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Directors’ remuneration report
Introduction
This Directors’ remuneration report has been prepared in accordance with the requirements of the Companies Act 2006 and Schedule 8 of the Large and Medium Sized Companies and Groups (Accounts & Reports 2008 Regulations) which set out requirements for the disclosure of Directors’ remuneration, and also in accordance with the requirements of the Listing Rules of the Financial Services Authority.
The relevant legislation requires the auditors to report to the Company’s members on the ‘auditable part’ of the Directors’ remuneration report and to state whether, in their opinion, the part of the report that has been subject to audit has been properly prepared in accordance with the relevant legislation. This report is therefore divided into separate sections to disclose the audited and unaudited information.
Directors’ remuneration report
Dear Shareholder
As explained in last year’s report, certain changes were made to the remuneration packages of the Executive Directors, such as (i) modest increases to base salaries, (ii) re-alignment of pension provision to a more market competitive level, and (iii) a greater focus on performance-linked pay via a higher annual bonus opportunity.
The Committee was conscious that these changes increased the value of the Executive Directors’ remuneration packages. The Committee considered this approach entirely appropriate, noting that – notwithstanding these increases – the remuneration packages of Tullow’s highly regarded management team remained below median of comparable benchmarks.
However, in early 2011, the Committee commenced a thorough review of the senior executive remuneration package to help ensure it (i) aligns the interests of executives and shareholders, (ii) supports delivery of the business strategy, and (iii) is competitive. As at the date of this report the review had not been fully completed as the Committee, in line with good governance practices, had yet to complete its discussions of the proposals with its major shareholders. Consequently, full disclosure of the revisions will be made available in the 2011 Directors’ Remuneration Report although the proposed changes to the long-term incentive arrangements will be detailed in the Notice of a General Meeting which it is currently intended will be held immediately after the 2011 AGM.
The Committee remains mindful of the need to ensure that the Company’s executive remuneration policy does not encourage inappropriate risk-taking which may be to the long-term detriment of shareholders. The Committee is satisfied that risk is fully taken into account through (i) an annual bonus plan which includes targets that are set with due account taken of the Company’s approach to operational risk, (ii) the significant compulsory share deferral feature in the annual bonus plan, (iii) the regular annual grant of awards of share incentives, (iv) the application of share ownership guidelines and (v) the use of Total Shareholder Return targets in both short and long-term incentives underpinned by Remuneration Committee discretion to reduce payouts if other factors, such as environmental or safety-related incidents, make it appropriate to do so.
Should any shareholder wish to contact me in connection with the Group’s senior executive remuneration policy, please email me at: remunerationchair@tullowoil.com.
Yours sincerely
Clare Spottiswoode, Chairman of the Remuneration Committee
8 March 2011
