Part 3: additional regulatory disclosures Information not subject to audit

Further details of each of the components of the directors' remuneration are given in the report below.

The remuneration committee

During the year the Committee comprised the following independent non-executive directors:

Jonathan Dawson (Committee Chairman)
Steve Barber
John Barton
Christine Cross
Francis Salway
Caroline Goodall (from January 2013)

The Committee met five times during the year under review and all meetings were fully attended with the exception of one which Caroline Goodall was unable to attend due to other commitments relating to her induction as a director of NEXT.

Role of Remuneration Committee

The Committee determines the remuneration of the Group's Chairman and executive directors, and reviews that of senior executives. It is also responsible for determining the targets for performance-related pay schemes, approves any award of the Company's shares under share option or incentive schemes to employees and oversees any major changes in employee benefit structures. The Committee members have no conflicts of interest arising from cross-directorships and no director is permitted to be involved in any decisions as to his or her own remuneration. The remuneration of non-executive directors is decided by the Chairman and executive directors of the Board. The Committee's terms of reference are available on the Company's website (www.nextplc.co.uk) or on request from the Company Secretary.

Assistance to the Committee

During the period the Committee received input from the Chief Executive and Group Finance Director and retained the services of Aon Hewitt and FIT Remuneration Consultants LLP to provide independent external advice regarding executive remuneration. These advisors have no other connection with the Company. PricewaterhouseCoopers provided independent verification services of total shareholder returns for NEXT and the comparator group of companies under the long term incentive plan (LTIP).

Additional information on Board remuneration

LTIP

The comparator group of companies for the three year performance periods to July 2012 and January 2013 was as follows:

ASOSFindelJ SainsburyN Brown
BurberryFrench ConnectionKesaSignet
CarpetrightHalfordsKingfisherTesco
Carphone WarehouseHMVMarks & SpencerWH Smith
DebenhamsHome Retail GroupMorrisons
Dixons RetailJJB SportsMothercare

For subsequent performance periods the changes to the comparator group above are:

  1. periods ending July 2013 and January 2014 - Ted Baker added and Findel, French Connection and JJB Sports removed;
  2. period ending July 2014 - Supergroup added and Signet removed; and
  3. periods ending January 2015 and July 2015 - Dunelm Group added and HMV removed.

The comparator group consists of UK listed retail companies which are most comparable with NEXT in size or nature of their business. Comparison against such a group of companies is more likely to reflect the Company's relative performance against its peers, thereby resulting in grants being made on an appropriate basis.

Details of potential awards granted for outstanding performance periods are as follows:

Maximum potential award granted
(% of base salary)
Performance periods commencingLord WolfsonChristos AngelidesDavid Keens & Andrew VarleyOther employees
August 2010 and February 2011100%125%75%60%
August 2011, February 2012 and August 2012100%75%75%60%

The Committee has discretion as to whether entitlements earned are payable in NEXT shares or cash and to date it has allowed participants the choice. Entitlements earned are not pensionable and are based on salary and share price at the start of the performance period. No individuals included in the plan have received grants under the management share option scheme in the same year.

Share Matching Plan

Vesting of awards is dependent solely on achieving the fully diluted post-tax EPS targets detailed below.

Required fully diluted EPS (pence)
Date of grantFor 0.5:1 matchFor 1:1 matchFor 2:1 match
June 2010191.5206.5221.5
April 2011231.3240.2258.1
For 0.25:1 matchFor 0.5:1 matchFor 1:1 match
April 2012267.2281.5310.2

These targets require a minimum three year growth in EPS of 8.8% (2010 award) and 12% (2011 and 2012 awards) before any shares vest and a maximum award is only achieved if EPS growth reaches 25.8%, 25% and 30% respectively over three years. The effective matching ratio will be calculated on a straight line basis for EPS falling between each of the threshold points. Details of the calculation of fully diluted EPS are provided in Note 9. The Committee has reviewed the performance conditions of awards to be made in 2013 and for the period to January 2016, the fully diluted EPS hurdle will be 314.5 pence (12% growth) for a minimum match of 0.25 of a share to vest and 365.0 pence (30% growth) for the maximum match of one share.

Management share options

The management share option plan provides for options over shares, exercisable between three and ten years following their grant, to be allocated to Group employees. This plan is primarily aimed at middle management and senior store staff. No options were granted to any directors or changes made to existing entitlements in the year under review. No employee is entitled to be granted options under the scheme and be included in the LTIP or the SMP in the same year.

