Overview of remuneration philosophy
Remuneration policy
The Remuneration Committee commissioned a full review of the reward arrangements for the Company’s executive directors in the 2008 financial year and the remuneration policy was last updated at this point. The policy is felt to be appropriate for the coming financial year.
Vodafone wishes to provide a level of remuneration which attracts, retains and motivates executive directors of the highest calibre. To maximise the effectiveness of the remuneration policy, careful consideration will be given to aligning the remuneration package with shareholder interests and best practice.
The aim is to target an appropriate level of remuneration for managing the business in line with the strategy. There will be the opportunity for executive directors to achieve significant upside for truly exceptional performance.
In setting total remuneration, the Remuneration Committee will consider a relevant group of comparators, which will be selected on the basis of the role being considered. Typically, no more than three reference points will be used. These will be as follows: top European companies, top UK companies and, particularly for scarce skills, the relevant market in question.
These comparators reflect the fact that currently the majority of the business is in Europe, the Company’s primary listing is in the UK and that the Remuneration Committee is aware that, in some markets, the competition is tough for the very best talent.
A high proportion of total remuneration will be awarded through short term and long term performance related remuneration. The Remuneration Committee believes that incorporating and setting appropriate performance measures and targets in the package is paramount – this will be reflected in an appropriate balance of operational and equity performance.
Finally, to fully embed the link to shareholder alignment, all executive directors are expected to comply with the rigorous and stretching share ownership requirements set by the Remuneration Committee.
Remuneration package
The Remuneration Committee remains satisfied that the structure is aligned to shareholder value and is appropriately linked to business strategy. In light of this and the external market, the Committee determined that the overall structure of the package should remain unchanged for the 2010 financial year. Changes to the individual elements of the package are set out below.
| Summary of key reward philosophies |
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Link to business strategy
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Changes to plans for the 2010 financial year
The table below sets out any changes to the individual elements of the reward package for the 2010 financial year:
| Reward elements | 2010 financial year |
|---|---|
| Base salary | No change to the benchmarking policy |
| Annual bonus |
The previous 10% weighting on ‘total communications revenue’ is replaced with a 10% increase in the free cash flow weighting |
| Long term incentive plan | No change to the plan design |
| Investment opportunity | No changes to the level of investment an individual may make |
Setting remuneration levels
The Chief Executive’s remuneration package is benchmarked by reference to total data for the base salary, annual bonus and long term incentive levels combined. The principal comparator group (used for benchmarking only) is made up of 28 top European companies excluding any in the financial services sector.
When undertaking the benchmarking process the Remuneration Committee makes assumptions that individuals will invest their own money into the long term incentive plan. This means that individuals will need to make a significant investment in order to achieve a market competitive level of remuneration. The table below assumes that an investment equal to two times base salary is made.
Chief Executive’s overall reward package for the 2010 financial year
The table below shows the estimated values of the elements to be granted in the 2010 financial year. These are not what the Chief Executive will actually receive, which will be based on the relevant performance. For the actual payouts in the 2010 financial year please see the table.
Comparison of the ratio of fixed pay to variable pay
The base salary and pension contributions to executives are considered to be fixed levels of remuneration. The annual bonus and the long term incentive awards are variable, i.e. the actual value the executive receives will depend on the performance of the Company.
The variable elements make up between 70% and 80% of executive directors’ remuneration depending on the level of co-investment made.