Governance

Directors' remuneration report

The Board presents its remuneration report for 2009/10, which has been prepared on the recommendation of the Remuneration Committee (Committee) and sets out the policy and disclosures on directors’ remuneration as required by the Companies Act 2006 (and the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 made thereunder).

In addition to these requirements, the Committee has followed the principles set out in the Combined Code, and complied with the Listing Rules of the UK Listing Authority.

The remuneration report is structured as follows:

Commencing with the section titled ‘Executive directors’ remuneration’, the information set out in this Report represents the auditable disclosures referred to in the Auditors’ report.

A resolution will be put to the shareholders at the Annual General Meeting on 17 June 2010 asking them to approve this report.

Highlights

  • The Committee approved the executive directors’ request to defer any review of their basic salaries from 1 August 2009 until 31 January 2010 (the start of the next financial year) when there was more certainty of the Company’s trading and the inflation environment.
  • The deferral of the executive directors’ base pay review was in line with action taken elsewhere in the Group, and the increase subsequently awarded was below the general level of award made by the operating companies.
  • The Committee has agreed UK employees may in future take advantage of opportunities offered by HMRC-approved share scheme arrangements. Such arrangements will also allow the Company to benefit from the reduction in its costs associated with such schemes. Accordingly the Committee agreed to amend the way in which awards under the Kingfisher Incentive Share Scheme (the KIS Share scheme) may be granted, by including the grant of an option under a Company Share Option Plan, but such that the total value of shares awarded are unchanged.
  • The Committee has proposed to the directors the establishment of a Share Incentive Plan (SIP). A motion seeking shareholder approval for the establishment of a SIP is included in the Notice of the forthcoming Annual General Meeting.
  • Despite the global economic weakness the Company produced exceptional results in terms of cashflow and reduction in net debt such that the financial outcomes exceeded the financial targets that had been set. Significant progress was also made in the non-financial measures. Ian Cheshire received a bonus of 197.4%, representing 98.7% of his maximum opportunity (2008: 75%) and Kevin O’Byrne received a bonus of 197.4%, representing 98.7% of his maximum opportunity (2008: 80% pro-rated to four months’ service during the year). A third of these bonuses are in the form of deferred shares, which vest subject to meeting performance conditions after a three-year holding period. These percentage levels of bonus are commensurate with the level of bonus paid elsewhere in the Group.
  • The Committee deliberated the findings of the Walker Review to the extent that they were relevant to Kingfisher and determined that the structure in place was already broadly in line with those recommendations, including bonus deferral and a significant proportion of executive directors’ remuneration being delivered in shares. An amendment has been made to the rules of the deferred share arrangement such that future share awards could be lapsed by the Committee should it determine that an executive was awarded them in relation to a bonus deemed, with hindsight, to have been unjustified.
  • The Committee is not proposing any major adjustments to Kingfisher’s executive remuneration structure for the coming year, although it has agreed to review the structure for continued appropriateness with a view to any changes being implemented in 2011/12. It has further approved stretching financial targets for 2010/11.
  • Daniel Bernard, previously Deputy Chairman, became Chairman on 3 June 2009 and John Nelson became Deputy Chairman, in addition to his duties as Senior Independent Director, on the same date. We also welcomed Anders Dahlvig to the Board on 16 December 2009. Details of their terms of appointment and their remuneration can be found later in this report.

The Remuneration Committee

Membership

The Committee consists entirely of independent non-executive directors. During the year the Committee comprised the following non-executive directors:

Chairman John Nelson
Committee members Daniel Bernard (appointed 3 June 2009)
Michael Hepher
Peter Jackson (retired 3 June 2009)
Janis Kong
Secretary Nick Folland

No member of the Committee has any personal financial interest (other than as a shareholder), conflicts of interests arising from cross directorships, or day-to-day involvement in running the business. No director plays a part in any discussion about his or her own remuneration.

Committee meetings are attended by the Group Chief Executive (other than when his own remuneration is being discussed) who provides advice that is of material assistance to the Committee. The Group HR Director (until his retirement on 30 April 2009) and the Head of Group Reward also attend Committee meetings and provide material assistance and advice on remuneration policy, and the Group Finance Director attended by invitation on matters relating to the performance measures and targets for the Group's incentive plans. The Legal and Corporate Responsibility Director acted as Secretary to the Committee.

The Committee also has authority to obtain the advice of external independent remuneration consultants and is solely responsible for their appointment, retention and termination, and for approval of the basis of their fees and other terms. In the year to 30 January 2010, the following external advisers provided services to the Committee:

Hewitt New Bridge Street (HNBS)
Advice on the ongoing operation of employee and executive share plans and executive remuneration generally.
Allen & Overy LLP
Legal advice on service and employment contracts and for other employment and remuneration issues in relation to executive directors. (They also provide advice to the Company on other legal matters).
Towers Watson
Advice on the wider review of remuneration policy and benchmarking on the market competitiveness of remuneration for executives in the UK and overseas. (They also provide advice to the Company on pensions and related matters).

