Annual Report on Remuneration

This section sets out details of the remuneration of the Executive and Non-Executive Directors received during the financial year ended 31 December 2018 and also describes the operation of the Remuneration Committee.

Remuneration Committee

Membership

Franz Humer is Chairman of the Committee. The other members of the Committee are Professor Trevor Jones and Art Pappas (appointed to the Committee on 12 September 2018). Lord Hutton also served as a member of the Committee until his retirement from the Board on 31 May 2018.

The Committee met five times during the year under review. Meeting attendance is shown on Board attendance.

The Board considers each of the members of the Committee to be independent in accordance with the UK Corporate Governance Code ("the Code"). The Chairman of the Board and Chief Executive will also attend meetings of the Committee by invitation, but will not be present when matters relating to their own remuneration are discussed.

Role of the Remuneration Committee

The Remuneration Committee's responsibilities are set out in its Terms of Reference which are available on request to shareholders and on the Company's website.

 

The Committee's role includes:

  • Setting the remuneration policy for all executive Directors of the Company, the Chairman of the Board and senior management (being the first layer of management below Board level (including the Company Secretary) and all personnel receiving an annual basic salary of £250,000 or more).
  • Within the terms of the remuneration policy and in consultation with the Chairman of the Board and/or Chief Executive, as appropriate, determining the total individual remuneration package of each Executive Director, the Chairman and other designated senior executives including bonuses, incentive payments and share option or other share awards.
  • Approving the design of, and determining targets for, any performance-related pay schemes operated by the Company and approving total annual payments made under such schemes.
  • Ensuring that contractual terms on termination, and any payments made, are fair to the individual and the Company, that failure is not rewarded, that the duty to mitigate loss is fully recognised and that any payments are consistent with the shareholder-approved remuneration policy.

In carrying out its duties the Remuneration Committee takes into account any legal and regulatory requirements, including the Code and the UK Listing Rules, as well as good practice guidance issued by investors and investor representative bodies. Determining the fees of the Non-Executive Directors is a matter for the Executive Directors and the Chairman as a whole.

Key matters considered by the Remuneration Committee

Key issues reviewed and discussed by the Remuneration Committee during 2018 included:

  • Review of the Directors' remuneration policy, ahead of the presentation of a new policy for shareholder approval at the 2019 AGM;
  • Review of Executive Director and senior manager bonuses and equity incentive awards for 2018; and
  • Appointment of new independent advisers to the Committee.

Advisers to the Committee

During 2018 the Committee appointed Korn Ferry as independent advisers to the Committee. Korn Ferry advises the Committee on all aspects of the Directors' remuneration policy and its implementation, and assisted the Committee in its review of the remuneration policy. The Committee is satisfied that the advice received was objective and independent. Korn Ferry is a member of the Remuneration Consultants Group. Korn Ferry received fees of £30,429 for its advice during the year (fees charged on a costs incurred basis). A separate practice within Korn Ferry provided recruitment advisory services to the Company during the year.

The General Counsel and Company Secretary, Robert Lyne, acts as Secretary to the Committee, ensures that the Committee fulfils its duties under its terms of reference and provides regular updates to the Committee on relevant regulatory developments in the UK. He is not present when matters relating to his own remuneration are discussed.

Single Figure Table – Executive Directors (audited)

Basic salaryBenefitsAnnual bonusLTIPPensionOther*Total
2018 £'0002017 £'0002018 £'0002017 £'0002018 £'0002017 £'0002018 £'0002017 £'0002018 £'0002017 £'0002018 £'0002017 £'0002018 £'0002017 £'000
Jonathan Peacock400400141130032022225007361,253
Sir Chris Evans250250151918184541,0527371,339
Joe Anderson**333500253925040025377506331,726
James Rawlingson27027022202032162020337515863

* 2017 figures include one-off awards of share options issued to Executive Directors upon the Company's Initial Public Offering in February 2017; these have a two-year vesting period but for disclosure purposes are recognised in the period in which they are awarded.

** Stepped down from the Board on 4 September 2018 and employed by the Company as Chief Investment Officer for the remainder of 2018. Figures reflect service as a Director only. Reappointed as CEO and as a Director on 19 February 2019.

