Remuneration report

This remuneration report was prepared by the Selection, Appointment and Remuneration Committee on behalf of the Supervisory Board. It contains an account of the remuneration policy for the Management Board of Alliander as applied and implemented in 2016. The report also sets out the remuneration policy for the members of the Supervisory Board. An overview of the remuneration awarded to the members of the Management Board and the members of the Supervisory Board for 2016 can be found in the notes to the consolidated financial statements.

Remuneration policy for the Management Board

General

The remuneration policy for the Management Board is based on the principle that the remuneration must be in line with market practices and must enable Alliander to recruit and retain qualified and expert Management Board members. In addition, the remuneration policy was adopted by the General Meeting of Shareholders in May 2004 and was last amended in April 2006.
The Dutch Public and Semi-Public Sector Executives’ Pay (Standards) Act (Wet normering bezoldiging topfunctionarissen publieke en semipublieke sector –WNT1) took effect on 1 January 2013. The Act is designed to moderate the remuneration of senior executives within the public and semi-public sector and caps their remuneration at 130% of a minister’s remuneration. On 1 January 2015, the Reduction of Maximum Remuneration Act WNT (Wet verlaging bezoldigingsmaximum WNT- WNT2) took effect, reducing the maximum remuneration for senior executives to 100% of a minister’s remuneration.

The WNT is applicable to the network operator Liander. Alliander does not fall within the scope of the WNT. In her capacity as a member of the Management Board, Ms I.D. Thijssen carries general responsibility for the management of Alliander. In addition, she is responsible for the business and operational management of the network operator Liander. In this latter capacity, Ms Thijssen is a senior executive of Liander within the meaning of the WNT. Her remuneration package is in conformity with the WNT.

The Supervisory Board is responsible for the implementation of the remuneration policy for the Management Board and is acutely aware of the evolving perceptions within society regarding remuneration in the public and semi-public sector. The Board finds a remuneration cap of 130% of a minister's remuneration an acceptable limit and expects this level of remuneration to be sufficient to maintain the quality of the company's management. This is of vital importance in the light of the radical changes that the company faces as a consequence of the energy transition. Accordingly, the remuneration cap of 130% of a minister’s remuneration was introduced with effect from 1 January 2013 for the entire company, despite the fact that Alliander does not fall within the WNT. Messrs P.C. Molengraaf and M.R. van Lieshout, both member of the Management Board, have also committed on a voluntary basis to a salary reduction to the capped remuneration level, on the understanding that existing contracts will be respected in parallel with the staturoty transitional periods.
The Supervisory Board is promoting the introduction of a sector-wide remuneration code with different categories in order to create a level playing field and ensure that all companies can compete with their peers on equal terms in the relevant labour market in terms of technological developments, complexity and required knowledge.

Procedure

The Supervisory Board draws up the remuneration policy for the members of the Management Board, based on advice from the Selection, Appointment and Remuneration Committee. The General Meeting of Shareholders of Alliander adopts the remuneration policy. Within the set remuneration policy, the Supervisory Board, again acting on the advice of the Selection, Appointment and Remuneration Committee, sets the actual remuneration package for each individual Management Board member.

Variable remuneration

The partial incorporation of the short-term variable remuneration into the salary ^[1]will start on 1 January 2017. The maximum short-term variable remuneration - 30% of the annual gross base salary including holiday allowance - will be incorporated up to 70% into the annual gross base salary (excluding holiday allowance). This forms part of the total remuneration and will be reduced on a voluntary basis. The award of long-term variable remuneration was terminated on 1 January 2015 without a transitional period, on the understanding that the 2014-2016 period is the last period for which the long-term variable remuneration will be awarded and paid out. The total remuneration will be reduced in parallel with the statutory transitional periods, bringing the remuneration to 130% of a minister's remuneration in 2020. On the grounds of the above, only the long-term variable remuneration for 2014-2016 remains for 2016. The long-term objectives are related to the long-term interests of Alliander.
After the Supervisory Board has assessed the performance, it establishes the extent to which the members of the Management Board have achieved their objectives. Prior to determining the level of the long-term variable remuneration, the Internal Audit Department verifies the realisation of the objectives.
If less than the agreed minimum level is achieved for an objective, no variable remuneration whatsoever is paid out for that objective. If the agreed maximum level for an objective is exceeded, the score will be capped at the maximum agreed for that objective. The long-term variable remuneration of the Management Board members will never exceed 100% of the maximum percentage of 30% of the annual gross base salary, including holiday allowance.

