J Sainsbury has drawn up a lucrative new incentive plan that could hand Justin King, the chief executive, free shares worth more than £5m over the next four years on top of his regular bonus and salary. The new scheme could double Mr King's windfall over the next four years to £10m because it will run alongside existing arrangements that hinge on the three-year recovery plan to revive the country's third biggest supermarket chain.
Sainsbury's top 20 shareholders, the Association of British Insurers and the National Association of Pension Funds have all backed the new plan, which was disclosed in yesterday's annual report.
Under the scheme, Mr King's potential bonus is being increased to 150 per cent of his salary from 100 per cent. He can defer up to half of his bonus into Sainsbury's shares, which the group will match up to two times if total shareholder return targets are met - worth £1m a year based on a 330p share price and his existing £725,000-a-year salary. The company must hit sales, profit and availability targets for employees to be in line for a bonus, and managers will be required to defer a proportion of it into shares.
A new long-term incentive plan, also open to the 999 top managers below Mr King, depends on the group hitting return on capital employed (ROCE) and cash flow-per-share goals. It allows Sainsbury's to quadruple the shares awarded, depending on how well the group does. Mr King will get shares worth 45 per cent of his salary, while the finance director, Darren Shapland, and other operating board members will get shares worth 35 per cent of theirs. Over the four-year plan, Mr King could be in line for shares worth up to £1.3m, based on a share price of 330p.
The company said it was not paying its executives enough, adding: "The existing long-term incentive arrangements were no longer aligned to [its] policy of providing competitive levels of reward to attract, retain and motivate high-calibre executive talent."
Investors welcomed the use of ROCE targets as, traditionally, Sainsbury's has performed poorly on this front. Measuring its ROCE will be increasingly apt as it embarks on its first major expansion drive in years.
The annual report showed Mr King took home £1.5m in total remuneration last year, up from £1.1m the previous year. He received £590,000 out of a potential £700,000 bonus after failing to hit profit targets. Mr Shapland received £619,000, including a £120,000 "golden hello" on joining Sainsbury's.
The group's pre-tax profits for the year to 25 March were £104m after hefty exceptional items linked to its turnaround plan, against a£238m loss the previous year. Because its sales are running ahead of plans to grow turnover by £2.5bn by 2008, 117,000 store staff shared a £52m bonus.Reuse content