Remuneration Report
1. The role of the Remuneration Committee
2. Remuneration policy
3. Directors’ remuneration
4. Directors’ interest in sharesß
5. Share price
6. Total shareholder return (“TSR”)
Information contained in sections and figures markedß has been audited.
1. The role of the Remuneration Committee
The prime purpose of the Remuneration Committee is to set the remuneration policy for executive directors and senior managers and to ensure that they are fairly rewarded for their individual contribution to the Group’s overall performance, having due regard to the interests of shareholders, the financial and commercial health of the Group and pay and conditions elsewhere in the Group.
The Company’s remuneration policy seeks, by application of the six principles detailed below, to provide an overall remuneration package to a value within a specific range. The way that each
package as a whole is structured, and the components that make it up, may differ. Due to the significant differences in remuneration practices in the two countries in which the Group operates, the level of remuneration is based upon and supported by surveys which are
undertaken in both the UK and the US.
All members of the Remuneration Committee are independent nonexecutive directors who do not have any personal financial interest (other than as shareholders) in matters decided by the Committee. No executive director or senior manager is involved in determining his or
her own remuneration.
The Remuneration Committee sets the remuneration of the Chairman of the Board. It also sets that of the Group Chief Executive after consultation with the Chairman. The remuneration of the other executive directors and certain senior managers is set by the Committee based on recommendations made by the Group Chief Executive after consultation with the Chairman of the Board. Performance targets are set by the Committee in consultation with the Chairman of the Board and, where appropriate, external professional consultants. Where executive directors are involved in assisting the Remuneration Committee, care is taken to recognise and avoid
possible conflicts of interest.
The Remuneration Committee draws on external professional advice on a regular basis and makes use of relevant and reliable independent market surveys. The Committee has retained Towers Perrin as advisers to assist it and they are not retained in any other capacity within the Group. In addition Herbert Smith (on UK aspects) and Weil, Gotshal & Manges (on US aspects) advised the Remuneration Committee on legal matters. These firms also provide general legal advice to Signet.
The remuneration of the non-executive directors is not within the remit of the Remuneration Committee. Such remuneration is determined by the Chairman and the executive members of the Board following a recommendation by the Chairman after consideration of, among other factors, external comparisons, the time commitment and responsibilities.
The Remuneration Committee consists of Robert Blanchard (Chairman), Russell Walls and Robert Walker. The Committee met eight times during 2005/06 and there was full attendance at all meetings.
The terms of reference for the Remuneration Committee are available on request from the Group Company Secretary and are on the Group’s website.
The terms of reference for the Remuneration Committee are available on request from the Group Company Secretary and are on the Group’s website.
2. Remuneration policy
The Remuneration Committee believes that the Group’s remuneration policy must be based on sound, clearly stated principles which recognise the long term interests of the Group, its shareholders and employees. The Remuneration Committee will continue to review the
Company’s remuneration policy to ensure that it remains effective and appropriate to the Company, and to monitor the level of potential awards. After careful consideration during 2002/03, the Remuneration Committee formally adopted a set of six principles. Following a
comprehensive review by the Remuneration Committee in 2005/06 these principles remain unaltered and they are set out below:
(i) Signet’s primary business objective is to deliver results which should consistently outperform the average of the industry sector.
(ii) It is recognised that to consistently deliver above industry average performance Signet will need to retain, and where necessary attract, executives of well above industry average ability and leadership potential.
(iii) It is also recognised that retaining, and where necessary recruiting, senior executives of this calibre will require that the Group provide above industry average total remuneration.
(iv) Therefore, Signet’s executive directors and other senior executives should be remunerated in a range beginning with the 51st and ending with the 75th percentiles of industry total remuneration, based on current surveys of relevant companies appropriate to the executive’s position and geographic location. The remuneration of each executive within this range will be based on performance (both of the Group and the individual executive), potential (i.e. the executive’s potential to grow in responsibility and performance), and scarcity (i.e. the availability of candidates to replace the executive should he/she leave the Group).
(v) Total remuneration for executive directors and other senior executives should be highly geared towards performance with the proportion of “at risk” pay increasing disproportionately
according to: a) the level of performance achieved, and b) the seniority of the executives and their ability to influence results. Excluding pension contributions, the provision of a company car
and private health insurance, there should be only one element of guaranteed remuneration; base salary. The performance related portion of total remuneration should reward short term and long term performance separately, with the potential level of payment being heavily weighted in favour of the latter. Short term achievement should be recognised through the annual bonus plan with long term achievement being rewarded through executive share option awards and participation in long term incentive plans.
(vi) Surveys will be undertaken on a regular basis to ensure that total remuneration packages remain in the percentile range described in (iv) above. Recognising that some 70% of Signet’s sales and profits are generated in the US and that significant differences in remuneration practices exist between the US and the UK, separate surveys will be conducted in each country.
The components of total remuneration are:
(a) Base salary
The base pay of each senior executive is intended to reflect the size and scope of that executive’s responsibilities. Base salary is reviewed annually, taking into account factors such as the level of individual performance, experience over time in the post, relevant external
comparative data, the geographic location of the post and the general movement of base pay within the Group.
(b) Annual bonus plan
Individual annual bonus targets are set each year to take account of the role of the executive and current business plans. Annual bonus awards for executive directors are based on the achievement of growth in pre-tax profit, or operating profit of the division as appropriate, in the year at a rate above inflation measured using constant exchange rates. There is a cap set each year on such awards and a threshold performance below which no payments are made.
The bonus rate increases after an intermediate target rate of profit growth, which is set each year, is achieved.
(c) Share option plans
The Remuneration Committee believes that an executive share option plan is an appropriate part of the total remuneration package necessary to execute the remuneration principles set out above, and that a well constructed plan forms an important element in motivating executives to deliver the long term performance needed to generate strong returns to shareholders.
