REMUNERATION OVERVIEW - Marks & Spencer

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REMUNERATION

  REMUNERATION OVERVIEW
                                                         INTRODUCTION                                            The Committee spent a considerable
“The Committee                                          On behalf of the Board, I am pleased
                                                                                                                 amount of time this year reviewing the
                                                                                                                 current remuneration framework,
                                                         to present our 2019/20 Remuneration
  ensures that the                                       Report. We also present our proposed
                                                                                                                 structures, measures and targets.
                                                                                                                 This was all undertaken in the context
  pay framework is                                       Remuneration Policy (Policy). In line with
                                                         regulations, we are seeking shareholder
                                                                                                                 of the ever-changing political and retail
                                                                                                                 trading landscape and more recently in
  appropriately flexible,                                support and approval for our
                                                         Remuneration Policy at the 2020 AGM.
                                                                                                                 light of the ongoing Covid-19 pandemic.
                                                                                                                 The Committee consulted with our major
  to act in shareholders’                                A summary of the proposed changes                       shareholders (representing almost 50%
                                                         to the approved Remuneration Policy
  best interests in                                      is set out below and on pages 74-80
                                                                                                                 of our total shares in issue) to discuss our
                                                                                                                 proposal and response in respect of
                                                         of this report.
  unpredictable                                                                                                  executive pay arrangements. Additionally,
                                                                                                                 we also approached a number of
                                                         The Remuneration Report provides a
  circumstances.”                                        comprehensive picture of the structure                  shareholder representative bodies given
                                                         and scale of our remuneration framework,                many of our stakeholders engage their
 Andrew Fisher, Chair of the                            its alignment with the business strategy                services. The Committee reviewed
  Remuneration Committee                                 and the rest of the workforce, as well as               and discussed all the responses and
                                                         the decisions made by the Committee                     feedback provided and have developed a
                                                         as a result of business performance for                 remuneration framework that we believe,
                                                         this year and the intended arrangements                 based on what we currently know,
                                                         for 2020/21.                                            will support the business over the
                                                                                                                 next three years and is aligned with
                                                         BOARD CHANGES                                           investor expectations.
                                                         Following the departure of Humphrey                     The Committee believes that our
                                                         Singer in December, we were delighted                   Remuneration Policy continues to provide
                                                         to appoint Eoin Tonge as CFO. Details                   appropriate flexibility, ensuring that any
                                                         of Humphrey’s leaving arrangements,                     payments made in the implementation
                                                         along with recruitment details for Eoin,                of the Policy are in the best interests of
                                                         can be found on page 89 of this report.                 both the Company and our shareholders.
                                                                                                                 The overall framework is considered to
                                                         The Committee was pleased that we                       remain appropriate but based on investor
                                                         secured the appointment of Eoin Tonge                   feedback some minor amendments are
                                                         in line with our simplified pay framework.              proposed and described below.
                                                         He will, however, receive mobility
                                                         allowances for a set period of time.                    USE OF DISCRETION
                                                         In addition, we are pleased to appoint                  Recent world events have highlighted
                                                         Katie Bickerstaffe as our new Chief                     the importance of having a flexible policy
                                                         Strategy and Transformation Officer                     together with appropriate permissible
                                                         and see her become an executive member                  discretions to ensure that we can continue
                                                         of the Company. Katie was previously a                  to run M&S successfully. For complete
             IN THIS SECTION                             non-executive director of the Company                   transparency, we are more explicitly
                                                         and a member of the Remuneration                        outlining the discretions already in place
 REMUNERATION                                            Committee, for which I would like to thank              to ensure the Committee is able to act
 Remuneration overview p66-p71                           Katie for all her help and support. In line             in the best interests of the business and
 Remuneration in context p72-p73
                                                         with our standard practice Katie did not                our shareholders in unknown and
                                                         participate in Committee discussions that               unpredictable circumstances.
 Remuneration policy p74-p80
                                                         could be construed as her influencing her
                                                         own future remuneration arrangements.                   The Committee has the ability to apply
 ANNUAL REPORT ON
                                                                                                                 malus, clawback and responsible
 REMUNERATION
                                                         REMUNERATION FRAMEWORK                                  application of discretion to override
 Remuneration structure p81                              CONSIDERATIONS                                          formulaic outcomes of the incentive
 Total single figure remuneration p81                                                                            schemes to ensure that pay outcomes
                                                         Shareholder engagement and feedback                     are appropriate in the wider business and
 Salary and benefits p82
                                                         The Board is committed to ensuring that                 economic climate beyond the relevant
 Annual Bonus Scheme p83-p84
                                                         our remuneration framework supports our                 performance measures. During the year,
 Performance Share Plan p84-p85                          strategy, and provides a balance between                the Committee discussed the breadth of
 Directors’ share interests p86-p87                      motivating and challenging our senior                   provisions in place and agreed that these
 Changes to Board membership p89                         leaders to deliver our business priorities              provide the Committee with sufficient
 Non-executive directors’                                and also driving the long-term sustainable              capacity to act appropriately in
 remuneration p90                                        success of M&S.                                         unforeseen circumstances. The clawback
 Remuneration Committee remit p91                                                                                provisions which have been in place since

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2017 allow the Committee a number                       remuneration, the strategic direction of                   formally removing this cash payment for
of circumstances during the life of                     the Company, and the interests of our                      all new executive director appointments.
the binding policy beyond financial                     shareholders, we propose to introduce                      In order to remove any policy differential
misstatement; these are explicitly                      strategic measures into the PSP. In direct                 between incumbent and new executive
disclosed on page 76.                                   response to shareholder feedback, the                      directors, Steve Rowe has agreed to forgo
                                                        plan will retain a portion based upon Total                his contractual arrangements for this
During the year the Committee did not
                                                        Shareholder Return (TSR) performance.                      pension cash alternative. Steve’s pension
apply any discretion to the variable pay
                                                                                                                   supplement will be reduced to zero
outcomes of the bonus and Performance                   We propose to increase the shareholding
                                                                                                                   over the next three years. Steve will
Share Plan (PSP). The Committee agreed                  requirement for all executive directors
                                                                                                                   remain eligible to participate in the
that the final vesting of the PSP was                   to 200% of salary. The CEO’s requirement
                                                                                                                   pension scheme on the same terms as
reflective of the last three years of                   will remain at 250% of salary. To further
                                                                                                                   all other colleagues as has long been
M&S’s performance and that the Policy                   align executives with shareholders and
                                                                                                                   M&S’s practice.
operated as intended.                                   the longer-term success of the business,
                                                        we will be introducing a post-cessation                    Shareholders approved the current
KEY AMENDMENTS TO                                       shareholding guideline. Executives                         Remuneration Policy at the AGM in 2017.
REMUNERATION POLICY                                     will be expected to continue to hold their                 As such, the Company is required to seek
                                                        shareholding requirement for two years                     approval for the new policy at the AGM
The PSP will continue to be the primary                 post exiting the business.                                 to be held on 3 July 2020. Pages 74-80
long-term incentive plan for executives.
                                                                                                                   provide the full details of the proposed
We will maintain the overall construct of               Having already reduced our pension cash
                                                                                                                   policy. For transparency, the table below
the plan, with the typical award being                  alternative for new executive directors at
                                                                                                                   sets out an overview of the key areas of
250% of salary against a maximum of                     our last policy review, and in line with the
                                                                                                                   the Policy.
300% of salary. However, to ensure more                 pay arrangements offered to executive
relevant alignment between senior                       directors joining since that time, we are

