Tesco 2009 Annual Report Download - page 52

50 DIRECTORS’ REMUNERATION REPORT
Tesco PLC Annual Report and Financial Statements 2009
c.[••]%-[••]% depending on
individual incentive arrangements
and performance c.[••]%-[••]% depending on individual incentive arrangements and performance
Base salaryShort-term
performance
Cash bonus Deferred
share bonus
Performance
Share Plan
Group &
International
Share
options US LTIP
Group New
Business
Incentive
Plan
Long-term
performance
c.12%-33% depending on
individual incentive arrangements
and performance c.67%-88% depending on individual incentive arrangements and performance
Performance-related elementsFixed element
This report sets out the remuneration policy for the Executive and
Non-executive Directors of Tesco PLC and describes the individual
remuneration of the Directors for the year ended 28 February 2009.
Executive summary
The primary goal of Tesco is to deliver strong, sustainable and profitable
long-term growth. Despite the global downturn Tesco has delivered
another strong performance against targets this year. This has continued
to build on the track record of recent years.
Sales, Profit and ROCE Performance over 5 Years
2005 2006 2007 2008 2009
10,000
20,000
30,000
40,000
50,000
60,000
0
Sales (£m)
2005 2006 2007 2008 2009
500
1,000
1,500
2,000
2,500
3,000
3,500
0
Underlying profit before tax (£m)
2005 2006 2007 2008 2009
13.0%
10.0%
10.3%
ROCE
10.6%
10.9%
11.2%
11.5%
11.8%
12.7%
12.1%
12.4%
Tesco is already a large and profitable company. A 10% increase in
Company value equates to some £3bn in additional shareholder
value, equivalent to a FTSE 50 organisation. Continuing to grow and
expand profitability from such a high base is challenging but forms
the core of Tesco’s strategy, and its supporting processes including
executive remuneration.
The result for 2008/9 included improvement on most of the underlying
performance measures relating to productivity and growth. Against this
performance background, the main aspects of executive remuneration
policy and practice for the year are as follows:
Executive Director salaries were increased from 1 July 2008 by an •
average of 5.4% after the normal review;
annual bonus payouts ranged from 60% to 90% of maximum. •
The maximum potential bonus was 250% of salary for the Group
CEO, 300% of salary for the US CEO and 200% of salary for other
Executive Directors;
long-term incentive payout was 90% of a potential maximum of •
100% of salary;
no material changes to policy, remuneration mix or scale of incentives;•
deferred awards, already earned from prior years, representing •
4.6 million shares became available to Directors;
minor changes are being proposed to remuneration arrangements •
relating to leaving conditions; and
continuing high level of share ownership by Executive Directors.•
Executive Director remuneration strategy
Tesco has a long-standing policy of rewarding talent and experience.
We seek to provide incentives for delivering high, sustainable and
profitable growth thus creating high additional value for shareholders.
We operate in a keenly competitive and rapidly changing retail
environment. Business success depends on the talents of the key team,
but outstanding business performance comes from teamwork. Tesco has
a stable and successful management team, and motivating that team
at senior levels to deliver yet higher levels of performance is vital to our
ongoing success. We believe our incentives should support the continued
progress within the existing business, the strengthening of our returns
from the International business and new retail lines as well as the creation
of significant new businesses.
The Remuneration Committee believes that the majority of total
remuneration should be performance-related and delivered largely
in shares to closely align the interests of shareholders and Executive
Directors. In determining the balance between the fixed and variable
elements of the Executive Directors’ remuneration packages, the
Committee takes into account both policy and market practice.
Total remuneration levels of Executive Directors are reviewed annually
by the Committee taking into account their value to the Company and
competitive market practice. Consideration is also given to pay levels across
the Group in order to sustain a common sense of purpose and sharing
of success. When setting the remuneration of Executive Directors, the
Committee considers the Group’s performance on environmental, social
and governance (ESG) matters. Specific ESG performance targets are
applied to certain elements of the remuneration structure, in order to
reinforce positive and responsible behaviour by senior management.
Directors’ remuneration report
year ended 28 February 2009
Balance of fixed and performance related remuneration