Marks and Spencer 2006 Annual Report Download - page 42

40 www.marksandspencer.com/remunerationreport2006 Marks and Spencer Group plc
Remuneration report
The Remuneration Committee has adopted the principles
of good governance relating to directors’ remuneration as
set out in the Combined Code. This report complies with the
Companies Act 1985, amended by the Directors’ Remuneration
Report Regulations 2002 and the Listing Rules of the Financial
Services Authority. These regulations require the Company’s
auditors to report on the ‘audited information’ within the report
and to state if this section of the report has been properly
prepared in accordance with the regulations. This report has
therefore, been divided into separate sections for unaudited and
audited information. The report has been prepared on behalf of
the Board by the Remuneration Committee.
PART 1: UNAUDITED INFORMATION
Remuneration Committee
The Committee comprises Jack Keenan (Chairman), Steven
Holliday, Kevin Lomax, David Michels and Louise Patten, all
of whom are independent non-executive directors. Louise
Patten joined the Committee on 1 February 2006 and David
Michels on 26 May 2006. Anthony Habgood was a member
of the Committee until his resignation from the Board on
30 August 2005. There were seven meetings of the
Remuneration Committee during the period under review and
all individuals who were a member of the Committee at that time
attended the meetings, with the exception of Anthony Habgood
who did not attend the meetings on 20 April and 13 July 2005
and Steven Holliday who did not attend the meetings on
17 May and 13 July 2005 and 28 March 2006, due to prior
commitments.
The Committee keeps itself fully informed of all relevant
developments and best practice in the field of remuneration
and seeks advice where appropriate from external advisors.
New Bridge Street Consultants LLP has provided material
advice to the Committee on directors’ remuneration and share
schemes in the past year.
The Company Chairman, the Deputy Chairman, Chief Executive,
Group Secretary and the Head of Senior Remuneration also
materially assisted the Committee in its deliberations, except in
relation to their own remuneration.
The Remuneration Committee’s remit is set out in the terms of
reference which are reviewed annually by the Board. A copy of
the terms of reference is available on the Company’s website.
The primary purposes include:
•to recommend to the Board the remuneration strategy and
framework, giving due regard to the financial and
commercial health of the Company;
•to determine the individual remuneration packages within
that framework for the executive directors and senior
management;
•to approve the design of annual and long-term incentive
arrangements and agree the targets and levels of award;
•to determine and agree the general terms and conditions
of service contracts and the specific terms for an individual
either on recruitment or termination; and
•to determine the policy for, and scope of, executive pension
arrangements.
The Board considers the principles of good governance when
deciding the remuneration strategy, and recognises that the level
of remuneration and benefits we offer is key to recruiting and
retaining talented individuals and maintaining our market position
as an employer of choice.
Remuneration policy
The Committee continually reviews the remuneration strategy
to ensure it will enable the recruitment and retention of highly
skilled individuals who are key to the recovery and future
success of Marks & Spencer. In 2005 changes were made to
the long-term incentive arrangements to rebalance the package
and provide a more effective link between pay and performance
for the various levels of executive and to ensure the most senior
executives have a high proportion of pay at risk with a greater
emphasis on the longer term.
Over the last year, the Company has delivered significantly
improved performance and generated a substantial increase in
profit and shareholder value. Despite this improvement, much
remains to be done and it is vital that the senior team is
incentivised and retained. In light of this the Committee
proposes to make revisions to the remuneration package for
senior executives, and is seeking shareholder approval at the
forthcoming Annual General Meeting (AGM) for an amendment
to the Performance Share Plan. Executives will be required to
achieve demanding targets under the annual and long-term
arrangements to receive rewards. The package is designed
to support the Company’s strategy and drive continuous and
sustainable improvement in shareholder value.
Total remuneration for executive directors comprises salary,
variable pay, pension and benefits. Salary and benefits are set
having regard to market practice and levels paid by similar
companies. Variable pay provides the opportunity to earn
greater amounts for the highest standards of performance. The
performance-related element forms a significant proportion of
the total potential package.
There are two key components of variable pay: an Annual
Bonus Scheme (incorporating a deferred share element) and
a Performance Share Plan. The ability to earn variable pay is
linked to the delivery of significant company performance and
the expected value of the package both at on-target and
maximum is shown on page 41.