Corporate Governance     Other Information     Directors' Remuneration Report     Statement of Directors' Responsibilities     Independent Auditors' Report       PDF Downloads       Full Report     Accounts     Directors' Remuneration Report               DIRECTORS’ REMUNERATION REPORT for the financial year ended 2 February 2008   The following is a report by the Remuneration Committee which has been approved by the Board for submission to shareholders.   Composition and Terms of Reference The Remuneration Committee consists of the Group Chairman, Richard North, Andrew Beeson (Chairman), Roger Jones, David Simons, and Fru Hazlitt. Its composition and terms of reference are in line with the Combined Code. The Company complies with Section B of the Combined Code provisions on Directors’ remuneration and in respect of the Remuneration Report content. The Committee’s aim is to ensure that the Executive Directors are rewarded for their contribution to the Group and are motivated to enhance the return to shareholders. The Remuneration Committee is responsible, on behalf of the Board, for setting the remuneration policy for Executive Directors. In addition, they have regard to pay and conditions for other employees in the Group especially the arrangements for Directors of subsidiaries who are not Directors of the Company. The Committee is advised internally by the Human Resources Director and the Head of Group Reward. The Committee took into account information from various remuneration surveys and also received advice from Deloitte in respect of long term incentive plans.   Remuneration Policy The Committee continues to maintain a policy consistent with Group Reward Principles applied for all employees throughout the Group and in line with the Company’s business objectives which: • attracts, retains and motivates high calibre Directors; • is appropriate to the Company, taking into account information from independent sources and from within the retail sector as well as other companies of a comparable size; • aligns the interests of Directors and shareholders by linking share and cash incentives to performance; • complies with best practice and comprises a mix of fixed and variable pay with longer-term incentives.   When comparing remuneration packages with those in other companies, particular regard is taken of other retailers and companies whose annual turnover is similar to that of the Group. The reward principles applied throughout the Group provide for basic salaries to be set at the median for a range of comparative companies with reward for performance aimed at delivering an overall package that is competitive. For the Chief Executive, the variable, performance related remuneration, represents 58 per cent of the total package for ‘on target’ performance. For other executive directors, the variable, performance related remuneration, represents 44 per cent of the total package for ‘on target’ performance.   Components of Remuneration Basic Salary Basic salary for each Director is reviewed each year in the context of market conditions affecting executive remuneration, affordability and the level of increases awarded to staff throughout the Group. Basic salary levels are generally set at not more than the median for a range of comparative companies. During the year ended 2 February 2008, directors and colleagues in the Group generally received a salary increase of 2.5% except for increases awarded on promotion. Salaries for directors will next be reviewed in August 2008. Benefits In addition to salaries and the items described below, the Company provides a range of competitive benefits including pension, a fully-expensed car (or non-pensionable cash allowance) and private medical insurance. Service Contract The policy of the Committee is that notice periods should be set at not more than 12 months and no Executive Director currently has a service contract with a notice period longer than 12 months. Bonus Executive Directors and directors of subsidiaries participated in the Woolworths Group Annual Incentive Plan (AIP) during the year (see page 32). Richard North, the Chairman, does not participate in any incentive plans. Bonuses are non-pensionable.   Share Options Executive Share Option Schemes The Company no longer grants share options under the Woolworths Group plc 2002 Executive Share Option Scheme. For options granted in earlier years, the performance targets declared in the 2003 Directors’ Remuneration Report apply. Fully diluted, adjusted Earnings Per Share, as calculated in accordance with the Scheme rules (“Scheme EPS”), must increase by 6 per cent per annum (commencing with the Company’s financial year immediately prior to the date of grant) plus RPI over a three-year period in order for the option to be exercised in full. If this is not achieved, growth in Scheme EPS of 5 per cent per annum plus RPI over the same period is required in order for up to 50 per cent of the option to be exercised. If either of these targets is not met after the first three-year period there will be a retest one year later