Vodafone 2008 Annual Report Download - page 74

Review of the executive directors’ remuneration
The Remuneration Committee commissioned a full review of the reward
arrangements for the Vodafone executive directors in the 2008 financial year.
The remuneration policy was last amended in 2002.
Remuneration policy
Vodafone wishes to provide a level of remuneration which attracts, retains and
motivates executive directors of the highest calibre. To maximise the effectiveness
of the remuneration policy, careful consideration will be given to aligning the
remuneration package with shareholder interests and with best practice.
The aim is to target an appropriate level of remuneration for managing the
business in line with the strategy. There will be the opportunity for executive
directors to achieve significant upside for truly exceptional performance.
In setting total remuneration, the Remuneration Committee will consider a
relevant group of comparators. Comparators will be selected on the basis of the
role being considered. Typically, no more than three reference points will be used.
These will be as follows: top European companies, top UK companies and,
particularly for scarce skills, the relevant market in question.
These comparators reflect the fact that currently the majority of the business is
in Europe, the Company’s primary listing is in the UK and that the Remuneration
Committee is aware that in some markets, the competition is tough for the very
best talent.
A high proportion of total remuneration will be awarded through short term and
long term performance related remuneration. The Remuneration Committee
believes that incorporating and setting appropriate performance measures and
targets in the package is paramount – this will be reflected in an appropriate
balance of operational and equity performance.
Finally, to fully embed the link to shareholder alignment, all executive directors
are expected to meet and comply with the rigorous and stretching share
ownership requirements set by the Remuneration Committee.
Changes to the package
The review of executive directors’ remuneration has had the following high level
impact on the package for the 2009 financial year:
no change to the base salary policy;
no significant change to the annual bonus arrangement; and
long term incentives will be awarded in the form of performance shares with
an opportunity to co-invest. The Remuneration Committee does not foresee
a requirement to award options or use the Deferred Share Bonus (“DSB”) in the
immediate future. Vesting will be based on a performance matrix comprised
of operational and equity performance.
These changes are summarised in the following table:
Reward elements 2007/08 measures 2008/09 measures
Annual bonus Business KPIs Business KPIs
DSB Free cash flow Not applicable
Share options EPS Not applicable
Performance shares Total shareholder return (“TSR”) Free cash flow and TSR
Co-investment Not applicable Free cash flow and TSR
•
•
•
Rationale for changes
The key purposes of making the changes are as follows:
Link to strategy
Focusing on driving the key measures of underlying business performance
together with upside for strong market value performance.
Shareholder alignment
Increasing the co-investment opportunity and moving it from a two year
deferral to a three year investment should increase the participants’ holdings
in the Company.
Simplification
Moving to one long-term incentive vehicle (shares) simplifies the
long-term arrangements.
Impact of changes on package
Comparison of estimated values for the Chief Executive in the 2008
financial year and the 2009 financial year
The estimated values are used to represent the level of different elements of the
package. The analysis below assumes a one times salary co-investment, which is
in line with the current opportunity under the DSB plan. The estimated value will
be greater the more a participant co-invests (up to two times net salary).
Comparison of package structure for the Chief Executive in the 2008
financial year and the 2009 financial year
The Remuneration Committee continues to be comfortable with the structure
of remuneration. Therefore, there is no significant change to:
the split between fixed and variable pay; or
the split between short term and long term pay (though note that all long term
remuneration is now received over three years).
The actual percentages depend on the participant’s level of co-investment.
•
•
•
•
•
0 2,000 4,000 6,000 8,000
2009 financial year
estimated value
2008 financial year
estimated value
Estimated value of components of package £’000
72 Vodafone Group Plc Annual Report 2008
Vodafone – Governance
Directors’ Remuneration continued
Base GLTI options
Bonus GLTI performance shares
DSB Co-investment