Compliance  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 of Best Practice of the "Greenbury Committee". 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 covers the disclosures referred to 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.

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 and other remuneration differentials are normally reviewed annually by the Committee, having regard to competitive market practice supported by two external, independent surveys.

Executive incentive scheme  The executive incentive scheme comprises both long term and short term share bonuses and was introduced in March 1993.

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 including total shareholder return. 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 up to a further 12 1/2 % of salary 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.

The Executive Committee has adopted a policy of extending the Group Board executive incentive scheme to a wider body of senior executives within the group. The scheme rules and awards of this extension are administered on a consistent basis as previously set out for the executive directors.

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 year's 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. This notice period is regarded as an essential part of the remuneration package designed to retain key executives within the company.

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 and the company have 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.