The total number of options which can be granted is subject to shareholder approved limits and there are no cash settlement alternatives. Options are set at the prevailing market price at the time of grant, which are generally made annually. The maximum total market value of shares (i.e. the acquisition price of shares) over which options may be granted to any person during any financial year of the Company is three times salary. This limit may be increased to five times salary in circumstances considered by the Committee to be exceptional, for example on the grant of options following recruitment. The maximum grant during the year was 120% of salary.

Sharesave options

Executive directors can participate in the Company's Save As You Earn (Sharesave) scheme which is open to all employees. Grants are generally made annually and the scheme is subject to HMRC rules which limit the maximum monthly savings to £250. Options are granted at a discount of 20% to the prevailing market rate and are exercisable three, five or seven years from the date of grant. Sharesave options granted to, or exercised by, directors in the year are detailed in the Share matching plan and sharesave interests section within this report.

Dilution of share capital by employee share plans

The Company monitors and has complied with dilution limits in its various share scheme rules and has not issued a significant number of new or treasury shares in satisfaction of share schemes in the last 10 years. Share-based incentives are usually satisfied from shares held by the ESOT – see Note 26.

Group pension plan

Executive directors are members of the NEXT Group Pension Plan (the "Plan") which has been approved by HM Revenue & Customs and consists of defined benefit and defined contribution sections.

The trustee of the Plan is a limited company, NEXT Pension Trustees Limited (the "Trustee"). The Board of the Trustee includes members of the Plan, a pensioner member and an independent director who is also the Chairman of the Trustee. Two of the directors are member nominated directors and cannot be removed by NEXT; the other directors, including the independent director, are appointed by and can be removed by NEXT. All directors of the Trustee receive a fee for their services, including those directors who are also employees of NEXT. No director of the Company is a director of the Trustee.

The Plan's investments are kept separate from the business of the NEXT Group and the Trustee holds them in trust. Responsibility for investment of the Plan's funds has been delegated by the Trustee to professional investment managers.

The Group operates a salary sacrifice scheme whereby members from either section can elect to receive a reduced gross salary in exchange for enhanced employer pension contributions. The participation of members in the salary sacrifice scheme does not result in any overall increase in costs to the Group.

Defined contribution section

Employees of the Group can join the defined contribution section of the Plan. Members elect to pay either 3% or 5% of their pensionable earnings which is matched by the Company. For death prior to retirement, a lump sum of three times the member's base salary at the previous April is payable along with the current value of the member's fund.

Defined benefit section

The defined benefit section was closed to new members in 2000 and during the current year the Group reviewed its operation for remaining employee members. Following a consultation process with those employees, from November 2012 the future accrual of pension benefits will be based on pensionable salary frozen at that time, rather than final earnings. In addition, those employees can elect to receive either a salary supplement or additional contributions to a defined contribution scheme. From November 2012, the defined benefit section provides members with a retirement benefit of one sixtieth or one eightieth (depending on the member's chosen contribution rate) of pensionable earnings at 31 October 2012 for each year of pensionable service.

This section provides a lump sum death in service benefit and dependants' pensions on death in service or following retirement. Pensions are only payable to deceased members' children after death in service. In the case of ill-health retirement, only the accrued pension is payable. All benefits are subject to Plan limits. Increases to pensions in payment are at the discretion of the Trustee although pensionable service post-1997 is subject to limited price indexation. From 2006, sales and profit related bonuses were excluded from pensionable earnings and the normal retirement age under the Plan was increased from 60 to 65.

Members contribute 3% or 5% of pensionable earnings, whilst the Company currently makes contributions at the rate of 17.5%. The last full triennial valuation of the Plan was carried out as at March 2010, the next will take place as at March 2013. As calculated in accordance with International Financial Reporting Standards, the surplus in the Plan at January 2013 was £65.6m; further details are given in Note 21 to the financial statements.

Certain members whose accrued or projected pension fund value exceeds their personal lifetime allowance are provided with benefits through an unfunded, unapproved arrangement. The relevant members contribute towards the additional cost of providing these benefits by a deduction of 5% on all pensionable earnings. Since April 2011, where existing members have reached either the annual or lifetime pension contributions limits, the Company has offered those members the choice of leaving the defined benefit section and either joining the defined contribution section (with an enhanced Company contribution) or taking a salary supplement, in both cases equal to 10% or 15% of their salary (depending on their existing contributions and benefits).

