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Remuneration Reports / NWR NV / 2009 

Remuneration Report

This Remuneration Report was prepared by the Remuneration Committee and sets out the Company’s Remuneration Policy and practice for the Directors. The report also provides details of Director remuneration for the year ended 31 December 2009.

Remuneration Policy

The Remuneration Policy for the Board Directors was adopted by the Annual General Meeting of Shareholders in April 2008 and applied during the financial year 2009.

The objective of the remuneration policy is to attract, retain and motivate highly qualified executives by providing well-balanced remuneration. The remuneration policy aims to ensure that a competitive remuneration package for the Executive Directors is maintained and benchmarked against other multinational companies based in Europe and operating in global markets. In order to align executive performance with shareholder value, the remuneration of Executive Directors is linked to individual and NWR Group performance. The remuneration package includes a significant variable part in the form of cash bonus incentive and a long-term incentive in the form of stock options and grants. The remuneration policy also sets out remuneration of Non-Executive Directors, as described further. While the remuneration policy applies to the Board Directors, the Remuneration Committee is also responsible for proposing to the Board individual salary levels, bonuses and other benefits for a number of senior managers and key employees defined by the Remuneration Committee.

In early 2009, the Board engaged Mercer as Company’s compensation advisor to review the existing arrangements with Directors and senior managers to ensure compliance with Dutch and UK Corporate Governance Codes and to maximise clarity about the role of the Remuneration Committee. Based on the review, Mercer proposed to modify the remuneration policy for Executive Directors and senior managers and particularly to include, inter alia, a deferred bonus plan using predetermined performance conditions. The new policy undertakes to establish universal and transparent Group-wide remuneration principles in line with industry best practice. The Remuneration Committee has resolved to accept the proposal of the deferred bonus plan as recommended by Mercer. Subject to the Board approval, the amended remuneration policy of NWR will be submitted to the 2010 Annual General Meeting of Shareholders for approval.

Remuneration of Executive Directors

In 2009, Executive Director’s total remuneration consisted of a salary, long-term incentives in the form of options or share awards and other benefits. An appropriate balance was maintained between the fixed and performance-related elements of executive remuneration.

Base salary

The Remuneration Committee reviews annually base salary levels for Executive Directors taking into account external benchmarks, and makes proposals to the Board. When setting salary levels, the Remuneration Committee takes into consideration individual performance, NWR Group performance and changes in responsibilities.

Bonus

According to the current remuneration policy, Executive Directors may be awarded cash bonuses by the Board upon proposal by the Remuneration Committee. Executive Directors may be awarded cash bonuses following Board-approved strategic initiatives. The actual amount of the cash bonus is determined by the Remuneration Committee upon the achievement of financial and non-financial benchmarks.

Share awards plan for the Chief Executive Officer of OKD, a.s. (‘OKD’)

Mr. Beck is entitled to receive from OKD and its affiliates, at the cost of OKD, 250,045 A shares of NWR, or cash in lieu of shares, for each full year of his three-year term ending on 30 June 2010. Since Mr. Beck and OKD have agreed to extend Mr. Beck’s employment term beyond the initial three years, his new employment agreement provides that he is entitled to receive 250,045 A shares in NWR for each full year of the term beyond the initial three years up to a cumulative total maximum of 1,250,225 A shares of NWR.

Stock option plan for the Chairman of the Board

On 1 September 2008, Mr. Salamon was awarded share options in the amount equal to 0.5 per cent of NWR’s share capital as per the date of grant. Each share option gives Mr. Salamon the right to acquire one A share on the vesting date. The exercise price per option is EUR 0.01. The option award will enable Mr. Salamon to ultimately acquire up to 0.5 per cent of NWR’s share capital by 1 September 2012, provided that: (i) he remains an executive member of the Board; and (ii) any other conditions for vesting have been met. The options vest over a period of five years so that 20 per cent of the total awarded options vests on each anniversary of 1 September 2008 when 263,800 options vested. The number of options to vest on each anniversary of 1 September 2008 depends on NWR’s share capital on that date. Mr. Salamon shall be compensated for any shortfall on each anniversary.

Stock option plan for Executive Directors, senior management and key employees

NWR operates a stock option plan (the ‘SOP’), which was adopted by the Annual General Meeting of Shareholders in April 2008. The SOP was designed with the assistance of Mercer. The plan is operated and administered by the Board and the Remuneration Committee.

Eligibility

Executive Directors, members of senior management and key employees of the NWR Group are eligible to participate in the SOP. Individual eligibility is determined by the Board upon the recommendation of the Remuneration Committee on a discretionary basis.

Should the AGM adopt the new remuneration policy including the deferred bonus plan described at the beginning of this report, the Executive Directors and selected members of senior management will not participate in the SOP.

Grant of options

The Board may, at its discretion, grant options to acquire A shares under the SOP to any eligible employee. The maximum number of A shares over which options may be granted under the SOP may not exceed 3 per cent of the issued A share capital of NWR at the IPO.

Grants can also be made by the Board in one-off situations, for example in the event of initial grants to new employees and additional grants in the event of promotion.

As per January 2009, the total number of options granted was 619,878 and their total monetary value was GBP 2,631 million (approximately EUR 3,314 million), which was calculated based on the generally accepted Black-Scholes model.

The total number of options granted in 2009 was 3,325,762 and their total monetary value was GBP 3,691,595 (approx. EUR 4,344,269), also calculated based on the Black-Scholes Model.

Exercise price

The exercise price of options granted at the IPO date was GBP 13.25. The exercise price in respect of any other options granted under the SOP will not be less than the average opening value of an A share on the London Stock Exchange on the five business days immediately prior to the date of grant. The exercise price of options granted in 2009 was GBP 2.8285.

Exercise of options

Options vest after a three-year period, provided the option holder remains a Director or an employee of the Group. The exercise of options is dependent on pre-established internal financial and operational criteria determined by the Remuneration Committee and approved by the Board. For Executive Directors and certain members of senior management and key employees, EBITDA threshold and target performance were determined for vesting purposes. For other senior management and key employees of the NWR Group, production and cost control thresholds and targets were set. For each year during the vesting period, one-third of the granted options become eligible for vesting. 50 per cent of the stock options vest if the threshold performance is achieved, and 100 per cent of the stock options vest if the target performance is achieved. Vesting between threshold and target is on a straight-line basis. Individual threshold and target performance are proposed each year by the Remuneration Committee and approved by the Board as part of the normal budgeting cycle.

Options which have not been exercised will normally lapse on the eighth anniversary of their grant. Options may, however, be exercised early under certain circumstances, including a termination of employment, a takeover, a scheme of arrangement or the winding up of the Company. Options are not transferable and may only be exercised by the persons to whom they are granted.

No options were exercised under the Stock Option Plan during 2009.

Individual limits

Unless the Remuneration Committee determines that exceptional circumstances apply: (i) options may not be granted to a member of senior management if this would cause the total amount due on the exercise of any options in a single year to exceed his fixed annual salary in the 12 months prior to grant, or to exceed five times his fixed annual salary in the 60 months prior to grant; and (ii) options may not be granted to a key employee of the NWR Group if this would cause the total amount due on the exercise of any options granted in a single year to exceed 60 per cent of his fixed annual salary in the 12 months prior to grant, or to exceed three times his fixed annual salary in the 60 months prior to grant.

Termination of employment

Executive Directors are not entitled to any benefit upon termination of their employment agreement other than the contractual benefits that apply during the notice period. If an option holder ceases to be a Director or employee of the NWR Group for reasons involving misconduct, all his options will lapse. If an option holder is deceased, retires at normal retirement age, is made redundant or retires through illness or injury, his options may be exercised on a proportionate basis dependent upon the time, which has elapsed since the date of grant and the relative satisfaction of any applicable performance condition.

Change in control

In the event of a change in control of NWR, all options will vest.

Issue of A shares and variation in share capital

A shares issued in a single year of options will rank equally with A shares in issue at that time, except in respect of rights arising by reference to a prior registration date. Options may be adjusted following certain variations in the share capital of NWR, including a capitalisation or rights issue, subdivision or consolidation of share capital.

Amendments

The Remuneration Committee manages, administers, and interprets the SOP at its discretion. The Remuneration Committee also proposes changes to the SOP to the Board subject to the provisions of any applicable law, including but not limited to Dutch corporate law and market abuse laws in both the Netherlands and the UK.

Termination

The Board may terminate the plan at any time. If this happens, no further options may be granted but the provisions of the plan will continue in relation to options already granted. No options may be granted after the eighth anniversary of the date of adoption of the plan.

Other benefits

In addition to the salary, bonus and share-based incentives, additional benefits may be granted to Executive Directors, such as relocation allowances, accommodation allowance, school fees, medical insurance and company car arrangements. These do not include pension benefits.

