Remuneration policy
1. Objectives
The Remuneration Policy of Festi hf. sets the Company’s procedure with regards to the remuneration of management and Board of Directors, which is to ensure that shareholders have an insight into the execution of the policy within the Company. The object of this Remuneration Policy is to ensure that the Company and its subsidiaries are able to compete and recruit exceptional employees and managers. In order to achieve this, the Company’s Board of Directors must be able to offer competitive wages and other remunerations, as is a general tendency in comparable companies. At the same time, it is necessary to nurture employee conditions and ensure they receive a conventional and fair payment for their work.
These goals are intended to support the Company's vision of continued progress, guided by its values. When determining remuneration, responsibility, success and views that recognize equal rights are amongst the things that must be taken into account. This Remuneration Policy shall also take into account the Company's goal of creating value for customers, the Company's Code of Conduct, its social responsibility and personnel policies. The Remuneration Policy is implemented to ensure, to the extent possible, that the interests of the Board of Directors, senior management and other employees coincide with the long-term success of the Company and the long-term interests of shareholders.
The company's Remuneration Policy is set in accordance with the conditions stated in Article 79. a. Act no. 2/1995 on limited liability companies and takes into account guidelines on proper corporate governance.
2. Remuneration Committee
The Company's Board of Directors must appoint three people to sit on the Remuneration Committee, all of whom must be independent of the Company. Neither the Company's CEO nor another employee may sit on the Remuneration Committee. The committee’s guideline should be that the members have experience and knowledge of criteria and practices for determining the remuneration of managers. The Board of Directors shall establish rules of procedure for the Remuneration Committee which shall be based on this Remuneration Policy.
The role of the committee is to act as a guide for the Board of Directors regarding the remuneration of the Company's directors and senior management and to advise on the Remuneration Policy, which is to be reviewed every year and submitted to the Annual General Meeting. The Committee shall also ensure that the remuneration of the Company’s Board of Directors and senior management is in accordance with the Company’s Remuneration Policy and submit an annual report thereto to the Board of Directors as stipulated in Article 9
The Company's Board of Directors is responsible for the activities of the Remuneration Committee and the committee acts on authority of the board.
3. Remuneration of Board Members and Committee Members
Board members shall be paid a fee in accordance with the decisions of the Annual General Meeting, as stated in the first paragraph of Article 79 of Act no. 2/1995 on limited companies. Committee members in sub-committees shall likewise be paid a fee in accordance with the decision of the Annual General Meeting.
Prior to the Annual General Meeting each year, the Company’s Board of Directors shall submit proposals for the fee to the board and committee members for the following year, based on the recommendations of the Remuneration Committee. Such recommendations shall take into account the time that board members and committee members spend on their work, their specialized knowledge and experience, their responsibility, the Company’s earnings and the objectives of this Remuneration Policy. When making such a proposal, the Board of Directors must also take into account the general wage trend for the past year, the wage index trend for the past year and salary changes for managers according to general wage surveys or information from Statistics Iceland for the past year.
Board members shall not receive shares, purchase and sale rights or any other type of payment related to shares in the Company or the evolution of stock price in the Company.
It is not permitted to enter into a severance agreement with board members.
4. Remuneration of the CEO
A written unlimited employment agreement shall be made with the CEO of the Company where employment terms are defined in detail and which clearly states the base wages, variable income, pension rights, vacation time, other benefits and notice of termination.
When concluding an employment contract with a CEO, a guideline should be that there will be no further payments at the termination than already stated in the employment contract, which must allow for a maximum of 12 months' notice.
The amount of the CEO’s total wages, i.e. base wage, benefits and performance related payments, shall take into account the capability, education, experience, responsibility and scope of the position, as well as internal aspects, such as wage range and comparable wages at other companies in the same market.
5. Remuneration of Senior Management
A written employment agreement of an undefined period shall be made with the Managing Director and other senior managers of the Company where their remuneration is defined in detail, and which clearly states their base wages, pension rights, vacation time, other benefits, as well as terms of termination. When determining the remuneration of managers, the same points of view apply as outlined in paragraph 3 of Article 4, cf. Article 7
6. Professional Liability Insurance and Indemnification
The Company shall ensure effective professional risk insurance at all times for the activities of members of the Board of Directors and senior management, both present and past, for the Company. The Company shall ensure that they are held harmless from claims that may be made against them or that may fall on them as a result of their work for the Company, insofar as such claim does not arise from culpable conduct of the person concerned which is assessed to him as intentional or large-scale carelessness.
The Company pays an insurance premium for professional liability insurance and reasonable costs of legal defense against claims or investigations of the above nature, subject to the right to a refund, if it later turns out that the person in question has with intent or gross negligent violated their fiduciary duties to the Company or the provisions of the law in their work for the Company.
7. Variable Remuneration
7.1 Bonus payments
The Company's Board of Directors is authorized to pay bonuses to the CEO, senior managers and other employees based on this Remuneration Policy and a special bonus plan that the Board of Directos shall set and audit annually, after a review by the Remuneration Committee. The purpose of the bonus system is to improve the interests of shareholders and reward good performance, which is when predictions are exceeded and/or when ambitious goals are achieved. This is simply an authorization, not an obligation to pay out bonuses, and the Remuneration Committee can recommend that no bonus payment be made, even though financial and/or other criteria has been met.
The term bonus refers to payments and benefits to employees, including cash payments, special pension payments and share-related rights such as stock options, usually performance-based, which are not part of the employees’ basic employment terms and where the final amount of the payment is not pre-determined in an exact way.
The bonus plan must contain predefined and measurable financial and non-financial performance criteria that take the Company's interests into account and reflect long-term benefits for the Company and its shareholders. Care must be taken that the aforementioned performance criteria do not encourage excessive risk-taking by the Company's employees and do not lead to conflicts of interest. Performance criteria should be a combination of financial, operational, strategic and personal results.
