Tesco 2011 Annual Report Download - page 82

Short-term performance targets for 2011/12
Following the remuneration review, the following short-term
performance measures will be adopted for the 2011/12 annual
bonus arrangements for all Executive Directors:
Short-term bonus opportunity
• Maximum of 250% of salary for the CEO
• Maximum of 200% of salary for the other Executive Directors
• Half payable in cash and half payable in shares which are
deferred for three years
Profitability
(70% of short-term performance)
Strategic
(30% of short-term performance)
Measured in relation to
underlying profit
Based on performance against
key metrics. For 2011/12 these
metrics will be:
1. UK like-for-like sales growth
2. UK return on capital employed
3. Group new space expansion
4. Group internet sales
5. Group employee engagement
6. Group CO2 reduction
This measure incentivises the
delivery of annual shareholder
value through improved bottom-
line financial results.
These measures contain a mix of
financial, strategic and corporate
responsibility targets and were
selected to incentivise sustainable
improvements in the underlying
drivers of performance.
If performance is lower than the maximum targets, incentive payments
will reduce accordingly and will be zero if threshold levels of performance
are not attained.
US reward from 2011/12
Since 2007, Tim Mason, the US CEO, has participated in remuneration
arrangements which were focused on the performance of the US
business as well as that of the Group. In light of the renewed focus
on a collegiate approach to remuneration, together with Mr Mason’s
appointment to the roles of Deputy CEO and Chief Marketing Officer,
it has been agreed that Mr Mason will no longer be eligible for awards
under the US annual or long-term incentive programmes. Mr Mason
will therefore no longer participate in the US LTIP and the two million
shares granted to him in 2007 will lapse.
From 2011/12, Mr Mason will participate in the same collegiate
(Group-focused) remuneration arrangements as other Executive
Directors. In line with our policy for senior executives working abroad,
Mr Mason will receive a net expatriate allowance of £282,000 per
annum to cover costs incurred in relation to his US assignment.
The Committee believes that it is appropriate for Executive Directors
to participate in the same arrangements and to be rewarded based
on the achievement of measures that are key to Group performance.
Moving Mr Mason’s remuneration package entirely to the same
structure as other Executive Directors will further support the collegiate
approach to working which is considered essential to the delivery of our
long-term business strategy.
Performance related remuneration from 2011/12
The Committee has considered the performance conditions for each of the incentive arrangements against the Group’s business strategy, its
growing global leadership, its position as one of the rising companies at the top of the FTSE 100 and the intensely competitive sector in which
it operates, and has concluded that they provide a set of comprehensive and robust measures of management’s effort and success in creating
shareholder value.
Performance measures CEO
Other Executive
Directors Commentary
Short-term
performance
measures
(one year
performance)
• 70% of bonus based
on underlying profit
performance
• 30% of bonus based
on performance
against six key
strategic
performance
measures
Maximum of
250% of base
salary
Maximum of
200% of base
salary
• These bonus measures have been selected as they are
considered to be closely aligned to long-term shareholder
value creation.
• Strategic performance measures include specific measures
based on environmental, social and governance (ESG) factors,
an integral part of the corporate strategy. Inclusion of these
specific measures will help reinforce positive and responsible
behaviour by senior management.
• Delivered half in cash; and
• half in shares which are deferred
for three years
• ‘Clawback’ introduced for
deferred shares to allow the
Committee to scale back
deferred share awards in the
event that results are materially
misstated
Long-term
performance
measures
(three year
performance)
Matrix of ROCE/EPS
performance
Maximum of
275% of base
salary
Maximum of
225% of base
salary
• Share options will no longer form part of the package for
Executive Directors (other than in exceptional circumstances).
• The new PSP awards have been set to be of broadly equivalent
expected value to the current PSP and option awards for
Executive Directors. The Committee considered the relative
expected values of the PSP and share option awards and
determined that a PSP award of 75% of salary is broadly
equivalent to the current share option award of 200% of
salary resulting in an increase in PSP from 150% to 225%
of base salary.
• The CEO will receive an additional opportunity of 50% of
base salary.
• ‘Clawback’ introduced to allow the Committee to scale back
PSP awards in the event that results are materially misstated.
78 — TESCO PLC Annual Report and Financial Statements 2011
GOVERNANCE
Directors’ remuneration report