Remuneration policy and report
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AEGON’s Compensation Committee is responsible for designing, developing, implementing and reviewing the Group’s Remuneration policy. This policy outlines:
The Compensation Committee has four members:
Each year, AEGON’s Compensation Committee reviews the Remuneration Policy based on information provided by the Group’s independent external advisors Towers Perrin. This Committee may recommend changes in the Policy to the Supervisory Board. Any material changes must be referred to the General Meeting of Shareholders (AGM) for approval. Supervisory Board remuneration Members of AEGON’s Supervisory Board are entitled to:
Each of these fees is a fixed amount. Members of AEGON’s Supervisory Board do not receive any performance or equity-related compensation and do not accrue pension rights with the Group. These measures are designed to guarantee the independence of Supervisory Board deliberations and strengthen the overall effectiveness of AEGON’s corporate governance. The structure of Supervisory Board fees is as follows:
AEGON pays a premium to members of its Audit Committee because of the additional workload involved.
Information on the members of AEGON’s Supervisory Board may be found here. remuneration policy AEGON has a clear and well-defined policy toward executive remuneration. This policy is reviewed and assessed each year by the Group’s Compensation Committee. If necessary, this Committee will recommend amendments to AEGON’s Supervisory Board. Any material changes are then submitted by the Supervisory Board to the General Meeting of Shareholders for approval. AEGON’s Remuneration Policy has four main objectives:
The policy applies to all members of AEGON’s Executive Board. In addition, it is also used as guidance when setting levels of remuneration for members of the Group’s Management Board and other senior managers throughout the company. Executive Board members are appointed for an initial term of four years and may be reappointed for successive mandates also of four years. AEGON’s current Remuneration Policy took effect January 1, 2007. It was approved by the AGM on April 25, 2007. Ensuring competitive remuneration As part of its overall remuneration policy, AEGON regularly compares the Group’s levels of executive remuneration with those at selected peers. Two separate peer groups have been established, one for US-based Executive Board members and a second for European-based members. Companies included in these two peer groups were chosen according to the following criteria:
AEGON’s objective is to create stable and consistent peer groups. The Supervisory Board periodically reviews the composition of these two groups to ensure they continue to provide a reliable basis for comparison. The two peer groups are made up of the following companies: United States
Europe
Ensuring transparent remuneration For each member of its Executive Board, AEGON sets a so-called ‘Target Total Compensation’. This reflects the particular responsibilities and expertise of each Executive Board member and is entirely at the discretion of the Group’s Supervisory Board. When determining Target Total Compensation levels, the Supervisory Board uses a range between the 40th and 60th percentile of the relevant peer group as an objective. Each year, AEGON’s Supervisory Board reviews Target Total Compensation levels to ensure they remain competitive and continue to provide proper incentives to members of the Group’s Executive Board. Target Total Compensation for Executive Board members comprises a fixed component, as well as both short-term and long-term incentive compensation. This structure ensures a balance between fixed and performance-related pay. The table below gives a target breakdown for each of these three components. AEGON’s long-term aim is to ensure that compensation for future members of the Group’s Executive Board matches these targets as closely as possible. Current members of the Executive Board, however, have employment contracts that pre-date AEGON’s existing Remuneration Policy. Terms and conditions of these contracts cannot be altered. As a result, the compensation breakdown for current members of the Executive Board may differ from the numbers below.
Fixed compensation It is the responsibility of AEGON’s Supervisory Board to determine fixed salaries for each member of the Group’s Executive Board, based on his or her qualifications, experience and expertise. Variable compensation AEGON believes that variable compensation is an effective way of strengthening the commitment of individual Executive Board members to the Group’s short-term and long-term objectives. Variable compensation under this Plan is granted once the Group’s annual accounts have been formally approved by the AGM. Short-Term Incentive compensation, or STI, is paid in cash. The Long-Term Incentive compensation, or LTI, on the other hand, is paid in the form of conditional shares. The value of these shares is calculated using the fair market value of a single share at the start of the financial year. Fifty percent of shares granted under AEGON’s LTI Plan vest four years after the grant date. The remaining 50% vest after a period of eight years. Vesting shall occur automatically unless the Supervisory Board makes use of its discretionary right to annul the grant in case of termination of employment before the vesting date:
Variable compensation is only granted if the company’s performance matches a series of pre-determined performance indicators. Together, these indicators provide an accurate and reliable reflection of AEGON’s overall performance during the year in question. These indicators are:
At the beginning of every financial year, a target is set for each of the three indicators. A comparison is made at the end of the year between these targets and actual company performance. Entitlements for variable compensation are then calculated accordingly 2.
