Randstad N : Remuneration report 2021

remuneration report.

letter from the chair of the remuneration committee

On behalf of the Remuneration Committee, I am pleased to report on the Committee's activities in 2021. Below, I will reflect briefly on the past year and the key motivations behind our decisions with regard to rewards and targets. 

Looking back, 2021 was a very successful year, both financially and with regard to the progress the company made in becoming more digital and more secure, as well as in creating a better experience for clients, talent and employees. And like last year, the company was included in the Dow Jones Sustainability Index.

The good results were, of course, partly due to good market circumstances. However, right from the start of the year, the Executive Board was determined to not only benefit from the favorable market conditions, but actually do better than the market. The targets for 2021 were therefore also set to specifically reward market outperformance. The company's management realized this by investing in organizational growth capacity early on, and by putting special emphasis on improving the productivity of its core product lines, such as Staffing,Professionals, and Inhouse Services. At the same time, significant attention was given to further accelerate the company's digital transformation.

All these efforts resulted in a clear outperformance of the market with regard to revenue growth, while at the same time keeping up a high level of profitability for the incremental growth (ICR). It also led to further improved employee engagement and a higher level of customer satisfaction. The outcome was a further consolidation of Randstad's global market leader position.

The results of this successful year are reflected in this year's target achievement: the short-term financial goals were all overachieved, and the Executive Board therefore received the maximum reward for these goals. Performance on the non-financial/strategic goals was also strong, but showed a more differentiated picture.

In 2021, the Remuneration Committee met five times. Besides the in-depth assessment of target setting and assessing target achievements, special attention was paid to three topics: (1) further refining of the non-financial/strategic KPI target setting process, (2) benchmark of the Executive Board and Supervisory Board remuneration levels, and (3) the remuneration package of the new CEO.

1. To further strengthen the quality of the non-financial/strategic KPIs, both in the short-term and long-term incentive plans, it was decided that these KPIs should cover the following important aspects: societal impact (ESG), talent satisfaction, employee engagement, progress in digital transformation, organizational capability building, and growth of strategically important parts of Randstad's portfolio. Much effort was put in defining meaningful KPIs for each of these areas, which need to be specific and measurable, but not too narrow. Although progress has been made, this topic will remain on the agenda of the Remuneration Committee in 2022.
2. With regard to the benchmark update, the Remuneration Committee selected an external consultant to benchmark the remuneration of the Executive Board and the Supervisory Board with their peer groups. In line with our policy, the international labor market peer group was used for the Executive Board, and the AEX peer group was used for the Supervisory Board. For the Executive Board, no need was identified to increase the remuneration levels, except for the CEO. At the request of the outgoing CEO, his base salary had not been increased over the past years, resulting in a decline in the relative position in the peer group. It was decided to take this into account for the remuneration of the incoming CEO. The Supervisory Board benchmark showed that its annual retainer is largely in line with the market except for the Chair. The fees for the committee membership were below market. It was therefore recommended that the annual fee of the committee fees be raised to the market median. Also a small adjustment is recommended to bring the annual retainer of the Chair in line with the market median.
3. Concerning the remuneration of the incoming CEO, the Committee recommended that the new CEO be offered the same package as the outgoing CEO, with the exception of the base salary, which was corrected for inflation over the past years, resulting in an increase of 15%.

remuneration report.

With regard to rewards granted, the Remuneration Committee carefully looked at the target achievements for each of the goals and made the following decisions: 

• The STI reward realized a target achievement of 93% of base salary (out of a maximum of 100%). The financial targets were fully achieved (75% out of 75%), while the strategic target achievement reached 18% (out of a maximum of 25%).
• The LTI achievement reward, which was conditionally granted in 2019 and vested in December 2021, realized a target achievement of 144% of fixed salary (out of a maximum of 217%). This reflects the strong competitive performance of the company share price and dividends (relative TSR) in the last three years and above-target performance on non- financial KPIs. 
• The Executive Board received in full the shares resulting from the share matching plan introduced in 2017. This payout, being the match 1:1 of the part of the annual bonus 2018 that was paid in shares, is conditional on the sustainable performance of the company during a three-year period. Given overall performance over the past three years, and also in light of the total dividends paid during this period, it was decided to reward the shares in spite of the fact that no dividend was paid out for 2019 due to COVID.

As mentioned above, with regard to target setting, significant efforts were made together with management to even better reflect the company's strategic priorities and ensure alignment with the interests of shareholders and other stakeholders. 

• Like last year, the STI financial targets will emphasize profitable growth while further strengthening Randstad's market position. Selected KPIs are relative revenue performance, the Incremental Conversion Ratio (ICR), and Days Sales Outstanding (DSO). 
• For the STI non-financial targets, we will focus on further driving the digital transformation, achieving world-class digital security, and clearly defining Randstad's roadmap to net zero emissions. 
• The LTI 2022-2024 financial target will, in line with the policy, be based on the company's relative TSR performance. 
• The LTI 2022-2024non-financial targets will, based on our strategy and stakeholder agenda, focus on further growing talent satisfaction and employee engagement, as well as on further strengthening those organizational capabilities that we see as the key drivers of growth for Randstad's product lines.

The Remuneration Committee will continue to regularly assess Randstad's remuneration policy, and further align the interests of management with those of shareholders and other stakeholders. We remain committed to relevant and clear remuneration in line with international practices. I look forward to discussing the policy and actual remuneration practices in the Annual General Meeting of Shareholders 2022, and will be happy to answer any questions you may have.

Annet Aris

Chair of the Remuneration Committee

remuneration report.

remuneration policy

The current remuneration policy was approved by the General Meeting of Shareholders on June 18, 2020. Based on the feedback from shareholders as discussed during and prior to the General Meeting of Shareholders, three additional items have been added to the 2020 version of the remuneration policy, which relate to the notice period for agreements with the Executive Board, shareholding guidelines, and the number of non-financial KPIs for the long-term incentive plan. This updated version was approved by the General Meeting of Shareholders on March 23, 2021.

executive board remuneration in 2021

introduction

The remuneration paid to the members of the Executive Board in 2021 was based on Randstad's remuneration policy and its governance process.

The remuneration of the Executive Board consists of the following components:

1. base salary;
2. short-termincentive;
3. long-termincentive;
4. pension and other benefits.

The variable portion of the total remuneration package is performance-related. It consists of short- and long- term components. In the case of on-target performance, more than 60% of the total compensation of a member of the Executive Board is performance-related. The Supervisory Board, on the recommendation of its Remuneration Committee, sets the targets at the start of each performance period. Performance targets and conditions are derived from Randstad's strategy, annual budget plan, and market analysis.

base salary

In alignment with Randstad's size and profile, compared to the other companies included in the international labor market peer group, base salaries of the Executive Board members are set at between the median and 75% percentile level.

The international labor market peer group represents the market in which Randstad competes for senior management talent and is used to benchmark base salary levels. It is composed of international staffingand business services companies, reflecting Randstad's size, profile, and international scope. These are Accor, Adecco, Atos, Bureau Veritas, Capgemini, Capita, CGI, Compass Group, G4S, Equifax, Hays, Hilton Worldwide, Intertek Group, Manpower Group, Michael Page International, Kelly Services, Rentokil Initial, Recruit Holdings, Robert Half, Securitas, Sodexo Group, Thomas Cook (excluded as of 2019), TUI, and Tyco International. Based on an assessment of this peer group by Willis Towers Watson, the Supervisory Board decided to approve the proposal of the Remuneration Committee to remove G4S (recently acquired and delisted) and Capita (relatively too small).

In line with the company's remuneration policy, it was decided to increase the base salaries of the Executive Board members by 2.4% as of January 1, 2021, except for the salary of the CEO. 2.4% is the weighted group average salary increase of employees corrected for currency effects. At the CEO's own request, his salary was not increased but kept at the level agreed upon when he was appointed as CEO. The general pay differentials within the company, and specifically for senior management, were taken into account when taking this decision.

short-term incentive

The total annual bonus opportunity amounts to 70% of base salary for on-target performance, and the maximum bonus level is 100% of base salary. If performance is below a predefined minimum level, no bonus will be paid out. In calculating the bonus, a sliding scale between the minimum level and the maximum level is used. To strengthen teamwork and focus on overall company goals, the entire annual bonus is based on the joint performance of the Executive Board.

The largest part of the achievable annual bonus (75%) is related to financial targets. The choice and weight of these targets depend on the specific business objectives of each year, with the Supervisory Board selecting the appropriate annual targets from an agreed menu of financial targets (relative revenue performance versus the market, gross profit, EBITA, EPS, incremental conversion or recovery ratios, net debt, free cash flow, leverage ratio, and Days Sales Outstanding).

remuneration report.

In order to enhance the Executive Board's long-term focus and share ownership in Randstad, 25% of the net annual bonus (based on realized performance) is paid out in Randstad shares. After three years, these shares will be matched 1:1 subject to the sustainable performance of the company during the previous three years and at the discretion of the Supervisory Board. In this context, sustainable performance means that during these three years, Randstad progressed to achieve its strategic and financial targets, made a profit, and paid dividends to shareholders. The assessment of the Supervisory Board as to whether this sustainable performance was realized will be disclosed in the Annual Report. After careful consideration of the achievements during the three-year performance period 2019-2021, the Supervisory Board decided to match the shares paid in February 2019 relating to the annual bonus 2018.

Members of the Executive Board are allowed to voluntarily convert up to 50% of their net annual bonus according to the same matching principles. Randstad shares need to be held for at least 5 years after the conditional award date, except for any share sales needed to settle related tax liabilities.

Since no annual bonus 2020 was paid, conditional awards for the share matching plan were not applicable in 2021.

If a variable remuneration component conditionally awarded in a previous year would, in the opinion of the Supervisory Board, produce an unfair result due to extraordinary circumstances during the performance period, the Supervisory Board has the power to adjust the value upward or downward. The Supervisory Board may also recover from the Executive Board any variable remuneration awarded on the basis of incorrect financial or other data. These provisions are included in the annual bonus letter. This power was not used in 2021, nor was any remuneration recovered from present or former Executive Board members.

For the annual bonus 2021, the financial targets and their relative weighting were set in early February 2021 as follows:

• Competitive revenue growth per working day, compared to prior year: the bonus opportunity ranges from 15% of base salary for minimum performance to 25% for on-target performance and 35% for maximum performance;

• Incremental Conversion Ratio (i.e., profitability adaptability): the bonus opportunity ranges from 15% of base salary for minimum performance to 20% for on- target performance and 25% for maximum performance;
• Days Sales Outstanding: the bonus opportunity ranges from 5% of base salary for minimum performance to 10% for on-target performance and 15% for maximum

performance.

Detailed numerical targets cannot be disclosed, as these are share price and competition sensitive.

To further underline joint responsibility, at the start of each financial year, following a presentation by the Executive Board, the Supervisory Board sets annual non- financial strategic and operational targets. The maximum bonus opportunity will be 25% of base salary. These targets will only be disclosed if they are not share price or competition sensitive. For 2021, the targets focused on improving our service offering for talent, achieving world-class digital security, and progressing the digital transformation of our core activities. As these targets are commercially sensitive, they cannot be further specified. Based on the achievements for 2021, the bonus entitlement with regard to the performance in 2021 as a percentage of annual base salary is 93%. The financial targets were fully achieved (75% out of 75%), while the non-financial strategic target achievement reached 18% (out of a maximum of 25%).

annual bonus payout 2021

in % of annual base salary

	minimum %	maximum %	payout %
Financial targets
Revenue growth	15%	35%	35%
EBITA margin	15%	25%	25%
Free cash flow	5%	15%	15%
Non-financial targets	0%	25%	18%

remuneration report.

long-term incentive

To enhance alignment with the value creation objectives of shareholders, performance shares are granted to the members of the Executive Board on an annual basis.

The grant is dependent on the relative Total Shareholder Return (TSR) and strategic, mostly non-financial, Key Performance Indicators (KPIs). TSR reflects the return received by a shareholder and captures both the change in the company's share price and the value of dividend income, assuming dividends are reinvested in the company. Relative TSR is an appropriate measure, as it objectively measures the company's financial performance and assesses its long-term value creation as compared to other companies in the sector. TSR performance for the companies of the international performance peer group is calculated based on their 'home/primary listing'. The international performance peer group consists of Adecco SA, Capita Plc, Compass Group PLC, FedEx Corporation, G4S plc, Hays plc, ISS A/S, Kelly Services Inc, ManpowerGroup Inc, PageGroup Plc (previously referred to as Michael Page Int. Plc), OfficeDepot Inc, ASGN Inc. (previously called On Assignment Inc), Recruit Holdings Co., Ltd, Rexel Group SA, Robert Half Int. Inc, Securitas AB, Sodexo SA, and WW Grainger Inc. Based on an assessment of this peer group by Willis Towers Watson, the Supervisory Board decided to approve the proposal of the Remuneration Committee to replace G4S (recently acquired and delisted) by Intertek Group.

TSR data (see table below) are compiled and reported by external data provider Willis Towers Watson.

Given the relevance of certain strategic, mostly non- financial, KPIs for Randstad's business, ambition, and long-term viability, five (as of 2022: three to five) strategic targets have been added at the discretion of the Supervisory Board. These targets are also set at the start of the three-year vesting period. The weighting for the long-term incentive is split between 65% TSR and 35% non-financial KPIs.

At the end of the performance period, the Supervisory Board will have the discretion to determine the actual vesting based on progress made over the performance period as reported by the Executive Board in relation to each of these targets. Each strategic target accounts for a maximum of 50% vesting. The total minimum vesting equals 0%, and the maximum vesting equals 250%. All payout results and calculations will continue to be audited by our external auditor.

Performance shares are granted in the open period following the publication of the Group's fourth-quarter financial results in February. The number of shares will be calculated based on the fair value of the Randstad share as at the grant date in February. The fair value assuming on-target performance is equal to an amount of 100% of the base salary for all Executive Board members alike. Randstad uses fair value for this annual conditional allocation, but when benchmarking Randstad's plan with other long-term incentive plans, a correction is made for the difference in value between face- and fair-value plans to ensure that the relative ranking of Randstad will not be influenced by the calculation method.

If a member of the Executive Board resigns before the vesting date, conditional grants of performance shares will in principle lapse or, for example, in the case of retirement due to the member reaching pensionable age, will vest pro rata related to the performance period in service. The Supervisory Board has the discretion to decide to apply a pro rata temporis matching if the member of the Executive Board is no longer engaged by Randstad.

Performance shares need to be retained for at least two years after allocation, except to the extent necessary to settle any related tax liabilities.

Prior to the grant, and following the advice of the Remuneration Committee, the Supervisory Board analyzes the possible outcomes of the allocation by looking at a number of scenarios for the performance period.

payout per ranking position for the TSR performance incentive zone

Ranking	19	18	17	16	15	14	13	12	11	10	9	8	7	6	5	4	3	2	1
% until 2017	-	-	-	-	-	-	-	-	-	0	0	0	0	0	50	100	150	200	250
% as of 2017	0	0	0	0	0	0	0	0	0	50	75	100	100	125	150	150	175	200	200