Remuneration for the Board of Management

In implementing the Remuneration Policy, the Remuneration Committee consults with external remuneration professionals to obtain appropriate benchmark data, and on other matters where it requires independent advice. When making pay changes for members of the Board of Management, it evaluates the impact on pay differentials with other executives in the company.

Variable remuneration provides an incentive to realize long-term value creation. For the short term, the Supervisory Board sets operational targets over a one-year period that are crucial to the company and are pre-conditions to value creation. The biggest portion of the remuneration packages of Board of Management members is directly aimed at strategic priorities that will contribute to building sustainable long-term value creation, with targets for the return for shareholders and the return on . For the period 2018 to 2020, following the separation of the Specialty Chemicals business, a one-off long-term incentive to reward bringing value creation at a higher level has been added.

Prior to agreeing on incentives, the Remuneration Committee conducted scenario analyses of the possible financial outcomes of meeting different performance levels, and how they may affect the structure and value of the Board of Management’s total remuneration.

In 2019, the labor market peer group, as referred to in the policy, consisted of the following companies:

  • Ahold Delhaize
  • Air Liquide
  • ASML
  • DSM
  • Ferro Corporation
  • Henkel
  • KPN
  • LafargeHolcim
  • PPG Industries
  • Randstad
  • RELX Group
  • RPM International
  • Sherwin-Williams
  • Signify
  • Sika
  • The Linde Group
  • Vopak
  • Wolters Kluwer

The table below gives an overview of the remuneration of the members of the Board of Management who were in office in 2019.

Remuneration Board of Management for the reported financial year

 

Fixed
remuneration

Variable
remuneration

Post-contract compen­sation2

Total remu­neration

Proportion of fixed and variable remu­neration

Extra­ordinary items3

 

Base salary

Fringe benefits1

One-year variable

Multi-year variable

 

 

 

 

1

Social security contributions

2

Compensation intended for build-up of retirement benefits instead of pension contributions

3

Accrued amounts for the 2020 Performance Incentive Plan

Thierry Vanlancker
Chief Executive Officer

1,006,000

10,106

886,610

1,488,096

170,400

3,561,212

0.33 /0.67

670,000

Maarten de Vries
Chief Financial Officer

677,000

10,106

387,826

636,345

132,700

1,843,977

0.44 /0.56

450,504

Base salary

The Remuneration Committee reviewed the salaries of members of the Board of Management during the year, considering market data, inflation data and the level of increases that were to be applied for AkzoNobel employees in the Netherlands, including those who are covered by a collective labor agreement. Increases to the value of 2.75% of base salary were agreed, effective as of January 1, 2019:

  • Thierry Vanlancker, CEO: €1,006,000
  • Maarten de Vries, CFO: €677,000

Short-term incentive (STI)

In 2019, the financial objectives of the short-term incentive were and operational cash flow (OCF). The individual and qualitative objectives reflect progress towards the achievement of long-term strategic objectives. The performance achieved is summarized in the table below.

Performance Board of Management on STI metrics financial year

 

 

 

Information on performance targets

 

Metric

Relative Weighing

a) Minimum target/ Threshold
b) Corresponding award

a) Maximum target/ Threshold
b) Corresponding award

a) Measured performance
b) Actual award outcome

1

ROS was calculated by determining the ratio of adjusted operating income over revenue.

2

OCF was calculated as adjusted EBITDA minus the change in operating working capital and minus capital expenditures, all in constant currencies and in millions.

Thierry Vanlancker
Chief Executive Officer

ROS1

35%

a) 8.8%

a) 12.9%

a) 10.7%

b) 0%

b) 150%

b 101.8%

OCF2

35%

a) 914

a) 1,341

a) 972

b) 0%

b) 150%

b) 30.1%

Qualitative Targets

30%

0%

150%

140%

Maarten de Vries
Chief Financial Officer

ROS1

35%

a) 8.8%

a) 12.9%

a) 10.7%

b) 0%

b) 150%

b) 101.8%

OCF2

35%

a) 914

a) 1,341

a) 972

b) 0%

b) 150%

b) 30.1%

Qualitative Targets

30%

0%

150%

140%

In determining the outcome of the short-term incentive elements, the Remuneration Committee applied a reasonableness test in which the actual level of the performance was critically assessed in light of the assumptions made at the beginning of the year. The test also included an assessment of the progress made with the strategic objectives under prevailing market conditions.

