Remuneration

Remuneration Committee

The responsibilities of the Remuneration Committee include:

• preparing proposals for the Supervisory Board concerning the remuneration policies for the Corporate Executive Board to be adopted by the General Meeting of Shareholders;
• preparing proposals concerning the remuneration of individual members of the Corporate Executive Board; and
• to be informed and to give an opinion on the level and structure of compensation for senior personnel other than members of the Corporate Executive Board.

The Remuneration Committee has four members. During 2005 the composition of the Remuneration Committee changed. Until May 18, 2005, the members were Karel Vuursteen, Chairman and Rene Dahan and Dr. Cynthia Schneider. Karel Vuursteen and Dr. Cynthia Schneider resigned from the Supervisory Board and, accordingly, from the Remuneration Committee as of May 18, 2005. At present, the members of the Remuneration Committee are Derk Doijer, Chairman, Rene Dahan, Dr. Myra Hart and Stephanie Shern, all of whom are members of the Supervisory Board. (As of May 18, 2005 Benno Hoogendoorn was appointed Chairman and he resigned as of September 29, 2005. As of October 25, 2005 Derk Doijer was appointed Chairman).

In 2005, the Remuneration Committee met nine times. The CEO was invited to all of these meetings but did not attend all meetings. The secretary of the Remuneration Committee is from our Group Support Office Human Resources Department.

The Remuneration Committee utilizes external and internal advisers from time to time for advice and information. In 2005 external advisers were hired to provide professional advice regarding our remuneration policy, remuneration market practices, and short and long-term incentive plans and practices. The Supervisory Board determines the remuneration of the individual members of the Corporate Executive Board within the limits of our remuneration policy. Our remuneration policy, in accordance with the Dutch Corporate Governance Code was adopted at the General Meeting of Shareholders on March 3, 2004.

In 2005, the remuneration of Anders Moberg, Hannu Ryöppönen (Mr. Ryöppönen resigned from the Corporate Executive Board effective August 31, 2005) and Mr. Theo de Raad (resigned from the Corporate Executive Board effective January 7, 2005), differed from the remuneration policy with regard to base salary and/or short-term bonus, because of preexisting contractual arrangements.

See Notes 8 and 9 to the consolidated financial statements included in the annual report for details on employment agreements, individual remuneration and pensions for members of our Corporate Executive Board.

Additional conditions

In addition to the remuneration allocated to Corporate Executive Board members, as set out in the remuneration policy below, a number of additional arrangements apply. These additional arrangements, such as expense allowances, medical insurance and accident insurance, are in line with practice in the Netherlands and the United States.

As from January 1, 2004, the term of the employment agreement for newly appointed members of the Corporate Executive Board has been set at four years. If the Company terminates the employment agreement of any such newly appointed member, the severance payment is in principle limited to one year's base salary.

Application of policy in 2005

According to section 3.4 of the remuneration policy the targets for the bonus of the members of the Corporate Executive Board in financial year 2005 are 70% based on a financial criterion (economic value added or "EVA" improvement) and 30% based on personal performance criteria as set by the Supervisory Board. The Supervisory Board has determined the personal targets for each member of the Corporate Executive Board.

The Remuneration policy

1. General

1.1 The objective of the Company's remuneration policy is to provide remuneration in a form that:

• top managers can be recruited and retained as a member of the Corporate Executive Board of a major international company; and
• rewards performance consistent with the Ahold strategy.

1.2 According to our Articles of Association, the Supervisory Board proposes and the General Meeting of Shareholders adopts the general remuneration policy to be allocated to Corporate Executive Board members. The Supervisory Board makes this proposal after having obtained the advice and recommendation of the Remuneration Committee. External advisers will on occasion be utilized to provide advice and information to the Remuneration Committee to assist in the development of the policy proposals.

1.3 Within the limits of the general remuneration policy as adopted by the General Meeting of Shareholders, the Supervisory Board determines the remuneration of individual members of the Corporate Executive Board.

2. Remuneration structure

2.1 The remuneration structure is divided into (i) Total Cash (consisting of base salary and bonus) and (ii) long-term incentives consisting of stock options and a share-plan, and (iii) pension. These three elements will be further addressed below.

