Vodafone 2009 Annual Report Download - page 60

58 Vodafone Group Plc Annual Report 2009
Overview of remuneration philosophy
Remuneration policy
The Remuneration Committee commissioned a full review of the reward
arrangements for the Company’s executive directors in the 2008 financial year and
the remuneration policy was last updated at this point. The policy is felt to be
appropriate for the coming financial year.
Vodafone wishes to provide a level of remuneration which attracts, retains and
motivates executive directors of the highest calibre. To maximise the ef fectiveness
of the remuneration policy, careful consideration will be given to aligning the
remuneration package with shareholder interests and 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, which 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 comply with the rigorous and stretching share ownership
requirements set by the Remuneration Committee.
Remuneration package
The Remuneration Committee remains satisfied that the structure is aligned to
shareholder value and is appropriately linked to business strategy. In light of this and
the external market, the Committee determined that the overall structure of the
package should remain unchanged for the 2010 financial year. Changes to the
individual elements of the package are set out below.
Summary of key reward philosophies
Link to business strategy
The annual bonus continues to support the short term operational performance •
of the business by measuring against the business fundamentals of revenue,
profit, cash flow and customer satisfaction.
The long term incentive measures performance against: •
free cash flow, which is believed to be the single most important operational –
measure; and
total shareholder return (‘TSR’) relative to Vodafone’s key competitors. –
Shareholder alignment
The executives are required to meet stretching share ownership requirements, •
which are supported by the opportunity to invest into the long term incentive plan.
The performance conditions on the long term incentive plan are there to underpin •
shareholder value creation.
Changes to plans for the 2010 financial year
The table below sets out any changes to the individual elements of the reward
package for the 2010 financial year:
Reward elements 2010 financial year
Base salary No change to the benchmarking policy
Annual bonus The previous 10% weighting on ‘total
communications revenue’ is replaced
with a 10% increase in the free cash
flow weighting
Long term incentive plan No change to the plan design
Investment opportunity No changes to the level of investment
an individual may make
Setting remuneration levels
The Chief Executive’s remuneration package is benchmarked by reference to total
data for the base salary, annual bonus and long term incentive levels combined. The
principal comparator group (used for benchmarking only) is made up of 28 top
European companies excluding any in the financial services sector.
When undertaking the benchmarking process the Remuneration Committee makes
assumptions that individuals will invest their own money into the long term incentive
plan. This means that individuals will need to make a significant investment in order
to achieve a market competitive level of remuneration. The table below assumes that
an investment equal to two times base salary is made.
Chief Executive’s overall reward package for the 2010 financial year
The table below shows the estimated values of the elements to be granted in the
2010 financial year. These are not what the Chief Executive will actually receive,
which will be based on the relevant performance. For the actual payouts in the 2010
financial year please see the table on page 61.
Comparison of the ratio of fixed pay to variable pay
The base salary and pension contributions to executives are considered to be fixed
levels of remuneration. The annual bonus and the long term incentive awards are
variable, i.e. the actual value the executive receives will depend on the performance
of the Company.
The variable elements make up between 70% and 80% of executive directors’
remuneration depending on the level of co-investment made.
Directors’ remuneration continued
0 2,000 4,000 6,000
2010 nancial year
estimated value
Estimated values assuming an investment of two times base salary £’000
Base GLTI base award Pension
Bonus Maximum GLTI matching award