Remuneration policy for executive committee members
The remuneration of the CEO and of the other members of the executive committee consists of short-term and long-term remuneration. The short-term remuneration includes a fixed part, i.e. a base annual remuneration in cash, and a variable part, i.e. a cash bonus. The long-term incentives include the grant of warrants and restricted stock units. In accordance with the rules of the New Belgian Companies Code, the grant of all variable remuneration is dependent on the achievement of certain criteria and at least 50% of the variable remuneration consists of long-term incentives. The vesting scheme of the restricted stock units takes into account the requirement that at least one fourth of the variable remuneration is determined on the basis of objective criteria measured over at least two years and at least one fourth of the variable remuneration is determined on the basis of objective criteria measured over at least three years.
The fixed annual remuneration in cash of the members of the executive committee is determined by the board upon the recommendation of the nomination and remuneration committee. External benchmarking exercises are conducted to ensure the remuneration remains competitive and in line with market practice for our peer group.
Variable remuneration – general rules
Variable remuneration is merit-driven and based on our performance rating system that is based on individual performance (including exceptional deliverables) in combination with our overall performance, compared to individual and corporate objectives that are established annually. The corporate objectives and the CEO’s objectives are established annually by the board of directors upon recommendation of the nomination and remuneration committee, and the objectives of the other members of the executive committee are established annually by the CEO and are in relation to the corporate objectives set by the board. These objectives are designed to be challenging to achieve.
The corporate objectives include elements of research progress, clinical trial progression, cash position, corporate development and commercial development; all of which are considered to be of equal importance. Our ambition is to become a fully integrated biopharmaceutical company focused on the development and commercialization of novel medicines in areas of unmet medical needs to improve the lives of people suffering from serious diseases. In order to achieve this long term goal, we want to ensure we keep innovation in our research efforts while also making sound progress in our clinical trials each year and maintaining a healthy cash position. In addition, our corporate development goals aim to foster the growth of the company and the creation of value for all shareholders. Finally, our commercial development goal is intended to bring us closer to becoming a fully integrated biopharmaceutical company that can (subject to having obtained governmental approvals) bring novel medicines to market.
The level of achievement of the objectives for the CEO is assessed at the end of each year by the nomination and remuneration committee and discussed and finally established by the board of directors. The level of achievement of the objectives of the other members of the executive committee is assessed by the CEO at the end of the year, discussed by the nomination and remuneration committee and finally established by the board of directors.
The variable remuneration takes the form of a short term cash bonus and a grant of long term RSUs. In addition, the members of the executive committee are granted warrants.
The CEO’s cash bonus can be maximum 75% of the fixed part of his annual remuneration of the year for which the bonus is awarded. The aggregate cash bonuses of the other members of the executive committee can be maximum 50% of the total amount of the fixed part of their aggregate annual remuneration of the year for which the bonus is awarded.
The level of the achieved bonus is established annually by the board of directors upon recommendation of the nomination and remuneration committee (with respect to the other members of the executive committee, such recommendation is based on proposals from the CEO).
For bonuses granted prior to 2019, pursuant to the rules of the then applicable Senior Management Bonus Scheme, 50% of the bonus was paid immediately around year-end and the payment of the other 50% was deferred for three years. Therefore, the following mechanism still applies for the deferred portion of the bonuses relating to financial year 2016, 2017 and 2018. The deferred 50% component is dependent on the change in the price of Galapagos NV’s share relative to the Next Biotech Index (which tracks Euronext-listed biotech companies) over a period of three years. Depending on whether our share price change is better or worse than the Next Biotech Index, the deferred bonus will be adjusted up to take into account the relative share price change if it is better, adjusted down if the relative share price change is up to 10% worse or forfeited entirely if the relative share price change is more than 10% worse than the index.
For bonuses granted as from 2019, bonuses consist of both a short-term cash component and a long-term RSU component.
Restricted stock units
Each RSU represents the right to receive one Galapagos share or a payment in cash of an amount equivalent to the volume-weighted average price of the Galapagos share on Euronext Brussels over the 30-calendar day period preceding the relevant vesting date, in accordance with these terms and conditions of the relevant RSU program.
There are three restricted stock unit (RSU) programs:
- the Annual Long-Term Incentive Plan, under which the grants are intended to be made every year, subject to a decision of the board of directors. This plan is intended to provide a long-term incentive to certain of our employees and executive committee members and replaces the deferred portion of the bonus under the old Senior Management Bonus Scheme;
- the RSU Retention Plan. This plan was introduced in conjunction with the Gilead transaction. It is aimed at retaining a specific set of our employees and executive committee members whose retention is deemed so important for the future performance of Galapagos that an additional incentive is desired. The beneficiaries are nominated by the nomination and remuneration committee and the board approves the list of beneficiaries. The four-year vesting period is designed to be aligned with long-term shareholder interests; and
- the RSU Discretionary Plan. This plan was granted at the discretion of the board of directors, as announced in our remuneration policy included in the annual report relating to financial year 2018 under the header "Information on the remuneration policy for the next two years".
In general, the RSU plans are intended to provide certain members of the executive committee and certain employees of Galapagos the opportunity to receive Restricted Stock Units as an incentive. Their purpose is to retain and encourage participants to contribute to the performance of Galapagos and its affiliates by aligning their financial interests with those of the shareholders.
The main characteristics of these plans are as follows:
- the RSUs are offered for no consideration
- four-year vesting period, with 25% vesting each year, except for the RSUs granted under the RSU Discretionary Plan and, solely for beneficiaries who are executive committee members, the Annual Long-Term Incentive Plan, that will all vest at the same time three years after the offer date;
- payout will be in cash or shares, at Galapagos’ discretion, it being understood that in respect of members of the executive committee, any vesting prior to the third anniversary of the offer date will always give rise to a payment in cash rather than a delivery of shares as an incentive; and
- in case of termination of service before the vesting date, forfeiture rules apply.
