How Our Policy is linked to Our Strategy

Group Strategy
Deliver shareholder value through long term, sustainable, profitable growth
Remuneration strategy
  • Pay fairly for an individual's role and responsibilities
  • Reward strong performance
  • Focus on long term value creation
  • Align Executives with shareholders through share ownership
Remuneration structure
  • Base pay and benefits at median or below
  • Annual bonus at median
  • Long Term Incentive Plan at upper quartile
  • Two thirds of variable pay retained in shares for duration of employment and half of these for a further two years

Our binding Remuneration Policy was last updated in 2017, and approved by shareholders at the AGM on 21 November 2017 with 99.4% of votes in favour of it.

The principles behind, and the reasons for, the overall remuneration structure that we have adopted for our Executive Directors are directly related to our long term strategic goal of delivering shareholder value through the profitable growth of a quality business.

Since the flotation of the Company our Executive remuneration has been structured specifically:

  • To pay fairly and appropriately for an individual's role and responsibilities
  • To reward strong performance
  • To be focused on long term value creation
  • To align Executives strongly with shareholders through share ownership

The majority of the Executive Directors' potential remuneration is variable and performance-related in order to encourage and reward superior business performance and shareholder return. Discretion is allowed in certain circumstances to ensure rewards are appropriate and overall levels of pay are analysed carefully each year.

This is consistent with the creation of long term, sustainable growth in shareholder value through delivery of the objectives set out in our corporate strategy, which are all long term in nature; namely to become the customer's number one choice for helping consumers create homes they love: famous for style, value and quality, and the best multichannel retailer in terms of convenience and customer experience. Our approach is also in keeping with the family origin of the business, and is important to the Adderley family who remain our majority shareholders.

It is our intention to maintain a simple and transparent remuneration structure for the benefit of all parties.

Introduction

This Directors' Remuneration Report is divided into three sections: the Letter from the Chair of the Remuneration Committee; the Policy Report; and the Annual Report on Implementation.

The Policy Report sets out the 2017 Remuneration Policy which has been in force since 21 November 2017, when it was approved by shareholders at the AGM with a vote of 99.4% in favour of it. No changes to our Policy are being put forward this year.

The Annual Report on Implementation sets out how the policies approved in November 2014, 2015 and 2017 have been applied during the financial year being reported on and how policy will be applied in the coming year. This report will be put to shareholders for approval at the Annual General Meeting in November 2018, although the vote on the implementation report is advisory.

This report complies with the provisions of the Companies Act 2006 and Schedule 8 of the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2013 (as amended), as well as the UK Corporate Governance Code and the UKLA Listing Rules.


The Policy Report

Directors' Remuneration Policy 2017

The policy set out below (the "2017 Policy") is the policy approved by shareholders at the AGM on 21 November 2017, and applied from that date.

The information contained in this report is unaudited unless specifically stated as being audited.

Future policy table

The following table sets out the structure of remuneration for Directors of the Company.

Executive Directors

Base salary
Purpose and link to strategic objectives
  • Fixed remuneration for the role
  • To attract and retain the high-calibre talent necessary to develop and deliver the business strategy
  • Reflects the size and scope of the Executive Director's responsibilities
Operation
  • Normally paid monthly
  • Base level set in the context of:
    • Pay for similar roles in companies of similar size and complexity in the relevant market
    • Scale and complexity of the role
  • Should comprise a minority of potential remuneration
Maximum
opportunity
  • Reviewed annually, with percentage increases in line with the Company-wide review unless other circumstances apply, such as:
    • A significant change in the size, scale or complexity of the role or of the Company's business
    • Development and performance in role (for example on a new appointment base salary might be initially set at a lower level with the intention of increasing over time)
  • The Committee does not consider it to be appropriate to set a monetary limit on the maximum base salary that may be paid to an Executive Director within the terms of this policy
Performance
metrics
  • None, although performance of the individual is considered at the annual salary review
  • No recovery provisions apply to base salary
Retirement benefits
Purpose and link to strategic objectives
  • To provide a competitive post-retirement benefit
  • To attract and retain the high-calibre talent necessary to develop and deliver the business strategy
Operation
  • Contribution equivalent to a percentage of base salary made to a defined contribution plan or paid as a cash allowance
Maximum
opportunity
  • Up to 15% of base salary (for Executive Directors appointed from November 2017 onwards. For Executive Directors appointed prior to that the maximum is 20% of base salary). No element other than base salary is pensionable
Performance
metrics
  • None
  • No recovery provisions apply to retirement benefits
Benefits
Purpose and link to strategic objectives
  • To provide a competitive benefits package
  • To attract and retain the high-calibre talent necessary to develop and deliver the business strategy
Operation
  • A range of benefits are provided, which may include car or car allowance; private health insurance for the individual and their family; permanent health cover; life assurance; mobile phone; use of a car and driver in connection with the role; colleague discount
  • Additional benefits, such as relocation expenses, housing allowance and school fees may also be provided in certain circumstances if considered reasonable and appropriate by the Committee
  • For non-UK Executives (none at present) the Committee may consider additional allowances in accordance with standard practice
Maximum
opportunity
  • Current benefits provided are described in the Annual Report on Implementation.
  • The Committee reserves the right to provide such benefits as it considers necessary to support the strategy of the Company
  • The Committee does not consider it to be appropriate to set a maximum cost to the Company of benefits to be paid
Performance
metrics
  • None
  • No recovery provisions apply to benefits
Annual bonus – awards to be made to Executive Directors other than Will Adderley, who has requested that he not be considered for annual bonus.
Purpose and link to strategic objectives
  • Rewards and incentivises delivery of annual financial, strategic and personal targets
Operation
  • Paid in cash, after the results for the financial year have been audited, subject to performance targets having been met
  • Two-thirds of bonus earned must be invested in Dunelm shares after tax and National Insurance obligations have been met
Maximum
opportunity
  • Maximum opportunity – 125% of base salary per annum
  • For on-target performance – 40% of maximum opportunity
  • For threshold performance – 5% of maximum opportunity
Performance
metrics
  • Stretching performance targets are set each year. Performance targets for the Executive Directors are typically based on financial and strategic objectives set by the Remuneration Committee annually
  • Financial objectives include, but are not limited to, budgeted PBT for the financial year taking into account market consensus and individual broker expectations
  • The strategic objectives will vary depending on the specific business priorities in a particular year
  • Typically, the majority of the annual bonus for Executives is subject to financial objectives
  • Awards are subject to recovery provisions (malus) at the discretion of the Committee if there has been a misstatement of results for the year in respect of which the bonus is paid, or if there has been an error in calculating performance, or in the case of gross misconduct
  • The Remuneration Committee also has the discretion to claw back the bonus up to three years after payment in the above circumstances and in cases of fraud, the Committee can apply malus and clawback for an unlimited period of time
Long Term Incentive Plan – awards to be made to Executive Directors other than Will Adderley, who has requested that he not be considered for LTIP awards.
Purpose and link to strategic objectives
  • Supports delivery of strategy by targeting EPS growth, which the Committee believes to be closely aligned to the drivers of growth in the business over the long term
  • Rewards strong financial performance and sustained increase in shareholder value over the long term
  • Aligns with shareholder interests through the delivery of shares, the majority of which (after payment of tax liabilities) are retained
Operation
  • Conditional awards are made annually (which can take the form of a conditional award, nil-cost option or nominal value option), with vesting subject to performance over three financial years
  • Two-thirds of all shares vesting must be retained by the Executive (after sale of shares to meet tax and National Insurance obligations)
Maximum
opportunity
  • For awards to be made in respect of the FY18–FY20 performance period, the maximum annual award is 110,000 shares for the Chief Executive Officer and 60,000 shares for the Chief Financial Officer, subject in either case to such adjustment as the Committee determines to take account of any variation in the Company's share capital
  • For awards to be made in respect of the FY19–FY21 performance period and awards to be made in future years, the maximum annual award for Executive Directors is shares with a value up to 200% of salary, calculated by reference to the market price of Dunelm shares on the date preceding the date of grant
  • For threshold performance: 10% of the award will vest
  • For maximum performance: 100% of the award will vest
  • Straight-line vesting between the threshold and maximum levels will apply for performance between threshold and maximum points
  • Dividend accruals may be made in respect of special dividends paid during the performance period applicable to an award and up to the vesting date. Payment would only be made in respect of shares vesting after applying performance criteria. This will apply to all awards vesting after the 2017 Policy comes into effect
Performance
metrics
  • Growth in fully diluted EPS over the three year performance period compared with growth in the index of retail prices (RPI) over the same period
  • The Remuneration Committee considers the target annually taking into account market consensus and individual broker expectations
  • For information, the target applicable to awards to be made are:

