Tesco 2001 Annual Report Download - page 14

12 TESCO PLC
Directors’ remuneration policy
The remuneration packages, including contract periods, of Executive
Directors are determined by the Remuneration Committee (the
Committee). It ensures that the remuneration package is appropriate
for their responsibilities, taking into consideration the overall financial
and business position of the Group, the highly competitive industry of
which the Group is part and the importance of recruiting and retaining
management of the appropriate calibre.The remuneration of the Non-
executive Directors is determined by the Board as a whole on the
recommendation of the Executive Committee after considering
external market research.
Compliance
The Committee is constituted and operated throughout the period in
accordance with the principles outlined in the Listing Rules of the
Financial Services Authority derived from Schedule A of the Combined
Code. In framing the remuneration policy, full consideration has been
given to the best practice provisions set out in Schedule B, annexed to
the Listing Rules. The auditors’ report set out on page 17 covers the
disclosures referred to in this report that are specified for audit by the
Financial Services Authority.
Details of Directors’ emoluments and interests, including executive and
savings-related share options, are set out on pages 13 to 16.
The following summarises the remuneration packages for Executive
Directors. Copies of the Executive Directors’ contracts of employment
are available for inspection by shareholders as required.
Base salary and benefits
The base salary, contract periods, benefits (which comprise car
benefits, life assurance, disability and health insurance) and other
remuneration issues of Executive Directors and other senior
executives, are normally reviewed annually by the Committee, having
regard to competitive market practice supported by two external,
independent surveys.
Profit-sharing
The Group operates an approved employee profit-sharing scheme for
the benefit of employees, including Executive Directors, with over two
years’ service with the Group at its year end. Shares in the company are
allocated to participants in the scheme on a pro rata basis to base salary
earned up to Inland Revenue approved limits.
Executive incentive scheme
The company operates performance-related award schemes designed
to provide a growing element of variable reward to reflect the
performance of the Group. The scheme awards are made in shares and
align closely the interests of Directors and shareholders.
Long-term share bonuses are awarded annually, based on
improvements in earnings per share, achievement of strategic
corporate goals and comparative performance against peer
companies including total shareholder return. The maximum long-
term bonus is 50% of salary. Shares awarded have to be held for a
period of four years, conditional upon continuous service with the
company. The share equivalent of dividends which would have been
paid on the shares is added to the award during the deferral period.
Short-term share bonuses are awarded annually, based on
improvements in earnings per share and on the achievement of strategic
corporate goals.The maximum short-term bonus payable is 25% of salary,
which is augmented by up to a further 12.5% of salary if the participants
elect for the trustees of the scheme to retain the fully paid ordinary
shares awarded for a minimum period of two years, conditional upon
continuous service with the company. The share equivalent of dividends
which would have been paid on the shares is added to the award during
the deferral period.
The Committee sets performance targets annually for the incentive
scheme for each of the criteria noted above, confirms achievement of
performance and awards to be made under the scheme and directs the
general administration of the scheme. The Executive Committee has
adopted a policy of extending the Group Board executive incentive
scheme to a wider body of senior executives within the Group. The
scheme rules and awards of this extension are administered on a
consistent basis as previously set out for the Executive Directors.
The holding period for both the long-term and short-term shares
may be extended to seven and five years respectively by the scheme
members. During this holding period, the shares held are increased by
12.5% at the beginning of each year based on the scheme shares held.
This holding period may be extended only subject to personal
shareholding targets set by the Committee being met by the scheme
members, conditional upon continuous employment with the company.
Share options
Executive Directors are included in executive share option schemes
(ESOS), and are eligible to join the employees’ savings-related share
option scheme (SAYE) when they have completed one year’s service.
Executive options granted since 1995 may be exercised only
subject to the achievement of performance criteria related to growth in
earnings per share, in accordance with ABI guidelines.
REPORT OF THE DIRECTORS ON REMUNERATION