The Remuneration Committee subsequently determined that bonus payments for the Board of Management would be:

  • Thierry Vanlancker, CEO: €886,610 (88.1% of salary)
  • Maarten de Vries, CFO: €387,826 (57.3% of salary)

No matching shares were granted to the CEO or CFO in 2019 and no investment in shares under the matching arrangement were made, as this arrangement has been suspended for the period 2018 to 2020. The value of the share-matching plan for these three years is invested in the newly-created 2020 Performance Incentive Plan.

Long-term incentives (LTI)

The objectives of our long-term incentive plan are to encourage long-term, sustainable economic and shareholder value creation – both absolute and relative to competitors – and to align Board of Management interests with those of shareholders, as well as ensuring retention of the members of the Board of Management.

Conditional grant LTI share plan
2019-2021

The Remuneration Committee determines the grant levels to be made in respect of members of the Board of Management, within the limits and plans that have been approved by shareholders. In 2019, the CEO and CFO received a conditional grant of shares equivalent to the face value of 150% of their annual base salaries. The grant price was set based on the market closing price of an AkzoNobel common share as of January 2, 2019:

  • 21,379 shares were conditionally granted to Thierry Vanlancker, CEO
  • 14,387 shares were conditionally granted to Maarten de Vries, CFO

Vesting of the conditional grant is linked to two performance metrics: and relative , equally weighted and independently determining 50% of the LTI vesting. The Supervisory Board reviews ROI performance measure and target each year and ensures that both are directly linked to the strategic direction. The performance level determines: (i) the performance level below which no shares vest; (ii) the performance level at which the target number of shares vest; and (iii) the performance level at which the maximum number of shares vest.

TSR is measured relative to an industry peer group, consisting of the following nine companies:

  • Asian Paints
  • Kansai Paint
  • Nippon Paint
  • RPM International
  • Axalta
  • Masco Corp
  • PPG
  • Sherwin Williams
  • Tikkurilla

The vesting schedule that will apply to the relative TSR metric is listed in the table below. When making the performance assessment, the TSR result of AkzoNobel is included within the ranked peer group.

Relative TSR vesting scheme for the conditional grants

Rank

Vesting (as % of 50% of conditional grant)

1

150

2

135

3

120

4

100

5

75

6

50

7

25

8-10

0

Vesting of the LTI Share Plan
2017-2019

Under the LTI Share Plan 2017-2019, a conditional grant of 27,300 shares was made to the CEO. No grant was made to the CFO, as the CFO started with the company on January 1, 2018.

Vesting of the conditional grant was linked to three metrics: ROI (35%); relative (35%); and the company’s average position in the DJSI ranking (30%). These targets were set by the Supervisory Board prior to the divestment of Specialty Chemicals. Following the completion of the sale, these performance targets are no longer relevant or applicable and the Supervisory Board has decided to apply the average historic performance of 85%. The final vesting percentage of the 2017 conditional grant – after including the dividend yield of 11.37% during the performance period – equaled 94.66%. The Remuneration Committee determined that Thierry Vanlancker will vest 25,842 shares, subject to a further two-year holding requirement. At December 31, 2019, these shares had a market value of €2,342,319. An overview of all shares awarded or due to Board of Management members is shown in the table below.

