In early 2008 both the remuneration of the Executive Board and of the Supervisory Board were reviewed. In its meeting on May 7, 2008, the General Meeting of Shareholders (GMS) adopted the revised remuneration policy for the Executive Board and the revised remuneration for the members of the Supervisory Board. For more information on the membership of this committee and activities performed in 2008, please refer to the Report Supervisory Board (annual report 2008).
REMUNERATION EXECUTIVE BOARD
Remuneration policy
Labor market reference group adjusted
Compensation of the Executive Board members is determined by the Supervisory Board, on the Selection and Remuneration Committee's advice, within the framework of the remuneration policy as adopted by the GMS. This policy is aimed at attracting, motivating and retaining qualified management for an international company of ARCADIS' size and complexity. The Selection and Remuneration Committee reviews the remuneration policy every three years to verify its market conformity. The policy was set by the GMS in 2005 and reviewed in 2008, without adjusting the structure of the remuneration package. An external advisor assisted by providing a benchmark analysis, against a slightly adjusted labor market reference group, consisting of Dutch companies, as well as a number of European consultancy and engineering companies, both of comparable size and complexity. The adjustments to the labor market reference group have resulted from the increased size and changed positioning of ARCADIS, while U.S. companies are no longer included. The new labor market reference group consists of: USG People (NL), Heymans (NL), Imtech (NL), Draka (NL), Fugro (NL), Boskalis (NL), , Grontmij (NL), Ordina (NL), Atkins (UK), Pöyry (Fin), WSP (U.K.), RPS (UK), Sweco (S) and White Young Green (UK).
Compensation in line with median level of reference group
The remuneration package for Executive Board members consists of the following elements: a fixed base salary, a short-term variable remuneration (cash bonus), a long-term variable remuneration (shares and options) and a pension plan and other fringe benefits. Variable remuneration is an important component of the total package and is based on performance criteria that are aimed at value creation in the short and longer term. The remuneration policy aims at compensation that is in line with the median level for the different elements of primarily the Dutch part of the selected labor market reference group. Based on the 2008 review of the remuneration policy, changes have been made to the fixed base salary and the long-term variable remuneration. The other elements have not been changed.
Fixed base salary
Base salary adjusted
The 2007 base salary appeared to be clearly below the median level of the Dutch part of the labor market reference group. Based on the median level of the reference group, a target level for base salary has been set, maintaining the existing difference between the CEO and the members of the Executive Board (CEO salary 1/3 higher). To bring base salary to the target level, the GMS has agreed to increase base salary in two steps of 10% each, in 2008 and 2009. Per July 1, 2008 base salary has been increased by 12%, including inflation, according to the table below.
|
|
2007 base salary1) |
target level2) |
2008 base salary1) |
|
CEO |
€ 372,159 |
€ 450,000 |
€ 416,818 |
|
Member EB |
€ 278,367 |
€ 337,500 |
€ 311,711 |
1) Base salary as per July, 1 of the year mentioned
2) Target level is based on 2007 price level.
Although using a reference group may drive executive remuneration up, the Supervisory Board considers the aforementioned salary adjustments justifiable in view of the increased size and changed positioning of the Company.
Short-term variable remuneration: bonus
This element of the remuneration has not been changed. It may vary from 0% to 60% of fixed base salary, with 40% (the target bonus) being applicable when targets are achieved. Financial targets are related to the Company's financial goals and determine 75% of the bonus. It concerns: earnings per share (EPS), excluding currency impacts, and return on invested capital (ROIC), both as defined in the financial goals. Non-financial targets are set for each Executive Board member individually and relate to specific goals to be achieved, usually of a more strategic nature. These targets determine the remaining 25% and cannot be overachieved. The targets are preset annually by the Supervisory Board. The bonus percentage is determined using the following table:
|
Criterion |
Weight |
Cash bonus as percentage of base salary |
|
Minimum |
At target |
Maximum |
|
EPS |
45% |
0% |
18% |
30% |
|
ROIC |
30% |
0% |
12% |
20% |
|
Discretionary criteria |
25% |
0% |
10% |
10% |
|
Total |
100% |
0% |
40% |
60% |
Targets for 2008 and performance against these targets were as follows:
• The EPS target was based on 2008 budget. Minimum and maximum are achieved at -10% and +10% compared to target. With 2008 EPS at € 1.16 the target was overachieved by 4%, resulting in 23% of base salary for this target.
• The ROIC target is in principle 15% but is annually reviewed based on the budget. For 2008 the target was set at 16%, with minimum being achieved at 12%, maximum at 20%. As 2008 ROIC was at 18.1%, 16% of base salary was achieved for this target.
• Non-financial targets are tuned to the specific responsibilities of individual Executive Board members. Based on performance, the bonus varied from 7% to 10% of base salary.
This resulted in bonuses varying between 46% and 49% of base salary.
Long-term variable remuneration: shares and options In order to stimulate long-term value creation, the remuneration policy includes the granting each year of performance-based shares and options. These vest and become unconditional after three years dependant on the Company's relative performance against a peer group of comparable, listed companies. Performance is measured as Total Shareholder Return (TSR), defined as share price increase, including reinvested dividends. This stimulates creating shareholder value on the longer term. As from 2008 the peer group and TSR measurement have been adjusted, while the number of shares and options to be granted has been reset.
Peer group and vesting
At the end of each three-year cycle, ARCADIS' performance is determined against the companies in the peer group. ARCADIS' ranking determines whether and to what extent the originally granted options and shares vest and become unconditional. The tables below show the old and new peer group as well as the old and new vesting scheme.
|
Peer group |
|
Vesting for 2005-20071) |
Vesting for 2008-20101) |
|
For 2005-20071) |
For 2008-20101) |
|
Position |
Vesting |
Position |
Vesting |
|
ARCADIS (NL) |
ARCADIS (NL) |
|
1 |
150% |
1 |
150% |
|
Alten (Fr) |
Atkins (UK) |
|
2 |
133% |
2 |
133% |
|
Atkins (UK) |
Grontmij (NL) |
|
3 |
117% |
3 |
117% |
|
Grontmij (NL) |
Poyry (Fin) |
|
4 |
100% |
4 |
100% |
|
Poyry (Fin) |
Sweco (Sw) |
|
5 |
83% |
5 |
83% |
|
Sweco (Sw) |
WYG (UK) |
|
6 |
67% |
6 |
67% |
|
WSP (UK) |
WSP (UK) |
|
7 |
50% |
7 |
50% |
|
Tetra Tech (US) |
Aecom (US) |
|
8 |
0% |
8 |
0% |
|
TRC (US) |
Jacobs (US) |
|
9 |
0% |
9 |
0% |
|
URS (US) |
Tetra Tech (US) |
|
10 |
0% |
10 |
0% |
|
|
URS (US) |
|
|
|
11 |
0% |
|
|
|
|
Expected:2) |
70% |
Expected:2) |
64% |
1) The years mentioned refer to the years of granting of conditional shares and options.
2) Expected vesting percentage, assuming each position having equal chance.
Performance measurement
For the shares and options granted in the period 2005-2007, performance is based on the average TSR at the end of the three-year period. For the shares and options granted in the period 2008-2010, performance will be based on the average TSR over the three-year period. This prevents incidents such as temporary sentiments or take-over rumors related to specific companies, having a strong impact on relative performance.
Number of shares and options
In 2005, the numbers of performance shares and options granted each year were fixed for three years (2005-2007) and approved by the GMS in 2005. For the two Executive Board members that were appointed in 2006, the numbers were adjusted downward somewhat because of the strong increase in ARCADIS' share price since 2005.
In 2008, the numbers of conditional shares and options to be granted have been reset to bring the value of the long-term incentive in line with the percentage of base salary that is aimed for, using the average ARCADIS share price in the first quarter of 2008 of € 13.33 and an expected vesting percentage of 63.6% (equal chance for each position in ranking after three years). The numbers of conditional shares and options to be granted each year are fixed for three years (2008-2010) and were approved by the GMS in 2008. The numbers (after the 1:3 split in May 2008) are as follows:
|
|
target LTI as % of base |
to be granted in 2008-2010 |
vesting of shares |
vesting of options |
|
|
shares |
options |
min |
max |
min |
max |
|
CEO |
50% |
18,000 |
36,000 |
0 |
27,000 |
0 |
54,000 |
|
Member EB |
40% |
10,800 |
21,600 |
0 |
16,200 |
0 |
32,400 |
The exercise price for options granted is the closing price of the ARCADIS share on the first trading day after the GMS on which the shares are quoted ex-dividend. Options are valid for a 10-year period. Except for paying income tax on vested shares, shares must be retained for a period of at least two years after vesting or at least until termination of employment when this is shorter.
