Aviva 2005 Annual Report Download - page 68

Aviva plc 2005 Governance
Governance continued
Directors’ remuneration report continued
Chairman and non-executive directors
It is the Company’s policy to set the fees paid to its Chairman
and non-executive directors at the median level for international
companies of similar size and complexity. Non-executive directors
receive a basic annual fee in respect of their Board duties. A further
fee is paid to directors (other than the Chairman) in respect of their
membership and, where appropriate, chairmanship of Board
committees. Fees are reviewed regularly and are set by the Board to
attract individuals with the range of skills and experience
appropriate for a major international company. In determining the
level of fees paid to the non-executive directors, the Board receives
recommendations from the executive directors who consider the
non-executive directors’ duties and responsibilities, together with
the time commitment required in preparing for and attending
meetings, and the amounts paid by competitors and similar-sized
companies. Other than Pehr Gyllenhammar, who received a car
allowance, the non-executive directors receive no benefits in
addition to their fees nor do they participate in any incentive or
performance plans.
The Company’s articles of association provide that the total
aggregate remuneration paid to directors will be determined
by the Board within the limits set by shareholders. The current
aggregate limit of £1.5 million was approved by shareholders
at the Company’s 2005 Annual General Meeting. The fees
paid to the non-executive directors are made under that authority.
Executive directors are remunerated under their service contracts
and receive no additional fee for serving as directors. As a
consequence, the limit of £1.5 million relates to the fees paid to
the Chairman and non-executive directors.
In recognition of the growing accountabilities, time commitments
and the demand for independent non-executive directors, the
level of fees paid in the market has increased over recent years.
The Company last reviewed its directors’ fees in 2003 and to keep
the fees competitive, a review was performed during the year.
The review considered the level of fees paid to FTSE30 companies
and the financial services sector and took into account international
scope, regulatory oversight and the complexity of the business.
As a result, the following changes were made from 1 April 2005:
– The Board fee was increased from £42,000 pa to £50,000 pa;
– Committee membership fees of £10,000 pa were introduced
for membership of the Audit and Remuneration committees
and £5,000 for membership of the Nomination Committee;
– The fee paid to the Chairman of the Audit Committee was
increased from £25,000 pa to £35,000 pa (inclusive of the
£10,000 membership fee); and
– The fee paid to the Chairman of the Board was increased from
£300,000 pa to £360,000 pa.
The fee paid to the Deputy Chairman (including acting as the
chairman of the Remuneration Committee and as the senior
independent director) was left unchanged at £160,000 pa.
From 1 January 2006, the fee paid to the Chairman increased from
£360,000 to £375,000 but the car allowance of £18,000 ceased
from that date.
Remuneration package
The remuneration package for the Group’s senior executives
comprises the following elements:
– A basic salary;
– An annual bonus;
– A long-term incentive plan;
– A pension provision;
– Other benefits comprising a car allowance and private
medical insurance.
Basic salaries
In determining the level of basic salaries, the Committee gathers
data from a number of independent sources regarding the level of
salaries paid to senior executives performing comparable functions
within the 50 largest listed companies in the UK, with an additional
focus on leading UK and European financial services companies. In
addition to market data the Committee also takes into account the
executive’s individual performance as well as the level of salaries and
salary increases for employees generally. The Company’s policy is to
set basic salaries for competent performance around the median
level, with further progression based on performance. Salaries are
reviewed annually.
Annual bonuses
Senior executives participate in a discretionary annual bonus plan
that provides for the payment of an annual bonus. For executive
directors the bonus for “Target” performance is 75% of basic
salary and for achieving “Stretch” performance a payment of up
to 150% could be awarded.
The balance between fixed and variable elements of pay for
the executive directors is set out below (Group Chief Executive
in brackets):
Long-term
Basic Annual incentive
salary bonus plan
Target performance 45% (44%) 34% (33%) 21% (23%)
Stretch performance 25% (24%) 37.5% (35%) 37.5% (41%)
“Stretch” performance is measured against those key measures
that influence share price performance and equates to 120% of
“Target” level. No bonus is paid if performance falls below 90%
of “Target”.
In 2005, the performance targets comprised numerous relevant
measures, including but not limited to:
– Group and business unit operating profits;
– Return on capital employed;
– Combined operating ratios; and
– New business contributions.
For 2006, employee morale and customer service measures have
been included.
The actual performance against each of the measures is aggregated
to determine the bonus levels paid. The performance measures
vary between participants depending upon their particular
responsibilities and spheres of influence.
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