Unilever 2008 Annual Report Download - page 65

Report of the Remuneration Committee continued
62 Unilever Annual Report and Accounts 2008
Report of the Directors
The total remuneration package for Executive Directors is
intended to be competitive in a global market, with a strong
emphasis on performance related pay. Internal and external
comparisons are made with the reward arrangements for other
senior executives within Unilever to support consistent application
of Unilever’s executive reward policies.
A significant proportion of the Executive Directors’ total reward
is linked to a number of key measures of Group performance
to create alignment with strategy, business priorities, and
shareholder value. Approximately 70% of the total reward
package is linked to performance.
In setting targets for the performance measures, the Committee
is guided by what would be required to deliver top-third
shareholder value. This is reflected in both the short-term and
long-term performance targets.
Base salary
The Remuneration Committee reviews base salary levels annually,
taking into account external benchmarks within the context of
Group and individual performance.
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.
The maximum opportunity for the Chief Executive Officer is
200% of salary, with two-thirds based on Unilever’s business
results and a third on individual business targets. The maximum
opportunity for the Chief Financial Officer is 160% of salary, with
up to 130% based on business results, the rest on individual
business targets. Target annual incentive levels for both executives
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’.
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
The long-term incentive for Executive Directors 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 at least
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 along with other senior employees.
The actual number of shares received at vesting after three years
depends on the satisfaction of performance conditions linked to
improvements in Unilever’s performance.
The vesting of shares will be conditional on the achievement of
three distinct performance conditions over the performance
period. The performance period is a 3-year calendar period.
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
The vesting of a further 30% of the shares in the award is
conditional on average underlying sales growth performance
over the three-year period.