Aviva 2001 Annual Report Download - page 44

(ii) Share Awards continued
(7) CGNU Restricted Share Plan. Norwich Union had a deferred bonus arrangement in which a small number of senior managers participated. Awards were granted which
vest after three years, subject to the attainment of a performance measure based on Total Shareholder Return (TSR). To vest, Norwich Union’s ranking against the TSR of the
FTSE 100 companies would have to be better than median, when 25% of the awards would vest, rising to 100% of the awards vesting if the Company ranked 20th or above.
This plan lapsed in 2000 upon the merger of CGU and Norwich Union. However, a one-off arrangement based on ‘phantom shares’ was introduced at that time to replicate
the plan but only in respect of the three year performance period which commenced in 1999. Based on the TSR over the performance period (subject to appropriate
weighted adjustments being made to recognise that the Company, for the purpose of the calculation, was Norwich Union plc up to 30 May 2000), the Company was ranked
43rd against the FTSE 100 and therefore a cash award, based on 42.5% of the number of ‘phantom shares’awarded and the market value of an ordinary share, will be paid
to the five participants in the plan. Mr Snowball is the only executive director to participate in this phantom plan as it was not extended to those former Norwich Union
executives who became directors of CGNU at the time of the merger. In respect of these directors, the Remuneration Committee reserved the right to approve a discretionary
cash payment and, in this regard, the Committee has agreed to award a cash bonus to these directors based on the number of shares (ranging from 5,584 to 11,170) and the
Company’s share price at the end of February 2002. This plan will now close.
(8) Cost of the Plans. During the year, awards over a total of 1.4 million shares were granted to 113 participants in the CGNU Long Term Incentive Plan and 1.16 million
shares to 532 participants where some or all of their annual cash bonus was deferred under the CGNU Deferred Bonus Plan. The awards were made on 4 May 2001. It is the
Company’s practice to request the trustee of the CGNU Share Trust to acquire sufficient shares in the market to cover the vesting of 100% of awards granted under the
Deferred Bonus Plan and to cover the vesting of 40% of the awards granted under the Long Term Incentive Plan, as the vesting of these awards is subject to the attainment
of performance conditions.
(iii) Integration incentive plans As referred to in notes 2 and 4 above, shareholders approved an incentive plan in 1999 in relation to
the merger of Commercial Union and General Accident (CGU Integration Incentive Plan) and in 2001 in relation to the merger of
CGU and Norwich Union (CGNU Integration Incentive Plan). Both plans have two parts – a share award aimed at incentivising
management to exceed the estimated annualised cost savings to result from integrating the businesses, and a cash-based award aimed
at focusing management on the operating performance of the Group or Business Unit as appropriate during the integration process.
The performance conditions relating to both plans have been achieved. Details are as follows
CGU Integration Incentive Plan
Share award – The performance condition attaching to this part of the plan was to exceed the estimated annualised cost savings of
£270 million, which was announced to the market in August 1998, by at least 10%. The actual annualised cost savings achieved was
£370 million, whilst the additional one-off cost which arose from generating the increased annualised cost savings was deemed to
be proportionate to the original target. The performance condition having been met, the shares referred to in the share awards table
vested on 27 February 2001. The mid-market value of a share on that date was 1000 pence per share.
Cash bonus – The bonuses attaching to this part of the plan were paid in March 2000.
CGNU Integration Incentive Plan
Share award – The performance condition attaching to this part of the plan was to exceed the estimated annualised cost savings of
£275 million, which was announced to the market in August 2000, by at least 10%. The actual annualised cost savings achieved was
£317 million whilst the additional one-off cost which arose from generating the increased annualised cost savings was within the
target. As a result of the performance condition being met, the shares referred to in the above table will vest in March 2002.
Cash bonus – Under this part of the plan, executive directors would receive a cash bonus of up to 50% of their basic salary if
appropriate performance conditions were met. Half of the bonus would be achieved if either the Group or Business Unit, as
appropriate, met their integration savings targets, and the other half would be achieved if the Group or Business Unit met their
trading performance targets during 2000 and 2001. The integration targets were met in full but some of the Group and Business
Unit trading targets were not fully achieved. As a consequence, the executive directors will become eligible to receive cash bonuses
ranging from 32% to 50% of their salaries in March 2002.
In addition to focusing senior executives on the achievement of both trading performance and integration savings, the integration
incentive plans achieved the objective of retaining key employees throughout the integration periods.
Non-executive directors The emoluments paid to the non-executive directors during the year were:
2001 2000
£’000 £’000
Pehr Gyllenhammar (note 1) 268 246
Lyndon Bolton (note 2) 11 44
Guillermo de la Dehesa 36 35
Wim Dik 36 35
Sir Michael Partridge 36 35
George Paul (note 1) 160 172
Derek Stevens (note 1) 54 50
Dr Elizabeth Vallance 36 35
André Villeneuve 36 35
Notes
(1) The fee disclosed for Pehr Gyllenhammar includes the benefit of a car allowance. The fee for George Paul reflects his duties as Deputy Chairman, which includes chairing
the Remuneration Committee and acting as the senior non-executive director. The fee for Derek Stevens includes an additional amount for acting as Chairman of the Board’s
Audit Committee and of the CGNU Staff Pension Scheme.
(2) Lyndon Bolton retired as a director on 24 April 2001.
(3) No non-executive director accrued benefits under a defined benefit or defined contribution pension scheme during the year.
42 CGNU plc Annual report + accounts 2001 Directors’ remuneration continued