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MARKS AND SPENCER GROUP PLC
INTRODUCTION
On behalf of the Board, I am pleased to present our 2018 Remuneration Report, my first as the Chairman of the Remuneration Committee. The Committee’s report covers the required regulatory information, balanced against commercial sensitivities, and also provides further context and insight into our director pay arrangements. The report provides a comprehensive picture of the structure and scale of our remuneration framework, its alignment with the business strategy and the rest of the workforce, as well as the decisions made by the Committee as a result of business performance for this year. A summary of the approved Remuneration Policy for the year, the Committee’s considerations and the intended arrangements for 2019/20 are set out on pages 63-75 of this report. The full Policy can be viewed on the Company's website at marksandspencer.com/thecompany.
BOARD CHANGES Following the departure of Helen Weir at the end of the last financial year, in July 2018 we were delighted to welcome Humphrey Singer as CFO. As detailed in the 2018 report, the Committee was pleased that we not only secured the employment of Humphrey Singer under our normal framework, but that we were able to further simplify our pay structures, removing any additional allowances for pension or car from his arrangements.
Early 2018 also saw the departure of Patrick Bousquet-Chavanne. Details of his leaving arrangements, along with full recruitment details for Humphrey, can be found on page 72 of this report. Due to the principle of mitigation built into the executive director Termination Policy, the Company was only required to pay a small proportion of Patrick's potential contractual notice period that would have been required had this principle not been in place. Reflecting on these arrangements, the Committee believes that our Remuneration Policy continues to provide appropriate flexibility in ensuring that any payments made in the implementation of the Policy are in the best interests of both the Company and our shareholders while being fair to the individual. As we look to the future, the Committee continues to be mindful of the ever-changing political and retail trading landscape and the need to ensure strategic alignment of the remuneration framework together with a motivational package for senior colleagues.
CONTEXT OF BUSINESS PERFORMANCE As referenced earlier in this report, M&S remains in the first ‘Restoring the Basics’ phase of the transformation. In Clothing & Home, despite underlying progress this year, transformation is yet to be reflected in like-for-like sales. In Food, whilst encouraging signs of volume growth were seen in the final quarter, again like-for-like sales were down and small improvement gains continue to be offset by challenges with our supply chain. As demonstrated on page 55, and referenced throughout this Remuneration Report, there is a strong alignment between M&S’s key performance indicators and the measures and targets of director incentive schemes. As described later, it is to be expected that payments under both the Annual Bonus Scheme and Performance Share Plan will be impacted by this challenging trading environment and the requirement of M&S to strengthen its ability to transform and adapt with pace.
REMUNERATION
OVERVIEW
ANDREW FISHER CHAIR OF THE REMUNERATION COMMITTEE
“The Committee ensures
that executive pay
arrangements remain
appropriate when
considering M&S's overall
remuneration framework
and external regulatory
environment.”
ANDREW FISHER CHAIR OF THE REMUNERATION COMMITTEE
REMUNERATION
Remuneration overview p54- Remuneration in context p Remuneration policy summary p59-
Full policy available at marksandspencer.com/thecompany in the 2017 annual report
ANNUAL REPORT ON REMUNERATION Remuneration structure p Total single figure remuneration p Salary and benefits p Annual Bonus Scheme p65- Performance Share Plan p66- Directors’ share interests p69- Changes to Board membership p Non-executive directors’ remuneration p Remuneration Committee remit p
IN THIS SECTION
REMUNERATION
ANNUAL REPORT & FINANCIAL STATEMENTS 2019
FINANCIAL STATEMENTS
GOVERNANCE
STRATEGIC REPORT
STRATEGIC ALIGNMENT OF PAY
M&S is committed to transformation and, in order to support this, the Committee ensures alignment of the measures and targets used in M&S’s incentive schemes, specifically those of the Performance Share Plan and Annual Bonus Scheme, with the KPIs and strategic priorities being used across the business. The illustration above demonstrates this strong linkage between the KPIs and strategic priorities, payments to directors, and business performance over the short- and long-term.
The Committee will continue to thoroughly review the pay structures and incentive arrangements for the senior leadership team to ensure strong alignment between the delivery of business performance and the associated remuneration arrangements as the business continues along this five-year transformation journey.
TERMS OF REFERENCE AND WIDER
WORKFORCE PAY ARRANGEMENTS
This continues to be a time of significant activity within the world of executive remuneration. 2018 saw the Financial Reporting Council publish its much- anticipated revised 2018 UK Corporate Governance Code and we welcome the greater stakeholder focus and development of UK corporate governance in a way that supports existing good business practice. I am pleased to be able to say that both wider colleague pay alignment and cultural context is woven throughout the remit and activities of M&S's Remuneration Committee. Throughout the year, the Committee debates and discusses oversight of key people policy areas such as performance management and diversity and inclusion, as well as gender pay reporting and reward framework and
budgets. Furthermore, demonstrating the Committee’s commitment to meaningful and transparent engagement on pay practices in the wider workforce, the chair of M&S’s employee representative body is invited to attend and contribute to a Committee meeting each year to allow two-way feedback. As evidence of our commitment to transparent reporting, along with embracing the spirit of the new regulations, we have chosen to publish an early indication of the M&S CEO : employee pay ratio which can be found on page 58, alongside M&S’s gender pay statistics, which are included in the Remuneration Report for the first time. Within the principle of best practice, the Remuneration Committee reviews its Terms of Reference on an annual basis. In anticipation of the revised 2018 UK Corporate Governance Code, a thorough appraisal was
STRATEGIC ALIGNMENT OF REMUNERATION FRAMEWORK WITH KPIS
2018/19 PERFORMANCE
Group PBT was below the threshold for bonus payments to be made under the 2018/ Annual Bonus Scheme.
£523.2m
GROUP PBT BEFORE ADJUSTING ITEMS
Average three-year ROCE performance was 14%. As a result, 9% out of a maximum of 20% of the 2016 PSP will vest under this element.
