Remuneration in Danish Large-Cap Companies Benchmarking executive management and board remuneration
2016-2020 Brochure / report title goes here | Section title goes here
Contents
Introduction by Martin Faarborg 3 Content overview 4 Key findings 5 Key trends, tendencies, practices and regulation in Denmark 6 - The Danish market environment 6 - Corporate governance and executive remuneration 7 - 2021 AGM season for Danish Large-Cap companies 10 - COVID-19 impacts on Danish Large-Cap companies and executive remuneration 12 - Remuneration reports for 2020 and beyond 13 - ESG metrics and targets in executive remuneration 20 - Remuneration Committee Annual Cycle 21 Benchmarking board and executive remuneration 23 Overview of remuneration components 24 Methodology 25 Total remuneration for executive directors 26 Base salary 33 Pension 36 Bonus 37 Long-term incentives (LTIs) 42 Board remuneration 52 Board demographics 54 Our approach and how can Deloitte help? 58 Our contacts 59 Appendix 60
2 Remuneration in Danish Large-Cap Companies 2016-2020 | Introduction by Martin Faarborg
Introduction by Martin Faarborg
2020 was a strange year for all and in many respects. All Danish Large-Cap companies published a separate The world has certainly changed. The global pandemic remuneration report as required by the Danish impacted companies across all industries and sectors Companies Act for all listed companies for the first time in very different ways. Remuneration practices were no for 2020. Our report provides an updated overview exception. In 2020, we saw the pandemic alter executive of the regulatory and reporting requirements of the remuneration practices to a significant degree. However, Shareholder Rights Directive (SRDII) in Denmark. We this was, largely, to a lesser extent than might have initially describe these requirements and updated guidelines, been expected at the onset of the crisis in March of 2020, and provide our benchmarking survey insights on when uncertainty regarding the pandemic was at its Danish remuneration disclosure practices for 2020. highest level, and many companies struggled to navigate While there are a wide range of practices, and variation the impacts of the pandemic’s first wave. in the quality of remuneration disclosures, we note that Danish Large-Cap companies, overall, have increased As such, we have seen scrutiny of company the level of disclosure in their remuneration reports. remuneration practices reach an all-time high in 2020, Additionally, all remuneration reports were adopted at with shareholders, proxy advisors, the media, and the annual general meetings (AGMs). However, there is other external and internal stakeholders all weighing still room for improvement—33% of the Danish Large- in. We also saw an increased focus on employee pay. Cap companies can still further enhance their ‘pay for This included how remuneration of the wider employee performance’ disclosures. 80% disclosed ‘granted pay’ base had been impacted by the pandemic, and if for their long-term incentive (LTI) plan in ‘the single those impacts were disproportionate in nature when figure table’ and 73% of remuneration reports received compared to that of executive management—ensuring, an assurance report from the independent auditor. at many organisations, that employees were not bearing the brunt of the burden in cases where organisations Remuneration committees will have their work cut out were facing financial hardships. for them in 2021 in their annual cycles reviewing existing remuneration practices against market practices, This annual report does the important work of providing preparing scenarios for grants of variable executive a benchmark of remuneration data in a year unlike any pay, setting ESG metrics and targets in executive other in recent memory. We will look at the impacts remuneration, and developing responses to shareholder of COVID-19 on executive remuneration, and provide feedback. an overview of the executive and board remuneration practices for the 40 Danish Large-Cap companies. Deloitte continues to advise our clients as they build Based on our analysis of remuneration reports, we more resilient organisations—organisations that are found that 53% of the Danish Large-Cap companies better positioned to overcome new disruptions, and had their businesses adversely affected to a significant help usher in a ‘better normal’ as the world emerges on degree by the pandemic in 2020. 25% of all Danish the other end of the pandemic. Large-Cap companies’ saw executive remuneration impacted due to the pandemic altering the ability to reach key performance indicators (KPIs) and 10% of all Danish Large-Cap companies saw that their Boards or Management teams applied discretionary negative COVID-19 impacts on executive remuneration. In contrast and on a more positive note, 75% of all Danish Martin Faarborg Large-Cap companies were not so significantly impacted Partner by the pandemic that their executive remuneration was Deloitte negatively affected in 2020. June 2021
3 Remuneration in Danish Large-Cap Companies 2016-2020 | Content overview
Content overview
This report gives an overview of and insight into All Danish Large-Cap companies published a separate remuneration of executive directors and boards of remuneration report as required by the Danish listed companies within the Danish Large-Cap Index. Companies Act for all listed companies for the first time At the end of March 2021, the Danish Large-Cap for 2020. Reporting practices for long-term incentive companies comprised 40 companies, the names of plan (LTI) numbers in the 2020 remuneration reports, which are listed in the appendix of this report. These however, still varied some among the Danish Large- companies represent some of the largest Danish Cap companies. 80% disclosed ‘granted pay’ for their companies from a wide range of industries, including long-term incentive (LTI) plan in ‘the single figure table’ consumer, energy, life sciences and financial services. (linked to their remuneration policy), 15% disclosed ‘expensed pay’ (linked to the financial statements) From April 2020 to March 2021, two new companies and 5% reported ‘vested pay’ (linked to performance, within the life sciences industry became ‘Danish Large- outcomes for executives and total shareholder return Cap companies’; Bavarian Nordic and Zealand Pharma. (TSR) during or at the end of the vesting period). Some companies also provide additional disclosures of Out of the companies analysed, 37 had financial year- ‘granted pay’. The basis for comparability of ‘granted ends as of 31 December, while three companies (Ambu, pay’ has therefore improved significantly compared Chr. Hansen and Coloplast) had financial year-ends of to our basis for the 2019 data analysis last year. either 31 August or 30 September. G4S Plc had not However, still our 2020 data analysis does not provide made their annual report available by the time we 100% comparability across the companies for LTI. We finalised the data analysis for this publication. With have used company reported numbers, adjusted for the exception of G4S, all companies had published reversals of ‘expensed pay’ and set reversals to zero. their 2020 remuneration reports by the end of March We have also annualised CEO pay (either by adding 2021. The report is therefore based on data from 40 previous and new CEO pay to get to 12 months’ pay or companies. simply annualising new CEO pay to 12 months).
The analysis is based strictly on publicly available Disclaimer information obtained from annual reports, The aim of this report is to provide an overview of remuneration reports, company websites, press executive remuneration and the use of LTI in Danish releases, general meeting notes, remuneration policies, Large-Cap companies. There may be very good reasons etc. Not all companies report their remuneration with for a particular company to lie inside and outside of the same level of detail, the same format or over all benchmarked ranges. This could be due to differences five years. For all the analysed benchmarks, we report in company size, industry, market volatility or other the number of companies for which the required data company-specific factors. When using our report, we have been reported with the required level of detail to recommend that you consult your advisers on the be included in our analysis. The companies included in interpretation of the data and their relevance to your this analysis all report in accordance with International particular circumstances. Financial Reporting Standards (IFRS). Financial reporting on remuneration of executives is more This report does not constitute the provision of advice specifically governed by IFRS 2 and the Danish Financial or service to any reader of this report, and hence Statements Act. Remuneration of executive directors Deloitte may not be named in a company’s public is required by IFRS to be disclosed on both fixed and documentation as having provided material assistance variable elements for executive management. to the remuneration committee based solely on the use of the information provided in this report.
1 Nasdaq OMX Copenhagen Large-Cap Index. The index was comprised of 44 share listings, of which three were listings of multiple share classes (41 individual companies) as of 31 March 2021. The index includes Danish listed companies with a market cap above EUR 1bn.
4 Remuneration in Danish Large-Cap Companies 2016-2020 | Key findings
Key findings
Deloitte’s annual executive remuneration benchmark need to focus on shareholder aligned incentive pay for report for 2020 shows that – while transparency has executives based on ‘pay for performance’, including setting improved compared to 2019 - there will be a continued ESG metrics and targets in executive remuneration.
• Variable remuneration of executive directors comprises c. 36% of total remuneration – unchanged compared to last year Variable pay: 36% Variable remuneration • Variable remuneration, in the form of bonuses and long-term incentives, has (2019: 36%) as a share of total increased slightly since 2016 when it formed 33% of total remuneration Fixed pay: 64% pay was unchanged (2019: 64%) • Extraordinary remuneration increased significantly for executive directors 1. Variable vs compared to last year fixed from 2018 to 2019, especially for sign-on fees, compensation for additional taxes of foreign CEOs and severance pay. This was reduced significantly in 2020 compared to 2019
• CEO base salaries decreased in 2020 by 1.5% compared to 2019 (3.6%), and CEOs: -1.5% breaking the previous trends of an annualised increase of 2.1% since 2016 Median annual (2019: 3.6%) base salary changes CFOs: 3.0% • CFO base salaries increased in 2020 by 3.0%. This represents a slower CFO (2019: 4.0%) base salary growth rate compared to the 4.0% growth in 2019, and also the 2. Base salaries 4.0% p.a. growth since 2016
• Median bonus payouts as a percentage of base salary increased from 43% Median bonus in 2016 to 50% for all executive directors in 2020 as percentage of 2020: 50% base salary for all 2019: 42% • Maximum bonus allocations as a percentage of base salary was on an average executive directors of 74% for CEOs (2019: 81%) and 70% (2019: 82%) for other executive directors 3. Annual bonus in 2020
• Allocation of long-term share-based payments as a percentage of base salary have increased from 35% to 39% across all executive directors between 2016 and 2020 Median LTI allocation as percentage of 2020: 39% • Performance and restricted share units remain popular forms of long-term base salary for all 2019: 38% share-based payment, and the use of options decreased significantly compared 4. Long-term executive directors to 2019 incentives • Vesting criteria disclosure has improved in 2020, however 33% of the Danish Large-Cap companies can still work further on ‘pay for performance’ disclosures
• Average board member pay, including committee fees, was unchanged at DKK Median total board 0.7m (2019: DKK 0.7m) pay was DKK 6.3m • Median total pay for chairpersons increased to DKK 1.50m (2019: DKK 1.38m) (2019: DKK 6.1m) 5. Board pay • Median total board pay was DKK 0.2m higher in 2020 compared to 2019
• There was two female chairperson in Danish Large-Cap companies in 2020 Percentage of female compared to one in 2019 board members in Danish Large-Cap increased to • 16% of deputy chairpersons were female in Danish Large-Cap companies 6. Board 33% (2019: 30%) (2019: 20%) diversity
5 Remuneration in Danish Large-Cap Companies 2016-2020 | Key trends, tendencies, practices and regulation in Denmark
Key trends, tendencies, practices and regulation in Denmark
The Danish market environment average annual share price return over the same period. Danish management remuneration practices vary This will also be a focus area in 2021 and beyond. more widely across companies. This is evident from the variety of bonus and long-term incentive approaches, All 40 Danish Large-Cap companies published a as well as in other remuneration policy issues. This separate 2020 remuneration report on their website company-by-company approach is however now as required by the Danish Companies Act, including aligned with the Shareholder Rights Directive (SRDII) disclosure of individual salaries for executives registered requirements and developing new leading practices. with the Danish Business Authority. 80% of the 40 companies disclosed ‘granted pay’ for their long-term Our 2020 benchmark study has shown a trend of incentive (LTI) plan in ‘the single figure table’. Finally, 73% awarding executives the same share of their overall pay of the companies’ auditors performed and reported on package as variable remuneration in the form of share- a compliance check or an audit of the numbers in the based payments and short-term bonuses. Variable pay remuneration reports. of executives comprises 36% of total remuneration — unchanged compared to last year. Extraordinary The European Commission’s draft guidance encourages remuneration for CEOs reduced significantly from DKK companies to adopt a common method which reflects 176 million in 2019 to DKK 42 million in 2020, e.g. sign- the market value of shares or share options both at the on fees, compensation for additional taxes of foreign time they are awarded (‘granted pay’) and at the time CEOs and severance pay. of vesting (‘vested pay’). The Danish Business Authority recommends that companies disclose ‘granted pay’ While there is a wide range of practice and quality awarded in the current year, described as the value of remuneration disclosures, we note that the of share-based remuneration in accordance with the Danish Large-Cap companies have increased their principles for statement of the fair value in IFRS 2 for level of disclosure in their remuneration reports. All the total remuneration received. It is further specified remuneration reports were adopted at the AGMs. Our that the remuneration for the financial year as stated survey, however, still shows that 33% of the Danish in the remuneration report generally differs from the Large-Cap companies can still work further on more accounting expense (‘expensed pay’), which is stated transparent disclosures (e.g. on ‘pay for performance’, and accrued according to IFRS 2 over the vesting period financial and non-financial metrics and targets, in the consolidated financial statements. A leading including ESG performance going forward). practice in Denmark is to report the market value of ‘granted pay’ in the ‘single’ figure table and then add With the better and more disclosure in the supplementary disclosures for ‘expensed pay’ and remuneration report for 2020, we have for the first ‘vested pay’. time developed a view on whether there is alignment on ‘pay for performance’. Therefore, we have analysed Danish listed companies have implemented SRDII in the the development in variable executive remuneration form of the requirements in section 139b of the Danish granted over the last five years against the company’s Companies Act for their 2020 remuneration report. These
“Our role at Deloitte is to provide independent advice to the remuneration committees. In order to do so, we work closely with management to ensure that we fully understand the overall strategy, the business and commercial circumstances.”
Martin Faarborg Boardroom Advisory Leader in Deloitte Denmark
6 Remuneration in Danish Large-Cap Companies 2016-2020 | Key trends, tendencies, practices and regulation in Denmark
disclosure requirements can be summarised as follows: (EU) and thereby into Denmark. Therefore, in 2021 and beyond, we expect to see an increased focus on • For each individual director, total remuneration from executive remuneration from Danish policy makers, the company group split out by component regulators, shareholders, proxy advisors and the • Relative proportion of fixed and variable media. remuneration • Explanation of how total remuneration complies The Danish implementation of the Shareholder Rights with the policy, including how it contributes to the Directive (SRDII) has brought about sweeping changes company’s long-term performance to Danish remuneration and disclosure practices. The • Information on how the performance criteria were regulation requires organisations to hold a binding applied vote at their annual general meeting (AGM) on their • Annual change in remuneration over six years for remuneration policies at least every four years, each director compared to company performance or more often if boards want to make significant and average employee remuneration (on FTE basis), changes to the policies. In addition, organisations excluding directors are required to hold an annual advisory vote on how • Numbers of shares, granted or awarded share their remuneration policies have been implemented, options and the essential conditions for the vesting i.e. on their annual remuneration report. Other and exercise of these rights, including the price at markets, like the UK, have had a binding vote on the grant date (and exercise price for options), the organisations’ remuneration policies since 2013, and exercise date and any change thereof have seen a significant increase in focus on executive • Use of any claw-backs and any derogations from the remuneration from investors. We expect a similar remuneration policy. increase in focus in the Danish market, and prominent proxy advisors have already begun to focus more on Boards should plan whether the 2021 remuneration executive remuneration for Danish listed companies. report should have a report from the company’s independent auditors, either as a compliance check or Danish executive remuneration practices will continue an audit of the numbers in the remuneration reports. to develop over the coming years. 2020 marked the first year that Danish listed companies were Corporate governance and executive required to prepare their remuneration policies under remuneration SRDII. Danish listed companies also prepared their Investors and other key stakeholders are calling for remuneration reports in accordance with SRDII for the more overall transparency from companies and 2020 reporting season (published in 2021 along with their boards on corporate governance matters. We the 2020 annual report or with the notice for the AGM see this trend globally, in Europe and in Denmark. in 2021). Given the scope and complexity of SRDII, From a Danish perspective, we expect Danish listed considerable effort was required of Danish listed companies to provide more and more detailed companies to comply with these new significant hard communication in the coming years to a broader set law requirements for the first time. of stakeholders on areas such as the board’s duty to promote the long-term success of the company, Discussions and debate on stakeholder capitalism climate and sustainability, and disclosures related to have increased significantly during the last six to 18 the results and outcomes of board evaluations. months, focusing on the need to consider a broader group of stakeholders and societal impact rather In various markets around the world, board oversight, than strictly on financial measures and benefits transparency and control of executive remuneration for shareholders only. Developing and executing have often been used as a barometer for corporate on integrated strategies covering a broad range of governance. This trend has continued to spread from environmental, social, and governance (ESG) factors the United Kingdom (UK), over to the European Union will be a priority for all organisations in the years to >>
7 Remuneration in Danish Large-Cap Companies 2016-2020 | Key trends, tendencies, practices and regulation in Denmark
come, starting with actions related to addressing standards envisioned in the draft Corporate climate change. Sustainability Reporting Directive (CSRD) published by the EC in April. The letter notes that in order to Accordingly, in September 2020, the World Economic meet the tight timeline the EC has set for itself, the Forum (WEF) and Big Four accounting firms published development of draft sustainability standards will an international framework for ESG metrics and need to start before the new EFRAG governance disclosures. The framework includes a universal set structure is in place. of metrics and recommended disclosures intended to lead to a more comprehensive global corporate The Finance Ministers and Central Bank Governors reporting system. The framework divides disclosures of the G7 met virtually on 28 May 2021, and Finance into four pillars — principles of governance, planet, Ministers met in London on 4-5 June 2021, joined people, and prosperity — that serve as the foundation by the Heads of the International Monetary Fund for ESG reporting standards. (IMF), World Bank Group, Organisation for Economic Cooperation and Development (OECD), Eurogroup, End of September 2020, the Trustees of the IFRS and Financial Stability Board (FSB). In their final Foundation published a consultation paper to assess communiqué they support the IFRS Foundation demand for global sustainability standards and what Trustees' initiative on sustainability reporting. role the Foundation might play in the development of such standards. In the final communiqué, the Finance Ministers and Central Bank Governors emphasise the need to green On 26 March 2021, the WEF released a letter to fellow the global financial system so that financial decisions CEOs calling for support for global ESG reporting take climate considerations into account as this would standards as the private sector could only make its help mobilise the trillions of dollars of private sector full contribution to creating a sustainable society finance needed, and reinforce government policy to through global standards. meet their net zero commitments. The communiqué notes: On 21 April 2021, the European Commission (EC) published a significant proposal for a Corporate “We support moving towards mandatory climate-related Sustainability Reporting Directive (CSRD). The financial disclosures that provide consistent and decision- objective of the proposed CSRD is to improve useful information for market participants and that are sustainability reporting to better exploit the potential based on the Task Force on Climate-related Financial of the European single market and to contribute to the Disclosures (TCFD) framework, in line with domestic transition to a fully sustainable and inclusive economic regulatory frameworks. Investors need high quality, and financial system in line with the European Green comparable and reliable information on climate risks. We Deal and the UN Sustainable Development Goals. The therefore agree on the need for a baseline global reporting proposal also notes that the COVID-19 pandemic has standard for sustainability, which jurisdictions can further accelerated the increase in users’ information needs, supplement. We welcome the International Financial in particular as it has exposed the vulnerabilities of Reporting Standards Foundation’s programme of work to workers and of undertaking’s value chains. develop this baseline standard under robust governance The key proposals include a massive broadening of and public oversight, built from the TCFD framework and scope of the NFRD from 11,600 to approximately the work of sustainability standard-setters, involving them 49,000 entities in the EU including foreign and a wider range of stakeholders closely to foster global subsidiaries. best practice and accelerate convergence. We encourage further consultation on a final proposal leading to the On 12 May 2021, the EC sent a letter to the European establishment of an International Sustainability Standards Financial Reporting Advisory Group (EFRAG) to Board ahead of COP26.” begin work on the European sustainability reporting
2 World Economic Forum, 'Measuring Stakeholder Capitalism: Towards Common Metrics and Consistent Reporting of Sustainable Value Creation', 23 September 2020.
