Tesco 2010 Annual Report Download - page 54

Directors’ remuneration report
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 27 February 2010. The report has been
drawn up in accordance with the Combined Code on Corporate Governance,
Schedule 8 of the Large and Medium sized Companies and Groups
(Accounts and Reports) Regulations 2008 and the Financial Services
Authority Listing Rules.
Executive summary
Tesco aims to deliver, sustainable and profitable long-term growth.
Despite challenging economic conditions across our markets, Tesco has
again delivered a strong performance against targets this year. In doing
so, Tesco has continued to build on the track record it has established
over several years.
Sales, Profit and ROCE Performance over 5 years
2006 2007 2008 2009 2010
62.5
43.1 46.6
51.8
59.4
2006 2007 2008 2009 2010
12.1
12.7 12.6 12.9 12.8*
2006 2007 2008 2009 2010
3.2
2.2
2.7 2.8 2.9
Sales (£bn)
ROCE (%)
Profit before tax (£bn)
* Restated for the impact of IFRIC 13 and IFRS 2.
Tesco is already a large and profitable company. A 10% increase in
Company value equates to some £3bn in additional shareholder value,
equivalent to the value of a top 50 FTSE organisation. Over the last
5years, Tesco has delivered more than £10bn of additional shareholder
value through dividends and share price growth. Continuing to grow
profitability from such a high base is demanding but forms the core
of Tesco’s strategy and its supporting processes including executive
remuneration. Our remuneration strategy is intended to foster a culture
of outstanding performance, taking into account both the short-term
and long-term needs of the business.
In determining the level of executive reward, the Remuneration Committee
continues to be conscious of the economic background and widespread
concern about executive remuneration being appropriately justified by
company performance. It has therefore sought to ensure reward outcomes
are proportionate to Tesco’s performance outcome.
The strong result against targets in 2009/10 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:
• Operational Executive Director salaries were increased from 1 July 2009
by an average of 2.58% after the normal review (against an average
across the Group of 2.5%);
• annual bonus payouts ranged from 75% to 95% of maximum reflecting
strong performance during the year against financial and strategic
milestones. 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 124 of a potential maximum of 150%
of salary;
• share options vested in full reflecting sustained strong earnings delivery;
• no material changes were made to policy, remuneration mix or scale
of incentives;
• deferred awards, already earned from prior years, representing
4.5million shares became available to Directors;
• there have been no substantial changes to the commercial structure
of the terms of existing awards, however, a number of shares have
been released from awards already earned from prior years to satisfy
tax liabilities crystallised in the year;
• minor changes to remuneration arrangements relating to leaving
conditions were approved by shareholders; and
• there continued to be a high level of share ownership by
Executive Directors.
Executive Director remuneration strategy
Tesco has a long-standing policy of valuing talent and experience. We seek
to provide incentives for delivering high, sustainable and profitable growth
which leads to a strong increase in additional value for shareholders. We
operate in a keenly competitive and rapidly changing retail environment.
Business success depends on the skills of each member of the key team,
but outstanding business performance comes from teamwork. Tesco has a
stable and successful management team, and incentivising and rewarding
that team at senior levels to deliver ever higher levels of performance is
vital to our ongoing success and our ability to create shareholder value.
We believe our incentives should support the continued progress and
the strengthening of our returns from across the Group, as well as the
creation and development of significant new businesses.
Base salary
Cash bonus Deferred
share bonus
Performance
Share Plan
Group &
International
Share
options
US LTIP Group New
Business
Incentive Plan
c.12%-33% depending on
individual incentive arrangements
and performance c.67%-88% depending on individual incentive arrangements and performance
Performance-related elementsFixed element
Balance of fixed and performance related remuneration
Short-term performance Long-term performance
52 Tesco PLC Annual Report and Financial Statements 2010