Unilever 2003 Annual Report Download - page 60

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Unilever Annual Report & Accounts and Form 20-F 2003 57
Remuneration report – policy
Further details are shown in the TSR Long-Term Incentive Plan
table on page 63.
Unilever’s TSR results are measured over a three-year performance
cycle and compared with those of a defined peer group, currently
comprising:
Altria Group Kao
Avon Lion
Beiersdorf L’Oréal
Cadbury Schweppes Nestlé
Clorox Orkla
Coca-Cola Pepsico
Colgate Procter & Gamble
Danone Reckitt Benckiser
Gillette Sara Lee
Heinz Shiseido
The number of shares that vest depends on Unilever’s three-year
TSR performance when ranked against the TSR performance of
each of the peer group companies over the same period in
accordance with the following table:
Vested award
(% of original conditional
TSR peer group ranking award that will vest)
12th to 21st 0%
10th or 11th 25%
8th or 9th 50%
5th to 7th 100%
3rd or 4th 150%
1st or 2nd 200%
No award will vest unless Unilever is ranked in the top eleven of
the peer group. Between 150% and 200% of an award will only
vest if Unilever achieves a top-four ranking. The ultimate pay-out
can only be determined once the TSR ranking over the three-year
performance period is known.
Using the TSR peer group ranking as a performance indicator
demonstrates a clear link between the reward provided to
Directors, and the investment growth enjoyed by our shareholders
(in comparison with that enjoyed by investors in the defined peer
group of companies).
Share options
Directors may participate in the following share option plans.
• Executive Option Plans
• All-Employee Share Plans
Executive Option Plans
Under the Executive Option Plans, Directors are granted options
over shares in NV and PLC. The Committee has established an
annual benchmark for each Director's grant level. This is known
as the ‘normal allocation’ (see below):
Normal allocation
NV shares PLC shares
Chairmen 12 000 80 000
US-based Director 12 000 80 000
European-based Directors 7 500 50 000
The annual grants will only be made if the following performance
conditions are met:
• Firstly, the earnings per share (BEIA) over the preceding three
financial years must have cumulatively risen by at least 6%
more than the rate of inflation (within the UK and the
eurozone) when measured at current rates of exchange.
• Secondly (and subject to the first condition being met), the
actual grant (a percentage of the ‘normal allocation’) is
determined by reference to the growth in earnings per share
(BEIA) at current rates of exchange for the preceding financial
year, as shown below:
EPS (BEIA) growth over inflation Actual grant
(achieved in preceding (as percentage of
financial year) ‘normal allocation’)
Inflation + less than 4% 0%
Inflation + 4% 50%
Inflation + 5% 75%
Inflation + 6% 100%
Inflation + 7% 125%
Inflation + 8% 150%
The earnings per share (BEIA) growth at current rates of exchange
in 2002 exceeded inflation by more than 8%. This means that the
actual level of grant made in 2003 was 150% of the ‘normal
allocation’.
The Committee regards earnings per share (BEIA) growth at
current rates of exchange as an appropriate measure of the
Group's underlying financial performance. The Committee’s view
is that less than 4% growth after inflation is below standard and,
at that level, no grant should be made. Real EPS (BEIA) growth
above 6%, however, represents above-target performance.
Following grant, the options are not subject to any further
performance conditions on exercise. The Executive Option Plans
extend to Unilever executives throughout the world and in many
countries it is not common practice to have performance
conditions on the exercise of options. The Committee therefore
takes the view that the underlying financial performance of the
Group, which in turn affects the growth in share price between
grant and exercise of an option, is sufficient.