    No part of the award will vest until compound annual EPS growth exceeds RPI growth by 3%

    For awards to be made in respect of the FY18–FY20 performance period, 10% of the award vests at compound annual EPS growth in excess of RPI plus 3%. 100% of the award vests at compound annual EPS growth in excess of RPI plus 15%

    For awards to be made in respect of the FY19–FY21 performance period, and for awards made in future years, 10% of the award vests at compound annual EPS growth in excess of RPI plus 3%. 100% of the award vests at compound annual EPS growth in excess of RPI plus 12%

    Between those figures the award will vest on a straight-line basis
  • Awards are subject to recovery provisions (malus) at the discretion of the Committee if there has been a misstatement of results for the performance period to which the award relates, or if there has been an error in calculating performance or in the case of gross misconduct
  • The Remuneration Committee also has the discretion to claw back vested awards for up to three years from vesting in these circumstances and in cases of fraud, the Committee can apply malus and clawback for an unlimited period of time
Lifetime Lock-in and personal shareholding targets
Purpose and link to strategic objectives
  • Aligns with shareholder interests through shareholding and promotes long term thinking
Operation
  • Executive Directors are required to build a beneficial holding of shares equal to 100% of salary after three years and 200% of salary after five years from appointment
  • A personal investment in Dunelm shares should be made on appointment as an Executive Director (subject to closed periods)
  • Two-thirds of amounts earned under the annual bonus and the LTIP (after payment of tax and National Insurance) must be retained in Dunelm shares
  • These shares must be held during employment and at least 50% of them retained for at least two years after employment ends
  • The Remuneration Committee retains the right to waive this requirement in exceptional circumstances, such as death, divorce, ill health or severe financial hardship
Maximum
opportunity
  • Not applicable
Performance
metrics
  • Not applicable
All employee share plan (Sharesave)
Purpose and link to strategic objectives
  • Promotes share ownership by all eligible colleagues (including Executive Directors)
Operation
  • All UK employees with a minimum service requirement are eligible to join the UK tax approved Dunelm Group Savings Related Share Option Plan (the Sharesave)
  • Monthly savings are made over a period of three years linked to the grant of an option over Dunelm shares at a discount of up to 20% of the market price (or such other amount as permitted by law) at the date of invitation to join the plan
  • Invitations are normally issued annually at the discretion of the Remuneration Committee, which also has discretion to set the minimum service requirement, maximum discount, maximum monthly savings and any other limits (such as scaling back) within the terms of the scheme rules
Maximum
opportunity
  • Maximum participation limits are set by the UK tax authorities. Currently the maximum limit is savings of £500 per month
Performance
metrics
  • None

Non-Executive Directors

FEES
Purpose and link to strategic objectives
  • To attract and retain a high calibre Chairman and Non-Executive Directors by offering competitive fee levels
Operation
  • Fees for the Chairman and Non-Executive Directors are set by the Board. No Director participates in any decision relating to his or her own remuneration
  • The Chairman is paid an all-inclusive fee for all Board responsibilities
  • The Non-Executive Directors receive a basic fee, with supplemental fees for additional Board responsibilities
  • The level of fee reflects the size and complexity of the role and the time commitment
  • Fees are reviewed annually and increased in line with the Company-wide increase. In addition, there will be a periodic review against market rates and taking into account time commitment and any change in size, scale or complexity of the business
  • Flexibility is retained to increase fee levels in certain circumstances, for example, if required to recruit a new Chairman or Non-Executive Director of the appropriate calibre
  • With the exception of colleague discount, no benefits are paid to the Chairman or the Non-Executive Directors, and they do not participate in any incentive scheme
Maximum
opportunity
  • Maximum fees to be paid by way of fees to the Non-Executive Directors are set out in the Company's Articles of Association
  • Fees paid to each Director are disclosed in the Annual Report on Implementation
Performance
metrics
  • None

The Committee reserves the right to make any remuneration payments and payments for loss of office notwithstanding that they are not in line with the policy, where the terms of the payment were agreed (i) before the policy came into effect or (ii) at a time when the relevant individual was not a Director of the Company and, in the opinion of the Committee, the payment was not in consideration for the individual becoming a Director of the Company. For these purposes 'payments' includes the Committee satisfying awards of variable remuneration, and in relation to an award over shares, the terms of payment are 'agreed' at the time the award is granted. This includes the satisfaction of the Joining Award granted to Keith Down on 7 December 2015 to compensate him for deferred shares earned with his previous employer which were forfeited when he resigned.

The Committee may also make minor changes to this policy which do not have a material advantage to Directors, to aid its operation or implementation without seeking shareholder approval, but taking into account the interests of shareholders.

Performance measures and how targets are set

The Remuneration Committee selects performance measures that it believes are:

  • Aligned with the Group's strategic goals
  • Unambiguous and easy to calculate
  • Transparent to Directors and shareholders

Annual bonus

For the financial year 2018/19, 80% of the annual bonus is linked to PBT and 20% to personal and strategic objectives. Each Director's annual bonus is therefore linked primarily to delivery of Group financial performance, but also to personal performance and contribution to the strategic progress of the Group. The PBT target is set by the Remuneration Committee each year, taking into account market consensus and broker expectations. Personal and strategic objectives are set at the commencement of the year and assessed by the Remuneration Committee.

The Committee reserves the right to adjust the financial performance target or change the performance condition if justified by the circumstances, for example if there was a major capital transaction.

For future years, the Committee will determine the financial measures and the weighting of financial and non-financial measures based on specific business priorities in a particular year.

LTIP

The EPS target for the LTIP is based on growth in fully diluted EPS compared to the increase in the Index of Retail Prices (RPI) over each performance period. The targets that apply to awards are set out in the Policy table.

The Remuneration Committee considered the use of EPS as a performance measure carefully when the Company was floated in 2006, and has discussed it with shareholders regularly. EPS is believed to be closely aligned to the drivers of growth for the business and in the long term, EPS performance is expected to be reflected in shareholder value. EPS is a more suitable performance measure for Dunelm than for many other companies and it is therefore considered appropriate to use it as a single measure for the LTIP. The use of EPS as a primary measure for Dunelm's LTIP is considered appropriate because of the low level of leverage in the business and because the capital expenditure controls exercised by the Board are sufficiently rigorous to avoid EPS accretion by means of ineffective investment of capital.

The number of shares comprised in an award or the performance target which applies may be adjusted by the Remuneration Committee in accordance with the plan rules if justified by the circumstances, for example, if there were a major capital transaction. Any amendment and the reason for it would be fully disclosed. A copy of the plan rules is available from the Company Secretary on request.

