Tesco plc Annual Report and Financial Statements 2012

OVERVIEW
As announced in January 2012, our plan for 2012/13 is to substantially
increase investment in the delivery of an even better shopping trip for
customers – particularly in the UK. The objective is that this investment
in customer experience will strengthen our underlying business and
generate long-term sustainable earnings growth and returns. In light
of this the Committee has reviewed targets for the 2012 PSP award
to ensure that they remain motivational for management while still
representing long-term value creation for shareholders.
While we have lowered the EPS growth vesting entry point compared
to 2011/12 (from 7% p.a. to 5% p.a.) to ensure that it remains
appropriate and motivational for management, we have kept the
maximum vesting point the same, at 12% p.a. growth, to ensure that
awards are only paid in full if there has been significant value creation
for shareholders. In April 2011, we set a target to increase our already
strong level of ROCE to 14.6% by 2014/15. We have improved ROCE
from 12.9% to 13.3% in the last year and remain committed to our
target. Therefore the ROCE target remains unchanged. The Committee
believes the targets remain stretching and the combination of growing
earnings while improving capital returns will result in value creation
for shareholders.
Targets for 2012/13 awards
The vesting matrix and targets for the three years to 2014/15 are
illustrated below:
ROCE
% of initial PSP
award vesting
EPS growth p.a.
Threshold Stretch
5% 12%
14.6% 45% Straight-line 100%
13.6% 20%
vesting between
these points 85%
Targets for 2011/12 awards
The vesting matrix for 2011 awards is provided below:
ROCE
% of initial PSP
award vesting
EPS growth p.a.
Threshold Target Stretch
7% 10% 12%
14.6% 45% 75% 100%
13.6% 20% 60% 85%
Prior to 2011 PSP awards, ROCE performance outcomes were adjusted
to take into account acquisitions which were not envisaged when the
targets were set. The Remuneration Committee reserves the right to
make such adjustments under the new plan but will only do so when
the impact is material.
Clawback provisions apply to awards, allowing the Committee to
scale back awards (potentially to zero) in the event that results are
materially misstated.
Remuneration decisions for Executive
Directors in 2011/12
STRATEGIC REVIEW PERFORMANCE REVIEW GOVERNANCE FINANCIAL STATEMENTS
Board of Directors Principal risks and uncertainties General information Corporate governance
Directors’ remuneration report
Despite achieving record sales and profits and improved ROCE
performance, 2011/12 has been a challenging year for Tesco, particularly
in the UK and Tesco Bank. Nevertheless there were encouraging signs
for the future in many of our key growth opportunities. Our International
business performed strongly, with promising sales growth in all three
regions; Asia, Europe and particularly the United States. Online sales,
a key strategic area, also grew strongly.
Against this performance background, the main aspects of executive
remuneration practice for the year were as follows:
At a glance remuneration decisions for 2011/12
Base
salary
Annual
bonus
Long-term
incentives
�� Salary for CEO agreed at appointment (March 2011)
��������������
�� Salaries for Executive Directors increased by 2.4%
with effect from 1 July 2011, in line with the general
increase for other employees.
�� Next review is with effect from 1 July 2012.
�� Despite year-on-year profit growth to record levels,
our stretching underlying profit growth targets
were not met and therefore no bonus will be paid
in respect of this portion of the bonus. However,
satisfactory performance was delivered in respect
of a number of our strategic objectives and therefore
a total of 13.54% of the maximum bonus (27%
of salary) will be paid to Executive Directors.
�� The CEO elected not to take any bonus for 2011/12.
�� Our long-term rewards were assessed based on
earnings growth and return on capital employed
delivered over the past three years.
�� Despite the challenges in 2011/12, performance over
the long-term was still strong compared to 2008/9.
The Remuneration Committee therefore determined
that 46.5% of the performance share award (69.7%
of the Group element and 0% of the international
element) and 100% of the share options (granted
under the old framework in 2009) would vest,
reflecting the progress made over the longer term.
The following provides further detail on these decisions.
Salaries 2011/12
The base salaries of the Executive Directors following the 2011
review were:
Salaries 2011/12
Basic salary
1 July 2011
Director
£000
CEO (from appointment on 2 March 2011) 1,100
Other Executive Directors 852
Director – Corporate and Legal Affairs 639
The average increase for established Executive Directors last year was
2.4%, which was broadly the same as the increase for other senior
executives and employees throughout the Group. Salary increases over
the last three years have been aligned with those of other employees.
Tesco PLC Annual Report and Financial Statements 2012 71