Tesco 2010 Annual Report Download - page 55

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Remumeration report
The Remuneration Committee believes that the majority of total
remuneration should be performance-related and delivered largely
in shares closely to align the interests of shareholders and Executive
Directors. In determining the balance between the fixed and variable
elements of the Executive Directors’ remuneration packages, the
Committee takes into account both policy and market practice.
Total remuneration levels for Executive Directors are reviewed annually by
the Committee taking into account their value to the Company in terms of
continuing strong performance, potential and competitive market practice.
Consideration is also given to reward levels at the next tier of management
and across the Group in order to sustain a common sense of purpose and
sharing of success as well as to ensure that executive arrangements remain
appropriate in the context of wider Group remuneration. When setting the
remuneration of Executive Directors, the Committee considers the Group’s
performance against a mixture of corporate objectives and financial
measures. These corporate objectives include specific measures based
on environmental, social and governance (ESG) factors, an integral part
of the corporate strategy. Inclusion of these specific measures in a number
of parts of the remuneration structure helps to reinforce positive and
responsible behaviour by senior management. Tofind out more go to
www.tesco.com/annualreport2010
Performance related remuneration
The remuneration structures for Executive Directors and other key
executives are tailored to emphasise the delivery of strong year-on-year
earnings growth as well as sustained performance in the longer term.
More than two-thirds of total remuneration (excluding pension) is linked
to the performance of the business. Long-term performance is rewarded
through delivery of shares and short-term performance through a
combination of cash and compulsorily deferred shares. This combines
emphasis on strong year-on-year performance with long-term executive
share ownership, providing a strong link between the incentives received
and shareholder value.
Performance measures
The Executive Directors have a range of performance targets across the
various incentive plans which reflect the objectives of the Group and their
own responsibilities and are aligned with long-term shareholder value
creation. Targets are generally set to reward performance improvement
compared to prior periods, with maximum awards only paying out for
delivery of strong performance.
The measures are summarised in the table below and are based on:
• delivery of improved bottom-line financial results, measured through
earnings, both in the present year and sustainably over time;
• enhancement of efficient profitability, measured through return on
capital, whilst growing the business;
• improving share price via the use of share options throughout the
organisation;
• achievement of durable improvements in the underlying drivers
of performance such as cost reduction, energy efficiency, reduced
environmental impact and sales growth captured through various
corporate measures; and
• laying foundations for future performance through measures such
as accessing new sales footage, developing people and implementing
community programmes which are also captured through the
corporate measures.
The sustainability of our business is key and the Remuneration Committee
is satisfied that the measures and targets do not incentivise Executive
Directors to take an inappropriate level of risk.
Short-term Performance Measures
Measures Participation Incentivises Maximum potential
% of salary
Performance period Delivered via
Earnings per share All Executive
Directors
Year on year
earnings growth
125% (US CEO 62.5%) One year Annual cash and
annual deferred
share bonuses
(3-year deferral)
Corporate objectives All Executive
Directors
Delivery of strategic
business priorities,
entrepreneurial
spirit and building
framework for
future growth
55% (US CEO 27.5%) One year Annual cash and
annual deferred
share bonuses
(3-year deferral)
Total shareholder
return
All Executive
Directors
Share price and
dividend growth
versus competitors
20% (US CEO 10%) One year Annual deferred
share bonuses
(3-year deferral)
Specific US
objectives
US CEO Delivery against
financial and
strategic milestones
for US business
200% One year Annual cash and
annual deferred
share bonuses
(3-year deferral)
Specific US
objectives
Group CEO Delivery against
financial and
strategic milestones
for US business
50% One year Annual deferred
share bonuses
(3-year deferral)
Tesco PLC Annual Report and Financial Statements 2010 53