Philips 2006 Annual Report Download - page 103

Philips Annual Report 2006 103
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, lastly amended by the 2006
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 qualifi 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 signifi cant variable part in the form of an
annual cash 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 fi rst appointed, an individual Board
of Management member’s base salary will usually
be below the maximum function-related salary.
Maximum base salary
in euros
2004 2005 2006
Chairman 1,020,000 1,020,000 1,050,000
Member 660,000 675,000 700,000
In line with market developments shown by benchmark
research and additional market studies, the maximum
function-related salary levels in 2006 have been increased.
In 2006, the (maximum) function-related salary of the
President/CEO was increased from EUR 1,020,000 to
EUR 1,050,000 and that of the members of the Board
of Management was increased from EUR 675,000 to
EUR 700,000. The annual review date for the base salary
is April 1. Adjustment of individual salaries is infl 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 34 of this Annual Report.
Annual Incentive
Each year, a variable cash incentive (Annual Incentive)
can be earned, based on the achievement of specifi c
and challenging targets.
The Annual Incentive criteria are for 80% the fi 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 fi nancial
targets (currently net income with a cash fl ow threshold
and comparable sales growth) are determined upfront
with measurable quantitative performance criteria and
will not be adjusted during the year.
The fi nancial targets, based on US GAAP fi 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 relates to the
achievements of the preceding fi nancial year in relation
to agreed targets. As a result, Annual Incentives paid in
2006 relate to the salary levels and the performance in the
year 2005. Similarly, the Annual Incentive payable in 2007
will be calculated on the basis of the 2006 annual results.
The 2005 results led to an Annual Incentive pay-out
in 2006 based on the degree of achievement of the
fi nancial target and team targets for 2005.
The Annual Incentive pay-out in 2006 and for the
previous two years is shown in the next tables.
54 The Philips sectors 86 Risk management 100 Report of the Supervisory Board 110 Financial Statements