Service contracts of Executive Directors

The terms upon which Executive Directors have been engaged are summarised below:

Name Date of appointment Termination date for appointment Notice period1
Mike Salamon 1 September 2007 12 months’ notice by NWR; six months’ notice by Director
Klaus-Dieter Beck2 1 July 2007 30 June 2013 Six months’ notice by either party
Marek Jelínek 6 March 2007 Two months’ notice by NWR; one months notice by Director
  1. The service contracts of Executive Directors provide for payment of salary alone in lieu of notice.
  2. The applicable law governing Mr. Beck’s employment agreement provides for a statutory severance payment of three average monthly salaries. However, he would only be entitled such severance payment, if the position of Chief Executive Officer has been cancelled (and not in the event of his replacement by a new manager).

Review of compensation of Executive Directors and senior management

In addition to the review of the Group compensation arrangements performed by Mercer, the Board also reviewed and approved, upon the proposal of the Remuneration Committee, the salary adjustments of certain Executive Directors for 2009 and set the performance criteria for the annual cash bonus for the Chief Financial Officer of NWR.

Remuneration of Executive Directors in financial year 2009

The tables below provide a description of the pre-tax remuneration of Executive Directors for the fiscal year ended 31 December 2009.

Executive Directors’ emoluments and cash remuneration

Name Gross salary
(EUR)
Cash bonus
(EUR)
Other benefits
(EUR)3
Total
(EUR)
Miklos Salamon 279,833 279,833
Klaus-Dieter Beck 1 454,031 302,630 211,422 968,083
Marek Jelínek 2 288,668 106,105 394,772
  1. Mr. Beck receives his remuneration in CZK. The amounts stated in this table were converted into EUR from CZK at an exchange rate of 26.4349 CZK/EUR, which was the average exchange rate in 2009. Mr. Beck applied a reduction on his salary during 2009 in response to the economic situation of OKD. Gross salary of Mr. Beck includes remuneration received from OKD and OKK Koksovny, a.s. for his Board membership in 2009.
  2. Upon a proposal of the Remuneration Committee, Mr. Jelínek’s fixed salary was increased since 1 February 2009. Gross salary of Mr. Jelínek includes remuneration received from OKD for his Board membership in 2009.
  3. Includes in-kind compensation, e.g. personal travel costs, additional health insurance, housing, etc.

2009 Stock option grants

Name Date of grant At 1 January 2009 Granted Vested Lapsed
Mike Salamon 01/09/2008 1,055,200 1,319,000 264,351
Klaus-Dieter Beck
Marek Jelínek1 24/06/2009 39,776 221,889

 

Name Exercised At 31 December 2009 Vesting date Expiry date Exercise price
Mike Salamon 264,351 790,849 01/09/20092 EUR 0.01
Klaus-Dieter Beck
Marek Jelínek 261,665 24/06/2012 GBP 2.8285
  1. Mr. Jelinek recieved option under the SOP.
  2. 263,800 options vested on 1 September 2008 and 264,351 options vested on 1 September 2009. An additional 20 per cent of granted options will vest on 1 September 2010, 2011 and 2012.

Share awards

Name Date of grant At 1 January 2009 Granted At 31 December 2009
Mike Salamon
Klaus-Dieter Beck 01/07/2009 250,045
Marek Jelínek
  1. In response to the economic situation of OKD, Mr. Beck and OKD agreed on postponing until 2010 the share grant that Mr. Beck was entitled to receive in July 2009.

Total remuneration of Executive Directors

Name Salary
(EUR)
Cash bonus
(EUR)
Other benefits
(EUR)
Value of stock options exercised
in FY 2009
(EUR)
Value of share awards in FY 2009
(EUR)
Total in FY 2009
(EUR)
Mike Salamon 279,833
14%

0%

0%
1,764,357
86%

0%
2,044190
100%
Klaus-Dieter Beck 454,031
47%
302,630
31%
211,422
22%

0%

0%
968,083
100%
Marek Jelínek1 288,668
73%

0%
106,105
27%

0%

0%
394,773
100%
  1. In 2009, RPG Industries SE, the former majority shareholder in NWR, awarded Mr. Jelínek a one-off discretionary bonus. For more details, see the ‘Related Party Transactions’ section.

Remuneration of Non-Executive Directors

Non-Executive Directors are appointed for four years by the Annual General Meeting of Shareholders. They do not have service contracts with NWR but receive a letter of appointment including terms of reference. The Annual General Meeting of Shareholders may terminate their appointment at any time without any notice.

