Unilever 2004 Annual Report Download - page 76

Unilever Annual Report and Accounts 2004 73
Remuneration report
Policy (continued)
Annual performance bonus
The annual performance bonus aims to focus the Executive
Directors on the business priorities for the coming financial year,
in accordance with Unilever’s annual plan. Currently the bonus
can range between 0% and 100% of base salary. However,
the maximum level is payable only in the case of exceptional
performance.
To receive a bonus Executive Directors must achieve demanding
corporate and personal targets set by the Committee at the
beginning of each year.
The corporate targets for 2004 are described in more detail on
page 75 and were a combination of the increase in earnings per
share BEIA and the growth in sales of the leading brands. These
targets, which were linked to the Path to Growth strategy, are
currently being reviewed by the Committee and it is proposed
that they will be replaced in 2005 with new targets aligned to the
business plans leading up to 2010.
At the end of each financial year, the Committee measures the
results against the targets set.
The bonus is then calculated and is payable in March following
the end of the financial year in question. Part of the bonus (25%)
is delivered to the Executive Directors in the form of shares in NV
and PLC. The Executive Directors are then awarded, on a
conditional basis, an equivalent number of ‘matching shares’.
These latter shares form part of the long-term incentive
arrangements described below.
Long-term incentive arrangements
The long-term incentive arrangements for Executive Directors
consist of three main elements:
• Share Matching Plan (linked to the annual bonus)
• TSR Long-Term Incentive Plan
• Share options, which includes:
• Executive Option Plans
• All-Employee Share Plans
Share Matching Plan (linked to the annual bonus)
As noted above, the Executive Directors receive 25% of the
annual bonus in the form of NV and PLC shares, known as bonus
shares. The company then awards an equivalent number of
matching shares, which will vest three years after the award
provided that:
• The original number of bonus shares has been retained for that
three-year period; and
• The Executive Director has not resigned or been dismissed.
The three-year vesting period for the matching shares is in line
with international practice and the Committee considers that it is
an important retention tool for key executives. Furthermore the
necessity to hold the bonus shares for a minimum period of three
years supports, as far as possible, the shareholding requirements
set out on page 72 and ensures that the interests of Executive
Directors are aligned with those of other shareholders.
The Committee considers that there is no need for further
performance conditions on the vesting of the matching shares
because the number of shares is directly linked to the annual
bonus (which is itself subject to demanding performance
conditions). Moreover, during the three-year vesting period the
share price of NV and PLC will be influenced by the performance
of the companies which, in turn, will affect the ultimate value of
the matching shares on vesting.
TSR Long-Term Incentive Plan
Under this plan conditional rights over shares in NV and PLC are
awarded annually to Executive Directors.
The current level of conditional annual awards is as follows:
• Chairmen: Shares in NV and PLC to the combined value
of €800 000;
• European-based Executive Directors: Shares in NV and PLC to
the combined value of €500 000; and
• US-based Executive Director: Shares in NV and PLC to the
combined value of €400 000.
The conditional awards vest three years after date of grant but
the number of shares to vest is dependent on Unilever’s Total
Shareholder Return (TSR) when compared with the TSR results of
a defined peer group of 20 comparator companies over a three-
year performance cycle. No shares will vest if Unilever is ranked at
less than position 11 of the TSR ranking table over the three-year
period. Between 25% and 200% will vest if Unilever is ranked in
the top half of the table as shown below:
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%
The current peer group of comparator companies is as follows:
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
Using the TSR peer group ranking as a performance indicator
demonstrates a clear link between the reward provided to
Executive Directors, and the investment growth enjoyed by our
shareholders (in comparison with that enjoyed by investors in the
defined peer group of companies).