Guidelines for the payment of incentive remuneration of the Board of Directorsand Executive Committee
The following are the overall guidelines for Danfoss’ incentive remuneration of the board and the Executive Committee. The guidelines are approved by the company’s General Meeting, within the scope of which the granting of incentive schemes for the board and the Executive Committee can take place.
The board members are paid a fixed remuneration as decided at the General Meeting each year. The board is not granted any incentive remuneration.
The Executive Committee members participate in the Short Term Incentive scheme designed to reward for short term financial performance aligned with the overall business strategy. The target pay-out is determined by the board. Financial targets apply for one year at a time with final payout being subject to approval by the Chairman of the Board.
The Executive Committee is eligible to participate in the Long Term Incentive scheme designed to reward for achievements of the Danfoss Group, ensuring that long term financial results are aligned with shareholder interests. The scheme is a cash based scheme related to financial metrics to be achieved in line with business strategy. The Long Term Incentive scheme is approved by the board on an annual basis.
In addition, the board may decide to allocate share options for the acquisition/subscription of B-shares in the company. The allocation of share options may be made dependent on the company reaching certain financial targets set by the board. If, in connection with the allocation and exercise of share options, the share capital is set to be increased, this must be approved at the General Meeting. The terms of a share option scheme is determined by the board.
The board may determine that some of the options are paid for in cash without the right or duty of the company to deliver shares (a so-called “phantom share scheme”). The exercise price of such phantom share is the same as the one which applies to the options, where delivery will take place in the form of shares.
The total, maximum number of non-exercised options, which at any time are allocated to the Executive Committee and other executives, may include the purchase/subscription right to a number of shares which does not exceed a total of 5% of the company’s registered share capital. Apart from these limitations, the board has chosen not to lay down further limitations of allocations of share options for the Executive Committee to ensure the greatest possible degree of flexibility.
Information, at any time, about the actual value of the existing Long Term Incentive and share option programs for the Executive Committee and others will appear from the Annual Report. The value of such programs is recorded using the Black & Scholes method.