8 Remuneration in Danish Large-Cap Companies 2016-2020 | Key trends, tendencies, practices and regulation in Denmark
In the EU and Denmark, listed companies will need include an "indication of the relative share of the to develop and implement ESG metrics and targets components", as referred to in section 139a of the into new 2021 short- and/or long-term incentive Danish Companies Act. In practice, this has often programmes. All these factors will need to be been implemented as a form of a cap or upper considered when developing new remuneration limit relative to the respective member's base strategies, new business plans and updated guidance remuneration. for the short and medium term — all of which serve as the basis for setting performance target levels. A new recommendation suggests that a cap be set for the variable part of the remuneration and New recommendations on Corporate Governance in that this be determined at the grant date. Many Denmark companies already follow this recommendation. It During 2021, boards of listed companies in Denmark is noted that the recommendation does not contain will work on addressing and reporting against any requirements for the valuation method. the new recommendations from December 2020, from the Committee on Corporate Governance in Often, the Black-Scholes model will be used to Denmark, including extended sustainability policy, calculate the fair value of options granted, and Monte external tax policy, articulation of company purpose, Carlo simulation models to calculate the fair value of ensuring and promoting a good culture and good matching shares, restricted shares, and performance values in the company, policy on diversity in the shares granted. company, and extended focus on the importance of evaluation of the board and executive management, Another of the new recommendations addresses and the value of involvement of external support. the possibility of reclaiming variable remuneration (claw-back) is now a separate recommendation – and The Committee also recommends that boards it has been extended to cover not only paid, but also prepare scenarios for grants of variable executive granted or vested remuneration. Furthermore, it is pay. It is important that the board strikes the right a requirement under the recommendation that the balance between competitive remuneration and remuneration policy contain information on whether the company's long-term interests. The Committee the company is using claw-back. recommends that remuneration of the board and the executive management, and other terms of In addition, it is recommended to ensure employment, are both competitive and compatible transparency about the potential value at the time of with the company's long-term shareholder interests. exercise under pessimistic, expected and optimistic scenarios. In practice, the revised recommendation makes it mandatory for the board to assess management's The recommendation does not mean that companies remuneration. Stating compliance with the should set an upper limit on the exercise value recommendation may be accompanied by a comment of share-based remuneration, but merely create explaining the reason why the company complies transparency about the potential exercise values. with the recommendation. This could be done, for This may very well be done by including information example, by using analyses of remuneration in the on this in the remuneration report. company's peer group based on criteria such as the size of the company's market value, revenue, With the new recommendation, the board will have to number of employees and total shareholders’ return deal with the three scenarios. There is no requirement (performance). to use a certain method or model for disclosing developments in the economic assumptions from In implementing the Shareholders Rights Directive, the grant date to the exercise date. There is also no it was required by law that the remuneration policy requirement for the economic assumptions to be the >>
9 Remuneration in Danish Large-Cap Companies 2016-2020 | Key trends, tendencies, practices and regulation in Denmark
same as the vesting criteria (e.g. threshold, target and Striking the right balance: maximum). It is important that the board strikes the right balance between avoiding excessive remuneration packages and The recommendation reflects an increasing focus at the same time being able to attract the right skills. The on executive remuneration and a desire for more board should justify this balance in the remuneration transparency about variable remuneration, especially report. share programmes and their potential value. In • Is executive management's remuneration sufficiently particular, the introduction of the remuneration report interesting to attract the right skills to the company now requirement is likely to lead to increased focus by and in the long term? institutional investors on executive remuneration, the composition of incentive programmes and the link Transparency about the potential value: between the components chosen and the company's In addition to the cap for the variable portion of the performance, strategy and objective, in particular remuneration at award. It is recommended to ensure whether the selected KPIs (including, for example, on transparency about the potential value at the time of climate and sustainability) support this sufficiently. exercise under pessimistic, expected and optimistic scenarios. Several companies will already have set an upper limit • Will remuneration continue to be properly composed on variable remuneration at the grant date in their in all three scenarios – both from the perspective of the current remuneration policy or in the terms of each company, management and the relevant stakeholders? incentive programme. It is enough that the limit is set out in the terms of each incentive programme. Increased focus on transparency regarding variable remuneration: The board should also consider whether the The previous recommendation reflects an increasing recommendation on transparency about the potential focus on executive remuneration and a desire for more value at the exercise date should be written into the transparency about variable remuneration, especially future remuneration policy as a requirement for future share programmes and their potential value. grants, or whether such value could very well be • How should we handle the expected increased focus on disclosed in the remuneration report. executive pay, including composition, size and KPIs, from relevant stakeholders? Typical questions that the board should consider and discuss would be: 2021 AGM season for Danish Large-Cap companies Danish listed companies were required to prepare their Peer group comparison: remuneration reports in accordance with the Shareholder In determining executive remuneration packages, Rights Directive (SRDII) and its implementation within the board should, where appropriate, consider both the Danish Companies Act for the first time for the 2021 national and international comparable positions. The AGM season. Whilst last year marked the first year that board may with advantage also disclose which peer companies were required to submit a remuneration policy group the company compares itself to. for shareholder approval, many companies updated • Who is our peer group of comparable companies in their policies this year to further clarify and evolve their respect of executive pay? approach to executive remuneration. • Who are we going to compete with for talent? • Is our management remuneration competitive? As a guide to how these proposals were viewed by shareholders, we reviewed voting recommendations by the Institutional Shareholder Services (ISS) on published remuneration policies and remuneration reports across the Danish Large-Cap companies, for annual general meetings held from November 2020 to April 2021.
10 Others 17%
German 3%
Swedish 6%
Norwegian 3%
American 3% Danish 63%
British 6%
Remuneration - Danish vs international chairpersons & deputy chairpersons
2.50
2.00
1.50 DKKm 1.00 1.94 1.54 0.50 0.96 1.07
0.00 Danish chairpersons International chairpersons Danish deputy chairpersons International deputy chairpersons
Board sizes
16 14 12 10 8 6
Number of boards 4 2 0 4 5 6 7 8 9 10 11 12 13 14 15 16
Number of members Remuneration in Danish Large-Cap Companies 2016-2020 | Key trends, tendencies, practices and regulation in Denmark
Remuneration report Remuneration policy
49% 56%
25% 22% 26% 22%
FOR FORX AGAINST FOR FORX AGAINST
Of the 40 AGM resolutions for remuneration reports Remuneration report: tabled, 10 companies had significant issues identi- • Lack of disclosure: the most common issue raised fied by ISS, which resulted in a vote ‘against’ was a lack of disclosure within the report. Often this recommendation. A further 19 companies received was focused on the disclosure of targets for variable support but not without comments from ISS. pay paid in 2020. The remaining companies received a ‘vote for’ • Absence of performance criteria: issue raised recommendation from ISS with no further comments. where performance criteria were absent on incentives awarded in the year, particularly in the case of During the 2021 AGM season, 23 resolutions for restricted stock plans. remuneration policies were put to a shareholder vote. • Quantum: issue raised where salary increases, Five received a vote ‘against’ recommendation and 13 incentive outturns, or other payments were received support but with comments from ISS. It is considered excessive or not aligned to company worth noting that the proportion of policies that the performance. ISS noted concerns with was c.78%, consistent with • Other: although less common, ISS also raised the 2020 AGM season. This year, however, significant issues with changes to in-flight awards and short issues were flagged with c.22% of policies in contrast performance periods. to 35% of policies last year. Remuneration policy: All remuneration resolutions received at least majority • Discretionary payments: the most common concern support and were adopted although three companies was where the policy allowed for discretionary received a less than 90% vote on the remuneration bonuses or payments (in some cases upon policy and four companies received a vote below 90% recruitment) to be awarded to executives. on the remuneration report. • Absence of performance criteria: issue raised where performance criteria were absent. This included Additionally, with more than 85% of companies having policies which use restricted stock as part of a long- one or more area of their report or policy attracting term incentive arrangement. comments from ISS, this could be an indication • Other: ISS also raised issues with indemnification of increasing shareholder scrutiny on executive and severance provisions, lack of disclosure of remuneration in Denmark. performance criteria, quantum and vesting schedules.
The most common issues raised by ISS were as follows: We would note that, in addition to the specific issues summarised, there is a general pattern of still highlighting ‘poor’ disclosure even though it has improved compared to last year. We will continue to monitor this space in 2021 and the coming years. >>
11 Remuneration in Danish Large-Cap Companies 2016-2020 | Key trends, tendencies, practices and regulation in Denmark
Danish remuneration voting issues 2021 (as of end of May 2020)
Poor disclosure Discretionary elements Lack of performance conditions Quantum Performance period Other
0% 5% 10% 15% 20% 25% 30% 35% % Resolutions Contentious support Against
COVID-19 impacts on Danish Large-Cap changed expectations due to COVID-19. The short- companies and executive remuneration term incentive plan was evaluated at 57.33 % of max. Based on our analysis of remuneration reports, we • Dividends payment to the shareholders were found that 53% of the Danish Large-Cap companies deferred. had their businesses adversely affected to a significant • No special measures due to COVID-19 affecting the degree by the pandemic in 2020. 25% of all Danish remuneration of the broader employee population, Large-Cap companies’ saw executive remuneration that is, no pandemic-related layoffs, salary reductions impacted due to the pandemic altering the ability or the like. Also, the targets that were agreed early in to reach key performance indicators (KPIs) and 10% the year before a clear picture of the COVID-19 impact of all Danish Large-Cap companies saw that their was available have remained unchanged for 2020. Boards or Management teams applied discretionary • Reduced pay-out of travel allowance due to less travel negative COVID-19 impacts on executive remuneration. activity as a consequence of COVID-19. In contrast and on a more positive note, 75% of all • Demonstrating resilience and agility during the Danish Large-Cap companies were not so significantly COVID-19 pandemic with the right platform for impacted by the pandemic that their executive growth and the financial strength to sustain a remuneration was negatively affected in 2020. prolonged period with lockdowns, including: • acting quickly to freeze 2020 salary increases Illustrative disclosure examples from the Danish Large- • global 20% salary reduction during May–June Cap companies impacted: at Vice President level and above (including the Board of Directors) • The Board and Executive Management both took a • revising the global Short-Term Incentive voluntaryConsiderations and temporary 10% for thepay reductionremuneration on their committee Programme in relation (STIP) to COVID-19 to focus on delivering Sales base salary from May to October 2020. and Profit as the relevant KPIs for the second • The Short-TermRemuneration Incentive committees Programme are considering (STIP) was senior executive rewardshalf of in2020 the context of fairness, keeping in mind employees, goverment support, and the shareholder experience. revised, and the weighting of financial objectives • In 2020, the COVID-19 pandemic created were reducedDetailed from considerations 75% to 50% include, and non-financial but are not limited to: unprecedented challenges for individuals, businesses,
objectives• wereSalary introduced freezes/cuts (weight 25%) to focus on and society. In early March 2020, right after the immediate• actionsEarned bonuses to mitigate the challenges. COVID-19 breakout, the Company implemented • The Board• ofDeferred Directors share voluntarily awards cut their fees by several cost-reduction measures, including travel 20% for the• Vesting second of quarter. long-term Similarly, incentive theprogrammes EGM Board restrictions, cancelation or postponement of • Policy changes or reductions and the EGM voluntarily cut their salary by 20% for conferences and events, hiring freeze on non- • Assessing performance the second• Deferral/waiverquarter. of awards critical positions, and postponement of planned • The originally• Determining defined thefinancial number performanceof shares at grant objective salary increases from January 1 to July 1, 2020 for was not changed• Target settingnor was the target adjusted to the all employees, and until January 1, 2021 for the • Use of discretion • Annual general meeting approvals
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Reporting practices
Five valuation methods (or timings) of fair value exist in terms of reporting practices:
1 'Granted pay' - current full fair value at the grant date for all years in the vesting period (i.e. for all three years).
2 ‘Expensed pay’ - IFRS 2 accounting fair value of current and previous years expense, and can also be a reversal of an expense.
3 ‘Vested pay’ during the vesting period - new updated fair value calculation during the vesting period and at the reporting date, and can also be a reversal of an expense.
4 ‘Realised pay’ ( or final vested amount) - new final fair value calculated only at the vesting date, i.e. after completion of the vesting period ( also sometimes referred to as ‘vested pay’ together ‘vested pay during the vesting period’).
5 ‘Exercised pay’ - final paid-out amount (e.g. for options) (also sometimes called ‘realised pay’ ) at the exercise or payment date. Remuneration in Danish Large-Cap Companies 2016-2020 | Key trends, tendencies, practices and regulation in Denmark
Group Management Committee. Consequently, no effort. The same restrictions apply to personal data Executive Management Board (EMB) member had that relate to the individuals’ family situation. salary increases in 2020. • Like the rest of the world, the Company felt the Implementation into Danish law effect of the pandemic in 2020 and regarding On 4 April 2019, the Danish Parliament approved remuneration this resulted in a 10 percent the Shareholder Rights Directive to be effective deduction in salary for Executive Management. in Denmark from 10 June 2019, setting out new • In 2020, no short-term bonuses where paid out to requirements for the remuneration policy and the the President & CEO or the Executive Management. remuneration report in sections 139, 139a and For solidarity purpose the CEO, Executive 139b of the Danish Companies Act. The disclosure Management and certain other managers took a requirements for the remuneration report from voluntary pay cut (10-30%) a part of the year when section 139b(3) can be summarised as follows: uncertainty regarding the pandemic was high, all base salaries are back to the rate before the • For each individual director, total remuneration from pandemic. This does not have material impact on the company group split out by component the overall salary cost. • Relative proportion of fixed and variable remuneration Remuneration reports for 2020 and beyond • Explanation of how total remuneration complies Draft guidelines from the European Commission with the policy, including how it contributes to the In March 2019, the European Commission issued company’s long-term performance its draft guidelines3 on standardised reporting for • Information on how the performance criteria were company remuneration reports. The guidelines are applied 18 pages long and are intended to help companies • Annual change in remuneration over six years for disclose clear, understandable, comprehensive and each director compared to company performance comparable information on directors’ remuneration and average employee remuneration (on FTE basis), which meets the requirements of SRDII. It does not excluding directors aim to provide a ‘one-size-fits-all’ approach, but rather • Numbers of shares, granted or awarded share seeks to address different practices of companies in options and the essential conditions for the vesting member states. and exercise of these rights, including the price at the grant date (and exercise price for options), the The guidance is non-binding. Companies using it exercise date and any change thereof are also subject to the legal requirements of the • Use of any claw-backs and any derogations from the applicable national laws transposing SRDII as well as remuneration policy. the national corporate governance code. Updated guideline from the Danish Business Authority Companies are required to produce a clear and The Danish Business Authority (DBA) acknowledges understandable remuneration report, which will be that the new requirements in section 139b of subject to an advisory vote at the annual general the Danish Companies Act on how to prepare a meeting (AGM). The reports will need to include an remuneration report are complex. Thus, on 27 overview of the remuneration awarded or due over November 2020, the DBA published a 60 pages long the last financial year to individual directors. However, updated guideline4 with the aim to help companies it is important to note that remuneration reports by providing illustrative examples and descriptions cannot contain, for any individuals, the specific of the requirements. The Danish listed companies categories of personal data referred to in the Data implemented SRDII in order to meet the requirements Protection Regulation and must, inter alia, be limited in section 139b of the Danish Companies Act for their to what is necessary for the purposes of the reporting 2020 remuneration report for the first time. >>
3 European Commission draft Guidelines on the standardised presentation of the remuneration report 4 Danish Business Authority, Vejledning om selskabslovens krav til børsnoterede selskabers vederlagspolitik og vederlagsrapport, November 2020
13 Remuneration in Danish Large-Cap Companies 2016-2020 | Key trends, tendencies, practices and regulation in Denmark
The Commission’s draft guidelines mentioned At the AGM, an advisory vote is to be held on the latest above encourage companies to adopt a common financial year’s remuneration report. The remuneration method which reflects the market value of shares report for the following financial year must explain or share options both at the time they are awarded how the result of the AGM vote was taken into account. (‘granted pay’) and at the time of vesting (‘vested Should the remuneration report not be approved pay’). The Danish Business Authority recommends at the AGM, the board must take note of the result that companies disclose ‘granted pay’ awarded in the of the vote and this must be explained in the next current year, described as the value of share-based remuneration report. Denmark, unlike some other EU remuneration in accordance with the principles for member states, has allowed small and medium-sized statement of the fair value in IFRS 2 for the total listed companies (defined in terms of size as accounting remuneration received. It is further specified that classes B and C (medium) in the Danish Financial the remuneration for the financial year as stated in Statements Act) to submit the report for discussion at the remuneration report generally differs from the the AGM, rather than an advisory vote. accounting expense (‘expensed pay’), which is stated and accrued according to IFRS 2 over the vesting The Danish Business Authority recommends that period in the financial consolidated statements. A the remuneration report is prepared as a separate leading practice in Denmark is to report the market document from the annual report. The remuneration value of ‘granted pay’ in the ‘single’ figure table and report must be published on the company’s website then add supplementary disclosures for ‘expensed pay’ as soon as possible after the AGM and must remain and ‘vested pay’. publicly available for a period of ten years. It may be available for a longer period if it no longer contains The board is responsible for ensuring that the personal data (notably the names of the executives in remuneration report is prepared and published in question). accordance with the provisions above. In addition, section 147 of the Danish Companies Act states that The Danish implementation of SRDII also requires that the company's external auditor must verify that the the independent auditor ensures that the information remuneration report contains the required information requirements for the remuneration report are met. In as required by section 139b of the Danish Companies the event that the auditor finds that the requirements Act. Additional guidance about the auditor’s role was have not been fulfilled, the auditor must make a added in the updated guideline as well as clarification separate declaration to this effect at the AGM, unless that at least one-year comparative information is the matter is stated in the auditor's report on the required in the first remuneration report for 2020. financial statements.
“The new requirements were significant, comprehensive and very detailed for 2020 mandatory reporting for the first time in Denmark. More and more Danish listed entities are realising that they should not underestimate the investors’ views on the detailed level of transparency requested in the remuneration reports. At Deloitte, we recommended working with investors to align perspectives and views in order to plan ahead for the 2021 remuneration report.”
Martin Faarborg Remuneration Committee Advisory Leader in Deloitte Denmark
14 Remuneration in Danish Large-Cap Companies 2016-2020 | Key trends, tendencies, practices and regulation in Denmark
Structure of the remuneration report 3. Share-based remuneration — information Based on our current experience, the required regarding the share awards and share options elements of the remuneration report are summarised granted during the financial year should be included below (explanatory notes in the guidelines specify the in a specified table format. This also includes details relevant information to be provided): of vesting, performance and holding periods. Valuation of awards is based on the market value 1. Introduction (by the chairperson or remuneration of shares (or underlying value of shares under committee) — remuneration reports should option) at the award date and at the vesting date. open with a brief ‘highlights summary’ of key The European Commission draft guidance states developments in remuneration for the year, that companies may also want to include the IFRS including a summary of the remuneration policy, 2 value, either in narrative form in an additional overall company performance, key developments column. We recommend using the leading practice in board and executive management remuneration to ensure comparability in Denmark — disclosure of compared to the previous reported financial year. the market value at grant in the ‘single’ figure table, This will also include key changes to board and with additional disclosures added to supplement executive management composition, and changes the granted pay number with expensed and vested to the remuneration policy or its application. The pay. Where phantom awards are used, the table introduction may also include comments on how format should be applied where possible. a shareholder vote or views have been taken into account. For 2020 remuneration reports, 4. Right to reclaim (‘malus and clawback’) — we also saw details on how the global COVID-19 information on the use of any reclaim of variable pandemic has impacted company performance remuneration during the financial year in the form and remuneration in this introduction section. of ‘malus’ or ‘clawback’ shall be provided. ‘Malus’ This section can also include the purpose of the means cases where the company reduces the remuneration committee, its main activities during value of all or part of deferred unvested variable the year, recommendations to the shareholders, remuneration based on ‘ex post’ risk adjustments, etc. and ‘claw-back’ means cases where a director has to return to the company an amount of variable 2. Total remuneration of the board of directors as remuneration received or vested in the past). If well as executive management — each individual applicable, the name of the director subject to the directors’ remuneration received during the year reclaim, the amount reclaimed and the applicable by pay component, in a specified table format, remuneration year should be disclosed in the including relative proportions of fixed to variable remuneration report. remuneration. Where applicable, this should include any remuneration from an undertaking 5. Information on how the remuneration complies belonging to the same group, which should be with the remuneration policy and how performance expanded in a separate table. Total remuneration criteria were applied — information on how is also to include information from the previous directors’ remuneration complies with the year for comparison, as well as information on policy, and how it contributes to the long-term remuneration awarded or due to former directors performance and sustainability of the company, in the financial year. This section could also include including how performance criteria were applied. remuneration benchmarking for the board of directors and executive management, as well 6. Variable remuneration and table format — a as the individual directors’ shareholdings in the specified table format is provided that includes company, including share options held. It can also information on variable remuneration paid during be disclosed elsewhere by the company. the year, as well as a description of the financial and >>
15 Remuneration in Danish Large-Cap Companies 2016-2020 | Key trends, tendencies, practices and regulation in Denmark
non-financial metrics used, the relevant weighting we anticipate that most Danish listed companies will of each metric, the minimum and maximum target align further with best practice in Denmark, building performance required and the corresponding on the existing trend for more detailed disclosure award under each criteria and actual award observed in existing Danish remuneration policies and outcomes. remuneration reports, but also with an eye towards UK reporting practices. 7. Discretion — an explanation of any discretion used (upward or downward) should also be provided. We The listing below reflects some of the key expect this to be an area of increased scrutiny. considerations for the remuneration policy.
