Compensation for the Chief Executive Officer

Compensation policy for the Chief Executive Officer

Compensation structure

The Board of Directors determined the compensation structure for Mr. Pouyanné in his capacity as Chief Executive Officer during its meeting on October 28, 2014, on the proposals of the Compensation Committee. The compensation policy comprises a fixed portion and an annual variable portion assessed according to predefined criteria.

This compensation structure is intended to be supplemented by a long-term component with the allocation of performance shares as part of plans that are not specific to the Chief Executive Officer and which are structured over a five-year term with a three-year vesting period followed by a mandatory two-year shareholding period. The final grant of shares is subject to a continued employment condition and depends on the extent to which performance conditions have been achieved, which are assessed following the three-year vesting period.

The Chief Executive Officer does not receive any multi-year or deferred variable compensation or any extraordinary compensation. He does not receive directors’ fees as director of the Group’s companies.

Furthermore, the Company is committed to paying the Chief Executive Officer a retirement benefit and a termination payment in case of forced departure owing to a change of control or strategy. The Chief Executive Officer is also entitled to the pension plans in place within the Group. In line with the principles of the AFEPMEDEF Code, the benefit accruing from participation in the pension plans has been taken into consideration when determining the compensation policy applicable to the Chief Executive Officer. These commitments are subject to performance conditions and are described in more detail hereinafter in point 2.3.2.

The Chief Executive Officer also has the use of a company car and is covered by the health insurance plan to which the Group’s employees are entitled, as well as a life insurance plan (death and disability), which is described in more detail hereinafter in point 2.3.2.

Compensation policy for fiscal year 2014

The Board of Directors defined the compensation elements for Mr. Pouyanné in his capacity as Chief Executive Officer for fiscal year 2014 during its meeting on October 28, 2014, as follows:

a. Base salary

The annual fixed compensation for the Chief Executive Officer was set at €1,200,000 (i.e., fixed compensation of €233,425 for the period from October 22 to December 31, 2014). The positioning of the Chief Executive Officer’s fixed compensation was set in relation to the responsibilities held and taking account of the compensation practices for executive directors of comparable companies (in particular, CAC 40 companies and issuers operating in the energy sectors).

b. Annual variable portion

In accordance with the recommendations made in the AFEP-MEDEF Code, the Board of Directors decided to set the maximum percentage for the annual variable portion likely to be paid to the Chief Executive Officer at 165% of the annual fixed compensation, after reviewing practices at a reference sample of companies operating in the energy sectors. The type and weight of the criteria used to determine the Chief Executive Officer’s variable portion were chosen after confirming their relevance to the Group’s strategic priorities.

The formula used to calculate the Chief Executive Officer’s annual variable portion involves economic parameters that refer to quantitative targets reflecting the Group’s performance, a HSE / CSR parameter (Health, Safety and Environment / Corporate Social Responsibility), a parameter relating to the reduction in operating costs and a parameter associated with the Chief Executive Officer’s personal contribution,
which allows a qualitative assessment of his management.

Annual variable compensation for fiscal year 2014 (expressed as a percentage of the base salary)

Annual variable compensation for fiscal year 2014

Economic parameters

The chosen economic parameters include:

  • Return on Equity (ROE) for up to 50% of the base salary; and
  • the Company’s results, in comparison with the results of the four major competing oil companies (ExxonMobil, BP, Royal Dutch Shell and Chevron), assessed by reference to the average growth over three years of two indicators: earnings per share and net income. Each indicator has a weighting of up to 25% of the base salary.

The expected levels of attainment of the quantitative economic parameter targets for determining the Chief Executive Officer’s variable portion were clearly defined by the Board of Directors, but have not been made public for reasons of confidentiality.

HSE / CSR parameter

HSE performance (Health, Safety and Environment), which is mainly measured according to attainment of the annual TRIR (Total Recordable Injury Rate) target, associated with CSR performance (Corporate Social Responsibility), measured in particular according to attainment of the CO2 and energy efficiency targets and the Group’s position in the rankings of non-financial rating agencies, is chosen as a parameter for up to 16% of the base salary.