Auto-Enrolment

Following the introduction of Auto-Enrolment (A-E) in 2012, most employees now have the option of joining the NEXT plan, the statutory A-E plan or opting out of pension provision through the Company. Contributions to A-E commenced in February 2013.

Specific information in respect of executive directors' pension entitlements is detailed at the end of this report.

Service contracts

Executive directors

Apart from service contracts (detailed in the Remuneration Policy Table), no director has had any material interest in any contract with the Company or its subsidiaries.

Non-executive directors

Letters of appointment for the Chairman and non-executive directors do not contain fixed term periods; however they are appointed in the expectation that they will serve for a minimum of six years, subject to satisfactory performance and successful re-election at Annual General Meetings.

Dates of appointment and notice periods for non-executive directors are set out below:

Date of appointmentNotice period
Chairman
John Barton17 May 200612 months
Non-executive directors
Steve Barber1 June 20071 month
Christine Cross19 January 20051 month
Jonathan Dawson13 May 20041 month
Caroline Goodall1 January 20131 month
Francis Salway1 June 20101 month

Executive directors' external appointments

Andrew Varley is a non-executive director of LondonMetric Property plc and the Remuneration Committee has approved his retention of the director's fee of £50,000 per annum for this appointment. No other executive director holds any non-executive directorships outside the Group.

Directors' interests

The Company has a formal share ownership requirement for executive directors, as set within the Remuneration Policy Table.

Directors' beneficial interests in shares at the beginning of the financial year and at the end of the year were as follows:

Ordinary shares of 10p each
2013
No. of
shares
2012
No. of
shares
Lord Wolfson1,520,5051,638,010
Christos Angelides77,17172,975
Steve Barber5,00010,000
John Barton16,00016,000
Christine Cross5,5985,598
Jonathan Dawson5,0005,000
Caroline GoodallNilN/A
David Keens165,535151,574
Francis Salway9,2589,258
Andrew Varley69,81776,460

David Keens has a beneficial holding of £83,000 (2012: £83,000) nominal value of the Company's 2013 5.25% corporate bonds.

There have been no changes to directors' interests in the shares of the Company from the end of the financial year to 19 March 2013. Full details of directors' interests in the shares and share options of the Company are contained in the Register of Directors' Interests which is open to inspection.

Performance graph

The graph below illustrates the performance of the Company when compared with the FTSE All Share and FTSE General Retailers index. These have been selected to illustrate the Company's total shareholder return performance against a wide UK index and a sector specific index for the five year period ending January 2013.

Performance graph

Information subject to audit

Directors' remuneration
£'000
Salary/
fee
Annual
performance
related bonus
BenefitsSalary
supplement1
Total
2013
Total
2012
Chairman
John Barton250250250
Executive directors
Lord Wolfson7141,06445271,8501,486
Christos Angelides51951433191,085900
David Keens47747219721,040916
Andrew Varley3553512753786674
Non-executive directors
Steve Barber606060
Christine Cross505050
Jonathan Dawson707070
Caroline Goodall44
Francis Salway505050
Total2,5492,4011241715,2454,456
Total 20122,4951,751115954,456
  1. Directors received a salary supplement of 15% in lieu of pension provision from April 2011 (Andrew Varley), June 2011 (David Keens) and November 2012 (Lord Wolfson and Christos Angelides).

Lord Wolfson was the highest paid director in the current and previous year; £350,000 of his annual performance-related bonus is payable in NEXT shares (2012: £56,000), deferred for a period of two years and will be forfeited if he voluntarily resigns prior to the end of that period.

The Company paid a pension under the unfunded, unapproved arrangement to a former director of the Company of £36,496 (2012: £35,606).

Long term incentive plans

For the three year performance period to July 2012, TSR ranked fifth in the comparator group of 22 and 96% of the grant made in July 2009 vested. Before allowing the award to vest the Remuneration Committee assessed the performance of the Company during the performance period in light of underlying economic and other conditions ('the economic underpin'). The Committee noted that EPS compound growth of 19.7% and pre-tax profit compound growth of 10.4% over the three year period, was well ahead of RPI compound growth of 4.3%. In addition, dividends had grown in line with EPS and £727m had been returned to shareholders through buybacks. The Committee also assessed earnings growth against selected comparable major UK retailers and concluded that NEXT had performed favourably. Taking these factors into account, the Committee determined that the economic underpin performance condition for the July award had been satisfied. Details of the amounts that vested for each executive director are detailed in the table below. The awards were cash settled for all executives except David Keens who received shares.

