Philips 2014 Annual Report Download - page 92

Corporate governance 11.1
92 Annual Report 2014
members of the Board of Management is included in
section 10.2, Report of the Remuneration Committee, of
this Annual Report .
Pursuant to Dutch legislation, the remuneration of the
members of the Board of Management and the Supervisory
Board must be included as a separate agenda item in the
convening notice for a General Meeting of Shareholders and
must be dealt with before the meeting can proceed to
consider and adopt the Annual Accounts.
The remuneration structure of the Company, 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
interests 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.
All current members of the Board of Management are
employed by means of a contract of employment.
Pursuant to Dutch legislation, eective January 1, 2013,
a newly appointed or a re-appointed member of the
Board of Management will be engaged by means of a
services agreement (‘overeenkomst van opdracht’). The
main elements of the services agreement - including
the amount of the fixed base compensation, the
structure and amount of the variable compensation
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
(re-)appointment of that member of the Board of
Management has been placed on the agenda. In
compliance with the Dutch Corporate Governance
Code, the term of the services agreement of the
members of the Board of Management is set at four
years, and in case of termination, severance payment is
limited to a maximum of one year’s base compensation;
if the maximum of one-year’s base compensation
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 base compensation.
From 2003 until 2013, Philips maintained a Long-Term
Incentive Plan (‘LTI Plan’) consisting of a mix of restricted
shares rights and stock options for members of the Board of
Management, Philips executives and other key employees.
Since the full revision in 2013 of the LTI Plan applicable to
members of the Board of Management, the plan consists of
performance shares only, with a three year post-grant
performance measurement. For more details please be
referred to
section 10.2, Report of the Remuneration
Committee, of this Annual Report .
The so-called ultimum remedium clause and claw-back
clause of best practice provisions II.2.10 and II.2.11 of the
Dutch Corporate Governance Code are applicable to
Annual Incentive payments and LTI grants for the year
2009 onwards to all members of the Board of
Management. In respect of the LTI grants, the ultimum
remedium clause can be applied to the performance-
related actual number of stock options, restricted share
rights and/or performance shares that is granted. In
addition, pursuant to new Dutch legislation, eective
January 1, 2014, the Supervisory Board will be authorized
to change unpaid bonuses awarded to members of the
Board of Management if payment or delivery of the bonus
would be unacceptable according to the principles of
reasonableness and fairness. The Company, which in this
respect may also be represented by the Supervisory Board
or a special representative appointed for this purpose by
the General Meeting of Shareholders, may also claim
repayment of bonuses paid or delivered (after December
31, 2013) insofar as these have been granted on the basis
of incorrect information on the fulfillment of the relevant
performance criteria or other conditions. Bonuses are
broadly defined as ‘non-fixed’ remuneration, either in cash
or in the form of share-based compensation, that is
conditional in whole or in part on the achievement of
certain targets or the occurrence of certain circumstances.
The explanatory notes to the balance sheet shall report on
any moderation and/or claim for repayment of board
remuneration. No such moderation or claim for repayment
has occurred during the nancial year 2014. The new
legislation also introduces an obligation for the Company
to reduce the remuneration of a member of the Board of
Management, if and to the extent the value of such
member’s share-based remuneration would have
increased as a result of the announcement of a large
transaction (requiring shareholder approval) or a public
oer for the Company.
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 twenty
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 and Executive
Committee contain provisions concerning ownership of
and transactions in non-Philips securities by members of
the Board of Management. Members of the Board of
Management are prohibited from trading, directly or
indirectly, in securities of any of the companies belonging
to the peer group, during one week preceding the
disclosure of Philips’ annual or quarterly results. The rules