Vodafone 2008 Annual Report Download - page 76

Changes to how the executive directors will be paid in the 2009 financial year
The following page sets out the changes made as part of the 2008 review together with further details of the long term incentive plan.
2008/09 performance measure(s) Change and rationale Grant policy
Base salary
2008/09 • No changes • No changes • Set annually on 1 July
Annual bonus
2008/09 Group Short
Term Incentive Plan
• Adjusted operating profit (25%)
• Free cash flow (25%)
• Total service revenue (25%)
• Total communications
revenue (10%)
• Customer delight (15%)
• Rebalancing of the performance measures – free cash flow
weighting increased by 5%, operating profit weighting
reduced by 5%
• The existing measures are felt to cover the key short term
measurable elements of the strategy
• Target bonus is 100% of
salary earned over the
financial year, with 200%
maximum available for
exceptional performance
• The Remuneration
Committee reviews and
sets the GSTIP performance
targets on an annual basis
Long term incentives
All long term
arrangements
• Three year cumulative adjusted
free cash flow
• No share option awards or Deferred Share Bonus awards will be
made in the 2009 financial year
• There will be a GLTI base award, delivered in shares after three
years subject to free cash flow and TSR performance measures
• Annual awards made in July
• The base award for the
Chief Executive will have a
maximum face value of 550%
• Relative TSR out-performance
over three years against the
peer group • There will be the opportunity to co-invest in order to receive an
award of shares, which will mirror the conditions of the GLTI
base award
• The matching award will
depend on the level of
co-investment
2009 financial year GLTI performance shares
The long term incentive will be delivered in performance shares. Vesting will be
subject to a combination of two performance conditions – adjusted free cash flow
and relative total shareholder return.
Award and co-investment
The vesting percentages are applied to the face values awarded under the base
and matching awards. The base award for the Chief Executive will have a face
value of 137.5% of base salary. This base award can vest up to a maximum of
550% of base salary (i.e. 137.5% multiplied by maximum vesting of 400%)
(see the combined vesting matrix below).
In addition, participants will have the opportunity to co-invest their own money in
order to receive a matching award (subject to performance – consistent with base
award). Participants will be able to co-invest up to two times net salary. The co-
investment will receive a matching award with a face value of 50% of the grossed-
up investment. The matching award will vest in the same way as the base award
(see the combined vesting matrix below).
The co-investment element is designed to further increase shareholder
alignment, by encouraging executive directors to attain their stretching share
ownership guidelines earlier.
Underlying operational performance – adjusted free cash flow
The free cash flow performance is based on a three year cumulative adjusted free
cash flow figure. The target and range are set out in the table below:
Vesting
Performance £bn percentage
Threshold 15.5 50%
Target 17.5 100%
Superior 18.5 150%
Maximum 19.5 200%
The target free cash flow level is set by reference to the Company’s three year
plan and market expectations. The Remuneration Committee consider the target
to be a stretching one.
TSR out-performance of a peer group median
The out-performance of a peer group median is felt to be the most appropriate
TSR measure. The rationale for this is that Vodafone has a limited number of
peers, therefore using a smaller group makes operating a ranking system
more complicated.
The peer group for the TSR out-performance measure for the awards to be made
in the 2009 financial year is as follows:
BT Group
Deutsche Telekom
France Telecom
Telecom Italia
Telefonica
Emerging market composite – made up of the average TSR performance of
three companies: Bharti, MTN and Turkcell.
The TSR performance will act as a multiplier on the percentage vesting under
the operational performance. There will be no increase in vesting until TSR
performance exceeds median, at which point the multiplier will increase up to
two times on a linear basis to upper quintile performance, as set out in the vesting
table below:
Out-performance
Performance of peer group median Increase
Median 0.0% p.a. No increase
65th percentile 4.5% p.a. 1.5 times
80th percentile (upper quintile) 9.0% p.a. 2.0 times
The performance measure has been calibrated using statistical techniques.
Combined vesting matrix
The combination of the performance measures gives a final vesting matrix
as follows:
Free cash flow performance TSR performance
Up to Median 65th 80th
Threshold 50% 75% 100%
Target 100% 150% 200%
Superior 150% 225% 300%
Maximum 200% 300% 400%
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74 Vodafone Group Plc Annual Report 2008
Vodafone – Governance
Directors’ Remuneration continued