General remuneration policy

The objective of the remuneration policy for members of the Board of Management is in line with that for executives throughout the Philips Group: to focus on improving the performance of the company and enhance the value of the Philips Group, to motivate and retain them, and to be able to attract highly qualified executives, when required.

One of the goals behind the policy is to achieve a strong link between executive remuneration and the company’s performance. Consequently, the remuneration package includes a (significant) variable part in the form of an annual cash incentive and a long-term incentive consisting of restricted share rights and stock options. The performance targets are predominantly linked to Philips’ long-term strategy.

The performance targets for the members of the Board of Management are determined annually at the beginning of the year. The Supervisory Board determines whether performance conditions are met and can adjust the pay-out of the annual cash incentive and the long-term incentive grant upward or downward if the predetermined performance criteria would produce an “unfair” result in extraordinary circumstances. The authority for such adjustments exists on the basis of the ultimum remedium- and claw back clauses (in accordance with best practice provisions II.2.10 and II.2.11 of the Dutch Corporate Governance Code).

The Board of Management remuneration policy is benchmarked regularly against companies in the general industry in Europe and aims at the median market position.The Remuneration Committee also annually conducts scenario analyses. These include the calculation of remuneration under different scenarios, whereby different Philips performance assumptions and corporate actions are looked at. In 2009, the full Supervisory Board conducted an extensive review of the remuneration policy. The Supervisory Board concluded that the current policy proves to function well, in the current extreme circumstances as well as in terms of the relationship between the strategic objectives and the chosen performance criteria. The policy does not encourage inappropriate risk-taking.