In addition, AEGON’s Supervisory Board may make discretionary adjustments to Executive Board members’ variable compensation, but must adhere to the following procedure:
Pension and other benefits Members of AEGON’s Executive Board are offered pensions and other benefits in line with local practices in their countries of residence. Executive Board members may also receive other benefits based on their contracts of employment, local practices and comparable arrangements for executives at other similar, multinational companies. AEGON does not grant Executive Board members personal loans, financial guarantees or the like, unless in the normal course of business and on terms applicable to all personnel. All such arrangements must have the prior approval of the Supervisory Board. Termination Employment contracts for new members of AEGON’s Executive Board contain a notice period of three months for the Executive Board member and six months for the Group. Termination arrangements conform to the Dutch Corporate Governance Code and to Dutch law. Existing rights of current Executive Board members will be respected. For further information, please refer to the agreements published on AEGON’s website. Remuneration report Composition of the Executive Board In 2007, AEGON’s Executive Board had three members:
Mr. Shepard will retire as Chief Executive Officer and Chairman of the Executive Board, with effect from the AGM scheduled for April 23, 2008. He will be succeeded by Mr. Wynaendts. In April 2007, Mr. Wynaendts was reappointed to the Executive Board for another four-year term. Mr. Streppel’s term as Executive Board member expires in 2010. Johan G. van der Werf resigned from AEGON’s Executive Board at the beginning of 2007 after being appointed to the Group’s Management Board. He stepped down as Chief Executive Officer of AEGON The Netherlands in January 2008. Total compensation AEGON sets a so-called ‘Target Total Compensation’ for each member of its Executive Board. This comprises both fixed and variable compensation. Please refer to AEGON’s Remuneration Policy for full details. Fixed compensation provides Executive Board members with a base salary. The amount is paid each year. Variable compensation, on the other hand, is based on the company’s financial performance and amounts paid each year may vary as a result. Fixed compensation Base salaries for the three members of AEGON’s Executive Board in 2007 can be found in the following table.
Messrs. Wynaendts and Streppel were both granted base salary increases at the beginning of 2007. These increases amounted to 17.6% and 6.2% respectively. Mr. Shepard’s base salary remained unchanged despite a significantly weaker US dollar-euro exchange rate. AEGON expects Mr. Wynaendts’ base salary to be reviewed again during 2008 following his appointment as Chairman of the Executive Board. Variable compensation In April 2007, shareholders approved a new Remuneration Policy for Executive Board members. This changed AEGON’s previous policy in three important respects:
Short-term Incentives STI bonuses for members of the Executive Board determined in accordance with the 2006 and 2007 STI Plans may be found in the table below.
Please note that the 2006 plan was part of AEGON’s former Remuneration Policy. The 2007 Plan, on the other hand, was formulated under the Group’s new Remuneration Policy. In addition to his short-term incentive bonus, Mr. Shepard also received EUR 2,789,000 in 2007 as an additional bonus related to AEGON’s net income for the 2006 financial year. This represents a rise of 2.1% from EUR 2,732,000 in 2006 in line with the increase in AEGON’s net income for the year. This STI bonus for Mr. Shepard will amount to EUR 2,551,000 for the financial year 2007, to be paid in 2008, subject to the adoption of the 2007 annual accounts by the AGM on April 23, 2008. This is a decrease of 9% as compared to the bonus paid for the year 2006. Long-term incentives There are two separate LTI compensation plans still running under the terms and conditions of AEGON’s previous Remuneration Policy. They are:
The 2004 LONG-TERM INCENTIVE plan AEGON’s 2004 Long-Term Incentive Plan, agreed under the Group’s former Remuneration Policy, matured at the beginning of 2007. Share rights under this Plan, however, did not vest as AEGON failed to reach its financial targets for the three-year period 2004-2006. Therefore, no LTI payments were made under this Plan. The 2005 LONG-TERM INCENTIVE plan AEGON’s 2005 Long-Term Incentive Plan, also formulated under AEGON’s pre-2007 Remuneration Policy, matured at the beginning of 2008. All share rights under this Plan vested as targeted. Grants due in 2008 as part of the 2005 LTI Plan can be found in the following table.
The 2007 LONG-TERM INCENTIVE plan AEGON’s 2007 Long-Term Incentive Plan, agreed under the Group’s current Remuneration Policy, also matured at the beginning of 2008. Based on AEGON’s financial performance, the Group expects, as part of this 2007 plan, to:
While AEGON reported 19.6% growth in its value of new business in 2007, operating earnings after tax were 4.3% lower than in 2006. Total shareholder returns were also lower as concerns over international credit markets weighed on AEGON’s stock price during the year. For grants expected in 2008 as part of the 2007 LTI Plan please refer to the table below.
Long-Term Incentive awards to Executive Board members under the 2005 and 2007 Long-Term Incentive Plans will mature and be determined in 2008. Full details will be published as part of AEGON’s 2008 Annual Report. Pension arrangements Mr. Shepard’s pension benefits are based on 55% of his ‘final average earnings’ calculation, equivalent to his five highest complete and consecutive calendar years of pensionable earnings. For Messrs. Wynaendts and Streppel, their benefits are equal to 70% of their final base salary, provided they have completed 37 years of service. |
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