                                                                                                                                                                            GOVERNANCE
Base salary              Benefits               Pension benefits        Annual Bonus            Performance             Shareholding            Non-executive
                                                                        Scheme                  Share Plan              requirement             directors (including
                                                                                                                                                Chairman)

Main features of current policy
–– Increases          ––   Benefits            –– Directors may         –– Maximum           –– Maximum award –– The CEO is                      –– Fees reviewed
   awarded are             provided at a rate    participate in           opportunity of       of 300% of salary. required to hold                 annually.
   normally in line        commensurate          M&S’s defined             200% of salary.                         250% of salary
                                                                                            –– Performance                                      –– Comprise basic
   with those              with the market       contribution                                                     in shares. For all
                                                                       –– 50% of total bonus measured against                                      fee plus additional
   elsewhere in            and currently         arrangement on                                                   other executive
                                                                          deferred into        financial targets                                    fee for extra
   the business.           include a car or      the same terms as                                                directors,
                                                                          shares for           over a three-year                                   responsibility
   Adjustments in          cash allowance,       other colleagues,                                                the current
                                                                          three years.         period.                                             of Board or
   excess of this may      a driver, and life    or receive a cash                                                requirement is
                                                                                                                                                   Committee
   be made where the       assurance plus        supplement in         –– Measured          –– Performance        150% of salary.
                                                                                                                                                   Chairman or Senior
   Committee deems         other benefits         lieu of pension          against Adjusted     conditions
                                                                                                                                                   Independent
   it appropriate.         provided to all       contributions.           Group Profit         may include
                                                                                                                                                   Director.
                           colleagues,           Cash alternative         Before Tax (PBT)     quantifiable
–– Salaries will be
                           including             maximum is               (currently 70%       non-financial/                                    –– Fees will be
   compared against
                           colleague             currently 20%            of award) and        strategic                                           compared against
   appropriately sized
                           discount.             of salary for            individual           measures, with                                      appropriately
   listed companies.
                                                 other executive          objectives.          financial measures                                   sized companies.
                                                 directors (25%                                comprising at
                                                                       –– Clawback                                                              –– In addition, the
                                                 for CEO).                                     least 50% of
                                                                          and malus                                                                Chairman may be
                                                                                               awards.
                                                                          provisions apply.                                                        entitled to the use
                                                                                            –– A two-year                                          of a car and driver.
                                                                                               holding period
                                                                                                                                                –– In line with our
                                                                                               post vesting.
                                                                                                                                                   other colleagues,
                                                                                               –– Clawback                                         the Chairman and
                                                                                                  and malus                                        non-executive
                                                                                                  provisions apply.                                directors are
                                                                                                                                                   entitled to receive
                                                                                                                                                   colleague discount.
Policy change
–– No change.            –– No change.         –– Removal of           –– No change.           –– No change.           –– The shareholding –– No change.
                                                  pension cash                                                            requirement is
                                                  supplements                                                             increasing from
                                                  for any future                                                          150% to 200% for
                                                  directors.                                                              all other executive
                                                                                                                          directors.
                                               –– Reduction of
                                                  the CEO’s                                                            –– Directors are
                                                  cash pension                                                            required to
                                                  supplement to                                                           continue to hold
                                                  zero over next                                                          their shareholding
                                                  three years.                                                            requirement
                                                                                                                          (or their actual
                                                                                                                          shareholding on
                                                                                                                          leaving if lower)
                                                                                                                          for two years after
                                                                                                                          leaving M&S.

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REMUNERATION OVERVIEW CONTINUED

STRATEGIC ALIGNMENT OF PAY
The focus at M&S continues to be on                        remuneration. This strength of alignment               The Committee will continue to
transformation, so the measures and                        will enable the Committee to ensure                    thoroughly review the pay structures
targets used in M&S’s incentive schemes,                   pay arrangements help to accelerate                    and incentive arrangements for the
specifically those of the Performance                      transformation and fulfill M&S’s potential             senior leadership team to ensure strong
Share Plan and Annual Bonus Scheme,                        for long-term sustainable profitable                   alignment between the delivery of
align with the KPIs and strategic priorities               growth, despite the prolonged impact                   business performance and the associated
being used across the business. The                        of Covid-19 in the current trading                     remuneration arrangements as the
illustration below demonstrates this                       environment and likely subsequent                      business continues along this accelerated
strong linkage between the KPIs and                        financial performance.                                 transformation journey to emerge
strategic priorities with executive                                                                               stronger and more competitive.

                               STRATEGIC ALIGNMENT OF REMUNERATION FRAMEWORK WITH KPIS

                                                                                                                                                  Annual Bonus
                                                                                                                               Performance        Scheme (ABS)
     KPI/Strategic Priority                                                         As measured by                          Share Plan (PSP)    (when operating)
     KPI                 Adjusted Earnings Per Share (EPS)                          Financial Results
         See KPIs       Return On Capital Employed (ROCE)
          on p26
                         Group PBT Before Adjusting Items (PBT)
     Strategic           What we are learning from the crisis
     Priority            What will never be the same again
         See            Accelerating the transformation programme
          Strategic
          Priorities
          on p7

                                                                    2019/20 PERFORMANCE

             ADJUSTED EARNINGS PER SHARE                            RETURN ON CAPITAL EMPLOYED                       GROUP PBT BEFORE ADJUSTING ITEMS

                     16.7p                                               12.7%                                        £403.1m
       Adjusted EPS in 2019/20 was 16.7p. This was below     Average three-year ROCE performance was 12.7%.           Group PBT was below the threshold for
         the 26.8p threshold required for any vesting         As a result, 11.2% out of a maximum of 33% of the       bonus payments to be made under the
          under this element of the 2017 PSP award.                 2017 PSP will vest under this element.               2019/20 Annual Bonus Scheme.

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CONTEXT OF BUSINESS                                     As shown earlier in this Annual Report,                    not limited to, supporting every colleague
PERFORMANCE                                             while there were some financial                            needing to either self-isolate or shield
                                                        improvements within the business,                          themselves to do so on full pay, and
During the year, M&S made good                          this did not translate to improvements                     rewarding M&S’s hardworking frontline
progress in further implementing its                    in the core key performance indicators                     store and e-commerce distribution
transformation. With improvements                       on page 68. As such, payments under both                   colleagues with an additional short-term
made to range, value and customer                       the Annual Bonus Scheme and                                15% pay award.
communication, the Food business                        PSP were impacted by M&S’s overall
outperformed the market and improved                    performance during the year.                               SINGLE FIGURE AND INCENTIVE
its financial performance in several                                                                               SCHEME OUTCOMES
aspects such as sales and operating profit.             WIDER WORKFORCE PAY
In addition, significant strides were taken             ARRANGEMENTS                                               The graph below summarises the total
to deliver the strategy to bring M&S food                                                                          payments made to executive directors in
online via the investment in Ocado                      The Committee received regular and                         2019/20, illustrating the figures detailed in
Retail Limited. While several Clothing &                varied updates during the year relating                    the single figure chart set out later in this
Home departments improved their                         to M&S’s pay arrangements. In addition to                  report on page 81.
performance, ultimately total revenue                   those already outlined in the Committee’s
                                                                                                                   The total pay for the CEO was c.20% lower
for this area of the business was down.                 remit available on the M&S website,
                                                                                                                   this year, reflecting lower PSP outcomes
                                                        detailed discussions ranged from hourly
As referenced earlier in this Annual                                                                               and the reduction in share price during
                                                        pay for store colleagues to colleague
Report, the impact of Covid-19 has been                                                                            the year.
                                                        participation in last year’s rights issue.
significant. In the short-term, M&S has
                                                                                                                   The 2017 PSP will vest at 11.2% in June 2020
responded rapidly to the changing trading               Further, we welcome the collaboration
                                                                                                                   for the three-year performance period up
landscape making financial decisions to                 with the Business Involvement Group
                                                                                                                   to 28 March 2020. Page 85 of this report
secure the future of the business. In the               at the Committee meeting in receiving
                                                                                                                   provides further detail on the specifics
long-term the business must, as described               direct feedback on colleagues’ views. This
                                                                                                                   of the targets set and the respective
earlier in this Annual Report, harness the              dialogue ensures a close link between the

