Tesco 2005 Annual Report Download - page 22

20 Tesco PLC
Performance graph
The graph below highlights the Group’s total shareholder
return performance over the last five financial years, relative
to the FTSE 100 index of companies.
In addition, there has been a very strong performance in TSR
over the last one year, three years and five years against a
comparator group of our major retail competitors in the UK,
Europe and the US.
Service agreements
The Executive Directors all have service agreements, dated
14 June 2004, with entitlement to notice of 12 months by
the company and 6 months notice by the Executive. Each
agreement automatically terminates when the Director reaches
the retirement age of 60.
If an Executive Director’s employment is terminated (other
than pursuant to the notice provisions in the service agreement
or by reason of resignation or unacceptable performance or
conduct) the company will pay, by way of liquidated damages,
a sum calculated on the basis of basic salary and the average
annual bonus paid for the last two years. No account will be
taken of pension arrangements in these payments.
Termination payments will be subject to mitigation. This means
that liquidated damages amounts will be paid in instalments to
permit mitigation and earlier payment will be made based on
long service in line with Tesco policy which respects and rewards
loyalty. If the termination occurs within one year of retirement,
the termination payment would be reduced accordingly.
The Committee has agreed that, in future, new appointments
of Executive Directors will normally be on a notice period of
12 months. The Committee reserves the right to vary this
period to 24 months for the initial period of appointment
and for the notice period to then revert to 12 months. The
service agreements are available for inspection at the AGM
and Registered Office.
Directors’ remuneration report continued
Other elements
• Shares In Success. Since March 2002 the Group has
operated a UK profit sharing scheme (Shares in Success)
for the benefit of employees, including Executive Directors.
The scheme is available to employees with at least one
year’s service at the Group’s year end and is recognised as
a powerful incentive and retention tool for all employees.
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 (currently £3,000 per
annum). The amount of profit allocated to the scheme
is determined by the Board, taking account of company
performance.
• Save as You Earn. Since 1981, the Group has operated
an Inland Revenue approved savings-related share option
scheme (SAYE) for the benefit of employees including
Executive Directors. Under this scheme, employees
save up to a limit of £250 on a four-weekly basis via a
bank/building society with an option to buy shares in
Tesco PLC at the end of a three or five-year period at
a discount of up to 20% of the market value. There are
no performance conditions attached to SAYE options.
• Buy as You Earn. Since January 2002, the Group has
operated the partnership shares element of an Inland
Revenue approved share investment plan for the benefit
of employees, including Executive Directors. Under this
scheme, employees save up to a limit of £110 on a four-
weekly basis, to buy shares at market value in Tesco PLC.
Pensions
Executive Directors are members of the Tesco PLC Pension
Scheme which provides a pension of up to two-thirds of base
salary on retirement, normally at the age of 60, dependent
upon service. The scheme also provides for dependants’
pensions and lump sums on death in service. The scheme
is a defined benefit pension scheme, which is approved by
the Inland Revenue. An internal working group has been
established to understand the implications of Government
proposals in relation to pensions and to advise the
Remuneration Committee on future pension provisions and
contributions. The Final Salary Scheme is now closed to new
entrants but has been replaced by a different defined benefit
pension scheme which accumulates each year and is based
on career average earnings.
Further details of the pension benefits earned by the directors
can be found on page 23.
Feb 04 Feb 05Feb 03Feb 02Feb 01Feb 00
TOTAL SHAREHOLDER RETURN (TSR)
TSR is the notional return from a stock or index based
on share price movements and declared dividends
FTSE
Te s c o
£50
£200
£100
£150