Jacqueline Tammenoms Bakker: 'Remuneration Touches the Soul of the Company'
Twelve years of membership on seven Remuneration Committees - four of them as Chairman - at listed companies in vastly different sectors in England, France and the Netherlands: Jacqueline Tammenoms Bakker's experience with 'Remcos' is as broad as it is international. She operates at the intersection of Anglo-Saxon and Rhineland thinking about good corporate governance and remuneration scores in the various countries where she supervises. She regards this as a major advantage: her position in the front row of the European governance scene provides visibility into the key players and their stated expectations for accountability and transparency in the remuneration package.
Say on pay
Tammenoms Baker's first membership on a Remuneration Committee was on the Board of Tesco. With no experience of overseeing a listed company, she joined the British listed supermarket group as a Non-Executive in the midst of the financial crisis, after a career at Shell, McKinsey, Unilever subsidiary Quest and as DG of Infrastructure and Water. 'As the Board of Tesco, we faced high expectations from shareholders and proxy advisors in the city, especially since the crisis,' she reflects. Listed companies in the UK had to meet governance requirements that were only later incorporated into laws, regulations and codes on the continent. 'That experience came in handy when I became a supervisor of companies in other European countries.'
So did the EU Shareholders Rights Directive II, introduced in 2017, which dictates say on pay: the right of shareholders to vote on the remuneration policy of listed companies, with member states deciding whether that vote is binding or advisory. It also requires a (non-binding) vote on the remuneration report at the shareholder meeting. 'Many companies on the continent initially found those requirements complex and unrealistic. My experience in the UK allowed me to take a more relaxed view of compliance within Remcos.'
Tesco - at the time the largest private British employer and a company that even today is constantly under the social magnifying glass - was ’a fantastic learning experience’, sums up Tammenoms Bakker. On the website of Scheltema-Tammenoms, the consultancy in which she and fellow top Supervisory Director Margot Scheltema coach aspiring Supervisory Directors, she describes it as follows: ’I made classic mistakes, such as not fully understanding the different roles of a Non-Executive Director versus an executive Director and being too direct in my remarks. Fortunately, my colleagues were generous and shared their experiences over cups of coffee, but that was pure luck.'
Passing through to her hometown of London - Tammenoms Bakker was in the Netherlands for the Supervisory Board meeting at Boskalis, where she was Chairman of the Remco until January 1 (she is now a member) and where she chairs the ESG committee - she now shares her own experience in an interview with Roel van der Weele, who heads Deloitte's executive compensation advisory practice. Subject of discussion: current developments in determining remuneration and the broadening of the tasks of the Remuneration Committee to include, for example, HR, diversity and sustainability.
What attracts you to the tasks of the Remuneration Committee?
'The essence of the Remco's duties is to set the performance criteria and the remuneration structure and to clearly account for them. What has made that role even more interesting in recent years is the linking of remuneration to the strategic development of the company. During the strategy session, as Chairman or member of the Remco, you already have your brain working: which KPIs fit the formulated ambitions? Those KPIs also have an important signaling function to the rest of the organization. As a Remco you are therefore close to the strategy and can contribute to the power of execution. In addition, you gain insight into the culture in the company. For example, are the same strategic KPIs used for the Board of Directors and the management layers below, or are they judged according to separate performance criteria? How a CEO acts in that discussion says a lot about the leadership culture and the norms and values used. So as a Remco, you touch the soul of the company.'
Remcos are increasingly concerned with the remainder of the pay structure in addition to executive compensation. How do you view the often large gap between the remuneration of top executives and the average employee?
'There should be a logical consistency between Board remuneration and the rest of the company. It makes no sense to formulate a standard for the pay gap, but you can monitor as a Remco if it increases or decreases. Benchmarks often lead to an increase in salaries in BoDs because companies do not want to be in the bottom quartile. A number of structural developments can reduce the pay gap with the rest of the organization. For example, awareness of the importance of a living wage (the minimum income an employee needs to meet basic needs, ed.) is growing and companies are sometimes starting to pay their employees in low-wage countries more. We are also currently facing high inflation and energy costs. Some companies raise the salaries of relatively low-paid employees so that they can still meet the cost of groceries and their fixed expenses. It doesn't seem fair if the salaries of top executives also increase at the same rate; after all, they have no trouble making ends meet. And then there is the tight labor market. Companies have to pay scarce talent higher salaries, which reduces the gap between the Executive Board and the layers below.'