8. Derogations and deviations from remuneration Remuneration, long-term interests and policy — information on any deviations from sustainability. The quality of disclosure varies and the procedure for the implementation of the will evolve in respect of this requirement over time. remuneration policy, and/or any derogations from It may be sensible for companies to review the link the remuneration policy, including an explanation of between remuneration and other sections of the the nature of the exceptional circumstances. annual report, strategic plans against existing KPIs and how these cascade, and the clarity of the rationale for 9. Comparative information on the change in the metrics chosen. It is also important to remember remuneration and company performance over that the policy should be drafted in order to give the time — to be provided in a specified table format, necessary flexibility in any given year. However, ISS, over a six-year period (current year and five years the proxy advisor, did note discretionary payments as of comparative figures). This includes the change the most common concern for the Danish Large-Cap in remuneration for each individual director and companies. company performance (based on net profit or loss, but could also relate to other metrics), compared Variable pay. The SRDII requires the policy to “… to average employee remuneration on a full-time set clear, comprehensive and varied criteria for the equivalent basis. The Danish Business Authority award of variable remuneration, including where notes in their guideline a transitional relief under appropriate, criteria relating to corporate social which the first SRD II compliant remuneration responsibility...” and to describe “the methods report for 2020 is only required to have one year to be applied to determine to which extent the of comparative figures included, i.e. for 2019. They performance criteria have been fulfilled.” Again, do however encourage five years of comparative practice will continue to evolve with ‘leading’ figures to be included and that this be built up over companies placing pressure on others to improve the years. their disclosure. Our view is that it is pragmatic for companies to assess their board’s appetite for the 10. Information on the shareholder vote — to level of detail in disclosures of variable pay metrics, explain how the advisory vote on the previous to review the pros and cons of different disclosure remuneration report has been taken into account. approaches and the approach for evolving disclosure, We expect a new section to be included in all as well as to assess competitive practices, and remuneration report for 2021 namely developing ‘lessons learnt’ in other regions. ‘Responses to shareholder feedback’. Employee conditions. “The policy shall explain Below we outline our additional perspectives on how pay and employment conditions of employees… preparing the remuneration report. were taken into account when setting the policy.” In Denmark, we generally have employee representation While all remuneration reports for 2020 for the on boards – so there is scope for including any Danish Large-Cap companies are generally reported decisions involving employee representatives in policy to be in compliance with the Danish Companies Act, disclosures. It is also helpful to clarify the overall
16 Remuneration in Danish Large-Cap Companies 2016-2020 | Key trends, tendencies, practices and regulation in Denmark
principles that are applied to broader employee pay, Disclosure of performance measures and targets specify any variations to the principles governing adopted in variable pay plans. This is one aspect of executive remuneration, and outline any all-employee disclosure that has evolved rapidly in Denmark over incentive plans in operation or incentive components the last few years, most importantly for 2020, with that apply to all employees. Due to COVID-19, there has companies providing greater detail on the measures been an increased focus on employee conditions with and, in some cases, the targets used in short- and respect to executive remuneration, and we expect this long-term incentive plans. We have observed more to remain a central focus point. companies providing ex ante disclosure of the measures and targets (particularly where a market- Deviation from the policy. The remuneration policy based measure such as TSR is used) and increasingly can be drafted so as to enable the company to deviate detailed ex post disclosure. The Danish Business from the policy in exceptional circumstances. However, Authority’s guidance recognises that companies such deviation/derogation must be described in will have concerns around commercial sensitivity in the policy itself. The policy must therefore include a disclosing their precise targets and suggests that ex description of the procedural conditions and specify post disclosure may be appropriate in “establishing the elements of the remuneration policy that may be the link between the remuneration of directors and deviated from. This issue had previously gained some the performance of the company.” shareholder interest in Denmark, and we expect this will take on significant scrutiny going forward. As such, Valuation method of share-based remuneration. companies are advised to review the existing intention The Danish Business Authority’s guidance here and policy for exceptional/temporary remuneration, recommends that companies disclose ‘granted pay’ which vary widely in Denmark from recruitment only awarded in the current year, described as the value deviations to much broader drafting. It is likely to be of share-based remuneration in accordance with the helpful to clarify and be prepared to disclose under principles for statement of the fair value in IFRS 2 for what circumstances exceptional pay arrangements the total remuneration received. It is further specified will apply, the time limit for such exceptions, and the that the remuneration for the financial year as stated quantum or caps applying. There will be heightened in the remuneration report generally differs from the scrutiny around remuneration committee decisions, accounting expense (‘expensed pay’), which is stated and the use of judgement and discretion to ensure and accrued according to IFRS 2 over the vesting that pay outcomes are aligned with workforce, period in the consolidated financial statements. investors and wider stakeholder experience. Reporting on company performance relative Recovery. The policy must specify details on the to the annual change in remuneration for each “possibility to reclaim variable remuneration.” disclosed director and the average remuneration for Clawback provisions are common in a number full-time equivalent employees. This requirement of member states and are becoming increasingly and the choice of performance measure adopted common in Denmark. Interestingly, SRDII does not will require careful consideration given the need to specify between malus and clawback. It is important adopt a consistent approach. ‘Performance’ can be for companies to establish an approach to malus regarded as any reasonable definition using market and clawback, including consideration of the or non-market measures. Our experience in other circumstances in which malus/clawback would apply regions suggests that this level of disclosure will and the ‘look back’ period over which such provisions play well in the media, with the messages extracted may apply. It is also key to ensure an alignment of not necessarily in the company’s interests. Careful malus and clawback provisions with executives’ wording is important here. contracts and incentive plan rules. Components of board and executive Several of the key considerations for remuneration remuneration: an overview of key developments reporting practices are summarised below. in board and executive remuneration, and a table >>
17 Remuneration in Danish Large-Cap Companies 2016-2020 | Key trends, tendencies, practices and regulation in Denmark
outlining the components of executive remuneration, Benchmarking survey of 2020 remuneration reports including, for each component, the objective, While there are a wide range of practices, and variation remuneration level, performance measures, and in the quality of remuneration disclosures, we note that current annual outcomes. Danish Large-Cap companies, overall, have increased the level of disclosure in their remuneration reports. LTI targets: Graphical display of LTI targets for the Additionally, all remuneration reports were adopted at current year allowing the reader to understand the the annual general meetings (AGMs). However, there is financial and non-financial targets, KPIs, weightings, still room for improvement—33% of the Danish Large- measures, achievement of targets, outcomes, and Cap companies can still further enhance their ‘pay for more. performance’ disclosures.
Disclosure of LTI pay: A leading practice in Denmark All Danish Large-Cap companies published a separate is to report the market value of ‘granted pay’ in the 2020 remuneration report on their website as required ‘single’ figure table and then add supplementary by the Danish Companies Act. disclosures for ‘expensed pay’ and ‘vested pay’. Eighty percent disclosed ‘granted pay’ for their long- Benchmarking: Benchmarking of board and executive term incentive (LTI) plan in ‘the single figure table’ remuneration against International, European, Nordic (linked to their remuneration policy), 15% disclosed and/or Danish peer companies of the same size and ‘expensed pay’ (linked to the financial statements) complexity, within the same industry/sector and with and 5% reported ‘vested pay’ (linked to performance, similar total shareholder return performance (TSR) is outcomes for executives and total shareholder return becoming increasingly important for boards. (TSR) during or at the end of the vesting period). Some companies also provide additional disclosures of Employee context: Comparison of company ‘granted pay’. performance to executive remuneration and to average total employee remuneration, over a five-year Key insights from our benchmarking survey of 2020 comparative period. Another practice is the use of a remuneration reports for the Danish Large-Cap table detailing the components of executive pay and companies: their alignment with the remuneration of the wider • 35% included a Chair/Committee introduction to the workforce (for example reporting on the development report in CEO pay ratio over time). • 63% included comments on development in remuneration against company performance Statements by the board of directors and • 35% included summary of activities of remuneration the independent auditor: Statements in the committee during the year in the report remuneration report signed by both the whole board • 58% included disclosure of board members' and of directors and the independent auditor. executives’ shareholdings in the report • 78% included disclosure of performance criteria and SRDII is a broad and ambitious piece of legislation. The applicable remuneration quality of remuneration policies and remuneration • 20% disclosed specific ESG performance criteria in reports have evolved rapidly in 2020, and we anticipate executive remuneration for 2020 this development to continue from year to year. We • 13% included KPIs for climate action as ESG recommend that companies plan their anticipated performance criteria for executive remuneration in remuneration report for 2021 to both comply with 2020 SRDII and the Danish Companies Act, and to continue • 18% disclosed that ESG performance criteria will the work on developing meaningful narratives around to be included in LTI programmes for executive ‘pay for performance’ outcomes. remuneration for 2021 and beyond
18 Remuneration in Danish Large-Cap Companies 2016-2020 | Key trends, tendencies, practices and regulation in Denmark
• 10% included KPIs for climate action as ESG For 2020 remuneration reports of the Danish Large- performance criteria for LTI programmes for Cap companies, we have seen four different levels executive remuneration in 2021 and beyond of assurance applied by the company’s independent • 65% disclosed positively whether it had been relevant auditors: to apply malus and claw-back provisions (or not) • 18% included five-year comparative information (all 1. No assurance, but a statutory statement to the companies disclosed at least one-year comparatives) Board (27%) • 83% included a statement by the board 2. Reasonable assurance report on Management´s compliance with section 139b(3) (20%) Assurance on the remuneration report 3. Consistency check as part of audit and reasonable As part of their audit of Danish listed companies’ assurance report on Management´s compliance annual reports, the company’s independent auditors with section 139b(3) (33%) shall, in accordance with section 147 of the Danish 4. Audit report on certain numbers and reasonable Companies Act, read the remuneration report and assurance report on Management´s compliance report to the AGM if the auditor finds it appropriate to with section 139b(3) (20%) point out any omissions in the remuneration report in relation to the disclosure requirements of the Danish 73% of the companies’ auditors performed and Companies Act (‘compliance check’). This work is based reported on a compliance check or an audit of the on a disclosure checklist based on section 139b(3) of numbers in the remuneration reports. Review of the Danish Companies Act. The auditor is also required certain of the numbers, i.e. a limited assurance report to check that all relevant information is disclosed in the has not been applied in practice in Denmark. remuneration report, using the auditor’s knowledge (‘completeness check’) obtained by reading the At Deloitte, we plan as a minimum to provide a remuneration report, the remuneration policy and ‘reasonable assurance report’ including a ‘consistency otherwise obtained during the audit. Finally, as part check’ as part of the audit to our clients. Furthermore, of the audit of the financial statements, the auditor we see that some listed companies are selecting must check that the information in the remuneration additional assurance options, like audits of certain report is consistent with the knowledge obtained by numbers, if the board, shareholders, proxy advisors the auditor through the audit (‘consistency check’), and/or the Danish Financial Supervisory Authority and the auditor must provide documentation of such expect or require this. consistency (and of any variances in cases where figures are to vary). Boards should therefore plan whether the 2021 remuneration report should have a report from At Deloitte, we believe that it will add value to boards the company’s independent auditors, either as a and shareholders if the company’s independent compliance check or an audit of the numbers in the auditor issues a separate auditor’s report on the remuneration reports. >> remuneration report. As part of such issuance, the auditor’s report could include testing the remuneration report for compliance with section 139b of the Danish Companies Act (i.e. ‘compliance check’, ‘completeness check’ and ‘consistency check’) as well as testing the disclosures in the remuneration report for accuracy and completeness (‘audit procedures’). However, the auditor is not required to perform audit (or review) procedures to test for accuracy and completeness.
19 Remuneration in Danish Large-Cap Companies 2016-2020 | Key trends, tendencies, practices and regulation in Denmark
Sustainability 20% Employee/ customer 30%
ESG metrics and targets in executive remuneration The world is awakening to the significant environmental and social issues that it faces, and there is growing pressure on governments, businesses and individuals to drive meaningful change. COVID-19 has driven a greater appreciation of science Reduction in CO2 to predict future risks, and a change in the US administration Safety 30% is expected to bring renewed momentum in the climate 10% change agenda.
Creation of The EU’s Sustainable Finance Disclosure Regulation has come ESG strategy into effect on 10 March 2021, redefining ESG disclosures and 10% escalating consideration of ESG in the investment process. Proxy advisors and investors have recently included updates ESG in Executive Remuneration for Danish Large-Cap on the use of ESG metrics in their guidance. Executive pay can companies play a part in focusing the attention of the board on driving In the Danish and wider European market, there is ESG ambitions and delivering a ‘tone from the top’. a marked increase in the focus on ESG in executive pay in recent years. Amongst the Danish Large-Cap companies, approximately 25% incorporated ESG metrics into either the bonus or long-term incentive ESG and executive pay - an investor plans based on analysis from the 2021 AGM season. perspective… Of those companies that include ESG, there is an equal ‘The remuneration committee should disclose proportion that feature ESG in short-term incentives how it has taken into account any relevant and long-term incentives. It is worth noting that in the environmental, social and governance (ESG) UK, where the adoption of ESG is more prevalent and matters when determining remuneration developed, they are currently more common in the outcomes. Such factors may include (but are not bonus than LTIP. limited to): workplace fatalities and injuries, significant environmental incidents, large or serial fines or There is some variety in the design of measures sanctions from regulatory bodies and/or significant used by Danish companies with some using ESG as a adverse legal judgments or settlements.’ ISS Proxy standalone metric, some as part of a scorecard and Voting Guidelines Continental Europe, others incorporating within a basket of individual/ November 2020 strategic measures. The most frequently used measures for the Danish companies are those focused ‘Remuneration committees should consider including on CO2 reductions or wider sustainability followed strategic or non-financial performance criteria in by employee/customer related metrics such as variable remuneration, for example relating to ESG engagement or diversity targets. objectives, or to particular operational or strategic objectives. ESG measures should be material The approach to ESG within executive remuneration to the business and quantifiable. In each case, is still evolving, and there is limited disclosure on the link to strategy and method of performance target setting and assessment of performance to date, measurement should be clearly explained.’ The particularly as this is the first year of remuneration Investment Association, November 2020 reporting required for Danish listed companies under the Shareholder Rights Directive and its implementation into the Danish Companies Act.
20 Sustainability 20% Employee/ customer 30%
Reduction in CO2 Safety 30% 10%
Creation of ESG strategy 10%
1 2 Remuneration Strategy Remuneration design
6 3 Remuneration New Remuneration reporting Remuneration Committee program
5 4 Implementation & Remuneration Communication Policy
Remuneration in Danish Large-Cap Companies 2016-2020 | Key trends, tendencies, practices and regulation in Denmark
Which metrics? · Where is your material impact? · External goals and commitments? · ‘True performance’ measures and value creation, transformation and measurement? · Market-based or company-based metrics?
Eligibility? · Eligible populations – Single metric or basket of measures? broad-based, senior management · Clear single metric/KPI versus scorecard only or executive board only? – ‘single goal’ with clear message versus more holistic assessment? · Weighting?
Setting robust and quantifiable targets? Timeframe for assessment? · Progress assessment after one year, three years? · Threshold, target and Or different timeframe e.g. five years, separate maximum range incentive plan? · Verification / assurance At grant or over a vesting period? of out-turns? · · Holding/deferral periods for shares vested? Going forward, we expect the focus on ESG to continue as remuneration committees look to further Quantum? · Is the Remuneration Committee comfortable align strategic priorities with remuneration frameworks. paying X amount for achievement of targets? The below sets out some key questions and practical · Additive approach or modifier? considerations for remuneration committees looking ahead:
Remuneration Committee Annual Cycle The annual meeting cycle shown below is for illustrative purposes and will need to be tailored to the Remuneration Committee and Board timetables for the company: SEPTEMBER / NOVEMBER
• Review draft remuneration policy wording Remuneration policy review • Consider and agree approach to shareholder consultation, if relevant German 3% JUNE / AUGUST DECEMBER / JANUARY Swedish 6% • Update on annual bonus Approve annual bonus targets • Update on voting on directors Review • Update outturn based on latest for following year remuneration estimated Norwegian 3% Approve from AGM available data and any key performance • Summary of key issues raised incentive items relating to performance • Approve targets/structure for American 3% measures Danish 63% outturns LTI grants by investors requiring the committee´s and targets consideration for upcoming British 6% • Approve any remuneration • Update on market trends, year changes for executive including: • Finalise Remuneration management Committee Committee Terms of · Market practice / trends Charter Reference (or Charter) Market • Review and approve · Practices among peer update shareholder consultation companies materials (circulate to wider · Corporate governance and Board for info) regulatory developments FEBRUARY / MARCH • Draft shareholder letter flagging key points in the Agree incentive • Assessment of performance Shareholder • Review of remuneration remuneration policy and any outturns for against targets consultation principles and policies, including proposed changes previous year compensation models, elements and levels against best practice/ • Consult with major shareholders and proxy Remuneration market trends • Review investor feedback to agencies review • Remuneration benchmarking date and consider potential including a review of peer refinements to remuneration • Gather feedback on new group(s) policy proposal(s) remuneration policy proposals Remuneration and confirm support for • Assess ongoing appropriateness report • Finalise remuneration policy of remuneration arrangements for final approval by the Board • Drafting of the remuneration report
Approve equity • Proposed grants grants for • Basis of eligibility upcoming year • Plan limits/headroom
21 Remuneration in Danish Large-Cap Companies 2016-2020 | xxxxx
“At Deloitte, we believe that the purpose of incentive programmes is to align the interests of executive management with those of the shareholders (and other key stakeholders), i.e. to ensure that management is motivated to work towards achieving goals that are aligned with the company’s strategy.”
Tinus Bang Christensen Valuation Services Leader, Financial Advisory in Deloitte Denmark
22 Remuneration in Danish Large-Cap Companies 2016-2020 | Benchmarking board and executive remuneration
Benchmarking board and executive remuneration
This report is intended to provide you with a guide to • You should be aware of the impact that volatility in the current levels of board and executive remuneration financial markets can have on salary benchmarks. and the use of LTI in Danish Large-Cap companies. Changes in the market capitalisation of particular However, it is important to note that the analysis companies or sectors may mean that comparator is based on information disclosed in remuneration groups can include companies that were substantially reports relating to financial periods ending between bigger or smaller this time last year and the salaries August and December 2020 and therefore the analyses in place at these companies will reflect this. In volatile do not always fully reflect the very latest approaches. times, salary benchmarks must be viewed with particular caution. When using this report, we would strongly recom- mend that you consult with your advisers on the • There may be very good reasons why the interpretation of the data and its relevance to your remuneration paid to an individual is outside the particular circumstances. market range for a given position and it is important to assess the particular circumstances of each case. We have provided information on remuneration only Positioning at the market median is not usually the for companies included within the Danish Large-Cap correct starting point. In determining positioning, Index, with some exceptions. In many markets, a clear consideration should be given to all relevant factors, correlation exists between executive remuneration including internal relativities and the calibre and and the size of a company, and this provides a useful experience of the individual. starting point in the benchmarking process. However, there are a number of points to bear in mind:
• This analysis only covers companies included within the Danish Large-Cap Index. You will need to consider whether a more specific comparator group would be more relevant for your company to benchmark against.
• You will need to make a judgement on how your company compares to this sample, taking into account any relevant factors (which might include, for example, company size, industry/sector, the degree of internationality, the complexity of the business and total shareholders return — to name a few) in interpreting the data.
23 Remuneration in Danish Large-Cap Companies 2016-2020 | Overview of remuneration components
Overview of remuneration components
Remuneration of executive directors can generally be Consequently, variable elements are typically linked divided into fixed and variable remuneration. Fixed to a number of key performance indicators (KPIs) or elements include base salary, pension and other forms benchmarks, which must be achieved before variable of remuneration (car, phone, housing benefits, etc.) remuneration is payable. whereas variable elements typically include short-term incentives (STIs) and long-term incentives (LTIs). Typically, Variable salary types STIs are one-year cash-based considerations, while LTIs Variable remuneration can be either short-term or are longer than one year and may include either cash or long-term. Short-term incentives typically refer to bonus share-based pay (shares or options/warrants). arrangements that are settled within the financial year of the company, while long-term incentives apply to In general, fixed elements of remuneration are aimed arrangements that apply over a period greater than a at remunerating executive management for expected single financial year, normally three years. Below is a non- performance, while the purpose of variable elements is exhaustive overview of different types of LTIs. to incentivise extraordinary or exceptional performance.
