Vodafone 2007 Annual Report Download - page 80

78 Vodafone Group Plc Annual Report 2007
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.
As a result of this year’s review, the Remuneration Committee has concluded
that the existing Policy remains appropriate but intends to make four
changes. These are as follows:
•the comparator group for the Relative Total Shareholder Return (“TSR”)
performance condition on the Group Long Term Incentive Plan (“GLTI”)
Shares will be changed from all the companies in the FTSE Global
Telecommunications Index to the top 50% of companies in the FTSE
Global Telecommunications Index by market capitalisation, which will
allow us to calculate the ranking on an unweighted basis;
•the vesting curve on the relative TSR performance condition will be
changed to a straight line between threshold and maximum;
•a fifth performance measure will be added to the Group Short Term
Incentive Plan (“GSTIP”), which will focus participants on the development
of total communication services; and
•the performance condition on the Deferred Share Bonus (“DSB”) has
changed from a two year adjusted EPS to a two year cumulative adjusted
free cash flow target.
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 Remuneration 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’ and shareholders’ interests, 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 24 July 2007.
Luc Vandevelde
Chairman of the Remuneration Committee
29 May 2007
Remuneration Committee
The Remuneration Committee is comprised to exercise independent
judgement and consists only of independent non-executive directors. Luc
Vandevelde (Chairman), Dr Michael Boskin, Professor Jürgen Schrempp and
Philip Yea continue as members. Anthony Watson joined the Remuneration
Committee on 26 September 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 nine occasions during the year.
The Remuneration 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, the Group Reward and Recognition Director and, on
occasion, the Group Chief Financial Officer. 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 and pension.
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.
Each element of the reward package focuses on supporting different
Company objectives, which are illustrated overleaf:
Fixed
Base Salary Short/Medium
Term Incentive
Long Term
Incentive
Deferred
Share Bonus
Performance
Shares
Share
Options
Variable
circa 20% circa 80%
Board’s Report to Shareholders on Directors’ Remuneration