ING Direct 2008 Annual Report Download - page 76

ING Group Annual Report 2008
1.3 Our Governance
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cash. The ‘at target’ bonus opportunity is expressed as a
percentage of base salary. The target levels are based on
benchmarks reflecting external market competitiveness as well as
internal objectives. Three financial parameters were used in the
2008 STIP for the members of the Executive Board and top senior
management across the organisation (the top 200 executives) to
measure performance at Group level. These financial parameters
are: underlying net profit per share, underlying operating expenses
and economic profit/embedded value profit (excluding financial
variances). The quantitative elements of the targets are considered
stock price sensitive and competition sensitive; accordingly these
are not disclosed.
We believe that by combining a profit, a cost and a return
parameter, the overall performance of ING is properly reflected.
Each element is weighted equally to determine the final award.
The three performance targets are set by the Supervisory Board at
the beginning of the performance period. Under the short-term
incentive plan, the actual payout in any year may vary between 0%
and 200% of the target level.
In addition to the financial targets, part of the short-term
incentive award is based on individual performance, assessed over
predefined measurable targets set for each senior executive. These
targets depend on the specific responsibilities of the individual
Executive Board members and are determined and assessed by the
Supervisory Board. The Executive Board sets the targets for senior
management. For this layer, directly reporting to the Executive
Board, the emphasis is on individual performance in their primary
business-related responsibility.
Short-term incentive: relative weight of Group
and individual performance
Group performance Individual performance
Executive Board 70% of total bonus 30% of total bonus
Top senior management
in business 15% of total bonus 85% of total bonus
Top senior management
in Group staff 30% of total bonus 70% of total bonus
Long-term incentive plan
The long-term incentive plan (LTIP) at ING includes both stock
options and performance shares. LTIP awards are granted to
ensure alignment of senior management with the interests of
shareholders, and to retain top management over a longer period
of time. The LTIP awards will be granted with a total ‘fair value’
split between stock options and performance shares. The LTI
plan was tabled and approved during the General Meeting on
27 April 2004.
The ING stock options have a total term of ten years and a vesting
period of three years after which they can be exercised for the
remaining seven years. After three years, the options will vest
only if the option holder is still employed by ING. The exercise
price of the stock options is equal to the Euronext Amsterdam
by NYSE Euronext market price of the ING depositary receipts
on the grant date. For members of the Executive Board the grant
date is a specific date during the first ‘open period’ after the
General Meeting.
Performance shares are conditionally granted. The number of ING
depositary receipts that is ultimately granted at the end of a
three-year performance period depends on ING’s Total Shareholder
Return (TSR) performance over three years (return in the form of
capital gains and reinvested dividends that shareholders receive
in that period) relative to the TSR performance of a predefined
peer group. The criteria used to determine the performance peer
group are: a) considered comparable and relevant by the
Supervisory Board; b) representing ING’s current portfolio of
businesses (e.g. banking, insurance and asset management) and
ING’s geographical spread; c) global players; and d) listed and with
a substantial free float.
On the basis of these criteria the performance peer group
established in 2004 and adjusted in 2007 is composed as follows:
Citigroup, Fortis, Lloyds TSB (bank/insurance companies);•
Unicredito Italiano, Bank of America, BNP Paribas, Banco •
Santander, Credit Suisse, Deutsche Bank, HSBC (banks);
Aegon, AIG, Allianz, Aviva, AXA, Prudential UK, Hartford •
Financial Services, Munich Re (insurance companies); and
Invesco (asset manager).•
ING’s TSR ranking within this group of companies determines the
final number of performance shares that vest at the end of the
three-year performance period. The initial number of performance
shares granted is based on a mid-position ranking of ING. This
initial grant will increase or decrease (on a linear basis) on the basis
of ING’s TSR position after the three-year performance period as
specified in the table below.
Number of shares awarded after each three-year performance
period related to peer group
ING ranking Number of shares
1 – 3 200%
4 – 8 Between 200% and 100%
9 – 11 100%
12 – 17 Between 100% and 0%
18 – 20 0%
The Supervisory Board reviews the peer group before each
new three-year performance period. The Supervisory Board has
determined that for the 2009-2011 performance period Fortis
and AIG will be replaced by KBC N.V. and Manulife Financial
Corporation respectively. Considering the market turmoil, the
Supervisory Board will also continue to monitor the composition of
the peer group for existing performance cycles. Any replacement
of a company in the peer group will be based upon a thorough
replacement process using the above objective criteria to
determine the performance peer group.
The performance test itself will be carried out at the end of every
three-year performance period by an independent third party.
The Executive Board members are not allowed to sell depositary
receipts obtained either through the stock-option or the
performance shares plan within a period of five years from the
grant date. They are only allowed to sell part of their depositary
receipts at the date of vesting to pay tax over the vested
performance share award. Depositary receipts obtained from
exercised stock options may only be sold within a period of five
years from the grant date of the options to pay tax over the
exercised award.
Remuneration report (continued)