14%
RETURN ON CAPITAL EMPLOYED
Adjusted EPS in 2018/19 was 25.4p. This was below the 28.9p threshold required for any vesting under this element of the 2016 PSP award.
25.4p
ADJUSTED EARNINGS PER SHARE
Cumulative free cash flow performance for the three-year period ending in 2018/19 was £1,587m. As a result, 25% out of a maximum of 30% of the 2016 PSP will vest under this element.
£1,587m
CUMULATIVE FREE CASH FLOW
KPI/Strategic Priority As measured by
Performance Share Plan (PSP)
Annual Bonus Scheme (ABS) Historic
Looking Forward KPI See KPIs on p
Adjusted Earnings Per Share (EPS) Financial Results Return On Capital Employed (ROCE) Free Cash Flow Group PBT Before Adjusting Items (PBT) STRATEGIC PRIORITY See Strategic Priorities on p
1 Transforming Leadership Team New management team Talent review Team development 2 Building Greater Accountabilities^ New management team Team development Clear and consistent reporting Accelerate culture and organisation change 3 Digital First Retailer Sparks Online capabilities Technology enabled store portfolio and operations Accelerate Online Growth 4 Reshaping the Ranges and Customer Profile in Clothing & Home
Range management
8 Modernising the Supply Chain Supply chain delivery 9 Cost Savings^ Operating costs and control of capital expenditure Cost Strategy Programme
ANNUAL REPORT & FINANCIAL STATEMENTS 2019
FINANCIAL STATEMENTS
GOVERNANCE
STRATEGIC REPORT
LOOKING AHEAD
This will be the final year under the current remuneration framework, as at the 2020 AGM we will be seeking your support and approval for a new Remuneration Policy. Any new Policy put to our shareholders will remain steadfast in ensuring that executive director pay arrangements support and drive the business strategy while remaining appropriate when considered within the overall M&S remuneration framework and the external regulatory environment. A robust framework is especially crucial given the challenging environment in which we are operating. We will be supported by our Committee advisors when formulating the new Policy to ensure strong alignment with business objectives, in both the short- and long-term, with a view to delivering strong performance and sustainable shareholder returns. As ever, we will seek to engage with our major shareholders as part of this process to both reflect their views and to maintain open dialogue on director pay arrangements.
As we look to the future, the Committee will also need to take into consideration the impact of the joint venture between M&S and Ocado, a partnership we believe will bring substantial benefits and has transformative potential for our business. The Committee fully intends to review the extent to which the joint venture impacts structures, targets and applications of M&S’s incentive arrangements in both the short- and long-term.
I would like to thank our shareholders for their continued support during the year. I will be available at the Company’s Annual General Meeting on 9 July 2019 to answer any questions in relation to this Remuneration Report.
ANDREW FISHER CHAIR OF THE REMUNERATION COMMITTEE
PERFORMANCE SHARE PLAN (PSP) VESTING 2019
See Performance Share Plan on p66-
Cumulative Free cash flow
Maximum 30% Actual 25%
Adjusted EPS
Maximum 50% Actual 0%
Average ROCE
Maximum 20% Actual 9%
Outturn
Maximum 100% Actual 34%
VESTING OUTCOMES
IMPACT OF SHARE PRICE CHANGE
ON PSP VESTING VALUES
MAX
MAX
OUTTURN OUTTURN
Value at grant share price (£3.28)
Value at vesting share price (£2.79)
Share price decline
ADJUSTED EPS
AVERAGE ROCE
CUMULATIVE FREE CASH FLOW
MARKS AND SPENCER GROUP PLC
CONSIDERATION OF COLLEAGUE AND STAKEHOLDER VIEWS
The Committee monitors and reviews the effectiveness of the senior remuneration policy and its impact and compatibility with remuneration policies in the wider workforce. Throughout the year, the Committee reviews the frameworks and budgets for key components of colleague pay arrangements, together with broader structure of group bonus provisions which ensures appropriate alignment with senior pay arrangements.
The Committee receives updates on a variety of employee engagement initiatives including our annual ‘Your Say’ employee survey, which asks employees about engagement, empowerment and enablement. Employee representatives in our Business Involvement Groups are annually provided with an explanation of the executive directors’ pay arrangements during the year, and are able to ask questions on the arrangements and their fit with the other reward polices at this time.
CHIEF EXECUTIVE'S PAY RATIO The table below discloses the ratio of CEO pay for 2018, using the single total figure remuneration as disclosed in Figure 7 (page 63) to the comparable, indicative, full-time equivalent total reward of those colleagues whose pay is ranked at the 25th percentile., medium and 75th percentile in our UK workforce. Colleague pay was calculated based on actual pay and benefits
for the 12 monthly payrolls within the full financial year. We believe that the final figures detailed below are representative of the vast majority of our colleague base, being primarily customer assistants based in our stores. Formal figures and disclosures required under the updated regulation will be reported next year.
Year
25 th^ percentile ratio
50 th^ percentile ratio
75 th^ percentile ratio 2019 Indicative Figures 92 : 1 88 : 1 79 : 1
PERCENTAGE CHANGE IN CEO’S REMUNERATION
The table below sets out the change in the CEO’s remuneration (i.e. salary, taxable benefits and annual bonus) compared with
the change in our UK-based colleagues' pay. This group has been chosen as the majority of our workforce is UK-based. % change 2017/18 – 2018/ Base salary Benefits Annual bonus CEO (Steve Rowe) 0% 1.4% – UK employees (average per FTE) 2.9% -0.8% –
The 2.9% percentage change in base salary for UK employees reflects the base pay increase awarded to store colleagues effective April 2018. The change in colleague benefits is reflective of a shift in workforce structure rather than a change in benefit offering, which remains unchanged from 2017/18. The slight increase in Steve Rowe's benefits can be attributed to an increase in driver salary.
No award under the Annual Bonus Scheme was made to either the CEO or anyone else within the wider workforce in either 2017/ or 2018/19.
REMUNERATION
IN CONTEXT
COLLEAGUE ENGAGEMENT
GENDER PAY GAP
The M&S median gender pay gap for the year to April 2018 is 4.2%, compared to a national average of 17.9%. The M&S mean gap for the same period is 12.5%.
