Remuneration for the Board of Management

The remuneration policy is designed to incentivize the Board of Management to achieve the company’s objectives, while balancing the perspectives of shareholders and other key stakeholders. The focus on performance is achieved by including both short and long-term incentives that are aligned with the company strategy to realize long-term sustainable value creation. 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 contribute to building sustainable long-term value creation, with targets for return on , , revenue growth and specific environmental, social and governmental (ESG) goals.

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.

The scenarios that have been evaluated by the Remuneration Committee involve the following:

  • Threshold or below: Under-performance or performance at threshold level, no STI pay-out and no vesting of LTI shares
  • Target: Performance broadly in line with expectations, STI pay-out and vesting of LTI shares at target
  • Maximum: Exceptional performance, STI pay-out and vesting of LTI shares at maximum
  • Maximum plus: Same as maximum scenario, but a share price increase after three years of 10% is considered

The Remuneration Committee has concluded that, based on the scenarios considered and the total remuneration level in each scenario, there’s a strong relationship between pay and performance for the Board of Management. The remuneration policy also helps avoid any unintended consequences of providing incentives that are too attractive and support inappropriate risk-taking, by selecting a total direct compensation pay mix at target that consists of at least 25% of base salary and defining maximum opportunities and targets that closely reflect AkzoNobel’s overall performance.

Goal-setting is crucial to driving pay for performance aligned with the company strategy, and to ensure that decisions made – and results delivered – are aligned with the interests of AkzoNobel’s stakeholders. The Supervisory Board sets goals, their respective weight and targets (i.e. metrics) for the respective performance year under the STI and LTI scheme, considering: (1) Company strategy (2) Focus on long-term value creation (3) Historical performance, business future outlook and circumstances and priorities (4) Stakeholder expectations. Goals must be stretching yet achievable.

When implementing the policy, the Remuneration Committee consults external remuneration professionals to obtain appropriate benchmark data, and independent advice on other matters as required. The remuneration principles that apply for the Board of Management are aligned with those applied more broadly in the company. This provides a shared sense of purpose and direction at different management levels and a shared reward when success is achieved.

The following table specifies the elements of the remuneration policy, describing purpose, design and the link to our company strategy, as well as their (potential) value. The table below gives an overview of the remuneration of the members of the Board of Management who were in office in 2021. A split between the proportions fixed versus variable remuneration paid is shown in the diagram at the bottom of this page.

Goal

The goal of AkzoNobel’s remuneration policy for the Board of Management is to offer an on-target total remuneration package around the median of the labor market peer group for base salary and STI, and between median and third quartile for LTI.

 

 

 

Purpose

Design and link to strategy

Value

Total direct compensation
Is the basis for benchmark efforts, i.e. the reference to the labor market peer group.

Base salary and variable income. Variable income concerns the performance-related short-term incentive (STI) and the long-term incentive plan (LTI). In addition, Board of Management members are entitled to certain benefits.

Value of each respective item is specified in more detail below.

Base salary
Basic pay for the job.

Aims to provide a fair and competitive basis for the total pay level to attract high caliber leaders. In-depth benchmark at least every three years.

Base salaries at AkzoNobel target the median of the labor market peer group. Remuneration increases above the median market level are reserved for Board of Management members who consistently outperform their targets.

Short-term incentive (STI)
Aligning short-term business objectives and business drivers towards long-term value creation. Driving pay for performance.

The Supervisory Board sets operational targets for the respective performance year and determines the extent to which they have been achieved. By ensuring that long-term value creation is properly reflected in stretched yet achievable targets, the realization of strategic business objectives is addressed. 70% of the on-target STI is linked to financial objectives and 30% is related to personal objectives.

On-target performance: 100% of annual base salary for CEO and 80% for CFO. Maximum opportunity for CEO capped at 150% and for CFO at 120%. Threshold: no STI pay-out below threshold level.

Long-term incentive (LTI)
Encouraging 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.

Performance shares are awarded every year, to be converted into shares upon realization of pre-defined targets, observing a three-year vesting period. An additional two-year holding period after vesting applies. Performance targets are based on company strategy, driving long-term value creation. 80% of LTI targets are linked to financial goals and 20% are linked to environmental, social and governmental (ESG) goals. Performance is measured over three financial years, starting with the year of grant.

