Other remuneration matters

Non-executive Directors’ fees

A Committee of the Board comprising the Chairman and Executive Directors sets the remuneration of non-executive Directors. The fees paid are set at a level to attract individuals with the necessary experience and ability to make a significant contribution to the Group’s activities, while also reflecting the time commitment and responsibility of the role. Each non-executive Director currently receives an annual fee of £56,000. Steven McTiernan currently receives an additional annual fee of £11,000 to reflect his additional responsibilities as Senior Independent Director and Clare Spottiswoode and David Williams each receive an additional annual fee of £11,000 to reflect their additional responsibilities as Chairman of the Remuneration and Audit Committees respectively. Each non-executive Director is also entitled to reimbursement of necessary travel and other expenses.

Non-executive Directors do not participate in any share scheme or annual bonus scheme and are not eligible to join the Group’s Pension Schemes.

The Remuneration Committee, with the Chairman absenting himself from discussions, sets the remuneration of the Chairman, whose annual fee is currently £180,000.

Performance graph

The graph below shows Tullow’s TSR against both the FTSE 100 and FTSE 250 (excluding Investment Trusts) over the five-year period from 1 January 2004 to 31 December 2008, over which period Tullow outperformed the FTSE 100 by 697% and the FTSE 250 (excluding Investment Trusts) by 690%. The relevant indices are set to 100 at the beginning of the period. These indices have both been shown because the FTSE 250 is the comparator Index for awards made under the PSP in March 2007 before Tullow moved to the FTSE 100 in September 2007.

Source: Datastream

This graph shows the value, by the end of 2008, of £100 invested in Tullow Oil on 31 December 2003 compared with the value of £100 invested in the FTSE 100 and FTSE 250 Indices (excluding Investment Trusts). The other points plotted are the values at intervening financial year ends.

Service contracts and letters of appointment

Each Executive Director has entered into a service agreement with Tullow Group Services Limited (dated 2 September 2002 in the case of Aidan Heavey and Graham Martin, dated 29 March 2006 in the case of Paul McDade, dated 18 April 2006 in the case of Angus McCoss and dated 1 September 2008 in the case of Ian Springett). Aidan Heavey has also entered into a service agreement with Tullow Oil International Limited on 16 September 2002 on similar terms. Tom Hickey and Matthew O’Donoghue who left the Board during the year each had a service agreement with Tullow Group Services Limited dated 2 September 2002. Matthew O’Donoghue had also entered into a service agreement with Tullow Oil International Limited on 16 September 2002 on similar terms.

The terms of each of these service contracts is not fixed, although each Executive Director is required under his service agreement to retire from service upon attaining the age of 65. Each agreement is terminable by the Director on six months’ notice and by the relevant employing company on 12 months’ notice. There are no specific provisions under which any Executive Director is entitled to receive compensation upon the early termination of his service agreement other than in accordance with these notice periods.

Each service agreement sets out restrictions on the ability of the Director to participate in businesses competing with those of the Group or to entice or solicit away from the Group any senior employees of the Group in the six-month period after the cessation of his employment.

The above reflects the Committee’s policy that service contracts should be structured to reflect the interests of the Group and the individuals concerned, while also taking due account of market and best practice. Furthermore, it is the Committee’s policy that, in the event of early termination of a Director’s service contract, the Committee will take account of the departing Director’s duty to mitigate his loss when determining the amount of any compensation that is paid.

Details of remuneration of Executive Directors ceasing to serve in the year

Matthew O’Donoghue ceased to be an Executive Director on 31 March 2008, but continues to provide important consultancy services to the Group for 12 months from 1 April 2008.

Tom Hickey ceased to be an Executive Director on 1 September 2008, although he remained an employee of the Group until 30 September 2008.

Messrs O’Donoghue and Hickey are treated as ‘good leavers’ under the Group’s share incentive plans, reflecting their outstanding performance over the lengthy periods which they served and their crucial contributions to the Group’s success.

Their remuneration arrangements on cessation of employment are as follows:

• They were paid no ex-gratia amounts on termination;
• Their salaries were paid up to the date of cessation with no additional amounts in lieu of notice;
• Matthew O’Donoghue was not entitled to participate in the 2008 Annual Bonus Scheme. Tom Hickey was entitled to participate on the same terms as the other Executive Directors, although with his bonus pro-rated to reflect his reduced period of service;
• The Remuneration Committee exercised its discretion to allow both to exercise their outstanding options under the 1998 and 2000 share option schemes for a period of 12 months from leaving;
• Their outstanding PSP awards will vest on their normal vesting dates, subject to performance conditions, with a pro-rata reduction for the reduced period of service (in Mr O’Donoghue’s case, being the date to which he ceases to provide consultancy services); and
• DSBP awards will vest in full on their normal vesting dates.

Under the terms of his consultancy agreement, under which Mr O’Donoghue carries out significant and important services (and which the Group believes is very much in the interests of shareholders), he receives £24,500 per month.

Non-executive Director Terms of Appointment

Each of the non-executive Directors is engaged by the Company under the terms of a letter of appointment (dated 9 December 2008 in the case of Pat Plunkett; dated 29 June 2007 in the case of David Bamford; dated 1 March 2008 in the case of Clare Spottiswoode and Steven McTiernan; dated 31 May 2006 in the case of David Williams and in the case of Ann Grant dated 14 May 2008). Subject to retirement, for example, under the Articles of Association, the appointments are for the period to 31 December 2009 in respect of Pat Plunkett, to 30 June 2010 in the case of David Bamford, to 28 February 2011 in the case of Clare Spottiswoode and Steven McTiernan, to 31 May 2009 in the case of David Williams and to 14 May 2011 in the case of Ann Grant. In each case, the appointment is renewable thereafter if agreed by the Director and the Board. The appointments for each of the non-executive Directors may be terminated by either party on three months’ notice. There are no arrangements under which any non-executive Director is entitled to receive compensation upon the early termination of his or her appointment.

Material contracts

There have been no other contracts or arrangements during the financial year in which a Director of the Company was materially interested and/or which were significant in relation to the Group’s business.

External appointments

The Board has not introduced a formal policy in relation to the number of external directorships that an Executive Director may hold. Currently, the only Executive Director who holds an external directorship is Aidan Heavey who is a director of Traidlinks, a charity promoting enterprise in the developed world, especially Africa. He receives no fee for this position.