2.2 The Remuneration Committee considers the remuneration structure regularly to ensure it meets the objectives of the remuneration policy.

2.3 In determining an individual's remuneration within the general remuneration policy, the Supervisory Board will take into account factors such as the required competencies, skills and performance of the individual concerned and the specific role and responsibilities of the relevant position.

2.4 To ensure the competitiveness of the overall remuneration provided to the Corporate Executive Board, the remuneration levels are benchmarked annually against a peer group of companies. Reference for compensation (base salary, target bonus, long-term incentives, and pension) is the Dutch market for Corporate Executive Board members of the leading companies quoted on the Euronext Amsterdam. For this purpose, market data of two external service providers specialized in executive pay are used. Leading AEX companies are defined on the basis of world-wide annual sales exceeding EUR 10 billion and total employees world-wide in excess of 30,000. For 2004 and 2005 the Remuneration Committee and the Supervisory Board assessed the competitiveness of the remuneration levels of the Corporate Executive Board against the following peer group:

• Royal Dutch Shell N.V.
• ING Group N.V.
• FORTIS N.V.
• Unilever N.V.
• ABN AMRO Holding N.V.
• Royal Philips Electronics N.V.
• Aegon N.V.
• AKZO Nobel N.V.
• Royal KPN N.V.
• TNT N.V.

3. Total cash compensation

3.1 The reference for "at target Total Cash" (base salary and at target bonus) is the Dutch market for Corporate Executive Board members of the top AEX companies. The "at target Total Cash" will be benchmarked annually against the aforementioned market(s).

3.2 It is the policy of the Company to set "at target Total Cash" for members of the Corporate Executive Board between the 60th and 75th percentile of the relevant reference market. This is deemed essential to attract and retain management of the appropriate caliber in this highly competitive international retail market.

3.3 The "Road to Recovery" strategy as announced on November 7, 2003 is the cornerstone in the efforts to rebuild Ahold's position as a company that delivers value to its stakeholders. In light of this strategy, the general remuneration policy emphasizes variable performance related compensation. Because of the importance of a remuneration which is substantially based on performance of Ahold and the individual board member, it is considered desirable that the bonus represents a higher proportion of Total Cash than is typically the case among the companies in the defined reference market.

3.4 A Corporate Executive Board member's bonus can range from 0 to 125% ¹ of the individual's base salary, depending on performance. Performance "at target" will yield a bonus pay out at 100% of the Corporate Executive Board member's base salary. 70% of the at target bonus will be based on a financial criterion and 30% will be based on one or two measurable personal targets.

The selected financial criterion is economic value added ("EVA") improvement. EVA measures the Company's economic value added or economic profit, defined as Net Operating Profits After Tax ("NOPAT") minus the cost of capital. EVA is a comprehensive measure of ongoing operating performance and includes an explicit charge for invested capital. EVA supports the primary objective of the Company to create long-term value and rewards consistent value creation over a long-term horizon. The Company does not disclose the required performance levels of the financial and personal criteria, as these qualify as commercially sensitive information.

The personal targets may vary per individual Corporate Executive Board member and may differ year by year. The attainment of personal targets is assessed by the Supervisory Board. The Supervisory Board insists and ensures that personal targets are stretching and realistic.²

3.5 In the event a non-Dutch national is appointed to the Corporate Executive Board and the board member will reside and work outside of the Netherlands, the Supervisory Board may award Total Cash that also takes account of the relevant local reference market.

4. Long-term incentives

4.1 Long-term incentives are intended to reinforce sustainable performance consistent with the Ahold strategy; and to align (more closely) the interests of executives with those of the shareholder.

4.2 Corporate Executive Board members are eligible to participate in two long-term incentive plans: stock options and a conditional share plan.

4.3 The Ahold stock option plan provides for the right to purchase Company stock at a predetermined price during a predefined period of time. Options will be granted annually. The exercise price equals the closing market price of the Company's stock at Euronext Amsterdam on the last stock exchange trading day prior to the grant date.

50% of the granted options will have a term of five years and 50% of the granted options will have a term of ten years. The vesting of the stock option grants made in 2005 to the Corporate Executive Board members are subject to performance criteria at vesting. Both five year term and ten year term options will be exercisable after three years under the condition that the performance criteria have been met.

The performance criterion is the average EVA improvement versus targeted improvement over the three financial years prior to vesting. The vested amount of options will range from 80% to 120% of the targeted number of options depending on performance against the vesting criteria. When performance against the vesting criteria is below 80% of target, zero options will vest.

The maximum number of options, calculated at the vesting level of 120%, will be: 121,500 for the CEO; and 90,000 for the other Corporate Executive Board members.

4.4 Corporate Executive Board members are eligible to participate in the Ahold performance share plan 2004 - 2006. This is a performance stock plan based upon Ahold's Total Shareholder Return ("TSR") relative to that of a selected group of companies in Ahold's core business (the peer group) measured over the years 2004 - 2006. TSR measures all the gains (share price growth and dividends) shareholders receive over a certain period of time.

The Supervisory Board has determined that TSR performance will be compared to the following peer group:

• Sysco Corporation
• Wal-Mart Stores, Inc.
• Safeway, Inc.
• Albertson's, Inc.
• Kroger and Co
• Casino S.A.
• Metro A.G.
• Carrefour S.A.
• Tesco Plc.

Based on this peer group Ahold will be ranked on its total return to shareholders. External specialists will determine the ranking and hence the number of shares that will vest after the three-year performance period. The determination of the final ranking will be audited by the Company accountant.

The number of shares that will vest depends on the ranking of Ahold within the peer group. There will be no shares that vest below the sixth position of the peer group of ten companies (including Ahold). For the third position the target number of shares (100%) conditionally granted will vest. The maximum number of shares is 150% of the target number of the shares conditionally granted. Should Ahold reach the first position within the peer group, this maximum number of shares will vest.

Corporate Executive Board members will be required to retain shares acquired under this plan for a period of at least three years after shares are acquired, or until the end of employment if this period is shorter than the three years retaining period. The Corporate Executive Board members shall, however, not be prohibited from selling shares adequate to cover taxes due at grant.

In evaluating its long-term incentive plans the Company is assisted by external advisors.

5. Pension ³

5.1 For Dutch Corporate Executive Board members, the Dutch Pension Scheme for the Corporate Executive Board (Pensioenregeling Raad van Bestuur Ahold) will apply. The main features of this Pension Scheme are:

• Retirement age 60;
• Level of pension benefits amounts to 60% of final base pay (based on 30 years of service);
• The pension accrual rate is 2% per year of service; and
• Contributions to be paid by the Corporate Executive Board member based on a percentage of base salary.

5.2 For non-Dutch Corporate Executive Board members, the pension scheme will be based on the individual situation and taking into account the pension practices in the home country, the existing pension scheme at the date of hire, age and the possibilities to apply the Pensioenregeling Raad van Bestuur Ahold. In general the target level of the pension is 60% final base pay (in a situation of full service).

6. Other contract terms

6.1 Loans

The Company does not provide loans to members of the Corporate Executive Board. There are no current loans outstanding.

New Remuneration Policy 2006 ⁴

In the second half of 2005, the remuneration policy of Ahold was reviewed in view of the complexity of the existing policy, evolving market practices and changes in corporate governance requirements. The Supervisory Board made the recommendation to change the 2004 remuneration policy to come to a more simple and transparent system, reinforcing a performance-oriented culture focused on criteria relevant to Ahold's strategy. Compared to the prior policy, the basic objectives have not changed whereas the strategy and vehicles used have.

Main changes

The primary changes to the policy include a new peer group for benchmarking, the introduction of "Total Direct Compensation" instead of "Total Cash Compensation" as the basis for comparison with the relevant peer group, new performance measures for the annual cash incentive and a new long-term incentive plan replacing the existing stock option and performance share grant programs.

