Remuneration Report
Section 4: The employment contracts of the members of the
• a Long-Term Incentive: an award of conditional performance shares linked to the Company’s per-formance (annual average normalised growth of earnings per share) over three financial years, start-ing with the year in which the conditional shares are awarded. The number of conditional performance shares at the award date is, in value, the equivalent of 100% of the Managing Director’s base annual salary of the year preceding the year in which the conditional award is made. The target zone for the Long-Term Incentive includes a threshold below which no performance shares will vest. This threshold is 50% of the targeted annual averaged normalised EPS growth. At-target performance means realising a challenging averaged normalised EPS growth and results in a vesting of 100% of the number of shares granted. The maximum earnings possibility under the LTI plan is limited to 150% of the number of shares granted. For the year 2009, the target annual averaged normalised EPS growth was set at 10% by the Supervisory Board, upon recom-mendation of the Remuneration Committee. The vesting period is three years. Vested performance shares are to be retained on a blocked securities account by the Managing Directors for a period of two years from the vesting date.
The Company applies the Remuneration Policy 2008 to all members of the Board of Management, irrespective of their formal position as statutory director or non-stat-utory director. However, the remuneration components of individual non-statutory directors are not required to be disclosed in this Remuneration Report.
Section 4: The employment contracts of the members of the Management Board and their actual remuneration in 2009
Employment contracts of the members of the Management Board
The employment contracts of Mr. A.J. Mace, CEO, and Mr. M.A.S. Miles, CFO, who were appointed to the Management Board at the Annual General Meeting of Shareholders of 15 May 2008, were drafted in accord-ance with the relevant principles and best practice provisions of the Code and the Remuneration Policy 2008. The contracts provide for an adjustment clause stipulating the discretionary authority of the Supervisory Board to adjust upwards or downwards the payout of any variable remuneration component conditionally awarded if such component would produce an unfair or unintended result as a consequence of extraordinary circumstances during the period in which the pre-determined performance criteria have been or should have been achieved. In addition, a claw-back provision is included in the employment contracts enabling the Company to recover variable remuneration compo-nents on account of incorrect financial data.
Both Mr. Mace and Mr. Miles are long-term employees of the Company. Their previous employment contracts were suspended by mutual agreement and may be resumed upon termination of their employment con-tract as Managing Director.
The main elements of these contracts, as published on www.sbmoffshore.com, are as follows:
Employment Contracts of Managing Directors
A.J. Mace M.A.S. Miles
BASe SAlARy
€ 490,000 per annum € 395,500 per annum
VARiABle PAy
Short-Term Incentive (STI) • Cash (80%)
• Shares (20%)
• Matching Shares: equal to the number of “bonus” shares. Matching shares are subject to the incumbent’s continued employment with the Company until the vesting date.
Targets • Based on Economic Profit, i.e. Return On Average Capital Employed (ROACE) exceeding an assumed Weighted Average Cost of Capital (WACC)
Target Zone • Threshold performance: payout of 20% of base salary
• At-target performance: payout of 100% of base salary
• Maximum STI opportunity: payout of 200% of base salary Long-Term Incentive (LTI) Performance Shares
Target 10% average annualised (normalised) growth of earnings per share (EPS) over a three-year performance period.
Vesting period 3 years
Target Zone • Payout as percentage of base allocation (equivalent in value to 100% of base salary of the previous year):
• Threshold performance: 50%, i.e. for 2009, 5% annualised (normalised) EPS growth over a 3-year performance period
• At-target performance: 100%
• Maximum LTI opportunity (capped): 150% of the number of shares granted
• Linear increase within the target zone Lock-up 2 years starting on the vesting date SeVeRANCe PAyMeNT
Limited to one year of gross annual base salary (unless termination occurs during the first term in office and is deemed manifestly unreasonable in which case the payment is limited to twice the gross annual base salary)
ChANge oF CoNTRol ClAuSe
In the event of a termination by the Company as a result of a change of control, the same con-ditions apply as under “Severance payment”
PeNSioN ARRANgeMeNT
Participation in the Company pension plan. One third of the total pension premium is paid by the Managing Director, subject to an annual cap of 20% of base salary. For Mr. A. Mace, back service entitlements will be evenly built-up during the period 15 May 2008 until 15 May 2012.
Report of the Supervisory Board
Actual Remuneration of the Members of the Management Board in 2009
This section provides an overview of the actual remu-neration of Managing Directors, Mr. Mace, CEO, and
Mr. Miles, CFO, earned during the year under review, with an indication of threshold, at-target and maximum earnings possibility for both the Short-Term Incentives (STI) and the Long-Term Incentives (LTI).
Earnings of Managing Directors in 2009
In thousands of €
Base salary Short-Term
Incentive Cash 1
Short-Term Incentive Shares 2
A.J. Mace 490 286 71
M.A.S. Miles 396 230 58
1 This amount represents 80% of the Short Term Incentive earned in respect of performance year 2009, which becomes payable in cash in 2010. The amount of the bonus is computed in Euros based upon the Economic Profit.
Cost of Capital (WACC), adjusted where appropriate for exceptional items and extraordinary circumstances.
Because of the sensitive nature of the short term incen-tive targets, it is Company policy not to disclose these.
