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Remuneration report

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Shareholding guidelines

To create greater alignment with the interests of shareholders and to be consistent with one of the objectives of the incentive framework, the Committee has proposed that all Executive Directors and Operating Board Directors should build up a shareholding in the Company over a five-year period starting from 2006/07 that is equal to their annual basic salary, and maintain it thereafter. At the year end, Justin King held 274,047 shares in total and Darren Shapland held 70,241 shares, in addition to their share scheme grants. At this date this represented 208 per cent and 86 per cent of salary respectively.

Performance graph

The graph below shows the TSR performance of an investment of £100 in J Sainsbury plc shares over the last five years compared with an equivalent investment in the FTSE 100 Index. This has been selected to provide an established and broad-based index.

Service contracts

Justin King has a service contract which can be terminated by either party by giving 12 months’ written notice. If his service contract is terminated without cause, the Company can request that he works his notice period or takes a period of garden leave, or can pay an amount in lieu of notice equal to one times basic salary for the notice period plus 75 per cent of basic salary in lieu of all other benefits including pension and bonus. In addition, if he is dismissed within six months of a change of control the above sum will become payable. The contract contains restrictive covenants, which continue for 12 months after termination.

If Darren Shapland’s service contract is terminated without cause, the maximum payment he would receive would be equal to one times basic salary for his 12 month notice period plus 50 per cent of basic salary in lieu of all other benefits. He is required to mitigate his losses and would receive phased payments, which would be reduced or terminated if he secured alternative employment during the notice period. His contract does not contain any specific provisions relating to change of control. The contract also contains restrictive convenants, which continue for 12 months after termination.

The Executive Directors’ service contracts became effective on the following dates:

Chairman

The Chairman does not have a service contract. His letter of appointment became effective on 19 July 2004. He was appointed for an initial term of three years renewable on a 12 month rolling basis thereafter by mutual consent. His appointment may be terminated at any time upon six months’ written notice from either party. He devotes such time as is necessary to perform his duties. The Chairman’s fees will not be increased in 2007/08 and have remained unchanged since his appointment in 2004.

The Chairman does not participate in any performance related incentive plans.

Non-Executive Directors

Non-Executive Directors do not have service contracts. They are appointed for an initial three-year period, which may be extended for a further term by mutual consent. Their initial appointments and any subsequent re-appointments are subject to election or re-election by shareholders. Their appointments may be terminated on three months’ notice from either side.

Non-Executive Directors are paid a basic fee in cash with additional fees being payable to the Senior Independent Director and to the Chairmen of the Audit, Remuneration and CR Committees. The fees are reviewed annually by a sub-committee of the Board, consisting of the Chairman and one or more Executive Directors, which takes into account market rates and the specific responsibilities and time commitments of the role within Sainsbury’s. Non-Executive Directors’ basic fees will increase by £5,000 for 2007/08 to keep them in line with comparable market rates. Non-Executive Directors do not participate in any performance related plans.

The Non-Executive Directors’ letters of appointment became effective on the following dates: