Summary directors’ remuneration report
Below is a summary of the information contained in the Directors’ remuneration report which shareholders will be asked to approve at the forthcoming Annual General Meeting. The report, which is contained in the Company’s Annual Report and Accounts for 2004, contains full details of the Company’s remuneration policy, practices, pension arrangements and incentive plans including a description of the performance conditions which apply to the incentive plans as well as details of all the awards and options held by the directors. It also contains details of proposed changes to the remuneration policy and packages resulting from a comprehensive remuneration review which took place in 2004. A copy of the Annual Report and Accounts is available from the Company’s Registrar, Lloyds TSB Registrars.
Remuneration policy
The Company’s remuneration policy seeks to provide remuneration packages appropriate for each particular market in which the Company operates in order to attract and retain high calibre employees and encourage and reward superior performance in a manner which is consistent with the interests of shareholders. The policy is aimed at ensuring senior executives are rewarded fairly for their individual and collective contributions to the Company’s performance.
No material changes were made to the remuneration policy or packages in 2004 other than that from 1 April 2004 the non-contributory element of the staff pension scheme for UK employees was removed requiring those employees who did not make any contribution, including executive directors, to pay into the Scheme 2.5% of their gross pensionable salary from that date, rising to 5% in April 2005.
The remuneration package
The Company believes that senior executives should align their own interests with those of the Company’s shareholders. It therefore believes that whilst paying a competitive basic salary, the majority of the remuneration package should be closely linked to the performance of the business and delivered in the form of shares. During 2004 the remuneration package for the Company’s executive directors comprised the following elements:
- A basic salary.
- An annual bonus plan – to encourage executives to meet annual targets relating to business and agreed personal performance targets.
- A deferred bonus plan – linked to the annual bonus plan to encourage executives to take their entire bonus in the form of shares and retain them for three years.
- A long-term incentive plan – to align executives’ longer term interests with those of shareholders.
- A defined benefit pension entitlement, a car allowance, private medical insurance and participation in the All-Employee Share Plans.
Awards granted under the long-term incentive plan are subject to a performance condition based on the Company’s Total Shareholder Return (TSR) ranked against the TSR of the major European financial services companies in the Company’s comparator group over a three year period. The following graph shows the Company’s TSR, over the past five years, against the average TSR of the companies in the FTSE 100 and the said comparator group.
Five–year total shareholder return comparison
[Line graph showing the Five year total shareholder return comparison. The graph
indicates that the Five year total shareholder return comparison for Aviva was
100 in Dec 1999, 115 in Dec 2000, 101 in Dec 2001, 61 in Dec 2002, 66 in Dec 2003
and 82 in Dec 2004.
The Comparator Group Median was 100 in Dec 1999, 114 in Dec 2000, 100 in Dec 2001,
66 in Dec 2002, 63 in Dec 2003 and 73 in Dec 2004.
The FTSE Return Index was 100 in Dec 1999, 100 in Dec 2000, 84 in Dec 2001, 68
in Dec 2002, 78 in Dec 2003 and 85 in Dec 2004.]
All executive directors have a service contract which can be terminated by the Company upon giving 12 months’ notice. Non-executive appointments can be terminated by either party at any time upon giving one month’s written notice.
Remuneration review
During the year, the Remuneration Committee conducted a comprehensive review of the Company’s senior management remuneration policy and packages to ensure that they continue to be effective in attracting and motivating high-calibre employees and rewarding superior performance fairly in line with shareholders’ interests. In connection with the review, the Committee commissioned New Bridge Street Consultants to consider the proposed changes to the policy and packages to ensure that they reflect good practice and that the packages remain competitive.
Based on the above, the Committee found that no major changes to the current remuneration policy and packages were necessary but proposed that some refinements be made to address the fact that the packages had a significantly lower level of potential reward aimed at stimulating outperformance than comparator companies, and to bring them into line with changes in market practice. In preparing its proposals, the Committee discussed them with a range of institutional investor bodies and major shareholders refining them in the light of the views expressed. Details of the review and the proposed changes are set out in the Annual Report and Accounts. If approved by shareholders at the Annual General Meeting the new remuneration packages will come into effect for 2005.
