Marks and Spencer : Remuneration 2022

REMUNERATION

REMUNERATION

OVERVIEW

In this section

REMUNERATION

Remuneration overview	p85
Remuneration in context	p89
Summary Remuneration Policy	p91

ANNUAL REPORT ON

REMUNERATION

Remuneration structure	p95
Total single figure remuneration	p95
Salary and benefits	p96
Annual Bonus Scheme	p97
Performance Share Plan	p99
Directors' share interests	p102
Changes to Board membership	p104
Non-executive directors'
remuneration	p104
Remuneration Committee remit	p106

INTRODUCTION

On behalf of the Board, I am pleased to present our 2021/22 Remuneration Report.

The Remuneration Report provides a comprehensive picture of the structure and scale of our remuneration framework and its alignment with the business strategy and the rest of the workforce.

It also details decisions made by the Committee as a result of business performance for this year and the intended arrangements for 2022/23, including the appointment of Stuart Machin as Chief Executive Officer (CEO) and Katie Bickerstaffe as Co-Chief Executive Officer.

CONTEXT OF BUSINESS

PERFORMANCE

As anticipated in last year's report, the Committee focused much of its activities

THE COMMITTEE ENSURES THE
PAY FRAMEWORK APPROPRIATELY
RECOGNISES AND REWARDS HARD
WORK''	AND FINANCIAL PERFORMANCE
Andrew Fisher, Chair of the Remuneration Committee
during the year, on ensuring M&S' pay	BOARD CHANGES
frameworks and practices support M&S'	''
On 10 March we announced that after
fundamental values of fairness where	nearly 40 years of loyal service to M&S,
colleagues across the business are
Steve Rowe would be stepping down from
appropriately recognised and rewarded
his role as the CEO on 25 May, a role he
for hard work and financial results. The
has held for the last six years. He will cease
Committee ensures that any payments
full-time employment with the business
made do not "reward failure" or poor
at the conclusion of the Annual General
performance; and targets set are
Meeting (AGM) on 5 July. In view of his
challenging yet motivational. Any
wisdom and formidable knowledge of
discussion involving executive director
the business, Steve has agreed to remain
incentive payments considers the
as an adviser to the new leadership for
appropriateness of the payment in the
up to 12 months. I would like to take this
context of the shareholder experience,
opportunity to extend my personal
the general health of the business as
thanks to Steve for his unwavering
well as pay outcomes experienced by
dedication and commitment to M&S,
colleagues across the business.
its colleagues and the Board.
Based on the strong financial
When setting Steve's exit arrangements,
performance of M&S during the year,
the Remuneration Policy provided an
with PBT of £522.9m, the maximum
effective and clear framework, while also
payment opportunity under the corporate
providing appropriate levels of flexibility
financial performance element of the
for the application of discretion by the
Annual Bonus Scheme (ABS) was
Remuneration Committee. Final pay
triggered (see page 97). This will be the
arrangements for Steve are outlined
first bonus payment made to colleagues
on page 104 of this report.
or executives since 2017. This above-
maximum profit performance was	During his tenure, Steve oversaw far-
delivered through a mix of strong Food	reaching changes in organisational
sales growth, an improving margin	structure and management, leaving
mix and the performance of the new	behind a very strong leadership team.
Ocado and Costa channels, together with	As a result of robust succession planning,
3.8% sales growth in Clothing & Home,	the Board was delighted to be able to
significant improvements in the online	select Steve's successors from within
offer and fulfilment together with	the existing leadership team, which not
improved profitability, cash conversion	only demonstrates strong internal talent
and net debt. Further detail on these	development but also provides for
and other aspects of the business's	stability and continuity as we move to the
performance over the last year is	next stage of our transformation journey.
explained earlier in this annual report.	I warmly welcome Stuart Machin and
As explained later in this Remuneration	Katie Bickerstaffe to the Board as CEO and
Co-Chief Executive Officer respectively
Report (see page 97 and 100),
with effect from 25 May 2022, and I look
the Committee was mindful of this
forward to working more closely with both
performance when discussing and
of them in their new roles.
approving incentive outcomes, especially
when considering the uncertainty	As detailed on page 61, both Stuart
of performance caused by global	and Katie are outstanding leaders
macro events.		with very strong track records and

