Unilever 1999 Annual Report Download - page 36

Unilever Group Directors’ remuneration and interests
Report to the shareholders (continued)
Directors’ interests: share options
Directors are generally entitled to share options on the same basis as other employees. They participate in the NV Employee Share Option
Scheme and the PLC 1985 Sharesave Scheme, which are all-employee schemes, and in the International 1997 Executive Share Option
Scheme.
The NV Employee Share Option Scheme was introduced in 1995 and is open to all employees in the Netherlands. The PLC 1985
Sharesave Scheme is open to all employees who work a minimum number of hours in the United Kingdom. The North American
Employee Stock Purchase Plan was also introduced in 1995 and is open to all employees in the United States and Canada.
Grants of share options to directors and other senior executives in 1999 were made under the International 1997 Executive Share Option
Scheme (the ‘International Scheme’) which was established after taking into account the guidelines and views of institutional investor
committees. The International Scheme comprises the NV Executive Share Option Scheme, the Unilever PLC International 1997 Executive
Share Option Scheme, the Unilever PLC 1985 Executive Share Option Scheme and the North American Executive Stock Option Plan. The
Boards granted options to acquire a number of ordinary shares in NV and a number of ordinary shares in PLC of approximately
equal market value.
The Boards have established benchmark grant levels (the ‘normal allocation’) to assist in determining actual grant levels under the
International Scheme. In accordance with the undertaking made at the time the International Scheme was introduced, the Remuneration
Committee has reviewed these normal allocations and has determined that they continue to be in line with those awarded by companies
in Unilever’s peer group. The actual level of grant made to each individual, which is decided by the Boards, who are advised by the
Remuneration Committee, is dependent on certain performance criteria, group and individual, which are set annually by the Boards and
the Remuneration Committee. These criteria must be satisfied before an individual can be granted an option.
The Group criterion for 1999 was that the Group’s earnings per share over the three financial years preceding the date of grant
of any option should have cumulatively risen by at least 6% more than the rate of inflation. If it had not, no grants would have
been made.
Once the Group criterion had been met, each individual’s option grant varied according to the percentage increase, above the rate of
inflation, of the Group’s earnings per share over the financial year preceding the date of grant. The level of grant would vary according to
the amount of the percentage rise. The Remuneration Committee decided that for 1999 the targets and levels of grant would be:
EPS achieved Level of grant as percentage
in prior year of normal allocation
Inflation + less than 4% 0%
Inflation +4% 50%
Inflation +5% 75%
Inflation +6% 100%
Inflation +7% 125%
Inflation +8% or more 150%
The normal allocations in 1999 to which the percentages above would be applied were:
NV shares PLC shares
Chairmen 12 000 80 000
Other directors 6 000 - 7 500 40 000 - 50 000
The price payable for each ordinary share under an option is not less than the closing price on the Stock Exchange Daily Official List on
the date of grant. In normal circumstances, an option granted under the International Scheme may not be exercised earlier than three
years after the date of grant.
Participants are further incentivised by the grant of ‘premium options’. These are options granted to reward commitment and good
performance over a five year period. The first premium options will be granted in 2002. To qualify for the grant of a premium option, the
Group must have performed well over the preceding five years and each individual must not have realised free cash from the exercise of
options granted in the previous five years and must have received on average at least 100% of his normal allocation over the preceding
five years. Premium options will be granted over 20% of the number of shares subject to the individual’s initial grant of options under the
scheme.
Prior to 1997, options under the NV and PLC Executive Share Option Schemes were only granted if the Remuneration Committee was
satisfied that there had been a sufficient improvement in the performance of the Group over the two to three years preceding the grant.
The grant of options was discretionary. It was dependent on the Chairmen being satisfied that the grant was merited by the individual in
the light of personal performance and potential for future contribution to the business. For the Boards, the Remuneration Committee had
to be so satisfied. Options were phased in evenly over a three year period. The maximum number of options depended on seniority. The
maximum aggregate value of the exercise prices of options that could be held at any one time was four times appropriate salary.
36 Unilever Annual Accounts 1999