Remuneration in Danish Large Cap Companies Benchmarking of Remuneration of Executive Management and Boards 2013 - 2016 Remuneration in Danish Large Cap Companies
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Remuneration in Danish Large Cap companies Benchmarking of remuneration of executive management and boards 2013 - 2016 Remuneration in Danish Large Cap companies Content Introduction 3 Key takeaways 4 Current trends 5 Experience from the UK 8 Overview 9 Methodology 10 Remuneration of executive directors 11 Base salary 15 Pension 18 Bonus (STIs) 19 Long-Term Incentives (LTIs) 22 Board remuneration 31 How can Deloitte help? 32 Our contacts 33 Appendix 35 2 Remuneration in Danish Large Cap companies Introduction This report gives an overview of and insight into reported with the required level of detail to be included remuneration of executive directors and boards of listed in our analysis. All the included company reports companies within the Danish Large Cap1 index. In March in accordance with IFRS and financial reporting on 2017 the Large Cap Index is comprised of 38 companies, remuneration of executives are more specifically of which the names can be found in a list in the appendix. governed by IFRS 2 and the Danish Financial Statements These companies represent some of the largest Danish Act. Remuneration of executive directors is required by companies from a wide range of industries, from financial IFRS to be disclosed on both fixed and variable elements services to energy and supplies. for executive management. Although reporting this level of detail for all individual members of management is During 2016 no companies left the Danish Large Cap not a requirement, it is however best practice guidance Index, while DFDS, NKT Holding, SimCorp and Össur from the Committee on Corporate Governance3. LTI entered following OMX Nasdaq’s annual review in programmes must also be disclosed separately in their December 2015. The annual review of the Large Cap entirety, which includes all participants, both executives Index in December 2016 resulted in an expansion of the and non-executives. Where applicable, we have index by ALK-Abelló, Ambu, Jeudan, Schouw & Co., and compared our findings with previous studies performed Spar Nord. During 2016 Scandinavian Tobacco Group on the Danish market to put recent developments into a (February), DONG Energy (June) and Nets (September) long-term perspective. also entered the index through their IPOs. Disclaimer Out of the companies of the Large Cap Index, 35 This report is aimed at giving an overview of executive companies have financial year-ends 31 December 2016, remuneration and the use of LTI in Danish Large while 3 companies have financial year-ends either 31 cap companies. There may be very good reasons August or 30 September. The annual reports have been for a particular company to lie inside and outside of published during or before March 2017. One company, benchmarked ranges. This could be due to differences G4S2, had not published its annual report for 2016 at in company size, industry, market volatility or other the time of the writing of this report and has hence been company-specific factors. When using the report we omitted from the 2016 benchmarks. Hence, this report is recommend that you consult your advisers on the based on the data from 37 companies. interpretation of the data and its relevance to your particular circumstances. The analysis is based strictly on publicly available information obtained from annual reports, company This report does not constitute the provision of advice websites, press releases, general assembly notes, or service to any reader of this report, and hence remuneration policies, etc. Not all companies report Deloitte may not be named in a company’s public their remuneration with the same level of detail. For documentation as having provided material assistance to all the analysed benchmarks, we report the number the remuneration committee based solely on the use of of companies for which the required data has been the information provided in this report. 1. Nasdaq OMX Copenhagen Large Cap Index. The index is comprised of 41 share listings of which 3 are listings of multiple share classes (38 individual companies). Nasdaq OMX Copenhagen Large Cap includes Danish listed companies with a market cap of above EUR 1bn 2. G4S Plc is incorporated in the UK and is dually listed on both London and Copenhagen Stock Exchanges. G4S Plc reports under UK regulation and is more naturally compared to other UK-based listed companies. 3. https://corporategovernance.dk/recommendations-corporate-governance 3 Remuneration in Danish Large Cap companies Key takeaways Variable versus fixed remuneration Median base salaries for CEOs and CFOs of executive directors increased are DKK 8.2m and DKK 4.8m. between 2013 and 2016 so that variable remuneration now comprises 37% compared to previously 31%. Short-term incentives (STI or bonus) are approx. 