Vested shares and options
In May 2008, the shares and options that were granted in May 2005 became unconditional at 133% of the originally granted numbers. This was due to ARCADIS' strong performance in the period 2004-2007 resulting in the second place among the peer group.
Over the period 2005-2008 ARCADIS ended in the fourth place among the peer group, showing that the Company continued its good performance. Therefore the shares and options that were granted in May 2006 will become unconditional in May 2009 at 100% of the originally granted numbers.
Policy in case of a take over
In the event of a take over of ARCADIS, the treatment of shares and options granted to the Executive Board (and all other staff) will be determined by the Supervisory Board, upon advice by the Selection and Remuneration Committee, taking into account the share price in the period preceding the disclosure of an offer as well as all other relevant circumstances at that moment. This means that the exercise price of outstanding options and the number of unvested conditional shares can be adjusted to correct for (part of) the increase in share price caused by the offer. Unvested shares and options will vest proportionally to the number of months of the three-year vesting period that elapsed since the grant date.
Pensions, other benefits, contracts
Pensions
Executive Board members participate in the ARCADIS Netherlands pension plan. This is a collective defined contribution plan with the premium based on the ambition of a pension payment that, under certain conditions, is comparable to an average pay scheme with a retirement age of 63 years. The contribution from the participants is 6% of the pension basis. Mr. Schneider, who is a German citizen, receives compensation for the limited tax deductibility of his own contribution to the pension fund.
Other benefits
Executive Board members receive a fixed allowance for expenses, as well as other customary fringe benefits including the use of a company car. They may also participate in the Employee Stock Purchase Plan to purchase up to a maximum of € 400 per month of ARCADIS shares from the Lovinklaan Foundation at a discount.
Employment contracts and severance pay
Messrs. Noy and Jaski have been appointed for an indefinite period. Their contracts do not contain severance pay provisions. For Executive Board members appointed after the introduction of the Dutch Corporate Governance Code, a four-year term and a maximum severance pay of one year's base salary will be agreed. This has been done with the Executive Board members appointed in 2006, Messrs. van der Klift and Schneider. Contracts of Executive Board members do no contain provisions for the event of the termination of employment resulting from a change in control.
Evaluation of remuneration policy
Since the adoption of the changes in the remuneration policy by the GMS in May 2008, the Monitoring Committee Corporate Governance (the Frijns committee) has issued its report which contains additional best practices regarding executive remuneration. Based upon advice of the Selection and Remuneration Committee, the Supervisory Board has evaluated these additional best practices, resulting in the following preliminary conclusions:
The remuneration policy as described before is aligned with the strategy and the financial goals of the Company and its related risks. It includes a good balance between fixed and variable and between short and long-term remuneration and is (relatively) simple and understandable. When introducing the revised remuneration policy in 2005, the maximum short-term cash bonus was adjusted downward from 200% to 150% of the target bonus, while at the same time the long-term incentive was upgraded to also include performance shares.
The remuneration for Executive Board members is in reasonable proportion to that for the next level in the organization. ARCADIS' Senior Management Committee members and other operating company directors, have a remuneration structure comparable to the Executive Board.
A scenario analysis that was made with respect to the potential outcomes of the variable remuneration components gives no cause to adjust the remuneration policy.
The Supervisory Board recognizes that conditionally awarded variable remuneration components could produce unfair results due to extraordinary circumstances during the period in which the predetermined performance criteria have been or should have been achieved. In such case the Supervisory Board will use its judgment to make adjustments (downwards or upwards) to the value of these variable remuneration components, taking into account the relevant circumstances (ultimum remedium clause).
The Supervisory Board agrees to recover – on a best effort basis and taking into account the relevant circumstances – from the Executive Board members any variable remuneration awarded on the basis of incorrect financial or other data (claw back clause).
In view of the economic crisis, the Executive Board has proposed to renounce any increase in base salary in 2009, including the 10% increase already agreed to by the GMS. The Supervisory Board has accepted this proposal wholeheartedly.
REMUNERATION SUPERVISORY BOARD
The GMS determines the remuneration of Supervisory Board members. As this was last done in 2004, remuneration was reviewed in 2008, taking into account a benchmark analysis of remuneration at companies that are part of the Amsterdam Midkap Index (AMX). In view of the outcome of this analysis and the increased responsibilities of Supervisory Board Members, it was proposed to the GMS to increase remuneration. The GMS accepted the proposal in its May, 2008 meeting, resulting in the following remuneration as per July 1, 2008:
|
|
Chairman |
Member |
|
Yearly fixed remuneration |
€ 45,000 |
€ 30,000 |
|
Yearly fixed cost compensation |
€ 3,000 |
€ 2,000 |
|
Membership AAC |
€ 7,500 |
€ 5,000 |
|
Membership ASRC |
€ 5,000 |
€ 5,000 |
In addition, non-Dutch members receive an attendance fee per physical meeting of € 2,000 for European members and $ 4,000 for members from the United States.
