Remuneration

Table of content

1. Remuneration as incentive and reward
2. Renumeration in 2007
3. Board remuneration
4. Board options
5. Management renumeration
6. Long-term conduct - Share-based incentive programmes
7. Remuneration committee

1. Remuneration as incentive and reward

In order to attract and retain the right employees, NORDEN aims to ensure that salaries, bonuses and share-based payment form a competitive package for the Company’s employees in  combination with its culture and values, short chains of command, tradition of extensive delegation, good career and secondment opportunities, etc.

NORDEN’s remuneration policy is based on the long tradition in the shipping industry for incentive pay and the fact that the shipping companies are competing with each other for competent employees.

NORDEN does not generally wish to lead in terms of salaries, but it is essential that NORDEN, in addition to competitive basic salaries, is able to reward employees for outstanding performances and extraordinary results. The Company’s most important incentives are bonuses, share options and employee shares.

2. Renumeration in 2007

In 2007, NORDEN allotted employees and executives bonuses in the total amount of USD 18.6 million (USD 9.8 million). The increase was due in part to the record earnings for the year and in part to the increased number of employees ashore. But although the amount is up, the proportion of bonuses to the Company’s net profit was lowered to a level of approximately 3%. The previous year, bonuses constituted an extraordinary rate of approximately 5% of the net profit in recognition of the extraordinary performance leading to NORDEN’s significantly improved earnings. But in previous years, the rate was about 3%, which will remain the guideline for bonuses in the future.

Of the total bonus amount, USD 16.4 million has been expensed. The remaining USD 2.2 million is conditional on selected executives remaining with the Company in 2008-2010, when the amounts will be expensed as they are earned.

As a collective bonus, all employees, including Danish and foreign seamen, received three months’ additional pay, or a pro rata amount for employees with less than one year’s seniority. In 2006, NORDEN distributed a collective bonus of two month’s pay, but this did not include seamen and officers with collective agreements. NORDEN finds it important that all employees should be able to see it on their salary slip when the Company is doing really well, and will therefore continue to pay out collective bonuses like the rest of the business. However, individual bonuses are becoming increasingly important as a targeted effort to reward and retain high performers.

92 executives and employees received individual bonuses varying from half a month’s salary to three years’ salary (4.2 months’ salary on average). In total, USD 10.9 million was distributed, in addition to which USD 2.2 million was, as mentioned, paid in the form of stay-on bonuses for six key individuals, including the Board of Management, which means that the payment of these is contingent on continued employment in 2008-2010.

In 2006, 52 executives and employees received individual bonuses in the total amount of USD 5.8 million.  

Carsten Mortensen, President and CEO, and Jacob Meldgaard, Senior Vice President and head of the Dry Cargo Department, have bonus agreements which are renegotiated annually. Under both agreements a cash bonus is payable, which is dependent on the net profit of the Group and the Dry Cargo Department, respectively, taking into account a reasonable minimum shareholders’ return.

Carsten Mortensen’s agreement is based on NORDEN’s market cap excluding treasury shares at the last stock exchange trading date (USD 1.8 billion at year-end 2006). Of this market cap, an effective rate of interest of 8% is calculated (USD 146.9 million), and Carsten Mortensen’s bonus is then calculated as 1% of the Group’s net profit over and above the USD 146.9 million, although subject to a ceiling of USD 2.8 million. In 2007, this mechanism resulted in a bonus of USD 2.8 million, half of which was paid out at the approval of the annual report in March 2008 and the rest in 2009 and 2010, provided that Carsten Mortensen remains with the Company and that NORDEN’s earnings reach a specific benchmark for each of the two years. Jacob Meldgaard’s bonus is calculated in the same way, although based on 60% of the market cap, as the Dry Cargo Department accounts for 60% of NORDEN’s investment framework, and with a personal ceiling of USD 1.8 million.

The two bonus agreements will be carried over into 2008, when Carsten Mortensen will receive a bonus only if NORDEN realises a net profit in excess of USD 373.6 million (8% of the market cap excluding treasury shares at the end of 2007) and Jacob Meldgaard will receive a bonus only if the Dry Cargo Department’s net profit exceeds 60% of USD 373.6 million.

