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). Total remuneration for Managing Board members consists of 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. While the percentage of variable pay as a percentage of total remuneration is highest for the Co-CEOs (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 influenced not only by factors such as differences in the pay mix, or changes in exchange rates, but also by factors related to the composition of the employee population such as the impact of acquisitions and divestments, restructuring, and in- and outflow of personnel.

DSM’s performance in terms of EBITDA, share price increase and Greenhouse gas emissions improvement has been outstanding over the past five years. This has also become visible in the development of dividend payments. The Managing Board’s total remuneration expenses obviously changed in 2020, due to the CEO change. Base salary of Geraldine Matchett and Dimitri de Vreeze has been adjusted as of 15 February 2020, reflecting their new position; also impacting the 2020 Short-term incentive as well as contributions to the pension plan. The leadership transition also resulted in the number of Managing Board members going down from three to two. Taking this into account, the Managing Board’s total remuneration expenses developed in line with the performance of the company, whilst the year-on-year change in base salary remains below the year-on-year change of average base salaries of employees in the Netherlands. Total remuneration expenses of the members of the Managing Board clearly demonstrate the fluctuations in the Short-Term incentive achieved and the expense related to equity-based compensation. Due to the fact that for employees globally a lesser portion of total remuneration is variable, the year-to-year change of the average remuneration of our employees globally (which includes all employee costs as included in Note 5 of the Consolidated Financial Statements) shows less fluctuations. The flattening of the change is to a large extent caused by merger & acquisition activities and restructuring of our operations, while the adjustments of exchange rates also had an impact. In addition, 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 factors including retirements, new hires, restructurings, and merger & acquisition activities.

Pay ratio

Considering the Dutch Corporate Governance Code, the pay ratio is calculated per 31 December 2020 and is based on the average remuneration expense reported for each Co-CEO and the total employee cost. Since companies set their own definition in this respect, intercompany comparisons must be made with caution. The pay ratio will differ year-on-year, since the variable pay (as a percentage of annual base salary) will differ from year to year based on company results. Given that their pay is to a larger extent at risk, such fluctuations have a higher impact at Managing Board or Executive level, compared to the average variable pay of the employee group (limited or no variable pay component). The ratio will furthermore be influenced by differences in pay structures between regions, acquisitions/divestments and foreign exchange rates.

Due to the CEO change, the pay ratio dropped in 2020, since the remuneration package was set lower compared to the outgoing CEO, whilst equity-based compensation includes series granted in their previous role. The pay ratio calculated versus the Dutch employee remuneration average was for both Co-CEOs 19:1 (2019: 25:1), based on a total cost of €537 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 3,858 as at 31 December 2020. 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 remuneration of total employees globally is 33:1 (2019: 41:1) for both Co-CEOs.

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, Segment information, and from the table Employee benefit costs in Note 5, Net sales and costs (continuing operations) to the consolidated financial statements. Data for the Netherlands are explicitly mentioned as they are not directly retrievable.