The objectives of the short-term incentive in 2012 were to reward economic value creation (EVA) and EBITDA growth for our shareholders and other stakeholders, to measure individual and collective performance and to encourage progress in the achievement of long-term strategic objectives. On the outcome of the three short-term incentive elements (EVA, EBITDA and personal targets), the Supervisory Board applies a reasonableness test, in which the actual ambition level of the performance targets is assessed critically in light of the assumptions made at the beginning of the year. It also includes an assessment of the progress made with the strategic objectives under prevailing market conditions.
EVA is calculated by deducting from net operating profit after taxes (NOPAT) a capital charge representing the cost of capital calculated on the basis of an average return that investors expect. The target EVA and EBITDA are determined annually by the Supervisory Board. Qualitative targets are set in the context of the medium-term objectives of the company. AkzoNobel will not disclose all the targets as these are considered commercially sensitive information. However, the targets for 2012 included goals set with respect to delivering on the performance improvement program.
The EVA of the sum of the business units is used as the basis for calculating the EVA element of the short-term incentive for the Board of Management. EVA and EBITDA are based on the company’s financial results in constant currencies. In 2012, the minimum threshold for payout regarding the EVA target was not met, whereas for EBITDA the performance outcome was above the threshold and payout came out at 60 percent of target. Upon its ex-post review of the relationship between the chosen performance criteria and the strategic objectives applied, and of the relationship between remuneration and performance, the Supervisory Board, given the importance of the link between the variable remuneration and the company’s performance improvement program and strategic ambitions, decided not to make any adjustment on the financial metrics. The Supervisory Board has reviewed the overall short-term performance of Mr. Büchner considering his absence for a three-month period. Based on this review, it was decided to reduce the bonus by 25 percent. Considering that the CFO, Mr. Nichols, also assumed responsibilities of the CEO during his absence, the Supervisory Board decided to adjust the outcome of his personal objectives upward.