Illustrative performance scenarios

The following graphs set out what Will Adderley and Nick Wilkinson, the Executive Directors in office at the date of this report, could earn in the financial year 2018/19 under the following scenarios:


Nick Wilkinson

Will Adderley

  • LTIP
  • Annual bonus
  • Fixed pay

 

The following assumptions have been made in respect of the scenarios above:

Minimum (performance below threshold) – Fixed pay (comprising base salary, benefits and pension) only with no vesting under the annual cash bonus or LTIP (see table below).

Base
(last known
salary)
£'000
Benefits
(as in single
figure table)
£'000
Pension
(10% of
last known
salary)
£'000
Will Adderley21
Nick Wilkinson59131541
  1. 10% of salary reflecting pension provision for 2018/19

In line with expectations – Fixed pay plus annual cash bonus at on-target performance of 40% of maximum opportunity (i.e. 50% of salary) and vesting of 59% of the award of shares under the LTIP.

Maximum performance – Fixed pay plus 100% of maximum annual bonus opportunity (i.e. 125% of salary) and 100% of shares vesting under the LTIP.

Please note that two-thirds of performance pay earned by Nick Wilkinson (after payment of tax and National Insurance liability) must be invested in Dunelm shares pursuant to the 'Lifetime Lock-in'.

Will Adderley has requested that his annual salary be maintained at £1 per annum, and he has waived his entitlement to receive an LTIP award.

It should be noted that the illustrative performance number is likely to be different to the actual pay that is earned by Nick Wilkinson during the year:

  • Actual pay will reflect Company and personal performance over the relevant performance period
  • We are required to show the value of the LTIP awards that are expected to be made in the year, not those which will actually vest. This valuation is based on the expected face value at the date of grant without making any assumptions for share price growth, and assuming that the award vests in full at the end of the three year performance period. The value of the LTIP award to be made is based on the grant to Nick Wilkinson of an award over shares to the value of 200% of salary
  • No adjustment is made for payment of special dividend equivalents as the level of these cannot be determined at the date of this report

Recovery

There is provision for recovery of variable pay, as highlighted in the policy table.

For bonus and LTIP awards made prior to the date of this report, at the discretion of the Remuneration Committee, recovery (malus) may be made against any unpaid cash bonus or unvested LTIP options in the following circumstances:

  • performance to which a bonus or LTIP award relates proves to have been misstated or
  • there has been a miscalculation in the extent to which performance conditions have been met in respect of previous awards made to the individual that have vested and been exercised or
  • there has been gross misconduct on the part of the individual

Clawback may be operated at the discretion of the Remuneration Committee against all variable awards in the above circumstances, for up to three years from payment or vesting as appropriate; and in cases of fraud the Committee can apply malus and clawback for an unlimited period of time.

In recent years, it has become best practice for malus and clawback to apply in a wider set of circumstances. Therefore, in respect of bonus and LTIP awards made from the date of this report onwards, the Remuneration Committee will have discretion to apply malus and clawback as stated above in the following circumstances:

  • a material misstatement of any Group company's financial results;
  • a material error in assessing a performance condition applicable to the award or in the information or assumptions on which the award was granted or vests:
  • a material failure of risk management in any Group company or a relevant business unit
  • serious reputational damage to any Group company or a relevant business unit
  • serious misconduct or material error on the part of the Participant
  • a material corporate failure as determined by the Board; or
  • any other circumstances which the Committee in its discretion considers to be similar in their nature or effect to those set out above

Salary, pension, benefits and Sharesave options are not subject to recovery.

Service contracts and loss of office payments

All of the Executive Directors have service contracts. The notice period for termination for Will Adderley is 12 months from either party, and for Nick Wilkinson (and Laura Carr when she joins) is six months from either party. If the Company terminates the employment of the Executive Director it would honour its contractual commitment. Any payment of salary on termination is contractually restricted to a maximum of the value of salary plus benefits for the notice period. If termination was with immediate effect, a payment in lieu of notice may be made. The Remuneration Committee may apply mitigation in respect of any termination payment.

The Remuneration Committee has discretion to make a payment in respect of annual bonus, provided that it is pro-rated to service.

The limited circumstances in which unexercised LTIP awards might be exercised following termination of an Executive Director's service contract are set out below. If the Remuneration Committee exercises its discretion to allow exercise of an unvested LTIP award, it may make a cash payment in lieu of the anticipated value of the award, calculated at the date of the payment (taking into account prorating of the award and the extent to which performance criteria may apply, as appropriate).

Non-Executive Directors have letters of appointment. The term is for an initial period of three years with a provision for termination on one month's notice from either party, or three months' notice from either party in the case of Andy Harrison, the Chairman. Letters are renewed for up to two additional three year terms, and then renewed annually. The letter of appointment will terminate without compensation if the Director is not reappointed at the AGM.

The Directors' service contracts and letters of appointment are available for inspection by shareholders at the Company's registered office.

Exercise of LTIP and Sharesave options following termination of employment

LTIP

If a participant leaves the employment of the Group, the following provisions apply to options granted under the LTIP:

  • Options that have vested but have not yet been exercised may be exercised within six months of cessation of employment (12 months in the case of death)
  • Except in the case of dismissal for gross misconduct, options which have not yet vested, but where the performance period has elapsed (for example if cessation of employment occurs during the deferral period applicable to LTIP options granted to David Stead (former Finance Director) from 2013 onwards), may be exercised within six months of the relevant vesting date (or 12 months in the case of death), to the extent that the performance condition has been met. The Remuneration Committee has discretion to allow earlier exercise but would only use this in exceptional circumstances (such as death or ill health retirement), or at its discretion for a good leaver
  • If the participant leaves the Group before an option has vested and before the performance period has elapsed, the option will usually lapse. Except in the case of dismissal for gross misconduct, the Remuneration Committee has the discretion to allow the exercise of options for which the performance period has not elapsed at the date of cessation of employment, within six months of the relevant vesting date (or 12 months in the case of death). The Remuneration Committee also has discretion to allow earlier exercise. The Remuneration Committee would only use this discretion in exceptional circumstances (such as death or ill health retirement), or at its discretion for a good leaver
  • If early exercise is permitted, the Remuneration Committee may apply an adjustment to take into account the amount of time that has elapsed through the performance period and the extent to which any performance criteria have been met

In all cases, unexercised LTIP awards would be subject to recovery (malus) in the relevant circumstances. In respect of LTIP awards made after 1 July 2014, clawback may also apply to vested awards.

Sharesave

If a participant leaves the Group, options granted under the Sharesave will normally lapse, but may be exercised within six months from the cessation of employment due to injury, disability, retirement, or redundancy (or 12 months in the case of death), or the employing company leaving the Group or, provided that the option has been held for at least three years, cessation for any other reason (apart from dismissal by the Company).

Change of control and other corporate events

LTIP

The following provisions apply to awards made under the Long Term Incentive Plan in accordance with the Plan rules if there is a change of control or winding up of the Company:

  • Any vested but unexercised options may be exercised
  • Any options in respect of which the performance period has elapsed and to which the performance condition has been applied will vest and may be exercised
  • Any options in respect of which the performance period has not elapsed may be exercised at the discretion of the Remuneration Committee, subject to any adjustment to take into account the amount of time that has elapsed through the performance period and the extent to which any performance criteria have been met
  • The Executive Director may agree that his or her awards are 'rolled over' into shares of the acquiring company as an alternative

If the Company has been or will be affected by any demerger, dividend in specie, special dividend or other transaction which will adversely affect the current or future value of any awards under the LTIP, the Plan rules allow the Remuneration Committee, acting fairly and reasonably, to determine the extent to which any awards should vest and the period within which Options may be exercised.

