Philips 2005 Annual Report Download - page 62

Philips Annual Report 200562
the basis of this policy the remuneration of the individual
members of the Board of Management and other
members of the Group Management Committee. In
performing its duties and responsibilities the Remuneration
Committee is assisted by a remuneration expert acting
on the basis of a protocol ensuring that the expert acts
on the instructions of the Remuneration Committee and
onanindependentbasisinwhichconictsofinterestare
avoided. The Remuneration Committee’s tasks are laid
down in the Charter of the Remuneration Committee
that forms part of the Rules of Procedure of the Supervisory
Board. Currently, no member of the Remuneration
Committee is a member of the management board of
another listed company.
General remuneration policy
The objective of the remuneration policy for members of
the Board of Management, approved by the 2004 General
Meeting of Shareholders, amended by the 2005 General
Meeting of Shareholders and published on the Company’s
website (www.philips.com/investor), is in line with that for
Philips executives throughout the Philips Group: to focus
on improving the performance of the Company and
enhancing the value of the Philips Group, to motivate and
retainthem,andtobeabletoattractotherhighlyqualied
executives to enter into Philips’ service, when required.
In order to link executive remuneration to the Company’s
performance,theremunerationpackageincludesasignicant
variable part in the form of an annual cash bonus incentive
and a long-term incentive in the form of restricted share
rights and stock options.
Base salary
Base salaries are based on a function-related salary system.
Whenrstappointed,anindividualBoardofManagement
member’s base salary will usually be below the maximum
function-related salary.
in euros maximum base salary
Board of Management 2003 2004 2005
Chairman 1,020,000 1,020,000 1,020,000
CFO/Vice-Chairman 840,000 840,000 840,000
CFO − − 675,000
Member 660,000 660,000 675,000
Normally (and subject to the decision by the Supervisory
Board) the base salary will reach the maximum function-
related salary level over a maximum three-year period
from appointment. In line with market developments
shown by benchmark research and additional market
studies, the maximum function-related salary levels in
2005 have not been increased for the Chairman and CFO/
Vice-Chairman. In 2005, the (maximum) function-related
salary of the President/CEO was EUR 1,020,000 and that
of the Vice-Chairman/CFO EUR 840,000; the (maximum)
function-related salary of the other Board of Management
members was increased from EUR 660,000 to EUR 675,000.
The annual review date for the base salary is April 1.
Adjustmentofindividualsalariesisinuencedbythe
(annual) adjustment, if any, of the function-related salary
levels and the progress to the (maximum) function-related
salary level if this level has not yet been reached. The
individual salary levels are shown in the table in note 36
of this Annual Report.
Annual Incentive (bonus)
Each year, a variable cash incentive (Annual Incentive)
canbeearned,basedontheachievementofspecic
and challenging targets.
TheAnnualIncentivecriteriaarefor80%thenancial
indicators of the Company and for 20% team targets in
the areas of responsibility monitored by the individual
membersoftheBoardofManagement.Thenancial
targets(currentlynetincomeandcashow)aredetermined
upfront with measurable quantitative performance criteria
and will, in principle, not be adjusted during the year.
Thenancialtargets,basedonUSGAAPnancial
measures, as well as the team targets pursue value
creation as the main business objective and are set aiming
for a year-over-year improvement, taking into account
general trends in the relevant markets. The related targets
for the individual members of the Board of Management
are determined annually at the beginning of the year
by the Remuneration Committee on behalf of the
Supervisory Board.
The on-target Annual Incentive percentage is set at 60% of
the base salary for members of the Board of Management
and 80% of the base salary for the President/CEO, and
the maximum Annual Incentive achievable is 90% of the
annual base salary and for the President/CEO 120% of
the annual base salary. In exceptional circumstances, the
Remuneration Committee may decide to increase this
percentage by 20% (resulting in an Annual Incentive
percentage of 108% for members and 144% for the
President/CEO). The Annual Incentive pay-out in any year
Report of the Supervisory Board