experience of leading businesses through

GOVERNANCE

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REMUNERATION

REMUNERATION OVERVIEW

CONTINUED

transformative change. The Board is confident in their ability to take M&S through the next stage of transformation. The Board is also cognisant that our leadership structure is unusual so it has ensured clear accountability of roles between Stuart and Katie. Stuart has responsibility for day-to-day leadership of the business and the Executive Committee. He continues to have oversight of our Food business, as well as Operations, Property, Store Development and Technology, and has taken on responsibility for HR and Corporate Communications. Upon appointment, Stuart will receive an annual salary of £800,000. Katie has responsibility for Clothing & Home, MS2, International and Financial Services. She also has a particular focus on driving the global omni-channel, data and digital future of the business. Upon appointment, Katie will receive an annual salary of £750,000, reflecting her different work pattern. Both Stuart and Katie continue to be entitled to pension arrangements on the same terms as all colleagues and will be eligible to participate in the ABS and Performance Share Plan (PSP) on the same basis as all executive directors. There was careful deliberation when setting the pay arrangements for Stuart and Katie, during which a number of factors were taken into consideration, including their different

work patterns, their experience and skill and the responsibilities of each, as well as external market factors.

In addition to his finance responsibilities, Eoin Tonge has taken on an enhanced role in leading the future development of the business strategy and oversight of Plan A, becoming our Group CFO & Chief Strategy Officer with effect from 25 May 2022. We believe the accountabilities of his new role go significantly beyond those normally associated with the CFO position. In light of this, Eoin's salary will increase to £660,000 from 25 May in recognition of his increased responsibilities, inclusive of any salary review for 2022/23.

Future Board salaries are confirmed on page 96, and further details of the contractual provisions for executive directors will be summarised in the Directors' Remuneration Report in next year's Annual Report & Financial Statements.

SINGLE FIGURE AND INCENTIVE SCHEME OUTCOMES

As shown in the table on page 95,

the total single figure for the executive directors is higher than prior year. This can be wholly attributed to the outcome of the ABS as no bonus was paid last year.

As in previous years, the 2021/22 ABS remained focused on restoring the

business to profitable growth with performance focused on Group Profit Before Tax before adjusting items (PBT) (70%) and individual measures set against key areas of delivery of the transformation (30%). Individual performance was measured independently of PBT performance, but no individual element could be earned until a threshold level

of PBT was achieved.

It was with cautious optimism that we welcomed the 2021/22 financial results, recognising this as an indication of not only strong underlying performance in a very challenging climate, but also the impact of the successful transformation to date. The PBT outturn of £522.9m was above the maximum financial target, meaning the financial element of the bonus was achieved in full and the individual measures could pay out to the extent that executive directors achieved between target and stretch performance against their stretching personal objectives.

The Committee carefully reviewed the achievement of the individual objectives set at the beginning of the year to align with the strategic priorities to fulfil its remit and enable transparent disclosure to shareholders. Full disclosure can be seen on page 97, but the Committee noted in particular the step change in Clothing &

STRATEGIC ALIGNMENT OF REMUNERATION FRAMEWORK WITH KPIS

	Performance	Annual Bonus
KPI/Strategic priority	As measured by Share Plan (PSP)	Scheme (ABS)

KPI	Adjusted earnings per share (EPS)	Financial
See KPIs	Return on capital employed (ROCE)
results
on p35
Group PBT before adjusting items (PBT)
Strategic	M&S Food high-performing business and market share growth
priority
Ocado transitioning to strong capacity growth post pandemic reversion	Achievement
See
Clothing & Home on track for a more profitable model capable of growth
Strategic	against
Building store rotation pipeline driving exit from legacy stores
priorities	objectives

on p6
Absorbing Brexit related costs, but embryonic global
	strategy encouraging

2021/22 performance

ADJUSTED EARNINGS PER SHARE

21.7p

Adjusted EPS in 2021/22 was 21.7p. This was below the 22.7p threshold required for any vesting under this element of the 2019 PSP award.

