Remuneration report 2019

Introduction by the Chair of the Remuneration Committee

In 2019, DSM put forward a revised remuneration policy Managing Board and Supervisory Board Koninklijke DSM N.V. to the Annual General Meeting (AGM). We highly appreciated the dialogue with a number of our shareholders and representatives of institutional investors and the virtually unanimous support of the AGM (over 97% votes in favor). This first Remuneration report is in line with adjusted legislation and EU-guidelines based on the EU Shareholders' Rights Directive, and explains the application of the respective policies in 2019.

DSM is recognized as a purpose-led company, creating long-term value for all its stakeholders and society at large across the three dimensions of People, Planet and Profit. Our scientific expertise and innovation capabilities help us to find answers to some of the world's biggest challenges and to grow our business at the same time. The deployment of our Strategy 2021: Growth & value – Purpose led, Performance driven is supported by our remuneration policy. The design of our short and long-term incentive plans emphasizes long-term growth opportunities in the domains of Health, Nutrition and Sustainable Living. Targets on energy efficiency and greenhouse gas reduction, as well as a shift in portfolio toward Brighter Living Solutions, underpin our commitment to sustainability while ensuring financial performance in line with our key strategic goals (Adjusted EBITDA and Adjusted net operating free cash flow). Obviously, our remuneration policy is designed to attract and retain the talent we require to achieve our Strategy 2021 and sustainable success in the long term.

In 2019, DSM continued to deliver improvements in customer-centricity, large innovation projects, as well as cost control and operational excellence, resulting in sound results and reflected in remuneration as presented in this report.

This Remuneration report provides a summary of the remuneration policy Managing Board Koninklijke DSM N.V. and the Supervisory Board Koninklijke DSM N.V. respectively as well as an overview of the remuneration of the members of the Managing Board and the Supervisory Board in the financial year 2019. The full, legally superseding remuneration policy as approved by the AGM is published on our website. This report is prepared in accordance with the relevant parts of Section 135 Book 2 of the Dutch Civil Code.

Pauline van der Meer Mohr
Chair Remuneration Committee

Remuneration Managing Board Koninklijke DSM N.V. 2019

Summary remuneration policy Managing Board Koninklijke DSM N.V.

The remuneration policy Managing Board Koninklijke DSM N.V. (as approved by the 2019 AGM; 97.48% in favor) is designed to engage qualified leaders driving our purpose, enabling DSM to engage our people and other stakeholders and ultimately to achieve results – by putting customers first and by delivering on our promises. The policy provides a clear focus to improve company performance and to enhance purpose-led long-term value creation across multiple dimensions (profit: economical/financial, planet: ecological/sustainability and people: including societal) while acknowledging the societal context and recognizing the interests of all our stakeholders (especially our customers, employees, shareholders, as well as society at large).

The remuneration is linked to company and individual performance. Based on the short and long-term strategic objectives as well as our business drivers, results are measured on the basis of specified targets, balancing short- and long-term outcomes, serving the interests of all our stakeholders. In order to be competitive and to ensure alignment internally, Total Direct Remuneration offered by DSM approaches the median — from below — of a predefined peer group. Reward levels are benchmarked to the Dutch/European (no US companies) labor market peer group, while plan design of various reward components is reviewed against (the broader perspective of) best market practices.

Labor market peer group

European industry peers:

Dutch ­— AEX listed peers:

Clariant

Ahold Delhaize

Covestro

AkzoNobel

Evonik Industries

ASML

Givaudan

Heineken

Johnson Matthey

KPN

LANXESS

Philips

Lonza

Randstad

Solvay

Wolters Kluwer

The full version of the remuneration policy Managing Board Koninklijke DSM N.V., as approved by the 2019 AGM, is available on the company website. The following table specifies the elements of the remuneration policy describing purpose, design and link to our company strategy as well as their (potential) value.

PURPOSE

DESIGN AND LINK TO STRATEGY

VALUE

Goal
The goal of DSM's remuneration policy Managing Board Koninklijke DSM N.V. is to offer an on target total remuneration package approaching the median — from below — of the labor market peer group.

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

Includes base salary and variable income. Variable income concerns the performance-related Short-Term Incentive (STI) and the STI deferral & matching plan, as well as the Long-Term Incentive plan (LTI). In addition, Managing Board members are entitled to certain benefits.

Value of each respective item is included hereafter.

Base salary
Basic pay for doing the job.

Aims to provide a fair and competitive basis for the total pay level to attract and retain qualified leaders. Annual review based on the market movement for executives based in the Netherlands and peer companies. In depth benchmark every three years.

Base salaries at DSM approach the median — from below — of the labor market peer group.

Short-Term Incentive (STI)
Incentive aligning short-term business objectives and business drivers toward strategic company objectives. Driving pay for performance.