Responsibilities

The Committee is committed to the principles of accountability and transparency, and to ensuring that remuneration arrangements demonstrate a clear link between reward and performance. Operating under delegated authority from the Board, its activities are governed by terms of reference which are available from the Group Company Secretary and can be found on the Company's website www.kingfisher.com.

The Committee's primary purpose is to make recommendations to the Board on the Company's framework and broad policy for executive remuneration and its costs. The Committee also has delegated responsibility for determining the remuneration and benefits of executive directors, the Chairman and certain senior executives. The remuneration of non-executive directors is determined by the Chairman and executive members of the Board.

Activities

The Committee is required by its terms of reference to meet at least twice a year, and has a standing calendar of items within its remit. In addition to these standing items, the Committee discusses matters relating to the operation of the remuneration policy and emerging market practices. In 2009/10 the Committee met seven times and agreed:

  • the performance targets for the year and progress against those targets;
  • the operation of the long-term incentive plans and policy for executive share scheme grants, including the level of individual grants and performance conditions;
  • the policy for the operation of the employee share schemes;
  • the award of annual incentives based on the prior year's performance;

and in particular the Committee:

  • recommended the 2008/09 directors' remuneration report for approval by the directors;
  • amended the scheme rules of the Store Management Incentive Share Scheme 2008 for French employees to accommodate a more favourable tax treatment for the plan under French legislation (benefiting both employer and employees);
  • revised the contracts for members of the UK Kingfisher Leadership Group (KLG) to take account of regulatory changes, tightening the wording relating to restrictive covenants and liability under directors' and officers' liability insurance;
  • amended the KIS Share scheme rules to incorporate clawback provisions relating to the vesting of deferred shares in situations where, with hindsight, the grant of shares three years previously was not justified;
  • agreed to amend the way in which awards under the KIS Share scheme may be granted, by including the grant of an option under a Company Share Option Plan which is subject to HMRC approval; and
  • recommended to the directors the establishment of a Share Incentive Plan, subject to shareholder and HMRC approval.

Remuneration policy

The Company's remuneration strategy is to attract, retain and motivate executives of the highest quality to deliver Kingfisher's business plan.

The key principles of the Company's remuneration policy are to:

  • provide executives with a remuneration package that recognises the experience of the individual concerned and the role fulfilled;
  • ensure performance-related remuneration constitutes a substantial proportion of the remuneration package;
  • encourage a high-performance culture by offering substantial reward only for superior performance;
  • be competitive in the market in which the Company competes;
  • be fair and transparent; and
  • ensure remuneration arrangements apply consistently throughout the Group.

The Committee intends to continue this policy and is satisfied that there is an appropriate balance between the fixed and variable elements of pay, as is further described below.

Alignment with shareholder interests

The Committee consults with shareholders regarding its remuneration policy to ensure their views are understood and taken into account in its deliberations, particularly in relation to changes in Kingfisher employee share scheme arrangements and wider trends in executive remuneration. The interests of shareholders are also considered when structuring remuneration packages. Annual bonus objectives focus on a mixture of financial and non-financial measures to ensure the operational success of the Company, whilst sustained performance is rewarded through incentive measures designed to improve shareholder returns. Short term rewards are further aligned with shareholders' interests through the compulsory deferral of one-third of the annual bonus into shares (the Kingfisher Incentive Share Scheme awards). Long term rewards are similarly aligned with shareholders' interests by the requirement that executives hold a specified percentages of their annual salary in shares of the Company, and that they may not sell shares vesting under these plans until a minimum shareholding has been achieved. The relevant thresholds are set out below:

Executive Minimum Shareholding
Group Chief Executive (Ian Cheshire) 200%
Other Executive Directors (Kevin O'Byrne) 100%
Kingfisher Leadership Group (c45 senior executives) 50%

Alignment with Group strategy

The executive directors are incentivised to deliver milestones addressing the Company's strategic plans for ‘Delivering Value' to:

  • drive up B&Q UK & Ireland's profit;
  • exploit our UK Trade opportunity;
  • expand our total French business;
  • roll out in Eastern Europe;
  • turn around B&Q China;
  • grow Group sourcing; and
  • reduce working capital.

Please see the Delivering Value page for further information on progress made in achieving the Group strategy.

