5.3. Executive Committee compensation

5.3.1. Solvay’s compensation philosophy

Solvay’s compensation policy aims to ensure that its Executive Committee is rewarded according to its performance 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 and future looking perspective in alignment with the new Group strategy.

The Solvay compensation structure is designed in line with the following principles:

• Total compensation is designed to be competitive in the relevant market and sector, so as to attract, retain, and motivate high caliber executives needed to deliver the Group’s strategy and drive business performance.
• Short-term and long-term variable compensation is well balanced, tied directly to the achievement of strategic objectives to drive sustainable performance and recognize excellent results once delivered.
• Compensation decisions are compliant and equitable, and balance cost and value appropriately.

5.3.2. Compensation structure and policy

Every year, the Compensation Committee annually 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.

• Air Liquide
• BAE Systems
• BASF
• Bayer
• Covestro (new)
• DSM
• Evonik
• GKN (*)
• Johnson Matthey
• Lanxess
• Michelin
• Rolls Royce
• Saint Gobain
• Syngenta (*)
• Umicore
• Valeo (new)
• Vallourec

Compared to previous year two companies have been excluded from the peer group (Akzo Specialty Chemicals (now known as Nouryon) and Plastic Omnium) as comparative data was not available to Executive Compensation consultant. As such, these two companies have been replaced with Valeo and Covestro as relevant peer companies.

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 an opportunity to receive top quartile pay if executives deliver superior performance.

Compensation structure components:

Fixed Compensation and Benefits

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’s 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’s business.

Short and Long Term Variable Compensation

Short-term incentive Plan (STI) 2019

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 relevant to Solvay’s strategy and set at the start of the year, as approved by the Compensation Committee. More specifically, the performance measures for 2019 were:

• Group performance measured against annual underlying EBITDA (under a specific Free Cash Flow constraint);
• Group progress towards "Solvay Way" Sustainable Development objectives as further explained below; and
• Individual performance: measured against a set of pre-determined annual objectives, approved by the Board of Directors.

2019-STI performance (Targets and Performance)

Underlying EBITDA

Sustainable development

The sustainable development progress has been measured according to "Solvay Way", our internal referential. It addresses the performance of the main sustainability priorities of the Group (GHG Emissions, Safety, Engagement, Business Solutions, Societal Actions) and other material topics. The overall audited achievement for 2019 is 145% of the target as further detailed in Sustainability Management section of Annual Report.

Individual Performance

Individual performance measures against a set of pre-determined annual objectives, approved by the Board of Directors.

2020 Short Term Incentive (STI) plan

To better align our incentivization structure with the Company’s new G.R.O.W. strategy, the Board of Directors on the recommendation of the Compensation Committee has approved the following structure to the STI Plan:

1. Payout of Short Term Incentive plan is dependent on the achievement of the Group’s performance at 60% of Total for the CEO and at 70% of Total for the other Members of the Executive Committee and respectively Individual performance weighted at 40% for CEO and at 30% of Total for the other Members of the Executive Committee.
2. Group’s Performance in 2020 Financial year will be measured against:
   • Organic EBITDA Growth weighted at 70% of the Group’s performance with a minimum and maximum threshold as the most important financial priority for the year;
   • Free Cash Flow conversion weighted at 20% of the Group’s performance;
   • Achievement of Solvay ONE Planet initiative (measured using metrics like % of Sustainable solutions in sales, freshwater withdrawal, safety, diversity and others) weighted at 10% of Group performance.
3. As before Individual performance: measured against a set of pre-determined annual objectives, approved by the Board of Directors.

Metrics used to measure performance of the Group are being revised by the Board of the Directors for each financial year considering strategic objectives and priorities of the Group.

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.

Board of Directors has the right to exercise discretion to the LTI award amount for the Members of Executive Committee, both upwards and downwards, of 50% of the target for any new grant.

Such discretion is maintained to ensure the Board of Directors has the flexibility to adjust the award level in the event of unique circumstances and the 50:50 split principle between SOP and
PSU grants will be respected.

Stock Options

Under Belgian law, unlike other jurisdictions, taxes on stock options need to be paid by the executives at the time of grant. Taxes paid at the time of grant cannot be recouped if the options
do not vest, demonstrating executives’ commitment and belief in Solvay’s long-term strategy and performance. 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 three full calendar years (options become exercisable on the first day of the 4th year after the grant date) followed with four year exercise period.

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. 

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.

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

Performance Share Units (PSU)

The PSU’s ensures alignment with market best practices, helping Solvay to remain competitive to attract, retain, and motivate key executives.  

The PSU’s are settled in cash and vest after three years from the date of grant only if pre-set performance objectives are met at minimum threshold level. The minimum payout will vary from zero if the “threshold” target is not met, to maximum payout of 120% if “upper" (maximum) target is achieved.

