The Group’s remuneration policy aims to promote a strong and sustainable performance culture, to incentivise high growth and to align the interests of Executive Directors and other senior managers with those of shareholders. In promoting these objectives, the Directors' Remuneration Policy has been structured so as to adhere to the principles of good corporate governance and appropriate risk management.
In determining remuneration levels, the Committee has taken account of market conditions, the performance of the Group and its responsibility to shareholders.
Whilst the impact of COVID has severely impacted financial performance and will continue to do so for the foreseeable future, there had been a pleasing improvement in the underlying performance of the business in the first half year and indeed right up until the onset of COVID. Adjusted EBITDA in the first half stepped forward by 10.6% to £7.6 million (IAS 17) and improvements were achieved in many of the strategic measures including like-for-like sales, customer feedback scores, health & safety audits and employee net promoter scores. There was strong evidence that the turnaround strategy put in place by the new management team was bearing fruit and indeed the performance improvement was accelerating. This excellent progress has of course been suspended and the priorities of the senior team shifted completely to ensuring the survival of the business through careful cash management, engaging with all stakeholders including suppliers and landlords to elicit support, ensuring that the Group was able to take maximum advantage of the many forms of government support, and improving cash liquidity through agreeing a substantial increase in debt funding facility and an equity fundraise. At the same time, operational priorities focused on how the business could trade safely and profitably when reopening was possible.
This has been a year like no other in the Group’s history, and one that has stretched the senior management team to new limits. Rarely does such good underlying business progress and high personal performances go without reward. However, the management team, working closely with the Committee throughout this difficult period, agreed significant salary reductions to support the business and to show solidarity with many other stakeholders who have provided support through this challenging period, and concluded that it was not appropriate to accept annual bonus awards for the FY20 financial period irrespective of any performance targets that were met.
Following a comprehensive review of the current Remuneration Policy, the Committee wishes to make changes to the Policy and the way that it is implemented, with the main proposal being a switch from awards granted under a Performance Share Plan (“PSP”) to granting Restricted Share Awards (“RSAs”). The proposed switch from PSPs to RSAs is being suggested because it:
- reflects the difficulty in setting robust meaningful long-term targets at Revolution as a result of the uncertainty surrounding the impact of COVID on the Company and the leisure sector more widely;
- reflects the need to continue to motivate the senior executive team, which the Board believes has worked tirelessly to protect the Group's ongoing viability (as covered extensively in our RNS announcements including the recent successful Company Voluntary Arrangement) and which the Board believes is the right team to take the Company forwards;
- better aligns to the short- and long-term objectives to deliver our recovery plan and therefore a recovery in the share price. The RSA structure, with enhanced shareholding guidelines (see below) will ensure that management and shareholder interests are more closely aligned; and
- will simplify remuneration arrangements significantly, degear them and will increase transparency.
In addition to the above, the Remuneration Committee is extremely conscious of the political and societal influences to reduce and significantly degear executive pay levels.
The Policy changes being proposed are as follows:
- PSP awards will be replaced by RSAs. The ability to grant PSP awards, up to 200% of salary (300% of salary in exceptional circumstances), will therefore be removed from the Policy. Following the 2020 AGM, and then annually thereafter, Executive Directors may receive RSAs:
- of up to 100% of salary. This represents a 50% reduction to the normal PSP award limit (200% of salary), and no exceptional limit will operate. However, it should be noted that initial award levels will be materially lower than this (see below);
- which will normally vest after three years from grant, subject to: (i) continued employment; (ii) satisfactory personal performance during the relevant vesting periods; and (iii) a positive assessment of performance against an underpin (see below); and
- which, once vested, may not be sold until at least five years from the grant date (other than to pay relevant taxes).
Underpin: For RSAs granted to Executive Directors to vest, the Committee must be satisfied that Revolution’s underlying performance and delivery against its strategy and recovery plans are sufficient to justify the level of vesting having regard to such factors as the Committee considers to be appropriate in the round (including revenue, earnings and share price performance) and the shareholder experience more generally (including the risk of windfall gains). Full disclosure of the Committee’s assessment of the underpin in respect of a vesting event will be set out in the relevant Directors’ Remuneration Report.
Conventional best practice share plan provisions regarding dividend equivalents, leaver and change of control arrangements will operate. Going forward, a 10% in ten-year dilution limit will apply.
- The shareholding guidelines will be increased from 100% to 200% of salary given that the RSA structure will enable the Executive Directors to build a shareholding in the Company, further reinforcing alignment with shareholders.
- Malus and clawback provisions will be enhanced (corporate failure and insolvency triggers will be added).