Remuneration components Fixed elements Variable elements
Share-based Base salary Pension Other Bonus remuneration
Incentive programmes Programme Description
Employee shares Via a monthly salary reduction the employee may save up to buy shares - typically at a discount
The employee buys shares at market value which will be matched by a certain ratio after a number Matching shares of years, in case the employee has not sold his/her shares or left the company
Performance share unit The employee is granted free shares, which may not be transferred or exercised until certain and restricted stock units conditions are met - for example financial goals or ongoing employment
The employee is granted the right to buy existing company shares in the future at a price Share-based options determined in advance
The employee is granted the right to buy newly issued company shares in the future at a price Share-based warrants determined in advance
The purpose of incentive programmes is to align the The goals of incentive programmes are typically interests of executive management with those of the company-wide financial and non-financial KPIs, which can shareholders (and other key stakeholders) and to be evaluated on an absolute or a relative basis. Examples ensure that management is motivated to work towards are relative total shareholder return, absolute EBITDA achieving goals that are aligned with the company performance of a division and company-wide customer strategy. service or employee satisfaction KPIs. Non-financial KPI’s related to ESG are also emerging as metrics and targets in executive remuneration, refer to our analysis above.
24 Remuneration in Danish Large-Cap Companies 2016-2020 | Methodology
Methodology
Data When analysing base salary, all companies where The analysis in this report is based on the board a breakdown of remuneration was disclosed for and executive remuneration of 40 Danish Large-Cap individual executive directors for all five years have companies as of the end of March 2021. The data are been included. This includes 32, 22 and 22 individuals based strictly on publicly available information obtained for the CEO, CFO and Other Executive Directors from annual reports, remuneration reports, company categories, respectively. However, for some companies, websites, press releases, general meeting notes, pension is included in the base salary and for others remuneration policies, etc. Not all companies report it is not clear whether the pension is a part of the their remuneration with the same level of detail, and the reported base salary. For this analysis, one executive number of companies or executives that are included will director is counted as one observation. vary from one analysis to the other. We apply individuals as observations for the pension Remuneration analysis analysis. This leaves 124 observations, although for 56 The analysis of base salary includes only those individual of these observations, a pension does not form a part executive directors where remuneration for the full of the remuneration. financial year was provided in the annual report or where it was possible to reasonably pro rata adjust any part- For analysis of LTI programmes, we apply each year salary information. programme as one observation. This means that all individual programmes of the companies have been As not all companies in our analysis have the same included. For the LTI analysis, we exclude cash bonus financial year-ends, we have simply used the latest four schemes, leaving 73 separate, active programmes. or five financial periods that have been published. Our analysis therefore attempts to reflect, as accurately as For the analysis of board pay, we count each company possible, the salary levels effective during the financial as an observation. 35 companies disclose total board years from 2016 to 2020. We have not applied any ageing remuneration for each of the last five years, while 30 factor to the disclosed salaries. companies disclose remuneration of the chairperson for each of the last five years, while all 40 companies We have categorised main executive management provide a full breakdown of the remuneration of each positions into three main groups — the chief executive individual board member for 2020. officer (CEO), the chief finance officer (CFO) and other executive directors (Other Executive Directors). In some Statistics companies, the only members of executive management Throughout the report, the data are presented by using are the CEO and the CFO, and hence not all companies the following statistics: are represented in all analyses. It is also worth noting that for some companies where an executive director has left • Upper quartile — separates the top 25% of a sample during the year, the details of the new incumbent are not from the bottom 75% yet known at the time of reporting or are not disclosed. This means that there will not always be a top full-time • Median — the middle point of a sample CEO or CFO for every company. • Lower quartile — separates the bottom 25% of a For the analysis of total remuneration, STIs and LTIs, all sample from the top 75% companies where a remuneration split was provided for the total executive board or individuals for all five • Average — the arithmetic mean of a sample years have been included, leaving 37, 31, 22 and 14 companies for all executive directors, CEOs, CFOs and Other Executive Directors, respectively. We count each company as one observation in this analysis. In the case of GN Store Nord which has more than one effective CEO, we apply all CEOs as observations.
25 Remuneration in Danish Large-Cap Companies 2016-2020 | Total remuneration for executive directors
Total remuneration of executive directors
Total remuneration According to IFRS, executive remuneration must Companies disclosing a remuneration be disclosed in the company’s annual report, and breakdown for: further details per individual executive director are to be provided in the new remuneration report from The total executive board 40 of 40 100% 2020 onwards. The level of detail that companies CEOs 41 of 41 100% disclose however still varies, with some companies disclosing remuneration for each executive director, CFOs 30 of 30 100% while others disclose remuneration only for the group All individual executive directors 24 of 24 100% of executive directors as a whole. Remuneration is typically disclosed on the different types of pay (base salary, pension, bonus and LTI), but for a small number of companies, remuneration is only disclosed at a total level. Below we highlight the level of executive remained relatively steady. Average base salary of compensation detail disclosed across different groups executive directors increased during this period (see in 2020: analysis of base salary below), while bonus and LTI Companies disclosing a remuneration payments also increased. breakdown for: Below we show the composition of executive director remunerationThe total executive for the board last five years. Around 56% of 40 of 40 100% executive directors’ total remuneration consisted of Extraordinary remuneration for CEOs CEOs 41 of 41 97% base salary in 2020 (2019: 57%), while variable pay We have also evaluated the levels of extraordinary (bonusCFOs and LTI) comprised around 36% (2019: 36%). remuneration30 paid of 40 to CEOs in this report. We found71% that Note, in chart below the sum of bonus and LTI sums extraordinary remuneration fell in 2020 to DKK 42m Other executive directors 24 of 40 58% to 35%, but this is due to rounding. Over the last five across six companies, compared to a total of DKK 176m years, the split between fixed and variable pay has in 2019 across 11 companies. In our report from last
Remuneration of executive directors 2016-2020
2016 60% 6% 1% 16% 17%
2017 58% 6% 2% 15% 19%
2018 54% 6% 2% 17% 21%
2019 57% 6% 3% 15% 20%
2020 56% 4% 4% 15% 20%
Base salary Pension Other Bonus LTI
Source: Deloitte analysis Note: Companies that did not disclose executive management remuneration split have been excluded. Only companies for which executive director remuneration was disclosed in each of the last five years have been included. This includes 37 companies. Note also CEOthat numbers remuneration are rounded. 2016-2020
26 2016 56% 6% 1% 16% 19%
2017 56% 6% 1% 16% 19%
2018 53% 6% 2% 18% 19%
2019 57% 5% 2% 13% 20%
2020 54% 5% 3% 15% 20%
Base salary Pension Other Bonus LTI
CFO remuneration 2016-2020
2016 58% 5% 2% 18% 18%
2017 53% 4% 2% 19% 21%
2018 46% 4% 4% 21% 24%
2019 54% 6% 3% 16% 22%
2020 49% 4% 6% 17% 25%
Base salary Pension Other Bonus LTI
Variable pay 2016-2020
45% 41% 42% 39% 37% 38% 36% 38% 35% 33% 33% 34% 31% 31% 28%
2016 2017 2018 2019 2020
CEO CFO Other Remuneration in Danish Large-Cap Companies 2016-2020 | Total remuneration for executive directors
Companies disclosing a remuneration breakdown for:
The total executive board 40 of 40 100% CEOs 41 of 41 97% year, we noted that 2019 levels were significantly higher remuneration for CEOs was in this form (at Rockwool CFOs 30 of 40 71% than in 2018, which could suggest that 2019 had an International and Tryg), while in 2019 it accounted for 5% extraordinaryOther executive level directors of CEO turnover. (at Scandinavian24 of Tobacco 40 and The Drilling Company58% of 1972). A severance payment at one company accounted for 43% of the total extraordinary remuneration paid to Extraordinary remuneration has been excluded from CEOs in 2020 (at ISS), compared to 52% in 2019 across our variable pay trends analysis. However, it is included Remunerationfour companies (Alm. of executive Brand, Ambu. directors Nordea 2016-2020 and in the totals for executive remuneration in 2020 and Novozymes). 2019. Please note this when interpreting the data. 2016 60% 6% 1% 16% 17% Sign-on bonus payments at two companies (Chr. The figure below shows that CEOs received between Hansen and Novozymes), and a tax indemnification 33% and 37% of their remuneration in the form of bonus2017 (at Lundbeck), also accounted 58%for 28% of the variable pay6% between2% 201615% and 2020, respectively.19% total extraordinary remuneration for CEOs paid in Similar to executive directors, CEO variable 2020. In 2019, sign on bonuses at four companies (at remuneration in general has been relatively stable over Danske2018 Bank, GN Store Nord and Pandora)54% and a tax the past6% five2% years, but17% has seen a 3%-point21% increase equalisation benefit for the then new Lundbeck CEO from 2019 to 2020 (note, in the graph below the sum of accounted for 44 percent of the total extraordinary bonus and LTI implies only a 2%-point increase due to remuneration2019 paid to CEOs. 57% rounding). 6% 3% 15% 20%
The remaining proportion relates to other extraordinary bonuses,2020 such as stay-on loyalty bonuses56% or one-time 4% 4% 15% 20% awards in connection with IPOs, M&A transactions or other events. In 2020, 29% of the total extraordinary Base salary Pension Other Bonus LTI
CEO remuneration 2016-2020
2016 56% 6% 1% 16% 19%
2017 56% 6% 1% 16% 19%
2018 53% 6% 2% 18% 19%
2019 57% 5% 2% 13% 20%
2020 54% 5% 3% 15% 20%
Base salary Pension Other Bonus LTI
Source: Deloitte analysis Note: Companies that did not disclose their CEO’s remuneration split have been excluded. Only companies for which CEO remuneration was disclosed in each of the last five years have been included. This includes 31 companies. Note also that numbers are rounded. CFO remuneration 2016-2020
27 2016 58% 5% 2% 18% 18%
2017 53% 4% 2% 19% 21%
2018 46% 4% 4% 21% 24%
2019 54% 6% 3% 16% 22%
2020 49% 4% 6% 17% 25%
Base salary Pension Other Bonus LTI
Variable pay 2016-2020
45% 41% 42% 39% 37% 38% 36% 38% 35% 33% 33% 34% 31% 31% 28%
2016 2017 2018 2019 2020
CEO CFO Other Companies disclosing a remuneration breakdown for:
The total executive board 40 of 40 100% CEOs 41 of 41 97% CFOs 30 of 40 71% Other executive directors 24 of 40 58%
Remuneration of executive directors 2016-2020
2016Companies disclosing a remuneration60% 6% 1% 16% 17% breakdown for:
The total executive board 40 of 40 100% 2017 58% 6% 2% 15% 19% CEOs 41 of 41 97% CFOs 30 of 40 71% 2018 54% 6% 2% 17% 21% Other executive directors 24 of 40 58%
2019 57% 6% 3% 15% 20%
Remuneration2020 of executive directors56% 2016-2020 4% 4% 15% 20%
2016 Base salary60% Pension Other Bonus6% 1% LTI16% 17%
2017 58% 6% 2% 15% 19% CEO remuneration 2016-2020
2018 54% 6% 2% 17% 21% 2016 56% 6% 1% 16% 19%
2019 57% 6% 3% 15% 20% 2017 56% 6% 1% 16% 19%
Remuneration in Danish Large-Cap Companies 2016-2020 | Total remuneration for executive directors 2020 56% 4% 4% 15% 20% 2018 53% 6% 2% 18% 19%
Base salary Pension Other Bonus LTI
2019 57% 5% 2% 13% 20%
CEO2020 remuneration 2016-2020 54% 5% 3% 15% 20%
2016 Base 56%salary Pension Other 6%Bonus1% 16%LTI 19%
2017 56% 6% 1% 16% 19% CFO remuneration 2016-2020
2018 53% 6% 2% 18% 19% 2016 58% 5% 2% 18% 18%
2019 57% 5% 2% 13% 20% 2017 53% 4% 2% 19% 21%
2020 54% 5% 3% 15% 20% 2018 46% 4% 4% 21% 24%
Base salary Pension Other Bonus LTI
2019 54% 6% 3% 16% 22%
CFO2020 remuneration 2016-202049% 4% 6% 17% 25%
2016 Base salary58% Pension Other Bonus5% 2% LTI18% 18%
Source: Deloitte analysis Note: Companies that did not disclose their CFO’s remuneration split have been excluded. Only companies for which CFO remuneration 2017 53% 4% 2% 19% 21% was disclosed in each of the last five years have been included. This includes 22 companies. Variable pay 2016-2020
A2018 similar analysis for CFOs reveals46% that variable pay45% 4%as variable4% pay compared21% to CEOs and24% Other made up 42% of their total pay41% package in 2020, Executive Directors, due to their relative42% lower 39% 37% 38% 36% an increase38% of 4%-points compared35% to 2019, and 33% base salary. Variable33% pay across all three34% groups 31% 31% 6%-points2019 28% higher compared to 2016.54% appears6% to be3% more in16% line with 2017/1822% levels after a relatively low proportion in 2019. By comparing the development of variable pay over2020 time for CEOs, CFOs and49% Other Executive Having4% established6% 17% an overview of the25% components 2016 2017 2018 2019 2020 Directors, we observe that CFOs have received of the executive remuneration package, we now
a higher proportion of their totalBase salaryremunerationCEOPension CFOOthertake a closerOtherBonus look at theLTI different parts of the remuneration, one by one - in the next chapter.
Variable pay 2016-2020
45% 41% 42% 39% 37% 38% 36% 38% 35% 33% 33% 34% 31% 31% 28%
2016 2017 2018 2019 2020
CEO CFO Other
Source: Deloitte analysis Note: The samples of CEOs, CFOs and Other Executive Directors are not of the same size, since we have excluded companies that did not disclose individual remuneration for 2016-2020. The chart is based on 31, 22 and 14 companies for CEOs, CFOs and Other Executive Directors, respectively.
28 Remuneration in Danish Large-Cap Companies 2016-2020 | Total remuneration for executive directors
Development in share price return and total able document a direct or close correlation between remuneration share price return and variable remuneration granted This year and for the first time, we have analysed the to CEOs in Denmark, however the Danish Large-Cap correlation between share price return and variable companies (and their CEOs) have delivered significant pay granted to CEOs over the period from 2016 to absolute value to their shareholders over the five- 2020. We are not yet able to provide an analysis of year period significantly exceeding their more stable share price return against variable pay vested to CEOs variable remuneration increases. over an average vesting period over three years due to lack of data from the Danish Large-Cap companies on Finally, we do note that share price return is and ‘vested pay’. should be much more volatile than the more stable development in variable pay of CEOs, however over Based on the graphs on the next page, we observe that time we would argue for aiming for a clearer alignment there is not a direct or close correlation between share of ‘pay for performance’ and greater shares of granted price return and variable pay granted to CEOs, either as variable pay, which will develop to be more volatile over percentage of base salary or in nominal amounts the longer term of five to seven years in terms of vested granted. We do note that there was a very significant pay outcomes. temporary decline in share prices in December 2018, which we need to ‘normalise’ for. We do find it We believe that finding the ‘right’ KPIs that drive value appropriate to assume that this was still a decline in creation and reflecting these in incentive programmes share price return for 2018. It seems that there was a should be an important point for companies to work on reaction to that one year later as the grants of variable over the coming years and decade(s). We believe that pay for CEOs declined in 2019. In early 2019, the share the answer will be found through strategic discussions price return did re-bounce, and increase again, and in of what drives long-term value creation in the future. 2020 the variable pay granted to the CEOs also This will include market-based KPIs (for examples share increased. The average long-term trends over the five- price growth or Total Shareholders Return (TSR), relative year period from 2016 to 2020, however do show or absolute) and company-based KPIs capturing the clearly that the increase in the average share price underlying ‘value creation’ (including transformation growth of 16% per annum significantly exceeds the projects, value measurement and impact, including ESG average median variable remuneration, which only data, metrics and targets). increased by 1.7% per annum over the same five-year period. Therefore, we can conclude that we are not
"We find it important that boards and executives align their views and perspectives of ‘value(s)’ and ‘true performance’, which will involve investigating which KPIs are important in driving true long-term value creation, and then implementing these in management incentive programmes."
Martin Faarborg Remuneration Committee Advisory Leader in Deloitte Denmark
29 Remuneration in Danish Large-Cap Companies 2016-2020 | Total remuneration for executive directors
Development in share price return against median variable pay as percentage of base salary for CEOs (left) and median variable pay for CEOs (right) – 2016-2020
40% 100% 40% 8.0
30% 90% 30% 6.0
20% 80% 20% 4.0
10% 70% 10% 2.0
0% 60% 0% 0.0 2016 2017 2018 2019 2020 2016 2017 2018 2019 2020
Median annual share price return (left axis) Median annual share price return (left axis) Median variable pay, DKKm (right axis) DevelopmentMedian variable in payshare as % ofprice base sal returnary (right against axis) median variable pay as percentage ofSource: base Nasdaq salary Copenhagen, for CEOs S&P (left) Capital and IQ, median Deloitte analysis variable as of pay 31 March for CEOs 2021 (right) – 2016-2020 Note: We have included all companies that disclosed variable remuneration in each year, and as such the sample of companies included varies per year. In 2020, the sample includes all 41 CEOs. Share price growth is the annual median return based on fiscal year data for each company 40% 100% 40% 8.0 (whichDevelopment in most cases of end median on 31 March) total from remuneration S&P Capital IQ. for CEOs in 2020 against 2019 30% 90% 30% 6.0
60.0 This20% year, we have also included analysis of the 80%range between20% the highest and lowest paid executives 4.0 development of total executive remuneration for CEOs, of Danish Large Cap companies was greatest among 10% 2.0 CFOs10% and Other Executive Directors from 2019 to 2020. 70%CEOs, perhaps unsurprisingly, and lowest among CFOs. 50.0 The reason for the higher range among Other Executive 0% 60% 0% 0.0 We find that2016 the median 2017 total remuneration 2018 2019 for CEOs, 2020 Directors compared2016 to CFOs, 2017may in part 2018 be explained 2019 2020 CFOs40.0 and Other Executive Directors increased by 11%, by the wide-ranging roles that these executives have, Median annual share price return Median annual share price return 5% andMedian 6% to variable DKK pay16.3m, as % ofDKK base 9.6m salery (rightand axis)DKK 8.8m in from regional headsMedian tovariable sector pay, specific DKKm (right heads axis) and various 2020, respectively. Furthermore, we note that the functions in between. 30.0 DKKm
Development20.0 of median total remuneration for CEOs in 2020 against 2019
60.010.0
50.00.0
Median remuneration 2019 Median remuneration 2020 40.0
Development30.0 of median total remuneration for CFOs in 2020 against 2019 DKKm
20.0
25.0 10.0
20.0 0.0
Median remuneration 2019 Median remuneration 2020 15.0 Source: Deloitte analysis Note: The samples of CEOs, CFOs and Other Executive Directors are not of the same size. The charts are based on 2020 data for 41 CEOs, DKKm 30 CFOs and 56 Other Executive Directors, respectively, and 2019 data for 41 CEOs, 30 CFOs and 52 Other Executive Directors, respectively. Development10.0 of median total remuneration for CFOs in 2020 against 2019
30 5.0 25.0
0.0 20.0 Median remuneration 2019 Median remuneration 2020
15.0 DKKm Development of median total remuneration for Other Executive Directors in 2020 against 2019 10.0
30.0 5.0
25.0 0.0
20.0 Median remuneration 2019 Median remuneration 2020
15.0 DKKm
Development10.0 of median total remuneration for Other Executive Directors in 2020 against 2019
30.05.0
25.00.0
Median remuneration 2019 Median remuneration 2020 20.0
15.0 DKKm
10.0
5.0
0.0
Median remuneration 2019 Median remuneration 2020 Development in share price return against median variable pay as percentage of base salary for CEOs (left) and median variable pay for CEOs (right) – 2016-2020 Development in share price return against median variable pay as percentage of base salary for CEOs (left) and median variable pay for CEOs (right) – 2016-2020 40% 100% 40% 8.0
40%30% 100%90% 40%30% 8.06.0
30%20% 90%80% 30%20% 6.04.0
20%10% 80%70% 20%10% 4.02.0
10%0% 70%60% 10%0% 2.00.0 2016 2017 2018 2019 2020 2016 2017 2018 2019 2020 0% 60% 0% 0.0 Median annual share price return Median annual share price return 2016 2017 2018 2019 2020 2016 2017 2018 2019 2020 Median variable pay as % of base salery (right axis) Median variable pay, DKKm (right axis) Median annual share price return Median annual share price return Median variable pay as % of base salery (right axis) Median variable pay, DKKm (right axis)
Development of median total remuneration for CEOs in 2020 against 2019
Development of median total remuneration for CEOs in 2020 against 2019 60.0
60.0 50.0
50.0 Remuneration in Danish Large-Cap Companies 2016-2020 | Total remuneration for executive directors 40.0
40.0
30.0 DKKm 30.0
DKKm 20.0
20.0 10.0
10.0 0.0
0.0 Median remuneration 2019 Median remuneration 2020
Median remuneration 2019 Median remuneration 2020
Development of median total remuneration for CFOs in 2020 against 2019
Development of median total remuneration for CFOs in 2020 against 2019
25.0
25.0
20.0
20.0
15.0
15.0 DKKm
10.0 DKKm
10.0
5.0
5.0
0.0
0.0 Median remuneration 2019 Median remuneration 2020
Median remuneration 2019 Median remuneration 2020
Development of median total remuneration for Other Executive Directors in 2020 against 2019
Development of median total remuneration for Other Executive Directors in 2020 against 2019 30.0
30.0 25.0
25.0 20.0
20.0
15.0 DKKm
15.0 DKKm 10.0
10.0 5.0
5.0 0.0
0.0 Median remuneration 2019 Median remuneration 2020
Median remuneration 2019 Median remuneration 2020
31 Remuneration in Danish Large-Cap Companies 2016-2020 | xxxxx
“At Deloitte, we expect, over the coming years, that the remuneration characteristics of executive management in Denmark will become even more aligned with European practices as the Shareholder Rights Directive has taken effect.”
