The chief executive of Motability Operations will step down after the National Audit Office (NAO) highlighted concerns over governance and executive pay at the charity.

In a report published today, the NAO found that the Motability scheme provides an excellent service to customers, but has long operated in a protected environment, supported by Government, which has made maintaining high performance less challenging.

It says that Motability Operations - which administers the scheme on behalf of the Motability charity - has made high levels of unplanned profit and holds more in reserves than other car leasing companies.

Furthermore, given its financial model, it is likely to continue to generate significant surpluses, it said.

“Motability Operations’ management deserves credit for having turned the business around and investing in features that have enhanced benefits for customers," said Amyas Morse, the head of the NAO. "However, Motability Operations has taken an unnecessarily conservative view of risk, holds more in reserves than arguably it needs and has also made large unplanned profits.

“On top of which there has been an internal view of executive performance as being ‘consistently extraordinary’, with the reward to match, despite pressures from the charity.

“There is much to be proud of, but we think that stakeholders, including Government, need to give far-reaching consideration to the scheme as it now stands, and to its future, in particular, whether its governance and accountability arrangements are robust enough.”

The NAO criticism comes after the Treasury and Work and Pensions Committees branded senior pay at Motability Operations "unacceptable" after a joint inquiry earlier this year (fleetnews.co.uk, May 21).

Motability Operations has now announced changes to the management team following the NAO investigation.

Neil Johnson, Motability Operations Group’s chairman, had previously announced that he would retire in 2019. He will now be succeeded in April 2019 by Sir Stephen O’Brien.

And, after 16 years in the business, Motability Operations chief executive Mike Betts will step down from the Board, no later than May 2020.

Johnson said: “As this is my last statement as chairman of the Motability Operations Board, I would like to set on record my appreciation for the dedication and passion that Mike has brought to the business.

“Under his guidance, Motability Operations has become an outstanding enterprise which delivers the highest levels of customer service.”

The scheme enables eligible disabled people to exchange certain mobility allowances for the lease of a new car, powered wheelchair or scooter.

The Motability charity is responsible for strategic direction and oversight, while Motability Operations is responsible for operating the scheme through an exclusive seven-year rolling contract.

The scheme is the only recipient of the direct transfer of mobility allowances from government and received tax concessions worth up to £888 million in 2017. This money contributes to customers accessing lease prices that are 44% lower on average than competitors.

Since 2008, the percentage of eligible people using the scheme has increased from 29% to 36% - a total of 614,000 customers in September 2017 from the 1.7 million people eligible for support.

In every year since 2008 the scheme has made more profit than intended, generating £1.05 billion of unplanned profit in total.

This is partly due to the strong performance of the used car market but Motability Operations’ own forecasts on the future value of used cars has also been out of line with the wider market average, resulting in customers being charged £390 million more than was required to cover lease costs.

At 31 March 2018, Motability Operations held £2.62 billion in reserves. This amount, when compared to the total funds available to the scheme, is significantly higher than major car leasing companies.

Remuneration of Motability Operations’ executive directors has been generous and linked to performance targets that have been easily exceeded, says the NAO report.

In 2008, a long-term incentive plan was implemented which enabled five executive directors to receive £15.3 million over seven years, on the basis of achieving performance targets set below levels that were already being achieved on their introduction.

The NAO forecasts that executive remuneration will fall after the final payments are made in December 2018, with the chief executive’s total remuneration likely to reduce from £1.7 million to around £1.4 million in 2019-20.

Between 2010 and 2015, Motability Operations’ chief executive benefited from an additional five-year incentive scheme, designed to ensure his retention in post.

The full value of this scheme, which has not previously been disclosed, has been transferred into a new arrangement which was worth £1.86 million in September 2018, and is likely to be worth around £2.2 million by 2022.

The NAO concludes in its report that careful consideration is needed relating to the scheme’s governance and Motability Operations’ executive remuneration.

The Government also needs to regularly review the value of the support it provides, in light of its objectives for mobility allowances.

For more on this story, see the December 13th edition of Fleet News.

 

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