Remuneration Policy

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Remuneration Policy

Policy
Novo Nordisk’s remuneration policy for its Board of Directors and Executive Management covers both fixed and incentive-based payment. It aims to attract, retain and motivate board members and executives.

Remuneration levels are designed to be competitive and to align the interests of the board members and executives with those of the shareholders. In light of recent changes in Danish legislation, Novo Nordisk has presented its guidelines for incentive-based remuneration for approval at the Annual General Meeting 2008 and the Annual General Meeting approved such guidelines.

Board members
Remuneration of the Board of Directors is aligned with other major Danish companies, and the Board regularly reviews board fees based on recommendations from the Chairmanship.

The remuneration of the board members is approved by the annual general meeting in connection with the approval of the annual report. Changes in the board fees will be announced at a general meeting in advance of being presented for approval.

Each board member receives a fixed fee per year. Ordinary board members receive a fixed amount (the base fee) while the Chairmanship receives a multiplier thereof: the chairman receives 2.5 times the base fee and the vice-chairman 1.5 times.

Service on the Audit Committee entitles members to additional payment: the Audit Committee chairman receives 1.25 times the base fee and Audit Committee members receive 0.5 times.

Individual board members may take on specific ad hoc tasks outside the normal duties assigned by the Board. In such cases, the Board determines a fixed fee for the work.

Expenses, such as travel and accommodation in relation to board meetings as well as relevant training, are reimbursed. Board members are not offered stock options, warrants or other incentive schemes.

Executives
Executive remuneration is proposed by the Chairmanship and subsequently approved by the Board. Levels are evaluated annually against a Danish benchmark of large companies with international activities. This information is supplemented by information on remuneration levels for similar positions in the international pharmaceutical industry. To ensure comparability, executive positions are evaluated in accordance with an international position evaluation system which, among other parameters, includes and reflects the development of the company size measured in terms of company revenue and number of employees.

The remuneration package consists of a fixed base salary, a short-term cash bonus, a long-term share-based incentive, pensions and non-monetary benefits. For executives being expatriated at the request of the company, the remuneration package is based on current Danish remuneration levels, including pension entitlements, while a specific expatriation package is added for the period of expatriation.

The short-term incentive programme may result in a maximum payout per year equal to four months’ fixed base salary plus pension contribution. The long-term incentive programme may result in a maximum grant per year equal to eight months’ fixed base salary plus pension contribution. Consequently, the aggregate maximum amount that may be granted as incentives for a given year is equal to 12 months’ base salary plus pension contribution.

Fixed base salary
The fixed base salary for each executive accounts for between 40% and 60% of the total value of the remuneration package.

Short-term incentive programme
The short-term incentive programme consists of a cash bonus that is linked to the achievement of a number of predefined functional and individual business targets for each executive. The targets for the chief executive officer are fixed by the chairman of the Board while the targets for the executive vice presidents are fixed by the chief executive officer. The chairman of the Board evaluates the degree of target achievement for each executive, and cash bonuses for a financial year – if any – are paid at the beginning of the subsequent financial year.

Long-term incentive programme
Each year in January the Board decides whether or not to establish a long-term incentive programme for that calendar year. The long-term incentive programme is based on an annual calculation of shareholder value creation as compared to the budgeted performance for the year.

In line with Novo Nordisk’s long-term financial targets, the calculation of shareholder value creation is based on reported operating profit after tax reduced by a WACC-based (weighted average cost of capital) return requirement on average invested capital. A proportion of the calculated shareholder value creation is allocated to a joint pool for participants, which in addition to Executive Management includes the other members of the Senior Management Board.

For executives the joint pool operates with a yearly maximum allocation per participant equal to eight months’ fixed base salary plus pension contribution.

The joint pool may, subject to the Board’s assessment, be reduced in the event of a lower than planned performance in significant research and development projects and key sustainability projects. Targets for non-financial performance related to sustainability and research and development projects may include achievement of certain milestones within set dates.

Once the joint pool has been approved by the Board, the total cash amount is converted into Novo Nordisk B shares at market price. The market price is calculated as the average trading price for Novo Nordisk B shares on the OMX Nordic Exchange Copenhagen in the open trading window following the release of financial results for the year prior to the bonus year.

The shares in the joint pool are allocated to the participating executives on a pro rata basis: The chief executive officer participates with three units, executive vice presidents participate with two units each and the other members of the Senior Management Board participate with one unit each.

The shares in the joint pool for a given year are locked up for three years before they are transferred to participants. Upon resignation during the lock-up period by a participant, the shares will remain in the joint pool to the benefit of the other participants. In the lock-up period, the Board may remove shares from the joint pool in the event of lower than planned value creation in subsequent years if, for example, the economic profit falls below a predefined threshold compared to the budget for a particular year.

In the lock-up period the value of the joint pool will change dependent upon the development in the share price, and consequently the interests of the participants, including the members of Executive Management, are aligned with those of the shareholders.

Pension
The pension contribution is between 25% and 30% of the fixed base salary including bonus.

Non-monetary benefits
Non-monetary benefits such as company car, phone etc are negotiated with each executive individually.

Termination of employment
Novo Nordisk may terminate the employment by giving executives a notice of 12 months. Executives may terminate the employment by giving Novo Nordisk a notice of six months.

Severance payment
In addition to their notice period executives are, in the event of termination, whether by Novo Nordisk or by the individual due to a merger, acquisition or takeover of Novo Nordisk, entitled to a severance payment of 36 months’ fixed base salary plus pension contribution. In the event of termination by Novo Nordisk for other reasons, the severance payment is three months’ fixed base salary plus pension contribution per year of employment as an executive, but in no event less than 12 and no more than 36 months’ fixed base salary plus pension contribution.

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