TIDMCCH
RNS Number : 4624N
Coca-Cola HBC AG
31 May 2022
Dear shareholder,
Directors' Remuneration Report for 2021
Ongoing shareholder engagement
I am writing to you in my role as the Chair of the Remuneration
Committee of Coca-Cola HBC to provide some important context in
relation to our approach to executive remuneration, as already
outlined in our Integrated Annual Report for 2021 and prior to our
AGM on 21 June 2022. I felt it was timely and appropriate to
reiterate some key messages, in the spirit of ongoing shareholder
dialogue, but also as a potential response to any reports from
shareholder advisory bodies.
Remuneration in context
Our business performance
We achieved strong performance in 2021 as well as in the first
quarter of 2022. In a volatile market environment, where in many of
our countries we had customers who remained closed for several
months in 2021, the business achieved an acceleration of revenues
and profitability as well as a faster pace of market share gains,
with all key metrics above pre-pandemic levels. We have continued
to invest in long-term opportunities including the acquisition of
Coca-Cola Bottling Company of Egypt and the stake in Caffè Vergnano
which expands our coffee strategy; and we have announced targets
and funds to achieve net zero carbon emissions by 2040.
In 2022, our people continue to execute our growth strategy,
delivering strong top line growth, which was well balanced between
volume and revenue per case. Other highlights include:
-- Focused execution of our strategy and continued reopening
drove broad based growth in Q1 2022, with organic growth of
24.2%
- Q1 organic revenue growth excluding Russia and Ukraine +25.9%
- Ongoing strength in the Emerging segment despite tough comparatives
- Value share gains accelerated, with Sparkling +240 bps and
NARTD +190 bps. Volume share also continued to expand
-- Organic volume grew by 11.3%
-- Egypt added nearly 12 percentage points to reported volume
growth and 7 percentage points to reported net sales revenue in Q1,
with integration of the business progressing ahead of
expectations
Stakeholder experience - our shareholders
Our investors have benefited from recent and historical strong
financial performance. We have
returned EUR4.1 billion to shareholders over the last two
decades with a progressive dividend policy complemented by
extraordinary returns through special dividends. In 2021, we paid a
dividend of EUR0.64, a 3.2% increase despite the decline in EPS.
This represented a payout ratio of 54%, ahead of our then
medium-term target of 35-45%, and was proposed to ensure we
rewarded shareholders and maintained our commitment to a
progressive dividend. At our FY 2021 results we increased the
medium term dividend pay out ratio target to 40-50%. While the
conflict between Ukraine and Russia, the inflationary environment
and COVID-19 pandemic is a continuing source of uncertainty
globally, based on our business's resilience and future
opportunities, the Board has proposed a dividend of EUR0.71, a
10.9% increase compared with last year. We are committed to
continue to make progressive dividend payments in the future.
Stakeholder experience - our employees
As a continuation to the improvements made in 2020 to enable our
workforce to operate effectively, in 2021 we maintained our ongoing
dialogue with our employees to listen and understand their needs.
The discussions and outcomes are shared in the Remuneration
Committee meetings as input for taking wider decisions related to
remuneration for the workforce and executives. Annual increases
were awarded to the wider population in 2021 as were incentives,
and they are planned again for 2022. We adjusted our Wellbeing
framework to take into account the new ways of working and needs of
our employees. Furthermore, we ensured that there were no
redundancies made as a result of the COVID-19 pandemic.
In 2022 we saw the conflict unfold with Ukraine and Russia. We
are providing urgent support and financial relief to our people and
their families impacted by conflict and the human tragedy in
Ukraine. In addition, together with The Coca-Cola Company, The
Coca-Cola Foundation and other bottlers, we have committed $15
million to support humanitarian relief efforts in the region.
This is the overall context within which the Remuneration
Committee deliberated executive pay and determined appropriate
remuneration outcomes.
Key executive remuneration outcomes for 2021
-- CEO salary increased by 3.2% (in line with wider workforce) to EUR815,000
-- Annual bonus of 91% of maximum (following downward discretion from 100%)
-- 2019-2021 PSP vesting of 75% of maximum (following downward discretion from 90%)
Following our 2021 AGM and the extensive shareholder
consultation we conducted in December 2021 and April 2022, we
understand that the area likely to draw the most external review
ahead of our upcoming AGM is the changing of targets for in-flight
awards, for the 2019-2021 PSP awards. Therefore, there are a number
of points we would like to emphasise in this respect:
-- We believe we have done the right thing for the company, its
shareholders and its employees -After careful review, the Committee
concluded that the specific levels of stretch built into the target
ranges for the 2019-2021 PSP had become inappropriate after the
outbreak of the COVID-19 pandemic which had a profound, and
non-controllable impact on the short-term performance of the
business. We wished to recognise our wider management team's
efforts in achieving exceptional business outcomes and ensure their
continued drive and commitment. The Committee therefore determined
to adjust the targets to maintain relevance.
-- The stretch of the targets remained the same as originally
envisaged - Prior to the impact of the pandemic, targets were
calibrated such that awards were expected to vest at around 50% of
maximum for strong performance. The same stretch was applied to
revised targets, namely that these awards were expected to vest at
around 50% of maximum for strong performance. Similarly, maximum
represented exceptional performance both for the original and
revised targets.
-- The impact of government aid was stripped out for the purpose
of determining incentive outcomes - Performance was assessed as if
no government monies were received (as was also the case in 2020),
noting that there is no practical way to return these monies in
some locations. For the avoidance of doubt, there was no government
aid taken in the UK.
-- As with all incentive outcomes, we apply a sense-check
overlay to ensure they are appropriate in the round and for the
2019 PSP awards we applied downward discretion to the formulaic
outcomes - The formulaic outcome against the adjusted targets was
vesting of 90% of the maximum with the exclusion of the benefit of
the Cyprus property sale. Furthermore, the Committee took a step
back and considered all factors in the round, including both the
shareholder experience and employee experience, and determined that
it was appropriate to apply downward discretion and reduce the
outcome to 75% of maximum.
-- As a result, all PSP participants shared in the success of
the previous 3-year performance cycle - The changes applied to all
PSP participants equally, which represents approximately 50
individuals (including the Executive Leadership Team and CEO)
allowing them to be appropriately recognized and incentivised,
sharing in the success of our strong performance.
Concluding comments
As a result of our strong business performance, formulaic
outcomes under the bonus and PSP were 100% and 90% of maximum
respectively. The Committee then considered these outcomes in the
round, applied downward discretion as described in the DRR and
determined that 91% and 75% of maximum should apply instead,
reductions of c.10% and 15% of maximum respectively.
In doing so, the Committee has demonstrated that it is committed
to ensuring that final pay outcomes are stretching enough take into
account the wider employee and shareholder experience whilst also
ensuring the CEO is rewarded for excellent performance. Therefore,
overall, we considered his total remuneration (reflected in the
single figure disclosure) to be justified.
If you would like to discuss this or any other
remuneration-related topics you would like to raise, please do not
hesitate to contact me. In the meantime, we hope we can look
forward to your support at the upcoming AGM.
Your sincerely
Charlotte J. Boyle
Chair of the Remuneration Committee
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