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Compliance The company has adopted the provisions of the Code of Best Practice ("the Code") issued by the Study Group on Directors Remuneration ("Greenbury Committee") in advance of the mandatory requirement to do so. The Committee is constituted and operated throughout the period in accordance with the principles outlined in the Stock Exchange Listing Rules derived from Section A of the best practice provisions of the Code. In framing the remuneration policy, full consideration has been given to the best practice provisions set out in Section B, annexed to the Listing Rules. The Auditors' Report set out on page 31 confirms that the scope of that report covers the disclosures contained in this report that are specified for audit by the London Stock Exchange.
Details of directors' emoluments and interests, including executive and savings-related share options, are set out in note 6 to the financial statements on pages 41 to 44.
The following summarises the remuneration packages for executive directors. Copies of the executive directors' contracts of employment are available for inspection by shareholders as required.
Base salary and benefits The base salary and benefits (which comprises car benefits, life, disability and health insurance) of executive directors and other senior executives are normally reviewed annually by the Committee, having regard to competitive market practice supported by external, independent surveys.
Executive incentive scheme The executive incentive scheme was introduced in March 1993 and also includes the senior executives of the company's principal trading subsidiary, Tesco Stores Limited.
Long term share bonuses are awarded annually based on improvements in earnings per share, achievement of strategic corporate goals and comparative performance against peer companies. The maximum long term bonus is 25% of salary. Shares awarded have to be held for a period of four years conditional upon continuous service with the company. The share equivalent of dividends which would have been paid on the shares is added to the award during the deferral period.
Short term share bonuses are awarded annually based on improvements in earnings per share and on the achievement of strategic corporate goals. The maximum short term bonus payable is 25% of salary which is augmented by a further 12.5% if the participants elect for the trustees of the scheme to retain the fully paid ordinary shares awarded for a minimum period of two years conditional upon continuous service with the company. The share equivalent of dividends which would have been paid on the shares is added to the award during the deferral period.
The Committee sets performance targets annually for the incentive scheme for each of the criteria noted above, confirms achievement of performance and awards to be made under the scheme and directs the general administration of the scheme.
Profit sharing The group operates an approved employee profit sharing scheme for the benefit of all employees, including executive directors, with over two years service with the group at its year end. Shares in the company are allocated to participants in the scheme on a pro-rata basis to base salary earned up to Inland Revenue approved limits.
Pensions Executive directors are members of the Tesco PLC Pension Scheme which provides a pension of up to two-thirds of base salary on retirement dependent upon service. The scheme also provides for dependants' pensions and lump sums on death in service.
Share options Executive directors are included in an approved executive share option scheme (ESOS), and are eligible to join the employees' savings-related share option scheme (SAYE) when they have completed one years service.
Executive options granted since 1995 may only be exercised subject to the achievement of performance criteria related to growth in earnings per share, in accordance with ABI guidelines.
Service agreements Executive directors have service contracts with entitlement to notice of 24 months.
Non-executive directors Non-executive directors do not have contracts but each appointment is subject to review every three years. Non-executive directors receive a basic fee plus an additional sum in respect of committee membership.
Mr John Gardiner, a Deputy Chairman, receives a further fee for his extra duties and responsibilities and Baroness O'Cathain has the benefit of the use of a company car.
Going concern
The directors consider that the group has adequate resources to remain in operation for the foreseeable future and have therefore continued to adopt the going concern basis in preparing the financial statements. As with all business forecasts the directors' statement cannot guarantee that the going concern basis will remain appropriate given the inherent uncertainty about future events.
Pension fund
The assets of the pension funds established for the benefit of the group's employees are held separately from those of the group. The pension scheme for full-time employees is managed by trustees and the part-time scheme by the Equitable Life Assurance Society. The trustees of the full-time scheme comprise six executive directors, one senior manager and three members appointed from staff and pensioners. The assets of the fund are independently managed and there is no self-investment in Tesco shares or property occupied by the Tesco group. Details of pension commitments are set out in note 25 to the financial statements on page 55.