Planned future changes

The Committee has recommended that the way awards under the KIS Share Scheme may be granted be amended, by including, as a part of the overall award, the grant of an option under a Company Share Option Plan (as approved by HMRC). Such an option could only be granted to a participant under the KIS Share Scheme as part of his total award, but such that the total value of shares awarded are unchanged. The Committee has also recommended the implementation of a Share Incentive Plan subject to HMRC approval and shareholder approval. Subject to receiving the relevant consents the schemes will be rolled out in the course of 2010/11. The grant of an option under the Company Share Option Plan as part of the fixed value award of shares granted under the KIS Share Scheme, provides potential NIC saving for Kingfisher as well as tax and NIC advantages for executives in using a Company Share Option Plan to deliver part of the Kingfisher Incentive Share Scheme awards. Full details of the proposed Share Incentive Plan are set out in the Notice of Annual General Meeting.

The broad structure for remuneration for executives was debated and remains unchanged, whereby 50% of the annual bonus is measured against financial targets, and 50% against non-financial targets. In addition there is no change to the level of maximum bonus opportunity of 200% of annual salary, or to the annual level of award of 200% of salary under the long-term incentive. However, executive directors' salaries will be reviewed on 31 January each year in future.

For the year 2010/11, the specific financial measure under the annual bonus has been set as Group operating cashflow. In 2009/10, Group net debt was also a measure but given the significant progress during the year it is felt inappropriate to include this measure again for 2010/11, whereas good cash management, particularly continuing the work on working capital, remains a key focus.

Executive directors' appointment, terms & remuneration

Executive directors' service contracts

Provision Policy
  1. The terms of the liquidated damages clauses appearing in the service contracts of Ian Cheshire and Kevin O'Byrne are in keeping with the governance guidelines at the time the contracts were made. The Committee will keep its policy under review when appointing new directors and will carefully consider latest best practice guidelines when structuring a contract for new directors.
Contract dates Ian Cheshire: 28 January 2008
Kevin O'Byrne: 1 October 2008
Notice period 12 months' notice by either the director or the Company
Termination payment Pay in lieu of notice on a phased basis at a monthly rate of 15% of annual salary in respect of Ian Cheshire, and at a monthly rate of 12% of annual salary in respect of Kevin O'Byrne, for a maximum of 12 months from the termination date 1. Lower amounts are payable if the director commences lower-paid employment during the 12-month period, and payments cease immediately when employment providing the same or higher value remuneration is started
Remuneration As described in this report
Non-cash benefits The Company provides a range of additional benefits, including medical insurance, life assurance cover equal to four times salary, a subsidised staff canteen, a staff discount card, 30 working days' holiday per year and a company car or cash allowance
Expenses Reimbursement of reasonably incurred costs in accordance with their duties
Sickness or Injury In line with senior management terms i.e. 100% basic salary for 26 weeks, and 75% thereafter (without benefits)
Non-compete During employment and for 12 months after leaving

Overview of executive directors' remuneration

The remuneration package for executive directors consists of the following elements: salary; annual bonus under the Kingfisher Incentive Scheme (KIS) including the deferred share award; the long-term incentive under the Performance Share Plan (PSP); the Save As You Earn Option Scheme for all employees (ShareSave); pension contributions; and non-cash benefits. The Committee considers that the total remuneration package links corporate and individual performance with an appropriate balance between short- and long-term elements, and fixed and variable components.

Table 1 below shows the breakdown of the remuneration package into its main constituent elements and assumes maximum payment of annual bonus and maximum vesting of PSP deferred shares, the Company's long term incentive plan.

Table 1

Bar chart showing the breakdown of the remuneration package into its main constituent elements as a percentage

The first pie chart below gives the proportions of fixed cash, variable cash and shares which make up the executive directors' salary, bonus and long term incentive opportunity according to achievement of objectives at stretch. Fixed cash includes basic salary, whilst variable cash is the 67% of annual bonus paid in cash, and the share element includes the 33% of bonus deferred into shares, and the PSP. The second pie chart shows the proportions of salary, KIS cash bonus and KIS and PSP deferred shares and indicates the total remuneration 'at risk'.

Remuneration Elements split between cash and shares at Stretch

Piechart showing the Remuneration Elements split between cash and shares at Stretch as a percentage

Fixed & ‘At Risk’ Elements of Remuneration at Stretch

Piechart showing the Fixed & ‘At Risk’ Elements of Remuneration at Stretch as a percentage

Note: the fixed elements in the pie charts above include pensions and benefits.

The Committee believes that the targets set for the different elements of performance-related remuneration are both appropriate and demanding in the context of the business environment and the challenges with which the Group is faced. The performance-related remuneration constitutes a substantial proportion of the remuneration package, and is ‘at risk', being subject to achievement of performance hurdles, deferral periods during which the individual must remain employed, and fluctuations in the market price of shares. The maximum bonus payable under the KIS is made up of 133% of salary in cash and 67% in deferred forfeitable shares, and the maximum vesting under the PSP is 200% of salary in deferred forfeitable shares. Accordingly, the maximum awards under the KIS and PSP result in 75% of total remuneration being performance-related.

