7.4.4 Description of the long-term incentive plan – Restricted share plans
Sodexo’s long-term incentive policy has two objectives:
- to incentivize the Group’s executives, managers and other employees by aligning their financial interests with those of Sodexo’s shareholders;
- to attract and retain the intra-entrepreneurs needed to expand and strengthen Sodexo’s market leadership.
Since Fiscal 2013, long-term incentive plans have consisted exclusively of restricted share plans.
In the eighteenth resolution adopted at the Combined Annual Shareholders Meeting on December 15, 2023, the Company’s shareholders renewed the authorization given to the Board of Directors to grant, on one or more occasions, existing and/or newly issued restricted shares of the Company to employees and Corporate Officers of the Group.
The terms and conditions of the restricted share plans (including the related continued presence and performance conditions) and the list of beneficiaries are determined by the Board of Directors, based on recommendations of the Compensation Committee.
The terms and conditions of the restricted share plans granted within the Group are as follows:
- the restricted share grants take place annually and are decided primarily during the first half of each fiscal year, after the publication of the financial statements for the previous fiscal year. It can be decided to make an additional grant during the second half, mainly for recently recruited beneficiaries for whom the share grant is decisive in recruitment;
- vesting of the shares is subject to a three-year continued- employment condition for each beneficiary and, for part of the shares granted, to performance conditions assessed over a three- year period.
The restricted share grants have no dilutive impact for shareholders as the shares concerned are treasury shares held by the Company.
Vesting of shares under restricted share plans in Fiscal 2024
During Fiscal 2024, the vesting period for the restricted share plan set up by the Board of Directors on November 20, 2020 ended on January 25, 2024. Given the proximity of this vesting date to that of the Pluxee spin-off planned for February 1, 2024, the Board of Directors, at its meeting of October 25, 2023, agreed to bring forward the vesting date of the shares to January 16, 2024, for reasons linked to the operational management of the shares. This change had no impact on the evaluation of the performance conditions in place. It should also be noted that Sophie Bellon was not a beneficiary of this plan.
This plan provided for the following performance conditions:
- achieving a revenue objective of between 20.5 and 22.0 billion euros by the end of Fiscal 2023, aiming for a level of revenues equivalent to that of Fiscal 2019 (on a like-for-like basis);
- an increase in underlying operating profit margin, determined on an annual basis in thirds, as follows: between 2.6% and 3.2% for Fiscal 2021, between 4.2% and 5.0% for Fiscal 2022, and between 5.0% and 5.8% for Fiscal 2023. If underlying operating profit margin growth is equal to or above 6.0% by the end of 2023, the objective will be considered to have been fully achieved;
- Sodexo’s Total Shareholder Return (TSR) at December 15, 2023, the date of the Annual Shareholders Meeting called to approve the financial statements for Fiscal 2023, compared with a group of international peers comprising the following seven groups: Aramark, Compass, Edenred, Elior, ISS, Rentokil and Securitas. As G4S is no longer a listed company, it has been excluded from the peer group. The vesting rate of shares subject to this criterion is defined as follows:
- the achievement of the threshold of at least 40% of women in top management positions, consisting of all positions reporting directly to a member of the Sodexo Leadership Team;
- the achievement in Fiscal 2023 of a sustainable development objective based on a scorecard composed of the following four equally weighted criteria: 22.5% of expenditure or 1.7 billion euros generated with small or medium-sized suppliers, 3,000 sites having deployed tools to reduce food waste, 40% renewable electricity for scopes 1 and 2 (electricity from Sodexo buildings) and lastly, 57% of products derived from plants rather than from animals.
The financial performance conditions of the plan, covering the Group scope including Pluxee (e.g.,. Benefits & Rewards), were largely met.
Revenues for Fiscal 2023 (including Pluxee) reached 23.4 billion euros, more than 6% above the upper value of the target range. This strong performance reflects the good recovery in post-Covid business, a rigorous inflation management, and the accelerated contribution from new contracts;
Underlying operating profit margin also hit or exceeded the performance range for the three years covered by the plan:
- underlying operating profit margin for Fiscal 2021 rose to 3.4%, outperforming the 2.6% to 3.2% performance range, reflecting faster-than-expected recovery in post-Covid business levels, active management of the business and contract portfolio, and very tight cost control;
- underlying operating profit margin for Fiscal 2022 came in at 5.0%, at the upper end of the 4.2% to 5.0% performance range – despite inflationary pressures and investments in digital, sales and marketing – thanks to the strong recovery in post-Covid revenue, combined with continued tight cost control and higher interest rates in the Benefits & Rewards business;
- underlying operating profit margin for Fiscal 2023 (including Pluxee) stood at 5.6%, at the high end of the 5.0% to 5.8% performance range, driven by operating leverage from higher revenue and tight control of overheads, as well as the significant rise in interest rates at Pluxee, which boosted financial revenues and margins. These factors offset inflationary pressures on production costs for on-site activities, and the investments needed to support long-term growth.
The stock market performance condition related to Sodexo’s TSR versus an industry peer group was met in full, with Sodexo generating a TSR over the period of +64.2% to rank second, i.e., in the first quartile of the seven companies included in the peer group.
The diversity condition was also met in full, with 41.8% women among executives reporting to a member of Sodexo Leadership Team as of August 31, 2023.
Lastly, the condition linked to the sustainable development scorecard was partially met, with three of the four defined criteria achieved by 2023:
- expenditure with small and medium-sized suppliers amounted to 2.2 billion euros, above the target of 1.7 billion euros;
- 5,312 sites have deployed tools to reduce food waste, above the target of 3,000 sites;
- 54% of Sodexo buildings now use renewable electricity, above the target of 40%;
- the percentage of products that are plant rather than animal based was found to be 56.3% in Fiscal 2023, close to the target of 57% that had been set, but insufficient to achieve the objective.
