executive Directors' remuneration consists of a Director fee (including in the case of each Board committee chairman an additional fee for chairing a Board committee). Their remuneration does not include bonus payments, options or shares. The remuneration policy for Non-Executive Directors did not change during the period.

Base pay

Basic salary for Executive Directors takes into account the individual's experience, roles, responsibilities and performance. This is normally reviewed annually unless their responsibilities change. For an Executive Director the Remuneration Committee considers base salary and increases based on the median level paid for comparable roles within the market and the FTSE 250.

One of the Remuneration Committee's duties is to review and note annually, remuneration trends across the Group. Following the end of the period, the Remuneration Committee received a report from management on the Group's current framework for pay, share schemes and other employee benefits for senior management and the Group generally and management's proposals for changes to these in the subsequent period. The Remuneration Committee took this information into account in making its recommendations on Executive Director base pay.

Changes in base pay: The base pay for Executive Directors did not change over the course of the period, and has not increased since December 2009. The Remuneration Committee made this recommendation on the basis of a number of factors, having first consulted the Chief Executive Officer. In light of the lower than forecast trading performance of the business and the operational problems faced by the business during the period, the Remuneration Committee felt that keeping base pay unchanged for the time being was commensurate with such lower than targeted performance and more in keeping with the remuneration trends within the Group (which saw moderate increases during the period).

The base pay of Executive Directors will be subject to further review in the subsequent period as part of the review to be undertaken by the new remuneration advisers.

Director fees: Each of the Directors shall be paid a fee at such rate as may from time-to-time be determined by the Board, but the aggregate of all such fees so paid to the Directors shall not exceed £1 million per annum or such higher amount as may from time to time be decided by ordinary resolution of the Company. The Executive Directors are not currently paid any fees on account of holding an office.

Non-Executive Directors: The Board determines the remuneration of the Non-Executive Directors within the limits set in the Company's Articles, noted above. The Board considers that the remuneration for Non-Executive Directors reflects the time commitment and responsibilities of the role.

The fees paid to Non-Executive Directors during the period are set out in the remuneration table in Part B of this report.

Annual incentive plan

As foreshadowed in the last annual report, the Remuneration Committee approved that a new Executive Director annual incentive plan be put in place for the period.

The new annual incentive plan was designed to include performance targets that were very closely aligned with the Company's expected financial results and the Company's strategy. The 2011 financial performance measures related to the Group's sales growth and EBITDA for the period. A smaller but meaningful proportion of the overall bonus was tied to a strategic target concerning the achievement of certain budget and timing milestones for the CFC2 project.

The Remuneration Committee, in setting such performance targets, sought to ensure that there was a balance between achieving the Company's shorter-term objective of delivering the financial projections for 2011 and the Company's critical strategic objective of growing the business in the medium-term by expanding capacity with the development of CFC2. It was anticipated that these targets would encourage and incentivise management to deliver the Group's business priorities and so help to keep them aligned with the interests of the Company's shareholders.

The annual incentive plan requires the Group to achieve stretching targets in order for the Executive Directors to be eligible to be paid the maximum bonus (being a percentage of salary, 100% or below as applicable). Bonus payments, if made, are payable in cash shortly after the approval of this annual report.

The annual incentive plan requires that the Remuneration Committee take into account the performance of the Group and the performance of the individual Executive Directors to determine the amount to be awarded each year.

Bonus payments for the period: On the recommendation of the Remuneration Committee there were no bonus payments made to the Company's Executive Directors under the 2011 annual incentive plan. The annual incentive plan for the period stipulated that if the Group did not achieve positive earnings before tax for the period irrespective of the achievement of other performance targets, no bonuses would be paid. As this was the case, no bonuses were paid to the Executive Directors.

2012 annual incentive plan: Following the period end, the Remuneration Committee approved the implementation of an annual incentive plan for the Executive Directors applicable to the 2012 period. This plan broadly reflects the framework of the 2011 annual incentive plan. In addition to the performance measures related to sales growth, profitability and strategic objectives, the 2012 annual incentive plan will also include customer service based targets, which reflects the Company's renewed focus on maintaining high levels of customer service during the 2012 period. The maximum bonus levels payable under the 2012 annual incentive plan are unchanged from those applicable in the 2011 annual incentive plan.

Non-Executive Directors: Neither the Chairman nor any Non-Executive Director were paid a bonus during the period.