Parameter relating to the reduction in operating costs

Achievement of the targets relating to the reduction in operating costs is chosen as a parameter for up to 16% of the base salary.

Personal contribution

The Chief Executive Officer’s personal contribution is based on three objective and operational target criteria concerning the Group’s business segments. The weight of the personal contribution criteria represents up to 33% of the base salary, with each criterion accounting for no more than 11% of the base salary.

These criteria are as follows:

  • successful managerial transition;
  • achievement of production and reserve targets; and
  • successful strategic negotiations with producing countries.

Compensation policy for fiscal year 2015

The Board of Directors during its meeting on February 11, 2015 and based on the proposals of the Compensation Committee, defined the compensation policy of the Chief Executive Officer for fiscal year 2015.

It decided the compensation elements for Mr. Pouyanné in his capacity as Chief Executive Officer for fiscal year 2015 will comprise an annual fixed compensation of €1,200,000 (unchanged compared to the amount defined by the Board of Direction during its meeting on October 28, 2014) and a variable portion likely to be paid in 2016 set at a maximum of 165% of the annual fixed compensation, after reviewing practices at a reference sample of companies operating in the energy sectors. The Board of Directors decided to maintain the type of the criteria used to determine the Chief Executive Officer’s variable compensation for fiscal year 2015, but modified the respective weight of the economic parameters, as follows:

Annual variable compensation for fiscal year 2015 (expressed as a percentage of the base salary)

Annual variable compensation for fiscal year 2015

The expected levels of attainment of the quantitative economic parameter targets for determining the Chief Executive Officer’s variable portion were clearly defined by the Board of Directors during its meeting on February 11, 2015, but have not been made public for reasons of confidentiality.

Commitments made by the Company to the Chief Executive Officer (Article L. 225-102-1, paragraph 3, of the French Commercial Code)

The commitments made to the Chief Executive Officer regarding pension and life insurance plans, retirement benefit and termination payment to be paid in the event of a forced departure owing to a change of control or strategy, as described below, were approved by the Board of Directors on October 22, 2014 and confirmed by the Board of Directors’ decision on December 16, 2014. Such commitments will be subject to the Shareholders’ Meeting on May 29, 2015, in accordance with Article L. 225-42-1 of the French Commercial Code.

It should be noted that Mr. Pouyanné was already entitled to all these provisions when he was an employee of the Company, except for the commitment to be granted a termination payment in case of forced departure owing to a change of control or strategy. Furthermore, Mr. Pouyanné joined the Group on January 1, 1997, and terminated the employment contract that previously bound him to TOTAL S.A. by resignation when he was appointed Chief Executive Officer on October 22, 2014.

Pension plans

Pursuant to law, the Chief Executive Officer is eligible for the basic French social security pension and for pension benefits under the ARRCO (Association pour le régime de retraite complémentaire des salariés) and AGIRC (Association générale des institutions de retraite des cadres) government-sponsored supplementary pension schemes.

He also participates in the internal defined contribution pension plan, known as RECOSUP. This pension plan represented a booked expense to the Company in favor of the Chief Executive Officer for fiscal year 2014 of €2,253.

The Chief Executive Officer also participates in a defined benefit supplementary pension plan set up and financed by the Company, which was approved by the Board of Directors on March 13, 2001, and for which management is outsourced to two insurance companies, effective as of January 1, 2012. This plan applies to all employees of the Group whose annual compensation is greater than eight times the ceiling for calculating French social security contributions (€38,040 in 2015), ceiling above which there is no conventional pension plan.

To be eligible for this plan, participants must have at least five years’ length of service, must be over the age of sixty and must have claimed their French social security pension. To be entitled to the supplementary pension plan, participants must also still be employed by the Company when claiming their pension rights, unless they retire due to disability or have taken early retirement at the Group’s initiative after the age of fifty-five.