It is the policy of the Remuneration Committee that all employees, including directors, who satisfy certain qualifying conditions, should have the opportunity to participate in the equity of the Company through a savings-related share option plan, and annual invitations are normally made. Under the relevant legislation the exercise of these share options is not subject to performance criteria.
(d) Long term incentive plan (“LTIP”)
The Remuneration Committee believes that, in addition to the provision of share options, it is appropriate to operate an LTIP to encourage executive directors, senior members of the divisional executive management committees and certain other senior executives with a similar level of responsibility, to meet long term strategic and financial objectives set by the Board.The policy is to make annual awards subject to the general principles explained in paragraphs 2(iv) and 2(v) above.Vesting is dependent on the achievement of challenging performance conditions set by the Committee at the time the awards are made and such awards do not normally vest within three years from the date the award is granted.
A new LTIP replacing the previous LTIP which expired in June 2005, was approved by shareholders at an extraordinary general meeting on 14 December 2005.
(e) Performance criteria
The Remuneration Committee believes that where performance criteria are used they should be:
- easily understood,
- able to be directly linked to the performance of the Group or relevant business unit and to be influenced by management’s own actions,
- designed to motivate management to increase profitability significantly beyond the rate of inflation,
- designed to incentivise senior management to make efficient use of capital and to increase shareholder value,
- equity based for long term schemes, and
- consistent with the overall objectives of the Group.
The criteria used to measure performance are based on the results of the Group (subject to minor adjustments that are approved by the Remuneration Committee) so as to provide clarity and objectivity.
For 2005/06 onwards achievement of performance criteria have been calculated against previously reported measures restated for IFRS.
(f) Pensions for executive directors
UK based executive directors are normally members of the Group Scheme.
At the present time there are two such directors, the Group Finance Director and the Chief Executive of the UK division. The Group Scheme is a funded, Inland Revenue approved, final salary, occupational pension scheme and has a separate category of membership for directors. Pensionable salary is the member’s base salary, excluding all bonuses. All Group Scheme benefits are subject to Inland Revenue limits. Where such limitation was due to the Inland Revenue earnings cap the Signet Group Funded Unapproved Retirement Benefit Scheme (the “FURBS”) has been used to supplement pension benefits. This is a defined contribution arrangement.
The main features of the Group Scheme for a director are:
(i) a normal pension age of 60;
(ii) pension at normal pension age of two-thirds of final pensionable salary, subject to completion of 20 years’ service;
(iii) life assurance cover of four times pensionable salary; and
(iv) spouse’s pension on death.
The Group Chief Executive and the Chief Executive of the US division receive, proportionately to base salary, equivalent pension contributions to the Group Finance Director and the Chief Executive of the UK division. These pension benefits are provided through an Signet Group plc unfunded, unqualified deferred compensation plan and the Sterling Jewelers Inc. 401(k) Retirement Savings Plan. This is a defined contribution arrangement.
In the context of changes to pension taxation in the UK in force from 6 April 2006 the Remuneration Committee has agreed that pension provision through the Group Scheme should continue broadly as before to ensure that pension benefit commitments made continue to
be met. Members should not benefit from a windfall gain through the removal of the current limits, e.g. removal of the earnings cap and therefore a scheme specific earnings cap has been introduced equivalent to the previous earnings cap, increased by RPI annually. As the tax treatment of FURBS and the other advantages of such a funding scheme have been eroded over time and these latest changes have now removed any residual advantages, the Remuneration
Committee has agreed that the Group should cease paying contributions to the FURBS; and in substitution pay a salary supplement of the same amount as the Group contribution to the
FURBS. The Group will not compensate members for any increase in taxation that they may face as a result of the changes and members will not be protected by the Group from the consequences of the changes in taxation, but will be provided with a cash supplement in
lieu of pension accrual once members reach the Lifetime Allowance limit set by the new legislation if they choose to exercise this option.
The Group Scheme has been reviewed to determine how the new range of flexibility in pension arrangements can be introduced where that can be achieved without additional cost or administrative burden. For example, the new flexibility on tax-free cash has been incorporated into the Group Scheme.
Apart from remuneration itself, there are certain other allied policy matters which are the concern of the Remuneration Committee.
These are:
(i) Companies used for comparison
In assessing all aspects of pay and benefits, the Remuneration Committee takes account of the packages offered by a range of other retailers and, where appropriate, companies outside the retail sector. Different companies are used for comparison for executives in Group
functions, and in the UK and the US divisions. These companies are chosen on the basis of turnover, market capitalisation, profits, number of employees and the nature and geographic spread of their operations.
(ii) Service contracts
It is the policy of the Remuneration Committee that an executive director’s contract should be a rolling contract with the period of notice to terminate the contract to be given by either side not
exceeding one year and that, if it is necessary to grant a longer period of notice when recruiting from outside the Group, this should reduce to a maximum of one year after an initial period. No director has a service contract of more than one year.
(iii) Early termination
The Remuneration Committee believes that the circumstances of early termination vary. Only in very exceptional circumstances will explicit terms for compensation for early termination be included in contracts for new directors. Where no explicit compensation terms are included, departing directors or senior managers are expected to mitigate their loss within the framework of individual circumstances.
(iv) Executive directors – outside appointments
The Group recognises the benefits to the individual and to the Group when executive directors of the Company also act as non-executive directors of other companies not associated with Signet. Subject to certain conditions, unless otherwise determined by the Board, executive directors are permitted to accept one appointment as a non-executive director of another company. The executive director is permitted to retain any fees paid for such service.
3. Directors’ remuneration
The remuneration packages of the Group Chief Executive, the highest paid director, and the Chief Executive of the US division are determined with regard to the fact that they are US citizens, based in the US and their remuneration is set in US dollars and not pounds sterling. Some 70% of Group sales and profits are generated in the US.
(a) Salary and benefits
The Remuneration Committee normally reviews the salary and benefits of executive directors annually. Details of the salaries received by executive directors are shown on here. Following the 2006 annual reviews the Remuneration Committee increased the Group Chief Executive’s basic salary from $1,354,000 to $1,435,000, that of the Group Finance Director from £350,000 to £385,000 and that of the Chief Executive of the UK division from £295,000 to £310,000. The basic salary of the Chief Executive of the US division is $700,000, and was not increased as part of the review, with the Remuneration Committee having considered it at the time of his appointment in January 2006. The Chairman’s remuneration was not increased from £350,000. Mr. Williamson will receive a fee of £200,000 per annum when he becomes Chairman at the conclusion of the annual general meeting in June 2006 (subject to shareholders electing him as a director at that annual general meeting).
(b) Annual bonus plan
In 2005/06 no annual bonus was earned by the Group Chief Executive (potential maximum 100% of base salary), or by the Group Finance Director (potential maximum 75% of base salary). The bonus entitlements for the Group Chief Executive and the Group Finance
Director were calculated for 2005/06 on the basis of the following formula:
2004/05 pre-tax profit + inflation: 0% of maximum bonus;
2004/05 pre-tax profit + 10%: 50% of maximum bonus; and
2004/05 pre-tax profit + 15%: 100% of maximum bonus.
Increase in pre-tax profit is calculated on a constant exchange rate basis and is earned on a pro-rata basis for performance between the targets.
In 2005/06 no annual bonus was earned by the Chief Executive of the UK division (potential maximum 75% of base salary). An annual bonus of 64.4% of base salary (potential maximum 70% of base salary) was earned by the Chief Executive of the US division. The bonuses were calculated using the same formula as below, but based on operating profit of the respective divisions.
Bonus targets for 2006/07 are unchanged.
(1) Benefits incorporate all benefits arising from employment by the Group, which in the main relate to the provision of a company car and private health insurance.
(2) Robert Anderson was appointed as a director on 6 April 2005 with a basic salary of £295,000. In 2004/05 his basic salary was £277,500, benefits were £32,605 and
short term bonus was £22,680.
(3) Messrs. Burman and Light have their emoluments specified and paid in US dollars and an average exchange rate of US$1.80 was used (2004/05:US$1.86).
(4) Mark Light was appointed as a director on 12 January 2006 with a basic salary of £388,889. Prior to his appointment in 2005/06 his basic salary was £319,444 and his
short-term bonus for 2005/06 was £196,140. In 2004/05 his basic salary was £287,000, benefits were £23,000 and short term bonus was £211,944.
(5) From his appointment on 1 November 2004.
(6) From his appointment on 28 November 2005.
The figures above represent emoluments earned as directors during the relevant financial year. Such emoluments are paid in the same financial year with the exception of bonus payments, which are paid in the year following that in which they are earned.
(c) Share option and long term incentive plans
Share option and long term incentive plan grants to directors are set out here. Click here for the factors influencing the choice of performance criteria and for the basis of measurement.
(i) Executive share option plans
In July 2003, following consultation with the Association of British Insurers and a significant number of major shareholders, approval was given by shareholders at an extraordinary general meeting to the Signet Group plc International Share Option Plan 2003, the Signet Group plc UK Inland Revenue Approved Share Option Plan 2003 and the Signet Group plc US Share Option Plan 2003 (“2003 Plans”).
The 2003 Plans replaced the Signet Group plc 1993 Executive Share Option Scheme (the “1993 Scheme”), under which no further options may be granted.
The 2003 Plans allow the Remuneration Committee discretion to set performance conditions. The performance conditions under the 2003 Plans were set out in the circular to shareholders seeking approval for the 2003 Plans and no significant change in those conditions will be
made without prior consultation with major shareholders.
As indicated in the 2005 Director’s Remuneration Report, the Remuneration Committee in recognising the continuing development of shareholder sentiments regarding remuneration practices, committed to conduct a full review of all aspects of directors’ remuneration when a new LTIP was developed for shareholder approval. After completing this review, which included extensive consultation with major shareholders, the Remuneration Committee concluded that the remuneration principles that were adopted in 2003 and have been published in all subsequent Directors’ Remuneration Reports, had served all stakeholders well and should remain unchanged. Based on surveys of comparator companies, the Committee also concluded that the present mix of total remuneration remains appropriate. However, the Committee decided that in addition to the introduction of a new LTIP it was also appropriate to make certain changes in the existing share option plan, including the balance of share option grant level, and LTIP awards.
The changes to share option plan arrangements which have been implemented include:
- the elimination of all retesting in the measurement of performance target achievement. In the future, vesting will be determined by a single test of performance versus target normally
three years after any grant is made; - the elimination of the impact of exchange rate translation movements by the adoption of a constant exchange rate in measuring performance versus target. This will eliminate the
possibility of executives being unfairly rewarded or penalised by exchange rate movements over which they obviously have no control; and - a reduction in the maximum annual grant of share options to the Group Chief Executive Officer from five times base salary plus the possibility of an additional one times base salary grant (i.e. six times) under extraordinary circumstances, to four times base salary. Other executives participating in the share option plan will receive a proportionate reduction in their annual share option grants.
These changes to the existing share option plan arrangements were made after extensive consultation with major shareholders and were explained to shareholders in a circular dated 14 November 2005 prior to their approval of the adoption of the new LTIP.
The Remuneration Committee made the 2006/07 option grants on the same basis as the arrangements described above. Options granted under the executive share option plans that have passed the necessary performance conditions are normally only exercisable between three aand ten years from the date of grant, after which the options lapse.
