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Directors' remuneration report
(c) Share option and long term incentive plans
Share option and long term incentive plan grants to directors are set out here.
(i) Executive share option plans
Shareholders gave approval in 2003 to the Signet Group plc
International Share Option Plan 2003, the Signet Group plc UK Inland
Revenue Approved Share Option Plan 2003 and the Signet Group plc
US Share Option Plan 2003 (the "2003 Plans") which replaced the
Signet Group plc 1993 Executive Share Option Scheme (the "1993
Scheme") under which no further options may be granted (all together
the "Executive Share Option Plans").
Options granted under the Executive Share Option Plans that have passed the necessary performance conditions are normally only exercisable between three and ten years from the date of grant, after which the options lapse.
The conditions as they apply are set out below:
UK executive directors
For UK executive directors the personal performance of participants
will be assessed on each occasion that share option grants take place
and will be reflected in the level of the individual awards. In addition,
grants awarded to executive directors are subject to exercise
conditions as follows:
| Level of grant | Required annual rate of compound growth in earnings per share(1)above inflation(2) |
||
|---|---|---|---|
| Up to 200% of base salary | +3% | ||
| 201% to 400% of base salary | +4% | ||
(1)Normalised earnings per share as defined by the Institute of Investment Management and Research.
(2)Defined as the UK Retail Prices Index.
US executive directors
For US executive directors there is a pre-grant test based on both
personal and corporate performance as described below. In addition
grants awarded are subject to a post-grant exercise condition
requiring that the annual compound growth in earnings per share be
more than 3% above inflation.
UK and US executive directors
For grants made to both UK and US executives performance will be
measured initially over three years from the start of the financial year
in which the award is made. For grants awarded up until 2005/06,
performance may be retested in accordance with the retest provisions.
For grants beginning with those awarded in 2006/07 all retesting in the
measurement of performance target achievement has been eliminated.
All grants awarded below the main board from 2007/08 and beyond are not subject to performance based conditions for vesting.
Grants to executive directors
Awards are based on principles 2(iv), 2(v), 2(vi) (set out here), a
comparative remuneration survey and a review of the performance of
both the Group and the executive directors over the prior three years.
Before any share option grant is made to the US executive directors, the Remuneration Committee has to satisfy itself that the demanding pre-grant conditions have been achieved. This requires affirmation: (i) that the Group's business performance has been superior to that of its industry sector; and (ii) that the US executive directors' personal performances continue to be of the highest standard.
On the basis of continuing outperformance and acknowledged management achievements, the Remuneration Committee concluded that the Group Chief Executive and Group Finance Director continued to merit total remuneration towards the upper end of the range determined by the remuneration principles. Based on relevant surveys conducted, in both the US and the UK, this included a share option grant equivalent to four times base salary for the Group Chief Executive and a grant of options amounting to 120% of base salary for the Group Finance Director. Similarly, on the basis of survey data and performance the Chief Executives of the UK and the US divisions were awarded grants of options amounting to 80% and 160% of base salary respectively.
Scheme amendments to executive share option plans
Certain provisions of the Executive Share Option Plans may be amended
by the Board, although a number of basic provisions (and in particular
most of the limitations on individual participation, the number of shares
and the percentage of share capital that can be issued thereunder)
cannot be altered to the advantage of the participants except with the
approval of shareholders or in accordance with the adjustment provisions
in the share option plans. In 2007 the Remuneration Committee
approved an amendment to the Executive Share Option Plans to
ensure compliance with Section 409A of the United States Internal
Revenue Code of 1986, as amended, where appropriate.
As the pre-determined performance conditions relating to the options over shares that were granted in fiscal 2005/06 were not met none of the options vested in 2007/08. However they are subject to retest in 2008/09 and 2009/10. The retesting provisions were removed from all option grants with effect from those granted in fiscal 2006/07.
(ii) All employee share plans
In 1998 the Group introduced an Inland Revenue approved savings
related share option scheme for UK employees (the "Sharesave
Scheme"), a US Section 423 Plan (the "Employee Stock Savings Plan")
and a savings related share option scheme for employees in the
Republic of Ireland (the "Irish Sharesave Scheme"). These schemes give
those employees with qualifying service the opportunity to participate in
the equity of the Company, with the aim of aligning the interests of
employees with those of shareholders. Shareholder approval will be
sought to extend for an additional period of ten years the all employee
share plans at the annual general meeting to be held in June 2008 as
the existing plans would otherwise expire this year.