Director shareholding

While the Company does not have a formal policy requiring Directors to own shares in the Company, in keeping with the Company's philosophy of encouraging employee share ownership across the Group, all Directors are encouraged to invest in the Company's shares.

The Executive Directors and most of the Non-Executive Directors, collectively, hold a substantial shareholding in the Company (as noted below), which helps to align their interests with those of shareholders of the Company.

Pension

Ocado contributes to the personal pension plans of its staff through a defined contribution Group personal pension scheme which is administered by Standard Life. Employer contributions to the scheme are a percentage of salary based on length of scheme membership. The Group's contributions on behalf of Executive Directors are on the same terms as for other employees. All the Executive Directors participate in the Group's pension plan.

The details of pension payments made in respect of the Executive Directors are set out in the table in Part B of this report.

(c) Share plans

The Group currently operates three employee share incentive schemes, described below. The Executive Directors participate in all of these share schemes.

Further information on the Group's share schemes can be found in Note 4.7 to the consolidated financial statements.

The remuneration arrangements for Non-Executive Directors do not include share options or shares. However, at the period end date a Non-Executive Director, Robert Gorrie, held share options in the Company which were granted to him while he held the position of Executive Director of the Company. These options expired since period end and therefore are no longer capable of being exercised.

ESOS

The Ocado 2001 Executive Share Option Scheme ("ESOS") is the Group's share option scheme approved by HMRC, which was established by Ocado in 2001. Options may also be granted under the terms of a schedule, which is not approved by HMRC.

The employees who are eligible to participate in the ESOS are all the Executive Directors and employees, including the officers and employees of Ocado's subsidiaries.

In the case of Directors no grant of options shall be made to them without the consent of the Remuneration Committee, as provided in the ESOS rules. The number of any options granted to Directors is set by the Remuneration Committee.

All Executive Directors participate in the ESOS. Details of their holdings in the ESOS are set out below. No options under the ESOS were granted to Directors during the period. The Remuneration Committee does not, as at the date of this report, have any intention of making an award of options under the ESOS scheme to the Executive Directors.

Individual award limits under the ESOS are discussed below.

JSOS

The JSOS is a share ownership scheme under which its participants and Appleby Trust (Jersey) Limited, the EBT Trustee, acquire separate beneficial interests in ordinary shares in the Company.

The JSOS is intended to retain and incentivise the Group's Executive Directors, the Management Committee and certain senior employees. The employees eligible to participate in the JSOS are all bona fide employees of the Company or its subsidiaries.

The Remuneration Committee oversees the operation of the scheme, and is responsible for deciding the identity of the participants and the number of ordinary shares that may be acquired by them.

All Executive Directors participate in the JSOS. No shares were issued under the JSOS to the Directors during the period. Details of their shareholdings in the JSOS are set out below.

Individual limits: While the JSOS scheme rules do not specify limits applicable to individual participants in the scheme, the JSOS rules have overriding limits on the number of shares that may be allocated under the JSOS. These dilution limits, which were recommended by the Remuneration Committee and approved by the Company's shareholders at the annual general meeting on 11 May 2011, are consistent with those in the Company's other employee share schemes and within the guidelines of the institutional shareholders.

Up to 7.5% of the Company's issued ordinary share capital may be held under the JSOS. In addition, the JSOS is subject to the following limits: (i) on any date, the aggregate nominal amount of new ordinary shares which may be allocated under the JSOS may not, when added to the nominal amount of new ordinary shares allocated in the previous ten years under all employee share schemes of the Group, exceed 10% of the Company's issued share capital; and (ii) on any date, the aggregate nominal amount of new ordinary shares which may be allocated under the JSOS may not, when added to the nominal amount of new ordinary shares allocated in the previous ten years under the JSOS and any other employee share scheme of the Group established for the benefit of selected employees, exceed 5% of the equity share capital of the Company. For these purposes, no account is taken of ordinary shares allocated prior to the Admission of the Company's ordinary shares to the Official List of the UK Listing Authority.

The Remuneration Committee consider that these limits place significant constraint on the size of potential awards of shares to individuals (including the Executive Directors) under the JSOS.

The applicable dilution limits in paragraphs (i) and (ii) set out above also apply to the Sharesave Scheme and the ESOS.

Sharesave Scheme

The Sharesave Scheme is a savings-related share option plan and is approved by HMRC. Under this scheme, the Company or the trustees of an employee trust may grant options over shares in the Company to eligible employees, including Executive Directors of the Company or its subsidiaries. To obtain an option an eligible individual must agree to save a fixed monthly amount for three years. The amount saved will determine the number of shares over which the option is granted.

