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Remuneration Reports / NWR NV / 2011 

 

Remuneration Report

The Remuneration Report, prepared by the Remuneration Committee, explains the main principles and rules regarding the remuneration of the Directors of the Company and also provides details of Directors’ remuneration for the year ended 31 December 2011.

Remuneration Committee

The Remuneration Committee is chaired by Zdeněk Bakala and the other members are Hans-Jörg Rudloff, and Bessel Kok, all of whom are Non-Executive Directors. The Committee’s chairman Zdeněk Bakala is not considered by the Board to be independent who does. However, the Board regards Mr. Bakala’s membership of the Remuneration Committee as critical to the further alignment of directors’ remuneration with shareholder interests. Following the UK redomiciliation, the Remuneration Committee, became a committee of NWR Plc as of 6 May 2011, and now sets the remuneration for the Executive Directors, the Chairman of the Board and the Group’s senior managers and advises the board of NWR Plc in relation to its responsibilities with respect to the remuneration of the Non-Executives Directors. For more information please see the Remuneration Committee Report on page 57.

During the year, the Remuneration Committee was not advised by any independent counsel.

Remuneration Policy

The board of directors of NWR Plc adopted the compensation manual on 8 April 2011 with effect from 6 May 2011. The compensation manual records the remuneration policy of NWR Plc and the entities directly or indirectly controlled by NWR Plc, including the Company, outlines principles regarding remuneration at senior and key positions within the NWR Group and provides the framework in this area. Due to the UK redomiciliation, the compensation manual has been amended, so that it reflects the provisions of the UK Corporate Governance Code, in particular the new responsibilities of the Remuneration Committee.

The objective of the remuneration policy is to attract, retain and motivate talented executives by roviding a well-balanced and appropriate remuneration package. 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. The Remuneration Committee believes that the remuneration policy remains appropriate for 2012.

In order to align executive performance with shareholder value, the remuneration of Executive Directors is linked not only to individual performance but also to the Group’s performance. The Remuneration Committee sets their contractual terms, salary, bonuses and other benefits of the Executive Directors. The remuneration policy also sets out the remuneration of Non-Executive Directors, as described further below. The Board has delegated its powers and responsibilities to certain authorized officers with respect to the remuneration of senior managers and key employees of the Group, who shall decide on salary, bonuses and other benefits of such managers and key employees.

Remuneration of Executive Directors

In 2011 as in previous years, the remuneration package for Executive Directors included a significant variable element in the form of a cash bonus incentive and a long-term incentive in the form of share grants and stock option grants. The Remuneration Committee ensured that an appropriate balance between the fixed and performance-related elements of executive remuneration was maintained.

As a part of its remuneration policy for Executive Directors, the Company is using the Deferred Bonus Plan (implemented throughout the Group and fully effective since January 2011), as described in more detail below.

Base salary

To ensure remuneration remains effective in supporting the Group’s business objectives, the Remuneration Committee annually reviews base salary levels for Executive Directors, taking into account external benchmarks. When setting salary levels, the Remuneration Committee takes into consideration individual performance, Group performance and changes in individual responsibilities.

Bonus

Executive Directors may be awarded cash bonuses by the Remuneration Committee. The value of the cash bonus is determined by the Remuneration Committee following evaluation of financial and non-financial benchmarks.

Stock option plan for the Chairman of the Board

On 1 September 2008, Mr. Salamon was awarded share options equal to 0.5 per cent of NWR NV’s A Share capital as per the date of grant. Each share option gave Mr. Salamon the right to acquire one NWR NV A share on the vesting date. Following the UK redomiciliation, NWR Plc and Mr. Salamon have amended the options granted to Mr. Salamon so that they now relate to NWR Plc A. 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 Plc’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 vest annually on each anniversary of 1 September 2008, when the initial 263,800 options (over A Shares) vested. The number of options vesting depends on NWR’s share capital on 1 September of that year. Mr. Salamon shall be compensated for any shortfall on each anniversary.

Share awards plan for the Chief Executive Officer of OKD

Mr. Beck received from OKD and its affiliates, at the cost of OKD, 250,045 A shares of NWR NV, 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 of NWR for each full year of the term beyond the initial three years up to a maximum of 1,250,225 A Shares of NWR.