A copy of the Plan rules is available from the Company Secretary on request.

Sharesave

Sharesave options may be exercised within six months following a change of control or winding up of the Company, using savings in the participant's account at the date of exercise. The participant may agree that his or her awards are 'rolled over' into shares of the acquiring company as an alternative.

If the Company has been or will be affected by a capitalisation, rights issue, subdivision, reduction, consolidation, special dividend or other variation in respect of which HMRC will allow the variation of options, the Plan rules allow the Remuneration Committee, with the consent of HMRC, to vary the number and/or nominal value of shares covered by an option or the option price to be varied proportionately.

A copy of the Plan rules is available from the Company Secretary on request.

Executive pay and the pay of other colleagues

The principles set out on the Remuneration Strategy are applied consistently to pay throughout the Group.

Pay for all colleagues is set at a level that is fair for the role and responsibilities of the individual, and is designed to attract and retain high calibre talent that is needed to deliver the Group's strategy, without paying too much.

The remuneration of Executive Directors is more heavily weighted towards variable pay than other colleagues, so that a greater part of their pay is linked to successful delivery of strategy and aligned with shareholders. They are also required to retain two-thirds of post-tax performance pay in Dunelm shares to be held for the duration of employment and beyond, and are subject to higher personal shareholding targets.

The remuneration of colleagues below the Board reflects the seniority of the role, market practice and the ability of the individual to influence Company performance.

All eligible colleagues are encouraged to participate in the Sharesave plan, which enables them to become shareholders at a discounted rate. Participation is usually offered annually at the maximum price discount permitted (currently 20%), at the discretion of the Remuneration Committee.

In setting the policy for the Executive Directors' remuneration, the Committee takes note of the overall approach to remuneration in the Group. In previous years, the Committee had formal oversight of the remuneration of Executive Board members. In accordance with the Government's corporate governance reform:

  • From June 2018 the Committee has formally approved the remuneration of the Company Secretary and all members of the Executive Board
  • From October 2018, in at least one of her twice yearly Board updates, the People Director will provide information about workforce policies and practices

The base salary of Executive Directors may be increased annually in line with the Company-wide award unless other circumstances apply, as set out in the policy table.

The Committee does not formally consult with colleagues specifically in relation to executive pay. However, through the new processes introduced in the financial year, members of the National Colleague Council have the opportunity to raise any concerns directly with Marion Sears, the Non-Executive Director who has been designated to consider colleague views. Marion attends two National Colleague Council meetings each year and Council members are also invited annually to attend a Board meeting. Colleagues may also raise any concerns via the People Director, or anonymously through our engagement survey. To date, executive pay has not been raised as a concern.

Shareholder views

The Board is committed to ongoing engagement with shareholders in respect of all governance matters, including executive remuneration.

In addition to this, the Company holds a Corporate Governance Day, usually every two years, hosted by the Chairman, the Deputy Chairman and the other Non-Executive Directors, to which all major shareholders are invited. This enables both parties to discuss governance topics informally, including remuneration. In addition, the Chairman and Non-Executive Directors usually attend results presentations and a selection of shareholder meetings. The last Corporate Governance Day was in January 2018, and a copy of the presentation is on our website corporate.dunelm.com.

Formal feedback on shareholder views is given to the Board twice per annum by the Company's brokers and financial public relations advisers. The AGM reports issued by the Investment Association (IA), the Pension and Lifetime Savings Association, ISS and Pensions Investment Research Council (PIRC) are also considered by the Board.

All Directors usually attend the Annual General Meeting, and the Chairman and the Chair of the Remuneration Committee may be contacted via the Company Secretary during the year.

If any significant change to policy were proposed, the Committee would consult with major shareholders in advance. Shareholders were consulted prior to putting forward both the 2015 Policy and the 2017 Policy for approval.

Approach to recruitment remuneration

The Remuneration Committee will apply the principles set out below when agreeing a remuneration package for a new Director (whether an external candidate or an internal promotion). These have been applied in the recruitment of Nick Wilkinson who joined the Board on 1 February 2018 and of Laura Carr who will join on 29 November 2018. Further details of their remuneration are set out in the Implementation Report.

  • The package must be sufficient to attract and retain the high calibre talent necessary to develop and deliver the Company's strategy
  • No more should be paid than is necessary
  • Notwithstanding the approved policy, the maximum pension entitlement (or cash allowance) for a newly appointed Executive Director will be 10% of salary
  • Remuneration should be in line with the policy approved by shareholders set out above; however, the Committee reserves the discretion to make appropriate remuneration decisions outside the standard policy to meet the individual needs of the recruitment provided the Committee believes the relevant decisions are in the best interests of the Company

These circumstances might include:

  • Where an interim appointment is made on a short term basis, including where the Chairman or another Non-Executive Director has to assume an executive position
  • Where employment commences at a time in the year when it is inappropriate to provide a bonus or share incentive award as there is insufficient time to assess performance, the quantum for the subsequent year might be increased proportionately instead
  • An executive is recruited from a business or location that offered benefits that the Committee considers it appropriate to 'buy out' but cannot do so under the specific terms of the Regulations, or which the Committee considers it appropriate to offer

Examples of remuneration decisions that the Committee may make are set out below:

  • It may be appropriate to offer a lower salary initially, with a series of increases to reach the desired salary over a period of time, subject to performance
  • A longer notice period of up to a maximum of 24 months might be offered, reducing by one month for every month served until the policy position is reached
  • The Committee may also alter the performance criteria applicable to the initial annual bonus or LTIP award so that they are more applicable to the circumstances of the recruitment
  • An internal candidate would be able to retain any outstanding variable pay awarded in respect of their previous role that pays out in accordance with its terms of grant
  • Appropriate costs and support will be provided if the recruitment requires the relocation of the individual

The maximum level of variable pay that could be awarded to a new Executive Director in the first year of employment, excluding any buyout arrangements, would normally be in line with the policy table. The Committee would explain the rationale for the remuneration package in the next annual report of the Company.

In addition, on hiring an external candidate the Committee may make arrangements to buy out remuneration that the individual has forfeited on leaving a previous employer. The Committee will generally seek to structure buyout awards and payments on a comparable basis to remuneration arrangements forfeited. These awards or payments are excluded from the maximum level of variable pay referred to in the policy tables; however, the Committee's intention is that the value awarded or paid would be no higher than the expected value of the forfeited arrangements.

In order to implement the arrangements described, the Committee may rely on the exemption in Listing Rule 9.4.2, which allows for the grant of share or share option awards to facilitate, in unusual circumstances, the recruitment of a Director.

The Committee does not intend to use any discretion in this section to make a non-performance related incentive payment (for example a 'golden hello').

On the appointment of a new Chairman the fee will be set taking into account the experience and calibre of the individual and pay for similar roles in companies of similar size and complexity in the market. All other Non-Executive Directors receive the same base and Committee chair fees, which are set at median or below. No share incentives or performance related incentives would be offered.

Annual Report on Implementation

This section of the report sets out how the Directors' Remuneration Policy which was approved by shareholders on 21 November 2017 has been applied in the financial year being reported on.

Committee membership and meetings

The following Directors served on the Remuneration Committee during the year:

Table 1 – Committee membership

MemberPeriod from:To:
William Reeve (Chair from 22 November 2017)1 July 2015To date
Liz Doherty1 May 2013To date
Andy Harrison1 September 2014To date
Peter Ruis10 September 2015To date
Rachel Osborne1 April 201828 August 2018
Simon Emeny (Chair until his retirement on 21 November 2017)25 June 200721 November 2017

The Company Secretary acts as secretary to the Committee.

