Implementation of the remuneration policy in 2019

2019 has been an eventful year for Beter Bed Holding N.V. in which a crucial turnaround has been achieved. The Company has arranged bridge financing with its shareholders, successfully sold it loss making German activities and Dutch distributon centers, reinstated its credit lines and, towards the end of the year, arranged succession for its CFO. The support of its shareholders for the transformation and a restated strategy have been crucial in creating a new beginning.

Remuneration of the Management Board

During the financial year the Management Board was composed of Mr John Kruijssen, CEO, and, up to and including 12 December 2019, Mr Hugo van den Ochtend as CFO.

The tables below provide a transparent overview of their remuneration, specified in each remuneration component.

1. ¹ Up to and including 12 December 2019.

1. ¹ As of 1 April 2018.
2. ² As of 1 September 2018.
3. ³ Up to and including 31 July 2018.

During the past year, the Management Board’s remuneration has been implemented in accordance with the remuneration policy. To ensure remuneration is linked to performance, a proportion of the remuneration package is variable and dependent on the short and long-term performance of the individual member of the Management Board and the Company.

Base salary

The Supervisory Board considers the appropriateness of any changes to the base salary based on the market environment as well as on the average salary adjustments for the employees in the Netherlands.

Variable remuneration

The variable income part of the remuneration consists of short-term and long-term incentives. The distribution between short-term and long-term incentives for on-target performance aims to achieve a proper balance between short-term results and long-term value creation. The parameters relating to the various elements of variable income part of the remuneration are established and – where necessary – adjusted by discretion of the Supervisory Board, considering the general rules and principles of remuneration policy itself. The short-term and long-term incentives relate to the performance in the respective year.

A scenario analysis of the possible outcomes of the variable components and the impact on the Management Board members’ remuneration is conducted annually to minimise the risk that the performance criteria lead to inappropriate outcomes. The effect of different performance scenarios on the level and composition of remuneration has been analysed and the outcome has been taken into consideration by the Supervisory Board when reviewing the Management Board members’ remuneration.

Short-term variable pay

Any potential pay-out under the short-term incentive plan occurs annually during the first quarter of the next financial year. A minimum level of performance must be achieved before any payment under the plan will be made. The pay-out is capped at an outstanding level of performance, known as the maximum.

In 2019 the Supervisory Board stayed within the boundaries for the maximum variable pay as set in the remuneration policy. The maximum allowed variable pay within the policy is 100% of base salary, split in quantitative and qualitative criteria. The quantitative objectives are driven by financial KPIs such as revenue growth, EBITDA, cash flow, and the qualitative objectives are driven by non-financial KPIs. The minimum variable pay opportunity is 0% of base salary.

These targets were set, validated and agreed upon by the Supervisory Board at the beginning of 2019. In May/June 2019, as the Company came in a precarious position, new overriding priorities were identified. The Supervisory Board formulated four key milestones that were considered crucial in assuring the viability of the Company. The key milestones were:

• Agreement of an additional loan.
• Realisation of sale and leaseback of the three distribution centers.
• Deleveraging the senior debt.
• Divestment of Matratzen Concord within a period of six months.

These key milestones were fully achieved in 2019, thereby averting bankruptcy and creating a new perspective for the Company. The ‘on-target’ variable pay percentage is 60% of base salary for the CEO, and 50% of base salary for the CFO. In case of excellent performance, 130% of the target variable pay levels can be rewarded, which means that the maximum variable pay opportunity is 78% of the base salary for the CEO and 65% of the base salary for the CFO. The Supervisory Board considered the overall performance of the CEO and concluded to award the CEO with a variable pay of 78% of base salary for 2019and 0% of base salary to the CFO.

Options on shares

The policy offers a long-term incentive in the form of an annual grant of share options. In 2019 the CEO received a grant of 50,000 options and the CFO a grant of 40,000 options. The options will vest three years after the grant date, conditional on the continued employment of the Management Board members and the management teams still being in service. The options and the right to exercise will expire on the fifth anniversary date of the grant date. For members of the Management Board, the net proceeds upon exercise of options are deferred into Beter Bed Holding N.V. shares with a four years holding period.

The CEO received additional options in an arrangement approved by the Annual General Meeting in 2019, to redeem his sign-on arrangement. The 100,000 options granted upon his appointment forfeited in exchange for 200,000 options with an amended exercise price plus 100,000 options the CEO bought at an agreed price.

The 2019 options grant to the CFO was forfeited when he left the Company before the end of the year.

The following table summarises the information about outstanding options of each member of the Management Board as well as the movements during the year.

Share options

1. ¹ 200,000 options (replacement for the 100,000 signing options granted in 2018) and 100,000 options (against cash payments) as adopted in the 2019 Annual General Meeting held on 25 April 2019.

At the end of the financial year Mr Kruijssen held 10,000 shares in Beter Bed Holding N.V.

Change of control

In case of a change of control, any long-term incentives granted to a Management Board member, shall be (deemed to be) vested regardless of the status of the realisation of the objectives, and exercisable upon such change of control.

Pension benefits

Pension contributions are an element of the overall total remuneration of the Management Board members. Pension contribution is capped at 30% of base salary for the CEO and 25% of base salary for the CFO.

Severance compensation

Mr Hugo van den Ochtend assumed his role as CFO in September 2018 and contributed to the turnaround of Beter Bed Holding N.V. After careful consideration and by mutual agreement, the Supervisory Board and Mr Hugo van den Ochtend have come to realise that it is in the interest of the Company that someone else will fulfil the position of CFO. Mr Van den Ochtend’s severance compensation will consist of the payment of six months’ notice period and nine months fixed salary, in line with the management contract.

Comparative information

Pay ratio

Both the Supervisory Board and the Management Board are committed to balanced internal pay ratios. An overall ratio compares the average pay of the Management Board members with the average pay of all Beter Bed Holding N.V. employees. The average pay of employees is calculated on a full-time basis and encompasses the total remuneration, comprising base salary, variable remuneration, share options, and pension benefits, as well as the social security paid over this remuneration package

The table below shows the pay ratio over the last five years and how it is calculated:

The decrease in the remuneration package of the Management Board members and in the average number of FTE compared to last year is mainly attributable to the divestment of Matratzen Concord.

Remuneration of the Supervisory Board

The General Meeting has determined the annual remuneration of the Supervisory Board in 2015 as follows:

The annual remuneration for the Chair of the Supervisory Board amounted to € 31 thousand (2018: € 31 thousand), while the other Supervisory Board members were paid € 21 thousand (2018: € 21 thousand). Supervisory Board members also received compensation for participation in a committee amounting to € 4.5 thousand per committee (2018: € 4.5 thousand). Supervisory Board Chair and member remuneration does not depend on the Company’s results. Supervisory Board members are not awarded shares and/or share options. No loans, advances and/or guarantees have been granted to Management Board and Supervisory Board members.

In 2019 the remuneration (in thousand €) was as follows: