Performance share plan

Under the performance share plan, shares are conditionally granted to the members of the Board of Management. Vesting of these shares is conditional on the achievement of certain performance targets during a three-year period and a continuation of employment. Achievement of the performance targets is determined by the Supervisory Board in the first quarter of the year following the three-year period. The number of vested shares is increased by the dividend paid over the three-year performance period (the so-called dividend shares). The retention period for the shares expires five years after the conditional grant.

Because sustainability is considered key to our long-term future, 50 percent of the conditional share grant is linked to AkzoNobel’s relative sustainability performance. The 2011 Annual General Meeting of shareholders approved an amendment to the remuneration policy to change the basis on which the performance of the company is measured. For the 2011 grant and onwards, in order to increase transparency and robustness of the system applied, the sustainability performance is measured as AkzoNobel’s average score in the SAM ranking during the three-year performance period. SAM is an organization that annually assesses around 2,000 of the world’s largest companies covering the major indices and determines their respective sustainability scores. For the 2010 and 2009 grants, the average ranking of the company in the relevant Dow Jones Sustainability Index (DJSI) during the three-year performance period remains the sustainability performance measure. For all conditional grants, the vesting schedule has been determined by the Supervisory Board as follows:

AkzoNobel ranked second in the relevant SAM and DJSI indices in 2011. As a result, AkzoNobel’s sustainability performance over the period 2009 through 2011 resulted in an average second position within the ranking of the peer group companies. This results in a vesting of 125 percent for this part of the long-term incentive.

The remaining 50 percent of the conditional grant of shares is linked to AkzoNobel’s relative Total Shareholder Return (TSR) performance compared with the companies in our peer group. Independent external specialists conduct an analysis to calculate the number of shares that will vest according to the TSR ranking. In order to adjust for changes in exchange rates, all local currencies are converted into euros.

The relative TSR performance is compared with the following peer group:

AkzoNobel’s TSR performance over the period 2009 through 2011 resulted in an 11th position within the ranking of the peer group companies. This ranking did not result in any vesting of shares for the TSR part of the share plan.

Based on AkzoNobel’s combined sustainability and TSR performance, the final vesting percentage of the 2009 conditional grant after including the dividend yield at December 31, 2011, which was determined to be 11.68 percent, equaled 69.8 percent. This results in the following definitive grants of shares: CEO 25,547, other Board members 19,125. Upon its ex-post review of the relationship between the chosen performance criteria and the strategic objectives applied, and of the relationship between remuneration and performance, the Supervisory Board, given the importance of the link between the variable remuneration and the company’s strategic ambitions, decided not to make any correction in respect of the definitive grant.

The number of performance-related shares conditionally granted in 2011 amounted to 24,800 for the CEO and 18,600 for the other members of the Board of Management.

In accordance with provision II.2.13d of the Dutch Corporate Governance Code, the schedule below sets out for 2006 onwards (i) the number of at target shares conditionally granted; (ii) the number of shares which have vested; (iii) the number of shares held by members of the Board of Management at the end of the lock up period; (iv) the face value at the conditional share grant, at vesting and at the end of the lock up period respectively.

In accordance with the company’s Articles of Association, the Dutch Corporate Governance Code and the rules of the performance share plan, the number of shares to be conditionally granted to members of the Board of Management is determined by the Supervisory Board, within the limits of the remuneration policy and the maximum number of shares as adopted and respectively approved by the Annual General Meeting of shareholders.