Remuneration in Danish Large Cap Companies Benchmarking executive management and board remuneration 2013-2017 Brochure / report title goes here | Section title goes here Contents Introduction 3 Key findings 4 Current trends 5 Overview 13 Methodology 14 Total remuneration of executive directors 15 Base salary 20 Pension 23 Bonus 24 Long-term incentives (LTIs) 28 Board remuneration 38 Board demographics 40 How can Deloitte help? 44 Our contacts 45 Appendix 46 2 Remuneration in Danish Large Cap Companies | Introduction Introduction This report gives an overview of and insight into all report in accordance with International Financial remuneration of executive directors and boards of Reporting Standards (IFRS). Financial reporting on listed companies within the Danish Large-Cap Index1. remuneration of executives is more specifically In March 2018, the Danish Large-Cap Index comprised governed by IFRS 2 and the Danish Financial 39 companies, the names of which are listed in the Statements Act. Remuneration of executive directors appendix. These companies represent some of is required by IFRS to be disclosed on both fixed and the largest Danish companies from a wide range variable elements for executive management. Although of industries, from financial services to energy and reporting this level of detail for all individual members supplies. of management is not a requirement, it is however best practice guidance from the Committee on Corporate Over the year to March 2018, two new companies Governance2. Long-Term Incentive (LTI) programmes entered the Danish Large-Cap Index. In October 2017, must also be disclosed separately in their entirety, the professional cleaning product manufacturer Nilfisk which includes all participants, both executives and Holding entered the index through its IPO, while Alm. non-executives. Where applicable, we have compared Brand joined the index following OMX Nasdaq’s annual our findings with previous studies performed on the review in December 2017. One company, Nets, left the Danish market to put recent developments into a long- index as it delisted its shares in February 2018. term perspective. Out of all companies in the Danish Large-Cap Index, 36 Disclaimer companies have financial year-ends as of 31 December, The aim of this report is to provide an overview of while three companies have financial year-ends of executive remuneration and the use of LTI in Danish either 31 August or 30 September. All companies have Large-Cap Companies. There may be very good published their 2017 annual reports during or before reasons for a particular company to lie inside and March 2018, with the exception of G4S at the time of outside of benchmarked ranges. This could be due to writing. As a result, G4S has been excluded from the differences in company size, industry, market volatility analyses in this report. The report is therefore based or other company-specific factors. When using our on the data from 38 companies. report we recommend that you consult your advisers on the interpretation of the data and its relevance to The analysis is based strictly on publicly available your particular circumstances. information obtained from annual reports, company websites, press releases, general meeting notes, This report does not constitute the provision of advice remuneration policies, etc. Not all companies report or service to any reader of this report, and hence their remuneration with the same level of detail. For Deloitte may not be named in a company’s public all the analysed benchmarks, we report the number documentation as having provided material assistance of companies for which the required data has been to the remuneration committee based solely on the reported with sufficient detail to be included in our use of the information provided in this report. analysis. The companies included in this analysis 1. Nasdaq OMX Copenhagen Large-Cap Index. The index was comprised of 42 share listings, of which three were listings of multiple share classes (39 individual companies) as of March 2018. Nasdaq OMX Copenhagen Large-Cap includes Danish listed companies with a market cap above EUR 1bn 2. https://corporategovernance.dk/recommendations-corporate-governance 3 Remuneration in Danish Large Cap Companies | Key findings Key findings • Variable remuneration of executive directors Variable remuneration comprises c. 36% of total remuneration Variable pay: 36% as a share of total pay Fixed pay: 64% • Variable remuneration, in the form of bonuses was unchanged in 2017 and long-term incentives, has increased 1. Variable vs fixed significantly since 2013 when it formed only 30% of total remuneration • Base salaries have increased significantly since 2013, but have slowed in 2017 2017 median annual CEOs: 4.3% • Since 2013, CEOs, CFOs and other executive salary changes CFOs: -4.2% directors have experienced median base salary increases of 6.6% p.a., 0.6% p.a. and 7.7% p.a., 2. Base salaries respectively • Increases for CFOs have been moderate over the same period due to a high CFO turnover • Median bonus payouts as a percentage of base salary increased from 25% in 2013 to Median bonus 2017: 35% 35% in 2017 as percentage of 2016: 40% base salary • Median bonus allocations as a percentage of 3. Annual bonus base salary increased 20% and 37% for CEOs and CFOs respectively • Since 2013, share-based payments as a Median LTI allocation percentage of base salary have increased from 2017: 36% as percentage of 27% to 36% across all executive directors 2016: 34% base salary • Performance and restricted share units are the most popular form of share-based payment, 4. Long-term while vesting criteria disclosure remains, on the incentives whole, poor • Average board member base pay was c. DKK 0.7m. Chairpersons and deputy chairpersons 1/3 of board received on average 3.0x and 1.9x base pay 2017 median board members pay of DKK 5.5m • Median total board remuneration was DKK are women 0.2m higher in 2017 compared to 2016 5. Board pay • There were no female chairpersons in 2017, and only 22% of deputy chairpersons were female 4 Remuneration in Danish Large Cap Companies | Current trends Current trends The Danish market environment This is a departure from current Danish practice where Danish management remuneration practices vary AGM voting resolutions are shaped by the Committee widely across companies. This is evident in the variety on Corporate Governance’s recommendation for a of different incentive vehicles in use (performance remuneration policy applicable to the board of directors shares, options, warrants, restricted shares and and the executive directors, and Section 139 of the share matching plans). Performance measures are Danish Companies Act. These require publication also similarly varied, reflecting the strategy and of guidelines for incentive-based compensation for requirements of individual companies. executive management and the board of directors, which This company-by-company approach is underpinned must be adopted at the company’s general meeting. by the best practice recommendations of the Committee on Corporate Governance, which are While the interpretation of the Shareholder Rights principle-based and mostly non-prescriptive (soft Directive into Danish law is pending, the direction law). The Danish model therefore contrasts to of travel in terms of future Danish disclosure is other countries where governance codes are more reasonably clear when remuneration disclosures are prescriptive and a conformity in incentive plan design examined alongside proxy advisers’ recommendations. prevails. Further, we note that the November 2017 changes to the Danish Recommendations on Corporate In terms of remuneration-related disclosure, however, Governance include, for the first time, a best practice there are large gaps between current Danish practice recommendation for the preparation of an annual and the requirements of the EU Shareholders Rights remuneration report. Directive. In brief, the European Commission proposed amendments to the Shareholder Rights Directive in Our 2017 benchmark study has shown that the trend April 2014. The Directive was agreed by the European of awarding executives a greater share of their overall Parliament, Council and Commission negotiators in pay package as variable remuneration in the form of December 2016 and was adopted in May 2017. Member share-based payments and short-term bonuses has States have until June 2019 to implement the Directive continued. In general, we have seen an increased (see separate section below on the EU Shareholder level of remuneration disclosure amongst companies, Rights Directive). which in large part is due to a combination of greater media and political attention as well as greater A key focus of the Directive is the separation of a engagement and pressure from shareholders and remuneration policy from an annual remuneration other bodies. We expect a continued and increased report. The former is subject to a binding vote at least focus on Environmental, Social and Governance (ESG) every four years, while the latter is subject to an annual issues by Danish institutional investors as we move advisory vote. However, Member States will determine forward into 2018 and beyond. Further, we expect the how this will apply and whether either or both are level of engagement between companies and their subject to a binding or advisory vote. The key intention stakeholders to increase in the coming years. of the Directive is that the policy effectively provides a ‘licence’ to pay