SCH2017_DRF_EN_Livre.indb

3 Corporate governance report

Interests and compensation of Group Senior Management

With the goal of further aligning incentive program with corporate- wide performance, and to align better with market practice, the portion of annual incentive payouts based on economic performance criteria increased from 60% in financial year 2016 to 75% in financial year 2017. In addition, the portion based on individual performance, which was reduced to 20% in 2016, was maintained at this level. The payment of the variable annual incentive is conditioned upon approval by the shareholders of the compensation granted to the concerned Corporate Officer. The Company does not operate a clawback policy. Long-term incentive: performance shares In order to align the interests of the Group’s executives to those of the shareholders, the board has allocated performance shares to more than 2,000 beneficiaries who hold positions as Group executives under Plans No. 28 and 29. These shares are subject to a set of performance criteria that are measured over the long-term and combine financial indicators (65%), relative return on investment with the TSR objective (15%) and sustainable development (20%). The total number of shares that were granted in 2017 was set at 2.43 million shares. Since 2016 the final allocation of performance shares is determined by the achievement of the assessed targets over a 3 year period,

which strengthens the alignment of executive compensation to the shareholders’ long-term fundamental interests. Further, the shares in Plan No. 28, which are granted only to the Corporate Officers on account of their office, are also subject to a 1 year holding period on top of the 3 year vesting period. For the Plans granted in 2017, the acquisition of the shares depends on the achievement rate of the following Group indicators over a 3 year period: E For 40%, a target operating margin of adjusted EBITA for the 2017–2019 period; E For 25%, a cash conversion target for the 2017-2019 period; E For 15%, a TSR target linked to Schneider Electric’s ranking in a panel of 12 companies by the end of 2019; and E For 20%, a level of achievement of the Planet & Society Barometer for the 2017-2019 period. The target values of each of these objectives and the vesting rules are set by the board based on the guidance communicated to the market and will be detailed in the board’s report at the Shareholders’ Meeting once the acquisition period has lapsed.

In keeping with the previous plans, the board in 2017 decided to allocate the following to the Corporate Officers:

Number of Shares (Plan No. 28)

Number of Shares (Plan No. 29)

Officer

Total Target Value of Shares (1)

Jean-Pascal Tricoire Emmanuel Babeau

18,000

42,000 18,200

€3,219,240 €1,395,004

7,800

(1) Determined in accordance with IFRS standards; IFRS does not apply any discount for performance on internal criteria.

Additional cash benefits for pension building Like many other French and international publicly traded companies, Schneider Electric once maintained a defined benefit pension program for its Corporate Officers as a way to accumulate retirement funds in a tax advantaged and reasonable manner to be paid upon retirement from the Company. In 2015 the board decided to review the cost efficiency and conformity to the “pillars” of the so-called “Article 39” defined-benefit pension scheme. Based on this review, the board concluded to move away from the scheme due to the excessive cost of such “top hat” pension plans and instead provide a combination of fixed and variable payments to the Corporate Officers that are considered “other benefits” to ensure consistency and comparability with other French or international companies. The variable payment is aligned in terms of criteria and rate with the annual incentive.

The volume of the distribution was set with consideration for: E Thetotalvolumeof thepreviousplans,withaviewtowardcontinuity of the incentive policy for executives and competitiveness; E The number of shares allocated to other Group executives who are eligible to the same multi-year profit-sharing plan: for 2017, the number of shares that may be allocated to the Corporate Officers in accordance with Plans No. 28 and 29 therefore made up 3.5% of the total of the aforementioned plans; and E The resulting cost for the Company. It should be noted that there is no realized compensation to take on record for 2017 in the form of performance shares due to Schneider Electric’s move from 2 to 3 year vesting periods from 2016 onwards. Attendance fees Mr. Tricoire has waived the attendance fees to which he is entitled in his capacity of Chairman of the board in pursuance of the distribution rules adopted by the board.

2017 REGISTRATION DOCUMENT SCHNEIDER ELECTRIC

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