Aviva 2002 Annual Report Download - page 49

This report sets out the remuneration policy for the Company’s
senior executives, including the executive directors, outlines the
various elements of their remuneration, and details the amounts of
remuneration paid in 2002.
The Remuneration Committee
The Remuneration Committee (the Committee) comprises the
following non-executive directors, appointed by the Board:
George Paul (Chairman)
Wim Dik
Elizabeth Vallance
André Villeneuve
The Group Chief Executive normally attends the meetings of the
Committee, except when his own remuneration is being discussed,
as does the Group Human Resources Director.
The Committee, which has four scheduled meetings each year,
considers all aspects of remuneration paid to senior executives,
and makes recommendations to the Board on the remuneration
policy, strategy and framework for this group of employees.
The remuneration policy is reviewed by the Committee on a
regular basis to ensure that it remains appropriate within the
market and for the achievement of its objectives. Within the
scope of the policy, which is approved by the Board, the
Committee determines the level of remuneration paid to each
of the executive directors.
Mike Pemberton, the Group Human Resources Director, has
provided material assistance to the Committee during the year
advising on market trends, practices and appropriate levels of
remuneration. He has been supported by Ernst & Young LLP who
have advised on remuneration benefits generally, including salary
levels, bonus and incentive arrangements. Deloitte & Touche advise
on the calculation of total shareholder return for the purposes of
the long-term incentive plans. In addition, the Committee has
taken into account the views of Pehr Gyllenhammar, Chairman,
and Richard Harvey, Group Chief Executive, on performance
assessment. Ernst & Young LLP is the Company’s auditor and has
provided other audit and assurance services to the Group as
disclosed in note 13 on page 64. Deloitte & Touche provide no
other material services to the Group.
On a regular basis, the Committee commissions its own
independent review of the remuneration policy and the packages
paid, to ensure that the policy reflects good practice and that
the packages remain competitive and in line with the market.
New Bridge Street Consultants, who provide no other services to
the Group, were appointed by the Committee to undertake such a
review during the year.
The Committee also exercises discretion on behalf of the Board in
relation to the operation of the Group’s various share schemes and
incentive plans.
The Board determines the level of fees paid to the Company’s
non-executive directors following a recommendation from the
executive directors.
In line with best practice, and in anticipation of regulations which
are now in place, the Company put its remuneration report to a
vote at last year’s Annual General Meeting.
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 individual and collective contributions to the
Company’s performance.
Against this broad policy, 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.
The Committee’s philosophy is that senior executives’ own interests
should be aligned with those of the Company’s shareholders.
It therefore believes that, whilst paying a competitive basic salary,
the majority of the total remuneration package should be closely
linked to the performance of the business and delivered in the
form of shares. The policy seeks to provide an appropriate balance
between the delivery of the annual business plan and the long-
term profitable growth of the Company.
During the year, New Bridge Street Consultants were appointed
to review and advise on the current remuneration policy and
packages which were introduced in 2000 upon the merger of CGU
and Norwich Union. New Bridge Street Consultants’ report, which
was considered by the Committee in July 2002, confirmed that
overall the Company’s remuneration policy and levels of
remuneration were broadly in line with market practice for
companies of similar size. Two areas in relation to the long-term
incentive plans, where the Company’s approach differed from that
recommended by institutional investors, were noted and these are
commented upon below. A number of minor matters which were
suggested were considered and will be adopted.
No material changes have been made to the remuneration policy
during the year and none are planned for the current year.
However, the Committee will continue to review and develop the
policy to reflect market conditions and changes in best practice.
Remuneration package
The remuneration package for the Company’s senior executives
comprises the following elements:
• a basic salary;
• an annual bonus plan – to encourage executives to meet annual
targets relating to business and personal performance;
• a deferred bonus plan – linked to the annual bonus plan to
encourage executives to take all of their bonus in the form of
shares and retain them for a period of three years;
• a long-term incentive plan – to align executives’ longer-term
interests with those of shareholders;
• a non-contributory defined benefit pension entitlement and
other benefits.
The balance of these elements is such that, for directors achieving
“Target” performance, basic salary represents approximately 40%
of the remuneration package, with the annual bonus/deferred
bonus plan representing 35% and the long-term incentive plan
25%. At “Stretch” performance, basic pay represents
approximately 28% of the remuneration package, with the
annual bonus/deferred bonus plan representing 36% and the long-
term incentive plan also representing about 36%. “Stretch”
performance would represent the achievement of business results
significantly better than the business plan target.
Directors’ remuneration report
35 Aviva plc
Annual report + accounts 2002