Marks and Spencer 2006 Annual Report Download - page 44

42 Marks and Spencer Group plc
Remuneration report continued
Long-term Incentive Schemes
Performance Share Plan
The Performance Share Plan is the primary form of long-term
incentive for the top 100 senior management. Under the plan,
annual awards of up to 200% of salary may be offered based
on performance and potential, with the exception of a 300%
limit in the year of recruitment.
Performance targets are based on Adjusted Earnings per Share
(EPS) growth. The Remuneration Committee considers this
target to be the key measure of management performance to
generate significant increases in profits and increase shareholder
value. The Committee regularly reviews the level of targets to
ensure they are demanding in the context of the Company’s
circumstances and projected performance. For the awards
made in 2005 the targets were as follows:
Average Annual EPS Growth
in excess of Inflation (RPI) % of Award Vesting
8% 20%
15% 100%
Between 8% and 15% Pro rata
The base EPS figure used for grants made in 2005 was 23.5p,
which was the adjusted EPS figure for 2004/05 on a pro-forma
basis. The figure has been restated to 22.2p as the Group
is now reporting under IFRS.
The Committee is seeking shareholder approval to increase the
maximum level of grant under the Performance Share Plan to
400% of salary. The normal annual grant level will remain at up
to 200% of salary and it is intended to use the increased level
to give flexibility in exceptional cases including retention and
recruitment. The Committee expects to exceed the 200% base
salary limit in 2006/07 for around six individuals. Shareholders
were informed when the Performance Share Plan was adopted
last year that the Committee may set different EPS targets for
awards made in future years. In particular, it was pointed out
that if the Company’s EPS grew substantially in 2005/06, a
change to the targets was likely to be necessary for awards
made in 2006/07, provided that the Committee consider that
any new targets are at least as challenging as the targets
applying to the initial awards. The Committee has therefore
reviewed the appropriate level of targets for grants made
in 2006 and considers these revised targets to be equally
challenging taking into account the anticipated performance
over the fixed measurement period. The targets are as follows:
Average Annual EPS Growth
in excess of Inflation (RPI) % of Award Vesting
5% 20%
12% 100%
Between 5% and 12% Pro rata
Executive Share Option Scheme
Executive Share Option Schemes have operated for over 20
years and in recent years have been open to approximately 400
senior management. Although a new Executive Share Option
Scheme was adopted at the 2005 AGM, the Committee does
not intend to use this Scheme on a regular basis. However, it
does wish to have the flexibility to make grants from time to time
if it considers it appropriate to do so in the future. No grants
have been made under this Scheme in the year under review.
The performance targets in this Scheme will be based on EPS
growth and the following targets would have applied if any
grants had been made in the year under review:
Average Annual EPS growth of the
Company over the three-year
performance period % of Award Vesting
Less than RPI + 8% 0%
RPI + 8% 20%
RPI + 15% or more 100%
Between RPI + 8% Between 20% and 100%
and RPI +15% on a straight-line basis
The Committee intends to use the same EPS range for both
the Performance Share Plan and the Executive Share Option
Scheme. The target range for any Executive Share Option
grants to be made in 2006 is as shown under the Performance
Share Plan.
There are options outstanding for management under a number
of previous schemes which will vest, subject to the delivery of
the performance conditions, in 2006, 2007 and 2008. Executive
directors have options outstanding under the 2002 Scheme
only, details of which are shown in the table on page 46.
The performance targets for the 2002 Scheme are Adjusted
EPS growth measured from the most recent financial year
ending prior to grant of at least:
•RPI plus an average of 3% per annum for 50% of each
grant; and
•RPI plus an average of 4% per annum for the other 50%
of each grant.
Performance targets are assessed over an initial three-year
period from the date of grant. There is no ability to retest any
grants made since 2004/05, which includes all grants made to
the executive directors.
Executive Share Matching Plan
An Executive Share Matching Plan for senior management
operated in 2002, 2003 and 2004 for approximately 25 selected
senior management. The Company did not operate this plan for
executive directors in 2005 and does not intend to operate it in
future years. There are no current executive directors in this
plan. Participants were required to invest one-third of any annual
bonus earned in shares of the Company. Any part of the
balance may have been invested voluntarily.