                                                                                                                                                                   GOVERNANCE
                                                                                                                   achievement under each measure, which
learnings from this crisis to return M&S to             pay philosophies at the most senior levels
                                                                                                                   are also summarised in the illustration
profitable, sustainable performance.                    with those for the broader population.
                                                                                                                   overleaf. The remit of the Committee is
As demonstrated on page 68 and                          To demonstrate the Committee’s                             to ensure that targets set are stretching
referenced throughout this Remuneration                 keen interest in wider workforce pay                       yet achievable, rewarding the delivery
Report, there is a strong alignment                     arrangements within M&S, we have this                      of sustainable, ambitious long-term
between M&S’s key financial performance                 year expanded our disclosure on these                      performance. Vesting under the PSP
indicators and the measures within the                  specific areas; see pages 72 and 73.                       remains low when reviewed in the context
directors’ incentive schemes. The inclusion                                                                        of the wider market. However, the
                                                        As is referenced earlier in this Annual
of strategic measures within the                                                                                   Committee is satisfied that this vesting
                                                        Report, the business has taken great care
long-term incentive award, allows the                                                                              is reflective of the challenging business
                                                        to support all colleagues during the
Committee to drive the delivery of M&S’s                                                                           performance Steve Rowe and Archie
                                                        Covid-19 pandemic which the Committee
transformation while supporting the                                                                                Norman have both highlighted earlier
                                                        and the Board were supportive of. From a
learnings taken from this global crisis.                                                                           in this Annual Report.
                                                        pay perspective, these include, but are

                                               SINGLE FIGURE REMUNERATION FOR 2019/20

                                                                                                                                                      Total

Steve                                                                                                                £1,067,583     £143,279   £1,210,862
Rowe

Humphrey
Singer                                             £456,000                                                                                    £456,000

                 Fixed pay     PSP   Total bonus

     See Single figure remuneration on p81             See PSP on p84-p85           See Annual Bonus Scheme on p83

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REMUNERATION OVERVIEW CONTINUED

                                             PERFORMANCE SHARE PLAN (PSP) VESTING 2019

                                                                                                       IMPACT OF SHARE PRICE CHANGE ON
  VESTING OUTCOMES                                                                                     PSP VESTING VALUES

  Adjusted EPS
      Maximum           33.33%
      Actual                0%
  Average ROCE                                                                                                                              50%
                                                                                                                                         share price
      Maximum           33.33%                        Adjusted           Relative                                                        decline
      Actual             12.7%                          EPS                TSR
  Relative TSR
      Maximum           33.33%                                                                                   Max
      Actual                0%                                 Average
  Outturn                                                        ROCE

      Maximum             100%
      Actual              11.2%
                                                                                                                                             Max

                                                                                                                 Outturn
                                                                                                                                          Outturn
                                                                                                              Value at                    Value at
  As is shown in the illustration above, a significant proportion of                                      grant share price          vesting share price
  a director’s reward is linked to the movement in share price, providing                                      (£3.28)                     (£1.65)
  significant investment in the Company and strong long-term
  alignment with shareholders                                                                             See Performance Share Plan on p84-p85

The 2019/20 Annual Bonus Scheme                          However, in order to ensure continued                    PAY ARRANGEMENTS FOR 2020/21
was focused on restoring the business to                 strong governance and transparent
profitable growth. Annual performance                    reporting to shareholders, and in line                   When reviewing salary levels, the
for the year was again focused on Group                  with the normal processes, the Committee                 Committee considers a number of internal
PBT before adjusting items (PBT) with                    discussed each director’s achievement                    and external factors, primarily the salary
individual measures set against the key                  against the relevant individual                          review principles applied to the rest of
areas of delivery deemed most critical                   performance targets. Final achievement                   the organisation, but also Company
to the transformation journey. As with                   against these individual objectives is                   performance during the year and external
previous years, individual performance                   detailed on page 83 of this report.                      market data. As a result of performance in
was measured independently of                                                                                     the year and the unprecedented impact of
                                                         The Committee is satisfied that incentive                the Covid-19 pandemic, it was decided not
PBT performance, but, mirroring
                                                         payments made to executive directors                     to implement any salary increases in the
arrangements elsewhere in the business,
                                                         during the year are appropriate in the                   wider organisation and the Committee
no individual element could be earned
                                                         context of business performance for                      decided that it would be appropriate to
until the threshold needed to secure
                                                         2019/20 and payments made elsewhere                      freeze Steve Rowe’s salary. As detailed
payment under the PBT element was
                                                         in the business. The Remuneration Policy                 within this report, the Committee made
similarly achieved. For the 2019/20
                                                         operated as intended so no changes to                    the recommendation, and Steve agreed,
financial year, the PBT achievement of
                                                         outcomes were necessary.                                 that over the next three years the CEO
£403.1m was below the threshold to
trigger a bonus payment and so no                                                                                 pension supplement would be reduced to
bonus was paid under the Annual Bonus                                                                             zero. While the intended structure of the
Scheme to anyone within the organisation,                                                                         Annual Bonus Scheme, as detailed on
including the executive directors.                                                                                page 75 in the Policy table, remains

