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The Supervisory Board will conduct a regular “scenario analysis” to determine the long-term effect of level and structure of compensation granted to members of the Executive Board. The analysis was executed for the first time in 2010, based on information provided by AEGON’s external advisor, Towers Watson. 

## Fixed compensation 

It is the responsibility of the Supervisory Board to determine fixed compensation for members of the Executive Board based on their qualifications, experience and expertise. 

## Variable compensation 

AEGON believes that variable compensation strengthens Executive Board members’ commitment to the company’s objectives, both short and long-term. In addition, AEGON’s system of variable compensation deliberately places emphasis on the company’s long- term performance and its aim of creating sustainable, profitable growth. Variable compensation is based on a number of performance indicators, regularly evaluated by experts in the company’s Finance, Risk, Audit, Human Resources and Compliance departments. 

Variable compensation consists of Short-term Incentive Compensation  and Long-term Incentive Compensation . Short-term incentive compensation is paid in cash. Payment is made once accounts for the financial year in question have been adopted by the company’s shareholders. Long-term incentive compensation, on the other hands, is paid in shares. At the beginning of each three-year performance period, conditional shares are made available. The number of conditional shares is calculated using the fair value of one AEGON share at the beginning of that financial year. This fair value is equal to the average price on the New York and Euronext Amsterdam stock exchanges for the period December 15 through January 15. These shares will (partly) vest only if the pre-agreed performance targets are met and if the Executive Board member remains in 

continuous employment. At the end of three years, the vested shares are restricted for a further period of two years (with the exception of shares sold to meet income tax obligations). 

Variable compensation is based on both company and individual performance. This performance is determined using a mix of financial and non-financial indicators. AEGON believes these indicators provide an accurate and reliable reflection of company and individual performance. Performance is assessed by AEGON’s Compensation Committee and validated by the Audit Committee. 

Short-term incentive compensation  is based on the following indicators. 

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Each year, an annual target is set for each indicator. At the end of the year, a comparison is made between the targets and actual performance. Short-term incentive compensation is then calculated accordingly. At an aggregate level, payments are made as follows: 

■ 50% of the maximum short-term incentive compensation if the threshold target is reached. 

■ 80% if the pre-determined performance targets are met. 

■ Up to 100% if the targets are exceeded. 

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