6.3.1. Solvay compensation philosophy

Solvay’s compensation policy aims to ensure that its Executive Committee is rewarded according to its success in contributing to Solvay’s long-term objectives of becoming a more resilient, more sustainable, and more innovative multi-specialty Group with high added value.

The Solvay Compensation Structure 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 high caliber executives needed to deliver the Group’s strategy and drive business performance.
  • Short-term and long-term variable compensation is tied directly to the achievement of strategic objectives to drive sustainable performance and recognize excellent results.
  • Compensation decisions are compliant and equitable, and balance cost and value appropriately.

6.3.2. Compensation structure

Every year, the Compensation Committee obtains compensation data relating to the international market from Willis Towers Watson, a globally recognized compensation consultant. 

Solvay’s compensation structure for its Executive Committee is designed in accordance with the “pay-for-performance” approach approved by the Board of Directors, focusing on the Company’s short-term and long-term performance. The level and structure of the compensation packages are aligned with market practices for similar functions at comparable companies.

Solvay’s frame of reference for assessing relevant competitive practice is a selection of European chemical and industrial manufacturing companies whose international operations, annual revenues, and headcount are reasonably close to its own. The Company periodically reviews the composition of this peer group to ensure that it continues to reflect Solvay’s strategic direction.

The peer group is currently composed of 17 European multinational companies incorporated in six different European countries (Belgium, France, Germany, Netherlands, Switzerland, and the UK) and active in the chemical and/or the industrial sectors.

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

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 provide top quartile pay if executives deliver superior performance.

The Compensation Committee expects no major changes in the structure of the compensation packages for the Chairman and the members of the Executive Committee for the next two years (2018 and 2019).

Compensation structure components:

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 the individual’s experience, skills, duties, and responsibilities, and the contribution of the individual and role within the Group. It is paid monthly.

Base salary is reviewed annually and may increase considering a number of factors, including: (1) comparable salaries in appropriate comparator groups; (2) changes within the scope of the role; and (3) changes in the Group’s size and profile.

Pension and other benefits

The primary purpose of pension and insurance plans is to establish a level of security for Solvay employees and their dependents with respect to age, health, disability and death. The benefits offered aim to be market-competitive, driving employee engagement and commitment in Solvay business.

Short-term incentive (STI)

Short-term incentives are linked partly to Group performance and partly to individual performance to drive and reward the overall annual performance of executives. Their short-term incentives have maximum award limits and are denoted as a multiple of their respective base salaries.

Performance is assessed on an annual basis using a combination of pre-determined Group and individual performance targets set at the start of the year, as approved by the Compensation Committee. More specifically, the performance measures are:

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

Long-term incentive (LTI)

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.

The Executive Committee (or the Board of Directors for the Executive Committee members) retains the right to exercise discretion, both upwards and downwards, of 50% of the target, to ensure that the level of award payable is appropriate and fair for special or unique achievements or circumstances, or to acknowledge insufficient performance. Where discretion is exercised, the 50/50 split principle between SOP and PSU grants will be respected and the rationale for the use of such discretion will be disclosed.

Stock options

The Compensation Structure offers a competitive LTI vehicle mirroring Belgian market practice. The stock option plan gives each beneficiary the right to buy Solvay shares at a strike price corresponding to the fair market value of the shares upon grant. They will only generate a potential gain for the beneficiaries if the stock price rises.

The use of stock options aims to incentivize Solvay’s executives to work towards achieving robust sustainable returns for shareholders while offering the Company a robust retention tool. Under Belgian law, unlike other jurisdictions, taxes on stock options need to be paid by the executives at the time of grant. Therefore Solvay, like other Belgian companies, sets no additional performance criteria for determining the vesting of stock options, which nonetheless need to be held for a three-year vesting schedule.

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 (or fair market value),
  • Options become exercisable for the first time after three (3) full calendar years following grant,
  • Options have a maximum term of eight years,
  • Options are not transferrable inter vivos,
  • The plan includes a bad leaver clause.

Performance Share Units (PSU)

The PSU ensure alignment with market best practices, helping Solvay to remain competitive and to attract and retain key executives while offering a performance-contingent vehicle to incentivize executives to help deliver Solvay’s long-term strategic objectives.

