Year ended 31 December 2008
Dear Shareholder
As you may recall, last year we made some fairly substantial changes to the remuneration packages offered to our Executive Directors, in particular an increase in annual bonus opportunity and maximum award levels under the Group’s Performance Share Plan. Both were accompanied by the introduction of a greater ‘stretch’ in the targets employed under these plans.
We believe it good practice to review regularly the structure of, and quantum available under, the Executive Directors’ remuneration packages. Arguably, the current economic climate makes such an approach even more appropriate.
The main conclusion of our most recent review was that no material changes should be made to the pay of our highly regarded senior executive team. We believe that an appropriate balance is currently struck between fixed and variable/performance-related pay. Base salaries are set below the median of comparative benchmarks, with significant reward opportunities available under the Group’s short-term and long-term incentive plans. While this ensures that due focus is placed on performance-related pay, the Committee is entirely comfortable that this policy does not encourage inappropriate risk-taking which may be to the long-term detriment of shareholders. Indeed, the Committee believes that the Executive Directors’ interests are very closely aligned with the long-term interests of investors through (i) the significant compulsory share deferral feature in the annual bonus plan, (ii) the regular annual grant of awards of share incentives, (iii) the imposition of share ownership guidelines and (iv) the use of Total Shareholder Return targets in both short- and long-term incentives (albeit in both cases ‘underpinned’ by a Remuneration Committee discretion to reduce payouts if other factors make it appropriate to do so).
However, one minor change is being made to the operation of the annual bonus which, in part, has been implemented to reflect the wishes of some of our major shareholders. In 2009, an increased weighting will be placed on the achievement of a blend of corporate key performance indicators, so that 50% of the total bonus opportunity will relate to performance against these targets (up from 33.33%). The balancing 50% of the bonus opportunity will continue to be payable by reference to performance against relative and absolute TSR targets.
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
10 March 2009
