Marks and Spencer 2007 Annual Report Download - page 46

Remuneration report
The Remuneration Committee has adopted the principles
of good governance relating to directors’ remuneration as set
out in the Combined Code 2006. 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 Remuneration Committee comprises four independent non-
executive directors. Louise Patten took over as Committee
Chairman on 1 January 2007. The other members are Steven
Holliday, Jack Keenan (Committee Chairman until 31 December
2006), and Sir David Michels, who joined the Committee on 26
May 2006. Kevin Lomax was a member of the Committee until
he retired from the Board on 31 August 2006. Martha Lane Fox
will join the Committee on 1 June 2007. There were eight
meetings of the Remuneration Committee during the period
under review and all individuals who were members of the
Committee at that time attended the meetings, with the
exception of Louise Patten who was absent on 10 May 2006
and Steven Holliday who was absent on 24 January 2007, 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, 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 senior 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 one level
below the Board (‘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 for senior management and the specific
terms for an individual either on recruitment or termination;
and
• to determine the policy for, and scope of, senior
management 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 long-term growth of
Marks & Spencer. The Company is delivering significantly
improved performance and generating substantial increases
in profit and shareholder value, and to ensure this continuing
growth in a highly competitive retail sector, it is essential that
the Senior Team is incentivised, motivated and retained.
Reviews in 2005 and 2006 resulted in changes to the 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.
Executives are required to achieve demanding targets under
the annual and long-term arrangements to receive rewards.
The overall package supports the Company’s strategy and
its commitment to continuous and sustainable enhancement
of 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 below.
Expected value of future annual remuneration package
for executive directors
‘On-target’ performance
‘Maximum’ performance
The value placed on long-term incentives comprises the
expected cash value to executives after three years, discounted
back to its present value, of (i) bonus compulsorily deferred into
shares and (ii) performance shares awarded under the
Performance Share Plan.
Long-term incentives
77%
Annual
cash
bonus
10%
Pension 3%
Salary
10%
Long-term incentives
46%
Annual
cash
bonus
9%
Pension 9%
Salary
36%
44 MARKS AND SPENCER GROUP PLC www.marksandspencer.com/annualreport2007