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Short-term incentive


Base salary

The base salaries of members of the Board of Management remained unchanged in 2009.

Short-term incentive

The objectives of the short-term incentive are 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.

At the 2009 Annual General Meeting of shareholders, the remuneration policy was amended. As of 2009, the performance-related short-term incentive is linked to the EBITDA of the company, in addition to EVA and the individual and qualitative personal targets of the members of the Board of Management. More specifically, 35 percent of the short-term incentive opportunity is linked to EBITDA, 35 percent is linked to EVA and 30 percent remains linked to individual and qualitative personal targets, including non-financial targets. This change is meant to ensure that short-term incentive measures are also aligned with AkzoNobel’s stated EBITDA goals as part of the company strategy. EVA and EBITDA are based on the financials of the company in constant currencies. EVA is seen as a measure for creating long-term value.

On the outcome of the three short-term incentive elements (EVA, EBITDA and personal), the Supervisory Board applies an overall rating based on the principles of the Performance and Development Dialog, an appraisal system implemented throughout AkzoNobel in 2005. For the Board of Management, the rating includes a reasonableness test, in which the Supervisory Board critically assesses the actual ambition level of the performance targets in light of the assumptions made at the beginning of the year. It also includes an assessment of the progress made in achieving long-term strategic objectives.

This method for short-term incentive determination is also the basis of the compensation framework for executives in the company, as introduced in January 2005.

The EVA performance measure is used in order to encourage the Board of Management to create long-term value for the company’s shareholders and other stakeholders. 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 investors expect.

Please refer to the Report of the Board of Management section for the actual 2009 EVA and EBITDA performance used in the short-term incentive. 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.

The EVA and EBITDA elements of the short-term incentive have a performance threshold level of 80 percent and a maximum performance level of 120 percent of the targeted EVA and EBITDA respectively. The target EVA and EBITDA are determined annually by the Supervisory Board and are derived from the budget. The maximum pay-out of the short-term incentive will never exceed 100 percent of base salary for members of the Board of Management and 150 percent of base salary for the CEO. Qualitative individual and collective targets are set in the context of the medium-term objectives of the company and qualify as commercially sensitive information. AkzoNobel will not disclose all these targets. However, the targets included goals set with respect to guiding the company through the crisis, increasing operational effectiveness, management development and the integration of ICI.

The Supervisory Board assesses the progress made in achieving long-term strategic objectives and the actual ambition level of the performance targets in light of the assumptions made at the beginning of the year. The Supervisory Board ensures that targets are realistic and sufficiently stretching. In accordance with the requirements of the Dutch Corporate Governance Code, the Remuneration Committee, before setting the targets to be proposed for approval by the Supervisory Board, carried out a scenario analysis of the possible financial outcome of meeting target levels, as well as maximum performance levels.

The Board of Management and the Supervisory Board have considered the company’s 2009 results in light of the current economic climate and the need to find the right balance between short and long-term incentives. As a result, they have decided to strengthen the link between the remuneration of the Board of Management and the medium and long-term targets of the company. Therefore, Mr. Hans Wijers, CEO, will defer receipt of 50 percent of his short-term incentive for 2009. Receipt of this deferred payment will be subject to the company achieving its medium-term target of an EBITDA margin of 14 percent by the end of 2011. The remaining members of the Board of Management will defer receipt of 25 percent of their short-term incentive for 2009 subject to the same condition. During the course of 2010, the Remuneration Committee will reflect further on current policy and the balance between short and long-term compensation and the company’s targets.

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