The bonus of Ivar Hansson Myklebust, Executive Vice President is rewarded at the discretion of the remuneration committee, and for 2007 amounted to USD 0.5 million. The bonuses of other executives are rewarded by the Board of Management on the basis of the Company’s overall performance and that of the individual executive. Bonuses for other employees are rewarded in that the Management fixes a pool for each department.
These pools are then allocated by the heads of department, who are deemed the best able to assess who have delivered outstanding performances.

3. Board remuneration

The ordinary emoluments of the members of the Board of Directors are determined by the shareholders at the general meeting. For 2007, the total emolument amounted to USD 1 million (USD 0.5 million in 2006).

4. Board options

No members of the Board exercised share options in 2007. One employee representative on the Board of Directors received options in connection with his employment with the Company.

5. Management renumeration

The Management's total remuneration amounted to USD 4.8 million including share-based payment in 2007, against USD 3.1 million the previous year.

The Management’s remuneration and employment terms are stated in note 8 (3.87 Mb) to the financial statements (notice of termination and remuneration) and note 41 (3.87 Mb) (share options).

6. Long-term conduct - Share-based incentive programmes

In order to promote the long-term conduct and to strengthen the community of interest between employees and shareholders, NORDEN uses share-based incentive programmes such as employee shares and share options.

In January 2008, NORDEN granted employee shares to the employees, just as the Company did in December 2005 and February 2007. All employees with at least one year’s seniority received 53 shares each, totalling 11,713 shares with a market value of USD 0.9 million. The shares were taken from NORDEN’s portfolio of treasury shares. This will also be the case for future grants.

At 10 March 2008, the Board of Directors furthermore granted share options to 50 employees. As in previous instances, the programme equals 1% of the share capital. Also as previously, the exercise price will be determined as a five-day average of the market price after the grant with the deduction of all dividend payments and the addition of an effective rate of interest of 8% p.a. until the exercise date, which means that the employees will only profit once the shareholders have received a return. A new requirement, however, is that the 11 top executives upon exercise of the options must reinvest 25% of any net gain in NORDEN shares and keep these for two years. In this way, the programme not only has an up-side, but also retains a stronger long-term community of interest between executives and shareholders.

The options are distributed with 72,400 to the President, Carsten Mortensen, 43,180 to Executive Vice President Ivar Hansson Myklebust, 39,980 to Senior Vice President Jacob Meldgaard, 143,320 to the eight other top executives and 147,180 to the 39 remaining key employees. The option grant is based on the salaries of the employees in question, weighted according to various allocation keys, depending on the seniority of the employees. The theoretical market value of the options has been calculated at USD 7.9 million according to the Black-Scholes model, provided that all options are granted and exercised at the earliest opportunity. The calculation is based on a two-year volatility of 42.3% (source: Bloomberg); an annual dividend of DKK 35 per share; a risk-free interest rate of 3.7% and a USD/DKK exchange rate of 511.

7. Remuneration committee

The Board of Directors has set up a remuneration committee consisting of three members – the Chairman, the Vice Chairman and member Einar Fredvik – which sets out NORDEN’s remuneration policy and discusses its implementation with the Board of Management. The remuneration committee convened 3 times during 2007.

The remuneration policy reflects the fact that incentive-based remuneration is customary among the shipping companies, which compete across borders for the best employees. Therefore, NORDEN must be able to offer a base salary conforming to market standards as well as incentives to high-performing individuals. The most important incentives are bonuses, share options and employee shares. NORDEN does not wish to lead in terms of salaries, but the recruitment and retention of qualified employees is essential in order to ensure maximum return on the Company’s large investments. Therefore, remuneration has to be a competitive element in NORDEN’s overall employee package, which also includes good career, secondment and supplementary training opportunities, short chains of command, extensive delegation and responsibility, a strong corporate culture, value-based management, etc.

NORDEN assesses that the remuneration policy is effective. The Company did not lose any key employees in 2007 and did not have any real difficulty in recruiting experienced specialists.