The plan provides participants with a pension equal to the sum of 1.8% of the portion of the reference compensation between eight and forty times the annual ceiling for calculating French social security contributions and 1% of the reference compensation between forty and sixty times the annual ceiling for calculating French social security contributions, multiplied by the number of years of service (up to twenty years). The basis for the calculation of this supplementary plan is indexed to changes in the ARRCO pension point. The compensation taken into account to calculate the supplementary pension is the retiree’s last 3-year average gross compensation (fixed and variable portions).

The sum of the supplementary pension plan benefits and other pension plan benefits (other than those constituted individually and on a voluntary basis) may not exceed 45% of the compensation used as the calculation basis. In the event this ceiling is exceeded, the supplementary pension is reduced accordingly.

The supplementary pension includes a clause, whereby up to 60% of the amount will be paid to beneficiaries in the event of death after retirement.

The length of service acquired by Mr. Pouyanné in performing his previous salaried duties in the Group since January 1, 1997, has been maintained.

The commitments made to the Chief Executive Officer by TOTAL S.A. under the terms of the defined benefit supplementary pension plans and similar plans would, thus, as of December 31, 2014, represent a gross annual retirement pension estimated at €474,109, i.e. 27.73% of the gross annual compensation of Mr. Pouyanné composed of the fixed annual portion as Chief Executive Officer (i.e., €1,200,000) and the variable portion previously paid in 2014 and due for fiscal year 2013 in respect of his previous duties as President of Refining & Chemicals (i.e., €509,700).

The Group’s commitments related to these defined benefit supplementary pension plans and similar plans (including the retirement benefit) are outsourced to insurance companies for almost their entire amount, the remaining balance being evaluated on an annual basis and adjusted through a provision in the accounts. The Group’s commitments amount, as of December 31, 2014, to €19 million for the Chief Executive Officer (€37.6 million for the Chief Executive Officer, non-executive directors and the former non-executive directors participating in these plans). These amounts represent the gross value of the Group’s commitments to these beneficiaries based on the gross annual pensions estimated as of December 31, 2014 as well as a statistical life expectancy of the beneficiaries. They also include the additional tax contribution for an amount of 45% on pensions that exceed eight annual ceilings for calculating French social security contributions, payable by the Company to the French administration in charge of collecting social security contributions (URSSAF) (i.e., €5.6 million for the Chief Executive Officer and €11.2 million for the Chief Executive Officer, non-executive directors and the concerned former nonexecutive directors).

The sum of all the pension plans in which Mr. Pouyanné participates would, as of December 31, 2014, represent a gross annual retirement pension estimated at €610,300, i.e., 35.70% of the Chief Executive Officer’s gross annual compensation defined above (fixed annual portion as Chief Executive Officer and variable portion previously paid in 2014 and due for fiscal year 2013 in respect of his previous duties as President of Refining & Chemicals).

In line with the principles used to determine the compensation of the executive directors as set out in the AFEP-MEDEF Code which the Company uses as a reference, the Board of Directors has taken account of the advantage conferred through participation in the pension plans when determining the Chief Executive Officer’s compensation.

Termination payment and retirement benefit

Retirement benefit

The Chief Executive Officer is entitled to a retirement benefit equal to that available to eligible members of the Group under the French National Collective Bargaining Agreement for the Petroleum Industry. This benefit amounts to 25% of the gross annual compensation (fixed and variable portions) received during the 12-month period preceding the executive director’s retirement.

Pursuant to the provisions of Article L. 225-42-1 of the French Commercial Code, entitlement to this benefit is subject to the performance conditions detailed below.

The retirement benefit cannot be combined with the termination payment described below.

Termination payment

If the Chief Executive Officer is removed from office or his term of office is not renewed by the Company, he is entitled to a payment equal to two years’ gross annual compensation. The calculation is based on the gross compensation (fixed and variable portions) of the 12-month period preceding the date of termination or non-renewal of his term of office.

The termination payment will only be paid in the event of a forced departure owing to a change of control or strategy. It will not be due in cases of gross negligence or willful misconduct or if the Chief Executive Officer leaves the Company of his own volition, accepts new responsibilities within the Group, or may claim full retirement benefits within a short time period.

