Tesco Annual Report published

31 May 2011

Report contains simpler, clearer approach to executive remuneration

Report contains simpler, clearer approach to executive remuneration

Tesco has announced a new approach for Executive Board remuneration following an extensive review and consultation with shareholders. The new reward framework will be simpler and clearer for all.  It also reflects a collegiate approach to remuneration and ensures alignment both with shareholders’ interests and Tesco’s business strategy.  The changes will include an end to share options and an increase in the Directors’ shareholding guidelines.

The changes were announced in Tesco’s 2010/11 Annual Report, published today on our new Annual Report website http://ar2011.tescoplc.com, via e-mail to shareholders who have requested it and as an app for iPad in the AppleStore.

Under the new simplified approach, Tesco will move from the current four long term incentive plans (with five separate measures) to a single plan, with two performance measures (Return on Capital Employed and Earnings per Share).  The number of performance measures for the annual bonus will also be reduced, from over 20 to seven.  Tesco believes that the best way of enhancing shareholder value is to grow earnings while maintaining a sustainable level of return on capital employed. Performance measures will reflect this approach, encouraging a focus on profitably growing the business in an efficient way.

There will be a collegiate approach to remuneration going forward, with all executives, including the CEO, participating in the same plans and all plans employing measures relevant at a Group level.  The US CEO will no longer receive annual or long-term awards in respect of the US business.

Announcing the new approach, Tesco Chairman David Reid said:

“Over the past year we have consulted shareholders for their views on how we reward Executive Directors.  We have designed a new structure which is simpler and more collegiate, with clear strategic financial targets, delivering broadly the same levels of remuneration as before but in a better way and more aligned with the interests of our shareholders.

“We will apply the same performance measures through the business to the top 500 Tesco managers, ensuring that shareholders’ interests are embedded throughout the leadership of our business.“

Tesco is the only FTSE100 company to increase its dividend for the 27th consecutive year.

Tesco also announced its biggest ever “Shares in Success” payout to staff, with over 225,000 colleagues across the UK receiving a share of a £110m-plus bonus pot.

The shares award is a thank you for the commitment and hard work of staff, from checkout operators to drivers and managers, who helped the country’s favourite supermarket report profits of £3.8 billion for the last year.

Additionally, 71,000 staff who have held shares in the scheme since 2006 also today became eligible to sell the £40m worth of shares they were awarded 5 years ago tax free.

Also published today is Tesco’s 2011 Corporate Responsibility report – highlights include Tesco’s No.1 ranking in the 2010 Carbon Disclosure Report, its £1bn in sales of locally-sourced products in the UK and the £64.3m – or 1.8% of its pre-tax profits - in donations to charities and good causes across the group. The full report can be found at www.tescoplc.com/corporate-responsibility.

ENDS

Notes for Editors

The key features of the revised executive incentive arrangements are:

Common remuneration arrangements with a Group focus – All executives, including the CEO and the US CEO, will participate in the same plans going forward, and all such plans will employ measures relevant at Group level.

Retain focus on performance related reward and delivery in shares – The Remuneration Committee believes that the majority of total remuneration should be performance related and delivered largely in shares, to closely align the interests of shareholders and Executive Directors. This alignment is further enhanced by the  Committee’s decision to increase the executive shareholding guideline from one times base salary to four times base salary for the CEO and three times base salary for the other executives.

Removal of share options – Executive share options will no longer be granted and will be replaced by a performance share award of comparable expected value.

Fewer, more focused measures – The number of performance measures will be reduced going forward, with a focus on delivery of ongoing earnings growth and sustainable return on capital for long-term elements of reward, and a smaller number of annual bonus measures which reflect the core measures of success for the business.  These include underlying profit growth, Group new space expansion, internet sales, CO2 reduction and employee engagement, as well as UK like-for-like sales growth.

Rebalancing of the CEO package – The CEO’s package has been rebalanced compared to his previous package as an Executive Director, to focus it more on performance-related rather than fixed elements of reward.

The full Annual Report and Corporate Responsibility Report can be found at www.tescoplc.com.