Unilever 2002 Annual Report Download - page 54

Remuneration report 51
Unilever Annual Report & Accounts and Form 20-F 2002
The price payable for each share on the exercise of the
options is not less than the market price of the share on the
date of grant. In normal circumstances, an option granted
under the Executive Plans may not be exercised earlier than
three years from the date of grant.
Premium options, equivalent to 20% of the number of
shares included in the original grant, may be granted to
directors upon the fifth anniversary of each of the share
option grants they received in the years 1997 to 2000.
These premium grants are conditional upon sustained good
performance by both the Group and the individual director
over the relevant five year period and upon the director
either not having exercised the original options or having
retained all ’profit’ from an exercise in the form of shares.
This incentive was discontinued as part of the changes to
remuneration arrangements in 2001.
Under the Executive Option Plan rules the Group has the
right to substitute the cash value for shares on the exercise
of any individual’s options. The Group does not generally
intend to exercise this right unless an individual would be
disadvantaged if we did not.
(c) TSR Long-Term Incentive Plan
Under this plan directors are granted conditional rights
to shares in NV and PLC. The level of the annual grants is
made under the guidance of the Remuneration Committee.
In March 2002 the following conditional awards were made
to each director:
•Chairmen: Shares in NV and PLC to the combined value
of 800 000
•European-based directors: Shares in NV and PLC to the
combined value of 500 000
•US-based director: Shares in NV and PLC to the
combined value of 400 000
Depending on the performance of Unilever’s Total
Shareholder Return (TSR) over a three-year performance
cycle compared with that of its defined peer group (as set
out on page 40 and 41), the awards vest following the end
of the three-year performance cycle in accordance with the
following table:
Percentage of
Ranking within TSR Peer Group award that vests
Numbers 12 – 21 Nil
Numbers 10 – 11 25%
Numbers 8 – 9 50%
Numbers 5 – 7 100%
Numbers 3 – 4 150%
Numbers 1 – 2 200%
The conditional awards made in March 2002 represent
100% on the above table and will vest in March 2005.
The percentage of the award that vests will depend on
the outcome of the performance tests for the three-year
performance cycle starting with the financial year 2002
and ending with the financial year 2004.
The normal share option allocations for the directors are:
NV Shares PLC Shares
Chairmen 12 000 80 000
US-based director 12 000 80 000
Other directors 7 500 50 000
Group performance conditions are set annually by the
Remuneration Committee, and these conditions must
be satisfied before a director can be granted an option.
The Remuneration Committee then sets the level of actual
grants to be made to each director for the year in question
by applying the relevant percentage (see below) to the
‘normal’ allocation shown above.
The Group performance condition for 2002 in respect of
the grant of an option under the Executive Option Plans
is that our earnings per share before exceptional items
and amortisation of goodwill and intangibles (BEIA) over
the three financial years preceding the date of grant
should have cumulatively risen by at least 6% more
than inflation within the UK and the eurozone over that
period when measured at current rates of exchange. If it
had not, no grants would be made. The Remuneration
Committee regards earnings per share BEIA growth as the
most appropriate measure of the Group’s underlying
financial performance.
Once the Group performance condition has been met, each
director’s option grant is determined by the percentage
increase, above the rate of inflation in the UK and the
eurozone, of the Group’s earnings per share BEIA over the
financial year preceding the date of grant. For 2002 (as in
2001) the Remuneration Committee set the following
targets and levels of grants based on their view that less
than 4% real growth is unexceptional and more than 6%
real growth represents above target performance.
Par level of grant as
EPS BEIA growth achieved in 2001 percentage of normal allocation
Inflation + less than 4% 0%
Inflation + 4% 50%
Inflation + 5% 75%
Inflation + 6% 100%
Inflation + 7% 125%
Inflation + 8% or more 150%
The earnings per share BEIA growth for 2001 was in excess
of inflation + 8% which produced a 150% level of grant
for 2002.
There are no additional performance conditions applying
to the exercise of executive options as the Remuneration
Committee considers that the underlying financial
performance of the Group, which in turn affects the growth
in share price between grant and exercise of an option, is
sufficient. The Remuneration Committee has also taken
account of the fact that the Executive Option Plans extend
to Unilever executives worldwide and in many countries in
which the Group operates it is not common practice to have
any performance conditions on exercise.
Report of the Directors