over a four-year period, from the same base, and the same proportion of the option will be available for exercise. If neither of the targets has been achieved after four years the option will lapse. The performance target for share options granted in March 2003 and September 2003 was not met and these options lapsed during the year ended 2 February 2008. The performance target for the options granted in March 2004 has not been met and the options lapse on the date of this report. A limit of 5 per cent (of the total issued share capital) on the number of new shares that can be issued to satisfy executive options granted under Executive Share Schemes applies over a ten-year period. At the year end, outstanding share options represented 2.3 per cent of the total share capital. Savings-Related Share Options A savings-related share option scheme (‘ShareSave’) is open to all eligible employees in the UK. The seventh grant of options under ShareSave was made in May 2007 and it is intended that options will be granted annually under this arrangement provided the scheme continues to provide a cost effective method of enabling employees to share in the success of the Group.   Incentives and bonuses Calculation of EPS in respect of share-based incentive plans is in accordance with the individual plan rules. Woolworths Group Incentive Plan The Woolworths Group Incentive Plan (WIP) was replaced by the Annual Incentive Plan (described below) in 2004. Executive Directors previously had an opportunity to defer receipt of their declared bonus for three years, at the completion of which it is matched by 25 per cent in shares which are purchased in the market at the time of the election to defer. The outstanding share awards made to Executive Directors are shown on page 38. The Woolworths Group Annual Incentive Plan Executive Directors, Directors of subsidiaries and other senior employees participate in the Plan. It operates on an annual basis and participants do not participate in any other annual bonus schemes.   The Plan provides for two types of Award: • a Cash Award, which is paid after the end of the financial year and which, for Executive Directors is based on the achievement of financial targets and meeting personal objectives. The Cash Award for the Chief Executive will be 60% at target rising to a maximum of 120%. For other Executive Directors, the Cash Award will be 40% at target rising to a maximum of 80%. The main financial targets are Group profit, operating company profit, sales, cash targets, stock, margin and costs; • a Share Award, which is made after the end of the financial year and which is based on the achievement of Group financial targets. For Executive Directors the Share Award for achieving target performance is 20 per cent of salary rising to a maximum of 40 per cent for exceptional performance. Shares comprised in a Share Award will be held in an employee share trust for a vesting period of three years. At the end of the vesting period a multiplier will be applied if a performance target is met. For on target performance the multiplier for Executive Directors will be 1.3 rising to a maximum of two for exceptional performance. If a participant leaves the Company during the vesting period no multiplier will apply. On a change of control of the Company the Committee will determine whether the multiplier will apply taking into account the performance from the Award date to the date on which the change of control occurs.   The Committee considers it important that Directors and senior employees focus on delivering annual targets set each year. Cash Awards and Share Awards are based on the achievement of these targets. The performance measure for the multiplier is growth in adjusted, fully diluted Earnings Per Share from continuing operations (“Plan EPS”). Awards for the year ended 2 February 2008 Awards are earned both for the achievement of financial targets and meeting personal objectives. The main financial targets are Group profit, operating company profits, cash and stock. The Group profit was in line with expectations and the performance of operating companies was mixed. The Cash Award for the Chief Executive reflects an increase in adjusted Group profit of 29.8%. Cash and stock targets were not fully met and the overall bonus rate was therefore reduced. The bonus rate for the Group Finance Director was similarly affected and the total Cash Awards percentages are 29% for the Chief Executive and 15% for the Group Finance Director. Cash Awards for other Executive Directors also reflected the improvement in Group profit and a similar improvement in the performance of Woolworths plc. Profit at Entertainment UK Limited did not improve. Cash and stock targets were also missed thus reducing bonus rates. The outcome in Woolworths plc is that the Managing Directors of Retail and Distribution, and Commercial and Supply Chain, are each due a bonus of 25% of salary. The Managing Director of Entertainment UK Limited left the Company on 31 January 2008 and his bonus rate is 23.5%. The Group profit is in the range set for Share Awards (the lower end of the range was not reached in the previous year) and Share Awards at 13.5% are due for Executive Directors. The Core Share Award may increase by a multiplier of between 1.3 and 2.0 provided that performance targets are met. As in previous years when share awards have been made, the target is Plan EPS. For growth in Plan EPS of 2 per cent per annum over three years (in addition to the increase in the Retail Prices Index), the multiplier will be 1.3 rising to a maximum of 2.0 if the Plan EPS growth over three years is 5 per cent per annum (in addition to the increase in the Retail Prices Index). No extra shares will be awarded if Plan EPS growth over three years is less than 2 per cent per annum and there will be no retesting if this not achieved. Awards for the year ending 31 January 2009 The Cash Award will again be based on the achievement of financial targets and meeting personal objectives. The main financial targets are Group profit, operating company profit, cash and stock. The Cash Award for the Chief Executive will be 60% at target rising to a maximum of 120%. For other Executive Directors, the Cash Award will be 40% at target rising to a maximum of 80%. Share Awards, to be made after the end of the financial year, will also be based on the achievement of Group profit targets with additional shares awarded on the basis described above. For Executive Directors, the target Share Award will be 20% of salary rising to a maximum of 40%. Matching shares will also be subject to Plan EPS performance targets to be set when the Share Award is made. In the event of a change of control of the Company, the Committee may consider it appropriate to waive the performance targets for the Chief Executive’s Awards so that the Chief Executive receives a cash bonus of up to 100% of salary in lieu of any other Cash or Share Awards that may be payable for that year under the Plan. The Woolworths Group Performance Share Plan Executive Directors and Directors of subsidiaries participate in this Plan. It provides for participants to receive an Award of Shares every six months, after the announcement of annual and half-yearly results. For Executive Directors the value of the shares comprised in each Award will be equal in value to 20 per cent of basic salary at the date the Award is made. The shares will be held in an employee trust for a vesting period of three years. For exceptional performance the Award may increase to 50 per cent of salary. Awards made to Executive Directors during the year to 2 February 2008 are shown on page 38. For Awards to be made during the financial year ending 31 January 2009, there will be two performance criteria. One half of the Awards will vest if Plan EPS targets are met and one half will be dependent on the Total Shareholder Return (TSR) performance. The minimum increase in Plan EPS will be 2 per cent per annum (in addition to the increase in the Retail Prices Index). TSR will be measured against the FTSE General Retailers Index with vesting only if the Company is at the median or above. The following tables illustrate the targets.   Increase in EPS Award (% of salary) Less than 2% 2% 3% 4% 5% 6% nil 5% 10% 15% 20% 25%   TSR Performance Award (% of salary) Below median nil Median – 60th per centile 61st – 70th per centile 71st – 80th per centile Upper quintile nil 5% 10% 15% 25%   Performance targets for awards made under the Plan in 2005 have not been met and these awards have now lapsed.   Special Arrangements for the Chief Executive In 2005, the Company introduced special incentive arrangements for the Chief Executive. These included a three year share-based Plan which could deliver shares equal in value to three times salary (as at 30 June 2005) in June 2008. Two-thirds of the total award (a maximum of 2,651,934 shares) is linked to the Company’s TSR performance vs. the General Retailers Index. No vesting will occur unless this performance is at least at the median with a maximum award if the Company performs in the top 20% of this peer group. The remaining one-third of the total award (1,325,967 shares) will vest provided that the Chief Executive is still employed by the Company on 30 June 2008 and conditional on him retaining his existing shareholding in the Company until that date. The number of shares awarded was based on a price of 36.2p per share being the average share price over the period of one month prior to 30 June 2005. No new shares will be issued in respect of this Plan.   Special Share Award for Tony Page As part of the package agreed when Mr Page joined the company, he received an Award of shares equal in value to £300,000. The number of shares awarded was based on a share price of 31.5p per share being the share price on 1 September 2006. This Award will vest on 31 August 2009, provided that he remains in employment with the company. This Award was made partly to compensate Mr Page for incentives with his previous employer which he forfeited when he joined the company. No new shares will be issued in respect of this Plan.   Management Investment Plan for Senior Executives A Management Investment Plan was established in June 2005, which provides the directors of subsidiary companies and selected members of senior management (52 individuals in total) with an opportunity to invest their own money in the Company’s shares. No Executive directors participate in the Plan. The maximum investment for each individual was dependent on their grade and the highest amount that a director of a subsidiary company could invest was £20,000. Over £500,000 was invested in total and participants will become entitled to awards of matching shares each year for three years, provided that profit targets are met and that the participant does not dispose of any of the purchased shares. At the first anniversary of the initial investment a matching share award of 50% of the shares purchased was made which will vest on 30 June 2008. The profit targets set in 2005 and 2006 have not been met but a further matching award will become due on 30 June 2008. All the share allocations will be released to participants who remain employed in the Group after three years and the Company will not issue any new shares in respect of this Plan.   Performance Graph The Committee is required to include a graph showing the Total Shareholder Return (‘TSR’) for the Company against an appropriate index. The Committee has decided that the Index of General Retailers is appropriate for this purpose.     Average taken over 30 trading days prior to the year end.   Service Contracts   Effective Date of contract Notice Period from Director Notice Period from Company Provision for compensation on early termination Director Trevor Bish-Jones Stephen East Steve Lewis Tony Page 18/03/02 01/07/05 10/06/05 01/09/06 6 months 6 months 6 months 6 months 12 months 12 months 12 months 12 months see below see below see below see below   The service agreement of Executive Directors can be terminated by the Company giving 12 months written notice and by the Director giving six months written notice. There are no special terms that apply on early termination. The service agreements of Executive Directors also contain post-termination restrictive covenants and a provision which permits the Company either to require the Director to perform duties outside the Director’s normal duties or not to provide the Director with work during the notice period. During the year, Trevor Bish-Jones served as a Non-Executive Director elsewhere and has retained earnings of £45,667 in respect of this service. Stephen East also served as a Non-Executive Director elsewhere and has retained earnings of £71,250 in respect of this service.   Non-Executive Directors Non-Executive Directors’ remuneration consists of an annual fee for their services as members of the Board and of selected Committees. They do not have service contracts but instead have letters of appointment for a three-year period. During that period, the appointment may be terminated by either party giving three months prior written notice. For Andrew Beeson and Roger Jones, the three year period ends on 31 May 2010. David Simons was appointed on 1 September 2005 for three years until 31 August 2008 and Fru Hazlitt was appointed on 17 January 2006 for three years until 16 January 2009. The Chairman, Richard North was appointed on 9 October 2006 for three years until 8 October 2009. Non-Executive Directors’ remuneration is determined by the Board.   Directors’ Interests in Shares   2008 Ordinary shares 2007 Ordinary shares Andrew Beeson Trevor Bish-Jones Stephen East Fru Hazlitt Roger Jones Steve Lewis David Simons CBE Tony Page Richard North 250,000 682,944 400,000 50,000 166,252 203,557 2,000 30,000 10,000 206,115 462,402 100,000 Nil 139,011 39,246 Nil 10,000 Nil   Auditable information The following information has been audited by the Company’s auditors, as required by Schedule 7A to the Companies Act 1985.   Directors’ Remuneration – for year or from date of appointment   Salary £'000 Pension Supplement £'000 Bonus £'000 Benefits £'000 Compensation for loss of office £'000 2008 Total £'000 2007 Total £'000 Executive               Gerald Corbett (resigned 6 June 2007) 69         69 200 Trevor Bish-Jones 503 116 154 26   799 797 Stephen East 314 45 48 21   428 458 Steve Lewis 304 33 78 21   436 397 Lloyd Wigglesworth (resigned 31 January 2008) 277 21 66 29 306 699 473 Tony Page (appointed 1 September 2006) 304 46 78 21   449 376 Total 1,771 261 424 118 306 2,880 2,701 Non Executive               Richard North (Chairman) (appointed 9 October 2006) 186         186 11 Andrew Beeson 42         42 41 Roger Jones 42         42 41 Prue Leith OBE (resigned 14 June 2006)             13 David Simons CBE 36         36 36 Fru Hazlitt 36         36 36 Total 342         342 178   Notes Benefits incorporates all taxable benefits and expense allowances arising from employment and relate mainly to the provision of a company car and the cost of medical insurance. Lloyd Wigglesworth left the Company on 31 January 2008. Following the end of the financial year he received a sum of £306,236 under the terms of a compromise agreement. This sum represents one year’s salary plus pension supplement for one year as provided under the terms of his service contract.   