RETURN ON CAPITAL EMPLOYED

8.7%

Average three-year ROCE performance was 8.7%. This was below the required 10.2% threshold for any vesting under this element of the 2019 PSP award.

GROUP PBT BEFORE ADJUSTING ITEMS

£522.9m

Group PBT was above the "maximum" target for bonus payments to be made under the 2021/22 ABS.

86 Marks and Spencer Group plc

Home performance and action taken to strengthen the balance sheet in the challenging environment. The Committee was in agreement that it was appropriate to award 83% against the individual objectives for the CEO and CFO.

Even when considering the strong financial results and strong individual performances, the decision to pay 95% of maximum bonus opportunity was not taken lightly. Financial and strategic targets were examined throughout the financial year and at year-end to ensure they retained the same level of stretch envisaged when originally set. The Committee was satisfied that this was the case, and the ABS operated as intended.

None of the 2019 PSP will vest in respect of the three-year performance period up to 2 April 2022. Page 100 of this report provides further detail on the 2019 measures and targets and their respective achievement. While vesting of the PSP remains low, the Committee remains satisfied that this level of vesting is reflective of the shareholder experience in the challenging business environment in which the 2019 plan operated, particularly the first two years of the three-year performance period.

APPLICATION OF DISCRETION

A number of mechanisms are available to the Committee to ensure pay outcomes appropriately reflect individual and business performance, together with the wider economic and societal climate. This includes the ability to apply malus, clawback and responsible discretion to override formulaic outcomes under the incentive schemes.

Throughout the year, the Committee has carefully considered pay arrangements and where it may, or indeed may not, be appropriate to apply discretion.

After meaningful deliberation, the Committee concluded it was appropriate

CEO single figure as a percentage of maximum opportunity

22%

Fixed

PSP

Annual

Bonus

33%

to award Steve Rowe a bonus despite him being under notice at the date of payment.

As detailed above, not only will Steve be working beyond the end of the 2021/22 financial year and for up to 12 months as an adviser to the new leadership team, he has worked tirelessly and determinedly to deliver on the transformation promise, as demonstrated in our strong 2021/22 business performance. Steve will not be eligible for a bonus in respect of the 2022/23 financial year.

As illustrated in the bar chart at the bottom of this page, half of Steve's bonus will be deferred into M&S shares and will be released to him after a three-year holding period; this treatment ensures a long-term alignment with shareholders' interests following the end of Steve's tenure as CEO.

Considering the ABS further, the Committee debated the appropriateness of the original 2021/22 bonus PBT targets in light of the achievement of above "maximum" PBT target performance. Together with the individual objectives, the Committee reviewed the targets set throughout the year and at year-end

to ensure they remained relevant and appropriately stretching, recognising that when the targets were set ahead of the start of the financial year, there was still a high degree of uncertainty as to how the challenges of Covid-19 would impact the business throughout the year. The Committee was satisfied that the original targets set required stretching PBT performance. The Committee also took into account the experience of wider stakeholders, including our colleagues, customers and shareholders, when approving the final outcome. It was determined that the outcome is reflective of a strong year in business performance and recovery, together with individual outstanding contributions, and in this context it is important that colleagues are recognised for this performance.

The Committee did not apply any discretion to the outcomes of the 2019 PSP, which reached the end of its performance period on 2 April 2022 and will lapse in full. Despite the robust business performance in 2021/22, when considering the full three-year performance period of the plan, the Committee was satisfied the final vesting outcome is reflective of the shareholder

2021/22 Bonus payment timings (£000)

experience during the period and the scheme had operated as intended.

As shown in the pie chart at the bottom of the page, Steve Rowe's single figure pay is 55% of the maximum possible for 2021/22.