Under the Annual Long-Term Incentive Plan, the CEO is eligible to receive RSUs up to the equivalent of 75% of the fixed part of his annual remuneration, and the other members of the executive committee are eligible to receive RSUs up to the equivalent of 50% of the total amount of the fixed part of their aggregate annual remuneration, as an equity-based long-term bonus.
Galapagos grants warrants to the members of the executive committee as part of discretionary warrant plans for the benefit of our staff. Under the New Belgian Companies Code, warrants are called subscription rights.
The main characteristics of these plans are as follows:
- The warrants are offered for no consideration;
- The warrants typically have a lifetime of eight years and a vesting period of three years after the year of grant; and
- Forfeiture rules apply in case of termination prior to the end of the vesting period.
The exercise price of the warrants is determined by the board but amounts to at least (i) the average of the price of the Galapagos share on Euronext during the last thirty days preceding the date of the warrant offer or (ii) the closing price of the Galapagos share on Euronext on the last trading day preceding the date of the warrant offer.
Exceptional bonus schemes
Exceptional special bonuses, outside the scope of the regular bonus schemes, can be considered by the board upon recommendation of the nomination and remuneration committee in the event of and for exceptional achievements. They may take the form of a payment in cash and/or a grant of RSUs.
For example, an exceptional grant of a cash bonus and RSU grant took place in 2019 under an RSU Transaction Bonus Plan for the successful closing of the Gilead transaction. The main characteristics of such plan are the same as described above regarding the other RSU plans, except that 50% of the RSUs granted under the RSU Transaction Bonus Plan will vest after two years and 50% will vest after three years.
Benefits in kind
In addition, the CEO and/or the other members of the executive committee enjoy a number of benefits such as a retirement plan, insurance programs (covering life insurance, disability, travel insurance and health), company cars and the provision of tax advisory services. The aforementioned retirement plan is set up as a defined contribution type and is in line with market practice in Belgium.
Main contractual terms and conditions of employment of members of the executive committee
As from 1 January 2020, all members of the executive committee will provide their services under a management agreement with Galapagos NV, subject to Belgian law, that contains a notice period of six months and no other severance payments. Galapagos NV also entered into undertakings with the CEO and the other members of the executive committee providing that in case their contract with the group is terminated as a result of a change of control of Galapagos, they would be entitled to a severance compensation of 12 months’ base salary for the CEO and 9 months’ base salary for the other members of the executive committee.
The paragraphs below set forth the main terms of the agreements that applied until 31 December 2019.
Onno van de Stolpe
Until 31 December 2019, Mr. Van de Stolpe provided his services as managing director and CEO under a management agreement for an indefinite period dated 1 March 2002, subject to Belgian law, with Galapagos NV for approximately 40% of his time. In addition, effective 1 March 2011 he entered into (1) an employment agreement, subject to Dutch law, with Galapagos B.V. on a part-time basis, for approximately 35% of his time, and (2) a management agreement, subject to French law, with Galapagos SASU for approximately 25% of his time. The notice period under such agreements amounts to six months.
Until 31 December 2019, Mr. Filius provided his services as Chief Financial Officer and Chief Operating Officer under an employment agreement for an indefinite period starting from 1 December 2014, subject to Dutch law, with Galapagos B.V., for approximately 60% of his time. In addition, Mr. Filius entered into a management agreement, subject to Belgian law, with Galapagos NV for approximately 40% of his time. The notice period under such agreements amounts to six months.
Until 31 December 2019, Dr. Hoekema provided his services as Chief Business Officer under an employment agreement for an indefinite period with Galapagos B.V., subject to Dutch law. The notice period under such agreement amounts to six months for Galapagos B.V. and three months for Dr. Hoekema.
On 28 February 2008, we entered into a management agreement, subject to Belgian law, with Dr. Wigerinck, for an indefinite period. Dr. Wigerinck was appointed Chief Scientific Officer effective 1 March 2012. The management agreement stipulates that Dr. Wigerinck shall perform his duties thereunder on an independent basis. The notice period under such agreement amounts to six months.
Until 31 December 2019, Dr. Abi-Saab performed his duties as Chief Medical Officer under an employment agreement for an indefinite period dated 16 January 2018 with Galapagos GmbH, subject to Swiss law. The notice period under such agreement amounts to six months.
Reclaim of variable remuneration
The RSU plans and warrant plans contain bad leaver provisions that can result in forfeiture of any unvested RSU and/or warrant grants in case the beneficiary leaves Galapagos prior to the relevant vesting date. No other provisions entitling Galapagos to reclaim variable remuneration were in place.
However, starting from financial year 2020, contractual provisions will apply to ensure that Galapagos has the right to have each executive committee member forfeit any unvested RSUs, deferred portion of previous cash bonus or unvested warrants in the event of a restatement of the financial statements that has a material negative effect on Galapagos or a material breach of our Code of Business Conduct and Ethics.
Minimum share ownership
Starting from financial year 2020, the board has set a minimum threshold of shares to be held at any time by the CEO to the number of shares equivalent to one year of the CEO’s fixed remuneration and by the other members of the executive committee to the number of shares equivalent to six months’ of the relevant executive committee member’s fixed remuneration. The threshold will be re-calculated on an annual basis. To determine the equivalent number of shares for a given calendar year, the closing price of the Galapagos share on Euronext Amsterdam of the last trading day of the preceding calendar year and the fixed remuneration granted for such preceding calendar year will be taken into account. Thresholds need to be reached within four years. Such deadlines start to run from the date of adoption of this remuneration policy for executive committee members already in office or from the date of the appointment for future members of the executive committee.