Tesco 2005 Annual Report Download - page 19

Tesco PLC 17
Directors’ remuneration report For the year ended 26 February 2005
Remuneration Committee
The Remuneration Committee (the ‘Committee’) is governed
by formal Terms of Reference, which were reviewed and
updated by the Board this year.
Composition of the Committee
The Committee is now composed entirely of independent
Non-executive Directors. The members of the Committee are
Mr C L Allen (Chairman of the Committee), Mr E M Davies
(appointed to the Committee in October 2004), Dr H Einsmann,
and Mr R F Chase. During the year Mr G F Pimlott resigned
from the Committee, prior to retiring from the Board. No
member of the Remuneration Committee has any personal
financial interest in the matters being decided, other than as
a shareholder, and no day-to-day involvement in running the
business of Tesco.
Ms L Neville-Rolfe is Secretary to the Committee and attends
meetings. Mr D E Reid, Non-executive Chairman, and Sir Terry
Leahy, Chief Executive of the Group, both attend the meetings
at the invitation of the Committee except when their own
remuneration is being discussed. The Committee is supported
by Mrs C M Chapman, Personnel Director of Tesco Stores Ltd
and has continued to use the services of 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. Members’ attendance at
committee meetings is listed in the Directors’ Corporate
Governance report on page 13.
The role of the Committee
The Remuneration Committee’s key objectives are to:
• determine and recommend to the Board the remuneration
policy for the Chairman and Executive Directors;
• monitor the level and structure of remuneration for senior
management, and
• ensure the level and structure of remuneration is designed
to attract, retain, and motivate the Executive Directors
needed to run the company.
Activities of the Committee:
The Committee normally meets four times a year and circulates
minutes of its meetings to the Board. The rolling schedule
for the Committee includes: a review of overall remuneration
arrangements; an overview of best practice; Executive and
Non-executive Directors’ salary benchmarking; consideration
of the relationship of reward between Executive Directors and
senior managers; determining the level of awards and grants
to be made under the Company’s incentive plans; agreeing
targets for next year; considering feedback from shareholders,
and an annual review of its own effectiveness. In addition to
the routine business this year, the Committee also started a
review of pension provisions and share options in the light
of recent legislative developments and accounting changes.
Executive Directors’ remuneration policy We have a
long-standing policy of rewarding achievement, talent and
experience. We also seek to provide incentives for delivering
high growth and high returns for shareholders. The Committee
believes that a significant proportion of total remuneration
should be performance-related and at risk of forfeiture. In
addition, performance-related reward should be delivered
largely in shares to closely align the interests of shareholders
and all Executive Directors. In determining the balance
between the fixed and variable elements of the Executive
Directors’ remuneration packages, the Committee has
regard to policy and also market practice. Our policy is for
performance related elements to form a major part of the total
remuneration opportunity for all Executive Directors. The table
below shows the current balance of fixed and performance
related elements, for levels of performance, on target and
above target.
Fixed elementFixed element
(approximately 20%-40%)(approximately 20%-40%)
Performance related elementsPerformance related elements
(approximately 60%-80%)(approximately 60%-80%)
Base salary
Deferred
share bonus
Performance
share plan
Cash bonus Share options
Short-term performance Long-term performance