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unchanged from 2019/20, the Committee                   since awards were made in 2019 and so                      LOOKING AHEAD
has agreed that for 2020/21 only there will             took decisive action to significantly reduce
be no bonus scheme in operation for the                 the quantum of the 2020 PSP award                          This was the final year under the current
executive directors. Executive directors                from 250% to an intended 175% of salary.                   remuneration framework, and we hope
will still continue to be measured against a            In determining the size of this year’s                     to have your support at the 2020 AGM to
scorecard of individual objectives aligned              PSP awards, the Committee, wished to                       approve the new Remuneration Policy.
to the strategic priorities set out earlier             acknowledge the shareholder experience                     The new Policy has been designed to
in this report, however no financial                    of Covid-19 to reduce windfall gains from                  ensure that executive director pay
payment will be made in respect of their                directors’ awards. As such, M&S’s average                  arrangements support and drive the
achievements. The Committee debated                     share price since February 2020 until                      business strategy while remaining
the appropriateness of this decision in a               mid-May was used as a reference point in                   appropriate when considered within the
time when executives are working harder                 Committee discussions. The Committee                       overall M&S remuneration framework and
than ever and believes, in the context of               will review and reconfirm this decision                    the external regulatory environment.
wider macroeconomic factors and the                     immediately prior to grant to ensure this                  A robust framework is especially crucial
experience of the business with a large                 remains appropriate.                                       given the challenging environment in
number of colleagues placed on furlough,                                                                           which we are operating. Having engaged
                                                        Targets will be set and disclosed no later                 with our major shareholders as part of this
this is the right decision for M&S.
                                                        than 31 December 2020. The Committee                       process, to both incorporate their views
The Committee continues to ensure that                  is committed to shareholder engagement                     and to maintain open dialogue on director
the total remuneration framework for                    and will further engage with our major                     pay arrangements, we hope that all our
executives is aligned to shareholder                    shareholders in advance of any long-term                   shareholders will support the Policy at
interests. In light of the decision not to              incentive targets being determined.                        the AGM.
operate a bonus scheme for 2020/21,                     More details are set out on page 85.
the Committee believes it is critical to                                                                           As we look to the future, the Committee
                                                        The Committee believes that this                           will also need to take into consideration
ensure that executives remain aligned
                                                        approach is appropriate as the business                    the impact of investment in Ocado,
with shareholders’ long-term interests
                                                        reviews its strategy in light of the                       a partnership we believe will bring

                                                                                                                                                                    GOVERNANCE
through a PSP award set against not only
                                                        Covid-19 crisis and when retention and                     substantial benefits and has
appropriate measures but also achievable
                                                        motivation of the senior leadership                        transformative potential for our
yet stretching targets. In the current
                                                        team remains critical.                                     business. The Committee fully intends
rapidly changing circumstances caused
by Covid-19, and the extreme uncertainty                                                                           to review the extent to which this
                                                        SHAREHOLDER APPROVAL                                       partnership impacts structures, targets
in the retail sector more broadly, the
                                                        AT THE AGM                                                 and application of M&S’s incentive
Committee debated the operation of the
PSP, the appropriateness of the proposed                                                                           arrangements in both the short-
                                                        In addition to the resolution at this year’s
performance measures and targets as well                                                                           and long-term.
                                                        Annual General Meeting (AGM) to renew
as the timing of a 2020/21 award which is               the Remuneration Policy, we are also                       I would like to thank our shareholders for
typically granted shortly after M&S’s final             seeking shareholder approval to make an                    their continued support during what has
year results. As a result, the Committee                amendment to the existing share plan                       been an unprecedented year. Due to the
has agreed to grant a PSP award to                      rules. We wish to provide the facility to                  Covid-19 pandemic the Company’s AGM
executives in July 2020. The performance                satisfy awards with new issue shares,                      on 3 July 2020 will be via a live webcast
targets for this award will be set at a time            rather than market purchase shares as is                   broadcast from Waterside House and I will
when the impact of Covid-19 on the                      currently the practice. This change will                   be able to answer any questions in relation
business can be better forecast and the                 support M&S in securing its cash flow for                  to this Remuneration Report at this time.
proposed strategic measures reviewed                    financially efficient business operations.
in light of the business’s strategic                                                                               Andrew Fisher, Chairman of the
                                                        In addition some minor amendments to
response to the post-pandemic trading                                                                              Remuneration Committee
                                                        align with the operation of our existing
environment. However, the Committee                     Remuneration Policy approved by
recognises the material fall in share price             shareholders in 2017 are proposed.
                                                        Further details are set out in the Notice
                                                        of Meeting on pages 183 to 199.

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REMUNERATION

                           REMUNERATION IN
                              CONTEXT
                                                              COLLEAGUE ENGAGEMENT

     –– Share ownership across our                          contribute on a range of topics                   colleagues and also gives the
        colleagues M&S is a proud advocate                  and activities. During the year,                  Committee the opportunity to explain
        of employee share ownership,                        representatives from BIG have been                and discuss our pay practices and how
        encouraging colleagues to share in                  engaged on a number of pay-related                executive pay aligns with pay across
        M&S’s success while aligning interests              topics, beyond the executive level,               the wider workforce. In addition, the
        with our shareholders. Across our                   including: helping colleagues to                  Head of Executive Reward & External
        UK and Irish colleagues, M&S has a                  understand the impact of the rights               Reporting also provides updates to
        significant number of participants                  issue on their share schemes and                  the Committee as appropriate on
        in all employee share schemes:                      providing ongoing feedback on                     pay and people-related issues during
        colleagues hold over 53m SAYE                       colleague questions and concerns                  the year.
        options in our ShareSave scheme and                 during this period; user acceptance
                                                                                                            –– Pay Budgets Under the remit of
        over 3,000 colleagues hold shares in                testing of our share schemes website;
                                                                                                               the Remuneration Committee,
        our Share Incentive Plan ShareBuy.                  and providing feedback and support
                                                                                                               total budgeted salary expenditure
                                                            on the timing of our annual ShareSave
     –– Direct engagement with our                                                                             across M&S for salary review is
                                                            invitation. The collaborative
        colleagues Since 2018, the Chair of                                                                    noted, as are bonus and share scheme
                                                            relationship that we have with BIG
        the National Business Involvement                                                                      budgets ensuring principles for reward
                                                            strongly reflects our belief in the key
        Group (BIG), our colleague                                                                             allocation are aligned across the full
                                                            role that BIG plays in ensuring the
        representative body, is invited to                                                                     workforce, inclusive of senior leaders.
                                                            Committee has greater visibility of
        attend a Remuneration Committee
                                                            the things that really matter to our
        meeting each year to engage and

CONSIDERATION OF COLLEAGUE PAY                          In approving the budget for the annual              CONSIDERATION OF
                                                        bonus, the Committee reviews all bonus              STAKEHOLDER VIEWS
The Committee monitors and reviews the                  costs for the Company against the
effectiveness of the senior remuneration                operating plan. The Committee also                  The Committee is committed to an
policy and its impact and compatibility                 reviews and approves any PSP awards                 open and transparent dialogue with
with remuneration policies in the wider                 made to executive directors and directors           shareholders on the issue of executive
workforce. Throughout the year, the                     below the Board prior to their grant.               remuneration. Where appropriate,
Committee reviews the frameworks and                                                                        the Committee will actively engage
budgets for key components of colleague                 The Committee receives updates                      with shareholders and shareholder
pay arrangements, together with the                     on a variety of colleague engagement                representative bodies, seeking views
broader structure of Group bonus                        initiatives which form part of our colleague        which may be considered when making
provisions which ensures appropriate                    voice surveys, asking colleagues about              any decisions about changes to the
alignment with senior pay arrangements.                 engagement, empowerment and                         directors’ Remuneration Policy.
                                                        enablement. While colleagues were not
The Committee is provided throughout                    formally consulted on the development               The Committee seeks the views of
the year with information detailing                     of the Policy, the annual employee voice            the largest shareholders individually
pay in the wider workforce, which gives                                                                     and others through shareholder
                                                        survey asks colleagues about the fairness
additional context for the Committee to                 and reasonableness of colleague                     representative bodies when considering
make informed decisions. The Head                       pay and benefits, and they are also                  making any significant changes to the
of Executive Reward & External                          encouraged to raise questions at the                Remuneration Policy; this may be done
Reporting advises the Committee                         periodic all-colleague announcements                annually or on an ad hoc basis, dependent
of the approach which will be adopted                                                                       upon the issue. For example, during the
                                                        led by the CEO. Any questions raised at
with the forthcoming UK pay review                      this time are answered, and comments                year the Committee proposed changes
and the Committee then considers the                    made during the year through surveys                to the PSP measures and, as a direct
executive directors’ pay in line with                   or our network of elected colleague                 response to shareholder feedback TSR
these arrangements.                                     representatives via BIG are considered.             remains a key measure. The Committee
                                                                                                            annually engages in a process of investor
The Head of Executive Reward & External                 The Head of Executive Reward & External
                                                        Reporting typically provides an annual              consultation, which is typically in written
Reporting consults on all executive
                                                        update to these colleague representatives           format, but may be through face-to-face
director bonus objectives and advises
                                                                                                            meetings, if considered useful. The
the Committee on how, and the extent to                 with an explanation of the executive
                                                                                                            Committee Chairman is available to
which, these may be cascaded throughout                 directors’ pay arrangements during the
                                                        year, and they are able to ask questions            answer questions at the AGM and the
the Company.
                                                        on the arrangements and their fit with the          answers to specific questions are posted
                                                                                                            on our website.
                                                        other reward policies at this time.

