Governance

Governance

Report of the Supervisory Board

As Supervisory Board (hereafter Board), we supervise and give advice (both solicited and unsolicited) to the management of N.V. Nederlandse Gasunie, hereafter also referred to as Gasunie or the company, with regard to formulating and achieving the company’s objectives, strategy and policy. We act as the employer of the Executive Board.

Composition and organisation

The composition of our Board did not change in 2016. The composition of our Board is diverse and balanced, and all relevant skills are sufficiently represented. All Supervisory Board members are independent. Details on the individual Board members are provided in section Composition of the Supervisory Board.

In 2017, we will test our working methods against the new Dutch Corporate Governance Code and make adjustments if necessary. However, we have already decided to adjust the existing practice of appointing members of the Board to historically defined positions. In addition, we have abolished the upper age limit of 70 as mentioned in our rules of procedure. The Chair of the Board is Mr Rinse the Jong and the Vice-Chair is Mr Dirk Jan van den Berg.

We nominated Mr Willem Schoeber for reappointment, and the shareholder appointed him as member of the Supervisory Board as of 1 October 2016 for another period of four years. In 2017, the mandates of Ms Jolanda Poots-Bijl and Ms Martika Jonk are due to expire. Both are eligible for reappointment and the Board intends to nominate them for reappointment.

Our Board has two committees. The Audit Committee consists of Ms Jolanda Poots- Bijl (Chair) and Messrs Jean Vermeire and Willem Schoeber. The Remuneration, Selection and Appointment Committee is chaired by Ms Martika Jonk and further consists of Messrs Dirk Jan van den Berg and Rinse the Jong. The work of these two committees is reported on below.

Evaluation
At the end of 2015/beginning of 2016, we evaluated our performance with the help of an external consultancy. This resulted in several action points, and we spent most of the evaluation of 2016 on the question as to what extent these action points were followed up. We have concluded that this follow-up has indeed taken place for a large part. There is now more (and more substantive) interaction with the shareholder, which means both the shareholder and we ourselves can operate more effectively. Our mutual contact outside meetings has also intensified, and we have taken the first steps in freeing up meeting time for topical issues, even if they are not on the agenda. If useful or necessary, conference calls are scheduled to discuss such issues. Nevertheless, there should be structurally more time available for substantive discussions. To this end, an annual calendar is drawn up, and the formal part of the agenda will be limited as much as possible.

Way of working
In 2016, we met eight times, including twice in the form of a conference call. Most meetings took place at Gasunie’s headquarters in Groningen, but we also met once at the location of Gate terminal, the LNG terminal in the port of Rotterdam. Gasunie has a 50% interest in this terminal, which we also visited. Besides the regular meetings, separate meetings were devoted to the strategy and to a workshop on the relevant Dutch and German regulations relating to gas transport; in addition, we discussed, without the presence of the Executive Board, the functioning of the members of the Executive Board and, in a different meeting, our own functioning. Ms Poots-Bijl, Mr Schoeber and Mr Van den Berg were each unable to attend one meeting due to other obligations. Where relevant, they provided their input in advance.

Supervision

We exercise our supervision through frequent, intensive meetings with the management of Gasunie, both in plenary sessions and via the two committees. During 2016, a discussion of what would be the most appropriate form of management for Gasunie was completed successfully by the appointments of Ms Annie Krist, General Director of Gasunie Transport Services (GTS), and Mr Ulco Vermeulen, General Director of Participations, as titular members of the Executive Board.

With a view to the legally regulated strictly neutral position of the TSO GTS, when topics are dealt with that are competition-sensitive (such as knowledge of transport contracts and capacity bookings or draft proposals to adjust regulations), it is always determined beforehand to what extent the full Executive Board is allowed to learn about, discuss or decide on these topics.

Since the implementation of this change, we always meet in the presence of the Executive Board and no longer with the executive committee. It should be noted, however, that the members of this former forum still regularly attend our meetings to shed light on substantive issues. In the autumn of 2016, we nominated Mr Oudejans for a second term as member of the Executive Board and CFO. This nomination was honoured by the shareholder.

Besides the Executive Board, there is regular contact with the Works Council. In September 2016, our Board spoke with the entire Works Council in groups of varying composition about relevant developments at and for Gasunie, what these could mean for the employees of Gasunie, and to what extent HR policy is anticipating these developments. In addition, two members of the Supervisory Board each attended a consultative meeting with the Works Council, Ms Poots-Bijl in the spring and Mr De Jong in the autumn of 2016.

Topics covered

We reviewed many topics in the course of 2016. The matter of safety is always at the top of the agenda for all our meetings, just as it is for the meetings of the Executive Board. The safety of our employees, contractors, subcontractors, customers and local residents, as well as the integrity of our assets, deserve our continuous attention. The discussion relating to a number of fixed agenda items, such as risk management, financial results, taxation, financing, regulation, the business plan, automation and related security aspects, remuneration and governance, is prepared via one of the two committees. This means that, in the plenary meeting, we only need to deal with any additional questions, and can take the required decisions. This is necessary to create more time for the other, substantive issues that are important for the role and position of Gasunie in the increasingly broadening energy debate.

Strategy
In the course of 2016, after intensive discussions between the Executive Board, the Supervisory Board and the shareholder, Gasunie’s new strategy was established. Especially elements such as international activities and activities relating to the energy transition required much explanation and discussion, also because, besides the Ministry of Finance as shareholder, the Ministries of Economic Affairs and of Foreign Affairs were involved as policy departments. For Gasunie, these two elements are  important with a view to the less self-evident role of gas in the future energy supply in the Netherlands and Northwestern Europe. In consultation with the Ministry of Economic Affairs, the important investment in a nitrogen plant mentioned in our Annual Report 2015 is no longer deemed necessary for the time being. In order to ensure that the substantial investments in the infrastructure made in the past (approximately € 15 billion) continue to pay off, Gasunie is looking for alternative uses of its broad and in-depth knowledge of gas and infrastructure, and also of the infrastructure itself, for example, by looking for international transit flows of natural gas and expanding the share of renewable gas. The focus here is on both guaranteeing security of supply and sustainable sources and applications as part of the energy transition. This approach has now taken shape in the form of the new strategy approved by us, which has been aligned with the shareholder. An example of the former is that Gasunie successfully managed to expand its position as shareholder of the German pipeline NETRA at the end of 2016. This is one of the most important pipelines in Germany, both for the inflow of natural gas from Norway and for East-West transport, and it is connected to Gasunie’s existing network in Germany. An example of the latter is that Gasunie acts as an investor in the development of new forms of extraction or production of green gas in the Netherlands through co-financing and by making the necessary infrastructure available.

HR
As a consequence of the social debate on the role of natural gas in the energy supply, which is and will be mainly driven by the earthquakes in the extraction area, and the ever more intensive debate on greenhouse gases (CO2), people’s attitude with regard to the extraction of natural gas has changed. Although Gasunie does not extract nor supply natural gas, but makes its infrastructure available for the transport of natural gas, the substantially smaller extraction volumes compared to the recent past affect the traditional business model. A lower deployment of the infrastructure also results in less work, and this means that, in due course, Gasunie’s workforce will shrink. To this end, the Executive Board has developed Vision 2023, which serves as a foundation for an HR policy that focuses on the sustainable employment of employees, both within and outside Gasunie. During 2015 and 2016, a lot of work was carried out in this respect by everyone involved, including the Works Council and the employee organisations. In 2017, this will work will continue. This process has been on our agenda several times, and we are happy with the first results.

Regulation
Another topic that was discussed often and intensively, both with and by us, concerns a new method to determine the efficiency of our Dutch regulated activities (GTS) by the external regulatory authority ACM. Through benchmarking with other European gas transport companies (TSOs), GTS’s revenue level (sum of permitted revenues and rate of return) can be determined by means of what is known as a ‘method decision’ for the coming period. The approach, further development and outcomes were discussed extensively with the regulatory authority. These discussions also dealt with the extent to which GTS’s legal tasks are comparable to those of foreign TSOs. In February 2017, ACM established the new method decision for the period 2017–2021. As a result of this decision, the tariffs of GTS will go down. The annual permitted revenues will gradually decrease by a total of € 200 million. In addition, the method decision has led to an impairment of the GTS network of € 450 million.

New transport management system
For some time now, in collaboration with a number of IT partners, Gasunie has been working on a new gas transport management system. There are no standard solutions for such a system, which is why an extensive redesign was needed of systems that are functionally most similar. Given the size of the project (an investment of approximately € 100 million), the lead time of many years, and the importance of a well-functioning system for the security of supply, this project has our full attention. From time to time, we are being updated on progress, including the actual time spent compared to the planning and the actual expenditure compared to the approved budget. Because the design, building, testing and progress monitoring all take place at different locations that are geographically far apart, good project management, communication and reporting are of paramount importance. So far, everything is going to plan, although due to the realignment of design tasks, the agreed delivery date is under some pressure.

Financial statements 2016
The Board discussed the Annual Report 2016, and upon receipt of the positive recommendation given by the Audit Committee and the unqualified auditor’s report from the external auditor PwC, it decided to submit the financial statements 2016 for adoption to the Annual General Meeting of Shareholders. In addition, the Board proposes that of the net profit of € 183 million an amount of € 110 million be paid as dividend and that the remaining amount be added to the General Reserve.

Audit Committee

The Audit Committee assists the Supervisory Board in supervising the Executive Board on matters such as the installation and proper functioning of the internal risk management and control systems, the financial reporting process and installing and maintaining associated internal procedures, the financing of the company and the relationship with the internal and external auditors.
The Audit Committee met four times in 2016. Besides the members of the Audit Committee, the CFO, the operational auditor and the external auditor were all present on all occasions, as well as the group controller.

The agenda included regular items, such as periodical internal and external financial reporting, the business plan, taxation, financing, the weighted average cost of capital, profit appropriation and dividend, the operational auditor’s periodical reports and working schedule, the external auditor’s audit plan, a review of the first experiences with external auditor PwC, appointed in 2015, the management letter and the auditor’s report, the Executive Board’s Document of Representation, the risk matrix and the control of the main risks, IT developments and the organisation and effectiveness of security with a view to safe and reliable gas transport/corporate security. The Audit Committee also discussed the valuation models, a new model to determine possible impairments and the internal control of some participations.

