Unilever 2007 Annual Report Download - page 53

Unilever Annual Report and Accounts 2007 51
Report of the Directors continued
Report of the Remuneration Committee continued
Base salary
The Remuneration Committee reviews base salary levels annually,
taking into account external benchmarks within the context of
Group and individual performance.
The Committee decided not to increase the salaries in 2007 in
order to place more emphasis on performance related pay and
less on fixed pay.
Annual incentive
The annual incentive plan rewards Executive Directors for the
delivery of trading contribution (Unilever’s primary internal
measure of economic value added) and top-line growth targets,
as well as for their individual contribution to Unilever’s business
strategy.
In 2007 the Remuneration Committee reviewed annual incentive
levels in light of the strategic remuneration principles. Given the
desire to enhance the focus on performance-linked pay and to
ensure arrangements are market competitive, the Committee
decided to increase annual incentive opportunities. In 2007 the
opportunity for Executive Directors was increased to a maximum
of 150% of base salary and for the Group Chief Executive up to
200%. Up to 120% of salary will be based on Unilever’s business
results targets (133.3% for Group Chief Executive) and a
maximum of 30% of salary will be based on individual business
targets (66.7% for Group Chief Executive). The target levels are
around 60% of maximum. Aggressive business targets mean that
maximum levels are only payable for exceptional performance.
The performance criteria for the annual incentive are:
• trading contribution: Unilever’s primary internal measure of
economic value added. It is calculated from Trading Result after
a deduction for tax and a charge for asset use. (Trading result
is the internal management measure of profit that is the most
consistent with operating profit). Increases in trading
contribution reflect the combined impact of top-line growth,
margin improvement and capital efficiency gains. It is well
aligned with our objective of a progressive improvement in
return on invested capital and with shareholder value creation;
• underlying sales growth: focus on the organic growth of
Unilever’s turnover; and
• individual business and leadership targets: tailored to each
individual’s responsibilities to deliver certain business objectives
supporting the strategy. Individual contribution is assessed
against robustly set measures and targets to ensure both
objectivity and ‘stretch’.
Achievement of targets is measured at the end of the year and
the payment takes place the following March. 25% of the annual
incentive is delivered to the Executive Directors in the form of
shares in NV and PLC, which are matched by a conditional award
of ‘matching shares’, as further described under the section on
long-term incentives below.
Long-term incentives
At the 2007 AGM’s, shareholders approved the new Unilever
Global Share Incentive Plan (GSIP) for employees and Executive
Directors.
The new plan supports the Committee’s strategic remuneration
principles for executives. The number of shares vesting is linked to
improvements in Unilever’s performance over a three-year period.
The plan integrates and replaces two previous long-term plans,
the Global Performance Share Plan and TSR Long-Term Incentive
Plan, making Unilever’s long-term arrangements simpler and
easier to understand.
The long-term incentive for Executive Directors now consists
of two elements, both of which are delivered in shares:
• Global Share Incentive Plan; and
• Share Matching Plan (linked to annual incentive).
Executive Directors are required to demonstrate a significant
personal shareholding commitment to Unilever. Within five years
of appointment, they are expected to hold shares worth 150%
of their annual base salary. This reinforces the link between the
executives and other shareholders.
Global Share Incentive Plan (GSIP)
Under the GSIP, annual awards of shares in NV and PLC are
granted to Executive Directors. The actual number of shares
received at vesting after three years depends on the satisfaction
of performance conditions.
For the 2007 awards, the vesting of shares is conditional on the
achievement of three distinct performance conditions over the
performance period. The performance period is the three-year
period which began on 1 January 2007 and ends on
31 December 2009.
The vesting of 40% of the shares in the award is based on a
condition measuring Unilever’s relative total shareholder return
(TSR) against a comparator group of 20 other companies over
that three-year period. TSR measures the return received by a
shareholder, capturing both the increase in share price and the
value of dividend income (assuming dividends are reinvested). The
TSR results are compared on a single reference currency basis. No
shares (in the portion of the award subject to TSR) will vest if
Unilever is ranked below position 11 of the TSR ranking table over
the three-year period. 50% of the shares will vest if Unilever is
ranked 11th among the peer group, 100% if ranked 7th, and
200% will vest if Unilever is ranked 3rd or above in the table.
Straight-line vesting will occur between these points.
The TSR peer group is as follows:
Avon Kraft
Beiersdorf Lion
Cadbury Schweppes L’Oréal
Clorox Nestlé
Coca-Cola Orkla
Colgate PepsiCo
Danone Procter & Gamble
Heinz Reckitt Benckiser
Kao Sara Lee
Kimberly-Clark Shiseido