51
Remuneration Report (continued)
Long-term variable award
Pay mix
Report of the
Report of the
Financial
Sustainability
Other
Introduction
Executive Board
Supervisory Board
Statements
Review
Information
Heineken N.V. Annual Report 2017
The long-term variable award (LTV) is designed to drive and reward sound business decisions for HEINEKEN's long-term health, and to align the
Executive Board with shareholder interests. The target LTV opportunities for both 2017 and 2018 are 150% of base salary forthe CEO and 125% of
base salary forthe CFO.
Each year, a target number of performance shares is conditionally granted based on the aforementioned target LTV opportunity percentage of
that year, the base salary of that year, and the closing share price of 31 December of the preceding year. The vesting of these performance shares is
contingent on HEINEKEN's performance over a period of three years on fourfundamental financial performance measures:
Organic Revenue Growth
To drive top line growth
Organic Operating Profit beia Growth
To drive profitability and operational efficiency
Earnings Per Share (EPS) beia Growth
To drive overall long-term Company performance
Free Operating Cash Flow
To drive focus on cash.
These four performance measures have equal weights to minimise the risk that participants over-emphasise one performance measure to the
detriment of others. At the beginning of each performance period, the Supervisory Board establishes the corresponding numerical targets for these
performance measures based on HEINEKEN's business priorities. These targets are not disclosed upfront as they are considered to be commercially
sensitive. In the first weeks after the end of the performance period, the Supervisory Board reviews the Company's performance against the pre-set
targets, and approvesthe LTV vesting based on the performance achieved. The performance on each of the measures is reported in qualitative terms
in the Remuneration Report afterthe performance period has been completed (cf Part II).
For each performance measure, a threshold, target and maximum performance level is set with the following performance share vesting schedule:
Threshold performance
50% of performance shares vests
Target performance
100% of performance shares vests
Maximum performance
200% of performance shares vests.
For each measure, vesting in between these performance levels is on a straight-line basis; below threshold performance the vesting is zero, whereas
beyond maximum performance it is capped at 200% of vesting at target.
The Supervisory Board has the power to revise the amount of performance shares that will vest to an appropriate number if the number of
performance shares that would have vested underthe agreed vesting schedule would be unacceptable according to standards of reasonableness
and fairness. The Supervisory Board is entitled to claw back all or part of the shares transferred to the Executive Board members upon vesting (orthe
value thereof) insofar as vesting occurred on the basis of incorrect information about achieving the performance conditions. The vested performance
shares that remain after withholding tax are subject to an additional holding restriction oftwo years, to arrive at a five-year holding restriction afterthe
date of the conditional performance grant.
As from the 2017 grant, the performance measure'Organic Operating Profit beia Growth' replaced the performance measure'Organic EBIT beia
Growth', as approved by the Annual General Meeting of Shareholders on 20 April 2017. Forthe LTV grants forthe performance period 2015-2017
and the performance period 2016-2018 the original EBIT targets remained in place. As from 2018 the name of the 2017 Organic Revenue Growth
performance measure will be changed into Organic Net Revenue Growth, since IFRS has changed the definition of'Revenue' to include certain types
of excise duties whereas we wish to maintain the performance measure net of excise duties and thus unchanged in its content.
The mix between fixed pay and variable pay for various levels of performance is illustrated overleaf. In these charts, fixed pay refers to base salary only,
excluding pensions and other emoluments, and variable pay consists of the aforementioned short-term variable pay and long-term variable award
opportunities, including the 'deferral-and-matching' proposition. Share price movements during performance and holding periods are hereby not
included since these are unknown in the context of target remuneration.