  • Base salary: amount earned for the year.
  • Benefits: the taxable value of benefits received in the year, including life assurance, long-term sickness insurance, private healthcare and company car cash allowance
  • Pension: the value of the Company's contribution during the year: 7.5% or, in the case of Jonathan Peacock, 6.0% Company contributions to 401(k) plan
  • Annual Bonus: see separate section below for explanation of determination of bonus amounts.
  • Other: Sir Chris Evans' balance includes amounts paid via Merlin Scientific LLP, a limited liability partnership wholly owned and controlled by Sir Chris Evans
  • Subject to Board approval, the Company allows its Executive Directors to hold non-executive positions outside of the Company that complement and enhance their current role. Any fees may be retained by the Director. Non-Executive Director positions in exchange-listed companies held by the Company's current Executive Directors are: Joe Anderson (Autolus Therapeutics plc, Nasdaq-listed).

Single Figure Table – Non-Executive Directors (audited)

FeesBenefitsPensionAnnual bonusLTIPOther*Total
2018 £'0002017 £'0002018 £'0002017 £'0002018 £'0002017 £'0002018 £'0002017 £'0002018 £'0002017 £'0002018 £'0002017 £'0002018 £'0002017 £'000
Franz Humer1188870118158
Professor Trevor Jones5843345877
Meghan FitzGerald5827235850
Giles Kerr6013246037
Art Pappas2020
Lord John Hutton (retired)**2443342477
David U'Prichard (retired)**4544344578
Sir John Banham (retired)**262046

* Other amounts principally relate to additional one-off share awards made to Non-Executive Directors as previously disclosed

** Lord Hutton stepped down from the Board on 31 May 2018; David U'Prichard stepped down on 12 September 2018; Sir John Banham stepped down on 10 November 2017

Annual Bonus Payout Table (audited)

For the Executive Directors, the annual bonus objective outcomes were as follows (certain outcomes not listed due to commercial sensitivity):

CategoryPerformance OutcomeBonus
Contribution
Rationale
Portfolio companies
  • Increase number of portfolio companies
  • IPOs by portfolio companies
  • Positive revaluations in three portfolio companies
30%Goals achieved. Three new portfolio companies (Pharmaxis, New SeedCo, Velos). Three IPOs by portfolio companies (Autolus, Iterum, LogicBio). Four positive revaluations (Autolus, Artios, Harpoon, LogicBio)
Business building
  • Create academic business building partnership
  • Hire Entrepreneur in Residence (EiR) for the EU and for the US
  • Create new companies
15%Goals partially achieved. Partnership signed with Fred Hutch. EiR hired for the EU; ongoing discussions with US candidates. One EU company created (New SeedCo)
Europe
  • Hire Investment Director for EU
  • Source and close on EU investments
10%Goals partially achieved. One European deal closed (New SeedCo). EU Investment Director not required given recruitment of EU EiR and appointment of CIO
US
  • Progress plans for potential US funding opportunities
  • Undertake non-deal roadshows in US
  • Increase research coverage by US analysts
10%Goals partially achieved. Funding opportunities under consideration. Three non-deal roadshows in US. Analyst interest cultivated
Fund management
  • Progression of WLSIF
10%Goals achieved. Simbec performance improved. Significant fund distribution post-year-end
Total75%

Taking into account the achievements against the bonus targets as set out above, the Remuneration Committee awarded bonuses to the Executive Directors at a level of 75% of the maximum. This resulted in bonus payments at levels of 75% of basic salary. The bonuses will be paid in cash.

LTIPs Vesting in the Year (audited)

During 2017, no shares vested under the EIP. The first grant of LTIP options was made in 2017 and are not eligible to vest until 2020, subject to performance conditions.

Scheme Interests Awarded in 2018 (audited)

During the year ended 31 December 2018, the Executive Directors were awarded nil-cost options (conditional share awards for Jonathan Peacock) under the EIP, details of which are summarised below.

DirectorDate of GrantNumber AwardedAward Price £Face Value £% of Base SalaryVesting Date
Jonathan Peacock17/05/2018298,5072.01600,000150%07/06/2021
Joe Anderson17/05/2018373,1342.01750,000150%07/06/2021
James Rawlingson17/05/2018201,4922.01405,000150%07/06/2021
Performance MeasureWeightingPerformance PeriodPerformance% Vesting
Compound share price growth100%Grant to 17 May 2021<7% per annum
7% per annum
≥20% per annum
0%
66.7%
100%

The market share price used to determine the size of awards was £2.01, being the 30-day trading average prior to the grant date.

Payments for Loss of Office (audited)

Joe Anderson, Arix's CEO, stepped down from the Board on 4 September 2018 and transitioned to the role of Chief Investment Officer to focus on new investments and work with existing Group companies to build and realise value. He entered into new remuneration arrangements with the Company in the role of CIO. His base salary was set at £360,000 and he had an entitlement to an annual bonus of up to 100% of base salary (pro-rated to his period of service as CIO during 2018). In connection with his transition from the CEO role, the following arrangements were agreed:

  • The Board determined that Joe Anderson would be treated as a good leaver for incentive scheme purposes. This recognised his contribution to Arix since the Company's formation and his ongoing commitment to Arix's success as CIO. As set out in the Single Figure Table above, he was eligible for an annual bonus for 2018, pro-rated to the date of his departure from the Board.
  • 2,000,000 of Joe Anderson's 3,036,309 Founder Options were treated as having vested as at 3 September 2018. It was agreed with Joe Anderson that he will be entitled to exercise these options over the lifetime of the options, i.e. up to 4 February 2026. All other Founder Options will vest and remain exercisable in connection with their original terms, although the exercise period for these Founder Options has also been extended to 4 February 2026. None of the Founder Options were granted with performance conditions attached.
  • His IPO Awards vested pro-rata as at 3 September 2018. The vested awards are exercisable from 21 February 2019 to 21 February 2027 and exercise is not conditional on continued employment. The remaining IPO Awards will continue to vest in line with their original terms. None of the IPO Awards were granted with performance conditions attached.
  • His 2017 EIP Awards were pro-rated as at 3 September 2018 and will be eligible to vest in May 2020, subject to the Company having achieved the relevant performance condition. This applies to 242,192 of the 569,619 shares subject to the 2017 EIP Awards. The remaining 2017 EIP Awards will continue to vest in accordance with their original terms.

Following the decision to reappoint Joe Anderson as CEO and as a Director with effect from 19 February 2019, new remuneration arrangements were entered into. He was reappointed on the same basic salary and annual bonus opportunity as applied to his former employment as CEO, and he remains eligible for grants under the EIP. With regards to his outstanding equity awards, it was agreed that the arrangements as set out above which were entered into in good faith at the time he left the Board in 2018 should be preserved. As a result, a portion of his IPO Awards and EIP Awards will retain the good leaver status which they were accorded in 2018, with the remainder of the awards continuing to vest in line with their original terms.

As part of negotiating Joe's return as CEO and to provide a further incentive to him to drive performance at Arix over the coming years, the Committee also agreed an amendment to his Founder Options such that the exercise price will reduce on a gradual basis over the next five years. The Founder Options were granted with an exercise price of £1.80 per Founder Option. This price will be reduced by 18 pence (i.e. 10% of the original exercise price) each year for five years while Joe Anderson remains in full-time employment with Arix. As set out above, the Founder Options are exercisable up to 4 February 2026.

The Founder Options were granted in 2016 prior to Arix's IPO and are a legacy arrangement for the purposes of the Directors' remuneration policy.

Jonathan Peacock

On 19 February 2019 Jonathan Peacock moved from the role of Executive Chairman to Non-Executive Chairman. The following arrangements were agreed in connection with his termination as an Executive Director:

  • He received a payment of £200,000 in respect of the termination of his executive service agreement. This amount was less than his contractual entitlement.
  • His 2017 EIP Award and 2018 EIP Award were pro-rated as at 19 February 2019 and will be eligible to vest in May 2020 and May 2021 respectively, subject to the Company having achieved the relevant performance conditions. The remaining 2017 EIP Award and 2018 EIP Awards will continue to vest in accordance with their terms.
  • His unvested Founder Options will continue to vest for the duration of his service as a Director. Similar to the treatment agreed for the Founder Options held by Joe Anderson (see above), all Founder Options which vest will be exercisable up to February 2026. This is in recognition of his ongoing involvement with Arix.

