Guidelines for the payment of incentive remuneration for the Board of Directors and Executive Committee
The following are the overall guidelines for Danfoss’ incentive remuneration for 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:
The Board members are paid a fixed remuneration as agreed at the General Meeting. In addition, share options can be allocated to the Board in connection with the acquisition of B-shares in the company. Such option schemes can amount to a maximum of 10,000 options for the whole Board per year. The allocation of share options may be made dependent on the company reaching certain financial targets set by the Board. The options have a life of no more than six years and can be exercised three years, at the earliest, and no later than six years following the allocation. Exercise must take place within open trade windows. The B-shares, which the company must deliver upon exercise of the share options, will primarily be the already issued shares that the company has at its disposal or is set to acquire in the market, so that the company’s share capital is not increased as a result of the exercise of the options. 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 subscription or purchase price of options must, as a minimum, correspond to the price fixed at the time of allocation and be in accordance with Danfoss’ Articles of Association including a deduction of 15%.
Executive Committee:
Incentive schemes may include a cash bonus, share options, or both. The Board considers such incentive schemes to be a suitable method to retain and attract qualified Presidents and to equal the interests of the individual President with those of the shareholders, both in the long and the short term for the benefit of the company.
Cash bonus agreements made with a member of the Executive Committee applies for one year at a time. The bonus can amount to between 0% and 80% of the annual pensionable wage. The size of the bonus is determined by the degree of fulfilment of a range of targets set by the Board, which are based on the company’s budgeted financial results or other financial key figures as well as measurable personal results of a financial or non-financial nature. The agreed bonus basis, ie the cash bonus that a President is expected to obtain throughout one year, typically amounts to half of the maximum bonus.
In addition to the cash bonus, 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. The options have a life of no more than six years and can be exercised three years, at the earliest, and no later than six years following the allocation. Exercise must take place within open trade windows. The B-shares, which the company must deliver upon exercise of the share options, will primarily be the already issued shares that the company has at its disposal or is set to acquire in the market, so that the company’s share capital is not increased as a result of the exercise of the options. 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 subscription or purchase price of options must, as a minimum, correspond to the price fixed at the time of allocation and as in accordance with Danfoss’ Articles of Association including a deduction of 15%.
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 schemes is the same as the one which applies to the options, where delivery will take place in the form of shares.
Each allocation is unique and the number of allocated options is adapted to the need for retaining the individual recipient in his/her job at Danfoss. The bonus schemes make up a proportion of the Executive Committee’s remuneration, whereas allocation of share options is in addition to a competitive wage.
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. Furthermore, in the period of the 12 months between Ordinary General Meetings, only the number of options may be issued to the Executive Committee and other executives which, in total, give the right to purchase/subscribe to 140,000 B-shares at the nominal value of 100 DKK. 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 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.
The company has the right to deduct tax on the cost, which equals the obtained option gains and the cash remunerations paid as incentive remuneration for the company’s Executive Committee.
Audit
The Danfoss Annual General Meeting elects an independent auditor, nominated by the Board. At the General Meeting held in April 2010, KPMG was re-elected auditor.
