Philips 2007 Annual Report Download - page 117

Philips Annual Report 2007 123
Pensions
As of January 1, 2006, a new pension plan is in force
for all Philips executives in the Dutch pension fund
born after January 1, 1950. This includes members of
the Board of Management and other members of the
Group Management Committee. The new plan is based
on a combination of dened-benet (career average) and
dened-contribution and replaces the previous nal pay
plan. The target retirement age under the new plan is
62.5. The plan does not require employee contributions.
Messrs Kleisterlee and Van Deursen continued to
participate in the old plan till they reached the age of 60.
Since then no further accrual took place under this plan.
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 benets 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 consequently no
loans were granted to such members in 2007, nor
were such loans outstanding as of December 31, 2007.
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 articles of association. Under certain
circumstances, described in the articles of association,
such as an act or failure to act by a member of the Board
of Management or a 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 - Directors &
Ofcers) for the persons concerned.
Outlook 2008
Based on the trends in the market (European General
Industry), the Supervisory Board proposes to amend
the remuneration policy for members of Board of
Management as follows.
Annual Incentive on-target levels are determined as a
percentage of base salary. The current maximum pay-out
structure under the plan shall be replaced by a simplied
maximum equal to twice the on-target Annual Incentive
levels. For the Board of Management the consequences
of this change are reected below.
Annual Incentive
On-target (as %
of base salary)
Current
maximum
Proposed
maximum
CEO 80% 144% 160%
BoM member 60% 108% 120%
The 2008 Annual Incentive criteria are i) net income, cash
ow and comparable sales growth and ii) team targets.
It is proposed to determine the restricted share grant
levels in accordance with a multiplier of ‘zero’ to 2.
The current plan has limited downside and equally
upside. With the range of the new proposed multiplier,
the restricted share right grants will be better aligned
with Philips’ relative TSR performance.
Proposed TSR
TSR Ranking 1 2 3 4 5 6
Multiplier (current) 1.2 1.2 1.2 1.2 1 1
Multiplier (proposed) 2 1.8 1.6 1.4 1.2 1
Proposed TSR
TSR Ranking 7 8 9 10 11 12
Multiplier (current) 1 1 0.8 0.8 0.8 0.8
Multiplier (proposed) 1 0.8 0.6 0.4 0.2 0
As stock options are intrinsically performance related,
it will be proposed that grant levels for stock options
are no longer determined in accordance with the
TSR-multiplier of 0.8 – 1.2. The intrinsic performance
condition lies in the fact that the share price upon
exercise
must exceed the share price upon grant
(‘exercise price’)
in order to provide a value to the grantee.
98 Risk management 112 Our leadership 116 Report of the Supervisory Board 126 Financial Statements