6.3.1. Solvay compensation philosophy

Solvay compensation policy aims to ensure that our Executive Committee is rewarded according to its success in contributing to Solvay’s performance.

Overall, Solvay seeks to position itself at or around the relevant market median for base salary and benefits. Variable compensation, both short-term and long-term, is designed to ensure superior performance. Our high performers may achieve around upper quartile on actual total compensation.

The Solvay Compensation System is designed in line with the following principles:

  • Total compensation is designed to be competitive in the relevant market, so as to attract, retain and motivate the right talents.
  • Short-term and long-term variable compensation is tied directly to the achievement of strategic targets to drive sustainable performance and recognize superior results.
  • Compensation decisions are compliant and equitable, and balance cost and value appropriately.

6.3.2. Compensation structure

Solvay’s compensation structure for our Executive Committee is designed in accordance with the “pay-for-performance” approach approved by the Board of Directors, focusing on the Company’s short and long-term performance.

The level and structure of the compensation are aligned with market practices for similar functions in a comparable organization.

To assess relevant competitive practice, Solvay takes as its frame of reference a selection of European chemical and industrial manufacturing companies with international operations and annual sales revenues and a headcount reasonably close to its own. The composition of this selected group is reviewed on a periodic basis to assure that it continues to reflect the Company’s strategic orientation.

It is currently composed of 17 European-based multinational companies headquartered in six different European countries (Belgium, France, Germany, Netherlands, UK and Switzerland) and active in the chemical sector and/or the industrial sector.

  • Umicore
  • Air Liquide
  • Arkema
  • Michelin
  • Saint Gobain
  • Vallourec
  • BASF
  • Bayer
  • Evonik
  • Lanxess
  • Akzo Nobel
  • DSM
  • Rolls Royce
  • GKN
  • BAE Systems
  • Johnson Matthey
  • Syngenta

For data relating to the international market, the services of the internationally recognized compensation consultant Willis Towers Watson have been retained.

No major changes in the structure of the compensation package of the Chairman and the members of the Executive Committee are expected in 2017 and 2018.

The compensation structure consists of the following components:

The Compensation structure consists of the following components (graphic)The Compensation structure consists of the following components (graphic)

(*) The corresponding number of stock options (SOP) is determined at grant date, based on the  fair market value of the SOP. The PSU value is the closing share price on the grant date.

Base salary

The base salary reflects role responsibilities, job characteristics, experience and skill sets. It is paid monthly in cash. Base salary is reviewed annually and may increase if justified by external market (peer group).

Pension and other benefits

The primary purpose of pension and insurance plans is to establish a level of security for our employees and their dependents with respect to age, health, disability and death.

Short-term incentive

The short-term incentive is linked partly to the Group performance and partly to the individual performance.

  • Group performance is measured against the annual underlying EBITDA (under a specific Free Cash Flow constraint) and a Sustainable Development indicator.
  • Individual performance is measured against a set of pre-determined annual objectives, approved by the Board of Directors.

Long-term incentive

The long-term incentives consist of a 50/50 mix of stock options (SOP) and performance share units (PSU).

Each annual LTI plan is subject to prior Board approval.

In its sole discretion the Executive Committee (or the Board of Directors for the Executive Committee members) may decide/recommend individual grants of + or -50% of the target to reward special or unique achievements or circumstances or to acknowledge insufficient performance, while respecting the 50/50 split between SOP and PSU grants.

Stock options

The plan offers a competitive Long Term Incentive (LTI) vehicle aligned with Belgian practices. It is aimed at incentivizing Solvay’s executive leadership team to work towards achieving robust sustainable returns for the shareholders while offering a robust retention tool to the Company.

The SO plan provides each beneficiary with the right to buy Solvay shares at a strike price corresponding to the fair market value of the shares upon grant. They bear no intrinsic value at that point in time and will only generate a potential gain for the beneficiaries if the stock price rises.

In accordance with Belgian legislation, taxes on stock options are paid at grant. Therefore, in accordance with Belgian practices, there is no performance attached to the stock options vesting period.

Every year, the Board of Directors determines the volume of stock options available for distribution, based on an assessment of the economic fair value at grant, using the Black Scholes financial formula. The total volume of options available is then allocated to the top executives of the Company based on the importance of their individual contribution/position to the success of the Solvay group.

