Tesco 2007 Annual Report Download - page 29

Directors’ remuneration report for the year ending 24 February 2007
This is the report of the Remuneration Committee on behalf
of the Board.
Remuneration Committee
The Remuneration Committee (the Committee) is governed
by formal Terms of Reference. They are reviewed annually and
are available from the Company Secretary or can be viewed at
www.tesco.com
Composition of the Committee
The Committee consists entirely of independent Non-executive
Directors. The members of the Committee are Mr C L Allen
(Chairman of the Committee), Mr R F Chase, Mrs K Cook,
Mr E M Davies and Dr H Einsmann. No member of the
Remuneration Committee has any personal financial interest
in the matters being decided, other than as a shareholder, nor
any day-to-day involvement in running the business of Tesco.
Mr J M Lloyd is Secretary to the Committee. Mr D E Reid,
Non-executive Chairman and Sir Terry Leahy, Chief Executive
of the Group, both attend meetings at the invitation of the
Committee except when their own remuneration is being
discussed. The Committee is supported by the Group Personnel
function 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 and international
taxation to the Group during the year. Members’ attendance
at Committee meetings is listed in the Directors’ Corporate
Governance report on page 24.
The role of the Committee
The Committee’s purpose is to:
• determine and recommend to the Board the remuneration
policy for the Chairman and Executive Directors;
• ensure the level and structure of remuneration is designed
to attract, retain, and motivate the Executive Directors
needed to run the Company; and
• monitor the level and structure of remuneration for
senior management.
The Committee also ensures that the remuneration
relationship between the Executive Directors and senior
executives of the Company below this level is appropriate.
In particular, any exceptional remuneration arrangements
for senior executives are advised to the Committee.
Activities of the Committee
The Committee normally meets at least four times a year and
circulates minutes of its meetings to the Board. During the
financial year, the Committee met seven times. The rolling
schedule for the Committee includes: a review of overall
remuneration arrangements; an overview of best practice;
Executive salary and total remuneration benchmarking;
Chairman’s remuneration; consideration of the relationship
of reward between Executive Directors and senior managers;
determining the level of awards and grants to be made under
the Group incentive plans; agreeing targets for the forthcoming
year; considering feedback from shareholders; and an annual
review of its own effectiveness.
Executive Directors’ remuneration policy
Tesco has a long-standing policy of rewarding 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 delivered largely in shares
to closely align the interests of shareholders and 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.
The remuneration strategy for Executive Directors and other
key executives is tailored to emphasise the delivery of strong
year-on-year earnings growth as well as sustained performance
in the longer term. Long-term performance is rewarded
through delivery of shares and short-term performance
through a combination of cash and an element of compulsory
deferred shares. This ensures continued emphasis on strong
annual performance combined with long-term executive share
ownership, providing a strong link between the incentives
received and shareholder value delivered. A diagram illustrating
the balance between fixed and variable reward is shown later
in this report.
Tesco operates in a highly competitive and rapidly changing
retail environment. Business success depends on the talents
of the key team, but outstanding business performance
comes from teamwork. Tesco has a stable and successful
management team and building and retaining that team at
senior levels within Tesco is important to our continued success.
We believe our incentives should support the continued
progress within the existing business, the strengthening
of our returns in the international business and the creation
of significant new businesses, e.g. the US. The Committee has
reviewed the current remuneration arrangements in light of
these requirements and concluded that a rebalancing of
incentives is required.
In order to introduce these changes we intend (i) to establish
a Group New Business Incentive Plan which focuses on long-
term business development (four to seven years into the future);
(ii) to introduce an additional element into our current three-
year Performance Share Plan which targets the performance of
our existing international business; and (iii) to create a new plan
for our US executive team to ensure that we can attract great
talent to build our US business. Participation in the various
elements will be governed by the Remuneration Committee
and individual executives will be awarded incentives under the
elements which are most relevant to their sphere of responsibility.
The Group CEO, Sir Terry Leahy, has responsibility for delivering
continued success of our core business, developing our
international business and also laying the foundations of major
new businesses. He will therefore be eligible to receive an
award under the Performance Share Plan which will be focused
on improving international ROCE.
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THE BOARD AND THEIR
RESPONSIBILITIES