Directors’ Share Options             Number of options     Executive Share Option Schemes Date of Grant At start of year/ date of appointment Granted during year Exercised during year Lapsed during year At end of year/ date of cessation Option exercise price pence Date from which exercisable Expiry date Trevor Bish-Jones 24/04/02 60,000       60,000 50.0 24/04/05 23/04/12   24/04/02 2,040,000       2,040,000 50.0 24/04/05 23/04/12   11/09/02 595,238       595,238 31.5 11/09/05 10/09/12   27/03/03 655,738     655,738   30.5 27/03/06 26/03/13   11/09/03 505,747     505,747   43.5 11/09/06 10/09/13   25/03/04 530,120       530,120 41.5 25/03/07 24/03/14 Total   4,386,843     1,161,485 3,225,358       Steve Lewis 26/09/01 63,360       63,360 30.5 26/09/04 25/09/11   26/09/01 285,246       285,246 30.5 26/09/04 25/09/11   24/04/02 127,500       127,500 50.0 24/04/05 23/04/12   11/09/02 222,619       222,619 31.5 11/09/05 10/09/12   27/03/03 257,787     257,787   30.5 27/03/06 26/03/13   11/09/03 185,632     185,632   43.5 11/09/06 10/09/13   25/03/04 204,819       204,819 41.5 25/03/07 24/03/14 Total   1,346,963     443,419 903,544       Lloyd Wigglesworth 25/03/04 72,289       72,289 41.5 25/03/07 24/03/14   25/03/04 168,373       168,373 41.5 25/03/07 24/03/14 Total   240,662       240,662         ShareSave Date of Grant At start of year/ date of appointment Granted during year Exercised during year Lapsed during year At end of year/ date of cessation Option exercise price pence Date from which exercisable Expiry date Trevor Bish-Jones 28/05/04 9,308     9,308   40.5 01/08/07 31/01/08   27/05/05 5,263       5,263 36.0 01/08/08 31/01/09   02/06/06 11,333       11,333 33.0 01/08/09 31/01/10   01/06/07   12,600     12,600 30.0 01/08/10 31/01/11 Total 25,904   12,600   9,308 29,196       Stephen East 02/06/06 11,333       11,333 33.0 01/08/09 31/01/10 Total   11,333       11,333       Steve Lewis 28/05/04 9,308     9,308   40.5 01/08/07 31/01/08   27/05/05 5,263       5,263 36.0 01/08/08 31/01/09   02/06/06 11,333       11,333 33.0 01/08/09 31/01/10   01/06/07 12,600       12,600 30.0 01/08/10 31/01/11 Total   25,904 12,600   9,308 29,196       Lloyd Wigglesworth 27/05/05 10,527       10,527 36.0 01/08/08 31/01/09   02/06/06 11,333       11,333 33.0 01/08/09 31/01/10 Total   21,860       21,860         Executive share options granted to Lloyd Wigglesworth have lapsed on the date of this report. He remains entitled to exercise part of his ShareSave options until 31 July 2008.   Directors’ Share Awards         Number of shares       Woolworths Group Incentive Plan Date of Award At start of year/ date of appointment Awarded in year Vested during year Lapsed during year At end of year/ date of cessation Award price per share Date from which restrictions lift Trevor Bish-Jones 31/03/04 119,563   119,563     40.5 31/03/07 Total   119,563   119,563         Steve Lewis 31/03/04 24,259   24,259     40.5 31/03/07 Total   24,259   24,259                 Number of shares     Woolworths Group Performance Share Plan Date of award At start of year/ date of appointment Awarded in year Lapsed during year At end of year/ date of cessation Award price per share Date from which restrictions lift Trevor Bish-Jones 09/09/04 218,182   218,182   44.00 09/09/07   19/04/05 249,351     249,351 38.50 19/04/08   20/10/06 288,889     288,889 36.00 20/10/09   12/04/07   340,984   340,984 30.50 12/04/10   24/09/07   533,000   533,000 20.00 24/09/10 Total   756,422 873,984 218,182 1,412,224     Stephen East 28/09/05 175,182     175,182 34.25 28/09/08   27/04/06 182,353     182,353 34.00 27/04/09   20/10/06 172,222     172,222 36.00 20/10/09   12/04/07   203,279   203,279 30.50 12/04/10   24/09/07   317,800   317,800 20.00 24/09/10 Total   529,757 521,079   1,050,836     Steve Lewis 09/09/04 34,943   34,943   44.00 09/09/07   19/04/05 127,273     127,273 38.50 19/04/08   28/09/05 143,066     143,066 34.25 28/09/08   27/04/06 160,588     160,588 34.00 27/04/09   20/10/06 166,667     166,667 36.00 20/10/09   12/04/07   196,722   196,722 30.50 12/04/10   24/09/07   307,500   307,500 20.00 24/09/10 Total   632,537 504,222 34,943 1,101,816     Tony Page 20/10/06 166,667     166,667 36.00 20/10/09   12/04/07   196,722   196,722 30.50 12/04/10   24/09/07   307,500   307,500 20.00 24/09/10 Total   166,667 504,222   670,889     Lloyd Wigglesworth 09/09/04 41,761   41,761   44.00 09/09/07   19/04/05 137,662   137,662   38.50 19/04/08   28/09/05 154,745   154,745   34.25 28/09/08   27/04/06 160,588   160,588   34.00 27/04/09   20/10/06 151,667   151,667   36.00 20/10/09   12/04/07   179,017 179,017   30.50 12/04/10   24/09/07   280,000 280,000   20.00 24/09/10 Total   646,423 459,017 1,105,440         All Share Awards made to Lloyd Wigglesworth under the Woolworths Group Performance Share Plan lapsed at the date of his ceasing to hold office.   Directors’ Share Awards (cont’d)