2019 remuneration of the Board of Management – Number of performance-related shares

 

Plan

Performance period

Award Date

Vesting Date

End of holding period

Balance at January 1, 2019

Awarded in 2019

Vested in 2019

Forfeited in 2019

Dividend in 2019

Balance at December 31, 2019

Thierry Vanlancker
Chief Executive Officer

ANS2017

2017-2019

January 1, 2017

February 12, 2020

February 12, 2020

30,383

(7,014)

2,473

25,842

ANS2018

2018-2020

January 1, 2018

February 2021

February 2023

20,813

 

1,692

22,505

ANS2019

2019-2021

January 1, 2019

February 2022

February 2024

 

21,379

 

 

1,738

23,117

Maarten de Vries
Chief Financial Officer

ANS2018

2018-2020

January 1, 2018

February 2021

February 2023

17,722

 

1,441

19,163

ANS2019

2019-2021

January 1, 2019

February 2022

February 2024

 

14,387

 

 

1,170

15,557

2020 Performance Incentive Plan

The 2020 Performance Incentive Plan is an exceptional, one-off plan to incentivize improvement of the company’s , put in place and approved by the following the divestment of Specialty Chemicals. It supports achievement of 15% ROS (excluding unallocated corporate center costs) by the end of 2020, presented to shareholders as financial guidance towards upper quartile industry performance.

The 2020 Performance Incentive Plan could award both members of the Board of Management with a cash payment of two times annual base salary, provided that 15% ROS is achieved by the end of 2020. The performance ranges are set out in the table on this page. If a change of control event were to occur during the performance period, the Remuneration Committee can test the Plan’s performance conditions and determine the terms and conditions of any payment arising from it, including the timing of it.

Performance range – 2020 Performance Incentive Plan

 

Below threshold

Threshold

Target

Maximum

2020 ROS target

<14%

14%

15%

≥17%

Award level

0% of base salary

100% of base salary

200% of base salary

400% of base salary

Claw back and value adjustment

In 2019, there was no cause for a claw back or value adjustment by the Remuneration Committee.

Loans

The company does not grant loans, advance payments or guarantees to members of the Supervisory Board, members of the Executive Committee or any family member of such persons.

Shareholding requirements and share matching

As of December 31, 2019, CEO Thierry Vanlancker held 19,181 shares, of which 1,924 qualified for share-matching under the Share-Matching Plan on a ratio 1:1. The matching shares were conditionally granted during 2017 and 2018 and will be released in 2020 and 2021 respectively, subject to the terms of the Share-Matching Plan. Shares acquired in 2019 by the CEO contribute towards his required shareholding in accordance with the Remuneration Policy.

As of December 31, 2019, CFO Maarten de Vries held 4,164 shares. The shares acquired by the CFO during 2019 contribute towards his required shareholding in accordance with the Remuneration Policy.

Shares obtained by members of the Board of Management under the performance-related share plan are taken into account for share ownership purposes (but not for matching purposes) as soon as they have become unconditional. This includes vested shares that are to be retained during the blocking period of two years after vesting.

Comparative information

In compliance with point (b), paragraph 1 of Article 9b of the EU Directive on long-term shareholder engagement, we present below: the annual change of remuneration of each individual member of the Board of Management; the performance of the company; and the average remuneration on a full-time equivalent basis of company employees over at least the five most recent financial years.

Over the last few years of transition, the company’s performance fluctuated significantly, as the table shows. Net income attributable to shareholders was reduced in 2014 due to higher tax and lower profit from discontinued operations and recovered again in 2015 due to the positive effects of process optimization, lower costs, favorable currency developments and incidental items. In 2018, net profit increased sharply, mainly due to the divestment of Specialty Chemicals, with a deal result of €5,811 million after tax.

The transition was also reflected in the development of remuneration. Restructuring due to discontinued operations, for example, resulted in a reduction of the average salary per employee, followed by increases when operations stabilized and profits increased again. In 2018, the increase in average salary was also influenced by the inclusion of a one-off €57 million pension cost for the UK Guaranteed Minimum Pension equalizations.

The pay ratio between the total compensation of the CEO in 2019 and the total compensation of an AkzoNobel employee (calculated as an average of all employees as of December 31, 2019) is 65.0 (2018: 51.2).

Comparative table of remuneration and company performance over last five reported financial years (RFY)

 

 

 

 

 

Divestment Specialty Chemicals

 

2014

2015

2016

2017

2018

2019

1

Maëlys Castella in service as of September 2014. 2014 remuneration excluded share based compensation, making an annualized figure noncomparable.

2

Calculated as employee benefits over average number of employees.

  • In years of transition, the compensation for the newly appointed Board of Management member has been annualized
  • The salary increase budgets for 2015 amounted to 3.4%, for 2016 to 3.8%, for 2017 to 4.1%, for 2018 to 3.5% and for 2019 to 4.26% of total salaries

Remuneration CEO

Ton Büchner

 

 

Thierry Vanlancker

 

 

Fixed compensation

1,167,500

1,223,900

1,339,000

1,135,825

1,151,900

1,186,500

Total direct compensation

3,183,600

3,443,300

3,518,900

2,825,863

2,899,883

3,561,212

% change fixed compensation

n.a.

5%

9%

(15%)

1%

3%

% change total compensation

n.a.

8%

2%

(20%)

3%

23%

Remuneration CFO

 

Maëlys Castella

 

 

Maarten de Vries

 

Fixed compensation

n.a.1

681,000

710,300

715,016

797,600

819,800

Total direct compensation

n.a.1

1,322,700

1,586,400

2,169,290

1,515,816

1,843,977

% change fixed compensation

n.a.1

n.a.

4%

1%

12%

3%

% change total compensation

n.a.1

n.a.

20%

37%

(30%)

22%

Company performance

 

 

 

 

 

 

Net income attributable to shareholders

546,000,000

979,000,000

970,000,000

832,000,000

6,674,000,000

539,000,000

Net income % change

(25)

79

(1)

(14)

702

(92)

ROI

10.9

14.0

14.4

13.9

12.6

14.1

ROI % change

21%

28%

3%

(3%)

(9%)

12%

Adjusted Operating Income (OPI)

1,072,000,000

1,462,000,000

928,000,000

905,000,000

798,000,000

991,000,000

Adjusted OPI % change

20%

36%

(37%)

(2%)

(12%)

24%

Average remuneration on a full-time equivalent basis of employees

 

Average salary per employee2

58,589

59,176

58,559

53,453

56,619

54,825

% change average remuneration

0%

1%

(1%)

(9%)

6%

(3%)

Post-contract compensation

Board of Management members receive contributions towards post-contract benefits, which are defined as a percentage of income, as determined by the Supervisory Board. Currently, they are based on age. Contributions are paid over the base salary in the current year and vary depending on the Board member’s age.

Board contracts

Agreements for members of the Board of Management are concluded for a period not exceeding four years. After the initial term, re-appointments may take place for consecutive periods of up to four years each. The notice period by the Board member, and by the company, shall be subject to a six-month term. Members of the Board of Management normally retire in the year they reach the legal retirement age.

Invested capital

Total assets (excluding cash and cash equivalents, short-term investments, investments in associates, the receivable from pension funds in an asset position, assets held for sale) less current income tax payable, deferred tax liabilities and trade and other payables.

ROS (return on sales)

This is a key profitability measure and is calculated as adjusted operating income as a percentage of revenue.

ROI (return on investment)

This is a key profitability measure and is calculated as adjusted operating income as a percentage of 12 months average invested capital.

TSR (total shareholder return)

Compares the performance of different companies’ stocks and shares over time. Combines share price appreciation and dividends paid to show the total return to shareholders. The relative TSR position reflects the market perception of overall performance relative to a reference group.

TSR (total shareholder return)

Compares the performance of different companies’ stocks and shares over time. Combines share price appreciation and dividends paid to show the total return to shareholders. The relative TSR position reflects the market perception of overall performance relative to a reference group.

ROS (return on sales)

This is a key profitability measure and is calculated as adjusted operating income as a percentage of revenue.

AGM

Annual General Meeting of shareholders.