All Executive Directors participate in the Sharesave Scheme. Their participation commenced with options granted in October 2010 and a savings contract period that started in December 2010. A second invitation to employees was made under the Sharesave Scheme in February 2012. Employees were offered the opportunity to participate at an option price which was discounted by 10% from the applicable market value of the Company's shares at the date of grant.

Non-employee share options

In addition to the options granted under the ESOS outlined above, Ocado had granted to certain non-employees options to subscribe for either ordinary shares or convertible preference shares in Ocado Limited (and following the reorganisation that resulted in the Company becoming the holding company of the Group, in the Company). Options over shares in Ocado Limited were granted to Andrew Bracey in 2002 and 2004 well before he became a Director in 2009. Following the reorganisation that resulted in the Company becoming the holding company of the Group, such options are now options over ordinary shares in the Company.

Share ownership of Directors

As outlined below, all of the Executive Directors own shares in the Company and collectively they have a substantial shareholding in the Company's issued share capital, as at the date of this annual report.

Almost all of the Non-Executive Directors own shares in the Company.

Performance conditions in share schemes

JSOS: The JSOS was structured to incentivise the participants (including the Executive Directors) over the longer term, by allowing the participant to benefit from the increase (if any) in the value of the shares above a pre-determined market price (the "hurdle price", noted in the table below). The hurdle prices were set by the Remuneration Committee. Interests in the Company' shares are granted in tranches, each vesting a year apart with a higher hurdle rate for each tranche to reflect the targeted growth in the Company's share price over the four year period. Details of this for the Executive Directors are set out in the table in Part B below.

As described in detail in the Company's Prospectus, if a participant leaves during the currency of the scheme, he may lose all or part of his beneficial interest, depending on the circumstances in which he leaves (that is, whether he is a "good leaver", "bad leaver" or "very bad leaver"). Apart from these leaver provisions and the vesting period for each tranche, there are no performance conditions attaching to the shares in the JSOS.

Given the participants invest their own money or take a Company loan to pay for their allocation of shares in the JSOS (except that no loan was offered to an Executive Director), they stand to lose money under the JSOS if the hurdles are not met which is unlike most other employee share schemes. The Directors believe that the JSOS helps to properly incentivise its senior employees and that its structure helps align directly their interests with those of shareholders.

There are currently no performance conditions in existence in connection with the Company's other share schemes, including the ESOS.

Performance graph

The following graph shows the total shareholder return ("TSR") performance of an investment of £100 in the Company's shares from its Admission on 26 July 2010 to the end of the period compared with an equivalent investment in the FTSE 250 Index (which was chosen because it represents a broad equity market index of which the Company is a constituent). The TSR was calculated by reference to the movements in share price. The Company has not paid a dividend in the period concerned so the Company's TSR does not include a dividend amount. The Company's TSR was calculated using a fair method.

Graphs-2011-share-performan.jpg

(d) Service contracts

Executive Directors' service contracts

Ocado Limited has entered into service contracts with each of the Executive Directors for the provision of services to the Group. Each of the contracts was entered into on 22 June 2010, except in the case of Mark Richardson. Mark Richardson joined the Board as an Executive Director on 23 January 2012, following the period end and his new service contract was entered into with Ocado Limited, effective then.

The Company's Executive Director remuneration policy provides that if their service contracts are terminated without cause, Ocado Limited can request that they work their notice period, take a period of garden leave or can pay an amount in lieu of notice equal to one times their basic salary for the remainder of their notice period. These payments would be subject to deductions for tax and national insurance. The contracts contain restrictive covenants, which continue for 12 months after termination. The contracts do not contain any specific provisions relating to a change of control of the business.

The terms of these contracts, together with the dates on which each Executive Director (including Mark Richardson who did not serve as a Director during the period) was appointed by Ocado Limited and the Company respectively, are set out below:

DirectorDate of
appointment
by Ocado
Limited
Date of
appointment
by Ocado
Group plc
Unexpired term (months)Notice
period by
Company
(months)
Notice
period by
Director
(months)
Current age
Jason Gissing 02/02/2000 09/03/2010 Continuous employment
until terminated
by either party
12 6 41
Tim Steiner 13/04/2000 09/03/2010 Continuous employment
until terminated
by either party
12 6 42
Neill Abrams 08/09/2000 10/12/2009 Continuous employment
until terminated
by either party
12 6 47
Andrew Bracey 03/11/2009 10/12/2009 Continuous employment
until terminated
by either party
12 6 45
Mark Richardson 03/02/2012 23/01/2012 Continuous employment
until terminated
by either party
12 6 47

As explained in the statement of corporate governance, the Company announced on 23 January 2012 that the Company's Chief Financial Officer, Andrew Bracey, resigned from the Board. Andrew Bracey is expected to leave the Company following the date of this annual report.