The on-target grant equals 200% of base salary for the CEO and 150% for the CFO. Maximum vesting opportunity is 150% of the number of performance shares vested, which equals 300% for the CEO and 225% for the CFO.

Shareholding requirement
Aligning reward to the interests of stakeholders and emphasizing confidence in performance and strategy.

Members of the Board of Management are expected to build up a shareholding in the company; the minimum shareholding requirement must be accrued in five years. Considered are shares privately purchased and vested shares granted under AkzoNobel share-based compensation plans.

The minimum share-holding requirement is 300% of annual base salary for the CEO and 150% for the CFO.

Share-Matching Plan
Aligning reward to the interests of stakeholders and emphasizing confidence in performance and strategy.

The Share-Matching Plan awards shares to members for shares they have invested in from their STI proceeds and held over a three-year period. When they retain these shares for three years, the company will match such shares one on one, subject to continued employment.

Board members are required to invest 25% of their STI proceeds (net after tax and other deductions) and may invest another 25% (max investment is 50% of total net STI).

Pension and other benefits
Post-retirement remuneration and other benefits, creates alignment with market practice.

A company paid contribution, based on age, to allow participation in a private pension plan, as applicable to Netherlands-based employees. Other benefits include sick pay (aligned with Netherlands-based employees) and a monthly transportation allowance of €2,000.

Pension contributions for both the CEO and CFO equal 19.6% of base salary.

Base salary

The 2021 base salaries were approved at the on April 22, 2021, and made retroactively effective from January 1, 2021:

  • Thierry Vanlancker, CEO: €1,150,000
  • Maarten de Vries, CFO: €710,000
Remuneration of Board of Management for the reported financial year

 

 

Fixed
remuneration

Variable
remuneration

Post-contract compens­ation4

Total remuner­ation

in €

LTI value based on

Base salary

Fringe benefits1

One-year variable2

Multi-year variable LTI3

Thierry Vanlancker
Chief Executive Officer

IFRS2 expenses

1,150,000

33,500

888,950

3,973,511

225,400

6,271,361

 

Market value at year-end5

1,150,000

33,500

888,950

3,216,345

225,400

5,514,195

Maarten de Vries
Chief Financial Officer

IFRS2 expenses

710,000

33,500

439,064

1,261,556

139,200

2,583,320

 

Market value at year-end5

710,000

33,500

439,064

916,268

139,200

2,238,032

1

Social security contributions and car arrangement.

2

In 2022, the Board members will invest 50% of their STI proceeds (net after tax) under the Share-Matching Plan.

3

Costs relating to share awards include non-cash expenses of performance share plan and Share-Matching Plan.

4

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

5

Market value at year-end for multi-year variable LTI is based on the number of shares that vested during the year multiplied by the share price of €96.50 at December 31, 2021.

Short-term incentive (STI)

In 2021, the financial objectives of the short-term incentive were adjusted and (OCF). The individual and qualitative objectives reflect progress towards the achievement of long-term strategic objectives. The tables below summarize the performance achieved.

STI on financial objectives

Performance metric

Weighting

 

Threshold

Maximum

Performance

Pay-out

Adjusted OPI (in € mln)

40%

Corresponding target

1,000

1,150

1,092

 

Corresponding award

0%

150%

92.0%

36.8%

OCF (in € mln)

30%

Corresponding target

1,000

1,250

774

 

Corresponding award

0%

150%

0%

0%

Total

 

 

 

 

 

36.8%

STI on personal objectives

Personal objective

Assessment of performance
0%-150%

Performance

Weighting

Weighted
pay-out CEO

Weighted
pay-out CFO

Pricing strategy

Significant (above target) progress has been made on this initiative to offset raw material increases.

150%

1/6

Performance score of 135%

Resulting in pay-out of 40.5%

Performance score of 135%

Resulting in pay-out of 40.5%

Organization

New operating model for Grow & Deliver implemented and fully operational.
Year one achievement for implementation of the key strategic initiatives above financial plans for majority of the plans.

140%

1/3

Culture

OHI score improved by three points.
% female leaders in Senior Executive roles according to plan (2021 targets).
Started the change leadership journey and also executed on commitments/areas for improvement.

