Remuneration policy

Our remuneration policy has the objective of providing remuneration in a form which will attract, retain and engage members of the Board of Management as top managers of a major international company, while protecting and promoting the company’s objectives. The design of the remuneration structure supports both our short and long-term objectives, whereas the emphasis is on long-term value creation. The remuneration policy for the Board of Management is aligned with the executive remuneration policy of the company overall. Our policy seeks to provide market competitive remuneration, where we use the median level of the external market as a reference point.

The remuneration of the members of the Board of Management consists of the following elements:

• Base salary
• Performance-related short-term incentive (STI), with share-matching opportunity
• Performance-related long-term incentive (LTI) in the form of shares
• Post-contract benefits
• Other benefits

The various elements of the remuneration package are set out in more detail below.

Base salary

The base salary is determined by the Supervisory Board.

Short-term incentive

The target STI is 100% of base salary for the CEO and 65% of base salary for any other member of the Board of Management. The STI is linked to financial targets (70%) and to individual and qualitative targets of the members of the Board of Management (30%). Targets are determined annually by the Supervisory Board. In respect of the financial targets, the Supervisory Board chooses three to four financial metrics and determines their relative weighting from the following list:

These metrics are as used 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.

For each target, the Supervisory Board sets performance ranges each year. These performance ranges determine for each target and relevant part of the STI: (i) The performance level below which no payouts are made; (ii) The performance level at which 100% payout is made; and (iii) The performance level at which the maximum payout of 150% is made. STI awards in aggregate will not exceed 150% of base salary for the CEO, and 100% of base salary for any other member of the Board of Management.

Long-term incentive

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. The long-term incentive plan is subject to three performance criteria:

• 35% of the conditional grant of shares is dependent on AkzoNobel’s relative total shareholder return (TSR) performance compared with companies in a defined peer group
• 35% of the conditional grant of shares is dependent on the development in ROI during the performance period
• 30% of the conditional grant of shares is dependent on AkzoNobel’s relative sustainability performance, measured as the company’s average position in the DJSI ranking during the three-year performance period

For each of these performance criteria, the minimum vesting is zero percent and the maximum vesting is 150% of the relevant part of the conditional share grant. Peer groups and vesting schemes are determined by the Supervisory Board.

Shareholding requirements and share-matching

The CEO is required to build up, over a five-year period from the date of first appointment, at least three times his gross base salary in AkzoNobel shares and hold these shares for the duration of his tenure as a member of the Board of Management. For any other member of the Board of Management, this requirement is at least one time their gross base salary.

Board members are expected, for these purposes, to use both their long-term incentive and short-term incentive in the manner set out below.

Board members who have not yet achieved their minimum shareholding are required to invest one-third of their short-term incentive (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, 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. The retention period for the matching shares expires two years after these shares have been awarded.

Board members who continue to invest their short-term incentives in whole, or in part, in shares after the minimum holding requirement has been achieved, 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.

Pay mix

The ratio between fixed and performance-based compensation (pay mix) for the CEO, under various levels of performance, is illustrated below. The fixed pay component only refers to base salary, excluding post-contract benefits and other benefits. The variable component includes the aforementioned short-term incentive, long-term incentive and share-matching feature. Share price developments are not taken into account.

Post-contract benefits

Members of the Board of Management receive a contribution towards pension and similar retirement benefits, as determined by the Supervisory Board.

Other benefits

Other benefits – such as a company car and allowances – are determined by the Supervisory Board.

Claw back and value adjustment

The variable pay components are subject to the claw back and value adjustment provisions of the Dutch Civil Code.

Loans

The company does not grant loans, advance payments or guarantees to its Board members.