Tesco 2004 Annual Report Download - page 16

In the current year, the total remuneration package of Executive
Directors comprised the following elements:
 base salary;
 short and long-term performance-related share awards via
the Executive Incentive Scheme;
 performance-related share option awards via the Executive
Share Option Scheme;
 beneÞts (which comprise car beneÞts, life assurance,
disability and health insurance);
 pensions; and
 proÞt share (on the same terms as other UK employees).
In addition to the above elements of remuneration, Executive
Directors who have completed one years service are also eligible
to participate in the companys all-employee savings related share
option scheme (SAYE), and Buy As You Earn (BAYE) on the
same terms as all other UK employees.
Subject to shareholder approval being received at the Annual
General Meeting (AGM), changes will be made to the short
and long-term incentive arrangements as set out in the
following sections.
The Committee considers that a signiÞcant proportion of total
remuneration should be performance-related and at risk of
forfeiture. In addition, performance-related rewards should be
delivered partly in shares to closely align the interests of
shareholders and executives. In all cases, base salary currently
constitutes approximately one-third of the total annual cash and
share incentive opportunity for Executive Directors. In
determining the balance between the Þxed and variable elements
of the Executive Directors remuneration packages, the
Committee has regard to market practice.
All awards made to Executive Directors under the Executive
Incentive Scheme and all options granted under the Executive
Share Option Scheme are subject to the satisfaction of
performance conditions, which are explained below. The
Committee regularly reviews these performance conditions and
considers that the proposed mix of performance conditions best
supports the Groups business strategy and provides a set of
broad-based and robust measures of managements effort and
success in creating shareholder value.
Tesco recognises that its Executive Directors are likely to be
invited to become Non-executive directors of other companies
and that such Non-executive duties can broaden experience
and knowledge, which will beneÞt Tesco. Therefore, Executive
Directors are, subject to approval by the Board, allowed to
accept Non-executive appointments and retain the fees received,
provided that these appointments are not likely to lead to
conßicts of interest.
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. Following an assessment
of the principles of Schedule B of the Revised Combined Code,
the Committee has taken steps to ensure compliance. These
steps, most notably changes to service contracts, are detailed
on page 16. 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 auditors report set out
on page 25, covers the disclosures referred to in this report
that are speciÞed for audit by the Financial Services Authority.
This report also complies with disclosures required by the
Director Remuneration Report Regulations 2002. Details of
Directors emoluments and interests, including executive and
savings-related share options, are set out on pages 17 to 23.
The following summarises the remuneration packages for
Executive Directors. Copies of the Executive Directors contracts
of employment are available for inspection by shareholders at
the AGM or as required.
EXECUTIVE INCENTIVE SCHEME The company operates a
performance-related incentive scheme designed to provide a
competitive level of reward. Awards under the scheme are
delivered in shares to further align the interests of Executive
Directors and shareholders.
The Committee sets performance targets annually for the
incentive scheme for each of the criteria noted below, conÞrms
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
executive incentive schemes to a wider body of senior executives
within the Group using similar measures.
Under the current system, long-term share bonuses are awarded
annually for each of the Executive Directors, the maximum long-
term share bonus is equivalent to 75% of salary. The long-term
bonus is based on a combination of the following performance
conditions:
1The achievement of targets set each year for growth in
EPS over that Þnancial year is the basis for 77% of the
award. EPS has been chosen to reßect the core focus of
the Group on continuous and sustainable earnings growth.
14 TESCO PLC
REPORT OF THE DIRECTORS ON REMUNERATION CONTINUED