Incentive Plan. Performance Share Plan

Transcription

1 Performance Share Plan Long-Term Incentive Plan Performance Share Plan

2 Contents Driving performance and sharing our business success 03 Driving our business success 05 Our compensation philosophy 07 The LTI Plan at a glance 09 How the LTI Plan works 20 Questions and answers about the LTI Plan Philips Long-Term Incentive Plan Contents Page 2

3 Driving our business success Building long-term sustainable value for our shareholders Philips Long-Term Incentive Plan Driving our business success Contents Page 3

4 Introduction Participant brochure This is a guide to our Long-Term Incentive Plan (LTI Plan). 1 This Plan is offered exclusively to key senior employees like you and is your opportunity to share in the success of our company. The LTI Plan gives you the chance to earn shares in Philips provided certain performance conditions are met. Driving our business success We are committed to building long-term sustainable value for our shareholders. As a senior manager at Philips, you play a unique and important role in driving our performance and growth. Your decisions and actions affect the course we take to reach our goals and deliver on our business strategy. By using the LTI Plan to link a portion of your compensation to the performance of the business, we seek to recognize entrepreneurship and reward you for delivering results that are important to Philips and the shareholders. The LTI Plan is an important component of your reward. This guide gives you an overview of the LTI Plan. It shows how the plan works, provides answers to frequently asked questions and definitions of common terms used when describing the plan. After the grant date you can see the number of performance shares actually granted to you and the date when the award will vest if the performance conditions are met, in your account at Computershare ( 1 This document is only for informational purposes and does not create any obligation for any Philips company. Your participation in the LTI Plan described in this document, any awards made thereunder and the acceptance thereof, are governed by the terms and conditions set out in the document named terms and conditions of the Global Philips Performance Share Plan which can be found on the website of our stock plan administrator, Computershare. Philips Long-Term Incentive Plan Driving our business success Contents Page 4

5 Our compensation philosophy How the LTI Plan fits in with our compensation philosophy Philips Long-Term Incentive Plan Our compensation philosophy Contents Page 5

6 Our compensation philosophy How the LTI Plan fits in with our compensation philosophy For many years Philips has operated a Long-Term Incentive Plan (LTI Plan) as part of the overall reward strategy. This serves to align the interests of senior employees like you with those of our shareholders. The LTI Plan is designed to give you a stake in Philips, which in turn gives you the opportunity to earn significant rewards based on the value you help to create. Our remuneration policy includes three elements that reward both short-term and long-term performance, ensuring our top and senior management are rewarded fairly and competitively for their contribution to the company s success. The proportions of the three compensation elements vary for different job levels and countries but, together, they align your interest and Philips goals with our business strategy of encouraging a more performance-oriented culture. Long-Term Incentive Plan Designed to reward performance over a three year period, with Philips shares so you can benefit from your contribution to Philips success over a longer term. Annual Incentive Plan Rewards you with a cash bonus based on your performance and the performance of your business entity and your next level up business entity provided certain short-term, annual performance targets are met. Base Salary Provides you with a locally competitive level of base pay. Your base salary reflects the size of your job, your applied experience, and your sustained performance. Philips Long-Term Incentive Plan Our compensation philosophy Contents Page 6

7 The LTI Plan at a glance Rewarding your contribution Philips Long-Term Incentive Plan The LTI Plan at a glance Contents Page 7

8 The LTI Plan at a glance Rewarding your contribution The LTI Plan is designed to reward your contribution, commitment, and focus on helping Philips to achieve its plans for growth and long-term success. As a participant, you are eligible to receive Philips shares on the vesting date if the performance conditions over the three year performance period are met. You will be granted a conditional award of free Philips performance shares at the beginning of a three year period. The number of shares you will actually receive after three years depends on Philips performance against specific goals. Your vested shares will be kept in a share account in your name. You can keep the shares or sell them it s entirely up to you. Some participants may have access to sensitive company information and this may limit the times when they can sell their shares. If this is the case for you, you will be advised separately. In most cases personal taxes will become payable at the time the shares vest. If required Philips will withhold personal taxes at that time so the number of shares you receive can be reduced accordingly. If you decide to keep your shares then you will be a shareholder in Philips. As a shareholder you can continue to benefit from your contribution to Philips success through dividends and increases in the Philips share price. Philips Long-Term Incentive Plan The LTI Plan at a glance Contents Page 8

