The annual variable compensation is calculated and set by the Board of Directors following the close of the fiscal year to which it applies.
In the first quarter of each year, based on the Compensation Committee’s recommendations, the Board of Directors reviews the various targets, their weightings, and the expected performance levels. It then sets:
Consequently:
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.
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.
In accordance with French law, payment of the annual variable compensation is subject to shareholder approval during the Annual Shareholders Meeting.
Furthermore, no clawback clause has been put in place for the variable compensation.
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 he or she holds office.
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 Board of Directors considers that the long-term variable compensation plan – 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/she is expected to make to Sodexo’s long-term performance. It is based on the performance criteria selected by the Board of Directors in direct alignment with the Company’s strategic priorities. The system therefore helps to increase the Chief Executive Officer’s motivation and loyalty while aligning his/her interests with those of the Company and its shareholders. These performance conditions comprise (i) 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.
Sodexo’s long-term compensation program 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 half of each fiscal year, after the publication of the financial statements for the previous fiscal year.
The vesting period is three years, in line with the period over which performance conditions are measured and in keeping with market practices.
The Board of Directors has capped the value of the performance shares granted to the Chief Executive Officer at 150% of his/her total annual compensation (comprising fixed compensation and annual variable compensation, assuming targets achieved). In addition, the performance shares granted to him/her may not represent more than 5% of the total shares granted annually by the Board.
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:
