67 ANNUAL REPORT 2010   OUR GOVERNANCE  REMUNERATION POLICY AND REPORT 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. 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.  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.  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.  SHARPENING OUR FOCUS Fixed compensation  Variable compensation  Maximum %  of total short- term incentive  compensation Target  Earnings 37.5% Growth in net  underlying earnings Profitable growth 37.5% Value of new business,  adjusted for risk Non-fi nancial 25.0% Individual basket  of strategic and  personal objectives Short-term incentive compensation  is based on the  following indicators. 