9 How the LTI Plan works The award scheme Philips Long-Term Incentive Plan How the LTI Plan works Contents Page 9

10 How the LTI Plan works The award scheme Your award Each year, an LTI award can be made with a value benchmarked against the market. The value of the award is based on your job level and your home country. Your manager has the discretion to increase or decrease this value based on your performance and/or growth potential. This value will be converted to a number of shares based on a conversion price. The conversion price will be calculated based on the average closing price of the Philips share over five days starting on the day of publication of the first quarter results (usually towards the end of April). On the grant date (usually early May) you will conditionally be awarded this number of performance shares. The actual number of performance shares that will vest could be lower or greater than the number of shares granted to you based on the achievement of the performance conditions. Performance period A three year performance period begins on January 1 each year. At the end of the three year period, Philips performance is measured against set performance conditions. Performance periods overlap on an ongoing basis as shown in the following diagram. During the vesting period, the value of dividends payable will be used to increase the number of performance shares you are entitled to receive subject to the extent that performance targets are met. Philips Long-Term Incentive Plan How the LTI Plan works Contents Page 10

11 LTI Plan Key Dates Year 1 Year 2 Year 3 Year 4 Year 5 Performance period 1 Start (January 1) End (December 31) Vesting date (3rd anniversary of the grant date) Grant date 1 (May) Delivery of shares 2 Start (January 1) Performance period 2 End (December 31) Each three year performance period will end on December 31. The vesting date, being the date when the shares are delivered to you falls A new performance period starts on January 1 each year in the following May. Grant date 1 (May) Delivery of shares 2 1 Your target award is confirmed, the conversion price and number of performance shares is calculated and the Performance period 3 performance targets are confirmed. A new performance period starts on January 1 each year Start (January 1) Grant date 1 2 Subject to you still being employed at the vesting date. Philips Long-Term Incentive Plan How the LTI Plan works Contents Page 11

12 Performance conditions To determine the number of performance shares that will vest, two performance conditions will be used to assess performance: Relative Total Shareholder Return (TSR); and Adjusted Earnings Per Share growth (EPS growth). The LTI Plan measures performance over the entire performance period, with equal weighting given to the two performance conditions. While performance throughout the cycle is important, the value of your award is based on the results measured at the end of the performance period. Philips Long-Term Incentive Plan How the LTI Plan works Contents Page 12

13 Performance conditions in detail a) Relative Total Shareholder Return (TSR) TSR is used to compare the performance of Philips to that of its key competitors. It measures the change in price of shares over the performance period, plus the dividends paid over the performance period. The TSR of Philips is ranked against the TSR of 21 1 peer companies. Currently these companies are: 3M, ABB, Covidien*, Danaher, Eaton, Electrolux, Emerson, General Electric, Hitachi, Honeywell, Johnson Controls, Johnson & Johnson, LG Electronics, Legrand, Medtronic, Panasonic, Procter & Gamble, Schneider Electric, Siemens, Smiths Group and Toshiba. 1 The constituents of and number of companies in the peer group may change reflecting corporate changes such as mergers, acquisitions and delisting. * NOTE: Covidien has been acquired by Medtronic in January b) Adjusted Earnings Per Share growth (EPS growth) EPS is the portion of a company s profit allocated to each outstanding share of common stock and it serves as an indicator of a company s profitability. EPS growth is calculated applying the simple point-to-point method at year-end, using the EPS at the start and the end of the performance period. Philips Long-Term Incentive Plan How the LTI Plan works Contents Page 13

14 Vesting of performance shares The percentage of performance shares that will vest (that will be converted to shares on the vesting date) will depend on the performance level Philips has achieved for each performance condition. 50% of shares that will vest will depend on the Philips Relative Total Shareholder Return (TSR) and 50% on growth in Earnings Per Share (EPS). Philips Long-Term Incentive Plan How the LTI Plan works Contents Page 14