Six meetings were held in the year and members' attendance was as shown in the table below.

Table 2 – Attendance at Committee meetings

MemberMeetings attended:
William Reeve (Chair)6/6
Liz Doherty*5/6
Andy Harrison6/6
Peter Ruis6/6
Rachel Osborne2/2
Simon Emeny2/2

* Liz Doherty received the papers and fed back comments to the Committee Chair in advance of the meeting

No Director ever participates when his or her own remuneration is discussed.

Advisers

The Committee uses Deloitte for general advice in relation to executive remuneration on an ad hoc basis. Deloitte is a member of the Remuneration Consultants' Group and as such voluntarily operates under a code of conduct in relation to executive remuneration consulting in the UK. Deloitte does not have any other ongoing business relationship with the Group. The Committee is satisfied that the advice that they have received from Deloitte in the year has been objective and independent.

Total fees paid to Deloitte for remuneration related work in the year were £8,150 (2017: £10,780).

The Chief Executive Officer attends Committee meetings by invitation to make recommendations as to the remuneration payable to below Board executives. The People Director attends all meetings by invitation to advise on remuneration related issues and provide details of the remuneration applied throughout the Group so that a consistent approach can be adopted.

Single figure for total remuneration (audited information)

The following table sets out total remuneration for Directors for the period ended 30 June 2018:

Table 3 – Directors' remuneration – single figure table

Salary/fees6
£'000
Benefits3
£'000
Bonus4,7
£'000
LTIP awards2
£'000
Pension5
£'000
Total
£'000
Director201820172018201720182017201820172018201720182017
Executive
Nick Wilkinson221283722308
Keith Down1,2327357202162172664954568560
Will Adderley21212121
John Browett1,234751013218969102429722
Non-Executive
Andy Harrison208204208204
Marion Sears50495049
Liz Doherty164556455
William Reeve156495649
Peter Ruis50495049
Rachel Osborne11212
Simon Emeny126612661
Total1,3611,334826337151172661401561,7921,770
  1. John Browett stepped down from the Board on 29 August 2017, Simon Emeny retired on 21 November 2017 and Keith Down stepped down from the Board on 24 May 2018. Rachel Osborne joined the Board on 1 April 2018. Liz Doherty was appointed the Senior Independent Director and William Reeve was appointed Chair of the Remuneration Committee on 22 November 2017. Basic salary / fee, SID fees and Committee Chair fees for Simon Emeny, Rachel Osborne, Liz Doherty and William Reeve, and salary, pension and benefits for John Browett and Keith Down are pro rated over the year. The total figure for John Browett includes £322,120 in respect of salary and benefits paid for his six month notice period.
  2. As John Browett and Keith Down stepped down during the year neither of them qualified for bonus in respect of FY18 and all LTIP and Sharesave options have lapsed. The sum for 2018 LTIP paid to Keith Down relates to the second tranche of his Joining Award over 26,488 shares which was exercised on 19 September 2017. The closing mid market share price of Dunelm shares on vesting date (15 September 2017) was 650p.
  3. Benefits include the cost to the Company of a car allowance and private health insurance for the individual and their family. Nick Wilkinson is also entitled to an allowance of 5% of his annual salary towards the cost of travel from home to Leicester; and a relocation allowance of £50,000, partially in the form of Dunelm store credit, plus a contribution of £1,500 per month towards the cost of temporary accommodation for the first 12 months of employment.
  4. Annual bonus is the amount earned in respect of FY18. Details of how this was calculated are set out below.
  5. Pension is 20% of salary for John Browett, 15% of base salary for Keith Down and 10% for Nick Wilkinson. Will Adderley waived his entitlement to pension from 1 July 2015.
  6. From 1 July 2018, Nick Wilkinson's base salary was increased by 2%, in line with the Company-wide award for monthly paid colleagues. Will Adderley's base salary is held at £1 per annum. The fee for the Chairman and the base fee for the other Non-Executive Directors, the SID fee and the Committee fees were also increased by 2%.
  7. Nick Wilkinson was awarded an annual performance-related cash bonus for FY18 with a maximum potential payment of 125% of salary. The performance conditions which applied to the bonus were those set in September 2017 for Keith Down (this was prior to Nick's appointment on 1 February 2018). The performance condition was linked to PBT versus budget (80%), and performance against personal and strategic objectives (20%). Although not exercised this year, the Committee has the ability to apply judgement to increase or decrease the amount payable by application of the formula, although no more than the maximum potential opportunity would be paid. Will Adderley has asked that he not be considered for a bonus award.

Financial target – 80% of bonus opportunity

For the period ended 30 June 2018, budget PBT was £125.0m, pre-exceptional items of £7.0m. The financial target set was such that no bonus would be paid until PBT reached £118.75m and maximum bonus would be paid at £131.25m. Between those numbers, bonus would be payable calculated on a straight-line basis. Market consensus for 2017–18 PBT at the date the target was set in early September 2017 was £121.9m. In considering performance against targets for the purposes of the annual bonus, the Remuneration Committee has decided that PBT pre budgeted exceptional items should apply. However, this made no difference to the overall bonus outcome in 2017/18.

PBT for 2017–18 was £93.1m, and pre exceptional items was £102.0m. There was no payment in respect of this PBT element of the bonus.

Strategic and personal objectives – 20% of bonus opportunity

Assessment was made by reference to personal performance and implementation of strategy as a whole, including progress against the eight Business Plans agreed by the Board in May 2017 and set out in last year's annual report, as well as a number of specific measurable objectives. Performance against these specific objectives was assessed as follows:

TargetPerformance
Combine Dunelm and Worldstores into one businessAchieved
Integrate worldstores.com and Dunelm.com to one websiteProgress made – completion expected February 2019
Open 10 new stores (2 relocations) and 10 refits, hitting financial targetsAchieved
Improve colleague engagement scoreAchieved
Launch instore ordering with meaningful salesProgress made, completion expected October 2019
Launch click & collect service with meaningful salesProgress made, completion expected February 2019

Taking all of the above into account, it was determined that 67% (2017: 70%) of this element of the bonus had been earned, giving rise to a payment of £36,879 to Nick Wilkinson (2017: £nil), pro-rated to service during the year. As John Browett and Keith Down stepped down from the Board during the year, neither was entitled to a bonus payment. Will Adderley has asked not to be considered for bonus entitlement.

Total bonus earned is set out in the table below:

Table 4 – Annual bonus earned in respect of 2017–18 performance

Bonus
awarded
£
Percentage
of maximum
award
Nick Wilkinson£36,87913.3%
John BrowettNilN/A
Keith DownNilN/A
Will Adderley (waived entitlement)N/A

LTIP – awards earned in respect of performance in 2016–18

The only LTIP award which is due to mature in respect of 2016–18 performance is that granted to the former Chief Financial Officer, David Stead in 2015, who retired on 31 December 2015. The Remuneration Committee determined that as a 'good leaver', David would be entitled to receive part of this award, subject to performance criteria, and pro-rated by time served over the performance period (the three financial years ended 30 June 2018). In the case of the award maturing on 15 October 2018, and exercisable from 15 October 2020, this would equate to a maximum of 7,350 shares. The performance criteria applicable to this award was based on growth in fully diluted EPS over the performance period. For further information please see the policy report.

Over the three year performance period which ended on 30 June 2018, reported fully diluted EPS declined at a compound annual rate of -5.4%. This is 8.2% below the compound annual growth in RPI over the same period. Accordingly, the award granted to David Stead in October 2015 will lapse.

