Philips 2004 Annual Report Download - page 199

CEO and CFO under US law, each individual member of the
Supervisory Board and the Board of Management signs off under
Dutch law on the financial statements being disclosed and
submitted to the General Meeting of Shareholders for adoption. If
one or more of their signatures is missing, this shall be stated, and
the reasons therefor given.
Amount and composition of the remuneration of
the Board of Management
The remuneration of the individual members of the Board of
Management is determined by the Supervisory Board on the
proposal of the Remuneration Committee of the Supervisory
Board, and is consistent with any policy thereon as adopted by the
General Meeting of Shareholders. The remuneration policy
applicable to the Board of Management has been adopted by the
2004 General Meeting of Shareholders and is published on the
Company’s website. A full and detailed description of the
composition of the remuneration of the individual members of the
Board of Management is included in the Report of the Supervisory
Board and other parts of the Annual Report.
The remuneration structure, including severance pay, is such that
it promotes the interests of the Company in the medium and long
term, does not encourage members of the Board of Management
to act in their own interests and neglect the interests of the
Company, and does not reward failing Board members upon
termination of their employment. The level and structure of
remuneration shall be determined in the light of factors such as the
results, the share price performance and other developments
relevant to the Company.
The main elements of the contract of employment of a new
member of the Board of Management – including the amount of
the (fixed) base salary, the structure and amount of the variable
remuneration component, any severance plan, pension
arrangements and performance criteria – shall be made public no
later than the time of issuance of the notice convening the General
Meeting of Shareholders in which a proposal for appointment of a
member of the Board of Management is placed on the agenda.
From August 1, 2003 onwards, for new members of the Board of
Management the term of their contract of employment is set at a
maximum period of four years, and in case of termination,
severance payment is limited to a maximum of one year’s base
salary subject to mandatory Dutch law, to the extent applicable; if
the maximum of one-year’s salary would be manifestly
unreasonable for a Board member who is dismissed during his first
term of office, the Board member shall be eligible for a severance
payment not exceeding twice the annual salary. The Company
does not grant personal loans, guarantees or the like to members
of the Board of Management, and no such (remissions of) loans
and guarantees were granted to such members in 2004, nor are
outstanding as per December 31, 2004.
In 2003, Philips adopted a Long-Term Incentive Plan (‘LTIP’ or the
‘Plan’) consisting of a mix of restricted shares and stock options
for members of the Board of Management, the Group
Management Committee, Philips Executives and other key
employees. This Plan was approved by the 2003 General Meeting
of Shareholders. Future substantial changes to the Plan will be
submitted to the General Meeting of Shareholders for approval. As
from 2002, the Company grants fixed stock options that expire
after ten years to members of the Board of Management (and
other grantees). The options vest after three years and may not be
exercised in the first three years after they have been granted.
Options are granted at fair market value, based on the closing
price of Euronext Amsterdam on the date of grant, and neither the
exercise price nor the other conditions regarding the granted
options can be modified during the term of the options, except in
certain exceptional circumstances in accordance with established
market practice. The value of the options granted to the Board of
Management and other personnel and the method followed in
calculating this value are stated in the notes to the annual
accounts.
Philips is one of the first companies to have introduced restricted
shares as part of the LTIP. A grantee will receive the restricted
shares in three equal instalments in three successive years,
provided he/she is still with Philips on the respective delivery
dates. If the grantee still holds the shares after three years from
the delivery date, Philips will grant 20% additional (premium)
shares, provided he/she is still with Philips. The Plan is designed to
stimulate long-term investment in Philips shares. To further align
the interests of members of the Board of Management and
shareholders, restricted shares granted to these Board members
shall be retained for a period of at least five years or until at least
the end of employment, if this period is shorter.
The actual number of long-term incentives (both stock options
and restricted shares) that are to be granted to the members of
the Board of Management will be determined by the Supervisory
Board and depends on the achievement of the set team targets in
the areas of responsibility monitored by the individual members of
the Board of Management and on the share performance of Philips.
The share performance of Philips is measured on the basis of the
Philips Total Shareholder Return (TSR) compared to the TSR of a
peer group of 24 leading multinational electronics/electrical
equipment companies over a three-year period; the composition
of this group is described in the report of the Supervisory Board.
The TSR performance of Philips and the companies in the peer
198 Philips Annual Report 2004
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