Tesco 2010 Annual Report Download - page 56

Directors’ remuneration report continued
Participation in the various elements is governed by the Remuneration
Committee and individual Executive Directors are awarded incentives
under the elements which are most relevant to their sphere of responsibility.
If performance is lower than the maximum targets, incentive payments will
reduce accordingly and will be zero if threshold levels of performance are
not attained. The Committee has reviewed the performance conditions for
each of the incentive arrangements against the Group’s business strategy,
its growing global leadership, its position as one of the companies at the
top of the FTSE 100 and the intensely competitive sector in which it operates,
and has concluded that they provide a set of comprehensive and robust
measures of management’s effort and success in creating shareholder value.
Share ownership guidelines
The Remuneration Committee believes that Executive Directors holding
shares aligns their interests with shareholders and reinforces their
commitment to the business. Executive Directors are required to build
and maintain a shareholding with a value at least equal to their basic
salary. Shares held in plans which are not subject to forfeiture are included
in this measurement. New appointees will typically be allowed three
years to establish this shareholding. Full participation in the long-term
Performance Share Plan is conditional upon maintaining the minimum
shareholding. All Executive Directors satisfy this requirement, apart from
Laurie McIlwee, who was appointed to the Board on 27 January 2009.
Shares held by Executive Directors
as at 27 February 2010
0 1 million 2 million 3 million 4 million 5 million 6 million 7 million 8 million
Ordinary shares PSP EIP
Richard Brasher
Philip Clarke
Andrew Higginson
Tim Mason
Laurie Mcllwee
Lucy Neville-Rolfe
David Potts
Sir Terry Leahy
Includes ordinary shares and awards of shares and nil cost options made to Directors which
remain subject only to a holding period. Excludes unexercised vested executive share options.
Funding of equity awards
Executive incentive arrangements are funded by a mix of newly issued
shares and shares purchased in the market. Where shares are newly issued
the Company complies with ABI dilution guidelines on their issue. Currently
shares to be issued in respect of executive plans are equivalent to c.4% of
shares in issue.
Fixed remuneration
Basic pay
Basic pay is designed to attract and retain talented individuals. It needs
to reflect individual capability and any changes in responsibilities as the
Group faces new opportunities and challenges. As the Group continues
to diversify into new product areas and services, as well as expanding
internationally, it seeks to reflect this in the benchmarking that is used.
We examine salary levels at the major retailers, the leading FTSE
companies and ensure consideration is given to key international
competitors. We also take into account pay conditions throughout the
Group as well as the prevailing economic climate in deciding executive
annual salary increases. The average increase for senior management
below Board level last year was 2.58%, in line with the average increase
for other staff which was typically around 2.5%. Pay levels Group-wide
are determined with consideration to a number of factors, including the
prevailing economic environment, discussions with employee
representation groups and market practice.
Basic salaries are typically increased with effect from 1 July each year
and the Remuneration Committee will again be taking into account the
prevailing economic climate in setting Executive Director salaries for the
coming year.
Basic salary 1 July 2009
Director £000
Richard Brasher 812
Philip Clarke 812
Andrew Higginson 812
Sir Terry Leahy 1,410
Tim Mason 812
Laurie McIlwee* 609
Lucy Neville-Rolfe* 609
David Potts 812
* Laurie McIlwee and Lucy Neville-Rolfe’s basic salaries were increased by 10.7% and 9.9%
respectively reflecting their increased experience since their appointment.
Long-term Performance Measures
Measures Participation Incentivises Maximum potential
% of salary (unless
otherwise stated)
Performance period Delivered via
EPS relative to RPI All Executive
Directors
Longer-term
earnings growth
200%* Three years Executive share
options
Group ROCE All Executive
Directors
Long-term business
success and
shareholder returns
100% Three years Performance Share
Plan
International ROCE All Executive
Directors except
US CEO
Long-term business
success and
shareholder returns
50% Three years Performance Share
Plan
US EBIT and ROCE US CEO Establishment of
successful US
business
2 million shares** 2010/11 – 2013/14 US Long Term
Incentive Plan
US EBIT and ROCE
Group ROCE
International ROCE
Group CEO Entrepreneurial spirit
and establishment of
new businesses within
whole Group
performance
2.5 million shares** 2010/11 – 2013/14 Group New Business
Incentive Plan
* This is the amount on which the number of shares under option is calculated. The actual realisable value of these options will depend on any growth in share price between the date of grant
and the date of exercise.
** Dividends accrue on these awards in the form of dividend equivalents.
54 Tesco PLC Annual Report and Financial Statements 2010