Vodafone 2003 Annual Report Download - page 59

Vodafone Group Plc Annual Report & Accounts and Form 20-F 2003 57
Vodafone’s policy will be to provide executive directors with remuneration
generally at levels that are competitive with the largest companies in Europe.
A high proportion of the total remuneration will be awarded through
performance-related remuneration, with phased delivery over the short,
medium and long term. For executive directors, approximately 80% of the
total expected remuneration will be performance-related.
Performance measures will be balanced between absolute financial measures
and sector comparative measures to achieve maximum alignment between
executive and shareholder objectives.
All medium and long term incentives are delivered in the form of Vodafone
shares and options. Executive directors are required to comply with share
ownership guidelines.
The structure of remuneration for executive directors under the Policy (excluding
pensions) and the performance elements on which they are based is illustrated
below:
Under the Policy, approximately 20% of the potential remuneration of executive
directors (excluding pensions) is comprised of base salary and approximately 80%
of incentive payments, which depend both on the operational performance of the
Group and the Company’s share price, reflecting the Company’s commitment to
ensuring strong linkage between pay and performance. Therefore, the only
guaranteed payment to executive directors is their base salary.
To set the performance conditions, the Committee reviews the Company’s
strategy and selects the performance measures that best align the incentive
awards with achievement of the strategic goals. The measures selected explicitly
incentivise achievement of all the Group’s key financial performance indicators.
The principles of the Policy are cascaded, where appropriate, to employees in all
subsidiary companies. Base salaries and short term incentives (total cash) are
benchmarked against relevant peer companies in each market and are targeted
to deliver total cash that is at between median and top 25% in the relevant
market. Incentive payments conditional on business performance are provided to
employees at levels that are competitive in each local market. As described
further below, substantially all employees of subsidiary companies received
options over shares in the Company in 2002.
Report on 2002/03 Executive Directors’
Remuneration and Subsequent Periods
Total remuneration levels
Under the Policy, total remuneration levels are benchmarked against other large
European domiciled companies, using externally provided pay data. Total
remuneration for these purposes means the sum of base salary, short, medium
and long term incentives. The European focus was selected because Europe is
currently Vodafone’s major market and the Company is one of the top ten
companies in Europe by market capitalisation.
Award levels for the Chief Executive were set to deliver target total remuneration
that is between the top 25% and the top 10% of the remuneration levels of other
chief executives of large European companies. This range was selected to reflect
Vodafone’s relative size in this region and to recognise that Vodafone also has
significant interests outside of the region. The monetary values of the market
data for this range, based on theoretical expected value calculations, were from
£3.4 million to £9.3 million per annum for chief executives of large European
companies. Awards of short, medium and long term incentives were determined
so that this positioning would only be attained if the Company achieves
exceptionally demanding performance levels.
The total remuneration levels of other executive directors were set at
approximately 65% of the Chief Executive level for the Group Chief Operating
Officer and at approximately 50% of the Chief Executive level for the other
executive directors.
A similar approach is being undertaken to determine total remuneration levels for
the 2004 financial year. The monetary values of the market data based on
theoretical expected value calculations for the same range are now from
£5.6 million to £9.3 million per annum for chief executives of large European
companies. The change from the prior year was not considered material when
setting target remuneration levels for the 2004 financial year.
Components of executive directors’ remuneration
Overview
Executive directors receive salary, short/medium term incentives, medium/long
term incentives and pension benefits. These are explained further below.
The vesting of all short, medium and long term incentives is subject to the
achievement of performance targets which are set by the Remuneration
Committee before the awards are granted.
Salary
Salaries are reviewed annually with effect from 1 July and adjustments may be
made to reflect competitive national pay levels, the prevailing level of salary
reviews within the Group, changes in responsibilities and Group performance.
Only base salary is used to determine pension entitlement.
Incentive awards
Short/medium term incentive
Annual deferred share bonus
This short/medium term incentive is aimed at focusing executive directors on
the business priorities for the next financial year and is provided through the
Vodafone Group Short Term Incentive Plan (“STIP”).
Base Pay Short/medium
term incentive
Deferred share bonus
1-year measures
of EBITDA, free
cash flow & ARPU+
2-year measures of
EPS relative to UK RPI
3-year relative TSR for
Performance shares
3-5 year EPS over UK
RPI for options
Performance shares+
share options
Performance ContingentFixed
Circa 20% Circa 80%
Medium/long
term incentive