Vodafone 2003 Annual Report Download - page 60

The STIP comprises two elements: a base award earned by achievement of one-
year performance targets and an enhancement award. The base award is
delivered in the form of shares, receipt of which is deferred for a further two
years. An enhancement award of 50% of the number of shares comprised in the
base award may be payable, subject to the achievement of a subsequent two-
year performance target following the initial twelve-month period. Release of the
base award and the enhancement award after the total three-year period is
dependent upon the continued employment of the participant.
Demanding base award performance targets are set annually and are linked to
business strategy. The performance measures for 2002/03 related to EBITDA,
free cash flow and ARPU. The targets are not disclosed, as they would give clear
indication of the Company’s business targets, which are commercially sensitive.
In 2003/04 data as a percentage of service revenues and a customer
satisfaction measure will be added to the above performance measures.
The target level for base awards granted to executive directors for the year
ended 31 March 2003 was 100% of salary with a maximum of 200% of salary.
Payments earned for the year total on average 133% of salary, reflecting the
excellent results which exceeded expectations.
For enhancement shares, performance targets are related to achievement of
earnings per share (“EPS”) growth targets. For the two years from 1 April 2002,
the performance target was that the growth in earnings per share, before goodwill
amortisation and exceptional items, must exceed the growth in the UK retail price
index (“UK RPI”) by six percentage points over the two year period. The
Remuneration Committee has agreed that for the two years from 1 April 2003,
the required rate of growth over the UK RPI will increase to 5% per annum.
STIP awards from the 1999/2000 base performance year vested in 2002.
Details of STIP awards are given in the table on page 63.
The Group may, at its discretion, pay a cash sum of up to the value of the base
award in the event that an executive director declines the base award of shares.
In these circumstances, the executive director will not be eligible to receive the
enhancement award.
Medium/long term incentives
Performance shares
Performance shares are awarded to executive directors each year. The Vodafone
Group Plc 1999 Long Term Stock Incentive Plan is the vehicle for the provision
of these incentive awards. Vesting of the performance shares depends upon the
Company’s relative TSR performance. TSR measures the change in value of a
share and reinvested dividends over the period of measurement.
The Company’s TSR performance is compared to that of other companies in the
FTSE Global Telecommunications index over a three-year performance period to
reward out-performance against the Company’s main competitors.
Shares will vest only if the Company ranks in the top half of the table with
maximum vesting only if the Company is in the top 20%, as the Remuneration
Committee views performance in the bottom 50% of this peer group as
unacceptable to shareholders and performance in the top 20% as excellent.
Vesting will also be conditional on underlying improvement in the performance of
the Company. Awards will only vest to the extent that the performance condition
has been satisfied at the end of the three-year performance period and no
retesting is permitted. The following graph illustrates the basis on which the
performance shares will vest:
The constituents of the FTSE Global Telecommunications index as at July 2002,
(applicable to 2002 awards), excluding the Company, were:
Alltel Orange
AT&T Qwest Communications International
AT&T Wireless Services SBC Communications
BCE Singapore Telecommunications
BellSouth Sprint Corp-FON Group
BT Group Sprint Corp-PCS Group
China Mobile (Hong Kong) Swisscom
China Unicom Telecom Italia
Deutsche Telekom Telecom Italia Mobile
France Telecom Telefonica
Japan Telecom Telia
KDDI Telstra Corp
Nippon Telegraph & Telephone Verizon Communications
NTT Docomo WorldCom Inc-WorldCom Group
Olivetti
Previously disclosed restricted share awards granted in 1999 and 2000 vested
in 2002. Details are given in the table on page 63.
Share options
Share options are granted each year to executive directors. The Vodafone Group
Plc 1999 Long Term Stock Incentive Plan is the vehicle for the provision of these
incentive awards. The price at which shares can be acquired on option exercise
will be no lower than the market value of the shares on the day prior to the date
of grant of the options (or than the average of the market values for the
immediately preceding month in respect of directors domiciled in Italy).
Therefore, the share price has to rise above the price at which the option was
granted before option exercise is of value to the executive director.
Exercise of the options is subject to the achievement of a performance condition.
To focus executive directors on generating real earnings growth and cash flow,
EPS must grow by amounts in excess of the growth in the UK RPI. EPS is defined
as EPS, before goodwill amortisation and exceptional items. One quarter of the
option award will vest for achievement of EPS growth of RPI plus 5% p.a. rising
to full vesting for achievement of EPS growth of RPI plus 15% p.a. over the
performance period. The Remuneration Committee’s advisers have confirmed
that these targets are amongst the most demanding of those set by large UK
based companies as well as by the standards of the Company’s peers in Europe
Vodafone Group Plc Annual Report & Accounts and Form 20-F 2003
58
BOARD’S REPORT TO SHAREHOLDERS ON DIRECTORS’ REMUNERATION Continued
100%
80%
60%
40%
20%
0%
0% 20% 40% 60% 80% 100%
Performance Share Vesting Schedule
% of award vesting
Relative TSR Percentile vs FTSE Global Telecoms