Vodafone 2001 Annual Report Download - page 17

BOARD’S REPORT TO SHAREHOLDERS ON DIRECTORS’ REMUNERATION continued
Vodafone Group Plc
Annual Report & Accounts
for the year ended
31 March 2001
15
The Group may, at its discretion, pay a cash sum up to the value of the base award in the event
that an executive director declines the provisional base award of shares after the first year.
In these circumstances, the executive director will cease to be eligible to receive an enhancement
award for that year. Details of STIP awards are given in the table on page 18.
Long Term Incentives
Long term incentives are provided to executive directors in the form of restricted shares and
share options. The programmes are described below and details of awards are set out in the
table on page 19.
Arun Sarin has previously received long term cash incentive awards under the AirTouch Long Term
Incentive Program. No awards were granted to him under this plan during the year and as a non-
executive director he is no longer eligible to receive such awards.
Restricted Shares
Awards of restricted shares are made to executive directors annually under the Vodafone Group
Long Term Incentive Plan (LTIP) by the Trustees of the Vodafone Group Employee Trust. If and to
the extent that the LTIP performance targets are achieved over the three year performance period
the shares are released to participants. The target level for awards granted in June 2000 to
executive directors is 28% of salary and the maximum is 75% of salary. No LTIP awards vested
during the year.
Executive Share Options (ESOS)
Executive directors are eligible to receive a grant of executive options if they hold unexercised
options worth in aggregate less than four times salary at grant. The normal annual grant is up to
one times salary. Options are granted at market value under either the Vodafone Group 1998
Company (Inland Revenue approved) or Executive (unapproved) Share Option Schemes. Options
are exercisable subject to achievement of the ESOS performance target.
Global Market-related Remuneration (GMR)
GMR has been introduced for all executive directors. Key principles and elements of GMR may be
summarised as follows:
•Global peer group – remuneration levels and practices are benchmarked by reference to a
global peer group;
•Pay for performance – a high and increasing level of remuneration is contingent on the
achievement of high and demanding levels of corporate performance; and
•Share ownership guidelines – participation in the highest levels of remuneration is contingent
on executives complying with share ownership requirements.
The size of the GMR option grant is determined by a calculation which is based upon:
(i) the three year historical total shareholder return (TSR) performance of Vodafone relative to
global peer group companies;
(ii) the remuneration of the Chief Executive Officer of those companies;
(iii) the sum of the local market-related remuneration which is made up of basic salary, STIP,
LTIP award and the Executive Share Option Scheme allocation; and
(iv) the Black-Scholes formula.
Vodafone’s three year TSR performance relative to the global peer group companies gives a
relative performance ranking for Vodafone. This ranking is applied to the list of remuneration
levels for all peer group company Chief Executive Officers which gives the stretch target
remuneration for the Company’s Chief Executive. The stretch target GMR level for the executive
directors is 50% of the Chief Executive’s stretch target GMR level. The sum of the local market-
related remuneration package is deducted from this GMR level and the difference is adjusted by
the Black-Scholes formula to give the face value of shares to be placed under option. This value is
divided by the market share price to determine the size of the GMR option grant. The market price
on the day prior to grant is the option price.
Five previously disclosed cash payments,
as part of a special bonus, were made in
April 2000 (not under the STIP) to executive
directors to address an under-provisioning
under then current remuneration
arrangements, relative to market competitive
remuneration levels, following the acquisitions
of AirTouch and Mannesmann. Cash payments
of £5 million (Chris Gent), £2 million (Julian
Horn-Smith and Ken Hydon) and £1 million
(Peter Bamford and Arun Sarin) were made.
The remaining part of the special bonus was
conditionally awarded in the form of restricted
shares, described below under long term
incentives.
LTIP Performance Targets
The targets for LTIP awards granted in July
2000 are the same as for the 2000 GMR
share options (see below).
ESOS Performance Target
The target for options granted in the year to
31 March 2001 requires adjusted earnings
per share over the three year performance
period to be at least 9 percentage points
above the growth in the UK Retail Prices Index
for the same period.
Global Peer Group
The global peer group for the 2000
GMR awards comprises UK and non-UK
telecommunications and high technology
companies selected primarily on the basis
of comparable sales and profits results
and for which remuneration data is available.
The original group comprises: Alltel, America
Online, Applied Materials, AT&T, Bell Atlantic,
BellSouth, British Telecom, Cable & Wireless,
Cisco Systems, EMC, GTE, Hewlett Packard,
IBM, Intel, Lucent, SBC Communications and
Sun Microsystems. The group will be adjusted
on a consistent basis over the performance
period to reflect corporate events, e.g. Verizon
Communications now replaces Bell Atlantic
and GTE.
Pay for Performance
Vodafone is firmly committed to making a
significant proportion of executive directors’
remuneration contingent upon the
achievement of stretch performance targets.
Over 80% of executive directors’ total
stretch target remuneration is made up of
performance-contingent remuneration that
depends on achievement both against
absolute targets and on performance relative
to global peer group companies.
Share Ownership Guidelines
Introduced in 2000, the guidelines require
ownership levels of four and three times
salary respectively for the Chief Executive and
other executive directors. These levels must
be attained by July 2003 and progress must
be shown towards attainment of the targets
before this time. The Remuneration Committee
may impose penalties for non-compliance.
Chris Gent, Julian Horn-Smith and Ken Hydon
each committed in July 2000 to acquire and
maintain substantial minimum levels of
shareholding in Vodafone for the next three
years, subject to them remaining directors for
that time. Chris Gent undertook to acquire and
maintain a shareholding of 2 million shares
within twelve months. Julian Horn-Smith and
Ken Hydon each undertook to maintain a
holding of not less than 500,000 shares.