Insights into executive remuneration in the Nordic region and at Europe’s largest companies February 2021 Insights into executive remuneration in the Nordic region and at Europe’s largest companies | SectionForeword title goes here Foreword With the majority of companies currently finalising their year- end decisions, there is still a degree of uncertainty of the impact of COVID-19. In light of the current macroeconomic environment, it is evident that the scrutiny of remuneration practices will remain at an all-time high into 2021. This report does the important work of providing an overview of executive remuneration across the Nordic region, presenting practices among leading Nordic companies. These include the largest listed companies in Denmark, Sweden, Norway and Finland. For context, these practices are contrasted against those of the iSTOXX Europe 100 (“Top 100”) from a pre-COVID world. This will prove to be an important baseline for making decisions regarding executive remuneration in coming years. On top of the complications brought about by a global pandemic, 2020 also brought about change in Europe in the form of regulatory requirements. Many listed companies had to prepare their remuneration reports in accordance with the Shareholder Rights Directive (“SRD”) for the first time in respect of 2020. Where countries do not already have detailed remuneration reporting regimes in place, SRD is likely to lead to significant changes in scrutiny from and engagement with shareholders on executive pay. It is clear that remuneration committees will continue to face a complex environment in 2021. In the context of COVID-19, many areas of executive remuneration are likely to come under intense scrutiny. Investors will expect the treatment of pay for executives to reflect the shareholder experience, including share price performance and where dividend payments have been cancelled. There will also be pressure on companies to ensure that executives are treated in a way that is consistent with the wider workforce, especially where there have been lay-offs and company-wide pay cuts. Each company is different and will have been impacted in different ways by the crisis. A key challenge for committees will be balancing the need to attract and incentivise the leadership required to drive European business recovery, in the context of a growing focus on building a fairer society. Deloitte continues to stand ready to assist our clients as they navigate this “new normal”. Deloitte NSE LLP February 2021 03 Insights into executive remuneration in the Nordic region and at Europe’s largest companies | Introduction Introduction The report is presented in the following sections: Section Key findings 1. AGM season trends. • High levels of shareholder support – 75% of the Top 100 companies An overview of key themes from received a voting outcome of 90% or more for the Annual Report on the 2020 AGM season in Europe. Remuneration. 81% of companies received a vote of 90% or more for the Remuneration Policy. Nordic companies also received support for their remuneration proposals during 2020. • Key themes – Investors and proxy agencies have most commonly expressed concerns over quantum, termination payments, lack of performance conditions and discretionary/sign-on bonuses. Focus was also placed on ensuring that disclosure was sufficient, clear and comprehensive. 2. Trends and practices in the • Limited salary increases. Less than half of the Top 100 awarded base Top 100. salary increases to the CEO this year, with around one-third of Nordic An overview of key trends CEO salaries remaining static. for executive remuneration, • Performance Share Plan (“PSP”) remains the most popular form of including analysis of base long-term incentive plan. 95% of the Top 100 companies have an LTIP salaries, bonuses and long-term in place for executives. Performance share plans are used by c.90% of incentive plans. these companies. • Increased adoption of shareholding guidelines. 80% of the Top 100 now disclose shareholding guidelines for their executives, with a median shareholding guideline of 300% of salary. 3. ESG. • Increasing focus is being placed on the contribution of business to An overview of the extent to wider society and the environment, leading a number of companies to which Environmental, Social link ESG metrics to executive pay in recent years. and Governance (“ESG”) • 42 of the Top 100 now include an ESG metric within their variable metrics are being incorporated remuneration frameworks, most commonly in the annual bonus plan. into executive remuneration frameworks. 4. Impact of COVID-19. • In light of COVID-19, several companies made temporary reductions to An overview of changes salary/fees. to executive pay in light • Investors expect executive pay to reflect the shareholder and wider of COVID-19, as well as a employee experience. Companies need to consider if salary and/or summary of considerations variable pay increases remain appropriate at this time. for remuneration committees following the pandemic. • Where the long-term sustainability of the business is at risk, committees will be expected to take this into account when making decisions on executive pay. 5. Key considerations for • Committees will need to ensure that the Remuneration Policy adheres decision-making next year. to regulatory requirements and best practice. An overview of key • Focus is likely to be placed on the level of disclosure provided in the considerations for the largest Remuneration Report. European companies with regard to future remuneration. 04 Insights into executive remuneration in the Nordic region and at Europe’s largest companies | About Deloitte About Deloitte The Deloitte executive compensation consulting practice covers all aspects of senior executive remuneration and share plan services. Our well-established team comprises professional staff including remuneration, share plan, tax and accounting specialists, actuaries and lawyers. Our teams are based around Europe with extensive presence in the UK and across Europe. We provide advice on all areas including implementation, investor relations, accounting, legal and tax issues across Europe. Our practice is built around an integrated model, linking all of these areas, often separated in competitor companies. The experience and breadth of our practice means that we have additional strengths in the key areas of investor relations and legal implementation of incentive schemes. The Deloitte Executive Compensation practice advises on all aspects of executive remuneration across Europe Design Implementation Communication ONE Team Reward corporate Share schemes Tax specialists and Accounting and governance and practitioners and advisors funding experts • Reqrd strategy • Plan rules • Tax efficient • Cost effective alignment to arrangements funding • Contracts group strategy including all • IFRS2 & Share • Leaver provisions employee plans • Pay benchmarking plan accounting • Tax guides • Performance measures • Market trends and corporate governance • Remuneration reports 05 Insights into executive remuneration in the Nordic region and at Europe’s largest companies | Contacts Contacts Denmark Finland Martin Faarborg Veera Campbell Partner Partner Email: [email protected] Email: [email protected] Finland Norway Emma Hall Peter Ringkjob Groth Senior Manager Partner Email: [email protected] Email: [email protected] Sweden Torbjorn Hagenius Partner Email: [email protected] 06 Insights into executive remuneration in the Nordic region and at Europe’s largest companies | Section title goes here 1AGM season trends 07 Insights into executive remuneration in the Nordic region and at Europe’s largest companies | AGM season trends 1 AGM season trends 1.1 Voting recommendations in Europe The chart below illustrates ISS voting recommendations in the Top 100 in 2020. 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Report Policy Report Policy Top 100Nordics Abstain Against For with concerns For The main reasons for an adverse proxy voting recommendation are: ISS have expressed concerns over the overall quantum Awarding incentives without of compensation, incentive Poor Termination performance criteria or clear Discretionary/ maximums and salary targets and/or awarding disclosure. increases. ISS highlighted payments. sign-on bonus. incentives on a discretionary quantum as an issue in c.45% basis is unpopular among of remuneration reports shareholders. ISS highlighted and c.35% of remuneration this as an issue in c.20% of the policies in the Top 100. Top 100. A common issue for Generous termination Recruitment arrangements are companies was insufficient payments, such as the ability often highlighted as an investor disclosure within the to award payments on a concern if they are either: (a) remuneration report discretionary basis, can be not disclosed clearly; (b) are and/or policy. This was contentious for shareholders. Lack of overly generous compared particularly evident in Such arrangements were to regular opportunity; or (c) relation to the disclosure Quantum. highlighted as a concern by performance are uncapped. ISS highlighted of performance targets for ISS for c.30% of the Top 100. condition. discretionary/sign-on bonuses incentive pay. c.50% of the as a concern in c.10% of Top 100 companies had this remuneration reports and highlighted as a concern c.20% of remuneration policies. by ISS. 08 Insights into executive remuneration in the Nordic region and at Europe’s largest companies | AGM season trends 1.2 Voting