The Supervisory Board sets goals and targets for the respective performance year and determines the extent to which they have been achieved. By ensuring that strategic objectives are properly reflected in stretched yet achievable targets, the realization of strategic business objectives is addressed. Half of the at-target STI is linked to financial objectives; the other half is tied to sustainability aspirations and individual goals.

On-target performance: 50% of annual base salary. Maximum opportunity capped at 100%. Threshold: no STI pay-out in case the target on Adjusted EBITDA is not achieved for at least 75%.

STI deferral & matching
Ensures that longer term considerations are sufficiently taken into account in pursuing short-term objectives.

Conversion of STI into shares, with a 1:1 company match delivered in Performance Share Units (PSUs). The PSUs vest upon the realization of predefined goals (same as LTI program), observing a three-year vesting period. By linking the vesting of the PSUs to the targets of the LTI program, it is ensured that decisions regarding short-term results are aligned with long-term value creation.

Mandatory conversion: 25% of STI achieved; voluntary conversion: 0–25%, with incremental steps of 5%. Maximum number of matching PSUs to vest, equal to number granted.

Long-Term Incentive (LTI) 
Focus on long-term value creation. Designed to ensure that decisions made are in the long-term interest of all stakeholders and to safeguard that interests of the Managing Board and the company stakeholders are aligned.

PSUs are awarded every year, to be converted into shares upon realization of predefined targets, observing a three-year vesting period. A five-year holding period (starting at grant date) applies. Performance goals are based on company strategy, driving long-term value creation. Half of the target LTI is linked to financial goals; the other half is linked to sustainability aspirations. Performance is measured over three financial years, starting with the year of grant.

The at-target grant equals 100% of base salary. Maximum vesting opportunity is 150% of the number of PSUs granted.1

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

Managing Board members are expected to build up a shareholding in the company; the minimum shareholding requirement must be accrued in four years. Considered are shares privately purchased and vested shares granted under DSM share-based compensation plans.

The minimum share-holding requirement is 300% of annual base salary for the CEO and 200% for other MB-members.

Pension and other benefits
Post-retirement remuneration contributing to the competitiveness of the overall package. Together with other benefits, creates alignment with market practice.

Mandatory enrollment in basic pension plan as applicable to all DSM employees in the Netherlands (Collective Defined Contribution). In addition, a company-paid contribution to allow participation in the so-called Net Pension Plan under conditions as applicable to Netherlands-based employees (Individual Defined Contribution). Other benefits include sick pay (aligned with Netherlands-based employees) and a company car.

Pension scheme aligned with plans in place for employees in the Netherlands. Other benefits aligned with market practice.

Goal setting 
Goal setting is key to driving pay for performance aligned with Company strategy and to ensure that decisions made and results delivered are aligned with the interests of DSM's stakeholders.

Supervisory Board sets goals, their respective weight and targets (i.e., metric) for the respective performance year under the STI and LTI scheme, considering:

  • Company strategy

  • Focus on long-term value creation

  • Historical performance, business outlook, and circumstances and priorities

  • Stakeholder expectations

At target level, there is a 50:50 split between financial goals and sustainability/individual goals.

Goals must be stretching yet achievable.

  1. At face value, the at target LTI grant equals 100% of annual base salary. Applying a discounted fair value approach, the grant value represents approximately 50% of annual base salary.

Total remuneration Managing Board 2019

Actual remuneration 2019 is fully aligned with the remuneration policy which complies with EU requirements and Dutch legislation. Mr. Sijbesma's term as CEO and Chairman of the Managing Board / Executive Committee Koninklijke DSM N.V. and as member of the Managing Board, i.e., as Managing Director under the Articles of Association of the Company, expired as of 15 February 2020. In view of a proper handover to his successors and to finish certain projects, Mr. Sijbesma remains employed until 1 May 2020, observing the terms and conditions of the employment agreement. The terms and conditions of Mr. Sijbesma's leaving as part of a planned succession process are in line with DSM policies and practices. Mr. Sijbesma will not receive any severance payment and/or transitional compensation. Details reported here for Mr. Sijbesma concern the full calendar year 2019.

Base salary

Considering the general increase or market movement for DSM executives in the Netherlands and adjustments made by peer-group companies, base salaries have been adjusted; on average the adjustment amounts to 2.2% (CEO 1.9% and other members of the Managing Board 2.4%).

Fixed annual base salary

in €

1 July 2019

1 July 2018

­

 
 

Feike Sijbesma

960,000

942,500

Geraldine Matchett

637,500

622,500

Dimitri de Vreeze

637,500

622,500

As of 15 February 2020, the annual base salary of Geraldine Matchett and Dimitri de Vreeze amounts to €925,000 in view of their appointment as Co-CEO as per the same date.