127%

1/2

In determining the outcome of the STI 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, taking into account the continued impact of COVID-19 and shortages (including significant price increases) in raw materials. 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: €888,950 (77.3% of salary)
  • Maarten de Vries, CFO: €439,064 (61.84% of salary)

CEO fixed vs performance-linked

CEO fixed vs performance-linked (chart)

CFO fixed vs performance-linked

CFO fixed vs performance-linked (chart)

No matching shares were granted to the CEO or CFO in 2021, as this arrangement was suspended for STI payments made in the years 2019, 2020 and 2021. The value of the Share-Matching Plan for these three years was invested in the 2020 Performance Incentive Plan.

Long-term incentives (LTI)

Conditional grant LTI share plan 2021-2023

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 2021, the CEO received a conditional grant of shares equivalent to the face value of 200% of his annual base salary and the CFO received a conditional grant of shares equivalent to the face value of 150% of his annual base salary. The grant price was determined based on the average share price of an AkzoNobel common share in the two weeks following publication of the annual results on February 17, 2021:

  • 26,713 shares were conditionally granted to Thierry Vanlancker, CEO
  • 12,369 shares were conditionally granted to Maarten de Vries, CFO

Vesting of the conditional grant is linked to four performance metrics:

Measure

Weight

AkzoNobel adjusted EBITDA (in mln)

40%

AkzoNobel return on investment (in %)

20%

AkzoNobel revenue growth (in %)

20%

Environmental, social and governance (ESG)

20%

Revenue growth is compared with a defined industry peer group, consisting of the following companies in the paints and coatings sector: Sherwin-Williams, Nippon Paint, PPG, Axalta and BASF Coatings.

Organic growth rates to calculate the performance take into consideration price, mix, volume growth and exclude the effects of exchange rates and mergers and acquisitions. For Axalta and Sherwin-Williams, only organic growth percentage of the performance coatings business growth is taken into consideration.

The ESG targets consist of four equally weighted targets related to AkzoNobel’s People. Planet. Paint. approach (see the following table).

Metrics used for ESG targets

Total recordable injury rate (TRR)

Per 200,000 hours, three-year average.

Total waste – circular

As the percentage circular waste of total waste.

Energy use (GJ/ton)

Per ton of production.

Renewable electricity

Use of renewable electricity (own operations).

The Supervisory Board determines for each target: (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.

Special restricted share grant

At the 2021 AGM, CEO Thierry Vanlancker was reappointed for a two-year period. His reappointment was supported with 97.5% of the votes at the AGM. As part of his reappointment, Mr. Vanlancker was granted a special grant of 17,500 AkzoNobel shares to compensate for the loss of shares due to the two-year reappointment and the fact that shares granted as from 2021 will only vest on a pro-rated basis. As the special grant was not subject to performance conditions, it was decided to apply a 30% discount on the “on-target” value.

The special share grant came into effect on July 21, 2021 (i.e. the first day of the open window after the AGM) following a notification to the Netherlands Authority for the Financial Markets (Autoriteit Financiële Markten, “AFM”) and vested in full that same day. The shares have a restriction date of April 20, 2023 (or the actual date of the at which Mr. Vanlancker will relinquish his position as CEO).

Vesting of the LTI share plan 2019-2021

Under the LTI share plan 2019-2021, conditional grants of 21,379 shares were made to the CEO and 14,387 shares to the CFO.

In line with the remuneration policy, vesting of 50% of the shares conditionally granted in 2019 was linked to AkzoNobel’s performance, which was reviewed at the end of the performance period by the Supervisory Board. The targeted ROI of 25% – which was also applicable to the share grant in 2019 as part of the 15 by 20 strategy – was intended to deliver profitability in line with leading peers. It was initially announced by previous management in April 2017.

When the Grow & Deliver strategy was launched, the company updated its ROI ambition in 2020 from 25% to 20%, taking into account lower revenue growth, the impact of IFRS 16 and recent bolt-on acquisitions. As a result, as they did last year, the Supervisory Board recognized that the 2019 ROI pay-out curve, with an ambition of 25%, no longer aligned with the new strategy.

They applied their discretionary power to evaluate performance against the 2020 pay-out curve, with an ambition of 20%. In both pay-out curves ROI is excluding unallocated cost (the metric for the LTI plans up to 2020; as of 2021, the metric is including unallocated costs). Actual AkzoNobel ROI excluding unallocated cost performance in 2021 was 19.5%. On a linear pay-out curve, with a threshold of 17%, corresponding to a pay-out of 50% an on-target of 20%, and a maximum of 25%, this resulted in a vesting of 91.67% for this specific part of the long-term incentive.

