The Supervisory Board will propose a new remuneration policy for the Management Board and the Supervisory Board at the 2020 Annual General Meeting to align the policy with article 2:135a DCC.
Management Board Policy 2020
In preparation to this new policy, the remuneration of the Management Board has been benchmarked against a reference group of 15 Dutch listed small cap companies with a two-tier board structure. The market environment, as well as on the salary adjustments for Beter Bed Holding N.V.'s employees have been taken in consideration. Based on this evaluation the Supervisory Board has decided to increase the base salary of the CEO to € 472,364, in line with the agreed CAO wage increases for employees in the Netherlands since his appointment in 2018. The annual base salary of the new CFO, who is nominated for appointment as Statutory Director at the upcoming Annual General Meeting, is set at € 300,000.
Under the new 2020 remuneration policy, the target levels of the short-term incentive scheme remain unchanged. For the CEO this amounts to 60% and for the CFO to 50% of base salary. In case of overperformance pay out may rise to a maximum of 1.3 times target level, i.e. 78% of base salary for the CEO and 65% for the CFO. A threshold level for pay out is set at 0.8 times target and below threshold there will be no pay out.
Given the operational focus on growing the business and optimising profitability, the Supervisory Board feels that for the financial year 2020 the following four quantitative KPIs are appropriate: revenue growth for the key business and EBITDA, each weighted at 25%, and gross margin and operational cash flow each weighted at 15%. To improve the quality and predictability of the organisation, additionally two qualitative criteria targets will apply: improving the corporate governance structure and completing the refinancing of the Company before the summer, each with a weight of 10%. The Company does not disclose the exact actual targets as they qualify as commercially sensitive information, but will account for targets set and performance delivered in the Remuneration Report 2020.
Regarding the long-term incentive instrument the Supervisory Board proposes to change the current stock options by Performance Stock Units (PSUs). The introduction of PSUs will facilitate the promotion of share ownership and therefore align management better with shareholder interests and long-term value creation. PSUs are a simpler and more transparent instrument compared to stock options. Outcomes of the grant are more predictable, both for the recipients and for shareholders, as downward risk and upward potential are more balanced. Improved predictability makes PSUs more attractive to the top managers that Beter Bed Holding N.V. wants to attract and retain. The PSU plan for the Management Board is aligned with a similar plan for Senior Management.
Under the PSU plan, shares to the value of 50% of base salary will conditionally be granted to both CEO and CFO. Vesting of these shares is conditional on the achievement of predetermined performance targets that reflect the value creation for shareholders. At the end of a three-year period performance will be assessed. In case of performance at target conditionally granted shares will vest and in case of outperformance up to 1.4 times that number. Vesting is followed by a two-year holding period.
For the PSU grant 2020-2022 long-term value creation will be primarily measured by Return on Capital Employed (ROCE) and by Customer satisfaction (Net Promotor Score). Both performance measures will have an equal weight. The predefined targets for each performance indicator and the performance delivered will be accounted for on vesting.
Supervisory Board Policy 2020
In preparation to the proposed Supervisory Board remuneration policy a benchmark has been executed against the same reference group of small cap companies that was used for the evaluation of the Management Board remuneration. The remuneration level granted since 2006 proves to be below median level. The Supervisory Board proposes to pay from 1 January 2020 onward an annual fixed fee of € 50,000 to the Chair and € 40,000 to regular members of the Supervisory Board. This all-in fee replaces a base fee of € 31,000 for the Chair and € 21,000 for members, supplemented by a fixed annual fee of € 4,500 for each committee role.
The proposed new policy for Management Board and Supervisory Board is published on the website and will be explained in the notes to the Agenda of the Annual General Meeting scheduled on 13 May 2020.