City Gate Hause Motability 22 Southwark Bridge Rood London SE1 9HB Operations Group plc motabilityoperations.co.uk Rt Hon Frank Field MP Chair, Work and Pensions Committee Rt Hon Nicky Morgan MP Chair, Treasury Committee House of Commons London SW1A OAA 16th March 2018 Mr~ Mo1.:\Gv' Work and Pensions Committee &Treasury Committee additional evidence request Further to your letter of 6th March and in response to your request for additional evidence, I am pleased to enclose copies of the following documents: • Minutes and papers relating to Motability Operations Group remuneration; • Profit analysis; and • Customer Insurance assessment Also enclosed are various appendices with supplementary information that relate 1 directly to questions raised in the committee on 5 h March which I hope will be useful in your inquiry. We are happy for you to publish the submission however we would request that the minutes and papers relating to remuneration are excluded. If I can be of any further assistance, please don't hesitate to contact me. Yours sincerely, Mike Betts Chief Executive Motabi!ily Operations Group plc ir:; the parent company of Motobility Operations Limiled (the principal service provider to Motobility and the Motability Scheme). Moiobility Hire Purchase Limited c1nd MO Reinsurance Limited . Registered in England and Wales Company Number 6541091 Submission from Motability Operations to the Work and Pensions and Treasury Committees 16 March 2018 CONTENTS SECTION 1: Response to additional evidence request as set out in the letter from the Work and Pensions Committee & Treasury Committee dated 6th March 2018 1. Motability Operations Group remuneration 2. Profit analysis 3. Customer Insurance assessment SECTION 2: Appendices Transcript Ref. A. Minutes and papers relating to remuneration B. Capital Reserves and Liquidity Requirements Q29-47,Q52, Q125 C. Financial Conduct Authority Q37, Q42, Q44, Q47 D. Customer Investments and Charitable Donations Q28, Q54-58 E. Bond Yields Q40, Q41 F. Hyundai Kona Lease Cost Comparison Q93, Q94 G. Transformation Timeline Q19, Q82-85 H. 2007 NAO Report Q125 I. Tax Q23 J. Provision of False Information Claim: Rebuttal Q36, Q42, Q47 K. UK Institute of Customer Service Various L. Oxford Economics Report Q23 SECTION 1: Response to additional evidence request as set out in the Work and Pensions Committee & Treasury Committee letter dated 6th March 2018 Select Committee additional evidence request NUMBER 1, please provide: • All board, remuneration committee, or sub-committee minutes and papers relating to Motability Operations Group remuneration for the last ten years. Please ensure that this includes the names of all attendees for each meeting, whether attending as participants or observers Background One of the matters raised by the Joint Committee was the topic of executive remuneration. The relevant extracts from the requested committee minutes and papers are set out in Appendix A. Where documents have been redacted, these relate only to information which constitutes personal data and is not in the public domain, or is personal information and such information does not relate to the questions of the Joint Committee. We would ask the Joint Committee to note that our Data Retention and Destruction Policy provides that paper documents will be retained for a period of not more than 3 years, unless the data is covered by a specific statutory retention period or where the papers are necessary in order to understand the minutes of Governance or Board Committees. The Remuneration Committee papers provided are therefore limited to those meetings held since 2015. The narrative below is intended to supplement the submission to provide additional context and rationale. As noted by the Company's Chairman, Neil Johnson, during the course of the Hearing, the Company is satisfied that it uses the appropriate criteria in order to determine executive remuneration and follows a robust process which aims to ensure that, whilst the Company is a unique organisation, executive remuneration is appropriately benchmarked against a number of other organisations with operations of similar size and complexity. As further noted by Neil Johnson, the current management team is largely made up of those individuals who were responsible for transforming the Company from what was described in the 2014 Annual Report of the Company as "a lacklustre delivery mechanism with low customer satisfaction" to an organisation which currently achieves a 98% customer satisfaction rating. The 2014 Accounts also stated that "no organisation, however successful, can afford to be complacent or to stand still and, as part of our normal business review cycle, we will seek to ensure that we continue to provide an efficient service delivery model properly aligned with effective remuneration structures". In order to achieve this, a full review of the Company's remuneration policy was commenced in 2015. Further detail of that review is set out below. Motability Operations Group plc additional evidence to the Work and Pensions Committee and Treasury Committee: March 2018 Remuneration Review The remuneration review was overseen by a project team comprising the Company's Chairman, Senior Independent Director and a new Remuneration Committee Chairman who joined the Company Board in September 2014 and was appointed following the meeting of the Remuneration Committee that took place in March 2015. The review was broad in scope and was intended to ensure that: i. the operating model for the business continued to be appropriate in delivering value to the disabled customer (this included face-to-face discussions with bodies and individuals representing the disabled community and with other stakeholders including the Charity and shareholder banks); ii. the roles of the executive directors were those required to deliver the required operational model; and iii. the levels and the component parts of remuneration for each executive director role were consistent with market benchmarks for equivalent roles in the private sector. As an initial step, a competitive assessment was conducted of independent remuneration advisers, subsequent to which New Bridge Street was selected to replace the Company's previous advisers and to provide a fresh perspective on remuneration issues. New Bridge Street assisted the Company in reviewing all aspects of its remuneration policy, including advising on the use of appropriate benchmark data and providing guidance on the latest best practices in the private sector. As well as retaining New Bridge Street, the Company also appointed two international search firms – Odgers Berndtson and Korn Ferry – to conduct a shadow recruitment exercise whereby they identified individuals who would be appropriate target applicants should the office of CEO be vacated. They also identified the estimated remuneration, at that time, of those individuals. By this means, the Company sought to identify the level of remuneration required to recruit an individual of appropriate experience to replace the CEO of the Company. Remuneration Review Outcome Prior to the review, the component parts of executive director remuneration were as follows: i. base salary; ii. bonus; iii. long term incentive plan (this included awards deferred over three years, with performance criteria and an annual ratchet linked to meeting a series of key performance indicators); and iv. pension and benefits. Motability Operations Group plc additional evidence to the Work and Pensions Committee and Treasury Committee: March 2018 In summary, the findings of the review were as follows: i. the operating model of the Company remained appropriate and received positive feedback from representatives of the disabled community; ii. the roles of the executive directors remained appropriate to deliver all aspects of the operating model notwithstanding that the company no longer required fundamental transformation; and iii. in light of the fact that, as set out at (ii) above, there was no longer a significant need for business transformation, the component parts and levels of executive director remuneration required amendment to reflect this. These findings were shared with shareholder banks and the Charity and were also considered by the Remuneration Committee in October 2015 together with appropriate benchmark data provided by New Bridge Street; and, in respect of the CEO role, the findings were calibrated against the input from the international search firms which had carried out the shadow CEO recruitment exercise. The Remuneration Committee unanimously agreed that it was appropriate to recommend to the Board that the component parts of remuneration be amended to include: i. base salary; ii. bonus (half of which would be deferred for a period of three years and subject to a wide range of performance criteria); and iii. pensions and benefits. The Remuneration Committee considered that it was no longer appropriate to operate a long term incentive plan and concluded that after awards made in respect of the financial year ended September 2015, no further awards would be made (although awards that had been made in respect of the preceding three financial years would be paid as they fall due as long as performance criteria continued to be met). The above changes were considered and unanimously approved by the Board in December 2015 and were applied with effect from 1st October 2015. Further details of the remuneration review can be found at pages 45 and 46 of the Company's 2015 Annual Report. Impact