APC 2015 Annual Report Download - page 305

2015 REGISTRATION DOCUMENT SCHNEIDER ELECTRIC 303
ANNUAL SHAREHOLDERS’ MEETING
8
REPORT OF THE BOARD OF DIRECTORS TO THE COMBINED ANNUAL AND EXTRAORDINARY SHAREHOLDERS’ MEETING
70% of the shares granted. Due to the performance conditions,
all or part of the performance shares may be canceled. For
instance, 22% of shares subject to performance criteria of the
2014 long-term incentive plan were canceled due to the failure to
meet these conditions (see below).
History of plans
a) for the 2014-2015 annual plan in March2014:
The criteria were:
•for 70% of the shares allocated under performance criteria, an
average level for 2014 and 2015 of adjusted EBITA operating
margin, at constant scope, as follows: 0% if the level is ≤13%,
100% if the level is ≥14%, with a linear progression between the
two points.
This bracket, defi ned in March 2014, identical to the one for
the 2013 annual plan, was selected to take into account the
economic environment at the time and more particularly the risk
of a continued slowdown in WesternEurope and the signifi cant
impact of exchange rates from new economies;
•for 15% of the shares allocated under performance criteria,
an average level for 2014 and 2015 of ROCE, as follows: 0%
if the ROCE is ≤11%, 100% if the ROCE is ≥11.5%, with a linear
progression between the two points. The 2013 proforma ROCE
(calculated mainly to take into account the acquisition of Invensys)
was 10.9% and the bracket refl ects the Group’s objective to
gradually improve the ROCE in a climate of volatile exchange rates,
affecting the base of capital employed;
•for 15% of the shares granted subject to performance criteria, an
objective of increasing the “Planet & Society barometer ” as follows:
0% if the index at the end of 2015 is ≤8/10, 100% if the index is
≥9/10, with a linear progression between the two points, where the
level of the Planet & Society barometer was 7.5 /10 at the end of
2013 and the objective of Connect was to bring it to 8/10 at the
end of 2014.
The achievement rate of these objectives was 78% with:
–an average EBITA operating margin adjusted to constant scope
for the 2014 and 2015 fi scal years of 13.9%, i.e., an achievement
rate of 90%;
–an average level of ROCE for 2014 and 2015 of 10.9%, i.e., an
achievement rate of 0%;
–a score of 9.69/10 for the Planet & Society barometer , i.e., an
achievement rate of 100%.
b) for the 2015-2016 annual plan in March2015
The criteria are:
•for 70% of the shares allocated under performance criteria, an
average level for 2015 and 2016 of adjusted EBITA operating
margin, at constant scope, as follows: 0% if the level is ≤13%, 100%
if the level is ≥14%, with a linear progression between the two points.
This bracket, defi ned in March 2015, was selected to take into
account the global growth prospects at the time, and more
particularly the impacts of a slowdown in China, the fall in oil prices,
and the volatility of currencies;
•for 15% of shares allocated under performance conditions, an
average level of ROCE in line with the objective of returning, over
two years, to a ROCE level comparable to that prior the acquisition
of Invensys. The 2013 proforma ROCE (calculated mainly to take
into account the acquisition of Invensys) was 10.9% and the bracket
refl ects the Group’s objective to gradually improve the ROCE in
a climate of volatile exchange rates, affecting the base of capital
employed;
•for 15% of the shares granted subject to performance criteria, an
objective of increasing the “Planet & Society barometer ,” which
measures the progress of the Group with regard to environmental
sustainability and social responsibility across 14 indicators (see
page104 ) as follows: 0% if the index at end 2016 is ≤5/10, 100% if
the index is ≥6/10, with a linear progression between the two points,
being specifi ed that the level of the new Planet & society barometer
was 3/10 on january 1, 2015.
New performance criteria
On the report of the Human Resources & CSR and Governance &
Compensation Committees, the Board of Directors decided to review
the performance conditions in order to bring them more in line with
shareholders’ long term interests. Accordingly, it established that from
2016 long-term incentive plan which, as for every year, would be
implemented at the end of March:
•the performance conditions would be assessed over a period of
three years instead of two years;
•Besides the criteria based on Adjusted EBITA operating margin
and achievement level of the Planet & Society barometer, two
new criteria will be used: A rate of cash generation and level in the
“Total Shareholder Return” or “TSR” compared to that of a group of
competitors. These two new criteria have been introduced by the
Board with a view to promoting a long-term development.
–Rate of cash conversion, which is a ratio of free cash fl ow and
net income potentially adjusted for exceptional components.
It is a key indicator of a company’s capacity to effectively use
its capital employed in the long-term in order to generate
free cash fl ow which the company can use to strengthen its
balance sheet, its external development and its dividends to
shareholders.
–TSR, which represents global return for the shareholder on
his investment in Schneider Electric taking into account share
performance and paid out dividends, assuming they are
reinvested in Schneider Electric shares,
•Weighting of each of these criteria is as follows:
–40% for the adjusted EBITA operating margin,
–25% for the rate of cash conversion ,
–15% for TSR and
–20% for the Planet & Society barometer.
•Their calculation method will be:
–Adjusted EBITA margin, an average on a three-year period of
the achievement rates of annual Adjusted EBITA margin vs.
targeted Adjusted EBITA margin rate set, for each year, by the
board of directors of Schneider Electric which will be in line
with the objectives usually communicated at the beginning of
the year to investors.
–The rate of cash conversion, an average level set over a
three-year period. For the 2016 Long Term Incentive Plan, the
objective is 100%. This objective is in line with the long term
objective announced to the market. It has been set taking into
account the high cash conversion level of 2015 (113% cash
generation).
If the rate of cash conversion is between:
– 100% and 80%, the achievement rate will be distributed on
a linear basis down to 0%;
– 100% and 120%, i.e. an achievement rate above target,
the achievement rate of the criterion will increase on a linear
basis up to 150%. This achievement rate will, on the one
hand, enable achievement of 100% of the rate of cash
conversion criterion over the period and, on the other hand,
can offset non-achievement of the Adjusted EBITA target or