PROFESIONALES
CAPÍTULO 4. EVOLUCIÓN DEL APS, SU INSTITUCIONALIZACIÓN E IMPACTO EN EL DESARROLLO DE COMPETENCIAS PROFESIONALES
4.6. DIFICULTADES EN LA IMPLEMENTACIÓN DE LOS PROYECTOS DE APS
The Committee assists the Supervisory Board with:
• Establishing and reviewing the Company’s pay policy (amongst others based on national and international benchmark standards);
• Ensuring that members of the Board of Management are compensated consistently with that policy;
• Reviewing and, if appropriate, recommending changes to the pay of the Supervisory Board;
• Supervising and counselling the Company on Organizational and Management Development;
• Holding an annual review of senior managers; and
• Reviewing the succession plans for the members of the Board of Management and other senior managers.
Members of the Supervisory Board regularly liaise with senior management below Board level.
In performing its duties, the Committee is assisted by an external remuneration consultancy firm (separate from the consultant used by the Company). The Committee is fully independent in the execution of its assigned responsibilities and ensures that the external remuneration consultancy firm acts on the instructions of the Committee and on a basis in which conflicts of interest are avoided.
Activities during
The Committee met 10 times in 2010, with all members present at each meeting. Consistent with its charter, the Committee has been involved in several aspects, such as:
• Reviewing the existing pay policy and recommending adjustments subject to adoption by the Annual Meeting of Shareholders, taking into account KPN’s risk profile, pay trends in the Netherlands and abroad as well as trends in Corporate Governance;
• Proposing a pay package for the new CEO;
• Reviewing the need for adjustments in pay levels (where applicable, and in order to ensure a consistent pay structure for the individual members of the Board of Management);
• Reviewing procedures to be followed in the event of a change of control (the accelerated vesting of shares in the event of a change in control);
• Proposing targets and performance criteria and ensuring that the targets would be in line with the basic principles and objectives of pay policy;
• Monitoring the internal and external auditing of the results and procedures to verify the mathematical accuracy of the short and long term incentive plans;
• Reviewing whether performance of the Committee is in line with the Committee’s charter;
• Preparing the Remuneration and Organizational Development Report to be included in
KPN’s Annual Report;
• Selection of an independent external remuneration consultancy firm; and
• Reviewing the Company’s efforts and achievements in the domain of talent management for
senior management.
KPN Annual report 2010
Remuneration and Organizational Development Report
Base salary
The Committee determines appropriate base salary levels based on KPN’s relative positioning in the peer groups.
In line with KPN’s pay-for-performance principle, base salary is targeted at the low end of the market-competitive range. Each year the Supervisory Board considers whether circumstances justify an adjustment in base salary within the market-competitive target range for individual members of the Board of Management.
Short-term incentives (STI) General
At the beginning of each year, the Supervisory Board sets financial and operational (non-financial) target ranges for the Board of Management. These ranges are based on the Company’s business plan. At the end of the year, the Supervisory Board reviews the Company’s performance against the target ranges. The Company’s external auditor has been engaged to perform procedures to verify a consistent application of the approved calculation method, the mathematical accuracy of the STI calculations and a reconciliation of the source data used in the financial statements. Members of the Board of Management are eligible for an annual cash incentive depending on Company performance at or above the predetermined ranges.
Objectives
The objective of this short-term incentive scheme is to ensure that the Board of Management is well incentivized to achieve Company performance targets in the shorter term. Specific details on targets cannot be disclosed for all performance measures, as this would require providing commercially sensitive information.
The Dutch employment peer group
Aegon NV Royal Dutch Shell Plc
AkzoNobel NV Randstad Holding NV
ASML Holding NV Royal Philips Electronics NV
ING Group NV SBM Offshore NV
DSM NV TNT NV
Heineken NV Unilever NV/Plc
Reed Elsevier NV/Plc Wolters Kluwer NV Royal Ahold NV
The European employment peer group
Atos Origin SA LogicaCMG Plc
Belgacom SA Portugal Telecom SA
BT Group Plc Swisscom
Cap Gemini Telenor Group ASA
Deutsche Telekom AG TeliaSonera AB France Telecom SA
The Committee regularly reviews both peer groups to ensure that their composition is still appropriate.
