No awards will vest unless threshold ROCE and cash flow per share targets are achieved. The performance measures are reviewed each year by the Committee, before a new grant is made, to ensure that they remain relevant and stretching.
ROCE is calculated based on shareholders’ proportion of underlying operating profit for the business, including our share of underlying profit arising from joint ventures. The capital employed figure excludes the one-off impact of capital spend in the year the calculation is made.
Total cash flow per share is calculated at the end of the performance period from two components:
- the underlying cash operating profit or loss for the business before depreciation and amortisation, less interest and taxes (adjusted to strip out the impact of one-off items) in the final year of the performance period. This reflects the Company’s improved ability to generate sustainable cash flows; plus
- the improvement in normalised working capital over the performance period. This reflects the Company’s aggregate contribution to cash from improvements in working capital over the three-year period.
These components are then added and expressed as a per share figure. The improvement in total cash flow per share is expressed as a percentage of cash operating profit per share in the base year and is annualised.
The working capital element will be capped so as not to comprise more than one-third of the total cash flow per share figure (the two components being considered on an absolute basis).
Vesting is calculated by applying a performance multiplier to the core award on a sliding scale up to four times. The performance matrix applying to Value Builder awards that will be made in 2009 is set out below. Straight-line vesting will be carried out if performance falls between two points.
| ROCE | Total cash flow per share percentage | ||||
|---|---|---|---|---|---|
| 3% | 6% | 9% | 12% | 15% | |
| 15% | 1.5 | 2.5 | 3.0 | 3.5 | 4.0 |
| 14% | 1.0 | 1.5 | 2.5 | 3.0 | 3.5 |
| 13% | 0.5 | 1.0 | 1.5 | 2.5 | 3.0 |
| 12% | – | 0.5 | 1.0 | 1.5 | 2.5 |
| 11% | – | – | 0.5 | 1.0 | 1.5 |
Performance will be measured at the end of the performance period. If the required level of performance has been reached, 50 per cent of the award will be released at the end of year three. Subject to participants remaining in employment for a further year, the balance will then be released.
The Committee has discretion to make adjustments to the calculation of the performance measures (for instance for material acquisitions and disposals) to ensure it remains a true and fair reflection of performance. Dividends will accrue on the shares that vest in the form of additional shares.
Performance will be tested in May 2009 in respect of the Value Builder Share Plan grant made in 2006/07.
J Sainsbury plc Share Plan 2005
Following extensive investor consultation, the J Sainsbury plc Share Plan 2005 (known as the ‘Making Sainsbury’s Great Again Plan’) was designed to reward strong growth in sales and profitability. It is a one-off, self-funded incentive arrangement and was closed to new entrants on 25 March 2006.
Over 1,000 colleagues received conditional core awards under this Plan, from the Chief Executive through to supermarket store managers, focused on identical targets. The levels of core award were scaled according to seniority; the maximum being 100 per cent of salary for the Chief Executive. In addition, all Executive Directors and Operating Board Directors committed to making a personal investment of 50 per cent of salary in the Plan – accordingly Justin King, Darren Shapland and Mike Coupe acquired 118,754, 70,224 and 73,891 shares respectively.
Performance is measured over a four-year period from the financial year ended 26 March 2005 until the year ending 21 March 2009. Awards would vest if two stretching and co-dependent performance conditions were achieved: growth in sales and earnings per share (“EPS”). No awards would vest unless threshold levels of growth in both sales and EPS were achieved.
The maximum award available under the Plan was targeted towards sales growth of £2.5 billion (using a base figure of £13,588 million), and compound annual growth in EPS of at least 21 per cent over a four-year period. There was an opportunity for partial vesting of up to half the award if accelerated performance targets had been met at the end of year three (the 52 weeks ended 22 March 2008).
Vesting is calculated by applying a performance multiplier to the core award and personal investment; this is on a sliding scale from one times to five times and is plotted in a matrix format, as set out on this page. Dividends accrue on any shares that vest and will be released to participants in the form of additional shares at the point of vesting.
Performance was tested in May 2008 and each of the three-year targets was exceeded and, in accordance with the accelerated vesting provisions, half of the awards were available for exercise. The number of shares awarded to Justin King, Darren Shapland and Mike Coupe is set out on this page.
The Plan’s four-year performance targets will be tested in May 2009 covering the period to 21 March 2009. It is expected that full vesting will occur and, in accordance with its maturity vesting provisions, the remaining awards will be released in full.
iv) Other share plans
In order to encourage wider employee share ownership, the Company provides two all employee share plans for colleagues, namely the Savings Related Share Option Scheme (“SAYE”) and the All Employee Share Ownership Plan. Executive Directors may participate in these plans in the same way as all other colleagues and Justin King and Darren Shapland currently participate in both plans. As these are all employee plans there are no performance conditions. The Committee approves the adoption or amendment of these plans and any awards under these plans to the Executive Directors.
The 2003 (five-year) SAYE reached maturity on 1 March 2009. Around 7,000 colleagues could use their savings and tax-free bonus to buy Sainsbury’s shares at the 241.0 pence option price. The 2005 (three-year) SAYE matured at the same time and a further 3,000 colleagues could use their savings and tax-free bonus to buy Sainsbury’s shares at the 231.0 pence option price. Using the market price on the date of the first exercise, the value of all the shares subject to the maturity was in excess of £20 million. The Company currently has over 25,400 colleagues participating in the SAYE with over 50,700 individual savings contracts.
In 2003, the Company awarded free shares under its All Employee Share Ownership Plan to all colleagues who had one financial year’s service. These shares were held in a trust for five years and on 4 June 2008, 1.4 million shares were released to 39,600 colleagues. In August the Company introduced a matching element to the partnership element of the All Employee Share Ownership Plan on a buy four get one free basis for one year. These matching shares must be held for five years to receive all of the relevant tax benefits and will be forfeited if the individual resigns from the Company within the first three years. Justin King and Darren Shapland have received 75 matching shares during the year.