72      Marks and Spencer Group plc

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GENDER PAY GAP                              As part of our socially responsible                       benefits, bonus and long-term
                                                      reporting strategy, an annual shareholder                 incentives for the 12 monthly payrolls
The M&S median gender pay gap                         meeting is normally held and the                          within the full financial year. Earnings
for the year to April 2019 is 4.0%,                   consideration of views on a variety                       for part-time colleagues are annualised
compared with a national average                      of topics, including executive pay,                       on a full-time equivalent basis to allow
of 17.3%. The M&S mean gap for the                    is taken into account.                                    equal comparisons.
same period is 12.9%.                                                                                         –– Adjusting the value of any bonus so
                                                      CHIEF EXECUTIVE’S PAY RATIO
In the last 12 months, we’ve made                                                                                that it only reflects the amount earned
several steps to further promote                      In last year’s report, the Committee                       in respect of the 2019/20 financial year
and enhance diversity and equality                    chose to early disclose an indicative                      and does not include the value of any
at M&S. This includes, but is by no                   CEO pay ratio. During the year, the                        deferred shares from the 2016 bonus
means limited to, the launch of our                   Committee considered the appropriate                       which vested in June 2019.
Breakthrough Leaders programme                        calculation approaches as set out in the
                                                                                                              –– Adding in the employer pension
aimed at developing and accelerating                  regulations and has chosen Methodology
                                                                                                                 contribution from the M&S Pension
the progression of diverse talent in                  A, as we believe it to be the simplest, most
                                                                                                                 Saving Plan.
the business, our participation in                    appropriate and robust way to calculate
Retail Week’s Be Inspired accelerator                 the ratio.                                              Joiners and leavers in the year have been
programme for senior women,                                                                                   excluded from the calculations, the
                                                      Option A requires three UK colleagues to
collaboration in the 30% Club’s                                                                               percentile figures are therefore
                                                      be identified as the equivalent of the 25th,
cross-business mentoring                                                                                      representative of the whole colleague
                                                      50th and 75th percentile. Having identified
programme and the launch of our                                                                               population but do not include all
                                                      these colleagues based on pay and
own internal mentoring portal for                                                                             colleagues as at 28 March 2020.
                                                      benefits as at 28 March 2020, the total
our colleagues. All of this activity                  remuneration is calculated on the same                  The table below shows the ratio of CEO
is supported by our colleague                         basis as the CEO single total figure of                 pay in 2019/20, using the single total figure
networks, including the Gender                        remuneration, the only exception being                  remuneration as disclosed in Figure 8

                                                                                                                                                                        GOVERNANCE
Equality Network, which hold events                   the individual performance element of the               (page 81) to the comparable, indicative,
and raise important discussions                       Annual Bonus Scheme applicable to the                   full-time equivalent total reward of those
on gender equality via their online                   relevant colleagues is assumed to be the                colleagues whose pay is ranked at the
social communities.                                   respective target value, as the actual value            25th, 50th and 75th percentiles in our
We’re proud that 74% of our Customer                  is not known at the time of producing the               UK workforce. The calculation used to
Assistants are women but we need                      Annual Report. This requires:                           determine these figures is reflective
to do more to encourage diversity in                                                                          of M&S’s pay proposition across the
                                                      –– Starting with colleague pay that was
senior roles. Diversity and inclusion                                                                         workforce as all pay elements have been
                                                         calculated based on actual base pay,
remains a key priority for us and we                                                                          included to ensure equal comparisons.
have developed a bold strategy and                                                                             25th percentile   50th percentile    75th percentile
                                                      Year                        Methodology                            ratio             ratio              ratio
will not be letting our focus relent
through these challenging times.                      2020 Figures                (Option A)                           64 : 1             59 : 1               51 : 1

4%
                                                                                                                                                        Total pay and
                                                                                                                                           Salary            benefits
                                                      Pay data                                                                             (£000)              (£000)
                                                      CEO remuneration                                                                      828                1,211
Gender pay gap (median)
                                                      UK colleague 25th percentile                                                           18                   19
                                                      UK colleague 50th percentile                                                           19                   21
  PAY ARRANGEMENTS FOR                                UK colleague 75th percentile                                                           22                  24
COLLEAGUES DURING COVID-19
                                                      PERCENTAGE CHANGE IN CEO’S REMUNERATION
We are proud to be providing support
to our colleagues during Covid-19.                    The table below sets out the change in the CEO’s remuneration (i.e. salary, taxable
As detailed earlier in this Annual                    benefits and annual bonus) compared with the change in our UK-based colleagues’ pay.
Report, for those colleagues needing                  This group has been chosen as the majority of our workforce are based in the UK.
to self-isolate or shield themselves,                                                                                      % change 2018/19 – 2019/20
they have done so on full pay. Our                                                                                Base salary           Benefits        Annual bonus
frontline store and e-commerce                        CEO (Steve Rowe)                                                 3.0%              -0.2%                     –
distribution colleagues continuing
                                                      UK employees (average per FTE)                                   3.7%               0.7%                     –
to work are being provided with a
short-term 15% additional pay award                   Salary reviews in 2019/20 awarded across                The change in colleague benefits is
and similarly, colleagues working in                  the wider organisation ranged from 2% to                reflective of a shift in workforce structure
support centres will receive a share                  4%, the 3% increase awarded to the CEO                  rather than a change in benefit offering,
award equivalent to 5% of salary for                  was the first salary increase since his                 which remains unchanged from 2018/19.
the furlough period. Furloughing                      appointment to the role in 2016, despite                There has been no fundamental change
frontline colleagues continue to                      his salary being significantly lower than               in the CEO benefit offering.
receive full pay with 90% of pay being                that of his predecessor. There were no
paid for support centre colleagues                                                                            No award under the Annual Bonus
                                                      annual base pay increases awarded to
placed on furlough. This ensures                                                                              Scheme was made to either the CEO or
                                                      the CEO or to colleagues in respect of
consistent treatment of all                                                                                   anyone else within the wider workforce
                                                      the 2020/21 financial year.
colleagues, by maintaining a 15%                                                                              in either 2018/19 or 2019/20.
differential in pay between those
working and those on furlough.

                                                                                                            Annual Report & Financial Statements 2020              73

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REMUNERATION

           REMUNERATION POLICY
                                                     FIGURE 1: EXECUTIVE DIRECTORS’ REMUNERATION POLICY TABLE

Shareholders approved the                  Base salary                               Benefits                               Pension benefits
Remuneration Policy at the
AGM in 2017. As such, the
Company is required to seek
approval for the new Policy               PURPOSE AND LINK TO STRATEGY               PURPOSE AND LINK TO STRATEGY           PURPOSE AND LINK TO STRATEGY
at the AGM to be held on                  To attract, retain and motivate            To provide market-competitive          To attract and retain high-calibre
3 July 2020, from which                   high-calibre executives needed             benefits which drive employee           executives through a commitment
date the updated Policy                   to deliver our strategy and drive          engagement and commitment              to responsible, secure retirement
will apply. The Committee                 business performance.                      in our business.                       funding in line with our
reviewed the senior                                                                                                         Company values.
remuneration framework
during the year to ensure
that it remains fit for purpose,
providing an appropriate                  OPERATION                                  OPERATION                              OPERATION
framework to fulfil M&S’s
                                          Payable in cash.                           Directors are eligible to receive      Current directors may participate
reward philosophy which                                                              benefits in line with our policies      in the Your M&S Pension Saving
                                          Reviewed annually by the
is, in turn, designed to                  Committee considering a                    which may include:                     Plan (a defined contribution
support and drive the                     number of factors, including:              –– A car or cash allowance.            arrangement) or an alternative
business strategy.                        –– Salary increases awarded                –– A driver.                           pension saving vehicle that the
                                             to other colleagues in the                                                     Company may offer, on the same
The Policy remains largely                                                           –– Life assurance.
                                             wider workforce which are                                                      terms as all other colleagues or
unchanged from the one                                                               Where appropriate, our Global/         receive a cash supplement in lieu
                                             typically reviewed annually             Domestic Mobility Policy may
approved by shareholders                     on a similar basis.                                                            of pension contributions into
in 2017; for transparency,                                                           apply. This may include, but not       this scheme.
                                          –– Comparable salaries in                  be limited to, travel, relocation
where amendments                             appropriate comparator groups.          and tax equalisation allowances.
have been made these are                  Salaries reflect the experience,            Directors are offered a number of
highlighted. Once approved,               responsibility and contribution            other benefits in line with all other
this Policy may operate                   of the individual and role within          colleagues, such as colleague
for up to three years.                    the Group.                                 discount and salary sacrifice
                                                                                     schemes such as Cycle2Work.
The Policy is designed
to attract, retain and                                                               Directors may participate in a
                                                                                     Save As You Earn Scheme and a
motivate our leaders
                                                                                     Share Incentive Plan and any
within a framework designed                                                          other all-employee share
to promote the long-term                                                             schemes on the same terms
success of M&S and                                                                   as other colleagues.
aligned with our
shareholders’ interests.

                                          MAXIMUM OPPORTUNITY                        MAXIMUM OPPORTUNITY                    MAXIMUM OPPORTUNITY
                                          While there is no set maximum,             While there is no set maximum, any     A maximum employer contribution
                                          any increases are normally in line         benefits will be provided at a rate    currently of 12% of salary where the
                                          with those in the wider workforce.         commensurate with the market.          employee contributes 6% of salary.
                                          Individual adjustments in excess of        Maximum participation in               Prior to 11 July 2017 an alternative
                                          this may be made outside of this           all-employee share schemes is          cash payment capped at 25%
                                          cycle at the discretion of the             in line with local statutory limits.   of salary was available for
                                          Committee, where appropriate.                                                     executive directors.
                                          Such circumstances can include:            PERFORMANCE CONDITIONS                  Change for 2020
                                          –– Where the role scope has                N/A
                                             changed;                                                                        Removal of pension cash
                                                                                                                             supplements for any
                                          –– Where comparable salaries
                                                                                                                             future directors.
                                             in the external market have
                                             changed; or                                                                     Reduction of the CEO’s cash
                                          –– To apply salary progression                                                     pension supplement to zero
                                             for newly appointed directors.                                                  over the next three years.

                                          PERFORMANCE CONDITIONS                                                            PERFORMANCE CONDITIONS
                                          N/A                                                                               N/A

74     Marks and Spencer Group plc

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(TO BE APPROVED ON 3 JULY 2020)

Annual Bonus Scheme including                                 Performance Share Plan (PSP)                           Shareholding Requirement
Deferred Share Bonus Plan (DSBP)

PURPOSE AND LINK TO STRATEGY                                 PURPOSE AND LINK TO STRATEGY                            PURPOSE AND LINK TO STRATEGY
To drive annual profitability, strategic change and           Measured against the key financial drivers of the        To drive long-term, sustainable
individual performance in line with the business plan.       business plan to deliver sustainable value creation.    decision-making for the benefit of
To recognise and reward individual contributions             To encourage long-term shareholding to retain           the Company and our shareholders.
to the way we do business.                                   directors, and provide greater alignment with
The deferral into shares provides alignment with             shareholders’ interests.
shareholders’ long-term interests following the
successful delivery of short-term targets.

OPERATION                                                    OPERATION                                               OPERATION
Directors are eligible to participate in this                The Company’s principal long-term incentive             Directors are required to hold shares
non-contractual, discretionary scheme.                       scheme, approved by shareholders in 2015.               equivalent in value to a minimum
Payments are made subject to the satisfaction of             Directors are eligible to participate in this           percentage of their salary within
                                                                                                                     a five-year period from their

                                                                                                                                                               GOVERNANCE
predetermined targets set at the start of the year,          non-contractual, discretionary plan.
as approved by the Committee.                                Directors may receive an annual award which             appointment date.
Not less than 50% of any bonus earned is paid in             vests after three years subject to predetermined
deferred shares under the DSBP, with the remainder           performance conditions.
payable in cash.                                             Clawback and malus rules apply to awards
Deferred shares vest after a period of three years           (see explanatory notes).
subject to continued service, but no further                 Good leaver and change of control provisions
performance conditions.                                      apply (see explanatory notes).
Clawback and malus rules apply to cash and                   The value of any dividends during the vesting
DSBP awards respectively; see explanatory notes              period may be payable (see explanatory notes).
(page 76) for more information.                              Awards are subject to a further two-year holding
Good leaver and change of control provisions apply           period after the vesting date. Directors may
to the deferred shares (see explanatory notes).              sell sufficient shares to satisfy the respective tax
The value of any dividends during the deferred               liability but must retain the net number of shares
period may be payable (see explanatory notes).               until the end of this two-year period.
The Committee retains the right to exercise                  As with the bonus scheme, the Committee retains
discretion, both upwards and downwards, to ensure            the right to exercise discretion in the same manner
that the level of award payable is appropriate               to ensure appropriateness of outcomes.
and fair in the context of the director’s individual
performance and the Company’s overall
performance. Where exercised, the rationale for
this discretion will be fully disclosed to shareholders
in the subsequent Annual Report.

