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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).
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:
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.
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.
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: email@example.com.
Chairman of the Remuneration Committee
11 February 2014