Tesco 2004 Annual Report Download - page 15

TESCO PLC 13
REPORT OF THE DIRECTORS ON REMUNERATION
THE REMUNERATION COMMITTEE The Remuneration Committee
is governed by formal Terms of Reference agreed by the Board
and is composed entirely of independent Non-executive
Directors. No member of the Remuneration Committee has
any personal Þnancial interest, other than as a shareholder, in
the matters to be decided, and no day-to-day involvement in
running the business of Tesco.
The remuneration packages, including contract periods, of Executive
Directors, are determined by the Remuneration Committee (the
Committee).The Committee comprised Mr C L Allen (Chairman
of the Committee), Dr H Einsmann, Mr G F Pimlott and
Mr R F Chase who are all independent Non-executive Directors.
The Committee met on nine occasions during the year.
For the year ended 28 February 2004, Mr R S Ager was
Secretary to the Committee and attended the meetings. From
March 2004, this role was undertaken by the new Company
Secretary, Ms L Neville-Rolfe. Mr J A Gardiner, Non-executive
Chairman of the Group until 2 April 2004, and Sir Terry Leahy,
Chief Executive of the Group, both attended the meetings at
the invitation of the Committee. However, Directors do not
attend the meetings when their own remuneration is being
discussed. The Committee is supported by Mrs C M Chapman,
Human Resources Director of Tesco Stores Ltd, and has
appointed Deloitte & Touche LLP as an external, independent
advisor. Deloitte & Touche LLP also provided advisory services
in respect of Corporate tax planning, share schemes, pensions
and international taxation to the Group during the year.
DIRECTORS’ REMUNERATION POLICY The Committee applies the
following remuneration policy to all Executive Directors.
Business success in a retail environment depends on the talents
of the key team, but outstanding success comes from teamwork.
Building and retaining that team at senior levels within Tesco is
vital to success.The remuneration strategy for Executive Directors
and other key executives has been tailored to emphasise the
delivery of strong year-on-year earnings growth whilst at the
same time ensuring efÞcient use of capital over the long-term,
by providing executives with a signiÞcant proportion of
performance-related remuneration delivered in Tesco shares over
extended timescales.
The Remuneration Committee has conducted a review of
Executive Directors remuneration to ensure that this continues
to support the business objectives of strong Þnancial progression
and improvements in shareholder returns. As a result of this
years review, a number of changes have been proposed to the
short and long-term incentives which, subject to shareholder
approval, will take effect in the year ending February 2005.
No changes have been made to basic pay policy. A summary
of the policy is set out below. Further details of the current
arrangements and proposed changes are provided in the
following sections.
Our executive remuneration policy will then combine the
following key elements:
 Basic salaries based on the responsibilities, skills and
experience of the individual against a benchmark
determined by reference to other major FTSE 100
companies and other large retailers.
 Annual bonuses based on achieving stretching Earnings Per
Share (EPS) growth targets and speciÞc corporate
objectives. Annual bonuses are paid part in cash and
part in shares with a compulsory deferral of the
share-based bonus for three years. The share element
is also subject to a measure of relative performance
using an assessment of value delivered to shareholders
compared to other global food retailers. This combination
will replace the existing annual bonus plan. Further details
are provided below.
 Awards of performance shares based on stretching three-
year Return On Capital Employed (ROCE) targets. The
award is over shares which must be held for four years
in total. This will replace the existing longer-term bonus
based on EPS. Further details are provided below.
 In normal practice, Executive Directors would be expected
to build and hold a shareholding with a value at least equal
to their basic salary; full participation in the Performance
Share Plan is conditional upon meeting this target.
 Participation in the share option schemes requiring
sustained growth in EPS.
 All Executive Directors will have 12 month notice periods.
In line with the Combined Code on Corporate Governance,
the Committee also ensures that the remuneration relationship
between the Main Board and Senior Executives of the company
below this level is appropriate. In particular, any exceptional
salary arrangements or award of share options for Senior
Executives are to be advised to the Committee.
TOTAL REMUNERATION The total remuneration levels of Executive
Directors are normally reviewed annually by the Committee,
having regard to competitive market practice in the retail sector
and in the context of the FTSE 100 companies, which are of
a comparable size to Tesco. As part of the review process, the
Committee has access to, and makes use of, external independent
remuneration surveys.