MAXIMUM OPPORTUNITY                                          MAXIMUM OPPORTUNITY                                     MAXIMUM OPPORTUNITY
A maximum annual potential of up to 200% of salary.          The maximum value of shares (at grant) which can        For the CEO, this requirement is
                                                             be made under an award to an individual in respect      250% of salary. For all other executive
PERFORMANCE CONDITIONS
                                                             of a financial year is 300% of salary.                  directors the requirement is 200%.
Quantifiable one-year performance measures and                                                                        Change for 2020
targets are set by the Committee around financial            PERFORMANCE CONDITIONS
                                                                                                                      Directors are required to continue
and individual objectives linked with the sustainable        Performance is measured over a three-year
                                                                                                                      to hold their shareholding
delivery of the business plan.                               period against a balanced scorecard of appropriate
                                                                                                                      requirement, or, if their level
Financial performance measures comprise at                   measures as determined by the Committee each
                                                                                                                      of shareholding is below the
least 50% of awards and may include, but not be              year. This currently includes EPS, ROCE, TSR and
                                                                                                                      requirement, their actual
limited to Group PBT after adjusting items.                  from 2020 strategic measure. These are chosen
                                                                                                                      shareholding for two years after
Typically, no payment for individual objectives              as those measures which support and drive
                                                                                                                      leaving M&S.
can be earned unless a ‘threshold’ level of Group            top-line and bottom-line performance in line
PBT after adjusting items has been achieved.                 with business strategy.                                  The shareholding requirement
This threshold level is set by the Committee taking          Financial measures comprise at least 50% of awards.      for other executive directors
into account the previous year’s performance and             The threshold level of vesting is 20% of                 increased from 150% to 200%.
the business operating plan for the current year.            the maximum.
For achievement of individual objectives no more than        For performance between threshold and maximum,
                                                                                                                     PERFORMANCE CONDITIONS
40% (currently 30%) of the maximum bonus potential           awards vest on a straight-line basis.
is paid for threshold performance, and no more than                                                                  N/A
60% for target performance. However, the Committee
retains the flexibility to amend the pay-out level at
different levels of performance for future bonus
cycles. This is based on its assessment of the level of
stretch inherent in the set targets, and the Committee
will disclose any such determinations appropriately.
                                                                                                          Annual Report & Financial Statements 2020      75

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REMUNERATION POLICY CONTINUED

FIGURE 2: POLICY TABLE
Executive directors may be in receipt of awards under share plans outside of the current remuneration framework detailed on pages
74 and 75; these may have been awarded upon recruitment or prior to their appointment as an executive director. While awards under
these plans do not form part of a forward-looking policy, for transparency, details of the plans are set out in the table below.
                  PURPOSE AND LINK                                                                                                       PERFORMANCE
ELEMENT           TO STRATEGY                   OPERATION                                                    MAXIMUM OPPORTUNITY         CONDITIONS
Restricted        To enable the                 –– Restricted awards may be granted for the recruitment While there is no                The Committee
Share Plan        recruitment of key               of directors.                                          maximum set in the             may choose to
(RSP)             directors who are                                                                       rules, the Committee           apply no formal
                                                –– Awards vest after a restricted period, which can vary
                  necessary to                                                                            considers the scale and        performance
                                                   by award but is typically between one and three years.
                  the delivery of                                                                         structure of awards on         conditions save for
                  business strategy.            –– Malus provisions, good leaver and change of control    an individual basis.           continued service.
                                                   provisions apply (see below and page 78).
                                                –– The value of any dividends during the restricted period
                                                   may be payable (see explanatory notes below).
Executive         Measured against              –– Approved by shareholders and HMRC in 2015,                Awards are capped at        Awards vest
Share Option      the key drivers of our           the Committee may choose to award share options           250% of salary in respect   subject to at
Scheme            business plan to                 to directors if appropriate.                              of any financial year       least three-year
(ESOS)            deliver sustainable                                                                        of the Company              predetermined
                                                –– Malus provisions, good leaver and change of control
                  value creation.                                                                            but in recruitment          performance
                                                   provisions apply (see below and page 78).
                                                                                                             circumstances awards        conditions.
                  To encourage long-term
                                                –– Options are normally exercised between the third          may be granted up
                  shareholding to retain
                                                   and tenth anniversaries of grant, subject to the          to a higher limit of
                  directors, and provide
                                                   achievement of any performance conditions set             400% of salary.
                  greater alignment with
                                                   by the Committee.
                  shareholders’ interests.

EXPLANATORY NOTES                                       Any performance conditions applicable                (including the PSP) in 2015 and onwards
                                                        to PSP, RSP and ESOS awards may be                   will similarly be subject to clawback
The Committee reserves the right                        amended by the Committee if an event                 provisions. These provisions enable the
to make any remuneration payments                       occurs which causes it to consider that the          Committee, in its absolute discretion, to
notwithstanding that they are not in line               performance condition would not achieve              reclaim awards paid to individuals for up
with the Policy set out above, where the                its original purpose and the amended                 to three years after the respective vesting
terms of the payment were agreed at a                   performance condition is, in the opinion of          or payment date (or up to two years in the
time when the relevant individual was not               the Committee, no less difficult to satisfy          case of PSP awards) where specified
a director of the Company, or under a prior             but for the event in question.                       events occur. The specified events that
approved policy and, in the opinion of                                                                       would trigger clawback include the
the Committee, the payment was not in                   Our long-term incentive plans provide
                                                                                                             discovery of a material misstatement
consideration of the individual becoming                the Committee with discretion with
                                                                                                             resulting in an adjustment in the audited
a director of the Company.                              respect of vesting outcomes that affect
                                                                                                             consolidated accounts of the Company,
                                                        the actual level of reward payable to
For these purposes, payments include the                                                                     the assessment of any performance
                                                        individuals, such discretion would only be
Committee satisfying awards of variable                                                                      condition, terms or conditions in respect
                                                        used in exceptional circumstances and, if
remuneration and, in relation to an award                                                                    of an award or payment that were based
                                                        exercised, the rationale for this discretion
over shares, the terms of the payment are                                                                    on error, or inaccurate or misleading
                                                        will be fully disclosed to shareholders in
agreed at the time the award is granted.                                                                     information, the discovery that any
                                                        the subsequent Annual Report.
                                                                                                             information used to determine the
Awards granted under the PSP, DSBP,                                                                          number of shares subject to an award or
and RSP can be made in the form of                      CLAWBACK AND MALUS
                                                                                                             amount payable was based on an error,
conditional share awards, forfeitable                                                                        or inaccurate or misleading information,
                                                        M&S is committed to ensuring its
shares, options or rights with the same                                                                      the action or conduct of a participant
                                                        remuneration arrangements motivate
economic effect. In addition, awards                                                                         which, in the reasonable opinion of the
                                                        participants to strive for exceptional
may be settled in cash. Awards may                                                                           Committee, amounts to gross misconduct
                                                        performance while also protecting
incorporate the right to receive (in cash                                                                    or a material breach of the participant’s
                                                        shareholder value from the Company
and/or shares) the value of dividends,                                                                       service contract that falls short of gross
                                                        taking unnecessary risks. As such,
including any dividend tax credit where                                                                      misconduct, and events or behaviour of
                                                        clawback and malus provisions apply
applicable, between grant and vesting                                                                        a participant that have had a significant
                                                        to the executive directors’ incentive
on the shares that vest. This amount                                                                         detrimental impact on the reputation
                                                        arrangements. All share awards granted
may be calculated on a cumulative basis,                                                                     of any member of the Group, provided
                                                        from 2013 onwards are subject to malus
assuming the reinvestment of dividends                                                                       that the Committee is satisfied that the
                                                        provisions. These provisions allow the
into shares.                                                                                                 relevant participant was responsible for
                                                        Committee, in its absolute discretion, to
In the event of a variation of the                      determine at any time prior to the vesting           the reputational damage and that the
Company’s share capital or a demerger,                  of an award to reduce the number of                  reputational damage is attributable to the
special dividend or other event which in                shares, cancel an award or impose further            participant. Clawback may be effected,
the Committee’s opinion may affect the                  conditions on an award in circumstances              among other means, by requiring the
price of shares, the Committee may alter                for which the Committee considers                    transfer of shares, payment of cash or
the terms of awards and the number                      such action to be appropriate. Such                  reduction of awards.
of shares subject to them. The terms of                 circumstances may include, but not be
awards may be amended in accordance                     limited to, a material misstatement of               PERFORMANCE CONDITIONS AND
with the relevant plan rules (which were                the Company’s audited results.                       TARGET SETTING
formally approved by shareholders on
                                                        In addition, clawback provisions were                The Committee reviews annually the
7 July 2015).
                                                        introduced in 2015 and apply to cash                 measures, weightings and targets for the
                                                        payments made under the Annual Bonus                 incentive arrangements for the executive
                                                        Scheme. Awards made under any of the                 directors. In doing so, the Committee
76     Marks and Spencer Group plc                      Company’s other executive share plans                considers a number of factors which assist

