Tesco 2013 Annual Report Download - page 50

46 Tesco PLC Annual Report and Financial Statements 2013
Directors’ remuneration report continued
• Share incentives – Our 5,000 strong management team across
the Group participates in the Performance Share Plan based on
similar performance conditions to those for the Executive Directors’
PSP. This management team also receives some of their bonus in
Tesco shares deferred for a period of two or three years.
• Colleagues as shareholders – It is an important part of the Tesco
Values that all colleagues, not just management, have the opportunity
to become Tesco shareholders. Over 200,000 of our colleagues
participate in our all-employee schemes and hold over 125 million
shares in our Share Incentive Plan and over 140 million options over
shares in our Save As You Earn scheme.
When determining Executive Director remuneration arrangements
the Committee takes into account pay conditions throughout the
Group to ensure that the structure and quantum of Executive pay
remains appropriate in this context. When considering salary increases
for the Executive Directors the Committee considers the general level
of salary increase across the Group. Over the last four years Executive
Director salary increases have been at a similar level to the general
increase for colleagues across the Group.
The remuneration arrangements for the Executive Committee fall within
the Remuneration Committee’s remit ensuring a common approach to
the design of reward and determining reward outcomes for the most
senior people within the organisation.
Remuneration policy
In light of our new Strategy, the Committee reviewed our remuneration
policy and concluded that it was broadly fit for purpose. In the year
there has been very little change to our policy beyond adjusting certain
performance measures for the annual bonus and the performance
targets on the Long Term Performance Share Plan to reflect the new
strategic priorities for the Company.
Remuneration framework
The following chart and accompanying table on page 47, provide a
summary of the different elements of pay, their purpose and linkage
to our strategy, and the key features of each component.
Base salary + Benefits + Pension
Short-term performance Long-term performance
Performance
Share Plan
(3 years)
Cash
bonus
Share bonus
(deferred for
3 years)
Performance related pay
c.20% of total reward opportunity
Matrix of EPS growth and ROCE
Financial – 76% (profitability –
50%, strategic financial
measures – 26%) and strategic
non-financial measures (24%)
c.80% of total reward opportunity
Fixed pay
Remuneration policy for new hires
Tesco has a strong history of succession planning and developing internal
Executive talent. In the event that the Company recruited a new Executive
Director, the Committee would generally seek to align the remuneration
package offered with our broader remuneration policy.
In determining appropriate remuneration arrangements, the Committee
will take into consideration all relevant factors (including but not limited
to quantum, the type of remuneration being offered and the jurisdiction
the candidate was recruited from) to ensure that arrangements are in
the best interests of both Tesco and its shareholders without paying
more than is necessary to recruit an Executive of the required calibre.
The Committee may make awards on hiring an external candidate to
‘buy out’ remuneration arrangements forfeited on leaving a previous
employer. In doing so the Committee will take account of relevant
factors including any performance conditions attached to these awards,
the form in which they were granted (e.g. cash or shares) and the time
over which they would have vested. Generally buy-out awards will be
made on a comparable basis to those forfeited.
Risk management
Risk management is an important part of business process. The
Committee considers that Tesco’s processes in this area provide the
necessary controls to prevent inappropriate risk taking. When reviewing
remuneration structures the Committee considered whether any aspect
of these might encourage behaviours that are incompatible with our
Tesco Values and the long-term interests of shareholders. If necessary,
the Committee would take appropriate steps to address this.
Consulting with shareholders
The Committee believes that it is very important to maintain open
dialogue with shareholders on remuneration matters.
During the year under review the Committee consulted with
shareholders regarding some potential changes to remuneration
arrangements and the views of shareholders have been instrumental
in shaping the changes discussed in this report.
Going forward the Committee will continue to liaise with shareholders
regarding remuneration matters more generally and Tesco arrangements
as appropriate. It is the Committee’s intention to consult with shareholders
in advance of making any material changes to remuneration arrangements.