Directors' remuneration report

This Directors' remuneration report, prepared by the Remuneration Committee on behalf of the Board, has been drawn up in accordance with the Combined Code, Schedule 8 of the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008, the Listing Rules and the Disclosure and Transparency Rules.

This Directors' remuneration report has been approved by both the Remuneration Committee and by the Board, and a resolution to approve the report will be proposed at the AGM of the Company on 11 May 2011.

Part A: Unaudited information

(a) Remuneration Committee

Role

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

(b) Remuneration policy

The remuneration policy of the Remuneration Committee and of the Board 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 relatively 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.

Like the Board, the Remuneration Committee is able to take into account various environmental, social and other factors in making its decisions about Executive Director remuneration.

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.

The remuneration consists of the elements outlined below.

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.

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 an update from management on the reviews being undertaken by management on pay, share schemes and other employee benefits for the Group generally. Although the pay of employees of the Group was not specifically considered by the Remuneration Committee in making its recommendations on Director remuneration during the period, the Remuneration Committee expects that it will receive further reports from management on pay trends and reviews being undertaken by the Group, in order for this to be taken into account by the Remuneration Committee in future Director remuneration reviews.

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.

Annual bonus

The Remuneration Committee takes into account the performance of the Group and the performance of the individual Executive Directors to determine the amount to be awarded each year. The Remuneration Committee also takes into account median levels of remuneration compared to the Group's retail peers.

On the recommendation of the Remuneration Committee the Board approved bonus payments to the Company's four Executive Directors totalling £640,000 for the period, consistent with the Company's practice for awarding Executive Director bonuses in previous periods, including before the Company's Admission. The individual amounts are detailed in the Directors' remuneration table.

These bonuses reflected the Executive Directors' achievement in growing the Group's sales in line with internal targets and moving the business into profitability in the final quarter of the period. They also recognised the achievement of the Company's strategic objectives, which in the period included the IPO of the Company and in the process, raising funds to enable continued rapid expansion of the business. The Board was also mindful of the fact that, after these payments, Executive Director pay plus bonuses for the period was essentially unchanged from the previous year (except in the case of Andrew Bracey, who joined the Group in November 2009).

Applicable to the Company's first full period post-Admission, the Board has put in place a structured annual incentive scheme for the Executive Directors. For the 2011 period, potential cash bonus payments will be calculated from performance measures related to sales growth, profitability and strategic objectives. The selection of these measures reflects the strategic priorities for the business at this stage of its development.

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 with the exception of Andrew Bracey.

(c) Share plans

The Group currently operates three employee share incentive schemes, described below. Further information on the Group's share schemes can be found in Note 24 to the consolidated financial statements.

Executive share ownership scheme (the "ESOS")

The ESOS is the Group's share option scheme approved by HMRC, and was established by Ocado in 2001. Options may also be granted under the terms of a schedule, which is not so approved.

The employees who are eligible to participate in the ESOS are all Ocado's Executive Directors and employees, including the employees of Ocado's subsidiaries. Directors and employees may not participate if, in the period of 12 months before grant of the option, they had a material interest (broadly owning or controlling 25 per cent of its share capital) in Ocado or a company which owns or controls Ocado and that company was a close company.

Subsequent to the last set of share options under the ESOS having been granted to a Director in November 2009 the Board has resolved that options will not be granted to Directors under the ESOS without first setting appropriate performance targets (for example achieving a target contribution per order or the Group achieving EBITDA targets). The number and exercise price for any options granted to Directors is set by the Remuneration Committee. All Executive Directors participate in the ESOS.

JSOS

The set up of the JSOS was approved by a resolution of the Board on 13 January 2010 following recommendations made by the Remuneration Committee that a new executive incentive scheme be established to incentivise and retain its four Executive Directors and select members of senior management of the Group. The scheme was approved by shareholders by written resolution in January 2010. The terms of the JSOS were approved by the Remuneration Committee who oversee the operation of the scheme.

The JSOS is a share ownership scheme under which its participants and Appleby Trust (Jersey) Limited, EBT Trustee, acquired separate beneficial interests in 32,476,700 ordinary shares which represented, at the time of issue, 7.5 per cent of the then issued share capital of the Company. These ordinary shares were divided into four tranches, vesting over four years.

The employees eligible to participate in the JSOS are all bona fide employees of the Company or its subsidiaries, including Executive Directors.

The Remuneration Committee is responsible for deciding the identity of the participants and the number of ordinary shares that may be acquired. All Executive Directors participate in the JSOS.

Sharesave Scheme

The Sharesave Scheme was approved by a written resolution of the shareholders passed on 23 June 2010, and launched on 30 September 2010. It 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.

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 before he became a Director. 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.

Performance conditions in share schemes

Under the JSOS, a tranche vests in each of the four years (as set out in the table in Part B, below) if the participant in the JSOS remains employed by the Company. 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, there are no performance conditions attaching to the shares in the JSOS.

Performance graph

The following graph shows the 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). TSR was calculated by reference to the movements in share price.

Performance Graph

(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.

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 was appointed by Ocado Limited and the Company respectively, are set out below:

Director Date
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 40
Tim Steiner 13/04/2000 09/03/2010 Continuous employment until terminated by either party 12 6 41
Neill Abrams 08/09/2000 10/12/2009 Continuous employment until terminated by either party 12 6 46
Andrew Bracey 03/11/2009 10/12/2009 Continuous employment until terminated by either party 12 6 44

Non-Executive Directors' letters of appointment

The Chairman and the Non-Executive Directors do not have service contracts and were appointed by letter of appointment, the details of which are set out below:

Director Date
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 51
David Young 13/10/2000 09/03/2010 3 years 1 month 69
Jörn Rausing 13/03/2003 09/03/2010 3 years 1 month 51
Lord Grade 15/09/2006 09/03/2010 3 years 6 months 68
Patrick Lewis 21/10/2009 09/03/2010 3 years 1 month 45
Michael Robarts 19/01/2010 09/03/2010 3 years 1 month 66
David Grigson 03/02/2010 09/03/2010 3 years 1 month 56
Ruth Anderson 09/03/2010 3 years 1 month 57

Tom Clayton, Jonathan Faiman and Jeremy Frampton resigned from the Board of Ocado Limited on 9 March 2010. Michael Robarts resigned from the Board of the Company on 26 July 2010. Patrick Lewis resigned from the Board of the Company on 15 February 2011.

(e) Directors' interests in ordinary shares

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

Director Ordinary shares
of 2 pence each
28 November
2010
Ordinary shares
of 1 pence each
29 November
2009
Tim Steiner 14,396,400 143,964
Jason Gissing 9,657,600 96,576
Andrew Bracey 812,555 7,500
Robert Gorrie 627,900 13,529
Neill Abrams 360,600 4,356
Lord Grade 189,110 780
Ruth Anderson 26,666
David Grigson 15,000
David Young 13,400
Patrick Lewis
Jörn Rausing

On 9 February 2010 the ordinary shares in Ocado Limited were exchanged for ordinary shares in the Company on a 1:100 basis with a nominal value of 2 pence per ordinary share.

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 18 March 2011, except the sale of 2 million shares by the Steiner 2008 Millennium Trust, of which Tim Steiner, is one of a number of discretionary beneficiaries, announced by the Company on 18 February 2011.

Except for the Directors' interests in Ocado Limited at the beginning of the period, 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:

Director Ordinary shares
of 2 pence each
28 November
2010
Ordinary shares
of 1 pence each
29 November
2009
Tim Steiner 15,291,200 152,912
Neill Abrams 1,100,800 12,008
Jason Gissing 7,659,300 95,834
Jörn Rausing 59,080,100 262,077

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 (2009: 741) ordinary shares of the Company.

Past Directors who still hold an interest in the ordinary shares of the Company are Jeremy Frampton who held 257,200 ordinary shares, Jonathan Faiman and a connected entity of his holding 850,000 and 24,437,400 ordinary shares respectively and Tom Clayton holding 65,821 ordinary shares, at period end.

Part B: Audited information

(a) Directors' remuneration

The following section provides details of the remuneration, pension and share interests of the Directors for the 52 weeks to 28 November 2010 and has been audited.

Salaries
and fees
2010
£’000
Benefits
in kind
2010
£’000
Annual
bonus
2010
£’000
Pension
contributions
2010
£’000
Total
2010
£’000
Total
2009
£’000
Executive Directors
Tim Steiner 394 4 220 28 646 651
Jason Gissing 281 3 150 20 454 487
Andrew Bracey 281 3 150 434 23
Neill Abrams 224 2 120 16 362 346
Non-Executive Directors
Lord Grade 113 100 213 112
David Grigson 41 41
David Young 40 40 28
Ruth Anderson 33 33
Robert Gorrie 22 22 34
Patrick Lewis 16 16
Tom Clayton 14
Brian Lynas 20
Jonathan Faiman
Jeremy Frampton
Michael Robarts
Jörn Rausing
Total 1,445 12 740 64 2,261 1,715

† Benefits in kind comprise of private medical insurance.

In addition to his role as a Non-Executive Director, Robert Gorrie provides consultancy services to the Group and chairs the meetings of the Ocado employee council. He provides these services through Robert Gorrie Limited (of which he is the sole shareholder) and is paid a per diem fee for these services. These fees are included in related party transactions with key management personnel in Note 31 to the consolidated financial statements.

Lord Grade was entitled to a single bonus of £100,000 payable on the Company's Admission which he elected to receive in ordinary shares in accordance with the terms of his letter of appointment.

