Tesco 2013 Annual Report Download - page 55

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Tesco PLC Annual Report and Financial Statements 2013
OVERVIEW BUSINESS REVIEW PERFORMANCE REVIEW GOVERNANCE FINANCIAL STATEMENTS
The following short-term performance measures apply for the 2013/14 bonus arrangements:
Short-term performance measures for 2013/14
Financial (76% of short-term bonus)
Profitability (50% of
short-term performance) Strategic financial (26% of short-term performance) Strategic non-financial (24% of short-term performance)
Measured in relation
to Trading Profit
performance.
Based on performance against key strategic
financial measures. For 2013/14 these
metrics will be:
•Groupinternetsales–10%
•UKlike-for-like–8%
•Groupworkingcapital–8%
Based on performance against key strategic operational measures.
For 2013/14 these metrics will be:
•Customer–Groupcustomerservice–8%
•Colleague–Groupcolleagueengagement–8%
•Community–GroupCO2 reduction – 8%
The strategic financial and non-financial elements of the bonus are subject to a profit underpin. No portion that
relates to strategic measures can be earned unless profit growth has been achieved.
Link to strategy – This
measure incentivises the
delivery of strategy by
encouraging the creation
of annual shareholder
value through improved
bottom-line financial
results.
The profit measure
used will be based on
Trading Profit rather than
Underlying Profit. Trading
Profit is widely understood
throughout the business
but, unlike Underlying
Profit, does not include
property profits. This
reflects our fundamentally
different approach to
space going forward.
Link to strategy – The selected strategic
financial measures allow for the Company
to more specifically incentivise the delivery
of key elements of our strategy.
‘Clicks & Bricks’ is an important and exciting
dimension of our strategy and a key focus
for 2013/14.
Another key priority for 2013/14 is delivering
on our commitments to build a better
business in the UK. A focus on improving
like-for-like performance will support this.
A working capital metric has been introduced
this year to focus Executives on the effective
management of stock, cash and suppliers.
The Committee believes that this working
capital is a measure that is better suited to
the short-term bonus than ROCE which
measures long-term capital efficiency.
Link to strategy – At Tesco we believe that a focus on the enablers
of business performance will help us build a much more successful,
sustainable business for the long term which will ultimately yield
financial returns for all stakeholders.
The Committee therefore considered that it was important the
2013/14 annual bonus framework focused on:
– Improving our service to our customers.
– Improving the engagement of all of our colleagues – if our
colleagues smile, our customers smile too.
– Being a business that puts back more into our community
than we take out.
Group customer service and Group colleague engagement
is objectively measured through our management Steering
Wheel which ensures that we manage in a balanced way across
our business.
We are currently developing a new reputation scorecard and
envisage replacing the CO2 metric from 2014/15 with this
new metric.
Long-term incentives
At a glance
• Maximum award of 275% of salary for the CEO.
• Maximum award of 225% of salary for the CFO.
• Shares vest in three years time subject to performance targets
being met.
• Clawback provisions apply to PSP awards prior to vesting.
The ultimate goal of our strategy is to provide long-term sustainable
returns for all of our shareholders. Tesco believes that the best way
to deliver enhanced value is to grow earnings over the long term while
maintaining a sustainable level of return on capital employed – in other
words to keep growing the size of the business in an efficient way.
2013 Performance Share Plan awards will continue to be subject to
performance against a matrix of stretching earnings growth targets
and sustainable return on capital performance. The Committee believes
that this combination of EPS growth and ROCE performance is strongly
aligned with our strategic objectives and also reflects the drivers of long-
term shareholder value. Achieving this performance will demonstrate the
successful implementation of our strategy.
The economic environment, both in the UK and internationally,
continues to be challenging. In January 2012, we announced our plans
to reprioritise our Group investment. We have focused our investment
on the customer experience, our multichannel offering and targeted
consumer offers rather than new space expansion. We are starting to see
positive returns from this strategy, with encouraging sales performance
being achieved, particularly in the UK, however we are still at the start
of our journey to ‘Build a Better Tesco’. 2013/14 will see us continuing
on this journey.
The balance of measures is illustrated in the chart below:
Balance of measures for short-term bonus (%)
Profitability
Strategic financial
Strategic non-financial
50%
26%
24%
Given their commercial sensitivity, we do not publish the details of
targets in advance. However, targets are considered to be measurable
and appropriately stretching. If they are achieved the Committee
considers that value will have been added for shareholders. The
Committee will provide an explanation of the rationale for the level
of any bonus paid in the 2013/14 Directors’ Remuneration Report
to ensure transparency for shareholders regarding the level of reward
paid in the context of performance delivered.
Clawback applies to deferred shares to allow the Committee to scale
back deferred share awards prior to vesting (potentially to zero) in the
event that results are materially misstated.