Aviva 2001 Annual Report Download - page 39

Remuneration report
This report sets out the remuneration policy for the Company’s
senior executives, including the executive directors, and outlines
the various elements of their remuneration.
This report should be read in conjunction with the details of
the remuneration paid to the directors in 2001 contained on
pages 39 to 42.
Remuneration Policy The Company’s remuneration policy seeks
to provide remuneration packages appropriate for each particular
market in which the Company operates, which attract and retain
high calibre employees and encourage and reward superior
performance in a manner which is consistent with the interests
of shareholders. The policy is aimed at ensuring senior executives,
are rewarded fairly for their respective individual contributions
to the Company’s performance.
Against this broad policy, the Remuneration Committee
(the Committee) has set the content of the senior executives’
total remuneration package by reference to a variety of factors,
including market practices for companies of similar size, type
and standing, current economic conditions, prevailing operating
conditions within both the Group and the financial services
industry generally, the earnings of the Group’s employees and the
skills and management capabilities which the Group must secure
in order to attain its strategic objectives. Also, in considering the
various elements which constitute senior executives’
remuneration, the Committee seeks to produce a balance
between long/short-term and fixed/variable rewards.
The Committee regularly reviews the remuneration package
to ensure that it remains appropriate within the market and
for the achievement of its objectives. It is assisted by independent
consultants who specialise in reward strategies for senior
executives of large international organisations.
The remuneration package for the Company’s senior executives
comprises a basic salary, performance-related incentives, a
non-contributory defined benefit pension entitlement and
certain benefits, including a company car allowance and private
medical insurance. The Company believes that a proportion
of a senior executive’s total remuneration should be ”at risk”
and attained through incentive plans which link rewards directly
with performance. The performance-related incentives consist
of a short-term incentive plan, giving participants the potential
to earn an annual cash bonus; and a long-term incentive plan
which makes annual grants of shares or options over shares.
Details of the various elements of the remuneration package
are as follows:
Basic salaries Each year the Committee gathers data from a
number of independent sources concerning the level of salaries
paid to senior executives performing comparable functions
within the financial services sector and industry generally, for
similar sized companies. The level of competence of each senior
executive is measured, taking into account the executive’s
experience, performance and objectives achieved.Those who
display superior performance over a substantial period are
assessed as being fully competent in their roles and their salaries
are targeted towards the upper quartile for comparable positions.
Salaries for those who have not yet achieved full competence
in their roles are targeted towards an appropriate level for
comparable positions.
Short-term incentivesSenior executives participate in a
discretionary Annual Bonus Plan that provides for the payment
of cash bonuses. For executive directors, the bonus for on target
performance is 35% of basic salary, with a maximum payment of
50%. Seventy per cent of the potential payment under the plan is
dependent upon the achievement of financial targets based on
the Group’s and/or Business Unit’s business plan as appropriate
for each director. The remaining 30% of the bonus is based upon
the attainment of measurable personal objectives.
A fundamental part of the Annual Bonus Plan, which is also
designed as a retention and long-term incentive, is the
requirement that a stated proportion of any cash bonus awarded
under the Plan each year be deferred through the Company’s
Deferred Bonus Plan. Executive directors are required to defer
50%, and may request to defer up to 100%, of their cash bonus.
Participants are granted an award of shares of equal value to
the amount of cash bonus deferred and this is matched on a
“one for one basis”with a further award of shares. Both awards of
shares are held in trust and vest after three years. The vesting of
the shares is not subject to any performance conditions as the
cash bonuses which are deferred, and upon which the awards
of shares are based, are only made if the demanding performance
conditions of the Annual Bonus Plan have been met. The
Committee believes that imposing additional conditions would
discourage participants from requesting deferral of the
non-compulsory deferred proportion of their bonus, thereby
reducing the retention incentive and the alignment with
shareholders’interests. If a participant leaves service
during the vesting period for reasons of ill-health, retirement,
redundancy etc, the shares are released in full at the end of the
vesting period. In all other cases, the matching shares lapse.
The Deferred Bonus Plan was introduced in respect of the
financial year 2000 with the first deferral of bonuses taking place
in March 2001. In respect of these awards, the Company acquired
shares in the market and it is its intention to do so in respect of
awards granted in 2002.
Senior executives in the United Kingdom are entitled to participate
in the Free Share element of the Group’s All-Employee Share
Ownership Plan (AESOP). Under this plan, eligible employees can
receive up to a maximum of £3,000 pa from the profits of the
Company, free of tax, subject to a retention period.
Long-term incentivesUnder the Company’s Long Term Incentive
Plan, senior executives are eligible to receive an award of deferred
shares each year up to a maximum value of one times basic
salary. The shares vest after three years, but only if predetermined
performance conditions have been met.
The performance conditions compare the total shareholder return
(TSR) produced by the Company against those of a chosen
comparator group. Achievement of median performance within
this group triggers the vesting of 20% of awards, which rises to
70% if the Company’s performance is in the upper decile of the
comparator group. Recognising the Company’s position as the
United Kingdom’s largest international insurance group, the
comparator group for the TSR part of the plan comprises 19
financial services companies, including 12 major European
insurers.
The other 30% of the awards vest if the Company achieves a
given return, in excess of inflation, on the capital employed within
the Company (ROCE) over the three year performance period.
Awards under this performance condition will begin to vest if the
ROCE over the performance period is 24%, with the full 30%
vesting if the ROCE is 30% or higher.
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