Sir Chris Evans

Sir Chris Evans stepped down from the Board on 19 February 2019. The following arrangements were agreed in connection with his termination:

  • He received a payment in lieu of notice of £250,000, equivalent to 12 months' basic salary.
  • His outstanding IPO Awards, which had a vesting date of 22 February 2019, vested in full, taking into account the notional 12-month notice period in Sir Chris's contract. The IPO Awards do not have performance conditions attached.
  • The final tranche of the Founder Incentive Shares held by Sir Chris and Ectoplasm Limited which had a vesting date of 8 February 2020 were deemed to have vested in full, taking into account the notional 12-month notice period in Sir Chris's contract. All of the Founder Incentive Shares are released subject to the payment of a fee of £1.80 per Founder Incentive Share. It was agreed as part of the termination discussions that Sir Chris and Ectoplasm will now have until 8 February 2026 to pay this fee. The Founder Incentive Shares were created in 2016 prior to Arix's IPO and are a legacy arrangement for the purposes of the Directors' remuneration policy.
  • The Board has agreed to retain the services of Sir Chris as a consultant to the Company. Until April 2019 he will continue to receive his existing consultancy fee of £20,000 per month. After this time he will be engaged by the Company on a lower fee of £4,166 per month (equivalent to £50,000 per annum).

There were no payments to past Directors in 2018.

Executive Directors' Shareholdings and Share Interests (audited)

Executive Directors' interests in the Company as at 31 December 2018 are shown in the table below. Only the EIP Awards (2017 and 2018) are subject to performance conditions. As set out in the Annual Statement from the Chairman of the Remuneration Committee, shareholding guidelines are now set at 200% of salary for all Executive Directors.

No options were exercised during the year.

DirectorOrdinary Shares Held
#
C Shares
Held
#
Shareholding as % of Base SalaryIPO Awards* (unvested)
#
2017 EIP
Awards* (unvested)
#
2018 EIP Awards*
(unvested)
#
Founder Options (not exercised)
#
Founder Options (unvested)
#
Jonathan Peacock685,05649,671298%241,545379,746298,5071,966,699517,551
Joe Anderson**354,310126%362,318569,619373,1342,403,746632,563
Sir Chris Evans***7,316,0394,872%295,893
James Rawlingson37,48423%163,043205,062201,492

* Awards are nil-cost options, other than for Jonathan Peacock, which are conditional share awards

** Share position for Joe Anderson stated as at 4 September 2018, the date he stepped down from the Board. Joe Anderson holds 138,889 Ordinary Shares through PAL Trustees Limited, the trustee of his SIPP.

*** Sir Chris Evans holds part of his interest through Ectoplasm Limited as to 6,096,699 Ordinary Shares. Ectoplasm Limited is wholly owned by Abacus Trust Company Limited as Trustee of the Ectoplasm Settlement, of which the discretionary beneficiaries include C Evans and members of his close family

Non-Executive Directors' Shareholdings (audited)

Non-Executive Directors are not subject to a shareholding requirement. Details of their interests in Ordinary Shares in the Company are set out below:

Non-Executive DirectorShareholding as at
31 December
2018
Franz Humer74,503
Lord Hutton*27,777
Professor Trevor Jones37,312
David U'Prichard*38,318
Meghan FitzGerald35,545
Giles Kerr35,746
Art Pappas

* Note: The stated shareholdings for Lord Hutton and David U'Prichard reflect the position as at the date of their departure from the Board (31 May 2018 and 12 September 2018 respectively).

Comparison of Overall Performance and Pay

The graph below shows the value of £100 invested in the Company's shares since listing in February 2017 compared to the FTSE SmallCap index. Although Arix is not a member of the FTSE SmallCap index, the index has been chosen as a broad equity market index, the constituents of which include companies of a similar size and scale to Arix.

Total Shareholder Return

CEO – Historic Remuneration Information (audited)

2018
£'000
2017
£'000
2016
£'000
Single Figure Total6331,7261,228
Annual Variable against maximum opportunity75%80%N/A
EIP vesting rates against maximum opportunityN/AN/AN/A

Note: Arix Bioscience plc was incorporated in 2015; it listed on the London Stock Exchange in February 2017; as such, only three periods of data are included above. No shares have yet vested under the EIP (the first awards were granted in 2017).

Percentage Change in Remuneration of CEO (audited)

Percentage change in 2018 remuneration compared with remuneration in 2017

CEOAll employees excl. CEO
Base Salary0%12%
Annual Bonus(6%)(2%)
Benefits0%0%

CEO: reflects the percentage change in the single figure amounts for basic salary, annual bonus and benefits, assuming a full 12 months of service in 2018

Employees: changes in salaries and bonuses consider all employees who completed a full year of service in each year

Relative Importance of Spend on Pay

2018
£'000
2017
£'000
Underlying operating profit/(loss)40,803(3,589)
Dividends/share buybacks
Total company spend on remuneration6,5375,933

The table above shows the relative importance of total spend on pay in the 2018 and 2017 financial years compared with distributions to shareholders. The Company did not pay a dividend or undertake a share buyback programme in either 2018 or 2017. Underlying operating profit/(loss) is considered the most appropriate metric given the current stage of the Group.

