8-KMaterial Agreements

Aon plc 8-K Report, Material Agreement (Mar 22, 2006)

Filed March 22, 2006For Securities:AON

Summary

Aon plc (AON) filed an 8-K report on March 21, 2006, detailing significant changes to its non-employee director compensation structure and approving annual and long-term incentive awards for its executive officers. The company implemented these changes to align director compensation with market practices and to incentivize executive performance. For directors, the annual retainer, equity grants, and committee chair stipends were substantially increased, with a shift towards deferred stock units. For executive officers, the company approved annual incentive awards for 2005 performance and established the framework for 2006 incentive compensation. Notably, a new Leadership Performance Program was introduced for long-term incentives, comprising performance share units tied to cumulative earnings per share over a three-year period and stock options. This program is designed to drive Aon's success and retain key talent by linking a significant portion of compensation to stock performance and strategic financial goals.

Key Highlights

  • 1Aon significantly increased compensation for non-employee directors, effective January 1, 2006, to align with market competitive levels.
  • 2Non-employee director compensation now includes higher annual retainers, additional stipends for committee chairs and lead independent director, and increased equity grants in the form of deferred stock units.
  • 3The company approved substantial annual incentive awards for 2005 performance for its Named Executive Officers, with payouts varying based on role and structure (cash vs. restricted stock units).
  • 4A new 'Leadership Performance Program' was established for long-term executive incentives, effective for the 2006-2008 performance period.
  • 5The Leadership Performance Program features a performance-based component (75% of award) tied to cumulative earnings per share over three years, with potential payouts ranging from 0% to 150% of target.
  • 6The remaining 25% of the Leadership Performance Program award consists of stock options that vest ratably over the three-year performance period.
  • 7The filing also confirms the corporate performance measure for 2006 annual incentives will be pre-tax net income from ongoing operations.

Frequently Asked Questions

Aon substantially increased the compensation for its non-employee directors, effective January 1, 2006. This included a significant rise in the annual retainer from $30,000 to $85,000, the introduction of additional annual retainers for committee chairs and the lead independent director, and an increase in the annual equity grant value from $50,000 to $85,000 in deferred stock units. The company also introduced a lifetime charitable bequest program and a matching charitable contribution program for directors.

The company approved annual incentive awards for Named Executive Officers based on 2005 performance. The CEO, Gregory C. Case, received $2.8 million, paid entirely in cash as per his employment agreement. Other senior executives received awards ranging from $861,102 to $1,350,000, with most of these awards paid 80% in cash and 20% in restricted stock units.

The Leadership Performance Program is a new long-term incentive plan designed to drive executive performance and retention. For the 2006-2008 period, 75% of an award consists of performance share units tied to Aon's cumulative earnings per share over three years, with potential payouts from 0% to 150% of the target. The remaining 25% is in the form of stock options that vest over the same three-year period. This program aims to align executive interests with shareholder value creation.

For 2006, the Board's Organization and Compensation Committee has established 'pre-tax net income from ongoing operations' as the corporate performance measure for the Aon Senior Officer Incentive Compensation Plan. This measure will be used to determine annual incentive awards for eligible executive officers.