Our remuneration policy has the objective of providing remuneration in a form which will attract, retain and motivate members of the Board of Management as top managers of a major international company, while protecting and promoting the company’s objectives. The aim is to provide remuneration at the median level of the external market.
The total remuneration package of the members of the Board of Management consists of:
- Base salary
- Performance-related short-term incentive (STI), with shareholding requirement related share matching opportunity
- Performance-related long-term incentive (LTI) in the form of shares
- Post-employment benefits
- Other benefits
The various elements of the remuneration package are set out in more detail below.
The base salary is determined by the Supervisory Board.
Short-term incentive (annual bonus)
The target STI is 100 percent of the base salary for the CEO and 65 percent of the base salary for any other member. The STI is linked to financial targets (70 percent), as well as the individual and qualitative targets of the members of the Board of Management (30 percent). The specific targets are determined annually by the Supervisory Board. In respect of the financial targets, the Supervisory Board can choose two to three financial metrics and determine their relative weighting from the following list:
- Operating income (OPI)
- Operating cash flow (OCF)
- Net income (to shareholders)
- Return on investment (ROI)
These metrics are as used and/or defined in the company’s annual report from time to time (subject to minor adjustments if required in order to provide a better indicator of management’s performance).
The Supervisory Board sets the performance ranges each year, i.e. the values below which no payout will be made (the threshold), the “at target” value and the maximum at which the payout will be capped, it being noted that the STI awards will not exceed 150 percent of the base salary for the CEO and 100 percent of the base salary for any other member of the Board of Management.
The LTI consists of performance-related shares. Under the performance share plan, shares are conditionally granted to the members of the Board of Management. Vesting of these shares is conditional on the achievement of performance targets during a three-year period. Achievement of the performance targets is determined by the Supervisory Board in the first quarter of the year following the three-year performance period. The number of vested shares is adjusted for dividends paid over the three-year performance period. The retention period for the shares expires five years after the conditional grant.
Because sustainability is considered key to our long-term future, 30 percent of the conditional share grant is linked to AkzoNobel’s relative sustainability performance, which is measured as the company’s average position in the RobecoSAM ranking during the three-year performance period. The remaining 70 percent of the conditional grant of shares is split equally between AkzoNobel’s relative total shareholder return (TSR) performance compared with the companies in a defined peer group, and the development in ROI during the performance period. The TSR peer group and the vesting schemes are determined by the Supervisory Board. In each case, the maximum at vesting is 150 percent of the relevant part of the conditional grant.
These performance metrics apply as of 2013. In respect of grants made prior to 2013, half of the conditional share grant is linked to AkzoNobel’s relative sustainability performance and half to AkzoNobel’s relative TSR performance.
Shareholding requirements and share matching
The CEO and any other member of the Board of Management are required to build up, over a five-year period from the date of appointment, and then hold, at least three times respectively one time their gross base salary in AkzoNobel shares for the duration of their tenure as member of the Board of Management.
Board members who have not yet achieved their minimum shareholding are required to invest one-third of the short-term incentive they receive (net after tax and other deductions) in AkzoNobel shares. As further encouragement to build up the minimum holding requirement, Board members who invest up to a second third of their short-term incentive in shares will have such shares matched by the company, one on one, after three years from the date of purchase of the shares, on the condition that the Board member still holds these shares and showed a sustained performance during the three-year period, as determined by the Supervisory Board.
Board members who continue to invest their short-term incentives in whole, or in part, in shares after the minimum holding requirement has been reached, will have the opportunity to have such shares matched subject to the same conditions. However, such shares will be matched with one share to every two shares thus acquired and no shares will be matched to the extent that shares were purchased with more than two-thirds of the Board member’s net annual short-term incentive.
Members of the Board of Management receive a contribution towards pension and similar retirement benefits, as determined by the Supervisory Board.
Other benefits – such as a company car and allowances – are determined by the Supervisory Board.
Claw back and value adjustment
The Supervisory Board may claw back variable pay components paid to members of the Board of Management in the event that such variable pay components were based on financial information which is shown within a certain period of time to be materially incorrect.
Pursuant to the rules of the performance share plan and provision II.2.10 of the Code, the Supervisory Board has the power to adjust the outcomes of the STI or the LTI vesting schedules if, given the circumstances, this would reflect a fairer measure of performance, provided that targets, in the opinion of the Supervisory Board, are not more easy or difficult to be satisfied.
The company does not grant personal loans to its Board members.