Total Group spend on remuneration increased by 10% compared to the previous year.

Statement of Voting on Remuneration

The results of the voting on the Annual Report on Remuneration at the AGM held on 17 May 2018 are set out below:

Votes
For
#
Votes
For
%
Votes
Against
#
Votes
Against
%
Votes
Withheld
#
To approve the Annual Report on Remuneration50,988,88690.12%5,591,4959.88%4,020

The results of the voting on the Directors' Remuneration Policy at the AGM held on 5 June 2017 are set out below:

Votes
For
#
Votes
For
%
Votes
Against
#
Votes
Against
%
Votes
Withheld
#
To approve the Directors' Remuneration Policy41,408,34888.59%5,333,38711.41%942

Implementation of Remuneration Policy for 2019 for Executive Directors

Base Salary

Salary reviews normally take place in January of each year, and take effect from February. Joe Anderson was reappointed as CEO in February 2019 on a base salary of £500,000, the same as his CEO salary prior to his move to CIO in 2018. With effect from 1 January 2019, James Rawlingson's salary was increased by 3% from £270,000 to £278,100. This increase is consistent with increases (and in some cases less than) across the workforce as a whole.

Benefits and Pension

No changes are proposed to benefits or pension arrangements in 2019.

Annual Bonus

The operation of the bonus plan for 2019 will be consistent with the framework detailed in the Policy section of this report. The maximum opportunity for the year ending 31 December 2019 will be 100% of salary for all Executive Directors. The Remuneration Committee can require up to 50% of the bonus to be deferred and invested in shares.

Proposed target levels have been set to be challenging relative to the 2019 business plan and the performance conditions comprise of a range of strategic measures aligned to the long-term growth of the Group. Specific targets will not be disclosed upfront because the Remuneration Committee consider forward looking targets to be commercially sensitive. However, the Committee intends to disclose these retrospectively in next year's Remuneration Report to the extent that they do not remain commercially sensitive.

Long Term Incentive

The Executive Directors will be granted EIP awards in 2019 at a level of 200% of base salary for the CEO and 150% of base salary for the CFO. Reflecting performance in 2018 whilst he was Executive Chairman, Jonathan Peacock will be granted an EIP award at a level of 100% of the base salary he received as an Executive Director. The grants will be subject to performance targets, measured over a three-year period aligned with Arix's financial years, as set out below.

Performance MeasureWeightingPerformance% Vesting
Compound share price growth60%<7% per annum
7% per annum
≥15% per annum
0%
25%
100%
NAV per share growth40%<7% per annum
7% per annum
≥15% per annum
0%
25%
100%

Straight-line vesting will apply between the different performance points.

Any shares which vest will be subject to a two-year post-vesting holding period.

Malus and Clawback

As set out in the Directors' remuneration policy, the rules of the Company's incentive schemes include malus and clawback provisions. These will continue to apply for 2019 bonuses and EIP awards made in 2019. The provisions apply in the following specific circumstances:

  • discovery of a material misstatement resulting in an adjustment in the audited accounts of the Group or any Group company;
  • the assessment of any performance condition was based on error, or inaccurate or misleading information;
  • the discovery that any information used to determine cash or share awards was based on error, or inaccurate or misleading information;
  • action or conduct of a participant which amounts to fraud or gross misconduct;
  • corporate failure; or
  • events or the behaviour of a participant have led to the censure of a Group company by a regulatory authority or have had a significant detrimental impact on the reputation of any Group company.

Implementation of Remuneration Policy for 2019 for Non-Executive Directors

The table below includes details of the fees to be paid to the Non-Executive Directors for 2019.

2019
£'000
Base Fees
Non-Executive Chairman100
Senior Independent Director80
Non-Executive Director50
Additional Fees
Audit Committee Chair10
Audit Committee Member*
Remuneration Committee Chair10
Remuneration Committee Member*
Nomination Committee Chair10
Nomination Committee Member*

* With effect from 2019, no additional fees will be payable to Non-Executive Directors for serving as members of these Committees.

As previously noted, the Non-Executive Chairman will receive an EIP award in 2019 as the grant of this award is considered by the Remuneration Committee to be an element of his compensation in respect of 2018 when he served as an Executive Director. He will receive no further grants under the EIP.