Remuneration Policy
The Remuneration Committee believes that the Group’s remuneration policy must be based on sound, clear principles which recognise the long term interests of the Group, its shareholders and employees. The Remuneration Committee continually reviews the Company’s remuneration policy to ensure that it remains effective and appropriate to the Company. In 2002/03 the Remuneration Committee formally adopted a set of six principles which, after careful consideration during a comprehensive review in 2005/06, were reconfirmed and remain unaltered. 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 provides 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, base salary should be the only element of guaranteed remuneration. 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 more than 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 are conducted in each country.
The components of total remuneration are:
(a) Base salary
The base pay of each senior executive reflects the size and scope of that executive’s responsibilities and is reviewed annually, taking account of individual performance, experience, geographic location, relevant comparative data, and the general movement of base pay within the Group.
(b) Annual bonus plan
Target annual bonus levels are set each year taking 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 maximum bonus level set each year on such awards, which is equal to twice the target level, and a threshold performance below which no payments are made. The bonus rate increases once target bonus 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 on page 60, 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. As at 3 February 2007 there were 364 participants.
The Company operates the following executive share option plans:
The Signet Group plc 1993 Executive Share Option Scheme (the “1993 Scheme”) under which no further options may be granted but existing options are exercisable until the expiry of the 1993 Scheme in 2013.
In 2003 new Plans (the “2003 Plans”) were introduced replacing the 1993 Scheme and consist of:
The Signet Group plc UK Inland Revenue Approved Share Option Plan 2003; The Signet Group plc International Share Option Plan 2003; The Signet Group plc US Share Option Plan 2003.
Further details of the plans and the applicable performance conditions are set out here.
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. This is achieved through a savings-related share option plan, for which 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 it is also appropriate to operate an LTIP to encourage executive directors, and certain senior executives, to meet long term strategic and financial objectives set by the Board. As at 3 February 2007 there were 21 participants. 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.
(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.
In assessing achievement of performance criteria the Remuneration Committee applies a constant rather than a fluctuating exchange rate so as to ensure that executives are neither unfairly rewarded nor penalised simply by movements in exchange rates. For 2005/06 onwards achievement of performance criteria has been calculated against previously reported measures restated for Adopted IFRS.
(f) Pensions
(i) UK executive directors
The Group Finance Director and the Chief Executive of the UK division are members of the UK Group Scheme, which is a funded, HMRC registered, 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.
The main features of the UK 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.
All UK Group Scheme benefits were until 5 April 2006 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”) was, until April 2006 used to supplement pension benefits. This was a defined contribution arrangement.
As a result of the changes to pension taxation in the UK in force from 6 April 2006 the Remuneration Committee agreed that pension provision through the UK Group Scheme should continue broadly as before to ensure that pension benefit commitments continued to be met. Members should not benefit from a windfall gain through the removal of existing limits, and therefore a scheme specific earnings cap was maintained 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 now been entirely eroded, the Group has ceased paying contributions to the FURBS; and in substitution pays a supplement of the same amount to the member. 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 UK Group Scheme does allow for the new range of flexibility in pension arrangements without additional cost or administrative burden. For example, the new flexibility on tax-free cash has been incorporated into the UK Group Scheme.
(ii) US executive directors
In the US there are two savings vehicles by which provision for pension payments is made, the Sterling Jewelers Inc. 401(k) Retirement Savings Plan which is a qualified plan under Federal guidelines (the “401(k) Plan”) and the Deferred Compensation Plan (“DCP”) which is an unfunded, unqualified deferred compensation plan. These are defined contribution arrangements.
The primary retirement vehicle for US employees is the company sponsored 401(k) Plan. The company matches employee contributions to the plan at 25% of an employee’s contribution up to a maximum of 6% of an employee’s gross pay. Contribution levels are governed by Federal guidelines and are equalised so that in any given year, 401(k) Plan contributions by senior management may be reduced based on the participation levels of lower paid employees. Consequently a number of US companies including the Company have established supplemental plans for senior management to assist with pre-tax retirement savings.
The supplemental retirement plan, the DCP, exists for upper management employees. The DCP is considered to be an important savings vehicle in addition to the 401(k) Plan because of the restrictions placed on management contribution levels by the guidelines. The DCP was established in July 1996 and the employer generally makes a matched contribution to the plan equal to 50% of an employee’s contribution up to a maximum of 10% of the individual’s pre-tax base and bonus compensation although the rules allow for differing contractual matching arrangements without any effect to its tax beneficial status.
The Group Chief Executive has pension benefits provided via the 401(k) Plan and the DCP. At present the only contractual contribution matching arrangement is with the Group Chief Executive with a contribution equal to 20% of base salary without any deferral being required.
The Chief Executive of the US division is a member of the 401(k) Plan and the DCP. His membership of the DCP is on a matched basis equal to 50% of the maximum of 10% of base salary and bonus.
(g) Other policy matters
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 remuneration, the Remuneration Committee considers comparative data from a range of companies from both within and outside the retail sector as appropriate. As a result of the significant differences in remuneration practices between the UK and the US, separate competitive surveys are conducted in each country to ensure that the executives are properly compensated relative to respective competitive environments. 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 Remuneration Committee’s policy 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
Although the circumstances of early termination will 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) External 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.