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 aim 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 Remuneration Committee. When preparing its recommendation, the Remuneration Committee 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 base 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, the Nomination Committee, the Remuneration Committee and the temporary Research & Development Committee also entitles members to receive a multiplier of the fixed base fee in addition to their board membership fee. The remuneration composition for the members of the Board of Directors is illustrated in the table below.
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.
The remuneration level for 2017 as approved by the Annual General Meeting in March 2017 is illustrated in the table below.
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.
All board members are paid a fixed travel allowance per board meeting and per committee related meeting. No travel allowance is paid to board members when no travel is required to attend board meetings or committee related meetings.
The travel allowances for 2017 as approved by the Annual General Meeting in March 2017 are illustrated in the table below.
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 participation in other incentive schemes.
Executive remuneration is proposed by the Remuneration Committee 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.
Size and composition
The remuneration package consists of a fixed base salary, a cash-based incentive, a long-term share-based incentive, a pension contribution and other benefits. For executives on international assignment at the request of the company, the remuneration package is generally based on an equalized host country net salary during the length of the assignment.
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. The Board of Directors determines at the beginning of each year the maximum short-term incentive programme for each participating member for the given year.
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 economic value creation as compared to the budgeted performance for the year and on sales compared to the budgeted target for the year.
Aligned with Novo Nordisk's long-term financial targets, the calculation of economic 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 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 pool operates with a yearly maximum allocation per participant equal to 12 months' fixed base salary plus pension contribution. The Board of directors determines at the beginning of each year the maximum allocation per participant for the given year.
The pool may, subject to the Board's assessment, be reduced in the event of lower-than-planned performance on significant research and development projects and 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 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 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 pool are allocated to the participants prorated according to their base salary as per 1 April in any given year.
The shares in the pool 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 be removed from the pool. In the lock-up period, the Board may remove shares from the pool in the event of lower-than-planned economic creation and/or sales during such lock-up period if, for example, the economic profit or sales fall below a predefined threshold.
In the lock-up period the market value of the 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.
No dividends are paid on shares in the bonus pool in the lock-up period and the shares in the bonus pool are administered as part of Novo Nordisk’s holding of treasury shares.
Novo Nordisk continuously covers its obligations under the long-term incentive programme through its holding of treasury shares.
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. four years after allocation).
Pension contributions is up to 25 % of the fixed base salary including bonus.
Executives receive non-monetary benefits, such as company car, phones etc. Executives on international assignments may receive relocation benefits. Such benefits are approved by the Board by delegation of powers to the Remuneration Committee. The Remuneration Committee informs the Board of the process and outcome. In addition, executives may participate in programmes that are offered to all Novo Nordisk employees, such as employee share purchase programmes.
In the event of termination ─ whether by Novo Nordisk or by the individual ─ due to a merger, acquisition or takeover of Novo Nordisk, executives are, in addition to the notice period entitled to a severance payment of 24 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 24 months' fixed base salary plus pension contribution. With regards to severance payment, the employment contracts entered into before 2008 exceed the 24-month limit described above. The severance payment to individual executives under the contracts entered into before 2008 will, however, not exceed 36 months’ fixed base salary plus pension contributions.
The Board of Directors may when recruiting new executives who are not employed with Novo Nordisk at the time of employment grant a sign-on arrangement in the form of cash payment or share incentive programme.
Shareholding requirement for Executive Management
To further align the interest of the shareholders and Executive Management the chief executive officer should hold Novo Nordisk B shares corresponding to 2 times the annual gross salary and the executive vice presidents should hold shares corresponding to 1 time the annual gross salary. The Board of Directors may grant exemption to this requirement, e.g. in connection with a promotion to chief executive officer or executive vice president.