Before the meetings of the Audit Committee, the Chair of the Audit Committee speaks directly with the external auditor, usually in the presence of the CFO of Gasunie. The discussions and findings of the Audit Committee are reported in the plenary meetings of the Board. The Committee’s meeting documents and minutes are made available to all Supervisory Board members.

Remuneration, Selection and Appointment Committee

The Committee met four times in 2016. In addition to regular items, such as the achievement of the objectives for the purpose of determining the variable remuneration for 2015, the adoption of new collective and individual targets in line with the budget for 2017, the Annual Report 2015, and the remuneration section with regard to 2015, the Committee also frequently discussed the composition of the Executive Board and the management of the company, resulting in the appointment of Ms Annie Krist and Mr Ulco Vermeulen as titular members of the Executive Board. The Committee extensively discussed the way in which variable remuneration can be used effectively to ‘further develop’ the company. With regard to this topic, everyone involved agrees that, to a certain extent, the approach followed so far rewards what could be called ‘hygiene factors’, matters that are actually part of basic tasks. To support the role of Gasunie in the energy transition, as well as value preservation and creation, the method of determining the variable remuneration for 2017 was adjusted in such a way that a larger part of the variable remuneration (50% instead of 25%) is made dependent on the extent to which the Board members have been successful in bringing long-term strategic objectives closer. This includes both internal (e.g., sustainable employability of employees, customer focus, innovation) and external themes (e.g., customer satisfaction, positioning of gas, attractiveness for new talent). The Supervisory Board is to judge whether or not these qualitative targets have been met. In 2017, it will be reviewed how this approach is working and to what extent the relationship between remuneration and the interest of the company can be improved further. The Committee’s meeting documents and minutes are made available to all Supervisory Board members.

Remuneration structure of the Supervisory Board

The remuneration received by members of the Board for exercising their duties is given in the following table. These amounts exclude reimbursement of travel costs and other expenses.

Position Remuneration per quarter  
  As of 1-7-2015 As of 1-7-2016
Chair of the Supervisory Board (or Interim Chair) 7.65 7.711
Vice-Chair of the Supervisory Board 5.61 5.655
Member of the Supervisory Board 5.1 5.141
Chair or member of the AC 1.275 1.285
Chair or member of the BBC 510 514

The remuneration paid in 2016 and 2015 is shown in the financial statements.

Composition of the Executive Board

As of 28 February 2017, Ms Annie Krist stepped down as CEO of GTS and as member of the Executive Board. As of 1 April 2017, she will be appointed CEO of Gasterra, one of GTS’s most important transport customers. We would like to thank Annie Krist for everything she has done in her 30-year career at Gasunie, and we wish her every success in her new role. The process of finding a suitable successor is already under way.

Word of appreciation

The Board wishes to thank the Executive Board, the management and employees for their commitment and dedication.

Groningen, 14 March 2017

Supervisory Board of N.V. Nederlandse Gasunie

Rinse the Jong, Chair
Dirk Jan van den Berg, Vice-Chair
Martika Jonk
Jolanda Poots-Bijl
Willem Schoeber
Jean Vermeire

Corporate Governance

General

N.V. Nederlandse Gasunie (Gasunie) is a public limited company whose sole shareholder is the Dutch State. The shares are held by the Ministry of Finance. The company is subject to a mitigated structure regime. The governance structure is based on Book 2 of the Dutch Civil Code, the Corporate Governance Code, the company’s articles of association and various internal rules of procedure. Various provisions affecting the governance of the company are also contained in the Gas Act.

Executive Board

In 2016, the Executive Board was expanded from two to four members. With a view to the challenges Gasunie is facing, it was decided, in close consultation with the Supervisory Board and the shareholder, to expand the Executive Board. The newly appointed members are the General Director of the Dutch network operator GTS and the General Director of Participations.

These appointments have a ‘titular’ character, reflecting the fact that the two directors, based on the legal requirements as included in the Gas Act, cannot bear collective responsibility for all activities of Gasunie. How these legal requirements are dealt with in practice can be found in the rules of procedure containing the principles and best practices of the Executive Board. With these appointments, the Executive Board consists of two statutory members (the CEO and the CFO) and two titular members.

In principle, the Executive Board meets once a week. The Board is collectively responsible for the management of the company, as well as the general affairs of the various subsidiaries.

Supervisory Board

The composition of the Supervisory Board in 2016 is described elsewhere in this Annual Report. The Board meets at least four times a year. The Board acts as the employer of Gasunie’s Executive Board members, supervises the management and supports it with advice. In accordance with the Gas Act and the articles of association, important decisions to be made by Gasunie Transport Services B.V. are also submitted for approval to the Supervisory Board of Gasunie. The Board has two sub-committees: the Audit Committee (which supervises, in particular, the risk management and audit systems, the annual and semi-annual financial reporting, as well as the financing of the company and its pension schemes) and the Remuneration, Selection & Appointments Committee. The meetings of the Committees are discussed at the meetings of the complete Board, on the basis of which decisions are made.