All of the Executive Directors, except Andrew Bracey, have been proposed for re-election at the Company's AGM.

Non-Executive Directors' letters of appointment

The Chairman and the Non-Executive Directors do not have service contracts and were appointed to the Company by letter of appointment. The details of each Non-Executive Director appointment (including those that served as a Director during the period) are set out below:

DirectorDate of
appointment
by Ocado
Limited
Date of
appointment
by Ocado Group plc
Current
term
Notice
period
Current age
Robert Gorrie 01/04/2000 09/03/2010 3 years 1 month 52
David Young 13/10/2000 09/03/2010 3 years 1 month 70
Jörn Rausing 13/03/2003 09/03/2010 3 years 1 month 52
Lord Grade 15/09/2006 09/03/2010 3 years 6 months 69
David Grigson 03/02/2010 09/03/2010 3 years 1 month 57
Ruth Anderson 09/03/2010 3 years 1 month 58
Patrick Lewis 09/03/2010 3 years 1 month 46
Douglas McCallum 03/10/2011 3 years 1 month 45

The Company appointed three Non-Executive Directors to the Board, two of which are to take effect after period end. Douglas McCallum joined the Board on 3 October 2011 as a Non-executive Director. Wendy Becker was appointed to the Board as a Non-Executive Director, such appointment to take effect on 30 March 2012. On 14 March 2012, the Company announced the appointment of Alex Mahon, 38, as a new Non-Executive Director, such appointment to commence on 1 June 2012.

The Company also announced on 23 January 2012, the resignation of David Young, a Non-Executive Director from the Board, such resignation to take effect on the 23 May 2012, being the date of the Company's AGM. Patrick Lewis resigned from the Board of the Company on 15 February 2011.

(e) Directors' interests in ordinary shares

The beneficial interests of Directors, serving at the end of the period, were:

DirectorOrdinary
shares of
2 pence each
27 November
2011
Ordinary
shares of
2 pence each
28 November
2010
Tim Steiner 14,396,400 14,396,400
Jason Gissing 9,657,600 9,657,600
Andrew Bracey 812,555 812,555
Robert Gorrie 627,900 627,900
Neill Abrams 360,600 360,600
Lord Grade 329,110 189,110
Ruth Anderson 50,000 26,666
David Young 24,200 13,400
David Grigson 15,000 15,000

There have been no changes in the Directors' interests in the shares issued or options granted by the Company and its subsidiaries between the end of the period and the date of this annual report, except an increase in Neill Abrams' shareholdings and decrease in his holding of options under the ESOS due to two exercises of options in early February 2012. These share options were due to expire on 6 February 2012. Neill exercised 175,000 options at an exercise price of 100.00 pence per ordinary share and subsequently sold some of the resulting ordinary shares to fund the cost of exercising. This resulted in him holding 3,354 additional ordinary shares in the Company after the period end. For 90,000 options, 87,022 ordinary shares were sold at a market price of 107.00 pence per ordinary share. For 85,000 options, 84,624 ordinary shares were sold at a market price of 101.65 pence per ordinary share.

No Director had an interest in any of the Company's subsidiaries at the beginning or end of the period.

In addition to the above holdings certain of the Directors are discretionary beneficiaries under trusts holding ordinary shares of the Company. The interests of these discretionary beneficiaries under their respective trusts are as follows:

DirectorOrdinary
shares of
2 pence
each
27 November
2011
Ordinary
shares of
2 pence
each
28 November
2010
Jörn Rausing 62,740,777 59,080,100
Tim Steiner 13,291,200 15,291,200
Jason Gissing 7,659,300 7,659,300
Neill Abrams 1,100,800 1,100,800

In addition to the above holdings, Caryn Abrams (wife of Neill Abrams) holds 75,000 ordinary shares, and is a discretionary beneficiary of a trust holding 133,100 (2010: 133,100) ordinary shares of the Company.