When properly applied at the appropriate levels in the organization, variable remuneration can be an important tool for achieving the strategic objectives of the company (see the section). As regards the short-term incentive (STI), the current remuneration policy particularly incentivizes economic value creation (EVA) and growth in EBITDA.
While the Supervisory Board recognizes that each of these elements of the company’s objectives is important, it is also recognized that circumstances change, and may do so rapidly. To ensure continued alignment between incentive metrics and the company’s strategy, greater flexibility with respect to the short-term incentives for the Board of Management is required in order to be able to respond adequately to the challenges the company is facing. In addition, the Supervisory Board prefers to use a limited number of easily quantifiable and identifiable metrics that meet the financial priorities of the company and is of the opinion that EVA is no longer a metric on which to measure the performance of the Board of Management. The following changes to the remuneration policy will therefore be proposed for adoption by the AGM in 2013:
Firstly, the Supervisory Board, having regard to inter alia the existing financial situation of the company and the external markets it operates in, will decide annually on two to three financial metrics and determine their relative weighting from the following six financial metrics:
These metrics are used and/or defined in the company’s annual report (subject to minor adjustments if required in order to provide a better indicator of management’s performance).
The Supervisory Board will set the performance ranges, i.e. the values below which no payout will be made (the threshold), the “at target” value and the maximum above 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 the other members of the Board of Management.
The chosen metrics will link remuneration with a focus on the company’s financial priorities and will, together with their weighting, be published in the annual report. Performance targets may qualify as sensitive information and will therefore, in principle, not be published. Subject to adoption of this amendment by the AGM in 2013, the Supervisory Board has set the financial metrics to be applied in the STI for 2013 as follows:
- 20 percent of STI opportunity will be linked to a target for ROI
- 20 percent of STI opportunity will be linked to a target for operating income
- 30 percent of STI opportunity will be linked to a target for operating cash flow
The remaining 30 percent of the STI opportunity will, as before, be used for personal objectives.
Secondly, in connection with the recent strategy update, the Supervisory Board is currently finalizing a review of the long-term incentive plan, with a particular focus on the performance metrics to be applied going forward. This review may result in a proposal to the AGM in April 2013. During that meeting, the AGM will also be requested to approve a continuation of the current performance share plan.