Marks and Spencer 2005 Annual Report Download - page 20

18 MARKS AND SPENCER GROUP PLC
Remuneration report continued
At the end of the three-year performance period2, the Company’s
TSR performance is ranked against the two comparator groups
and the following matching ratios applied:
Ratio of Matching Award
TSR Performance to relevant portion of
Ranking in Group invested bonus
Top Decile 2.5:1
Between Median and Pro rata between
Top Decile 1:1 and 2.5:1
Median 1:1
Below Median Zero3
1TSR – The return to shareholders comprising the increase or decrease in share
price plus the value of dividends received assuming that they are reinvested.
2The performance period for the first year of awards consists of the three
consecutive years following the most recent announcement of results prior to
the date of award. For subsequent awards, the performance period will consist
of three consecutive financial years.
3With the exception of the 2002 Plan, any element of bonus that is compulsorily
invested in the Plan receives a minimum matching ratio of 0.25:1 irrespective
of performance.
(b) 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.
Under the 2002 scheme, annual awards of up to 150% of basic
salary may be offered based on performance and potential and, for
exceptional performance and potential, grants of up to 250% of
basic salary may be awarded. Recruitment grants can be made up
to 400% of salary.
The performance targets for the current Scheme are adjusted
earnings per share (EPS) growth measured from the most recent
financial year ending prior to grant of at least:
•inflation plus an average of 3% per annum for 50% of each
grant; and
•inflation 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. From the year 2004/05 there is no ability to
retest any grants.
The Remuneration Committee will ensure that during the transition
to International Financial Reporting Standards, a consistent basis
is used in the measurement of EPS.
As part of the review undertaken by the Remuneration Committee,
the Company intends to adopt, subject to shareholder approval, a
new Executive Share Option Scheme. Whilst it does not intend to
use this Scheme on a regular basis, the Company wishes to have
the flexibility to make grants from time to time in the future, upon
recruitment or in exceptional circumstances, if it considers it
appropriate to do so. Full details of the proposal are shown in the
Notice of Meeting.
2000 and 2002 Schemes
For options granted in 2001-03, the performance target is:
•EPS growth of at least inflation plus an average of 3% per
annum for 50% of each grant, measured from a fixed base of
14.5p or the EPS figure for the year ending prior to grant if
higher; and
•EPS growth of inflation plus an average of 4% per annum
for the other 50% of each grant, measured from a fixed base
of 16.5p, or the EPS figure for the year ending prior to grant
if higher.
For options granted since 2004, the measurement is from the EPS
figure at the end of the financial year prior to the grant date as
published in Company’s Report and Accounts.
1997 Scheme
The first grants under this scheme were in June 1998 and
no options have been granted since June 2000. Options are
subject to the following performance targets on exercise:
•Tier 1 Options: EPS growth over three years of at least inflation
plus an average of 3% per annum; and
•Tier 2 Options: EPS growth over five years, placing the
Company in the upper quartile of the FTSE 100 companies.
1984 and 1987 Schemes
The last grants under these schemes were awarded in June 1997.
The performance targets for the exercise of options granted in
1996 and 1997 require EPS growth of at least inflation plus an
average of 2% per annum.
(c) Performance Share Plan
The Remuneration Committee intends to propose to shareholders
the introduction of a Performance Share Plan. Subject to approval,
this plan will be used as the primary form of long-term incentive for
the 100 most senior management. Under the plan, annual awards
of up to 200% of salary may be offered based on performance and
potential, with a 300% limit in the case of recruitment.
It is intended that the performance targets will be based on
adjusted EPS growth. For the initial awards made in 2005 the
targets will be 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 Committee considers that EPS within the Performance Share
Plan is the most appropriate measure because it is the key
indicator of management performance and will reward significant
increases in profits which then flow through to increased
shareholder value.
(d) All-Employee Share Schemes
Executive directors can also participate in the share schemes open
to all employees of the Company. The Save As You Earn (SAYE)
Scheme is currently offered annually. Details of grants and awards
made to executive directors under all schemes are given in part 2
of this report.
An SAYE Option Scheme was approved by shareholders in 1981
and renewed by shareholders in 1987 and 1997. Inland Revenue
rules limit the maximum amount saved to £250 per month. When
the savings contract is started, options are granted to acquire the
number of shares that the total savings will buy when the contract
matures. Options cannot normally be exercised until a minimum of
three years has elapsed.