Table 5 – LTIP awards earned in respect of performance in 2016–18

Shares
vesting
Percentage
of maximum
award
David Stead00%

Will Adderley waived his entitlement to receive an LTIP award in 2015. Awards granted to John Browett and Keith Down have lapsed.

LTIP awards made to Directors during 2017–18

LTIP awards were made on 18 October 2017 to Keith Down, and on 28 February 2018 to Nick Wilkinson as set out below. Keith Down stepped down from the Board on 24 May 2018, his award has lapsed.

Table 6 – LTIP awards made to Directors during 2017–18

NameAwardNumber of sharesFace value at date of awardPerformance conditionPerformance
period
Vesting date% vesting
at
threshold
performance
Nick WilkinsonNil cost option under LTIP110,000£642,4001

Growth in fully diluted EPS over the three year performance period compared with growth in the index of retail prices (RPI) over the same period.

No part of the award will vest until compound annual EPS growth exceeds RPI growth by 3%.

10% of the award vests when compound annual growth in EPS exceeds RPI growth by 3%.

100% of the award vests when compound annual growth in EPS exceeds RPI by 15%. Between those figures the award will vest on a straight-line basis.

Two-thirds of shares vesting (after payment of tax and National Insurance) must be held for the duration of employment, and 50% of these retained for two years following termination

July 2017 to June 202028 February 202110%
Keith DownNil cost option under LTIP60,000£451,5002As for Nick WilkinsonJuly 2017 to June 2020Lapsed0%
  1. Based on the closing share price on 28 February 2018 of 584.0p per share.
  2. Based on the closing share price on 17 October 2017 of 752.5p per share.

Joining award made to Keith Down in 2015

Following approval by shareholders at the AGM on 24 November 2015, and as noted in the 2016 annual report, a joining award was made to Keith Down on 7 December 2015 over 33,958 shares in the form of a nil cost option, under the terms of the Share Award Agreement approved by shareholders on 24 November 2015. The market value of the award was £335,000 based on the closing share price on 4 December 2015, of 986.5p per share. 7,470 (22%) of these shares vested on 15 September 2016, and 26,488 (78%) of these shares vested on 15 September 2017.

Payments to past Directors and for loss of office (audited)

David Stead

David Stead retired from the Board on 31 December 2015. David received his salary, benefits and pension allowance as usual until his leaving date of 31 December 2015, at the rate set out in the Annual Report for 2014/15.

At 31 December 2015, David had three outstanding awards under the LTIP:

Table 7 – David Stead's LTIP awards at his retirement date (31 December 2015):

Award
date
Performance
period
Normal
vesting date
No. of sharesNo. of shares
pro-rated to
31 December
2015
No. of shares to
vest after applying
performance
condition
7 October 2013FY14–FY167 October 2018*49,21640,97618,029
9 October 2014FY15–FY179 October 2019*53,92227,035Nil
15 October 2015FY16–FY1815 October 2020*44,5927,350n/a

* Includes two year holding period following the end of the three year performance period.

The Remuneration Committee determined that as a 'good leaver' with 12 years' service during a time of substantial growth in shareholder value, David may exercise the above awards, subject to time pro-rating, and after applying the applicable performance criteria over the full performance period. The maximum possible vesting, if performance conditions are fully met, is set out in the table above (column headed "No. of shares pro-rated to 31 December 2015").

The awards may be exercised within six months of the normal vesting date specified above.

The above arrangements are fully in line with the Remuneration Policy approved at the AGM in November 2015. The LTIP award made to David Stead in October 2015 was disclosed in the 2015 and 2016 remuneration reports which were approved by shareholders. The Remuneration Committee's decision reflects the service provided by David over the financial years covered by the applicable performance periods and has been pro-rated according to that service over those periods.

No further payments have been or are being made to David Stead in respect of loss of office or the termination of his employment.

Having retired on 31 December 2015, on 16 April 2018, at the request of the Board, David Stead entered into a new short-term service contract with the Company to provide interim support to on a part time basis pending the appointment of a permanent CFO to replace Keith Down. David was not appointed as a director of Dunelm Group plc or any other Group company. Details of payments made to David in the year can be found in Note 26 to the Financial Statements.

John Browett

John Browett resigned from his position as Chief Executive Officer and stepped down from the Board on 29 August 2017. In accordance with the Dunelm Remuneration Policy approved on 24 November 2015 (which was current at that date), and in line with his contractual arrangements John was paid salary, pension and benefits to date of termination of his employment at the rates set out in Dunelm's 2017 Annual Report and Accounts, and £322,120 in respect of salary, pension and benefits for the six month notice period under his service contract. This was paid in six monthly instalments on the last day of the month, commencing 31 October 2017. John also received a payment of £89,250 in respect of bonus earned for the financial year to 1 July 2017, following application of performance criteria. This was paid on 31 October 2017.

Payment of bonus earned in respect of the financial year to 1 July 2017 was considered to be fair and reasonable given that John was Chief Executive Officer for the period to which this payment relates. No bonus was paid in relation to the period of his employment during the financial year to 30 June 2018 and all options granted under the Long Term Incentive Plan and the Sharesave Plan lapsed. The arrangements set out above were considered carefully by the Remuneration Committee in consultation with its advisors and reflect the fact that John was a "good leaver".

No further payments have been or are being made to John Browett in respect of loss of office or the termination of his employment.

Simon Emeny

Having completed 10 years' service on the Board, Simon Emeny retired from his position as Senior Independent Director and Chair of the Remuneration Committee and stepped down from the Board on 21 November 2017. Simon continued to receive a fee for his role on the Board up to and including 21 November 2017 at the rate set out in Dunelm's 2017 Annual Report and Accounts. He did not receive any payment in lieu of notice or for loss of office. As a Non-Executive Director, Simon Emeny was not entitled to participate in the Company's bonus, employee share plans or pension arrangements and no further payments have been or are being made to Simon Emeny in respect of loss of office or the termination of his employment.

Keith Down

Keith Down resigned from his position as Chief Financial Officer and stepped down from the Board on 24 May 2018. He was paid salary, pension and benefits to that date at the rate set out in Dunelm's 2017 Annual Report and Accounts. He did not receive any payment in lieu of notice or for loss of office. As Keith left the Company during the financial year, he has no entitlement to bonus in respect of the financial year, and all options under the Long Term Incentive Plan and Sharesave scheme have lapsed. No further payments have been or are being made to Keith Down in respect of loss of office or the termination of his employment.

Statement of Directors' share interests (audited)

Executive Directors are subject to a shareholding target which requires them to build a beneficial holding of Dunelm shares with a value of 1× salary after three years and 2× salary after five years (measured by reference to share price at the financial year end). In addition, they are required to make a personal investment in Dunelm shares on appointment (subject to Company close periods); and to invest two-thirds of any annual bonus paid and LTIP awards earned (after payment of tax and national insurance liability on exercise) in Dunelm shares.

Will Adderley complies with this requirement at the financial year end.

Nick Wilkinson was appointed on 1 February 2018.

Table 8 and Table 9 show the interests of the Directors in shares of the Company at 30 June 2018.

Table 8 – Directors' beneficial shareholdings (audited)

At 30 June
2018
1p Ordinary Shares
At 1 July
2017
1p Ordinary
Shares
Will Adderley54,161,77954,161,779
Andy Harrison416,480202,932
Marion Sears105,000105,000
Nick Wilkinson38,855
William Reeve12,5007,000
Liz Doherty2,5002,500
Peter Ruis
Rachel Osborne

Between the financial year end and the date of this report Directors have purchased shares as follows:

DirectorDate of purchaseNo. purchasedPriceTotal beneficial holding following purchase
Nick Wilkinson20 July 201848,876508.9587,731

Table 9 – Directors' interests in options at the period end (audited)

DirectorDate of
award
Nature of
award
End of
performance
period
Option
price
Market price
of shares at
date of award
Will AdderleyNil
Nick WilkinsonFeb 20182018–20 LTIP110,000June 2020Nil584.0p

The LTIP award above granted to Nick Wilkinson is subject to the performance condition noted in Table 6 above.

