Unilever 2011 Annual Report Download - page 56

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The Executive Director’s annual bonus opportunity is based on
Unilever’s results referenced against financial targets set at the
beginning of the year. For 2011, targets were set by the Committee
for underlying volume growth, underlying operating margin
improvement and underlying sales growth over the previous year.
With these results in view, the Committee then assessed the
quality of performance; both in terms of business results and
leadership, including corporate social responsibility, to determine
the actual bonus award for Executive Directors.
See below under the section headed ‘Proposed changes from
2012 onwards’ for the policy for 2012.
2011 outcomes
2011 was another year of growth despite difficult markets and the
external challenges facing the business. We delivered a strong set
of financial results and made significant progress in the
implementation of our strategy.
We set challenging bonus targets for 2011 reflecting our ambitious
growth objectives. Overall the level of performance achieved was
as follows: underlying sales growth above the target level;
underlying volume growth slightly below the target level and
underlying operating margin slightly below the threshold level.
The Committee considered performance against these stretching
targets as well as the quality of performance delivered and the
contribution of the Executive Directors to the sustainability of the
business and determined that the CEO should be awarded a
bonus of 135% of base salary in respect of 2011 with the CFO
being awarded a bonus of 90% of base salary.
Share Matching Plan
The 2011 grant relating to the annual bonus earned for 2010 was
the last grant under the Share Matching Plan. Under the Share
Matching Plan, Executive Directors are required to invest 25% of
their bonus into shares and hold them for a minimum period of
three years. The Executive Directors receive a matching award of
25% of their annual bonus in the form of NV and PLC shares. The
matching shares normally vest after three years provided that the
underlying shares have been retained during this period and the
Executive Director has not resigned or been dismissed.
From 2012 the Executive Directors, like all other senior managers
of Unilever, will participate in the Management Co-Investment
Plan in respect of the 2011 bonuses.
Management Co-Investment Plan (MCIP)
This plan aims 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.
Under the MCIP Executive Directors, the ULE and our top 100
managers are required to invest at least 25% and may invest up to
60% of their annual bonus in Unilever’s shares. They receive a
corresponding award of performance-related shares, which 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 (see below) to ensure
alignment with the drive for profitable growth. As under the GSIP,
vesting levels will be between 0% and 200%. However, the
Committee has decided to limit the maximum vesting level for the
Executive Directors to 150%.
For managers the first operation of the MCIP was in 2011 in
respect of annual bonuses relating to the 2010 financial year.
On 17 February 2012 Paul Polman and Jean-Marc Huët first
participated in MCIP in respect of their annual bonus over 2011.
Paul Polman invested 60% of his bonus which resulted in
17,772NV and 17,772 PLC investment shares. Jean-Marc Huët
invested 25% of his bonus which resulted in 3,649 NV and
3,649PLC investment shares. They each received a
corresponding award of performance related NV and PLC
shares under the terms of the MCIP.
Further information on the methods used to calculate expected
values for the Directors’ share based pay can be found in Note 4C
on page 79.
Global Share Incentive Plan (GSIP)
Executive Directors receive annual awards of NV and PLC shares
under the GSIP. The number of shares that vest after three
years depends on the satisfaction of performance conditions.
The current maximum grant levels were agreed by shareholders
in 2008 and are 200% of salary for the Chief Executive Officer and
178% for other Executive Directors. The vesting range is between
0% and 200% of grant level.
Since 2010 the performance conditions have been the following:
• underlying sales growth;
• underlying operating margin improvement;
• operating cash flow; and
• relative total shareholder return.
As from 2012 core operating margin improvement will replace
underlying operating margin improvement, reflecting the way in
which we measure and assess success against this metric
throughout the business.
For Executive Directors and the ULE the four measures are
equally weighted (25% each).
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 for underlying sales growth and core
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.
Unilever Annual Report and Accounts 2011
Report of the Directors Governance