Unilever 2004 Annual Report Download - page 77

Remuneration report
Policy (continued)
74 Unilever Annual Report and Accounts 2004
Share options
Executive Directors may participate in the following share option
plans.
• Executive Option Plans
• All-Employee Share Plans
Executive Option Plans
The Remuneration Committee has proposed that this component
of the remuneration package be replaced in 2005 by a new
Global Performance Share Plan. Full details of this new Plan are
contained in the Notices to Shareholders regarding the 2005
AGMs. If the proposal is approved by shareholders no further
grants will be made to Executive Directors under the existing
Executive Share Option Plans (apart from the final grants of
premium options to be made in 2005). Instead, grants will
be made under the new Global Performance Share Plan from
2005 onwards.
For the sake of completeness the following section gives full
details of the existing Executive Share Option Plans.
Under these Plans, Executive Directors are granted options over
shares in NV and PLC. The Committee has established an annual
benchmark for each Executive Director’s grant level. This is known
as the ‘normal allocation’ (see below):
Normal allocation
NV options PLC options
Chairmen 12 000 80 000
US-based Executive Director 12 000 80 000
European-based Executive 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%
As part of the Path to Growth strategy, the Committee regarded
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 was that less than 4%
growth after inflation was below standard and, at that level, no
grant should be made. Real EPS BEIA growth above 6%,
however, represented 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.
The minimum price payable for each share, on the exercise of the
options, is not less than the market price of the shares as at the
date of grant. Normally, an option granted under the Executive
Plans may not be exercised earlier than three years from the date
of grant. It cannot be exercised any later than ten years from the
date of grant.
Premium options
For options granted between 1997 and 2000, rights to further
options (known as ‘premium options’) arise five years after the
date of the original option grant. These premium options amount
to 20% of the original number of options granted provided that:
• During the relevant five-year period, options under the normal
annual arrangements have been granted to the Executive
Directors in question; and
• The Executive Director has not exercised the ‘original’ options
granted five years previously or, if he has, he retains all ‘profit’
of the exercise in the form of shares.
This incentive of premium options was discontinued in 2001, as
part of the changes in the remuneration package of the Executive
Directors, approved by shareholders at that time. No further rights
to premium options arise on grants made under the NV and PLC
plans from 2001 onwards.
All-Employee Share Plans
Executive Directors are able to participate in the UK Employee
ShareSave Plan, the UK Share Incentive Plan (‘ShareBuy’) and the
Netherlands Employee Option Plan. The US-based Executive
Director is able to participate in the North American Employee
Stock Purchase Plan. These arrangements are known as ‘All-
Employee’ plans.
Details of all the plans are shown in note 30 on pages 138
to 147.
Executive Directors’ pensions
Executive Directors are provided with a defined benefit final salary
pension, which is consistent with the pension provision for all
Unilever Netherlands and UK employees. This arrangement
provides Executive Directors with a pension from NV or PLC (as
appropriate) of a maximum of two-thirds of final pensionable pay
if they retire at age 60 or later, after deduction of pensions from
other sources.
Final pensionable pay includes the average annual performance
bonuses paid in the last three years, up to a maximum of 20%
of base pay. This is similar to the current Group practice for long-
serving senior executives. The Committee, however, has recently
reviewed this arrangement and has decided to abandon the
pensionability of bonuses for new Executive Directors.
The table on page 83 gives details of the Executive Directors’
pension values.