The conditions are set out below:
UK executives
For UK executives the personal performance of participants will be assessed on each occasion that share option grants take place and will be reflected in the level of the individual awards.
In addition, grants are subject to exercise conditions as follows:
| Level of grant per share(1) | Required annual rate of compound growth in earnings above inflation(2) |
|---|---|
| Up to 200% of base salary | +3% |
| 201% to 400% of base salary | +4% |
(1) Normalised earnings per share as defined by the Institute of Investment Management
and Research.
(2) Defined as the UK Retail Prices Index.
For all grants beginning with those awarded in 2006/07 performance will only be measured over the three year period from the start of the financial year in which the grant is made, all retesting in the measurement of performance target achievement having been eliminated.
US executives
For US executives there is a pre-grant test based on both personal and corporate performance as described later, as well as a post-grant exercise condition requiring that the annual compound growth in earnings per share be more than 3% above inflation.
Performance will be measured over three years from the start of the financial year in which the award is made and may then be measured from the last month of the year in which the award is made to the end of the fourth or fifth years, if not previously satisfied.
For grants beginning with those awarded in 2006/07 the post-grant performance condition will be measured over three years from the start of the financial year in which the award is made.
In April 2005 options of five times salary were awarded to the Group Chief Executive. The Group Finance Director was awarded options amounting to one and a half times salary. Awards to the Group Chief Executive are based on principles 2(iv), 2(v), 2(vi) (set out above), a comparative remuneration survey and a review of the performance of both the Group and the executive over the prior three years.
Before any share option grant is made to the Group Chief Executive, the Remuneration Committee has to satisfy itself that the demanding pre-grant conditions, mentioned above, have been achieved. This requires affirmation: (1) that the Group’s business performance has
been superior to that of its industry sector; and (2) that the Group Chief Executive’s personal performance continues to be of the highest standard.
On a divisional basis this business performance review includes a three year comparison of compound like for like as well as total sales growth compared in the US to that of the US quoted jewellery sector and in the UK to the UK quoted general retail sector. Further, there is a similar comparison of operating margin compared to the Group’s principal competitors in the US and the UK.
On a Group basis the review includes a comparison of compound three year earnings per share growth, at constant exchange rates, like for like as well as total sales of the UK general retail sector of FTSE 100 companies. Further there is a similar comparison of total shareholder return against that of the FTSE 350 companies (excluding investment trusts) and the FTSE general retailers index.
The Remuneration Committee concluded that the review had confirmed in 2006/07 that the pre-grant conditions had been achieved reflecting performance at the top end of the scale.
On the basis of sustained out-performance and with management achievements acknowledged by industry followers, the Committee concluded that the Group Chief Executive and Group Finance Director continued to merit total remuneration towards the upper end of the range determined by the remuneration principles. Based on the surveys conducted, this indicated a base salary increase as detailed Directors’ remuneration report and a share option grant equivalent to four times base salary, for the Group Chief Executive. Similar surveys undertaken in the UK indicated a base salary increase as detailed here for the Group Finance Director and options amounting to 120% of base salary. Similarly the Chief Executives of the UK and the US divisions were awarded options amounting to 80% and 160% of base salary respectively.
| 2006/07 award | 2005/06 award | 2004/05 award | 2003/04 award | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Group % |
UK % |
US % |
Group % |
UK % |
US % |
Group % |
UK % |
US % |
Group % |
UK % |
US % |
|
| Minimum performance for any vesting: | ||||||||||||
| Profit measure | Profit Growth in excess of threshold inflation level | |||||||||||
| ROCE measure | 20.1 | 28.2 | 19.3 | 23.2 | 42.2 | 19.4 | 22.2 | 43.0 | 17.6 | 21.0 | 35.0 | 18.3 |
| Profit Growth performance measure: | ||||||||||||
| Profit measure | 10.0 | 10.0 | 10.0 | 10.0 | 10.0 | 10.0 | 10.0 | 10.0 | 10.0 | 10.0 | 10.0 | 10.0 |
| ROCE measure | 15.0 | 15.0 | 15.0 | 15.0 | 15.0 | 15.0 | 15.0 | 15.0 | 15.0 | 15.0 | 15.0 | 15.0 |
| ROCE performance measure: | ||||||||||||
| Specified ROCE required | 21.1 | 29.2 | 20.3 | 24.2 | 43.3 | 20.4 | 23.2 | 44.5 | 18.6 | 22.0 | 36.5 | 19.3 |
Certain provisions of all the share option plans may be amended by the Board, but certain basic provisions (and in particular most of the limitations on individual participation, the number of shares and the percentage of share capital that can be issued thereunder) cannot be altered to the advantage of the participants except with the approval of shareholders or in accordance with the adjustment provisions in the 2003 Plans.
In 2005 the Remuneration Committee approved an amendment to the 2003 Plans (other than the Inland Revenue Approved Plan) to provide that, on exercise, options may be satisfied by the Company providing to the optionholder shares with a value equal only to the gain on exercise, without the requirement of a payment of the exercise price. This does not provide any financial benefit to either the Company or optionholders, but results in less dilution for shareholders.
(ii) All-employee share plans
In 1998/99 the Group introduced an Inland Revenue approved savings related share option scheme for UK employees (the “Sharesave Scheme”), a US Section 423 Plan (the “Employee Stock Savings Plan”) and a savings related share option scheme for employees in the Republic of Ireland (the “Irish Sharesave Scheme”), (together, the “All-employee Schemes”). These schemes give those employees with qualifying service the opportunity to participate in
the equity of the Company, with the aim of aligning the interests of employees with those of shareholders.
