Remuneration report

On behalf of the Board, I am pleased to introduce our 2013 Remuneration Report, for which we will be seeking your approval at our AGM in July 2013. The report is designed to provide you with information demonstrating the link between the Company’s strategy, performance and the remuneration outcomes for our executive directors.

The subject of executive remuneration continues to be an area of focus for shareholders and the wider public and the Remuneration Committee is aware of the sensitivities regarding executive pay at a time of continued economic challenge and uncertainty. The Committee continues to meet regularly with investors, representative bodies and Government organisations and listens carefully to their feedback. Linking pay to company performance and shareholder consultation is fundamental to the remit of the Committee and we believe that we provide a strong and independent direction on remuneration policy.

We are supportive of the Government’s drive to increase the transparency of executive remuneration reporting and to provide shareholders with greater influence over future policy. The Committee has considered these proposals and responded to the Department for Business, Innovation & Skills (BIS) consultation on revised directors’ remuneration report disclosures. Whilst the new regulations are yet to be finalised, this 2013 Remuneration Report already meets a significant number of the existing proposals, in particular with regard to simplification, transparency, separation of past pay and future policy and in providing remuneration scenarios and a ‘single figure’ of remuneration in the Unaudited section of the Remuneration Report.

The Company’s long-term remuneration strategy remains to attract and retain leaders and ensure they are focused on delivering business priorities within a framework aligned with shareholder interests. We believe that our remuneration policy provides appropriate incentives to reward performance that protects the long-term interests of our stakeholders and helps to develop an internationally successful business. The Committee also has a particularly strong focus on the remuneration for employees below Board level when determining remuneration for executive directors.

The Company has a straightforward and transparent approach to executive remuneration which is comprised of base salary, benefits, cash and shares awarded under an annual incentive scheme and shares awarded under a long-term incentive scheme. Three elements of our executive remuneration framework are performance-related and two are subject to a three year deferral or performance period in order to encourage executive directors to remain with the Company and align their interests with those of shareholders. Executive directors are also required to hold a minimum number of shares in the Company within five years of their appointment.

The focus on performance has been further emphasised by the introduction in 2013 of malus provisions within all the Company’s senior share schemes. Under the terms of the provisions, the Committee has discretion to reduce, cancel or impose further conditions on unvested awards in circumstances it considers appropriate, including for example, a material misstatement of the Company’s audited results.

The Committee has reviewed the base salary levels for executive directors in 2013 and agreed annual increases of 2% which were in line with the salary budget applying to the broader employee population. Marc Bolland has, at his own request, not received a salary increase since his appointment in 2010. He again proposed not to receive any increase in 2013, which the Committee agreed.

With regard to bonus payments, the Committee carefully considered performance during the year and the progress made against our longer-term objectives and believes that the bonus payments for executive directors are appropriate when also reviewed within the context of a challenging year for the business and wider retail sector. In addition, awards made in 2010 under the Performance Share Plan, the Company’s long-term incentive scheme, were assessed at the end of the three year performance period. The threshold target was not achieved and so all awards held by executive directors will lapse.

The Committee has also reviewed the calibration of target ranges for the Performance Share Plan to ensure they reflect the Company’s focus over the next three years. As a result, for awards granted in 2013, the EPS basis of measurement is annualised growth in EPS. The target requires double digit annual growth for maximum payout, which the Committee believes would represent exceptional performance for shareholders in the current environment.

The Committee considers that the existing senior remuneration framework introduced in 2011 remains appropriate for the current business priorities and external environment. Despite another difficult trading year, the Committee believes significant progress has been made towards the delivery of the Company’s key strategic priorities and this is reflected in the level of remuneration for executive directors in 2012/13.

Steven Holliday's signature

Steven Holliday Chairman of the Remuneration Committee