Vodafone 2007 Annual Report Download - page 82

80 Vodafone Group Plc Annual Report 2007
Board’s Report to Shareholders on Directors’ Remuneration
continued
July 2004 under the Vodafone Short Term Incentive Plan (“STIP”) (the
predecessor to the Deferred Share Bonus) vested in July 2006. Details of
STIP awards are given in the table on page 84.
Annual bonus (“GSTIP”)
The annual bonus is earned by achievement of one year’s KPI linked
performance targets and is either delivered in cash or shares. If the bonus is
delivered in shares they will be deferred for a two year period and the
executive will be eligible to receive 50% of the gross bonus under the
Deferred Share Bonus Plan, which is detailed below.
The target base award level for the 2007 financial year was 100% of salary,
with a maximum of 200% of salary available for exceptional performance.
The Remuneration Committee reviews and sets the GSTIP performance
targets on an annual basis, taking into account business strategy. The
performance measures for the 2007 financial year were adjusted operating
profit, revenue, free cash flow and customer delight. Each element is
weighted according to the responsibilities of the relevant director. For the
Chief Executive, in the 2007 financial year, the adjusted operating profit
target was 30% of the total, revenue 35%, free cash flow 20% and customer
delight 15%, and the payout achieved was 151.6%. The targets are not
disclosed, as they are commercially sensitive.
The target base award level for the 2008 financial year will continue to be
100% of salary, with a maximum of 200% of salary available for exceptional
performance.
For the 2008 financial year, the Group performance measures will be
changed to include the development of total communications revenue with
a 10% weighting, and the revenue measure will be changed to total service
revenue with a 25% weighting. More information on KPIs, against which
Group performance is measured, can be found in “Performance – Key
Performance Indicators” on page 33.
Deferred Share Bonus (“DSB”)
If executives choose to defer their annual bonus into shares, then they will
be eligible for an award under the DSB arrangement of matching shares
equal to 50% of the number of shares comprised in the pre-tax base award.
The award is earned by achievement of a subsequent two year performance
target following the initial 12 month period.
For awards made in 2006, which will vest in July 2008, the performance
measure is growth in adjusted EPS. Three quarters of the DSB award will vest
for achievement of EPS growth of 11%, rising to full vesting for achievement
of EPS growth of 15% over the two year performance period.
For awards made in 2007, which will vest in July 2009, the performance
measure will be free cash flow. The target itself will be set by the
Remuneration Committee at the time of the award based on the Group’s
long-range plan with reference to market expectations.
Long term incentives
Awards of performance shares and share options were made to executive
directors following the 2006 AGM on 25 July 2006. The awards for the 2007
financial year will be also be made following the AGM and will be made
under the Vodafone Global Incentive Plan.
Awards are delivered in the form of ordinary shares of the Company. All
awards are made under plans that incorporate dilution limits as set out in
the Guidelines for Share Incentive Schemes published by the Association of
British Insurers. The current estimated dilution from subsisting awards,
including executive and all-employee share awards, is approximately 2.9%
of the Company’s share capital at 31 March 2007 (2.6% as at 31 March
2006).
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.
For the award made in the 2007 financial year, the Company’s TSR
performance is compared to that of other companies in the FTSE Global
Telecommunications index as at the date of grant, over a three-year
performance period.
In the 2007 financial year, the Chief Executive received an award of
performance shares with a face value of 227% of base salary; other
executive directors received 182% of 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 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 forfeited.
For awards made in the 2008 financial year, the TSR comparator group will
be changed to the top 50% of companies in the FTSE Global
Telecommunications Index by market capitalisation. This removes the
smaller companies from the group and allows us to move from a weighted
to an unweighted ranking system. In addition, the vesting curve has been
straightened between threshold and maximum performance. The following
chart shows the basis on which the performance shares will vest:
Previously disclosed performance share awards granted in the 2004
financial year vested in the 2007 financial year. Details are given in the table
on page 85.
Share options
Share options are granted annually to executive directors. The exercise of
share options is subject to the achievement of a three year adjusted EPS
performance condition set prior to grant.
For the award made in the 2007 financial year, one quarter of the option
award will vest for achievement of EPS growth of 5% p.a., rising to full
vesting for achievement of EPS growth of 10% 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 2008 financial year
grants, the performance range will be 5% – 8% p.a. As in previous years, 25%
vests at threshold (5% p.a.) with a straight line up to 100% vesting at
maximum (8% p.a.). The following chart illustrates the basis on which share
options granted in the 2007 and 2008 financial years will vest:
Percentage vesting
0% 20% 40% 60% 80% 100%
0%
20%
40%
60%
80%
100%
Relative TSR peformance measures
Relative TSR Percentile
2006/07 Grant – All FTSE
Global Telecoms
2007/08 Grant – Top 50%
FTSE Global Telecoms