Tesco 2010 Annual Report Download - page 57

Remumeration report
Pensions
Pension provision is central to our ability to foster loyalty and retain
experience which is why Tesco wants to ensure that the Tesco PLC Pension
Scheme is a highly valued benefit. All 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 age 60, dependent
on service. The Final Salary Scheme is now closed to new entrants but has
been replaced throughout the organisation by a different defined-benefit
pension scheme based on career average earnings. Since April 2006,
following implementation of the regulations contained within the Finance
Act 2004, Executive Directors have been eligible to receive the maximum
pension that can be provided from the registered pension scheme. The
balance of any pension entitlement for all Executive Directors is delivered
through an unapproved retirement benefits scheme (SURBS). Except for
Tim Mason, the SURBS is ‘secured’ by using a fixed charge over a cash
deposit in a designated account.
Over the last few years pension contributions by our Executive Directors
have been increasing progressively. In 2009/10 the level of contribution
was 8% of salary which is in line with senior management’s contribution
levels. Contributions will rise over the next two years to 10% by 2011/12.
Further details of the pension benefits earned by the Directors can be
found on page 58.
All employee share schemes
The Executive Directors are eligible to participate in the Company’s all
employee share schemes on the same terms as other UK employees.
• Shares In Success. Shares in the Company are allocated to participants
in the scheme up to HMRC 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.
• Buy as You Earn. An HMRC approved share purchase scheme under
which employees invest up to a limit of £110 on a four-weekly basis
to buy shares at market value in Tesco PLC.
• Save as You Earn. An HMRC approved savings-related share option
scheme under which 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-year or five-year period at a discount
of up to 20% of the market value. There are no performance conditions
attached to SAYE options.
Other benefits
The Executive Directors are eligible for car benefits, life assurance,
disability and health insurance and staff discount.
2009/10 Performance measurement
Short-term performance 2009/10
Earnings per share
The reported underlying diluted Group EPS for 2009/10 was 31.66p,
an increase of 9.1% on last year.
Corporate objectives
The corporate objectives are based on our balanced scorecard, known
as the Steering Wheel. Corporate objectives for the awards made in
respect of the financial year 2009/10 included increasing sales from
new space; specific profit targets for international businesses and for
retailing services; like-for-like sales growth and the development of the
non-food business; focus on developing trading models internationally;
enhancing talent management and capability; embedding the new
international Community Plans and Community Promises; and reducing
our environmental impact. Performance against most targets was within
the target range.
Total shareholder return
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. This index has been selected to provide an established
and broad-based comparator group of retail and non-retail companies of
a similar scale to Tesco.
Total shareholder return (TSR) 1 March 2005 to 27 February 2010
Feb 05 Feb 06 Feb 07 Feb 08 Feb 09 Feb 10
Tesco
FTSE 100
95
120
145
170
195
TSR is the notional return from a share or index based on share price
movements and declared dividends.
The Committee considers TSR performance against the FTSE 100 and a
comparator group of international retailers that includes Ahold, Carrefour,
J Sainsbury, Metro, Morrisons, Safeway Inc, Target and Walmart.
Following the Remuneration Committee’s consideration of the extent to
which the various performance measures (EPS, corporate objectives and
TSR) in respect of the 2009/10 award were achieved, the Executive Directors
have been awarded 95% of the potential maximum for the cash element
and 94% of the potential maximum for the deferred shares element of their
annual bonus. The Committee believes that this level of bonus appropriately
reflects the strong performance against financial and strategic milestones.
US objectives
Additional awards are made to Tim Mason and Sir Terry Leahy subject to
performance conditions which measure the progress of the US business
against a range of aggressive targets related to the development of
this business. During 2009/10 advances were made on most measures
including store development, sales growth, cost management and
customer factors. However, the ongoing economic downturn did continue
to act as a constraint over the year on the pace of growth against the
demanding development objectives.
The Remuneration Committee has assessed the bonus outturn for
2009/10 and Tim Mason has been awarded 65% of the potential
maximum for both the cash and deferred shares elements of that part
of his annual bonus which is measured by reference to US-specific targets.
Sir Terry Leahy has been awarded 65% of the potential maximum
for that part of his annual bonus which is measured by reference to
US-specific targets and which is satisfied in deferred shares.
Long-term performance 2009/10
Earnings per share
The three-year performance period for the 2007/8 Executive Option grant
over shares with a value of 200% of salary at the date of grant ended at
the financial year end 2009/10. Vesting of these options was conditional
on the achievement of earnings per share performance conditions, with
the first 100% subject to the achievement of underlying diluted EPS
growth of at least RPI plus 9% over three years with the balance vesting
for achieving growth of at least RPI plus 15%. There is no re-testing of
performance. The increase in underlying diluted EPS relative to RPI over
the three years from 2007/8 to 2009/10 exceeded 15% and these options
will therefore vest in full on the third anniversary of their grant.
Return on capital employed
Following the completion of the three-year performance period for the
2007/8 PSP award, the Committee considered the level of performance
against the target for the first 75% of the PSP award of achieving post-tax
Group ROCE of 14.2% by the end of 2009/10. Post-tax ROCE (calculated
on a like-for-like basis with the target originally set) at the end of 2009/10
was 14.2%, so the full amount of the first 75% of the award will vest.
The Committee also exercised its judgement as to the extent to which
the remaining 25% of the PSP award should vest as a result of superior
ROCE performance, taking into account factors including the level of
Tesco PLC Annual Report and Financial Statements 2010 55