Given the above, in addition to amending the Remuneration Policy, approval will be sought to amend the rules of the existing PSP to enable Executive Directors to receive RSAs as detailed above. Full details in respect of the above can be found in the 2020 Notice of AGM found at: www.revolutionbarsgroup.com/investors/shareholder-centre/agm/
Implementation of the policy in FY21
In respect of operating the Remuneration Policy in FY21:
- The base salaries of the Executive Director (and Non-Executive Director fees) were reduced to 50% of normal levels from 29 March 2020, subsequently increased to 80% of normal levels from 1 August 2020 and returned to 100% of normal levels from 1 October 2020. They were again reduced to 75% of normal levels from 8 November 2020 in light of the latest national restrictions introduced by the UK Government from 5 November 2020.
- No changes will be made to benefits or pension provisions although new Board appointments will receive workforce aligned pension provision.
- There is to be no annual bonus scheme for at least the first half year because it is not possible to set sensible targets whilst so much uncertainty prevails around trading potential due to both the impact of COVID and the ongoing government imposed operating restrictions. The Committee intends to undertake a further review in January 2021 and may implement a bonus scheme on a pro rata basis if market conditions have improved and the Committee believes it is possible to set credible targets and objectives, and that operating the bonus scheme is appropriate taking account of all other factors.
- Following the 2020 AGM (and subject to shareholders approving the relevant resolutions), the Committee intends to grant RSAs which will:
- be set at no more than 30% of salary for Executive Directors. Subsequent annual awards are expected to be at similar award levels although may be increased in line with a recovery in the Company’s share price (e.g. to 50% of salary) and to the extent that share usage is considered appropriate; and
- vest after three years from the grant date, subject to continued employment, satisfactory individual performance and a positive assessment of performance against the underpin (see Policy section above). No shares can be disposed of by Executive Directors until at least five years from grant, other than those required to settle any taxes directly related to the vesting of those shares.
- No changes will be made to the outstanding PSP/share awards (all of which are expected to lapse).
- Shareholding guidelines will be increased to 200% of salary.
The Committee met six times during the year (three physical and three virtual) with full attendance save for one meeting at which William Tuffy was unable to attend. The Committee’s main activities were to:
- determine the Chairman’s fee and the framework and policy for the remuneration of the Executive Directors and other members of the Executive Committee and ensure that they remained appropriate in light of COVID;
- advise on the design of, and to determine and agree, the total individual remuneration package of each of the Executive Directors and other members of the Executive Committee, giving due regard to any relevant legal requirements, the provisions and recommendations set out in the prevailing Code and the AIM Rules and associated guidance;
- consider and approve the design of, and targets for, annual and long-term performance-related pay schemes operated for the Executive Directors and other members of the Executive Committee, the total annual payments made under such schemes and provide oversight and guidance in relation to other Group-wide incentive proposals to ensure that these are aligned to performance, the Group’s core values and the Board’s risk appetite;
- oversee remuneration and benefit structures and policies throughout the Group’s business and to give advice on any major changes; and
- consider the impact on remuneration practices and the Remuneration Policy of the switch to AIM.
In addition, the Committee has considered how the Policy and practices are consistent with the six factors set out in Provision 40 of the new UK Corporate Governance Code:
Clarity – Our Policy is understood by our senior executive team and has been clearly articulated to our shareholders and representative bodies (both on an ongoing basis and when changes are proposed).
Simplicity – The Committee is mindful of the need to avoid overly complex remuneration structures which can be misunderstood and deliver unintended outcomes. Therefore, a key objective of the Committee is to ensure that our executive remuneration policies and practices are straightforward to communicate and operate and the current approach will be reviewed in advance of the 2021 AGM.
Risk – Our Policy has been designed to ensure that inappropriate risk-taking is discouraged and will not be rewarded via: (i) the balanced use of annual and long-term pay, which employs a blend of financial, non-financial and shareholder return targets; (ii) the significant role played by equity in our incentive plans; and (iii) malus/clawback provisions.
Predictability – Our incentive plans are subject to individual caps and our share plans are also subject to market standard dilution limits.
Proportionality – There is a clear link between individual awards, delivery of strategy and our long-term performance and incentive/“at-risk” pay, together with the structure of the Executive Board directors’ service contracts, ensures that poor performance is not rewarded.
Alignment to culture – Our executive pay policies are fully aligned to Revolution’s culture through the use of metrics in our annual incentive plans that measure how we perform against our KPIs.
The Committee consulted with its major shareholders and the main shareholder
representatives in respect of the new Remuneration Policy which will be
submitted to shareholders for approval at the 2020 AGM. That said, the Committee
welcomes any feedback on this report and the proposed Remuneration Policy
and its implementation in general.
On behalf of the Board, I would like to
thank shareholders for their continued support, and I look forward to your approval
of our updated Remuneration Policy at the 2020 AGM.
Chairman of the Remuneration Committee
16 December 2020