Aviva 2007 Annual Report Download - page 99
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Please find page 99 of the 2007 Aviva annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.Aviva plc
Annual Report and
Accounts 2007
95
Governance
Remuneration policy
Alignment with Group Strategy
The Committee considers alignment between Group Strategy and the remuneration of its senior executives to be critical.
It believes that senior executives should be highly rewarded (on a market competitive basis) for the delivery of stretching
goals but also should receive reduced rewards when the business performs poorly. To achieve this alignment Aviva’s
remuneration package is leveraged, with a high percentage of pay “at risk” against the achievement of stretching goals.
Furthermore two-thirds of any bonus and any LTIP grant are delivered in the form of Aviva shares. The requirement to
defer bonus and participation in the LTIP closely ties the long term value of executive remuneration to Aviva’s share price
performance.
Executives thus have high exposure to the same benefits and drawbacks of share price movement as other shareholders.
The belief that our Executives should be shareholders is reinforced through formal guidelines requiring executive directors
to build up and retain a significant holding of Aviva shares.
The Group’s strategic priorities and targets are set out elsewhere in this report. Those priorities are reflected closely in our
remuneration package:
– Basic Salary: Delivering our business plans requires talented senior executives focused on business performance.
Overall remuneration is heavily influenced by basic salary. Internal and external equity in basic salary positioning is an
important contributor to a motivational remuneration package and hence to delivering our business plan. A range of
market data is used to inform decision making taking into account our policy with regard to the FTSE 30 and FTSE 50
data. We wish to win, keep and focus talented individuals on delivering sustained group performance.
– Bonuses: Bonus structures are effective only if they drive, through the targets chosen, sustained profitable growth
for shareholders. In choosing targets careful thought also needs to be given to the unhelpful behaviours they might
inadvertently promote. These considerations are regularly debated by the Committee. Management is asked to explain
and justify the targets recommended for adoption. The Committee must assure itself that the final targets are, firstly,
the correct ones to provide incentives and, secondly, are set at an appropriately challenging level. This debate has
resulted in significant developments in Aviva’s target setting in recent years. In brief, the moves have been towards
a smaller number of financial targets, with emphasis given through gearing to operating profit and new business
contribution – two measures of particular relevance to a large life insurance business. The emphasis in 2007 has been
to reduce and focus the number of financial measures further for 2008. These financial targets sit alongside targets
on customer advocacy and employee engagement introduced in 2005 that the Committee believes are critical to
long-term organisational health. The personal objectives of executive directors and executive committee members are
also reviewed by the Committee to ensure they adequately reflect the strategic aims of the Group, good governance
and best practice.
– The LTIP encourages a longer-term management focus on Return on Capital Employed (ROCE) and relative TSR. These
metrics measure how the Company is performing in both relative and absolute terms. It also ensures direct line of sight
for executives between, on the one hand, the actual experience of shareholders investing in the insurance sector and
Aviva in particular and, on the other, their own financial interests and wealth creation opportunities.
The Committee considers all these elements, plus pension and other benefits, as a whole. They look to ensure that an
appropriate balance is maintained between them so that the need for both short-term success and long-term sustainable
growth is recognised. The Committee also ensures that the non-financial business measures and individual objectives
reflect adequately Aviva’s environmental, social and governance responsibilities and send the right messages to
management about the positive behaviours required to meet those responsibilities.
Constituent elements of reward as a percentage of total remuneration
The bar charts below show how the Group’s remuneration policy translates in practice into the Chief Executive’s
remuneration package. They show outcomes at both “target” and “stretch” levels of performance.
0% 50% 100%
Salary
21%
Bonus
32%
LTIP
37%
ACAP
10%
ACAP
18%
Total remuneration elements
0% 50% 100%
Fixed cash
31%
Shares
58%
Variable cash
11%
Remuneration split between cash and shares
0% 50% 100%
Salary
36%
Bonus
27%
LTIP
19%
0% 50% 100%
Fixed cash
54%
Shares
37%
Stretch Stretch
Target Target
Variable cash
9%