The composition of the peer groups might be adjusted as a result of mergers or other corporate activities.
It should be noted that KPN ranks, on average, at the upper quartile level in terms of revenues and market capitalization. In terms of the number of employees, KPN ranks between the median and upper quartile levels. Based on these factors, the relative size of KPN is at or in line with the 70th percentile of the peer groups and the relative positioning is taken into account when determining whether KPN ‘pays competitively’.
Component Form of
compensation Value determination Targets Payout at threshold
performance Payout at or above maximum performance
STI Cash ‘On-target’ incentive
equals 100% of base salary for the CEO and 75% of base salary for the other members of the Board of Management.
The ‘on-target’
incentive is used as input for the market- competitive benchmark against the employment market peer group.
Targets typically are Revenue, EBITDA, Profit before Tax, various measures of customer market shares and strategic progress.
The CEO and CFO targets are based on Group-level performance, while for the other members of the Board of
25% of the ‘on-target’
incentive (i.e. 25% of base salary for the CEO and 18.75% of base salary for the other members of the Board of Management).
Payout below threshold performance: 0%
of the ‘on-target’
incentive.
150% of the ‘on-target’ incentive (i.e. 150% of base salary for the CEO and 112.5% of base salary for the other members of the Board of Management).
1) Maximum including the effect of the modifier.
Remuneration and OrganizationalDevelopment Report Actual pay-out levels
In recent years maximum incentive levels have only been paid out on a few occasions. This is despite the fact that the Company has delivered competitive performance ahead of market expectations and has consistently achieved guidance given to the financial community.
For 2010, on average, the Revenues were below target, EBITDA was above target and Profit before Tax was above maximum. In determination of the 2010 incentive, the Supervisory Board, decided on payment of the incentive for the Members of the Board of Management, using its discretionary authority for the incentive for Mr Blok, taking into account excellent results achieved in respect of Mobile International.
Long-term incentives (LTI) General
In addition to the base salary and the short-term annual cash incentive described above, a long-term incentive based on performance shares is used to ensure that the interests of management are aligned with those of its long-term (or prospective) shareholders and to provide an incentive for members of the Board of Management to continue their employment relationship with the Company.
The number of shares granted under this plan is derived by applying a percentage to base salary and dividing this amount by the value of each granted share, as shown in the following table.
Performance incentive zone
The target ranges for financial and operational performance comprise:
• A ‘threshold’ below which no incentive is paid;
• An ‘on target’ performance level at which an ‘on target’
incentive is paid; and
• A ‘maximum’ at which the maximum incentive is paid.
The STI is designed to strike a balance between the Company’s risk profile and the incentive to achieve ambitious targets.
The Supervisory Board’s ability to apply a modifier ranges between 0.5 (i.e. cutting half of the cash incentive) and 1.5 (i.e. increasing the cash incentive by 50%) based on the achievement of individual objectives. The individual Board Member objectives are agreed upon at the beginning of the year and tend to reflect longer-term goals such as customer satisfaction, diversity, compliance, Net Promotor Score, Corporate Social Responsibility, market shares and strategic progress. The ability to apply a modifier does not increase average achievement levels. It does, however, allow the Supervisory Board some discretion in differentiating on the basis of individual contributions to Company performance.
The Supervisory Board has the discretionary authority to reward extraordinary management achievement that outperforms the regular business plan(s) and has created substantial additional value for the Company and its shareholders. Other than that, discretion both up and down can be applied if the outcome on the STI incentive scheme would be grossly unfair or if the outcome would not be considered to reflect the basic objectives and principles of pay as outlined in this section.
