ING Direct 2008 Annual Report Download - page 77

ING Group Annual Report 2008
75
Remuneration levels
Every year a compensation benchmark analysis is performed based
upon a peer group of companies. This peer group, established in
2008, is a group of European financial services companies. The
peer group reflects ING’s business structure and environment. ING
competes with these companies for executive talent. The following
companies are part of this compensation peer group: Aegon,
Allianz, AXA, Banco Santander, Barclays, BNP Paribas, Credit
Suisse, Deutsche Bank, Fortis, HSBC, Royal Bank of Scotland,
Société Générale, Unicredito Italiano, and Zurich Financial Services.
In line with ING’s overall remuneration policy, the Supervisory
Board has focused on increasing variable (performance-driven) pay
components which has resulted in a gradual convergence of the
Executive Board total compensation to the median benchmark. The
mix of total target compensation (in case of at-target performance)
is divided equally between each component (i.e. 1/3rd base salary,
1/3rd short-term incentives, and 1/3rd long-term incentives).
Pensions Executive Board members
At the General Meeting on 25 April 2006, it was agreed to amend
the Executive Board remuneration policy with respect to pensions.
This revised pension plan applies to all members of the Executive
Board regardless of the time of appointment to the Executive
Board except for John Hele and Tom McInerney. The revised
pension plan does not apply to John Hele and Tom McInerney
as they participate in the US pension plans. The pensions of the
Executive Board are now based on a defined-contribution plan,
which are insured through a contract with Nationale-Nederlanden
Levensverzekering Maatschappij N.V. Starting in 2006, members of
the Executive Board have been required to pay a portion of their
pension premium. The Employment Contract will terminate by
operation of law in case of retirement (‘Standard Retirement’),
which will take place on the first day of the month that the
individual reaches the age of 65. The retirement age has been
changed from previous years (age 60) as a result of the Dutch
tax reform.
Employment contract for newly appointed Board members
The contract of employment for Executive Board members
appointed after 1 January 2004 provides for an appointment
for a period of four years (the appointment period) and allows
for reappointment by the General Meeting.
In the case of an involuntary exit, Executive Board members
would be entitled to an amount which has been set at a multiple
of their Executive Board member base salary, preserving their
existing rights. These rights in some cases could exceed the
exit-arrangement provision in the Dutch Corporate Governance
Code, i.e. no more than two times base salary (first appointment
period) or one-time base salary (all other situations). Under the
terms of the agreement reached with the Dutch State to
strengthen ING’s capital position, the exit arrangments have
been limited to one-year base salary.
The term of notice for Executive Board members is three months
for the employee and six months for the employer.
REMUNERATION EXECUTIVE BOARD 2008
Executive Board base salary 2008
The base salary of all Executive Board members with the exception
of Tom McInerney (who is employed on a US-based compensation
structure) was increased by 5% in 2008. Base salaries had been
frozen in 2004, 2005, 2006 and 2007.
Executive Board short-term incentive plan 2008
The target STI payout over 2008 was set at 100% of the individual
Executive Board member’s base salary. The final award is based on
the achievement of a set of common Group financial targets and
specific individual qualitative and quantitative objectives for each
Executive Board member. Specifically, 70% of the total award is
based on the Group’s underlying net profit per share, underlying
operating expenses and economic profit/embedded value profit
(excluding financial variances), while the remaining 30% is based
on individual objectives set at the beginning of the year by the
chairman of the Executive Board and approved by the Remuneration
and Nomination Committee of the Supervisory Board.
Under the terms of the agreement reached with the Dutch State
to trengthen ING’s capital position, the individual Executive Board
members will not receive their 2008 STI payout.
Executive Board long-term incentive plan 2008
Under the LTIP for the Executive Board, two instruments are used:
stock options and performance shares. As mentioned earlier, an
identical plan has been adopted by the Executive Board for the top
senior managers across ING. As a result, approximately 7,000
senior leaders participate in a similar plan.
The target level for the 2008 LTIP was set at 100% of base salary
for each Executive Board member. The final grant level depends on
the Group STIP performance and will vary between 50% of the
target level (if Group STI would be 0%) and 150% (if Group STI
would be 200%).
Under the terms of the agreement reached with the Dutch State
to strengthen ING’s capital position, the individual Executive Board
members will not receive their 2008 LTI grant.
Tom McInerney is entitled to receive a conditional share award on
the same grant date as the other long-term incentive awards. The
conditional share award would be 100% vested four years after
the grant date with the condition being an active employment
contract at the date of vesting. This award is part of Tom
McInerney’s employment contract to align his total remuneration
with the market practice of senior executives in the United States.
Tom McInerney will not receive his conditional share award to be
awarded in 2009 for the 2008 performance year.
The performance shares granted in 2006 had a three-year
performance period of 2006–2008 and will vest in 2009. The
actual results of 43% are based upon ING’s TSR ranking of 15
within the designated peer group. The results were determined by
an independent third party. ING’s external auditor has reviewed
the calculations performed. For members of the Executive Board
who received an award as an Executive Board member in 2006,
such award will vest in the final number of performance shares in
May 2009. For the other senior leaders who participated in the
2006–2008 performance share award, such award vested in
March 2009.