15 a) TSR performance The percentage of performance shares that will vest in relation to Philips TSR ranking is illustrated in the graph below. If Philips is ranked in the top 75th percentile (the top quarter of companies) then you will receive 200% of your performance shares in relation to TSR. 200% 200% Vesting If Philips is ranked between the 50th and 75th percentile, you will receive between 100% and 150% 200% of your TSR-related performance shares. Vesting % 100% 100% Vesting For performance between 40th and 50th percentile (ranking 12th or 13th out of 21 companies), 60% of your TSR-related performance 60% Vesting shares will vest. 50% If Philips is ranked in the 40th percentile or 0% 0% Vesting lower (14th out of 21 companies or lower) no performance shares will vest in relation to TSR. 40th Percentile 50th Percentile 75th Percentile The number of shares that will vest will include any stock Company Company 13 & 12 Company 11-6 Company 6-1 dividend that may have been added during the vesting period. Philips Long-Term Incentive Plan How the LTI Plan works Contents Page 15

16 b) EPS performance Three performance levels have been set (minimum performance, target performance and maximum performance) and the percentage of performance shares that will vest will depend on the level of EPS performance achieved as set out below: 200% pay-out 150% Vesting % 100% NEEDS UPDATING The level of EPS growth required to achieve Minimum, Target and Maximum performance 50% 40% will be set by the Supervisory Board at a realistically achievable level. 0% Minimum Target Maximum Philips Long-Term Incentive Plan How the LTI Plan works Contents Page 16

17 Example* - See Q11 for more examples In May of year 1 an executive receives a target award of 65,000. The conversion price is 25. This results in the grant of 2,600 performance shares. At the end of the three year performance period (December 31 of year 3) Philips TSR performance is exactly equal to the TSR performance of the peer company ranking 10, resulting in a vesting of 120%. The EPS performance equals the target performance, resulting in 100% vesting. The total vesting for this award in May of year 4 will be: 50% x 120% + 50% x 100% = 110% of the number of performance shares awarded in year 1 Start of performance period Year 1 Year 2 Year 3 End of performance period Year 4 Award of 2,600 performance shares Delivery of 2,860 shares * Example is excluding the effect for stock dividends added during the vesting period. Philips Long-Term Incentive Plan How the LTI Plan works Contents Page 17

18 You will receive your vested performance shares (including any stock dividend added during the vesting period), as soon as is practicable after the vesting date. When you receive Philips shares, you will have the same ownership rights as any other shareholder, including dividends and the right to vote. Your vested shares will be kept in a share account in your name. You can keep the shares or sell them it s entirely up to you. Some participants may have access to sensitive company information and this may limit the times when they can sell their shares. Please consult the Rules of Conduct with respect to Inside Information for further guidance. General tax considerations In most cases, your award is subject to personal income tax and/or applicable social taxes upon vesting. The tax treatment varies per country. You will receive an in advance of vesting confirming the tax elections available to you. You should consult a local tax advisor for full information about the taxes payable specific to your situation. Insiders If you are designated as an Insider, given your knowledge of inside information you are restricted with respect to when you are permitted to perform any transactions relating to Philips shares. Hence, you may only sell shares during an open window period. Please see the overview of the open window periods on the Philips Business Ethics website under The Rules, Inside Information. The insider qualification is registered and maintained by Philips Internal Audit department. Should you require further information, please contact the Compliance Office for Insider trading. Philips Long-Term Incentive Plan How the LTI Plan works Contents Page 18

19 Qualified Insiders If you fall within the category of Qualified Insiders, you are not able to make a tax election regarding your performance shares via the website of Computershare. Should you wish to make a tax election involving the sale of shares, you are required to complete a prenotification form. Special Insiders Special Insiders are individuals who are working on a specific project which causes them to be privy to price-sensitive information even during the open window periods. If you are a Special Insider, you will be informed by Philips Internal Audit and/or Legal Department prior to an open window period to explain what you are allowed to do during such open window period as regards to trading of shares. Philips Long-Term Incentive Plan How the LTI Plan works Contents Page 19

