The Board
The Board is chaired by Philip Hampton, who was appointed Chairman on 19 July 2004. At 16 May 2006, the Board consisted of two Executive Directors and six Non-Executive Directors, in addition to the Chairman. Dr John McAdam, Chief Executive of ICI plc, was appointed Senior Independent Director on 1 September 2005. Darren Shapland was appointed to the Board as Chief Financial Officer on 1 August 2005, replacing Roger Matthews who retired from the Board on 24 June 2005. June de Moller retired from the Board with effect from 1 September 2005. Anna Ford joined the Board on 2 May 2006. Bridget Macaskill will retire from the Board after this year's Annual General Meeting ("AGM").
Biographical details of the Directors are set out within 'Board of Directors'.
Corporate governance
During the year, the Company has complied with the provisions of the Combined Code on Corporate Governance (the 'Code') except that, at the start of the year, there was a vacancy in the role of Senior Independent Director which was filled when John McAdam was appointed on 1 September 2005.
There is a clear division of responsibilities between the Chairman and Chief Executive which is set out in writing and has been approved by the Board. The Chairman satisfied the independence criteria of the Code on his appointment and all of the Non-Executive Directors who have served during the year are considered independent according to the principles of the Code. During the year the Board has undertaken a formal evaluation of its performance and effectiveness, and of its Committees and individual Directors.
The Board has delegated certain responsibilities to the Audit and Remuneration Committees, each of which consists exclusively of independent Non-Executive Directors, and to the Nomination Committee, which is chaired by Philip Hampton and comprises each of the Non-Executive Directors. The Committees' terms of reference are available on the Company's website www.j-sainsbury.co.uk/governance.
Performance and dividend
A review of the performance of the Company and its principal operating subsidiaries during the year is set out on within the Financial Review of the Annual Report and Financial Statements.
The Directors recommend the payment of a final dividend of 5.85 pence per share (2005: 5.65 pence), making a total dividend for the year of 8.00 pence per share (2005: 7.80 pence). Subject to shareholders approving this recommendation at the AGM, the dividend will be paid on 21 July 2006 to shareholders on the register at the close of business on 26 May 2006.
Annual General Meeting
The AGM will be held at 11.00am on Wednesday 12 July 2006 at The Queen Elizabeth II Conference Centre, Broad Sanctuary, Westminster, London SW1P 3EE. The Notice of Meeting and the proxy card are enclosed with this Review.
Remuneration policy
The Remuneration report is set out on pages 41 to 49 of the Annual Report and Financial Statements.
It is the intention of the Committee that Executive and Operating Board Directors' remuneration should be competitive, both in terms of base salary and total remuneration, taking into account the individual Director's role, performance and experience. This approach is designed to promote the Company's short and long-term success through securing high calibre executive talent. Basic salary is targeted around the median of the market with an opportunity to earn above median levels of total reward in return for exceptional performance. A significant proportion of the total remuneration package is performance related, aligning management's and shareholders' interests.
The Committee determined at the time of the Business Review in October 2004 that new long-term incentive arrangements were required in order to address the lack of effective incentives in place for all management levels, including supermarket store managers, and to incentivise the management team to deliver the major sales led recovery. In 2005, shareholders approved the J Sainsbury plc Share Plan 2005, which provided for the grant of a single cycle incentive specifically designed to drive the delivery of the recovery strategy. During the consultation with shareholders and institutions on the design of this plan, the Committee indicated its intention to carry out a more general review of remuneration arrangements during 2005/06, with the aim of formulating a longer term incentive strategy for the future.
The total remuneration review, conducted with the assistance of Deloitte and Touche LLP, assessed the competitiveness of the Company's existing executive remuneration arrangements against UK retail companies of a similar size. A secondary benchmarking group comprising around 50 FTSE 100 companies (excluding financial services companies) of a similar size to Sainsbury's in terms of market capitalisation was used as an additional reference of market practice. This analysis included all elements of remuneration including pensions. The review showed that total remuneration levels for Executive Directors were below median against all comparator groups, and it was concluded that the existing long-term incentive arrangements (the Executive Share Option Plan and Performance Share Plan) were no longer aligned to the Company's policy to provide competitive levels of reward to attract, retain and motivate high calibre executive talent. No further grants will be made under these plans. As a result, the Committee formulated a new incentive framework (the 'Value Builder' framework), which supports the business strategy over the medium to longer term and is consistent with current best practice.
The Committee agreed that the new incentive strategy should be based upon a number of key principles so as to:
- build on the sales led turnaround by embedding key measures of financial and capital efficiency;
- support strong performance of the core business and delivery of shareholder value by generating quality earnings, growing profits and generating cash for future investments and/or return to shareholders;
- provide a common focus for the top 1,000 managers (from Chief Executive to supermarket store managers) on critical business measures;
- retain and motivate talent for the longer term; and
- provide competitive reward opportunities for delivering exceptional performance.
The new incentive framework, which will be put to shareholders at the 2006 AGM, consists of two elements, a deferred annual bonus plan with a performance related share match and a long-term incentive plan. These plans have been formulated following consultation with around 20 major shareholders, the Association of British Insurers and the National Association of Pension Funds.
The key terms of these plans are in line with best practice and have been designed to safeguard against rewards for failure. Full details of each plan are set out in the Notice of Annual General Meeting accompanying this review.