The performance criteria shall be divided into two categories, on the one hand the EBITDA of the operating year in comparison with the estimated EBITDA of the operating year approved by the Company's Board of Directors and on the other hand the financial and non-financial targets set for the management. Depending on circumstances, the targets might be, among other things, the return on total assets, investment in inventory, employee job satisfaction and customer attitude towards the Company.
In connection with the approval of the Company's operating plan, the Board of Directors can set additional goals for the CEO than stated therein, but the CEO sets individual goals for managing directors that are intended to support the priorities of the operating plan. Goals may change within an operating year if new issues warrant it. EBITDA operating performance weighs 50-80% when evaluating bonus payments and the aforementioned financial and non-financial goals 20-50%.
The Remuneration Committee shall annually submit to the Board of Directors proposals of defined and accurate performance criteria for the coming year of operation within the framework defined above. These shall be divided into three stages. At the first stage, authorization is given to pay up to 33% of the maximum bonus payment. If the second stage is achieved, authorization is granted to pay up to 67% of the maximum bonus payment and if the third stage is achieved, authorisation is granted to pay up 100% of the maximum bonus payment.
The amount of the bonus on an annual basis can correspond to a maximum of 3 months' basic salary of the CEO and managing director, but in such a way that the criteria of paragraph 3. Article 4 is used regarding salary distribution within the Company and a competitive overall salary. Bonuses are not paid unless the aforementioned criteria are met, and they may then only be paid out after the end of the calendar year if those criteria are met for the operating year preceding that calendar year. Payment of bonuses in line with the authorization of this Remuneration Policy is conditioned on the fact that the bonus paid can be recovered within the next 12 months after payment to the extent that it may have been paid on the basis of materially incorrect information.
7.2 Stock Options for the CEO, Senior Management and Key Employees
The Company's Board of Directors is authorized to grant the CEO, senior management and key employees of the Company, and other companies within the group, stock options in the Company in accordance with a special stock option plan that has been approved by the Company's shareholders' meeting.
8. Stock Option Plan According to Article 10 of Act no. 90/2003 on Income Tax
The Company is authorized to set up a long-term incentive system in the form of stock options, the aim of which is to link the interests of employees within the Company group with the results and long-term goals of the Company and its shareholders. To that end, the Company shall establish a stock option plan that meets the conditions of Article 10 of Act no. 90/2003 on income tax and must be approved at the Company's shareholders' meeting.
9. Credit agreements
The Company does not grant loans to managers or employees for share purchases.
10. Report Regarding the Remuneration Policy
The Remuneration Committee shall prepare a report on the implementation of the current remuneration policy for the most recently passed financial year and submit it to the Company's Board of Directors for consideration and approval in conjunction with the Annual Financial Statement.
In a report on the implementation of the remuneration policy, an overview of all salary payments and any bonuses and allowances to the board members, committee members and senior management of the Company must be presented. Among the information that must appear in the report on the implementation of the remuneration policy is the following:
a) The total payments together with itemization depending on the nature of such payments and explanations of their basis, having taken this Remuneration Policy into account and the previously mentioned performance criteria.
b) Changes in payments from the preceding year and details of the reasons for the changes, if any, in light of the Company’s share value and the wage developments of other employees.
c) Payments from other companies within the Company group, if such payments have been made.
d) If applicable, information on payments that follow developments of share prices in the Company, such as stock options, their terms and changes between years.
e) Information on deviations from this Remuneration Policy, if deviations have occurred, and explanations of their reasons and how they correspond to the objectives of the remuneration policy.
f) Information on shareholder recommendations from the previous year regarding the remuneration policy and the remuneration report and how they were taken into account.
The Board of Directors shall publish said report no later than two weeks before the Annual General Meeting, explain its content at the general meeting and submit it to the meeting for confirmation. The remuneration report must also be published on the Company's website. When preparing a report on the implementation of the remuneration policy, the Remuneration Committee shall take into account the provisions of Act no. 90/2018 on personal protection and processing of personal information.
11. Approval of remuneration policy, etc.
The Company's remuneration policy must be approved at the Company's Annual General Meeting. The Company's remuneration policy must be reviewed annually by the Remuneration Committee and the Company's Board of Directors before the Annual General Meeting. During the Annual General Meeting, the Board shall disclose all significant changes that have been made to the policy from the previous year, if any, as well as the manner in which they accord with the objectives of the policy and the instructions of shareholders during the previous Annual General Meeting in connection with the remuneration policy.
The Remuneration Policy is binding for the Company’s Board of Directors in its regard to the provisions on stock option agreements and any form of agreements or payments that are linked to developments in the price of Company shares, as provided for under paragraph 3 of Article 79 of Act no. 2/1995 on limited companies. In other respects, the remuneration policy is a guideline for the Company's Board of Directors, unless it has been decided in the Company's Articles of Association that it should be binding. Deviations from the policy must be justified by strong reasons, but in the event of such deviations, the Remuneration Committee and the Company's Board of Directors must review the reasons and the effect of such deviations, taking into account the objectives of the policy.
In the event that the Company's remuneration policy is not approved at the Company's general meeting, the previous remuneration policy shall remain in effect and payments made in accordance with it, until a new policy has been approved by the general meeting.
This Remuneration Policy shall be published on the Company's website together with the results of votes at the Annual General Meeting for the confirmation of the policy every year, as appropriate. The Remuneration Policy shall be available on the Company's website while the policy is in effect.
Approved at the Shareholders' Meeting of Festi, September 25, 2018.
Updated at the Festi General Meeting on March 22, 2022.
Updated at the Festi General Meeting on March 6, 2024.