STRATEGIC ALIGNMENT OF PAY

The Covid-19 pandemic increased the focus on transformation at M&S, which continued throughout this last financial year. During the year, the measures and targets used in M&S' incentive schemes, namely those of the PSP and ABS, were reviewed to ensure alignment with the key performance indicators (KPIs) and identified strategic priorities across the business. The illustration opposite on page 86 demonstrates the strong link between the KPIs and strategic priorities with executive remuneration at M&S. This strength of alignment enables the Committee to ensure pay arrangements support the delivery of transformation and fulfil M&S' potential for long-term sustainable growth. The Committee will continue to review thoroughly the pay structures and incentive arrangements

for the senior leadership team to ensure strong alignment between the delivery of business performance and the associated remuneration arrangements, as the business moves into the 'shaping the future' phase of our transformation journey.

PAY ARRANGEMENTS FOR 2022/23

Due to the timings of Stuart's and Katie's appointments to the Board and Eoin's role change, as well as the accompanying significant analysis and consideration of both external and internal factors when setting their respective salaries, Stuart, Katie and Eoin will not be eligible to participate in the 2022 salary review. They will next be eligible to be considered for a salary review in July 2023. Further details of the wider workforce 2022 salary review can be found on page 88.

Reflecting on the existing variable remuneration framework, it was agreed that in 2021/22 the structures of the PSP and ABS worked well and as intended. As a result, no changes have been proposed for 2022/23.

Once again, performance under the ABS will be measured against corporate financial targets (70%) and individual objectives (30%). The Committee believes it remains appropriate for PBT to continue to represent the largest element of bonus potential as M&S seeks to return to significant levels of profitability.

GOVERNANCE

		Total
		£000
Steve	£1,029	£1,601 £2,630
Rowe

Fixed pay Total bonus PSP

	July 2022	2025
Steve Rowe	£800.7	£800.7
Eoin Tonge	£575.7	£575.7
	One-year performance period		Three-year deferral period

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REMUNERATION

REMUNERATION OVERVIEW

CONTINUED

The maximum opportunity will remain at 200% of base salary.

The Committee continues to ensure that the remuneration framework for executives is aligned with shareholder interests. Following careful debate, it has been agreed that the 2022 PSP will maintain measures applied to the 2021 PSP awards, being 30% adjusted EPS,

30% ROCE, 20% relative total shareholder return (TSR) and 20% strategic measures. Targets have been set to be stretching yet motivating and are detailed in full on pages 100 and 101.

While no change has been proposed to the structure and measures of the 2022 PSP, this belies the significant and detailed conversation and analysis that took place around the appropriateness of the introduction of environmental, social and governance (ESG) measures and targets into the PSP. There is no doubt that M&S takes its ESG responsibility seriously.

Our sustainability commitments sit at the heart of our business operations and inform decisions at all levels and across all departments (see page 70 for our

ESG Committee Review). M&S was an early pioneer of championing sustainability and continues to hold a leading position in this field. One of the ways we believe we can improve our work in this area is to focus on communication with consumers to engage them on this important topic, and to be sure we improve awareness of the work we do. As such, when the Committee considered the introduction of a more traditional carbon metric in the pay framework, it determined that a measure which charts an improvement in customer sentiment would be more aligned to

the strategy for the business. To track this credibly and robustly, a base case for current sentiment must first be established. This forthcoming year the Committee will review the base measurement line throughout the year with the intention of introducing a metric to show improvement from that baseline for 2023.

Having reduced award levels in 2020 to acknowledge the shareholder experience of Covid-19 and to mitigate against windfall gains, share price recovery led the Committee to decide that for the 2021 PSP award it was appropriate to return PSP award percentages to 250% of salary. Mindful of the need to incentivise executives and ensure that they remain aligned with the long-term interests of shareholders, we intend to once again grant PSP awards of 250% of salary in June 2022. The Committee retains the right to

review award levels in the event of significant share price movement prior to the date of grant. Furthermore, it should be noted that when this award reaches the point of vesting, careful consideration will not only be applied to achievement against the relevant performance conditions, but also to ensure the vesting values are reflective of the shareholder experience across the term of the plan. Should the Committee believe this not to be the case, it retains its right to apply discretion to the final outturn.

