Tesco 2007 Annual Report Download - page 30

Directors’ remuneration report continued
He will also be eligible to participate in the new business
arrangements comprising (i) a New Business short-term
bonus for the next three years of 50% of salary based on
achievement of milestones for new business development; and
(ii) subject to shareholder approval, a one-off award under the
New Business Incentive Plan. The one-off award under the
New Business Incentive Plan will only be paid out in full if both
stretching new business performance targets over the period
2011 to 2014 are met and Group and international ROCE
targets are also met over the periods 2007/08 to 2011/12.
The US venture is currently the most developed new business
initiative with significant opportunity to generate shareholder
value. The concept and format of the new US business were
both created by Sir Terry Leahy, and his continued leadership
and drive are critical to the success of this start-up business.
Payment of his award under the New Business Incentive Plan
will therefore be initially focussed on the new US business;
however, the Remuneration Committee will have flexibility
to consider and include other new business development
opportunities within the proposed structure.
Mr T J R Mason, the US CEO, is responsible for delivering
the successful roll-out of the US business. He will therefore
be eligible to participate in a US short-term bonus plan and,
subject to shareholder approval, receive a one-off award
under the proposed US Long-Term Incentive Plan. Payouts
under the short-term annual bonus in the start-up phase will
be subject to performance against strategic and financial
milestone targets. Payouts under the US Long-Term Incentive
Plan will be based on the delivery of a strong profitable US
business for Tesco shareholders and that success will be
measured by a combination of EBIT and ROCE targets. Awards
will be earned over the four years 2011 to 2014 and will be
in the form of Tesco PLC shares. Members of the US senior
management team will also participate in the US incentive
arrangements.
The remaining Executive Directors have responsibility both
for delivering continued success of our core business and
developing the operating model for our international business.
They will therefore be eligible to receive an award under the
Performance Share Plan which will be focused on both
improving Group and international ROCE.
Further details on the proposed New Business Incentive Plan
and the proposed US Long-Term Incentive Plan are provided
in the Shareholders’ Circular. The proposed changes to the
Performance Share Plan and the Annual Bonus arrangements
are described in more detail later in this report.
Total remuneration
The total remuneration levels of Executive Directors are
reviewed annually by the Committee. The Committee considers
external independent remuneration surveys to ensure it has
proper regard to competitive market practice. We are conscious
of the problems involved in paying unjustified amounts
and therefore monitor carefully the basic salary and total
remuneration that each Director receives. The Executive
Directors’ total remuneration package comprises, in varying
degrees, the following elements (excluding the proposed new
incentive plans which are subject to shareholder approval):
• base salaries determined by the responsibilities, skills
and experience of the individual against a benchmark
determined by reference to other large retailers, major FTSE
100 companies and international comparator companies;
• annual bonuses paid part in cash and part in shares with
a compulsory deferral of the share element for three years;
• Performance Share Plan based on stretching ROCE targets;
• performance-related share option awards via the
Discretionary Share Option Plan open to all senior
managers;
• benefits (which comprise car benefits, life assurance,
disability and health insurance and staff discount); and
• pensions.
Executive Directors are also eligible to participate in the
Company’s all-employee savings related share option scheme
(SAYE), Shares in Success and Buy As You Earn scheme on
the same terms as all other UK employees.
The diagram below shows the targeted balance of fixed
and performance-related elements for different levels of
performance (excluding the proposed new long-term
incentive plans which are subject to shareholder approval).
28 Tesco PLC Annual report and financial statements 2007 Find out more at www.tesco.com/corporate
Fixed element
Fixed element
Fixed element
c.15%-33% depending on individual
c.15%-33% depending on individual
incentive arrangements and performance
incentive arrangements and performance
c.67%-85% depending on individual
c.67%-85% depending on individual
incentive arrangements and performance
incentive arrangements and performance
Performance-related elements
Performance-related elements
Performance-related elements
Base salary
Deferred
share bonus
Performance
share plan
Cash bonus Share options
Short-term performance Long-term performance