2018Statements

Remuneration of Managing Board and Supervisory Board

Remuneration Managing Board in 2018

The actual remuneration of the members of the Managing Board is determined by the Supervisory Board within the framework of the Remuneration Policy as approved by the Annual General Meeting of Shareholders. More details on the Remuneration policy Managing Board are included in the 'Report by the Supervisory Board'.

Base salary in 2018

Base salaries have been adjusted at the discretion of the Supervisory Board taking into consideration the 'general increase' (market movement) for DSM executives in the Netherlands as well as the general movements of the labor-market peer group as described in our remuneration policy. On average the adjustment amounts to 2.7% (CEO 2.4% and members Managing Board 2.9%).

Short-Term Incentives (STI) for 2018

STI targets are revised annually to ensure that they are stretching but realistic. Considerations regarding the performance targets are influenced by the operational and strategic course taken by the company and are directly linked to the company's ambitions. The targets are determined at the beginning of the year for each Board member.

Target STI level and pay-out

The on target STI level set in the remuneration policy is 50% of annual base salary. Excellent over-achievement may increase the STI pay-out to 100% of the annual base salary. This Report presents the Short-Term Incentives earned on the basis of the results achieved in 2018. These Short-Term Incentives will be paid out in 2019.

The Supervisory Board has established the extent to which the targets set for 2018 were achieved, resulting in an average overall achievement of 80%, compared to 75% in 2017. All targets for 2018 were set in line with the published strategic, financial and sustainability goals. The financial targets Adjusted EBITDA, Gross Free Cash Flow and Net sales growth have all been achieved at maximum level. For the sustainability targets, the score on Brighter Living Solutions was on target, and the score on the Employee Engagement Index was significantly overachieved. The Safety Performance score was, disappointingly, below target. Managing Board members also have individual targets. The scores achieved on these targets were above target. The realization of the 2018 financial STI targets has been assessed by KPMG. Furthermore, KPMG has assessed the validation process for target realization of the non-financial STI targets.

Under the STI Deferral and Share Matching Plan, only part of the STI outcome is paid in cash: 25% of the gross STI pay-out is mandatorily converted into DSM Investment Shares. In addition, Managing Board members may decide to convert an additional part of the STI pay-out into Investment Shares (minimum 5%; maximum 25%; incremental steps of 5%). The company matches these STI Investment Shares with an equivalent number of Performance Share Units (PSUs), vesting after three years, subject to holding the Investment Shares during the vesting period and the achievement of predefined performance targets equivalent to the measures under the Long-Term Incentive (LTI) Plan. The remainder (if any left after deduction for tax) of the STI pay-out (50% to maximum 75%) is delivered in cash.

All members of the Managing Board decided to invest the maximum of 50% of their gross 2017 STI (payable in 2018) in accordance with the STI Deferral and Share Matching Plan. In all cases, these Investment Shares were matched with an equal number of Performance Share Units (PSUs). This was also the case with the gross 2018 STI (to be paid in 2019).

Long-Term Incentives (LTI)

The following table provides an overview of the LTI Performance Shares granted to members of the Managing Board. These Performance Shares are subject to a three-year vesting period.

For 2019, the number of conditionally granted ordinary shares under the LTI program will be:

• Chairman 18,500
• Members 12,500

For an overview of all granted and vested stock options and Performance Shares, see Remuneration of Managing Board and Supervisory Board.

In 2018, the Supervisory Board determined the vesting of the Performance Shares granted in 2015. The following performance measures applied to the 2015 grant: relative Total Shareholder Return (TSR) versus peer group, Return on Capital Employed (ROCE), Energy Efficiency Improvement (EEI) and the Greenhouse Gas Emissions (GHGE) Efficiency Improvement, each determining 25% of the total vesting percentage. The applicable vesting schemes were published in DSM's 2015 Integrated Annual Report. DSM's TSR performance resulted in a vesting above target level yet below maximum; the performance on the remaining targets (Return on Capital Employed, Greenhouse Gas Emissions and Energy Efficiency Index) resulted in maximum vesting. This strong performance on all financial and non-financial parameters over the last 3 years resulted in a clear increase in the number of shares vested (much smaller number of shares forfeited) to 142.5% of target. As explained in the remuneration policy, based on face value, the initial grant equals 150% of target, therefore this performance leads to the vesting of 95% of the number of shares granted in 2015.

Pensions in 2018

The members of the Managing Board participate in the Dutch pension fund Stichting Pensioenfonds DSM Nederland (PDN). This pension scheme for the Managing Board is equal to the pension scheme for other DSM employees in the Netherlands. Reference is made to the website of the pension fund.

Revision and claw-back of incentives

As in 2017, no revision or claw-back of any incentives occurred in 2018.

Pay ratio

Under the Dutch Corporate Governance Code companies are required to publish a pay ratio. As the code does not provide a definition of the pay ratio, the calculation method applied will vary per company, which will make the pay ratio data incomparable. The pay ratio per company will also differ year on year, since the variable pay (as a percentage of annual base salary) of the CEO/Managing Board is typically much higher (100% at target) than the variable pay of the comparable average employee group (about 5-10% of annual base pay), and this variable pay will fluctuate with business results. On top of that, different regions of the world have different pay structures, so acquisitions/divestments, growth in certain areas and foreign exchange rates will equally influence the pay ratio. DSM complies with the Dutch Corporate Governance Code in providing a pay ratio, as measured per 31 December 2018.

The pay ratio calculated versus the Dutch employee remuneration average, will be 26:1 (2017: 20:1) (compared to CEO remuneration) or 20:1 (2017: 16:1) (compared to average Managing Board remuneration). This is based on total cost of €503 million in the Netherlands (which includes the remuneration of the Managing Board and has been deducted in the ratio calculation) and a head count in the Netherlands of 3,827 as per 31 December 2018. The increase is due to the higher number of shares that now vested (so a lower number of shares that were forfeited over the period 2015-2017) of the total number of shares that were granted in 2015, due to the good performance of the company.
The ratio of total remuneration, including annual base salary, Short-Term Incentive, Long-Term Incentive and other benefits such as pension (as reported in this Integrated Annual Report) versus the average of total global employee (i.e. including Dutch) remuneration is for the CEO 40:1 (2017: 32:1). The pay ratio of the average Managing Board total remuneration versus the average of total global employee remuneration is 31:1 (2017: 25:1). The increase is due to the explanation given above.

However, if the pay ratio is calculated on the basis of the estimated vesting %, so without the additional non-cash vesting of shares for the series 2015-2017, the pay ratio compared to the Dutch employee average for the CEO would be 22:1 (2017: 20:1) and for the average of the Managing Board remuneration 17:1 (2017: 16:1). Compared to the total global employee remuneration these would be 34:1 (2017: 32:1) for the CEO and 26:1 (2017: 25:1) for the average of the Managing Board.

Underlying data for the pay ratio calculation can be retrieved from table 'DSM's remuneration expense for the Managing Board and the Executive Committee' (see next table) and the accompanying Note explaining the adjustment in the column Share-based compensation, as well as Note 4 table Segment information under 'Workforce at year-end' and Note 5 table Net sales and costs of the 'Consolidated financial statements'. Data for the Netherlands are explicitly mentioned as they are not directly retrievable.

Related party identification of key management personnel per IAS 24

The members of the Executive Committee in 2018 are the Managing Board members Feike Sijbesma (CEO/Chairman), Geraldine Matchett (CFO) and Dimitri de Vreeze (Materials), as well as Chris Goppelsroeder (Nutritional Products), Philip Eykerman (Food Specialties and Strategy and M&A), Rob van Leen (R&D and Innovation) and Judith Wiese (People & Organization). The members of the Executive Committee meet the definition of key management personnel as defined in IAS24 'related parties'.

To comply with the disclosure requirements for key management personnel, the table provides, for each Managing Board Member, the total remuneration expenses (including base salary Short- and Long-term incentives, pension- and other expenditures), including other related costs according to IFRS accounting rules, not always being payments to the individual members. In addition, the table provides the aggregated total remuneration and related costs for the other Executive Committee members.

Note:

The above reported figures include in the column Share-based compensation 2018 amounts related to the period 2015–2017 as a result of shares that vested in 2018 at a percentage higher than previously estimated (so a lower percentage of shares that were forfeited over the period 2015-2017), due to the good performance of the company over the recent years. In accordance with IFRS2 this has been adjusted. The adjustment concerns €565,000, €348,000 and €367,000 (and €1,280,000 in total) for respectively Feike Sijbesma, Geraldine Matchett and Dimitri de Vreeze. Without this adjustment for accounting purposes, the expenses for share based compensation would be €850,000 for Feike Sijbesma (total remuneration expenses would amount to €2,814,000); €585,000 for Geraldine Matchett (total remuneration expenses would amount to €1,921,000) and €555,000 for Dimitri de Vreeze (total remuneration expenses would amount to €1,821,000).

Outstanding and exercised stock incentives

The following tables show the number of outstanding stock incentives held by each member of the Managing Board. Since 2010, the Managing Board has been granted LTI Performance Shares instead of stock options.

Shareholding

In addition to the Performance Shares granted under the DSM Stock Incentive Plan, the members of the Managing Board have themselves invested in DSM shares. All members of the Managing Board have purchased shares in the company to emphasize their confidence in the company and its strategy. At 31 December 2018, the members of the Managing Board together held 228,753 (2017: 174,734 ) shares in Koninklijke DSM N.V. These shares were bought through private transactions with private funds (including shares purchased through STI deferral) or obtained through the vesting of Performance Shares.

Loans

The company did not provide any loans to members of the Managing Board.

Scenario analysis

In line with the Dutch Corporate Governance Code, a scenario analysis on the possible outcome of variable income components has been conducted.

Supervisory Board remuneration in 2018

The remuneration package for the Supervisory Board concerns an annual fixed fee and an annual committee membership fee. In addition to the reimbursement of business expenses (partially covered by a fixed representation allowance of €1,250 per year), Supervisory Board members receive an intercontinental travel allowance for each meeting that they attend outside their continent of residence of €4,000.
The annual fixed fee for the Chair of the Supervisory Board is €85,000 (2017: €85,000). The other members of the Supervisory Board each receive a fixed fee of €60,000 (2017: €60,000). Audit Committee membership is awarded €10,000 (2017: €10,000) for each member and €15,000 (2017: €15,000) for the Chair. Nomination Committee, Remuneration Committee and Sustainability Committee membership is awarded €7,000 (2017: €7,000) per member and €10,000 (2017: €10,000) for the Chair.

Overview of remuneration awarded to the Supervisory Board in 2018

The total remuneration (annual fixed fee, annual committee membership fee and other costs such as the intercontinental travel allowance) of the members of the Supervisory Board amounted to €0.7 million (2017: €0.7 million).

At year-end 2018, three members of the Supervisory Board held shares in Koninklijke DSM N.V.: Victoria Haynes 300 (2017: 300), Pauline van der Meer Mohr 1,529 (2017: 1,029) and John Ramsay 1,057 (2017: 0).

Loans

The company did not provide any loans to members of the Supervisory Board.