Aviva 2001 Annual Report Download - page 40

If the performance conditions are not met over three years, they
will be retested on the fifth anniversary of the grant, the ROCE
performance condition being adjusted accordingly, ie the ROCE
would need to be at least 40% in excess of inflation over the
extended performance period for any awards under that part of
the plan to vest.
The Company currently operates an Executive Share Option Plan,
which is subject to the same performance conditions as the Long
Term Incentive Plan. Grants of options under the Executive Share
Option Plan are awarded to those members of Group-wide
management who have been identified as “key”or possessing
high potential. The maximum value of options granted to a
participant in any one year is the equivalent of 150% of his/her
basic salary, although the average award in 2001 was a little over
50% of basic salary. No senior executives participate in both the
Long Term Incentive Plan and the Executive Share Option Plan in
the same financial year.
Shares acquired in the market are held in trust for use in
connection with these incentive plans.
During the year, the Committee amended the eligibility rules of
the Long Term Incentive Plan, Executive Share Option Plan and
Deferred Bonus Plan to permit participants who were within two
years of their retirement date to be eligible to receive awards
under these plans. As performance-related pay constitutes a
significant part of a senior executive’s total remuneration, it was
considered necessary to amend this provision as, otherwise, the
Company would lose the opportunity of being able to incentivise
executives approaching retirement who would see a substantial
fall in their potential earnings. This point has been recognised by
the Association of British Insurers, which recently changed its
guidelines to allow the granting of awards to participants within
two years of their retirement, subject to certain requirements.
The amendments made to the Company’s plans are consistent
with the revised Association of British Insurers’guidelines and,
in particular, provide for the prorating of any awards vesting by
reference to the period actually served.
Executive directors in the United Kingdom are entitled to
purchase shares through Inland Revenue-approved all-employee
share schemes on the same basis as other eligible employees.
The Savings Related Share Option Scheme allows eligible
employees to acquire options over the Company’s shares at a
discount of up to 20% to their market value at the date of grant.
In order to exercise the options, participants must have saved the
consideration through either a three, five or seven year approved
savings contract, subject to a maximum savings limit of £250 per
month. The AESOP allows participants to invest up to £125 per
month out of their gross salary in the Company’s shares.
Pension arrangements The remuneration package for senior
executives in the United Kingdom includes Company
contributions into the Group’s pension scheme. All executive
directors are members on a non-contributory basis of the defined
benefit section of the CGNU Staff Pension Scheme (the Scheme)
which was created from the merger on 31 December 2001 of the
CGU Staff Pension Scheme, the Norwich Union Group Pensions
and Life Insurance Non-Contributory Plan (1971) and the
London & Edinburgh Retirement and Death Benefits Plan.
Under the Scheme, executive directors have a normal retirement
age of 60 and accrue pensionable service at a rate of one-thirtieth
of their final pensionable salary for each year of service since they
became a senior executive, subject to a maximum pension of
two-thirds of their final pensionable salary. No pension benefits
are accrued on bonuses or other benefits. The Scheme provides a
lump sum death-in-service benefit of four times the member’s
basic salary at the date of death and a spouse’s pension equal
to two-thirds of a member’s actual and prospective pension.
Post-retirement pensions are reviewed annually and increases
are guaranteed at a rate equivalent to the annual increase in
the Retail Prices Index up to a maximum of 10% per annum.
The benefits paid from the Scheme are subject to Inland Revenue
limits. There is in place an unfunded pension top-up arrangement
to ensure that senior executives receive the benefits promised by
the Scheme notwithstanding an Inland Revenue limit relating to
their level of earnings, which in some cases cap the amount of
pension that can be paid from a tax-approved scheme. Where
this limit applies, benefits are topped-up from the unfunded
arrangement. Mike Biggs, Richard Harvey and Philip Twyman
are affected by this limit and therefore will, at retirement, have
some of their pension benefits from the Scheme topped-up
from this arrangement.
Other benefits In addition to the benefits described above, senior
executives are entitled to the benefit of a company car allowance
and private medical insurance.
Service contracts Service contracts agreed with each executive
director incorporate their terms and conditions of employment
and can be terminated by the Company giving the director
12 months’written notice. For Philip Twyman and Tony Wyand,
who have retained the terms they were granted when they
first became directors, the notice period is 24 months.
In practice however, the notice period for Tony Wyand is
currently 21 months as he is approaching his normal retirement
age when the contract will terminate. Philip Twyman is within
25 months of his normal retirement age. The Company does
not consider it to be in shareholders’interests to renegotiate
the contracts for these directors.
Non-executive directors The Company’s articles of association
provide that the total remuneration paid to directors shall be
determined by the Board within the limits set by shareholders –
which is presently £750,000 per annum. At the Company’s
forthcoming Annual General Meeting, shareholders will be asked
to consider increasing this limit to £1 million so as to allow the
Board flexibility in making additional non-executive
appointments, if thought appropriate, and to keep the fees
paid to individual directors competitive. Executive directors
receive no fees for acting as directors.
The emoluments paid to the Chairman and Deputy Chairman
take into account their duties and the amounts paid by
competitors and similar-sized companies. In addition to fees,
the Chairman receives a company car allowance.
Non-executive directors receive a basic annual fee in respect of
their Board and Board Committee duties, with a further fee being
paid to those directors (other than the Chairman and Deputy
Chairman) who have the additional responsibility of chairing
the meetings of the Board Committees. These fees are reviewed,
but not necessarily increased, annually and are set by the Board
to attract individuals with a broad range of skills and experience
appropriate for a major international company. In determining
the level of non-executive directors’fees, including the
Chairman’s and Deputy Chairman’s fees, the recommendation
of executive directors is considered, taking into account the time
commitment expended in preparing for and attending meetings
as well as market practice. Non-executive directors receive no
benefits other than their fees and do not have service contracts
with the Company.
38 CGNU plc Annual report + accounts 2001 Remuneration report continued