Philips 2007 Annual Report Download - page 246

Philips Annual Report 2007252
A Disclosure Committee is in place, which advises the various ofcers
and departments involved, including the CEO and the CFO, on the
timely review, publication and ling of periodic and current (nancial)
reports. Apart from the certication by the CEO and CFO under US
law, each individual member of the Supervisory Board and the Board
of Management must under Dutch law, sign the nancial 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 given for this.
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 the policies thereon as adopted by the General
Meeting of Shareholders. The remuneration policy applicable to the
Board of Management was adopted by the 2004 General Meeting of
Shareholders, and lastly amended by the 2007 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 chapter Report of the Supervisory Board that begins on page 116
of this 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 members of the Board of Management
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. Deviations on elements of the remuneration policy
in extraordinary circumstances, when deemed necessary in the interest
of the Company, will be disclosed in the Annual Report or, in case
of an appointment, in good time prior to the appointment of the
person concerned.
The main elements of the contract of employment of a new member
of the Board of Management - including the amount of the (xed) base
salary, the structure and amount of the variable remuneration component,
any severance plan, pension arrangements and the general performance
criteria - shall be made public no later than at the time of issuance of
the notice convening the General Meeting of Shareholders in which
a
proposal for appointment of that member of the Board of Management
has been 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 member of the Board of Management who is dismissed during
his rst term of ofce, the member of the Board of Management 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 2007, nor
are outstanding as per December 31, 2007.
In 2003, Philips adopted a Long-Term Incentive Plan (‘LTIP’ or the
‘Plan’) consisting of a mix of restricted shares rights 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 applicable to members of the Board
of Management will be submitted to the General Meeting of
Shareholders for approval. As from 2002, the Company grants xed
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 rst 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 modied during the term of the options,
except in certain exceptional circumstances in accordance with
established market practice. The value of the options granted to
members of 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 rst companies to have
introduced restricted shares as part of the LTIP. A grantee will receive
the restricted shares in three equal installments 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 members of the Board of Management shall
be retained for a period of at least ve years, instead for a period
of three 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 rights) 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 12 leading multinational electronics/electrical
equipment companies over a three-year period; the composition
of this group is described in the chapter Report of the Supervisory
Board of this Annual Report. The TSR performance of Philips and
the companies in the peer group is divided into three groups: top 4,
middle 4 and bottom 4. Based on this relative TSR position, the
Supervisory Board establishes a multiplier which varies from 1.2
to 0.8 and depends on the group in which the Philips TSR result
falls. Every individual grant, the size of which depends on the positions
and performance of the individuals, will be multiplied by the multiplier.
Members of the Board of Management hold shares in the Company
for the purpose of long-term investment and are required to refrain
from short-term transactions in Philips securities. According to the
Philips’ Rules of Conduct on Inside Information, members of the
Board of Management are only allowed to trade in Philips securities
(including the exercise of stock options) during ‘windows’ of ten
business days following the publication of annual and quarterly results
(provided the person involved has no ‘inside information’ regarding
Philips at that time) unless an exemption is available. Furthermore, the
Rules of Procedure of the Board of Management contain provisions
concerning ownership of and transactions in non-Philips securities
by members of the Board of Management and the annual notication
to the Philips Compliance Ofcer of any changes in a member’s
holdings of securities related to Dutch listed companies. In order
to avoid the impression that the Company should or could take
corrective action in respect of a certain transaction in securities in
another company by a member of the Board of Management and
the unnecessary administrative burden, the Supervisory Board and
the Board of Management consider this annual notication to be in
line with best practices and sufcient to reach an adequate level of
transparency; however, it does not fully comply with the Dutch
Corporate Governance Code recommendation II.2.6 which requires
notication on a quarterly basis. Members of the Board of Management
are prohibited from trading, directly or indirectly, in securities in any
of the companies belonging to the above mentioned peer group of
12 leading multinational electronics/electrical companies.
Indemnication of members of the Board of Management
and Supervisory Board
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, such as the 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.
128 Group nancial statements 188 IFRS information 240 Company nancial statements