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48 Tesco PLC Annual Report and Financial Statements 2013
Directors’ remuneration report continued
Remuneration outcomes in different performance scenarios
Tesco remuneration arrangements have been designed to ensure
that a significant proportion of pay is dependent on the delivery of
short-term and long-term goals that are aligned with our short-term
and long-term strategic objectives and the creation of shareholder value.
The Committee considers the level of remuneration that may payout
in different performance scenarios to ensure that this is considered
appropriate in the context of the performance delivered and the
value added for shareholders.
The charts below show hypothetical values of the remuneration package
for Executive Directors under three assumed performance scenarios:
Below target
performance
•Nobonuspayout
•NovestingunderthePerformanceSharePlan
On target
performance
•50%annualbonuspayout
•50%vestingunderthePerformanceSharePlan
Maximum
performance
•100%annualbonuspayout
•100%PerformanceSharePlanvesting
For the purposes of these illustrations, no share price growth is assumed,
dividends are not included and pension and benefits are not included.
0
1
2
3
4
5
6
7
8
MaximumTargetThreshold
0
1
2
3
4
5
6
7
8
MaximumTargetThreshold
100%
£1.1m
28% 16% 100%
£0.9m
32%
£2.7m
19%
£4.6m
32%
36%
38%
43%
34% 40%
38%
£4.1m 44%
£7.0m
CEO (£ million) CFO (£ million)
Base salary Annual bonus PSP
Share ownership guidelines
At a glance
• Four times base salary for the CEO
• Three times base salary for the CFO
• The purpose is to create alignment with the interests of shareholders
• This requirement is at the upper end of typical market practice for
similar sized companies
The Remuneration Committee believes that a significant shareholding
by Executive Directors aligns their interests with shareholders and
demonstrates their ongoing commitment to the business.
Policy for calculating shareholding
• Shares included – Shares held in plans which are not subject to
forfeiture will be included (on a net basis) for the purposes of
calculating Executive Directors’ shareholdings, as will shares held
by an Executive’s spouse. Vested but unexercised market value
share options are not included in the calculation.
• Five years for new appointees to build shareholdings – New
appointees will be expected to achieve this minimum level of
shareholding within five years of appointment.
• PSP participation may be subject to maintaining holding – Full
participation in the long-term Performance Share Plan will generally
be conditional upon maintaining the minimum shareholding.
• Holding of 50% of vesting awards until requirement met – Where an
Executive Director does not meet the shareholding requirement they
will be required to hold, and not dispose of, at least 50% of the net
number of shares which vest under incentive arrangements until they
meet this requirement.
Given the importance of owning shares, the Executive Committee and
over 100 other senior managers are also required to build a holding of
Tesco shares.
Shares held by Executive Directors at 23 February 2013
The chart below illustrates the value of Executive Directors’ shareholdings,
based on the three-month average share price to 23 February 2013 of
348p per share compared to the shareholding guideline.
The shareholding guideline has been shown based on the full
requirement of four times salary for the CEO and three times salary
for the CFO. When the shareholding guidelines were increased in 2011,
Executives were given a period of five years to meet this enhanced
requirement and therefore should meet the requirement by June 2016.
01.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0
Philip Clarke
Laurie McIIwee
EIP sharesOrdinary shares Shareholding requirement
£ million
Share dealing policy
Tesco has a share dealing policy in place for Executive Directors and
for members of the Executive Committee. This policy prevents Executive
Directors and Executive Committee members and their connected
persons dealing in shares at times when this would be prohibited by
the UK Listing Authority’s Listing Rules. At all times, Executive Directors
and Executive Committee members must seek advance clearance
before dealing in shares on their own behalf or in respect of their
connected persons.