Deferred Bonus Plan

The Group operates a deferred bonus plan (the 'Deferred Bonus Plan’) as a long-term incentive and motivation instrument for Executive Directors as well as to senior managers and key employees of the Group. The Deferred Bonus Plan was adopted by the board of NWR Plc on 8 April 2011 with effect from 6 May 2011 and its terms are substantially similar to the terms of a deferred bonus plan operated by the Company before the UK redomiciliation. The Company’s deferred bonus plan was modified so that all outstanding awards over the A Shares became awards of NWR Plc A shares and the Board also resolved that no new awards will be granted under that plan.

Eligibility

Executive Directors, senior managers and key employees of the Group are eligible to participate in the Deferred Bonus Plan subject to approval of their participation by the Remuneration Committee.

Annual Bonus and Deferred Bonus Award

An annual bonus opportunity will be set as a percentage of base salary. In line with standard practice, Executive Directors would need to oversee the NWR Plc’s achievement of at least 80 per cent of the annual EBITDA target for a bonus to be payable. This condition aims to provide a strong connection between business imperative and performance. If this condition is met the annual bonus for Executive Directors may be up to 250 per cent of their annual salary on the basis of performance evaluation based on the certain performance criteria. The EBITDA target does not apply to participants who are not Executive Directors or Board members of any Group company. For other participants the maximum bonus amount is set at either 200 or 300 per cent of the individual's annual salary depending on the position held.

Performance will be measured against a balanced scorecard, providing a shared framework within which specific performance criteria shall be set relevant to the participant and his or her area of responsibility, which may include one or more of EBITDA, CAPEX, cost control, production and/or safety record. Performance criteria for the Executive Directors are set by the Remuneration Committee and for other participants these criteria are set by the respective authorised officers. The Remuneration Committee also sets the Group-wide performance criteria for all participants.

Bonus eligibility will be determined using annual results and the Remuneration Committee shall decide on the actual amount of bonus payable to the Executive Directors. 50 per cent of the annual bonus award will be payable in cash and 50 per cent will be deferred into A Shares for a period of three years. The maximum number of NWR Plc A shares offered under the Deferred Bonus Plan to an Executive Director in one bonus year may not exceed 250,000 NWR Plc A shares. In relation to other participants the percentage split is 70 per cent cash and 30 per cent is deferred into NWR Plc A shares for a period of three years, with the actual amount of the bonus being decided by the authorised officers (with the Remuneration Committee approving only the total volume of the deferred NWR Plc A shares). The number of NWR Plc A shares granted will be derived using the average of opening prices of an NWR Plc A share as reported by the London Stock Exchange on each of the five business days preceding and including the date of grant.

Ad hoc grants

The Deferred Bonus Plan allows ad hoc grants of NWR Plc A shares, although the use of such grants should be minimized. The value of any ad hoc grant shall not exceed 250 per cent of annual salary in each case in each financial year.

Vesting

After a period of three years from the date of deferral, the deferred bonus award will vest. The NWR Plc A shares will be released to the participant provided that the participant is still employed by the Group or on the condition that the participant is a 'good leaver', where such person left NWR due to death, retirement at contractual retirement age, early retirement, maternity leave, authorised interim leave, leave of absence due to illness or personal reasons, transfers to an associated company or such other reasons as the Remuneration Committee may approve. No dividend will be paid out on the deferred shares during the deferral period.

Put option

Each participant will have a put option, which will give the participant a put at market price at the time the NWR Plc A shares are released to enable such individual to benefit from future price increase, but protect such individual from any potential reduction in value that has already been earned. The period to exercise the put option will be limited to three years and the put option will cease to exist if the participant leaves the Group.

Adjustment and clawback provisions

If the Remuneration Committee believes that extraordinary circumstances have occurred during the period in which the predetermined performance criteria have been or should have been achieved, which lead to an unfair result with respect to the deferred bonus amounts awarded, the Remuneration Committee retains the discretionary power to adjust the value of the deferred bonus amounts as appropriate.

If any variable remuneration, be it in the form of cash or NWR Plc A shares, has been awarded on the basis of incorrect financial or other data, the Board is entitled to recover such remuneration from the participant. This right of recovery exists irrespective of whether the participant has been responsible for the incorrect financial or other data or was aware or should have been aware of the inaccuracy. The right of recovery expires upon vesting.

Termination

If a participant ceases to be employed within the NWR Group before vesting, in particular due to death, retirement at normal retirement age, redundancy or retirement through illness or injury, maternity leave, leave of absence, illness or personal reasons (a ‘good leaver’), such person will be entitled to receive the deferred NWR Plc A shares, unless the Remuneration Committee decides otherwise. Participants leaving employment by the Group for other reasons (such persons being ‘bad leavers’) will lose their entitlement to the deferred NWR Plc A shares.

