Tesco 2002 Annual Report Download - page 12

10 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 15 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
11 to 14.
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.
PARTNERSHIP SHARES
Since January 2002, the Group has operated a Partnership Share Plan
(BAYE) for the benefit of employees including Executive Directors.
Under this scheme, employees save and subscribe monthly for the
purchase of shares at market value in Tesco PLC.
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 75% 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
75% of salary, which is augmented by up to a further 37.5% 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 subject to personal
shareholding targets set by the Committee being met by the
scheme members and is 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