Rationale for Updating the Remuneration Policy

Transcription

1 Rationale for Updating the Remuneration Policy For the Board of Management of ASML Holding N.V SRM Wpa final SRM version of 6

2 TABLE OF CONTENTS Introduction and Summary page 3 Rationale for updating the Remuneration Policy page 4 Proposed Changes page SRM version of 6

3 Introduction The Supervisory Board of ASML Holding N.V. ( ASML ), upon recommendation of its Remuneration Committee, has developed an update of the Remuneration Policy for the Board of Management which it intends to effectuate as per the calendar year 2008, subject to the approval of the Annual General Meeting of Shareholders on April 3, This document is intended to provide the rationale for updating this policy. It clarifies the proposed changes on Board of Management Base Salary, Target Bonus and Target & Maximum Performance Stock. Target & Maximum Performance Stock Options remain unchanged from the Remuneration Policy The Remuneration Policy (version 2008) is compliant with Dutch Corporate Governance Code. The Remuneration Policy 2006 refers to Total Direct Compensation at median market levels to be reviewed every two years. Based on the current review, the Supervisory Board is of the opinion that a small adjustment of the Remuneration Policy is required to anticipate on the 2008 compensation levels. These adjustments therefore reflect: 1. Benchmark data of reference group remuneration 2. Payment of anticipated increases in 2008 pay levels will be defined slightly above Median market level. The Total Direct Compensation increase at average will be 8% 3. Differentiation of role and accountability between CEO and other members of the Board of Management SRM version of 6

4 Rationale for an Updated Remuneration Policy The Supervisory Board of ASML, has concluded that a gap exists between current Total Direct Compensation to 2007 Market Median levels and the anticipated 2008 levels. The Supervisory Board considers this undesirable, and has looked into the possibilities for bridging this gap. An adjustment of Total Direct Compensation within the framework of the current remuneration policy would imply a raise in base salary to almost 3 rd quartile market level, with a corresponding increase of all related variable elements. Rather, the Supervisory Board has decided to adjust Total Direct Compensation by means of updating the Remuneration Policy, keeping Base Salary around Median level and moving the ratio of short term variable and long term performance stock as percentage of base salary slightly upwards. In view of the international composition of ASML s business as well as ASML s Board of Management, the base salary and short- and long-term incentives have been measured against the market median of the appropriate top executive reference market by the end of 2007 and the anticipated 2008 levels, in accordance with the Remuneration Policy The average gap of current Total Direct Compensation of Board of Management Members to 2007 Market Median levels, based on this measurement is 7.8%, which will increase to 9.8% when an additional 2% is included to reflect payment of anticipated increases in 2008 remuneration levels. Such an adjustment of the 2007 market levels to reflect anticipated 2008 compensation is internationally supported, according to the remuneration advisor of the Remuneration Committee, Towers Perrin. A prevailing starting point in measuring total on target variable pay is that it should equal 1.25 time base salary. The Remuneration Policy 2006 complied with this assumption by using the following structure for its compensation package: base salary, variable bonus, performance stock options and performance stock with the ratio and a reward for overachievement by means of long term variable income. In the proposed Remuneration Policy (version 2008) the ratio has been slightly altered, while focus on variable income has been maintained. Instead of a major increase of base salary, as referred to above, base salary will only be increased slightly, while performance cash bonus (because of lack of overachievement), and on target long term variable pay (performance stock) will be increased slightly to new ratio: / Overachievement will still only be rewarded by long term variable income SRM version of 6

5 Proposed Changes Adjusting reward Performance incentive zones consist of performance levels and a range of payout levels corresponding to the levels of performance. ASML defines stretching targets for on target pay out. In case of a higher achievement than the on target performance, market practice indicates that for each variable element it is common to denominate a percentage that can be reached in case of such overachievement. Based on this assumption the following adjustments are proposed: Performance stock will be defined on a on target level of 55% (2006 policy: 50%) and can reach up to 96.25% of base salary in case of overachievement (87.5% in 2006 policy). The cash performance bonus will not reward overachievement but is increased to 75% for CEO and 60% for other Board of Management members (50% for all Board of Management members in 2006 policy). The reason for the higher percentage for the CEO is the difference in accountabilities between CEO and other Board of Management members. As a result of the above, the ratio base salary, performance bonus, performance stock options and performance stock of respectively 100% - 50% - 25%- 50% will shift as follows: The CEO towards 25%-points more short term incentive and 5%-points more long term incentives to 100% - 75% - 25% - 55% (base salary, performance bonus, performance stock options and performance stock) All other Board of Management members towards 10%-points more short term incentive and 5%-points more long term incentives to 100% - 60% - 25% - 55% (base salary, performance bonus, performance stock options and performance stock). The above adjustments lead to a total on target variable pay of 1.55 time base salary (CEO) and 1.4 time base salary (other Board of Management members), where previously total on target variable pay equalled 1.25 time base salary ( sum of the variable parts in the ratio of the 2006 policy ). Increase Base Salaries for Board of Management Members Base Salary increases are set at 3.5% for CEO and CFO and at 5% for the EVP Marketing & Technology. As the current benchmark review covers a period of two years, and the next review will take place in 2010, the Supervisory Board has decided to increase the Base Salaries of all Board of Management Members with 5% in Fixed numbers of Performance Stock awards and Performance Stock Options grants for two years The number of performance stock and stock options that will be conditionally awarded, respectively granted, will be fixed for a period of two years. These fixed numbers will be based on the fair value calculation made in the first year of the two year s benchmarked period SRM version of 6

6 The number of performance stock options to be granted conditionally (based on the maximum achievable value of 50% of Base Salary divided by the faire value of the performance stock option) will be calculated at the beginning of the performance period of the first year. The same number of performance stock options will be conditionally granted for the next performance period. In the first year of the next two year s benchmarked period a new fair value of the option will be determined. Based on this new value the number of conditional performance stock options for that benchmarked period will be calculated. The number of performance stock to be awarded conditionally (based on the maximum achievable value of 96.25% of base salary divided by the fair value of the performance stock) will be calculated at the beginning of the performance period in the first year. The same number of performance stock will be conditionally awarded for the next year (the start of the next three year performance period). A new determination of the number of performance stock will be done in the first year of the next two year s benchmarked period. Consistent terminology In the Remuneration Policy 2006 the term Return on the Average Invested Capital was abbreviated as ROIC. A more accurate abbreviation is ROAIC, which abbreviation shall be used going forward. It should be noted that the formula for determining the ROAIC (NOP/Average IC) has not changed SRM version of 6