Remuneration report
The remuneration policy and structure reflects the strategic ambitions of
the Company, takes into account internal and external circumstances and
preserves the highest standards of good corporate citizenship. The policy
seeks to maintain a tight focus on the strategic short-term and long-
term results. The policy was adopted in the Annual General Meeting of
Shareholders in 2005. A review of the policy is conducted every two years.
Report of the Supervisory Board
Remuneration structure 2006
The remuneration package of the Executive Board
includes a base salary, a short-term incentive and
a long-term incentive. The base salary accounts
for 45 per cent of the total remuneration package
when targets are achieved. The variable portion
is divided equally between short-term and long-
term. This ensures a balanced focus, on both
short-term and long-term performance.
The Company aims to achieve consistency in the
structure of the remuneration packages of both
Executive Board members and senior Heineken
executives. The performance-related elements
in Executive Board members' remuneration are
emphasised more strongly than those of senior
executives, reflecting the principle of increasing
performance sensitivity in line with the impact
on Group results.
Both internal pay relativities and relevant market
data are used to define the remuneration
package for the Executive Board. For market
data, a specific labour market is defined.
Heineken operates in a highly international labour
market and is headquartered in the Netherlands.
Consequently, the reference for market data is
primarily other Dutch multinational companies
(75 per cent). To reflect the specific business of
Heineken a minority of Continental European
companies that operate in the branded consumer
products markets are included (25 per cent).
The labour market peer group consists of the
following companies: Akzo Nobel, DSM, Reed
Elsevier, Royal Ahold, Royal KPN, Royal Numico,
TNT, Unilever, VNU, Wolters Kluwer, InBev, Henkel,
L'Oréal and Nestlé.
Base salary
For the members of the Executive Board, the
remuneration policy includes a base salary at the
median level of the labour market peer group.
The base salary for the CEO is set at 30 per cent
above the base salary for the other members of
the Executive Board. In 2006 the base salaries
were adjusted in line with policy: CEO €680,000
and other Executive Board members €525,000.
Annual bonus
The emphasis of the annual bonus is on annual
operational performance. Organic net profit
growth is the measure to assess the operational
performance of Heineken on a one-year basis
and accounts for 75 per cent of the bonus
opportunity. At target level, the annual bonus
level for the CEO is €422,500 and for the other
members of the Executive Board €325,000.
Each year, the Supervisory Board determines an
ambitious, yet realistic organic net profit growth
target. The threshold level of payout is set at 60
per cent of the target level of payout. A linear
pay-out curve applies. The maximum payout will
not exceed 1.4 times the target bonus level. Part
of the payout is subject to meeting an acceptable
cash conversion rate.
The remaining 25 per cent of the annual bonus is
linked to yearly targets. The specific targets are
commercially sensitive and cannot be disclosed.
Long-term incentive
The long-term incentive plan for the Executive
Board, as per 1 January 2005, is a performance
share plan. A similar plan was implemented for
senior management in 2006.
Each year a number of performance shares are
conditionally awarded, the vesting of which is
subject to meeting a stretching performance
target after three years. The value of the
performance shares at target level is €422,500
for the CEO and €325,000 for the other members
of the Executive Board.
The Executive Board performance share
allocation at target level is as follows:
for the year starting 1 January 2005, based
on the share price at 31 December 2004 of
€24.53, 17,224 performance shares for the
/TQ Heineken N.V.
\J£. Annual Report 2006