Components of executive directors' remuneration

Details of each individual element of the remuneration package are given below.

Base salary

Executive salaries are normally revised with effect from 1 August each year, taking into account the prevailing market and economic conditions, affordability, the level of increases awarded to staff generally and the individual's contribution. In 2009/10 the executive directors requested that, in view of the uncertain economic climate, their annual salary review be deferred pending the outcome of Group trading. This deferral matched the freeze placed on the basic salaries of the Kingfisher Leadership Group and other senior managers in the Group. As a consequence Ian Cheshire and Kevin O'Byrne did not receive an increase in their base salaries during the 2009/10 financial year.

Following the deferral of the pay review from 1 August 2009 to 31 January 2010, the Committee agreed that executive salaries will be reviewed on 31 January each year in future. 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.

Annual bonus

The annual bonus is earned by the achievement of performance targets set by the Committee at the start of each financial year and is delivered under the Kingfisher Incentive Scheme (KIS).

The KIS comprises the Kingfisher Cash Incentive Scheme 2003 (KIS Cash scheme) and the Kingfisher Incentive Share Scheme 2003 (KIS Share scheme). Under these arrangements senior executives may receive a performance-related cash bonus under the KIS Cash scheme, and a contingent share award under the KIS Share scheme (deferred shares), in the proportions of 67% of the bonuses earned being payable in cash, and the 33% balance paid in deferred shares. The deferred shares are normally subject to a three-year holding period before they vest, with the shares being subject to forfeiture should the executive leave Kingfisher during the holding period as a result of voluntary resignation or dismissal for cause. Participants who are granted deferred shares under the KIS Share scheme are entitled to receive a dividend equivalent payment in the form of additional deferred shares, which is equal to the amount of dividends that would have been earned over the holding period. These additional shares are subject to the original deferred shares vesting.

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 financial and non-financial 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 financial measures for the year would be: reduction of Group net debt with the overall aim to achieve self-financing in the year, and cash generation, together having 50% of the maximum bonus opportunity. The non-financial 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.

Measure Group Net Debt Cash flow Personal Performance KPIs
Weighting at maximum bonus 25% 25% 20% 30%

The non-financial measures included corporate key performance indicators (KPIs) aligned to Kingfisher's seven steps to ‘Delivering Value', plus additional targets addressing improvements in internal financial controls and employee engagement, and personal performance.

The outcomes achieved against each measure are summarised below.

  Ian Cheshire Kevin O'Byrne
Actual Bonus Earned as a % of Annual Basic Salary Actual Bonus Earned as a % of 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 reflecting these outcomes for 2009/10 are set out below.

The structure of the bonus plan for 2010/11 will remain broadly the same, although the only financial objective will be Group operating cashflow.

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 Kingfisher'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 specifically. 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:

50% TSR at the end of the Performance Period TSR performance target
Percentage of this part of the award of performance shares that will vest
50% EPS at the end of the Performance Period EPS performance target
Percentage of this part of the award of performance 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 and upper quintile plus 1 percentage point Straight-line vesting between 15.625% and 100% Between 15.9p
and 17.0p
Straight-line vesting 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 benefit 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.

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 below. 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:

50% TSR at the end of the Performance Period TSR performance target
Percentage of this part of the award of performance shares that will vest
50% EPS at the end of the Performance Period EPS performance target
Percentage of this part of the award of performance 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 and upper quintile plus 1 percentage point Straight-line vesting 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.

Pension provision

Ian Cheshire is a member of the main defined benefit funded arrangement, the Kingfisher 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 defined contribution arrangements. Kevin O'Byrne commenced after the defined benefit section had closed to new members and thus is a member of the defined 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 five-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 five 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 significant personal interest in Kingfisher 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 financial year is set out in the table below:

£000 Total remuneration 1
Base salary Total benefits 2 Cash bonus 3,4 2009/10 2008/09
  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 figure in the table of executive directors' remuneration.
  2. Total benefits include a contribution to defined contribution pension arrangements for both Ian Cheshire and Kevin O'Byrne. Non-cash benefits comprise medical and life insurances and the provision of financial 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 financial 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 reflects his service from 1 October 2008 to 31 January 2009.
  6. This figure has been restated from the £671,600 disclosed in last year's report, to include the £38,333 employer contributions made to the defined contribution scheme.
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

Outside appointments for executive directors

Subject to the rules governing conflicts of interest, the Company encourages its executive directors to hold one non-executive role outside the Group as it recognises that such roles can broaden experience and knowledge which can benefit the Group. Kevin O'Byrne is a non-executive director of Land Securities Group plc, and acts as chairman of their audit committee. He is paid £60,000 and £17,500 respectively for fulfilling these roles.

