The financial performance targets that are based on financial indicators are determined in a specific manner by reference to the budget pre-approved by the Board of Directors and are subject to the above-mentioned performance thresholds.
Exceptionally and given the unprecedented sanitary crisis caused by the Covid-19 pandemic, the Board of Directors decided to establish the budget for Fiscal 2021 for each of the first and second halves of the fiscal year in line with the financial objectives communicated to the market. Thus, the financial performance targets were set in October 2020 for the first half and will be set in March 2021 for the second half . This structure will apply to all employees eligible for variable compensation.
The overachievement will be measured for the full fiscal year.The achievement rate for the Chief Executive Officer’s variable compensation will be measured at two points in time : following publication of the half-year interim results for Fiscal 2021 and following publication of the annual results for Fiscal 2021.
If the financial performance targets communicated for the first half are achieved, the variable compensation earned under these targets will be considered as achieved .
In any case there will be no acceleration of his payment which remains subject to approval by the Annual Shareholders Meeting .
The achievement rates will be disclosed on a criterion-by-criterion basis once the Board of Directors has assessed whether the performance targets have been reached. The achievement rate for the variable compensation contingent on the quantitative criteria (financial or non-financial) can be adjusted downwards, irrespective of the performance level achieved, in order to better reflect the achievement rate for the qualitative criteria. The adjustment can only be made downwards, not upwards, and cannot be used for the purpose of offsetting weaker performance with respect to the quantitative criteria.
The Board of Directors has decided not to include a clawback clause for the Chief Executive Officer’s variable compensation for the following reasons:
In accordance with French law, payment of the annual variable compensation is subject to shareholder approval during the Annual Shareholders Meeting.
If a new Chief Executive Officer is appointed or the existing Chief Executive Officer’s term of office is terminated during the course of a fiscal year, the same principles as described above will apply, on a pro rata basis by reference to the period during which the Chief Executive Officer concerned actually holds office. However, if a Chief Executive Officer is appointed during the second half of the fiscal year, the performance appraisal will be carried out on a discretionary basis by the Board of Directors, taking into account the recommendations of the Compensation Committee.
The aim of the compensation policy for the Chief Executive Officer is to achieve a balance between long and short-term performance in order to promote the Group’s development for the benefit of all of its stakeholders.
The Board of Directors considers that the long-term compensation system – which also applies to other key positions within the Company – is particularly suited to the position of Chief Executive Officer in view of the direct contribution that he is expected to make to Sodexo’s long-term performance. It is based on (i) the Group achieving organic revenue growth and underlying operating profit margins over a period of several years, in line with market guidance (ii) Sodexo’s share performance compared with a peer group, and (iii) corporate responsibility criteria. The system therefore helps to increase the Chief Executive Officer’s motivation and loyalty while aligning his interests with those of the Company’s stakeholders.
Sodexo’s long-term compensation system currently consists solely of performance share grants.
Performance share grants are decided by the Board of Directors, acting on the recommendation issued by the Compensation Committee, during the first quarter of each Fiscal year, aft er the publication of the financial statements for the previous fiscal year.
The vesting period of shares granted under performance share plans is now three years in order to align said period with the period used for measuring the achievement of the performance conditions as well as to market practices.
The Board of Directors has capped the value of the performance shares granted to the Chief Executive Officer at 150% of his total annual compensation (including fixed compensation and annual variable compensation at targets achieved). In addition, the performance shares granted to him may not represent more than 5% of the total number of restricted and performance shares granted by the Board of Directors in any given fiscal year.
The proportion of the performance shares that will vest depends on the achievement of both internal and external performance conditions, as measured over a three-year period. The achievement rates will be disclosed on a criterion-by-criterion basis once the Board of Directors has assessed whether the performance targets have been reached.
As the Group’s medium-term objectives are not publicly disclosed, the organic growth revenue target and underlying operating margin target will remain confidential.
The performance conditions reflect a good balance between operating performance, investor confidence and the Group’s corporate responsibility performance. They are fully in line with Sodexo’s business model of sustainable and profitable growth and meet the expectations of all of the Company’s stakeholders.
The criteria used are intended to measure overall performance and are directly related to the Group’s main strategic objectives, with the following weightings:
