Annual Report and Accounts 2015


John Lewis Partnership plc


111


Pay and reward in the Partnership


In 2014/15, the Partnership spent £1,814.8m on employment and related costs. This represented 18.7% of the Partnership’s revenue. £1,359.5m was spent on pay and every eligible Partner received 11% of their 2014/15 gross pay as a Partnership Bonus, at a cost of £156.2m.


What is the Partnership’s pay policy?


Each job in the Partnership has a pay range that is informed by the market. The rate of pay for each Partner is reviewed each year, based on their performance and following a review with their line manager. All Partners have the opportunity to increase their pay through the pay range as their performance develops.


The Partnership does not operate annual incentive plans. However, Partners who display outstanding performance may, on an exceptional basis, be recognised with special bonus awards of up to 10% of salary.


This approach is underpinned by Rule 61 and Rule 62 of the Constitution:


rule 61.


“ The Partnership sets pay ranges which are informed by the market and which are sufficient to attract and retain high calibre people. Each Partner is paid a competitive rate for good performance and as much above that as can be justified by better performance. Partnership Bonus is not taken into account when fixing pay rates.”


rule 62.


“ Pay rates must be decided with such care that if they were made public each would pass the closest scrutiny. Managers are responsible for ensuring that Partners are paid fairly in comparison with others who make a similar contribution.”


Under Rule 44 of the Constitution, the Chairman is ultimately responsible for ensuring that the system for deciding the pay and benefits of individual Partners is fair.


How did the Partnership’s approach to senior reward for Executive Directors and senior Partners change during the year?


The same policy and principles apply to setting pay for the Executive Directors and senior Partners as for all Partners. Over the last year the Partnership has completed the Senior Reward Review which considered how we remunerate senior Partners. This review examined the structure of the total reward package for senior Partners as well as making recommendations in response to the Pension Benefit Review. In September the Partnership Board agreed to the following proposals:


a The pay range benchmarking methodology for Partners at Partnership Levels 2, 3 and 4 would no longer include a negative adjustment for Partnership Bonus when setting pay ranges.


a The benchmarking methodology for all Partners at Partnership Levels 1 to 4 will be aligned and will be based on the value of basic salary and target bonus in the market.


a The value of pension and basic pay should be rebalanced for Partners at Partnership Levels 1 and 2 to better reflect market practice. This will be achieved through a reduction in the value of pension benefit and an increase in basic salary opportunity.


a The small number of Partners who are not part of the Partnership’s pension scheme will receive a reduction in the value of their pension benefit in proportion to the Pension Benefit Review proposals. This will ensure that all Partners are fairly affected by the changes being made through the pension benefit review.


The new benchmarking methodology and the pension rebalancing has been implemented as part of the 2015 pay review. The proportional reduction in pension value for all Executive Directors and senior Partners will coincide with the implementation of the Pension Benefit Review.


Comply or explain?


Composition of the Remuneration Committee


Code Provision D.2.1 states that the board should establish a remuneration committee of at least three independent Non-Executive Directors. This provision supports the Code principle that the committee should be independent of executive management.


The Remuneration Committee comprises two, rather than three, independent Non-Executive Directors and two Elected Directors. This provides a broad mix of members who are independent of executive management and mindful of the Partners’ interests.


Role of the Remuneration Committee


Code Provision D.2.2 states that the remuneration committee should have delegated responsibility for setting remuneration for all Executive Directors and the chairman, including pension rights and any compensation payments. This provision supports the Code principle that remuneration should be set in a formal and transparent manner.


The Remuneration Committee does not have delegated responsibility for setting the Chairman’s remuneration, but instead recommends to the Partnership Board the remuneration package for the Chairman.


Under the terms of Rule 63 of the Constitution, the highest paid Partner’s pay is subject to a cap by reference to a formula related to the pay of other Partners.


The Partnership has voluntarily adopted the UK Corporate Governance Code on a comply or explain basis. For more information: Go to page 84,


Introduction


Partnership difference


Principles


Strategy


Performance


Governance


Financial statements


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