Vodafone 2006 Annual Report Download - page 65

Vodafone Group Plc Annual Report 2006 63
For awards made in the 2007 financial year, dividend equivalents will be awarded at
vesting. Initial award levels will be adjusted to take into account the increased expected
value of awards and the proportion of dividend equivalents transferred will reflect TSR
performance achievement.
Previously disclosed performance share awards granted in the 2003 financial year
vested in the 2006 financial year. Details are given in the table on page 67.
Share options
Share options are granted annually to executive directors. The exercise of share 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 awards relating to the 2006 financial year was absolute growth in adjusted EPS. One
quarter of the option award will vest for achievement of EPS growth of 8% p.a. rising to
full vesting for achievement of EPS growth of 16% 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 Remuneration Committee has decided that
for the 2007 financial year grants, the performance range will be 5% – 10% p.a. The
following chart illustrates the basis on which share options granted in the 2006 financial
year will vest:
Options have a ten year term and will vest after three years, subject to performance
achievement. To the extent that the performance target is not met, the options will
lapse. Re-testing of performance is not permitted.
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. Therefore,
scheme participants only benefit if the share price increases and vesting conditions are
achieved.
In July 2005, the Chief Executive received an award of options with a face value of six and
a half times base salary; the Deputy Chief Executive and the other executive directors
five times their base salary.
Illustration
To help shareholders understand the value of the package provided to the Chief
Executive, the following illustration demonstrates that in order to gain value from the
incentive plans, considerable shareholder value must be created.
Share Option Vesting Schedule (2005 financial year)
% of options vesting
Annualised EPS Growth
0% 8% 10% 12% 14% 16% 18% 20%
100%
120%
80%
60%
40%
20%
0%
Performance Share Vesting Schedule
% of award vesting
0% 20% 40% 60% 80% 100%
100%
120%
80%
60%
40%
20%
0%
Relative TSR Percentile vs FTSE Global Telecoms
For example, if the Company’s share price increases by over 50% from 127.0 pence to
approximately 190.0 pence, the Company’s value increases by £42 billion, and there
was a 50% vesting of long term incentives, the Chief Executive would have a pre-tax
gain of approximately £4 million, representing less than a hundredth of 1% of the
total increase in shareholder value.
Measurement of performance under IFRS
From 1 April 2005, the Company has prepared its financial statements under IFRS. The
Remuneration Committee has reviewed the impact of the introduction of IFRS for
incentive scheme purposes, to ensure that EPS performance achievement is measured
on a consistent basis and that the introduction of the new standard does not advantage
or disadvantage participants. For the schemes affected, EPS under IFRS is adjusted to
reflect UK GAAP measurement so that performance may be measured on a consistent
basis. In each case, an independent auditor is requested to review and verify the
achievement level.
Share ownership guidelines
Executive directors participating in long term incentive plans must comply with the
Company’s share ownership guidelines. These guidelines, which were first introduced in
2000, require the Chief Executive to have a shareholding in the Company of four times
base salary and other executive directors to have a shareholding of three times base salary.
It is intended that these ownership levels will be attained within five years from the
director first becoming subject to the guidelines and be achieved through the retention
of shares awarded under incentive plans.
Pensions
The Chief Executive, Arun Sarin, is provided with a defined contribution pension
arrangement to which the Company contributes 30% of his base salary. The contribution
is currently held in a notional fund outside the Company pension scheme.
During the 2006 financial year, Sir Julian Horn-Smith, Peter Bamford, and Andy Halford,
being UK based directors, were contributing members of the Vodafone Group Pension
Scheme, which is a UK defined benefit scheme approved by the Inland Revenue. The
scheme provides a benefit of two-thirds of pensionable salary after a minimum of 20
years’ service. The normal retirement age is 60, but directors may retire from age 55 with
a pension proportionately reduced to account for their shorter service but with no
actuarial reduction. Where directors’ benefit levels are restricted by Inland Revenue
limits, the Company made contributions to the defined contribution Vodafone Group
Funded Unapproved Retirement Benefit Scheme (“FURBS”).
Sir Julian Horn-Smith has elected to receive his pension from 6 April 2006, prior to his
actual retirement from the Company, in accordance with the new UK pension rules
effective from April 2006. Sir Julian is planning to retire at the end of the 2006 AGM and
the Committee authorised a pension allowance of 30% of base salary for four months
until he steps down from the Board.
Thomas Geitner is entitled to a defined benefit pension of 40% of salary from a normal
retirement age of 60. On early retirement, the pension may be reduced if he has accrued
less than 10 years of Board service.
All the plans referred to above provide benefits in the event of death in service.
Further details of the pension benefits earned by the directors in the year ended
31 March 2006 can be found on page 66. Liabilities in respect of the pension schemes in
which the executive directors participate are funded to the extent described in note 25
to the Consolidated Financial Statements, “Post employment benefits”.
A-Day proposals
As a result of the new UK legislation affecting the taxation of pensions, the Company has
reviewed the pension arrangements it provides to UK based executives. From April 2006,
executives participating in UK pension arrangements may choose to continue
membership of the Vodafone Group Pension Scheme or opt out and instead receive a
non-pensionable cash allowance. Participation in an Inland Revenue approved defined
contribution plan or a non-pensionable cash allowance will be provided in place of the
current FURBS arrangement.
All-employee share incentive schemes
Global All Employee Share Plan
As in the 2005 financial year, the Remuneration Committee has approved that an award
of shares based on the achievement of performance conditions be made to all
employees in the Vodafone Group. The 2006 award will be made on 3 July 2006. These
awards have a dilutive effect of approximately 0.03%.
Sharesave
The Vodafone Group 1998 Sharesave Scheme is an Inland Revenue approved scheme
open to all UK permanent employees.
Governance