Annual Report 2010

Remuneration principles

2.3 Elements of the Executive Committee’s compensation

2.3.1 Compensation programme 2010 for the Executive Committee

In 2008, the NCC launched the development of a new compensation model for the members of the Executive Committee and a further group of senior managers, effective 2009. In order to ensure that the new model is in line with market standards for compensation (benchmarks), the NCC asked a professional international provider of such services, Hay Group, for support in the design and implementation phase. Hay Group was asked for support in aligning the Company’s pay practice and policy to a Swiss and a pan-European sample of large companies of comparable size and business complexity, taking into account comparable job sizes and job profiles with a focus on the median’s midpoint. Hay Group has no further compensation-related mandates with the Company.

For 2010, a further benchmark analysis has been performed in 2009 by an international independent external consultant, Towers Watson. The benchmark includes a global selection of more than 200 companies. The CEO, CFO, Chief Sales Officer, and Chief Human Resources Officer are benchmarked against comparable functions in a selected reference group of Swiss companies. Members of the Executive Committee with geographical responsibility are benchmarked against comparable functions in the respective geographical areas. Taking into account the findings of the analysis, the NCC has decided to continue the compensation model effective 2009 with some changes in the short-term incentive plan and long-term incentive plan.

On May 11, 2010, the Annual General Meeting of shareholders approved the principles of the 2010 compensation model in a consultative vote with a majority of more than 90 percent.

The compensation model includes fixed and variable elements, whereby for the determination of the variable part of the compensation, no other targets than the ones mentioned in the description of short- and long-term incentive plans are relevant:

  • A base salary, taking into account market conditions for comparable functions and positions;
  • A short-term incentive plan, based on annual, ambitious and transparent performance objectives in relation to the major key performance indicators of the Company and the area of responsibility of the job holder;
  • A long-term incentive plan, including performance share awards based on ambitious internal and external performance objectives and restricted share unit awards;
  • Social charges and benefits where payments and contributions are based on local regulations, market conditions, and industry practices.

Base salary: the annual base salary represents payment for due job performance and is determined based on market conditions for comparable functions and positions. The base salary rewards employees for performing day-to-day responsibilities and reflects job characteristics, seniority, experience and skill sets. It is paid in cash, typically in monthly instalments, and is set according to local practice designed to provide the Company’s employees with fixed compensation to ensure an appropriate standard of living relative to that offered by reference companies. In general, the base salary is reviewed annually to ensure that competitive pay is maintained and undesired fluctuations are minimised. The annual base salary also serves as the basis for determining the variable compensation.

Social charges, pension plan contributions, and fringe benefits: payments and contributions are based on local regulations, market conditions, and industry practices.

Short-term incentive plan (“STIP”): the STIP is a general cash incentive programme (annual bonus). For members of the Executive Committee with geographical responsibility, 35% of the STIP base is related to the Economic Value Added of the Company and 65% is related to the Economic Value Added at geographical level. The Economic Value Added is defined as net operating profit after taxes minus cost of invested capital. For the members of the Executive Committee who do not have direct responsibility for a specific geographical area, the STIP is based on the Economic Value Added of the Company for the relevant financial year. The STIP bonus base for members of the Executive Committee ranges between 50% and 100% of the participant’s base salary, and has been determined by the NCC upon proposal of the CEO and of the Chief Human Resources Officer. For 2010, the entitlement to the STIP based bonus is limited at 120% of the STIP bonus base, resulting in a cap at 120% of the base salary for the highest paid member of the Executive Committee.

Long-term incentive plan (“LTIP”): under the LTIP, performance share awards were granted in 2010 to members of the Executive Committee. Performance share awards contain an undertaking to deliver a number of Adecco S.A. shares to the participants of the plan after the end of the performance period (end of performance period for the 2010 awards: December 31, 2012), provided and to the extent that certain employment conditions and performance targets are met. In addition to the performance share awards, in 2010 as a further component, restricted share unit awards (“RSU awards”) have been introduced.

The LTIP target bonus base amount is defined as a percentage of the participant’s base salary. Such percentage depends upon the participant’s function. For members of the Executive Committee, the percentage ranges between 45% and 120% of the participant’s base salary. 65% of the LTIP target bonus base is allocated to RSU awards and 35% to performance share awards in form of total shareholder return (“TSR”) awards. Of these 35%, half is allocated to relative TSR awards and half is allocated to absolute TSR awards. Furthermore, an additional 17.5% of the LTIP target bonus base is allocated to the additional TSR awards. Certain country specifications apply for France.

The LTIP is subject to certain reclaim provisions in case benefits were acquired by involvement in fraudulent behaviour or intentional misconduct.

Performance share awards
In 2010, performance share awards consisted of relative TSR awards, absolute TSR awards, and additional TSR awards. The additional TSR awards will vest if relative and absolute TSR performance reaches a certain level of achievement. In 2009, performance share awards consisted of relative TSR awards and earning per share (“EPS”) awards. EPS awards have not been further granted in 2010.