Share options and dilution

The Remuneration Committee considers the provisions of the Investment Association's Guidelines on Executive Remuneration when determining the number of shares over which share scheme incentive awards may be made. At the date of this report, over the last 10 year period options have been granted over 0.6% of the Company's issued share capital (adjusted for share issuance and cancellation). The Group does not hold any shares in an employee benefit trust.

Service contracts

In accordance with the Group's policy, the service contracts of the Executive Directors have no fixed term, the notice period for termination is 12 months from either party for Will Adderley, and six months for Nick Wilkinson. Service contracts for the executives include a non-compete arrangement. Payments on termination are restricted to a maximum of the value of base salary and benefits for the notice period. The Remuneration Committee may apply mitigation in respect of any termination payment.

The Non-Executive Directors have letters of appointment for an initial period of three years with a provision for termination of one month's notice from either party, or three months' notice from either party in the case of Andy Harrison, the Chairman.

Table 10 – Directors' service contracts

Start Date
under contract
Unexpired
term
Notice
period
Will Adderley28 September 2006n/a12 months
Nick Wilkinson1 February 2018n/a6 months
Marion Sears22 July 200410 months1 month
Liz Doherty1 May 20137 months1 month
Andy Harrison1 September 201423 months3 months
William Reeve1 July 201533 months1 month
Peter Ruis10 September 201536 months1 month

Since Marion Sears has now served 14 years on the Board (12 of which are post flotation of the Company in 2006), her contract is renewed for one year terms (rather than three), with the notice period referred to above.

Relative TSR performance

The graph below shows the Group's performance over nine years, measured by total shareholder return, compared with the FTSE General Retail Index and the FTSE 250. The Remuneration Committee has chosen these indices for comparison because they provide a range of comparator companies which have similar market capitalisation, which are in the same sector and which face similar market and economic challenges in the long term.

Table 11 – Total shareholder return performance graph (rebased to 2 July 2009 = 100)

The shares traded in the range 505.0p to 753.5p during the year and stood at 505.0p at 30 June 2018.

Total Shareholder Return

Table 12 – Historic Chief Executive Officer pay

The table below sets out the prescribed remuneration data for each of the individuals undertaking the role of Chief Executive Officer during each of the last nine financial years:

CEO Single
figure of total
remuneration
£'000
Annual bonus payment
against maximum
opportunity
%
Long term incentive vesting rates against maximum
opportunity
%
FY17/18Nick Wilkinson530813.3%n/a
FY17/18John Browett5429n/an/a
FY16/17John Browett72214.0%n/a
FY15/16John Browett148957.7%n/a
FY15/16Will Adderley110n/an/a
FY14/15Will Adderley25075%n/a
FY14/15Nick Wharton2110n/an/a
FY13/14Nick Wharton31,50922.5%77.5%
FY12/13Nick Wharton1,29297.0%86.7%
FY11/12Nick Wharton853100.0%n/a
FY10/11Nick Wharton44296.0%n/a
FY10/11Will Adderley41,4134.0%100.0%
FY09/10Will Adderley1,366100.0%100.0%
  1. Will Adderley was succeeded by John Browett as Chief Executive Officer on 1 January 2016. The data for each Director for 2015/16 is pro-rated by time of service as Chief Executive Officer. Will Adderley's base salary was reduced to £1 on 1 July 2015.
  2. Will Adderley was reappointed Chief Executive Officer on 11 September 2014, following the resignation of Nick Wharton on 10 September 2014. The data for each Director for 2014/15 is pro-rated by time of service as Chief Executive Officer.
  3. Nick Wharton's first LTIP award vested and was exercised in December 2013. No LTIP awards have vested to John Browett since his appointment.
  4. Will Adderley was Chief Executive Officer until he was succeeded by Nick Wharton on 1 February 2011. The data for each Director for 2010/11 is pro-rated by time of service as Chief Executive Officer.
  5. John Browett left the Group on 29 August 2017. He was succeeded by Nick Wilkinson on 1 February 2018. The total figure for John Browett includes £322,120 in respect of salary and benefits paid for his six month notice period. The data for each Director for 2017/18 is pro-rated by time of service as Chief Executive Officer.

The table below sets out the increase in total remuneration of the Chief Executive and that of our other colleagues.

Table 13 – Relative change in Chief Executive Officer pay

Change in
base salary 2016/17
to 2017/18
Change in
benefits 2016/17
to 2017/18
Bonus earned
as % of salary
2017/18
Bonus earned
as % of salary
2016/17
% change in
bonus earned
2016/17 to
2017/18
% change in
bonus earned
2015/16 to
2016/17
Chief Executive Officer211.4%95.2%6.5%17.5%58.6%(75.3%)
All colleagues (per capita)1.8%11.3%6.0%15.4%1101.9%(55.3%)
  1. Bonus percentage has been calculated in relation to only those employees receiving a bonus in the period as this is considered a more appropriate comparator group.
  2. John Browett left the Group on 29 August 2017. Nick Wilkinson was appointed on 1 February 2018. Chief Executive Officer figures used in the above calculation include both John Browett and Nick Wilkinson and are as per the Single Figure Table (Table 3). These therefore include £322,120 in respect of John Browett's salary and benefits paid for his six month notice period and one off benefits for Nick Wilkinson, and do not reflect the annual salary increase of Nick Wilkinson on 1 July 2018 of 2% and the bonus earned for FY18 which was lower than that of his predecessor in FY17.

Table 14 – Relative spend on pay

The table below shows the all employee pay cost and returns to shareholders by way of dividends (including special dividends) and share buyback for 2017–18 and 2016–17.

2017/18
£'m
2016/17
£'m
% Increase
Total spend on pay139.8129.38.1%
Ordinary dividend to shareholders53.451.63.7%
Distributions to shareholders via treasury share purchases4.2(100%)
Special distributions to shareholdersn/a
Total distributions to shareholders53.455.8(4.1%)

This information is based on the following:

Total spend on pay – total employee costs excluding car allowances and bonuses from note 6.

Dividends taken from note 9.

Share buyback taken from Consolidated Statement of Changes in Equity.

Executive Director external Board appointments

Executive Directors are permitted to hold one external appointment as a Non-Executive Director or similar advisory or consultative role, subject to the Board being satisfied that there is no conflict of interest and that the position will not impact negatively on the Executive's commitment to their Dunelm role. The Board may allow the Executive to retain any remuneration received in respect of the appointment.

Will Adderley does not hold any external PLC Board appointments.

John Browett was a Director of Octopus Capital Limited and Octopus Investments Limited (effectively one external role) during the period. He retained his Director fees (£7,945 pro rated to 29 August 2017).

Keith Down was a Non-Executive Director of Topps Tiles plc during the period until he stepped down on 24 May 2018. He retained his Director fees (£39,154).

Nick Wilkinson was a trustee of Age UK. This role is unremunerated.

Senior Executive remuneration

The Remuneration Committee provides formal approval of the remuneration of the Company Secretary and Executive Board members. The package for new appointments is formally presented to the Committee for approval. In conducting its assessment of Executive Board remuneration, the Committee pays particular regard to whether any individual is incentivised to take risks inappropriate to their role and responsibilities.

Members of the Executive Board and Senior Management Team are eligible for awards under the LTIP.