The options granted under the Sharesave Scheme and the Irish Sharesave Scheme are normally exercisable between 36 and 42 months from the date of the relevant savings contract. Options were granted under these schemes at a price approximately 20% below the middle market price of the shares on the London Stock Exchange on the dealing day prior to the date that employees were invited to participate in them.
The options granted under the Employee Stock Savings Plan, which is for employees in the US, are normally exercisable between 24 and 27 months from the date of grant, such date being the first business day of any period during which savings may be accumulated under a savings contract. The options under this plan were granted at a price approximately 15% below the middle market price of the shares on the London Stock Exchange on the date of grant. The period of exercise and the discount allowed vary from the UK due to different legal regulations in the US.
(iii) Long term incentive plan
Shareholders gave approval, in June 2000, to the Signet Group plc 2000 Long Term Incentive Plan (“LTIP”) which expired in June 2005.
A replacement Long Term Incentive Plan, the Signet Group plc 2005 Long Term Incentive Plan (“LTIP 2005”), was given shareholder approval in December 2005 with approximately 96% of the 82% of the entire issued share capital which was voted at the meeting being voted in favour of adoption of the LTIP 2005.
The principal features of the LTIP 2005, include:
- a ten year term, consistent with the approved terms of the existing share option plan; and
- an increase in the target LTIP award to the Group Chief Executive from 70% of base salary to a maximum of 160% of base salary, which amount offsets the reduction in the maximum share option award, such that the total expected value of the Group Chief Executive’s remuneration package remains unchanged. Other participating executives would receive an increase in target LTIP award consistent with their reduction in share option grants and
maintaining total remuneration at levels that they would have received under the previous plans.
All other features of the LTIP 2005 are identical to those of the expired LTIP plan, and are summarised below.
The LTIP 2005 provides for the Remuneration Committee to make awards subject to performance targets which will normally be tested at the end of a fixed period of at least three years. To the extent the performance targets are satisfied it is intended that the participant
will receive a combination of the grant of an option over shares in the Company and cash. While the Remuneration Committee has authority to determine the precise mix, in line with past practice the intention is to continue with a mix of 50% cash and 50% share options. No changes in this mix will be made without prior consultation with major shareholders. The share options will normally be exercisable within ten years of the original award date.
The performance conditions, set by the Remuneration Committee for 2006/07 and for the foreseeable future, are based, as in the previous LTIP, on:
- the compound annual growth in profit before tax of the Group or in operating profit of the relevant division as appropriate above a threshold inflation level; and
- ROCE of the Group or relevant division as appropriate.
The performance conditions may relate to the Group or a combination of the Group and each operating division, or each operating division separately, as considered appropriate by the Remuneration Committee according to the role of the particular participant.
In determining the precise conditions that will apply to an award, the Remuneration Committee will specify, at the commencement of each three-year performance period, the compound annual growth in profit that it will be necessary to achieve over the performance period and the required ROCE for the performance period.
Having considered alternative performance measures, the Remuneration Committee believes that, in Signet’s case, measures based on growth in profit and ROCE remain the best indicators of the Company’s financial performance and will continue to use these measures for the foreseeable future. However, the Remuneration Committee has the flexibility to change the measures if it believes it to be appropriate but it will not make any material changes without
first consulting major shareholders.
The LTIP 2005 contains no element to allow retesting of the performance targets and allows only a pro-rated release of an award, whether in the form of the grant of an option over shares or cash, where a participant leaves early for good reasons or there is a change of control. The performance targets must in any event be satisfied before any release is made in all cases.
Awards were made to executive directors and other senior executives in 2003/04, 2004/05 and 2005/06 under the LTIP. All these awards are subject to fulfilment of minimum performance conditions set at the time of the award as to:
- compound annual growth in the profit before tax of the Group using a constant exchange rate or, as in the case of the Chief Executives of the UK and US divisions, the operating profit of the relevant division as appropriate (“Profit Growth”); and
- ROCE of the Group or relevant division as appropriate.
In each case over a fixed period of three successive financial years starting with the one in which the award was made. Nothing is payable under the award unless both minimum performance conditions are achieved. The minimum Profit Growth is set at a threshold level after taking account of inflation. The conditions were selected to ensure that awards would only vest provided that growth in profits exceeded the rate of inflation and that the business’s targeted ROCE is achieved.
If the performance conditions are achieved the award will vest and its value will depend on the extent to which the minimum performance conditions are exceeded:
- if Profit Growth exceeds the minimum threshold inflation level, the amount of the award will be calculated on a straight line basis from that level up to a specified inflection point, i.e 10% at which point 37.5% of the award will vest, and then at an accelerated rate on a straight line basis up to the maximum level of award at 15%. This maximum is equal to a specified percentage of base salary at the time at which the award vests. The maximum award for the Group Chief Executive in 2005/06 was equal to 70% of base salary at vesting (as in 2003/04 and 2004/05) and for the Group Finance Director and the Chief Executive of the UK division 50% of base salary at vesting (as in 2003/04 and 2004/05) and for the Chief Executive of the US division 45% of base salary at vesting (as in 2003/04 and 2004/05); and
- if the minimum threshold inflation level of Profit Growth is achieved but the maximum award has not been earned by reference to Profit Growth, then, in addition to the percentage of
base salary which has been earned on the above basis, the amount of the award earned on the basis of Profit Growth may be increased on the basis of the ROCE increase. In the case of the Group Chief Executive, in 2005/06 for each 0.5% by which the ROCE exceeds the level specified in the award, the amount of the award would increase by an amount equal to 5% of base salary (at vesting) up to a maximum increase equal to 35% of such base salary (as in 2003/04 and 2004/05). Similarly in the case of the Group Finance Director, for each 0.5% by which the ROCE exceeds the specified level the amount of the award would increase by an amount equal to 3% of base salary (at vesting) up to a maximum increase equal to 25% of such base salary (as in 2003/04 and 2004/05). In the case of the Chief Executive of the
UK division the award would increase by 2% of such base salary (at vesting) up to a maximum increase equal to 25% of such base salary (as in 2003/04 and 2004/05) and in the case of the Chief Executive of the US division 3.6% of such base salary (at vesting)
up to a maximum increase equal to 22.5% of such base salary (as in 2003/04 and 2004/05) for every 0.5% by which the ROCE exceeds the specified amount. In no event, however, can any such increase result in the applicable maximum award amount stated in the preceding paragraph being exceeded.
