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46 Directors’ remuneration report Kingfi sher plc Annual Report and Accounts 2009/10 The maximum bonus is considered in the light of market practice for companies of a similar size and industry section. The maximum bonus payable is 200% of salary, which remains unchanged from last year. The executive directors’ targets for the 2009/10 bonus were based on both corporate and individual objectives and were structured equally between fi nancial and non-fi nancial measures, as in the previous year. In 2009/10, the Committee considered the potential for the global economic weakness to worsen and agreed the two fi nancial measures for the year would be: reduction of Group net debt with the overall aim to achieve self-fi nancing in the year, and cash generation, together having 50% of the maximum bonus opportunity. The non-fi nancial measures were also amended to uplift the weighting on KPIs to 30% from 20% of the maximum bonus opportunity, and the corresponding reduction in the weighting of personal performance objectives from 30% to 20% of the maximum bonus opportunity. Group Personal Measure Net Debt Cash fl ow Performance KPIs Weighting at maximum bonus 25% 25% 20% 30% The non-fi nancial measures included corporate key performance indicators (KPIs) aligned to Kingfi sher’s seven steps to ‘Delivering Value’, plus additional targets addressing improvements in internal fi nancial controls and employee engagement, and personal performance. The outcomes achieved against each measure are summarised below. Ian Cheshire Kevin O’Byrne Actual Bonus Actual Bonus Earned as a % of Earned as a % of Measure Annual Basic Salary Annual Basic Salary Financial Objectives 100 100 Non-Financial Objectives 97.4 97.4 Total 197.4 197.4 Further details of the awards under the KIS Cash and KIS Share scheme refl ecting these outcomes for 2009/10 are set out on pages 47 and 48. The structure of the bonus plan for 2010/11 will remain broadly the same, although the only fi nancial objective will be Group operating cashfl ow. Long-term incentive The PSP remains the primary long-term incentive for the top senior executives, which offers a maximum award not exceeding 200% of base salary. The plan runs over a period of three years and has performance hurdles requiring Kingfi sher’s TSR to exceed median level of TSR measured against the FTSE 100, and adjusted earnings per share (EPS). Relative TSR was considered to remain a valid benchmark as it measures the performance of executives in terms of delivery of shareholder return against that of other businesses. The Committee chose the FTSE 100 as the comparator group because of the general lack of directly quoted home improvement businesses against which to compare the Company’s TSR specifi cally. HNBS independently carries out the relevant TSR calculations for the Committee. This relative measure is coupled with EPS as a driver for absolute performance. The TSR and EPS performance targets for all PSP awards for the 2009/10 year were: TSR performance target EPS performance target Percentage of this Percentage of this part of the award 50% EPS at part of the award of performance the end of the of performance 50% TSR at the end of the Performance Period shares that will vest Performance Period shares that will vest Less than median plus 1 percentage point Nil Less than 15.9p Nil Median plus 1 percentage point 15.625% 15.9p 15.625% Between median plus 1 percentage point Straight-line vesting between Between 15.9p Straight-line vesting and upper quintile plus 1 percentage point 15.625% and 100% and 17.0p between 5.625% – 50% Upper quintile plus 1 percentage point 100% 17.0p 50% Between 17.0p and 19.6p Straight-line vesting between 50% – 100% 19.6p 100% Performance Shares receive a dividend roll-up calculated on the basis of a notional purchase of shares on each relevant ex-dividend date using that day’s closing mid-market price. Shares used to satisfy awards under a plan are normally purchased in the market through an employee benefi t trust. Under the KIS Multiplier, awards made in 2006 to Ian Cheshire lapsed during the year as the TSR of the Company over the subsequent three years was below the median of the comparator group. Details are set out on page 50.