Each year, the Board of Directors determines the budget  available for distribution based on the average closing Solvay’s share prices on the Euronext during the 30 days preceding the grant date. The total volume of PSU available is then allocated to executives of the Company based on their individual contribution/position to delivering Solvay’s long-term strategy.

Key features of existing PSU program:

• 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 (see below).
• The performance period is measured over three years.
• Condition of employment up to achievement of performance targets.
• The plan contains a claw-back provision for a period of three years after the payout in case of erroneous results.
• Payout in cash based on the value of Solvay shares at vesting.

The Board of Directors assesses the achievement of the targets based on the audited results of the Group.

The Board of Directors may use discretion to also re-evaluate the targets set in cases of material change of perimeter or other unexpected circumstances. Where such discretion is applied by the Compensation Committee, which will not be used as a matter of routine, the rationale for the use of such discretion will be disclosed. Additionally, discretion, if used, would be subject to the award limit stated under the Compensation policy.

Effective January 1, 2020 the Board of Directors, on the recommendation from the Compensation Committee, has revised the performance indicators used for future PSU grants to align them with Solvay’s G.R.O.W. strategy as well as take into account shareholder input:    

• Sustained underlying EBITDA growth metric on year over year basis expressed as a % (40% of the award).
• ROCE % as a measurement of efficiency of capital employed as recommended by the investor community (40% of the award) to replace CFROI.
• Greenhouse Gas emission reduction (20% of the award) as a measurement towards Solvay long term sustainability commitment.

The Board of Directors with an intention has elected to use the Underlying EBITDA growth measurement as part of performance metrics for both Short Term Incentive and Performance Share Unit plans to emphasize the importance of the EBITDA growth as the key priority and driving force towards the financial sustainability and long term profitability of the Company so that short term gain is not delivered at a price of long term results.

2016-18 LTI Performance Share Unit plan performance payout

Payout in 2019

The combination of the performance achievement at 60%, the share price differential (grant share price €77.91 vs. €97.85 share price at vesting), and the total dividends over three years (€10.80 per unit) has generated a payout of 84% of the granted PSU amount.

5.3.3. Chief Executive Officer

The remuneration package of the Chairman of the Executive Committee/CEO, Ms. Ilham Kadri, is in full compliance with Article 520 ter of the Companies’ Code and article 7:91 of the new Companies and Associations' Code. It is set by the Board of Directors based on recommendations by the Compensation Committee.

Under Article 520 ter of the Companies Code, taken up in article 7:91 of the new Companies and Associations' 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 predetermined performance criteria 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.

CEO Compensation structure

Base salary

The CEO’s base salary is € 1.15 million, which was determined at the time of appointment and based on pay level of CEOs in Solvay’s defined peer group. The Board of Directors does not foresee a revision to the base salary of the CEO in 2020 as it remains aligned with the market median.

Pension & benefits

Regarding Ms. Ilham Kadri extra-legal pension rights, given her self-employed status in Belgium, the CEO has her own separate contractual agreement, with pension, death-in-service, and disability rules.

She is entitled to the following benefits:

• Defined Contribution Pension plan of ~25% of her total cash at target,
• Disability and life insurance plan,
• Medical plan.

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, progress made on the internal sustainable development reference system, “Solvay Way”. The “Solvay Way” defines the Group’s approach to sustainability and covers all the Group’s management system as detailed in Sustainability Management section of the Annual report.
• for 40% of the award – individual objectives such as revision of the Groups purpose, strategy, portfolio management (divestments/acquisitions), and People Engagement.

The weights of the different performance measures for 2019 was maintained at the same level as the previous CEO.

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.

2019 Award

In 2019, the face value of CEO’s overall LTI award totaled €1.725 million, in line with her 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.

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 she is offered, with close to 70% of her pay being subject to the delivery of a sustainable value creation for all stakeholders.

CEO total compensation at target for 2019:

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 she achieved her individual pre-set objectives the actual total 2019 compensation package of the Chairman of the Executive Committee was as follows:

Total Remuneration summary of the Chairman of the Executive Committee for 2019

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.

The 2019 STI of the CEO corresponds to 118.4% of her base salary and below 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 with an achievement of 51% vs target,
• Sustainable Development with an achievement of 145% (as explained earlier).
• Individual performance: pre-set annual objectives
  • 196%

STI payout calculation

5.3.4. Remuneration of 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, as well as coverage of expenses related to expatriation and/or relocation due to Executive role, 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

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 as explained in the Compensation policy.

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

The Executive Committee members are eligible for Long Term Incentive grant value of €500,000 following the principles explained in the Compensation policy with 50:50 split between Stock Options and Performance Share units. Details of 2019 grant for the Members of Executive Committee are detailled in section 5.4 of this report.

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

Statements of compliance of remuneration for Chairman and Members of Executive Committee

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.

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

The remuneration package of the members of the Executive Committee is in full compliance with Article 520 ter of the Companies’ Code and art 7:91 of the new Companies and Associations' Code.

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.

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.

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.