Supplier Spotlight: Motability Operations – The end of the saga?
Resolute to redistribute
Following the disclosure of its substantial reserves and executive remuneration packages that led to an investigation by the National Audit Office and its CEO to resign, Motability Operations’ has vowed to redeploy £370million of its reserves to benefit the scheme’s customers.
Revelation
Contracted by Motability (the Charity) to operate the Motability Car, Powered Wheelchair & Scooter Scheme, Motability Operations have operated the Scheme since 1978 and claims to deliver a consistent, ‘worry-free’ leasing proposition to recipients of qualifying mobility allowances across the UK.
With 1.8million people in receipt of a qualifying allowance allowing them to choose to lease through the Motability, there are over 600,000 customers who use the Scheme across 4,800 approved Motability dealers across the UK.
Unlike other lease schemes however, Motability Operations is the only private organisation to directly receive welfare payments for the leasing of vehicles, dramatically reducing its risk in the market claimed a joint the Treasury and Work & Pensions Committee.
Additionally, Motability Operations enjoys two types of tax relief; one on VAT, providing a 20 per cent discount on the value of the car; and Insurance Premium Tax, providing a 12 percent discount on the insurance element of leasing the vehicle.
Following a Committee inquiry, it was determined that Motability Operations enjoys a privileged market position, judging the organisation’s reserves to be out of proportion with the risks faced operating the scheme.
In 2008, Motability Operations’ reserves were £568m, increasing 328 percent by 2017 to £2.4bn.
“There is still a way to go before we are satisfied that Motability is even beginning to make the best use of its vast funds and privileged position, to provide the best possible service for disabled people.” Frank Field MP
Motability Operations’ countered the claim, stating its reserves were justified on the grounds of its inability to diversify out of its one product and one customer base, however, the report determined that the organisation could afford to reduce its prices or make more charitable donations.
In addition to the £2.4billion in reserves, senior executives “generous” pay packages came under fire, with particular attention paid to that of the company’s CEO Mike Betts.
Resignation
Already facing significant criticism for an alleged £1.7million pay package throughout 2018, it was in December 2018, following a National Audit Office (NAO) investigation, that full extent of CEO’s Mike Betts’ remuneration package was revealed.
The NAO’s report disclosed that five top Motability Operations’ executives were to be paid to achieve targets that the organisation was already exceeding, prior to the targets being set.
A statement from the NAO highlighted that “in 2008, a long-term incentive plan (LTIP) 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.”
In addition to the LTIP, the report stated Mike Betts also benefited for an additional five-year incentive scheme, designed to ensure his retention in the post.
The full value of the scheme, which was not previously disclosed to the Committee, was transferred into a new arrangement worth £1.86million in September 2018 and is valued to be worth £2.2million by 2022.
Commenting on the findings, Amyas Morse, Head of the NAO, commented on the 7th December: “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.”
With the remuneration of Motability Operations’ executive decided by the Motability Operations’ Board, guided with advice from Motability’s Remuneration Committee, the NAO report pointed out that the charity had struggled to reign in executive pay and difficulty over a long period of time influencing Motability Operations to set executive pay at the levels the charity considered appropriate.
Ahead of the NAO’s report being publish, Motability Operations’ announced Betts’ resignation, confirming he would “step down from the Board, no later than May 2020.”
Resolution
In June 2019, following an external review of its reserves policies, Motability Operations’ Board vowed to release £370million of its reserves, stating £100million would be allocated to supporting customers.
Additionally, the organisation confirmed the balance of the remainder, along with all this year’s profits, will be donated to Motability to provide wider support for disabled people and their families.
Commenting on the announcement, Frank Field MP, Chair of the Work & Pensions Committee, said: “At long last and after months of chivvying by our committees and the NAO, Motability Operations has begun to accept that it can’t just sit there on piles of reserves built up thanks to the taxpayer’s unique support.
“That’s most welcome, but is only a first step. There is still a way to go before we are satisfied that Motability is even beginning to make the best use of its vast funds and privileged position, to provide the best possible service for disabled people.”
Echoing his comments, Nicky Morgan MP, Chair of the Treasury Committee, said: “Motability Operations must now ensure that its customers will benefit from this either in the form of lower prices or more generous vehicular adaptations.”
Redistribution
Explaining what led to Motability Operations’ vast reserves, Lord Sterling GCVO CBE, Chairman of Motability, noted: “Extraordinarily cheap monies over the last decade have had a significant effect on consumer purchasing power in the second-hand market, reversing normal depreciation. This has resulted in extraordinarily high second-hand car values over a sustained period but they will inevitably return to normal levels.
“This has created a unique financial benefit. It may well be that we will never again see these most unusual conditions which have produced such significant profits in Motability Operations.”
Elaborating more on how the donated reserves will be used, Motability (the charity) detailed that it will be expand its current support for Scheme customers, including grants for wheelchair accessible vehicles and driving lessons
“We know that there is demand for this now and this is likely to increase as the Scheme grows”, continued Lord Sterling.
“Working with the Family Fund, we have also been running a small pilot scheme of support to the families of severely disabled children under the age of three. This age group is ineligible for Motability support through the Disability Living Allowance. The pilot is moving to a second phase, where we intend to help the many thousands of families with the vehicles they need.”
In addition, the charity says it is also considering undertaking major research projects for new initiative for disabled people who are not on the scheme, as well as exploring opportunities created by new technology.
“The very substantial monies that Motability Operations has already donated to the Charity are of a size which enables the Charity to commit to a long-term strategy, to enter into some of these areas of support for disabled people,” added Lord Sterling.
https://thiis.co.uk/more-about-motability-operations/https://thiis.co.uk/wp-content/uploads/2019/07/Motability-1.jpghttps://thiis.co.uk/wp-content/uploads/2019/07/Motability-1-150x150.jpgSupplier SpotlightTrade FocusMike Betts,mobility equipment,mobility leasing scheme,Mobility scooters,mobility sector,Motability,Motability Operations,NAO,National Audit Office,powered wheelchairs,Treasury and Work & Pensions CommitteeResolute to redistribute Following the disclosure of its substantial reserves and executive remuneration packages that led to an investigation by the National Audit Office and its CEO to resign, Motability Operations’ has vowed to redeploy £370million of its reserves to benefit the scheme’s customers. Revelation Contracted by Motability (the Charity) to operate...Sarah SarsbySarah Sarsbysarah@thiis.co.ukEditorTHIIS Magazine