Anja Andersen Share-based pay & M&A, Tax & Legal in Deloitte Denmark
32 Development in share price return against median variable pay as percentage of base salary for CEOs (left) and median variable pay for CEOs (right) – 2016-2020
40% 100% 40% 8.0
30% 90% 30% 6.0
20% 80% 20% 4.0
10% 70% 10% 2.0
0% 60% 0% 0.0 2016 2017 2018 2019 2020 2016 2017 2018 2019 2020
Median annual share price return Median annual share price return Median variable pay as % of base salery (right axis) Median variable pay, DKKm (right axis)
Development of median total remuneration for CEOs in 2020 against 2019 Remuneration in Danish Large-Cap Companies 2016-2020 | Base salary
60.0
50.0
Base40.0 salary
30.0 DKKm
20.0
When10.0 looking at base salary, we have divided the In 2020, CEO base salary ranged between DKK 4.1m observations into three groups: CEOs, CFOs and Other and DKK 20.0m. The median base salary has increased Executive Directors. For CEOs, the distribution of in each year between 2016 and 2019, but fell 1.5% in base0.0 salary in 2020 is depicted below, along with the 2020 to DKK 7.2m. Over the last five years the median development of the 25th, the median (50th percentile) CEO base salary has increased by c. 2.1% p.a. and the 75th percentileMedian remuneration during the 2019 last five Medianyears. remuneration 2020
Development of median total remuneration for CFOs in 2020 against 2019
CEO base salaries 2020 (left) / CEO base salary percentiles 2016-2020 (right)
25.0 25.0
20.020.0
15.015.0
10.1 10.3 9.8 DKKm DKKM 9.0 8.9 10.010.0 7.1 7.3 7.2 6.7 7.0 6.6 6.8 6.1 6.3 5.5 5.05.0
0.0 0.0 2016 2017 2018 2019 2020
25th percentile Median 75th percentile Median remunerationOne column 2019 representsMedian one remuneration CEO 2020
Source: Deloitte analysis Note: The graph to the left represents the 41 CEOs where base salary was disclosed in 2020, whereas the graph to the right represents the 32 CEOs where base salary was disclosed in all five years.
Development of median total remuneration for Other Executive Directors in 2020 against 2019
CFO30.0 base salaries 2020 (left) / CFO base salary percentiles 2016-2020 (right)
12.0 25.0
10.0 20.0 8.0 5.8 5.8 5.7 5.9 15.0 5.0 DKKm 6.0 5.0 5.2 DKKM 4.8 4.4 4.3 4.0 4.2 3.9 10.04.0 3.7 3.6
2.0 5.0
0.0 2016 2017 2018 2019 2020 33
0.0 One column represents one CFO 25th percentile Median 75th percentile
Median remuneration 2019 Median remuneration 2020
Other Executive Directors’ base salaries 2020 (left) / Other Executive Directors’ base salary percentiles 2016-2020 (right)
14.0
12.0
10.0
8.0 6.7 6.8 6.4 6.3 6.0 DKKM 5.2 5.7 6.0 5.1 4.7 4.9 4.0 3.8 4.0 3.9 4.0 3.3
2.0
0.0 2016 2017 2018 2019 2020
One column represents one Other Executive Director 25th percentile Median 75th percentile Development in share price return against median variable pay as percentage of base salary for CEOs (left) and median variable pay for CEOs (right) – 2016-2020
40% 100% 40% 8.0
30% 90% 30% 6.0
20% 80% 20% 4.0
10% 70% 10% 2.0
0% 60% 0% 0.0 2016 2017 2018 2019 2020 2016 2017 2018 2019 2020
Median annual share price return Median annual share price return Median variable pay as % of base salery (right axis) Median variable pay, DKKm (right axis)
CEODevelopment base salaries of median 2020 (left) total / CEO remuneration base salary for percentiles CEOs in 2020 2016-2020 against (right) 2019
25.0 60.0
20.050.0 Remuneration in Danish Large-Cap Companies 2016-2020 | Base salary
40.0 15.0
10.1 10.3 9.8 DKKM 30.0 9.0 8.9 DKKm 10.0 7.1 7.3 7.2 6.7 7.0 20.0 6.6 6.8 6.1 6.3 5.5 5.0 10.0
0.0 2016 2017 2018 2019 2020 0.0 One column represents one CEO 25th percentile Median 75th percentile
Median remuneration 2019 Median remuneration 2020 In 2020, CFO base salaries ranged between DKK 2.6m salary was DKK 4.4m. Base salaries for CFOs have and DKK 11.3m. The median CFO base salary was DKK increased at all percentiles as compared to 2016. Since 5.2m in 2020, an increase of 3.0% compared to 2019, 2019, the upper and median percentiles increased, andDevelopment up 4.0% p.a. of since median 2016 totalwhen remunerationthe median base for CFOswhile in 2020 the againstlower percentile 2019 fell.
CFO base salaries 2020 (left) / CFO base salary percentiles 2016-2020 (right) 25.0
12.0
20.0 10.0
8.0 15.0 5.8 5.8 5.7 5.9 5.0 6.0 5.2
DKKm 5.0 DKKM 4.8 4.4 4.3 10.0 4.0 4.2 3.9 4.0 3.7 3.6
2.05.0
0.0 2016 2017 2018 2019 2020
0.0 One column represents one CFO 25th percentile Median 75th percentile
Median remuneration 2019 Median remuneration 2020 Source: Deloitte analysis Note: The graph to the left represents the 30 CFOs where base salary was disclosed in 2020, whereas the graph to the right represents the 22 CFOs where base salary was disclosed in all five years.
Development of median total remuneration for Other Executive Directors in 2020 against 2019
30.0
25.0
Other20.0 Executive Directors’ base salaries 2020 (left) / Other Executive Directors’ base salary percentiles 2016-2020 (right)
14.0 15.0 DKKm 12.0
10.0 10.0
8.05.0 6.7 6.8 6.4 6.3 6.0 DKKM 5.2 5.7 6.0 4.9 5.1 0.0 4.7 4.0 3.8 4.0 3.9 4.0 3.3 Median remuneration 2019 Median remuneration 2020
2.0 34
0.0 2016 2017 2018 2019 2020
One column represents one Other Executive Director 25th percentile Median 75th percentile CEO base salaries 2020 (left) / CEO base salary percentiles 2016-2020 (right)
25.0
20.0
15.0
10.1 10.3 9.8 DKKM 9.0 8.9 10.0 7.1 7.3 7.2 6.7 7.0 6.6 6.8 6.1 6.3 5.5 5.0 Development in share price return against median variable pay as percentage of base salary for CEOs (left) and median variable pay for CEOs (right) – 2016-2020
0.0 2016 2017 2018 2019 2020 40% 100% 40% 8.0 One column represents one CEO 25th percentile Median 75th percentile 30% 90% 30% 6.0
20% 80% 20% 4.0
10% 70% 10% 2.0
0% 60% 0% 0.0 2016 2017 2018 2019 2020 2016 2017 2018 2019 2020
Median annual share price return CFO baseMedian salaries annual share 2020 price (left) return / CFO base salary percentiles 2016-2020 (right) Median variable pay as % of base salery (right axis) Median variable pay, DKKm (right axis)
12.0
Development10.0 of median total remuneration for CEOs in 2020 against 2019
8.0 60.0 5.8 5.8 5.7 5.9 5.0 6.0 5.0 5.2 DKKM 4.8 50.0 4.4 4.3 Remuneration in Danish Large-Cap Companies 2016-2020 | Base salary 4.0 4.2 3.9 4.0 3.7 3.6
40.0 2.0
0.0 2016 2017 2018 2019 2020 30.0
DKKm One column represents one CFO 25th percentile Median 75th percentile
20.0
10.0
0.0
For Other ExecutiveMedian Directors, remuneration the 2019 median baseMedian salary remuneration 2020The increase for Other Executive Directors from 2016 was DKK 5.7m in 2020, an increase on both 2016 and to 2020 was c. 4.6% p.a. and c. 4.9% p.a. from 2019 to 2019 levels. Interestingly, the median salary level was DKK 2020. 0.5m higher than that of CFOs in our analysis this year. Development of median total remuneration for CFOs in 2020 against 2019
Other Executive Directors’ base salaries 2020 (left) / Other Executive Directors’ base salary percentiles 2016-2020 (right)
25.0 14.0
12.0 20.0
10.0
15.0 8.0 6.7 6.8 6.4 6.3 6.0 DKKm DKKM 5.2 5.7 6.0 4.9 5.1 10.0 4.7 4.0 3.8 4.0 3.9 4.0 3.3
5.0 2.0
0.0 2016 2017 2018 2019 2020 0.0 One column represents one Other Executive Director 25th percentile Median 75th percentile
Median remuneration 2019 Median remuneration 2020 Source: Deloitte analysis Note: The graph to the left represents the 53 Other Executive Directors where base salary was disclosed in 2020, whereas the graph to the right represents the 22 Other Executive Directors where base salary was disclosed over the last five years.
Development of median total remuneration for Other Executive Directors in 2020 against 2019
30.0
25.0
20.0
15.0 DKKm
10.0
5.0
0.0
Median remuneration 2019 Median remuneration 2020
35 Development in share price return against median variable pay as percentage of base salary for CEOs (left) and median variable pay for CEOs (right) – 2016-2020
40% 100% 40% 8.0
30% 90% 30% 6.0
20% 80% 20% 4.0
10% 70% 10% 2.0
0% 60% 0% 0.0 2016 2017 2018 2019 2020 2016 2017 2018 2019 2020
Median annual share price return Median annual share price return Median variable pay as % of base salery (right axis) Median variable pay, DKKm (right axis)
Development of median total remuneration for CEOs in 2020 against 2019
60.0
Remuneration in Danish Large-Cap Companies 2016-2020 | Pension 50.0
40.0
30.0 PensionDKKm 20.0
10.0
0.0 In order to benchmark executive pensions, we measure contributions ranging between <1% and 50% of base
pension contributionsMedian remuneration as a percentage 2019 of annualMedian remuneration salary.2020 CEOs continued to receive a higher pension salary. Pension contributions for 2020 are depicted contribution than CFOs, however Other Executive below for all disclosed executive directors. 56 of Directors, on average, now appear to receive a median the 124 executive directors received no direct and contribution at a similar level to CEOs, a change since Development of median total remuneration for CFOs in 2020 against 2019 separate pension contribution in 2020. Among those our last report. who did, there was a large dispersion, with pension
25.0 Pension contribution as a percentage of base salary in 2020
20.0 50% CEOs, median: 16.1%
40% CFOs, median: 13.3% Other Executive Directors, median: 16.8% 15.0 30% DKKM DKKm 20% 10.0
10%
0%5.0
One colums represents one executive director 0.0
Source: Deloitte analysis Note: All individualMedian executive remuneration directors 2019 with disclosedMedian pension remuneration and base 2020 salary have been included in the chart split into three categories: CEO (18 observations), BonusCFO (15 observations)payout as aand percentage Other Executive of Directorsbase salary (35 observations). in 2020 Data from 22 companies have been included in the 2020 analysis.
120% CEOs, median: 50.0% Development of median total remuneration for Other Executive Directors in 2020 againstCFOs, 2019 median: 48.4% 100% Other Executive Directors, median: 51.1%
30.080% The median pension contribution for CEOs, CFOs and 60%
OtherDKKM 25.0 Executive Directors in 2020 was 16.1%, 13.3% and 16.8%,40% respectively.
20.0 20%
0% 15.0 DKKm One colums represents one executive director
10.0
5.0
0.0
Median remuneration 2019 36 Median remuneration 2020 Development in share price return against median variable pay as percentage of base salary for CEOs (left) and median variable pay for CEOs (right) – 2016-2020
40% 100% 40% 8.0
30% 90% 30% 6.0
20% 80% 20% 4.0
10% 70% 10% 2.0
0% 60% 0% 0.0 2016 2017 2018 2019 2020 2016 2017 2018 2019 2020
Median annual share price return Median annual share price return Median variable pay as % of base salery (right axis) Median variable pay, DKKm (right axis)
Development of median total remuneration for CEOs in 2020 against 2019
60.0 Remuneration in Danish Large-Cap Companies 2016-2020 | Pension
50.0
Total for all executive directors – development in bonus payout as a percentage of base salary (left) and DKKm (right) 40.0
Pension contribution as a percentage of base salary in 2020 72% 15.4 30.0 64% 66% 63% 61% 12.7 BonusDKKm 12.1 11.5 11.6 50% CEOs, median: 16.1% 9.2 50% 45% 44% 8.1 7.6 20.040% 43% 42% CFOs, median: 13.3% 6.2 39% 6.1 Other Executive Directors, median: 16.8% 30% 4.7 4.9 30% 25% 26% 4.7 4.3 4.0 10.0 19%
DKKM 20% Below we present the actual pay-out of short-term We observe that Other Executive Directors received bonus0.0 as a percentage of annual salaries for individual the largest median bonus payments in 2020 (51.1% 10% 2016 2017 2018 2019 2020 2016 2017 2018 2019 2020 executive directors, where information was disclosed. of base salary), while CEOs received a median bonus Median remuneration 2019 25th percentileMedian remunerationMedian 2020 75th percentile 25th percentile Median 75th percentile 39 of 124 executive directors received no bonus in payment of 50.0% and CFOs were at 48.4%. 0% 2020. As can be seen from the figure below, pay-out varied considerably and was observed between underOne colums represents one executive director 4%Development and up to over of 117%median of base total salary. remuneration for CFOs in 2020 against 2019
Bonus payout as a percentage of base salary in 2020 25.0 CEOs – development in bonus payout as a percentage of base salary (left) and DKKm (right)
120% CEOs, median: 50.0% 6.5 6.2 20.0 85% 83% CFOs, median: 48.4% 100% 74% 69% 73% Other 5.2Executive Directors,5.2 median: 51.1% 5.3
80% 59% 58% 3.9 15.0 50% 50% 3.6 3.5 43% 3.4 60% 35% 35% 2.9 29% DKKm DKKM 2.3 2.5 2.3 18% 19% 10.040% 1.5 1.6
20% 5.0 2016 2017 2018 2019 2020 2016 2017 2018 2019 2020 0% 25th percentile Median 75th percentile 25th percentile Median 75th percentile
0.0 One colums represents one executive director
Source: Deloitte analysis Median remuneration 2019 Median remuneration 2020 Note: All individual executive directors with disclosed short-term bonus and base salary have been included in the CEO (27 observations), CFO (24 observations) and Other Executive Directors (34 observations) categories. Companies that did not disclose individual executive remuneration splits have been excluded. Data from 28 companies have been included in 2020.
CFOs – development in bonus payout as a percentage of base salary (left) and DKKm (right) Total for all executive directors – development in bonus payout as a percentage of base salary (left) and DKKm (right) Development of median total remuneration for Other Executive Directors in 2020 against 2019
78% 3.9 74% 15.4 30.0 67%72% 66% 3.2 3.2 63% 64% 60% 12.7 61% 58% 57% 2.9 12.12.8 11.5 11.6 9.2 2.2 46% 50% 47% 45% 2.1 2.1 25.0 45% 44% 1.88.1 7.6 43% 40%42% 6.2 1.6 33% 34% 6.1 39% 1.4 1.3 1.3 28% 30% 30% 1.1 4.9 25% 21% 26% 4.7 4.7 0.74.3 4.0 20.0 19%
2016 2017 2018 2019 2020 2016 2017 2018 2019 2020 15.0 DKKm 2016 2017 2018 2019 2020 2016 2017 2018 2019 2020 25th percentile Median 75th percentile 25th percentile Median 75th percentile 25th percentile Median 75th percentile 25th percentile Median 75th percentile 10.0
Source: Deloitte analysis Note: The charts above are calculated based on 37 companies’ data. 5.0
0.0 37 CEOs – development in bonus payout as a percentage of base salary (left) and DKKm (right) Median remunerationMaximum 2019 bonusMedian allocation remuneration as 2020 a percentage of base salary
6.5 140% 6.2 85% 83% 74% 69% 73% 5.2 5.2 5.3 120% 59% 58% 3.9 50% 50% 3.6 3.5 43% 3.4 2.9 35% 100% 35% CEO, average: 74% 29% 2.3 2.5 2.3 18% 19% Other executive directors, average: 70% 1.5 1.6 80%
2016 2017 2018 2019 2020 2016 2017 2018 2019 2020 60% 25th percentile Median 75th percentile 25th percentile Median 75th percentile
40%
20%
CFOs – development in bonus payout as a percentage of base salary (left) and DKKm (right) 0%
78% 3.9 74% 67% 3.2 3.2 60% 58% 57% 2.9 2.8 2.2 46% 47% 45% 2.1 2.1 1.8 40% 1.6 33% 34% 1.4 30% 1.3 1.3 28% 1.1 21% 0.7
2016 2017 2018 2019 2020 2016 2017 2018 2019 2020
25th percentile Median 75th percentile 25th percentile Median 75th percentile
Maximum bonus allocation as a percentage of base salary
140%
120%
100% CEO, average: 74% Other executive directors, average: 70%
80%
60%
40%
20%
0% Remuneration in Danish Large-Cap Companies 2016-2020 | Bonus
Total for all executive directors – development in bonus payout as a percentage of base salary (left) and DKKm (right)
Total for all executive directors – development in bonus payout as a percentage of base salary (left) and DKKm (right) 72% 15.4 66% 63% 64% 12.7 61% 12.1 11.5 11.6 72% 15.49.2 66%50% 63% 45% 44% 64% 12.78.1 7.6 43% 61% 42% 11.66.2 12.1 39% 11.56.1 9.2 30% 50% 4.9 45%25% 44% 26% 4.7 4.7 8.14.3 7.64.0 43% 42% 6.2 19% 39% 6.1 30% 4.9 25% 26% 4.7 4.7 4.3 4.0 19% 2016 2017 2018 2019 2020 2016 2017 2018 2019 2020
Median bonus25th payouts percentile as a percentageMedian of base75th salary percentile the 75th percentile. In nominal25th percentile amounts, theMedian median 75th percentile for all2016 executive directors2017 increased2018 by 8%-points2019 in 2020bonus payout increased2016 from DKK2017 7.6m to DKK2018 9.2m 2019 2020 2020 to 50% of base salary (42% in 2019). In the same for all executive directors from 2019 to 2020. Since 25th percentile Median 75th percentile 25th percentile Median 75th percentile period, there was a similar increase in bonus payouts 2016, the median bonus payout in nominal amounts as a percentage of base salary at the 25th percentile, has increased by DKK 3.1m. while there was a more modest 2%-point increase at
CEOs – development in bonus payout as a percentage of base salary (left) and DKKm (right)
CEOs – development in bonus payout as a percentage of base salary (left) and DKKm (right) 6.5 6.2 85% 83% 74% 69% 73% 5.2 5.2 5.3 6.5 6.2 85% 83% 59% 58% 3.9 50%74% 73% 50% 3.6 3.5 69% 43% 5.23.4 5.2 5.3 35% 35% 2.9 59% 58% 3.9 29% 2.3 2.5 50% 50% 3.6 3.5 2.3 18% 43%19% 3.4 1.5 1.6 35% 35% 2.9 29% 2.3 2.5 2.3 18% 19% 1.5 1.6 2016 2017 2018 2019 2020 2016 2017 2018 2019 2020
25th percentile Median 75th percentile 25th percentile Median 75th percentile 2016 2017 2018 2019 2020 2016 2017 2018 2019 2020
Source: Deloitte25th analysis percentile Median 75th percentile 25th percentile Median 75th percentile Note: Companies that did not disclose their CEO remuneration breakdown have been excluded. Only observations disclosed for each of the last five years have been included, leaving 32 companies.
