Tesco plc Annual Report and Financial Statements 2012

Directors’ remuneration report
Short-term performance
Performance measures and payouts
Performance measures Maximum opportunity 2011/12 payout
70% based on
profitability
30% based
on strategic
performance
Underlying profit performance �� CEO – Maximum bonus opportunity
of 250% of base salary.
1. UK like-for-like sales growth
2. UK return on capital employed
3. Group new space expansion
4. Group internet sales
5. Group CO2 reduction
6. Group employee satisfaction
The following illustrates performance against short-term targets.
�� Other Executive Directors –
Maximum bonus opportunity of 200%
of base salary.
13.54% of maximum opportunity.
The CEO elected not to take a bonus.
0% of salary for the CEO and 27%
of salary for other Directors.
0% of financial performance met
and 45% of strategic performance
objectives met.
Performance against short-term targets 2011/12
Measures
Profitability Underlying profit
Below
Performance
Threshold Target Stretch
Strategic UK like-for-like sales growth
UK return on capital employed
Group new space expansion
Group internet sales
Group CO2 reduction
Group employee satisfaction
Despite year-on-year profit growth, our stretching underlying profit growth targets were not met and therefore no bonus will be paid in respect this
portion of the bonus. However, satisfactory performance was delivered in respect of a number of our strategic objectives, particularly Group internet
sales, Group CO2 reduction and Group employee satisfaction and therefore a total of 13.54% of the maximum bonus will be paid to Executive
Directors. The CEO elected not to take a bonus for 2011/12.
Long-term performance
Vesting of 2009/10 to 2011/12 awards
Awards vesting in the year were made under the previous long-term incentive arrangements, comprising both share options and performance
related shares. The performance conditions applying to these awards and achievement against these targets are summarised below:
Performance measures and payouts
Earnings
per share
EPS growth above RPI over three years
0%
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underlying diluted EPS growth of at least RPI plus
9% over three years and the balance vesting for
achieving growth of at least RPI plus 15% over
three years.
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Maximum opportunity 2011/12 payout
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of 200% of salary at the date
of grant.
100% of maximum opportunity
vested.
20% �� Underlying diluted EPS for 2011/12 excludes the discontinued Japan business and was 37.41p. The
15%
Tesco
200% vesting
Committee determined, however, that it was appropriate to base vesting of share option awards on
EPS including the impact of Japan to ensure alignment with shareholders.
�� On this basis, the growth in undiluted EPS above RPI during the performance period exceeded 15%
over three years and these options will therefore vest in full on the third anniversary of their grant.
10%
100% vesting
�� Despite the challenges in 2011/12 earnings, performance is still significantly ahead of 2008/9
performance representing significant value creation for shareholders over this period.
�� The exercise price for awards is 338.4p per share. At the year end the share price was 318.2p and the
5%
share options granted in 2009 were therefore underwater. No value will be delivered to Executives
unless the share price increases significantly above this level.
72 Tesco PLC Annual Report and Financial Statements 2012