The Board of Directors’ statement of guidelines for the remuneration of the executive management
Pursuant to section 6-16a of the Public Limited Companies Act, the Board of Directors must draw up a special statement of guidelines for the pay and other remuneration of senior executives.
Furthermore, under section 5-6 (3) of the same Act, an advisory vote must be held at the General Meeting on the Board of Directors’ guidelines for the remuneration of the executive management for the coming financial year (see (ii) below). In so far as the guidelines concern share-related incentive arrangements, these must also be approved by the General Meeting (see (iii)).
(i) Pay and other remuneration of the executive management
Information regarding pay and other remuneration of the executive management in 2014 has been provided on page 105.
(ii) Guidelines for pay and other remuneration of the executive management
With regard to guidelines for pay and other remuneration of the executive management in the coming financial year, the Board of Directors will present the following guidelines to the General Meeting in 2015 for an advisory vote:
The purpose of Orkla’s terms and conditions policy is to attract personnel with the competence that the Group requires, to further develop and retain employees with key expertise, and to promote a long-term perspective and continuous improvement with a view to achieving Orkla’s business goals. The general approach adopted in Orkla’s policy has been to pay fixed salaries and pensions based on the market median, while offering a variable element which is linked to results, share price performance etc. (short- and long term incentives) and which should be better than the median.
Compensation may consist of the following elements:
a) Fixed elements
Orkla uses internationally recognised job assessment systems to find the “right” level for the job and the fixed salary. Jobs are assessed in relation to their local market (country) and a pay range of the median +/- 20% is applied. The employee’s responsibilities, results and performance determine where he or she is placed on the salary scale.
Orkla has a defined contribution pension plan in Norway. In connection with the pension reform, the contribution rates were changed on 1 September 2014 from 4% for salaries between 1G and 6G and 8% for salaries between 6G and 12G to 5% for salaries between 1G and 7.1G, and 23.1% for salaries over 7.1G (as from 1 May 2014 1G is NOK 88,370). For members of the Group Executive Board as at 1 September 2014, the rate for salaries over 12G is 27%. Employees who have entered into an early retirement agreement entitling them to retire before the age of 67 receive a pension (unfunded) that is equivalent to 60 per cent of their annual pay. Other members in the Group Executive Board than the President and CEO have 66%. All rates are subject to a minimum of 30 qualifying years. In addition to the above, the Group provides benefits such as a company car and company telephone and other limited benefits in kind.
(b) Variable elements – annual bonus
Orkla has a system of annual bonuses. Under this system, a “good performance”, which is specifically defined for the various elements, can result in an annual bonus of 30% of an employee’s fixed pay, while the maximum bonus is 100% of the employee’s annual pay. Approximately 160 senior executives in the Branded Consumer Goods area currently participate in this bonus programme. The bonus programme for 2015 will consist of four components, and its primary target will be profit growth. Individual bonuses with a maximum percentage of 20% are also a key element of the programme.
(iii) Special comments on share-based incentive arrangements
Orkla has a cash-based long-term incentive. An amount based on the result of the annual bonus programme will be deposited in a bonus bank. The balance will be adjusted according to the performance of the Orkla share until it is paid out. 50% of the entitlement will be paid out after two years and the rest after three years, provided that the employee has not given notice of resignation at the time of payment. The annual amount paid out from the long-term programme must not exceed one year’s pay on the disbursement date. Any excess amount will be added to the bank deposit to be paid out the following year.
(iv) Senior executive pay policy in previous accounting years
The guidelines for the pay and remuneration of senior executives described in (ii), which were considered at the Annual General Meeting in 2014 also served as guidelines for the determination of senior executive remuneration in 2014. After a closer review of bonuses for 2014, the percentage on which personal bonuses are based was increased slightly in relation to the guidelines for 2014.
(v) Changes in contractual arrangements
Paul Jordahl stepped down from the Group Executive Board on 1 December 2014 to take over as CEO of Orkla Foods Norge.