Short-Term Incentive (STI)

This report includes the STI achievement 2019, payable in March 2020. Targets were set ahead of the STI cycle, in accordance with the remuneration policy and budgeted results for the current year, ensuring that achievement of threshold, target or maximum payout are challenging. A scenario analysis was conducted prior to final approval of the targets by the Supervisory Board.

Definitions goals set for 2019 STI (total 50% weight)

  • Adjusted EBITDA (weighting 12.5%): Sum of the operating profit plus depreciation and amortization, adjusted for material items of profit/loss following acquisitions/divestments, restructurings and other circumstances deemed necessary

  • Adjusted net operating free cash flow (10%): Cash flow from operating activities, corrected for the cash flow of the APM adjustments, minus the cash flow of Capital expenditures and drawing rights

  • Net sales growth (2.5%): Net organic sales growth

  • Brighter Living Solutions (5%): Products and services that, considering the whole product life cycle, offer an environmental benefit (ECO+) and/or social benefit (People+) compared to mainstream reference solutions. DSM uses a standard approach to measure the impact of portfolio changes (for ECO+ the Eco Life Cycle Assessment, using the WBCSD Chemical sector approach whereas People+ qualifications are made using DSM's People LCA method)

  • Safety (5%): Based on Frequency Index for recordable injuries

  • Employee engagement (5%): Based on the High-Performance Norm in industry

  • Individual goals (10%): Individual objectives to be achieved by the respective Managing Board member

The company does not disclose the exact actual targets, as these qualify as commercially sensitive information, though the targets set are fully in line with the published strategic, financial and sustainability goals of the company. The overall average achievement of the Managing Board members for performance year 2019 amounts to 54% (2018: 80%) of annual base salary. The realization of the financial targets has been assessed by KPMG. In addition, KPMG assessed the validation process for non-financial targets.

In view of transparency, we categorize our target realization as follows: zero pay-out, below target, at target, above target or maximum pay-out. In 2019, the target achievement of the Adjusted EBITDA performance was below target. The achievement on Adjusted net operating free cash flow was above target. The target regarding Net sales growth was not achieved (zero pay-out). The many efforts to improve our Safety performance resulted in an above-target realization. Although the overall engagement score over 2019 was comparable to 2018, the target realization dropped to at target level, since the target was raised. Performance regarding portfolio management measured by Brighter Living Solutions, remained at target.

The combined realization resulted in a 2019 STI pay-out as included in the overview below.

Short-Term Incentive

in €

2019

2018

 
 
 

Feike Sijbesma

541,261

756,641

Geraldine Matchett

326,970

498,672

Dimitri de Vreeze

342,720

483,328

Short-Term Incentive deferral & matching (STI)

In addition to the mandatory deferral (25% of STI achieved), the Managing Board members decided to convert an additional 25% (maximum possible) of the STI achieved in 2019 into shares. This means that all Managing Board members converted 50% of their STI (100% of the cash after tax) into this long-term incentive, representing their trust and focus on the long term. A 1:1 grant of PSUs was implemented, amounting to 8,898 PSUs in total (2018: 9,864), the following table provides an overview. For more information see the section on 'Equity based compensation' in this Remuneration report.

Grant of PSUs under the short-term deferral & matching scheme

Number of PSUs granted

2019 grant (vesting 2022)

2018 grant (vesting 2021)

 
 
 

Feike Sijbesma

3,872

4,264

Geraldine Matchett

2,552

2,800

Dimitri de Vreeze

2,474

2,800

Long-Term Incentive (LTI)

2019 and 2020 grant
In 2019, 18,500 Performance Shares Units (PSUs) (2018: 17,000) were granted to the CEO. The 2019 grant to the other Managing Board members amounted to 12,500 PSUs (2018: 11,000).
The 2020 grant equals 12,500 PSUs for each Co-CEO, Geraldine Matchett and Dimitri de Vreeze. Feike Sijbesma is not eligible for a grant in 2020. Any grant equals the maximum number of PSUs that may vest.

Goal setting and vesting scheme
Targets were set ahead of the LTI cycle, in accordance with the remuneration policy, ensuring that achievement of threshold, target or maximum vesting are challenging. A scenario analysis was conducted.

Definition goals set for LTI grants

  1. Total Shareholder Return — TSR (weighting 25%): Sum of capital gain and dividends paid, representing the total return to shareholders. The relative ranking (within the peer group) reflects the market perception of overall performance relative to our peers.

  2. Return on Capital Employed — ROCE (25%): Operating profit as percentage of weighted average capital employed.

  3. Energy Efficiency Improvement — EEI (25%): The reduction of the amount of energy used per unit product (known as energy efficiency) on a three-year rolling average basis.

