strategy to strengthen the AA as the UK’s pre-eminent Membership services organisation.
In the 2016 financial year, the Company became a constituent of the FTSE 250 and we also announced a progressive dividend policy; a first dividend payment was made to shareholders in October 2015. These were key milestones in our journey as a listed company. During the year we also announced a major refinancing of our debt structure, which has reduced the ongoing annual cash interest costs payable by the Company by £45m per annum.
From a strategic perspective, a very good start has been made in turning around the core Roadside Assistance business and slowing the rate of decline in personal Members. As part of our transformation, the
investment in new IT systems is on track, which will support improvement in customer experience and efficiency gains. Other developments include winning the Lex Autoleasing contract for roadside assistance, making strategic steps in connected car technology and launching an Insurance Underwriter. The year-end Trading EBITDA of £415m, represents a strong result in light of the transformational activity during the year.
The bonus outcome for the 2016 financial year was determined based on targets set at the start of the financial year. The EBITDA performance and progress against the strategic and individual objectives set resulted in bonus outcomes of 79% and 72% of maximum for the Executive Chairman and the Chief Financial Officer respectively.
Although the Company has implemented a Performance Share Plan (PSP), no awards have yet been granted under this plan. In addition, the interests held by participants in the legacy Management Value Participation Shares implemented at the time of Admission were allotted as set out in last year’s Committee report but only crystallise between 2017 and 2019. This includes 45.8% granted to the Executive Directors in December 2015, as set out on page 70. Therefore no payments were made to Executive Directors in respect of long term incentives during the 2016 financial year.
“I am pleased to report that
during the year the Committee
operated within the terms of
the binding remuneration
policy which was approved
by shareholders at the 2015
AGM and that no changes are
proposed for the coming year.”
Simon Breakwell
Chairman of the Remuneration Committee
Remuneration
Directors’ Remuneration
Report
G ove rn a n c e Financ ial S ta temen ts Ou r P e rf o rm a n c e
Remuneration in respect of the 2017 financial year
The remuneration structure for the coming year will remain broadly unchanged. Salary levels for the Executive Directors will not be increased. The salary for the Executive Chairman has remained unchanged since the IPO in 2014. The maximum bonus opportunity will also remain unchanged, however the metrics for the 2016 financial year will be modified in order to place greater emphasis on EBITDA performance. The Committee does not intend to make PSP grants to Executive Directors in the coming year. Bob Mackenzie and Martin Clarke have personally chosen to build and retain very significant shareholdings in the Company. These interests demonstrate their commitment to the strategy and provide alignment with shareholders. The Committee is supportive of directors having material interests in shares and the Committee is therefore formalising appropriate share ownership guidelines. Further details of the intended approach are set out in the Annual Report on Remuneration.
As part of the commitment to encouraging greater share ownership in the wider organisation, the Company will also be seeking shareholder approval for a tax-approved Profit Share Plan targeted at our colleagues in Ireland. This plan will complement the existing HMRC-approved all- employee arrangements which are used for UK-based employees.
AGM
The Committee has spent time during the year ensuring that the remuneration arrangements remain appropriate, complement the transformational strategy and are aligned with shareholders’ interests. Prior to last year’s AGM we consulted with our major shareholders to ensure they fully understood the basis of the Committee’s decisions and we would welcome further dialogue.
At the forthcoming AGM, shareholders will be provided with a vote on this Directors’ Remuneration Report and will also be asked to approve the terms of the Irish Profit Share Plan described above. I hope that you find the report clear and helpful and that you will support the remuneration related resolutions at the forthcoming Annual General Meeting, to be held on 9 June 2016.
Simon Breakwell
This section of the Directors’ Remuneration Report sets out a summary of how we intend to implement the Policy in the forthcoming financial year, as well as details of how we implemented the Policy and the remuneration paid to Directors during the 2016 financial year. Where information has been audited, this has been stated. The Remuneration Committee Chairman’s statement provides further context to the decisions made.
Implementation for the 2017 financial year
The following table summarises how remuneration arrangements will be operated for the 2017 financial year. SALARY AND BENEFITS
Following the year-end the Committee reviewed the base salaries for Executive Directors. It has been determined that no increases will be made to salary levels for the coming year.
2016 salary 2017 salary Increase
Bob Mackenzie £750,000 £750,000 NIL
Martin Clarke £480,000 £480,000 NIL
Benefits and pension arrangements will be in line with last year.
ANNUAL BONUS
The maximum opportunity for the Executive Directors will remain unchanged at 120% of salary.
For the coming year, the weighting on financial objectives has increased from 60% to 70% of the overall bonus. The performance targets in respect of the 2017 bonus will be based on:
Weighting
EBITDA targets 70%
Individual/strategic objectives 30%
The non-financial objectives are subject to a profit underpin. The precise performance targets for the coming year are considered to be commercially sensitive at present, but the Committee intends to provide expanded disclosure of targets on a retrospective basis.
The 2017 bonus will again be subject to both malus and clawback provisions.
PERFORMANCE SHARE PLAN (PSP)
Although approval was obtained for the PSP at the 2015 AGM, the Committee does not intend to grant awards to the current Executive Directors under this plan in the coming year.
MANAGEMENT VALUE PARTICIPATION SHARES (MVP shares)
This legacy arrangement was implemented at Admission.
The Committee does not intend to allocate further awards to Executive Directors during the 2017 financial year.
NON-EXECUTIVE DIRECTORS
The current fees payable to the Non-Executive Directors are shown in the following table.
Role Fee
Senior Independent Director £170,000
Basic fee for other Non-Executive Directors £80,000
Additional fee for chairing of Board Committee (other than Nomination Committee) £15,000
Additional fee for chairing of Group Insurer Board £15,000
ANNUAL REPORT ON REMUNERATION