Key features:

  • Options are granted at the money
  • Eight years duration
  • Options become exercisable for the first time after three full calendar years following grant
  • Options are not transferrable inter vivos
  • The plan includes a bad leaver clause.

Performance share units

The performance share unit program (PSU) ensures the alignment with market practices, helping Solvay to remain competitive in the market place in order to attract and retain key executives while offering a more performance-contingent vehicle to incentivize key executives to make a contribution towards Solvay’s roadmap ambitions.

The PSU plan, settled in cash, provides for a possible payout in three years’ time if a combination of pre-set performance objectives are met (underlying EBITDA and CFROI long-term evolution based on this three-year period), with a +/-20% adjustment depending on the actual performance versus the initial pre-set objective. The minimum payout can vary from zero if the minimum performance required or “threshold” is not met, to 80% if the performance minimum “threshold” is met, and up to 120% for a performance exceeding a pre-defined ceiling performance.

The Board of Directors determines annually the envelope available for distribution based on the closing value of the Solvay share at grant date. The total volume of PSUs available is then allocated to the senior managers of the Company based on their expected ability to contribute substantially to the achievement of Solvay’s ambitions.

Key features:

  • The plan is purely cash-based and does not encompass any transfer of shares to beneficiaries
  • It contains the following two performance targets – 50% based on EBITDA target aligned with Solvay’s roadmap and 50% based on CFROI target
  • Condition of employment up to achievement of performance targets
  • Payout in cash based on the value of Solvay shares on target date.

In its sole discretion, the Executive Committee (or the Board of Directors for executive members) assesses the achievement of the targets and the Executive Committee (or the Board of Directors for executive members) may also re-evaluate the targets in cases of material change of perimeter or other unexpected circumstances.

2013 LTI performance share units payout

The 2013 PSU program payout was at 45.5% of the target based on CFROI and underlying EBITDA achievements for the period 2013-2015.

The Board of Directors decided that such payout did not reflect the exceptional Group transformation required by the Cytec acquisition and the integration over the period 2013-2015. It therefore decided to increase the payout to 54.25% (dividend and share price variation included).

Future LTI performance share units plan

As of 2017 plan,  new metric will be introduced into the PSU plan. Solvay has publicly reinforced its position on value creation that encompasses both financial and extra-financial indicators (sustainable development).

In order to align LTIs with Solvay's broader definition of sustainable value creation, a proportion of the value will henceforth be linked to improving Solvay's sustainability performance in respect of greenhouse gas intensity. The new criteria, applicable with effect from LTIs granted in 2017, will thus become:

  • 40% on underlying EBITDA growth
  • 40% on CFROI improvement
  • 20% on Greenhouse Gas (GHG) Intensity reduction.

6.3.3. Chief Executive Officer

The remuneration package of the Chairman of the Executive Committee is in full compliance with Art. 520 ter of the Companies’ Code and is set by the Board of Directors based on recommendations by the Compensation Committee.

Art. 520 ter of the Companies’ Code provides that from 2011 onwards, in the absence of statutory provisions to the contrary or express approval by the General Meeting of Shareholders, at least one quarter of the variable compensation must be based on predetermined criteria of performance that are objectively measurable over a period of at least two years, and at least another quarter should be based on predetermined performance criteria that are objectively measurable over a period of at least three years.

Base salary

The base salary of the Chairman of the Executive Committee remains unchanged at € 1.1 million and matches the market median of Solvay's peer group.

Pension & benefits

In the area of extra-legal pension rights, given his self-employed status in Belgium, the CEO has his own separate contractual regime, with pension, death-in-service and disability rules, which reflect the conditions he had previously at Rhodia.

Short-term incentive

The short-term incentive target is set at 100% of base salary, with a maximum of 150%. Payout of short-term incentive is based on the achievement of pre-defined targets:

  • 50% related to underlying EBITDA under cash constraint
  • 10% related to sustainable development (presence of Solvay in extra-financial indexes and progress on internal sustainable development reference system Solvay Way)
  • 40% related to individual objectives (such as portfolio management, R&I strategy, and People Engagement)

Long-term incentive

The long-term incentive is composed of a 50/50 mix of stock options and performance share units, with an annual economic value target set at 150% of the base salary and a maximum guidance set at 200% of such base salary.

