Tesco 2008 Annual Report Download - page 30

Tesco PLC Annual Report and
Financial Statements 2008
28
Directors’ remuneration report continued
A percentage of the EBIT of the US business for the relevant years may be
allocated to an EBIT pool (the ‘profit pool’). The profit pool will be capped
at 10% in any one year and is expected to be approximately 5% of
cumulative EBIT over the four measurement years (2010/11 to 2013/14).
The portion of an award which may vest will be determined by reference
to the value of the EBIT pool as well as performance against the ROCE
hurdles for the relevant year, as outlined in the table headed ‘Summary
of US business performance conditions’ below.
To the extent that the ROCE hurdles for any one year are met (either in
full or in part), but there is insufficient value in the profit pool to fund the
vesting of awards, then the actual vesting in that year will be scaled back
so that the profit pool is not exceeded. That portion of the award that has
not paid out in that year due to the profit pool being restricted may vest
in future years, provided that the profit pool in any later year permits this.
The targets for the US LTIP have been based on the business plan in
respect of the initial phase of the US business. The Remuneration
Committee has the responsibility to review these targets in light of the
scale and scope of the US business in order to ensure that they remain
appropriate and challenging. In particular, the Remuneration Committee
will seek the input of the Audit Committee and the new Governance
Oversight Committee (described below) in order to ensure that financial
performance against the targets is indicative of strong and robust
business performance.
Any material adjustments made in respect of the targets will be reviewed
and approved by the Audit Committee and will be disclosed in the
Company’s Remuneration Report.
Group New Business Incentive Plan
A key part of the Group’s long term strategy is to consider new business
ventures which have the potential for significant long term value creation
for our shareholders. It is important to incentivise executives to encourage
entrepreneurialism where this is in the best long term interests of
shareholders, and the Group New Business Incentive Plan (Group Plan)
supports this initiative. Initially only the Group CEO will participate in the
Group Plan. However, awards may be made to other employees at the
discretion of the Committee in the future where this is appropriate to
do so in order to support the Group’s new business ventures.
The maximum number of shares which may be awarded under the rules of
the Group Plan is 2.5 million shares to the Group CEO and 2 million shares
to any other participant. An award of 2.5 million shares was made to the
Group CEO in November 2007. Awards may be adjusted to take account
of any dividends paid or that are payable in respect of the number of
shares earned.
The vesting of the award made to the Group CEO under this Plan will be
conditional upon achievement against Group and International performance
conditions. The performance conditions under this award will be aligned
with the targets set for awards made under the PSP in each of the years
2007 to 2009, which will become capable of vesting between 2010 and
2012. The targets set for awards made under the PSP are referred to in
the section above headed ‘Performance Share Plan’.
If less than threshold performance is achieved for each of these PSP awards
then no portion of the Group Plan award will become capable of vesting.
If maximum Group and International performance is achieved for each of
these PSP awards (i.e. the 2007 – 2009 PSP awards vest in full in 2010 –
2012), then the whole of the Group Plan award will become eligible for
vesting, subject to achievement of the appropriate new business performance
targets referred to below. If Group and International performance for any
of these PSP awards is between threshold and maximum levels then the
Group award will become eligible for vesting on a pro rata basis, subject
always to the achievement of the appropriate new business targets
referred to below.
Once performance against the Group and International targets has been
determined, the extent to which the award made to the Group CEO
under this Plan is capable of vesting will be conditional on the financial
performance of the specified new business ventures, as determined by the
Committee. As the Company’s US venture is currently the most developed
new business initiative, the award made to the Group CEO under the Group
Plan will initially be focused on the performance of the US venture, based
on the performance targets set out in the section headed ‘US Long-Term
Plan’ above, although the Committee will have the flexibility to consider
and include other new business development opportunities within the
proposed award. In addition, the Committee will consider the findings
of the Governance Oversight Committee (described below) and opinions
of the Audit Committee as to whether the level of ROCE achieved reflects
the underlying financial performance of the Company when considering if,
and the extent to which, the award made to the Group CEO will vest.
Awards made to other participants will vest based on the financial
performance of new business ventures, as determined by the Committee
at the time of any award.
Governance Oversight Committee
In light of the introduction of, and the potential future payouts under, the
new long term incentive arrangements, it has been decided to establish
a Governance Oversight Committee (the GOC) to review and report at
the end of each financial year on the allocation of capital and other Group
resources. The GOC will comprise the Senior Independent Director of the
Company (who will chair the GOC), the Chairman of the Audit Committee
of the Company and the Chairman of the Remuneration Committee of
the Company. The Company Chairman will attend the GOC and the
Company Secretary will serve as its secretary.
The GOC will report its findings to the Remuneration Committee each year.
The Remuneration Committee will take these into account along with the
view of the Audit Committee to ensure that financial performance against
targets is indicative of strong and robust business performance. If appropriate,
vesting under the plans may be adjusted by the Remuneration Committee
(in respect of Executive Directors) or the Board (in respect of all other
employees who are participants). In accordance with the Combined Code,
any such adjustments to vesting for Executive Directors will be reported
to shareholders in the Remuneration Report at the relevant time.
www.tesco.com/annualreport08
Summary of US business performance conditions
ROCE hurdle12010/11 2011/12 2012/13 2013/14
Maximum performance 6% ROCE 9% ROCE 11% ROCE 12% ROCE
Target performance 4% ROCE 6% ROCE 8% ROCE 10% ROCE
Vesting percentage (% of maximum award)
Vesting levels at maximum performance Up to 25% Up to 50% Up to 75% Up to 100%
Vesting level at target performance Up to 6.25% Up to 10% Up to 12.5% Up to 18.75%
1 ROCE targets have been calculated on the basis of an assumed tax rate of 30%.