In accordance with Danish Corporate Governance Recommendations Novo Nordisk presents its Remuneration Principles for approval at the Annual General Meeting, and the Annual General Meeting has approved the Remuneration Principles.
Novo Nordisk's Remuneration Principles for its Board of Directors and Executive Management covers both fixed and incentive-based remuneration. It aims to attract, retain and motivate board members and executives.
Remuneration levels are designed to be competitive and to align the interests of the board members and executives with those of the shareholders.
The Board regularly reviews board fees based on recommendations from the Chairmanship. When preparing its recommendation, the Chairmanship will be guided by comparable information from Danish and other Nordic companies as well as European pharmaceutical companies, which in size, complexity and market capitalisation are similar to Novo Nordisk. The results of the annual remuneration benchmark are presented to the Board at its October meeting.
At the December meeting the Board agrees on recommendations for remuneration levels for the next financial year. In connection with the approval of the annual report in January, the Board approves the recommendation for actual remuneration for the past financial year and endorses the recommendation on remuneration levels for the current financial year. This is then presented to the Annual General Meeting for approval as separate agenda items.
Each board member receives a fixed fee per year. Ordinary board members receive a fixed amount (the base fee) while the Chairmanship receives a multiplier thereof. Service on the Audit Committee and the Nomination Committee also entitles members to additional payment.
Individual board members may take on specific ad hoc tasks outside the normal duties assigned by the Board. In such cases the Board determines a fixed fee for the work.
In March 2011, the Annual General Meeting approved to change the base fee from DKK 400,000 to DKK 500,000. At the same time, it was approved that the chairman receives 3.0 times the base fee, that the vice chairman receive 2.0 times the base fee and the Audit Committee chairman receive 1.0 times the base fee, and that other members of the Audit Committee receive 0.5 times the base fee. The Annual General Meeting has also in 2014 kept the fees at the same level as for 2011.
In March 2014, the Annual General Meeting approved that the Nomination Committee chairman receives 0.5 times the base fee, and that other members of the Nomination Committee receive 0.25 times the base fee. If the Nomination Committee chairman also holds the position as chairman of the Board of Directors he or she shall not receive any additional fee.
Social security taxes
In addition to the fixed fee, Novo Nordisk pays such contribution to social security taxed within EU imposed by foreign authorities in relation to the fixed fee.
Travel allowance and other expenses
All board members residing outside Denmark are paid a fixed travel allowance per meeting attended in Denmark. No travel allowance will be paid to board members when attending board meetings outside Denmark. The travel allowance is EUR 3,000 for European based board members and EUR 6,000 for non-European based board members.
Expenses, such as travel and accommodation in relation to board meetings as well as relevant education, are reimbursed.
Board members are not offered stock options, warrants or other incentive schemes.
Executive remuneration is proposed by the Chairmanship and subsequently approved by the Board. Levels are evaluated annually against a benchmark of relevant Danish and Nordic companies as well as European pharmaceutical companies, which in size, complexity and market capitalisation are similar to Novo Nordisk. To ensure comparability, executive positions are evaluated in accordance with an international position evaluation system which, among other parameters, includes and reflects the development of the company size measured in terms of company revenue and number of employees. Executive and board remuneration benchmark surveys are fully aligned.
In 2013, a benchmark of executive remuneration was conducted for the purpose of the Board’s assessment of the remuneration of Executive Management. The benchmark showed that CEO remuneration was below market benchmark levels.
Size and composition
The remuneration package consists of a fixed base salary, a cash-based incentive, a long-term share-based incentive, pensions and other benefits. For executives being expatriated at the request of the company, the remuneration package is based on current Danish remuneration levels, including pension entitlements, while a specific expatriation package is added for the period of expatriation.
The short-term incentive programme may result in a maximum payout per year equal to 12 months’ fixed base salary plus pension contribution. The long-term incentive programme may result in a maximum allocation per year equal to 12 months' fixed base salary plus pension contribution. Consequently, the aggregate maximum amount that may be granted as incentives for a given year is equal to 24 months' base salary plus pension contribution. The split between fixed and variable remuneration is intended to result in a reasonable part of the salary being linked to performance, while promoting sound long-term business decisions to achieve the company’s objectives.
Fixed base salary
The fixed base salary is intended to attract and retain executives with the professional and personal competences required to drive the company’s performance.
Short-term incentive programme
The short-term incentive programme is designed to incentivise the individual executive for individual performance within his/her functional area and to ensure short term achievements in line with company needs. It may result in a maximum payout per year equal to 12 months’ fixed base salary plus pension contribution.