Remuneration is not dependent on Company results. Supervisory Board members are not eligible to receive shares or options as part of their remuneration. Possible share ownership of ARCADIS shares by a Supervisory Board member is meant as a long-term investment.
OTHER INFORMATION
The Company has not granted any loans, advances or guarantees to Executive and Supervisory Board members. In 2005, ARCADIS NV provided Executive Board members an indemnification for all costs and expenses from and against any claim, action or lawsuit related to actions and/or omissions in their function as Executive Board members. As approved by the GMS in 2005, a similar indemnification was provided to Supervisory Board members.
On behalf of the Selection and Remuneration Committee
Rijnhard W.F. van Tets, Chairman
|
Name |
granting |
vesting |
lock up
until |
|
|
date |
type |
number |
share price |
value |
date |
vesting % |
number |
|
H.L.J. Noy |
May-05 |
shares |
30.000 |
5,98 |
113 |
May-08 |
133% |
39.999 |
May-10 |
|
|
|
options |
75.000 |
5,98 |
93 |
|
133% |
99.999 |
n.a. |
|
|
May-06 |
shares |
30.000 |
12,38 |
233 |
May-09 |
100% |
30.000 |
May-11 |
|
|
|
options |
75.000 |
12,38 |
216 |
|
100% |
75.000 |
n.a. |
|
|
May-07 |
shares |
30.000 |
19,89 |
375 |
May-10 |
|
|
May-12 |
|
|
|
options |
75.000 |
19,89 |
250 |
|
|
|
n.a. |
|
|
May-08 |
shares |
18.000 |
13,03 |
147 |
May-11 |
|
|
May-13 |
|
|
|
options |
36.000 |
13,03 |
71 |
|
|
|
n.a. |
|
C.M. Jaski |
May-05 |
shares |
21.000 |
5,98 |
79 |
May-08 |
133% |
27.999 |
May-10 |
|
|
|
options |
45.000 |
5,98 |
56 |
|
133% |
59.999 |
n.a. |
|
|
May-06 |
shares |
21.000 |
12,38 |
163 |
May-09 |
100% |
21.000 |
May-11 |
|
|
|
options |
45.000 |
12,38 |
129 |
|
100% |
45.000 |
n.a. |
|
|
May-07 |
shares |
21.000 |
19,89 |
262 |
May-10 |
|
|
May-12 |
|
|
|
options |
45.000 |
19,89 |
150 |
|
|
|
n.a. |
|
|
May-08 |
shares |
10.800 |
13,03 |
88 |
May-11 |
|
|
May-13 |
|
|
|
options |
21.600 |
13,03 |
42 |
|
|
|
n.a. |
|
B. van der Klift |
May-06 |
shares |
15.000 |
12,38 |
117 |
May-09 |
100% |
15.000 |
May-11 |
|
|
|
options |
37.500 |
12,38 |
108 |
|
100% |
37.500 |
n.a. |
|
|
May-07 |
shares |
15.000 |
19,89 |
187 |
May-10 |
|
|
May-12 |
|
|
|
options |
37.500 |
19,89 |
125 |
|
|
|
n.a. |
|
|
May-08 |
shares |
10.800 |
13,03 |
88 |
May-11 |
|
|
May-13 |
|
|
|
options |
21.600 |
13,03 |
42 |
|
|
|
n.a. |
|
F. Schneider |
May-06 |
shares |
15.000 |
12,38 |
117 |
May-09 |
100% |
15.000 |
May-11 |
|
|
|
options |
37.500 |
12,38 |
108 |
|
100% |
37.500 |
n.a. |
|
|
May-07 |
shares |
15.000 |
19,89 |
187 |
May-10 |
|
|
May-12 |
|
|
|
options |
37.500 |
19,89 |
125 |
|
|
|
n.a. |
|
|
May-08 |
shares |
10.800 |
13,03 |
88 |
May-11 |
|
|
May-13 |
|
|
|
options |
21.600 |
13,03 |
42 |
|
|
|
n.a. |
