Tesco 2013 Annual Report Download - page 48

44 Tesco PLC Annual Report and Financial Statements 2013
Directors’ remuneration report
Dear Shareholder
In an important year for Tesco, the Remuneration Committee has
sought to ensure that the Company’s remuneration arrangements
continue to support the strategic direction of the business, and that
the remuneration decisions we have made are fair and comprehensible
to the outside world.
This report sets out in full how we have approached this and the specific
decisions we have reached. I would like to highlight two areas:
• Firstly, the year just ended was a challenging one. A number of
important decisions were taken during the year, such as reinvesting
profits back into the UK business to improve the shopping experience
for customers, and deciding to exit the US and write down the value
of the Fresh & Easy business. These decisions have had financial
consequences this year but were necessary to set the business on the
right track to deliver realistic, sustainable and attractive returns over
the long term. We also faced external challenges which impacted our
performance, most notably the regulatory restrictions on opening hours
in South Korea and the difficult economic conditions in Central Europe.
As a consequence, our financial performance fell short of where we
wanted it to be, which in turn resulted in no annual bonus being paid
to the senior management team for 2012/13. The long-term incentives
that were due to vest this year also lapsed as performance targets
were not met. The Remuneration Committee believes that this
demonstrates that our remuneration policy is effective in aligning
pay with performance.
• Secondly, as set out in more detail in this report and at the time
of our Preliminary Results announcement, we have clearly articulated
our business priorities for the foreseeable future and the financial
performance that shareholders can expect us to deliver in the
current economic environment. We have consequently amended
the management incentives for 2013/14 to align them with the
new strategic priorities and financial parameters.
The changes for 2013/14 are summarised below:
Annual bonus
• The annual bonus will be less heavily weighted towards short-term
profits but linked to a more balanced scorecard of financial, strategic
and operational measures. However, bonuses will only be paid if
profits have grown.
• The profit measure used will be based on Trading Profit rather than
Underlying Profit. Trading Profit does not include property profits, which
reflects our fundamentally different approach to space going forward.
• We have replaced UK ROCE with Group Working Capital. The
Committee feels that ROCE is an important capital efficiency measure
but is better suited to long-term incentives. Management have more
line-of-sight and control of Working Capital over the short term.
• The measures for customer service and colleague engagement will
reflect overall Group performance rather than just the UK as used in
previous years.
Long Term Performance Share Plan
• We have amended the performance targets on the long-term
Performance Share Plan to align with the new financial parameters
described in this report and at our Preliminary Results announcement.
To reflect the lower performance threshold at which awards may
vest, we have also lowered the amount of the award that vests. This
ensures incentives remain aligned with the strategy while striking
a balance between creating long-term value for shareholders and
rewarding management fairly.
• The calculation of underlying Earnings Per Share used to assess
performance will exclude property profits to reflect our different
approach to space.
Whilst it has been a difficult year, we are making progress against our
plan to ‘Build a Better Tesco’. The Remuneration Committee is confident
that the changes above will better support the business strategy leaving
the management team to get on with the job at hand and make what
matters better, together.
I hope you find this report informative.
Stuart Chambers Chairman of the Remuneration Committee
In this section
44 Introduction from Stuart Chambers, Chairman of the Remuneration
Committee
Remuneration strategy
45 Linking executive pay with strategy
45 Remuneration arrangements throughout the Group
Remuneration policy
46 Remuneration framework
47 Remuneration policy for Executive Directors for 2013/14
48 Remuneration outcomes in different performance scenarios
48 Share ownership guidelines
49 Service contracts and leaver provisions
How remuneration policy will be applied in 2013/14
50 Fixed remuneration for 2013/14
50 Performance related remuneration for 2013/14
Remuneration outcomes for Executive Directors in 2012/13
52 Salaries for 2012/13
53 Performance related remuneration for 2012/13
55 Aligning pay with performance
Other information
56 Leaving arrangements for Executive Directors
56 Outside appointments
Non-executive Directors
56 Non-executive Director responsibilities
57 Non-executive Director fees
57 Chairman fees
Corporate governance
57 Governance including the role, membership and advisors
to the Committee
Audited information
60 Data tables
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 23 February 2013.
Stuart Chambers Chairman of the Remuneration Committee