20 Questions and answers about the LTI Plan These questions and answers contain further information about the LTI Plan Philips Long-Term Incentive Plan Questions and answers about the LTI Plan Contents Page 20

21 1. Why do we have the LTI Plan? The LTI Plan serves to align the interests of senior employees with those of our shareholders. It is designed to give you a stake in Philips, which in turn gives you the opportunity to earn significant rewards based on the value you help to create. 6. How are performance targets set? Performance targets are set by the Supervisory Board at the beginning of each performance period. The performance conditions are designed to reflect the creation of long-term shareholder value. 2. Who is eligible for the LTI Plan? Performance shares are granted exclusively to employees in the most senior positions who substantially influence the performance results of our company. Eligible employees include executives and CG90 employees. Managers will also have the discretion to nominate key, high-performing CG80 employees for participation in recognition of their value and potential. 3. How many performance shares do I get? The number of performance shares awarded to you is based on your award value and the conversion price of the performance shares. 4. How is the award value set? For each job level a target grant value will be set, benchmarked against the market. Your manager has the discretion to increase or decrease this value based on your performance and/or growth potential. 7. When will I receive my shares? You will receive your vested performance shares (including any stock dividend added during the vesting period) as soon as is practicable after the vesting date. 8. Is there a minimum period of time I have to hold my shares? No. Once your shares have vested, you can retain them or you can sell them. For employees with executive level 3 mandatory share ownership guidelines apply and they should hold on to the (after tax) shares until the share ownership level is reached. 9. Will I be eligible to participate in the LTI Plan and receive performance shares every year? In principle, executives and most CG90 employees are eligible to receive performance shares on an annual basis. However, your manager shall determine, based on absolute discretion, whether awards are granted in any given year. 5. How is the peer group of companies chosen for the purposes of calculating TSR? The companies chosen reflect the product portfolio of Philips and are comparable in terms of industry, market capitalization, revenues and number of employees. The companies in the peer group may change; reflecting changes in these companies for example mergers, acquisitions and delistings. Philips Long-Term Incentive Plan Questions and answers about the LTI Plan Contents Page 21

22 10. What happens if I leave the company s employment? This depends on the reason you leave the company s employment, as detailed below: Your employment ends because 1. You resign All your unvested performance shares are automatically cancelled on the date of termination. 2. You die or become Your beneficiary will remain entitled to vesting of legally incapacitated performance shares granted nine months or more prior to termination. Your beneficiary will receive vested performance shares as soon as reasonably practicable after the end of the three year vesting period. Performance shares granted within nine months prior to the termination are automatically cancelled on the date of termination. 3. You retire, You will in principle remain entitled to vesting of become disabled performance shares granted nine months or more prior to termination, subject to the condition of good behaviour after termination of employment. You will receive vested performance shares as soon as reasonably practicable after the end of the three year vesting period. Performance shares granted within nine months prior to the termination are automatically cancelled on the date of termination. For example: In 2015 a Global EL 1 receives a grant of 65,000 With a conversion price of 25 this translates into 2,600 performance shares The value of this LTI grant at vesting in 2018 depends on The % of the performance shares vesting: A The share price at vesting: B A Number of shares vesting (after 3 years) Global EL 1 Below minimum on 40% score on EPS and 60% 100% score on EPS and EPS and TSR score on max both TSR and EPS score on TSR 100% on TSR Number 0 1,300 2,600 5,200 of shares vesting B Value at vesting (after 3 years) Global EL 1 Below minimum performance Minimum performance on both EPS & TSR On target performance Maximum performance 4. Your employment All unvested performance shares are automatically Share price 0 26,000 52, ,000 is terminated cancelled on the date of termination. is 20 Share price 0 32,500 65, ,000 is Could you explain exactly what will affect the value of the grant at the time of vesting? The value of the grant at vesting depends on the % of performance shares vesting, which is dictated by the performance conditions, and the share price. Share price is 30 Share price is ,000 78, , ,500 91, ,000 Philips Long-Term Incentive Plan Questions and answers about the LTI Plan Contents Page 22