CFOs – development in bonus payout as a percentage of base salary (left) and DKKm (right)
CFOs – development in bonus payout as a percentage of base salary (left) and DKKm (right) 78% 3.9 74% 67% 3.2 3.2 60% 2.9 2.8 58% 78%57% 3.9 74% 47% 2.2 67% 46% 45% 2.1 2.1 3.2 3.2 60% 1.8 58%40% 57% 2.9 2.8 1.6 33% 34% 1.4 30% 1.3 2.21.3 46% 47%28% 45% 2.11.1 2.1 21% 1.80.7 40% 1.6 33% 34% 1.4 30% 1.3 1.3 28% 1.1 21% 0.7 2016 2017 2018 2019 2020 2016 2017 2018 2019 2020
25th percentile Median 75th percentile 25th percentile Median 75th percentile 2016 2017 2018 2019 2020 2016 2017 2018 2019 2020
25th percentile Median 75th percentile 25th percentile Median 75th percentile Source: Deloitte analysis Note: Companies that did not disclose their CFO remuneration breakdown have been excluded. Only observations disclosed for each of the last five years have been included, leaving 22 companies.
Maximum bonus allocation as a percentage of base salary 38
140%Maximum bonus allocation as a percentage of base salary
140% 120%
120% 100% CEO, average: 74% Other executive directors, average: 70%
100% CEO, average: 74% 80% Other executive directors, average: 70%
80% 60%
60% 40%
40% 20%
20% 0%
0% Total for all executive directors – development in bonus payout as a percentage of base salary (left) and DKKm (right)
72% 15.4 66% 63% 64% 12.7 61% 12.1 11.5 11.6 9.2 50% 45% 44% 8.1 7.6 43% 42% 6.2 39% 6.1 30% 4.9 25% 26% 4.7 4.7 4.3 4.0 19%
2016 2017 2018 2019 2020 2016 2017 2018 2019 2020
25th percentile Median 75th percentile 25th percentile Median 75th percentile
CEOs – development in bonus payout as a percentage of base salary (left) and DKKm (right)
6.5 6.2 85% 83% 74% 69% 73% 5.2 5.2 5.3
59% 58% 3.9 50% 50% 3.6 3.5 43% 3.4 Remuneration in Danish Large-Cap Companies 2016-2020 | Bonus 35% 35% 2.9 29% 2.3 2.5 2.3 18% 19% 1.5 1.6
2016 2017 2018 2019 2020 2016 2017 2018 2019 2020
25th percentile Median 75th percentile 25th percentile Median 75th percentile
CFOs – development in bonus payout as a percentage of base salary (left) and DKKm (right) Median bonus payouts as a percentage of base salary base salary, which in some cases can be significantly for CEOs increased by 7%-points in 2020 to 50% of higher than what executives have actually been base salary (43% in 2019), while it decreased 2%-points paid in recent years. In the chart below, we show 78% 3.9 for CFOs from 47% in 2019 to 45% in 2020. In74% nominal the maximum permissible bonus payment as a 67% 3.2 3.2 amounts, the median bonus payout for CEOs in 2020 60%percentage of base salary for all companies where 58% 57% 2.9 2.8 was DKK 3.9m, a significant increase compared to 2019 these limits were disclosed in 2020. As can be seen, 2.2 46% 47% 45% 2.1 2.1 1.8 where the median40% was DKK 1.0m lower. CFOs also saw the maximum bonus allocations vary considerably 1.6 33% 34% 1.4 an increase in nominal payouts, from DKK 1.6m in 2019 30%across the companies shown, ranging from 28.5% 1.3 1.3 28% 1.1 to DKK21% 2.2m in 2020. Taking a longer timeframe, since and up to 120%. In0.7 almost all cases, the cap of CEOs 2016 median bonus payouts in nominal amounts for and Other Executive Directors is set at the same CEOs and CFOs has increased by DKK 0.5m and DKK level. The average cap was 74% for CEOs and 70% for 0.4m2016 respectively,2017 suggesting median2018 payouts2019 in 2019 2020Other Executive Directors.2016 This2017 is decrease 2018compared 2019 2020
were lower 25ththan percentile an average overMedian time. 75th percentile our analysis in last year’s25th report percentile of 81% for MedianCEOs and 75th percentile 82% for Other Executive Directors in 2019. We can Maximum bonus allocation as a percentage of conclude that the introduction of new remuneration base salary policies compliant with the SRDII for listed companies Through their remuneration policies, companies set a in Denmark in 2020 has lowered the average cap on cap on the size of bonus issuance as a percentage of maximum bonus allocations.
Maximum bonus allocation as a percentage of base salary
140%
120%
100% CEO, average: 74% Other executive directors, average: 70%
80%
60%
40%
20%
0%
Source: Deloitte analysis Note: This analysis include 33 observations for maximum bonus allocations disclosed in 2020.
39 Remuneration in Danish Large-Cap Companies 2016-2020 | Bonus
Bonus and LTI substitution and vice versa. Below we have compared STI and To establish whether there is a systematic link LTI as a percentage of total fixed remuneration in a between variable and fixed elements of compensation scatterplot. packages, we have looked at whether a substitution effect existed between short-term and long-term As apparent from the graph, there is no clear incentive elements. That is, we have investigated tendency of LTI and STI substitution, however this whether executive directors who receive a small year’s 2020 observations indicate a tendency of portion of their total compensation as a bonus tend correlation between STI and LTI, e.g. the higher STI, to receive a larger part of their remuneration as LTI the higher LTI as well, except for one outlier.
Bonus and LTI as a percentage of fixed remuneration (all executive directors)
160%
140%
120%
100%
80% LTI
60%
40%
20%
0%
0% 20% 40% 60% 80% 100%
Bonus Source: Deloitte analysis Note: Companies that did not display STI and LTI remuneration in 2020 have been excluded, leaving 34 companies.
LTI programme types
8% 5% 22%
25%
38%
40 PSU Options Warrants RSU Matching shares
Vesting criteria
Other financial KPIs 31% EBITDA/EBIT 19% Other non-financial KPIs 17% TSR/share price 10% EPS 5% Revenue 14% Cash flow 6% Individual 12% Customer service KPIs 2% Undisclosed 17%
Absolute / relative Individual or company-wide
Absolute 40% ACompany performance 47%
Relative 10% Individual 7%
Both 13% Both 29%
Undisclosed 37% Undisclosed 17%
Total 100% Total 100%
Valuation methodology
Black-Scholes 28%
Monte Carlo 1%
Share price 17%
Undisclosed 29%
N/A 25%
Total 100% Remuneration in Danish Large-Cap Companies 2016-2020 | Bonus
“In order for Deloitte to perform executive remuneration benchmarking, we work closely with the Board and Executive Management in order to develop a common and consistent view on the peer-group of comparable companies – this is a critical first step to agree on.”
Tinus Bang Christensen Valuation Services Leader, Financial Advisory in Deloitte Denmark
41 Bonus and LTI as a percentage of fixed remuneration (all executive directors)
160%
140%
120%
100%
Remuneration in Danish Large-Cap Companies 2016-2020 | Long-term incentives80% (LTIs) LTI
60%
40%
20%
0%
Long-term incentives0% (LTIs)20% 40% 60% 80% 100%
Bonus
We reviewed a sample of 36 companies that had 73 LTI programme types separate, active LTI programmes in 2020. A limited number of LTI programmes are essentially two different 1% programmes merged as one, for example some LTI 8% 5% programmes consist of both share options and RSUs. 22% To improve the comparability of LTI programmes, we have treated these programmes as two separate programmes throughout this analysis. When looking at the structure of the different LTI programmes, we 25% have included only programmes that are still active, as the objective of this analysis is to describe the LTI schemes currently being applied by companies. In the chart below, we have classified the individual company 38% programmes into six categories as presented in the introduction, namely “Matching shares”, “Performance Share Units (PSUs)”, “Restricted Stock Units (RSUs)”, “Options”, “Warrants” and “Phantom Shares”. As seen PSU Options Warrants from the table, the RSU structure is the most commonly RSU Matching shares Phantom Shares used structure (38%), followed by Options (25%) and then PSUs (22%). The use of options has fallen by 7%-points in (32% in our 2019 report), and the use of Source: Deloitte analysis RSUs increased by 4%-points in the same period (34% Note: There were 36 companies with 73 separate, in our 2019 report). active LTI programmes in 2020.
Vesting criteria “There were 36 companies with 73 separate, active LTI programmes in
2020. The RSU structure is the most commonlyOther financial used KPIs structure (38%), 31% followed by Options (25%) and then PSUs (22%).”EBITDA/EBIT 19% Other non-financial KPIs 17% TSR/share price 10% EPS 5% Vesting criteria for LTI programmes as of 2020 As illustrated below, there is a large variation in Revenue 14% In order to give management incentive to make the vesting criteria between programmes, and no 6% the right decisions in alignment with the business clear consensusCash exists. flow As vesting criteria are often strategy, variable pay is normally conditional on customised forIndividual specific companies and strategies 12% certain vesting criteria which measure executive and,Customer in some service cases, KPIs for individual2% participants, performance. If the vesting criteria are not met, diversity of vestingUndisclosed criteria is to be expected. 17% all or part of the variable pay may lapse. Of the 73 active LTI programmes in 2020, 32 applied no In terms of disclosure, for 17% of the LTI program- vesting criteria, were undisclosed or were unknown. mes it was not clearly disclosed what vesting criteria Of those that did, we see large differences in the applied, while for 10% of the programmes, it was types of vesting criteria applied in the different LTI not clearly disclosed whether vesting criteria, or programmes and in the level of detail disclosed there were no vesting criteria applied at all. This is about them. clearlyAbsolute an area/ relative of disclosure where Danish Large-Cap Individual or company-wide companies can still improve on going forward. Absolute 40% ACompany performance 47%
Relative 10% Individual 7%
Both 13% Both 29%
Undisclosed 37% Undisclosed 17% 42 Total 100% Total 100%
Valuation methodology
Black-Scholes 28%
Monte Carlo 1%
Share price 17%
Undisclosed 29%
N/A 25%
Total 100% Bonus and LTI as a percentage of fixed remuneration (all executive directors) Bonus and LTI as a percentage of fixed remuneration (all executive directors)
160% 160% 140% 140%
120% 120%
100% 100%
80% 80% LTI LTI 60% 60%
40%40%
20%20%
0%0%
0%0% 20%20% 40%40% 60%60% 80%80% 100%100%
BonusBonus
LTILTI programme programme types types
1%1% 8%8% 5%5% 22%22%
25%25%
Remuneration in Danish Large-Cap Companies 2016-2020 | Long-term incentives (LTIs)
38%38%
PSU Options PSU Options WarrantsWarrants RSU Matching shares Phantom Shares RSU Matching shares Phantom Shares
Vesting criteria Vesting criteria
Other financial KPIs 31% Other financial KPIs 31% EBITDA/EBIT 19% EBITDA/EBIT 19% Other non-financial KPIs 17% Other non-financial KPIs 17% TSR/share price 10% TSR/share price 10% EPS 5% EPS 5% Revenue 14% Revenue 14% Cash flow 6% Cash flow 6% Individual 12% Individual 12% Customer service KPIs 2% Customer service KPIs 2% Undisclosed 17% Undisclosed 17% Source: Deloitte analysis Note: “Undisclosed” indicates an LTI programme that has vesting criteria which were undisclosed. Note: “Other financial KPIs” includes both unspecified financial KPIs and financial KPIs other than those shown in the table. Similarly, “Other non-financial KPIs” includes both unspecified non-financial KPIs and non-financial KPIs other than those shown in the table. Note: Figures do not sum to 100%, as an LTI programme can have more than one vesting criterion.
Absolute / relative Individual or company-wide LookingAbsolute at how/ relative the vesting criteria are evaluated, it criteriaIndividual are performance or company-wide measures solely or mainly at Absoluteis apparent that only a limited number of companies40% ACompanyan individual performance level, while company-wide-vesting criteria47% discloseAbsolute whether they measure their criteria on an40% areACompany performance performance measures at an organisational level.47% Relative 10% Individual 7% absolute or a relative basis: Relative 10% Individual 7% Both 13% BothRegarding company disclosure of measurement on29% an Both 13% Both 29% Undisclosed• Relative basis: Those measures that are evaluated37% Undisclosedindividual or company-wide basis, for 18% of programmes17% Undisclosedrelative to other companies, industry groups or stock37% thisUndisclosed information was not disclosed. Among the companies17% Totalindices. 100% Totalthat did disclose their valuation basis, there is a tendency100% Total 100% ofTotal evaluation being on a company-wide basis. 100% • Absolute basis: Those measures that are solely related to the issuing firm. For example, this could be The percentages above are the percentage of total Valuation methodology a static threshold or Total Shareholder Return (TSR) schemes. Therefore, it is not fair to say this is repre- Valuation methodology Black-Scholeshigher than the most recent three-year period.28% sentative for the typical company as some companies Black-Scholes 28% have several and some have no schemes. However, in Monte Carlo 1% We also look at whether vesting criteria are measured general we note that LTI programmes are mostly linked ShareonMonte a price personal Carlo or company-wide basis. Personal 17%vesting1% to company performance (rather than individual metrics). >>
UndisclosedShare price 29%17%
N/AHowUndisclosed companies measure vesting criteria 25%29%
TotalN/A 100%25% Absolute / relative Individual or company-wide Total 100% Absolute 36% Company performance 60% Both 15% Individual 8%
Relative 14% Both 14%
Undisclosed 36% Undisclosed 18%
Total 100% Total 100%
Source: Deloitte analysis
43 Danish remuneration voting issues 2021 (as of end of May 2020)
Poor disclosure Discretionary elements Lack of performance conditions Remuneration in Danish Large-Cap Companies 2016-2020 | Long-term incentives (LTIs) Quantum Performance period Other
0% 5% 10% 15% 20% 25% 30% 35% % Resolutions Contentious support Against
Valuation of LTI programmes is the Black-Scholes framework. LTI is measured in the consolidated financial This framework is applied for the valuation of 40% of all statements according to the principles set out by LTI programmes. Perhaps most notably, 33% of all LTI IFRS 2 as ‘expensed pay’. Typically, the fair value is programmes do not have a clearly disclosed valuation determined on the allocation or the award date, i.e. method. 26% of all LTI programmes are valued by grant date expensed linearly over the vesting period. using the company’s share price. The final 1% of the In the remuneration reports, 80% of the 40 Large- programmes are valued by applying a Monte Carlo Cap companies report ‘granted pay’ using the IFRS 2 valuation method. methodology for the full current value granted in the current year, and an additional number of companies We see a tendency for programmes becoming more also reporting ‘granted pay’ as supplementary complex and as such often require simulation-based information. See our explanation of the various approaches to valuing their programmes. Indeed, we definitions of reporting practices below. often see that a combined Black-Scholes and Monte Carlo approach is often used in LTI programme valuation. Most LTI schemes either offer options or include As such we expect that the number of programmes embedded options, which means that the value cannot using at least an element of Monte Carlo simulation is directly be measured but must be estimated valuation higher than shown in the table below. Furthermore, Considerations for the remuneration committee in relation to COVID-19 model. Below we have shown an overview of the we expect that a large proportion of the programmes valuationRemuneration methodologies committees disclosed are considering by companies. senior executive We rewardswith in theundisclosed context of fairness,methodology keeping would in mind use employees, either Black- goverment support, and the shareholder experience. observe that the most common framework for valuation Scholes or Monte Carlo. Detailed considerations include, but are not limited to: Our recommended reporting practice – and now also the Salary freezes/cuts Valuation• methodology • Earned bonuses predominant reporting practice in Denmark - to ensure comparability and transparency with regards to LTI is Black-Scholes• Deferred share awards 40% • Vesting of long-term incentive programmes for companies to each year report ‘granted pay’ (link to Monte• Policy Carlo changes or reductions 1% governance and remuneration policy) in ‘the single-figure • Assessing performance table’, with additional disclosures about ‘expensed Share• Deferral/waiver Price of awards 26% • Determining the number of shares at grant pay’ (link to cost of the company from the financial Undisclosed• Target setting 33% statements) as well as ‘vested pay’ (link to performance, • Use of discretion outcomes for executives and total shareholder return Total 100% • Annual general meeting approvals during the vesting period and/or at vesting).
Source: Deloitte analysis
Reporting practices
Five valuation methods (or timings) of fair value exist in terms of reporting practices:
1. ‘Granted pay’ – current full fair value under IFRS 2 methodology for all years in the vesting period (i.e. for all three years)
2. ‘Expensed pay’ – IFRS 2 accounting fair value of current and previous years expense, and can also be a reversal of an expense
3. ‘Vested pay’ during the vesting period – new updated fair value calculation during the vesting period, and can also be a reversal of an expense
4. ‘Realised pay’ (or final vested amount) – new final fair value calculated only at the vesting date, i.e. after completion of the vesting period (also sometimes referred to as ‘vested pay’ together ‘vested pay during the vesting period’)
5. ‘Exercised pay’ – final paid-out amount (e.g. for options) (also sometimes called ‘realised pay’)
1 Black, F. and M. Scholes, 1973, The Pricing of Options and Corporate Liabilities”, Journal of Political Economy, Vol 81, pages 637-654.
44 Remuneration in Danish Large-Cap Companies 2016-2020 | Long-term incentives (LTIs)
Vesting period and duration The average vesting period of LTI programmes, and The vesting period is the period when performance is indeed by far the most common, is three years. For evaluated to determine the size of LTI payments. The programme duration, the average time is 4.3 years, duration of the LTI programme is the time until the although there is more variation compared to the LTI programme expires at which point the remaining vesting period. We expect that this variation reflects outstanding LTI units or shares would typically lapse. that LTI in general is linked to firm-specific strategies which may have different time horizons. >>
Vesting and duration of LTI programmes
60%
55% Vesting period, average: 3.1 years Programme expiry, average: 4.3 years 50%
45%
40%
35%
30%
25%
20% Number of programmes
15%
10%
5%
0% 1 2 3 4 5 6 7 8 9 10 11 Upto number of years
Source: Deloitte analysis Note: This analysis includes 73 observations for active and non-active LTI programmes disclosed in 2020.
Treasury shares and LTI units as a percentage of outstanding shares
12% Treasury shares average: 1.7% LTI outstanding average: 1.5% 10%
8%
6%
45
4%
2%
0%
Yearly LTI issuance as a percentage of outstanding shares
0.59%
0.50% 0.46% 0.45% 0.42%
0.23% 0.18% 0.17% 0.15% 0.13%
0.07% 0.07% 0.07% 0.06% 0.05%
2016 2017 2018 2019 2020
25th percentile Median 75th percentile Remuneration in Danish Large-Cap Companies 2016-2020 | Long-term incentives (LTIs)
Vesting and duration of LTI programmes
60%
55% Vesting period, average: 3.1 years Programme expiry, average: 4.3 years 50%
45%
40%
35%
LTI 30%programme size and issuance We therefore compare the number of each company’s Companies that use LTI programmes as part of own treasury shares with the aggregated size of the 25% their remuneration package assume a potential company’s LTI programmes – both measured as a 20% liabilityNumber of programmes which is typically linked to the development percentage of outstanding shares. As illustrated in the of the15% company’s share price. One way of hedging figure below, the size of different LTI programmes is this liability is through the purchase of own shares diverse, which is also the case for the number of shares 10% held in treasury until the options or warrants are that companies hold in treasury. However, the majority exercised.5% Shares may also be held in treasury for of companies hold more treasury shares (1.7% average other0% reasons, but comparing the number of treasury in 2020) than outstanding LTI share equivalents (1.5% shares to outstanding1 LTI share2 equivalents3 gives some4 average5 in 2020).6 However,7 compared8 to our analysis9 10 11 indication as to whether the companies are able to and in lastUpto year’s number report of years this ‘gap’ has been narrowed do hedge their exposure using treasury shares. significantly from 2.2% in treasury shares average for 2019 and 0.8% LTI outstanding average in 2019. More companies hold significant unhedged positions in 2020 compared to 2019.