The design of the generic Solvay long-term incentive plan is subject to the final approval of the Board. Solvay’s commitment to offer a competitive though challenging reward package to its CEO is demonstrated by his pay mix, since his global variable pay target substantially outweighs his base salary.

CEO total compensation at target for 2016

CEO Total Compensation at target for 2016 (pie chart)CEO Total Compensation at target for 2016 (pie chart)

Amount of compensation paid and other benefits granted directly or indirectly to the Chairman of the Executive Committee

Based on the assessment of the achievement of his individual pre-set objectives by the Board of Directors and the achievement of the Group collective economic and sustainable development indicators, the 2016 compensation package of the Chairman of the Executive Committee was set as follows.

Compensation paid and other benefits granted to the Chairman of the Executive Committee

In €

 

2016

 

2015

(1)

Paid in April 2017

(2)

First plan introduced in 2013 (covers 2013-2015). Payout in June 2016.

(3)

Company vehicle

Base compensation

 

1,100,000

 

1,100,000

Variable compensation (Short Term Incentive)(1)

 

1,325,500

 

1,507,000

2013 Performance Share Units (Cash)(2)

 

406,879

 

NA

Pension and death-in-service and disability coverage (costs paid or provided for)

 

698,601

 

757,546

Other compensation components(3)

 

15,279

 

15,279

Short-term incentive

The annual incentive target remained set at 100% of the base salary, with a maximum of 150%.

Each performance measure can vary from 0% to 200% achievement but the maximum total payout is capped at 150% of the target.

The CEO’s short-term incentive for 2016 of € 1,325,500 equals 120.5% of his STI at target.

Performance Measures

 

 

 

% of the STI

 

Achievement

 

Payout factor

Underlying EBITDA (under cash constraint)

 

50%

 

96%

 

48%

Sustainable Development

 

10%

 

140%

 

14%

Individual Objectives

 

Strategy

 

30%

 

150%

 

45%

 

People Model

 

10%

 

135%

 

13.5%

Total

 

100%

 

 

 

120.5%

Payout calculation

 

 

Base salary

 

x

 

Target incentive

 

x

 

Performance factor

 

=

 

Final award

STI Payout

 

€ 1,100,000

 

x

 

100%

 

x

 

120.5%

 

=

 

€ 1,325,500

2016 has been a solid year for Solvay as far as financial performance is concerned and it was also marked by another step in the Group’s transformation: the successful acquisition of Cytec.

Solvay’s CEO delivered on all objectives set by the Board of Directors on Strategy – including notably Cytec integration & Synergies, Divestments, and Corporate R&I strategy – and on deployment of the People Model, which includes Talent Management and the Executive Committee succession plan within the framework of the long-term and short-term financial equilibriums of the Group.

Acquisition award

Tied to the successful acquisition of Cytec with synergies estimated at US$ 100 million, the Board decided, following the pay for performance principle, to grant an acquisition award to the CEO comprising € 200,000 cash and 35,149 stock options units; the latter is blocked for three years and will only pay out if and when the share price increases.

Since then, the synergies have been revised up to US$ 150 million.

Long-term incentive

2016 Award

In 2016, the face value of his overall LTI award totaled € 1.65 million, in line with his LTI target of 150% of base salary. The gain which will eventually be derived on payout date will depend upon achievement of the performance thresholds imposed on his PSUs as well as of the performance of the Solvay shares on the stock market. The resulting numbers of stock options and PSU’s are calculated according to the Black Scholes model.

 

 

Annual Base

 

x

 

Target award

 

=

 

Grant Value

LTI – Perf. Share Units

 

€ 1,100,000

 

x

 

(150% / 2)

 

=

 

€ 825,000

LTI – Stock Option

 

€ 1,100,000

 

x

 

(150% / 2)

 

=

 

€ 825,000

LTI – Total

 

 

 

 

 

 

 

 

 

€ 1,650,000

2013 PSUs payout

 

 

2013 PSU target award

 

x

 

Payout factor

 

=

 

Cash Payout

Perf.Share Units (cash)

 

€ 750,000

 

x

 

54.25%

 

=

 

€ 406,879

6.3.4. Other members of the Executive Committee

Pension and other benefits

The Executive Committee members are entitled to retirement, death-in-service and disability benefits on the basis of the provisions of the plans applicable in their home country. Other benefits, such as medical care and company cars or car allowances, are also provided according to the rules applicable in the host country. The nature and magnitude of these other benefits are largely in line with the median market practice.

