ING Direct 2004 Annual Report Download - page 53

ING Group Annual Report 2004 51
In addition to the financial targets, part of the short-term
incentive award is based on individual performance, assessed
over predefined measurable targets set for each senior
executive. These targets depend on the specific responsibilities
of the individual Executive Board members and are
determined and assessed by the Supervisory Board. The
Executive Board sets the targets for senior management.
For this layer directly reporting to the Executive Board,
the emphasis is on individual performance as the primary
business-related responsibility.
SHORT-TERM INCENTIVE: RELATIVE WEIGHT OF GROUP AND
INDIVIDUAL PERFORMANCE
Group performance Individual performance
Executive Board 70% of total bonus 30% of total bonus
Top senior management 15% of total bonus 85% of total bonus
The above table has been adjusted from last year because of
ING’s internal reorganisation that eliminated one reporting
level between the Executive Board and the top senior
management.
Long-term incentive plan
In the overall evaluation of the remuneration components,
the Supervisory Board conducted a cost/benefit analysis of
the original long-term incentive plan (LTIP) in 2003. The study
assessed whether the instrument used (stock options only)
supported ING’s objectives. As a result of this study, the
Supervisory Board decided to introduce an additional
instrument to the LTIP: the performance share. Performance
shares are granted to ensure alignment of senior management
with the interests of shareholders, and to retain top
management over a longer period of time. Thus, the LTI
awards will be granted with the total “fair value” split
between stock options and performance shares. The new LTI
plan was tabled and approved during the General Meeting
of Shareholders on 27 April 2004.
The ING stock options have a total term of ten years and a
vesting period of three years. After three years, the options
will only vest if the option holder is still employed by ING (or
retired). The exercise price of the stock options is equal to the
Euronext Amsterdam opening price on a specific date during
the first “open period” after the General Meeting of
Shareholders.
Performance shares will be conditionally granted. The number
of shares that will ultimately be granted at the end of a 3-year
performance period depends on the ING Group performance.
The Supervisory Board decided to use Total Shareholder
Return (TSR) over three years (return in the form of capital
gains and reinvested dividends that shareholders receive in
that period) relative to the performance of a pre-defined peer
group. The criteria used to determine the performance peer
group were: a) considered comparable and relevant by the
Supervisory Board, b) representing ING’s current portfolio of
businesses (e.g. banking, insurance and asset management)
and ING’s geographical spread, c) global players, d) listed and
a substantial free float.
On the basis of these criteria the performance peer group was
composed as follows:
- Citigroup, Credit Suisse, Fortis, Lloyds TSB (bank/insurance
companies);
- ABN Amro, Bank of America, BNP Paribas, BSCH, Deutsche
Bank, HSBC (banks);
- Aegon, AIG, Allianz, Aviva, AXA, Prudential, Hartford
Financial Services, Munich Re (insurance companies);
- Amvescap PLC (asset manager).
ING’s Total Shareholder Return (TSR) ranking within this group
of companies will determine the final number of performance
shares that will vest at the end of the three-year performance
period. The initial number of performance shares granted at
the beginning of each three-year period is based on a mid-
position of ING (100%). This initial grant can be increased or
decreased (on a linear basis) on the basis of ING’s TSR position
after the three-year performance period as specified in the
table below.
NUMBER OF SHARES AWARDED AFTER EACH THREE-YEAR
PERFORMANCE PERIOD RELATED TO PEER GROUP
ING Ranking Number of shares
1 – 3 200%
4 – 8 Between 200% and 100%
9 – 11 100%
12 – 17 Between 100% and 0%
18 – 20 0%
The Supervisory Board will review the peer group before each
new three-year performance period. The performance test
itself will be carried out at the end of every three-year
performance period by an independent third party.
The Executive Board members are not allowed to sell shares
obtained either through the stock-option or the performance-
shares plan within a period of five years from the grant date.
They will only be allowed to sell part of their performance
shares at the date of vesting to pay tax over the vested award.
Shares obtained from exercised stock options may only be
sold within a period of five years from the grant date of the
options to pay tax over the vested award.