Changes in share capital

In the event of any capitalisation, consolidation, sub-division or reduction of the share capital and in respect of any discount element in any rights issue or any other variation in the share capital of NWR Plc, the deferred NWR Plc A shares may be varied in such manner as the Remuneration Committee shall determine.

Change in control

Upon a change in control of the Group, deferred shares will vest on a time pro-rated basis unless the Remuneration Committee decides that this is inappropriate given the individual's overall performance. Vested NWR Plc A shares shall be issued or delivered, as the case may be, as soon as is practicable.

Amendments

The Board may at any time at its sole discretion alter the Deferred Bonus Plan or propose to discontinue it. Otherwise, the Remuneration Committee may, at its sole discretion, determine the vesting or cancellation of the deferred bonus award in accordance with principles of reasonableness and fairness and in exceptional circumstances.

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

Due to the implementation of the Deferred Bonus Plan, the stock option plan of NWR NV (the ‘Stock Option Plan’) was discontinued as of 31 December 2010 and hence no options were granted in 2011. The Stock Option Plan continues only in relation to options already granted. In connection with the UK redomiciliation, NWR has granted equivalent (rollover) options over NWR Plc A shares to the Executive Directors, senior managers and key employees who participated in the Stock Option Plan. These rollover options continue on the same terms and conditions as applied to the options granted originally under the Stock Option Plan, with appropriate adjustments.

Eligibilit

Executive Directors, senior managers and key employees of the Group were eligible to participate in the Stock Option Plan. Individual eligibility was determined by the Board upon the recommendation of its Remuneration Committee.

Grant of options

The maximum number of A Shares over which options might have been granted under the Stock Option Plan could not exceed three per cent of the issued A Share capital of the Company at the time of its initial public offer (the ‘IPO’). Option holders were not required to pay for the grant of an option. Individual limits were dependent on the proportion of annual salary of the participants applied to the grant of options (for more details please see page 73 of 2010 NWR NV Report).

As at 31 December 2011, the total number of options granted over NWR Plc A shares (excluding options of holders who had left the Group and who have not obtained a ‘good leaver exemption’) was 5,512,468 and their total monetary value was GBP 11,152,796 (approx. EUR 13,043,610), calculated on the Black-Scholes model.

Exercise price

The exercise price of options granted upon completion of the IPO in May 2008 is GBP 13.25. The exercise price of options granted in 2009 is GBP 2.8285 and the exercise price of options granted in 2010 is GBP 7.128.

Exercise of options

Subject to certain conditions, the options vest over a three year period. 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. For Executive Directors and certain members of senior management and key employees, EBITDA threshold and target performance were used for vesting purposes. For other senior management and key employees of the Group, production and cost control thresholds and targets were set, as relevant to the participant and such participant's area of responsibility.

Options can be exercised after three years from the vesting date. 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 certain terminations of employment and in the event of a takeover (change of control), scheme of arrangement or winding up. 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 2011.

Issues 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 record date. Options may be adjusted following certain variations in the share capital of the Group, including a capitalisation or rights issue, subdivision or consolidation of share capital.

For more details about the Stock Option Plan and its terms and conditions, please see pages 72 and 73 of the 2010 Annual Report.

Other benefits

In addition to the salary, bonus and share-based incentives, additional non-cash benefits may be provided by the Group to Executive Directors, such as relocation allowances, accommodation allowances, school fees, medical insurance and company car arrangements. The total annual value of the non-cash benefits provided may not exceed EUR 300,000 for each individual Executive Director. These do not include pension benefits as the Group does not operate any pension schemes on behalf of, or for the benefit of, its Directors.

Executive Directors are not entitled to any benefit upon termination of their employment agreement other than the contractual benefits that apply during their notice period.

Service contracts of Executive Directors

Name Date of appointment Termination date 
of appointment
Notice period2
Mike Salamon 1 September 2007 12 months’ notice by NWR; six months’ notice by Director
Klaus-Dieter Beck 1 July 2007 6 May 20111 Not applicable
Marek Jelínek 6 March 2007 Two months’ notice by NWR; one month’s notice by Director
1 Mr. Beck resigned as Director of the Company in connection with the UK Redomiciliation. 2 Service contracts which have been entered into between the Mr. Salamon and Mr. Jelínek and NWR Plc and provide for payment of salary alone in lieu of notice.

