Remuneration Report 2007

From 1 January 2006, Mr Løseth was appointed member of the Management Board, with specific responsibility for Energy Sourcing & Trading, Belgium and Germany. In this connection, the existing contract of employment for an indefinite term with Mr Løseth was converted into a contract for a term of four years. In line with the policy described above, the payment upon termination of his contract of employment by the company is now limited to one gross annual base salary. The existing arrangements in relation to the variable income have been honoured. These concern 50% for the short-term variable income and 40% for the long-term incentive (half of which is guaranteed). In view of his special (expatriate) situation, Mr Løseth receives a defined pension contribution of € 80,000 per year.
From 1 May 2006, Mr Vierstra has been appointed as member of the Management Board in the position of CFO. Mr Vierstra’s remuneration was determined in conformity with the policy formulated in this report.

Reporting on the basis of the IFRS

This Remuneration Report has been drawn up on the basis of the IFRS principles as also used for the preparation of the financial statements. This means that the report on the variable elements of the remuneration relate to the year in which the elements were ‘earned’, regardless of the time of payment.

Development of annual base salary

The development of the annual base salary for the members of the Management Board has been set at 3% from 1 January 2007. This percentage is in line with the pay rise for the company’s staff on the basis of the applicable collective labour agreement.

It can be concluded that the current remuneration level is modestly positioned compared to the reference market mentioned in the adopted remuneration policy. Partly due to the absence of adjustments in the three years prior to 2006, the base salaries are increasingly lagging behind this market and are currently below the median of the relevant compensation market. The developments in the market in relation to executive compensation will be regularly monitored in order to continue assessing whether the remuneration package is in line with the market.

Short-term variable salary

For the year 2007
The short-term variable salary under the performance contracts for 2007 has been determined at 90% of their maximum percentage for all members of the Management Board. This is based on the achievement of the financial objectives, customer-related objectives and other objectives. Regarding the financial objectives it can be said that the formulated ambition levels were comfortably surpassed. The customer-related objectives were surpassed, while all other objectives were attained. 

Long-term incentive

The long-term variable salary is linked to objectives over a three-year period. The objectives for the long-term incentive 2005–2007 were defined by the Supervisory Board in relation to financial performance (60% of the total) and customer position (40% of the total); objectives for the long-term incentives 2006-2008 and 2007–2009 are also aimed, in conformity with the arrangements made with the shareholders, in particular at value creation of the company (60% of the total) and at market share (40% of the total).

A time-proportionate accrual is recognised for each long-term incentive period on the basis of payment of the target level. Payment of the accrued amounts will not occur until the extent to which the predetermined objectives have actually been achieved has been established.

For the year 2007
The long-term incentive to be paid in 2008 for the 2005-2007 period has been determined at 90% of the maximum according to the policy. This reflects the achievement of the financial objectives and customer-related objectives. As regards the financial objectives, including shareholder value, the company performed well in relation to the predetermined targets; the realised improvements measured over the three-year period from 2005 to 2007 were considerable. The objectives in terms of customer position were partly achieved.

The amounts accrued for Mr Henderson were released to income in 2006. No payments were made to Mr Henderson under this scheme. 

The overview below summarises the total remuneration elements described above.

Pension benefits

The pension costs concern the payment of the regular pension contributions. These are levied on the annual base salary. Messrs Van Halderen, Erich and Vierstra participate in the ABP pension scheme applicable to the company. This is an average pay scheme with a projected retirement age of 65. Until 1 January 2007, a flexible pre-pension scheme was also applicable to the staff. The increase in the pension contributions in 2007 is the consequence of non-recurring charges in conformity with the ABP scheme linked to the exceptional non-recurring benefits paid to Mr Vierstra at the start of his employment in 2006. 

In view of his special (expatriate) situation, Mr Løseth receives a defined pension contribution of € 80,000 per year. 

A defined pension contribution scheme was applied to Mr Henderson, in which the costs chargeable to the company are equal to those that would have been incurred if he had been a participant in the APB scheme.

Social security charges and other emoluments

In addition to the social security contributions normally paid by the company, this item concerns the health insurance contribution payable by the employer and the expense allowance. 

In view of his special (expatriate) situation, Mr Løseth receives an allowance for, among other things, travel and health insurance. 

No loans, advances or guarantees have been provided by the company for members of the Management Board or Supervisory Board.

Contracts of employment

Each member of the Management Board has a contract of employment with the company. Mr Van Halderen’s contract of employment, which was due to expire on 1 February 2007, was extended until 1 February 2010. The contract of employment with Mr Henderson was terminated on 1 April 2006. The contract of employment with Mr Erich was entered into for an indefinite term*. The contract of employment with Mr Løseth was concluded with effect from 1 January 2006 for a term of four years. The contract of employment with Mr Vierstra was concluded with effect from 1 May 2006 for a term of four years.

If his contract of employment is terminated by the company, Mr Van Halderen is entitled to a supplementary payment sufficient to raise his flexible retirement benefit to the level of his last-earned gross annual base salary until he reaches the age of 65. If his contract of employment is terminated by the company, Mr Erich is entitled to a severance payment equal to 150% of his annual base salary*; in such a situation Messrs Vierstra and Løseth are entitled to a severance payment equal to 100% of their annual base salary. Under certain circumstances, this severance payment is also paid if a member of the Management Board resigns owing to a change in the control of the company or to an irreconcilable difference of opinion regarding company policy.

(*) Indicates that this practice is not in line with the policy or with the Netherlands Corporate Governance Code. This arrangement was concluded before the Code took effect; Nuon’s policy is to honour existing arrangements.