The Company’s Remuneration Policy is defined in accordance with laws and recommendations in place and is aimed at strengthening values, skills and conduct compliant with the Company’s long term interest, culture and strategy.
In line with the above mentioned recommendations and applicable laws and regulations, the Policy reflects the Company’s vision for good corporate governance and, in details, is guided by the following objectives:
(i) to attract and motivate the best professionals for the positions to be occupied within the Company, promoting the stability in the exercise of the respective roles of the members of the elected corporate bodies;
(ii) to adequately remunerate, in conditions consistent with those prevailing in the market, the responsibilities assigned, the results achieved and the business know how of corporate companies members, in accordance with the competencies and responsibilities
corresponding to their respective positions and
(iii) to reward the increase of efficiency and productivity and the long term value creation for shareholders, through the definition and implementation of an incentive system associated with the achievement of pre-established and quantifiable economic, financial and operating targets, defined in accordance with the sustainable growth of the results, as well as with the aim to discourage excessive risk taking.
Remuneration of the Board of Directors
Non Executive Directors:
a) The remuneration of the non-executive members of the Board of Directors shall consist of fixed emoluments, corresponding to a monthly salary, payable 14 times per year, of an amount to be determined by the Remunerations Committee in line with market practices.
b) Always in line with the referred market practices, the remuneration of the non executive members of the Board of Directors may be differentiated in the case of the Chairman, with reference to the special responsibilities concerning the representation of the company that arise from the law, and in the case of the non-executive members of the Board of Directors who discharge special supervision and monitoring responsibilities within any special committees as may be created.
Executive Directors:
The remuneration of the Board of Directors’ Executive Committee members shall have two main components, being one fixed and one variable.
Fixed Remuneration
The fixed component shall correspond to a monthly fixed salary, payable 14 times per year, of an amount to be determined by the Remunerations Committee bearing in mind the nature of the roles and responsibilities allocated and relevant market practices regarding equivalent positions in other largest national and international companies operating in the same sectors.
Variable incentives
The variable component, eventual by nature, shall be determined by a performance assessment in connection with the achievement of pre-established and quantifiable economical, financial and operational targets, with the aim to define a competitive remuneration package and to establish a reward system that ensures the executive directors interests being aligned with the interests of
the Company and its stakeholders and consistent with the economical and financial sustainability framework.
In order to encourage a better alignment of the performance of the Board of Directors’ Executive Committee members with Galp Energia’s shareholders interests on a financial and economical sustainability perspective, it is considered appropriate to introduce multi-year performance objectives. Such a policy is aligned with the best international practices and has been recommended by the Portuguese Securities Market Commission (CMVM):
“The remuneration of the Members of the Board of Directors shall be structured so that the formers’ interests are capable of being aligned with the long-term interests of the company. (…) A significant part of variable remuneration shall be deferred for a period not less than three years and its payment shall depend of the company’s steady positive performance during that period” (CMVM Corporate Governance Code 2010 (Recommendations), February 2010)
Thus, it is proposed that the current variable remuneration system is reinforced with the introduction of a long term variable compensation component, in order to align the objectives of the Board of Directors’ Executive Committee members with Galp Energia’s shareholder long-term sustainability interests.
Therefore, the variable Remuneration shall have two components:
- Annual Variable Remuneration, representing 50% of the total variable remuneration.
- Long Term Variable Remuneration, representing 50% of the total variable remuneration.
The value of the Annual Variable Remuneration shall be determined by the Remuneration Committee in accordance with the achievement of the specific Company’s objectives defined for the previous financial year. The guidelines proposed by the Committee for 2012, provide for the following key performance indicators: i) Total Shareholder Return (30%) to compare the Galp share performance (including dividend paid) with that of a peer group composed by the following companies: Neste Oil, Repsol, OMV, MOL, and BG Group, together with the PSI 20 market index; ii) EBITDA (30%); iii) Net Debt/Equity Ratio (15%); iv) operational performance (25%).
The guidelines proposed by the Committee for the Long term Variable Remuneration provide for the following three year average indicators:
- Galp Energia Total Shareholder Return (TSR) vs Peer Group, with a weight of 60%;
- EBIT Galp Energia, at replacement cost, with a weight of 40%.
Although this component is calculated each year, the payment will only become effective if, at the end of a three-year period, the objectives defined are accomplished. Given the nature of the roles of the Board of Directors’ Executive Committee members, the payment of the Long Term Variable Remuneration will be due at the end of the tri-annual mandate.
In order to guarantee the coherency between the results obtained and the bonuses paid, the total amount of variable remuneration is linked to Galp Energia’s net profit. If the Company’s net profit is below 80% of the respective budget, no variable remuneration will be paid.
Benefit
The remuneration of the executive members of the Board of Directors shall be completed by good and services mainly consisting of social security benefits.
For more information about this subject, please see the last Corporate Governance report