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52 Tesco PLC Annual Report and Financial Statements 2013
Directors’ remuneration report continued
Against this performance background, the main aspects of remuneration
practice for the year were as follows:
At a glance
Base salary • Salaries for Executive Directors were reviewed and
increased by 2% with effect from 1 July 2012, in line
with the general increase for other colleagues across
the Group.
• Next base salary review is with effect from 1 July 2013.
Annual
bonus
• Despite good progress against a number of strategic
operational measures and encouraging financial
performance in the latter part of the year, profitability
targets were not met and therefore no bonus will be
paid to Executive Directors in respect of 2012/13.
Long-term
incentives
• Our long-term rewards were assessed based on Group
and International ROCE and EPS delivered over the
past three years.
• Challenging Group and International ROCE targets
were not met and therefore PSP awards granted in
2010 will lapse. EPS growth targets were not met
and therefore the share options granted in 2010 will
also lapse.
The following provides further detail on these decisions.
Salaries for 2012/13
The base salaries of the Executive Directors following the 2012
review were:
Salaries 2012/13
Base salary 1 July 2012
CEO £1,122,000
CFO £869,040
Salary increases for Executive Directors last year were 2%, which was
broadly the same as the increase for other Executives and colleagues
throughout the Group. Salary increases over the last four years have been
aligned with those of other colleagues.
In light of our fundamentally different approach to space going forward,
the Committee has determined that underlying EPS performance will
be measured excluding property profits. The Committee also reviewed
the performance targets for the 2013 PSP awards to ensure that they
remained motivational for management while still representing long-
term value creation for shareholders. Having carefully reviewed targets
in the context of this objective and having discussed proposals with
shareholders, the Committee determined that it was appropriate to
lower the EPS target range and broaden the ROCE target range. Given
this it is also proposed to reduce the proportion of the award that vests
for meeting threshold performance from 20% of maximum opportunity
to 0% and to reduce the level of vesting in the bottom right end of the
matrix from 85% to 70%.
2013/14 award
The vesting matrix and targets for the three years to 2015/16 are
illustrated below:
% of initial award vesting
EPS growth p.a.
Targets
Threshold Stretch
3% 10%
ROCE 15% 45% Straight-line
vesting between
these points
100%
12% 0% 70%
Performance targets for awards granted in 2011 and 2012 are set out in
a footnote to the Long Term Performance Share Plan table on page 64.
The Remuneration Committee reserves the right to make adjustments
to ROCE to take account of acquisitions which were not envisaged when
the targets were set but will only do so when the impact is material.
Clawback provisions apply to awards, allowing the Committee to scale
back awards (potentially to zero) prior to vesting in the event that results
are materially misstated.
Remuneration outcomes for Executive
Directors in 2012/13
Our strategy to ‘Build a Better Tesco’ focuses on improving returns
through reducing space growth, improving the performance of existing
stores, and investing more in developing different ways to reach
customers, for example, digital shopping.
Over the last year we have made a significant investment in the
customer shopping trip, particularly in the UK, developing warmer,
friendlier and more inviting stores. The feedback so far is that
customers and colleagues like this focus on service and the format
of the new stores.
Good trading over Christmas and New Year offers us encouragement
about progress against our new strategic plans but we are at the
start of our journey to ‘Build a Better Tesco’. Our customer satisfaction
rating in the UK has improved following through to an improvement
in UK like-for-like sales, we have delivered strong growth in internet
sales, reduced CO2 output and improved our feedback from colleagues.
However, this progress has yet to flow through into profitability
and we have fallen short of where we need to be.