In the last 12 months we've made several steps to further promote and enhance diversity and equality at M&S. This includes, but is by no means limited to, development of a formal female talent pipeline, ensuring gender balanced recruitment campaigns and building a clear diversity & inclusion strategy governed by an Inclusion Group made up of directors and our employee diversity network chairs.
We’re proud that 75% of our Customer Assistants are women but we need to do more to encourage diversity in senior roles.
GENDER PAY GAP (MEDIAN)
(^) Share ownership across our colleagues Across our UK and Irish colleagues, M&S has a significant number of participants in all employee share schemes. M&S is a proud advocate of employee share ownership, encouraging colleagues to share in M&S's success while aligning interests with our shareholders.
Direct engagement with our colleagues The chair of the M&S colleague representative body is invited to attend a Remuneration Committee meeting each year to engage and contribute on both executive pay and pay across the wider workforce.
(^) Pay Budgets Under the remit of the Remuneration Committee, total budgeted salary expenditure across M&S for salary review is noted, ensuring principles for reward allocation are aligned across the full workforce, inclusive of senior leaders.
REMUNERATION
MARKS AND SPENCER GROUP PLC
- All executive directors have rolling contracts for service which may be terminated by M&S giving 12 months’ notice and the individual giving six months’ notice.
ELEMENT APPROACH
- Salaries are set by the Committee, taking into consideration a number of factors including the current pay for other executive directors, the experience, skill and current pay level of the individual and external market forces.
- The Committee may offer compensatory payments or buy-out awards where an individual forfeits outstanding variable pay opportunities or contractual rights as a result of their appointment with M&S.
- The specifics of any buy-out awards would be dependent on the individual circumstances of recruitment. Any value awarded would be no greater than the value forfeited by the individual.
- The Committee will offer a benefits package in line with our benefits policy for executive directors.
- Maximum contribution in line with our policy.
- Maximum bonus potential will be capped at 200% of salary in line with our policy.
- Maximum award of up to 300% of salary in line with our policy.
FIGURE 2: RECRUITMENT POLICY & SERVICE CONTRACTS
The table below summarises the Company’s policy on the recruitment of new executive directors. Similar considerations may also apply where a director is promoted within the Board.
SUMMARY EXECUTIVE DIRECTORS’ REMUNERATION POLICY (AS APPROVED ON 11 JULY 2017) CONTINUED
In addition, the Committee in exceptional circumstances has discretion to include any other remuneration component or award which it feels is appropriate subject to the limit on variable remuneration set out above. The rationale for any such component would be appropriately disclosed.
SERVICE
CONTRACT
BASE
SALARY
BENEFITS
PENSION
BENEFITS
ANNUAL
BONUS
SCHEME
PSP
BUY-OUT
AWARDS
DIRECTORS
0
1,
2,
3,
4,
5,
6,
7,
**Maximum
Fixed Target Maximum
Steve Rowe £
£1, 100% 46% 22%
35%
43%
18%
28%
53%
18% 36%
£2,
£4,
£5,
0
1,
2,
3,
4,
5,
6,
7,
**Maximum
Fixed Target Maximum
Humphrey Singer £
£ 100% (^) 40%
40% 18%
36%
45%
15%
30%
56%
20%
£1,
£3,
£4,
Fixed Fixed remuneration only. No vesting under the ABS and PSP. Target Includes the following assumptions for the vesting of the incentive components of the package:
- ABS: 50% of maximum, assumes no share price growth.
- PSP: 20% of 250%, assumes no share price growth. Maximum Includes the following assumptions for the vesting of the incentive components of the package:
- ABS: 100% of maximum, assumes no share price growth.
- PSP: 100% of 250%, assumes no share price growth. Maximum Includes the following assumptions for the vesting of the incentive components of the package:
- ABS: 100% of maximum, assumes no share price growth.
- PSP: 100% of 250% with 50% share price growth.
- Grant share price for the purpose of demonstrating the 50% growth taken as closing share price at 2018/19 year end.
BASIS OF CALCULATIONS AND KEY
+50% Share Price Growth
Fixed remuneration Includes all elements of fixed remuneration:
- Base salary (effective 1 July 2019, as shown in the table on page 64).
- Pension benefits as detailed on page 64.
- Benefits (using the value for 2018/19 included in the single figure table on page 63. Annual Bonus Scheme (ABS) Represents the potential value of the annual bonus for 2019/20. Half of any bonus would be deferred into shares for three years and this is included in the value shown. PSP PSP represents the potential value of the PSP to be awarded in 2019, which would vest in 2022 subject to the performance against the targets disclosed on page 68. Awards would then be held for a further two years.
APPLICATION OF REMUNERATION POLICY
SUMMARY REMUNERATION POLICY CONTINUED
ANNUAL REPORT & FINANCIAL STATEMENTS 2019
FINANCIAL STATEMENTS
GOVERNANCE
STRATEGIC REPORT
- Payment made up to the termination date.
SUMMARY EXECUTIVE DIRECTORS’ REMUNERATION POLICY (AS APPROVED ON 11 JULY 2017) CONTINUED
ELEMENT APPROACH
- There is no contractual entitlement to a bonus payment. If the director is under notice or not in active service at either the end of the bonus year or on the payment date, awards (and any unvested deferred bonus shares) may lapse. The Committee may, however, use its discretion to make a bonus award.
- The treatment of outstanding share awards is determined in accordance with the respective plan rules.
- M&S may pay for repatriation where a director has been recruited from overseas.
- Where a director leaves by mutual consent, M&S may reimburse for reasonable legal fees and pay for professional outplacement services.
FIGURE 3: TERMINATION POLICY
The Company may choose to terminate the contract of any executive director in line with the terms of their service agreement either by means of a payment in lieu of notice or through a series of phased payments subject to mitigation. Service agreements may be terminated without notice and, in certain circumstances such as gross misconduct, without payments.
The table below summarises our termination policy for executive directors under their service agreement and the incentive plan rules.
