Tesco plc Annual Report and Financial Statements 2012

OVERVIEW
STRATEGIC REVIEW PERFORMANCE REVIEW GOVERNANCE FINANCIAL STATEMENTS
Board of Directors Principal risks and uncertainties General information Corporate governance
Directors’ remuneration report
As announced in January 2012, our plan for 2012/13 is to substantially
increase investment in the shopping trip – particularly in the UK.
Consequently we anticipate minimal Group trading profit growth for the
year. The objective is that this investment in customer experience will
strengthen our underlying business and generate long-term sustainable
growth. We will also reduce levels of capital expenditure as we modify
our approach to UK expansion. In this context, the Committee has set
performance targets for 2012/13 awards that remain motivational for
management while still ensuring that significant rewards can only be
earned if there has been exceptional value delivered for shareholders.
No bonus will be paid to Executives unless performance is greater than
budget, representing year-on-year growth in profit. For the performance
share plan we have repositioned our earnings targets for initial vesting
but earnings growth required for maximum vesting and our ROCE goals
remain the same.
We are not proposing any other changes to Executive Director
remuneration arrangements in 2012/13. However, we will continue
to monitor our approach to pay against the backdrop of evolving
regulation and the wider climate on executive pay, to ensure that
remuneration remains simple, aligned with our strategy and fair to
Executives and shareholders.
We have made a number of changes to the way in which we present
information in our Remuneration Report this year to make it more
accessible and easy to understand. While the Department of Business,
Innovation and Skills (‘BIS’) proposals are not yet final we have taken
steps to disclose, in advance, additional information in certain areas
which we believe will be helpful for shareholders. We have included
more detail on how bonus and long-term incentive payouts were
determined and details of remuneration paid over the past five years.
I hope you will find this summary clear and informative. However,
if you would like further detail I would direct you to the full Directors’
Remuneration Report which follows this introductory letter.
Stuart Chambers
Chairman of the Remuneration Committee
Remuneration strategy
Executive Directors’ remuneration strategy
Tesco has a long-standing strategy of rewarding talent and experience.
We seek to provide incentives for improving the underlying drivers of
performance, delivering strong, sustainable and profitable growth,
thereby creating long-term substantial additional value for shareholders.
We operate in a keenly competitive and rapidly changing retail
environment. Business success depends on the talents of the key team,
but outstanding business performance comes only from teamwork.
Our success is predicated on the abilities of a strong management team
across all levels and geographical locations of the business. Motivating
and incentivising this team to deliver sustainable long-term performance
is fundamental to our ongoing success. During 2012/13 we are making
significant investments in our business foundations to ensure a strong
platform for future sustained growth. We are investing in the customer
experience in the UK as well as our online platforms to ensure that
customers receive value for money and the high level of service they
expect from Tesco. We are also continuing to invest in our international
portfolio where we see significant opportunities for growth.
We strongly believe that our incentives should support the continued
growth and strengthening of our returns from across the Group, and
that all our staff should share in the success of the business alongside
our shareholders.
Remuneration policy
The Remuneration Committee undertook a detailed review of executive
remuneration arrangements during 2010/11, the outcome of which was
set out in last year’s Directors’ Remuneration Report. The Committee
believes that the new remuneration arrangements provide a simplified,
more collegiate remuneration package, with an enhanced focus on
meeting both our short-term and long-term, operational and strategic
goals. 2012/13 will be a challenging year for the business and our
remuneration arrangements should reflect this. The Committee believes
that the structure implemented last year remains appropriate and
supports long-term growth.
The key features of our remuneration policy at Tesco are:
�� Alignment with strategy – Our remuneration arrangements
are designed to ensure that Executive Directors are aligned with
the delivery of our long-term strategic objectives and the creation
of shareholder value. The majority of our reward is linked to the
delivery of stretching performance over the short and long term
and is delivered in shares. Our short-term performance is measured
in relation to underlying profit performance and the delivery of
key strategic objectives. Our long-term performance is measured
by assessing the growth in our earnings per share and the level
of our return on capital, measures which are central to our
long-term strategy.
�� Simple, collegiate approach to remuneration – Our remuneration
arrangements are designed to be simple to provide clarity to both
our Executives and to shareholders. All Executives participate in a
common incentive framework to ensure teamwork in delivering our
key strategic goals.
�� Creating alignment with shareholders by building a
shareholding in our business – We believe that it is important that
our employees are shareholders in the business to create alignment
with our shareholders. The CEO is required to hold shares with a
value of four times salary with other Executives being required to hold
shares with a value of three times salary. Most Executives already
hold shares in excess of this requirement.
Tesco PLC Annual Report and Financial Statements 2012 65