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in forming a view. These include, but are not           Targets are set against the respective              executives, part of the bonus is deferred
limited to, the strategic priorities for M&S            annual and long-term operating plans                into shares for three years.
over the short- to long-term, shareholder               taking into account analysts’ forecasts,
                                                                                                            Around 170 of M&S’s top senior executives
feedback, the risk profile of the business              M&S’s strategic plans, prior year
                                                                                                            may be invited to participate in the PSP,
and the macroeconomic climate.                          performance, estimated vesting levels
                                                                                                            measured against the same performance
                                                        and the affordability of pay arrangements.
The Annual Bonus Scheme is measured                                                                         conditions as executive directors. Award
                                                        Targets are set to provide a sustainable
against a balance of profitability and                                                                      levels granted are determined to be
                                                        balance of risk and reward to ensure that,
the delivery of key strategic areas of                                                                      aligned with market practice and reflect
                                                        while being motivational for participants,
importance for the business. The                                                                            an individual’s level of seniority as well
                                                        maximum payments are only made for
profitability measure used is Group PBT                                                                     as their performance and potential within
                                                        exceptional performance.
before adjusting items as this is used                                                                      the business.
internally to report and assess business
                                                        REMUNERATION FRAMEWORK FOR
performance by the Board and Operating                                                                      FIGURE 3: RECRUITMENT POLICY &
                                                        THE REST OF THE ORGANISATION
Committee. Refer to the glossary on                                                                         SERVICE CONTRACTS
pages 176 to 178 for the definition of                  M&S’s philosophy is to provide a fair
Group PBT before adjusting items, and                                                                       The table below sets out the Company’s
                                                        and consistent approach to pay.
to note 5 of the financial statements                                                                       policy on the recruitment of new executive
                                                        Remuneration is determined by level
for a description of adjusting items.                                                                       directors. Similar considerations may also
                                                        and is broadly aligned with those of the
                                                                                                            apply where a director is promoted to
The PSP is assessed against a balance                   executive directors.
                                                                                                            the Board.
of measures identified as those most                    Base salaries are reviewed annually
relevant to driving both sustainable                                                                        In addition, the Committee in exceptional
                                                        and reflect the local labour market.
top-line and bottom-line business                                                                           circumstances has discretion to include
performance, as well as providing                       All UK colleagues are eligible to                   any other remuneration component or
value for shareholders, and strategic                   participate in the Your M&S Pension                 award which it feels is appropriate,
alignment with the business.                            Saving Plan on the same terms as the                considering the specific circumstances

                                                                                                                                                               GOVERNANCE
                                                        executive directors. In addition, all UK            of the individual, subject to the limit on
This is reflected in the EPS and ROCE                   colleagues are provided with life insurance         variable remuneration set out below.
measures which focus on a balance of                    and colleague discount, and may
profitability, cost control and the                                                                         The rationale for any such component
                                                        choose to participate in the Company’s
efficient use of capital investment.                                                                        would be appropriately disclosed.
                                                        all-employee share schemes and salary
                                                                                                            For example, for internal promotional
The value delivered to shareholders is                  sacrifice arrangements.
                                                                                                            appointments to the Board, the
reflected by Relative TSR which is                      A significant number of colleagues are              Committee would honour any pre-existing
measured against a bespoke group of                     eligible to be considered to participate in         contractual remuneration arrangements;
retail companies which are believed to                  an annual bonus scheme which for the                these arrangements may be outside of
provide a balanced portfolio of those                   majority will be a cash-based payment               the Policy detailed on pages 74 to 75.
most likely to be alternative investment                partially determined by Group PBT
choices for M&S shareholders.                           performance. For M&S’s most senior
ELEMENT                APPROACH

Service                 –– All executive directors have rolling contracts for service which may be terminated by M&S giving 12 months’ notice and the
contract                   individual giving six months’ notice.
                        –– There are no further obligations which could give rise to a remuneration or loss of office payment other than those set out
                           in the Remuneration Policy and the Termination Policy.
                        –– The directors’ service contracts are available for shareholder inspection at the Company’s registered office.

Base                    –– Salaries are set by the Committee, taking into consideration a number of factors including the current pay for other executive
salary                     directors, the experience, skill and current pay level of the individual and external market forces.
                        –– For new appointments to the Board, the Committee may set the rate of pay at the lower end of the rate for other directors
                           and/or other comparable roles within the market with the intention of applying staged increases.

Benefits                –– The Committee will offer a benefits package in line with our benefits policy for executive directors.

Pension                 –– Maximum contribution in line with our policy for future executive directors (currently up to 12% of salary).
benefits

Annual Bonus            –– Eligible to take part in the Annual Bonus Scheme with a maximum bonus of 200% of salary in line with our policy for
Scheme                     executive directors.

PSP                     –– A maximum award of up to 300% of salary in line with our policy.

Buy-out                 –– Where an individual forfeits outstanding variable pay opportunities or contractual rights at a previous employer as a result
awards                     of their appointment with M&S, the Committee may offer compensatory payments or buy-out awards, dependent on the
                           individual circumstances of recruitment, determined on a case-by-case basis.
                        –– The Committee in its judgement normally intends that any such payments are made on a like-for-like basis and considers
                           issues such as the plan type, time horizons and valuation of the forfeited awards. The Committee’s intention would be to
                           ensure that the expected value awarded will be no greater than the expected value forfeited by the individual.
                        –– Where appropriate, the Committee may choose to apply performance conditions to any of these awards.
                                                                                                          Annual Report & Financial Statements 2020       77

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