At our AGM held in July of this year our Remuneration Policy was supported by 96.8% of our shareholders. We believe this result reflects our extensive consultation with investors over the past 12 months. We evolved the Policy in response to what we heard, and the Kingfisher Remuneration Committee has benefitted from the dialogue and increased understanding of views both of our Policy and its implementation.
Whilst the vote for the Policy was high, we received a vote of 75.8% for the Annual Report on Remuneration so the Remuneration Committee committed to engage with shareholders again during the autumn to understand any remaining areas of concern they may have. This engagement process has now been completed and the feedback has been considered by the Committee. The purpose of this statement is to set out a summary of the findings of this process and the action the Committee intends to take on the implementation of Kingfisher’s Remuneration Policy going forwards.
The key messages from the engagement process were that:
- Shareholders continue to overwhelmingly support the Remuneration Policy that was presented at the 2019 AGM and particularly welcome the opportunity to set targets for the second half of the Delivering Value Award in in 2020 (for the FY 2021/22) in the light of the new CEO and CFO appointments and their review of strategy.
- Certain shareholders had specific issues with the annual bonus payout for the 2018/19 financial year and the award of Alignment Shares to the departing CEO.
Discussions with shareholders have been helpful to understand the concerns in respect of these items. A summary of these and the actions the Committee is taking as a result of these discussions are set out below.
Annual bonus performance measures
The annual bonus opportunity was reduced by over 50% in 2016 to enable the Committee to use the incentive to focus effort in the early years of the transformation on improvement to the underlying strategic value drivers of the business. The focus in later years of the plan was that the annual bonus would revert to outcome measures around the transformed operating model. A feature of this is that the annual awards could deviate in the early years of the plan from in-year financial performance since what was being rewarded were improvements to such areas as better buying and the creation of a digital platform which were more long-term in nature. This was offset by the fact that all other incentives were entirely focused on financial performance and balance sheet health (for the 2019 package, 91% of the total incentive opportunity is directly linked to financial performance). Feedback from the consultation indicates that it was not always clear how the disclosed performance of the strategic milestones related back to underlying performance of the business.
The Committee understands this perspective and is committed to ensuring shareholders understand the rationale for payouts through clear and transparent disclosure of pay for performance. The disclosures in the Remuneration Report to date on the outcomes of the annual bonus have been detailed and the Committee reduced the payout in 2017/18 where execution challenges were experienced that were not directly measured in the bonus. However, to help address the concerns raised by shareholders there will be a meaningful shift to ‘output’ measures used in the 2020/21 annual bonus. These metrics will remain strongly aligned to the execution of the strategy but will be more quantifiable in nature and therefore simpler to disclose which should aid shareholders line of sight of the bonus outcome with the underlying performance of the business. The Committee will also retain its overriding discretion to adjust outcomes if the formulaic outcome of the business is not considered to reflect the underlying performance of the business.
Alignment Share awards for departing executive directors
The Committee was faced with an unusual set of circumstances in 2019 when a succession process was initiated but without a clear timeline against which the CEO would leave the business. In this context the Committee considered it critical to ensure the CEO remained aligned with the long-term financial health of the business. Therefore, a grant of Alignment Shares was made in 2019.
Conversations with shareholders have helped clarify the circumstances and the intention of the Committee in making this award. However, the Committee also understands and acknowledges the concerns some shareholders have around the award of long-term incentives when it is known that an executive will leave the business. Therefore, whilst the Committee will always consider the treatment of a leaver on a case by case basis as there may be exceptional circumstances that need to be taken into consideration, the Committee can confirm that the default treatment for future executive leavers is that no Alignment Share award would be made after it is announced that an executive will depart from the business.
The Committee would like to thank the shareholders and proxy advisory agencies that took part in the engagement process during the autumn of 2019. It was helpful for the Committee to understand shareholder concerns and perspective and has directly resulted in the action taken as set out above.
Details of these changes will be included in the Remuneration Report for the 2019/20 financial year.
Chair of the Remuneration Committee
18 December 2019