Summary Directors’ remuneration report
Over the past two years the Remuneration Committee has reshaped remuneration packages of senior executives to make them more performance-related and to ensure that the Group is able to recruit, retain and motivate high calibre individuals.
A substantial proportion of the Executive Directors' pay is now performance-related. The table below demonstrates the balance between fixed and performance-related pay for the Chief Executive at target and maximum performance levels. Maximum performance assumes the achievement of maximum bonus and full vesting of shares under the long-term incentive plan (LTIP).
Base salary and benefits
The policy has continued to move towards setting mid-market salaries in the context of fully competitive total packages with a substantial proportion being subject to the performance of the business and individuals.
Executive Director base salary levels, with effect from 1 February 2008, are as follows:
| Marc Bolland | £757,050 |
| Mark Gunter | £540,750 |
| Martyn Jones | £425,000 |
| Roger Owen | £494,400 |
| Richard Pennycook | £519,120 |
Benefits include health insurance, transport costs and telephone expenses.
Annual bonus
The Remuneration Committee operated an Annual Bonus Plan for Executive Directors and other senior managers during 2007/08. For 2007/08 the maximum bonus was 100% of base salary, with measurement based upon profit before taxation (excluding exceptionals) and personal objectives, as set out below:
| Measures | % of bonus potential |
| Profit before tax, excluding exceptionals | 80% |
| Personal objectives | 20% |
No bonus was payable for the achievement of personal objectives unless the minimum profit targets had been achieved. Details of the actual amounts paid for 2007/08 are set out in the Directors' emoluments table on page 18.
The 2008/09 Annual Bonus Plan for the Executive Directors will be similar in design to the plan for 2007/08 with an 80/20 ratio of profit and personal objective targets respectively. The maximum bonus for Executive Directors will remain at 100% of base salary. Executive Directors are no longer eligible to participate in profitsharing arrangements.
Long-term incentive plan
The long-term incentive plan was approved at the AGM in May 2007. The plan was designed to reward management for achieving the Group's strategic objectives and to provide an appropriate level of long-term performance pay. Each year, participants receive conditional awards of shares in the Group which will normally vest three years after they are awarded, subject to the satisfaction of performance conditions measured over a three-year period and continued service. The plan's individual annual limit is 300% of salary (face value of shares).
Performance measures are 75% based on earnings per share (EPS) and 25% based on like-for-like non-fuel sales growth. No awards can vest under the sales targets unless threshold EPS targets have been met.
For the awards intended to be granted in April 2008, the following targets will apply. 25% of the EPS related component of the award will vest if the Group's EPS in 2010/11 is 19.6p per share rising on a pro rata basis until 100% vests for an EPS of 23.5p per share. 25% of the sales growth related component will vest if the Group's like-for-like non-fuel sales grow by 3% per annum compound rising on a pro rata basis until there is 100% vesting for growth of 5% per annum compound. The Remuneration Committee considers that the targets set are demanding in the context of the Group's circumstances and take into account the prospects for growth.
Under share ownership guidelines, Directors are expected to retain 50% of vested LTIP awards (net of tax) until such time as they own shares worth 100% of their salary after which point they will be expected to retain, as a minimum, this level of holding.
Pension arrangements
The Executive Directors, with the exception of Marc Bolland, participate in the Group's Defined Benefit Pension Scheme. Pension entitlements accrue at the rate of 1/30th for each year, with a maximum pension of 2/3rds pensionable salary at age 62.
Pensionable earnings, subject to pensionable pay rules and calculations, are capped at the maximum earnings limit which in 2007/08 is £112,800 although Roger Owen, who joined the scheme before this limit was introduced, is not subject to this limit. Richard Pennycook, Mark Gunter and Martyn Jones, who are subject to the earnings cap, receive a cash supplement of 10% of salary in excess of the cap. Marc Bolland is not in the pension scheme but instead receives a salary supplement of 30% of salary. Sir Ken Morrison is in receipt of a pension from the scheme, in addition to his emoluments shown on page 18. His pension amounted to £181,702 in the period.
