Tesco 2003 Annual Report Download - page 14

12 TESCO PLC
report of the directors on remuneration
THE REMUNERATION COMMITTEE The Remuneration
Committee is governed by formal Terms of Reference agreed
by the Board and is composed entirely of independent
Non-executive Directors. No member of the Remuneration
Committee has any personal financial interest other than as
a shareholder in the matters to be decided and no day-to-day
involvement in running the business of Tesco.
The remuneration packages, including contract periods,
of Executive Directors are determined by the Remuneration
Committee (the Committee).The Committee comprised
Mr C L Allen (Chairman of the Committee), Dr H Einsmann
(appointed June 2002), Mr G F Pimlott and Mr R F Chase
(appointed July 2002). Mr J W Melbourn retired from
the Committee during the year. The Committee met on
six occasions during the year.
Mr R S Ager, an Executive Director of the Group,
is Secretary to the Committee and attends the meetings.
Mr J A Gardiner, Non-executive Chairman of the Group,
and Sir Terry Leahy, Chief Executive of the Group, both attend
the meetings at the invitation of the Committee. However,
Directors do not attend the meetings when their own
remuneration is being discussed.The Committee is supported
by Mrs C M Chapman, Human Resources Director of
Tesco Stores Ltd and has appointed Deloitte & Touche as
an external, independent advisor. Deloitte & Touche also
provided advisory services in respect of VAT, PAYE, NIC
and international taxation to the Group during the year.
DIRECTORS’ REMUNERATION POLICY The Committee
applied the following remuneration policy to all Executive
Directors during the year.The Committee intends that the
remuneration of all Executive Directors will continue to
be determined on these principles but will be subject to
a review by the Committee in the light of any legislative,
regulatory and/or market practice changes.
Business success in a retail environment depends on the
talents of the key team, but outstanding success comes from
teamwork. Building and retaining that team at senior levels
within Tesco is vital to success.The remuneration strategy
for Executive Directors has been tailored to emphasise
the delivery of year-on-year earnings growth by providing
executives with a significant proportion of performance-
related remuneration delivered in Tesco shares over
extended timescales.
To meet the business objectives of strong financial
progression and improvements in shareholder returns,
the policy is to pay:
• Basic salaries based on the responsibilities, skills and
experience of the individual against a benchmark
determined by verification to other major FTSE 100
companies and other large retailers.
• Annual bonuses based on achieving stretching EPS
growth targets and specific corporate objectives. Annual
bonuses are paid in shares. On award, the Executive can
elect to defer receipt of the shares for a further two
years, which is encouraged with additional matching
share awards. Further details are provided below.
• Longer-term bonus based on a combination of relative
total shareholder return, and the achievement of
stretching EPS growth targets and specific corporate
objectives. Longer-term bonuses are paid in shares, which
must be held for a further four years. Executive Directors
are encouraged to hold shares for longer than four years
with additional matching share awards. Further details
are provided below.
• Share options are granted to Executive Directors at
market value and can only be exercised if EPS growth
exceeds RPI plus 9% over any three years from grant.
• Executive Directors are required to build and hold a
shareholding with a value at least equal to their basic
salary; full participation in the Executive Incentive
Scheme is conditional upon meeting this target.
The Committee also ensures that the remuneration
relationship between the Main Board and Senior Executives
of the company below this level is appropriate. In particular,
any exceptional salary arrangements or award of share options
for Senior Executives are to be advised to the Committee.
TOTAL REMUNERATION The total remuneration levels of
Executive Directors are normally reviewed annually by the
Committee, having regard to competitive market practice
in the retail sector and in the context of the FTSE 100
companies, which are of a comparable size to Tesco. As part
of the review process, the Committee has access to, and
makes use of, external independent remuneration surveys.
The total remuneration package of Executive Directors
comprises the following elements:
• base salary;
• short and long-term performance-related share awards
via the Executive Incentive Scheme;
• performance-related share options awards
via the Executive Share Option Scheme;
• benefits (which comprise car benefits, life assurance,
disability and health insurance); and
• pensions.