Short-term incentive

Target in % of base salary

 

Performance Measures

 

% of the STI

70%

 

Underlying EBITDA (under cash constraint)

 

60%

 

Sustainable Development

 

10%

 

Individual Objectives

 

30%

 

Total

 

100%

The target annual incentive for the members of the Executive Committee is 70% of base salary. The target short-term incentive consists of three components weighted as follows:

  • 60% linked to the actual performance achieved towards a combination of annual pre-set collective Group economic performance objectives (underlying EBITDA under a specific Free Cash Flow constraint)
  • 10% related to a Group sustainable development indicator
  • 30% depending on the individual performance of the manager as measured against a set of pre-determined objectives

The actual annual incentive can vary from 0% in cases of poor performance to 200% of target in cases of outstanding collective and individual performance.

Acquisition award

Tied to the successful acquisition of Cytec with synergies estimated at US$ 100 million, the Board decided to grant an acquisition award of 66,197 stock options units to the Executive Committee. This award is made in accordance with the pay for performance principle since it is blocked for three years and will then only pay out to the extent that the share price has increased in the meantime.

Since then, the synergies have been revised up to US$ 150 million.

Long-term incentive

 

 

Performance Shares Units (PSU’s)

 

Stock Options

Executive Committee

 

Target Grant

 

Target Grant

 

€ 250,000

 

€ 250,000

Global amount of compensation paid and other benefits granted directly or indirectly to the other members of the Executive Committee by the Company or an affiliated company

Compensation paid and other benefits granted to the other members of the Executive Committee

In €

 

2016(1)

 

2015(2)

(1)

V. De Cuyper, R. Kearns, K. Hajjar, P. Juéry

(2)

V. De Cuyper, R. Kearns, K. Hajjar, P. Juéry.

(3)

2015 payout based on 60% of base salary at target 2016 payout based on 70% of base salary at target. Payout in April of the following year.

(4)

K. Hajjar excluded (joined after the 2013 LTI grant)

(5)

Representation allowance, luncheon vouchers, company car.

Base compensation

 

2,259,531

 

2,182,396

Variable compensation(3)

 

1,802,934

 

1,648,133

2013 Performance Share Units (Cash)(4)

 

406,880

 

NA

Pension and death-in-service and disability coverage (costs paid or provided for)

 

672,567

 

936,092

Other compensation components(5)

 

118,151

 

128,057

Variable compensation consisted of an annual incentive based on the performance achieved towards pre-set collective Group economic and sustainable development performance objectives, and towards the performance of the manager as measured against a set of pre-determined individual objectives.

The remuneration package of the members of the Executive Committee is in full compliance with Art. 520 ter of the Companies' Code.

Art. 520 ter of the Companies’ Code provides that from 2011 onwards, in the absence of statutory provisions to the contrary or express approval by the General Meeting of Shareholders, at least one quarter of the variable compensation of Executive Committee members must be based on predetermined criteria of performance that are objectively measurable over a period of at least two years, and at least another quarter should be based on predetermined performance criteria that are objectively measurable over a period of at least three years.

Executive Committee members receive stock options and performance share units as explained above. They do not, however, receive shares as part of their compensation packages.

Executive Committee members’ expenses, including those of its Chairman, are governed by the same rules as apply to all Group management staff, i.e. the justification of all business expenses, item by item. Private expenses are not reimbursed.

In the case of mixed business/private expenses (e.g. cars), a proportional rule is applied in the same way as to all management staff in the same position.

In the area of insurance, the Company takes out the same type of cover for Executive Committee members as it does for its senior managers.

Pensions and retirement and death-in-service coverage for Executive Committee members are based in principle on the provisions of the schemes applicable to senior executives in their base countries.