The value of stock options or restricted shares which are granted annually is equal to 100% of base salary for the members of the Board of Management and 110% of base salary for the Chairman of the Board of Management.
As from 2004, all of the awards that are made to the members of the Board of Management are subject to the achievement of predetermined performance targets, so that the awards will only vest if and to the extent that the targets are achieved (‘vesting’). The large majority of awards made prior to 2004 are also subject to performance targets.
Stock options Stock options may be granted to the members of the Board of Management under the Company’s stock option plan. All grants of options are approved by the Supervisory Board. The most important terms and conditions are as follows:
- An option period of seven years.
- The exercise price equals the Euronext Amsterdam closing price of the Company’s depositary receipt on the grant date.
- Options granted to members of the Board of Management from 2004 onwards only vest if and to the extent that the performance targets are achieved over a rolling three-year measurement period. Options granted to members of the Board of Management before 2004 vest three to six years following the grant date. Retesting is not permitted for options issued as from 2004.
- Shares earned from vested and exercised options should be retained by members of the Board of Management for at least five years after the grant date except for sales needed to meet tax liabilities arising from vesting.
- All vesting is subject to continuous employment by a Vedior Group company up to and including the vesting date.
- Neither the exercise price nor the other conditions attached to option grants can be modified during the option period, except to take account of a change in operational management responsibility as a result of which performance targets are no longer appropriate, material structural changes relating to the Vedior (depositary receipts of ordinary) shares or a change of control of the Company (such as a takeover of the Company’s shares) in accordance with established market practice.
Restricted shares Restricted shares may also be granted to the members of the Board of Management under the Company’s restricted share plan. Pursuant to this plan participants receive depositary receipts of ordinary shares subject to the achievement of performance targets. All grants of restricted shares are approved by the Supervisory Board. The most important terms and conditions are as follows:
- The restricted shares are conditional awards of free depositary receipts of ordinary shares of the Company.
- Awards from 2004 onwards vest three years following the grant date, but only if and to the extent performance targets are achieved over a three-year period. Awards before 2004 also vest three years following the grant date, if and to the extent that performance targets are achieved, but the participants may defer vesting by up to two years by rolling forward the three year measurement period.
- Shares earned from vested awards should be retained by members of the Board of Management for at least five years after the grant date except for sales needed to meet tax liabilities arising from vesting.
- All vesting is subject to continuous employment by a Vedior Group company up to and including the vesting date.
- The conditions attached to grants may not be modified after the grant date, except to take account of a change in operational management responsibility as a result of which performance targets are no longer appropriate, material structural changes relating to the Vedior (depositary receipts of ordinary) shares or a change of control of the Company (such as a takeover of the Company’s shares) in accordance with established market practice.
As an alternative to stock options and restricted shares, the Company in previous years granted interest free loans to finance the purchase of shares at market value. These loans were partially or fully forgiven depending on the achievement of predetermined specific performance conditions. No loans have been granted since 2004 nor are any loans still outstanding as per 31 December 2006.
The Company issued shares in regard to the options and awards which vested in 2006.
Performance targets For the vesting of stock options and restricted shares, the Company uses the following performance targets:
- Real annual Earnings Per Share (EPS) growth
- Sales growth (50%) and return on sales (50%) of a specific group of operating companies.
The Chief Executive and the Chief Financial Officer of the Group are awarded stock options or restricted shares with real annual EPS growth as the sole performance target.
Real annual EPS growth is defined as annual EPS growth of the Company corrected for the weighted average consumer inflation of the most important territories in which the Company operates. No awards vest if real EPS growth is less than or equal to 0%. The awards vest in full if real EPS growth is equal to or greater than 16.7% per annum over the vesting period. Between 0% and 16.7% the awards vest pro-rata on a straight line basis. The Company believes that real annual EPS growth is the best criterion to measure the performance of the members of the Board of Management as they may directly influence this important growth figure. It also aligns the Board’s interests with those of the Company’s shareholders.
The members of the Board of Management who have operational responsibilities for a particular part of the Group are awarded stock options or restricted shares with performance targets, of which 50% are linked to real annual EPS growth and 50% are linked to sales growth and return on sales of the group of operating companies for which they are responsible. For the latter performance condition, the sales growth and return on sales each count for 50%. Low and high targets are set and achievement of the targets is measured annually. The actual vesting percentages are based on average annual performance over the vesting period.
Sales growth is defined as the annual sales growth percentage of the relevant group of operating companies, adjusted for acquisitions or disposals as well as currency/exchange rate movements. Return on sales is defined as earnings before interest, taxation, and goodwill amortisation as a percentage of the sales. The Company believes that these are sound criteria to measure the performance of those members of the Board of Management who hold operational responsibility for specific operating companies.
Pensions Mr Valks and Mr Vervoort participate in the Group’s pension scheme plan for Dutch employees. In 2007, this scheme will change from a final salary pension scheme to a defined contribution pension scheme. The other Board members have made their own private pension arrangements in line with the local practice in the country of residence of each Board member, to which the Company pays contributions.