Tesco 2011 Annual Report Download - page 80

The key features of the revised arrangements are:
• Common remuneration arrangements with a Group focus –
There will be a return to a common set of incentive arrangements
with a focus on Group performance for short-term and long-term
reward. All executives, including the CEO and the US CEO, will
participate in the same plans going forward.
• Retain focus on performance related reward and delivery in
shares – The Remuneration Committee continues to believe that
the majority of total remuneration should be performance related
and delivered largely in shares, to closely align the interests of
shareholders and Executive Directors. This remains a feature
of the revised arrangements. To further enhance alignment with
shareholder interests, the Committee has decided to increase the
executive shareholding guideline from one times base salary to
four times base salary for the CEO and three times base salary
for the other executives.
• Removal of share options – Executive share options will no longer
be granted and will be replaced by a performance share award of
comparable expected value.
• Reduction in measures – The number of performance measures
will be reduced going forward, with a focus on delivery of ongoing
earnings growth and sustainable return on capital for long-term
elements of reward.
• Rebalancing of the CEO package – The CEO’s package has
been rebalanced compared to his previous package as an Executive
Director, to focus it more on performance-related rather than fixed
elements of reward.
• Introduction of ‘clawback’ – To reflect best practice, we have also
introduced ‘clawback’ for deferred share awards under the annual
bonus plan and long-term incentive (PSP) awards to allow the
Committee to scale back awards in the event that results are
materially misstated.
The following chart shows the make-up of remuneration:
REMUNERATION STRATEGY AND POLICY FROM 2011/12
ONWARDS
Executive Directors’ remuneration strategy
Tesco has a long-standing strategy of rewarding talent and experience.
We seek to provide incentives for delivering strong, sustainable and
profitable growth, thereby creating substantial additional value for
shareholders. We operate in a keenly 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 motivating
and incentivising that team at senior levels to deliver yet higher levels of
performance is vital to our ongoing success. We believe our incentives
should support the continued growth and the strengthening of our
returns from across the Group, as well as the creation and development
of significant new businesses.
Total remuneration levels of Executive Directors are reviewed annually
by the Committee, taking into account their contribution in terms of
continuing strong performance, their potential and competitive market
practice. When setting the remuneration of Executive Directors, the
Committee considers the Group’s performance against a mixture of
corporate objectives and financial measures. Consideration is also given
to reward levels at the next tier of management below the Board and
across the Group in order to sustain a common sense of purpose and
sharing of success.
Remuneration policy for 2011/12
The Remuneration Committee has undertaken a detailed review
of executive remuneration arrangements in the past few months.
As outlined in the Chairman’s introduction, the objectives of this review
were to simplify arrangements and return to using measures relevant
to group performance for all Executive Directors. In addition, the review
focused on ensuring that executive arrangements are aligned with
strategy and shareholder value creation, while offering the right pay
for the right level of performance. In carrying out its review of Tesco’s
remuneration approach, the Committee considered total remuneration
levels and decided that there should be no overall increase in incentive
opportunity. The Committee believes that this package is appropriate
for the scope and responsibility of the Executive Director roles.
When reviewing remuneration and determining the revised level and
structure of reward, the Remuneration Committee has also been
conscious of the economic background and wider concerns around
executive pay and has sought to ensure reward outcomes are
proportionate to the performance outcome.
Base salary
Short-term performance Long-term performance
Performance share plan
Cash bonus Deferred
share bonus
Fixed element
Performance-related element
c14% – 40% depending on individual incentive arrangements and performance
c60% – 86% depending on individual incentive arrangements and performance
76
— TESCO PLC Annual Report and Financial Statements 2011
GOVERNANCE
Directors’ remuneration report