WIDER WORKFORCE

PAY ARRANGEMENTS

The Committee continued to receive, and indeed welcome, regular and varied updates during the year relating to M&S' pay arrangements. In addition to those already outlined in the Committee's remit, available on the M&S website, discussions included hourly pay for store colleagues and career progression through the organisation. The Committee was also informed of the outcome of the company- wide Total Reward Review that took place in the prior year. More than 14,000 colleagues gave us their views and suggestions on pay arrangements at M&S. As a result of this feedback in 2021/22, we saw the implementation of Virtual GP, which allowed colleagues unlimited 24/7 access to a GP, Check4Cancer, which provides free screenings to all colleagues for high-risk cancers, and salary finance options to help consolidate debt,

save and protect through income protection insurance.

To bring M&S in line with market practice, and in direct response to colleague feedback as a result of the company-wide Total Reward Review, from 1 April 2022 the Company has introduced a 5% payment in lieu of pension allowance for colleagues impacted by either the Annual or Lifetime Allowance limits. The Committee recognises this provision aligns with market practice. To maintain alignment between executive directors and colleagues in the wider population,

it is intended to introduce a similar arrangement into the new Remuneration Policy which will be brought for shareholder approval at the 2023 AGM.

The Committee welcomes continued collaboration with the Business Involvement Group (BIG). At Committee meetings we receive direct feedback on colleagues' views from the National Chair of BIG and in turn the Head of Executive Reward and Pay Governance attends National BIG Committee meetings to share and discuss the executive pay framework and its relationship with the wider workforce. Such dialogue forms the basis of a trusted and valued collaborative working partnership and ensures a close link between the pay philosophies at the most senior levels and those for the wider population.

To demonstrate the importance the Committee gives to the alignment of executive pay with the wider workforce, in the 2021 Remuneration Report we expanded our disclosures on such pay arrangements. We are pleased to continue this approach in this year's report;

see pages 89 and 90.

Given the economic environment in which we are operating currently, it is unsurprising that significant time was taken in discussing the appropriate approach to the annual pay review. As is to be expected, this topic generated a robust debate, and we believe the end result of salary increases ranging from 3% for our senior population to 4%-6.5% for the wider workforce balances the need for financial restraint with support for our colleagues given the increases to cost of living being experienced by all. Further details can be found on pages 89 and 96.

LOOKING AHEAD

We look ahead to what will be a new and dynamic chapter in the M&S story. This will be the final year under the current remuneration framework, and at the 2023 AGM we will be seeking your support and approval for a new Remuneration Policy. During the coming year, the Committee will be working to ensure any new Remuneration Policy is valid and effective in driving and supporting the business strategy while remaining appropriate when considering the overall M&S remuneration framework and the external regulatory environment.

I would like to thank our shareholders for their continued support during the year.

I will be available at the AGM on the 5 July 2022 to answer any questions in relation to this Remuneration Report.

Andrew Fisher

88 Marks and Spencer Group plc

REMUNERATION

IN CONTEXT

COLLEAGUE ENGAGEMENT

Share ownership across our colleagues

M&S is a proud advocate of employee share ownership. The Board believes this supports colleagues not only to share in M&S' success but also to behave as owners of our business, aligned with our shareholders' interests. Across our UK and Irish colleagues, M&S has a significant number of participants in all employee share schemes; colleagues hold over 101m save as you earn options

in our ShareSave scheme and over 2,000 colleagues hold shares in our share incentive plan ShareBuy.

Direct engagement with our colleagues

Since 2018, the Chair of BIG, our colleague representative body, has been invited to attend a Remuneration Committee meeting each year to engage and contribute on a full range of topics and activities. During the year, representatives from BIG have been engaged on a number of pay-related topics, beyond the executive level, including providing feedback on, and agreeing with, the ShareSave communication materials and funding options of our share schemes. They also discussed the operation of a tax-advantaged ShareSave in Ireland, which has been paused while alternative options are investigated due to the absence of an approved savings carrier. The collaborative relationship we have with BIG strongly reflects our belief in the key role that colleague voice plays in ensuring the Committee has greater visibility of the things that really matter to our colleagues. This also gives the Committee the opportunity to explain and discuss our pay practices and how executive pay aligns with pay across the wider workforce. In addition, the Head of Executive Reward & Pay Governance provides updates to the Committee as appropriate on pay and people-related issues during the year.