Tabular information relating to executive directors' interests in shares & pension arrangements

Directors' interests in shares of Kingfisher plc

The directors who held office at 30 January 2010 had the following interests in the shares of the Company:

  Ordinary shares 30 January 2010 or, if later, on appointment Ordinary shares 31 January 2009
Phil Bentley 18,097 18,097
Daniel Bernard 111,897 10,835
Ian Cheshire 410,792 375,177
Anders Dahlvig 75,000 –
Michael Hepher 1,599 1,599
Janis Kong 24,000 24,000
John Nelson 43,750 43,750
Kevin O'Byrne 112,994 112,994

There was no change in the interests of the directors between 30 January 2010 and 24 March 2010.

KIS Share awards

Contingent awards of shares, in respect of the financial year ended 30 January 2010, are due to be made in April 2010, vesting in April 2013, to Ian Cheshire and Kevin O'Byrne under the KIS Share scheme to the value of £537,034 and £385,993 respectively, at the average mid-market price over the three dealing days prior to the date of grant in April 2010. As the awards will be made after publication of the accounts for the financial year ended 30 January 2010, the detail will be disclosed fully in next year's Annual Report.

Once the contingent share award is made in respect of the bonus earned, the only qualifying condition for the award normally to vest is to be in the employment of the Company at the vesting date. In respect of bonuses paid in 2004, 2005 and 2006, an additional Multiplier Award of shares was potentially receivable by certain executive directors – details of these are shown under Closed incentive plans. Following the introduction of the PSP, no further Multiplier Awards have been granted.

  Number of contingent shares at start of year Number of contingent shares awarded in year Price per share Dividend roll-up shares 1 Number of contingent shares exercised in year 2 Number of contingent shares at end of year Vesting date Lapse date
  1. The prices used to calculate the dividend roll-up shares were 176.7p, being the market price on 8 May 2009, and 222.5p, being the market price on 7 October 2009.
  2. The market price on exercise for Ian Cheshire was 162p on 14 April 2009. In line with the Group's share ownership guidelines, Ian Cheshire sold sufficient shares to meet his tax liabilities, ie 24,856 shares were sold and the remaining 35,615 shares were added to his holding.
  3. As disclosed in last year's remuneration report the awards under the KIS Share scheme were made on 21 April 2009, in respect of the financial year ended 31 January 2009. These awards are structured as nominal cost options (on payment in aggregate of a maximum of £1). They will normally vest in April 2012 and will be exercisable within the period of six months starting from the vesting date.
Ian Cheshire 60,471   233.83p   60,471 0 10/04/2009 10/10/2009
52,911   277.75p 1,484   54,395 11/04/2010 11/10/2010
  21,427   126.63p 600   22,027 21/04/2011 21/10/2011
    243,455 3 164.63p 6,830   250,285 21/04/2012 21/10/2012
Total 134,809 243,455   8,914 60,471 326,707    
 
Kevin O'Byrne 0 62,208 3 164.63p 1,744   63,952 21/04/2012 21/10/2012
Total 0 62,208   1,744   63,952    
Totals 134,809 305,663   10,658 60,471 390,659    

Performance Share awards

Name Number of Performance Shares at start of year Number of Performance Shares awarded in year Date of grant Price per share Dividend roll-up shares 1 Lapsed during year Number of Performance Shares at end of year Vesting date Lapse date
Ian Cheshire 130,126   28/06/2006 225.75p 0 (130,126) 0 3 28/06/2009 28/12/2009
117,169   24/10/2006 255.50p 0 (117,169) 0 3 24/10/2009 24/10/2009
  105,490   11/04/2007 277.00p 2,959   108,449 11/04/2010 11/10/2010
  168,991   01/10/2007 178.10p 4,741   173,732 01/10/2010 01/04/2011
  1,160,903 4   01/02/2008 143.60p 32,574   1,193,477 01/02/2012* 01/08/2012*
    971,876 21/04/2009 164.63p 27,270   999,146 21/04/2012 21/10/2012
Total 1,682,679 971,876     67,544 (247,295) 2,474,804    
Kevin O'Byrne 656,392   01/10/2008 126.60p 28,409 2   684,801 01/10/2011 01/04/2012
  656,392   01/10/2008 126.60p 28,409 2   684,801 01/02/2012 01/08/2012
    698,536 21/04/2009 164.63p 19,599   718,135 21/04/2012 21/10/2012
Total 1,312,784 698,536     76,417   2,087,737    
Totals 2,995,463 1,670,412     143,961 (247,295) 4,562,541    

*Due to a typographical error this share award was listed in the 2009/10 annual report as vesting on 1/2/12 and lapsing on 1/8/12. As stated in the original RNS of 4 February 2008 and in the annual reports of 2007/08 and 2008/09, the correct vesting date is 1/2/11, with the lapse date being 1/8/11.

As the awards are structured as nominal cost options (on payment in aggregate of a maximum of £1) they can be exercised within a six month period starting from the vesting date.