No contributions were paid or are payable by any Directors under the terms of the scheme. There are no enhanced early retirement rights. Post-retirement pensions increase in line with the annual increase in the retail price index or by 5% per annum compound, whichever is the lower.
Directors' contracts
Executive Directors
All Executive Directors have a service agreement without expiry dates. These contracts can be terminated by either the Group or Director giving 12 months' notice. Following a review of service contracts for Executive Directors, the Remuneration Committee adopted a new model contract which provides that any compensation provisions for termination without notice will only extend to 12 months of salary, benefits and pension (which may be payable in instalments and subject to mitigation) and agreed that going forward, all new Director contracts would be on that basis. The model contract does not contain change of control provisions. This policy was applied to Marc Bolland at the time of his recruitment and was applied to Mark Gunter, Martyn Jones and Roger Owen on 5 April 2007. Richard Pennycook's contract provides that he has an obligation to mitigate his loss in the event of termination in breach of contract.
| Name of Director | Date of contract | Notice period from Company (months) |
| M Bolland | 7 Jun 2006 | 12 |
| M Gunter | 5 Apr 2007 | 12 |
| M Jones | 5 Apr 2007 | 12 |
| K Morrison | 1 Sep 20051 | 12 |
| R Owen | 5 Apr 2007 | 12 |
| R Pennycook | 23 May 2006 | 12 |
1. The date of the contract for Sir Ken Morrison is collectively based on letters of appointment dated 23 January 2003, 23 June 2005 and 1 September 2005 (the latter of these dates is displayed above).
The date of contract for D Hutchinson, who resigned from the Board with effect from 30 June 2007, was collectively based on letters of appointment dated 23 January 2003, 23 June 2005 and 1 September 2005.
Sir Ken Morrison will retire from the Board on 13 March 2008. Roger Owen tendered his resignation on 25 October 2007 and will leave the business at the end of the current financial year. On the basis that full notice will be served, there will be no termination payments made in relation to his contract. Roger Owen will participate in the Annual Bonus Plan for 2008/09 and will receive an award under the LTIP in April 2008. In line with best practice, LTIP awards that have been granted to Roger Owen will vest three years from grant, subject to the satisfaction of performance conditions, with amounts pro-rated to reflect the period of time between grant date and leaving date.
Non-Executive Directors
Brian Flanagan, Paul Manduca, Susan Murray and Nigel Robertson have been appointed for a three year period from their dates of appointment, unless otherwise terminated earlier by, and at the discretion of, either party upon one month's written notice. Sir Ian Gibson has been appointed for a three year period from date of appointment unless otherwise terminated earlier by, and at the discretion of, either party upon 12 months' written notice.
The remuneration of the Non-Executive Directors (other than the Chairman) is a matter for the Chairman and Executive members of the Board and is reviewed from time to time with regard to the time commitment required and the level of fees paid in comparable companies. Non-Executive Directors receive no benefits from their office other than fees and are not eligible to participate in the Group's pension arrangements. The current levels are as follows:
| Name | Base £000 |
Committee Chairmanship £000 |
Senior Independent Director £000 |
Total £000 |
| B Flanagan | 45 | - | - | 45 |
| I Gibson | 1251 | - | - | 125 |
| P Manduca | 45 | 10 | 10 | 65 |
| S Murray | 45 | 10 | - | 55 |
| N Robertson | 45 | - | - | 45 |
| Total | 305 | 20 | 10 | 335 |
1. Following Sir Ian Gibson’s appointment as Non-executive Chairman from 14 March 2008, this annual fee will increase to £300,000.
Performance graph
The following graph shows the Group's total shareholder return (TSR) compared against the TSR of the FTSE 100 and FTSE Food & Drug Retailers indices. These indices have been selected as being appropriate in giving a broad equity view and the Group is a constituent of both indices.