Component Form of
Compensation Value determination Drivers On target Scenario maximum
(position 1 to 3 in peer group)
Long-term share-based
compensation Shares
CEO: 150% of base salary Other members of the Board of Management:
75% of base salary
Total Shareholder Return (TSR), i.e. share price development plus compounded dividends received
100% of the granted shares vest (position 7
in peer group) 200% of the granted shares vest
Special LTI1 Shares 50% of base salary TSR and ‘Back to Growth’
targets
Top 3 position in the peer group ranking,
‘Back to Growth’ targets 200% of the granted shares vest
1) As presented in the 2009 AGM, the Supervisory Board agreed to an uplift to the LTI entitlements for 2009 and 2010 in order to reflect the high ambitions of the current ‘Back to Growth’ strategy.
KPN Annual report 2010
Remuneration and Organizational Development Report
Please note that the peer group used for relative TSR reflects the relevant competitive market in which KPN competes for investor preference. As such, it is different from the employment-market peer groups, which are used to determine pay levels for the CEO and members of the Board of Management. The peer group may be adjusted if an individual company no longer qualifies as a relevant peer company.
Performance incentive zone
Since 2008, the design of KPN’s long-term incentive plan ensures that shares are rewarded for ‘above average’
returns while no shares are rewarded for ‘below average’
returns. Once vested, the shares will have to be held for a minimum period of two years. This does not hold for shares that would have to be sold to cover income tax obligations in relation to the vested shares (typically the value taxed as income equals the amount of shares vested multiplied by the share price at the time of vesting). The table below provides an overview of the vesting schedule applied.
The external remuneration consultant calculates the end-of-year TSR peer group position and the number of shares vested and makes certain that calculations are performed objectively and independently.
The Supervisory Board has the discretionary authority to reward extraordinary management achievement that outperforms the regular business plan(s) and has created substantial additional value for the Company and its shareholders. Other than that, discretion both up and down can be applied if the outcome on the LTI incentive scheme would be grossly unfair or if the outcome would not be considered to reflect the basic objectives and principles of pay as outlined in this section.
It is KPN’s policy to remunerate management in the event of a change of control in a manner which encourages management to take into account the interests of all stakeholders of the enterprise as is required under Dutch law. An amendment to the remuneration of the Members of the Board of Management in case of a change in control was adopted by the AGM in April, 2010.
Actual pay-out levels
KPN’s performance over the period 2008–2010 resulted in the 5th position in the TSR performance peer group with respect to the 2008 share award, which leads to a vesting percentage of 150% of the shares that will vest in April 2011. This TSR performance justifies the conclusion that KPN’s excellent short-term performance does not have to come at the expense of KPN’s longer-term performance and vice versa.
Special arrangement for the CEO
The performance period of the shares granted to the CEO in 2010 is one year, and any shares vested cannot be sold before July 2011. At the end of 2010, KPN held the 11th position with respect to the 2010 share grant, which does not lead to vesting of the shares in April 2011 for the CEO.
This TSR position is no indication of KPN’s final ranking after the three-year performance period that applies to the other members of the Board of Management.
The number of shares that actually vest is conditional on the extent to which the returns to KPN shareholders outperform the returns to shareholders of a peer group of Western European telecommunications companies. It is felt that comparing KPN with a wider group of companies (either geographically or with other industries) is not meaningful. Variations in returns would most likely be attributed largely to macroeconomic events and/or sector shifts rather than to variations in management actions.
Therefore, benchmarking achievements relative to other, similar companies emphasizes rewarding for specific KPN performance.
Vesting is also subject to the condition that the member of the Board of Management has not resigned within three years of the date of the initial grant.
Similar to prior years, the value used to determine the number of granted shares is typically materially substantially below the then prevailing share price. The share price is decreased to account for the characteristics of the plan. This system is chosen to include the odds of non-vesting, holding restrictions after the vesting date, conditionally of the grant on continued employment and the shares not paying any dividends prior to the vesting date.
The performance period of the long-term incentive plan is set at three years. The Committee uses scenario analysis to estimate the possible outcomes of the value of the shares vesting in coming years and decides whether a correct risk incentive is set for the Management Board members with respect to the overall level of pay and pay differentials within the Company.
In addition to the information provided in the Remuneration Report, please refer to Note 3 of the Financial Statements for a further description and valuation of the option and share plans.
Performance-measuring and peer group performance
Vesting of the shares is conditional on KPN’s relative shareholder return. The table below provides an overview of KPN’s performance peer group.
