Remuneration of Directors

This Remuneration Report (the “Report”) describes the Company’s remuneration policy applicable to the Executive Directors (the “Policy”) and the remuneration paid to the members of the Company’s Board of Directors in 2014 (both Executive and Non-Executive Directors).

REMUNERATION POLICY FOR EXECUTIVE DIRECTORS

The Board of Directors determines the compensation for Executive Directors with reference to the Policy (at the recommendation of the Compensation Committee). The Policy has been approved by the Company’s shareholders and it is published on the Group’s website www.cnhindustrial.com as part of the Report.

The objective of the Policy is to provide a compensation structure that allows the Company to attract, develop and retain highly qualified senior executives.

The Policy is based on the remuneration policies adopted in the past by the Company (and its predecessors) as aligned with Dutch law and the Dutch Corporate Governance Code.

Features of the Policy for Executive Directors

CNH Industrial’s compensation philosophy, as set forth in the Policy, aims to provide compensation to its Executive Directors that:

  • attracts, retains and motivates qualified executives; 
  • is competitive against the comparable market; 
  • reinforces our performance driven culture and meritocracy; and
  • is aligned to shareholders’ interests.

The remuneration structure for Executive Directors provides a fixed component as well as short and long-term variable components. The Company believes that such a remuneration structure promotes the interests of the Company in the short and the long-term and is not intended in any way to encourage Executive Directors to act in their own interests. In determining the level and structure of the compensation of Executive Directors, the Board of Directors will take into account, among other things, the financial and operational results as well as nonfinancial objectives of the Company.

In general, the fixed remuneration component of Executive Directors adequately compensates individuals for services performed even if the variable components are not received as a result of the performance targets set by the Board of Directors not being met. This is considered fundamental in discouraging behaviour that is aimed solely at achieving short-term results and inconsistent with the target level of risk established by the Group.

Executive Directors are also eligible to receive variable compensation, either immediate or deferred, subject to the achievement of preestablished, challenging economic and financial performance targets.

REMUNERATION OF EXECUTIVE DIRECTORS

The level and structure of the remuneration of the Executive Directors will be determined by the Company’s Board of Directors at the recommendation of the Compensation Committee within the scope of the Policy and taking into account the scenario analyses made and with due regard for the pay differentials within the Group. It will furthermore be based on compensation levels offered in the market in general and for the sector.

The Company periodically benchmarks its executive compensation program and the compensation offered to executive directors against peer companies and monitors compensation levels and trends in the market. The compensation peer group for the Chief Executive Officer (“CEO”) includes a blend of U.S. and non U.S. global industrial companies, including Caterpillar Inc., United Technologies Corp., Johnson Controls, Honeywell International, Deere & Co., Cummins, Paccar, Navistar, AB Volvo, Continental Ag, Magna International, Mitsubishi Heavy Ind., Man Se, Komatsu Ltd., and Scania AB. In addition to these firms, for the Chairman’s benchmark, companies with Executive Chairman roles separate from the CEO role were also reviewed and considered.

Remuneration elements

On such basis, the compensation of Executive Directors consists, inter alia, of the following elements:

Fixed Component

The primary objective of base salary (the fixed part of the annual cash compensation) for Executive Directors is to attract and retain well qualified senior executives.

Variable Components

Executive Directors are also eligible to receive variable compensation subject to the achievement of pre-established, challenging financial and other designated performance objectives.

The variable components of Executive Directors’ remuneration, both the short and the long-term components, are linked to predetermined, assessable and influenceable objectives approved by the Company’s Non-Executive Directors, with more weight on the long-term component.

Annually, scenario analyses are carried out with respect to the possible outcomes of the variable remuneration components and how they may affect the remuneration of the Executive Directors. Such analysis was also carried out for the financial year 2014.

Short-Term Incentives

The primary objective of short-term variable incentives is to focus on the business priorities for the current or next year. Executive Directors’ variable incentive is based on achieving short-term (annual) financial and other designated objectives proposed by the Compensation Committee and approved by the Non-Executive Directors each year.