Directors’ emoluments and pension entitlements
The emoluments of the Directors were as follows:
| Name of Director | Directors’ salaries/fees £000 |
Benefits in kind £000 |
Pension supplement £000 |
Profit share £000 |
Annual bonus £000 |
Integration bonus £000 |
Total year to 3 Feb 2008 £000 |
Total year to 4 Feb 2007 £000 |
| Chairman | ||||||||
| K Morrison | 675 | 40 | - | 21 | - | - | 736 | 736 |
| Executive Directors | ||||||||
| M Bolland | 721 | 45 | 217 | - | 706 | - | 1,689 | 871 |
| M Gunter | 515 | 35 | 41 | - | 502 | - | 1,093 | 990 |
| D Hutchinson3 | 256 | 12 | - | - | - | - | 268 | 910 |
| M Jones1 | 355 | 28 | 23 | - | 380 | 1947 | 980 | - |
| R Owen | 494 | 35 | - | - | 480 | - | 1,009 | 914 |
| R Pennycook | 494 | 1288 | 38 | - | 485 | - | 1,145 | 1,483 |
| Non-executive Directors | ||||||||
| B Flanagan | 45 | - | - | - | - | - | 45 | 58 |
| I Gibson2 | 52 | - | - | - | - | - | 52 | - |
| P Manduca | 65 | - | - | - | - | - | 65 | 56 |
| S Murray | 55 | - | - | - | - | - | 55 | 53 |
| N Robertson | 45 | - | - | - | - | - | 45 | 43 |
| Former Directors | ||||||||
| M Melnyk4 | - | - | - | - | - | - | - | 3,614 |
| R Stott5 | - | - | - | - | - | - | - | 2,149 |
| D Jones6 | - | - | - | - | - | - | - | 29 |
| Total | 3,772 | 323 | 319 | 21 | 2,553 | 194 | 7,182 | 11,906 |
Appointed to the Board with effect from:
1. 9 March 2007.
2. 1 September 2007.
Resigned from the Board with effect from:
3. 30 June 2007.
4. 6 December 2006.
5. 29 September 2006.
6. 30 June 2006.
7. Following the acquisition of Safeway in March 2004, the Group implemented a one-off cash-based incentive scheme to below Board executives who would play a key role in the integration process. Martyn Jones' award, which was granted on 1 September 2004 and which vested on 1 September 2007, was subject to continued employment with the amount ultimately paid being determined by the Group's share price on the date the award vested.
8. Benefits in kind comprise relocation costs and disturbance allowances for Richard Pennycook (negotiated at the time of his recruitment), transport costs, health insurance and telephone expenses.
The following Directors had accrued entitlements under defined benefit schemes as follows:
| Name | Accrued pension at 4 Feb 2007 £000 |
Increase in accrued pension (excl. inflation) in year ended 3 Feb 2008 £000 |
Transfer value of the increase in accrued pension during the year £000 |
Accrued pension at 3 Feb 2008 £000 |
Transfer value of accrued pension at 4 Feb 2007 £000 |
Transfer value of accrued pension at 3 Feb 2008 £000 |
Movement in transfer value during the year £000 |
| Executive Directors | |||||||
| M Gunter | 42 | 3 | 36 | 47 | 505 | 491 | (14) |
| D Hutchinson | 180 | 30 | 4599 | 2109 | 2,918 | 3,561 | 643 |
| M Jones | 26 | 4 | 40 | 30 | 296 | 319 | 23 |
| R Owen | 296 | 14 | 226 | 321 | 4,856 | 5,278 | 422 |
| R Pennycook | 5 | 3 | 29 | 8 | 46 | 70 | 24 |
| Total | 549 | 54 | 790 | 616 | 8,621 | 9,719 | 1,098 |
9. As at 30 June 2007.
More information
This is a summary of the Directors’ remuneration report (PDF 91kb) which appears in the Annual report and financial statements 2008.