Annual Report and Financial Statements 2007 - Tesco PLC

Other elements
• Shares In Success The Group operates a profit sharing
scheme (Shares in Success) for the benefit of UK
employees including Executive Directors. The scheme
is available to employees with at least one year’s service
at the Group’s year end and is recognised as a powerful
incentive and retention tool for all employees. Shares in
the Company are allocated to participants in the scheme
on a pro-rata basis to base salary earned up to HMRC
approved limits (currently £3,000 per annum). The amount
of profit allocated to the scheme is determined by the
Board, taking account of Company performance.
• Save as You Earn Since 1981, the Group has operated
a HMRC approved savings-related share option scheme
(SAYE) for the benefit of employees including Executive
Directors. Under this scheme, employees save up to a limit
of £250 on a four-weekly basis via a bank/building society
with an option to buy shares in Tesco PLC at the end of
a three or five-year period at a discount of up to 20% of
the market value. There are no performance conditions
attached to SAYE options.
• Buy As You Earn Since January 2002, the Group has
operated the partnership shares element of a HMRC
approved share investment plan for the benefit of
employees including Executive Directors. Under this
scheme, employees save up to a limit of £110 on a fourweekly
basis to buy shares at market value in Tesco PLC.
Pensions
The retention of key management is critical to the future
success of the business and to the growth of shareholder value.
Pension provision is central to our ability to foster loyalty and
retain experience which is why Tesco wants to ensure that the
Tesco Plc Pension Scheme is a highly valued benefit.
All Executive Directors are members of the Tesco PLC Pension
Scheme which provides a pension of up to two-thirds of
base salary on retirement, normally at age 60, dependent on
service. The Final Salary Scheme is now closed to new entrants
but has been replaced by a different defined benefit pension
scheme which accumulates each year and is based on career
average earnings.
Since April 2006, following implementation of the regulations
contained within the Finance Act 2004, Executive Directors
will be eligible to receive the maximum pension that can be
provided from the registered pension scheme. The balance of
any pension entitlement is delivered through an unapproved
retirement benefits scheme (URBS). The URBS (SURBS) is
‘secured’ by using a fixed charge over a cash deposit in a
designated account. This provides no greater security than
under the registered scheme. In particular, in the unlikely
event that the registered scheme were to be wound up with
a deficit, members would be no better off under the SURBS
arrangements than those paid out of the registered scheme.
Under these circumstances, to ensure parity, members of the
SURBS would receive the same proportion of their total
entitlement as those in the registered scheme.
Over the last few years, pension contributions by our Executive
Directors have been increasing progressively. In 2006/07, the
level of contribution was 5% of salary and this will increase in
July 2007 to 7% which will bring Executive Directors in line
with senior management’s contribution levels.
Further details of the pension benefits earned by the Directors
can be found on page 34.
Performance graph
The graph below highlights the Group’s total shareholder return
performance over the last five financial years, relative to the
FTSE 100 index of companies. This index has been selected to
provide an established and broad-based comparator group of
retail and non-retail companies of similar scale to Tesco.
£170
£140
£110
£80
£50
Feb 01 Feb 02 Feb 03 Feb 04 Feb 05 Feb 06 Feb 07
TOTAL SHAREHOLDER RETURN (TSR)
TSR is the notional return from a share or index based
on share price movements and declared dividends
Service agreements
The Executive Directors all have rolling service agreements
with no fixed expiry date. These contracts are terminated on
notice of 12 months by the Company and six months’ notice
by the Executive.
If an Executive Director’s employment is terminated (other than
pursuant to the notice provisions in the service agreement or
by reason of resignation or unacceptable performance or
conduct) the Company will pay, by way of liquidated damages,
a sum calculated on the basis of basic salary and the average
annual bonus paid for the last two years. No account will be
taken of pension or any other benefit or emolument.
Termination payments will be subject to mitigation. This means
that liquidated damages amounts will be paid in instalments to
permit mitigation and earlier payment will be made based on
long service in line with Tesco policy which respects and rewards
loyalty. If the termination occurs within one year of retirement,
the termination payment will be reduced accordingly.
To reflect his length of service with Tesco and the early age of
his appointment as CEO, Sir Terry Leahy’s service agreement
provides for his full pension entitlement to become available
on retirement on or after his 57th birthday.
FTSE
31
Tesco
THE BOARD AND THEIR
RESPONSIBILITIES