Unilever 2000 Annual Report Download - page 43

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Unilever Annual Report & Accounts and Form 20-F 2000 Report of the Directors
Remuneration report
Service contracts
NV and PLC’s Articles of Association require that at every
Annual General M eeting all the directors shall retire from
office. All directors’ contracts of service with the Unilever
Group are generally terminated no later than the end of the
month in which the Annual General M eeting closest to the
director’s 62nd birthday occurs.
Contracts are currently terminable by the employer at not
less than tw o years’ notice. The Remuneration Committee
believes that the current service contracts are not out of line
with the arrangements of many peer group companies but
has noted the recommendation in the Code in favour of
one-year contracts. The Committee continues to have
regard to best practice in both the Netherlands and the
United Kingdom and keeps developments in both countries
under regular review. Accordingly, the Committee has
recommended that, as part of the changes of remuneration
arrangements being proposed for implementation in 2001, it
would be appropriate to make the directors’ service contracts
terminable by one year’s notice with effect from 2001.
The compensation payable to a director upon the
termination of his service contract will be calculated in
accordance with the law applicable. The directors have
service contracts w ith both NV and PLC. The Remuneration
Committee’s aim is always to deal fairly w ith cases of
termination whilst taking a robust line in minimising any
such compensation. The Remuneration Committee has
given due consideration to the recommendations contained
in the Code regarding the merits of providing explicitly
in the directors’ contracts of service provisions relating
to compensation commitments in the event of early
termination. The Committee will continue to keep
its current practice under review.
In 2000 five directors served for only part of the year. In
1999 three directors served for only part of the year.
Share options
Unilever introduced share options for directors and other
senior managers during 1985 in the United Kingdom and
the Netherlands and during 1992 for North America. Types
of share options for employees generally were introduced
during 1985 in the United Kingdom, 1995 in the
Netherlands and North America, and 2000 in Germany
and France.
Directors are generally entitled to share options on the same
basis as other employees. They participate in the UK
Employee Sharesave Plan and the Netherlands Employee
Option Plan, w hich are all-employee plans, and in the
International Plan, as described in note 34 on pages
79 to 89.
Grants of share options to directors and other senior
executives in 2000 w ere made under the International 1997
Executive Share Option Scheme (the ‘International Plan’).
Under the International Plan, w hich was established in 1997
after taking into account the guidelines and views of
institutional investor committees, 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, as described in Note 34 on pages 79 to 89.
The Boards have established benchmark grant levels (the
‘normal allocation’) to assist in determining actual grant
levels under the International Plan. In accordance with the
undertaking made at the time the International Plan w as
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, w hich is decided by the Boards, who are
advised by the Remuneration Committee, is dependent on
certain performance criteria, group and individual, w hich 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 2000 w as that the Group’s earnings
per share, adjusted to exclude certain exceptional items and
one-off events, 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 w ould 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 adjusted earnings
per share over the financial year preceding the date of grant.
The level of grant w ould vary according to the amount of
the percentage rise. The Remuneration Committee decided
that for 2000 the targets and levels of grant would be:
Level of grant as percentage
Adjusted EPS grow th achieved in 1999 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 adjusted EPS growth for 1999 was inflation +6% which
produced a 100% level of grant for 2000.
The normal allocations in 2000 to which the percentages above
would be applied w ere:
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 Plan may not be
exercised earlier than three years after the date of grant.