In regards to the Executive Directors’ annual performance bonus determination, the Compensation Committee and the Non-Executive Directors:

  • approve the Executive Directors’ objectives and maximum allowable bonus; 
  • select the choice and weighting of objectives; 
  • set the stretch objectives; 
  • review any unusual items that occurred in the performance year to determine the appropriate overall measurement of achievement of the objectives; and
  • approve the final bonus determination.

The annual objectives for the Executive Directors are comprised of two equally weighted metrics, Net Income, and Net Industrial Cash Flow.

The target achievement for target incentive (which is 100% of base salary for both the CEO and the Chairman) corresponds to the Board approved targets each year and are consistent with the five year business plan and external guidance to investors. The threshold for any incentive earned is 90% of target and maximum pay-out of 2 x base salary is set at achieving 150% of the objectives or greater. Results and achievement are reviewed by the Compensation Committee in the January Board meeting each year.

For the financial year 2014, the threshold results were not met and no bonus was approved for the Executive Directors.

In addition, upon proposal of the Compensation Committee, the Board of Directors retain authority to grant annual bonuses to Executive Directors for specific transactions that are deemed exceptional in terms of strategic importance and effect on the Company’s results. This authority has not been exercised with respect to the Company’s performance in 2014.

Long-Term Incentives

The primary objective of the long-term variable incentives is to reward and retain qualified Executive Directors over the longer term while aligning their interests with those of shareholders.

In 2014, CNH Industrial introduced a new long term incentive program, covering a five year performance period, from 2014 to 2018, consistent with the Company’s strategic horizon and under which equity awards can be granted to eligible individuals. The CEO was awarded 2,955,000 performance share units under this program, and vesting is conditional on meeting two independent metrics, Net Income and Relative Total Shareholder Return. The awards have three (3) vesting opportunities, one-third after three years’ cumulative results, one-third after four years’ cumulative results and the final third after the full five years’ results. The Net Income target must be achieved in full for 50% of the total award to vest. With respect to the other half of the award, the Relative Shareholder Return metric has a partial vesting if ranked 5th or better among an industry specific peer group of 8 and a maximum pay-out of 150% if ranked 1st among the 8 peers. The peer group includes CNH Industrial, Deere & Co., AGCO Inc., Caterpillar Inc., Cummins Inc., Navistar International Corp., PACCAR Inc. and AB Volvo.

The Chairman was awarded a retention grant of 3,000,000 restricted share units that vest over five years with vesting opportunities at the end of each year. The vesting schedule is 25%, 25%, 20%, 15%, and 15% for the respective years from 2014 to 2018.

As typical with the objective of using equity based awards, these awards help align the Executive Directors’ interests with shareholders’ interests by delivering greater value to Executive Directors as shareholder value increases.

Pension provisions

The CEO participates in the Company sponsored retirement savings programs, available to salaried employees in CNH Industrial America LLC. For the Chairman, CNH Industrial N.V. pays social contribution fees mandatorily due under Swiss law and indemnifies Fiat Chrysler Automobiles N.V. (as the Chairman is the Chief Executive Officer of Fiat Chrysler Automobiles N.V.) for a fully vested Top Hat benefit equivalent to five times the fixed annual compensation at the time of retirement.

Other Benefits

The CEO is entitled to usual and customary fringe benefits such as a company car, medical insurance, accident insurance, and retiree healthcare benefits. A portion of the costs of personal security personnel dedicated to the Chairman are borne by the Company. The Compensation Committee may grant other benefits to the Executive Directors in particular circumstances.

Severance payments

For the CEO, in lieu of severance benefits under the CNH Industrial America LLC Separation Allowance Policy for U.S. salaried employees, an amount is provided equal to 18 months base pay plus an annual bonus at target in the event of a Company initiated termination except in the event of termination for cause.

The severance provision was a competitive offering made at the time of hiring in March 2010 with the Group.

REMUNERATION FOR NON-EXECUTIVE DIRECTORS

Remuneration of Non-Executive Directors is approved by the Company’s shareholders and periodically reviewed by the Compensation Committee.

The current annual remuneration for the Non-Executive Directors is:

  • US$125,000 annual retainer fee for each Non-Executive Director; 
  • an additional US$25,000 for each member of the Audit Committee and US$35,000 for the Audit Committee Chairman; and 
  • an additional US$20,000 for each member of every other Board committee and US$25,000 for the committee chairman.