  1. The prices used to calculate the dividend roll-up shares were 176.7p, being the market price on 8 May 2009, and 222.5p, being the market price on 7 October 2009.
  2. Includes 9,719 dividend roll-up shares accrued October 2008, but not reported in previous annual report, calculated at the market price of 130p on 8 October 2008.
  3. Since the end of the financial year ended 31 January 2009 the TSR performance has been calculated in respect or these awards and median performance was not achieved. Accordingly, these awards did not vest and therefore lapsed.
  4. Dividend roll-ups on this award were not reported last year. Ian Cheshire accrued 29,758 shares in April 2008 and 16,939 shares in October 2008 at a price of 127.3p and 130p respectively.

Award of Matching Shares to Ian Cheshire on 1 February 2008

Type of award 1,2 At start of year 5 Dividend roll-up shares 6 At end of year Market price of shares when award made Qualifying conditions Vesting date 3,4 Lapse date
  1. In accordance with the terms of his appointment, the Committee offered Ian Cheshire the opportunity to purchase 266,667 shares in the Company and in return receive a matching award of 200% of salary (i.e. broadly a 4:1 match, he bought 268,924 shares at 148p) subject to performance conditions and his continuing to hold the purchased shares. The value of the matching award was £1,600,000 as of the date of appointment.
  2. No Matching Shares vest unless EPS at the end of the 4 year performance period is greater than 15.9p, at which level of performance 15.625% of the award will vest. The percentage vesting increases on a pro-rata basis so that 50% of the Matching Shares vest if EPS is 17.0p. Full vesting occurs if EPS is 19.6p at the end of the performance period with pro-rata vesting between 17.0p and 19.6p.
  3. If Ian Cheshire's employment terminates before any vesting date by reason of death, injury, ill health, early termination by the Company (other than for cause) or resignation for “good reason” (as defined in his service contract), then subject to the discretion of the Remuneration Committee in certain limited circumstances, such of the Matching Shares as can be treated as vested will vest, taking into account EPS performance up to the date of cessation of his employment, but reduced on a time pro-rated basis.
  4. As the awards are structured as nominal cost options (on payment in aggregate of a maximum of £1) they can be exercised within a six month period starting from the vesting date.
  5. Dividend roll-ups on this award were not reported last year. Ian Cheshire accrued 29,758 shares in April 2008 and 16,939 shares in October 2008 at a price of 127.3p and 130p respectively.
  6. The prices used to calculate the dividend roll-up shares were 176.7p, being the market price on 8 May 2009, and 222.5p, being the market price on 7 October 2009.
Matching shares granted pursuant to Listing Rule 9.4.2 1,160,903 32,574 1,193,477 143.6p EPS 01/02/2012 01/08/2012

Save As You Earn Option Scheme

A UK Save As You Earn Option Scheme is open to all eligible employees, including executive directors. As is the case with all savings-related share option schemes open to all employees, there are no performance criteria.

  At start of year Granted during year Exercised during year Lapsed during year Number of options Date from which exercisable Lapse date
At end of year Option price
Ian Cheshire 8,807 – – – 8,807 109.00 01/12/2011 01/06/2012
Kevin O'Byrne – 5,263 – – 5,263 172.40 01/12/2012 01/06/2013
Totals 8,807 5,263 – – 14,070      

Closed incentive plans

There are outstanding awards under the Executive Share Option Scheme, as well as Multiplier Awards made in previous years under the KIS Share scheme that may become exercisable or vest at the end of their respective deferral periods. These are plans that are now closed and under which no further awards will be made. The full details of each can be found in previous annual reports. The outstanding awards are as follows:

Executive share options

The last grants under the Executive Share Option Scheme were made on 17 April 2003. The options vest from three to 10 years of the grant date subject to the satisfaction of a performance condition which generally requires the growth in the Company's EPS over a three-year period to have exceeded that of the Retail Price Index (RPI) plus 6%. The criteria were set and approved by shareholders when the scheme was established in 1993 and were judged at the time to be appropriate criteria.

  At start of year Exercised during year Lapsed during year Number of options Date from which exercisable Lapse date
At end of year Option price (pence)
  1. Phantom Options of 91,350 were granted to Ian Cheshire in addition to these options at the same price, with the same performance conditions and over the same maturity periods. On exercise, only the cash equivalent to any gain will be paid and disclosed as remuneration at that time.
  2. The performance conditions for all options have been met with the exception of the final grant made on 17 April 2003.
Ian Cheshire 30,520 – (30,520) – 589.76 01/04/2004 01/04/2009
  74,346 – – 74,346 393.43 17/04/2004 17/04/2010
  69,991 – – 69,991 357.18 25/09/2004 25/09/2010
  126,231 – – 126,231 209.93 26/09/2004 26/09/2011
  91,350 1 – – 91,350 290.08 09/04/2005 09/04/2012
  164,144 – – 164,144 194.95 08/10/2005 08/10/2012
  134,538 – – 134,538 237.85 17/04/2006 2 17/04/2013
Totals 691,120 – (30,520) 660,600      

In the period 1 February 2009 to 30 January 2010, the highest and lowest market price for Kingfisher shares was 247.2p and 118p respectively. The market price at close of business on 30 January 2010 was 212.3p.