The PSU are settled in cash. They vest after three years from the date of grant and only if a combination of pre-set performance objectives are met (i.e. underlying EBITDA Growth, CFROI, and Greenhouse Gas Intensity Reduction). The minimum payout can vary from zero if the minimum performance required or “threshold” is not met, to 80% if the minimum performance “threshold” is met, and up to a maximum of 120% for a performance exceeding the pre-set stretch performance target.

Each year, the Board of Directors determines the budget available for distribution based on the closing value of Solvay’s share at grant date. The total volume of PSU available is then allocated to the executives based on their expected ability to contribute substantially to the achievement of Solvay’s long-term strategic objectives.

Key features:

  • The plan is purely cash-based and does not encompass any transfer of shares to beneficiaries. As such, it does not dilute the shareholders’ interests,
  • The vesting of the awards is based on meeting pre-set performance targets for: (1) Underlying EBITDA growth (40% of the award), (2) CFROI (40% of the award), and (3) Greenhouse Gas (GHG) intensity reduction (20% of the award) (*),
  • The performance period is measured over three years,
  • Condition of employment up to achievement of performance targets,
  • Payout in cash based on the value of Solvay shares at vesting date.

(*) new criteria applicable with effect from LTIs granted in 2017

At 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. With regard to the latter, such discretion will not be used as a matter of routine and, if used, the rationale for the use of such discretion will be disclosed.

2014-16 LTI performance share units payout

Target & Performance actuals

 

 

Threshold

 

Target

 

Maximum

 

Actual

 

Actual %

 

Total actual %

CFROI (%) – 50%

 

6.3%

 

6.6%

 

6.9%

 

6.53%

 

95.0%

 

97%

EBITDA (m€) – 50%

 

2,380

 

2,530

 

2,680

 

2,519

 

98.0%

 

Payout

The conjunction of the performance achievement at 97%, the share price differential (grant share price vs. share price at vesting) and the total dividends over thee years (€10.15 per unit) has generated a payout of 111% of the target PSU amount.

6.3.3. Chief Executive Officer

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

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

CEO Compensation Structure

Base salary

The base salary of the Chairman of the Executive Committee remains unchanged at €1.1 million and is positioned at the market median of Solvay's peer group of 17 European companies.

Pension & benefits

Regarding the CEO’s extra-legal pension rights, given his self-employed status in Belgium, the CEO has his own separate contractual agreement, with pension, death-in-service, and disability rules that reflect the contractual conditions that prevailed in Rhodia prior to the acquisition by Solvay.

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 performance targets based on:

  • for 50% of the award – the Group’s underlying EBITDA (under a specific Free Cash Flow constraint),
  • for 10% of the award – the Group’s Sustainable Development indicators. These indicators include, but are not limited to, Solvay’s inclusion in extra-financial indexes and progress made on the internal sustainable development reference system, Solvay Way. Solvay Way defines the Group’s approach to sustainability and covers all the Group’s management systems,
  • for 40% of the award – individual objectives such as portfolio management (divestments/acquisitions), Research & Innovation (R&I) strategy, and People Engagement.

Long-term incentive

The long-term incentives offered to the CEO comprise a 50/50 mix of stock options and PSU, with an annual economic value target set at 150% of the base salary and a maximum guidance set at 200% of such base salary.

2017 Award

In 2017, the face value of his overall LTI award totaled €1.65 million, in line with his LTI target of 150% of base salary. The actual gain on the PSU at the payout date will depend upon on the level of achievement of the performance targets set under the plan as well as of the performance of Solvay shares on the stock market. The resulting numbers of stock options and PSU are calculated using 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

The design of the Solvay long-term incentive plan offered to the CEO is subject to the final approval of the Board of Directors. Solvay’s commitment to offering its CEO a competitive yet challenging compensation package is demonstrated by the pay mix he is offered, with close to 70% of his pay being subject to the delivery of a sustainable value creation performance.

CEO total compensation at target for 2017

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 Board of Directors’ assessment of the extent to which he achieved his individual pre-set objectives and whether the Group achieved its collective economic and sustainable development indicators, the actual 2017 compensation package of the Chairman of the Executive Committee was as follows:

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

In €

 

2017

 

2016

(1)

Delivered either in cash or in warrants or in share options based on the Euronext Index SICAV.

(2)

Includes share price differential and dividends.

(3)

Company vehicle.