The Supervisory Board has the discretionary power to claw back paid remuneration. This means that the Supervisory Board has the discretionary power to reclaim any variable remuneration paid to a Management Board member on the basis of incorrect financial or other information. In addition, the Supervisory Board has the discretionary power to reduce or increase the value of any conditional variable remuneration component awarded in a previous financial year if, in its opinion, this leads to unfair outcomes due to extraordinary circumstances in the period in which the pre-determined performance criteria were or should have been realised (‘ultimate remedy’).

In view of the Supervisory Board's wish not to pay out any further variable remuneration from 2017, it has been decided that the last variable remuneration payment, namely for 2014-2016, took place in December 2016.

Remuneration components

The total remuneration package for the Management Board members for 2016 consists of the following components:

1. annual gross base salary;

2. long-term variable remuneration;

3. pension benefits;

4. social security charges and other benefits.

1. Annual gross base salary

Management Board members receive an annual gross base salary, including holiday allowance. The annual gross base salary is adjusted each year in line with the periodic salary increases for employees, as laid down in the collective labour agreement for network companies. ^[2]

2. Long-term variable remuneration

The long-term variable remuneration is aimed at achieving objectives over a three-year period. It was decided to bring forward the payment of the last long-term variable remuneration 2014-2016 from April 2017 to December 2016. At that time, no definite figures were known for full-year 2016. For this reason, the realisation of the objectives was assessed on the basis of estimated scores for the objectives as at 31 December 2016. Internal Audit checked and confirmed the reliability of the assumptions and justifications used for the estimates. Furthermore, it was decided that the long-term variable remuneration will not be adjusted, even if it is found at the start of 2017 that the final scores per objective differ from the estimates. The award and payment are final and definite.

3. Pension benefits

The members of the Management Board participate in the pension scheme of Stichting Pensioenfonds ABP as referred to in the collective labour agreement for network companies and applicable to all employees of Alliander. Since 1 January 2004, this has consisted entirely of an average pay scheme. In accordance with current practice in the energy sector, pension entitlement is accrued on the annual gross base salary, and members of the Management Board pay an individual contribution to participate in the scheme.

Effective from 1 January 2015, the maximum pensionable salary is equal to the permitted maximum under tax rules (€ 101,519 for 2015). This entails that no further pension is accrued over the part of the salary that exceeds € 101.519. In 2015 the Supervisory Board has decided to extend the application of Alliander's pension contribution release arrangement, as applicable to the employees of Alliander, to the members of the Management Board by incorporating this released pension contribution into the base salary.

4. Social security charges and other benefits

In addition to the social security charges and contributions that are normally paid by the company, Management Board members are entitled to an employer's contribution to the premium for the group health insurance plan, contributions to the personal employee benefits budget, an expense allowance ^[3] and the use of a company car. In addition, the company has arranged accident and liability insurance for the benefit of the Management Board members. The company does not provide loans, advances or guarantees to members of the Management Board.

A restrictive policy is in place for positions outside the company. The Supervisory Board chairman must approve any supervisory board memberships at listed or other companies, while other significant positions outside the company must be reported in writing to the chairman of the Supervisory Board. Any remuneration received for other positions held pursuant to membership of Alliander's Management Board accrues wholly to the company. Any remuneration for other positions that are not held pursuant to membership of Alliander's Management Board accrues to the Management Board member concerned, who is also liable for any resulting tax consequences.

Other principles

Terms of appointment

All members of the Management Board are employed by Alliander N.V. on the basis of an indefinite contract of employment.

Notice period of severance policy

Notice periods of three months for the Management Board members and six months for the company have been agreed with the Management Board members. If the company terminates a Management Board member's employment contract, it is company policy to award a severance payment equal to at least one year's salary, based on the relevant provisions in the individual employment contracts. ^[4] Under certain conditions, this one-off payment is also made if a member of the Management Board resigns and cannot be reasonably required to continue the employment contract. Relevant examples include a change of control of the company or an irreconcilable difference of opinion on company policy.

Implementation of remuneration policy for the Management Board in 2016

1. Annual gross base salary

The Alliander employees covered by the collective labour agreement for network companies received a structural salary increase of 1.5% with effect from 1 January 2016. The same arrangement applied to Messrs Molengraaf and Van Lieshout. In the 2016 calendar year, the base salary of Mr Molengraaf amounted to € 251,760, including 8% holiday allowance. The base salary of Mr Van Lieshout over the same period amounted to €236,648, including 8% holiday allowance, and the base salary of Ms Thijssen amounted to €208,340, including 8% holiday allowance.