Compliance with the Dutch Corporate Governance Code

The Dutch Corporate Governance Code is applied by state participations, and thus also by Gasunie. Where possible, the principles and best-practice provisions have been implemented in our articles of association and in various rules of procedure. Since Gasunie is not a listed company, principles and best-practice provisions that are directly related to stock exchange listing are not applicable.
We confirm compliance with best-practice provisions II.3.4 and III.6.3, which state that transactions in which there is a conflict of interests, carried out by members of the Executive Board or Supervisory Board, must be mentioned in the Annual Report. In 2016, no such transactions took place.
A few of the principles and best-practice provisions that are applicable to our company are not applied. In accordance with the Corporate Governance Code, those that are not adhered to are detailed below:

Executive Board

II.2.12 The remuneration report shall be posted on the company’s website.
Reason for departing from this best practice:
In our annual report, we transparently describe Gasunie’s remuneration policy, approved by the shareholder, and the actual implementation thereof by the Supervisory Board in the year under review. The Annual Report is published on Gasunie’s website.

Supervisory Board

III.5 If the Supervisory Board consists of more than four members, the Board shall appoint from its number an Audit Committee, a Remuneration Committee and a Selection & Appointments Committee.
Reason for departing from this best practice:
Because their tasks are closely related, the Remuneration Committee and the Selection & Appointments Committee have been combined to form a single committee.

Revised Corporate Governance Code

On 8 December 2016, the Monitoring Committee Corporate Governance Code published the revised Corporate Governance Code. Assuming that the revised Code will be enshrined in the law by the government, in 2017, Gasunie will examine the exact impact of the new Code and adjust its way of working accordingly if necessary. For the financial year 2017, we will report on compliance with the revised Code.

Available documentation

The following documents are available on the Gasunie website:

  • Rules of procedure governing the activities of the Executive Board;
  • Rules of procedure governing the activities of the Supervisory Board;
  • Whistleblower scheme (“Reporting Malpractices” procedure);
  • Code of Conduct.

 

Given the nature of the company, Gasunie has no specific rules of procedure governing insider trading, holding securities, and securities transactions. The prohibition on the use of inside information has been incorporated into the Code of Conduct.

Remuneration policy of the Executive Board

The remuneration policy was adopted by the General Meeting of Shareholders on 23 April 2010, as proposed by the Supervisory Board, with due account taken of the recommendation of the Remuneration, Selection & Appointments Committee. In 2014, adjustments were implemented with regard to variable remuneration elements, which were approved by the shareholder.

Context of the remuneration policy

Over the past few years, Gasunie has grown into a European gas infrastructure company with many international customers. Gasunie operates in a converging European market and is not only active in regulated markets, but also develops non-regulated activities, thus creating value for its stakeholders. It creates value for the Dutch economy primarily by developing a strong ‘hub’ function in a liquid market; by enabling the throughput of significant gas flows; by enabling trade and competition between gas suppliers in the domestic gas market; by creating flexibility (through storage facilities); and by developing the role of natural and renewable gas and gas infrastructure in an efficient, reliable and sustainable energy supply. All this makes Gasunie a very valuable asset to the Dutch economy. The management of the company therefore bears a great responsibility.

The aims and principles underlying the remuneration policy

The aim of the remuneration policy is to attract, motivate and retain Executive Board members of the right quality and experience, both from within the company and in the form of proven talent from the market. The remuneration reflects the responsibility borne by the members of the Executive Board, and is considered in the light of the applicable remuneration principles in the market (as explained below). Gasunie needs this management talent in order to achieve its essential strategic objectives in the context described above. This policy is implemented based on the following considerations:

  • In principle, having the State as a 100% shareholder, Gasunie applies the same criteria that are applied to the remuneration policy in state-owned companies. If the Supervisory Board feels that this may lead to unacceptable risks for the company, it will consult with the shareholder.
  • Gasunie bases remuneration packages for members of the Executive Board on a market comparison, based on a relevant reference group in the labour market. This group consists of public, semi-public, private and international companies (in a weighted ratio of 50-25-25), with activities similar to those of Gasunie (energy, distribution, installation and construction).
  • The structure of the remuneration of members of the Executive Board is determined on the basis of market comparisons that also take into account the remuneration ratios within the company, thus creating a logically continuing salary line from the posts in the Executive Board to the posts under the Executive Board
  • Application of the variable remuneration policy depends on the achievement of short- and long-term targets with respect to operational and strategic performance.

Remuneration structure

The remuneration consists of:

  • A fixed component (basic annual salary)
  • A variable component, dependent on the attainment of both short- and long-term targets, as specified below
  • The employer’s contribution to the pension premium
  • Other secondary employment conditions.

Basic annual salary

When appointing members of the Executive Board, at the request of the shareholder, the Supervisory Board will limit the sum of the fixed and variable annual salary on appointment to a maximum of € 350,000 (2010 level). The Supervisory Board decides on the level of annual salary increments. If the maximum salary has been reached, further growth is limited to the structural increments laid down in the collective labour agreement.

Variable remuneration

The variable remuneration is based on the remuneration policy that has been approved by the shareholder. The maximum variable remuneration is 20% of the basic annual salary. The targets that must be attained in order to qualify for variable remuneration are agreed annually. These targets should be both measurable and ambitious. The Supervisory Board is authorised to adjust the variable component within the limits mentioned below if it is likely to lead to unfair outcomes due to exceptional circumstances during the performance period. The Supervisory Board is also authorised to reclaim from members of the Executive Board a variable bonus that was awarded on the basis of inaccurate data (financial or otherwise).