Treasury shares and LTI units as a percentage of outstanding shares
12% Treasury shares average: 1.7% LTI outstanding average: 1.5% 10%
8%
6%
4%
2%
0%
Source: Deloitte analysis Note: When outstanding shares are undisclosed, total shares are used as a proxy. Note: All companies that disclose the number of outstanding LTI units for at least one LTI programme have been included, leaving 31 companies.
Yearly LTI issuance as a percentage of outstanding shares
0.59%
0.50% 0.46% 0.45% 0.42%
0.23% 46 0.18% 0.17% 0.15% 0.13%
0.07% 0.07% 0.07% 0.06% 0.05%
2016 2017 2018 2019 2020
25th percentile Median 75th percentile Vesting and duration of LTI programmes
60%
55% Vesting period, average: 3.1 years Programme expiry, average: 4.3 years 50%
45%
40%
35%
30%
25%
20% Number of programmes
15%
10%
5%
0% 1 2 3 4 5 6 7 8 9 10 11 Upto number of years
Remuneration in Danish Large-Cap Companies 2016-2020 | Long-term incentives (LTIs)
Treasury shares and LTI units as a percentage of outstanding shares
12% Treasury shares average: 1.7% LTI outstanding average: 1.5% 10%
8%
6%
In the4% graph below, the size of yearly LTI issuance of same period. With a five-year average duration, yearly shares or share equivalents during the last five years issuance of between 0.17% (median) and 0.59% (75th can be seen (from 2016 to 2020). Total yearly issuance percentile) of the share capital implies that the total 2% of LTI also includes other key employees and not only size of programmes could comprise between c. 0.9% executive management. As seen in the figure below, and 3.0% of the total share capital, all other things the median LTI issuance level increased from 0.13% to being equal. Compared to the current average size of 0% 0.17% between 2016 and 2020. The upper percentile LTI programmes (c. 1.5%), this indicates that the sizes has increased from 0.42% to 0.59%, while the lower of LTI programmes could increase in the near future, percentile has remained relatively stable over the unless there is a correction at the 75th percentile level. >>
Yearly LTI issuance as a percentage of outstanding shares
0.59%
0.50% 0.46% 0.45% 0.42%
0.23% 0.18% 0.17% 0.15% 0.13%
0.07% 0.07% 0.07% 0.06% 0.05%
2016 2017 2018 2019 2020
25th percentile Median 75th percentile
Source: Deloitte analysis Note: Only active programmes have been included. Note: Only programmes with disclosed LTI issuance amount in all five years have been included in the graph, leaving 27 programmes.
47 Remuneration in Danish Large-Cap Companies 2016-2020 | Long-term incentives (LTIs)
As an alternative measure of the size of LTI programmes, the median executive director received 39% in LTI as a we also measured the yearly LTI allocations granted to proportion of base salary in 2020, which is an increase executive directors as a percentage of the respective from both 2016 and 2019 when the same figure was 35% executive director’s base salary. Our analysis shows that and 38%, respectively, however reaching a stable level.
Total for all executive directors – development in yearly LTI allocations as a percentage of base salary (left) and DKKm (right)
86% 76% 13.3 12.2 14.7 66% 11.6 59% 57% 11.9 9.1 46% 7.7 7.9 43% 39% 7.4 35% 38% 6.2
5.6 5.1 5.5 28% 28% 4.9 20% 20% 23% 3.5 Total for all executive directors – development in yearly LTI allocations as a percentage of base salary (left) and DKKm (right) 2016 2017 2018 2019 2020 2016 2017 2018 2019 2020
25th percentile Median 75th percentile 25th percentile Median 75th percentile 86% 76% 13.3 12.2 14.7 66% 11.6 59% 57% 11.9 Source: Deloitte analysis Note: Companies that did not disclose an overall executive management remuneration breakdown have been excluded. 9.1 46% 7.7 7.9 43% 39% 7.4 Only observations35% disclosed for the entire period have38% been included, leaving 37 companies.6.2
5.6 5.1 5.5 28% 28% 4.9 CEOs20% – development in yearly20% LTI allocations23% as a percentage of base salary3.5 (left) and DKKm (right) For CEOs in 2020, the median LTI allocation was 60%, a the change in reporting practice for many companies significant increase of 24%-points from 2019. The drivers from ‘expensed pay’ to ‘granted pay’ from 2019 to 2020, 2016 2017 2018 2019 2020 2016 2017 2018 2019 6.52020 for this increase appear to be due90% to an outpacing of LTI 91% where we have not been able to consistently6.1 change 82% 5.7 growth of base25th salary percentile growth andMedian several instances74%75th where percentile comparative figures for25th all ofpercentile the5.1 40 Large-CapMedian companies 75th percentile 69% 4.7 LTI allocations increased significantly compared to last 60% five years back, among other things due to lack of fully 4.9 year. Further, this significant increase is also impacted by comparative data for the group. 4.0 46% 47% 42% 3.3 3.4 3.0 36% 3.1 33% 34% 30% 27% 2.5 2.5 CEOs – development in yearly LTI allocations25% as a percentage of base salary2.0 (left) and DKKm (right)2.0
2016 2017 2018 2019 2020 2016 2017 2018 2019 20206.5 90% 91% 6.1 82% 5.7 25th percentile Median 74%75th percentile 25th percentile5.1 Median 75th percentile 69% 4.7 60% 4.9 4.0 46% 47% 42% 3.3 3.4 3.0 36% 3.1 34% 30% 33% 2.5 2.5 27% 25% 2.0 2.0 CFOs – development in yearly LTI allocations as a percentage of base salary (left) and DKKm (right)
2016 2017 2018 2019 2020 2016 2017 2018 2019 3.42020 87% 89% 25th percentile Median 75th percentile 25th percentile Median2.7 2.775th percentile
66% 2.3 2.0 2.3 Source: Deloitte analysis 56% 1.9 Note:52% Companies that did not disclose their CEO remuneration breakdown51% have been excluded. Only observations disclosed 1.7 45% 1.5 for each of the last five years have been included, leaving39% 32 companies. 1.1 35% 1.4 1.5 33% 1.2 26% 24% 0.9 48 18% 18% 21% 0.8 CFOs – development in yearly LTI allocations as a percentage of base salary (left) and DKKm (right) 2016 2017 2018 2019 2020 2016 2017 2018 2019 2020 3.4 25th percentile Median87% 75th percentile89% 25th percentile Median 75th percentile 2.7 2.7
66% 2.3 2.0 2.3 56% 1.9 52% 51% 1.7 45% 1.5 39% 1.1 35% 1.4 1.5 33% 1.2 26% 24% 0.9 18% 18% 21% 0.8 Maximum allocation as a percentage of base salary 2016 2017 2018 2019 2020 2016 2017 2018 2019 2020 450% 25th percentile Median 75th percentile 25th percentile Median 75th percentile 400% CEO, average: 115% 350% Other executive directors, average: 107% 300%
250%
200% Maximum allocation as a percentage of base salary 150% 450% 100% 400% CEO, average: 115% 50% 350% Other executive directors, average: 107% 0% 300%
250%
200%
Deferral150% 100% Non-financial Financial Total 50% Apply deferral 1 5 6 0% Do not apply deferral 5 1 6
Not clearly disclosed 25 3 28
Total 31 9 40
Deferral
Non-financial Financial Total
Apply deferral 1 5 6
Do not apply deferral 5 1 6
Not clearly disclosed 25 3 28
Total 31 9 40 Total for all executive directors – development in yearly LTI allocations as a percentage of base salary (left) and DKKm (right)
86% 76% 13.3 12.2 14.7 66% 11.6 59% 57% 11.9 9.1 46% 7.7 7.9 43% 39% 7.4 Total35% for all executive directors – development38% in yearly LTI allocations 6.2as a percentage of base salary (left) and DKKm (right)
5.6 5.1 5.5 28% 28% 4.9 20% 20% 23% 3.5 86% 76% 13.3 12.2 14.7 66% 11.6 59% 57% 11.9 2016 2017 2018 2019 2020 2016 2017 2018 2019 2020 9.1 46% 7.7 7.9 43% 39% 7.4 35% 25th percentile Median 38%75th percentile 6.2 25th percentile Median 75th percentile
5.6 5.1 5.5 28% 28% Remuneration in Danish Large-Cap4.9 Companies 2016-2020 | Long-term incentives (LTIs) 20% 20% 23% 3.5
2016 2017 2018 2019 2020 2016 2017 2018 2019 2020 CEOs – development in yearly LTI allocations as a percentage of base salary (left) and DKKm (right) 25th percentile Median 75th percentile 25th percentile Median 75th percentile
6.5 90% 91% 6.1 82% 5.7 74% 5.1 69% 4.7 60% 4.9 CEOs – development in yearly LTI allocations as a percentage of base salary (left) and DKKm (right)4.0 46% 47% 42% 3.3 3.4 3.0 36% 3.1 33% 34% 30% 27% 2.5 2.5 6.5 90% 25% 91% 2.0 6.12.0 82% 5.7 74% 5.1 69% 4.7 CFOs saw a 12%-point increase over the same time 60%The trends during the last five years are different for 4.9 2016 2017 2018 2019 2020 2016 2017 4.02018 2019 2020 46% 47% period.42% The drivers for this increase appear to be the the three groups,3.3 with all executive3.4 directors showing 3.0 36% same as for25th CEOs, percentile including theMedian change in reporting75th percentile relative stability in terms25th of percentilepayouts, while MedianCFOs have 75th percentile 3.1 34% practice30% for many33% companies from ‘expensed pay’ to shown a clear upward trend. 2.5CEO payouts have also 2.5 27% 25% 2.0 2.0 ‘granted pay’. been relatively stables up until 2020, where there was a significant change. 2016 2017 2018 2019 2020 2016 2017 2018 2019 2020
CFOs – development25th percentile in yearlyMedian LTI allocations75th aspercentile a percentage of base salary25th (left) percentile and DKKm Median(right) 75th percentile
3.4 87% 89% 2.7 2.7
66% 2.3 2.0 2.3 56% 1.9 52% 51% 1.7 CFOs – development in yearly45% LTI allocations as a percentage of base salary (left) and1.5 DKKm (right) 39% 1.1 35% 1.4 1.5 33% 1.2 26% 3.4 24% 0.9 87%21% 89% 0.8 18% 18% 2.7 2.7
2016 2017 2018 66%2019 2020 2.32016 2.02017 2018 2019 2.32020 56% 1.9 52% 25th percentile Median 75th percentile51% 25th percentile Median 1.7 75th percentile 45% 1.5 39% 1.1 35% 1.4 1.5 Source: Deloitte analysis 33% 1.2 26% Note: Companies that did not disclose their CFO remuneration24% breakdown have been excluded. 0.9 18% 18% 21% 0.8 Only observations disclosed for each of the last five years have been included, leaving 22 companies.
2016 2017 2018 2019 2020 2016 2017 2018 2019 2020
We observe25th median percentile nominal LTIMedian allocations of75th DKK percentile To put these numbers25th into percentile perspective, weMedian look at the 75th percentile 9.1m,Maximum DKK 4.9m allocation and DKK as 2.3m a percentage in 2020 for of all base executive salary maximum LTI allocation as a percentage of base salary directors,450% CEOs and CFOs, respectively. according to the guidelines of the LTI programmes >>
400% CEO, average: 115% 350% Other executive directors, average: 107% 300% Maximum allocation as a percentage of base salary 450%250%
400%200% CEO, average: 115% 350%150% Other executive directors, average: 107% 300%100%
250%50%
200%0%
150%
100%
50% Deferral 0% Non-financial Financial Total Source: Deloitte analysis Note:Apply This deferral analysis includes 49 observations for LTI programmes disclosed in 2020.1 5 6
Do not apply deferral 5 1 6 49 DeferralNot clearly disclosed 25 3 28
Total Non-financial31 Financial 9 Total40
Apply deferral 1 5 6
Do not apply deferral 5 1 6
Not clearly disclosed 25 3 28
Total 31 9 40 Remuneration in Danish Large-Cap Companies 2016-2020 | Long-term incentives (LTIs)
where disclosed. The maximum permissible allocations regard to the maximum size of yearly bonus and LTI are shown in the figure below, observing a large awards/allocations. Of the 40 Large-Cap companies variation, from company to company, in the maximum in our sample, 65% apply caps on all or some LTI, LTI allocation as a percentage of base salary. The 20% apply no caps or do not disclose caps, and 15% average and median values for CEOs were 115% and do not have LTI programmes. Some companies have 100%, respectively, while the average and median moreover applied a cap to the maximum payout values for Other Executive Directors were 107% and of the LTI at vesting or exercise, a trend that is also 100%, respectively. Maximum permissible allocations increasingly seen in an international context. in 2020 varied from 20% all the way up to 400% for all executive directors. We note no significant changes For financial companies, there are specific in this area compared to our analysis in last year’s regulations and restrictions set out for variable report. pay, including requirements for deferral of payout of variable awards. Our sample here includes Governance nine financial companies, however, as Jyske Bank, For all companies, the remuneration policies are Ringkjøbing Landbobank, Spar Nord Bank and readily accessible on their websites. The remuneration Sydbank do not apply variable remuneration, our policies vary in the level of detail, but in general offer sample below only includes five financial companies, better descriptions of the companies’ overall policies, of which all apply deferral. Interestingly, only one of including incentive structures. These policies include the 31 non-financial companies has adopted deferral details on whether caps have been implemented with of variable pay.
Deferral
Non-financial Financial Total
Apply deferral 1 5 6
Do not apply deferral 5 1 6
Not clearly disclosed 25 3 28
Total 31 9 40
Source: Deloitte analysis
Clawback
Non-financial Financial Total
Apply clawback 22 5 27
Do not apply clawback 3 - 3
Not clearly disclosed 6 4 10
Total 31 9 40
Source: Deloitte analysis
50 Remuneration in Danish Large-Cap Companies 2016-2020 | Long-term incentives (LTIs)
Over two thirds of the companies in the sample, We note that most CEOs and CFOs held the guideline based on information from remuneration policies, shareholding as stipulated in their companies’ have adopted clawback provisions for malus or policies. In some instances, shareholding was below material misstatement. This is an significant increase the guideline amount, however in these cases the compared to 2019 due to the implementation of the policy included an allowance for the shareholding SRDII. We found 13 examples where it was not clearly to be built up over time, or in connection with the disclosed (or not applicable for variable pay). vesting of LTI-shares.
Shareholding guidelines for executive We expect that over the coming years, more management companies will adopt shareholding guidelines for In this section, we look at companies with published executive management as more attention is drawn shareholding guidelines for Executive Management. to the issue of aligning shareholder and management 12 companies - or 30% of the Large-Cap Index - had interests. disclosed and reported against these for 2020 for CEOs. For CFOs, the number of companies publishing guidelines was lower at 10, as two companies had only adopted shareholding guidelines for their CEOs. We were not able to discern whether companies did have guidelines but had chosen not to disclose them. These companies are some of the largest Large-Cap companies in terms of market cap and number of employees with a significant international shareholder interest. This was an increase from the nine companies included in our analysis for 2019 (using the Large-Cap Index constituents as of 2019).
Of these companies, the 2020 average guideline shareholding was 142% for CEOs (147% in 2019) and 88% (107% in 2019) of base salary for CEOs and CFOs, respectively. Looking at actual shareholding of companies disclosing guidelines, CEOs held on average 17.7x their annual base salary in shares, while CFOs held 4.8x. We note that three CEOs (for Genmab, Ørsted and Pandora) have particularly high shareholdings and excluding these results in an average shareholding multiple of 2.0x. Similarly, for the CFOs of Ørsted and Pandora, shareholding was particularly high and excluding these from the average results in an actual shareholding multiple of 1.4x.
51 Remuneration in Danish Large-Cap Companies 2016-2020 | Board remuneration
Board remuneration
Clawback Clawback Non-financial Financial Total
Apply clawback Non-financial22 Financial5 Total27
DoAllApply not 40 clawbackapplyLarge-Cap clawback companies under consideration increase223 in 2020. Over the five-year-5 period from27 32016 to
NotdisclosedDo clearlynot apply disclosed aggregated clawback remuneration of the board in 2020. 2020, the63 average and median4 - remuneration increase103 that boards experienced was c. 2.5% p.a. and 3.4% p.a., ClawbackNot clearly disclosed 6 4 10 TotalLooking at the development in board remuneration, respectively.31 9 40 overall,Total there has been a general increase from year Non-financial31 Financial9 Total40 to year, as the average and median (50th percentile) The median total board pay was DKK 6.3m (2019: DKK Apply clawback 22 5 27 indicates. The upper and lower percentiles also saw an 6.1m). Do not apply clawback 3 - 3
AggregateNot clearly disclosed board remuneration 6 4 10 Aggregate board remuneration Total 31 9 40 7.8 7.9 8.0 7.1 6.9 6.9 6.9 7.9 8.0 6.6 7.8 2016 6.2 6.3 7.1 5.8 6.9 6.9 6.1 6.9 6.6 5.8 20172016 6.2 5.4 6.3 5.8 5.0 5.8 6.1 20182017 4.5 5.4 Aggregate board remuneration4.0 4.2 5.0 3.8 4.0 20192018 4.5 4.2
DKKm 4.0 2020 3.8 4.0 2019
DKKm 2020 7.8 7.9 8.0 6.9 6.9 6.9 7.1 6.6 2016 6.2 6.3 5.8 5.8 6.1 2017 Average 25th percentile 5.4Median 75th percentile 5.0 2018 4.5 Average 25th4.0 percentile4.2 Median 75th percentile Source: Deloitte analysis 3.8 4.0 2019 Note: Only companies that disclosed total board remuneration over the last five years have been included,
DKKm 2020 leaving 38 companies. The remaining two companies were first listed on Nasdaq Copenhagen during the five years.
