The Supervisory Board relies on four committees to prepare specific issues for decision making by the Board. One of these committees is the Compensation Committee, responsible for the design, development, implementation and review of the Remuneration Policy that outlines the terms and conditions of employment of the members of the Executive Board and of the remuneration of the members of the Supervisory Board. The Committee makes its recommendations to the Supervisory Board.

This chapter sets out the Remuneration Policy 2004-2006 and the remuneration of the members of the Executive Board and the members of the Supervisory Board for the year ended December 31, 2004.

REMUNERATION POLICY
SUPERVISORY BOARD REMUNERATION
The remuneration of the members of the Supervisory Board is based on a base compensation and a compensation relating to committee meetings. The members of the Supervisory Board do not receive any performance or equity-related compensation and do not accrue any pension rights with AEGON. The compensation of members of the Supervisory Board is reviewed every three years. Any change in the compensation will be submitted to the shareholders for adoption.

EXECUTIVE BOARD REMUNERATION
OBJECTIVE
The Remuneration Policy for the Executive Board is aimed at creating a reward structure that will allow the company to attract and retain qualified and expert executives, as well as at providing those executives with a well-balanced and incentive based compensation.

POLICY TERM
The annual General Meeting of Shareholders (AGM) adopted this Remuneration Policy on April 22, 2004. The Remuneration Policy took effect on January 1, 2004, for a three-year term. Any material changes in this Remuneration Policy will be submitted to the AGM for adoption.

TERM IN OFFICE
The Supervisory Board has determined that, as from January 1, 2005, the term in office for new members of the Executive Board will be four years. Every appointment would be for the full term; however, members may leave before the end of their term due to reaching the age of retirement. On expiry, the Executive Board member may be reappointed for successive periods of four years.

BASE SALARIES
Base salary levels are based on the requirements and responsibilities of an Executive Board position. The Compensation Committee will ensure that base salary levels are realistic and competitive, taking into account individual roles and responsibilities of the Board members and considering benchmark information provided by independent external advisors. Annually, the Committee will review the levels, considering circumstances that would justify adjustment, such as fundamental changes in the business environment or in the individual responsibilities.

SHORT-TERM INCENTIVE PLAN
Short-term incentive (STI) bonuses aim to reward Executive Board members for achieving previously-determined objectives that reflect their respective responsibilities. Those targets will be set annually to ensure that business priorities are followed and the targets remain dynamic.

The plan determines that a STI bonus will be paid only if value is created for shareholders, i.e. only after a positive value of new business (VNB), as defined in AEGON’s Embedded Value Report, is realized. For Messrs. Shepard and Streppel corporate VNB will apply; for Messrs. Van der Werf and Wynaendts, the VNB for their specific business area will be taken into account.

Provided the relevant VNB is positive, then the actual level of income before realized gains and losses on shares and real estate will determine the level of the bonus payout. The income before realized gains and losses on shares and real estate target will be calculated based on a rolling, three-year average, increased by 2.5% to reflect inflation. Bonus payout for Messrs. Shepard and Streppel solely depends on AEGON’s income before realized gains and losses on shares and real estate. For Messrs. Van der Werf and Wynaendts the bonus is based on the income before realized gains and losses on shares and real estate of the country unit(s) under their responsibility (60%) and on AEGON’s income before realized gains and losses on shares and real estate (40%).

The target levels vary due to differences in responsibilities and base salary. Whilst Mr. Streppel’s base salary is higher than Messrs. Van der Werf’s and Wynaendts’, their achievable bonuses are higher, reflecting their role as value drivers for AEGON.

TARGET STI BONUS LEVELS AS FROM JANUARY 1, 2004
Target (last 3-years average (% of base salary		) )	Maximum (% of base salary	)
Shepard	118%		189%
Streppel	50%		80%
Van der Werf	80%		125%
Wynaendts	80%		125%

Annually, the Compensation Committee will review the agreed parameters to ensure that they continue to provide the best reference. Independent external advisors, Tillinghast and Ernst & Young, will provide and sign off all relevant STI data.
Additionally, effective from his appointment as chairman per April 18, 2002, Mr. Shepard is entitled to a STI equal to 0.1% of the net income of AEGON in the plan year.

LONG-TERM INCENTIVE PLAN
Long-term incentive (LTI) bonuses aim to reward Executive Board members when the company achieves previously-determined objectives. The LTI bonus relates to their base salary and the value forms a combination of performance options and performance shares. At the beginning of every plan term, the
LTI bonus value (amount) is determined and the corresponding number of options and shares is granted. Vesting of those rights is conditional upon the attainment of the agreed performance.

In that regard, the attainment will be determined by measuring AEGON’s Total Shareholders Return (TSR) performance against that of a select peer group. This group comprises companies that are comparable in type of business, size and geographical presence, and that are generally recognized as the most appropriate reference group. The group consists of Allianz, Aviva, AXA, Fortis, Generali, ING, Jefferson-Pilot, John Hancock Life Insurance, Lincoln National, Nationwide FS Inc. and Prudential PLC.

The plan subsequently defines a target performance zone. Performance relative to that zone will determine which portion of the performance grant will vest at which performance level. Should AEGON rank at positions twelve through nine, the grant will not vest. Once AEGON achieves position eight in this zone, 50% of the grant will vest. At position six, 100% will vest. Should AEGON rank number one, 200% of the grant will vest.

