Tesco 2012 Annual Report Download - page 74

Performance related remuneration for 2012/13
Short-term performance
The table below sets out a summary of the maximum opportunity under
the short-term remuneration arrangements for 2012/13:
At a glance short-term bonus opportunity
 Maximum opportunity of 250% of salary for the CEO.
 Maximum opportunity of 200% of salary for the other
ExecutiveDirectors.
 Half payable in cash and half payable in shares which are
deferred for three years.
 Clawback provisions apply to the deferred shares element.
The following short-term performance measures apply for the 2012/13
annual bonus arrangements:
Short-term performance measures for 2012/13
Profitability (70% of
short-term
performance)
Strategic
(30% of short-term performance)
Measured in relation
to underlying profit
performance.
Based on performance against key metrics.
For 2012/13 these metrics will be:
1. UK like-for-like sales growth
2. UK return on capital employed
3. Customer experience
4. Group internet sales
5. Group employee satisfaction
6. Group CO2 reduction
Link to strategy – This
measure incentivises
the delivery of
strategy by
encouraging the
creation of annual
shareholder value
through improved
bottom-line financial
results.
Link to strategy – These measures contain
a mix of financial, strategic and corporate
responsibility targets and were selected to
incentivise sustainable improvements in
the underlying drivers of performance.
In light of our strategic focus on the customer
shopping trip over the next 12 months,
for the annual bonus for 2012/13 we have
replaced our Group new space expansion
metric with an objective focused on
customer experience. This will allow us
to directly measure whether or not our
investment in customers is feeding through
to an improved customer experience.
In addition for 2012/13 the Committee is
introducing an underpin to the annual bonus
so that no portion of the annual bonus
related to strategic measures can be earned
unless a minimum level of profit growth
has been achieved.
85% of bonus entitlement is based directly or indirectly on financial
metrics. These measures are considered to be important for laying
foundations for future performance improvement.
The balance of measures is illustrated in the pie chart below:
30% Strategic
70% Profitability
Balance of measures for short-term bonus
This balance of both profitability metrics, and specific measures based
on environmental, social and governance (‘ESG’) factors, will support
the delivery of our corporate strategy, and help reinforce positive and
responsible behaviour by senior management. This will ensure that the
value that is delivered to shareholders is sustainable.
Given their commercial sensitivity, we do not publish the details of
targets in advance. However, targets are considered to be measurable
and appropriately stretching. If they are achieved the Committee
considers that value will have been added for shareholders. The
Committee will provide an explanation of the rationale for the level of
bonus paid in the 2012/13 Directors’ Remuneration Report to ensure
transparency for shareholders regarding the level of reward paid in the
context of performance delivered.
Clawback applies to deferred shares to allow the Committee to scale
back deferred share awards (potentially to zero) in the event that results
are materially misstated.
Long-term performance
At a glance long-term plan opportunity for 2012/13
 Maximum award of 275% of salary for the CEO
 Maximum award of 225% of salary for the other Executive Directors.
 Shares vest in three years’ time subject to performance targets
being met.
 Clawback provisions apply.
Tesco believes that the best way to enhance shareholder value is to grow
earnings over the long term while maintaining a sustainable level of
return on capital employed – in other words to keep growing the size
ofthe business in an efficient way.
As applied for the first time in 2011, 2012 awards will be subject to
performance against a matrix of stretching earnings growth targets
and sustainable return on capital performance. The Committee believes
that this combination of EPS growth and ROCE performance is strongly
aligned with our strategic objectives and also reflects the drivers of
long-term shareholder value.
Directors’ remuneration report
70 Tesco PLC Annual Report and Financial Statements 2012