A similar increase can be seen in the median and This resulted in an average and median annual increase Average 25th percentile Median 75th percentile Remunerationaverage remuneration of chairpersons of chairpersons, which has, more of c. 3.2% p.a. and 2.1% p.a. from 2016 to 2020 for the Remunerationor less, increased of each chairpersons year over the five-year period. chairpersons. 1.9 1.8 2016 1.7 1.7 1.8 1.6 1.9 The median1.5 total pay1.5 for chairpersons1.8 increased20172016 to DKK 1.7 1.7 1.8 1.3 1.4 1.4 1.6 1.4 1.4 1.31.50m (2019: DKK 1.38m) 20182017 1.2 1.5 1.5 1.4 1.4 1.1 1.1 1.4 1.4 1.3 1.0 1.3 20192018 0.9 1.2 0.8 1.1 1.1 DKKm 1.0 20202019 Remuneration of chairpersons0.9 0.8 DKKm 2020
1.9 1.8 2016 1.7 1.7 1.8 1.6 1.5 1.5 2017 1.4Average1.4 25th percentile Median1.4 1.4 75th percentile 1.3 1.3 2018 1.2 Average 25th percentile1.1 1.1 Median 75th percentile 1.0 2019 0.9 0.8 DKKm 2020
Average 25th percentile Median 75th percentile Distribution of chairperson remuneration Source: Deloitte analysis DistributionNote: Only companies of chairperson that disclosed remuneration chairperson remuneration over the last five years have been included, leaving 30 companies. 8.0
8.0 52 7.0
7.0 6.0
Distribution6.0 of chairperson remuneration 5.0 8.0 5.0 4.0 DKKM 7.04.0 DKKM 3.0
6.03.0 2.0
5.02.0 1.0
4.01.0 DKKM 0.0
3.00.0 One column represents one chairperson
One column represents one chairperson 2.0
1.0
Board base pay multiples 0.0 Board base pay multiples Member Chair pay OneDeputy column represents oneAudit chairperson co Audit co Rem co Rem co member pay baseMember pay multipleChair pay chairDeputy pay chairAudit pay co Audit co chairRem pay co memberRem pay co multiple base(DKKm) pay multiple multiplechair pay multiplechair pay member pay multiplechair pay membermultiple pay (DKKm) multiple multiple multiple multiple multiple Highest 1.0 7.3x 3.0x 4.0x 3.5x 2.2x 3.5x
MedianHighest 0.41.0 3.0x7.3x 2.0x3.0x 1.7x4.0x 1.4x3.5x 1.5x2.2x 1.3x3.5x Board base pay multiples LowestMedian 0.20.4 1.9x3.0x 1.3x2.0x 1.3x1.7x 1.1x1.4x 1.0x1.5x 1.1x1.3x Member Chair pay Deputy Audit co Audit co Rem co Rem co Lowest 0.2 1.9x 1.3x 1.3x 1.1x 1.0x 1.1x Average base pay0.4 multiple3.1x chair1.9x pay chair1.8x pay member1.5x pay chair1.5x pay member1.4x pay Average (DKKm)0.4 3.1x multiple1.9x multiple1.8x multiple1.5x multiple1.5x multiple1.4x
Highest 1.0 7.3x 3.0x 4.0x 3.5x 2.2x 3.5x
Median 0.4 3.0x 2.0x 1.7x 1.4x 1.5x 1.3x
Lowest 0.2 1.9x 1.3x 1.3x 1.1x 1.0x 1.1x
Average 0.4 3.1x 1.9x 1.8x 1.5x 1.5x 1.4x Clawback
Non-financial Financial Total
Apply clawback 22 5 27
Do not apply clawback 3 - 3
Not clearly disclosed 6 4 10
Total 31 9 40
Aggregate board remuneration
7.8 7.9 8.0 6.9 6.9 6.9 7.1 6.6 2016 6.2 6.3 5.8 5.8 6.1 2017 5.4 5.0 2018 4.5 4.0 4.2 3.8 4.0 2019
DKKm 2020
Average 25th percentile Median 75th percentile
Remuneration of chairpersons
Remuneration in Danish Large-Cap Companies 2016-2020 | Board remuneration 1.9 1.8 2016 1.7 1.7 1.8 1.6 1.5 1.5 2017 1.4 1.4 1.4 1.4 1.3 1.3 2018 1.2 1.1 1.1 1.0 2019 0.9 0.8 DKKm 2020
Average 25th percentile Median 75th percentile
We have also looked at the distribution of the DKK 0.5m to DKK 7.0m in 2020 (consistent with our chairperson’s remuneration which varied from analysis in last year’s report).
Distribution of chairperson remuneration
8.0
7.0
6.0
5.0
4.0 DKKM
3.0
2.0
1.0
0.0
Note: All 40 companies disclosed One column represents one chairperson chairperson remuneration for 2020.
Board base pay with a median value of DKK 0.4m which was at the same We have also looked at the disclosed base pay for board level as in our analysis in last year’s report. membersBoard base as paywell asmultiples the disclosed additional allowance for serving as the chairperson or deputy chairperson. The median multiple chairpersons received for their Member Chair pay Deputy Audit co Audit co Rem co Rem co Note that thisbase may pay differ from actualmultiple board memberchair pay pay role was threechair paytimes that ofmember the board pay member basechair pay member pay due to members(DKKm) serving additional positions, such asmultiple pay, while multiplethe median multiple multipledeputy chairpersonsmultiple multiple committee membership, etc., as well as other factors. would receive was double that of board members – also Highest 1.0 7.3x 3.0x unchanged compared4.0x to our analysis3.5x in last year’s report.2.2x 3.5x
WeMedian found that the0.4 base board member3.0x remuneration 2.0x 1.7x 1.4x 1.5x 1.3x varied considerably from DKK 0.2m to DKK 1.0m in 2020, The average board member pay, including committee Lowest 0.2 1.9x 1.3x 1.3x 1.1x 1.0x 1.1x fees, was unchanged at DKK 0.7m compared to 2019. Average 0.4 3.1x 1.9x 1.8x 1.5x 1.5x 1.4x
Member Deputy Audit co Audit co Rem co Rem co C h a i r p a y base pay chair pay chair pay member c h a i r p a y member multiple (DKKm) multiple multiple pay multiple multiple pay multiple
Highest 1.0 7.3x 3.0x 4.0x 3.5x 2.2x 3.5x
Median 0.4 3.0x 2.0x 1.7x 1.4x 1.5x 1.3x
Lowest 0.2 1.9x 1.3x 1.3x 1.1x 1.0x 1.1x
Average 0.4 3.1x 1.9 x 1.8x 1.5x 1.5x 1.4x
Source: Deloitte analysis
53 Remuneration in Danish Large-Cap Companies 2016-2020 | Board demographics
Board demographics
We have included analyses on board member the 36 deputy chairpersons, 84% were male (note, some demographics, which we believe is pertinent given the companies have more than one deputy chairperson). For growing societal focus on diversity in the workplace. We total board members, c. 67% were male. found that the median board member serving across the 40 Large-Cap companies in our sample was male, Danish, The percentage of female board members in the Danish aged 57 and compensated on average c. DKK 0.6m. Large-Cap companies increased to 33% compared to 30% in 2019 – representing a net increase of 12 more female Gender distribution board members. There were two female chairpersons There were 382 board members serving across the 40 in the Danish Large-Cap companies in 2020, and 16% of companies analysed as disclosed in their 2020 annual deputy chairpersons were female in the Danish Large-Cap reports. 38 of the 40 chairpersons were male, while of companies.
Gender distribution Gender distribution Gender distribution - BoardGender members distribution (total) Gender- Chairpersons distribution - GenderDeputy distributionchairpersons - BoardGender members distribution (total) Gender- Chairpersons distribution - DeputyGender chairpersons distribution - Board members (total) - Chairpersons - Deputy chairpersons Gender distribution Gender distribution2 Gender distribution - Board members (total) - Chairpersons5%2 - 7Deputy chairpersons 2 5% 16%7 5% 126 16%7 12633% 2 16% 33%126 5% 7 33% 16% 126 33% 256 25667% 67%256 36 67% 38 84%36 256 95%38 84%36 67% 95%38 84% 95% Source: Deloitte analysis Male Female 36 Male 38Female 84% 95% In 2020, the 38 male chairpersons on average receivedMale Femaleand female members received board pay that was on c. DKK 1.66m, while the two female chairpersons Male Femaleaverage the same c. DKK 0.6m. We note that these received c. DKK 2.13m on average. The 36 male deputy numbers are, to some extent, skewed by members’ chairpersons on average received c. DKK 0.88m, while remuneration for other positions on the board (such as the seven female deputy chairpersons received c. being a member or chairperson or a member of a board Average board pay for number of male and female respectively DKK 1.17m in 2020. Of other board members, male committee), and we have not taken these effects out in Average board pay for number of male and female respectively Average board pay for number of male and female respectivelythis analysis. 2.5 Average board pay for number of male and female respectively 2.5 2.0 2.5 2.0 1.5 2.0 1.52.5
DKKm 1.2
1.5 2
DKKm 1.22.0 1.0 2 38
DKKm 1.2 1.01.5 7 38
0.5 2 36 1.0 7 182 DKKm 0.5 117
1.2 38 0.0 36 7 2 182 0.5 117 0.01.0 Chair Deputy36 chair Other member 38 182 117 0.00.5 Chair Deputy chair 7 Other member
Male36 Female Chair Deputy chair Other member 182 0.0 Male Female 117
Source: Deloitte analysis Chair MaleDeputy Femalechair Other member
Male Female 54
Age distribution of board members Age distribution of board members Age distribution of board members 35 Age distribution35 of board members 30 3530 25 302535 20 252030 Number of members 15
Number of members 201525 10
Number of members 151020 5
Number of members 10155 0 30 32 34 36 38 40 42 44 46 48 50 52 54 56 58 60 62 64 66 68 70 72 74 76 1050 30 32 34 36 38 40 42 44 46 48 50 52 Age 54 56 58 60 62 64 66 68 70 72 74 76 5 0 Age 30 32 34 36 38 40 42 44 46 48 50 52 54 56 58 60 62 64 66 68 70 72 74 76 0 Age 30 32 34 36 38 40 42 44 46 48 50 52 54 56 58 60 62 64 66 68 70 72 74 76 Age Relationship between gender and age Relationship between gender and age
100% Relationship between gender and age 100%90% Relationship between gender and age 90%80% 100% 80%70% 100%90% 70%60% 80%90% 60%50% 70%80% 50%40% 60%
Number of members 70% 40%30% 50%
Number of members 60% 30%20% 40%50%
Number of members 20%10% 30%40% 10%0% Number of members 20%30% 30 32 34 36 38 40 42 44 46 48 50 52 54 56 58 60 62 64 66 68 70 72 74 76 0% Age 10%20% 30 32 34 36 38 40 42 44 46 48 50 52 54 56 58 60 62 64 66 68 70 72 74 76 Male Female 10%0% Age 30 32 34 36 38 40 42 44 46 48 50Male 52 54Female 56 58 60 62 64 66 68 70 72 74 76 0% Age 30 32 34 36 38 40 42 44 46 48 50 52 54 56 58 60 62 64 66 68 70 72 74 76 Male Female Age Male Female Gender distribution Gender distribution Gender distribution - Board members (total) - Chairpersons - Deputy chairpersons Gender distribution Gender distribution Gender distribution Gender distribution Gender distribution Gender distribution - Board members (total) - Chairpersons - Deputy chairpersons - BoardGender members distribution (total) Gender- Chairpersons distribution - DeputyGender chairpersonsdistribution - Board members (total) - Chairpersons2 - Deputy chairpersons 5% 7 2 16% 5%2 126 5%2 7 16%7 33% 5% 7 126 16% 16% 12633% 33%126 33%
256 67% 256 36 25667% 67%256 38 84% 67% 95% 36 38 84%36 36 95%38 84% 38 84% Male 95% Female 95% Male Female Male Female Male Female
Average board pay for number of male and female respectively Average board pay for number of male and female respectively Average board pay for number of male and female respectively Average board pay for number of male and female respectivelyRemuneration in Danish Large-Cap Companies 2016-2020 | Board demographics 2.5
2.52.0 2.5 2.5 2.01.5 2.0 2.0
DKKm 1.51.2 1.5 1.5 2
DKKm 1.21.0 38 DKKm 1.2 2 7
DKKm 1.2 1.00.5 2 36 38 1.0 2 38 7 182 1.0 117 7 0.50.0 38 0.5 36 7 36 182 0.5 Chair Deputy chair Other member117 0.0 36 182 0.0 117 182 0.0 Chair Deputy chair Other member117 Chair MaleDeputy chairFemale Other member Chair Deputy chair Other member Male Female Male Female Age distribution Male Female Board member age was disclosed for all board mem- years), while members’ age ranged over 46 years (2019 bers serving the companies analysed. The average analysis: 46 years) from 31 years of age (2019 analysis: member age was c. 56.9 years (2019 analysis: 56.6 30 years) to 77 years of age (2019 analysis: 76 years). Age distribution of board members Age distribution of board members Age distribution of board members Age distribution of board members 35
35 3530 35 30 3025 30 25 2520 25 20 Number of members 2015 20 Number of members 15 Number of members 1510
Number of members 15 10 105 10 5 50 5 30 32 34 36 38 40 42 44 46 48 50 52 54 56 58 60 62 64 66 68 70 72 74 76 0 0 Source: Deloitte30 32 analysis 34 36 38 40 42 44 46 48 50 52 Age 54 56 58 60 62 64 66 68 70 72 74 76 0 30 32 34 36 38 40 42 44 46 48 50 52 54 56 58 60 62 64 66 68 70 72 74 76 30 32 34 36 38 40 42 44 46 48 50 52 Age 54 56 58 60 62 64 66 68 70 72 74 76 Age We also looked at the relationship between gender and correlationAge between gender and age, as the gender age to see if a correlation exists, which might provide breakdown was fairly consistent across most age groups. insight into board composition of the Danish Large-Cap We will continue to monitor this space in future editions companies in the future. Our analysis found no clear of this publication to see how this progress over time. >> Relationship between gender and age Relationship between gender and age Relationship between gender and age Relationship100% between gender and age
100%90% 100% 100% 90% 90%80% 90% 80%70% 80% 80% 70%60% 70% 70% 60% 60%50% 60% 50%40% 50%
Number of members 50% 40%30% 40% Number of members 40% Number of members 30%20%
Number of members 30% 30% 20%10% 20% 20% 10% 10%0% 10% 30 32 34 36 38 40 42 44 46 48 50 52 54 56 58 60 62 64 66 68 70 72 74 76 0% 0% 30 32 34 36 38 40 42 44 46 48 50 52 Age 54 56 58 60 62 64 66 68 70 72 74 76 0% 30 32 34 36 38 40 42 44 46 48 50 52 54 56 58 60 62 64 66 68 70 72 74 76 30 32 34 36 38 40 42 44 46 48 50Male 52 Age 54Female 56 58 60 62 64 66 68 70 72 74 76 Age Male AgeFemale Source: Deloitte analysis Male Female Male Female
55 Remuneration in Danish Large-Cap Companies 2016-2020 | Board demographics
Nationality 345 board member nationalities were disclosed 63% of board members were Danish nationals, while (representing c. 83% of the board members in our Brits, Swedes, Americans, Norwegians and Germans sample). Of these 345 member nationalities disclosed, were the next largest groups, comprising 3-6% of memberships each.
Nationality
Others 17%
German 3%
Swedish 6%
Norwegian 3%
American 3% Danish 63%
British 6%
Source: Deloitte analysis Note: ‘Others’ includes 57 members from other nationalities.
Remuneration - Danish vs international chairpersons & deputy chairpersons
“We2.50 found that the median board member serving across the 40 listed companies in our sample was male, Danish, aged 57 2.00 and compensated on average c. DKK 0.6m.” 1.50 DKKm 1.00 1.94 1.54 0.50 0.96 1.07
0.00 Danish chairpersons International chairpersons Danish deputy chairpersons International deputy chairpersons
Board sizes
16 56 14 12 10 8 6
Number of boards 4 2
0 4 5 6 7 8 9 10 11 12 13 14 15 16
Number of members
Remuneration report Remuneration policy
49% 56%
25% 22% 26% 22%
FOR FORX AGAINST FOR FORX AGAINST Nationality Remuneration in Danish Large-Cap Companies 2016-2020 | Board demographics
Others 17%
German 3%
Swedish 6% Nationality
Norwegian 3% Others 17% American 3% Danish 63% German 3% British 6% Swedish 6%
Norwegian 3%
American 3% Danish 63% IIn the following chart, we look at the remuneration (seven in total) were remunerated at higher levels than of DanishBritish 6%and international chairpersons and deputy their 31 Danish counterparts by c. DKK 0.11m. Please chairpersons. Of the 24 Danish and 12 international note that the sample sizes are quite small and that the chairpersons where nationality was disclosed, companies significantly vary in both size and in the we found that international chairpersons were remit of their boards, which can explain some of the remunerated better than their Danish counterparts variations in pay. by c. DKK 0.40m. International deputy chairpersons
Remuneration - Danish vs international chairpersons & deputy chairpersons
2.50
2.00
Remuneration1.50 - Danish vs international chairpersons & deputy chairpersons
DKKm 2.50 1.00 1.94 1.54 2.000.50 0.96 1.07
1.500.00 Danish chairpersons International chairpersons Danish deputy chairpersons International deputy chairpersons DKKm 1.00 1.94 Source: Deloitte analysis1.54 0.50 0.96 1.07
0.00 Danish chairpersons International chairpersons Danish deputy chairpersons International deputy chairpersons Board sizes We have also looked at the size of company boards size ranging from five members to 15 members. The and note that there is a considerable variation in median board size was nine members. 16 14 12 Board sizes 10 8 16 6 14
Number of boards 4 12 2 10 0 8 4 5 6 7 8 9 10 11 12 13 14 15 16 6 Number of members
Number of boards 4
2 0 4 5 6 7 8 9 10 11 12 13 14 15 16
Number of members Source: Deloitte analysis
57 Remuneration report Remuneration policy
49% 56%
Remuneration report Remuneration policy
49% 56%
25% 22% 26% 22%
FOR FORX AGAINST FOR FORX AGAINST 25% 22% 26% 22%
FOR FORX AGAINST FOR FORX AGAINST Sustainability Remuneration in Danish Large-Cap Companies 2016-2020 | Our approach and how can Deloitte help? 20% Employee/ customer 30%
Our approach and how can
Reduction in CO2 Safety 30% Deloitte help? 10%
Creation of ESG strategy At Deloitte, we guide our clients on remuneration 10% strategy, design, committee work, policy, implementation, communication and reporting.
Our approach:
1 2 Remuneration Strategy Remuneration design
6 3 We cover all aspects of executive remuneration and share Remuneration New Remuneration plans. Our experienced team includes specialists within reporting Remuneration Committee program human capital, performance management, remuneration and share plan structuring, tax, valuation and accounting 5 4 specialists, actuaries and lawyers. We provide advice on Implementation & Remuneration all areas, including implementation, investor relations, Communication Policy accounting, legal and tax issues. Our practice is built upon an integrated model, linking all of these areas, often fragmented across many staff-functions in the companies that wish to implement incentives programmes.
Our team:
Which metrics? Design Remuneration committee advisers· Where is your material impact?Implementation & communication · External goals and commitments?
Insight on shareholder views and Strategic plan design Drafting of incentive plan rules assistance with consultation
Eligibility? Which metrics? · Eligible populations - broad-based · Clear single metric/KPI versus Business relevant performance or senior managementUpdates on only? market trends and Drafting scorecard of share scheme - ’single goal’ with clear measures corporate governance participant message documentation versus more holistic assessment? Setting robust and quantifiable targets? Cost effective funding and specialist · Threshold, target and Timeframe for assessment? Executive and board pay DraftingProgress of employee assessment after advice on tax accounting, legal and maximum range · benchmarking updates communication one year, documents three years? Or different financial issues · Verification / assurance timeframe e.g. five years, separate of out-turns? incentive plan? Assistance with drafting Tax assistance, global tax analysis, All-employee schemes remuneration policies and tax efficient arrangements, tax remuneration reports guides and binding rules Quantum? · Is the Remuneration Committee The experience and breadth of our practice means We also have access to a wide knowledge base within that we have particular strengths in the key areas of Deloitte – both across borders and within specific investor relations and implementation of incentive industries. This breadth of experience and access to schemes. specialist resources allow us to understand your specific situation and customise solutions for your needs.
58 Remuneration in Danish Large-Cap Companies 2016-2020 | Our contacts
Our contacts
If you would like further information on any of the areas covered in this report or help in interpreting and using this data, please feel free to contact any of the persons below:
Martin Faarborg Tinus Bang Christensen Partner Partner Remuneration Committee Advisory Valuation Services Audit & Assurance Financial Advisory Tel. +45 21 27 65 58 Tel. +45 30 93 44 63 [email protected] [email protected]
Anja Andersen Partner Share-based pay & M&A Tax & Legal Tel. +45 30 93 40 32 [email protected]
A special thanks also goes to Lars Callum Riddell, Martina Grilli and Måns Lindér for their contributions to model design, data validation and writing of the publication, and to Deloitte in India for their significant contributions to the model and data analysis.
59 Remuneration in Danish Large-Cap Companies 2016-2020 | xxxxx
Appendix
Companies included in the analysis
A.P. Møller - Mærsk A/S Københavns Lufthavne A/S ALK-Abelló A/S Netcompany Group A/S Alm. Brand A/S Nordea Bank AB Ambu A/S Novo Nordisk A/S Bavarian Nordic A/S Novozymes A/S Carlsberg A/S Pandora A/S Chr. Hansen Holding A/S Ringkjøbing Landbobank A/S Coloplast A/S Rockwool International A/S Danske Bank A/S Royal Unibrew A/S Demant A/S Scandinavian Tobacco Group A/S DFDS A/S Schouw & Co. A/S Drilling Company of 1972 SimCorp A/S DSV Panalpina A/S Spar Nord Bank A/S FLSmidth & Co. A/S Sydbank A/S Genmab A/S Topdanmark A/S GN Store Nord A/S Tryg A/S H. Lundbeck A/S Vestas Wind Systems A/S ISS A/S Ørsted A/S Jeudan A/S Össur hf Jyske Bank A/S Zealand Pharma
60 Remuneration in Danish Large Cap Companies | sss
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