The full policy sets out further detail on the treatment of the executive directors’ pay arrangements, including the treatment of share schemes in the event of a change of control or winding-up of the Company.
LEGAL
EXPENSES &
OUTPLACEMENT
ANNUAL
BONUS
SCHEME
BASE SALARY,
BENEFITS
AND PENSION
BENEFITS
LONG-TERM
INCENTIVE
AWARDS
REPATRIATION
FIGURE 4: SUMMARY OF REMUNERATION POLICY
The diagram below illustrates the balance of pay and time period of each element of the remuneration policy for executive directors, approved in July 2017. The Committee believes this mixture of short- and long-term incentives and fixed to performance-related pay is currently appropriate for M&S's strategy and risk profile.
Year 1 Year 2 Year 3 Year 4 Year 5
TOTAL PAY
FIXED
PAY
Base salary Benefits Pension benefits
ANNUAL
BONUS
SCHEME
Up to 100% salary (deferred shares) Three-year deferral period No further performance conditions Malus provisions apply
Up to 100% salary (cash) One-year performance Clawback provisions apply
PSP Two-year holding period post vesting No further performance conditions Clawback provisions apply
Maximum 300% of salary Three-year performance Malus provisions apply
ANNUAL REPORT & FINANCIAL STATEMENTS 2019
FINANCIAL STATEMENTS
GOVERNANCE
STRATEGIC REPORT
The Remuneration Committee annually reviews the senior remuneration framework and considers whether the existing incentive arrangements remain appropriately challenging in the context of the business strategy, current external guidelines and a range of internal factors including the pay arrangements and policies throughout the rest of the organisation. In its discussions, the Remuneration Committee aims to
ensure that not only is the framework strategically aligned to the delivery of business priorities, but also that payments made during the year fairly reflect the performance of the business and individuals. As illustrated on page 55, a significant proportion of the performance measures used in the incentive schemes are integrated with M&S’s key performance indicators (KPIs) and Strategic Priorities detailed in the Strategic Report.
The diagram below (Figure 6) details the achievement of each executive director under the Company’s incentive schemes as a result of short- and long-term performance to the end of the reported financial year and summarises the main elements of the senior remuneration framework. Further details of payments made during the year are set out in the single figure table below (Figure 7) and later in this report.
FIGURE 7: TOTAL SINGLE FIGURE REMUNERATION (AUDITED)
Director Year
Steve Rowe 2018/19 810 33 0 621 203 1,
2017/18 810 31 0 79 203 1,
Humphrey Singer (from 9 July 2018)
Patrick Bousquet-Chavanne (to 18 April 2018)
Patrick Bousquet-Chavanne retired from the Board on 18 April 2018. Further details of his leaving arrangements can be found on page 72. Note that the value of awards vesting in 2017/18 has been restated to reflect the actual share price at the point of vesting, being £3.09.
REMUNERATION REPORT
FIGURE 6: REMUNERATION STRUCTURE 2018/
Fixed pay Annual bonus PSP Total pay for 2018/
Base salary
Benefits
Pension benefits
No salary increase
200% salary maximum bonus opportunity (with 50% deferral)
225% salary awarded in 2016
Measured against a balance of Group PBT before adjusting items and individual performance
Measured against adjusted EPS, average ROCE and cumulative free cash flow. Achievement was 34% against targets set
No bonus payment 34% of award vested
Total
payments
are between 32-33%
of maximum potential
EXECUTIVE DIRECTORS’ REMUNERATION
For more information see p67-
REMUNERATION
For more information see p
Total £
Pension benefits £
Total PSP vested £
Total bonus £
Benefits £
Salary £
MARKS AND SPENCER GROUP PLC
SALARIES
When reviewing salary levels, the Committee takes into account a number of internal and external factors, including Company performance during the year, external market data, historic increases made to the individual and, to ensure a consistent approach, the salary review principles applied to the rest of the organisation.
As detailed in last year’s report, for salaries effective July 2018, only Steve Rowe was eligible to be considered for a review as
Humphrey Singer did not join the Company until July 2018. The Committee decided, and the CEO agreed, that no salary increase would be awarded to the CEO for July 2018, despite no increase in Steve Rowe's salary since his appointment to CEO in 2016. For salaries effective July 2019, the Committee discussed the salary review being awarded to other colleagues in M&S ranging from 2% to 4%. In line with these increases seen across the wider organisation,
the Committee felt it was appropriate to grant a salary increase of 2% for Humphrey Singer and 3% for Steve Rowe. As detailed below, the salary increase for Steve Rowe will not apply to his pension supplement. The next annual salary review for the CEO and CFO will be effective in July 2020. The table below details the executive directors’ salaries as at 30 March 2019 and salaries which will take effect from 1 July 2019.
FIGURE 8: SALARIES
Annual salary as of 30 March 2019 £
Annual salary as of 1 July 2019 £
Change in salary % increase
Steve Rowe 810.0 834.5 3%
Humphrey Singer 600.0 612.0 2%
BENEFITS (AUDITED)
The Remuneration Policy permits that each executive director may receive a car or cash allowance as well as being offered the benefit of a driver. During the year, in lieu of a car allowance, Steve Rowe received a car and the benefit of a driver, as did Patrick Bousquet-Chavanne until he left the Company. Humphrey Singer receives neither a car nor cash allowance and does not have the benefit of a driver.
In line with all other colleagues, executive directors receive life assurance, employee discount and are eligible to participate in salary sacrifice schemes such as Cycle2Work.
PENSION BENEFITS (AUDITED)
During the year Steve Rowe and Patrick Bousquet-Chavanne received a cash payment in lieu of participation in an M&S pension scheme. The Committee is mindful of the external sentiment of executive pension arrangements and will be undertaking a thorough review of pension practices as part of the overall Remuneration Policy review ahead of next year's policy renewal. With this in mind, in awarding Steve Rowe's salary increase outlined above, the Committee decided, and Steve agreed, that whilst policy around pension is under review, this salary increase would not apply to his pension supplement.