The Supervisory Board has chosen performance criteria that relate to the implementation of Gasunieʼs strategic goals, both short- and long-term. For each pillar of the strategy, one or more performance criteria have been developed. The three strategic pillars of Gasunie and the associated performance criteria are as follows:

  • Pillar I – Optimal infrastructure: Ensuring a safe, reliable, affordable and sustainable gas infrastructure in our core area (Financial targets)
  • Pillar II – Connecting Europe: Contributing to an efficient gas infrastructure and services for a properly functioning European natural gas and LNG market (Economic Value Added)
  • Pillar III – Energy in transition: Accelerating the transition to a CO2-neutral energy supply (Corporate Social Responsibility).

In defining the company’s strategy, account is explicitly taken of the social impact of Gasunieʼs activities and their effects on the environment and society. Criteria have therefore also been defined to assess performance in the areas of safety and security of supply.

Given the nature of the variable remuneration elements (the absence of option packages and associated remuneration mechanisms), the possibility of carrying out a scenario analysis, as mentioned in the Corporate Governance Code, is not relevant.

Variable short-term remuneration

The purpose of the variable short-term remuneration is to reward the attainment of the previously agreed challenging targets in a number of operational and financial key areas. The criteria for awarding the variable remuneration relate mainly to the implementation of the strategy. The strategy has been approved by the Supervisory Board and tested against Gasunieʼs public interest. This is reflected in, for example, challenging, quantified targets relating to safety, security of supply and cost-efficiency.

This variable component is subject to an upper limit of 15% of the basic annual salary. In addition, a long-term bonus of up to 5% may be awarded (see below). The breakdown of this 15% for 2016 is as follows:

Collective Gasunie targets (10%):

Safety

  • Total Recordable Frequency Index (TRFI)
    Fully attained when TRFI is lower than 2.7
  • Pipeline damage incidents
    Fully attained at a maximum of 5 incidents
3%

Security of supply

  • Better performance in the field of security of supply
    Fully attained at 0 transport interruptions
2%

Financial results

  • Net operating costs
    Fully attained if lower than € 338 million
  • Return On Invested Capital
    Fully attained if 5.94% or higher
3%

Corporate Social Responsibility

  • Reduction of COfootprint
    Fully attained if COreduction is 20 kilotonnes or more
2%


Individual targets (5%):

  • General contribution of the Board member to Gasunie's result (to be determined by the Supervisory Board)
5%

Variable long-term remuneration

Gasunie also pays its Executive Board members a variable bonus, linked to the value creation in the long term. This variable long-term bonus has two components. The first is the Operational Cost Index for the TSOs, which reflects the ratio of operating costs to the asset base for which the costs are incurred. The second component is the EVA™ (Economic Value Added). This performance is measured over a period of three years and is dependent on the development of the EVA (EVA = (ROIC – WACC) × Invested Capital) for the non-regulated activities. If the two components are realised in full, the variable salary amounts 2.5% and 2.5% of the basic annual salary respectively.

As of 2017, the total variable remuneration of up to 20% of the basic annual salary has been divided into two elements. Both elements have a maximum total value of 10% of the basic annual salary. The first element consists of measures and actions required to achieve Gasunie’s strategy and business objectives in a safe, affordable and reliable way. These have been translated into specific and measurable targets with regard to safe, reliable, socially responsible, effective and profitable business. The second element consists of targets and themes that will genuinely take the company closer to achieving its long-term strategic objectives in terms of growth, operational excellence, organisational development and the positioning of gas and Gasunie. The realisation of the targets will be determined discretionarily.

Procedure

The targets for eligibility for variable remuneration are agreed at the start of the relevant year between the Supervisory Board and the members of the Executive Board, once the Chair of the Executive Board has discussed a proposal to this end with the Remuneration, Selection & Appointments Committee.
In the following year, the extent to which those targets have been met is evaluated by the external auditor and an assurance report with limited assurance is provided. This result is then adopted by the Supervisory Board, following a recommendation to that effect by the Remuneration, Selection & Appointments Committee.

Variable remuneration is paid out following the General Meeting of Shareholders’ approval of the annual accounts of the year for which the targets were set.

Pension

The members of the Executive Board fall under the same pension scheme as other staff.

Other secondary employment conditions

Gasunie has put together a package of secondary employment conditions for its Executive Board members which also apply to other staff.

Other conditions

Term of office
Members of the Executive Board are appointed for a period of four years. Mr Han Fennema may be reappointed once for a maximum of a further four years, unless special circumstances justify a different term, to be mutually agreed. The other members of the Executive Board may be reappointed for subsequent terms of four years. The members are employed by Gasunie on the basis of a permanent contract, which ends when they reach state pension age.

Notice period
For members of the Executive Board, a notice period of two months applies. As of 1 July 2013, the notice period was extended to three months for new members of the Executive Board. However, in the case of Ms Krist and Mr Vermeulen, a notice period of two months applies, in conformity with their employment contract before they joined the Executive Board.

Compensation for dismissal
Compensation for dismissal for Executive Board members will be limited to a maximum of one year’s basic salary, in accordance with the Corporate Governance Code, except where such a limitation is clearly unreasonable.

Change of control
Executive Board members are covered by a ‘change of control’ clause, which states that if they are forced to leave the company due to a merger with or the acquisition of the company by an external party, or in the event of a fundamental change in the nature, management or structure of the company that is beyond the control of the Executive Board, they will be awarded compensation up to a maximum of one year’s basic salary, regardless of which party terminates the employment contract.

Balanced composition
With three men and one woman, the composition of the Executive Board is not in compliance with a balanced composition as mentioned in Article 2:166 of the Dutch Civil Code, which states that a balanced composition means that an Executive Board should contain at least 30% women. When new members need to be appointed, we aim to comply with this provision.

Remuneration package 2016

Based on the policy outlined above, the Supervisory Board agreed the following basic annual salaries and variable bonuses for members of the Executive Board active on 31 December 2016:

In euros Basic annual salary 2016 Variable remuneration (for performance 2016)
Mr J.J. Fennema 302.413 48.386
Mr I.M. Oudejans 279.062 44.650
Ms A.J. Krist 241.922 25,805*
Mr U. Vermeulen 241.922 25,805*

* Concerns the variable remuneration relating to the period of office on the Executive Board.

Pay ratio
The pay ratio, expressed as the ratio between the total remuneration of the highest paid employee and the median of the total remuneration of all other employees in the Netherlands, is 5.24. The total remuneration is based on the sum of the annual taxable pay and the pension costs (employer’s contribution). In calculating the median, only those employees are taken into account who were employed for the entire year.

Targets and realisation of variable remuneration relating to 2016 performance

Targets and realisation of variable remuneration relating to 2016 performance
    Mr J.J. Fennema Mr I.M. Oudejans Ms A.J. Krist Mr U. Vermeulen
  Maximum Realised Realised Realised Realised
1. Collective Gasunie targets          
1.a. Safety (TRFI: 3.5, Pipeline damage incidents: 1) 3.00% 3.00% 3.00% 3.00% 3.00%
1.b Security of supply (Transport interruptions: 2) 2.00% 1.50% 1.50% 1.50% 1.50%
1.c Financial results (NOK: € 327m, ROIC: 2.59%) 3.00% 1.50% 1.50% 1.50% 1.50%
1.d Corporate social responsibility (CO2 reduction: 27.7 ktonnes) 2.00% 2.00% 2.00% 2.00% 2.00%
Subtotal 10.00% 8.00% 8.00% 8.00% 8.00%
           
2. Individual targets 5.00% 3.00% 3.00% 3.00% 3.00%
Subtotal 5.00% 3.00% 3.00% 3.00% 3.00%
           
3. Variable long-term remuneration component          
3.a Operational Cost Index 2.50% 2.50% 2.50% 2.50% 2.50%
3.b Economic Value Added 2.50% 2.50% 2.50% 2.50% 2.50%
Subtotal 5.00% 5.00% 5.00% 5.00% 5.00%
           
Total 20.00% 16.00% 16.00% 16.00% 16.00%
Realisation percentage   80.00% 80.00% 80.00% 80.00%
Variable remuneration paid*   € 48.386  € 44,650  €  25,805  € 25,805

* Concerns the variable remuneration relating to the period of office on the Executive Board.

For the allocation of other remuneration package components in 2016, see note 22 to the consolidated Financial statements.

 

Risk management

Like any other company, we have to deal with a large variety of internal and external factors that affect our operations in a positive or negative sense. In everything we do, it is of crucial importance for us to have as complete a picture as possible of the risks we run, and to take measures to control these risks.

In the decision-making within Gasunie, risk management plays an important part at every level, and is a fundamental and integral part of our business. Our risk management focuses on factors that affect the feasibility of our strategy and objectives, as well as factors that affect our business operations. It allows us to make well-informed choices that lead to a greater chance of success of our mission and strategy, within a risk profile and risk appetite that is acceptable to us.

Risk management also plays an important role in justifying risk assessments in decision-making processes. The management is responsible for this justification, both from the perspective of external laws and regulations, and as part of Gasunie’s internal quality drive.

Developments in risk management in 2016

We aim to continue to develop our risk framework and the execution of risk management in practice. We carry out periodical assessments of the setup and functioning of our risk management, which may also take audit results into account. The main developments we are currently focusing on are:

  • Further integrating risk management in the business plan cycle, which will also strengthen the link with our strategy;
  • Fine-tuning the debate on risks and control measures at corporate level through substantive discussions on our risk appetite.

These developments are also described in the section ‘Our risk profile’. In mid-2016, corporate risk management (as a separate function) joined operational audit in a single department. The synergy advantage this has led to increases both effectiveness and efficiency, without compromising the independence of the two functions.

Risk framework: Policy and control

Risk management is a continuous process that is performed at strategic, tactical and operational level. It provides management information, as well as clarifying accountability in decision-making. The Executive Board is responsible for risk management within our company, and is supported in this by the Corporate Risk Management department. At corporate and business unit level, we mainly identify and control strategic risks and opportunities, while the departments within the units mainly focus on operational risks.