For the performance period to January 2013, TSR ranked fifth against the comparator group of 22 which corresponds to an expected vesting of 98% of the maximum award made in January 2010. The Remuneration Committee will formally assess the performance of the Company for this period in April on the same basis as the grant made in July 2009 before determining whether the economic underpin performance condition has been satisfied. If the condition is satisfied, the January 2013 award will be settled in April, and based on the share price of £41.10 on 19 March 2013, awards for each executive director for the year are detailed below:

July 2012January 2013TotalTotal for 2012
Actual no.
of shares
Value
£'000
Actual no.
of shares
Estimated
value
£'000
Estimated
value
£'000
Adjustment
to estimate
£'000
Final
value
£'000
Lord Wolfson142,5821,44825,5961,0522,5002,500
Christos Angelides137,0621,26030,1701,2402,500331,673
David Keens21,29172416,7966901,414311,602
Andrew Varley15,84953912,4875131,052231,193
116,7843,97185,0493,4957,466876,968
  1. As noted in the LTIP Section of the Remuneration Report, the value of the LTIP awards for Lord Wolfson and Christos Angelides will be restricted in respect of the financial year ended January 2013 to a maximum of £2.5m, as it was for Lord Wolfson in 2012.

Details of directors' interests in long term schemes, comprising the LTIP and deferred bonus shares, are summarised below:

Date of
award
Maximum
share
potential
January
20121
Shares
awarded
during
the
year
Shares
vested
during
the
year3
Shares
lapsed
during
the
year
Maximum
share
potential
January
20131
Market
value on
date of
award
(£)
Market
value on
date cash
equivalent
determined
(£)
Vesting
date
Lord Wolfson
LTIPMar 200962,37428,42633,948410.9330.14Jan 2012
Sept 200944,35642,5821,77415.3734.01Jul 2012
Mar 201034,22834,228520.13Jan 2013
Sept 201032,59232,59221.14Jul 2013
Mar 201133,68433,68420.70Jan 2014
Sept 201130,28930,28923.02Jul 2014
Mar 201226,86126,86126.60Jan 2015
Sept 201223,17523,17530.83Jul 2015
Deferred bonus shares2Apr 201015,61515,61521.8329.33Apr 2012
Apr 201117,02017,02020.24Apr 2013
Apr 20121,9021,90229.33Apr 2014
Total270,15851,93886,62335,722199,751
Christos Angelides
LTIPMar 200932,57327,0365,53710.9330.14Jan 2012
Sept 200938,60637,0621,54415.3734.01Jul 2012
Mar 201031,04831,048520.13Jan 2013
Sept 201029,56529,56521.14Jul 2013
Mar 201130,55630,55620.70Jan 2014
Sept 201116,48616,48623.02Jul 2014
Mar 201214,61914,61926.60Jan 2015
Sept 201212,61412,61430.83Jul 2015
Total178,83427,23364,0987,081134,888
David Keens
LTIPMar 200931,18725,8855,30210.9330.14Jan 2012
Sept 200922,17821,29188715.3734.01Jul 2012
Mar 201017,13917,139520.13Jan 2013
Sept 201016,32016,32021.14Jul 2013
Mar 201116,86616,86620.70Jan 2014
Sept 201115,16615,16623.02Jul 2014
Mar 201213,44913,44926.60Jan 2015
Sept 201211,60411,60430.83Jul 2015
Total118,85625,05347,1766,18990,544
Andrew Varley
LTIPMar 200923,21719,2703,94710.9330.14Jan 2012
Sept 200916,51015,84966115.3734.01Jul 2012
Mar 201012,74212,742520.13Jan 2013
Sept 201012,13312,13321.14Jul 2013
Mar 201112,53612,53620.70Jan 2014
Sept 201111,27311,27323.02Jul 2014
Mar 20129,9959,99526.60Jan 2015
Sept 20128,6248,62430.83Jul 2015
Total88,41118,61935,1194,60867,303
  1. The maximum number of LTIP shares is the award that could be receivable if the TSR performance conditions outlined on in the Remuneration Policy Table are fully met.
  2. Full details of deferred bonus are set out on in the Remuneration Policy Table and within the Audited Information.
  3. See the LTIP information for details of the performance conditions and vesting levels applicable to the LTIP schemes vesting in the year, including the restriction on the maximum value that could vest.
  4. The maximum value of LTIP awards that vest for a participant in a year is capped at £2.5m. This cap was applied to Lord Wolfson's awards that vested in the year to January 2012. The impact of the cap was to reduce shares vested and increase shares lapsed by 23,344 shares.
  5. See the LTIP information for details of these awards which are expected to vest in April 2013.

