Remuneration Report 2020

Remuneration report

  1. The Remuneration & Appointment Committee
  2. Letter from the Chairman of the Remuneration & Appointment Committee

6 Flow Traders' approach to remuneration

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Remuneration report

The Remuneration & Appointment Committee

During the year, the Committee engaged in comprehensive consultations with stakeholders regarding the current remuneration policy for the Management Board. Based on this consultation, an updated remuneration policy for the Management Board will be submitted for shareholder approval at our 2021 AGM.

Chairman

Rudolf Ferscha

Members

Eric Drok Roger Hodenius Jan van Kuijk

Key objectives

To advise the Supervisory Board on the design and execution of the remuneration policy for the Management Board

Responsibilities

  • Determining, on behalf of the Supervisory Board, the company's remuneration policy for the Management Board
  • Proposing the remuneration of the individual members of the Management Board to the Supervisory Board
  • Reviewing the proposal of the Management Board for the remuneration and variable remuneration for all employees
  • Assessing performance of the members of the Management Board in 2020 and establishing their individual key performance indicators for 2021
  • Preparing the annual remuneration report

The committee held 7 formal meetings in 2020 and each meeting had full attendance.

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Letter from the Chairman of the Remuneration & Appointment Committee

Dear shareholders,

On behalf of the Remuneration & Appointment Committee, I am pleased to present our 2020 Remuneration Report. This report includes a summary of our remuneration policy currently in place, as approved at the 2016 AGM, and the remuneration paid out in 2020 in accordance with this policy. The full remuneration policy is published on our website. Furthermore, this report explains how we have taken on board stakeholder feedback on our current remuneration policy, and a summary of the proposed updates to our policy we will submit to the 2021 AGM.

The remuneration report reflects the reporting requirements originating from the updated EU Shareholder Rights Directive and the Dutch implementation of this Directive. Although the final non-binding EU guidelines for disclosure are not published yet, our report is drafted in line with the spirit of these draft guidelines.

A record year against the backdrop of a global health crisis

2020 saw significantly heightened levels of overall market activity compared to 2019 as the COVID-19 pandemic spread globally. Volatility peaked in mid-March to early-April as the markets absorbed the potential impact of the pandemic with the VIX index reaching the 85 point mark in mid-March. Following these exceptional market circumstances, markets did proceed to normalize for the remainder of 2020, although the VIX index remained elevated compared to the levels seen in 2019. Given this market backdrop and our

leading global ETP trading footprint, Flow Traders total value traded in 2020 grew to €5.2 trillion (2019: €4.0 trillion), of which €1.5 trillion (2019: €1.0 trillion) was traded in ETPs (on-exchange and off-exchange).

The market environment experienced in 2020 along with Flow Traders' own pricing, hedging and risk management capabilities translated into Net Trading Income (NTI) of €933 million (2019: €216 million) - a record year for Flow Traders by some distance. We saw clear outperformance in all regions and across all asset classes as the levels of market activity were broad based in nature. On the cost side,

we maintained a firm discipline on costs with fixed operating expenses amounting to €118.7 million in 2020 (2019: €99.8 million), which is within the guided fixed cost growth rate of maximum 10 percent for 2020 (excluding one-off expenses). The main drivers of the increase in fixed expenses were technology investments to support diversification initiatives and efficiency improvements as well as new hires. FTEs increased by 8 percent to 554. Variable employee expenses have increased to €228.1 million (2019: €37.7 million) which reflects the improved overall financial performance of the business during the year. Given these income and cost dynamics, Flow Traders demonstrated strong operational leverage with an EBITDA margin of 63% in 2020 (2019: 36%) and EBITDA of €586.6 million (2019: €78.9 million).

With the onset of the COVID-19 pandemic, there has been an even greater focus on our people. We successfully activated the business continuity plan with the primary focus being the health and well-being of our employees and their families. Employees have adapted well to the changing working environment with the vast majority now working from home. Moreover, we have split teams and have

activated back-up trading locations in Amsterdam, New York and Hong Kong. Lastly, we have continued to selectively hire throughout 2020 as we seek to progress our growth strategy.

Remuneration in 2020

2020 has been a year of extremes in many ways, but first and foremost a human tragedy of unprecedented global scale. In such a year, executive remuneration needs to show restraint and must not fall out of alignment with the current societal context. We, therefore, strongly believe that it makes sense to moderate variable remuneration outcomes for the Management Board and accelerate our contributions to society, even though we had a record year and we strongly believe in aligning variable remuneration directly to company performance.

As promised at our 2020 AGM, the Supervisory Board, in close consultation with, and supported by,

the Management Board has decided to halve the maximum available variable remuneration pool over 2020 for the Management Board (decreasing the maximum allocation from the pool from 5.25% to 2.625% of operational profit). Moreover, Flow Traders has donated a sum equivalent to half of the Management Board's variable remuneration pool to the newly established Flow Traders Foundation, which seeks to promote and fund health and well-being charities globally on a significant, structured and annually recurring basis.

We have given the individual variable remuneration awards to the members of the Management Board extensive consideration. Despite us halving the available remuneration

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pool for the Management Board, the variable remuneration components for the members of the Management Board are substantial. These awards of course follow our remuneration philosophy and are in accordance with our existing remuneration policy. This is a long-standing remuneration philosophy which we have operated since inception and that provides a relatively modest base salary, no benefits and a profit share that directly reflects company performance - therefore varying considerably between successful and less successful (financial) years.

Also considering the size of the variable remuneration awards, we believe it is important to align the awards with longer-term value creation and the shareholder experience. As such we have decided to follow the principles of our 2021 proposed remuneration policy and to defer a majority of each award for a multi-year period and to pay-out 50% of each award in share-like instruments (instead of a 100% cash pay-out in at least two installments). At vesting,

the share-like instruments will be paid-out in cash, whereby the value of the instruments is directly linked to Flow Traders' share price development between moment of award and moment of vesting.

In addition, we feel it is important to highlight a number of balancing elements:

  • We believe in rewarding for exceptional performance. Consequently, in exceptional years our pay-mix is heavily skewed towards variable remuneration. If Flow Traders is less successful, there is a corresponding downwards impact on variable remuneration levels without any smoothing actions.
  • At the same time, we defer part of the variable remuneration granted, and this deferred remuneration remains at risk until vesting. If Flow Traders were to

make a loss in upcoming years, any outstanding deferred variable compensation from previous years would be forfeited and used to cover this loss.

  • We share our profits fairly with our shareholders and employees. Although individual award levels to members of the Management Board may be considered substantial, all other employees also benefit substantially from participation in the variable remuneration pool.

Activities of the Committee in 2020

In 2020, we put forward for AGM approval our revised remuneration policies for both the Management Board and Supervisory Board (binding vote) and our first remuneration report under the new EU Shareholder Rights Directive Requirements (advisory vote). The shareholders adopted the new policy for the Supervisory Board and the remuneration report. The revised policy for the Management Board reached an approval rate of 58.70% and did not obtain the 75% majority vote during the AGM, therefore we continued to operate under the Remuneration Policy as approved in 2016.

Stakeholder engagement

We take our stakeholder's views very seriously and welcome an open dialogue with them on a regular basis on all aspects of remuneration. Based on the feedback received from investors and shareholders around our 2020 AGM,

we engaged in a comprehensive consultation with various stakeholders regarding the current remuneration policy. We have also asked current members of the Management Board for their views, in line with the Dutch Corporate Governance Code.

"With the onset of the COVID-19 pandemic, there has been an even greater focus on our people"

The dialogue with these stakeholders was very constructive and better understanding their views on our Management Board compensation has been very valuable. The insights have significantly contributed to the design of the remuneration policy we intend to propose to our shareholders at the 2021 AGM. We summarize the main feedback provided regarding the Management Board remuneration policy, and how we have acted upon this feedback in the table below.

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Flow Traders NV published this content on 28 April 2021 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 28 April 2021 13:13:06 UTC.