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 because of collective agreements). 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.

Although DSM delivered a strong performance in 2022, the price-cost gap remained significant for parts of the business. This resulted in an Adjusted EBITDA lower than in 2021. In line with other companies in the industry whose stock is traded similarly to the DSM stock, the share price dropped during 2022. In line with these observations, the STI fell to a lower level compared to 2021. It should be noted that the increase of remuneration expenses for the Co-CEOs in 2022 compared to 2021 is mainly caused by the fact that -in accordance with IFRS rules- the cost to be considered in 2022 for the outstanding yet unvested PSUs had to be corrected. This correction was necessary because the PSUs granted under the Long-Term Incentive plan in 2021 and 2022, respectively, shall vest against the average of the vesting result achieved over the vesting that occurred in 2020, 2021 and 2022. This is in accordance with IFRS rules and In line with the Offering Circular. Had this not been the case, the 2022 remuneration expenses for each of the Co-CEOs would have dropped by €0.5 million. This demonstrates that total Co-CEO remuneration fluctuates in accordance with the fluctuations in the Short-Term Incentive and the cost of the share-based compensation. Since the variable portion of total remuneration is smaller for employees globally, the year-to-year change of the average of this figure (which includes all employee costs as included in Note 5 of the Consolidated Financial Statements) always fluctuated less in the past. In 2022, however, we recorded a 6% upward movement of the average employee cost. This increase includes one-off payments made to our employees to offset the effects of rising inflation. It should be noted that the average remuneration of all employees remains impacted by merger & acquisition activities and restructuring of our operations. Exchange rate adjustments also have an impact. Furthermore, the year-on-year change of the average employee cost globally is influenced by the fact that the composition of the underlying employee population changes from year to year. This is attributable to a range of factors including retirements, new hires and restructurings.

Pay ratio

The pay ratio is calculated at 31 December 2022 and is based on the average remuneration expense reported for each Co-CEO and the total average employee cost (on an FTE basis). Intercompany comparisons must be made with caution, as differences in the composition of the workforce, the geographical spread or in pay structures may occur. The pay ratio will differ from year to year, since the variable pay (as a percentage of annual base salary) will differ from year to year based on company results. Since 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.

At DSM, we believe that remuneration throughout the organization should be based on the same principles and values but should also consider local regulations and practices. This means that we aim for a consistent global approach (median of the market reference) and take local circumstances into consideration. This may, for example, result in a different pay mix between countries or for employee segments without jeopardizing our principles and values. That is how we built and internally align our remuneration policies, including the Remuneration policy for the Managing Board. Ratios do not necessarily provide a reflection of such considerations, as they ignore, among other things, the typical differences between fixed and variable pay in geographies and/or employee segments and are influenced by changing currency conversion rates as well as being vulnerable to M&A activities.

The 2022 ratio of total remuneration expenses for each of the Co-CEOs, including annual base salary, STI, LTI expenses and other benefits such as pension (as reported in this Remuneration report) versus the average remuneration of total employees globally is 36:1 (2021: 34:1). As indicated the respective paragraph, this is merely driven by the IFRS requirement impacting the expenses (accruals) to be considered for outstanding equity-based compensation. Had this not occurred, the Pay ratio would have dropped to 31 on the back of the Short-Term Incentives lagging behind the incentive recorded over 2021.

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, and from the table Employee benefit costs in Note 5 Net sales and costs (continuing operations) to the consolidated financial statements.