How do Remcos see to it that the gender pay gap, the difference in remuneration between men and women, is closed?
Laughs: 'I experienced that gender pay gap myself during my career: 25 years ago, very few women were appointed to top positions. I was always far too happy to get the job to negotiate, which of course is not a good response. Fortunately, there are now many more women represented within the top ranks. But they still do not earn the same as men. At one of ’my’ companies several years ago, we saw a structural underpayment of women compared to men in the same age group. When we looked for the reason for this, we found that women were mostly filling lower-paid corporate positions rather than the better-earning positions in operational management. So there was not a systemic flaw in remuneration policy, but a talent development issue: how do you get more women into better-paying positions?'
Equal pay for ethnic minorities is also a current issue: how do Remcos deal with it?
'I prefer to use the term ’underrepresented minorities’. There, too, a pay gap manifests itself, which we as Remco still have little insight into. It is also difficult because you sometimes run up against privacy legislation. In France, for example, you are not allowed to register people's ethnicity for reasons of principle. That makes it difficult to address a wage gap. What you can do is conduct broad talent reviews to see where people from underrepresented minorities are in the organization and how they can move more quickly to higher and better-paid positions. So it is a matter of finding alternative ways to identify and address the problem. In fact, in the United Kingdom there is now an over-representation of minorities in the appointments of new Non-Executives. Catching up, as we saw earlier with women. We might see that here in the Netherlands as well.'
So the tasks of Remuneration Committees are broadening in the direction of HR and talent management, diversity and culture. Time to formalize that and put the Remco together with the HR or nomination committee?
'You can certainly combine it, but it also depends on how responsibilities are assigned within the board. Talent development, for example, normally falls under the nomination committee. The Nomco is usually presided over by the Chairman of the supervisory Board. The question is whether you should burden the Chair with all aspects of remuneration policy. In practice, it is useful if the Remco does the work in that area and submits only the tricky points to the Board. You can also question whether it is desirable for the Chair to be in the front line of the Remco, because of his relationship with the CEO and the Executive Board. So you do not always have to formalize the HR aspects of Remco work. The best Boards already link remuneration and talent development, whether the committee structure is changed or not.'
Remco's are currently also involved in linking compensation policy to ESG targets. Is it a struggle to set good targets?
'I myself find that the most difficult task of the Remco at the moment. Especially with the E of environment, because targets for the S of social and the G of governance are usually already sufficiently embedded. For the E the temptation is great to only set input targets, such as starting up the internal sustainability process, clarifying climate risks in the chain and adapting the reporting structure. Whereas you want to move toward output targets, to measure and monitor the company's actual sustainability performance. However, the information for this is often not yet available. In the Remco's I am in, we therefore follow a growth path: what type of target can we start using and when? In doing so, you have to watch out for targets that are too easy or unsubstantial. For example, reducing climate targets to the CO2 emissions of the head office: sometimes that really is insignificant. So, we are not there yet. Another point is that the discretionary room by the Supervisory Board is greater with qualitative targets than with quantitative ones. That is viewed with suspicion by shareholders and the proxy advisors, the shareholder voting research providers.'
Since SRDII, shareholders vote on remuneration policy. Should we in the Netherlands move from an advisory to a binding vote, as in France?
'I do not think so. It makes it more complex. If, as a Remco, you grant a bonus to the Board of Directors based on formally established remuneration rules and it is voted down by the shareholders' meeting for whatever reason, you cannot fulfill commitments made to the Board. It creates months of uncertainty before you can make a payout, and it can lead to litigation.’
With shareholder pressure, the reputational risk for Chairmen and members of the Remco also increases.