23 12. Who can I go to for more information and/or questions? The LTI Plan is administered and operated by Computershare on behalf of Philips. Computershare Your primary source of information is Computershare. Computershare manages day-to-day administration of the LTI Plan via Region Region covered EMEA Americas North America (Toll Free) Australia or Asia-Pacific region Alternatively contact the Computershare Plan Managers team via Philips@computershare.com In addition, participants can contact the Computershare local helpdesks (see right). These are your primary resources for accessing your account information on the website and for performing transactions. You will find additional important information on how to perform transactions and find the relevant forms under Company Info on the website. Generic administrative support is operated by Computershare during business hours for day-to-day plan administration, maintenance and assistance with transactions. Note: Please have your Personal Unique Identification number ( PUID or PDS ID) and your initial hire date at hand when contacting the helpdesk of Computershare. You can find your PUID next to your name in Workday. Philips Stock Option and Share Center The Philips Stock Option and Share Center ( SOSC ), a dedicated team based in the Netherlands within Group HRM/CoE Rewards, is responsible for the overall operation of the LTI Plan globally. In addition, the SOSC can provide assistance in special circumstances, for example, if you are leaving Philips or retiring and you want detailed information on how this impacts your outstanding LTI awards. Moreover, if you have an issue or question that Computershare is unable to resolve you can always contact the SOSC. Philips Long-Term Incentive Plan Questions and answers about the LTI Plan Contents Page 23

24 The SOSC can be contacted by Apart from Computershare and the SOSC, other parties involved in the operation of the LTI Plan are: Your manager in the determination of eligibility and grant size; Your local payroll department with respect to the withholding of taxes and social security contributions (if applicable). For more complete and detailed information, we recommend that, in addition to reading this guide, you also access the other resources under Long-Term Incentives on the HR Portal and on the Computershare website: under Company Info. Philips Long-Term Incentive Plan Questions and answers about the LTI Plan Contents Page 24

25 Definitions of terms used in this participant brochure Company Koninklijke Philips N.V. (Philips) Conversion price The price used to convert your award value to performance shares. This will be calculated based on the average closing price of a common share of Philips over five days starting on the day of publication of the quarterly or annual results. Grant date The day on which your performance shares are awarded to you. This is normally the fourth Business Day from the day of publication of the Philips first quarter results. However, in exceptional circumstances, for example in the event of initial grants to new employees, Philips may make a grant on the fourth Business Day after the publication of Philips other quarterly or annual results. Performance share A right to receive a share at the vesting date, subject to the achievement of performance conditions. These cannot be traded. Performance conditions The number of performance shares that will vest will depend on the achievement of two performance conditions, which are equally weighted: A measure of Philips performance by comparison to a peer group of companies - Relative Total Shareholder Return (TSR); and A measure of Philips profitability - Earnings Per Share growth (EPS). Performance period The three year period over which performance is assessed and after which, provided certain performance conditions have been met, awarded performance shares will vest. Note - the shares will vest on the third anniversary of the grant date which will be sometime after the end of the performance period. Plan The Long-Term Incentive Plan ( LTI Plan ) also known as the Global Philips Performance Share Plan. Philips Long-Term Incentive Plan Questions and answers about the LTI Plan Contents Page 25

26 Rules The terms and conditions that govern the operation and administration of the LTI Plan. If there are any discrepancies between this participant brochure and the terms and conditions, the terms and conditions will take precedence. Share A common share of the company. Award value An amount which is used to calculate the number of performance shares you will be granted. Vest Performance shares are converted to shares. You could receive a higher or lower award than your award value, based on performance over the three-year performance period and the share price at the vesting date. Vesting date The third anniversary of the grant date of an award. Philips Long-Term Incentive Plan Questions and answers about the LTI Plan Contents Page 26

27 Designed by OneVoiceConnect Contact: Philips 2015