This table shows the percentages and the inflection points which have been specified for the existing awards and indicates the relevant profits and ROCE to be used for measurement.
When the performance conditions have been satisfied 50% of the amount which vests will be payable in cash and the other 50% will consist of the grant of an option to acquire shares in the Company, the number of shares being determined by using the middle market price on the day preceding the grant of the award. For the 2003/04, 2004/05 and 2005/06 awards, that share price was 83.50p, 112.50p and 112.60p respectively. Due to the deferred equity nature of the
share linked element of the award, the exercise price of the total option grant is a nominal amount of £1 or $1, as appropriate. The participants can normally exercise their option at any time after vesting, until the tenth anniversary of the grant of the award.
In 2006/07 awards under the LTIP 2005 have been made to the Group Chief Executive, the Group Finance Director and the Chief Executives of the UK and US divisions on the following basis:
- if Profit Growth exceeds the minimum threshold inflation level, the amount of the award will be calculated on a straight line basis from that level up to a specified inflection point, i.e. 10%, at which point 37.5% of the maximum award will vest. Beyond the inflection point the award continues to vest on a straight line basis up to the maximum level of award at 15% profit growth at which point 100% of the award will vest. This maximum is equal to a specified percentage of base salary at the time at which the award vests. The maximum award for the Group Chief Executive is equal to 158% of base salary at vesting and for the Group Finance Director 77.0% of base salary at vesting and the Chief Executive of the UK division 68.0% of base salary at vesting and for the Chief Executive of the US division 100% of base salary at vesting; and
- if the minimum level of Profit Growth in operating profit is achieved but the maximum LTIP award has not been earned, then, in addition to the percentage of base salary which has been earned on the above basis, the amount of the award earned may be increased by reference to the achievement of ROCE above a target set by the Remuneration Committee at the beginning of each performance period. For each 0.5% by which ROCE has exceeded the level specified in the award, the amount of the award would increase by an amount equal to a percentage of base salary (at vesting) up to a maximum of 50% of the LTIP award. In the case of the Group Chief Executive, the maximum percentage of base salary that may be earned for each 0.5% has been increased to 11.3% which is in proportion to the increase in
his target LTIP award from 70% to 158% of base salary. Similarly in the case of the Group Finance Director, for each 0.5% by which the ROCE exceeds the specified level the amount of the award would increase by an amount equal to 4.6% of such base salary up to a maximum increase equal to 38.5% of such base salary and in the case of the Chief Executive of the UK division 2.7% of such base salary up to a maximum increase equal to 34.0% of such base salary and for the Chief Executive of the US division 8.0% of such base salary up to a maximum equal to 50% of such base salary. In no event can any such increases result in the maximum LTIP award being exceeded.
The share price for the awards was fixed following the announcement of the preliminary results. The performance criteria of the awards to the Chief Executives of the UK and US divisions are related to each of the respective divisions.
The Remuneration Committee has the flexibility to alter the performance conditions in future years but will not make any material changes without discussing them with major shareholders.
(d) Employee trusts
The share option plans may be operated in conjunction with one or more employee share ownership trusts (the Signet Group plc Employee Share Trust (“ESOT”) or the Signet Group plc 2004 Employee Share Trust (“2004 ESOT”)) which may acquire shares in the Company for the purposes of satisfying the exercise of options. Application has been made for The Signet Group Qualifying Employee Share Trust (“QUEST”) to be removed from the register of companies as it no longer fulfils the purpose for which it was originally set up.
Both the LTIP and the LTIP 2005 (the “LTIPs”) operate in conjunction with the ESOT and the 2004 ESOT which may be funded by the Group to acquire shares in the Company for the purposes of meeting the Company’s obligation to provide shares on the exercise of options.
The trustees of the QUEST, ESOT and 2004 ESOT have waived their rights to any dividends declared on shares held in the trusts.
(e) Share scheme limits
The executive share option plans are subject to the following limits on the number of shares that may be issued:
(i) the maximum number of shares that have been or may be issued pursuant to options granted under the executive share option plans and any other discretionary share option scheme adopted by the Company may not exceed 5% of the shares from time to time in issue in any ten year period;
(ii) the maximum number of shares that have been or may be issued pursuant to options granted under the executive share option plans and any other employees’ share scheme adopted by the Company may not exceed 10% of the shares from time to time in issue in any ten year period; and
(iii) the maximum of 171,376,839 shares (representing 10% of the issued share capital on 8 July 2003) may be issued pursuant to incentive options granted under the US Plan.
In any ten year period not more than 10% of the issued share capital of the Company from time to time may in aggregate be issued or issuable pursuant to options granted under the All-employee Schemes or any other employees’ share schemes adopted by the Company.
The number of shares which may be issued or issuable pursuant to the LTIPs (including to the ESOT and the 2004 ESOT), when aggregated with any shares issued or issuable by the Company in the preceding ten years under any employees’ share scheme, participation in which is at the discretion of the Board, is limited to 5% of the Company’s issued share capital from time to time. The number of shares which may be issued or issuable pursuant to the LTIPs (including to the ESOT and the 2004 ESOT), when aggregated with all shares issued or issuable by the Company in the preceding ten years under any other employees’ share scheme, is limited to 10% of the Company’s issued share capital from time to time.
