Philips 2004 Annual Report Download - page 27

The Dutch Pension Plan for Executives, including members of the
Board of Management, has been under review in 2004. As a
consequence of the November 2004 Social Agreement and
consequent changes in social and fiscal law, the implementation of
a revised Dutch Pension Plan is now scheduled for January 1, 2006.
Additional arrangements
In addition to the main conditions of employment, a number of
additional arrangements apply to members of the Board of
Management. These additional arrangements, such as expense and
relocation allowances, medical insurance, accident insurance and
company car arrangements, are broadly in line with those for
Philips Executives in the Netherlands. In the event of disablement,
members of the Board of Management are entitled to benefits in
line with those for other Philips Executives in the Netherlands.
In line with regulatory requirements, the Company’s policy forbids
personal loans to members of the Board of Management as well as
to other members of the Group Management Committee, and no
loans were granted to such members in 2004, nor were such loans
outstanding as of December 31, 2004.
Unless the law provides otherwise, the members of the Board of
Management and of the Supervisory Board shall be reimbursed by
the Company for various costs and expenses, like reasonable costs
of defending claims, as formalized in the proposal to amend the
current articles of association. Under certain circumstances,
described in the proposal to amend the current articles of
association, such as an act or failure to act by a member of the
Board of Management and member of the Supervisory Board that
can be characterized as intentional (‘opzettelijk’), intentionally
reckless (‘bewust roekeloos’) or seriously culpable (‘ernstig
verwijtbaar’), there will be no entitlement to this reimbursement.
The Company has also taken out liability insurance (D&O) for the
persons concerned.
Contracts of employment
Members of the Board of Management have a contract of
employment with the Company. The form of contract used for
members of the Board of Management is in line with the standard
form used for other Philips Executives. As from August 1, 2003 for
newly appointed members of the Board of Management and the
other members of the Group Management Committee the term of
the contract is set at 4 years; and if the Company terminates the
contract of employment the maximum severance payment is in
principle limited to one year of base salary in line with the Dutch
Corporate Governance Code. If the maximum of one year’s salary
would be manifestly unreasonable for a member of the Board of
Management who is dismissed during his first term of office,
the member of the Board of Management shall be eligible for a
severance payment not exceeding twice the annual salary.
The contract terms for current members of the Board of
Management are presented in the table below.
Members Board of Management 1) End of Term
G.J. Kleisterlee May 1, 20052)
J.H.M. Hommen May 1, 2005
G.H.A. Dutiné April 1, 2007
A. Huijser April 1, 2006
1) Reference date for Membership of the Board of Management is December 31, 2004.
2) A proposal for re-appointment shall be put to the 2005 Annual General Meeting of
Shareholders
Outlook 2005
The maximum base salary for the President remains unchanged.
The on-target Annual Incentive percentage for the President will
be adjusted (from 60% to 80% of base salary) to bring his
remuneration package more in line with the market. The
maximum base salaries for the other members of the Board of
Management will be increased by 2.3% after having been frozen (in
2003 and 2004). For both the President and members the
maximum grant of LTIs remains unchanged. The on-target Annual
Incentive percentage for the members of the Board of
Management remains unchanged as well.
Report of the Audit Committee
The Audit Committee, currently consisting of three members of
the Supervisory Board, who are listed on page 20 of this Annual
Report, assists the Supervisory Board in fulfilling its supervisory
responsibilities for the integrity of the Company’s financial
statements, the financial reporting process, the system of internal
business controls and risk management, the internal and external
audit process, the internal and external auditor’s qualifications,
independence and performance, as well as the Company’s process
for monitoring compliance with laws and regulations and the
General Business Principles. The Audit Committee met five times
in 2004 and reported its findings periodically to the plenary
Supervisory Board.
In accordance with its charter, which is part of the Rules of
Procedure of the Supervisory Board, the Audit Committee in 2004
reviewed the Company’s annual and interim financial statements,
including non-financial information, prior to publication thereof. It
also assessed in its quarterly meetings the adequacy and
appropriateness of internal control policies and internal audit
programs and their findings.
26 Philips Annual Report 2004
Supervisory Board Report