Directors’ remuneration 2004
The remuneration payable to directors who held office for any part of the financial year is shown in the table below.
| Basic salary/fees | Bonuses | Benefits | Total | |||||
|---|---|---|---|---|---|---|---|---|
| 2004 £000 |
2003 £000 |
2004 £000 |
2003 £000 |
2004 £000 |
2003 £000 |
2004 £000 |
2003 £000 |
|
| Chairman | ||||||||
| Pehr Gyllenhammar | 300 | 288 | – | – | 20 | 21 | 320 | 309 |
| Executive directors | ||||||||
| Richard Harvey | 752 | 718 | 355 | 312 | 96 | 67 | 1,203 | 1,097 |
| Andrew Moss* | 283 | – | 200 | – | 10 | – | 493 | – |
| Philip Scott | 491 | 459 | 223 | 183 | 35 | 43 | 749 | 685 |
| Patrick Snowball | 456 | 420 | 218 | 212 | 21 | 21 | 695 | 653 |
| Philip Twyman** | 117 | 466 | 52 | 192 | 13 | 53 | 182 | 711 |
| Non-executive directors | ||||||||
| Anna Catalano** | 14 | 27 | – | – | – | – | 14 | 27 |
| Guillermo de la Dehesa | 67 | 64 | – | – | – | – | 67 | 64 |
| Wim Dik | 42 | 40 | – | – | – | – | 42 | 40 |
| Richard Goeltz* | 28 | – | – | – | – | – | 28 | – |
| George Paul | 160 | 160 | – | – | – | – | 160 | 160 |
| Carole Piwnica | 42 | 27 | – | – | – | – | 42 | 27 |
| Derek Stevens | 77 | 70 | – | – | – | – | 77 | 70 |
| Elizabeth Vallance | 42 | 40 | – | – | – | – | 42 | 40 |
| André Villeneuve | 42 | 40 | – | – | – | – | 42 | 40 |
| Russell Walls* | 28 | – | – | – | – | – | 28 | – |
| Total emoluments of directors | 2,941 | 2,819 | 1,048 | 899 | 195 | 205 | 4,184 | 3,923 |
| * | From date of appointment: Richard Goeltz and Russell Walls – 3 May 2004 and Andrew Moss – 10 May 2004. |
| ** | To date of ceasing to be a director: Philip Twyman – 31 March 2004 and Anna Catalano – 27 April 2004. |
Notes
- “Bonuses” include amounts earned in respect of 2004 performance under the Annual Bonus Plan (including amounts deferred under the Aviva Deferred Bonus Plan), and the value of shares granted under the free share part of the Aviva All-Employee Share Ownership Plan. In calculating the level of bonus under the Annual Bonus Plan 70% is based on key financial targets and 30% is based on personal targets. The constitution of the financial targets varies between directors. For example, in respect of the Group Chief Executive and the Group Finance Director the financial targets are those relating to the Group, whereas for the other executive directors bonuses are based partly on the Group’s performance and partly on financial targets relating to the business units for which the directors have responsibility. Key performance indicators (KPIs) are measured in order to determine the financial bonuses for all the executive directors. The 2004 key financial targets for the Group included new business contribution, operating profit, combined operating ratio (COR), total expenses and the return on capital. Overall performance against these KPIs in 2004 was better than the targets set. In addition to the financial targets the directors were set individual personal targets.
- “Benefits” – All the executive directors received the benefit of private medical insurance and, along with the Chairman, a car allowance. The above disclosure also includes, in respect of Richard Harvey and Philip Twyman, charges relating to the cost incurred by the Company in insuring the life assurance and spouses’ benefits for these directors which could not have been paid by the pension scheme as a result of the “earnings cap” and which would therefore have been met by the Company had they died during the year.
- Non-executive directors. The benefits disclosed for Pehr Gyllenhammar refer to a car allowance. The fee for George Paul reflects his duties as Deputy Chairman, which includes chairing the Remuneration Committee and acting as the senior independent non-executive director. The fee for Derek Stevens includes an amount for serving as the chairman of the Board’s Audit Committee and of the trustee of Aviva Staff Pension Scheme. The fee for Guillermo de la Dehesa includes a fee for serving as the non-executive Chairman of the Group’s operations in Spain. No non-executive director accrued retirement benefits during the year.
- No compensation for loss of office was made to any director or former director during the year.
- For the purpose of the disclosure required by Schedule 6 to the Companies Act 1985 the total aggregate emoluments of the directors in respect of 2004 was £4.2 million (2003: £5.1 million).
Shares were awarded to executive directors during the year under the Company’s incentive plans described above as follows:
| Long-Term Incentive Plan Shares | Deferred Bonus Plan Shares | |
|---|---|---|
| Richard Harvey | 139,059 | 118,478 |
| Andrew Moss* | 83,650 | – |
| Philip Scott | 88,867 | 68,960 |
| Patrick Snowball | 84,452 | 70,802 |
| Philip Twyman | – | 72,734** |
* In addition to the above Andrew Moss received 103,846
shares on 10 May 2004 upon joining the Company. This was a special one-off
arrangement to replace the value of shares granted to him by his previous
employer and which lapsed when he resigned to join Aviva.
**Awarded outside of the Aviva Deferred Bonus Plan in the form of options.
In addition to the above, directors have interests in awards and options granted in previous years. No directors made any gains on the exercise of share options during the year.
