Tesco 2015 Annual Report Download - page 48

Dear Shareholders
I am pleased to introduce my first Directors’ Remuneration Report as Chair of the Committee,
having taken over the role from Stuart Chambers on 1 January 2015. Stuart chaired the
Committee from 2010 and I would like to take this opportunity to thank him on behalf
of the Board for his work as Chair and his thorough effort during our handover period.
2014/15 reward outcomes
Looking back to 2014/15, Tesco’s performance and challenges have been reflected through
the remuneration outcome. As a result, no annual bonus will be paid to either the new
or departing Executive Directors as the Committee determined that satisfactory financial
performance had not been achieved over the course of the year. The Earnings per Share
(EPS) and Return on Capital Employed (ROCE) performance targets for the Performance
Share Plan (PSP) awards granted in 2012 were not met and these awards will lapse.
Executive Director changes
As discussed elsewhere in this Annual Report, 2014/15 saw changes to the Executive
team. DaveLewis joined as CEO on 1 September 2014 and Alan Stewart joined as CFO
on 23September 2014. For both Dave and Alan, all pay and benefits have been set in-line
with our remuneration policy that was approved by shareholders at the 2014 Annual General
Meeting (AGM). You can find a summary of their remuneration arrangements on page 49.
On leaving their previous employers, Dave and Alan forfeited outstanding incentive awards.
These have been bought-out by Tesco in accordance with our approved remuneration policy
and details of these awards have been summarised on pages 52, 54 and 55. Both of the
Executive Directors have significant shareholding requirements to be built up over a five year
period and both are on track to meet these requirements.
Changes to remuneration framework
With new Executive leadership in place, the Board has been working hard to develop a
strategy to improve financial performance by building a more sustainable, customer-focused
Tesco. The Committee believes that it is important that remuneration arrangements follow
and support this strategy. Therefore we have proposed changes to Executive remuneration
for 2015/16 to better focus performance measures on the areas that are important for
shareholder value creation at this time. In February, Stuart Chambers and I met with the
majority of our largest shareholders to discuss our remuneration framework and found
these conversations and the feedback very helpful in shaping our proposals.
Annual bonus – The performance measures for the annual bonus will be focused on sales,
profit and individual measures. The Committee wants the management team entirely
focused on achieving the metrics which are vital to the early phase of the turnaround plan.
Further details can be found on page 49.
Performance Share Plan – Since we are early in the turnaround phase of the business,
the Committee considers it appropriate to base the 2015 award on a relative measure
of Total Shareholder Return (TSR) to keep the focus on delivery of shareholder value
through share price and dividend performance. A second metric, Retail Cash Generated
from Operations, focuses on the business generating a sustainable, quality cash flow. The
2015 awards will be based 70% on relative TSR performance against a group of FTSE 100
consumer business and services companies, and 30% on cumulative Retail Cash Generated
from Operations. Specifics of the plan were revised as a result of the discussions in our
investor meetings. Further details can be found on pages 49 and 50.
Clawback – Clawback provisions will be introduced for the 2015/16 annual bonus and
Performance Share Plan awards. Further details can be found on page 64.
As a result of these changes to our remuneration framework, it is necessary for us to seek
shareholder approval for a revised remuneration policy which we will be doing at the 2015
AGM. The full revised Policy Report can be found on pages 62 and 63.
In this section
p46 Introduction from
Deanna Oppenheimer
p48 Annual
remuneration report
Subject to an advisory
vote at the 2015 AGM
p62 Directors’
remuneration policy
Subject to a binding
vote at the 2015 AGM
Deanna Oppenheimer
Chair of the Remuneration Committee
46 Tesco PLC Annual Report and Financial Statements 2015
Directors’ remuneration report
Remuneration Committee Chair’s introduction