Year ended 31 December 2007
Dear Shareholder
I am pleased to present this year’s Remuneration Committee report.
This year, we are proposing to make several changes to the remuneration policy for the Executive Directors. This follows a full policy review by the Committee, which took particular account of Tullow’s outstanding performance over the last few years. This has led to Tullow’s recent promotion into the FTSE 100 for the first time. The Committee believes that it is particularly important that the remuneration policy helps to recognise the achievements of management in contributing to this success, and to ensure that they continue to be incentivised to deliver Tullow’s growth strategy and the generation of outstanding returns to shareholders.
The main changes which we are making are:
- We are seeking shareholder approval to increase the maximum ‘normal’ limit under the Performance Share Plan (‘PSP’) to 200% of salary (and the ‘exceptional circumstances’ limit to 300% of salary). The performance conditions will remain largely unchanged, with the primary conditions remaining wholly based on Tullow’s relative TSR performance. The stretch performance threshold for full vesting of awards will, however, be made more challenging, reflecting the higher rewards available;
- Increasing the annual bonus potential to 150% of salary, with any bonus earned in excess of 75% of salary being paid in shares and deferred. The targets under the bonus are being simplified so that all the Executive Directors will now be subject to the same targets. This also reflects their shared responsibility for the Company’s success; and
- Executive Directors will now be required to build and maintain a higher shareholding than previously – of 200% of salary worth of shares.
Within the Remuneration Committee’s review, it was our intention to ensure that the remuneration packages of the Executive Directors were made sufficiently competitive for a company of Tullow’s size, but without significantly increasing non-performance related pay. Therefore, the basic salary increase (excluding two role-specific increases explained below) for the Executive Directors has been set at 5% for 2008.
A resolution to approve the new maximum award limits under the PSP will be tabled at the forthcoming Annual General Meeting, as well as a resolution to approve this Directors’ Remuneration Report. I hope that you will support these resolutions. However, please feel free to contact me by email at: remunerationchair@tullowoil.com should you wish to discuss any aspect of this report.
Clare Spottiswoode
Chairman of the Remuneration Committee
11 March 2008
