Unilever 2010 Annual Report Download - page 67

64 Unilever Annual Report and Accounts 2010
Report of the Directors Governance
Directors’ Remuneration Report continued
For the three internal business-focused conditions there will be no
vesting if performance is below the minimum of the range, 25%
vesting for achieving threshold performance and 200% vesting
only for performance at or above the top end of the range. In
addition, the performance conditions underlying sales growth
and underlying operating margin improvement must reach the
threshold of the performance range for both performance
conditions before any shares subject to either performance
condition can vest. At the end of the three-year performance
period the Committee will also assess Unilever’s performance
against the three internal conditions relative to the performance of
peer group companies to ensure that vesting levels are appropriate.
For the relative total shareholder return (TSR) performance
condition, Unilever’s TSR is measured relative to a group of 20
other companies. 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 vest
ifUnilever is ranked below position 11 in the peer group at the
end of the three-year period, 50% vest if Unilever is ranked 11th,
100% if Unilever is ranked 7th and 200% if Unilever is ranked
3rd or above. Straight-line vesting occurs between these points.
As per 2010 the current TSR peer group is:
Avon Heinz Nestlé
Beiersdorf Henkel PepsiCo
Campbell Kao Procter & Gamble
Coca-Cola Kellogg Reckitt Benckiser
Colgate Kimberly-Clark Sara Lee
Danone Kraft Shiseido
General Mills L’Oréal
2010 outcomes
As the Chief Executive Officer and Chief Financial Officer joined
Unilever in 2008 and 2010 respectively they have no grants under
the GSIP that vested in 2010.
New Management Co-Investment Plan
This new plan was approved by shareholders at the 2010 AGMs.
When proposing the MCIP last year we notified shareholders that
the Executive Directors were technically eligible to participate in
the plan, although the Remuneration Committee had decided to
defer their participation for at least the first year of the plan’s
operation. It was introduced to support Unilever’s drive for
profitable growth by encouraging Unilever’s managers to take a
greater financial interest in the performance of the Group and
the value of Unilever shares over the long term.
The MCIP replaces the Share Matching Plan and allows Unilever’s
managers to invest up to 60% of their annual bonus in shares in
Unilever (‘Investment Shares’) and to receive a corresponding
award of performance-related shares (the ‘Award’). The Award
will vest after three years, depending on Unilever’s performance,
continued employment and maintenance of the underlying
Investment Shares. The performance conditions are identical to
the performance conditions of the GSIP to ensure alignment with
the drive for profitable growth. As under the GSIP, vesting levels
will be between 0% and 200%. However, the Remuneration
Committee has decided to limit the maximum vesting level for
the Executive Directors to 150%. To allow shareholders more
transparency around the performance conditions related to our
long-term incentives we intend, after the vesting, to disclose
where each performance condition ended up on a range from
threshold to maximum. Executive Directors, the Unilever
Executive and the top 100 managers are required to invest at
least 25% of their annual bonus in Unilever’s shares.
The MCIP will first be operated in 2011 in respect of annual
bonuses relating to the 2010 financial year.
Ultimate remedy
Grants under the GSIP and MCIP are subject to ultimate
remedy.Upon vesting of an award, the Committee shall have
thediscretionary power to adjust the value of the award if the
award, in the Committee’s opinion taking all circumstances into
account, produces an unfair result. In exercising this discretion the
Committee may take into account Unilever’s performance against
non-financial measures. The Committee will only adjust the value
of a vesting award upwards after obtaining shareholder consent.
Dividend reinvestment
Both GSIP and MCIP provide that dividends will also be
re-invested in respect of the shares under award but will only
bepaid out to the extent that the underlying shares vest.
Serving as non-executive on the board of another company
Executive Directors serving as a non-executive director on a board
of another company are permitted to retain all remuneration and
fees earned from outside directorships subject to a maximum of
one outside listed directorship (see Other appointments on page
40 for further details). Paul Polman is a non-executive director of
The Dow Chemical Company and received an annual fee of
€86,727 (based on the average exchange rate over the year:
€1=US $1.326). In addition he received a restricted award of
3,540 ordinary shares with a nominal value of US $2.50 per share
in the capital of The Dow Chemical Company. The shares include
the rights to vote and to receive dividend thereon. The shares
cannot be sold or transferred until Paul Polman leaves the board
of directors of The Dow Chemical Company, but not earlier than
5March 2012.
Arrangements for Jim Lawrence
Jim Lawrence left Unilever in December 2009. The final tranche
of the 2007 restricted share award vested in September 2010,
the2007 GSIP performance award vested in November 2010
buthas been time-proportioned. The shares awarded in 2008
under the Share Matching Plan will vest in March 2011.
Proposed changes from 2011 onwards
The Committee will continue to place emphasis on variable
payand performance but, having frozen the salaries of Executive
Directors and other senior managers for three consecutive years,
which was the right decision in the economic circumstances at
thetime, the Committee will take a close look at the competitive
position of Unilever’s senior management pay during 2011 to
determine whether salary adjustments are justified.
For 2011, the Committee has adjusted the Chief Executive
Officer’s target annual bonus upwards from 113% to 120% of
salary. With the expiry of the Share Matching Plan we have
decided to invite the Executive Directors to participate in the
MCIPin 2012 in respect of any bonus earned for 2011. Under the
MCIP Executive Directors will continue to be required to invest a
minimum of 25% of their bonus in shares but may elect to invest