Tesco 2004 Annual Report Download - page 17

TESCO PLC 15
2An assessment of total shareholder return is the basis for
15% of the award. The total shareholder return (share price
growth and dividend performance) of the company at the
end of the year, taking into account performance over the
previous three and Þve years, is compared to the total
shareholder return of a selected peer group of UK and
International companies, comprising Ahold, Carrefour, Metro,
Safeway plc (UK), Safeway Inc. (US), J Sainsbury and Target
(US). Total shareholder return has been chosen as it is a
clear indicator of the value created for shareholders. The
Committee considers a comparator group comprising large
international food retailers as the most appropriate basis
for assessing relative performance.
3An assessment of the progress towards the achievement
of speciÞc strategic corporate goals is the basis for 8% of
the award.
Shares awarded have to be held for a period of four years,
conditional upon continuous service with the company.The share
equivalent of dividends, which would have been paid on the
shares, is added to the award during the deferral period.
Short-term share bonuses are awarded annually to each of the
Executive Directors, the maximum short-term bonus payable is
equivalent to 75% of salary. The bonus is based on a combination
of the following performance conditions:
1The achievement of targets set each year for growth in
EPS over the relevant Þnancial year is the basis for 77%
of the award.
2An assessment of achievement against speciÞc strategic
corporate goals is the basis for 23% of the award.
The bonus can be augmented by 50% if the participants elect
for the trustees of the scheme to retain the shares awarded
for a minimum period of two years, conditional upon continuous
service with the company. The share equivalent of dividends,
which would have been paid on the shares, is added to the
award during the deferral period.
The Executive Directors may choose to further extend the
holding period for both the short and long-term shares by a
further three years in each case. During this holding period, the
shares held are increased by 12.5% at the beginning of each
year, based on the scheme shares held and are conditional upon
continuous employment with the company. This holding period
may be extended subject to personal shareholding targets set
by the Committee, equivalent to shares to the value of one
times salary, being met by the Executive Directors.
In respect of the current year, the awards were long-term 75%
and short-term 75% of salary for each Executive Director.
Mr D E Reid was awarded £430,000, as part of a special bonus
in respect of the development of the Groups international
business. This amount has been sacriÞced in return for pension
augmentation. Mr J Gildersleeve and Mr R S Ager were awarded
bonuses of £150,000 each, which have been sacriÞced for pension
augmentation.
In addition to providing the opportunity to earn greater rewards
for superior performance, the Executive Incentive Scheme further
aligns the interests of shareholders and Executive Directors by
helping them to build up a shareholding in Tesco.
As outlined in the Directors Remuneration Policy section on
page 13, the executive incentive arrangements will be re-
structured during the Þnancial year ending February 2005 to
increase the link between rewards received and Tescos longer-
term Þnancial goals.
Annual performance will remain a key driver of the rebalanced
arrangements, with the annual bonus structure being retained.
The bonus will be delivered part in cash (which cannot be
deferred) and part in Tesco shares, receipt of which will be
deferred and conditional upon continuous employment with the
company. The deferral period will now be compulsory and will
be extended from two to three years.
The maximum awards that can be made will be 100% of salary
under the cash bonus and 75% of salary under the deferred
shares element. The deferred share award will no longer be
increased by any matching awards during the deferral period.
The bonus will continue to be subject to stretching performance
targets based on earnings per share growth and strategic
objectives and in the case of the deferred share element, a
measure of TSR as well, on a similar basis as the existing
incentives.
Participants will also be eligible to receive an award under
the proposed Performance Share Plan (PSP), the level of which will
be determined in relation to the achievement of ROCE objectives.
This plan will replace the existing long-term incentive arrangements.
Awards will be made over shares equal to 75% of salary. Awards
will vest on a sliding scale according to the achievement of the
ROCE targets measured over three years. The deferred shares
must then be retained for a further 12 months.
The proposed vesting schedule for PSP awards has been based
on the companys targets for the next Þve years regarding the
efÞcient use of capital. Awards will vest on a straight-line basis;