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Innovation at its Finest –the Veolia Management Incentive Program
Eric Bachellereau, Vice President, Veolia
Franck Duez, LTI Director, CIC-Banque Transatlantique
Sami Toutounji, Partner, Shearman & Sterling
Background of Veolia• Since 2010 equity plans were suspended, not LTI plan had been
proposed to its top executives and all employee.
• The share of capital held by employees was therefore undergoing acontinuous reduction.
• For investors, the absence of any Equity based Long TermIncentive for executives (stock options, bonus shares), and their lowlevel of ownership of securities of the group could be seen as ananomaly.
• At the same time, Veolia holds a significant long-standing positionof treasury shares, historically acquired at higher market prices, andwhich could be used for a employee LTI plan.
Background of Veolia• Conditions met to revive the policy of employee share plans of Veolia in
2014:
– The contours of the 'new Veolia' emerged,
– The Veolia share price is attractive, and there are strong positiveexpectations
– Employee ownership remains a preferred vector for cohesion.
• With two specific categories targeted:
– On the one hand the leaders of Veolia, in order to involve them in itseconomic development, which is subject of this presentation.
– On the other hand its “rank and file” employees, who must also haveaccess to capital opportunities.
Management Incentive Plan guidelines• A communication focused on 'Pay for Performance' for a small
number of 300 targeted eligible leaders.
• A co-investment plan with an individual contribution and a “leverage”funded by the group, using treasury shares.
• Members of the Executive Committee have no guarantee on theirindividual contribution in the MIP. For the other beneficiaries of thePlan, a partial guarantee of their investment was provided.
• A strong incentive to the achievement of the Performance Conditionparticipant can benefit from, a significant gain in the event of anappreciation of the share price which, given the current level of taxation,allows for an attractive net remuneration.
Management Incentive Plan guidelines• A "medium term“ vesting period, which illustrates the goal of participant
retention on the horizon of the 4 years of the plan.
• Self-financing of the Plan by the redesign of French defined benefitsand defined contribution plans
• A possible recurrence on the basis of the duration of the plan, forexample every two years, ensuring continuity of the plan providing anopportunity for new employees who joined the Group during the twoyears to participate.
• A plan outside of the 'qualified' free share or stock options regimes sothat the gains are taxed as regular wages and paid only if theperformance conditions are met.
MIP description
• For each share acquired at market price, the participantreceives:
– Protection on 80%, excluding tax, of his/her investment excluding theExecutive Committee. The protection is paid in cash and subject tohedging.
– A number of “Matching shares" based on the increase market price of theVeolia share.
– Matching shares are delivered only if performance, continued service andcontinued holding conditions are met after a period of 4 years of continuedservice
The Performance Condition
• Share Price Increase : the average closing price of the Share on Euronext Paris recorded over a period of20 trading days following the publication date of the annual financial statements for the financial year beingconsidered (2015, 2016 or 2017), as recorded in March 2016, 2017 and 2018 respectively, exceeds theAcquisition price per Purchased Share. The amount of such excess is the "Increase" of the year underconsideration and the stock price used to calculate the Price Increase is the "Reference Price of theIncrease"
• Growth in Income: the Group share of recurring net income (résultat net récurrent part du groupe or “RNRec.PG”) per Share as published by the Group in the financial statements for the year under considerationexceeds the minimum as amount specified in the following table. The level of achievement of the Targetdetermines the Coefficient for the year in question.
Assessment of the Bonus in Shares per Financial Year
MIP description
• The Bonus in shares is determined by a simple andreadable, mechanism based on:
– A multiple of the increase in of the share price at maturity in 2015,2016, 2017.
– And a coefficient of achievement of the Performance Condition basedon group net results.