Steve Rowe is a deferred member of the Marks & Spencer UK Pension Scheme. Details of the pension accrued during the year ended 30 March 2019 are shown below. Whilst Humphrey Singer is eligible to join the M&S pension scheme, he does not currently participate. He does not receive any additional payments in lieu of participation.
FIGURE 9: PENSION BENEFITS (AUDITED)
Normal retirement age
Accrued pension entitlement as at year end £
Additional value on early retirement £
Increase in accrued value £
Increase in accrued value (net of inflation) £
Transfer value of total accrued pension £
Steve Rowe 60 156 0 4 0 4,
The accrued pension entitlement is the deferred pension amount that Steve Rowe would receive at age 60 if he left the Company on 30 March 2019. All transfer values have been calculated on the basis of actuarial advice in accordance with the current Transfer Value Regulations. The transfer value of the accrued entitlement represents the value of the assets that the pension scheme would transfer to another pension provider on transferring the scheme’s liability in respect of a director’s pension benefits. It does not represent sums payable to a director and therefore cannot be added meaningfully to annual remuneration.
EXECUTIVE DIRECTORS’ REMUNERATION CONTINUED
REMUNERATION REPORT CONTINUED
MARKS AND SPENCER GROUP PLC
DEFERRED SHARE BONUS
PLAN (AUDITED)
Currently 50% of any bonus payment is compulsorily deferred into shares. These awards vest after three years subject to continued employment as well as malus provisions. As no bonus was awarded in respect of performance year 2017/18, no share awards under the Deferred Share Bonus Plan (DSBP) were made during the year. In relation to the 2018/19 performance year, as no bonus awards under the Annual Bonus Scheme have been made, there will be no awards under the DSBP made in June 2019.
ANNUAL BONUS SCHEME FOR 2019/
During the year, the Committee reviewed the 2019/20 Scheme, considering the five-year transformation programme, ‘Making M&S Special Again’ and bonus arrangements elsewhere in the business. It determined that the structure of the existing Scheme remained appropriate and was aligned with bonus arrangements seen elsewhere in the organisation.
As with the existing Scheme, the 2019/ Bonus Scheme is designed to focus on restoring the business to profitable growth with an emphasis not only on profits but also other key areas which will drive this transformation journey. Performance will be again focused on Group PBT before adjusting items (PBT) (70%) with individual measures set against key areas of delivery of the transformation plan which are deemed most critical to the future sustainable success of M&S. For 2019/20, individual performance will again be measured independently of PBT performance and, mirroring arrangements elsewhere in the business, no individual element may be earned until the threshold needed to secure payment under the corporate element for all participating colleagues is similarly achieved. The remaining 30% of the bonus will be measured against a scorecard of individual objectives, identified as the measurable key priorities required to drive the continued transformation of M&S. For the CEO, the measures within the individual scorecard will focus on the acceleration of the transformation programme, including improvements in supply chain and range
management, along with digital capabilities both online and instore. In addition, a key focus for the year will be the successful establishment of the Ocado joint venture and the transformation of M&S’s organisation and culture. For the CFO, the scorecard measures will focus on the delivery of the financial plan with an emphasis on Group PBT, cash flow and operating cost budgets, alongside the establishment of a cost strategy programme. From a commercial perspective, there will be a focus on the delivery of faster and more effective governance, controls and reporting within a strong, happy and commercially focused team. The performance targets for the 2019/ Scheme are deemed by the Board to be too commercially sensitive to disclose at this time as they are not disclosed elsewhere in this report. Where possible, they will be disclosed in next year’s report. The Committee, in its absolute discretion, may use its judgement to adjust outcomes to ensure that any payments made reflect overall business and individual performance during the year.
FIGURE 11: ANNUAL BONUS SCHEME TARGETS 2019/
Director
CORPORATE TARGETS INDIVIDUAL OBJECTIVES
Group PBT before adjusting items (PBT)
Scorecard of Individual Measures % bonus % bonus Measure
Steve Rowe
70% 30% –^ Accelerate the transformation in culture, organisation and capability across the business.
- Oversee the improvements in supply chain and range management in both Clothing & Home and Food businesses.
- Accelerate growth online and exploitation of digital capabilities.
- Drive the transition towards a more modern technology enabled store operation and store portfolio.
- Successfully establish the Ocado joint venture including leadership, operations and financing.
Humphrey Singer
70% 30% –^ Establish a cost strategy programme, including the delivery of UK operating cost budget.
- Deliver faster, more effective governance and controls.
- Drive a focus on clear and consistent internal reporting regimes to support and drive greater accountabilities across the business.
- Continued team development to support M&S’s commercial success.
ANNUAL BONUS SCHEME CONTINUED
PERFORMANCE SHARE PLAN (PSP)
PSP AWARDS MADE IN 2018/19 (AUDITED)
As reported last year, having considered the extent to which the long-term incentive framework remained relevant, the Committee determined that the existing structural arrangements remained aligned with the focus on maximising shareholder value by restoring the business to profitable growth. The three performance measures used in the 2017 PSP award, Adjusted EPS (EPS), Average ROCE (ROCE) and Relative TSR (TSR), were still considered to be the key drivers to deliver these core priorities. In line with the 2017/18 award, measures used in 2018/19 were equally balanced to ensure an appropriate focus on all three metrics.
TSR is once again measured against the bespoke group of 15 companies taken from the FTSE 350 General and Food & Drug Retailers indices, reviewed prior to grant to ensure the constituents remained appropriately aligned to M&S’s business operations to best reflect the value of shareholder's investment in M&S over the respective performance period. These companies are listed in Figure 13. The remainder of the award is measured equally against EPS and ROCE ensuring a balanced focus on all three performance metrics.
As was reported last year, each executive director was granted an award of conditional shares of 250% of salary. The grant was made on 27 July 2018. In line with Policy, awards will vest three years after the date of grant, to the extent that the performance conditions are met, and must then be held for a further two years. Clawback provisions apply during this holding period. Consistent with previous years, 20% of awards will vest for threshold performance increasing to 100% on a straight-line basis between threshold and maximum performance. Detailed targets can be seen in Figure 12.
REMUNERATION REPORT CONTINUED
ANNUAL REPORT & FINANCIAL STATEMENTS 2019
FINANCIAL STATEMENTS
GOVERNANCE
STRATEGIC REPORT
PERFORMANCE SHARE PLAN (PSP) CONTINUED
FIGURE 12: PERFORMANCE CONDITIONS FOR PSP AWARDS MADE IN 2018/19 (AUDITED)
Adjusted EPS in 2020/ (p)
Average ROCE (2018/19 – 2020/21) (%) Relative TSR 2018/19 award 1 / 3 of award 1 / 3 of award 1 / 3 of award
Threshold performance 31.7p 13.0% Median
Maximum performance 38.7p 17.0% Upper quartile
FIGURE 13: TSR COMPARATOR GROUP 2018/19 AWARD
J Sainsbury B&M European Kingfisher Wm Morrisons Debenhams N Brown Group Tesco Dixons Carphone Next Ocado Group Dunelm Group Sports Direct International ASOS JD Sports Fashion WHSmith
Targets outlined above are stated on a pre-IFRS16 basis and before any adjustments have been made for the impact of the recently announced M&S joint venture with Ocado, be that either the joint venture itself, or associated Rights Issue. The Committee will review the targets and TSR comparator group at an appropriate time and will fully disclose any adjustments required. Pre-vesting deliberations will also take into consideration the impact of the de-listing of Debenhams.
FIGURE 14: PSP AWARDS MADE IN 2018/19 (AUDITED)
Basis of award % of salary
Face value of award £
End of performance period Vesting date
Steve Rowe 250% 2,025 03/04/2021 27/07/
Humphrey Singer 250% 1,500 03/04/2021 27/07/
PSP grants were made as a conditional share award. When calculating the face value of awards to be granted, the number of shares awarded was multiplied by the average mid-market share price on the five dealing days prior to the date of grant. For the 2018 award, the share price was calculated as £3.093, being the average share price between 20 July 2018 and 26 July 2018.
FIGURE 15: PSP AWARDS VESTING IN 2018/19 (AUDITED)
For directors in receipt of PSP awards granted in 2016, the awards will vest in December 2019 based on three-year performance over the period to 30 March 2019. Performance has been assessed and it has been determined that 34% of the total award will vest. The Committee reviewed this level of vesting against the wider business performance of the period and determined this level of payment was appropriate.
Details of performance against the specific targets set are shown in the table below.
The total vesting values shown in Figure 16 directly correspond to the figure included in the single figure table on page 63.
2016/17 award
Adjusted EPS in 2018/ (p)
Average ROCE (2016/17- 2018/19) (%)
Cumulative free cash flow (2016/17- 2018/19)
50% of award 20% of award 30% of award
Total vesting % of award
Threshold performance 28.9p 13% £1,
Maximum performance 35.8p 16% £1,
Actual performance achieved 25.4p 14% £1,
Percentage of maximum achieved 0% 9% 25%
ANNUAL REPORT & FINANCIAL STATEMENTS 2019
FINANCIAL STATEMENTS
GOVERNANCE
STRATEGIC REPORT
FIGURE 19: DIRECTORS’ SHAREHOLDINGS (AUDITED)
The table below sets out the total number of shares held by each executive director serving on the Board during the period to 30 March 2019, or at their date of retirement from the Board. Shares owned outright include those held by connected persons.
There have been no changes in the current directors’ interests in shares or options granted by the Company and its subsidiaries between the end of the financial year and 21 May 2019. No director had an interest in any of the Company’s subsidiaries at the statutory end of the year.
Shares owned outright
Unvested
Vested but unexercised shares
With performance conditions
Without performance conditions Performance Share Plan
Deferred Share Bonus Plan
Steve Rowe 296,173 1,824,538 119,675 0
Humphrey Singer 0 484,966 0 0
Patrick Bousquet-Chavanne (to 18 April 2018) 123,098 176,876 0 0
FIGURE 20: SHAREHOLDING REQUIREMENTS (AUDITED)
All executive directors are required to hold shares equivalent in value to a minimum percentage of their salary within a five-year period from their appointment date. For the CEO, this requirement is 250% of salary and for other executive directors the requirement is 150% of salary. Similar guidelines of 100% of salary currently apply to all directors below Board level.
The chart below shows the extent to which each executive director has met their target shareholding as at 30 March 2019, or date of retirement from the board. For Steve Rowe, his 250% shareholding requirement is measured from the date he was appointed CEO.
For the purposes of the requirements, the net number of unvested share awards not subject to performance conditions is included and is reflected in the chart below. The Committee continues to keep both shareholding requirement guidelines and actual director shareholdings under review and will take appropriate action should they feel it to be necessary.
The Committee is aware of post-cessation shareholder requirements introduced under the 2018 Corporate Governance Code. Our existing share restrictions of a three-year deferral and two-year further holding period continue to apply post cessation of employment, resulting in a potential significant holding of shares following a director’s departure. The approach towards shareholding requirements at M&S will be considered ahead of the in 2020 Remuneration Policy renewal and will take into account new shareholder guidance in this area.
Patrick Bousquet-Chavanne (at 18 April 2018)
Humphrey Singer
Steve Rowe 123.8%
Key Shares owned outright
Unvested DSBP/RSP shares Shareholding requirement
150% of salary 250% of salary
EMPLOYEE SHARE SCHEMES
ALL-EMPLOYEE SHARE SCHEMES
(AUDITED)
Executive directors may participate in both ShareSave, the Company’s Save As You Earn Scheme, and ShareBuy, the Company’s Share Incentive Plan, on the same basis as all other eligible colleagues. Further details of the schemes are set out in note 13 to the financial statements on pages 114 to 116.
