Directors' remuneration

Introduction

This report has been prepared in accordance with the requirements of the Companies Act 2006, the Large and Medium-Sized Companies and Groups (Accounts & Reports) (Amendment) Regulations 2013, which came into force on 1 October 2013 and which set out the new reporting requirements in respect of Directors’ remuneration and the Listing Rules. The legislation requires the external auditors to state whether, in their opinion, the parts of the report that are subject to audit have been properly prepared in accordance with the relevant legislation and these parts have been highlighted.

The Remuneration Report for 2013 can be found in the 2013 Annual Report PDF (11.4MB).

Directors' remuneration report

Dear Shareholder,

On behalf of the Board, I am pleased to present the Remuneration Committee’s report for 2013 on Directors’ remuneration.

This report will be subject to two shareholder votes at the forthcoming AGM:

  • The Directors’ Remuneration Policy Report sets out the forward looking Directors’ remuneration policy for the Company which will operate from 1 January 2014 and will, subject to shareholder approval, become formally effective from the 2014 AGM;and
  • The Annual Report on Remuneration provides details of the remuneration earned by Directors in the year ended 31 December 2013.

Summary of major decisions made in 2013

As described in last year’s Remuneration Report, the Committee introduced a radical overhaul of pay for Executive Directors and senior managers for 2013. The two primary objectives were to: (i) provide a competitive but not excessive package, strongly linked to performance, to act as an effective incentive to achieve the strategic objectives agreed by the Board and align the interests of management and investors; and (ii) simplify the remuneration package.

The annual bonus, Deferred Share Bonus Plan and Performance Share Plan (PSP) were therefore replaced by the Tullow Incentive Plan (TIP), which was approved by shareholders at the 2013 AGM. Under the TIP, a maximum award of 600% of base salary is payable subject to the achievement of a balanced scorecard of stretching financial, operational and total shareholder return (TSR)-related objectives, explicitly linked to the achievement of Tullow’s long-term strategy. Up to a maximum of 100% of base salary is payable in cash after the relevant financial year with the balance payable in Tullow shares, normally deferred for five years and subject to clawback.

Performance and reward for 2013

During 2013, base salaries were increased by 3.5%, which was consistent with the inflationary adjustment awarded to all UK-based employees. The performance targets set for 2013 in respect of the TIP awards granted in 2014 were challenging with a delivery of 30% which results in a cash payout of 90% of salary and a further 90% of salary payable in shares, which will be deferred 50% over three years and 50% over four years.

The 2011 PSP Awards, where vesting in 2014 was based on performance over the three years ended 31 December 2013 have not vested as a result of Tullow’s relative TSR over the performance period. The 2010 PSP awards partially vested in 2013 over 23.2% of total awards.

Executive Director Remuneration Policy for 2014

  • Fixed pay will remain unchanged from 2013 levels; and
  • For 2014, the TIP will be operated on a similar basis to 2013, based on a balanced scorecard of financial and operational and TSR-related targets. Consistent with the transitional arrangements explained in the Remuneration Policy Report (and explained in detail in last year’s Remuneration Report), Deferred shares granted under the TIP in 2015 in relation to the performance period ending 31 December 2014 will vest 50% after four years from grant (i.e. 2019) and 50% after five years from grant (i.e 2020), and the 50% of TIP Awards based on relative TSR performance will be measured over a two-year performance period ending 31 December 2014.

The Committee encourages dialogue with the Company’s shareholders. It will consult major shareholders ahead of any significant future changes to remuneration policy, although it is intended that the policy for which shareholder approval will be sought at the 2014 AGM will remain in operation for the forthcoming three years.

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, they may email me at: remunerationchair@tullowoil.com.

David Bamford’s signature
David Bamford
Chairman of the Remuneration Committee
11 February 2014

2013 Annual Report

Published March 2014