  4. Greenhouse Gas Emissions — GHGE (25%): As of the 2019 grant: absolute reduction of greenhouse gas emissions in kilotons over performance. Up to and including the 2018 grant, the target is based on the reduction of greenhouse gas emissions per unit of product.

Vesting 2016 grant
The performance period of the PSUs granted in 2016 was completed by year-end 2018: the actual vesting was on 31 March 2019. This concerns the PSUs granted under the Long-Term Incentive plan as well as the PSUs granted under the STI deferral & matching plan. Since all targets were achieved at maximum, all PSUs granted also vested (maximum vesting). The following vesting schemes applied (given its business-sensitive nature, the ROCE-vesting scheme is not disclosed).

TSR vesting scheme1

EEI vesting scheme

GHGE Efficiency improvement vesting scheme 2

Rank

% of PSUs
granted that vest

DSM EEI%
(over a 3-year period)

% of PSUs
granted that vest

DSM GHGE
Efficiency improvement
% (over a 3-year period)

% of PSUs
granted that vest

 
 
 
 
 
 

1

100

≥ 4.00

100

≥ 8.25

100

2

97

3.25 - < 4.00

83

7.75 - < 8.25

83

3

93

2.75 - < 3.25

67

7.25 - < 7.75

67

4

87

2.50 - < 2.75

50

6.75 - < 7.25

50

5

80

2.25 - < 2.50

33

6.25 - < 6.75

33

6

73

2.00 - < 2.25

17

5.75 - < 6.25

17

7

67

< 2.00

0

< 5.75

0

8

50

 
 
 
 

9

33

 
 
 
 

10-15

0

 
 
 
 
  1. Peer group 2016 grant includes AkzoNobel, Arkema, BASF, Chr. Hanssen, Clariant, Croda International, DuPont, Evonik, Givaudan, Kerry, LANXESS, Lonza, Novozymes, Solvay.
  2. As of the 2019 grant, the target is based on an absolute reduction of greenhouse gas emissions.

The table provides an overview of the number of PSUs granted in 2016 that vested (i.e., converted to unconditional shares) in 2019.

PSUs granted in 2016 vested in 2019

Number of PSUs vested1

LTI

STI deferral & matching scheme

 
 
 

Feike Sijbesma

31,000

5,350

Geraldine Matchett

20,500

3,506

Dimitri de Vreeze

20,500

3,505

  1. At vesting, a sell-to-cover applied: out of the vested shares, a number of shares are sold at vesting date to cover taxes due.
Pension and other benefits

Participation in the basic pension plan provided by the Dutch pension fund (Stichting Pensioenfonds DSM Nederland — PDN) to all DSM employees in the Netherlands is mandatory for the Managing Board. Regarding pensionable salary not covered by the basic pension plan, a company-paid pension contribution as determined by the Supervisory Board applies. This contribution can be used by Managing Board members to participate in the so-called Net Pension Plan under conditions as applicable to all participating DSM employees.
The company provides an accident insurance, a company car and a fixed representation allowance in line with market practice.

Total remuneration

Actual remuneration 2019 is fully aligned with the remuneration policy. The latest benchmark conducted, demonstrated that DSM lags the median of the labor market peer group, also considering the pay-out scenarios of the incentive schemes. For the CEO, the total remuneration is in the lowest quartile of our own — Dutch/European — benchmark. For the other Managing Board members, it is in the second quartile but below the median. The difference would become even bigger if the benchmark comparison were made with a global peer group (i.e., including US-based peers).

The table provides an overview of the total remuneration expense for the Managing Board (the cost reported for DSM, are not in all cases the compensation paid nor the cash outflows for DSM).

DSM's remuneration expense for the Managing Board (the costs reported here for DSM, according to IFRS definitions, are not in all cases the compensation paid, nor the cash outflows for DSM)

x thousand

Fixed

Variable compensation

Fixed

Fixed

Total

Proportion fixed / variable compensation

Base Salary / Fees

Short-Term Incentive

Share-based Compensation1

Pension expenditure2

Other items3

 

