If it was necessary to change these criteria, the Board of Directors would ensure consistent and stringent criteria over the long-term.
In order for his performance shares to be delivered, the Chief Executive Officer must be present within the Group at the vesting date. However, in accordance with the AFEP-MEDEF Code and the plan rules applicable to all beneficiaries of the Group’s performance share plans, in exceptional circumstances, the Board of Directors, on the recommendation of the Compensation Committee, may authorize the Chief Executive Officer to retain his rights to any non-vested shares at the date of his departure.
In such a case, the number of shares that vest would be determined on a pro rata basis by reference to the actual time the Chief Executive Officer spent within the Group during the vesting period. The original vesting period would continue to run and the rules of the applicable plan – including the performance conditions – would still apply.
In accordance with article L.225-197-1 of the French Commercial Code, the Chief Executive Officer is required to hold in registered form, for the duration of his term of office, a number of vested shares whose value has been set by the Board of Directors as equivalent to 30% of his annual fixed compensation at the date the shares are delivered.
Based on the recommendation of the Compensation Committee, the Board reinforced this shareholding obligation by deciding that the Chief Executive Officer must from now on maintain a portfolio of shares with a value equivalent to 200% of the gross annual fixed compensation. This portfolio must be built up over a maximum period of three years, as from September 1, 2019 for the current Chief Executive Officer. Denis Machuel currently holds a portfolio of shares with a total value exceeding the threshold set by the Board.
In addition, as long as he remains in office, the Chief Executive Officer may not use hedging instruments on any performance shares granted to him.
The Board of Directors has decided not to create a multi-year compensation system, preferring instead to apply a share-based long-term compensation system, which it considers to be more closely aligned with the interests of the Company’s shareholders.
However, the Board may envisage putting in place such a system if any regulatory changes or other changes in circumstances were to render it difficult or impossible to use shares. If a multi-year compensation plan were to be set up, it would be based on the same principles and criteria as those used for determining and allocating performance shares and the same grant cap would apply.
If the Chief Executive Officer’s term of office is terminated for any reason (other than resignation, retirement or gross or willful misconduct) then he may be entitled to an indemnity representing up to twice the amount of his annual gross compensation (fixed and variable) received over the 12 months preceding the termination.
This indemnity will only be paid if, at constant consolidation scope and currency exchange rates, the annual increase in the Sodexo Group’s consolidated underlying operating profit is equal to or higher than 5% for each of the three fiscal years ended prior to the termination of the appointment.
Denis Machuel has expressly refused this indemnity and therefore will not benefit from any payment in case of termination of office.
If the Chief Executive Officer’s term of office is terminated, he is also subject to a non-compete obligation for a maximum term of 24 months, which is intended to protect the Group by restricting the Chief Executive Officer’s freedom to carry out certain activities following the end of his term. The activities concerned include holding any position as an employee or Corporate Officer , or carrying out any consulting work, either directly or through another legal entity, for any of Sodexo’s competitors. As consideration for these restrictions, the Chief Executive Officer would be paid an indemnity representing up to 24 months of his fixed compensation paid during the fiscal year preceding the termination of his term of office.
At its meeting on April 27, 2018, the Board decided to approve the conclusion of a non-compete agreement with Denis Machuel for a period of 24 months as from the date on which his duties as Chief Executive Officer would cease.
However, the Board of Directors would have the option to decide to waive the Company’s right to enforce this non-compete agreement when the Chief Executive Officer leaves the Group. In addition, the maximum aggregate amount paid to the Chief Executive Officer for (i) his non-compete agreement, and/or (ii) his indemnity on termination of office, may not exceed 24 months’ worth of his fixed compensation.
This indemnity will not be paid if the Chief Executive Officer retires, and in any event will not be paid once he reaches the age of 65.
Until December 31, 2019, the Chief Executive Officer was a beneficiary of a defined benefit pension plan governed by article 39 of the French General Tax Code and article L.137- 11- 1 of the French Social Security Code, and which was set up for the most senior executives employed by a French company of the Group. Under this supplemental pension plan (subject to a minimum of five years of presence in the plan), as a member of the plan for at least 15 years, the pension paid could represent up to 15% of the average of his last three years’ fixed compensation preceding his retirement. This pension complements the pensions due to him under compulsory pension plans, provided that he is a Corporate Officer or employee of the Company at the time of his retirement.
The Board of Directors had decided that the Chief Executive Officer’s rights under this plan would only accrue if the achievement rate for his annual variable compensation targets was at least 80%. If this rate were to be reached, the beneficiary would acquire 1% additional rights to the defined benefit plan for the year concerned. However, an achievement rate less than 80%, would not trigger additional rights under the supplemental pension plan for that year.
The rights were financed and provisioned through annual charges, which were to be revalued each year, depending on new commitments and the balance of the account held by the insurer.