Pay budgets

Under the remit of the Remuneration Committee, total budgeted salary expenditure across M&S for salary review is noted, as are bonus and share scheme budgets, ensuring principles for reward allocation are aligned across the full

CONSIDERATION OF

COLLEAGUE PAY

The Committee monitors and reviews the effectiveness of the executive reward policy and its impact and compatibility with remuneration policies in the wider workforce. Throughout the year, the Committee reviews the frameworks and budgets for key components of colleague pay arrangements, together with the broader structure of Group bonus provisions, which ensures appropriate alignment with senior pay arrangements.

The Committee is provided throughout the year with information detailing pay in the wider workforce, which gives

it the additional context needed to make informed decisions. The Head of Executive Reward & Pay Governance advises the Committee on the approach to be adopted in the forthcoming UK pay review, and the Committee then considers the executive directors' pay in line with these arrangements.

In approving the budget for the annual bonus, the Committee reviews all bonus costs for the Company against the operating plan. The Committee also reviews and approves any PSP awards made to executive directors and directors below the Board prior to their grant.

The Committee receives updates on a variety of colleague engagement initiatives. Alongside our annual survey, bi-annual pulse and quarterly focused surveys provide dynamic and relevant colleague feedback. The pulse surveys have helped us to better understand, and take action on, the things which matter most to our colleagues. These have focused on topics such as Inclusion & Diversity, Wellbeing and overall colleague engagement.

Colleagues are encouraged to raise questions at the periodic all-colleague announcements led by the CEO. All questions raised are answered, and

comments made during the year through surveys or our network of elected colleague representatives via BIG are considered. The Head of Executive Reward

• Pay Governance typically provides an annual update to these colleague representatives with an explanation of the executive directors' pay arrangements during the year, and these representatives in turn are able to ask questions on
  the arrangements and their fit with the other reward policies at this time.

CONSIDERATION OF

STAKEHOLDER VIEWS

The Committee is dedicated to an open and transparent dialogue with shareholders on the issue of executive remuneration. Where appropriate, the Committee will actively engage with shareholders and shareholder representative bodies, seeking views which are considered when making any decisions about changes to the directors' Remuneration Policy.

The Committee seeks the views of the largest shareholders individually, and others through shareholder representative bodies, when considering making any significant changes to the Remuneration Policy. This may be done annually or on an ad hoc basis, dependent upon the issue. This year, the Committee consulted on the proposed strategic measures and targets to be applied to the PSP. The Committee, led by the Chair, annually engages

in a process of investor consultation, which is typically in written format, but has included face-to-face meetings, telephone or video calls. The Committee Chair is available to answer questions at the AGM, and the answers to specific questions are posted on our website.

As part of our reporting approach, an annual shareholder meeting is normally held and views on a variety of topics, including executive pay, are taken into account.

GOVERNANCE

workforce, inclusive of senior leaders.

The average pay increase for our UK Store Customer Assistants and Team Support Managers awarded in April 2022 was 5.3%. Effective July 2022, salary increases ranging from 3% for our senior population to

4%-6.5% for the wider salaried workforce have been awarded.

PERCENTAGE CHANGE IN CEO'S REMUNERATION

The table below sets out the change	UK-based colleagues' pay. This group
in the CEO's remuneration (i.e. salary,	has been chosen as the majority of our
taxable benefits and annual bonus)	workforce are based in the UK. Further
compared with the change in the	details of the non-executive director
average non-executive director and our	pay changes are shown on page 104.
	% change 2020/21 - 2021/22
	Base salary/fees	Benefits	Annual bonus
CEO (Steve Rowe)	1%	-20%%	100%
Average non-executive director	1%	0%	-
UK colleagues (average per FTE)	4%	0%	100%

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