Vodafone 2004 Annual Report Download - page 58

The Remuneration Committee reviews and sets the base award performance targets
on an annual basis, taking into account business strategy. The performance measures
for the 2004 financial year relate to EBITDA, free cash flow, ARPU, data as a
percentage of total service revenues, and customer satisfaction. The targets are not
disclosed, as they would give clear indication of the Company’s business targets,
which are commercially sensitive. For the 2005 financial year, the targets for data as a
percentage of service revenues and ARPU will be replaced with a total service
revenues target in order to provide clearer focus on total revenue growth.
The vesting of the enhancement award shares is dependent upon the achievement of
an EPS performance target. For the awards made in 2003, which will vest in July
2005, the performance target was that annual compound growth in EPS, before
goodwill amortisation and exceptional items, must exceed UK RPI growth by 5% per
annum over the performance period.
The STIP awards made in July 2001 vested in July 2003. Details of STIP awards are
given in the table on page 60.
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 share award. In these
circumstances, the executive director will not be eligible to receive the enhancement
award or any cash alternative.
Long term incentives
Performance shares
Performance shares are awarded annually to executive directors. 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. The Vodafone Group Plc 1999 Long Term Stock Incentive Plan is
the vehicle for the provision of these incentive awards.
In 2003/04, the Chief Executive received an award of Performance shares with a face
value of two times base salary; the Chief Operating Officer and other executive
directors one and a half times their base salary.
Performance shares will vest only if the Company ranks in the top half of the ranking
table; maximum vesting will only occur if the Company is in the top 20%. Vesting is
also 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. To the extent that the performance
target is not met, the awards will be forfeit. The following chart shows the basis on
which the performance shares will vest:
Performance Shares Vesting Schedule
0%
20%
40%
60%
80%
100%
0% 20% 40% 60% 80% 100%
% of Award Vesting
Relative TSR Percentile Rank
The constituents of the FTSE Global Telecommunications index as at July 2003,
(applicable to 2003 awards), excluding the Company, were:
Alltel Olivetti
AT&T Orange
AT&T Wireless Services Portugal Telecom
BCE Royal KPN
BellSouth SBC Communications
BT Group Singapore Telecommunications
China Mobile (Hong Kong) Sprint Corp-FON Group
China Unicom Swisscom
Deutsche Telekom Telecom Italia
France Telecom Telefonica
Japan Telecom Telia Sonera
KDDI Telstra Corp
Nextel Communications TIM
Nippon Telegraph & Telephone Verizon Communications
NTT DoCoMo
Previously disclosed performance share awards granted in 2000 vested in 2003.
Details are given in the table on page 61.
Share options
Share options are granted annually to executive directors.
The exercise of the options is subject to the achievement of a performance condition set
prior to grant. The Remuneration Committee determined that the most appropriate
performance measure for 2003/04 awards was real (in excess of UK RPI) growth in EPS,
before goodwill amortisation and exceptional items. One quarter of the option award will
vest for achievement of EPS growth of UK RPI + 5% p.a. rising to full vesting for
achievement of EPS growth of RPI + 15% p.a. over the performance period. In setting
this target the Remuneration Committee has taken the internal long range plan and
market expectations into account. The Committee’s advisers have confirmed that this
EPS target is amongst the most demanding of those set by large UK based companies.
The Remuneration Committee has decided that for 2004/05 grants, real EPS growth of
5-15% p.a. (over UK RPI) will be replaced with absolute EPS growth of 8-18% p.a. The
following chart illustrates the basis on which share options granted in 2003/04 will vest:
Options have a ten-year term and vesting will be after three years. For 2003 options
performance may be measured again after years four and five from a fixed base year.
The Committee, having considered this matter at length and taking into account the
evolving views of institutional investors, has decided to remove the performance
re-test at year four, but to retain the performance re-test at year five, for 2004/05
grants. The Committee believes that for this existing scheme, retaining the re-test with
a stretching performance target compounding from a fixed base year will continue to
incentivise performance over the longer term and this is in shareholders’ interests. The
re-test will be reviewed again in 2005.
Share Option Vesting Schedule
0%
20%
40%
60%
80%
100%
0% 5% 10% 15% 20%
% of Options Vesting
Annualised EPS Growth Above RPI
Vodafone Group Plc Annual Report 2004
56
Board’s Report to Shareholders on Directors’ Remuneration continued