Remuneration Report 2011 - Arcadis

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Annual Report 2011 56 Remuneration report Remuneration Report This report has been prepared by the Selection and Remuneration Committee of the Supervisory Board. Early 2011, both the remuneration of the Executive Board and of the Supervisory Board were reviewed. This was in line with the policy to do this every three years. In its meeting on 18 May 2011, 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. Within the framework of the policy as adopted by the GMS, compensation of the Executive Board members is determined by the Supervisory Board, based on advice of the Selection and Remuneration Committee. Remuneration Executive Board The review of the remuneration policy for the Executive Board was done by the Selection and Remuneration Committee, based on a benchmark analysis performed by an external advisor. It was concluded that the labor market reference group needed to be adjusted, to reflect the changed size and positioning of ARCADIS, but that the remuneration structure could be maintained. Remuneration policy Compensation in line with median level of reference group The remuneration policy is aimed at attracting, motivating and retaining qualified management for an international company of ARCADIS’ size and complexity. The remuneration for Executive Board members consists of 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 part of the total package and is based on performance criteria that incentivize value creation in the short and longer term. The remuneration policy aims at compensation in line with the median level of primarily the Dutch part of a selected labor market reference group. Labor market reference group The adjusted labor market reference group consists of Dutch companies, as well as a number of European industry peers, both of comparable size and complexity. It includes: CSM (NL), Nutreco (NL), Aalberts (NL), USG People (NL), Heymans (NL), Imtech (NL), Draka (NL), Fugro (NL), Boskalis (NL), Grontmij (NL), Atkins (UK), Pöyry (Fin), WSP (U.K.), RPS (U.K.) and Sweco (S). Fixed base salary The benchmark analysis showed that the fixed annual base salary of the members of the Executive Board was clearly below the median level of the Dutch part of the reference group. The Supervisory Board therefore proposed to increase the fixed annual salary to the median level as of 1 July 2011, which was approved by the GMS. Although the use of a reference group may inflate the remuneration of directors in general, the Supervisory Board considered the raise justified as ARCADIS had become much bigger and more international. Moreover, in filling vacancies in the Executive Board, it became apparent that raises were necessary in order to attract candidates with the required qualifications. This resulted in the following annual base salaries as of 1 July 2011. Base salary as of 1 July 2011 CEO €560,000 CFO €420,000 Member EB (non U.S.) €400,000 U.S. member EB $640,000 Short-term variable remuneration: bonuses Bonuses may vary from 0% to 60% of fixed base salary, with 40% being applicable when targets are achieved. The financial targets, which determine 75% of the bonus, are related to earnings per share (EPS, based on net income from operations, excluding currency impacts), and return on invested capital (ROIC, as defined by the financial goals, described on page 19). For members of the Executive Board responsible for a geographic area, the EBITA of that area can be added as a criterion. The non-financial, discretionary targets determine 25% of the bonus and are set for each Executive Board member individually. Until 2011, the non-financial targets could not be overachieved, which resulted in a maximum bonus contribution from these targets of 10% of base salary. As of 2012, this has been changed, allowing for rewarding excellent results on these targets, with a maximum bonus contribution up to 15% of base salary, without exceeding the maximum bonus percentage of 60%. Targets are preset annually by the
Annual Report 2011 Remuneration report 57 Supervisory Board based on plan and budget for the respective year. As of 2012 the bonus percentage is determined using the following table. Criterion Weight Cash bonus as percentage of base salary as of 2012 Minimum At target Maximum EPS 45% 0% 18% 27% ROIC 30% 0% 12% 18% Discretionary criteria 25% 0% 10% 15% Total 100% 0% 40% 60% The discretionary criteria give sufficient possibilities to include sustainability or other elements of corporate social responsibility as important targets into the bonus program, particularly now the influence of these criteria will increase as of 2012. The bonuses granted in March 2012 for performance in 2011, were still determined using the following table. Criterion Weight Cash bonus as percentage of base salary for performance 2011 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% For the Executive Board member from the United States, the level of EBITA generated by the US operations is added, with the following adjusted weights: EPS 30%; ROIC 20%; EBITA US 25%; Discretionary criteria 25%. Targets for 2011 and performance against these targets were as follows: • The EPS target was based on 2011 budget. Minimum and maximum are achieved at -10% and +10% compared to target. With 2011 EPS at €1.23 the target was overachieved by 1.9%, resulting in 20.2% of base salary for this target. • The ROIC target is in principle 15% but is annually reviewed based on the budget. For 2011 the target was set at 15%, with minimum being achieved at 11%, maximum at 19%. As 2011 ROIC was at 13.6%, 7.8% 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 5.6% to 10% of base salary for these targets. • The EBITA target for the Executive Board member from the United States was overachieved and the maximum percentage of base salary on that item was granted. This resulted in bonuses varying between 34% and 45% of base salary. Long-term variable remuneration: shares and options The remuneration policy includes the granting each year of performance-based shares and options. These vest and become unconditional after three years dependent on ARCADIS’ 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 outcome of the remuneration review, as from 2011 the peer group has been adjusted, while the numbers 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 measured 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 adjusted peer group as well as the old and adjusted vesting scheme. Peer group For 2008-2010 1) For 2011-2013 1) ARCADIS (NL) ARCADIS (NL) Atkins (UK) Atkins (UK) Grontmij (NL) Grontmij (NL) Poyry (Fin) Poyry (Fin) Sweco (Sw) Sweco (Sw) WYG (UK) Hyder (UK) WSP (UK) WSP (UK) Aecom (US) Aecom (US) Jacobs (US) Jacobs (US) Tetra Tech (US) Tetra Tech (US) TRC (US) URS (US) RPS (UK) 1) The years mentioned refer to the years of granting of conditional shares and options. Continued on next page
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