2019

2018

2019

2018

20194

20184

2019

2018

2019

2018

2019

2018

2019

2018

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Feike Sijbesma, CEO

951

931

541

757

1,563

1,415

234

218

59

58

3,348

3,379

37:63

36:64

Geraldine Matchett, CFO

630

614

327

499

1,030

933

109

107

86

116

2,182

2,269

38:62

37:63

Dimitri de Vreeze, member

630

614

343

483

1,029

922

126

123

47

46

2,175

2,188

37:63

36:64

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Total Managing Board

2,211

2,159

1,211

1,739

3,622

3,270

469

448

192

220

7,705

7,836

37:63

36:64

  1. Share-based compensation represents the non-cash cost for DSM of Performance Share Units (PSUs) awarded. These costs are recognized over the vesting period and therefore cover several years. The higher number for 2019 compared to 2018 mainly results from the fact that the 2019 calculations include series initially granted at a higher share price, while the vesting percentage in 2019 was higher compared to 2018. The percentage of vesting will determine the final income. Against the opening price at vesting date, the 2019 vesting (all Managing Board members together) represents a value of €8 million, subject to a sell-to-cover.
  2. Increase in the pension costs of Mr. Sijbesma based on design of the contribution table: since he turned 60 in 2019, the pension contribution automatically increased.
  3. Fringe benefits, like company car and allowances.
  4. Share-based compensation 2018 concerns the grants in 2015 (partial), 2016, 2017 and 2018 (partial); share-based compensation 2019 concerns the grants in 2016 (partial), 2017, 2018 and 2019 (partial).

Equity-based compensation

Overview of outstanding equity compensation

The table below provides an overview of outstanding PSUs (granted under the LTI and STI deferral & matching scheme respectively). The main conditions of the share-based compensation are:

Vehicle

Performance Share Units (PSUs), converted to shares at vesting

Grant date

Last trading day in March

Vesting period

Three years, starting at grant date

Vesting conditions

- Realization of predefined performance goals
- In service at vesting date

Performance period

Three performance years, starting 1 January of the year of grant

Holding period

Five years, starting at grant date

Lock-up period

Blocking period chosen by incumbent, may result in tax discount

Outstanding Performance Share Units

 

Year of issue

Outstanding at 31 Dec. 2018

In 2019

Outstanding at
31 Dec. 2019

Share price at date of grant (€)

Granted

Vested

Forfeited / expired

 
 
 
 
 
 
 

Feike Sijbesma

2016

36,350

-

(36,350)

-

-

48.79

 

2017

29,333

-

-

-

29,333

63.65

 

2018

21,264

-

-

-

21,264

80.04

 

2019

-

22,372

-

-

22,372

97.74

 

Total

86,947

22,372

(36,350)

-

72,969

 

Retained shares originated from PSUs

116,402

 
 
 
 
 
 
 
 

Geraldine Matchett

2016

24,006

-

(24,006)

-

-

48.79

 

2017

19,092

-

-

-

19,092

63.65

 

2018

13,800

-

-

-

13,800

80.04

 

2019

-

15,052

-

-

15,052

97.74

 

Total

56,898

15,052

(24,006)

-

47,944

 

Retained shares originated from PSUs

33,631

 
 
 
 
 
 
 
 

Dimitri de Vreeze

2016

24,005

-

(24,005)

-

-

48.79

 

2017

19,092

-

-

-

19,092

63.65

 

2018

13,800

-

-

-

13,800

80.04

 

2019

-

14,974

-

-

14,974

97.74

 

Total

56,897

14,974

(24,005)

-

47,866

 

Retained shares originated from PSUs

27,587

 

The table below provides an overview of stock options held by members of the Managing Board. Mr. de Vreeze received these stock options prior to his first appointment as a Managing Board member. During 2019, he exercised 18,000 stock options; the shares were sold for an average share price of €94.44. 

Outstanding stock options

 

Year of issue

Outstanding at 31 Dec. 2018

In 2019

Outstanding at 31 Dec. 20191

Average share price at exercise (€)

Exercise
price (€)

Expiry date

Exercised

Forfeited/expired

 
 
 
 
 
 
 
 

Dimitri de Vreeze

2011

18,000

(18,000)

-

-

94.44

46.20

2 May 2019

 

2012

12,000

-

-

12,000

 

40.90

15 May 2020

 

2013

12,000

-

-

12,000

 

48.91

7 May 2021

 
 
 
 
 
 
 
 
 
 

Total

42,000

(18,000)

-

24,000

 
 
 

Of which vested

42,000

 
 

24,000

 
 
 
  1. The other members of the Managing Board do not hold any stock options.

For employee information, as required by section 383d Book 2 of the Dutch Civil Code, reference is made to Note 27, 'Share-based compensation'. As at 31 December 2019, 3,020,830 (2018: 5,616,235) of the total number of treasury shares outstanding were held for servicing management, personnel share option rights and performance share unit plans.

Shareholding obligation

In addition to the performance shares held on the basis of vested grants under the DSM Stock Incentive Plan, all members of the Managing Board have invested in DSM shares, emphasizing their confidence in the company and its strategy. These shares were bought through private transactions with private funds (including shares purchased through STI deferral). The table provides an overview of the number of shares held at year-end.

