Tesco 2014 Annual Report Download - page 61

Selection of performance measures
Annual bonus
The annual bonus performance measures have been selected
to provide an appropriate balance between incentivising Executive
Directors to meet financial targets for the year and incentivising
them to achieve specific strategic objectives. This allows
the Company to more specifically incentivise the delivery
of key elements of our strategy. The particular bonus metrics
are selected by the Committee each year to ensure that Executive
Directors are appropriately focused on the key objectives for the
next 12 months.
Performance share plan
The ultimate goal of our strategy is to provide long-term sustainable
returns for all of our shareholders. Tesco believes that the best way
to deliver enhanced value is to grow earnings over the long term
while maintaining a sustainable level of capital efficiency – in other
words to keep growing the size of the business in an efficient way.
The measures used in the PSP reflect this.
Performance targets for both the annual bonus and Performance
Share Plan are set taking into account internal budget forecasts,
external expectations and the need to ensure that targets
remain motivational.
Remuneration arrangements throughout the Group
Remuneration arrangements are determined throughout the
Group based on the same principle; that reward should be
sufficient to attract and retain high calibre talent without paying
more than is necessary and that reward should support the delivery
of the business strategy.
Tesco is one of the largest public company employers in the world.
Our colleagues undertake a variety of roles reflecting the countries
we operate in and the range of skills we need to run our various
businesses (from stores to banking to telecoms). Reward packages
therefore differ taking into account location, seniority and level of
responsibility but they are all built around the common reward
objectives and principles outlined above. The following is based
on current practice which may change during the life of the policy.
•Annual bonus – Annual bonuses throughout the Group are
linked to local business performance, Group success and,
where appropriate, individual contribution in a structure
that is consistent with the Executive Directors’ annual bonus
with a focus on financial and strategic measures.
• Share incentives – Currently our 5,000 strong management
team across the Group participates in share incentives to create
alignment with shareholder interests. The management team
also receives some of their bonus in Tesco shares deferred for
a period of two or three years.
•Pensions – Pensions across the Group vary widely according
to local market practice. In the UK all Tesco colleagues
currently have the opportunity to participate in a career average
defined benefit scheme up to tax approved limits. This benefit
is unique in comparison with our key retail peers.
•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 119 million shares in our Share Incentive Plan and
over 127 million options over shares in our Sharesave 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
Directors’ pay remains appropriate in this context.
Information supporting the policy table
Tesco also operates shareholding guidelines. See page 48
of the Annual Remuneration Report for further details.
Awards may incorporate the right (in cash or shares) to receive
the value of dividends between grant and exercise in respect
of the number of shares that vest. The calculation of dividend
equivalents may assume reinvestment of those dividends in
Company shares on a cumulative basis.
The Committee has the discretion to scale back deferred share
awards and performance share awards prior to the satisfaction
of awards in the event that results are materially misstated or the
participant has contributed to serious reputational damage of the
Company or one of its business units or his conduct has amounted
to serious misconduct, fraud or misstatement. Other elements
of remuneration are not subject to clawback or malus.
If the Committee considers it to be appropriate, it may determine
that share awards may be settled in cash.
The Committee may amend the terms of awards or the rules
of share plans within the scope defined in the rules of the plans.
For share awards, in the event of a variation of the Company’s
share capital or a demerger, delisting, special dividend, rights issue
or other event, which may, in the Remuneration Committee’s
opinion affect the current or future value of awards, the number
of shares subject to an award may be adjusted.
The Committee may amend performance targets in accordance
with the terms of an award or if a transaction occurs which causes
the Committee to consider (taking into account the interest of
shareholders) that an amended performance condition would be
more appropriate and would continue to achieve the original purpose.
The Committee reserves the right to make any remuneration
payments and payments for loss of office (including exercising
any discretions available to it in connection with such payments)
notwithstanding that they are not in line with the Policy set out in
this report where the terms of the payment were agreed (i) before
the policy came into effect or (ii) at a time when the relevant
individual was not a Director of the Company and, in the opinion
of the Committee, the payment was not in consideration for
the individual becoming a Director of the Company. For these
purposes ‘payments’ includes the Committee satisfying awards
of variable remuneration, and an award over shares is ‘agreed’
at the time the award is granted.
The Committee may make minor changes to this Policy for
regulatory, exchange control, tax or administrative purposes
or to take account of a change in legislation without seeking
shareholder approval for that amendment.
Prior to 2011 Executive Directors were granted market value
options under the Company’s 2004 Discretionary Share Option
plan. Outstanding awards are no longer subject to performance
and may be exercised until the 10th anniversary of the date of
award. No further awards will be made under this plan.
58 Tesco PLC Annual Report and Financial Statements 2014
Directors’ remuneration report continued
2013/14 Policy Report