Remuneration Principles
The Remuneration Committee believes that to be effective, remuneration policy must be based on sound, clear principles which are well understood and recognise the long term interests of the Group, its shareholders and employees. The Remuneration Committee, after consultation with shareholders, formally adopted the following six principles which have been the basis for all remuneration decisions since 2002:
(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 to retain, or recruit, senior executives of this calibre, the Group will be required to provide above industry average 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), 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 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 only be one element of guaranteed remuneration: base salary. The performance related portion of total remuneration should separately reward short term performance (through the annual bonus) and long term performance (through share options and Long Term Incentive Plan Awards).
(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 remuneration differences exist between the US and the UK markets, separate surveys are conducted in each country.
The components of total remuneration are:
(a) Base salary and other benefits
The base salary of each senior executive reflects the size and scope of his/her responsibilities and is reviewed annually, based upon individual performance, experience, surveyed competitive data and trends and geographic location of each position as well as the movement of base pay in the Group.
(b) Annual bonus plan
Annual bonus targets are set by the Remuneration Committee each year after considering the Group’s current business plans. 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.
(c) Share option plans
The Remuneration Committee believes that an executive share option plan is an appropriate and necessary element of remuneration in order to execute the remuneration principles set out above, and is an effective tool to incentivise executives to deliver the long term performance needed to generate strong returns to shareholders.
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 scheme expires in 2013. In 2003 new 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; and the Signet Group plc US Share Option Plan 2003 (the “2003 Plans”). 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 invitations are normally made annually. Under the relevant legislation the exercise of these share options is not subject to performance criteria.
(d) Long term incentive plan
The Remuneration Committee believes that in order to execute the principles discussed above and to encourage executive directors, and other senior executives, to achieve stretching long term financial objectives set by the Committee, it is appropriate to operate a long term incentive plan. The policy is to make annual awards expressed as a percentage of salary with vesting dependent on the achievement of challenging performance conditions set by the Committee at the time the awards are made. Further details of the long term incentive plan and the applicable performance conditions are set out here.
(e) Performance criteria
The Remuneration Committee considers it to be part of its role to carefully review proposed measures and targets to ensure that they will effectively motivate management and drive the creation of shareholder value. Annual bonuses need to be reviewed regularly to ensure that they remain appropriate and clearly aligned with business strategy and objectives and that the targets are set at a level that is stretching but not out of reach.
During the course of the last year the Remuneration Committee has become increasingly aware that whilst financial performance should represent the majority of the target, it does not reflect a company’s performance in its entirety and therefore other measures which also support the business goals should be included.
The choice of performance measures should be made in the context of the Group’s business strategy and reflect the Group’s particular circumstances and be related to overall corporate performance.
The Remuneration Committee believes that where performance criteria are used they should be: easily understood; be directly linked to the performance of the Group or the relevant business unit; be directly influenced by management’s actions; be designed to incentivise profit growth significantly above the rate of inflation; incentivise the efficient use of capital; and, for long term awards be equity based. In assessing actual performance it is the Remuneration Committee’s policy to measure the results on the basis of constant exchange rates so that executives neither benefit from nor are penalised simply by exchange rate fluctuations over which they have no control. For 2005/06 and beyond performance has been calculated against previously reported results restated for IFRS.
(f) Pensions
(i) UK executive directors
UK based 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 with a separate category of membership for directors. Pensionable salary is the member’s base salary, excluding all bonuses.
The main features of the director's category 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 from 6 April 2006 the Remuneration Committee agreed that pension provision through the UK Group Scheme should continue broadly as before. However 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 the FURBS and the other advantages of such a funding scheme have been eroded, the Group has ceased paying contributions to the FURBS. In substitution a supplement is paid to the member on the same basis as with other elements of remuneration: on an individual basis and in accordance with the remuneration principles. After review the Remuneration Committee agreed that it was necessary to increase the supplement paid to executive directors in order to achieve the appropriate positioning within the percentile ranges forming part of the remuneration principles. The Remuneration Committee has therefore taken the first steps to redress that balance during 2007/08. 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 and for example, the new flexibility on tax-free cash has been incorporated.
(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 (the “401(k) Plan”) and the Deferred Compensation Plan (the “DCP”). These are defined contribution arrangements.
In the US division the primary retirement vehicle is the US company sponsored 401(k) Plan which is a qualified plan under Federal guidelines. The company matches employee contributions to the 401(k) Plan at 25% of an employee’s contribution up to a maximum of 6% of an employee’s basic salary. Under Federal guidelines the 401(k) Plan contributions by senior management may be reduced based on the participation levels of lower paid employees. Consequently, in a similar way to other US companies, a supplemental plan, the DCP, has been established for senior management to assist with pre-tax retirement savings.
The DCP, which was established in 1996 as an unfunded non-qualified plan under Federal guidelines, is therefore considered to be an important savings vehicle in addition to the 401(k) Plan. The employer makes a matched contribution to the DCP equal to 50% of an employee’s contribution up to a maximum of 10% of the individual’s basic salary and bonus.
The Group Chief Executive has pension benefits provided via the 401(k) Plan and the DCP. The DCP rules allow for individual contractual matching arrangements without any effect to its tax beneficial status and at present the only contractual contribution matching arrangement is with the Group Chief Executive which provides for a contribution equal to 20% of basic salary without any deferral being required.
The Chief Executive of the US division is a member of the 401(k) Plan and the DCP. The DCP provides a contribution 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 several other policy matters which concern the Remuneration Committee.
These are:
(i) Companies used for comparison
To faithfully execute the remuneration principles discussed on page 67, and to ensure that the executives are properly compensated relative to respective competitive environments, the Remuneration Committee considers comparative data from a range of companies from both within and outside the retail sector. These companies are chosen on the basis of their turnover, market capitalisation, profits, number of employees and the complexity and geographic spread of their operations.
(ii) Service contracts
It is the Remuneration Committee’s policy that the contracts of executive directors should be on a rolling basis with the notice period to terminate by either party not exceeding one year. Should it be necessary to grant a longer period of notice in order to recruit externally, this will be reduced to a maximum of one year after an initial period. No executive director has a contract exceeding 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 directors. Where no explicit compensation terms are included, departing directors or senior managers are expected to mitigate their loss.
(iv) External appointments
The Group recognises the benefits to the individual and to the Group when executive directors also act as non-executive directors of companies not associated with Signet. Subject to certain conditions, unless otherwise determined by the Board, executive directors may accept one appointment as a non-executive director of another company and may retain any fees paid for such service. Mr Burman was appointed a non-executive director of Yankee Holding Corp. in October 2007.