No more than 5% of the issued share capital of the Company may be held by the trustee of the ESOT or the 2004 ESOT without prior approval of shareholders.
(f ) Shareholding guidelines
When the 2003 Plans were introduced, shareholding guidelines were set for executive directors and senior executives of the Group. The Group Chief Executive is expected to build a holding of shares equal to at least twice salary and the Group Finance Director to at least one times salary. Until these levels have been achieved, half of any post tax option gains under the 2003 Plans should be held in Signet shares. Since December 2004 future non-executive directors will be
required to build a minimum holding of 10,000 shares within two years of appointment and maintain that holding whilst they remain a director of the Company. Similarly the existing non-executive directors have agreed to adhere to the same shareholding guidelines within the two year period for compliance running from December 2004 which they have all now done.
(g) Service contracts
The Group Chief Executive has a rolling service contract (dated 20 December 2000 and amended and restated in January 2006) with a US subsidiary with certain covenants given by Signet Group plc, which can be terminated on one year’s notice in writing by either party. The
Group Finance Director has a rolling service contract (dated 14 June 1995 and amended on 15 May 2000) with the Company, which can be terminated on one year’s notice in writing by either party or terminates on his 60th birthday. The service contracts for the Group Chief Executive and the Group Finance Director provide for termination payments in the cases of early termination by the Group or in the event of certain changes of control. In these circumstances the amount of termination payments due to the Group Chief Executive would equal, in summary, the aggregate of (i) 100% of his base salary at the time of termination, (ii) 25% of his base salary in respect of pension and other benefits, (iii) his outstanding entitlement to a cash bonus under the annual bonus plan referred to here in respect of the proportion of the fiscal year prior to the effective date of termination, and (iv) a sum equal to a variable percentage (currently 72.4%) of the cash bonus to which he would have become entitled under the annual bonus plan during the notice period. If the Company reduces or eliminates the Directors’ and Officers’ liability insurance, although the Board has no intention of doing so, such that the Group Chief Executive does not have coverage which meets at least £100 million aggregate coverage limit and £50 million Side A aggregate dedicated coverage limits, then the Group Chief Executive may be permitted upon 90 days written notice to terminate his employment. In the event of such termination the Company will pay the Group Chief Executive his base salary and short term bonus prorated to the date of termination. Entitlement to any share options or LTIP awards is governed by the rules of the relevant scheme. The amount of termination payments due to the Group Finance Director in the event of early termination by the Group in the event of certain changes of control, would equal, in summary, the aggregate of (i) his annual salary at the time of termination, (ii) the market value of the contractual benefits in kind (including any pension contribution) to which he would have become entitled during the following 12 months, and (iii) all payments to which he would have become entitled under the annual bonus plan during the same 12 month period. The Chief Executive of the UK division has a rolling service contract (dated 1 March 2003) with a UK subsidiary which can be terminated on one year’s notice in writing by either party or terminates on his 65th birthday. In the case of early termination, the contract provides for salary to be paid in lieu of notice, or where notice has been given, for any balance of the notice period. The Chief Executive of the US division has a rolling service contract (dated 26 April 2002 and amended and restated in August 2004 and January 2006) with a US subsidiary. The Company may terminate the contract at any time by notice in writing. In the case of termination the Company is obligated to continue to pay salary for 12 months from the date of termination. Entitlement to any share options or LTIP awards is governed by the rules of the relevant scheme.
These contracts all contain confidentiality and non-competition clauses.
The Chairman has a letter of appointment (dated 20 June 2001), with no fixed term. The appointment can be terminated in writing by either party on reasonable notice and does not provide for compensation for loss of office. Upon his retirement from the Company, the Chairman will remain a member of the Signet Health Care Scheme and will fully reimburse the Company the premium paid on his behalf.
Each non-executive director has a letter of appointment from the Company which does not have a termination clause and does not provide for compensation for loss of office. The duration of any such appointment is currently subject to the terms of the Articles of Association and normally runs until such director is next required to stand for election or re-election. The Board, however, has agreed in addition, to introduce on a staggered basis a fixed three year period for each non-executive director.
The letters of appointment are dated as set out below:
Robert Blanchard - 5 September 2000
Dale Hilpert - 15 July 2003
Brook Land - 16 October 1995
Robert Walker - 21 September 2004
Russell Walls - 29 May 2002
Malcolm Williamson - 28 November 2005
(h) Company pension
The Chairman does not receive any pension provision. The amount paid in respect of life assurance for him in the period was £20,685ß (2004/05: £19,100ß).
The Group Chief Executive and the Chief Executive of the US division are members of the Sterling Jewelers Inc. 401(k) Retirement Savings Plan and an unfunded, unqualified deferred compensation plan. Contributions made by Signet’s US division in respect of the Group
Chief Executive during the period totalled £1,074ß (2004/05: £1,653ß) and £148,472ß (2004/05: £134,024ß) respectively and in respect of the new Chief Executive of the US division from his appointment on 12 January 2006 totalled £50ß and £1,544ß respectively.
Pension benefits in respect of the UK based directors are set out below.
(i) Aggregate emoluments for the year to 28 January 2006
The total emoluments for directors of the Company and officers of the Group (excluding amounts due under the LTIP), as listed on pages 36 and 37, for services in all capacities was £2,270,000 (2004/05: £2,510,000). The amounts due under the LTIP for directors of the
Company and officers of the Group was £532,000 (2004/05: £684,000, restated to reflect the market value at vesting). 50% of the amounts due under the LTIP are payable in cash and the other 50% consists of the grant of an option to acquire shares in the Company. Details of the directors’ emoluments are given here.