Remuneration of Executive Directors in financial year 2011

The tables below provide a description of the pre-tax remuneration of Executive Directors for the fiscal year ended 31 December 2011 and 2010.  

Executive Directors’ emoluments and cash remuneration 2011

Name Gross salary (EUR) Cash bonus (EUR) Other benefits (EUR3) Total (EUR)
Mike Salamon 287,522 0 0 287,522
Klaus-Dieter Beck1,2 737,231 1,464,010 213,155 2,414,396
Marek Jelínek 3 290,000 1,301,342 112,073 1,703,415

The remuneration for 2011 includes remuneration received as Directors of both NWR and NWR Plc.

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 24.590 CZK/EUR, which was the average exchange rate in 2011.

2        The gross salary of Mr. Beck includes remuneration received from OKD and OKK for his Board membership in 2010 and 2011.

3     Includes in-kind compensation, e.g. personal travel costs, additional health insurance, housing, etc.

Stock option grants/Share awards 2011

  Plan Date of Grant Number of options/ shares granted Exercise Price Exercise Period/ Vesting Date
Miklos Salamon1 Stock Option Plan 1 September
2008
1,319,000 EUR 0.01 1 September annually
up to 1 September 2012
Marek Jelínek2 Stock Option Plan 9 May 2008 39,776 £13.25 8 years (3-year vesting period)
Stock Option Plan 24 June 2009 221,889 £2.8285
Stock Option Plan 17 March 2010 88,310 £7.128
Deferred Bonus Plan 3 March 2011 30,000 N/A 3 March 2014
Klaus-Dieter Beck3 Employment agreement 1 July 2007 250,045 N/A 1 July 2011
1        Mr. Salamon received options under his stock option plan (details of this plan can be found in this section under “Stock option plan for the Chairman of the Board”). 263,800 options in NWR A Shares vested on 1 September 2008, 264,351 options vested on 1 September 2009 and 265,150 options vested on 1 September 2010. Following the UK redomiciliation, the options granted to Mr. Salamon have been changed and relate to the A shares of NWR Plc, such that 261,585 options vested on 1 September 2011 and an additional 20 per cent of granted options will vest on 1 September 2012. 2        Mr. Jelínek received options under the Stock Option Plan. Due to discontinuation of the Stock Option Plan at the end of 2010, he received no options in 2011. In the absence of a transitional arrangement for equity incentives to Executive Directors who participate in the Deferred Bonus Plan, for their performance in financial year 2010, the Board resolved, on 3 March 2011, on an ad hoc grant of 30,000 deferred shares to Mr. Jelínek. The deferred shares will vest in three years, provided that Mr. Jelínek is employed by the Group on the vesting date. 3        Details of the share award plan for Mr. Beck can be found in this section under ‘Share awards plan for the Chief Executive Officer of OKD, a.s.’ In January 2010, Mr. Beck received a cash amount of CZK 41,724,729 (which is approximately EUR 1,650,242) equal to the then market value of 250,045 A Shares that Mr. Beck was entitled to receive in July 2009 and which Mr. Beck and OKD agreed, following deferral until 2010 in response to the economic situation of OKD in 2009. In July 2010, Mr. Beck received a cash amount of CZK 54,858,713 (which is approximately EUR 2,169,700) equal to the then market value of 250,045 A shares of NWR Plc that Mr. Beck was entitled to receive in accordance with his share awards plan.

Total remuneration of Executive Directors

Name Salary (EUR) Cash bonus (EUR) Other benefits (EUR) Value of stock options exercised (EUR) Value of share 
awards (EUR)
TOTAL (EUR)
Mike Salamon 287,522 - - 1,610,457 - 1,897,979
15% - - 75% - 100%
Klaus-Dieter Beck 737,231 1,464,010 213,155 - 2,509,446 4,923,842
15% 35% 4% 51% 100%
Marek Jelínek 290,000 1,301,3422 112,073 - - 1,703,415
17% 76% 7% - - 100%

The remuneration for 2011 includes remuneration received as Directors of both NWR and NWR Plc.