Multiplier awards relating to prior year KIS Share awards

Bonuses paid under the KIS Shares scheme in April 2005 and 2006 were matched at a ratio of 0.4:1 by a conditional Multiplier award of shares. Vesting of these awards is subject to the TSR performance of the Company against the constituents of the FTSE100 over the three-year period following the year for which the bonus was earned. No vesting will occur at or below median performance. 25% of these shares will vest at above median performance, increasing on a straight-line basis to 100% at above upper quartile performance. In addition, the Committee must also be satisfied that the TSR performance is reflective of underlying Company performance for such awards to vest.

Name Multiplier awards at start of year Multiplier awards granted in year Price per share Market price per share award date Multiplier awards lapsed during year Multiplier awards at end of year Vesting date 1 Lapse date
  1. Since the end of the financial year ended 31 January 2009 the TSR performance has been calculated in respect of the potential Multiplier Award vesting in April 2009 and median performance was not achieved. Accordingly, this Multiplier Award did not vest and therefore lapsed.
Ian Cheshire 24,188 233.83p 231.25p 24,188 10/04/2009 10/10/2009

Dilution limits

Kingfisher share plans comply with recommended guidelines on dilution limits and the Company has always operated within these limits. The current ABI Guidelines on headroom provide that overall dilution under all plans should not exceed 10% over a 10 year period in relation to the Company's issued share capital, with a further limitation of 5% in any 10 year period on executive plans. Assuming none of the extant options lapse and will be exercised and having included all exercised options, the Company has utilised 4.93% of the 10% in 10 years and 1.85% of the 5% in 10 years in accordance with the Association of British Insurers (ABI) guidance on dilution limits.

Directors' pension benefits

Ian Cheshire has an entitlement to part of his pension benefits through the Kingfisher defined benefit pension scheme (subject to the scheme cap) and partly through defined contribution schemes. Kevin O'Byrne only has entitlement to a defined contribution pension.

The following table shows details required under both schedule 8 to the Accounting Regulations under the Companies Act 2006 and the Listing Rules as they apply to Kingfisher for the year ended 30 January 2010. In respect of the Companies Act, the details shown represent for the defined benefit section:

  • accrued pension benefits at the relevant dates;
  • the increase in the amount of accrued pension during this year;
  • the transfer value amounts as at 1 February 2009 and 30 January 2010;
  • the increase in transfer value between those dates, net of member contributions paid.
Accrued pension   Transfer value   Pension cost
  Age Years of Service Increase in accrued pension £000 pa 2009/10 £000 pa 2008/09 £000 pa   Increase in transfer value £000 (net of director's contributions) 2009/10 £000 2008/09 £000   Increase in accrued pension £000 pa (net of inflation) 2009/10 £000 2008/09 £000
  1. Accrued pensions and transfer values include employer contributions (by way of bonus surrender) made in March 2004 of £15,000.
  2. The above relates only to benefits accrued in the Final Salary section, and so excludes any Money Purchase section or AVC benefits.
Ian Cheshire 1 50 11 3 26 23   152 437 277   3 28 10

The following table shows the employer contributions made to the defined contribution schemes in relation to service during the financial year to 30 January 2010:

  Employer contributions
  2009/10 2008/09
  1. This figure has been restated. The previous year's report indicated that a total of £41,383 was payable in relation to Kevin O'Byrne's period of service. The actual amount was £38,333, and represented employer contributions for Kevin O'Byrne's period of service from 1 October 2008 to 31 January 2009.
Ian Cheshire £203,220 £204,960
Kevin O'Byrne £115,000 £38,333 1

The Company's TSR for the five years to 30 January 2010 is shown in the first graph below, which plots the value of £100 invested in Kingfisher over the last five financial years. The other line on the graph shows the performance of the FTSE100 Index over the same period.

The second graph below shows the Company's TSR for the two years to 30 January 2010, which plots the value of £100 invested in Kingfisher over the last two years compared to the performance of the FTSE 100 index over the same period. This also covers the performance period of Ian Cheshire's share award, following his appointment as Group Chief Executive in January 2008.

The Company chose the FTSE 100 Index as an appropriate comparator for this graph because the Company has been a constituent of that index throughout the period and its constituents are used as the comparator group for the PSP.

