Vodafone 2006 Annual Report Download - page 63

Vodafone Group Plc Annual Report 2006 61
Board’s Report to Shareholders on Directors’ Remuneration
Dear Shareholder
Since the introduction of the current Executive Remuneration Policy in 2002 (the
“Policy”), the Remuneration Committee has conducted annual reviews to ensure that
the Policy continues to serve the Company and shareholders. Following my appointment
as Chairman of the Committee, we have undertaken a review again this year.
As a result of this year’s review, the Remuneration Committee has concluded that the
existing Policy remains appropriate but wishes to make three minor changes. These are
as follows:
•the deferred bonus scheme will be extended to members of the Executive Committee
based outside of the UK, and the mechanics amended in light of recent US tax
legislation;
•we have considered the weighting of performance shares and options within our long
term incentives, and will place a greater weighting on performance shares for 2006
awards, thus increasing the emphasis on total shareholder return performance; and
•dividends will be accrued on performance shares awarded from 2006 and transferred
as shares on the vesting of awards, to increase the alignment of executive and
shareholder interests.
The key principles of the Policy, which are being maintained, are:
•the expected value of total remuneration will be benchmarked against the relevant
market;
•a high proportion of total remuneration will be delivered through performance related
payments;
•performance measures will be balanced between absolute financial measures and
sector comparative measures to achieve maximum alignment between executive and
shareholder objectives;
•the majority of performance related remuneration will be provided in the form of
equity; and
•share ownership requirements will be applied to executive directors.
The Committee continues to monitor how well incentive awards made in previous years
align with the Company’s performance. The Policy continues to work well and forecast
rewards are commensurate with actual performance. I am confident that the Policy
continues to align executives’ interests with the interests of shareholders, whilst
enabling the Company to engage a high calibre team to successfully lead the Company.
I hope that we receive your support at the AGM on 25 July 2006.
Luc Vandevelde
Chairman of the Remuneration Committee
30 May 2006
Remuneration Committee
The Remuneration Committee is comprised to exercise independent judgement and
consists only of independent non-executive directors. Luc Vandevelde (Chairman), Sir
John Bond, Dr Michael Boskin and Professor Jürgen Schrempp continue as members.
Philip Yea joined the Committee on 1 January 2006. The Chief Executive and Chairman
are invited to attend meetings of the Remuneration Committee, other than when their
own remuneration is being discussed.
The Remuneration Committee met on five occasions during the year. The Committee
appointed and received advice from Towers Perrin (market data and advice on market
practice and governance) and Kepler Associates (performance analysis and advice on
performance measures and market practice) and received advice from the Group Human
Resources Director and the Group Compensation and Benefits Director. The advisers
also provided advice to the Company on general human resource and compensation
related matters.
Remuneration Policy
The Policy was approved by shareholders in July 2002. The Policy is set out below:
The overriding objective of the Policy on incentives is to ensure that Vodafone is able
to attract, retain and motivate executives of the highest calibre essential to the
successful leadership and effective management of a global company at the leading
edge of the telecommunications industry. To achieve this objective, Vodafone, from
the context of its UK domicile, takes into account both the UK regulatory framework,
including best practice in corporate governance, shareholder views, political opinion
and the appropriate geographic and nationality basis for determining competitive
remuneration, recognising that this may be subject to change over time as the
business evolves.
The total remuneration will be benchmarked against the relevant market. Vodafone is
one of the largest companies in Europe and is a global business; 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) is illustrated below:
The Policy’s key objective is to ensure that there is a strong linkage between pay and
performance. This is achieved by approximately 80% of the total package (excluding
pensions) being delivered through performance-linked short, medium and long term
incentive plans. Therefore, the only guaranteed payment to executive directors is their
base salary.
The Remuneration Committee selects performance measures for incentive plans that
provide the greatest degree of alignment with the Company’s strategic goals and that
are clear and transparent to both directors and shareholders. The performance measures
adopted incentivise both operational performance and share price growth.
Fixed
Base Salary
circa 20% circa 80%
Short/Medium
Term Incentive
Long Term
Incentive
Deferred
Share Bonus
Performance
Shares
Share
Options
Variable
Governance