(b) Directors' interests in share option and share ownership schemes

ESOS

The Directors have the following options over ordinary shares as at 28 November 2010 in the Company and as at 29 November 2009 in Ocado Limited under the Group's ESOS:

Director Date of
issue
28 November
2010
Exercise
price (£)
29 November
2009
Exercise
price (£)
Exercise period
Tim Steiner May-05 200,000 1.15 2,000 115 16/05/08-15/05/15
Neill Abrams May-02 175,000 1.00 1,750 100 07/02/05-06/02/12
May-02 175,000 1.50 1,750 150 07/02/05-06/02/12
Nov-03 100,000 0.90 1,000 90 30/11/06-29/11/13
May-05 100,000 1.15 1,000 115 16/05/08-15/05/15
Andrew Bracey Nov-09 46,296 1.35 463 135 16/11/12-15/11/19
Jason Gissing May-05 200,000 1.15 2,000 115 16/05/08-15/05/15
Robert Gorrie May-02 175,000 1.50 1,750 150 07/02/05-06/02/12
May-02 1,750 100 07/02/05-06/02/12
Nov-03 1,000 90 30/11/06-29/11/13
Jonathan Faiman May-05 2,000 115 16/05/08-15/05/15

There were no share options issued under the Group's ESOS to the Directors during the period (2009: 463).

Robert Gorrie exercised 2,750 share options during the period (2009: nil). The exercise price of these options ranged between £90 and £100, as these options were exercised before the reorganisation of the Group. Total gains realised upon exercise of these options were £106,000.

His options were granted to him before the commencement of his role as a Non-Executive Director. The Company does not include options in remuneration paid to Non-Executive Directors.

The only lapse of Directors' share options during the period was Jonathan Faiman's options which lapsed when he retired from the Board (2009: nil).

Non-employee share options

In addition to the options over ordinary shares pursuant to the Group's ESOS detailed above, Andrew Bracey has the following options as at 29 November 2010 over ordinary shares in the Company, and options as at 29 November 2009 over shares in Ocado Limited:

Date of
issue
28 November
2010
Exercise
price (£)
29 November
2009
Exercise
price (£)
Exercise period
Andrew Bracey Feb-02 886,700 0.90 8,867 90 04/02/02-04/02/17
Jan-04 435,300 1.03 4,353 103 03/01/04-03/01/18

In February 2002 Tom Clayton was issued 943 options over ordinary shares of Ocado Limited at an exercise price of £53 outside of the Group's ESOS. These were converted into 94,300 options over ordinary shares in the Company on 9 February 2010 on a 1:100 basis, and all these options were exercised during the current period.

There are no performance criteria attached to these non-employee share options.

JSOS

At the end of the period the Executive Directors' interest in ordinary shares in the Company pursuant to the Group's JSOS were as follows:

Director Date
of issue
28 November
2010
Hurdle
price (£)
Vesting period
Tim Steiner Feb-10 2,513,100 1.73 01/01/11-01/01/19
Feb-10 2,513,100 1.91 01/01/12-01/01/19
Feb-10 2,513,100 2.08 01/01/13-01/01/19
Feb-10 2,513,000 2.28 01/01/14-01/01/19
Neill Abrams Feb-10 1,017,200 1.73 01/01/11-01/01/19
Feb-10 1,017,200 1.91 01/01/12-01/01/19
Feb-10 1,017,200 2.08 01/01/13-01/01/19
Feb-10 1,017,100 2.28 01/01/14-01/01/19
Andrew Bracey Feb-10 1,675,400 1.73 01/01/11-01/01/19
Feb-10 1,675,400 1.91 01/01/12-01/01/19
Feb-10 1,675,400 2.08 01/01/13-01/01/19
Feb-10 1,675,300 2.28 01/01/14-01/01/19
Jason Gissing Feb-10 1,675,400 1.73 01/01/11-01/01/19
Feb-10 1,675,400 1.91 01/01/12-01/01/19
Feb-10 1,675,400 2.08 01/01/13-01/01/19
Feb-10 1,675,300 2.28 01/01/14-01/01/19

For further information relating to the set up of the Group's JSOS see Note 24(b) to the consolidated financial statements.

Sharesave Scheme

At the end of the period the Executive Directors' interests in the Sharesave Scheme were as follows:

Director Date
of Issue
28 November
2010
Exercise
price (£)
Exercise period
Tim Steiner Oct-10 7,745 1.16 01/11/13-01/05/14
Neill Abrams Oct-10 7,745 1.16 01/11/13-01/05/14
Andrew Bracey Oct-10 7,745 1.16 01/11/13-01/05/14
Jason Gissing Oct-10 7,745 1.16 01/11/13-01/05/14

The market price of the Company's shares at 28 November 2010 was 151 pence per share and the range during the period was 123.5 pence to 167 pence.

For further information relating to the Sharesave Scheme see Note 24(d) to the consolidated financial statements.

No other Directors have options over shares of the Company outside one of the Company's recognised share schemes (except for Andrew Bracey's non-employee share options, noted above).

Approved by the Board

David Young
Chairman of the Remuneration Committee
Ocado Group plc
23 March 2011