Awards made under the Long-Term Incentive to Managing Directors in 2009
Target number of perform-ance shares conditionally
awarded in 2009 3
Minimum vesting opportunity (number of performance shares)
Maximum vesting opportunity (number of performance shares)
A.J. Mace 42,126 0 63,189
M.A.S. Miles 39,669 0 59,504
3 The number of performance shares that vest for the performance period 2009-2010-2011 will be determined in March 2012, upon finalisation of the financial accounts for the year 2011. Following the vesting of the performance shares, a lock-up of two years applies to the performance shares.
The value of the conditional award of performance shares in 2009 equals 100% of base salary in the year preceding the award, i.e. 2008. This value, divided by the average closing price of the share over the five trading days following the date of publication of the final results for the previous financial year, determines the number of performance shares that may vest if
‘at-target’ performance is achieved. Threshold per-formance will result in the vesting of 50% of the target number of conditionally awarded performance shares whilst the maximum number of performance shares that may vest is capped at 150% of the target number of shares (in numbers not value).
2 This amount represents 20% of the Short Term Incentive earned in respect of performance year 2009, which becomes payable in shares in 2010. The number of shares is calculated by using the average closing price of the share on the five trading days following the date of publication of the final results for the year 2009.
The Short-Term Incentive relating to the performance year 2009 is based upon the Economic Profit (EP) of the year 2009, i.e. Return On Average Capital Employed (ROACE) exceeding an assumed Weighted Average
Share-based incentives outstanding as per 31 December 2009
Mr. Miles’ awards are included in this overview although he was not appointed as Managing Director until 15 May 2008. However, he did receive Long-Term Incentives in his capacity as Director of the Company
Share Based Incentives for Managing Directors
A.J. Mace M.A.S. Miles
MATChiNg ShAReS
Awarded in 2007 and vesting in 2010 - Number: 4,261
Value at award: € 110,400
Awarded in 2008 and vesting in 2011 Number: 2,440
Value at award: € 63,000
Number: 3,284 Value at award: € 84,800
Awarded in 2009 and vesting in 2012 Number: 6,720
Value at award:€ 67,000
Number: 6,328 Value at award:€ 63,090 PeRFoRMANCe ShAReS
Performance shares awarded in 2005, vested in 2008
and subject to two year lock up period - Number: 21,420
Value at grant: € 275,400 Lock-up until March 2010 Performance shares awarded in 2006, vested in 2009
and subject to two year lock-up period - Number: 9,000
Value at award: € 171,450 Vested: 0
Performance shares awarded in 2007 and vesting in 2010 - Number: 7,500
Value at award: € 194,325 Performance shares awarded in 2008 and vesting in 2011 Number: 20,035
Value at award: € 395,500
Number: 18,237 Value at award: € 360,000 Performance shares awarded in 2009 and vesting in 2012 Number: 42,126
Value at award: € 420,000
Number: 39,669 Value at award: € 395,500 Performance options (discontinued in 2008 – no grant in 2008)
Options granted in 2005 and vested in 2008 Number: 40,000 Exercise Price: € 12.86 Value at grant: € 108,000
Number: 102,000 Exercise Price: € 12.86 Value at grant: € 275,400 Options granted in 2006 and vesting in 2009 Number: 44,000
Exercise Price: € 19.05 Value at grant:€ 251,680
Number:30,000 Exercise Price: € 19.05 Value at grant: € 171,600 Vested: 0
Options granted in 2007 and vesting in 2010 Number: 44,000 Exercise Price: € 25.91 Value at grant: € 285,120
Number: 30,000 Exercise Price: € 25.91 Value at grant: € 194,400 prior to his appointment. As he is now a Managing Director, these awards are also included in the table below. Mr. Mace did not participate in the Long-Term Incentive plan prior to 1 January 2008. He received unconditional share options instead.
2 This amount represents 20% of the Short Term Incentive earned in respect of performance year 2009, which becomes payable in shares in 2010. The number of shares is calculated by using the average closing price of the share on the five trading days following the date of publication of the final results for the year 2009.
Report of the Supervisory Board
With respect to the conditional awards made in 2006 (under the LTI 2005), the three year performance period ended upon completion of the financial year 2008. Based upon the audited financial statements, the three-year period 2006-2008 generated an average annualised EPS growth below the threshold of 5%. The conditional per-formance share awards and conditional option grants made in 2006 therefore did not vest in March 2009.
Equally, with regard to the conditional grants made in 2007, the target threshold was not reached and therefore none of the conditional performance share awards or conditional option grants made in 2007 will vest in March 2010.
Costs incurred by the Company in 2009 in respect of the Remuneration of Managing Directors
In thousands of €
Base salary Short-Term Incentive 5
Expense recognised for
share-based payments (NOT ONLY LTI) 6
Benefits excluding pension payments
Pension
payments Total costs
A.J. Mace 490 357 424 110 540 1,921
M.A.S. Miles 396 288 (35) 109 33 791
5 This is the total amount of the Short-Term Incentive, i.e. the part payable in cash (80%) and the part payable in shares (20%).
6 The fair value of all share-based payments, i.e. the expense recog-nised in 2009 as a pro rata over the entire vesting period. Reference is made to note 3 to the financial statements (prepared in US Dollars, being the Company’s reporting currency).