Unilever 2009 Annual Report Download - page 71

68 Unilever Annual Report and Accounts 2009
Report of the Directors Governance
Directors’ Remuneration Report (continued)
The Committee’s guiding principles have been updated so that the
remuneration arrangements for Executive Directors should:
• support Unilever’s business strategy;
• sharpen Unilever’s performance culture through more exacting
standards;
• increase the difference in reward between modest, target and
outstanding performance achievements;
• support share ownership and strong shareholder alignment; and
• be simple and transparent.
Below we have summarised the key remuneration policies for
Executive Directors that flow from and support the Committee’s
aims.
The supporting policies
Our emphasis on performance-related pay
It is Unilever’s policy that the total remuneration package for
Executive Directors should be competitive with other global
companies and that a significant proportion should be
performance-related. Over two-thirds of the target arrangements
for the Executive Directors are linked to performance, with the
majority of this linked to shareholder-aligned longer-term
performance.
The Committee has reviewed the impact of different performance
scenarios on the reward opportunities potentially to be received by
Executive Directors and the alignment of this with the returns that
might be received by shareholders. The Committee believes that
Unilever’s existing risk management processes provide the
necessary controls to prevent inappropriate risk taking.
0 102030405060708090100
Emphasis on performance-related pay
Base Salary Long-term incentivesAnnual incentivePension
Total fixed (33%)
Executive
Directors
Total performance-related (67%)
Base Salary Pension benefits Annual
Incentive
Longer-term:
Share Matching
Plan
Longer-term:
Global Share
Incentive Plan
Fixed elements Performance-related elements
Our linkage between business objectives and
performance-related pay
It is Unilever’s policy for the performance-related pay of Executive
Directors to be linked to key Group measures that are aligned with
strategy, business objectives and shareholder value.
Since Paul Polman was appointed as Chief Executive Officer at the
beginning of 2009, Unilever has consistently communicated to
shareholders that its main business objective is to restore volume
and underlying sales growth while steadily improving operating
margins and cash flow. There are a number of strategic priorities
which support this objective. It is this combination of top-line
revenue growth and bottom-line profits growth that Unilever
believes will build shareholder value over the longer term. It is
Unilever’s objective to be among the best performers in its peer
group.
The Committee has reviewed the performance measures for the
Executive Directors’ variable pay elements in light of Unilever’s
current business objectives and strategic priorities. To ensure
greater alignment, underlying operating margin improvement is to
be introduced as a new measure for the Global Share Incentive
Plan (GSIP) and the cash flow measure is to be amended from
ungeared free cash flow to operating cash flow. Further details are
in the later GSIP section. In addition, for 2010 onwards the annual
bonus measures for the Executive Directors will change to:
underlying volume growth, underlying operating margin and
working capital improvement consistent with the annual bonus
arrangements already in place for other Unilever managers.
Our additional alignment with the interests of shareholders
It is Unilever’s policy that Executive Directors should demonstrate a
significant personal shareholding commitment to Unilever. This
further aligns their interests with those of shareholders.
The current requirement is that, within five years of appointment,
Executive Directors are expected to hold shares worth at least
150% of annual base salary. The Committee has decided that,
with effect from 1 January 2010, the requirement will be increased.
Executive Directors’ contracts
Executive Directors are required to submit themselves for
re-election at the AGMs each year and the Nomination Committee
carefully considers each nomination for reappointment. Executive
Directors stop holding executive office on ceasing to be Directors.
The Committee takes the view that the entitlement of Executive
Directors to the security of twelve months’ notice of termination
of employment is in line with both the practice of many
comparable companies and the entitlement of other senior
executives in Unilever. It is our policy to set the level of severance
payments for Executive Directors at no more than one year’s salary,
unless the Boards, at the proposal of the Committee, find this
manifestly unreasonable given the circumstances or unless
dictated by applicable law. The date of contract for Paul Polman
was 7 October 2008 and for Jim Lawrence was 25 June 2008.
Once signed, Executive Directors’ contracts continue to be
effective until review.