Short-term targets for the chief executive officer are fixed by the chairman of the Board, while the targets for the other members of Executive Management are fixed by the chief executive officer. The Chairmanship evaluates the degree of achievement for each member of Executive Management based on input from the chief executive officer.
Short-term incentives are subject to recovery or "claw-back" by Novo Nordisk, provided the remuneration was paid on the basis of data which proved to be manifestly misstated due to gross negligence or wilful misconduct by the executive. Claw-back in relation to the short-term incentives is possible up to 12 months after the actual payment of the cash-based incentive.
Long-term incentive programme
The long-term incentive programme is designed to promote the collective performance of Executive Management and align the interests of executives and shareholders. It further ensures a balance between short term achievements and long term thinking. It may result in a maximum payout per year equal to 12 months' fixed base salary plus pension contribution.
Each year in January the Board decides whether to establish a long-term incentive programme for that calendar year. The long-term incentive programme is based on an annual calculation of shareholder value creation as compared to the budgeted performance for the year.
Aligned with Novo Nordisk's long-term financial targets, the calculation of shareholder value creation is based on reported operating profit after tax reduced by a weighted average cost of capital (WACC)-based return requirement on average invested capital. A proportion of the calculated shareholder value creation is allocated to a joint pool for Executive Management and other members of the Senior Management Board. The Senior Management Board consists of all members of Executive Management and senior vice presidents.
For executives the joint pool operates with a yearly maximum allocation per participant equal to 12 months' fixed base salary plus pension contribution.
The joint pool may, subject to the Board's assessment, be reduced in the event of lower-than-planned performance on significant research and development projects or key sustainability projects. Targets for non-financial performance related to sustainability and research and development projects may include achievement of certain milestones within set dates.
Once the joint pool has been approved by the Board, the total cash amount is converted into Novo Nordisk B shares at market price. The market price is calculated as the average trading price for Novo Nordisk B shares on NASDAQ OMX Copenhagen in the open trading window following the release of financial results for the year prior to the bonus year, i.e. in the open trading window following immediately after the Board’s approval of the programme.
The shares in the joint pool are allocated to the participants prorated according to their base salary as per 1 April in any given year.
The joint pool shares for a given year will be locked up for three years before they are transferred to participants, including Executive Management. If a participant resigns during the lock-up period, his or her shares will remain in the joint pool to the benefit of the other participants. In the lock-up period, the Board may remove shares from the joint pool in the event of lower-than-planned value creation during such lock-up period if, for example, the economic profit falls below a predefined threshold compared to the budget for a particular year.The Board is reviewing the principles for the long-term, share-based incentive programme including the lock-up period on an annual basis.
In the lock-up period the market value of the joint pool will change dependent upon the development in the Novo Nordisk B share price, aligning the interests of the participants, including Executive Management, with those of shareholders.
Long term incentives are subject to recovery or "claw-back" by Novo Nordisk, provided the remuneration was paid on the basis of data which proved to be manifestly misstated due to gross negligence or wilful misconduct by a participant. Claw-back in relation to the long-term incentives is possible up to 12 months after the release of the shares to the participants (i.e. 4 years after allocation).
Pension contributions are made to provide an opportunity for executives to build up an income for retirement. The pension contribution for executives is between 25% and 30% of the fixed base salary including bonus.
Executives receive non-monetary benefits, such as company car, phone etc. Such other benefits are approved by the Board by delegation of powers to the Chairmanship. The Chairmanship informs the Board of the process and outcome. In addition the executives may participate in programmes that are offered to all Novo Nordisk employees, such as employee share purchase programmes. Expenses incurred by the executives in connection with business travelling, conferences, education, etc., are reimbursed.
Novo Nordisk may terminate the employment by giving executives a notice of 12 months. Executives may terminate the employment by giving Novo Nordisk a notice of six months. In addition to their notice period executives are, in the event of termination, whether by Novo Nordisk or by the individual, due to a merger, acquisition or takeover of Novo Nordisk, entitled to a severance payment of 36 months' fixed base salary plus pension contribution. In the event of termination by Novo Nordisk for other reasons, the severance payment is three months' fixed base salary plus pension contribution per year of employment as an executive and taking into account previous employment history. In no event will severance payment be less than 12 months’ or more than 36 months' fixed base salary plus pension contribution. For the two executives who joined Executive Management in 2013 and for all future employment contracts for executives, the severance payment was and will be no more than 24 months’ fixed base salary plus pension contribution, which will bring Novo Nordisk into alignment with the Danish Corporate Governance Recommendations in the long term.