3.4Remuneration Report

In this report, the Remuneration for the Management Board and Supervisory Board are described. The first part contains a letter from the Chairman of the Appointment and Remuneration Committee (‘A&RC‘) dealing with remuneration matters, a description of the remuneration policy for the Management Board, how it was implemented for the Management Board members over 2019 and various other Management Board remuneration information. The second part describes the remuneration policy for the Supervisory Board and how it was implemented over 2019.

Letter from the Chairman of the Appointment and Remuneration Committee dealing with Remuneration Matters

Dear reader,

2019 was a successful year for SBM Offshore. The Company is pursuing growth opportunities through the Fast4ward® program. Also, the Company continues to offer conversion hulls.

The Company continues to invest in technology to support society’s growing demand for renewable energy sources and a less carbon dependent world. SBM Offshore is developing concepts in floating wind and wave energy conversion as well as pursuing internal initiatives for sustainability. SBM Offshore aims to play an important role in transitioning energy towards cleaner sources such as gas and more renewable forms of energy.

The Company remains committed to protecting the environment and the safety of our people. Examples of 2019 environmental achievements include the purchasing of 91% of our energy in offices from green providers, having 99% of qualified vendors sign our Supply Chain Charter, reducing offshore waste by 22% and implementing a re-cycling program in all our offices. We protect our people through process safety as well as rigorous occupational safety programs. Sadly, in 2019 a contracted diver was fataly injured. We are pursuing lessons learned to prevent such an incident from occurring in the future. As a consequence of this fatal injury, we failed to meet an objective for personal safety.

The Company’s financial results underline SBM Offshore’s successful year. Undelying EBITDA increased by 6% to US$832 million compared to 2018. The Company awarded contracts for three Fast4ward hulls and committed to another two hulls. The Company won a 22.5 year Lease and Operate contract for the FPSO Sepetiba (formerly known as Mero 2), and the FEED for the Payara development. Additionally, the Company completed a EUR175 million share repurchase program followed by a cancellation of 7,000,000 shares.

The Company reached out to key stakeholders as part of its regular communication plan. Key stakeholders include employees, customers, suppliers, banks and shareholders. We recently visited our shareholders representing approximately 50% of our share base, in addition to other groups noted above to engage about the social acceptance of our programs. Generally, there appears to be broad understanding and acceptance. Some common themes or questions include the following topics.

  • At the 2018 AGM, shareholders expressed dissatisfaction with the Supervisory Board granting a 10% uplift for Management Board members for Short Term Incentive achievements in 2018. Taking this feedback into consideration, the Supervisory Board decided not to increase future Short Term Incentive awards but may decrease awards.
  • Shareholders also desire to understand the underpins, being the conditions under which the Value Creation Stake (VCS) may be reduced or not granted. The Supervisory Board clarifies that any event significantly impacting the financial or operational performance of the Company may serve as an underpin.
  • Shareholders want to understand the relationship between the Value Creation Stake and Company performance. There is a strong correlation between share price and the Value Creation Stake. Thus, the Value Creation Stake serves to strongly align the Management Board with shareholders. Additional details and information can be found in section 3.4.1 of this report.
  • Some stakeholders raised questions about the quantum of the Management Board’s remuneration. The Supervisory Board regularly monitors the international competitive landscape within which we compete for talent. Our remuneration programs must be competitive with international oil service companies. The Supervisory Board intends to maintain SBM Offshore’s competitive practices.

The overall quantum under RP 2018’s STI and Value Creation Stake as a percentage of base pay is lower compared to the levels as paid out under RP 2015's STI and LTI.

The Company’s remuneration policy aligns the interests of Management Board members with shareholders with Short Term Incentive performance measures and the significant alignment between share price movement and the Value Creation Stake. The Short Term Incentive performance measures – EBITDA, Growth, and HSSE are based on key success factors for the Company. The longer-term variable remuneration component Value Creation Stake must be held for five years or two years after separation from the Company and tightly aligns the Management Board with shareholders.

The Supervisory Board remains committed to relevant and clear remuneration in line with best international practices. We are providing additional information in this report to improve transparency. I look forward to discussing the remuneration policy, actual remuneration as well as any other questions arising from this report at the 2020 AGM.

Cheryl Richard

Chairman of the Appointment and Remuneration Committee dealing with Remuneration Matters