The performance targets relate to the change in Adecco S.A.’s shareholder value, measured as the total shareholder return taking into consideration reinvested dividends. At the end of the performance period, the performance is measured, determining whether and to which extent the performance targets have been achieved. Any TSR performance adjustments are at the discretion of the NCC. Upon approval of the NCC, the awards vest accordingly in favour of the respective participants, and all restrictions on the awards are lifted (for the awards granted in 2010: not before March 15, 2013). Those awards which do not vest, lapse immediately.

Participants who terminate their employment with the Company at their own will, and those who receive notice of termination for cause before the end of the performance period, will no longer be entitled to the vesting of the awards. In case of an involuntary termination without cause, a time-weighted pro-rata portion of the unvested performance share awards will vest at the regular vesting date depending on the level of target achievement.

The maximum number of performance share awards under the LTIP that may vest in favour of the members of the Executive Committee after the end of the performance period is indicated in the table under section 3.5.2 “Share awards”.

Relative TSR awards measurement principles: the Adecco S.A. TSR over the performance period of approximately three years is compared with the weighted-average TSR of a predefined group of peers. The composition of the peer group is determined by the NCC and, for 2010, comprised the following companies: Alten, Altran Technologies, Assystem, Brunel International, CDI Corporation, Hays, Kelly Services, Kforce, Manpower, Meitec, Michael Page International, On Assignment, Pasona Group, Randstad Holding, Resources Connection, Robert Half International, Robert Walters, SFN Group (formerly Spherion Corporation), Sthree, Temp Holdings, TrueBlue, and USG People. The performance targets for the relative TSR awards have been determined by the NCC as follows: with an Adecco S.A. TSR lower than the weighted-average TSR of the peer group, there will be no entitlement to a vesting of the relative TSR part of the award. With an Adecco S.A. TSR that exceeds the weighted-average TSR of the peer group, the participants will be entitled to the vesting of performance share awards to the following extent: if the positive difference between Adecco S.A. TSR and the weighted-average TSR of the peer group is between 0 and 5 percentage points, awards will vest in a linear mode between 0% and 100% of the number of awards granted. The entitlement is capped at 100% of the relative TSR part of the award.

Absolute TSR awards measurement principles: in case the performance of the Adecco S.A. TSR, measured as the compound annual growth rate (“CAGR”) in Adecco S.A.’s shareholder value, including reinvested dividends, exceeds a certain target over a period of approximately three years, awards will vest in a linear mode between 50% and 100% of the number of awards granted. The performance targets for the absolute TSR awards have been determined by the NCC. These targets are set for a specific business year and are considered highly confidential as they would allow competitors to understand the objectives of the Company. They are therefore not published in order to protect the business secrets.

Additional TSR awards measurement principles: if at the end of the performance period, the performance target of the absolute TSR awards is fully achieved and the performance target of the relative TSR awards is overachieved, additional TSR awards will vest, depending on the degree of overachievement of the relative TSR awards target. If the positive difference between Adecco S.A.’s TSR and the weighted-average TSR of the peer group is between 5 and 10 percentage points, additional TSR awards will vest in a linear mode between 0% and 100% of the number of awards granted.

RSU awards
RSU awards contain an undertaking to deliver a number of Adecco S.A. shares to the participants of the plan. The vesting of the awards is not subject to performance conditions but to employment conditions. Provided that the employment relationship continues, RSU awards will vest in equal portions over a period of three years at the anniversaries of the grant.

Participants, who terminate their employment with the Company at their own will, and those who receive notice of termination for cause before a vesting date, will no longer be entitled to the vesting of the RSU awards. In case of an involuntary termination without cause, a time-weighted pro-rata portion of RSU awards will vest at the regular vesting date.

The maximum number of shares under the RSU award part of the plan that may vest in favour of the members of the Executive Committee is indicated in the table under section 3.5.2 “Share awards”.

2.3.2 Compensation programme 2011 for the Executive Committee

The NCC has decided to continue the existing compensation programme for the Executive Committee, as described under section 2.3.1 “Compensation programme 2010 for the Executive Committee” with the following changes in the STIP and in the LTIP.

Short-term incentive plan (“STIP”): the STIP bonus base for members of the Executive Committee ranges between 60% and 100% of the participant’s base salary. For 2011, the entitlement to the STIP based bonus is limited at 150% of the STIP bonus base, resulting in a cap at 150% of the base salary for the highest paid member of the Executive Committee.

Long-term incentive plan (“LTIP”): the LTIP bonus base amount is defined as a percentage of the participant’s base salary. Such percentage depends upon the participant’s function. For members of the Executive Committee, the percentage ranges between 60% and 120% of the participant’s base salary.

For performance share awards granted in 2011, the end of the performance period is December 31, 2013 and restrictions on the awards are not lifted before March 15, 2014.