Tesco 2008 Annual Report Download - page 28

Tesco PLC Annual Report and
Financial Statements 2008
26
Directors’ remuneration report continued
Mr T J R Mason, the US CEO, is responsible for delivering the successful
roll-out of the US business. He has therefore been made a one-off award
under the new US Long-Term Incentive Plan. He is also participating in
a US short-term annual bonus plan, under which payouts, in the start-up
phase, will be subject to performance against strategic and financial
milestones. 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 2010/11 to 2013/14
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 other Executive Directors have responsibility both for delivering
continued success of our core business and developing our international
businesses. They therefore receive an incremental award under the
Performance Share Plan which is focused on improving international ROCE.
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 risks 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:
> 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;
> the Performance Share Plan with payout conditional on the achievement
of stretching Group and International ROCE targets;
> for the US CEO, the US Long-Term Incentive Plan, with payout
conditional on the achievement of stretching targets based on
US EBIT and ROCE;
> for the Group CEO, the Group New Business Incentive Plan with payout
conditional on the achievement of stretching targets based on both
US EBIT and ROCE and Group and International ROCE;
> 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.
When setting the remuneration of Executive Directors, the Committee
has discretion to consider the Group’s performance on environmental,
social and governance (ESG) matters. Specific ESG performance targets
are applied to certain elements of the remuneration structure, in order
to reinforce positive and responsible behaviour by senior management.
Basic pay
Basic pay is designed to attract and retain talented individuals. It needs
to reflect individual capability and any changes in responsibilities as
the Company faces new opportunities and challenges. As the Company
continues to diversify into new product areas and services, as well as
expanding internationally, it seeks to reflect this in the benchmarking that
is used. We aim to reflect salary levels at the top performing retailers, the
leading FTSE companies and ensure consideration is given to international
competitors in order to attract the best people and maintain excellent
performance. We also take into account pay conditions throughout the
Company in deciding annual salary increases. Basic salaries are typically
increased with effect from 1 July each year. With effect from 1 July 2007
Sir Terry Leahy’s base salary was £1,320,600, the base salary for the other
Executive Directors other than Miss L Neville-Rolfe was £753,900 and
Miss Neville-Rolfe’s base salary was £495,000.
Annual cash bonus and deferred annual bonus
The Company operates an annual bonus scheme which is delivered part
in cash and part in shares. The Remuneration Committee has typically
made awards of up to 100% of salary paid in cash at the end of the year
and a maximum of 100% of salary paid in shares with compulsory deferral
for three years. The cash element is earned through achievement of EPS
growth targets and specific corporate objectives. In addition to these
targets, the share element is also based on an assessment of shareholder
returns (TSR). The Committee sets performance targets annually and
confirms achievement of performance and awards to be made.
We are not able to disclose future targets for reasons of commercial
sensitivity. By way of illustration of the approach to target-setting, the
corporate objectives are based on our balanced scorecard, the Steering
Wheel. Corporate objectives for the awards made in the financial year
2007/8 included increasing sales from new space; specific profit targets
for international businesses and for retailing services; like-for-like sales
growth and the development of the non-food business; focus on
developing trading models internationally and in non-food; enhancing
talent management and capability; and embedding the new Community
Plan and implementing international community-related strategies.
www.tesco.com/annualreport08
Base salary
Cash bonus Deferred
share bonus
Short-term
performance
Performance
Share Plan
Group &
International
Share
options US LTIP
Group New
Business
Incentive
Plan
Long-term
performance
c.12%-33% depending on
individual incentive arrangements
and performance
c.67%-88% depending on individual incentive arrangements and performance
Performance-related elementsFixed element