The remuneration of Non-Executive Directors is part of the remuneration policy approved by the Annual General Meeting of Shareholders. The remuneration rates were set at a level that would attract Directors of high calibre. Non-Executive Director remuneration was also designed to reflect additional responsibilities of Board committee chairmen and members. The annual fee for Non-Executive Directors was set at GBP 60,000 and changed to its EUR equivalent of 76,065 by a resolution of the Board in January 2009. For 2010 and onwards, the Remuneration Committee recommended to increase the fee for the members of the Health and Safety Committee to the levels paid to the members of the Real Estate Committee. The other remuneration rates were found appropriate also for 2010. Non-Executive Directors are also reimbursed for all reasonable and documented expenses incurred in performing their role.

Upon completion of the IPO, each of the Independent Non-Executive Directors were granted A shares valued at EUR 200,000. The terms and conditions of the award are described in a share plan and require each Director to hold the A shares for a minimum of one year after their award. The number of A shares granted was equivalent to EUR 200,000 divided by the offer price of GBP 13.25 (EUR 16.69), and each Director received 11,852 A shares upon completion of the IPO valued at EUR 1,200 million. Each of the Independent Non-Executive Directors were awarded additional A shares valued at EUR 200,000 on the first anniversary of the first grant in May 2009. The number of A shares awarded was equivalent to EUR 200,000 divided by the average of the highest market prices per share on each of the five trading days as reported by the London Stock Exchange, and each Director received 53,298 A shares valued at EUR 1 million. The Remuneration Committee has proposed to the Board to continue the share plan in 2010. The proposal will be submitted to the 2010 Annual General Meeting of Shareholders for approval.

Remuneration of Non-Executive Directors in financial year 2009

Name Annual fee
(EUR)
Committee chairmanship annual fee
(EUR)
Committee membership annual fee
(EUR)
Total compensation
(EUR)7

Zdeněk Bakala1

76,065 31,694 12,677 29,697
Peter Kadas1 76,065 25,355 25,008
Alex T. Krueger2 76,065 12,677 44,006
Hans Mende 76,065 76,065
Milan Jelinek3 76,065 47,515
Chris Norval4 76,065 18,756
Pavel Telička5 76,065 76,065
Kostyantin Zhevago6 76,065 51,474
Bessel Kok 76,065 63,387 25,355 164,807
Hans-Jörg Rudloff 76,065 57,049 133,114
Steven Schuit 76,065 76,065 152,130
Barry Rourke 76,065 63,387 31,694 171,146
Paul Everard 76,065 50,710 31,694 158,469
  1. Mr. Bakala and Mr. Kadas waived their fees for the second, third and fourth quarter of 2009.
  2. Since Mr. Krueger resigned from the Board on 30 June 2009, he received his fee only for the relevant period.
  3. Mr. Jelinek received his fee until 16 August 2009 when he passed away. In addition to his fee, Milan Jelinek was receiving fees under an advisory agreement with NWR and a coke sales contract between OKD and ICS Trading, a company founded by Mr. Jelinek. For further details regarding these contracts, see the ‘Related Party Transactions’ section of this 2009 Annual Report.
  4. Mr. Norval received a fee for the period from 1 January 2009 to 23 March 2009 when he resigned from the Board.
  5. NWR entered into a consultancy agreement with BXL Consulting Ltd; Mr. Telička is the co-founder and director in charge of the Brussels office of BXL. For further details regarding these contracts, see the ‘Related Party Transactions’ section of this 2009 Annual Report.
  6. Mr. Zhevago was appointed a Director on 28 April 2009. He agreed to waive his fee for the benefit of a charity.
  7. Excludes the value A shares awarded to Independent Non-Executive Directors.
  8. The Health, Safety and Environment Committee hosts Messrs. Stan Suboleski and Karl-Friedrich Jakob as permanent guests. Their annual fee corresponds with the annual fee of other members of this committee and amounts to EUR 12,677.

Loans to Directors

As of 31 December 2009, there were no outstanding loans to Directors or members of senior management.

Pension scheme

The NWR Group does not operate any pension schemes on behalf of, or for the benefit of, its Directors or employees. The NWR Group does not set aside or accrue amounts to provide pension, retirement or similar benefits.

However, the NWR Group does accrue certain pension liabilities under applicable Czech law for medical leave, employment length of service (which is a special benefit paid to all employees in the mining profession once per year based on the length of the employment relationship) and termination payments for its employees. For additional information, see Note 28 to NWR’s consolidated financial statements for the year ended 31 December 2009.

This Remuneration Report has been approved by the Board.

Zdenĕk Bakala

Chairman of the Remuneration Committee

27 January 2010