Long-Term Incentive Plan

Grants made under the 2014 LTI Plan consist of performance shares only.

Grant size

The annual grant size is set by reference to a multiple of base salary. For the CEO the annual grant size is set at 120% of base salary and for the other members of the Board of Management at 100% of base salary. This is broadly at a mid-market level against leading European listed companies. The actual number of performance shares to be awarded is determined by reference to the average of the closing price of the Philips share on the day of publication of the quarterly results and the four subsequent dealing days.

Vesting schedule

Dependent upon the achievement of the performance conditions, cliff-vesting applies three years after the date of grant. During the vesting period, the value of dividends will be added to the performance shares in the form of shares. These dividend-equivalent shares will only be delivered to the extent that the award actually vests.

Performance conditions

Vesting of the performance shares is based on two equally weighted performance conditions:

  • 50% Adjusted Earnings per Share growth (“EPS”) and
  • 50% Relative Total Shareholder Return (“TSR”)

EPS

EPS growth is calculated by applying the simple point-to-point method at year end. Earnings are the income from continued operations attributable to shareholders, as reported in the Annual Report.

The following performance-incentive zone applies for EPS:

Philips Group
Performance-incentive zone for EPS in %
 
Below threshold
Threshold
Target
Maximum
Payout
0
40
100
200

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The EPS targets are set annually by the Supervisory Board. Given that these targets are considered to be company sensitive, disclosure will take place retrospectively at the end of the performance period. EPS targets and the achieved performance are published in the Annual Report after the relevant performance period.

TSR

The TSR peer group for the LTI Plan consists of the following 21 companies:

Philips Group
TSR peer group
ABB
Hitachi
Panasonic
Covidien
Honeywell Int.
Procter & Gamble
Danaher
Johnson Controls
Schneider Electric
Eaton
Johnson & Johnson
Siemens
Electrolux
Legrand
Smiths Group
Emerson Electric
LG Electronics
Toshiba
General Electric
Medtronic
3M

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A ranking approach to TSR applies with Philips itself excluded from the peer group to permit interpolation.

The performance incentive-zone is outlined in the table below:

Philips Group
Performance-incentive zone for TSR in %
Position
≥ 21-14
≥ 13
≥ 12
≥ 11
≥ 10
≥ 9
≥ 8
≥ 7
≥ 6-1
Payout
0
60
60
100
120
140
160
180
200

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Under the LTI Plan members of the Board of Management were granted 117,936 performance shares in 2014.

The following tables provide an overview of granted but not yet vested (locked up) stock option grants, an overview of performance shares granted but not yet vested and an overview of restricted share rights granted but not yet released. The reference date for board membership is December 31, 2014.

Philips Group
Performance shares1)
 
grant date
number of performance shares originally granted
value at grant date
end of vesting period
number of performance shares vested in 2014
value at vesting date in 2014
F.A. van Houten
20132)
55,000
1,233,650
2014
55,000
1,425,600
 
2013
62,559
1,320,000
2016
n.a.
n.a.
 
2014
59,075
1,380,000
2017
n.a.
n.a.
R.H. Wirahadiraksa
20132)
38,500
863,555
2014
38,500
997,920
 
2013
31,991
675,000
2016
n.a.
n.a.
 
2014
31,036
725,000
2017
n.a.
n.a.
P.A.J. Nota
20132)
38,500
863,555
2014
38,500
997,920
 
2013
29,621
625,000
2016
n.a.
n.a.
 
2014
27,825
650,000
2017
n.a.
n.a.
1)
Dividend performance shares not included
2)
Accelerate! Grant
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Philips Group
Stock options
 
grant date
number of stock options
value at grant date 1)
end of lock-up period
value at end of lock-up period 1)
F.A. van Houten
2011
75,000
366,000
2014
368,468
 
2012
75,000
212,550
2015
n.a.
 
20132)
55,000
242,534
2016
n.a.
R.H. Wirahadiraksa
2011
51,000
248,880
2014
250,558
 
2012
51,000
144,534
2015
n.a.
 
20132)
38,500
169,773
2016
n.a.
P.A.J. Nota
2011
51,000
248,880
2014
250.558
 
2012
51,000
144,534
2015
n.a.
 
20132)
38,500
169,773
2016
n.a.
1)
Value based on Black & Scholes value
2)
Accelerate! Grant
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Philips Group
Restricted share rights
 
grant date
number of restricted share rights originally granted
value at grant date
number of restricted share rights released in 2014
value at release date in 2014
F.A. van Houten
2011
20,001
418,021
6,667
145,607
 
2012
20,001
296,415
6,667
136,807
R.H. Wirahadiraksa
2011
13,602
284,282
4,534
99,023
 
2012
13,602
201,582
4,534
93,038
P.A.J. Nota
2011
13,602
284,282
4,534
99,023
 
2012
13,602
201,582
4,534
93,038

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For more details of the LTI Plan see note (28) Share-based compensation.

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