2021 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 2021

Awarded
in 2021

Vested
in 2021

Forfeited
in 2021

Dividend
in 2021

Balance at December 31, 2021

Thierry Vanlancker
Chief Executive Officer

ANS2018

2018 – 2020

January 1 2018

February 17 2021

February 17 2023

18,020

(18,020)

ANS2019

2019 – 2021

January 1 2019

March
2022

March
2024

23,733

(10,079)

456

14,110

ANS2020

2020 – 2022

January 1 2020

February 2023

February 2025

19,246

370

19,616

ANS2021

2021 – 2023

January 1 2021

February 2024

February 2026

26,713

513

27,226

Maarten de Vries
Chief Financial Officer

ANS2018

2018 – 2020

January 1 2018

February 17 2021

February 17 2023

15,344

(15,344)

ANS2019

2019 – 2021

January 1 2019

February 2022

February 2024

15,971

(6,783)

307

9,495

ANS2020

2020 – 2022

January 1 2020

February 2023

February 2025

12,952

249

13,201

ANS2021

2021 – 2023

January 1 2021

February 2024

February 2026

12,369

237

12,606

For the 2019 conditional grant, 50% was linked to AkzoNobel’s relative performance compared with the companies in a defined industry peer group consisting of the following nine companies:

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

Following the acquisition of Tikkurilla by PPG, the Remuneration Committee decided to freeze Tikkurilla’s share price at €14.23. This share price was calculated as the average closing share price in the four weeks before news of the acquisition became public. Independent external experts conducted an analysis to calculate the number of shares that would vest according to the TSR ranking. In order to adjust for changes in exchange rates, all local currencies were converted into euros.

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

 

 

 

Divestment Specialty Chemicals

in €

2017

2018

2019

2020

2021

Remuneration CEO

Thierry Vanlancker

 

 

 

 

Fixed compensation

1,135,825

1,151,900

1,186,500

1,245,800

1,408,900

Total rewards (excl. one-off special payments)

2,825,863

2,899,883

3,561,212

3,494,689

4,465,361

One-off special payments

n/a

n/a

n/a

2,067,000

1,806,000

Total rewards (incl. benefits and one-off special payments)

2,825,863

2,899,883

3,561,212

5,561,689

6,271,361

% change fixed rewards

(15%)

1%

3%

5%

13%

% change total rewards

(20%)

3%

23%

56%

13%

Remuneration CFO

Maëlys Castella

Maarten de Vries

 

 

 

Fixed compensation

715,016

797,600

819,800

865,500

882,700

Total rewards (excl. one-off special payments)

2,169,290

1,515,816

1,843,977

2,168,658

2,583,320

One-off special payments

n/a

n/a

n/a

1,391,000

n/a

Total rewards (incl. benefits and one-off special payments)

2,169,290

1,515,816

1,843,977

3,559,658

2,583,320

% change fixed rewards

1%

12%

3%

6%

2%

% change total rewards

37%

(30%)

22%

93%

(27%)

Company performance

 

 

 

 

 

Net income attributable to shareholders

832,000,000

6,674,000,000

539,000,000

630,000,000

829,000,000

Net income % change

(14)

702

(92)

17

32%

ROI % (excluding unallocated cost)

18.0

16.6

17.2

20.6

19.5

ROI % change

(13%)

(8%)

4%

20%

(5%)

Adjusted operating income (OPI)

905,000,000

798,000,000

991,000,000

1,099,000,000

1,092,000,000

Adjusted OPI % change

(2%)

(12%)

24%

11%

(1%)

Average remuneration on a full-time equivalent basis of employees

 

Average salary per employee1

53,453

56,619

54,825

56,061

54,220

% change average remuneration

(9%)

6%

(3%)

2%

(3%)

CEO pay ratio

58.6

56.4

65.0

99.2

115.72

CEO pay ratio (excl. one-off special payments)

58.6

56.4

65.0

62.3

82.4

In years of transition, the compensation for the newly appointed Board of Management member has been annualized.

1

Calculated as employee benefits over average number of employees.

2

The CEO pay ratio is higher due to the one-off reappointment grant of 17,500 shares and a lower average salary per employee.