The options granted under the Sharesave Scheme and the Irish Sharesave Scheme are normally exercisable between 36 and 42 months from the date of the relevant savings contract. Options are granted under these schemes at a price approximately 20% below the middle market price of the shares on the London Stock Exchange on the dealing day prior to the date that employees are invited to participate in them.
The options granted under the Employee Stock Savings Plan are normally exercisable between 24 and 27 months from the date of grant. The options under this plan are granted at a price approximately 15% below the middle market price of the shares on the London Stock Exchange on the date of grant. The period of exercise and the discount allowed vary from the UK due to different legal regulations in the US.
(iii) Long term incentive plan
Shareholders gave approval, in 2005, to the Signet Group plc 2005
Long Term Incentive Plan ("LTIP") which was a replacement for the
Signet Group plc 2000 Long Term Incentive Plan, that expired in 2005
(together the "LTIPS").
The LTIP provides for the Remuneration Committee to make long term incentive awards subject to performance targets. To the extent the performance targets are satisfied the participant will receive a combination of the grant of an option over shares in the Company and cash. The share options will normally be exercisable within ten years of the original award date.
In a similar way to the setting of performance targets for the annual bonus, and for the reasons already explained, the conditions have to be motivational, achievable and challenging in the context of the market conditions and therefore the targets for 2008/09 have been adjusted.
The performance conditions, which will be set by the Remuneration Committee at the beginning of each three-year performance period are based on:
- the compound annual growth in profit before tax of the Group, or in operating profit of the relevant division as appropriate, above, a threshold inflation level; and
- ROCE of the Group or relevant division as appropriate.
The LTIP does not allow retesting of the performance targets and allows only a pro-rated release of an award, where a participant leaves early for good reasons or there is a change of control. The performance targets must in any event be satisfied before any release is made in all cases.
In each case performance is measured over a fixed period of three successive financial years starting with the one in which the award is made. Nothing is payable under the award unless both minimum performance conditions are achieved. If the performance conditions are achieved the award will vest and its value will depend on the extent to which the minimum performance conditions are exceeded:
- if Profit Growth exceeds the minimum threshold inflation level, the amount of the award will be calculated on a straight line basis from that level up to a specified inflection point, which for 2008/09 is 8%, at which point 37.5% of the award will vest, and then at an accelerated rate on a straight line basis up to the maximum level of award at 12%. This maximum is equal to a specified percentage of base salary at the time at which the award vests.
- if the minimum threshold inflation level of Profit Growth is achieved but the maximum award has not been earned, then the award may be increased on the basis of the ROCE performance. In no event, however, can any such increase result in the applicable maximum award amount stated in the preceding paragraph being exceeded.
The table at the top of the next page shows the percentages and the inflection points which have been specified for the existing awards and indicates the relevant profits and ROCE to be used for measurement. The table in the middle of the next page shows the percentages of salary to be paid to the executive directors for exceeding the specified profit growth and the percentages of salary paid for every 0.5% ROCE exceeds the specified level.
LTIP performance criteria
Click on image to zoom in
Executive directors performance criteria
| Profit growth | % Salary paid for profit growth | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| Terry Burman | Walker Boyd | Robert Anderson |
Mark Light | ||||||
| 08/09 | 07/08 | 08/09 | 07/08 | 08/09 | 07/08 | 08/09 | 07/08 | ||
| Inflection point | 59.25 | 59.25 | 28.9 | 28.9 | 25.5 | 25.5 | 37.5 | 37.5 | |
| Maximum vesting | 158.0 | 158.0 | 77.0 | 77.0 | 68.0 | 68.0 | 100.0 | 100.0 | |
| ROCE performance | % Salary for each 0.5% ROCE exceeds specified level | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| Terry Burman | Walker Boyd | Robert Anderson |
Mark Light | ||||||
| 08/09 | 07/08 | 08/09 | 07/08 | 08/09 | 07/08 | 08/09 | 07/08 | ||
| 11.3 | 11.3 | 4.6 | 4.6 | 2.7 | 2.7 | 8.0 | 8.0 | ||
When the performance conditions have been satisfied, 50% of the amount which vests will be payable in cash and the other 50% will consist of the grant of an option to acquire shares in the Company, the number of shares in both cases being determined by using the middle market price on the day preceding the grant of the award. For the 2005/06, 2006/07 and 2007/08 awards, that share price was, 112.60p, 106.00p and 124.42p respectively. The participants can normally exercise their option at any time after vesting until the tenth anniversary of the grant of the award.
The share price for the awards was fixed following the announcement of the preliminary results.
As the pre-determined performance conditions relating to the LTIP awards made in fiscal 2005/06 were not met, none of the options vested in 2007/08 and none of the cash element was payable.