Remuneration report

The following remuneration report from the Supervisory Board describes how the remuneration policy was put into practice during the past financial year. The report includes summaries of information concerning remuneration received in 2017 and also contains a summary of the remuneration policy for the coming financial year and subsequent years.

Remuneration 2017

The Remuneration Committee is a permanent committee of the Supervisory Board and consists of at least two members of the Supervisory Board. The Remuneration Committee is subject to rules established by the Supervisory Board. At the end of the year under review it consisted of Mrs Mahieu (Chairwoman), Mrs Valentin and Mr Noy. The composition of the Remuneration Committee is in line with the provisions of the Code. The Remuneration Committee met three times during the past financial year. The committee members consulted with each other a number of times outside the context of a formal meeting.

Remuneration of the Executive Board members
A benchmark and adjustment of the fixed remuneration of the Executive Board took place in 2016. After the annual evaluation beginning 2017 as described in the remuneration policy, it was decided not to modify the fixed remuneration per January 2017. Per June 2017, the fixed expense allowances for members of the Executive Board were substituted by the reimbursement of actual incurred business expenses. A transitional measure as applicable within the Group for all comparable employees was applied, which led to a slight increase of the fixed remuneration per that date. The members of the Executive Board received remuneration in the past financial year in line with the remuneration policy adopted by the Annual General Meeting on 22 April 2015.

The members of the Executive Board were awarded a short-term incentive of 31 per cent of the fixed remuneration. The short-term incentive targets related to performance on the Group’s financial priorities, measured by adjusted profit before tax, working capital and cash flow and to performance on strategy and One BAM Culture implementation initiatives for the non-financial targets. The financial targets adjusted profit before tax and cash flow were not achieved. The scoring on the other targets has resulted in the above mentioned percentage.

The conditional performance shares granted to the members of the Executive Board under the long-term incentive performance share plan in 2017 are stated in table 65.

A summary of the remuneration of the individual members of the Executive Board can be found in tables 59 and 65. No other compensation was awarded to members of the Executive Board in the financial year other than the compensation indicated in tables 59 and 65.

The company has not awarded any options to members of the Executive Board, members of operating company management teams or employees. The remuneration of the Executive Board members is not affected by a change of control at the company. No loans were issued to members of the Executive Board.

The Supervisory Board did not see any reason during the financial year to use its extraordinary powers to adjust or reclaim variable or long-term remuneration that had already been awarded.

Remuneration of the Supervisory Board members
The remuneration of the Supervisory Board was lastly determined by the General Meeting on 7 May 2008. After internal consultation in 2017, the Supervisory Board members came to the conclusion that this remuneration was no longer in proportion with the nature and intensity of its activities. In the past few years, the tasks and responsibilities of the Supervisory Board have increased significantly. This is also clear from the new Corporate Governance Code as published on 8 December 2016. A benchmark (performed by external remuneration advisers) of the remuneration of Supervisory Board members of other Dutch AMX companies also led to the conclusion that the remuneration was no longer in line with what is customary in this peer group. Therefore, the Supervisory Board proposed to adjust its remuneration per 1 May 2017 as follows: an annual fixed remuneration of €70,000 for the Chairman, €55,000 for the Vice-Chairman and €50,000 for the other members of the Supervisory Board, with an additional annual  fixed remuneration of €10,000 (Chairman) or €7,000 (member) for membership of one or more Supervisory Board committees. Non-Dutch members will receive an attendance fee of €1,500 per meeting. Actual and necessarily incurred costs in the performance of the duties for BAM are reimbursed. This policy was adopted by the annual General Meeting on 19 April 2017.

As a policy the Company does not award any options or shares to members of the Supervisory Board. This was also the case in 2017. The remuneration of the Supervisory Board members is not affected by the company’s results, nor by any change of control at the company. No loans were issued to members of the Supervisory Board.

Internal pay ratio

The revised Dutch Corporate Governance Code (2016) states that the remuneration policy should take into account the internal pay ratio within the organisation and that the results should be reported in the remuneration report. In light of transparency and clarity, BAM applies a methodology to calculate the internal pay ratio based on the employee benefits and the CEO compensation according to the financial statements. Furthermore, the approach is standardised, in line with common practices in the market, which allows for the context in the external market.

BAM’s internal pay ratio is calculated as the total CEO compensation divided by the average employee compensation (employee benefit expenses excluding restructuring costs and termination benefits divided by the average number of FTE).

Consequently BAM’s calculated internal pay ratio in 2017 is 20 (2016: 22), implying that the CEO pay is 20 times the average pay within the organisation.