Base compensation

 

1,100,000

 

1,100,000

Variable compensation (Short Term Incentive)(1)

 

1,639,000

 

1,325,000

2014-16 Performance Share Units (Cash)(2)

 

888,805

 

406,879

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

 

728,241

 

698,601

Other compensation components(3)

 

16,652

 

15,279

Short-term incentive calculation

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. 

Performance Measures

 

 

 

% of the STI

 

Achievement

 

Payout factor

Underlying EBITDA (under cash constraint)

 

50%

 

138%

 

69%

Sustainable Development

 

10%

 

181%

 

18%

Individual Objectives

 

Strategy

 

40%

 

154%

 

62%

 

People Model

     

Total

 

100%

 

 

 

149%

 

 

Threshold

 

Target

 

Maximum

 

Actual Achievement

 

Actual Achievement in %(1)

(1)

The scores 0% and 200% are defined using a range of -/+200M€ with a target set at 2,390M€. With 2466M€ underlying EBITDA achieved in 2017 before polyamide reclassification in discontinued operations, the Economic incentive scores is 138% vs target.

Underlying EBITDA – Target and Actuals (M€)

 

2,190

 

2,390

 

2,590

 

2,466

 

138%

 

 

Base salary

 

x

 

Target incentive

 

x

 

Performance factor

 

=

 

Final Award(1)

(1)

Delivered in April 2018 either in cash or in warrants or in share options based on the Euronext Index SICAV

STI

 

€ 1,100,000

 

x

 

100%

 

x

 

149%

 

=

 

€ 1,639,000

 The 2017 STI of the CEO corresponds to 149 % of his Base Salary, i.e. close to the maximum of 150 % of Base Salary, as assessed by the Compensation Committee and approved by the Board. This outcome is the result of:

  • Group performance: underlying EBITDA under cash constraint and Sustainable Development indicators,
  • Individual performance: pre-set annual objectives,
    • Strategy: finalization of portfolio strategic moves (sale of Polyamide activities) , closing of sale of stake in Vinythaï and Acetow, 
    • Optimization and functioning of the organization: strategic rationale and process design,
    • Talent development: Cytec management cross-fertilization, Executive Committee individual members development plan and evolution.

2014-16 PSU payout

 

 

2014-16 PSU target award

 

x

 

Payout Factor

 

=

 

Cash Payout

Total Perf. Share Units Payout (cash)

 

€ 800,000

 

x

 

111%

 

=

 

€ 888,805

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 countries. 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 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 short-term incentive for the members of the Executive Committee is 70% of base salary, with a maximum of 140% of base salary. Payout of short-term incentive is based on the achievement of pre-defined performance targets based on:

  • for 60% of the award – the Group’s underlying EBITDA (under a specific Free Cash Flow constraint)
  • for 10% of the award – the Group’s Sustainable Development indicators. These indicators include, but are not limited to, Solvay’s inclusion in extra-financial indexes and progress made on the internal sustainable development reference system, Solvay Way. Solvay Way defines the Group’s approach to sustainability and covers all the Group’s management systems,
  • for 30% of the award – the individual performance of the manager as measured against a set of predetermined objectives.

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

Long-term incentive

 

 

Performance Shares Units (PSU’s)

 

Stock Options

Executive Committee

 

Target Grant

 

Target Grant

 

€ 250,000

 

€ 250,000

Total 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 €

 

2017(1)

 

2016(2)

(1)

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

(2)

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

(3)

Delivered either in cash or in warrants or in share options based on the Euronext Index SICAV

(4)

Includes share price differential and dividends

(5)

K. Hajjar not included in 2016 payout relative to plan 2013-15 (joined after the 2013 LTI grant)

(6)

Representation allowance, luncheon vouchers, company car

Base compensation

 

2,337,909

 

2,259,531

Variable compensation (Short Term Incentive)(3)

 

2,288,777

 

1,802,934

Performance Share Units (Cash)(4)(5)

 

1,111,189

 

406,880

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

 

742,561

 

672,567

Other compensation components(6)

 

139,490

 

118,151

Variable compensation consisted of an annual incentive based on the performance achieved relative to pre-set collective Group economic and sustainable development performance objectives, and on 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 Article 520 ter of the Companies' Code.

Executive Committee members receive stock options and performance share units as explained above.

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.