AkzoNobel’s TSR performance during the period 2019 to 2021 resulted in the seventh position within the ranking of the peer group companies. This ranking resulted in a vesting of 25% for this part of the long-term incentive, as shown in the table below. Based on the company’s combined ROI and TSR performance, the final vesting percentage of the 2019 conditional grant – after including the dividend yield of 13.14% during the performance period – equaled 66.0%.

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

The Remuneration Committee determined that:

  • Thierry Vanlancker would vest 14,110 shares, subject to a further two-year holding requirement to align the long-term interests of the members of the Board of Management and our shareholders. At December 31, 2021, these shares had a market value of €1,361,615
  • Maarten de Vries would vest 9,495 shares, subject to a further two-year holding requirement to align the long-term interests of the members of the Board of Management and our shareholders. At December 31, 2021, these shares had a market value of €916,268

An overview of shares awarded, or due to, Board of Management members is shown in the table.

Claw back and value adjustment

In 2021, 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

Board of Management members are expected to build up a share-holding requirement in the company. The minimum shareholding requirement must be accrued within five years. This includes privately purchased shares, and vested shares granted under AkzoNobel share-based compensation plans. The minimum shareholding requirement is 300% of annual base salary for the CEO and 150% of annual base salary for the CFO.

As of December 31, 2021, CEO Thierry Vanlancker held 74,598 shares. Shares acquired in 2021 by the CEO contribute towards his required shareholding. On December 31, 2021, he fulfilled this requirement by holding the equivalent of 626% of his annual base salary in shares.

As of December 31, 2021, CFO Maarten de Vries held 14,643 shares. Shares acquired by the CFO during 2021 contribute towards his required shareholding. On December 31, 2021, he fulfilled this requirement by holding the equivalent of 199% of his annual base salary.

Shares obtained by Board of Management members under the performance related share plan are taken into account for share ownership purposes once they have become unconditional. This includes vested shares to be retained during the two-year blocking period after vesting.

In 2021, CEO Thierry Vanlancker received 1,720 matching shares that were conditionally granted in 2018 under the Share-Matching Plan. On December 31, 2021, there were no shares that qualified for share-matching under the Share-Matching Plan.

Board contracts

Agreements for Board of Management members are concluded for a period not exceeding four years. After the initial term, reappointments may take place for consecutive periods of up to four years each. At the 2021 AGM, CEO Thierry Vanlancker was reappointed for a two-year period. His reappointment was supported with 97.5% of the votes at the AGM.

At the AGM to be held in 2022, the reappointment of the CFO, Maarten de Vries, will be scheduled. 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 legal retirement age.

Comparative information

Internal pay ratios are a relevant input factor for determining the appropriateness of the implementation of the remuneration policy, as recognized in the Dutch Corporate Governance Code. In 2021, the ratio between the annual total compensation for the CEO and the average annual compensation for an employee was 115.7 (2020: 99.2). Further details on the development of these amounts and ratios over time can be found on the previous page.

Over the last few years of transition, the company’s financial performance fluctuated significantly as the table on the previous page shows. In 2018, net profits 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. In 2018, the increase in average salary was influenced by the inclusion of a one-off €57 million pension cost for the UK guaranteed minimum pension equalizations.

In 2020, total rewards (including benefits) for the Board of Management included a one-off special payment for the 2020 Performance Incentive Plan, which incentivized improvement on the company’s . The plan was put in place and approved by the AGM following the divestment of Specialty Chemicals. In 2021, total rewards (including benefits) for the CEO included a one-off special share grant to compensate for the loss of shares due to the two-year reappointment and the fact that shares granted as from 2021 will only vest on a pro-rated basis.

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.

Adjusted EBITDA

Adjusted EBITDA is operating income excluding depreciation, amortization and identified items.

AGM or EGM

Annual General Meeting of shareholders; Extraordinary General Meeting of shareholders.

Operating income

Operating income is defined in accordance with IFRS and includes the relevant identified items. Adjusted operating income excludes identified items.

Operational cash flow

We use operational cash flow to monitor cash generation. It is defined as operating income excluding depreciation and amortization, adjusted for the change in operating working capital and capital expenditures.

AGM or EGM

Annual General Meeting of shareholders; Extraordinary General Meeting of shareholders.

ROI (return on investment)

ROI is adjusted operating income of the last 12 months as a percentage of average invested capital.

ROI (return on investment)

ROI is adjusted operating income of the last 12 months as a percentage of 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.

ROS (return on sales)

ROS is adjusted operating income as a percentage of revenue.