Remuneration

Report

INTRODUCTION
This report informs shareholders of the remuneration arrangements for the Managing Board and the Supervisory Board of NIBCapital. It comprises three parts. The first part outlines the remuneration policy and practices for 2004 and provides details of the remuneration payable to the Managing Board with respect to the performance of 2004 (including performance-related remuneration which is paid in 2005). The second part of the report describes the remuneration policy for 2005, which will be submitted for adoption to the Annual General Meeting of Shareholders. The third part provides details of the remuneration arrangements for the Supervisory Board.
NIBCapital believes in the benefits of a transparent and coherent corporate governance structure. Therefore, the remuneration report meets the standards of the Code and uses the “apply or explain” approach. This remuneration report will be published on the NIBCapital website.

I. REMUNERATION POLICY AND PRACTICES 2004

The objective of the remuneration policy of NIBCapital is to attract, retain and motivate highly qualified staff, consistent with NIBCapital’s ambition to be a leading Merchant Bank in Northwest Europe. The total remuneration levels of the Managing Board are based on a market comparison with the Labour Market Peer Group, details of which can be found on page 16.
Remuneration principally consists of base salary and variable compensation. The variable compensation is performance-related and comprises both a short term bonus as well as a long term deferred compensation element in the form of Stock Appreciation Rights (SARs). Approximately two-thirds of the total compensation of the Managing Board in 2004 (excluding pension) consists of variable compensation. The emphasis on the variable part of the remuneration package reflects the high performance culture at NIBCapital and is, broadly, in line with the compensation policies in our Labour Market Peer Group. The remuneration policy reflects the business strategy which is focused on the transformation of NIBCapital into a leading Merchant Bank and the creation of long term shareholder value.

BASE SALARY
Base salary levels of the Managing Board were not adjusted in 2004, with the exception of the base salary of Mr. Dijkstra. This exception was made to bring his salary in line with the compensation levels of the other Managing Board members. The base salary of Mr. Van Nieuwenhuizen was not adjusted following his appointment to the Managing Board in 2004.

VARIABLE COMPENSATION
Each year, the variable compensation pool is determined on the basis of a combination of NIBCapital’s total compensation ratio (total personnel-related expenses as a percentage of total revenue) and NIBCapital’s pay-out ratio (total variable compensation as a percentage of the operating result before tax and pay-out of variable compensation) Variable compensation consists of a short term bonus and long term deferred compensation through the use of SARs.

BONUS
Mr. Enthoven and Mr. Stegmann have been statutory members of the Managing Board for the entire year 2004. The short term bonus for statutory members of the Managing Board is determined on the basis of the balanced scorecard methodology, which includes corporate financial (50%) and individual (50%) performance criteria. These financial targets are: operating profit, return on net asset value and efficiency ratio. The specific details of targets are not disclosed as these qualify as commercially sensitive information. Targets are revised annually to ensure that they remain stretching but realistic.

Mr. Enthoven and Mr. Stegmann can earn a discretionary short term bonus of up to 75% of their base salary upon 100% realisation of the score card metrics. However, in view of NIBCapital’s extraordinary performance this year, the Supervisory Board decided to exercise its discretion to grant Mr. Stegmann a short term bonus for 2004 of 100% of his base salary for that year. In respect of Mr. Enthoven it was decided to grant him a discretionary short term bonus for 2004 of 75% of his base salary for that year.

Mr. Dijkstra and Mr. Van Nieuwenhuizen have been appointed statutory members of the Managing Board in the course of 2004. For 2004, their variable compensation was determined on the basis of the then applicable balanced scorecard methodology which includes corporate financial (25%), SBU financial (25%) and individual performance criteria (50%). The amount of Mr. Dijkstra’s short term bonus is discretionary whereas Mr. Van Nieuwenhuizen can earn a discretionary short term bonus of up to 75% of his base salary upon 100% realisation of the score card metrics.. However, in view of NIBCapital’s extraordinary performance and the relative performance of their respective SBUs, the Supervisory Board decided to exercise its discretion and grant both Mr. Van Nieuwenhuizen and Mr. Dijkstra for 2004 a short term bonus equivalent to 100% of their base salary for that year.

These bonuses also recognise the shared responsibility of the Managing Board for the successful overall transformation of NIBCapital in the past few years, in particular the significant improvement in the management of risk which have started to show the intended results, the change of the Corporate Finance SBU from a more traditional lending business to a full-service merchant banking unit with a significantly larger percentage of non-interest income, and the ongoing development of the Financial Markets SBU, more specifically the creation of a successful Investment Management business.