Kingfi sher plc Annual Report and Accounts 2009/10 47 Under the PSP, the annual grant of provisional awards of Performance Shares to executive directors are made after the publication of the annual results. Details of the awards granted during 2009/10 in respect of the prior year are set out on page 49. Details of awards made in respect of the 2009/10 year will be reported in the 2010/11 report. The awards will continue to be split between EPS and TSR, however EPS targets to 2013 have been agreed as follows: TSR performance target EPS performance target Percentage of this Percentage of this part of the award 50% EPS at part of the award of performance the end of the of performance 50% TSR at the end of the Performance Period shares that will vest Performance Period shares that will vest Less than median plus 1 percentage point Nil Less than 20p Nil Median plus 1 percentage point 15.625% Between 20p and 23p Straight-line vesting between 15.625% – 100% Between median plus 1 percentage point Straight-line vesting and upper quintile plus 1 percentage point between 15.625% and 100% 23p 100% Upper quintile plus 1 percentage point 100% Other long-term incentive plans Apart from the Save As You Earn Option Scheme and those described above, all other option and incentive arrangements have been discontinued, but awards made under these schemes in previous years will vest over time in accordance with the rules governing the various plans. The details are shown in the section entitled Closed Incentive Plans on page 50. Pension provision Ian Cheshire is a member of the main defi ned benefi t funded arrangement, the Kingfi sher Pension Scheme, and subject to the scheme cap. Following his appointment as Group Chief Executive, Ian Cheshire also receives a 30% Company contribution, on his salary above the pension cap, into defi ned contribution arrangements. Kevin O’Byrne commenced after the defi ned benefi t section had closed to new members and thus is a member of the defi ned contribution arrangements and receives a Company contribution of 20% of salary. Share ownership guidelines The Group Chief Executive and Group Finance Director are required to build a shareholding in the Company equivalent to 200% of base salary and 100% of base salary respectively. Kevin O’Byrne has a fi ve-year period from the date of his appointment as Group Finance Director, on 1 October 2008, to accumulate his threshold shareholding, whilst Ian Cheshire has fi ve years from the date of his appointment as Group Chief Executive, on 24 January 2008, to increase his shareholding in order to meet the new threshold shareholding equal to 200% of base salary. Shares which have not yet vested under long term incentive plans are not taken into account in applying this test. Under the Company’s formal share ownership guidelines, Ian Cheshire and Kevin O’Byrne are prohibited from selling shares obtained through the KIS Share scheme and long-term incentive plans including the PSP (except to meet tax obligations) until they meet this minimum holding. The Committee believes that this requirement will ensure that executives acquire a signifi cant personal interest in Kingfi sher shares, effectively aligning executives’ and shareholders’ interests and encouraging a long-term view of performance. As at 29 January 2010, based on that day’s closing price of 212.3p, Ian Cheshire’s shareholding of 410,792 shares represented 109% of his basic salary of £800,000 (his holding of 375,177 shares at 1 February 2009 represented 99.6% of his basic salary of £800,000 using the 29 January 2010 share price). Kevin O’Byrne’s shareholding of 112,994 shares represented 41.7% of his basic salary of £575,000 (his holding of 112,994 shares at 1 February 2009 represented 41.7% of his basic salary of £575,000 using the 29 January 2010 share price). Executive directors’ remuneration The remuneration paid to the executive directors for the 2009/10 fi nancial year is set out in the table below: Total remuneration 1 £000 Base salary Total benefi ts 2 Cash bonus 3,4 2009/10 2008/09 Ian Cheshire 800.0 239.1 1,073.7 2,112.8 1,636.9 Kevin O’Byrne 575.0 143.1 771.8 1,489.9 709.9 5,6 Total 1,375.0 382.2 1,845.5 3,602.7 2,346.8 1 The long-term incentive plan did not meet performance conditions in 2009/10 and did not vest. Accordingly, the long-term incentive plan does not fi gure in the table of executive directors’ remuneration. 2 Total benefi ts include a contribution to defi ned contribution pension arrangements for both Ian Cheshire and Kevin O’Byrne. Non-cash benefi ts comprise medical and life insurances and the provision of fi nancial advice. Ian Cheshire receives a company car and a cash payment as he has not taken the full entitlement of his allowance for his car. Kevin O’Byrne receives a cash payment in lieu of a company car. 3 The contingent shares award under the KIS Share scheme in relation to the fi nancial year ended 30 January 2010 are set out in the table under KIS Share awards. 4 The annual base salaries of the executive directors as at 24 March 2010 are £816,000 for Ian Cheshire and £586,500 for Kevin O’Byrne. The bonus calculation for 2009/10 has been based on these salaries. 5 Kevin O’Byrne’s remuneration in 2008/09 refl ects his service from 1 October 2008 to 31 January 2009. 6 This fi gure has been restated from the £671,600 disclosed in last year’s report, to include the £38,333 employer contributions made to the defi ned contribution scheme.
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