Remuneration policy

The Supervisory Board draws up the company’s remuneration policy based on advice from its Remuneration Committee. The General Meeting adopts the remuneration policy. Once the remuneration policy has been adopted, the Supervisory Board determines the remuneration for the individual members of the Executive Board, again on the basis of recommendations of its Remuneration Committee. The Remuneration Committee’s regulations are published on BAM’s website.

Design principles

The remuneration policy is geared to attract and retain qualified people and motivating them to achieve Royal BAM Group’s objectives. Particular emphasis is placed on experience with the Group’s (international) activities and the necessary management qualities. In the design of the policy and in determining the remuneration levels of the members of the Executive Board, the Supervisory Board has benchmarked several remuneration elements against market standards. Also the internal pay differentials have been taken into account, as well as scenario analyses which were used to determine possible outcomes of the variable remuneration elements, including the maximum value of the long-term incentive. The remuneration structure and elements take into account that risk-taking beyond the risk profile of the company should not be encouraged.

The policy is also aimed at stimulating profitable growth and long-term value creation, to motivate individuals and to increase the attractiveness of the company to highly qualified executives, including those from other industries, so as to interest them in Royal BAM Group. The policy contributes to long-term value creation by not only focussing on financial targets but also on non-financial targets like sustainability and safety. In addition, a long-term incentive plan has been implemented for this purpose. The remuneration level and structure are partly based on the development of results, as well as other developments that are relevant to the company, including non-financial indicators which are relevant for the company’s long-term objectives.

In order to achieve these design principles, remuneration is set at a competitive level for the relevant national general remuneration market for directors and other senior managers of large companies. The Supervisory Board will regularly review the remuneration package to ensure that it complies with the assumptions underlying the remuneration policy. The remuneration policy will also be evaluated regularly; changes in the policy will be put forward for adoption at the General Meeting.

Remuneration level

The Supervisory Board uses external benchmark information to assess market comparability of the remuneration levels. Remuneration levels are aimed at the median of a labour market reference group of fifteen companies as listed in table 55. The reference group was selected based on industry, ownership structure, geographical business scope and size parameters.


55 - Reference group

Arcadis Heijmans
Balfour Beatty Hochtief
Bauer NCC
Besix Post NL
Boskalis Skanska
Carillion Strabag
Eiffage VolkerWessels
Fugro  
   

The incentive levels are presented in the table below:


56 - Remuneration level

STI (% of fixed remuneration)  
CEO 55% (target)
75% (maximum)
Members 55% (target)
75% (maximum)
LTI (% of fixed remuneration)*  
CEO 70%
Members 60%
Share ownership guidelines  
CEO 1 times fixed remuneration
Members 0.75 times fixed remuneration
   
* Award value.  

Remuneration package

The remuneration of the Executive Board consists of four elements:

a.Fixed remuneration;
b.Short-term incentive (STI);
c.Long-term incentive (LTI);
d. Post-employment benefits and other secondary conditions
of employment.

Ad a. Fixed remuneration
The Supervisory Board determines the development of the fixed remuneration of the individual members of the Executive Board. The annual evaluation and change in fixed remuneration generally take place per 1 January of each year. The evaluation considers personal performance, the results of the past year, the extent to which the current fixed remuneration deviates from the benchmark and general changes in the market.

Ad b. Short-term incentive
To ensure continued alignment of the short-term incentive with BAM’s strategy, flexibility with respect to the STI metrics is important to enable adequate responses to the challenges the Group is facing. At the start of the financial year the Remuneration Committee selects two to three financial metrics for the STI of the members of the Executive Board. It also determines their relative weighting.

The financial metrics will be chosen from the following list:

  1. (Adjusted) profit before tax
  2. Operational result (EBIT)
  3. Working capital
  4. Cash flow
  5. Cash conversion
  6. Cost reduction
  7. Divestments

The selected metrics link remuneration with BAM’s financial priorities. As specific targets for each of the metrics may qualify as sensitive information, these will in principle not be disclosed.

70 per cent of the STI is based on the selected financial metrics, the remaining 30 per cent is linked to non-financial performance targets. Performance incentive zones are defined for each of the targets. Payout gradually increases with performance, starting with a payout of 35 per cent of the fixed remuneration at threshold performance, 55 per cent at target performance and potentially going up to 75 per cent of fixed remuneration at maximum performance per individual target. Below threshold there will be zero payout. The Supervisory Board sets the performance ranges (i.e. threshold, at target and maximum performance levels) and corresponding payout levels.

After the end of the financial year, the Remuneration Committee determines to what extent the performance targets have been met. The Supervisory Board, following a proposal from the Remuneration Committee, will decide upon the variable remuneration to be awarded over the past financial year.

In cases in which the variable remuneration is awarded on the basis of inaccurate (financial) data, the Supervisory Board has the right to adjust the variable remuneration accordingly, and the company is entitled to reclaim (any part of) the variable remuneration paid to a member of the Executive Board on the basis of incorrect (financial) information.

In the case of new awards of variable remuneration to members of the Executive Board, based on quantified performance criteria, the Supervisory Board has the right to amend the awards in relation to the level of previous years if it considers that this would otherwise lead to an unreasonable outcome.

The Supervisory Board also has the power to amend the existing conditional awards of variable remuneration based on quantified performance criteria if, in its opinion, applying the criteria without amendment would have an unreasonable and unintended outcome. These matters have been incorporated into the management agreements of the Executive Board.

Ad c. Long-term incentive
Executive Board members participate in a performance share plan. The performance shares are conditionally awarded subject to performance testing after three years. The number of performance shares at award date is calculated by dividing the award value by the average closing price of BAM shares on Euronext Amsterdam based on the five-day average closing price after the General Meeting.

There are two financial performance measures, being relative total shareholder return (TSR) and ROCE and one non-financial measure, being sustainability. Realised performance results in a vesting percentage for each of the three performance targets, each determining one third of the vesting of the conditionally granted shares. The TSR measure will also operate as a ‘circuit breaker’ for the vesting part linked to the other two criteria. When BAM ranks at the bottom two places of the TSR peer group, the other parts will not pay out regardless of the performance in this area.

The minimum share ownership requirement for the CEO amounts to 100 per cent of fixed remuneration and for the other members of the Executive Board to 75 per cent of fixed remuneration. In accordance with the Code the three-year vesting period will be followed by a two-year lock-up period. Participants are not allowed to divest any shareholding until the two-year lock-up period has lapsed and the above minimum share ownership requirements are met, with the exception of any sale of shares during the lock-up period required to meet any tax obligations and social security premiums (including any other duties and levies) as a consequence of the vesting.


57 - Long-term incentive plan

Financial vs. non-financial(personal) measures Financial: 66.7%
Non-financial: 33.3%
   
Weight (% of total value at grant)and type of measures TSR:33.3%
ROCE:33.3%
Sustainability:33.3%
   
Payment mechanism Conditional performance shares
   
Stimulating share ownership Two-year additional holding period plus minimum share ownership requirements


TSR is defined as the share price increase, including dividends.
TSR is measured over a three year period based on the three month average share price before the start and the end of the three year period. The relative position within the peer group determines the vesting percentage. The TSR peer group comprises of Balfour Beatty, Boskalis, Carillion, Eiffage, Heijmans, Hochtief, Skanska, Strabag, Vinci, YIT (and BAM). The composition of the TSR peer group is being evaluated on a periodic basis, among other things, in light of corporate events.

Realised performance against the targets is assessed by using performance incentive zones. For excellent performance, the number of performance shares per individual target that may vest may amount to a maximum of 150 per cent of the ‘at target’ number of performance shares. This percentage may be reduced to zero (on a sliding scale) for non-achievement of the individual targets. The performance incentive zones are presented in table 58.

The value of the performance shares – as the combined result of the number of performance shares that will vest and the share price at the moment of vesting – that will become unconditional to a participant will at vesting never exceed two and a half times the award value in order to avoid inappropriate payouts.

The authority to implement the long-term incentive plan lies with the Supervisory Board. The Supervisory Board has the right to change or terminate the scheme at any time. If the Supervisory Board decides to terminate or make material changes to the long-term incentive plan, the next General Meeting will be asked to adopt a resolution to that effect. Upon a decision of the Supervisory Board, following a proposal from the Remuneration Committee, the company has the discretionary power to fully or partially reclaim from the participant who is member of the Executive Board the conditionally awarded performance shares as well as vested shares (or any benefit resulting therefrom) where those have been awarded on the basis of incorrect information concerning:

(i) The achievement of the performance conditions concerned or;
(ii) Events or conditions on which the shares were conditionally awarded.

At the discretionary request of the Supervisory Board, the company’s independent auditor will check the calculations carried out and conclusions reached in connection with the long-term incentive plan, in which case the independent auditor’s assessment will be binding.

Ad d. Post-employment benefits and other secondary conditions
of employment
With respect to pensions, sector regulations are adopted wherever possible, with surplus schemes based on defined contributions and contributions from the participants. Members of the Executive Board are subject to a pension scheme and transitional arrangements as applicable within the Group from 1 January 2006 for all comparable employees. The costs of trend-based indexation of underlying pension rights have been included in the pension contributions with effect from 2009. The company does not have any early retirement schemes. No pension arrangements were made with regard to Mr Bax, who instead will receive a contribution for his personal pension arrangements.

As for all the other employees, the Group has a competitive package of secondary conditions of employment for the members of the Executive Board. This package includes such matters as healthcare and disability insurance, personal accident insurance, a car scheme and reimbursement of business expenses. The Group does not give loans, warrants and the like to members of the Executive Board or to other employees, except for the following indemnities and insurances.


58 - The performance incentive zones

Relative TSR

 

ROCE

 

Sustainability

TSR ranking

Vesting

 

Score

Vesting

 

Score

Vesting

 

 

 

 

 

 

 

 

1

150%

 

Above maximum

150%

 

Above maximum

150%

2

125%

 

Maximum

150%

 

Maximum

150%

3

100%

 

Target

100%

 

Target

100%

4

75%

 

Threshold

50%

 

Threshold

50%

5

50%

 

Below threshold

0%

 

Below threshold

0%

6

25%

 

 

 

 

Notes:

1)  Vesting is expressed as a percentage of the conditionally granted number of shares.

2)  If TSR would be at position 10 or 11, no vesting can occur for the other parts.

7

0%

 

8

0%

 

9

0%

 

10

0%

 

11

0%

 

 

Current and former members of the Supervisory Board and Executive Board are covered by the indemnity, under the Articles of Association, against claims made against them in respect of actions or omissions in the performance of the duties of their position, unless said actions or omissions constituted willful, deliberately reckless or seriously culpable conduct and/or consisted of traffic offences. This facility also applies to all employees and former employees of BAM. The company has taken out directors’ and officers’ liability insurance under standard market terms and conditions for the members of the Supervisory Board, the members of the Executive Board, the members of the operating company management teams and
all other directors and officers in BAM.

Period of appointment and management services agreements
Members of the Executive Board are in principle appointed for a period of four years and deliver their services under a management services agreement. The members of the Executive Board have a notice period of six months for the company and three months for the members. The company regards a notice period of three months suitable for a member of the Executive Board.

If the company terminates the management services agreement of a member of the Executive Board, the maximum severance payment will be one year’s fixed remuneration.

The company has no other remuneration provisions, beyond the remuneration package mentioned above, nor are there any other rights to one-time payments.

Securities rules
The company has rules relating to the possession of and trading in BAM securities. These rules are published on the company’s website. The company also has regulations for members of the Executive Board and the Supervisory Board relating to the trading in securities other than those issued by the company.

Remuneration policy for 2018 and subsequent years

The remuneration policy described above will remain in effect in the financial year 2018 and subsequent years. No material changes in the remuneration policy are planned in the coming period.

Supervisory Board
Bunnik, the Netherlands, 20 February 2018

 


59 - Executive Board remuneration
Fixed remuneration, short-term incentive, post-employment benefits, other benefits and long-term incentive
(x €1,000)

  Fixed
remuneration
Short-term
incentive
Post-employment
benefits
Otherbenefits Long-
termincentive
                     
  2017 2016 2017 2016 2017 2016 2017 2016 2017 2016
                     
R.P. van Wingerden 684 680 214 408 183 126 3 8 177 119
T. Menssen 484 480 152 288 49 39 3 8 85 95
E.J. Bax 484 480 152 288 93 66 3 5 111 99
                     

Long-term incentive plan 


60 - Unconditional Phantom Share Plan 2012-2014

(value in €)

  At the award date At the payout date
  Number Value Number TSR- performance Graduated  scale Vested  shares Value 2
               
R.P. van Wingerden  84,559   230,000   88,317  0.3% 35%  30,911   161,707 
T. Menssen - - - - - - -
E.J. Bax - - - - - - -
               

1 Award has become unconditional on 4 May 2015; lock-up period up to and including 4 May 2017. The blocking period has ended as per 5 May 2017, leading to the payout of the award.

2 The value has been based on the average share price of BAM on the five trading days before the end of the blocking period as per 5 May 2017 (€5.231) and on the number of vested shares three years after the award. The number of (vested) shares at the payout date include dividend up until the payout date.
The ultimate TSR performance is based on the quarterly average for the year 2012, 2013 and 2014.
The long-term remuneration will never exceed one and a half times the annual fixed remuneration of the Executive Board member on the day of the payout.


