2005 was a year of uncertainty for all of us at NIBC. It began with the announcement of the start of a strategic evaluation process at the end of 2004. Against this background it was more difficult to recruit new talent to the Bank, resulting in a slightly higher staff turnover. Despite this, we continued to make progress in our aim of transforming NIBC into a more results-driven, modern, integrated merchant banking business, with a culture to match. On balance our staffi ng level was slightly up on 2004 at around 665, which we consider an achievement under the circumstances.
Since 2002 we have worked towards the goal of transforming NIBC into a more results-driven, productive and competent merchant banking business and culture. An improved ratio of interest to fee income and our ability to produce superior and sustainable financial returns are some of the measures of our success. Our people play the key role in achieving these goals, and by managing them well we hope to succeed in creating a highly capable and engaged workforce that is motivated and able to create value for our clients and shareholders. In the management of our people, we are guided by our Business Values and our Business Principles. Transforming the culture has had big implications for the way we recruit, train, develop, motivate, manage and reward. In 2005, following a thorough review, many enhancements were made to our policies and practices. The highlight came at the very end of the year when we announced a new employee share and options scheme, NIBC Choice, which was very well received by our staff .
We were less proactive in our recruitment approach, given the uncertainties surrounding the change of ownership process, and the level of recruitment of new staff was slightly lower. We continued, however, to maintain a presence at select universities, recruitment fairs, we have continued organising in-company visits for students and made progress with our plans to renew and upgrade our workforce in general. We hired a number of staff wiThexpertise specifically in areas we seek to expand, recruiting from other financial institutions, both in the Netherlands and elsewhere. We continued our successful Analyst Program for graduates, whereby the new hires start immediately in a particular job in one of our SBUs.
Working and learning on-the-job is then alternated with targeted and very specifi c training and development activities. The most important of these is a structured financial training program delivered in combination with the Amsterdam Institute of Finance. In 2006 we are planning a much more active recruitment drive and aim to position ourselves as an independent Merchant Bank offering a challenging and professional environment wiThexcellent training and development opportunities.
NIBC has an integrated performance management system that combines the achievement of results with the development of competencies. The system allows managers to obtain feedback from up to six other employees, typically two peers, two subordinates and two other senior managers. In 2005, further enhancements were made to the system, resulting in better quality data and easier access to that data. The process starts with a performance discussion at the beginning of the year, during which each employee agrees with their direct superior on a number of key objectives. These include fi nancial as well as developmental objectives. A mandatory mid-year review takes place around the summer which allows employee and manager to assess progress against to agreed objectives, identify any issues and support required to achieve those objectives. That includes identifying any need for further development. At the end of the year all employees are reviewed by their direct superior based on clear and agreed competencies and objectives and on the feedback obtained. The consolidated competence and performance ratings per SBU and per title level are subsequently discussed in various management teams, enabling the clear calibration and differentiation of scores.
At NIBC we accord a high priority to the professional – and personal – development of our employees. Each year we invest significantly in the training and development of our staff. In 2005, we developed, in close co-operation with the SBUs, a range of in-house, skills based training programs for employees. The basis for this design is driven by the business need and the agreed catalogue of desired competencies. These are also used as a benchmark for setting development goals, appraising performance and identifying development requirements. Line managers found it a useful additional tool with which to address identifi ed development needs.
Over the years, NIBC has developed and refined a total compensation approach consisting of base salary, annual bonuses and long term deferred compensation. We strongly believe in applying discretion when rewarding employees. We take into account the overall performance of NIBC, the performance of the respective SBU and individual performance. In addition, we believe that reward should be competitive with the relevant market, and thereby recognise the different markets we compete in for business and talent. Building a sustainable high-performance culture implies using greater differentiation and discretion in managing total compensation. NIBC is quite unique in the market place in that all employees are eligible for variable pay. Th is includes annual bonuses as well as long-term deferred compensation. We believe this to be a key differentiating factor in our employment proposition. It has helped us to accelerate our transformation process and is behind the strong fi nancial performance of 2005. Finally, it has enabled us to align compensation much more closely with the overall business strategy.
NIBC CHOICE: EVERY SINGLE EMPLOYEE A SHAREHOLDER
A new employee share and options scheme NIBC Choice was announced in December 2005 and was very well received. The program, intended to provide an opportunity to all employees to become a shareholder in NIBC by allowing them to convert accumulated rights under existing long term deferred compensation plans into shares of NIBC. In addition, it provided them the opportunity to invest their own money in NIBC shares. For each share thus acquired NIBC off ered employees, broadly speaking, one free option which made the plan even more attractive. The level of participation exceeded our highest expectations: 85% of all employees converted some or all of their deferred compensation into the new scheme. In addition, nearly 15% of employees invested personal funds. Ultimately in 2009 when all the options are vested, our employees will own between 5 and 10% of NIBC.