Companies included in the peer group
Belgacom SA Telecom Italia Spa
BT Group Plc Telefonica SA
Deutsche Telekom AG Telekom Austria AG France Telecom SA Telenor ASA Hellenic Telecom (OTE) TeliaSonera AB Portugal Telecom SA Vodafone Group Plc
Swisscom AG KPN NV
Position Top 8 vesting % existing share plan
Top 8 ranking companies for 2008 share plan (vests in 2011)
Position 1 200% of the shares vest Portugal Telecom SA Position 2 200% of the shares vest Swisscom AG Position 3 200% of the shares vest TeliaSonera AB Position 4 175% of the shares vest Vodafone Group Plc Position 5 150% of the shares vest KPN NV
Position 6 125% of the shares vest Belgacom SA Position 7 100% of the shares vest Telefonica SA Position 8 No vesting takes place Deutsche Telekom AG
Remuneration and OrganizationalDevelopment Report Additional arrangements
The additional arrangements, such as expense allowances, use of cellphones and Company car provisions needed for the execution of their roles, are broadly in line with other companies of similar size and complexity, as well as with market standards.
Loans
Company policy does not allow loans to be granted to members of the Board of Management.
Terms of employment
• All members of the Board of Management have entered into employment contracts for an indefinite period of time.
• Members of the Board are appointed for a period of four years, which is in line with requirements of the Dutch Corporate Governance Code.
Severance arrangements
Severance payments for the CEO and members of the Board of Management are aligned with the Dutch Corporate Governance Code (one year base salary), with the exception of Mr Blok. In his current employment contract, a severance arrangement of one year base salary plus 100% short-term incentive was contractually agreed with Mr Blok. As part of the appointment of Mr Blok as Chairman of the Board of Management, the severance clause will be contractually adjusted to one year base salary.
Outlook for
A review and discussion of the existing pay policy was assessed in 2010, taking into account KPN’s risk profile, pay trends in the Netherlands and abroad as well as trends in Corporate Governance.
The adjustments to the pay policy will be proposed for adoption by the AGM on April 6, 2011, including but not limited to:
• Shift the weight of the short- and long-term incentives more towards the long-term incentives;
• Shift the LTI grant policy from a percentage where the participant is given an entitlement based on a percentage of fixed compensation, to a fixed number of performance shares;
• Adjustment of the STI payout methodology from a matrix approach (payout based on the achievement of a combination of financial targets) to a payout approach for each of the financial- and non-financial targets ;
• Introduction of a non-financial component for vesting of shares as part of the LTI plan;
• Introduction of share ownership guidelines; and
• Integration of the Dutch and European employment peer groups.
With the proposed changes, the Supervisory Board wishes to shift the emphasis of the incentives towards the longer term, to simplify the LTI grant policy and to add
non-financial elements to the LTI.
Due to an increase in workload, complexity and level of responsibility, a market competitive adjustment to the fee structure for the Supervisory Board will be proposed for adoption by the AGM on April 6, 2011.
Special LTI
As presented in the 2009 AGM, the Supervisory Board agreed to an uplift of the LTI entitlements for 2009 and 2010 in order to reflect the extremely high ambitions of the ‘Back to Growth’ strategy. This will result in a LTI value determination of 200% (instead of 150%) of base salary for the CEO and 125% (instead of 75%) of base salary for the other members of the Board of Management. The uplift in LTI will be rewarded if the challenging financial targets in 2009 and 2010 are met and KPN will reach a number 1, 2 or 3 position in the TSR peer group ranking. The Committee reviewed the extent to which the stretched targets have been achieved and decided that, taking into account the vesting conditions, the Special LTI will not be rewarded to the CEO. For the other members of the Board of Management this decision will be made based on KPN’s final ranking after the three-year performance period.
Change in composition and responsibilities of the Board of Management
KPN and Mr Miller agreed upon his resignation as director and CEO of Mobile International. KPN and Mr Miller agreed
KPN and Mr Miller agreed upon his resignation as director and CEO of Mobile International. KPN and Mr Miller agreed