Executive Remuneration at Reckitt Benckiser plc.

HabiburachmanMuhamad Ibnu Fauzi

Rangga Tri Raeros

Reckitt Benckiser

• Formed in 1999 by the merger of:– Benckiser N.V (a Netherlands-based household product

company)– Reckitt & Colman plc. (a U.K-based consumer product

company)• Company Strategy and Performance

– Grow by acquisition and organic growth through line extensions and new products.

– Target to hold the market-leading position– Leverage out net revenue growth into even stronger net

income growth and strong cash generation through improving operating margins and cash flow management

Remuneration Philosophy

• Global Nature of Remuneration Plan– A Plan to motivate and retain top manager while

adhering to a global remuneration policy

Fundamentals of the Remuneration Plan

• Base pay is mandatory, if the employee performance is hits her/his target to be getting better than the competition, then he/she may earn a maximum bonus of 3 ½ times the target bonus

Remuneration

• 3 Major Parts ; Salary, Short-term incentives, and Long-term incentives

• Salary and Short-term incentives were paid in cash

• Long-term incentives were paid in options and restricted stock

Short-term incentives• A manager compensation was depend on the performance• A performance of double the targets would be required to get this• If none of goals met, the variable compensation would be zero

• Example:– If the executives met all target which generally set at average of a peer group

performance, he/she would receive 40% of salary as bonus– However if individual substantially exceed all targets, he/she could earn 140% of

base salary

• For the employee, incentives were based on factors within the manager’s control

• For the manager within business units, the factors are from the revenue growth, profit growth, and net working capital reduction.

Long-term incentives

• Long-term pay was based on targets related to corporate growth over three years

• The indicator was EPS (Earning Per Share)• By holding the company’s stock would make

employees to behave like owners

Compensation Decision Makers at Reckitt Benckiser

• The role of Human Resources– To formulate and maintain remuneration policy– Change design, ensure the effective administration of

compensation plan• The role of Board of Directors (BOD)

– Ensure the policy was aligned with the company culture and business strategy

– Any changes must be approved by BOD• Shareholder Involvement

– The policy also need to be “blessed” by the shareholders– As “advisory”

The Problem

• The performance oriented compensation system need high quality people with passionate commitment

• The shareholder didnt want the company paying executives large amount of compensation if their action dont have a result

• How to sustain the incentive program?

Recommendation

• Recruit on both competency and cultural fit– Cultural fit : determined based on a propensity for

achievement, commitment, entrepreneurship, and teamwork.

– Compensation policy used as attrative points on pick up people who “motivated and excited by the remuneration system and believe in themselves and in the system”