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52 Unilever Annual Report and Accounts 2006
Report of the Directors (continued)
Report of the Remuneration Committee (continued)
Peer group:
Avon Kraft
Beiersdorf Lion
Cadbury Schweppes L’Oréal
Clorox Nestlé
Coca-Cola Orkla
Colgate Pepsico
Danone Procter & Gamble
Heinz Reckitt Benckiser
Kao Sara Lee
Kimberly-Clark Shiseido
Share Matching Plan (linked to the annual incentive)
The Share Matching Plan enhances the alignment with
shareholders’ interests and supports the retention of key
executives. In addition, the necessity to hold the shares for
aminimum period of three years supports the shareholding
requirements set out on page 51.
The Executive Directors receive 25% of their annual incentive
in the form of NV and PLC shares. These are matched with an
equivalent number of matching shares. The matching shares will
vest after three years provided that the underlying shares have
been retained during this period and the Executive Director has
not resigned or been dismissed.
The Remuneration Committee considers that thereis no need for
further performance conditions on the vesting of the matching
shares because the number of shares is directly linked to the
annual incentive (which is itself subject to demanding
performance conditions). In addition, during the three-year
vesting period the share price of NV and PLC will be influenced by
the performance of Unilever.This, in turn, will affect the ultimate
value of the matching shares on vesting.
Executive Directors’ pensions
The Remuneration Committee has decided that from 2007 new
Executive Directors will be members of the all-employee pension
arrangement of their home country. Executive Directors appointed
prior to 2007 have a defined benefit pension of two-thirds of final
salary payable at retirement from age 60. Annual incentive is not
pensionable except for Executive Directors appointed prior to the
change of policy for Executive Directors in 2005 for whom annual
incentive is pensionable up to a maximum of 20% of base salary.
Other benefits and allowances
Executive Directors enjoy similar benefits to many other
employees of Unilever. For example, like other employees,
Executive Directors areable to participate in the UK Employee
ShareSave Plan, the UK Share Incentive Plan (‘ShareBuy’) and
the All Employee Option Plan in the Netherlands.
Some of the Executive Directors serve as a non-executive on the
Boardof another company. Unilever requires that all remuneration
and fees earned from outside directorships are paid directly
to Unilever.
Future developments
Changes will be proposed for the structure and level of the Unilever
incentive plans. In summary these changes enhance variable awards
relative to fixed pay and simplify the share-based incentives.
Details of the proposed changes to Unilever’s long-term incentive
arrangements are described in the notice to shareholders for the
2007 AGMs.
The Remuneration Committee intends to continue monitoring
trends and changes in the market. It keeps a watching brief on
the continuing alignment between Unilever’s strategic objectives
and the reward policy for Executive Directors.
Commentary on Executive Directors’ Remuneration
paid in 2006
The tables on pages 55 to 60 give details of the specific elements
of Executive Directors’ reward packages in 2006.
Base salary
In 2006, base salary levels were benchmarked against those paid
in other major global companies based in Europe, excluding
companies in the financial sector. The increases for 2006 reflect
the change in market levels as well as individual and Group
performance. The 2006 annual base salary levels for the Executive
Directors are set out below:
Based in the UK
Patrick Cescau £972 500
Ralph Kugler £587 500
Rudy Markham £664 500
Based in the Netherlands
Kees van der Graaf €798 000
Annual incentive
The annual incentive awards for 2006 weresubject to
achievement of underlying sales growth and trading contribution
targets in combination with individual key strategic business
targets. The Committee measured the results against the targets
set and determined the annual incentive amounts for 2006.
Long-term incentive arrangements
• Global Performance Share Plan
The performance period of the first awardends on
31 December 2007 and therefore no award vested in 2006.
The second award was made in 2006 for the performance
period 2006-2008.
• TSR Plan
The conditional shares awarded in 2003 lapsed in 2006
because the vesting was based on the TSR performance of
Unilever (when ranked against its defined peer group with
competitors) over the three-year performance period which
ended 31 December 2005. For this period, Unilever was ranked
14 in this peer group and therefore no vesting occurred for this
award in March 2006 and the shares lapsed.