General guidelines for incentive based compensation to the supervisory board and the executive board of DONG Energy
The supervisory board of a listed company shall prepare general guidelines for incentive-based compensation to its supervisory board and executive board to be approved by its general meeting, cf. section 69b of the Danish Public Companies Act.
DONG Energy A/S (the “Company”) has not yet been listed. Since the Company is due for listing, and since, as a state-owned limited company, the company is to a wide extent subject to the same terms and conditions as listed companies, the Company’s supervisory board has decided to prepare general guidelines for incentive-based compensation prior to the listing.
The Company offers share-based and non-share based incentive programmes to the members of its executive board registered with the Danish Commerce and Companies Agency.
The members of the Company’s supervisory board are not eligible for incentive programmes. Under their contracts of employment, employee representatives on the supervisory board may, however, be eligible for general incentive programmes covering the Company’s employees.
Shares at a discount
The Company’s share-based incentive programmes are based on the purchase of shares at a discount requiring that the individual members of the executive board invest personally in the Company. There are no plans to introduce other types of share-based incentive programmes, including share options or warrants.
Employee share programme
In connection with the listing, a general employee share programme will be established as a one-time grant. The programme will also apply to members of the executive board and employee representatives on the supervisory board. Under the employee share programme, the individual member of the executive board and employee representative may within an exercise period of approximately four weeks buy shares at a discount of 60% relative to the offer price. The total value of the discount may not exceed DKK 15,000. Accordingly, each member of the executive board and employee representative are offered to buy shares with a total value of up to DKK 25,000. The shares will be held in restricted accounts until 31 December 2013.
The value of the discount to the members of the executive board and the employee representatives participating in the employee share programme is estimated at up to DKK 90,000.
Management share programme
In connection with the listing, a share-based incentive programme will be established for the Company’s managers and others, including registered members of the executive board.
The first grant under the incentive programme will be made in connection with the listing. Subsequently, annual grants are expected to be made in connection with the Company’s preliminary announcements of the annual results, beginning in the spring of 2009.
For each grant under the management share programme, the individual member of the executive board may within an exercise period of approximately four weeks buy shares at a discount of 40% relative to the current market price (in connection with the listing, the offer price). The total value of the discount for each grant may not exceed 10% of the individual’s annual gross salary. Accordingly, for each grant the individual member of the executive board is offered to buy shares with a total value of up to 25% of his annual gross salary. The shares will be held in restricted accounts for three years.
In respect of the grant to be made in connection with the listing, the executive board will, in the light of the work associated with the listing, be offered the maximum number of shares. For subsequent grants, it is intended that the number of shares that may be purchased will be subject to the Company’s financial performance, both in absolute terms and measured according to the performance criteria to be determined by the Company’s supervisory board. Only a strong performance by the Company will trigger the maximum number of shares and thus the maximum value of the discount.
The total value of the discount of the grant to be made to the executive board in connection with the listing is DKK 837,858. The calculation of the value assumes the maximum discount of 10% of the executive board’s current gross salaries and the executive board’s full exercise of the right to buy shares at a discount. The actual value of future grants under the share-based incentive programme, which will be proportionate to the development in the fixed salaries of the members of the executive board, will be disclosed in the Company’s annual reports.
Bonus schemes
The non-share based incentive programme covering the executive board is a bonus scheme with a term of one year.
The benchmarks of the bonus scheme may consist of various elements, including (i) the Company’s financial value creation, (ii) the performance of the individual member of the executive board in strategic areas of responsibility and/or specific projects and (iii) the performance of the individual member of the executive board relative to the Company’s values and day-to-day management in general.
The payment of bonus is subject to the full or partial achievement of defined benchmarks. The remuneration committee of the supervisory board defines the benchmarks and determines the performance of the chief executive officer, whereas the chairman of the supervisory board and the chief executive officer define the benchmarks for the chief financial officer.
Full achievement of all benchmarks will entitle the individual member of the executive board to an annual bonus of a maximum of 30% of his fixed annual salary.
At the discretion of the supervisory board, individual members of the executive board may in extraordinary circumstances be eligible for further bonus schemes of up to an additional 20% of their fixed annual salaries. Such bonus will be tied to specific benchmarks.
Based on the executive board’s fixed annual salaries for 2007, the value of the ordinary bonus scheme may represent up to DKK 2,299,500 annually, and the value of any extraordinary bonus scheme may represent up to DKK 1,533,000.
The actual value of the ordinary bonus scheme and any extraordinary bonus scheme, which will be proportionate to the development in the fixed salaries of the members of the executive board, will be disclosed in the Company’s annual reports.
Publication
Subject to approval by the Company’s extraordinary general meeting to be held on 17 January 2008, these general guidelines will be posted on the Company’s website (www.dongenergy.com), and article 7.7 of the Company's articles of association will state that the general meeting has approved the general guidelines.