Michael Kliger, Chairman of the NCC
Michael Kliger
Chairman of the NCC

Dear Shareholders

On behalf of the Board of Directors (the “Board”) and the Nomination and Compensation Committee (the “NCC”), I am pleased to present the Remuneration Report for 2021. It follows a similar structure to the previous year’s report. Additionally, this year’s Remuneration Report provides details on Group Executive Management (the “GEM”) remuneration decisions related to the ongoing impact of COVID-19 on Valora Group.

In 2021, the continued COVID-19 crisis led to high planning uncertainty. Our financial performance was again negatively impacted by government restrictions which forced temporary closures of point of sales and resulted in significantly reduced mobility in key locations. Despite this, thanks to excellent work by Management, a solid financial performance was achieved.

When evaluating the GEM’s short-term performance for the Board it was key that the GEM’s actions and decisions were clearly aiming to minimize COVID-19 disruptions to our business operations, navigate the pandemic well, and optimally position Valora to quickly benefit from a fast recovery in the interest of the company and all its stakeholders. To achieve this, the Board set challenging financial and non-financial short-term metrics to assess GEM overall performance in the context of the ongoing impact of the pandemic.

Moreover, the Board amended the long-term incentive program for 2021 and onwards to strengthen full alignment of our compensation system with the Company’s strategy, culture and shareholder’s long-term interest. Consequently, our remuneration system rewards performance in a balanced and sustainable manner (pay-for-performance) and aligns well with shareholder’s interests.

Group Executive Management remuneration – Short-term variable remuneration (STB):

  • Valora asserts a strict “pay-for-performance” philosophy for all its remuneration elements. During this time of crisis, short-term financial metrics alone were not adequate anymore to evaluate value creation in the interest of all stakeholders. To assess GEM’s performance under the STB in 2021, the Board has therefore established a comprehensive and fact-based performance scorecard also considering ESG criteria. The scorecard consists of three main performance areas that represent key short-term actions in a crisis that drive long-term, sustainable value creation from a business and stakeholder perspective:
Performance areas
1. Risk & Costs
How well Valora has managed to cope with the crisis through good risk management, protection of assets and cost management
2. Market & Strategy
How well Valora has defended its leading position in the out-of-home food service and high frequency retail through development of its formats
3. Profitability & Capital Efficiency
How well Valora has defined a clear path out of the crisis and secured the future viability of the business
  • For each performance area, challenging financial and quantitative non-financial performance indicators were assessed. In line with our “pay-for-performance” philosophy, this comprehensive evaluation within the performance scorecard resulted in an STB factor of 98 % for the Group Executive Management.

Group Executive Management remuneration – Long-term variable remuneration (LTIP):

  • The LTIP rewards Group Executive Management for long-term company performance and therefore reinforces the alignment of their interests with those of the company and our shareholders. In 2020, the LTIP design was amended to further ensure alignment with shareholders’ interests and market practice. The first grant under the revised LTIP took place in 2021.
  • Under the LTIP, performance share units (PSUs) are granted which are subject to a three-year performance period and based on the performance achievement of two equally weighted group level indicators. The following overview shows the most significant amendments under the revised LTIP. Further details can be found in section 5.4.
Previous LTIP design
Amended LTIP design

Performance indicators

Return On Capital Employed (ROCE) and Earnings Per Share (EPS)
ROCE and Earnings Before Interests Taxes Depreciation and Amortization (EBITDA) to put higher emphasis on operational performance
Vesting curve
Threshold at 50 % with a range up to 150 % of target
More robust and symmetrical vesting curve between 0 % and 200 %
Reference price
Volume weighted average of the closing share price on the last 20 trading days preceding the grant date
Fair market value measured at grant date using a fair value simulation adjusted for expected dividends during the performance period
Clawback clause
No clawback clause
Introduction of clawback clause
  • To further align with shareholders’ interests and incentivize Group Executive Management for a fast re-bound of the business, the LTIP grant 2021 includes the possibility to receive 0.5 matching shares for one PSU at vesting if a total shareholder return (TSR) threshold is achieved. It is important to note that the LTIP grant 2021 stays within the approved budget for the maximum total remuneration of Group Executive Management for 2021.

How our “pay-for-performance” philosophy is applied to the STB and LTIP

In 2020, despite tremendous achievements by the GEM in managing the significant impact of COVID on our business, the STB factor was set at 50 % due to reflect the financial consequences of COVID-19 on our business. This reflected the Board’s strict approach to pay-for-performance. For 2021, challenging financial and non-financial business metrics were established for the STB to incentivize GEM to clearly focus on sustainable value creation in the interest of all stakeholders. For the LTIP, in line with our “pay-for-performance” philosophy, the performance targets of the existing and outstanding grants 2019 and 2020 were not changed. The negative COVID-19 impact on the financial performance indicators were not mitigated at all and consequently, as designed the LTIP grant 2019 resulted in a zero vesting. That means there will be no payout after the end of the three-year performance period (2019-2021). Based on current projections also for the grant 2020 a zero vesting is expected and therefore another zero payout after the end of the three-year performance period (2020-2022). This is due to the significant negative impact of COVID-19 on the financial years 2020 and 2021 which are both included in the respective performance periods. The above results in significant reductions in future payouts for the Group Executive Management. This accentuates Valora’s commitment to align management compensation with our shareholders’ long-term interests even though the GEM has achieved excellent results in the face of a severe threat for the business.

  • We will continue to assess our remuneration system to ensure that it is appropriate in the evolving context in which Valora operates. This includes rigorously applying our “pay-for-performance” philosophy. Furthermore, environmental protection, social responsibility and good Corporate Governance, also known as ESG topics (Environmental, Social and Governance), will continue to be an integral part of our corporate strategy and operational implementation and therefore an essential element of the overall performance assessment relevant for GEM’s remuneration. With our compensation framework we will carry on supporting our commitment to creating both financial and non-financial value over the long term in the interest of all our stakeholders.
  • We will also continue to pursue engagement through an open dialogue with our shareholders and their representatives. As in previous years, shareholders can express their views on the remuneration system by participating in the consultative vote on the 2021 Remuneration Report at the forthcoming AGM. At that meeting, your approval will also be sought for the proposed maximum overall remuneration for the Board during the period from the AGM 2022 to the AGM 2023 and for Group Executive Management for 2022 („Say-on-Pay“).

Yours sincerely

Michael Kliger
Chairman of the NCC