Executive remuneration at Reckit Benckinser plc.

By : Rachmi Rida Utami

Rieke Fitri Yuniar

Yunus Arie Wiratama

Joseph Enrico

Pramadona

History of Reckit Benckinser

1999 Formed in December by the merger of Benckinser N.V. and

Reckitt & Colman plc.

2001 Reckitt Benckinser ranked 11th overall in consumer package goods.

2002 Total sales 3.5 billion pounds. Supported by 23.000 employees. Operated in 180 countries and 50 manufacturing facilities across every continent

2003 Number 1 in the world in household cleaning products. Ranked 3rd in the broader household goods category

New company reflected the culture of each of the two combined company (75% from Benckinser and 25% from Reckit & colman)

Company Strategy & Performance• To grow by acquisitions and organic growth

through line extentions and new products.

• One important factor: its emphasis on new products.

• Aggressive in marketing and advertising.

• The strategy consisted of these following core components:

– Deliver above industry average net revenue growth

– Leverage out net revenue growth into even stronger net income growth and strong cash generation

Remuneration Philosophy

• The Global Nature of the remuneration Plan

– Pay executives in a such way that they would have complete global mobility

– Valued highly the fresh thingking and new ideas.

– Developed a plan to motivate and retain top managers while adhering to a global remuneration policy.

Fundamentals of the remuneration plan• The plan consisted of three major parts:

Salary• Typically set around the median of competitors according

to compensations surveys. • Paid in cash • Most of managers compensation was dependent on the

performance

Short-term incentives

• Paid in cash.• Based on factors within the managers control• Three criteria to determined the compensation: revenue

growth, profit growth, net working capital reduction

Long term incentives• Based on target related to corporate growth over three

years. • Indicator used was EPS

Compensation Decision Makers at Reckitt Benckinser

• The role of Human Resources

– To formulate and maintain the remuneration policy

– Engaged an external compensation consulting frim to provide market data and commentary on market trends

• The role of the board of directors

– As the custodians of the compensation strategy

– To ensure the policy was aligned with the company culture

– It served the business strategy and executives

– Any changes in compensation policy had to be approved by the entire board

Shareholder Involvement

• Company’s remuneration policy had to be blessed also by the company shareholders

• Shareholders at Reckitt Benckinser voted on long term incentive schemes

• Shareholder also had the right to vote on the amount of dilution allowed under the plan

• In order to implement its incentives program and to stay even with the US competition, Reckittt Benckinser need to obtain its shareholder approval to raise this level to above the UK norm

Broader Issues on the Table

• There was a general confusion about the valuation of stock options

• Other issue was the length of contracts for senior executives

• Reckitt benckinser executives and members of the board of directors were concerned about how to sustain their incentive compensation program while still meeting the changing expectations of shareholders

• It critical to maintain levels of compensation attractive