Guidelines for payment of incentive remuneration of the Danfoss Board and Executive Committee
The following is the general guidelines of Danfoss’ incentive remuneration of the Board and the Executive Committee. The guidelines are approved at the company’s Annual General Meeting, after which allotment of incentive schemes for the Board and the Executive Committee will be decided.
The Board:
The Board members are paid a fixed remuneration which is approved at the Annual General Meeting. In addition, the Board is granted share options in connection with the acquisition of Danfoss B-shares. Option schemes amount to an annual maximum of 10,000 options for the entire Board. The allotment of share options may be dependent on the company reaching its financial targets. The maximum option life is six years, and, at the earliest, the options can be exercised three years after the allotment – and no later than six years. Exercising the options must take place within open trade windows. The B-shares supplied by the company as a result of the exercise of the share options will primarily be shares that are already issued or which the company will acquire in the market, so the company share capital does not increase upon exercise of the options. If, in connection with the allocation and exercise of the options, the share capital is set to be increased, approval must be obtained at the Annual General Meeting. The minimum subscription or purchase price of the options must equal the price, including a deduction of 15%, which was fixed at the time of the allotment in accordance with of the Company’s Articles of Association.
Executive Committee:
The incentive schemes may consist of cash bonuses, share options or both. The Board concludes that such incentive schemes are suitable for the purpose of retaining and attracting qualified Presidents and to align the individual President’s short-term and long-term interests with those of the shareholders for the benefit of the company.
Cash bonus agreements for members of the Executive Committee are valid for a one-year period. Bonuses can amount to between 0% and 80% of the member’s annual pensionable salary. The size of the bonus is determined by the degree of fulfilment of targets set by the Board, based on the company’s budgeted financial results or other financial key figures and measurable personal financial or non-financial results. The target bonus, i.e. the cash bonus which a President is expected to obtain during a one-year period, typically amounts to half of the maximum bonus paid.
In addition to cash bonus, the Board may also decide to allot share options for the purchase/subscription of B-shares in the company. The allotment of such share options may be dependent on the company reaching some of the financial targets set by the Board. The option life is a maximum of six years and, at the earliest, can be exercised three years after the allotment – and no later than six years. Exercising the options must take place within open trade windows. The B-shares supplied by the company as a result of the exercise of the share options will primarily be shares that are already issued or which the company will acquire in the market, so the company share capital does not increase upon exercise of the options. If, in connection with the allocation and exercise of the options, the share capital is set to be increased, approval must be obtained at the Annual General Meeting. The minimum subscription or purchase price of the options must equal the price, including a deduction of 15%, which was fixed at the time of the allotment in accordance with the Company’s Articles of Association.
The Board may decide to pay-out some options in cash without the company being entitled to or placed under an obligation to supply shares (referred to as a ”phantom share scheme”). The exercise price of such phantom share schemes would equal that of the options which entail supply in the form of shares.
Each allocation is unique and the number of allocated options is to be adapted to requirements of retention of members. Bonus schemes are part of the remuneration for the Executive Committee, whereas the allocation of share options is a supplement to a competitive salary.
The total number of non-exercised options, which have been allocated at any time to the Executive Committee and other executives, can not exceed the acquisition/subscription right of shares for a total of 5% of the company’s registered share capital. Furthermore, in the period from one Ordinary Annual General Meeting to the next, the maximum number of options which can be issued for the Executive Committee and other executives total the right to acquire/subscribe 140,000 B-shares at a nominal value of DKK 100 each. In addition to these restrictions, the Danfoss Board has chosen not to set any other limitations regarding the allocation of share options for the Executive Committee in order to safeguard the greatest possible flexibility.
Information about the real value of any share option schemes for the Executive Committee and others will be available in the Danfoss Annual Report. The value of such schemes is calculated according to the Black Scholes method.
The company has a right to deduct the tax relating to the gained option profits and the cash payments which are part of the incentive remuneration of the company’s Executive Committee.