61 - Unconditional Phantom Share Plan 2013-2015 1
(value in €)

  At the award date At the vesting date
  Number Value Number TSR- performance Graduated  scale Vested  shares Value 2
               
R.P. van Wingerden  69,272   235,000   71,680 7.6% 45%  32,256   123,573 
T. Menssen  69,272   235,000   71,680  7.6% 45%  32,256   123,573 
E.J. Bax - - - - - - -
               

1 Award has become unconditional on 3 May 2016; lock-up period up to and including 3 May 2018.

2 Potential value based on the closing share price of BAM at year-end 2017 (€3.831) and on the number of vested shares three years after the award.
The number of (vested) shares at the vesting date include dividend up until year-end 2017.
The ultimate TSR performance is based on the quarterly average for the year 2013, 2014 and 2015.
The long-term remuneration will never exceed one and a half times the annual fixed remuneration of the Executive Board member on the day of the payout.


62 - Unconditional Phantom Share Plan 2014-2016 1
(value in €)

  At the award date At the vesting date
  Number Value Number TSR- performance Graduated  scale Vested  shares Value 2
               
R.P. van Wingerden  60,072   235,000   61,362  7.1% 45%  27,613   105,785
T. Menssen  60,072   235,000   61,362  7.1% 45% 27,613  105,785 
E.J. Bax  60,072   235,000   61,362  7.1% 45% 27,613  105,785 
               

1 Award has become unconditional on 1 May 2017; lock-up period up to and including 1 May 2019.

2 Potential value based on the closing share price of BAM at year-end 2017 (€3.831) and on the number of vested shares three years after the award.
The number of (vested) shares at the vesting date include dividend up until year-end 2017.
The ultimate TSR performance is based on the quarterly average for the year 2014, 2015 and 2016.
The long-term remuneration will never exceed one and a half times the annual fixed remuneration of the Executive Board member on the day of the payout.


63 - Conditional Performance Share Plan 2015-2017 1
(value in €)

  At the award date  Year-end 2017  
 
Number

Value

Number 

Value 2
 
           
R.P. van Wingerden  114,319   434,000   114,319  437,956  
T. Menssen  74,281   282,000   74,281  284,570  
E.J. Bax  74,281   282,000   74,281  284,570  
           

1 Award on 30 April 2015; award becomes unconditional if the specified 3-year performance targets are met.

2 Potential value based on the closing share price of BAM at year-end 2017 (€3.831) and on the ‘at target’ number of conditional
performance shares that become unconditional three years after the award.
The value of the performance shares – as the combined result of the number of performance shares that will vest and the share price
at the vesting date – that become unconditional, will never exceed two and a half (2.5) times the award value.


64 - Conditional Performance Share Plan 2016-2018 1
(value in €)

  At the award date  Year-end 2017  
 
Number

Value

Number 

Value 2
 
           
R.P. van Wingerden  112,711   476,000   112,711  431,796  
T. Menssen  68,195   288,000   68,195  261,255  
E.J. Bax  68,195   288,000   68,195  261,255  
           

1 Awarded on 28 April 2016; award becomes unconditional if the specified 3-year performance targets are met.

2 Potential value based on the closing share price of BAM at year-end 2017 (€3.831) and on the ‘at target’ number of conditional
performance shares that become unconditional three years after the award.
The value of the performance shares – as the combined result of the number of performance shares that will vest and the share price
at the vesting date – that become unconditional, will never exceed two and a half times the award value.


65 - Conditional Performance Share Plan 2017-2019 1
(value in €)

  At the award date  Year-end 2017  
 
Number

Value

Number 

Value 2
 
           
R.P. van Wingerden 94,651  476,000  94,651 362,608  
T. Menssen 57,268  288,000  57,268 219,394  
E.J. Bax 57,268  288,000  57,268 219,394  
           

1 Awarded on 27 April 2017; award becomes unconditional if the specified 3-year performance targets are met.

2 Potential value based on the closing share price of BAM at year-end 2017 (€3.831) and on the ‘at target’ number of conditional
performance shares that become unconditional three years after the award.
The value of the performance shares – as the combined result of the number of performance shares that will vest and the share price
at the vesting date – that become unconditional, will never exceed two and a half times the award value.


66 - Appointment and contractual arrangements

  Year of  employment Date of
first  appointment
Start date
current appointment
Period of appointment Notice period
for the Company
Notice period for
the Executive Board member
Severance
 
R.P. van Wingerden 1988 7 May 2008 20 April 2016 4 years 6 months 3 months 1 year’s fixed remuneration
T. Menssen 2012 1 October 2012 20 April 2016 4 years 6 months 3 months 1 year’s fixed remuneration
E.J. Bax 2014 1 May 2014 1 May 2014 4 years 6 months 3 months 1 year’s fixed remuneration
               

 

 

 

 

 

Name

Company