DILUTION OF SHARE CAPITAL
BY EMPLOYEE SHARE PLANS
Awards granted under the Company’s Save As You Earn Scheme and the Executive Share Option Scheme are met by the issue of new shares when the options are exercised. All other share plans are currently met by market purchase shares. The Company monitors the number of shares issued
under these schemes and their impact on dilution limits. The Company’s usage of shares compared to the dilution limits set by The Investment Association in respect of all share plans (10% in any rolling ten-year period) and executive share plans (5% in any rolling ten-year period) as at 30 March 2019 is as follows:
FIGURE 20: ALL SHARE PLANS
Limit
Actual
10%
4.42%
FIGURE 21: EXECUTIVE SHARE PLANS
Limit
Actual
5%
0%
EXECUTIVE DIRECTORS' REMUNERATION
MARKS AND SPENCER GROUP PLC
FIGURE 21: EXECUTIVE DIRECTORS’ INTERESTS IN THE COMPANY’S SHARE SCHEMES (AUDITED)
Maximum receivable at 1 April 2018
Awarded during the year
Exercised during the year
Lapsed during the year
Maximum receivable at 30 March 2019 (or date of retirement)
Steve Rowe
Performance Share Plan 1,430,660 654,704 21,387 239,439 1,824,
Deferred Share Bonus Plan 179,231 0 59,556 0 119,
SAYE 3,461 0 0 0 3,
Total 1,613,352 654,704 80,943 239,439 1,947,
Humphrey Singer
Performance Share Plan 0 484,966 0 0 484,
Deferred Share Bonus Plan 0 0 0 0 0
SAYE 0 0 0 0 0
Total 0 484,966 0 0 484,
Patrick Bousquet-Chavanne
Performance Share Plan 1,044,459 0 19,819 847,773 176,
Deferred Share Bonus Plan 138,459 0 138,459 0 0
SAYE 3,448 0 0 3,448 0
Total 1,186,366 0 158,278 851,221 176,
The aggregate gains of directors arising in the year from the exercise of awards granted under the PSP and DSBP totalled £707,782. The market price of the shares at the end of the financial year was 278.9p; the highest and lowest share price during the financial year were 314.5p and 242.4p respectively.
Patrick Bousquet-Chavanne retired from the Board on 18 April 2018 and left the Company on 31 May 2018. Details of his leaving arrangements are set out on page 72. His outstanding Deferred Share Bonus awards vested in full upon leaving, as reflected in the ‘Exercised during the year’ column’. His outstanding Performance Share Plan awards were pro-rated for time held on leaving as shown in the ‘Lapsed during the year’ column.
Figure 22 shows the time horizons of outstanding discretionary share awards for all directors serving on the Board during the year.
FIGURE 22: VESTING SCHEDULE OF EXECUTIVE DIRECTORS' OUTSTANDING DISCRETIONARY SHARE AWARDS
Maximum receivable at 30 March 2019 (all discretionary schemes)
2019/20 2020/21 2021/ Maximum Receivable Lapsed
Maximum Receivable Lapsed
Maximum Receivable Lapsed
Steve Rowe
Performance Share Plan 1,824,538 188,918 (366,722) 614,194 – 654,704 – Deferred Share Bonus Plan 119,675 32,376 – 87,299 – – –
Humphrey Singer
Performance Share Plan 484,966 – – – – 484,966 – Deferred Share Bonus Plan – – – – – – –
Patrick Bousquet-Chavanne
Performance Share Plan 176,867 60,135 (314,407) 0 (414,012) – – Deferred Share Bonus Plan – – – – – – –
As reported on page 67, the 2016 PSP awards included within the totals shown in Figure 21 will vest at 34% in December 2019. This has been reflected above in the 2019/20 'Lapsed' column. In addition, and as detailed above, outstanding awards held by Patrick under the 2016 PSP were pro-rated for time held upon leaving. This is also reflected in the 2019/20 'Lapsed' column. In line with the Plan rules, upon leaving Patrick’s PSP awards granted in 2017 lapsed in full. This is reflected above in the 2020/21 'Lapsed' column.
EXECUTIVE DIRECTORS' REMUNERATION CONTINUED
REMUNERATION REPORT CONTINUED
MARKS AND SPENCER GROUP PLC
FIGURE 26: SERVICE AGREEMENTS
In line with our policy, directors have rolling contracts which may be terminated by the Company giving 12 months’ notice or the director giving six months’ notice.
Date of appointment
Notice period/ unexpired term Steve Rowe 02/04/2016 12 months/6 months Humphrey Singer 09/07/2018 12 months/6 months
CHANGES TO EXECUTIVE MEMBERSHIP OF THE BOARD DURING 2018/
DIRECTORS APPOINTED TO THE BOARD
As reported in the 2017/18 report, Humphrey Singer was appointed to the Board on 9 July 2018 as Chief Finance Officer. His remuneration upon appointment was in line with the approved Recruitment Policy detailed on page 60 with a basic annual salary of £600,000. Humphrey receives neither a car allowance nor a pension cash allowance. The rest of Humphrey’s incentive arrangements are aligned with that of an executive director. No share awards have been granted to Humphrey in relation to his appointment.
PAYMENTS FOR THE LOSS OF OFFICE (audited) As reported in the 2017/18 report, Patrick Bousquet-Chavanne retired from the Board on 18 April 2018 and left M&S on 31 May 2018. Remuneration terms on leaving were in line with the approved Remuneration Policy. Patrick was entitled to receive salary and benefits, including pension, by way of phased monthly payments from 1 June
2018 for a maximum of 12 months, subject to mitigation. As per the terms of the Policy, these payments ceased upon the commencement of his new employment on 4 August 2018. The Committee determined good leaver treatment in line with the Plan rules and therefore his unvested conditional shares granted under the Deferred Share Bonus Plan vested in full on leaving. Unvested conditional shares awarded under the 2015 and 2016 PSP were time pro-rated to 31 May 2018. As reported last year, 8.2% of PSP awards granted in 2015 vested in July 2018 at a value of £73,418. As detailed earlier in the report, 34% of PSP awards granted in 2016 will vest in December 2019 at an estimated value of circa £197,556 based on the average share price between 2 January 2019 and 29 March 2019 plus a dividend equivalent of £0.49 per share. The PSP award made in 2017 lapsed in full on leaving in accordance with the Plan rules. Patrick has no further outstanding awards.
PAYMENTS TO PAST DIRECTORS
(audited) Helen Weir retired from the Board on 31 March 2018 and had two outstanding awards under the PSP. In accordance with the rules of the Performance Share Plan, 8.2% of her 2015 award vested in July 2018 at a value of £74,666. As detailed earlier in the report, 34% of PSP awards granted in 2016 will vest in December 2019 at an estimated value of circa £188,361 based on the average share price between 2 January 2019 and 29 March 2019 plus a dividend equivalent of £0.49 per share. Helen has no further outstanding awards.
FIGURE 27: EXTERNAL APPOINTMENTS
The Company recognises that executive directors may be invited to become non- executive directors of other companies and that these appointments can broaden their knowledge and experience to the benefit of the Company. The policy is for the individual director to retain any fee. The fees in the table opposite reflect those earned by Humphrey Singer from his appointment to the Board on 9 July 2018 to the end of the 2018/19 financial year.
Any fees Patrick Bousquet-Chavanne received for his external non-executive director role for the period from 1 April 2018 to 18 April 2018 were retained by him and have not been communicated to the Company.
Director Period earned Company
Fee 000 Humphrey Singer 09/07/2018 – 30/03/2019 Taylor Wimpey £
EXECUTIVE DIRECTORS' REMUNERATION CONTINUED
REMUNERATION REPORT CONTINUED
ANNUAL REPORT & FINANCIAL STATEMENTS 2019
FINANCIAL STATEMENTS
GOVERNANCE
STRATEGIC REPORT
FIGURE 28: NON-EXECUTIVE DIRECTORS’ TOTAL SINGLE FIGURE REMUNERATION (AUDITED)
Non-executive directors receive fees reflecting the time commitment, demands and responsibilities of the role. Fees paid to the non-executive directors and Board Chairman for 2018/19 and 2017/18 are detailed in the table opposite.
During the year, these fees were reviewed. Taking into account relevant market data, and given fees have remained frozen since 2011 while responsibilities have increased, it was agreed that the basic non-executive and senior non-executive director fee will be increased by 2.5% to £71,500 and £102,500 respectively. The additional fee for chairing a committee will increase by 3.3% to £15,500. The total aggregate fee of the Board Chairman will be increased by 2% to £612,000. Increases will be effective from 1 July 2019 and are in line with increases seen across the wider workforce.
Fee levels will be reviewed again during 2019/20 as per the normal annual process.
Changes to the Board during the year are detailed below and are also reflected in the table opposite.
Director Year
Basic fees £
Additional fees £
Benefits £
Total £
Archie Norman (from 1 September 2017)
Andy Halford 2018/19 70 23 0 93 2017/18 70 15 0 85 Alison Brittain 2018/19 70 0 0 70 2017/18 70 0 0 70 Andrew Fisher 2018/19 70 8 0 78 2017/18 70 0 0 70 Katie Bickerstaffe (from 10 July 2018)
Pip McCrostie (from 10 July 2018)
Justin King (from 1 January 2019)
Vindi Banga (to 1 October 2018)
Richard Solomons (to 10 July 2018)
FIGURE 29: NON-EXECUTIVE DIRECTORS’ SHAREHOLDINGS (AUDITED)
The non-executive directors are not permitted to participate in any of the Company’s incentive arrangements. All non-executive directors are required to build and maintain a shareholding of at least 2,000 shares in the Company within two months of their appointment to the Board.
The table opposite details the shareholding of the non-executive directors who served
on the Board during the year as at 30 March 2019 (or upon their date of retiring from the Board), including those held by connected persons. There have been no changes in the current non-executive directors’ interests in shares in the Company and its subsidiaries between the end of the financial year and 21 May 2019.
Director Number of shares held Archie Norman 78, Andy Halford 21, Alison Brittain 5, Andrew Fisher 3, Katie Bickerstaffe 2, Pip McCrostie 6, Justin King 20, Vindi Banga 93, Richard Solomons 5,
FIGURE 30: NON-EXECUTIVE DIRECTORS’ AGREEMENTS FOR SERVICE
Non-executive directors have an agreement for service for an initial three-year term which can be terminated by either party giving three months’ notice (six months’ for the Chairman).
The table opposite sets out these terms for all current members of the Board.
Director Date of appointment Notice period/unexpired term Archie Norman 01/09/2017 6 months/6 months Andy Halford 01/01/2013 3 months/3 months Alison Brittain 01/01/2014 3 months/3 months Andrew Fisher 01/12/2015 3 months/3 months Katie Bickerstaffe 10/07/2018 3 months/3 months Pip McCrostie 10/07/2018 3 months/3 months Justin King 01/01/2019 3 months/3 months
NON-EXECUTIVE DIRECTOR CHANGES TO THE BOARD DURING 2018/
DIRECTORS APPOINTED TO THE BOARD
Katie Bickerstaffe and Pip McCrostie joined the Board as non-executive directors on 10 July 2018, as did Justin King on 1 January 2019. Katie, Pip and Justin receive the standard annual non-executive director fee of £70,000 and are members of the Nomination Committee. In addition to being appointed to the Nomination Committee, Katie is a member of the Remuneration Committee and Pip is a member of the Audit Committee.
ROLE CHANGES WITHIN THE BOARD
Upon Vindi Banga’s retirement from the Board, Andrew Fisher became Chairman of the Remuneration Committee and Andy Halford was appointed to the role of Senior Independent Director. These appointments were effective on 1 October 2018 and from this date Andrew and Andy received additional fees in accordance with the increased responsibility of their roles as described in the Remuneration Policy on page 62.
DIRECTORS RETIRING FROM THE BOARD
Richard Solomons retired from the Board on 10 July 2018 and Vindi Banga retired from the Board on 1 October 2018. There were no payments for loss of office payable to Richard or Vindi.
NON-EXECUTIVE DIRECTORS' REMUNERATION