We use the Three Lines of Defense (LoD) model, in which our business/line management is primarily responsible for applying risk management, forming the first line. The second line consists of corporate departments, including Risk Management, Control and Safety, whose task it is to prepare a risk management policy for the Executive Board, and to challenge the (business) units and advise on operating activities. The third line is formed by the Operational Audit department, which carries out operational audits, assesses the setup and functioning of the Risk Framework and reports on this to the Chair of the Executive Board and the Audit Committee of the Supervisory Board.

The accountability reports from the (business) units to the Executive Board run via the Document of Representation (DoR). Units use the DoR to provide formal feedback on the fact that the business controls have been carried out in accordance with the guidelines of the Minimum Requirements of Management Control and the Code of Conduct.

As part of the Management Control system, the Supervisory Board and the Audit Committee regularly discuss developments regarding the objectives, strategy and policy, as well as the most important risks for the company and the outcomes of operational audits with the (members of) the Executive Board.

Our employees act on the basis of our core values and risk awareness, thus creating a ʻBase Line of Defenseʼ.

Gasunie’s risk management model

In order to reflect on and discuss risks in a structured and recognisable way, it is important to use a practical classification of our risks. Our classification is based on the COSO Enterprise Risk Management framework. For the COSO category ‘strategic risk’, we make a distinction between strategic risks and external risks. Strategic risks have a direct relationship with the expected reward. Our risk appetite in this regard differs per strategic pillar, with a higher (financial) risk profile being acceptable particularly in the innovative third pillar.
External risks have no risk/reward relationship and cannot be prevented. The focus is on managing the impact of these risks. We view the COSO risk categories ‘operational, reporting, compliance’ as risks whose materialisation can be prevented with a good control framework within the limits of the ALARA principle (As Low As Reasonably Achievable). We strive for a high degree of control in such matters, fitting with a low risk appetite, combined with cost efficiency of the control measures.

If a risk is identified, we determine the impact of the risk in relation to the values we aim to create (see our value creation model in the section ‘About us’).

The table below summarises the risk acceptance we use at corporate level. For a summary of our main current risks, see the section ‘Our risk profile’.

COSO category Control model Risk acceptance Explanation
Strategic External risks - In the case of external risks, we have little influence on materialisation. Control mainly focuses on limiting the impact.
  Strategic risks (risk/reward) Low/ neutral In pursuing our strategic objectives, a balance is sought between the regulated TSO function (very low risk acceptance) and the non-regulated activities (higher acceptance, based on risk/reward balance). Particularly in the case of risk accumulation, our risk acceptance is low.
Operational Preventable risks based on ALARA principle Very low We do not tolerate unsafe situations. Risks that endanger the safety of our surroundings or Gasunie’s employees or contractors, or which could harm the environment, are avoided as much as possible. This also applies to risks that endanger the continuity of a reliable infrastructure.
Reporting   Low We are not prepared to take risks regarding material errors in financial systems, models and business reports. We are not prepared to take risks that limit our access to the financial markets.
Compliance   Zero We strive to comply with laws and regulations at all times. In our operational environment, we may be confronted with dilemmas, which we deal with in a transparent way.

In Control Statement

The Executive Board is aware that no risk management systems, no matter how professional, can offer absolute certainty that the company objectives will be achieved or that such systems can fully prevent material inaccuracies, loss, fraud or violations of the laws and regulations.
With respect to the financial reporting risks, the Executive Board states that the internal risk management and audit systems provide a reasonable degree of certainty that the financial reporting does not contain any material inaccuracies and that the risk management and audit systems in the year under review functioned properly. It is therefore expected that the continuity of the company is guaranteed for the coming twelve months.

Composition of the Executive Board

J.J. (Han) Fennema, CEO and Chair of the Executive Board

(1964, Dutch nationality)

On 1 January 2014, Han Fennema joined the Executive Board and on 1 March 2014 the took on the position of CEO and Chair of the Executive Board. This term ends in 2018.

Responsibilities and focus areas:

As Chair of the Executive Board, Han Fennema has certain specific tasks and responsibilities. These are closely related to his coordinating role as CEO and are mentioned in Article 4.2 of the Reglement houdende principes and best practices voor het bestuur. In addition, he is responsible for:

  • The three business units (GTS, Participations and Gasunie Deutschland)
  • HR staff services, including the Strategy & Innovation, Safety, and Audit departments.

Other commitments:

  • Chair of Koninklijke Vereniging van Gasfabrikanten in Nederland (KVGN)
  • Member of the Supervisory Board, Hanzehogeschool in Groningen (as of 1 January 2017)
  • Member of the Shareholders’ Committee, Nord Stream AG
  • Member of the International Supervisory Board, Energy Delta Institute
  • Member of the Advisory Board, Clingendael International Energy Programme

I.M. (René) Oudejans, CFO

(1961, Dutch nationality)

René Oudejans is CFO and has been a member of the Executive Board since 1 October 2012. He was reappointed on 1 October 2016. As of 28 February 2017, he is also acting CEO of GTS.