New reference peer group

The new peer group used to assess the competitiveness of the overall remuneration provided to the Corporate Executive Board reflects the geographical areas in which we operate and of the markets most relevant with respect to the recruitment and retention of top management for the Company. The peer group is comprised of the following companies:

• Wal-Mart Stores, Inc.
• Carrefour S.A.
• Metro A.G.
• Tesco PLC
• Costco Wholesale Corporation
• The Kroger Co.
• Target Corporation
• Safeway Inc.
• Sysco Corporation
• Delhaize Brothers and Co. (Delhaize Group)
• Staples, Inc.

Introduction of Total Direct Compensation for benchmarking

The basis elements of the overall remuneration provided to our Corporate Executive Board members are (1) a base salary, (2) an annual cash incentive calculated as a percentage of the base salary and determined by comparing performance against specific objectives (3) a long-term incentive plan based on conditional share grants with employment and performance criteria and (4) a pension.

Whereas the prior policy used "Total Cash Compensation" (consisting of base salary plus annual cash incentive at target level) as a reference when comparing to the peer group, the new policy uses a more complete measure "Total Direct Compensation" (consisting of base salary plus annual cash incentive at target level plus the long term incentive at target level projected on an annual value basis) when comparing to the reference peer group. It is the Supervisory Board's view that including the long-term incentive component in benchmarking is essential to properly assess the value of the total remuneration package, and to ensure a proper balance between a short-term and longer term focus.

When comparing remuneration levels against the new peer group, the composition (risk profile) of the existing remuneration, will be taken into account. The target Total Direct Compensation levels will be reached by designated target levels of the mid- and long-term incentive component. The target Total Direct Compensation will typically be at the 50th percentile. In special cases the levels might move towards the 75th percentile. In the case of any adjustment, a conservative (step-by-step) approach will be followed, taking into account the composition of existing remuneration (risk profile).

Annual cash incentive plan

To further align the annual cash incentive program with our Company strategy, the Supervisory Board had decided to no longer use EVA as one of the performance measures used in the annual cash incentive plan. The new program will use three equally weighted measures:, net sales growth, operating margin and RoNA ("Return on Net Assets"). Our target for the annual cash incentive payout as a percent of base salary remains at 100%, contingent on full achievement of objectives, with a cap at 125% of the base salary except where pre-existing contractual arrangements exist.⁵ The Company does not disclose the required performance levels of the criteria, as these are considered commercially sensitive information.

Long-term incentive plan

The new remuneration policy eliminates the use of stock options as an equity reward method. Beginning in 2006, Ahold shares will instead be granted through a mid-term (three-year) and a long-term (five-year) conditional share grant program:

Mid-term incentive

For Corporate Executive Board members, one half of the conditional shares granted will vest after three years continued employment (with a mandatory holding period of two years following the vesting).

Long-term incentive

The other half of the conditional shares granted will vest after a performance period of five years. During this period, performance will be measured against the Total Shareholder Return (TSR, share price growth and dividends) of the same peer group used to benchmark the Corporate Executive Board remuneration levels. The number of shares that will vest depends on the ranking of Ahold within the peer group. No shares will vest below the seventh position of the peer group consisting of twelve companies (including Ahold). The maximum number of shares that can vest is 150% of the target number of the conditional shares granted. Should Ahold reach the first position within the peer group, this maximum number of shares will vest.

The following table describes the percentage of conditional shares that will vest depending on the ranking of Ahold within the peer group:

Performance factor determining grant levels

Target grant values for each Corporate Executive Board member are determined by the Supervisory Board. The grant level at target, taking into account the individual Executive Board member's base salary and annual incentive at target, will provide a Total Direct Compensation in line with the stated policy level.

The actual number of shares granted in any given year is determined by applying the performance multiple of the annual incentive criteria for the preceding year against the targeted grant level. For example, if the annual incentive multiple for a given year was 0.8 and the at target grant level was EUR 100.000, the granted value will be 0.8 x EUR 100.000 = EUR 80.000. The average share price during the six months preceding the date of grant will be used to determine the number of shares to be granted. In case, the annual incentive multiplier is zero, 50% of the grant value at target will be granted through the TSR performance related component.