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Review of <strong>the</strong> executive directors’ remuneration<br />
The Remuneration Committee commissioned a full review of <strong>the</strong> reward<br />
arrangements for <strong>the</strong> <strong>Vodafone</strong> executive directors in <strong>the</strong> 2008 financial year.<br />
The aim is to target an appropriate level of remuneration for managing <strong>the</strong><br />
business in line with <strong>the</strong> strategy. There will be <strong>the</strong> opportunity for executive<br />
directors to achieve significant upside for truly exceptional performance.<br />
In setting total remuneration, <strong>the</strong> Remuneration Committee will consider a<br />
relevant group of comparators. Comparators will be selected on <strong>the</strong> basis of <strong>the</strong><br />
role being considered. Typically, no more than three reference points will be used.<br />
These will be as follows: top European companies, top UK companies and,<br />
particularly for scarce skills, <strong>the</strong> relevant market in question.<br />
These comparators reflect <strong>the</strong> fact that currently <strong>the</strong> majority of <strong>the</strong> business is<br />
in Europe, <strong>the</strong> Company’s primary listing is in <strong>the</strong> UK and that <strong>the</strong> Remuneration<br />
Committee is aware that in some markets, <strong>the</strong> competition is tough for <strong>the</strong> very<br />
best talent.<br />
A high proportion of total remuneration will be awarded through short term and<br />
long term performance related remuneration. The Remuneration Committee<br />
believes that incorporating and setting appropriate performance measures and<br />
targets in <strong>the</strong> package is paramount – this will be reflected in an appropriate<br />
balance of operational and equity performance.<br />
Finally, to fully embed <strong>the</strong> link to shareholder alignment, all executive directors<br />
are expected to meet and comply with <strong>the</strong> rigorous and stretching share<br />
ownership requirements set by <strong>the</strong> Remuneration Committee.<br />
Changes to <strong>the</strong> package<br />
The review of executive directors’ remuneration has had <strong>the</strong> following high level<br />
impact on <strong>the</strong> package for <strong>the</strong> 2009 financial year:<br />
•<br />
•<br />
•<br />
<strong>Vodafone</strong> – Governance<br />
Directors’ Remuneration continued<br />
no change to <strong>the</strong> base salary policy;<br />
no significant change to <strong>the</strong> annual bonus arrangement; and<br />
long term incentives will be awarded in <strong>the</strong> form of performance shares with<br />
an opportunity to co-invest. The Remuneration Committee does not foresee<br />
a requirement to award options or use <strong>the</strong> Deferred Share Bonus (“DSB”) in <strong>the</strong><br />
immediate future. Vesting will be based on a performance matrix comprised<br />
of operational and equity performance.<br />
These changes are summarised in <strong>the</strong> following table:<br />
Reward elements 2007/08 measures 2008/09 measures<br />
Annual bonus Business KPIs Business KPIs<br />
DSB Free cash flow Not applicable<br />
Share options EPS Not applicable<br />
Performance shares Total shareholder return (“TSR”) Free cash flow and TSR<br />
Co-investment Not applicable Free cash flow and TSR<br />
Rationale for changes<br />
The key purposes of making <strong>the</strong> changes are as follows:<br />
• Link to strategy<br />
Focusing on driving <strong>the</strong> key measures of underlying business performance<br />
The remuneration policy was last amended in 2002.<br />
toge<strong>the</strong>r with upside for strong market value performance.<br />
• Shareholder alignment<br />
Remuneration policy<br />
Increasing <strong>the</strong> co-investment opportunity and moving it from a two year<br />
<strong>Vodafone</strong> wishes to provide a level of remuneration which attracts, retains and<br />
deferral to a three year investment should increase <strong>the</strong> participants’ holdings<br />
motivates executive directors of <strong>the</strong> highest calibre. To maximise <strong>the</strong> effectiveness<br />
in <strong>the</strong> Company.<br />
of <strong>the</strong> remuneration policy, careful consideration will be given to aligning <strong>the</strong><br />
• Simplification<br />
remuneration package with shareholder interests and with best practice.<br />
Moving to one long-term incentive vehicle (shares) simplifies <strong>the</strong><br />
long-term arrangements.<br />
72 <strong>Vodafone</strong> Group Plc Annual Report 2008<br />
Impact of changes on package<br />
Comparison of estimated values for <strong>the</strong> Chief Executive in <strong>the</strong> 2008<br />
financial year and <strong>the</strong> 2009 financial year<br />
The estimated values are used to represent <strong>the</strong> level of different elements of <strong>the</strong><br />
package. The analysis below assumes a one times salary co-investment, which is<br />
in line with <strong>the</strong> current opportunity under <strong>the</strong> DSB plan. The estimated value will<br />
be greater <strong>the</strong> more a participant co-invests (up to two times net salary).<br />
2008 financial year<br />
estimated value<br />
2009 financial year<br />
estimated value<br />
Comparison of package structure for <strong>the</strong> Chief Executive in <strong>the</strong> 2008<br />
financial year and <strong>the</strong> 2009 financial year<br />
The Remuneration Committee continues to be comfortable with <strong>the</strong> structure<br />
of remuneration. Therefore, <strong>the</strong>re is no significant change to:<br />
•<br />
•<br />
Base GLTI options<br />
Bonus GLTI performance shares<br />
DSB Co-investment<br />
0 2,000 4,000 6,000 8,000<br />
Estimated value of components of package £’000<br />
<strong>the</strong> split between fixed and variable pay; or<br />
<strong>the</strong> split between short term and long term pay (though note that all long term<br />
remuneration is now received over three years).<br />
The actual percentages depend on <strong>the</strong> participant’s level of co-investment.