TARGET LTI BONUS LEVELS AS FROM JANUARY 1, 2004
Target (% of base salary		)
Shepard	95%
Streppel	60%
Van der Werf	60%
Wynaendts	60%

The Compensation Committee will monitor the peer group composition and the performance incentive zone to ensure that they continue to provide an appropriate reference. The first review will take place in 2006; would those parameters no longer provide the appropriate reference, the Committee may decide to amend them. The independent external advisor, Towers Perrin, will provide and sign off all relevant LTI data.

PENSION
The pension arrangements aim at creating a reliable retirement provision for Executive Board members that conforms to market practice.

SEVERANCE PAYMENT ARRANGEMENTS
In the employment contracts with the current Executive Board members, the following specific severance payment arrangements regulate their entitlements in the event AEGON terminates their membership on the Executive Board.

Termination of employment of Mr. Shepard by AEGON other than for urgent cause, death, disability, voluntary resignation or retirement, shall entitle Mr. Shepard to three year’s base salary. In addition, he shall be entitled to receive an amount equal to the aggregate short-term incentive compensation he received during the three years prior to the termination.

In such a case, the other Executive Board members have no specific financial arrangement.

In the event of termination of employment by AEGON in connection with a merger, takeover or fundamental changes of policy and related organizational amendments, or by Mr. Shepard in the event his responsibilities or position are diminished by such circumstances, AEGON will pay Mr. Shepard a compensation in the amount of three years' base salary. Furthermore, he shall be entitled to receive an amount equal to the aggregate short-term incentive compensation he received during the three years prior to the termination and such severance payments shall be taken into account in determining the amounts payable to Mr. Shepard under his AEGON USA Supplemental Executive Retirement Plan and three additional years of service will be credited for the purpose of calculation his benefits thereunder. Mr. Streppel would be entitled to compensation according to the ‘Zwartkruis formula’, which means that the severance payment would be calculated on the basis of and depending on age, years of service, functional level and the probability of finding an equivalent position.

Messrs. Van der Werf and Wynaendts would be entitled to three years’ fixed salary, only in case of termination in connection with a merger or takeover.

TERM IN OFFICE
The Supervisory Board will propose to the AGM on April 21, 2005 to (re-)appoint Messrs. Shepard and Streppel for a four-year period starting in 2005.

BASE SALARY
The base salaries of the Executive Board members were not changed on January 1, 2004, save the adaptation in accordance with the general salary rounds applicable to AEGON employees in the Netherlands, as stipulated in the employment contracts with the Dutch Executive Board members.
For an overview of the base salaries received by the Executive Board members in 2004, please click here.

SHORT TERM INCENTIVES
2003 PLAN GRANTED IN 2004
In accordance with the STI plan 2003, the bonuses for the year 2003 were paid in 2004. Through this plan Mr. Shepard could earn USD 50,000 per percentage point increase in the preceding year earnings per share and the other members EUR 32,432 per percentage point increase in the preceding year earnings per share over the rate of European inflation. All bonuses have a maximum ceiling of 150% of the relevant year’s salary.

All the members of the Executive Board have opted for payment of half of the cash value of their STI bonus into AEGON N.V. common shares, which shares are restricted (non-transferable) for a period of three years. After this three-year period, the Executive Board members will be entitled to bonus shares, provided that they are still employed by AEGON. The number of bonus shares will be calculated through performance based matching, on the basis of an earnings per share (EPS) growth over inflation in the preceding three years, i.e. 2004, 2005 and 2006, according to the following table.

3-years average EPS growth	Share
(over inflation)	matching %
< 5%	0%
5-10%	25%
10-12%	50%
12-14%	75%
> 14%	100%

In addition, Mr. Shepard received a STI equal to 0.1% of the net income of AEGON in 2003, amounting to EUR 1,793,000.

Please click here for an overview of the STI bonuses for the year 2003.

2004 PLAN, TO BE PAID IN 2005
The STI 2004 bonuses will be paid in 2005, after adoption of the annual accounts for 2004 by shareholders during the AGM on April 21, 2005.

The STI bonus related to AEGON’s net income over the financial year 2004 for Mr. Shepard, will be paid in 2005, provided shareholders adopt the annual accounts for 2004.

LONG-TERM INCENTIVES
2003 PLAN, GRANTED IN 2004
Under the 2003 LTI plan, the Executive Board members were eligible to receive a predetermined number of Stock Appreciation Rights (SARs), subject to three criteria:
• Comparison of AEGON with a peer group of nine financial companies (ABN AMRO, AIG, Allianz, AXA, Fortis, Generali, ING, Prudential PLC and Zurich). The comparison is based on the share price performance over the preceding three years.
• Should the AEGON share price performance achieve a top three position, each Executive Board member would receive 200,000 SARs. Should this share price performance finish in the middle group (of four companies), each Executive Board member would earn 100,000 SARs. Should the share price performance rank in the bottom group (three companies), 50,000 SARs would be granted.
• In case earnings per share did not increase, no SARs would be granted.

At the end of the plan term it was determined that the AEGON share price performance compared with those of the peer group (based on the share price performance over 2001, 2002 and 2003) ranked in the bottom group, as a result of which each Executive Board member has received 50,000 SARs in 2004.

Please refer to page 120 for the exercise price and the duration of these SARs.

2004 PLAN, GRANTED IN DECEMBER 2004
In accordance with the 2004 LTI plan, non-vested (conditional) AEGON common shares and options were granted to each of the Executive Board members. Vesting of those rights is conditional upon the attainment of the agreed performance.

Please click here for an overview of the LTI grants for the year 2004.