Social indicators

Engagement Diversity and inclusion Developing our people

General Business Principles Health and Safety

Engagement

In September Philips employees took the Engagement Survey, giving their answers to 43 questions on leadership, management capabilities, alignment with the company’s vision, identification with the brand, communication, reward and recognition, diversity and inclusion, and sustainability. Given the difficult times we are pleased that the participation rate increased to 91% compared to 90% in 2008.

Engagement Index

The Employee Engagement Index (EEI) is the single measure of the overall level of employee engagement at Philips. It is a combination of perceptions and attitudes related to employee satisfaction, commitment and advocacy.

The EEI fell one point to 68% in 2009 compared with 2008, two points short of our target of 70% for 2009. While this slight reversal is disappointing, we are encouraged that our engagement levels remain high despite such difficult times, and have in fact improved in several of our businesses. The target for 2010 is 70% favorable (High-Performance norm).

According to our engagement survey partner Kenexa, “Organizations that maintain Engagement levels in these economic times have leaders who practice transparent communication and managers who create an environment of trust and cooperation.”

In the coming years, we will continue to review and update our targets by using the High-Performance norm – the score achieved by the top 20% of companies from Kenexa’s database.

People Leadership Index

Because managers contribute significantly to the engagement of their employees, we have developed the People Leadership Index (PLI), which focuses on overall people leadership effectiveness. Our PLI – measuring 10 aspects relating to management capabilities – continued to increase, rising four percentage points to 73% in 2009 up from 69% in 2008. This is encouraging, as it shows that our efforts to improve our managers’ leadership skills are working.

A look at the results

Over the years we have created a solid platform for engagement by improving our leaders’ people management capabilities. Analyzing a number of high performing units, we learned that significant improvements are possible and how this can be achieved. One of the key drivers for improvement is direct managers taking ownership, openly discussing issues and following up to resolve them. Successful managers also know how to connect our people with the long-term ambition of Philips.

Follow-up is key

There is still a way to go. Overall we will step up efforts to connect employees with the Philips direction. In some identified units we will further strengthen the engaging role of managers. As always we will stimulate all managers to discuss the findings with their employees. Additionally, we will integrate follow-up actions into the strategy review sessions where required.

Diversity and inclusion

Knowing diversity enables us to better serve our customers we continue to focus on increasing the opportunities for women and other under-represented groups in key positions, and on developing a diverse talent pipeline. In 2009, Philips employed 35% females, one point up compared to last year.

Executives

While the percentage of female executives across Philips remained unchanged in 2009 (at 10%), we aim to increase that number to 15% by 2012 and see a number of positive results in our diversity and inclusion efforts. Of the 60 newly appointed executives, 17% were female, while the percentage of executives with BRIC nationality stood at 5%. We are committed to increasing the number of talented local people in key positions in growth markets.

Overall, the 593 Philips executives at year-end represented more than 30 nationalities.

Talent pool

Illustrating our commitment to talent development, 73% of the executives appointed in 2009 were promotions.

The percentage of women in the top potential pool remained stable, with women representing 23% of the top potentials and 29% of the high potentials.

The percentage of top potentials with BRIC nationality stood at 10%, with high potentials at 17%.

A closer look

In terms of age, 71% of our female employees and 62% of our male employees are under 45. The percentage of women who joined the company in 2009 was slightly higher than that of women who left Philips.

Developing our people

Employees across the world can access detailed information about our Global Learning Curricula and register for courses online via our Global Learning Portal, Learning @ Philips.

Our Core Curriculum offers learning opportunities in the areas of personal effectiveness, people management and business acumen. With nearly 5,500 employees participating in programs in the Core Curriculum during 2009, enrollment decreased compared with 10,000 the previous year. These decreases are a result of travel restrictions.

Our Functional Core Curricula includes courses in End User IT, Finance, HRM, IT, Language, Marketing, Project Management, Sales and Supply Management. Enrollment in the Functional Core Curricula was 10,720 in 2009, compared with 8,664 in 2008. Many Functional Curricula are tied to mandatory learning plans designed to increase our organizational capability.

Almost 43,000 employees participated in ‘Leading to Win’ training in 2009.

Talent pipeline curriculum

The Talent Pipeline Curriculum consists of specially designed learning interventions across the talent pool. These programs are created and deployed in collaboration with the top global universities. They provide accelerated learning opportunities to our talent and offer action learning projects to apply learnings to a business opportunity that in turn creates value for Philips.

LEAP and Executive Development Program (EDP) are executive programs, Octagon is for top potentials and Inspire is for high potentials. We continued our investment and focus on talent development by successfully running one LEAP and one EDP, two Octagons and six Inspire programs in 2009.

