Vodafone 2004 Annual Report Download - page 57

The structure of remuneration for executive directors under the Policy (excluding
pensions) and the performance elements on which they are based is illustrated below:
The Policy’s key objective is to ensure that there is a strong linkage between pay and
performance. This is achieved by approximately 80% of the total package (excluding
pensions) being delivered by performance linked short and long term incentive plans.
Therefore, the only guaranteed payment to executive directors is their base salary.
The Remuneration Committee selects performance measures for incentive plans that
provide the greatest degree of alignment with the Company’s strategic goals and that
are clear and transparent to both directors and shareholders. The performance
measures adopted incentivise both operational performance and share price growth.
Each element of the reward package focuses on supporting different Company
objectives, which are illustrated below:
Element Purpose Performance Measure
Base salary Reflects competitive market Individual contribution
salary level, role and individual
achievement
Annual deferred Motivates achievement of EBITDA, Free cash flow, ARPU,
share bonus annual business KPIs, Data % of Total Service
Provides incentive to co-invest Revenues,
and achieve medium term KPIs Customer Satisfaction
Aligns with Shareholders Adjusted EPS growth on share
deferral
Share Options Incentivise earnings growth and Adjusted EPS growth
creation of share price growth
Aligns with Shareholders
Performance Incentivise share price and Relative Total Shareholder
shares dividend growth Return (TSR)
Aligns with Shareholders
The Policy principles are cascaded, where appropriate, to employees in all
subsidiary companies. Base salaries and short-term incentives are benchmarked
against relevant peer companies in each market and are targeted to deliver total
cash that is at the upper quartile position in the relevant market. Incentive
payments conditional on business performance are provided to employees at levels
that are competitive in each local market.
Report on 2003/04 Executive Directors’
Remuneration and Subsequent Periods
Total remuneration levels
In accordance with the Policy, the Company benchmarks total remuneration levels
against other large European domiciled companies, using externally provided pay data.
Total remuneration for these purposes means the sum of base salary and short,
medium and long term incentives. The European focus was selected because Europe
continues to be Vodafone’s major market and the Company is one of the top ten
companies in Europe by market capitalisation.
In 2003, award levels for the Chief Executive were set to deliver target total
remuneration between the top 25% and the top 10% of the remuneration levels of
other chief executives of large European companies. The market position selected
reflects Vodafone’s relative size in this region but recognises that Vodafone also has
significant interests outside of the European region. However, awards of performance-
linked incentives were determined so that this positioning would only be attained if the
Company meets exceptionally demanding performance. A similar approach has been
taken for the 2005 financial year.
The total remuneration levels of other executive directors were set at approximately
two-thirds of the Chief Executive level for the Group Chief Operating Officer and at
approximately half of the Chief Executive level for the other executive directors.
Components of executive directors’ remuneration
Overview
Executive directors receive base salary, annual deferred share bonus, long term
incentives and pension benefits.
Vesting of all short, medium and long term incentives is dependent on the
achievement of performance targets that are set by the Remuneration Committee prior
to the awards being granted.
Base Salary
Salaries are reviewed annually with effect from 1 July and adjustments may be made
to reflect competitive national pay levels, the prevailing level of salary reviews of
employees within the Group, changes in responsibilities and Group performance.
External remuneration consultants provide data about market salary levels and advise
the Committee accordingly. Pension entitlements are based only on base salary.
Incentive awards
Short/medium term incentive
Annual deferred share bonus
The purpose of the Vodafone Group Short Term Incentive Plan (“STIP”) is to focus and
motivate executive directors to achieve annual business KPIs that will further the
Company’s medium term objectives.
The STIP comprises two elements: a base award and an enhancement award. The
base award is earned by achievement of one year KPI linked performance targets and
is delivered in the form of shares. The enhancement award of 50% of the number of
shares comprised in the base award is earned by achievement of a subsequent two-
year performance target following the initial twelve-month period. Release of both
elements of the award after the three-year period is dependent upon the continued
employment of the participant.
The target base award level for the 2004 financial year was 100% of salary with a
maximum of 200% of salary available for exceptional performance. Payments earned
for the year total on average 109.75% of salary. The bonus achievement for the year
reflects strong Group performance as described in “Operating and Financial Review
and Prospects”.
Annual Report 2004 Vodafone Group Plc
55
Circa 80%Circa 20%
Fixed
Base
Salary
Short /
Medium
Term
Incentive
Long
Term
Incentive
Performance Contingent
Deferred
Share
Bonus
Performance
Shares +
Share
Options