Managing Board holdings of DSM shares

 

31 December 2019

31 December 2018

 

Ordinary shares purchased with private money

Holdings from vested PSUs

Total
holdings

Ordinary shares purchased with private money

Holdings from vested PSUs

Total
holdings

 
 
 
 
 
 
 

Feike Sijbesma

72,345

116,402

188,747

68,473

97,125

165,598

Geraldine Matchett

13,328

33,631

46,959

10,776

17,638

28,414

Dimitri de Vreeze

22,357

27,587

49,944

19,883

14,858

34,741

 
 
 
 
 
 
 

Total holdings

108,030

177,620

285,650

99,132

129,621

228,753

All Managing Board members significantly exceed the shareholding obligation (300% of base salary for the CEO; 200% of base salary for other Managing Board members).

Company performance versus remuneration over time

Five-year review of company performance and Managing Board remuneration

The following table provides an overview of the development of the remuneration of the members of the Managing Board over the past five years, the development of company performance and the average remuneration of other employees (excluding the Managing Board members and discontinued operations). Total remuneration for Managing Board members are the remuneration expenses calculated in accordance with IFRS as included in the annual reports of the relevant years. The table provides an overview of company performance based on Adjusted EBITDA, share price (year average) and the reduction of greenhouse gas emissions.

Typically, the share of total remuneration that is at risk varies for different employee segments and geographies, due to the impact of incentive schemes. Whereas the percentage of variable pay as a percentage of total remuneration is highest for the CEO/Managing Board (at target 150%), it may be limited or nil for other employee segments or in certain countries (also as a result of CLA negotiations). Based on performance, the results of the respective incentive schemes (and therefore the impact on total remuneration) varies over time. The average remuneration of all other employees (excluding the Managing Board) is not only influenced by factors such as differences in the pay mix (as mentioned above), or changes in exchange rates, but also factors related to the composition of the employee polulation such as the impact of acquisitions and divestments, restructuring, in- and outflow of personnel.

5-year Overview remuneration and company performance (unless mentioned otherwise, year-on-year change)

 
 

2015

2016

2017

2018

2019

Average1

Managing Board remuneration

 
 
 
 
 
 
 

Feike Sijbesma

Base salary

0.8%

3.4%

1.1%

2.3%

2.1%

1.9%

 

Total remuneration

18.9%

14.5%

-0.1%

24.8%

-0.9%

11.4%

Geraldine Matchett2

Base salary

 

3.5%

1.4%

2.7%

2.6%

2.6%

 

Total remuneration

 

27.3%

12.0%

22.3%

-3.8%

14.5%

Dimitri de Vreeze3

Base salary

 

3.5%

1.4%

2.7%

2.6%

2.6%

 

Total remuneration

 

15.5%

3.9%

25.1%

-0.6%

11.0%

Company performance

 
 
 
 
 
 
 

Adjusted EBITDA underlying business4

 

3.6%

17.4%

14.5%

6.0%

9.9%

10.3%

Year-average share price

 

-2.7%

9.1%

24.4%

25.8%

23.1%

15.9%

GHGE Efficiency improvement in the respective year

 

4.7%

4.2%

4.1%

9.3%

12.7%

7.0%

Development of average employee remuneration

 
 
 
 
 
 
 

Base salary employees Netherlands

 
 

4.2%

4.3%

3.3%

3.4%

3.8%

Average remuneration cost of employees (globally)

 

6.8%

4.2%

0.9%

-1.6%

-0.2%

2.0%

  1. Average calculated over the years, a change on year-on-year basis is provided.
  2. Appointed as member of the Managing Board with effect from 1 August 2014, % change calculated as of 2016.
  3. Appointed as member of the Managing Board with effect from 1 September 2013, % change calculated as of 2016.
  4. Based on DSM figures : five-year summary, see table Balance sheet.

DSM's performance in terms of (profit) growth, share price increase and greenhouse gas emissions reduction has been very good over the last five years, as shown in the above table. The Managing Board's total remuneration expenses (including the achievements on short and long-term incentive schemes as well as pension expenditures), developed in line with the improving performance of the company. The year-on-year change in base salary of the CEO and Managing Board members remains below the year-on-year change in the average base salary of the employees in the Netherlands. Average total remuneration cost of other employees (globally) concern all employee cost as included in Note 5 of the Consolidated Financial Statements. The flattening of the change in the last three years is to a large extent caused by M&A activities and restructuring of our operations, while the adjustments of exchange rates also had an impact. The year-on-year change of the average base salary in the Netherlands, as well as average employee cost globally, are influenced by the fact that the composition of the underlying employee population changes from year to year as a consequence of among others retirements, new hires, restructurings, and M&A activities.

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 (150% at target) than the variable pay of the comparable average employee group (limited or no variable pay component), 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 2019.

The pay ratio calculated versus the Dutch employee remuneration average was 25:1 (2018: 26:1) (compared to CEO remuneration) or 19:1 (2018: 20:1) (compared to average Managing Board remuneration). This is based on total cost of €530 million in the Netherlands (which includes the remuneration of the Managing Board and has been deducted in the ratio calculation) and a headcount in the Netherlands of 3,960 as at 31 December 2019.

The ratio of total remuneration, including annual base salary, STI, LTI and other benefits such as pension (as reported in this Remuneration report) versus the average of total global employee (i.e., including Dutch) remuneration, is for the CEO 41:1 (2018: 40:1). The pay ratio of the average Managing Board total remuneration versus the average of total global employee remuneration is 32:1 (2018: 31:1). 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 2016-2018) of the total number of shares that were granted in 2016, due to the good performance of the company.

However, if the pay ratio is calculated on the basis of the estimated vesting percentage, so without the additional non-cash vesting of shares for the series 2016–2018, the pay ratio compared to the Dutch employee average for the CEO would be 20:1 (2018: 22:1) and for the average of the Managing Board remuneration 15:1 (2018: 17:1). Compared to the total global employee remuneration, these would be 33:1 (2018: 34:1) for the CEO and 25:1 (2018: 26:1) for the average of the Managing Board.

Underlying data for the pay ratio calculation can be retrieved from the table 'DSM's remuneration expense for the Managing Board' (including table notes) in the section 'Total remuneration' of this Remuneration report, as well as from the table 'Geographical information' in Note 4, and Note 5, 'Net sales and costs'. Data for the Netherlands are explicitly mentioned as they are not directly retrievable.

Remuneration Supervisory Board Koninklijke DSM N.V. 2019

Summary of the remuneration policy Supervisory Board Koninklijke DSM N.V.

The remuneration policy is designed to engage qualified leaders with the right balance of personal skills, competences and experience required to oversee (the execution of) the company's strategy, its performance and long-term value creation, recognizing the interests of all stakeholders. In line with the Dutch Corporate Governance Code, the remuneration is not linked to company and individual performance. As a reference, the remuneration of the Supervisory Board is benchmarked to market practice, predominantly against AEX companies, given the company's country of domicile. The total fixed remuneration should approach the median of the reference market. The full version of the remuneration policy Supervisory Board Koninklijke DSM N.V. as approved by the 2019 AGM is available on the company website.

The table below summarizes the key elements of the remuneration policy, describing purpose, design and (potential) value.

PURPOSE

DESIGN

VALUE

Fixed fee
Basic pay for doing the job

Reward and incentivize Supervisory Board members to utilize their skills and competences to the maximum extent possible in executing their tasks. The reward reflects the nature of responsibilities and time spent. Aims to provide a fair and competitive pay level to engage qualified leaders.
Review: in principal every three years, based on in-depth benchmarking.

Approaching the median of the market reference (predominantly AEX companies).
Position and fee
- Chair €105,000
- Deputy Chair €75,000
- Member €70,000
- Chair Audit Committee €18,500
- Member Audit Committee €12,000
- Chair other Committees €14,000
- Member other Committees €8,500

Intercontinental travel fee

Fixed amount representing time commitment related to intercontinental travel.

€5,000 for each time it is required to travel outside the continent of residence.

Expenses

Expenses incurred in fulfilling duties are reimbursed. To be paid upon submission of a statement of expenses, partially covered by a fixed allowance.

Depending on level of expenses. Fixed per annum: €1,250.

Shareholding requirement

In line with Dutch Corporate Governance Code no mandatory shareholding requirement. Supervisory Board members are encouraged to invest in privately owned DSM shares.

Not applicable.

Benefits and loans

Supervisory Board members are not entitled to participate in any benefits program offered to employees. Loans will not be provided.

Not applicable.

Total remuneration 2019

Committee overview

The Supervisory Board members are assigned to the various committees.

Committee overview

Audit

Nomination

Remuneration

Sustainability

 
 
 
 
 

Rob Routs (Chair)

 

Chair

Member

 

Pauline van der Meer Mohr (Deputy Chair)

 

Member

Chair

 

Victoria Haynes

Member

 

Member

 

Eileen Kennedy

 

Member

 

Chair

Erica Mann (as of 8 May 2019)

Member

 
 

Member

Frits van Paasschen

Member

 
 

Member

Pradeep Pant

Member

 
 

Member

John Ramsay

Chair

 

Member

 
Total Remuneration

The table provides an overview of total remuneration provided in 2019; as of 8 May 2019, the revised policy as approved by the 2019 AGM applies.

Remuneration Supervisory Board Members

in €

Fixed

Total remuneration

Proportion fixed/variable compensation

 

Annual fee

Committee fee

Other costs1

 
 
 
 
 

2019

2018

2019

2018

2019

2018

2019

2018

2019

2018

Rob Routs, Chair

96,667

85,000

20,208

17,000

6,250

5,250

123,125

107,250

100:0

100:0

Pauline van der Meer Mohr, Dep. Chair

68,750

60,000

20,208

17,000

6,250

5,250

95,208

82,250

100:0

100:0

Tom de Swaan, Dep. Chair (until 9 May 2018)

-

30,000

-

8,800

-

625

-

39,425

-

100:0

Victoria Haynes, Member

65,833

60,000

19,042

17,000

24,250

17,250

109,125

94,250

100:0

100:0

Eileen Kennedy, Member

65,833

60,000

20,209

17,000

24,250

13,250

110,292

90,250

100:0

100:0

Erica Mann, Member (as of 8 May 2019)

40,833

-

11,958

-

14,730

-

67,521

-

100:0

-

Frits van Paasschen, Member

65,833

60,000

19,042

17,000

29,250

25,250

114,125

102,250

100:0

100:0

Pradeep Pant, Member

65,833

60,000

19,042

17,000

24,250

21,250

109,125

98,250

100:0

100:0

John Ramsay, Member

65,833

60,000

24,917

17,200

6,250

5,250

97,000

82,450

100:0

100:0

Total

535,415

475,000

154,626

128,000

135,480

93,375

825,521

696,375

100:0

100:0

  1. Involves International travel fee, expenses allowance and expenses exceeding expenses allowance

In line with the remuneration policy, no variable compensation applies, and Supervisory Board members do not participate in any pension scheme. No extraordinary items apply. The total spent in 2019 was higher compared to 2018. This is based on an extension of the Supervisory Board in view of succession planning and the renewal of the remuneration policy that allows for an adjustment of the annual fixed fees by an average of 20% (note that the last adjustment of fees took place in 2016).

Benefits and loans

Members of the Supervisory Board are not eligible for any benefit programs offered by the company (or any beneficiary) to its employees, neither have any loans been provided.

Equity based compensation

As confirmed in the remuneration policy, Supervisory Board members do not receive any equity-based compensation. They are, however, encouraged to hold privately owned shares. At year-end 2019, Pauline van der Meer Mohr held 1,529 shares (2018: 1,529); Victoria Haynes held 300 shares (2018: 300) and John Ramsay held 1,057 shares (2018: 1,057). No other member of the Supervisory Board held shares in the company during 2019.

Remuneration over time

The table provides an overview of the total remuneration of the Supervisory Board members over a five-year period. A comparison of the development of total remuneration compared to company performance is not provided, as the Supervisory Board's total remuneration is not linked to company performance (Dutch Corporate Governance Code and remuneration policy Supervisory Board Koninklijke DSM N.V.).

5-year Remuneration overview Supervisory Board

 

2015

2016

2017

2018

2019

5-year average

 
 
 
 
 
 
 

Rob Routs - Chair

-3.5%

15.5%

10.9%

0.0%

14.8%

7.5%

Pauline van der Meer Mohr - Dep. Chair

-5.4%

14.9%

10.2%

0.0%

15.8%

7.1%

Victoria Haynes - Member

3.9%

10.5%

7.6%

0.0%

15.8%

7.6%

Eileen Kennedy - Member

4.2%

26.5%

0.4%

-4.2%

22.2%

9.8%

Erica Mann - Member (as of 8 May 2019)

 
 
 
 
 
 

Frits van Paasschen - Member (as of 3 May 2017)

 
 
 
 

11.6%

 

Pradeep Pant - Member (as of 29 April 2016)

 
 
 

-3.9%

11.1%

 

John Ramsay - Member (as of 3 May 2017)

 
 
 
 

17.6%

 

Closing remarks and shareholder vote

The company did not provide any loans to any member of the Supervisory or Managing Board. The company website contains an overview of the main terms and conditions of employment of both Co-CEOs.

The 2019 AGM approved the remuneration policy Supervisory Board Koninklijke DSM N.V. (98.45% in favor) as well as the remuneration policy Managing Board Koninklijke DSM N.V. (97.48% in favor). The total remuneration delivered in 2019 is aligned with the respective remuneration policies: no deviations or derogations applied. As in 2018, no revision or claw-back of any incentives occurred in 2019.

The remuneration for the financial year 2019, as described in this report, is subject to an advisory vote at the 2020 AGM. Questions raised in the 2019 AGM regarding remuneration items have been addressed in the respective meeting, reference is made to the minutes of the meeting, posted on the company website. As a result, there were no specifics raised that needed to be addressed in this Remuneration report.

Heerlen, 26 February 2020

 

The Supervisory Board

Rob Routs, Chair

Pauline van der Meer Mohr, Deputy Chair

Victoria Haynes

Eileen Kennedy

Erica Mann

Frits van Paasschen

Pradeep Pant

John Ramsay