'I do not experience that as pressure, but as healthy external expectations regarding transparency and accountability. That helps to professionalize Remcos and improve the Supervisory Board's decision-making on remuneration. It does not make it easier, but it does not make it more troublesome either. As a commissioner, you consciously choose to take responsibility and with that you simply do run reputational risk. I also have understanding and even sympathy for shareholders and proxy advisors speaking out against excessive remuneration. What I do have difficulty with is voting against a remuneration proposal on the basis of general governance principles, even though the proposal is in the company's interests and is in every way reasonable and socially explicable. I have experienced this a couple of times with the granting of RSUs (restricted stock units, shares granted without performance criteria, at about 50 percent of the level of performance shares with performance criteria, ed.) That was the only logical means of long-term remuneration for executives in a situation where it was difficult to set long-term targets, and therefore in the interest of the company. But there was principled opposition to having no performance criteria. So you could stumble over that as a Remco. I find that tricky, not because of the reputational risk, but because you could be forced into a remuneration policy that goes against the best interests of the company.'
Major shareholders and proxy advisors can vote against (re)appointment if their vote against the remuneration policy or remuneration report has been ignored. Even at other companies where the Supervisory Board members in question supervise. How do you view this development?
'If the remuneration policy is derailed and shareholders vote against reappointment of Supervisory Board members ... you cannot be against that. A Supervisory Board member should not have an inviolable expectation, that you can make mistakes without bearing the consequences. I have fortunately not experienced that myself yet, but I am aware of the risk. Some years ago, together with a number of Supervisory Board members of a company, I was really concerned about a remuneration proposal. First of all, we felt it was not in the company's interests, but we also thought: we cannot approve this decision, because then we will never be reappointed as members of the Remco. After a spirited discussion it was fortunately resolved.'
What role do you see for variable pay in the remuneration policy of the future?
'I believe in the concept of variable remuneration. Short-term bonuses have a signal effect: it promotes dialogue with the Executive Board about priorities and enables you as Supervisory Board to give appreciation for or feedback on performance. In doing so, you have to have a healthy discussion about the right targets and the threshold: when will it not be awarded?’ Laughs, ’On long-term incentives, I have a less popular view. Their goal is alignment of Board interests with those of shareholders. But with today's volatility, linking to the stock price is not always the best option. I find RSUs a suitable alternative. Unlike performance shares, Executives retain their shareholding. Also when the stock price falls, so there remains a motivating effect. Moreover, RSUs also allow for good application in the management layers below the Board, so it reinforces consistency in the pay structure. As a Remco, make sure there is a good so-called underpin: minimum requirements that must be met before the awarding of RSUs becomes unconditional, such as a minimum roce (return on capital employed, ed.), the achievement of climate objectives or the absence of circumstances that damage the company's reputation. There does need to be a lock on the door.'
To what extent do Remcos consider public support for top salaries?
'As Remco Chairman, I like to hold discussions with institutional investors and proxy advisors. I am currently in the middle of that for a French company. You learn from it: what is not understood in the remuneration report? Sometimes it can be solved by adjusting a single table. Discussions with the works council about remuneration are also very useful for gathering signals. The Remco to address the social discussion about top salaries: I cannot really imagine that. Corporate remuneration policies are too specific for that. Is the remuneration debate in the Netherlands fiercer than abroad? Not at all, you should see the press in England and France! Top executives in those countries are seen as media personalities and so their remuneration also attracts a lot of attention. In the Netherlands, fortunately, the private lives of executives are followed less by the press and this applies to their remuneration too.'
Finally, given all these developments, is it still fun to be on the Remco?
'Definitely! These developments only make it more interesting. No job with responsibility is only pleasure. But for me, membership of the Remco was an enormous opportunity when I became a Supervisory Board member. Financial experts or sector specialists can immediately make a meaningful contribution on Boards. But for a generalist like me, it takes a while to find your added value. I have always been interested in HR and talent development, so when I was first asked if I wanted to sit on the Remco, I said an emphatic yes. I always recommend it to the young Supervisory Board members we coach as well. I learnt a whole new profession over the past few years.’
This article is published in Management Scope 03 2023.
This article was last changed on 07-03-2023