All members of senior management who receive share awards are also subject to shareholding targets as follows:

Executive Board and certain other senior Executives1× base salary to be acquired over time
Other Executives0.5× base salary to be acquired over time

Gender pay disclosures

At the end of March, Dunelm published its Gender Pay report. We are committed to paying men and women equally for roles of the same size and scale. We are proud that 67% of our colleagues are female. However, in common with many other retailers, 80% of our colleagues are employed in our retail operations, and these roles tend to be lower paid. As a result, we have a significant gap in the pay between genders (our mean gap is 17.4% and our median gap is 4.8%), very much in line with our peers in the UK retail sector. We have made progress over the twelve months to improve, and we have more activity planned, including the launch of an Empowering Female Leaders programme, widening our internal mentoring programme, and looking at how we can reduce friction for women returning to work after maternity leave. We are leading by example; 33% of our senior leadership roles are held by women, and following Laura Carr's appointment to the Board, three of our eight Board members, and half of our Executive Board will be female.

Engaging with our colleagues on pay

Details of how we engage with our colleagues are set out in the Corporate Governance Report.

Statement of implementation of policy in the 2018/19 financial year

Base salary, benefits and pension

Base salary and benefits for each of the Executive Directors for 2018/19 are set out in the table below:

Table 15 – Base salary, benefits and pension for 2018/19

Base
salary
Increase to
base salary
year on year
BenefitsIncrease to
benefits
year on year
PensionIncrease to
pension
year on year
Nick Wilkinson£540,6002%Car allowance; travel allowance of 5% of
salary; private health insurance for the
individual and their family; permanent health
cover; life assurance; mobile phone;
colleague discount; relocation expenses
N/A£54,0602%
Laura Carr*£365,000N/ACar allowance; private health insurance
for the individual and their family;
permanent health cover; life assurance;
mobile phone; colleague discount ;
relocation expenses
N/A£36,500N/A
Will Adderley£1NilAs aboveNilNiln/a

Basic salary increase for Nick Wilkinson is in line with the Company-wide award for monthly paid colleagues of 2%.

* The pay of Laura Carr reflects the annual salary and benefits which will apply when she starts work on 29 November 2018 and has not been pro rated.

Will Adderley has asked that he not be considered for a pay increase.

Annual bonus

Nick Wilkinson has been awarded a bonus opportunity of up to 125% of base salary. The performance conditions attached to the bonus are:

80% linked to achievement of Budget PBT;

20% linked to achievement of strategic and personal targets, aligned to the Group strategy.

The Budget PBT is set taking into account market consensus and broker expectations. The actual financial and strategic targets have not been disclosed at this time as they are commercially sensitive. The targets and an assessment of the extent to which they have been achieved will be disclosed in next year's remuneration report.

On her appointment, Laura Carr will be entitled to receive a bonus of up to 125% of salary, with 80% linked to Budget PBT and 20% to strategic and personal targets. This will be pro rated to service over the financial year.

Nick Wilkinson and Laura Carr have committed that two-thirds of the bonus earned (after payment of income tax and National Insurance) will be invested in Dunelm shares, to be held for the duration of employment, with 50% of these shares to be retained for two years following cessation of employment.

Will Adderley has asked that he not be considered for a bonus award.

LTIP

An award is expected to be made to Nick Wilkinson (in October 2018) and Laura Carr (shortly after she joins in November 2018) under the Long Term Incentive Plan over shares to the value of 200% and 160% of salary respectively.

The award will vest, subject to continued employment, on the third anniversary of the grant date, to the extent that performance conditions have been met. Two-thirds of vested shares (after sale to cover tax and national insurance liability on exercise) must be retained for the duration of employment, and 50% of these must be retained for two years following cessation of employment.

Will Adderley has asked that he not be considered for an LTIP award.

Joining arrangements

We recruited both Nick Wilkinson and Laura Carr during FY18. Both Directors were offered remuneration packages in line with that of their predecessors, except that their pension entitlement (10% of base salary) is lower, reflecting our desire to align this better with workforce entitlement (previous entitlements 20% for CEO and 15% for CFO).

In order to secure their services we needed to agree certain joining arrangements. These were fully in line with our Remuneration Policy. Dunelm has a very conservative approach to executive remuneration with long term commitment and alignment through shareholding underpinning our approach. We are never happy about making any additional payments of this nature. We considered the proposed joining arrangements very carefully, and took professional advice from Deloitte in relation to each Director's remuneration package as a whole. In view of the strength of the Nominations Committee's recommendation, and the need to secure a permanent candidate of calibre, the Committee decided that these joining arrangements were acceptable and in the interests of Dunelm. Details are set out below:

Nick Wilkinson

We asked Nick to relocate his family from London to Leicester; we have therefore agreed to award Nick a travel allowance of 5% of salary, and to pay up to £50,000 by way of relocation costs. We have also agreed to pay a temporary accommodation allowance of up to £1,500 per month for up to 12 months.

We were not asked to compensate Nick for any remuneration foregone.

Laura Carr

Laura will be financially disadvantaged by leaving her current role after a relatively short tenure to join Dunelm. We have also asked her to relocate her family to Leicestershire. We have therefore agreed that we will partially compensate her. The exact amounts have not been finalised at the date of this report, but the maximum will be similar to the joining arrangements put in place for her predecessor, Keith Down, in 2015; and the majority of the payment, after deduction of tax and national insurance, must be invested in Dunelm shares which are subject to the "Lifetime Lock-in". If Laura voluntarily leaves the business or is lawfully dismissed within two years of commencing her employment with the Company, she will be liable to repay the gross amounts paid to her by way of joining arrangements set out above. All payments to be made are within our agreed Remuneration Policy, and full disclosure will be made in the FY19 annual report.

Sharesave

An invitation will be issued in October 2018 to all eligible employees, to apply for options to be granted under the Sharesave scheme at a 20% discount to the closing market price of Dunelm Group shares on the dealing day preceding the issue of the invitation. The maximum monthly savings will be £500 per month. Executive Directors employed at the eligibility date may apply for Sharesave options, subject to the plan rules.

Non-Executive Director fees for 2018/19

Fees to be paid to Non-Executive Directors are as set out in the table below:

Table 16 – Non-Executive Director Fees

PositionBase FeeCommittee/
SID Fee
Increase in
base fee year
on year
Increase in Committee fee year on yearComment
Andy HarrisonChairman£212,160Nil2%n/a
Liz DohertyAudit and Risk
Committee Chair
£50,938£10,2002%2%
Senior Independent
Director
£6,3692%2%SID fee applied from
22 November 2017
William ReeveNon—Executive Director£50,938£10,2002%n/aCommittee chair fee applied
from 22 November 2017
Peter RuisNon—Executive Director£50,938Nil2%n/a
Marion SearsNon—Executive Director£50,938Nil2%n/a

Base fee, Senior Independent Director (SID) fee and Committee Chair fee increases with effect from 1 July 2018 were in line with the Company-wide increase of 2%.

Statement of shareholder voting

At the Annual General Meeting on 21 November 2018, the total number of shares in issue with voting rights (excluding treasury shares) was 201,709,777. Details of voting on remuneration related resolutions are set out below:

Table 17 – Voting on remuneration related resolutions at the 2017 AGM

ResolutionVotes for% of
votes cast
Votes
against
% of
votes cast
Votes
withheld
% withheld
Approve 2017 Remuneration Policy180,477,79799.40%1,086,9360.60%115,4690.06%
Approve Annual Remuneration Report180,381,21699.64%648,4960.36%650,4900.36%
Approve changes to LTIP rules180,248,75699.28%1,314,3850.72%117,0610.06%

Approved by the Board on 12 September 2018.

William Reeve

Chair of the Remuneration Committee