Tesco 2012 Annual Report Download - page 68

Directors’ remuneration report
Dear Shareholder
As outlined in last year’s report, we introduced new remuneration
arrangements for the 2011/12 financial year following detailed
discussions with shareholders. The new arrangements provide simpler,
more strategically aligned incentives that are consistent with our
shareholders’ expectations.
We simplified pay by reducing the number of incentive plans in which
Executives participate (to an annual bonus and a performance share
plan) and by reducing the number of performance measures. Executives
are now incentivised to achieve underlying profit growth and strategic
objectives over an annual period and to deliver sustained earnings and
return on capital performance in the long term.
We have also returned to a collegiate remunerationapproach with all
Executives participating in the same plans and being paid in relation to
delivery of the same performance. This philosophy applies throughout
the organisation at Group as wellasat business and country level, with
over 5,000 of our senior managersglobally participating in reward
arrangements linked to localbusiness performance but consistent in
structure with those of theExecutive Directors.
At the heart of Tesco’s remuneration arrangements is a performance
focused culture. For many years the business has delivered strong
underlying profit growth and improved returns for shareholders.
Underlying profit between 2007 and 2011 improved 50% and despite
aperiod of increased investment, return on capital has shown an
improving trend. Remuneration paid during this period reflected
thisperformance.
Although sales and profits increased in 2011/12 over the previous year
toa record level for the Group, the threshold profitability for the annual
bonus (representing 70% of the annual bonus opportunity) was not
achieved and therefore no bonus will be paid in respect of the financial
part of the bonus. A number of the strategic targets were delivered and
a payout of 13.54% of the maximum was approved in respect of this
performance. The overall payout is significantly lower than for 2010/11.
Half the bonus will be paid in cash and half will be deferred into shares
for a further three years. The CEO has, however, elected to not take any
bonus for 2011/12.
Our long-term rewards are assessed based on earnings and return
on capital employed over a three-year period. Despite the challenges
in 2011/12, the three-year performance shows progress with
underlying diluted earnings per share growth of 29% and reported
ROCE performance improving by 50 basis points. The Remuneration
Committee therefore determined that 46.5% of the Performance
Share award and 100% of the share options granted in 2009 would
vest, reflecting this progress made over the longer term.
“Our remuneration arrangements are simple,
aligned with strategy and targeted to be
consistent with shareholder expectations.”
Stuart Chambers
Remuneration Committee
Chairman
IN THIS SECTION
64 Introduction from Stuart
Chambers, Chairman of the
Remuneration Committee
REMUNERATION STRATEGY
AND POLICY FOR EXECUTIVE
DIRECTORS
65 Executive Directors’
remuneration strategy
andpolicy
68 Fixed remuneration
69 Share ownership guidelines
69 Service agreements
70 Performance related
remuneration
REMUNERATION DECISIONS FOR
EXECUTIVE DIRECTORS BASED
ON PERFORMANCE IN 2011/12
71 Salaries for 2011/12
72 Performance related
remuneration for 2011/12
74 Aligning pay with performance
OTHER INFORMATION
76 Outside appointments
76 Non-executive Directors
CORPORATE GOVERNANCE
77 Governance including the
role, membership and advisors
to the Committee
AUDITED INFORMATION
80 Data tables
This report sets out the remuneration policy for the Executive and Non-executive
Directors of Tesco PLC and describes the individual remuneration of the
Directors for the year ended 25 February 2012.
64 Tesco PLC Annual Report and Financial Statements 2012