Unaudited information

Executive Directors’ remuneration

Base salary

Base salaries are reviewed annually with effect from 1 January, and are set primarily by reference to external benchmarking data for other UK listed companies of similar market capitalisation and overseas complexity with, as stated above, practice in the Oil & Gas sector also taken into account.

Following the most recent review, the base salary of each Executive Director with effect from January 2010 is:

In setting these salaries, the Committee has kept percentage increases in line with those across the rest of the Group and has reflected the Group’s policy that there is a significant weighting attached to the performance-related elements of pay. Consequently, the salaries of the Executive Directors are currently positioned below median.

Annual bonus

Each Executive Director is entitled to participate in the Executive Annual Bonus Scheme in respect of each financial year of the Company.

2009 Annual Bonus Scheme

The key features of the Annual Bonus Scheme for the Executive Directors for 2009 were as follows:

• The maximum annual bonus potential for the Executive Directors was 150% of salary;
• For meeting target performance, a bonus of 60% of salary was payable (40% of the maximum);
• Any bonus earned in excess of 75% of salary will be paid in shares and deferred for three years under the Deferred Share Bonus Plan (DSBP); and
• All the Executive Directors were subject to the same performance targets, as follows:
  • 25% was based on Tullow’s TSR performance relative to the same Oil & Gas group as is used to measure performance for the PSP awards made in 2009 – no bonus is paid unless median performance is delivered, with the full bonus for upper quartile performance;
  • 25% was based on growth in absolute TSR, with a full bonus payable if Tullow’s TSR grows by 15% over the year; and
  • 50% was based on certain corporate key performance indicators (KPIs) comprising Health & Safety, Operational & Financial and Project-specific targets.

The Committee also has broad discretion before finalising any award level on the above parameters to take into account other factors and circumstances reflecting the general financial condition and the performance of the Group as it considers appropriate.

The Committee’s assessment of performance under each of the bonus elements for 2009 was as follows:

• Relative TSR: 100% of maximum achievement;
• Absolute TSR: 100% of maximum achievement; and
• Corporate KPIs: 72% of maximum achievement.

In assessing the performance of the Corporate KPIs, the Health & Safety element was reduced to reflect a fatality that occurred to one of our contractors in our Bangladesh operation during 2009.

Based upon the above achievements, the bonus awards for all the Executive Directors in 2009 are 129% of salary, reflecting another year of excellent performance. As set out above, the bonus in excess of 75% of salary (i.e. 54% of salary) will be paid in shares and deferred for three years under the DSBP. Since the end of the financial year, the terms of past DSBP awards have been amended to allow recipients to delay receiving the shares for up to seven years after vesting. The method of achieving this and the potential tax benefits of doing this are explained below in relation to the Company’s Performance Share Plan. Future awards will be structured in a similar manner.

2010 Annual Bonus Scheme

For 2010, maximum annual bonus opportunity for the Executive Directors will be increased to 200% of salary. For meeting target performance, a bonus of 80% of salary will be payable (40% of the maximum). Any bonus earned in excess of 75% of salary will continue to be paid in shares and deferred for three years under the DSBP (with the ability to defer receipt of the shares beyond vesting, as mentioned above). The same approach to targets will apply as were employed in 2009:

• 25% will be based on relative TSR compared to the same Oil & Gas comparator group as is used for the PSP award to be made in 2010;
• 25% will be based on growth in absolute TSR with the same growth range as for 2009; and
• 50% will be based on corporate KPIs, comprising Health & Safety, Operational & Financial and Project-specific targets.

Notwithstanding this increase in bonus opportunity, the remuneration packages of the Executive Directors remain below median. The increased target bonus of 80% is below median, with the new maximum bonus of 200% of salary around median levels.

Pension and other benefits

From January 2010, each Executive Director is entitled to receive a payment of 25% of his base salary into the Company’s group personal pension plan or his private pension arrangements (previously 15%, 10% below age 50). These increased pension contributions are around median levels.

Each Executive Director is entitled to 30 days’ annual leave, permanent health insurance, private medical insurance and life assurance benefits. The Group also reimburses the Executive Directors in respect of all expenses reasonably incurred by them in the proper performance of their duties.