I am pleased to present the remuneration report for the financial year ended 30 January 2011 for which we will be seeking approval from shareholders in June 2011.
As you are aware, we made some important changes to Morrisons remuneration policy last year to deliver appropriately structured remuneration arrangements which are aligned with Morrisons key strategic priorities and the market. I am pleased to say that we received a strong vote in favour of last year's remuneration report at the 2010 Annual General Meeting (AGM). While there have been no major changes to the remuneration policy during 2010/11 and none are anticipated for 2011/12, the main points to note are as follows:
- base salary levels were reviewed in January 2011. On 1 February 2011, Richard Pennycook received an increase to base salary from £540,750 to £570,000 to reflect additional business development and strategic responsibilities. The base salaries for Dalton Philips and Mark Gunter are unchanged;
- following a review of the 2010/11 annual bonus arrangement, the Committee concluded that the current structure remains appropriate for 2011/12. The strong focus on delivering profit growth, supported by the achievement of a number of key strategic initiatives and personal performance objectives, will therefore continue for 2011/12. Following a strong overall performance during the year, actual bonus payments for the year ended 30 January 2011 were 44.7% of the maximum potential based on profit, 90% of the maximum potential based on scorecard measures and between 74% and 100% of the maximum potential based on personal objectives;
- the structure of long term incentive arrangements, delivered through the Long Term Incentive Plan, remains unchanged. The Committee is of the view that the award levels and the performance metrics/ targets, based on earnings per share and relative like-for-like sales growth which were applied to the 2010 awards, remain appropriate for the awards to be granted in 2011;
- as a result of Marc Bolland's resignation as Chief Executive towards the end of the 2009/10 financial year, the Remuneration Committee considered it critical to secure Richard Pennycook's services as Group Finance Director. Following consultation with a number of the Company's largest shareholders at that time, the appointment of the Chief Executive and completion of his strategic review, the Committee agreed that Richard Pennycook should be granted an award over restricted shares worth £1,250,000 in March 2011 which will vest on the second anniversary of grant, subject to continued employment and the Group's Underlying EPS growth meeting or exceeding the growth in the Retail Prices Index over the period to the end of the 2012/13 financial year. While this is an unusual arrangement, the Committee considers that the granting of this award is in the long-term interests of shareholders and is appropriate; and
- following a review of the Non-Executive Chairman's role, responsibility levels and time commitment, Sir Ian Gibson's fee, which had remained unchanged since it was set in September 2007, was increased from £300,000 to £375,000 with effect from 1 July 2010.
Following the changes made to the policy last year, the Remuneration Committee is now satisfied that the current remuneration arrangements meet the stated polices of encouraging a strong performance culture, emphasising long term shareholder value creation and being positioned competitively in relation to major competitors to enable the Company to attract, retain and motivate the best talent. Strong linkage has also been created between the annual bonus measures for 2011/12 and achievement of the major deliverables of the Group's new Operational Plan 'Different and Better than Ever'.
During 2010/11, the Committee has also dealt with the following Board changes:
- on 9 September 2010, Martyn Jones stepped down from the Board, switching roles from the Group Trading Director to the Group Corporate Services Director; and
- on 31 January 2011, the Company announced Mark Gunter's intention to retire, stepping down from the Board at the 2011 AGM.
Details surrounding the remuneration arrangements for Martyn Jones and the retirement arrangements for Mark Gunter are set out in the Directors' remuneration report which follows.
Finally, as this is my last remuneration report following the announcement that I will step down from the Board on 9 March 2011, I would like to thank my fellow Committee members for their support over the last year. Going forward, Johanna Waterous will chair the Remuneration Committee.
Chair of the Remuneration Committee
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