Directors' remuneration report
"Our remuneration policy seeks to align the interests of shareholders and Executive Directors."
David Bamford, Committee Chairman
On behalf of the Board, I am pleased to present the Directors’ report on remuneration for 2011, for which we will be seeking approval from shareholders at our Annual General Meeting.
Tullow’s remuneration policy is focused on aligning the interests of Executives and shareholders and is structured to enable the Group to attract, motivate and retain the executive talent required to deliver the business strategy. Certain changes were made to the Executive Director remuneration package during 2011, including (i) revising salaries, (ii) revising the annual bonus scorecard, (iii) revising the Performance Share Plan (PSP) performance condition, (iv) linking PSP grant policy to a fixed number of shares, and (v) increasing the Executive share ownership requirements. The changes were implemented following an extensive review of our market positioning, and consultation with the Company’s major shareholders to help ensure the pay structure is consistent with our remuneration policy and is robust and competitive.
The Committee is very aware of the sensitive nature of executive remuneration and regularly considers the implications for Tullow of external factors such as the Association of British Insurers’ guidelines on executive remuneration and the recent Department for Business Innovation & Skills consultation. The changes made during the year reflect the successful growth of our business over the last three years (market capitalisation increasing by 262% over the period) and the reduction in the competitiveness of the remuneration packages for the Executive Directors (salaries were well below median). When considering the senior executive remuneration structure the Committee also takes into account the pay and conditions of employees. We are pleased that employee feedback continues to show high levels of engagement (81%) and that most staff feel fairly rewarded. We also believe that it is critical for all permanent employees to have a stakeholding in the business to help ensure their alignment with shareholders. This is reinforced through the issuance of share options to all permanent staff, excluding Executive Directors, on an annual basis.
The Committee believes that the strong emphasis on long-term performance-related pay continues to be appropriate and helps 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 managed 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 alter payouts if other factors, such as environmental or safety-related incidents, make it appropriate to do so.
On behalf of the Board, I would like to thank shareholders for their continued support. Should any shareholder wish to contact me in connection with the Group’s senior executive remuneration policy, please email me at: firstname.lastname@example.org.
Chairman of the Remuneration Committee
13 March 2012