In accordance with the Danish Companies Act [and with Danish Corporate Governance Recommendations] Novo Nordisk presents its Remuneration Policy for approval at the Annual General Meeting, and the Annual General Meeting has approved the Remuneration Policy.
Novo Nordisk's Remuneration Policy is designed to attract, retain and motivate the Board members and the executives at a competitive level. Remuneration is designed to align the interests of the executives with those of the shareholders.
The Remuneration Policy replaces the Principles for remuneration of Board members and executives in Novo Nordisk A/S (Remuneration Principles) as latest amended at the Annual General Meeting in March 2019.
The Remuneration Policy is applicable to remuneration in relation to the calendar year 2020 and later. The previous Remuneration Principles are applicable to remuneration relating to the period up to and including the calendar year 2019 and are as such still governing e.g. the short-term incentive programme (STIP) and long-term incentive programme (LTIP) provided in accordance with the Remuneration Principles. Further, as part of the transition from the previous Remuneration Principles to the new Remuneration Policy, the Remuneration Principles will continue to apply to the remuneration of the Executive Management during the financial year 2020.
In connection to the Annual Report Novo Nordisk prepares a Remuneration Report that describes the remuneration awarded or due during the previous financial year to the members of the Board and the Executive Management of Novo Nordisk A/S as registered with the Danish Business Authority.
The Remuneration Report 2019 also includes a description of key
developments in remuneration in the financial year, the actual
remuneration of board members and executives, an overview of
remuneration awarded during the previous five financial years,
remuneration benchmarks and shareholdings by board members and
executives. The Remuneration Report 2019 is inspired by section 139b
of the Danish Companies Act and in accordance with the Recommendations
on Corporate Governance issued in November 2017 by the Danish
Committee on Corporate Governance.
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 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
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 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.
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.
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 share allocation per year equal to 24 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 36 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.
The fixed base salary is intended to attract and retain executives with the professional and personal competences required to drive the company’s performance.
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
chair 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
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.
Claw-back in relation to the short-term incentives is possible up to
12 months after the actual payment of the cash-based incentive.
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 24 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 the degree of achievement of the
planned economic value creation and on the degree of achievement of
the planned level of sales growth.
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. For
executives the LTIP operates with a yearly maximum share allocation
per executive equal to 18 months' fixed base salary plus pension
contribution for the chief executive officer and 13.5 months’ fixed
base salary plus pension contribution for the executive vice
presidents. The Board of directors determines at the beginning of each
year the maximum allocation per participant for the given year.
Further, the Board of Director identifies a number of significant
research and development projects and key sustainability projects and
the allocation per executive may, subject to the Board's assessment,
be reduced in the event of lower-than-planned performance on these
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. Finally, the Board of Directors
determines the expected average annual sales growth which shall be
used as basis when finally calculating the size of the allocation at
the end of the three-year vesting period given that the allocation can
be reduced or increased by up to 30% depending on the average sales
growth in the three-year vesting period.
Once the allocation per executive 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 relevant performance year, i.e. in the open trading
window following immediately after the Board’s approval of the
The shares are allocated to the executives according to their base
salary as per 1 April in the performance year.
The shares allocated per executive for a given year will be locked
up for three years before they are transferred to individual
executives. If an executive resigns during the vesting period, his or
her allocated shares will be removed. At the end of the vesting period
the allocation of shares will be reduced or increased by up to 30%
depending on whether the actual average annual sales growth in the
three-year vesting period is lower or higher compared to the expected
average annual sales growth. The allocation cannot exceed 24 months’
fixed base salary plus pension contribution for the chief executive
officer and 18 months’ fixed base salary plus pension contribution for
the executive vice presidents.
In the vesting period the market value of the allocated shares per
executive will change dependent upon the development in the Novo
Nordisk B share price, aligning the interests of the executives with
those of shareholders.
No dividends are paid on allocated shares in the vesting period and
the allocated shares 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.
Claw-back in relation to the long-term incentives is possible up to 12
months after the release of the shares to the executives (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.
For each individual executive the total value of the remuneration relating to the notice period and of the severance pay does not exceed two years of remuneration, including all components of the remuneration. However, employment contracts entered into prior to 2008 allow for severance payments of up to 36 months’ fixed base salary plus pension contribution (i.e. a deviation from the 24 months above).
The severance payment may be reduced if the executive has or takes up new employment after the expiry of the notice period. A reduction has among other things to take into consideration the size of severance payment and the remuneration related to the new employment. Severance payment under contracts entered into before 2017 with members of the Management Board may, however, not be reduced. The Management Board consists of all members of Executive Management and senior vice presidents.
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.
To further align the interest of the shareholders and Executive Management the chief executive officer should hold Novo Nordisk B shares corresponding to twice the annual base salary plus pension contribution, and the executive vice presidents should hold shares corresponding to the annual base salary plus pension contribution. 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.
The Remuneration Policy is a continuation of the previous Remuneration Principles with the following substantive differences: