Aviva 2002 Annual Report Download - page 51

conditions being retested. From a benchmarking exercise
undertaken on its behalf, the Committee is aware that the
Company’s performance conditions are very demanding compared
with such plans generally. The Committee believes that it is
important to strike a balance between setting challenging
performance conditions and retaining the motivational incentive
which is the fundamental purpose of the plan. After careful
consideration, it believes that this is best achieved by retaining
the demanding conditions but allowing one retest at the end
of five years. No retesting takes place if any part of the
performance condition has been met at the end of the three
year performance period.
Whether or not the performance conditions have been met is
determined by the Committee. The rules of the plans require the
Committee to request an independent consultant to determine the
relevant TSR positions. In respect of the ROCE calculation, the
Committee requests that the Group’s auditor expresses a view on
the basis of the calculation used.
The following graph compares the TSR performance of the
Company with the TSR of the FTSE100 index. The period covered
is the three years since the beginning of 2000, the year in which
CGU and Norwich Union merged to form Aviva. The graph also
includes the median TSR of the companies in the comparator
group. This graph is included as it is the group with which
performance is measured for the purposes of the long-term
incentive plan. In addition to insurers, there are a number of
European banks in the comparator group. Aviva has outperformed
the insurers over each of the three years, two years and one year
periods to December 2002, but has underperformed the whole
comparator group.
Shares are acquired in the market and are held in trust for use in
connection with these incentive plans.
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 Aviva (formerly CGNU)
Staff Pension Scheme.
Under the Scheme, executive directors have a normal retirement
age of 60 and accrue pensions 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 or 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 caps the amount of
pension that can be paid from a tax-approved scheme. Where this
limit applies, additional benefits are provided from the unfunded
arrangement. Mike Biggs, Richard Harvey and Philip Twyman are
affected by this limit and therefore will, at retirement, receive some
of their pension benefits from the unfunded 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.
The Company operates a number of Inland Revenue approved all-
employee share plans in the UK. Senior executives are entitled to
participate in these plans on the same basis as other eligible
employees. These include the Free Share element of the Aviva
All-Employee Share Ownership Plan (AESOP). Under this plan,
eligible employees can receive up to a maximum of £3,000 pa in
the form of shares from the profits of the Company, free of tax,
subject to a retention period. The Partnership element of the
AESOP allows participants to invest up to £125 per month out of
their gross salary in the Company’s shares.
The Aviva 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.
Service contracts
Service contracts agreed with each executive director incorporate
their terms and conditions of employment.
Philip Twyman and Tony Wyand are both approaching their
retirement dates when their service contracts will terminate.
Accordingly, Mr Wyand’s contract will terminate in November 2003
and Mr Twyman’s in April 2004. In line with the Company’s policy,
the other executive directors have rolling service contracts which
came into effect on 1 June 2000 and which can be terminated by
the Company giving 12 months notice and by the director giving
six months notice.
In respect of the early termination of a service contract, the
Company would, depending upon the circumstances, either seek
to make a payment in respect of damages less an amount for
appropriate mitigation, or would invoke a provision in the service
contract allowing it to terminate the contract by making a
payment of one year’s basic salary in lieu of notice.
Under the Company’s discretionary redundancy arrangements,
which apply to UK based employees, an executive director may,
depending on his length of service, receive an ex-gratia payment
of up to one year’s basic salary should he leave employment on
the grounds of redundancy. No special arrangements would apply
should there be a change in the control of the Company.
The Company is currently reviewing its policies against the
statement on best practice on executive contracts and severance
recently issued by the Association of British Insurers.
The non-executive directors, including the Chairman, have letters
of appointment which set out their duties and responsibilities.
Such appointments are for three years and may be renewed by
mutual consent. The Company may terminate these appointments
at any time without the payment of compensation.
37 Aviva plc
Annual report + accounts 2002
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Three year total shareholder return comparison
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1999
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Dec
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2002
Aviva
Comparator Group Median
FTSE 100 Return Index
Index