Short-term incentive (annual bonus)

The objectives of the short-term incentive in 2013 were to reward performance on ROI, OPI and OCF, to measure individual and collective performance and to encourage progress in the achievement of long-term strategic objectives. On the outcome of the short-term incentive elements (ROI, OPI, OCF 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.

The target ROI, OPI and OCF have been determined by the Supervisory Board. Qualitative targets are set and assessed by the Supervisory Board in the context of the medium-term objectives of the company. AkzoNobel will not disclose all the targets as they are considered commercially sensitive information. However, the targets for 2013 included goals set in relation to delivering on the performance improvement program.

ROI, OPI and OCF are based on the company’s financial results in constant currencies. ROI was calculated by determining the ratio of operating income over invested capital using the numbers as reported. OPI was calculated as the number reported for IFRS purposes, in constant currencies. OCF was calculated as EBITDA minus the change in operating working capital, capital expenditure as approved and remaining incidentals. In 2013, the performance against the targets set for ROI, OPI and OCF was as follows:

2013 performance on financial measures

 

 

 

Measure

 

Payout as % of target

ROI

 

55%

OPI

 

81%

OCF

 

66%

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 to the financial metrics.