Tesco 2011 Annual Report Download - page 78

Following my appointment as Chairman of the Remuneration
Committee, I took the opportunity to meet with our largest
shareholders in November 2010 to understand their views and
concerns in relation to remuneration arrangements. The Remuneration
Committee has since reviewed all our executive remuneration
arrangements in the light of our strategy, our operational goals and the
feedback from shareholders. Whilst we believe that our remuneration
arrangements are broadly competitive and operate well, the Committee
has found opportunities to simplify, and rebalance where appropriate.
In carrying out this review, we have followed four guiding principles.
These principles as well as the key outcomes of the review are as follows:
1 Simplification – We will remove share options and operate only one
long-term incentive plan (currently four plans) with two performance
measures (currently five measures). We will also reduce the annual
bonus metrics to seven key measures (currently more than 20
individual measures are considered).
2 A collegiate approach – The focus for our long-term incentives will
be on Group results only for both the CEO and Executive Directors
and there will be no separate long-term incentives for Executive
Directors in relation to the US or other businesses. Going forward,
the US CEO will participate in the same incentive arrangements
as other executives and will no longer participate in the US LTIP.
3 Strategic alignment – We will emphasise earnings growth in the
long-term plan as well as delivering sustainable return on capital.
We are also increasing our executive shareholding guidelines to four
times base salary for the CEO and three times base salary for the
Executive Directors to enhance the alignment of interests between
executives and our shareholders.
4 Appropriate pay levels – The simplified remuneration
arrangements are of broadly the same expected value as the current
executive remuneration arrangements.
We are asking shareholders at this year’s AGM to approve the renewal of
the Performance Share Plan for a further ten years on broadly its existing
terms. In order to allow for the replacement of share options with a
performance share award and to allow for the Committee to structure
the reward of the CEO so that it is more focused on performance related
elements, our current intention is for the maximum award under the
long-term incentive plan (PSP) to be 225% of base salary for Executive
Directors and 275% of base salary for the CEO. To ensure that we have
sufficient headroom to grant awards in exceptional circumstances,
in line with usual practice, we are seeking shareholder approval to
increase the maximum award opportunity under the PSP to 350% of
base salary. In the event that this award policy changes we would expect
to consult our largest shareholders in advance.
Further details of the proposed remuneration arrangements are set out
on pages 76 to 79.
I believe that the remuneration arrangements we are proposing are
appropriate and will help incentivise executives to create future growth
in shareholder value. I very much hope that shareholders will support
our remuneration arrangements at our forthcoming AGM.
Last year’s remuneration
2010/11 was another strong performance year for Tesco in challenging
markets. Remuneration payouts for the year were based on the existing
reward framework and average payouts for the year were lower than
for 2009/10. Further details of this are provided on pages 80 to 83.
Stuart Chambers
Chairman of the Remuneration Committee
As the new Remuneration
Committee Chairman I am
pleased to present Tesco PLC’s
2010/11 Directors’ Remuneration
Report to you.
Stuart Chambers
Remuneration Committee Chairman
This report sets out the remuneration policy for the Executive and
Non-executive Directors of Tesco PLC and describes the individual
remuneration of the Directors for the year ended 26 February 2011.
REMUNERATION COMMITTEE
75 Governance and risk
management, including the
role, membership and advisors
to the Committee
REMUNERATION STRATEGY
AND POLICY
76 Remuneration strategy and
policy from 2011/12
77 Fixed remuneration from
2011/12
78 Performance related
remuneration from 2011/12
79 Share ownership guidelines
79 Service agreements
REMUNERATION FOR 2010/11
80 Fixed remuneration for 2010/11
80 Performance related
remuneration for 2010/11
83 2010/11 long term performance
awards
OTHER INFORMATION
84 Outside appointments
84 Other remuneration matters
84 Non-executive Directors
84 Compliance
74 — TESCO PLC Annual Report and Financial Statements 2011
GOVERNANCE
Directors’ remuneration report