40% of base salary for executive CEOs receive a higher degree of variable directors. remuneration compared to CFOs and Other Executive Directors. Around two thirds of long-term incentives (LTI) programmes comprise performance Base salaries of executive directors have share units or restricted stock units. increased significantly during the last 4 years. CEO base salaries have increased by approx. 10% annually while CFO base The average size of outstanding LTI salaries have only increased by 2%. programmes is approx. 1.5% of the share capital. Companies allocate approx. 0.1% of the share capital in yearly allocations, The increase in CFO base salaries has indicating that the size of LTI programmes been affected by the many replacements has decreased on earlier years. of CFOs. Adjusted for this turnover, the increase in base salaries for the remaining CFOs has been approx. 8% annually or LTI allocations increased for CEOs while around the same level as for CEOs. Nine it decreased for CFOs from 2013 to 2016. CFOs were replaced between 2014 and There is a sign that boards in general wish 2016. for their CFOs to be more risk averse (gate keepers) and that their CEOs accept more risk (innovators). 4 Remuneration in Danish Large Cap companies Current trends Danish environment The recent IPO’s of Scandinavian Tobacco Group, The Shareholder Rights Directive is an EU Dong Energy and Nets have renewed public directive, which was adopted in 2007, with the discussions about executive remuneration. purpose of setting out minimum rights and Especially the IPO of Nets and its remuneration and responsibilities for shareholders at company incentives of management drew much media and meetings held in the EU. Since the publication investor attention. During the latest months Danish there has been a number of revisions, of which institutional investors have publicly made clear that the latest is now in March 2017. long term incentives potentially are becoming too favourable for executive management. The Commission’s aim is to tackle corporate governance shortcomings relating to listed Recently the ATP stated that the incentives companies and their boards, shareholders programmes of Nets were too favourable and in (institutional investors and asset managers), future, programmes should possibly be capped in intermediaries and proxy advisors (e.g. firms order to avoid payouts to become unreasonable. In providing services to shareholders, notably recent weeks ATP have also stated that the a new voting advice) in line with long-term investment programme at Genmab which will be capped 400% of horizons. base salary, is an extreme of what they can accept as a shareholder. ATP also voiced criticism of Carlsbergs Will within the next 15 months the European proposed increases of director remuneration and Commision will issue implementation guidance, bonus at the recent annual general meeting and after which member states will have 24 months subsequently voted against the boards proposal. to bring national laws and regulation into force. We expect recent developments to have an impact on how remuneration committees (Remco) plan Individuals covered by the new voting and reporting and execute remuneration for the coming years. As regime include any member of the administrative, one direct effect, we expect that most Remco’s will management or supervisory bodies of a company. need to revisits benchmarks applied for the size and Member states can also opt to include individuals characteristics such as vesting criteria, duration, who perform similar functions. The chief executive gearing etc. We believe that communication and deputy chief executive (if applicable) are more openly on remuneration policies with key both considered directors, irrespective of their investors, such as institutional investors, will be of key membership of the board. importance in the coming years. This will be amplified with the upcoming implementation of the Shareholder The impact for Danish companies is expected to Rights Directive (see further below) and further be significant. Below we have listed some of the international alignment. key elements of the revised requirements for the remuneration policies and reporting. Shareholder Rights Directive Executive remuneration is subject to increased scrutiny in Europe. The revised Shareholder Rights Directive4 was adopted in March 2017 and may lead to significant changes across Europe. The European Commission will issue standardised guidance for the implementation of the Directive within 15 months following the adoption of the Directive. Member states will hereafter have 24 months to bring national laws/regulations into force. 4. http://www.europarl.europa.eu/sides/getDoc.do?type=TA&reference=P8-TA-2017-0067&language=EN&ring=A8-2015-0158 5 Remuneration