DEFERRED COMPENSATION
Deferred compensation is normally provided through SARs. For the Managing Board, the target annual expected economic value of the SAR grant is, on average, 100% of base salary for Managing Board members and 90% of base salary for the Chairman. The number of SARs granted in any year is subject to the same balanced scorecard methodology used for the bonus.
Based on the SAR plan,Managing Board members are entitled to a pay-out upon exercise of the SAR, in cash, equal to the value increase of the SARs during the 5-year SAR term. The changes in value of the SARs are linked directly to NIBCapital’s Net Asset Value (“NAV”) development during the performance period. The SAR only pays out in case of an NAV increase. Each SAR grant has a term of five years, after which either the benefit is paid to the member of the Managing Board, or the SARs lapse in case NAV has not met the threshold level.
Following the approval of the financial figures each year by the Supervisory Board, the SARs may be exercised during the open periods. The taxes due are for the account of the member of the Managing Board.

There are no best practice provisions explicitly referring to SAR plans in the Dutch Corporate Governance Code. NIBCapital considers the plan to be performance-related, as the pay-out only occurs based on increased NAV performance. The management of NIBCapital contributes directly to NAV performance and this measure is not influenced by market conditions.

Over the 5-year SAR term, twenty percent of the SAR grant vests each year following the date of grant, provided the Managing Board member is still employed at such time. NIBCapital considers a vesting schedule comprising five years appropriate, as it enhances the Managing Board member’s long-term commitment to the company and supports its main business objective of creating long term value for shareholders.
Towards the end of the year and following the announcement that a Liquidity Event might take place in 2005, the Compensation & Management Development Committee discussed the appropriateness of the SAR plan as an effective long term incentive component under these changed conditions. Following these discussions and subsequent to obtaining external advice, the Compensation & Management Development Committee recommended to the Supervisory Board to suspend the SAR plan in 2005 (for awards based on performance in 2004) and replace it with a Deferred Cash Plan, based on a number of reasons:

• The possibility that, as a result of the extraordinary performance and value creation over the last few years, the internal cost limits agreed for the SAR plan would be exceeded;
• The expected Liquidity Event;
• The accounting treatment of SAR plans under new IFRS reporting standards.

It was felt that at this specific moment in time granting SARs with a 5-year performance outlook would not be the appropriate long term incentive. In addition, the retention of key individuals is now more important than ever. The expected value which was originally accrued for the financing of the SAR plan will now be used to fund the Deferred Cash Plan.

Under the Deferred Cash Plan, payment of the (conditionally) granted cash amount will be deferred until respectively the first, second and third anniversary of the date of grant, when 1/3 of the granted amount will accrue to the participant, provided the participant is still employed with NIBCapital.

TOTAL CASH COMPENSATION
Compared to 2003 total cash compensation (base salary plus annual bonus plus deferred cash bonus) for Mr. Enthoven has increased by 22%, for Mr. Stegmann and Mr. Van Nieuwenhuizen by 14% and for Mr. Dijkstra by 6%.

PENSION
Mr. Enthoven has relinquished his rights to participate in the NIBCapital pension plan for the Managing Board.With respect to Mr. Stegmann and Mr. Dijkstra, a “final pay” pension arrangement applies (annual accrual of 2%) up to a salary limit of € 278,000 for Mr Dijkstra, respectively € 350,000 for Mr. Stegmann. Furthermore, a defined contribution arrangement is applicable with respect to the salary above these amounts, with a cap on the basis for pension contributions at € 400,000. Mr. Van Nieuwenhuizen is entitled to a defined benefit pension arrangement up to € 77,347 (annually adjusted for general wage increases in line with the Collective Labour Agreement for Banks in the Netherlands) under the NIBCapital employee pension plan, and an additional defined contribution arrangement with a maximum salary limit of € 400.000. All premiums are paid by NIBCapital. The pensionable age for all Managing Board members is 62 years.

LOANS
As a policy, the Company does not provide loans to its executives. As per 31 December 2004 there are no loans outstanding.

CONTRACTS OF EMPLOYMENT
The contracts for the current members of the Managing Board are entered into for an indefinite period and provide for a notice period of two months upon termination by the Company, and a notice period of one month upon termination by the individual.With respect to Mr.Van Nieuwenhuizen, a notice period of four months upon termination by the Company is applicable, and two months upon termination by the individual. On departure at the request of the Company, severance pay is agreed for Mr. Enthoven, Mr. Stegmann and Mr. Dijkstra amounting to 1.5 months’ gross salary (including the average bonus of the last three years) for each full year of service until the age of 50, and 2 months gross salary per full year of service after that; with a minimum severance arrangement amounting to 12 months gross salary (including the average bonus of the last three years). Mr. Van Nieuwenhuizen has no severance arrangements in place.

EXPENSE ALLOWANCE
All Managing Board members are entitled to an expense allowance which covers specifically identified minor expenses that can no longer be directly claimed from NIBCapital.

OTHER EMOLUMENTS
Like all employees,Managing Board members are entitled to a subsidy towards the cost of medical insurance and mortgage interest paid.

