ING Direct 2009 Annual Report Download - page 79

The primary objective of the remuneration structure is to enable
ING to retain and recruit qualified and expert leaders who have a
drive for excellence in serving the interests of the company’s various
stakeholders. ING endeavours to match compensation of the
company’s leadership appropriately against a variety of factors,
such as the complexity of functions, the scope of responsibilities,
the alignment of risks and rewards, and the long-term objectives of
the company and its stakeholders, which is all the more important
given the changing international standards regarding responsible
remuneration. These factors differ for each role, line of business
and country. This is especially the case for ING with its operations in
over 40 countries and 107,000 employees of which around 80,000
are based outside the Netherlands (60% of senior management is
non-Dutch). As much as possible for a global financial institution of
this size, ING aims to take account of all these differences and also
of the standards applied within similar financial institutions in the
various countries in which it operates.
PROPOSED NEW REMUNERATION POLICY FOR THE
EXECUTIVE BOARD
The remuneration of the Executive Board will consist of a
combination of fixed compensation (base salary) and variable
compensation (together ‘total direct compensation’), pension
arrangements and benefits as described below.
Total direct compensation: moderation and reduced
emphasis on variable remuneration
Total direct compensation levels will be based on market data that
include peers both inside and outside the financial sector in the
international context in which ING operates. Total direct
compensation will be benchmarked against a peer group of
companies that, in the opinion of the Supervisory Board, are
comparable with ING in terms of size and scope. In line with the
foregoing, the Supervisory Board has determined that the peer
group consists of the companies in the Dow Jones EURO STOXX 50
index. These are 50 companies, in a range of financial and non-
financial industries, that are based in countries within the economic
and monetary union of the European Union. In accordance with
the Dutch Banking Code, ING’s new remuneration policy for the
Executive Board now aims for total direct compensation levels at
slightly-below market median levels for comparable positions in
the relevant markets.
In addition, the new remuneration policy provides for a more
balanced mix between fixed and variable compensation. Variable
compensation will not exceed 100% of fixed salary at the time of
allocation. Fixed compensation (i.e. the base salary levels) will be
determined in line with the relevant market environment as an
integral part of total direct compensation, and will be reviewed
from time to time by the Supervisory Board. The new policy
provides for an at target variable compensation of 40% in cash
and 40% in stock (in total 80%) of base salary if performance
criteria are met. If performance criteria (as pre-determined by the
Supervisory Board) are exceeded, the variable component can be
increased from target to maximum, not exceeding 100% of base
salary at the time of allocation.
Increased emphasis on long-term value creation
The new remuneration policy for the Executive Board simplifies
the variable compensation element by combining the short and
long-term variable components into one structure. This structure
intends to support both long-term value creation and short-term
company objectives. The emphasis on long-term performance
indicators within the variable component of the compensation
package will be increased by means of deferral, a reasonableness
test and claw-back mechanisms.
The allocation of variable compensation will be conditional on the
achievement of a number of performance objectives. The short-
term component, at maximum 50% of total variable compensation,
is paid in cash the year following the performance year. The other
50% of the total variable compensation will be deferred. This
long-term component is allocated in stock in order to ensure
alignment of the Executive Board’s interests with the interests of
shareholders. It also intends to serve the objective of retaining the
members of the Executive Board for a longer period of time. The
value of the stock award will be determined such that total variable
compensation at the time of grant stays within the 100% limit.
The stock awards will vest on the third anniversary of the grant
date, subject to a reasonableness test by the Supervisory Board to
determine whether application of the predetermined criteria results
in undesired outcomes. Adjustments to the number of shares will
only be considered in extraordinary circumstances. Executive Board
members are not allowed to sell depositary receipts obtained
within a period of five years from the grant date. However, they
are allowed to sell part of their depositary receipts at the date of
vesting to pay tax over the vested share award.
Increased focus on risk and non-financial performance
Variable compensation will increasingly be linked to risk and
non-financial performance and will take into consideration both
individual and company performance criteria. Performance
measurement will increasingly account for estimated risks and
costs of capital. In addition to financial indicators, performance
will also be assessed based on non-financial drivers, by means
of a number of targets regarding economic, environmental,
customer satisfaction and social criteria.
Pensions Executive Board members
As part of the new remuneration policy for Executive Board
members two new pension plans will be offered: a new plan similar
to the plan applicable to staff covered under the Dutch Collective
Labour Agreement (N.B. this plan will only be introduced following
a positive outcome of the pension study, which is currently taking
place) and a new individual defined contribution plan. Both these
pension plans provide for a lower contribution by ING than the
existing Executive Board pension plan.
Any person who will be appointed as a member of the Executive
Board of ING after 1 January 2010 and who is working on a Dutch
employment contract, will be given the choice to participate in
one of the two new pension plans. Individual board members
participating in the existing pension plan will be given the choice
to keep their existing pension arrangement. The existing pension
arrangement, approved by the 2006 General Meeting, is based on
a defined contribution plan. Alternatively, they can also switch to
one of the two new arrangements.
Members of the Executive Board will be required to pay a
contribution to their pension premium in line with the contributions
under ING’s Collective Labour Agreement in the Netherlands.
Members of the Executive Board working on a non-Dutch
employment contract, will be offered pensions in line with
local practices.
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