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June 19, 2002
Statement on new renumeration policy At last year's Annual General Meeting of Vodafone Group Plc ("Vodafone" or "the Company"), held in July 2001, Lord MacLaurin, Chairman advised shareholders that the Company would conduct a full review of its policy on executive directors' remuneration. This revised policy is contained in the Company's Annual Report and Accounts for the year ended 31 March 2002, which has been sent to shareholders today. As in previous years, this policy will be put to a shareholder vote at the Annual General Meeting of the Company which will be held on 31 July 2002.BackgroundThe overriding objective of the new policy on incentives is to ensure that Vodafone is able to attract, retain and motivate executives of the highest calibre essential to the successful leadership and effective management of a global company at the leading edge of the telecommunications industry. Underlying this was the need to reduce the complexity of the remuneration package, improve linkage to business strategy, increase the relevance of the pay and performance comparators and to improve the clarity of the policy.The review of the policy was carried out with extensive consultation involving meetings with many large shareholders and institutional bodies such as the ABI1, NAPF2 and PIRC3. These meetings initially sought views on the previous policy and subsequent meetings were held to seek comments on the new policy. The responses from these latter meetings were overwhelmingly supportive. In addition, the Remuneration Committee received advice from Towers Perrin and Kepler Associates, both leading independent remuneration consultants.The key points of the new remuneration policy are:Total remuneration levels are benchmarked against a peer group of European companies to ensure that it is competitive;
The Chief Executive's remuneration will deliver total remuneration that is between the top 25% and the top 10% of the remuneration levels of other chief executives of large European companies. This total remuneration will only be delivered if the company achieves exceptionally demanding performance levels.
The monetary value of the market data for this range is from GBP3.4 million to GBP9.3 million per annum for chief executives of large European companies. The equivalent range for US companies would be GBP22.5 million to GBP45.5 million.
The total renumeration levels of executive directors will be at approximately 65% of the Chief Executive level for the Chief Executive Officer and at approximately 50% of the Chief Executive level for the other executive directors.
For executive directors, approximately 80% of the total expected remuneration will be performance-related;
The performance-related elements of the expected remuneration will be phased over the short, medium and long term.
The majority of performance-related remuneration will be provided in the form of equity.
Performance measures will be balanced between absolute financial measures and sector comparative measures to achieve maximum alignment between executive and shareholder objectives.
The total remuneration is made up of base salary, short, medium and long term incentives. Executive directors will be eligible to receive a deferred share bonus, performance shares and share options, the release of which are all dependent upon the achievement of performance targets;
Deferred Share Bonus
Short/medium term incentive is aimed at focusing executive directors on the business priorities for the next financial year and is provided through the Vodafone Group Short Term Incentive Plan (STIP).
It comprises two elements:
A base award (delivered in the form of shares, receipt of which is deferred for a further two years) determined by reference to demanding one-year performance targets set annually by the Remuneration Committee. This year, the performance measures are related to EBITDA, free cash flow and ARPU.
An enhancement award of up to 50% of the number of shares comprised in the base award which may be payable subject to the achievement of a subsequent two-year performance target following the initial 12 month period. The enhancement performance targets are related to the achievement of EPS4 growth targets.
It is inappropriate to disclose the targets for these two elements as to do so would give a clear indication of Vodafone's budgetary targets, which are share price sensitive.Performance Shares
The aim of performance shares is to align the executive directors' interests with those of shareholders. The Vodafone Group Plc 1999 Long Term Stock Incentive Plans will be the vehicle for the provision of these incentive awards.
Vesting of performance shares will depend upon Vodafone's relative TSR5 performance. Measuring Vodafone's performance against the companies in the FTSE Global Communications Index6 recognises the importance for shareholders that Vodafone outperforms its sector.Vodafone's TSR over a three-year period will be compared to that of other companies in the index and performance shares will only vest if
Vodafone ranks in the top half of the table with maximum vesting only if Vodafone is in the top 20%. Vesting will also be conditional upon satisfying the Remuneration Committee that there has been an improvement in the underlying performance of the Company.
Share options will be granted each year to executive directors under the Vodafone Group Plc 1999 Long Term Stock Incentive Plan.Exercise of these options will be subject to EPS (before goodwill amortisation and exceptional items) growth exceeding the growth of the UK retail price index (RPI).
No options will be vested if EPS growth is below growth of RPI +5%, with 25% vesting if EPS grows by more than RPI +5%, with full vesting if EPS growth exceeds RPI +15%.
The price of these options is set on the day prior to the date of grant of the options and so the share price must exceed the option price at exercise in order for the option to be of value.Penny Hughes, Chairman of the Remuneration Committee, commented today: "This new remuneration policy has been designed following an extensive consultation process with both large shareholders and institutional bodies.We have sought to make the policy more transparent, aligning the business strategy and executive incentives with the interests of shareholders, particularly with over 80% of the total potential remuneration being dependent upon the achievement of demanding performance targets.We believe the result is a remuneration policy capable of retaining and motivating the world class management needed to run a world class business, whilst at the same time giving shareholders confidence that management are rewarded only when appropriate and stretching performance targets are reached."Vodafone Group PLC (NYSE: VOD)
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