Marks and Spencer 2007 Annual Report Download - page 48

Remuneration report continued
Performance targets are based on Adjusted Earnings per Share
(EPS) growth measured over a single three-year period which
the Remuneration Committee considers to be the key measure
of management performance to generate significant increases in
profits and enhance shareholder value. The Committee reviews
both the choice of measure and the level set each year to ensure
it is appropriate in light of the business strategy and the levels
are demanding in the context of the Company’s circumstances.
The targets for the 2007 award have been set by the
Committee following consultation with leading investors. There
will be two different targets. The first for any award up to 200%
and a more stretching target for the exceptional awards above
200%. The Committee considers that this range of growth
targets is as least as challenging as target ranges were for
previous awards when they were chosen. In coming to this
conclusion, the Committee took into account the significantly
higher ‘base’ point for this award (from which growth is
measured) as a result of the much improved result for 2006/07,
the future business outlook for the Company and EPS targets
and trends in other retailers and FTSE 100 companies. The
targets are as follows:
Average Annual EPS Growth Adjusted EPS for
in excess of inflation (RPI) start of scheme1
Award 20% vesting 100% vesting Original Restated
2005 8% 15% 23.5p 22.2p
2006 5% 12% 31.4p 31.4p
200724% 10% 40.4p 40.4p
200734% 12% 40.4p 40.4p
1The base EPS figure 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. Full details of EPS are described in Note 8 to the financial
statements on page 65 of the Annual Report.
2Awards up to 200% of salary.
3Awards between 200% – 400% of salary.
Executive Share Option Scheme
Executive Share Option Schemes have operated for over 20
years and in recent years have been open to approximately
400 members of 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.
There are options outstanding for management under a number
of previous schemes which will vest, subject to the delivery of
the performance conditions, in 2007 and 2008. Executive
directors have options outstanding under the 2002 Scheme
only, details of which are shown in the Directors’ share option
schemes table on page 49. 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.
All-Employee Share Schemes
Executive directors can also participate in the share schemes
open to all employees of Marks & Spencer, currently Sharesave,
the Company’s Save As You Earn scheme (SAYE). Details of
participation by executive directors in Sharesave are given in
part 2 of this report.
A SAYE scheme was approved by shareholders in 1981 and
renewed by shareholders in 1987 and 1997 and shareholder
approval is being sought at the 2007 AGM to renew the scheme
for a further 10 years. HMRC 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, at a discounted
price set at the start of the scheme. Options cannot normally be
exercised until a minimum of three years has elapsed.
Service contracts and terms
Chairman
Lord Burns was appointed Chairman post the AGM on 11 July
2006 following the retirement of Paul Myners. Lord Burns has
a service agreement which requires 12 months’ notice from the
Company or six months’ notice should he wish to terminate
the agreement.
Non-executive directors
The non-executive directors have service agreements with the
Company for an initial three-year term, which are terminable on
three months’ notice by either party. Kevin Lomax retired from
the Board on 31 August 2006 and Jack Keenan has given
notice that he will be retiring from the Board with effect from
10 July 2007. Martha Lane Fox will join the Board on
1 June 2007.
Executive directors
All members of senior management, including executive
directors, have service contracts. These contracts can be
terminated by the Company giving 12 months’ notice and by
the employee giving six months’ notice.
The Company retains the right to terminate the contract of any
executive director summarily, in accordance with the terms of
their service agreement, on payment of a sum equivalent to the
contractual notice entitlement of 12 months’ salary and
specified benefits. In the case of all current executive directors,
the Company reserves the right on termination to make phased
payments which are paid in monthly instalments and subject to
mitigation. Entitlement to participate in future share scheme
awards ceases on termination.
46 MARKS AND SPENCER GROUP PLC www.marksandspencer.com/annualreport2007