Total shareholder return – 5 years

Line graph showing total shareholder return change for the last 5 years (2005-2010)

Total shareholder return – 2 years

Line graph showing total shareholder return change for the last 2 years (2008-2009)

Chairman's & non-executive directors' appointment, terms and fees

Chairman

Daniel Bernard was appointed Chairman on 3 June 2009. His appointment was for an initial fixed three-year term on the recommendation of the Nomination Committee (which was chaired by John Nelson, the Senior Independent Director), unless terminated earlier in accordance with the Company's Articles of Association, or by either party giving the other not less than six months' prior written notice. His appointment is documented in a letter of appointment which is not a contract of employment and he is required to devote no fewer than 2-3 days a week to his duties as Chairman. His appointment as Chairman will automatically terminate if he ceases to be a director of the Company. His fee, determined by reference to his time commitment and relevant benchmark data, was set at €450,000 per annum. This is paid to a service company, Provestis, which also receives a monthly contribution of €5,000 towards the cost of running an office in Paris.

Service contracts

Non-executive directors are appointed under letters of engagement, not service contracts. Appointments are normally for an initial period of three years. Invitations to act for subsequent three-year terms are subject to a review of performance, and taking into account of the need to progressively refresh the Board.

The appointment may be terminated by either party giving the other not less than three months' prior written notice, unless terminated earlier in accordance with the Company's Articles of Association, and the Company has no obligation to pay compensation when their appointment terminates.

The non-executive directors are also subject to re-election at the Annual General Meeting following their appointment, and subsequently at intervals of no more than three years.

  Date of Appointment Expiry of Current Term Total length of service at 30 January 2010 or, if earlier, on retirement
  1. Peter Jackson retired on 3 June 2009.
  2. Phil Bentley retired on 17 March 2010.
  3. Anders Dahlvig was appointed on 16 December 2009.
  4. Hartmut Krämer retired on 23 October 2009.
  5. Michael Hepher will retire at the conclusion of the AGM in 2010.
Peter Jackson 1 03/01/2006 – 3 years 5 months
Daniel Bernard 24/05/2006 03/06/2012 3 years 8 months
John Nelson 11/01/2002 10/01/2011 8 years
Phil Bentley 2 04/10/2002 03/10/2011 7 years 3 months
Anders Dahlvig 3 16/12/2009 15/12/2012 1 month
Hartmut Krämer 4 08/11/2002 – 6 years 11 months
Michael Hepher 5 01/09/1997 17/06/2010 12 years 4 months
Janis Kong 08/12/2006 07/12/2012 3 years 1 month

The Board determines the fees paid to non-executive directors under a policy which seeks to recognise the time commitment, responsibility and technical skills required to make a valuable contribution to an effective Board. The Board will also review information on fees paid to non-executive directors in similar companies.

The table below sets out the fee levels at 1 August 2009 and at 1 August 2008 1:

  2009/10 2008/09
  1. The fee payable to non-executive directors was increased with effect from 30 January 2010 from £53,300 p.a. to £55,000 p.a., an increase of 3%, and the fee payable to the Chairman of the audit committee increased with effect from the same date from £15,000 p.a. to £17,000 p.a., an increase of 13%.
  2. This fee was paid to Peter Jackson.
  3. This fee was paid to Daniel Bernard whilst acting as Deputy Chairman.
  4. Composite fee paid to John Nelson as Deputy Chairman, Senior Independent Director, and as a non-executive director.
Chairman €450,000 £294,000 2
Deputy Chairman £110,000 4 €213,200 3
Senior Independent Director   £13,000
Board membership fee £53,300 £53,300
Board committee membership nil nil
Committee Chairmen    
– Audit £15,000 £15,000
– Remuneration £10,000 £10,000
– Nomination Nil Nil

Non-executive remuneration

Non-executive director 2009/10
£'000s
2008/09
£'000s
  1. Peter Jackson retired on 3 June 2009.
  2. Fee increased on 3 June 2009 on appointment as Chairman. Daniel Bernard receives his fees in Euros, which are converted into Sterling for the purposes of this table at the average exchange rate over the course of the relevant year.
  3. Fee increased on 3 June 2009 on appointment as Deputy Chairman and represents a composite fee for membership of the Board, and in respect of his roles as Senior Independent Director and Deputy Chairman.
  4. Anders Dahlvig was appointed on 16 December 2009.
  5. Hartmut Krämer retired on 23 October 2009.
Peter Jackson 1 100.8 289
Daniel Bernard 2 329.5 169.4
John Nelson 3 98.0 73.9
Phil Bentley 68.3 67.4
Anders Dahlvig 4 6.6 –
Michael Hepher 53.3 52.4
Hartmut Krämer 5 40.0 52.4
Janis Kong 53.3 52.4
Total 749.8 756.9

By order of the Board:

John Nelson
Chairman of the Remuneration Committee
24 March 2010