The LTIP performance periods which mature after January 2013 are not yet complete and no entitlement has yet been earned. A charge of £23,368,000 for the year (2012: £17,159,000) has been made in the accounts in respect of these LTIP grants, of which approximately £9,554,000 (2012: £7,956,000) related to the executive directors.

For all LTIP participants, the total maximum shares receivable at January 2012 was 1,364,175 (January 2011: 1,776,284). During the year, grants over 517,192 shares vested (2012: 615,044), grants over 57,545 shares lapsed (2012: 189,723) and further grants over 295,033 shares were issued (2012: 392,658). At January 2013 the total maximum shares receivable was 1,084,471 (excluding the impact of any cap on the total value which may apply) with an average remaining contractual life of 1.6 years (2012: 1.6 years).

Share Matching Plan and Sharesave interests

Details of directors' interests in the SMP and Sharesave option scheme are as follows:

Date of
grant
Maximum
share
potential
at January
2012
Options
granted
during
the year
Options
exercised
during the
year
Options
waived
during
the year2
Maximum
share
potential
at January
20134
Option
price
(£)
Option period
Lord Wolfson
SMP1Jun 201065,19065,190NilJun 2013 – Jun 2020
Apr 201167,09867,098NilApr 2014 – Apr 2021
SharesaveOct 20081,8261,8269.17Dec 2013 – Jun 2014
Total134,11465,19068,924
Christos Angelides
SMP1Jun 201046,13246,132NilJun 2013 – Jun 2020
Apr 201148,69048,690NilApr 2014 – Apr 2021
Apr 20128,3928,392NilApr 2015 – Apr 2022
SharesaveOct 201143143120.84Dec 2014 – Jun 2015
Total95,2538,392103,645
David Keens
SMP1Jun 201044,79644,796NilJun 2013 – Jun 2020
Apr 201144,79644,796NilApr 2014 – Apr 2021
Apr 20126,7146,714NilApr 2015 – Apr 2022
SharesaveOct 200838538539.17Dec 2011 – Jun 2012
Oct 201031931917.82Dec 2013 – Jun 2014
Oct 201115815820.84Dec 2014 – Jun 2015
Total90,4546,71438596,783
Andrew Varley
SMP1Jun 201032,20432,204NilJun 2013 – Jun 2020
Apr 201133,30633,306NilApr 2014 – Apr 2021
Apr 20126,7146,714NilApr 2015 – Apr 2022
SharesaveOct 201143143120.84Dec 2014 – Jun 2015
Total65,9416,71472,655
  1. View the performance criteria attached to the SMP.
  2. As disclosed within Part 1 of the Remuneration report, Lord Wolfson has waived his potential entitlement to the 2010 SMP grant.
  3. The market price of shares at the date of exercise was £26.25 for David Keens, equal to a gain of £6,576.
  4. The market price for the shares at the end of the financial year was £40.59, the lowest and highest share price during the financial year was £26.19 and £40.59 respectively.

Save for the waiver of Lord Wolfson's 2010 SMP entitlement, there have been no other changes to awards under the SMP or Sharesave during the year.

Directors' pension entitlements

The Policy Table details the pension entitlements of the executive directors who held office during the year. In summary, these are as follows:

Age at
January
2013
Years of
pensionable
service
Accrued
annual
pension
£'000
Change in
accrued
annual
pension
£'000
Change in
accrued
annual
pension
(net of
inflation)
£'000
Transfer value of
accrued annual
pension
Increase in
transfer value
less director's
contributions
£'000
2013
£'000
2012
£'000
Lord Wolfson451830820144,3333,911386
Christos Angelides492027216114,8024,336440
David Keens592518245,6964,914782
Andrew Varley62247422,1542,13519

Years of pensionable service shown above may include bought-in service from the transfer of other pension entitlements into the Plan. Directors' pension arrangements are subject to the same actuarial reduction as other employees on termination or early retirement.

On behalf of the Board

Jonathan Dawson
Chairman of the Remuneration Committee