FORMER MEMBERS OF THE MANAGING BOARD
Mr. Doeksen is no longer a member of the Managing Board of NIBCapital and, in light of his departure, received a compensation for outstanding SAR rights granted and provided for prior to 2004 amounting to € 263,344 in 2004, in line with the arrangements agreed with all other employees whose employment was transferred to AlpInvest Partners.

II. REMUNERATION POLICY 2005

The Compensation & Management Development Committee recognises the importance of having a consistent approach to the remuneration policy and practices of NIBCapital. However, it equally feels it is important to respond adequately to external as well as internal developments. The announcement that a Liquidity Event might take place in 2005, the introduction of IFRS and the implications of the Dutch Corporate Governance Code have led the Committee to modify the remuneration policy for 2005. In summary, the remuneration policy for the Managing Board of NIBCapital is based on five principles:

• Total target remuneration levels should reflect market median remuneration levels of a labour market peer group consisting of relevant (divisions of) financial institutions active in the Dutch, German and British financial markets. In the event of superior performance of the Managing Board, total remuneration levels should be broadly in line with 75%-ile (3rd Quartile) levels of the labour market peer group;
• Base salary levels of the Managing Board should be broadly in line with market median levels of the labour market peer group;
• Annual base salary levels of the Managing Board members are equal, with the exception of the Chairman;
• In the event of target performance a discretionary bonus of up to 75% of base salary can be awarded but in the case of superior performance and at the discretion of the Supervisory Board a bonus of up to 100% of base salary can be awarded to any Managing Board member;
• With regard to deferred compensation, a discretionary Deferred Cash Bonus of up to 100% of base salary can be awarded in line with the new Deferred Cash Plan which replaces the previous SAR plan for 2005.

  LABOUR MARKET PEER GROUP 2005
  In order to be able to recruit the right calibre of executives for the Managing Board, and to secure long-term retention of current Managing Board members, NIBCapital has taken external reference data into account in determining compensation levels. For this purpose a labour market peer group was defined consisting of relevant (divisions of) financial institutions active in the Dutch, German and British market, with which NIBCapital competes for talent and business.

  The companies were selected based on strategic considerations (e.g.: comparable clients, geographical focus, service and strategy) and tactical considerations (e.g. comparable activities such as Corporate Finance, Financial Markets, and Asset/Investment management for third parties). The labour market peer group consists of the following financial institutions:

  

  BASE SALARY
  In 2005, no adjustments will be made to the base salary levels of the Managing Board.

  BONUS
  With respect to the bonus for 2005, the performance measures applying to Mr. Van Nieuwenhuizen and Mr. Dijkstra have been aligned with the performance measures that already applied to Mr. Enthoven and Mr. Stegmann in 2004. Consequently, the short term bonus for all Managing Board members is awarded on the basis of a consistent balanced scorecard methodology, supported by corporate financial (50%) and individual (50%) performance criteria. For 2005 the agreed criteria are: operating profit, efficiency ratio, comprehensive return on net asset value and non-interest income ratio. Specific details are not disclosed as these are considered to be commercially sensitive.
  This change in policy underpins a shift in strategic focus of NIBCapital, from an emphasis on maximisation of results of the separate Business Units to an increased focus on the synergy between the Business Units, in particular between those of Corporate Finance and Financial Markets. Alignment of the performance measures used for each Managing Board member will emphasise and encourage this strategic shift.

  DEFERRED COMPENSATION
  The Compensation & Management Development Committee have agreed to suspend the current SAR plan for the performance year 2004, for awards to be made in February 2005, and to replace it with a Deferred Cash Plan. The Compensation & Management Development Committee will investigate alternative arrangements for long term incentive plans and will take decisions as soon as practically possible in 2005.

  CONTRACTS OF EMPLOYMENT
  The Company does not consider it to be appropriate to adjust existing contractual agreements that were put in place prior to the publication of the Dutch Corporate Governance Code. In future, NIBCapital will comply with the provisions of the Code when new appointments to the Managing Board occur.

  III. REMUNERATION SUPERVISORY BOARD

  The annual remuneration for the Chairman of the Supervisory Board is € 51,000, for the Vice-Chairman € 42,500 and for the members it amounts to € 34,000.Membership of the Risk Policy Committee and Strategic Committee (operational as of 5 August 2004) results in an annual fee of € 11,500 whereas membership of the Corporate Governance & Nominating Committee results in an annual fee of € 5,000.With effect from 1 July 2004 and in recognition of their increased workload the annual fee for members of the Compensation & Management Development Committee has been increased to € 10,000. As of the 1 January 2005 the fee for members of the Audit Committee will equally increase to € 10,000 annually. To cover minor expenses an expense allowance of € 5,000 is awarded.

  In accordance with the Dutch Corporate Governance Code, the Company does not award performance related pay to the members of the Supervisory Board. As a policy, NIBCapital does not provide stock options, shares or loans to members of the Supervisory Board. Furthermore, no Supervisory Board member holds shares or stock options in NIBCapital on a personal basis. There are no loans outstanding.