Responsibilities and focus areas:
By virtue of his position, René Oudejans is responsible for the financial reporting and accountable to the Audit Committee and the Supervisory Board. He also has lead responsibility for the internal aspects of finance, treasury, control and risk management, and the relevant departments. In addition, he focuses on:

  • The corporate staff services IT and Legal Affairs

Other commitments:

  • Board member, Pensioenfonds N.V. Nederlandse Gasunie (as of 1 July 2013)
  • Member of the Supervisory Board, Zorggroep Alliade

A.J. (Annie) Krist

(1960, Dutch nationality)

On 1 May 2016, Annie Krist joined the Executive Board as a titular member. Annie Krist is CEO of Gasunie Transport Services B.V. On 28 February 2017, Annie Krist stepped down from both positions due to her appointment as CEO of gas trading platform GasTerra as of 1 April 2017.

Responsibilities and focus areas:

  • Business unit Operations and Projects

Other commitments:

  • Chair of PRISMA European Capacity Platform GmbH
  • Board member, Netbeheer Nederland
  • Board member, European Network of Transmission System Operators for Gas
  • Member of the Supervisory Board, Stichting Kinderopvang Stad Groningen (as of 1 January 2017)

U. (Ulco) Vermeulen

(1959, Dutch nationality)

On 1 May 2016, Ulco Vermeulen joined the Executive Board as a titular member. Ulco Vermeulen is Director of Participations.

Responsibilities and focus areas:

  • Corporate Business Development

Other commitments:

  • Member of the Supervisory Board, ICE Endex Holding B.V.
  • Chair of the Board, Groen Gas Nederland
  • Chair of the Executive Board, Energy Delta Institute
  • Member of the Supervisory Committee, Energy Academy Europe
  • Member of the Strategic Board, Board Energy Valley
  • Chair of the Board, TKI Gas
  • Chair of the Strategy Committee, International Gas Union

Following the appointments of Annie Krist and Ulco Vermeulen as titular members of the Executive Board, as of 1 May 2016, the composition of the Executive Board was expanded from two to four members.

Additional information on the background of the Board members is given on our website.

Composition of the Supervisory Board

(As of reporting date, 30 March 2017)

R. (Rinse) the Jong

(1948, Dutch nationality)            

Chair
Date of first appointment: 16 May 2012
Second term ends in 2018
Member of the Remuneration, Selection & Appointments Committee

Other commitments:

  • Board member, Stichting Aandelenbeheer BAM Groep
  • Board member, Stichting Preferente Aandelen Wereldhave NV
  • Chair of the Supervisory Board, Bakeplus Holding BV
  • Chair of the Supervisory Board, Rabobank Arnhem and surroundings
  • Vice-Chair of the Supervisory Committee, Hogeschool van Amsterdam
  • Member of the Supervisory Board, Stichting Toneelgroep Oostpool
  • Committee member, Stichting Toneelhuis Arnhem
  • Chair of Stichting Kunstcollectie Essent-Enexis

M.J. (Jolanda) Poots-Bijl

(1969, Dutch nationality)

Date of first appointment: 1 September 2011
Second term ends in 2017
Chair of the Audit Committee

Other commitments:

  • Member of the Executive Board and CFO, Ordina N.V. (until 19 September 2016)
  • Chief Financial Officer, Van Oord N.V. (as of 19 September 2016)
  • Board member, Stichting ING Aandelen
  • Member of the Supervisory Board, Blokker Holding B.V.

J.P.H.J. (Jean) Vermeire

(1944, Belgian nationality)

Date of first appointment: 1 October 2007
Third term ends in 2018
Member of the Audit Committee

Other commitments:

  • Gas and LNG Consultant
  • Senior Fellow, Energy Delta Institute
  • Honorary President, International Group of LNG Importers (GIIGNL)

M.M. (Martika) Jonk

(1959, Dutch nationality)

Date of first appointment: 1 October 2013
First term ends in 2017
Chair of the Remuneration, Selection & Appointments Committee

Other commitments:

  • Partner, CMS Derks Star Busmann N.V.
  • Member of the Supervisory Board, St. Antonius Ziekenhuis

W.J.A.H. (Willem) Schoeber

(1948, Dutch and German nationality)

Date of first appointment: 1 October 2013
Second term ends in 2020
Member of the Audit Committee

Other commitments:

  • Consultant at Dr. Willem Schoeber Unternehmensberatung
  • Non-executive member of the Board of Directors, Neste Oyj (Helsinki, Finland)
  • Non-executive member of the Board of Directors, Electrica SA (Bucharest, Rumania) (as of 1 May 2016)

D.J. (Dirk Jan) van den Berg

(1953, Dutch nationality)

Date of first appointment: 1 October 2014
First term ends in 2019
Member of the Remuneration, Selection & Appointments Committee

Other commitments:

  • Chair of the Executive Board, Sanquin Bloedvoorziening
  • Member of the International Advisory Board, PolyU, Hong Kong
  • Chair, Atlantische Commissie
  • Member of the European Integration Committee of the Ministry of Foreign Affairs, Advisory Council on International Affairs
  • Member of the International Advisory Board, Moscow Institute of Physics and Technology (until May 2016)
  • Chair of the IHE Foundation Board
  • Board member, European Institute for Innovation and Technology (EIT) in Budapest (as of 25 July 2016)
  • Member of the Supervisory Board, FMO (Nederlandse Financierings-Maatschappij voor Ontwikkelingslanden N.V.) (as of 27 September 2016)