Remuneration of Non-Executive Directors

Each Non-Executive Director has entered into a letter of appointment with NWR, the relevant terms of which are set out below:

In accordance with NWR’s Articles of Association, the term of appointment of the Non-Executive Directors is four years, subject to satisfactory performance and re-election when appropriate at the Annual General Meeting of Shareholders. A one-month notice period applies to the termination of each Non-Executive Director’s letter of appointment. Unless the appointment as a Non-Executive Director is renewed on or prior to the termination date, the term as a Non-Executive Director shall lapse immediately after the termination date. The appointment may also be terminated at any time by the Company at General Meeting. None of the Non-Executive Directors is entitled to any benefit on termination of his letter of appointment.

The basic annual fee payable to the Non-Executive Directors is EUR 76,065, which is reviewed annually by the Remuneration Committee. Any amendments to the remuneration of the Non-Executive Directors require a resolution of the Board. The Remuneration Committee believes remuneration rates remain appropriate for 2012.

In 2010 and 2009, NWR NV operated a share plan for the Independent Non-Executive Directors. Under this plan the Independent Non-Executive Directors were awarded A Shares valued at EUR 200,000 in May 2010. (Details regarding these shares awards are described in the 2010 Annual Report on page 75 and 2009 Annual Report on page 81.)

Non-Executive Directors are reimbursed for all reasonable and documented expenses incurred in performing their role. 

Remuneration of Non-Executive Directors in financial year 2011

Name Annual fee (EUR) Committee chairmanship annual fee (EUR) Committee membership annual fee (EUR) Total compensation (EUR)4
Zdeněk Bakala1 76,065 31,694 12,677 0
Peter Kadas1 76,065 25,355 0
Hans Mende 76,065 76,065
Pavel Telička2 76,065 76,065
Kostyantin Zhevago3 76,065   76,065
Bessel Kok 76,065 88,742 25,355 190,162
Hans-Jörg Rudloff 76,065 57,049 133,114
Steven Schuit 76,065 88,742 171,147
Barry Rourke 76,065 63,387 44,371 183,823
Paul Everard 76,065 63,387 31,694 171,146

The remuneration for 2011 includes remuneration received as Non-Executive Directors of both NWR and NWR Plc.

1        Mr. Bakala and Mr. Kadas waived their fees for the whole of 2011.

2     NWR entered into a consultancy agreement with BXL Consulting Ltd (‘BXL’); 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 2011 Annual Report.

3     Mr. Zhevago agreed to waive his annual fee for the benefit of a charity for 2011.

4     Excludes the value of NWR A Shares awarded to Independent Non-Executive Directors.

The Safety, Health and Sustainability Committee includes Messrs. Stan Suboleski, Karl-Friedrich Jakob and Mrs. Petra Mašínová as associate members. The annual fee of Messrs. Stan Suboleski and Karl-Friedrich Jakob corresponds with the annual fee of other members of this committee and amounts to EUR 31,694. The annual fee of Mrs. Petra Mašínová forms a part of her remuneration under the contract with NWR Communications,s.r.o. 

Directors’ interest in shares

The table below sets out information pertaining to the shares held by the Directors in NWR (as at 1 January 2011 and NWR Plc as at 31 December 2011).

Name At 1 January 2011 At 31 December 2011
Mike Salamon 570,193 shares and 525,699 options 700,986 shares and 264,114 options
Marek Jelínek 7,075 shares and 349,975 options 7,075 shares and 349,975 options and 
30,000 deferred shares under Deferred Bonus Plan
Klaus-Dieter Beck 12,490 12,490
Zdeněk Bakala1
Peter Kadas1
Hans Mende 38,000
Pavel Telička
Kostyantin Zhevago
Bessel Kok 54,308 54,308
Hans-Jörg Rudloff 90,843 81,299
Steven Schuit 25,843 25,843
Paul Everard 67,843 67,843
Barry Rourke 55,843 55,843
1        Please refer to the ‘Shareholder Information’ on page 166 in respect of the individual interests of entities affiliated with Messrs. Bakala and Kadas in the A Shares and B Shares of NWR Plc.

Loans to Directors

No personal loans, guarantees or other similar instruments may be provided to the Directors by the Company.

Pension scheme

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

However, the Group does accrue certain pension liabilities under applicable Czech law for medical leave depanding on length of service (which is a special benefit paid to all employees in the mining profession once a year based on the individual length of employment) and termination payments for its employees. For additional information, see Note 26 to the Group’s consolidated financial statements for the year ended 31 December 2011.

This Remuneration Report has been approved by the Board.

Zdeněk Bakala
Chairman of the Remuneration Committee
12 March 2012