Non-Executive Directors elect which portion of their annual retainer fee, committee membership and committee chair fee payments will be made in cash, common shares of CNH Industrial, or options to purchase common shares of CNH Industrial. Offering the choice to elect equity in lieu of cash is a preferred Group practice. Remuneration of Non-Executive Directors is fixed and not dependent on CNH Industrial’s financial results. Non-Executive Directors are not eligible for variable compensation and do not participate in any Company incentive plans.

Directors’ Compensation

The following table summarizes remuneration paid or accrued to Directors for the year ended December 31, 2014.

 

In US$Office HeldIn office from/toAnnual Fee/
Salary
Fees paid in equity instrumentsBonus and Other Incentives (non-equity)Non-Monetary Compensation (Fringe Benefits)(1)Pension & Similar BenefitsTotal Remuneration
MARCHIONNE Sergio CHAIRMAN 01/01/2014 -
12/31/2014
1,695,587 - - - 826,965 2,522,552
TOBIN Richard CEO 01/01/2014 -
12/31/2014
1,313,343 - - 15,147 147,885 1,476,375
TAMMENOMS BAKKER Jacqueline DIRECTOR 01/01/2014 -
12/31/2014
145,000 - - - - 145,000
ELKANN John DIRECTOR 01/01/2014 -
12/31/2014
175,000 - - - - 175,000
GEROWIN Mina DIRECTOR 01/01/2014 -
12/31/2014
72,500 85,885 - - 13,417 171,802
GRIECO Maria Patrizia DIRECTOR 01/01/2014 -
12/31/2014
145,000 - - - - 145,000
HOULE Léo W. DIRECTOR 01/01/2014 -
12/31/2014
145,000 - - - - 145,000
KALANTZIS Peter DIRECTOR 01/01/2014 -
12/31/2014
170,000 - - - - 170,000
LANAWAY John DIRECTOR 01/01/2014 -
12/31/2014
105,000 45,000 - - - 150,000
TABELLINI Guido DIRECTOR 01/01/2014 -
12/31/2014
145,833 - - - - 145,833
THEURILLAT Jacques DIRECTOR 01/01/2014 -
12/31/2014
160,000 - - - 12,203 172,203
TOTAL     4,272,263 130,885 - 15,147 1,000,470 5,418,765

(1) It includes the use of company cars.

CNH Industrial N.V. Directors’ Compensation Plan

As mentioned above, remuneration of Non-Executive Directors is approved by the Company’s shareholders and periodically reviewed by the Compensation Committee.

The current remuneration for the Non-Executive Directors is:

  • US$125,000 annual retainer fee for each Non-Executive Director;
  • an additional US$25,000 for each member of the Audit Committee and US$35,000 for the Audit Committee Chairman; and
  • an additional US$20,000 for each member of every other Board committee and US$25,000 for the committee chairman.

Non-Executive Directors elect which portion of their annual retainer fee, committee membership and committee chair fee payments will be made in cash, common shares of CNH Industrial N.V., or options to purchase common shares. Remuneration of Non-Executive Directors is fixed and not dependent on CNH Industrial financial results. Non-Executive Directors are not eligible for variable compensation and do not participate in any Company incentive plans (collectively, the “Fees”).

Directors eligible to receive compensation under the CNH Industrial Directors’ Compensation Plan do not receive benefits upon termination of their service as directors.

With effect from September 20, 2013, 200,000 common shares were reserved for issuance under the CNH Industrial Directors’ Compensation Plan, as approved by shareholders.

The tables that follow reflect the stock option and share activity for the year ended December 31, 2014 under the CNH Industrial Directors’ Compensation Plan and the predecessor companies’ plans adopted by CNH Industrial pursuant to the merger agreement terms and condition in September 2013.

Share-Based Compensation

The following table summarizes outstanding stock options held by CNH Industrial Directors as of December 31, 2014 under the CNH Industrial Directors’ Compensation Plan for Non-Executive Directors, the CNH Global Directors’ Compensation Plan (“CNH DCP”) for Non-Executive Directors and the CNH Global Equity Incentive Plan (“CNH EIP”) for Executive Directors. In connection with the Merger, CNH Industrial assumed the sponsorship of the CNH DCP and the CNH EIP on September 29, 2013.

For the Non-Executive Directors, the stock options expire upon the earlier of (i) ten years after the grant date; or (ii) six months after the date an individual ceases to be a director. For further details about outstanding stock options conditions, please refer to Note 24 to the Consolidated Financial Statements and the footnote below.

 Grant DateExercise Price (in $)BoyanovskyGerowinHilerLipperHouleLanawayTheurillatTobin(1)Total
Beginning Balance as of 1/1/2014                      
  05/03/2005 3.72 - - 9,302 - - - - - 9,302
  04/07/2006 5.96 - - 9,302 - 18,604 18,604 - - 46,510
  10/03/2006 4.80 - - - - 20,835 - - - 20,835
  12/29/2006 5.91 - - - - 16,942 - 4,233 - 21,175
  03/30/2007 8.18 - - - - 12,226 - 3,054 - 15,280
  06/30/2007 10.96 - - - - 9,129 - 2,281 - 11,410
  09/28/2007 13.02 - - - 6,913 7,682 - 1,917 - 16,512
  12/27/2007 14.28 - - - 6,304 7,001 - - - 13,305
  03/19/2008 10.77 - - - - 9,286 - - - 9,286
  06/17/2008 9.15 - - - - 10,940 - - - 10,940
  04/30/2010 6.82 - - - - - - - 234,824 234,824
  04/29/2011 10.15 - - - - - - - 189,183 189,183
  07/02/2012 8.47 5,898 - - - - - - - 5,898
  09/28/2012 8.78 - - - - - - - 483,468 483,468
  10/01/2012 8.45 5,918 - - - - - - - 5,918
  12/28/2013 11.33 - 6,402 - - - - - - 6,402
Beginning Total     11,816 6,402 18,604 13,217 112,645 18,604 11,485 907,475 1,100,248
- Vested/Not Exercised     11,816 6,402 18,604 13,217 112,645 18,604 11,485 522,099 714,872
- Not Vested     - - - - - - - 385,376 385,376
Options Granted in 2014              
  03/28/2014 11.26 - 6,442 - - - - - 6,442
  06/26/2014 10.25 - 7,073 - - - - - 7,073
  09/24/2014 7.82 - 9,271 - - - - - 9,271
  12/28/2014 8.26 - 8,777 - - - - - - 8,777
Total Options Granted in 2014     - 31,563 - - - - - - 31,563
Options Exercised in 2014              
  05/03/2005 3.72 - - 9,302 -  - - - - 9,302
  04/07/2006 5.96 - - 9,302 - - - - - 9,302
  07/02/2012 8.47 5,898 - - - - - - - 5,898
  10/01/2012 8.45 5,918 - - - - - - 5,918
Total Options Exercised in 2014     11,816 - 18,604 - - - - - 30,420
Options Expired in 2014              
  09/28/2007 13.02 - - - 6,913            - - - - 6,913
  12/27/2007 14.28 - - - 6,304           - - - - 6,304
Total Options Expired in 2014     - - - 13,217       -  - - - 13,217
Ending Balance as of 12/31/2014                      
  04/07/2006 5.96 - - - - 18,604 18,604 - - 37,208
  10/03/2006 4.80 - - - - 20,835 - - - 20,835
  12/29/2006 5.91 - - - - 16,942 - 4,233 - 21,175
  03/30/2007 8.18 - - - - 12,226 - 3,054 - 15,280
  06/30/2007 10.96 - - - - 9,129 - 2,281 - 11,410
  09/28/2007 13.02 - - - - 7,682 - 1,917 - 9,599
  12/27/2007 14.28 - - - - 7,001 - - - 7,001
  03/19/2008 10.77 - - - - 9,286 - - - 9,286
  06/17/2008 9.15 - - - - 10,940 - - - 10,940
  04/30/2010 6.82 - - - - - - - 234,824 234,824
  04/29/2011 10.15 - - - - - - - 189,183 189,183
  09/28/2012 8.78 - - - - - - - 483,468 483,468
  12/28/2013 11.33 - 6,402 - - - - - - 6,402
  03/28/2014 11.26 - 6,442 - - - - - - 6,442
  06/26/2014 10.25 - 7,073 - - - - - - 7,073
  09/24/2014 7.82 - 9,271 - - - - - - 9,271
  12/28/2014 8.26 - 8,777 - - - - - - 8,777
Closing Total     - 37,965 - - 112,645 18,604 11,485 907,475 1,088,174
- Vested/Not Exercised     -          37,965 - - 112,645 18,604 11,485 746,318 927,017
- Not Vested     - -         -  - - - - 161,157 161,157

(1) Regarding the outstanding options of Richard Tobin, the remaining unvested options completely vested on February 25, 2015. The expiration of his options will be on 2/16/2016, 2/26/2017, and 2/24/2018 for the grants of 4/30/2010, 4/29/2011, and 9/28/2012, respectively.

The following table summarizes unvested performance share units held by Executive Directors as of December 31, 2014. In connection with the Merger, the performance targets for those performance share units granted prior to the Merger had been deemed to be met and the units vested in February 2015. For further details about outstanding performance share unit conditions, please refer to Note 24 to the Consolidated Financial Statements.

 Grant DateVesting DatePriceTobinMarchionneTotal
Beginning Balance as of 1/1/2014            
  09/30/2010 02/01/2014,
02/01/2015
$7.47 232,551 - 232,551
  01/01/2012 02/01/2015 $8.09 365,103 - 365,103
  04/05/2012 02/01//2015 €7.795 - 1,000,000 1,000,000
Beginning Total       597,654 1,000,000 1,597,654
             
Granted in 2014 06/09/2014 02/01/2017,
02/01/2018,
02/01/2019
$9.52 2,955,000 - 2,955,000
             
Vested  in 2014 09/30/2010 02/01/2014 $7.47 116,276 - 116,276
 
Ending Balance as of 12/31/2014            
  09/30/2010 02/01/2015 $7.47 116,275 - 116,275
  01/01/2012 02/01/2015 $8.09 365,103 - 365,103
  04/05/2012 02/01/2015 €7.795 - 1,000,000 (1) 1,000,000
  06/09/2014 02/01/2017,
02/01/2018,
02/01/2019
$9.52 2,955,000 - 2,955,000
Closing Total       3,436,378 1,000,000 4,436,378

(1) These share units vested on February 1, 2015 and were exercised on February 23, 2015.

The following table summarizes outstanding (as of December 31, 2014) restricted share units held by Executive Directors (due to their current or former employment by the Company) with respect to which vesting has not yet occurred. For further details about outstanding restricted share unit condition, please refer to Note 24 to the Consolidated Financial Statements.

 Grant DateVesting DatePriceTobinMarchionneTotal
Beginning Balance as of 1/1/2014            
  09/30/2011 09/30/2014 $5.73 6,976 - 6,976
  04/05/2012 02/22/2014,
02/22/2015
€7.795 - 733,333 733,333
Beginning Total       6,976 733,333 740,309
Granted in 2014 06/09/2014 12/31/2014,
12/31/2015,
12/31/2016,
12/31/2017,
12/31/2018
$10.41 - 3,000,000 3,000,000
 
Vested in 2014            
  09/30/2011 09/30/2014 $5.73 6,976 - 6,976
  04/05/2012 02/22/2014 €7.795 - 366,667 366,667
  06/09/2014 12/31/2014 $10.41 - 750,000 (1) 750,000
Total Vested in 2014       6,976 1,116,667 1,123,643
 
Ending Balance as of 12/31/2014            
  04/05/2012 02/22/2015 €7.795 - 366,666 (2) 366,666
  06/09/2014 12/31/2015,
12/31/2016,
12/31/2017,
12/31/2018
$10.41 - 2,250,000 2,250,000
Closing Total       - 2,616,666 2,616,666

(1) These share units vested on December 31, 2014 and were exercised on February 23, 2015.

(2) These share units vested on February 22, 2015 and were exercised on February 23, 2015.

EXECUTIVE OFFICERS’ COMPENSATION

The aggregate amount of compensation paid to or accrued for executive officers that held office during 2014 was approximately $17.5 million, including $7.0 million of pension and similar benefits paid or set aside by us. The aggregate amounts include 17 executives at December 31, 2014. During 2014, organizational changes occurred that were taken into consideration, pro-rata temporis, in the total compensation figures.

Variable compensation was paid out following scenario analyses.