Eight Octagon projects were completed in 2009. One project explored the outdoor solar powered lighting in China, leveraging the huge market potential for energy-efficient solutions in China. Another project focused on water in Western Europe, addressing multiple consumer needs based on the Philips water filtration business and the expected consumer trend to drink tap water rather than bottled.

We completed 24 Inspire projects. Some focused on taking Philips products to new and emerging markets, others on leveraging economic and stimulus packages in US and Europe, while others on determining the feasibility of Philips getting into new product/market combinations.

Executive education

To help our executives to continue to develop their careers and strengthen their leadership skills, we have been offering a curriculum of internal and external programs. These offerings continue to be relevant to our executives. Participation reduced compared to 2008 for external business school programs.

General Business Principles

There were 318 reports submitted in 2009 relating to alleged violations of the General Business Principles, compared with 360 reports in 2008, 389 in 2007 and 392 in 2006.

The table provides a breakdown of the newly filed alleged violations of the General Business Principles per year. We now are reporting alleged complaints according to our internal registration, escalation and investigation procedures and systems – rather than by respective GBP principle, which always involved an element of subjectivity. Previous years’ complaints have been restated for comparison.

Treatment of employees

The most common alleged violations related to Treatment of employees, which represented 51% of all violations, compared with 55% in 2008. As in 2008, the vast majority of these complaints (about three quarters) related to two issues – Discrimination and Respectful treatment.

Complaints regarding Discrimination mainly relate to sexual discrimination and favoritism, and principally originated in the US. That country also accounted for the largest number of overall complaints in 2009. Of the total complaints reported in the US 35% related to discrimination, whereas that figure was less than 20% for Philips as a whole.

Most complaints regarding lack of Respectful treatment – primarily verbal abuse and (sexual) harassment – come from Brazil. Accounting for the second largest number of total reported allegations, Brazil also logged the most Respectful treatment complaints (33% of all reported complaints, compared with 17% for Philips as a whole). We are conducting management training and enhancing internal communication.

The rise in the number of complaints relating to remuneration issues is striking. Closer analysis has shown that many of these issues can be attributed to the economic decline, which led to pressure on wages in general and on payment for overtime in particular.

More information on these categories can be found in the GBP Directives on www.philips.com/gbp.

Business Integrity

In 2009, 28% of the total number of complaints were allegations in the Business Integrity category, compared to 17% in 2008.

These complaints relate to the principle that Philips insists on honesty, integrity and fairness in all aspects of its business.

Employees are not allowed to have any direct or indirect financial interest in a supplier or competing company with the exception of a financial interest in a publicly traded company. Philips companies shall not make payments or donations, in money or in kind, to political parties, political organizations or individual politicians, unless such payments are made in strict accordance with the GBP Directives.

The category Other

Lastly, the allegations in the category Other represented 17% of the reported complaints compared with 22% in the previous year. The 2008 increase in the category Other to above 20% was due primarily to complaints submitted by employees from recently acquired companies in which the pre-acquisition style of management was inconsistent with the underlying principles of business conduct defined in the Philips GBP. To improve this situation dedicated training and communication programs geared to aligning the previous management style with that of Philips were developed in 2009 and were rolled out to each of the major new acquisitions. Closer analysis shows that the disproportional over-representation of employees from new acquisitions with complaints on this topic decreased substantially during the year, resulting in the reduced number of allegations in this category.

Supply management

Compliance with the Philips Supply Management Code of Ethics significantly increased during the last two years. In 2009 the number of complaints relating to purchasing employees who allegedly did not adhere to the Philips Supply Management Code of Ethics was, as in 2008, about half the number reported on this topic in preceding years.

All employees who are performing (certain) purchasing functions should adhere to and fully comply with the Philips Supply Management Code of Ethics.

Actual violations versus non-violations

Of the 318 GBP complaints reported in 2009, 75 are still pending (particularly those lodged during the last three months of the year) and 243 investigations were completed. Almost 40% of these complaints were actual violations, while in 2008 a quarter of the complaints were determined to be justified after investigation.

Health and Safety

Philips strives for an injury and illness-free work environment, with a sharp focus on decreasing the number of injuries. This is defined as a KPI, on which we set yearly targets for the company and our individual sectors.

In 2009 we recorded 427 Lost Workday Injuries cases, occupational injury cases where the injured person is unable to work the day after the injury. This is a 34% decrease compared with 2008. The rate of Lost Workday Injuries also decreased substantially to 0.44 per 100 FTEs, compared with 0.68 in 2008.

Reductions were particularly realized in the Lighting sector, which continues to make progress with a dedicated action program to drive down injury levels started three years ago.