Marks & Spencer faces yet another dispute with shareholders after lowering the target that Sir Stuart Rose must reach to earn a potential £4.5 million bonus under the company’s long-term incentive scheme.

The high street retailer said the move was an acknowledgement that it was becoming much harder to repeat the high levels of growth that the business enjoyed over the past three years.

It insisted that the decision followed consultation with its ten largest shareholders as well as the Association of British Insurers, the trade body whose members hold about a fifth of all shares on the stock market.

However, Peter Montagnon, the ABI’s head of investment affairs, signalled that not all investors were in favour. He said: “We were consulted, yet we would not wish the company’s statement to be taken to mean our members are fully supportive.”

M&S’s annual report, published today, reveals that Sir Stuart and his executive directors must achieve earnings per share (EPS) growth of 8 per cent plus inflation between 2008 and 2011 to earn up to 400 per cent of their basic pay as a bonus in three years’ time. This compares with a 12 per cent target set last year and 15 per cent in 2005. Sir Stuart is due to step down in 2011.

M&S said: “The short-term economic outlook means that it is likely to be much more difficult to achieve such high growth in the next few years. To this end, the remuneration committee considers that the EPS ranges set for the 2008 awards are at least as challenging as the previous EPS ranges were when they were set.”

Sir Stuart was promoted from chief executive to the dual role of executive chairman earlier this week in a move that angered shareholders earlier this year. M&S decided to keep his basic pay flat at £1.13 million as one of a number of concessions to pacify investors. The report shows that, as expected, Sir Stuart and his senior colleagues also missed out on annual bonuses for the most recent financial year despite pretax profits hitting £1 billion for the first time in a decade.

This year’s payout from the long-term incentive scheme set in 2005 has yet to be calculated and the ABI has still to decide how it will advise shareholders to vote at M&S’s annual meeting next month. It is likely to be one of the most fractious AGMs of the year, given the possibility of protests from both Pirc, the corporate governance watchdog, and Unite, the trade union.

An M&S spokesman insisted that shareholders broadly supported the new targets and that they were in line with those of other FTSE 100 companies. However, the decision could raise yet more questions about the independence of nonexecutive directors.

The remuneration committee is chaired by Louise Patten, also a nonexecutive director at Bradford & Bingley, and includes Martha Lane Fox, the lastminute.com founder. Sir Stuart was forced to sell a stake in her new business, a karaoke chain, after complaints from shareholders.

The lower earnings per share target is yet another indication of how tough retailers feel trading could become. Sir Stuart has continually warned that the slowdown could last until the end of next year.

His pay package is lower than several other directors in the FTSE 100. Tesco revealed last month that Sir Terry Leahy, its chief executive, received £5.5 million in 2007 after a bonus of £4 million.

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