Example of Gain at maturityScenario 1 : Unfavourable
14,50 €
12,50 €11,00 €
9,00 €
0,00 €
2,00 €
4,00 €
6,00 €
8,00 €
10,00 €
12,00 €
14,00 €
16,00 €
2014 2015 2016 2017
Share Price
&
Example of Gain at maturityScenario 2 : Median (a)
14,50 €
17,50 €
15,00 €
12,00 €
0,00 €2,00 €4,00 €6,00 €8,00 €
10,00 €12,00 €14,00 €16,00 €18,00 €20,00 €
2014 2015 2016 2017
Share Price
&
Example of Gain at maturityScenario 2 : Median (b)
14,50 €
17,50 €
15,00 €
10,00 €
0,00 €2,00 €4,00 €6,00 €8,00 €
10,00 €12,00 €14,00 €16,00 €18,00 €20,00 €
2014 2015 2016 2017
Share Price
&
&
Example of Gain at maturityScenario 3 : Favourable
14,50 € 15,00 €
18,75 €
25,00 €
0,00 €
5,00 €
10,00 €
15,00 €
20,00 €
25,00 €
30,00 €
2014 2015 2016 2017
Share Price
&
MIP vs LTI instrument
MIP Leverage
Annual Veolia shares performance
Leverage
1.50
4.99
6.71
7.728.38
8.85 9.21 9.51 9.75 9.97
0.00
2.00
4.00
6.00
8.00
10.00
12.00
5.00% 10.00% 15.00% 20.00% 25.00% 30.00% 35.00% 40.00% 45.00% 50.00%
Hypothesis : The target of Veolia’s Performance condition (Growth in Income) is reached
Communication strategy
Double communication• Veolia
– Webcast by CEO announcing the MIP linking it with Veolia’s development strategy and performance goals
– Individual grant letters sent by CEO Antoine Frerot
• BT– Enrollment package– Participant assistance
3 categories of participants
Content of the communication package
A specific co-investment calendar
A specific co-investment calendar• Sending participants their enrollment package on 09/20/2014
– Sent by UPS
• By 10/18/2015 (on month later)– Complete enrolment packages must be returned to BT
– Funds corresponding to individual investment must have been transferred to BT
– Two emailing operation to remind deadline
– BT Assistance to participants (form filling, financing solution, explanation of scheme, international transfer issues, taxation issues, etc.
• Acquisition share price determined by Vwap of Veolia shares on 3 days (20, 21 and 22 October)
• Shares Acquired off market (Veolia Treasury shares sold) on 10/22/2015 aftermarket
• Shares credited to BT participant accounts and locked for vesting
Next steps• Communication to participant at each MIP appointment : 2015,
2016, 2017 and 2018 of the achievement of performance conditions
• Matching shares delivered at end of four year vesting• Tax process applied in compliance with each country’s rules
(international mobility complexity de deal with)• Processing selling of shares
Access to participant website during the calendar of the plan Same access as for standard LTI plans
Making it easy for the participantsBT Assistance• A dedicated team of Private bankers, French and international, in
France and worldwide (US, UK, Europe and Asia)• Financing solution for all participants, local (French) and
international• Tax and international issues• Confirmation at each step of the enrollment process
=> Fundamental in order to keep participants from being turned down by the apparent complexity of the enrolment process
209 participants representing 73,08% of eligibleparticipants
Zechs 10 participants 100% of country eligible
Americans 16 participants 94,12% of country eligible
French 107 participants 75,35% of country eligible
Chinese 13 participants 72,22% of country eligible
UK 17 participants 65,38% of country eligible
MIP Success
13/04/2015
Total investment representing 39% of maximum potential
Biggest contributors:
China 74,41% of country’s maximum
ZechRepublic 74,33% of country’s maximum
UK 54,36% of country’s maximum
France 52,33% of country’s maximum
USA 38,22% of country’s maximum
MIP Success
13/04/2015
77 eligible have not participated:
Australians 8 participants 88,89% of Australian eligible (mailing issues withUPS)
UK 9 participants 34,62% of UK eligible
French 35 participants 24,65% of French eligible
MIP Success
13/04/2015
Thank You
Eric BachellereauVeolia
Franck DuezCIC-Banque Transatlantique
Sami ToutounjiShearman & Sterling