Except as set out in tables (a), (b) and (c), or in the notes under these tables, no director nor any member of any director’s immediate family had an interest in, or was granted or exercised any right to subscribe for, shares or debentures of the Company or any subsidiary, nor did any such right to subscribe lapse during the financial year, nor was there any change between the end of the financial year and 5 April 2006 in the interests of any director of the Company disclosed to the Company under the provisions of section 324 (duty of directors to disclose shareholdings in own company) as extended by section 328 (extension of section
324 to spouses and children) of the Companies Act 1985 nor in any right to subscribe for shares in, or debentures of, the Company.
At 29 January 2005, 28 January 2006 and 5 April 2006, according to the register kept by the Company under section 325 of the Companies Act 1985, the directors held interests in the shares of the Company as indicated in tables (a), (b) and (c). As explained here the value of the awards that vest under the LTIP depends upon the extent to which the performance conditions are met. The awards are also capped by reference to a percentage of the recipient’s base salary.
Where the minimum performance conditions for the 2003/04 award have been exceeded, vesting will occur within 60 days of the preliminary results announcement for the year ended 28 January 2006.
The Group operates the QUEST, which is currently used in connection with the Sharesave Scheme, the ESOT and the 2004 ESOT. Robert Anderson, Walker Boyd, Terry Burman, Mark Light and James McAdam, at 29 January 2005, 28 January 2006 and 5 April 2006, were, in common with all other employees of the Group, deemed to have an interest in the shares held by the QUEST, the ESOT and the 2004 ESOT. The QUEST held nil shares on 29 January
2005 and nil on 28 January 2006 and is in the process of being removed from the register of companies. The ESOT held 4,610,839 on 29 January 2005, 3,745,265 on 28 January 2006 and 3,731,976 on 5 April 2006. The 2004 ESOT held nil shares on 29 January 2005, nil shares on 28 January 2006 and nil shares on 5 April 2006. No director had been granted any specific interest in such shares.
The Company’s register of directors’ interests, which is open to inspection at the registered office, contains full details of directors’ shareholdings and share options.
| Robert Anderson Chief Executive UK division |
Walker Boyd Group Finance Director |
|||
|---|---|---|---|---|
| 2005 / 06 |
2004 / 05 |
2005 / 06 |
2004 / 05 |
|
| Change in accrued benefits during the year (gross of inflation) | 7,995 | 2,245 | 5,039 | 4,564 |
| Change in accrued benefits during the year (net of inflation) | 7,752 | 2,037 | 3,866 | 3,371 |
| Accrued benefits at the end of the year | 17,005 | 9,010 | 48,491 | 43,452 |
| Transfer value of change in accrued pension (net of inflation) | 90,804 | 7,997 | 58,987 | 44,369 |
| Transfer value of accrued benefits at the beginning of the year | 58,367 | 38,707 | 510,434 | 408,530 |
| Transfer value of accrued benefits at the end of the year | 201,054 | 58,367 | 662,639 | 510,434 |
| Change in transfer value of accrued benefits(1) | 141,837 | 14,585 | 152,205 | 101,904 |
| Group payments to the FURBS | 37,500 | 35,200 | 48,333 | 45,033 |
| Life assurance contributions | 737 | 858 | 1,100 | 2,582 |
(1) Calculated in accordance with the Actuarial Guidance Note GN 11.
4. Directors’ interest in sharesß
(a) Directors’ interest in share optionsß
Click here to view table
(b) Directors' interest in LTIPsß
Click here to view table
(c) Directors' interest in sharesß
| Number of shares | |||
|---|---|---|---|
| Director | At start of year | At end of year | At 5 April 2006 |
| Robert Anderson(1) | 19,000 | 19,000 | 19,000 |
| Robert Blanchard | 6,360 | 10,010 | 10,010 |
| Walker Boyd | 452,495 | 452,495 | 452,495 |
| Terry Burman | 710,601 | 710,601 | 710,601 |
| Dale Hilpert | 20,000 | 20,000 | 20,000 |
| Brook Land | 25,000 | 25,000 | 25,000 |
| Mark Light(2) | - | - | - |
| James McAdam(3) | 261,088 | 261,088 | 261,088 |
| Robert Walker | - | 19,308 | 19,308 |
| Robert Walls | 4,000 | 10,000 | 10,000 |
| Malcolm Williamson(4) | - | 28,605 | 28,605 |
(1) Appointed as a director on 6 April 2005.
(2) Appointed as a director on 12 January 2006.
(3) 22,000 of those shares held were, at each date, held by Mr. McAdam’s wife in trust for their grandchildren and, while Mr. McAdam is taken to have an interest in them for Companies Act purposes, neither he nor his wife has a beneficial interest in them.
(4) Appointed as a director on 28 November 2005.
5. Share price
The middle market price of a Signet share on the London Stock Exchange was 104.25p on 28 January 2006 and 109.75p on 29 January 2005. During the 52 weeks ended 28 January 2006, the middle market prices on the London Stock Exchange ranged between a low of 93.25p and a high of 117.75p. On 5 April 2006 the middle market price was 110.5p.
6. Total shareholder return (“TSR”)
The graph below (left) shows the cumulative annual total return (share price movement and dividends) to shareholders of the Group since 27 January 2001 based on the 30 day average of value of the share price compared to the FTSE 350 index. This index was chosen as a suitable comparator as it is a major market index of which the Group is a member. Also shown on a similar basis on the graph below (right), is the Group’s performance compared to the FTSE
general retail sector.
Five year historical TSR performance
Growth in the value of a hypothetical £100 holding over five years FTSE 350 (ex inv) comparison based on 30 trading day average values
Five year historical TSR performance
Growth in the value of a hypothetical £100 holding over five years FTSE general retailers index comparison based on 30 trading day average values