The remuneration package
The table below summarises the plans used to reward the executive directors in the 2009 financial year.
Summary | Grant policy | |
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Base salary | ||
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Annual bonus | ||
Group short term incentive plan (‘GSTIP’)(1) | Remuneration Committee reviews performance against targets over the financial year. Actual results measured against the budget set at the start of the year. Summary of the plan in the 2009 financial year
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Long term incentives (see here for details) | ||
Global long term incentive plan (‘GLTI’) base awards | ||
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Co-investment matching awards | ||
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Share ownership requirements | ||
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Other remuneration | ||
Defined benefit pension |
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Defined contribution pension/cash allowance | ||
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Benefits | ||
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Note:
- (1)
- GSTIP targets are not disclosed as they are commercially sensitive.
Details of the GLTI performance shares
The number of shares vesting depends on the performance of two measures: free cash flow and relative TSR. This section sets out how the performance of each of the two measures is calculated.
Underlying operational performance – adjusted free cash flow
The free cash flow performance is based on a three year cumulative adjusted free cash flow figure. The definition of adjusted free cash flow is reported free cash flow excluding:
- Verizon Wireless additional distributions;
- Spectrum (licence) costs;
- Foreign exchange movements over the performance period; and
- Material one-off tax settlements.
The cumulative adjusted free cash flow target and range for awards in the 2009 and 2010 financial years are set out in the table below:
2009 | 2010 | ||||
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Performance | £bn |
Vesting percentage |
£bn |
Vesting percentage |
|
Threshold | 15.5 | 50% | 15.50 | 50% | |
Target | 17.5 | 100% | 18.00 | 100% | |
Superior | 18.5 | 150% | 19.25 | 150% | |
Maximum | 19.5 | 200% | 20.50 | 200% |
The target free cash flow level is set by reference to the Company’s three year plan and market expectations. The Remuneration Committee consider the 2009 and 2010 targets to be stretching ones.
TSR out-performance of a peer group median
Vodafone has a limited number of appropriate peers and this makes the measurement of a relative ranking system volatile. As such, the out-performance of the median of a peer group is felt to be the most appropriate TSR measure. The peer group for the performance condition is as follows:
2009 financial year | 2010 financial year |
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BT Group | BT Group |
Deutsche Telekom | Deutsche Telekom |
France Telecom | France Telecom |
Telecom Italia | Telecom Italia |
Telefonica | Telefonica |
Emerging market composite(1) | Emerging market composite(1) |
Note:
- (1)
- Consists of the average TSR performance of three companies: Bharti, MTN and Turkcell.
The relative TSR position will determine the performance multiplier. This will be applied to the free cash flow vesting percentage. There will be no multiplier until TSR performance exceeds median. Above median the following table will apply (with linear interpolation between points):
2009 | 2010 | ||||
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Out- performance of peer group median |
Multiplier |
Out- performance of peer group median |
Multiplier |
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Median | 0.0% p.a. | No increase | 0.0% p.a. | No increase | |
65th percentile | 4.5% p.a. | 1.5 times | 4.5% p.a. | 1.5 times | |
80th percentile (upper quintile) | 9.0% p.a. | 2.0 times | 9.0% p.a. | 2.0 times |
The performance measure has been calibrated using statistical techniques.
Combined vesting matrix
The combination of the two performance measures gives a combined vesting matrix as follows:
TSR performance | |||
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Free cash flow measure | Up to Median | 65th | 80th |
Threshold | 50% | 75% | 100% |
Target | 100% | 150% | 200% |
Superior | 150% | 225% | 300% |
Maximum | 200% | 300% | 400% |
The combined vesting percentages are applied to the target number of shares granted.