2. Long-term variable remuneration

The objectives for the 2014–2016 period remained unchanged compared to the objectives for 2013-2015.

Objectives for and realisation of long-term variable remuneration 2014-2016

*) The Supervisory Board has set bandwidths for the individual targets ranging from a minimum to a maximum percentage achievement. If the extent to which a target is achieved is below the minimum of the agreed bandwidth, a score of 0% applies for the target concerned. If the extent to which a target is achieved is beyond the maximum of the agreed bandwidth, the score for this target is limited to a maximum of 110%. For the long-term variable remuneration, the overall (weighted average) score is limited to a maximum of 100%.

Based on the realisation of the objectives, the long-term variable remuneration for 2014-2016 for Messrs Molengraaf and Van Lieshout has been set at 50% of 30% of the annual gross base salary. ^[5]

The Supervisory Board made no use of its discretionary power to adjust the long-term term variable remuneration for 2016. The Supervisory Board also had no cause in 2016 to consider making use of its discretionary power to claw back variable remuneration paid out for previous years.

3. Pension benefits

Pension costs relate to payments of standard pension contributions, which are based on the annual gross pensionable salary, up to the permitted maximum of €101,519 under tax rules. As contractually agreed, variable remuneration is not pensionable. The total pension contributions paid in the year under review for Mr Molengraaf, Mr Van Lieshout and Ms Thijssen were € 18,138, € 17,748 and € 16,933, respectively.

4. Social security charges and other benefits

In 2016, the total amount of social security charges and contributions, the employer's contribution towards the premium for the health insurance plan, contributions to the personal employee benefits budget and the expense allowance ^[6] amounted to € 25,798 for Mr Molengraaf, € 25,488 for Mr Van Lieshout and € 11,523 for Ms Thijssen.

Remuneration policy for the Supervisory Board

The remuneration of the Supervisory Board members is fixed and not dependent on the company's results. The remuneration, which was set by the General Meeting of Shareholders in 2011, comprises a fixed annual gross amount for the chairman and a fixed annual amount for the other members, as well as additional fixed annual gross amounts for committee memberships within the Supervisory Board. The remunerations are adjusted yearly in line with the wage developments under the collective labour agreement for network companies. The members of the Supervisory Board are also entitled to an allowance for travel and accommodation expenses. Alliander does not provide any personal loans, guarantees and so forth to the members of its Supervisory Board. Liability insurance has been secured for the members of the Supervisory Board.

The WNT restricts the remuneration of the members of the Supervisory Board in their capacity as supervisors of the Liander network operator. The remuneration policy applicable to the Supervisory Board exceeds the maximum WNT limit. A four-year transitional period is applicable to existing arrangements. The Supervisory Board has opted to make use of this transitional period. Supervisory Board members appointed or reappointed after 1 January 2013 are subject to the WNT remuneration limits. Effective from 1 January 2015, the WNT limits the maximum remuneration of the Supervisory Board chairman and Supervisory Board members to, respectively, 15% and 10% of the maximum WNT limit applicable to Liander. Due to a reappointment in the Supervisory Board, the transitional arrangement was discontinued in the course of 2016.

An overview of the total remuneration awarded to the members of the Supervisory Board for 2016 can be found in the notes to the consolidated financial statements

WNT

The Executives' Pay (Standards) Act (Wet normering topinkomens – WNT) is applicable to the network operator Liander N.V., which is required to report on the remuneration of current and former senior executives. In addition, the WNT requests transparency on the remuneration of current and former employees and severance payments that exceed the set limit in the reporting year. The annual report of the network operator, which is to be published in the second quarter of 2017, will contain disclosures on the WNT requirements.

• 1 The variable remuneration system is not applicable to Ms Thijssen.
• 2 This applies to Ms Thijssen insofar as the maximum WNT remuneration is not exceeded.
• 3 An expense allowance is not applicable to Ms Thijssen.
• 4 The maximum severance payment upon dismissal by the company for Ms Thijssen is € 75,000.
• 5 The long-term variable remuneration 2014-2016 was paid out in December 2016. At that time, no definite figures were known for full-year 2016. For this reason, the realisation of the objectives was assessed on the basis of estimated scores for the objectives as at 31 December 2016. Internal Audit checked and confirmed the reliability of the assumptions and justifications used for the estimates. If it is found at the start of 2017 that the final scores per objective differ from the estimates, the long-term variable remuneration will not be adjusted. The award and payment are final and definite.
• 6 An expense allowance is not applicable to Ms Thijssen.