Tesco 2008 Annual Report Download - page 32

Tesco PLC Annual Report and
Financial Statements 2008
30
Directors’ remuneration report continued
Other elements
>Shares In Success The Group operates a profit-sharing scheme (Shares
in Success) for the benefit of UK employees including Executive Directors.
The scheme is available to employees with at least one year’s service
at the Group’s year end and is recognised as a powerful incentive and
retention tool for all employees. Shares in the company are allocated
to participants in the scheme on a pro rata basis to base salary earned
up to HMRC approved limits (currently £3,000 per annum). The amount
of profit allocated to the scheme is determined by the Board, taking
account of Company performance.
>Save as You Earn Since 1981, the Group has operated a HMRC
approved savings-related share option scheme (SAYE) for the benefit of
employees including Executive Directors. Under this scheme, employees
save up to a limit of £250 on a four-weekly basis via a bank/building
society with an option to buy shares in Tesco PLC at the end of a three-
year or five-year period at a discount of up to 20% of the market value.
There are no performance conditions attached to SAYE options.
>Buy as You Earn Since January 2002, the Group has operated the
partnership shares element of a HMRC approved share investment plan
for the benefit of employees including Executive Directors. Under this
scheme, employees save up to a limit of £110 on a four-weekly basis
to buy shares at market value in Tesco PLC.
Pensions
The retention of key management is critical to the future success of the
business and to the growth of shareholder value. Pension provision is
central to our ability to foster loyalty and retain experience which is why
Tesco wants to ensure that the Tesco PLC Pension Scheme is a highly
valued benefit.
All Executive Directors are members of the Tesco PLC Pension Scheme
which provides a pension of up to two-thirds of base salary on retirement,
normally at age 60, dependent on service. The Final Salary Scheme is now
closed to new entrants but has been replaced throughout the organisation
by a different defined-benefit pension scheme which accumulates each
year and is based on career average earnings.
Since April 2006, following implementation of the regulations contained
within the Finance Act 2004, Executive Directors have been eligible to
receive the maximum pension that can be provided from the registered
pension scheme. The balance of any pension entitlement is delivered
through a secured unapproved retirement benefits scheme (SURBS).
Except for Mr Mason, the SURBS is ‘secured’ by using a fixed charge over
a cash deposit in a designated account. This provides no greater security
than under the registered scheme. In particular, in the unlikely event that
the registered scheme were to be wound up with a deficit, members would
be no better off under the SURBS arrangements than those paid out of the
registered scheme. Under these circumstances, to ensure parity, members
of the SURBS would receive the same proportion of their total entitlement
as those in the registered scheme.
Over the last few years pension contributions by our Executive Directors
have been increasing progressively. In 2007/8 the level of contribution was
7% of salary which is in line with senior management’s contribution levels.
Further details of the pension benefits earned by the Directors can be
found on page 32.
Performance graph
The graph below highlights the Group’s total shareholder return
performance over the last five financial years, relative to the FTSE 100 index
of companies. This index has been selected to provide an established and
broad-based comparator group of retail and non-retail companies of similar
scale to Tesco.
Service agreements
The Executive Directors all have rolling service agreements with no fixed
expiry date. These contracts are terminated on notice of 12 months by the
Company and six months’ notice by the Executive.
If an Executive Director’s employment is terminated (other than pursuant
to the notice provisions in the service agreement or by reason of resignation
or unacceptable performance or conduct) the Company will pay a sum
calculated on the basis of basic salary and the average annual bonus
paid for the last two years. No account will be taken of pension.
Termination payments will be subject to mitigation. This means that
amounts will be paid in instalments to permit mitigation. If the termination
occurs within one year of retirement, the termination payment will be
reduced accordingly.
To reflect his length of service with Tesco and the early age of his
appointment as CEO, Sir Terry Leahy’s service agreement provides for
his full pension entitlement to become available on retirement on or
after his 57th birthday.
The Committee has agreed that new appointments of Executive Directors
will normally be on a notice period of 12 months. The Committee reserves
the right to vary this period to 24 months for the initial period of
appointment and for the notice period to then revert to 12 months.
The service agreements are available to shareholders to view on request
from the Company Secretary.
Outside appointments
Tesco recognises that its Executive Directors may be invited to become
Non-executive Directors of other companies. Such non-executive duties
can broaden experience and knowledge which can benefit Tesco. Subject
to approval by the Board, Executive Directors are allowed to accept
non-executive appointments and retain the fees received, provided that
these appointments are not likely to lead to conflicts of interest. Executive
Directors’ biographies can be found in the Annual Review and Summary
Financial Statement 2008 on page 27 and fees retained for any
non-executive directorships are set out below.
Company in which Fee retained by
non-executive Director in
Director directorship held 2007/8 (£000)
Mr P A Clarke Whitbread Group PLC 55
Mr A T Higginson BSkyB 60
Total shareholder return (TSR) 1 March 2003 to 28 February 2008
TSR is the notional return from a share or index based on share price
movements and declared dividends.
£300
£250
£200
£150
£100
Feb 03 Feb 04 Feb 05 Feb 06 Feb 07 Feb 08
Te s c o
FTSE 100
www.tesco.com/annualreport08