Pursuant to the provisions of Article L. 225-42-1 of the French Commercial Code, entitlement to this benefit is subject to the performance conditions detailed below.

Performance condition

In accordance with Article L. 225-42-1 of the French Commercial Code, the Board of Directors decided, at its meeting on December 16, 2014, to make entitlement to termination payment and a retirement benefit contingent upon a performance condition that is considered to be fulfilled if at least two of the three criteria set out below are met:

  • the average ROE (Return on Equity) over the three years preceding the year in which the executive director retires is at least 12%;
  • the average ROACE (Return on Average Capital Employed) over the three years preceding the year in which the executive director retires is at least 10%; and
  • TOTAL’s oil and gas production growth over the three years preceding the year in which the executive director retires is greater than or equal to the average production growth rate of the four other major competing international oil companies: ExxonMobil, Royal Dutch Shell, BP and Chevron.

These criteria were selected to take into account the Company’s general interest, shareholders’ interests and standard market practice, especially in the oil and gas industry.

More specifically, the ROE performance criterion was retained because it allows these benefits to be tied to the Company’s overall shareholder return. Shareholders can use ROE to gauge the Company’s ability to generate profit from the capital they invested and from prior year earnings reinvested in the Company.

ROACE, a criterion used by most oil and gas companies, was also retained because it allows the assessment of the operational performance of average capital employed, regardless of whether it is funded by equity or debt. ROACE is an indicator of the return on capital employed by the Company for operational activities and, as a result, allows for the possibility of making payment of termination payment and retirement benefit contingent upon the value created for the Company.

The third and last criterion used by the Board of Directors is the Group’s oil and gas production growth compared with that of its competitors. This indicator is widely used in the industry to measure operational performance and the ability to ensure the sustainable development of the Group, most of whose capital expenditure is allocated to Upstream activities.

Life insurance plan

The Chief Executive Officer is covered by a life insurance plan at the expense of the Company and taken out from a life insurance company. This plan guarantees, upon death, a payment equal to two years’ gross compensation (fixed and variable portions), increased to three years in case of accidental death and, in the event of permanent disability due to an accident, a payment proportional to the degree of disability. This payment is increased by 15% for each dependent child.

Compensation due to the Chief Executive Officer for fiscal year 2014

In accordance with the compensation policy defined by the Board of Directors, the compensation due to Mr. Pouyanné as Chief Executive Officer for the period between October 22, 2014 and December 31, 2014, was determined by the Board of Directors at its meeting on February 11, 2015, further to the proposals of the
Compensation Committee.

This compensation consists of a base salary (fixed portion) on a pro rata basis of €233,425 together with a variable portion (paid in 2015) amounting to €295,469 on a pro rata basis, which corresponds to 126.58% of his fixed compensation which was determined as follows.

At its meeting on February 11, 2015, the Board of Directors examined the extent to which the different performance criteria had been achieved (economic parameters, HSE / CSR parameter, and the parameter relating to the reduction in operating costs), as well as the Chief Executive Officer’s personal contribution assessed on the basis of the three objective and operational target criteria concerning the Group’s business segments pre-determined by the Board of Directors.

  • Concerning the economic parameters, the Board of Directors noted that the Group’s performance, in comparison with its main competitors (in terms of earnings per share and net income), improved in 2014 compared to 2013, but the ROE declined compared to 2013, which led the Board of Directors to set the part allocated for the different economic parameters at 68.58% of the fixed compensation for fiscal year 2014 (against a maximum of 100%).
  • In terms of the HSE / CSR criterion, the Board of Directors noted that the majority of objectives had been achieved, which led the portion in respect to this criterion to be set at 14% of the fixed compensation (against a maximum of 16%).
  • Concerning the parameter relating to the reduction in operating costs, the Board of Directors noted that the objective measured in terms of impact on the Group’s operating result had been mostly achieved, which led the portion in respect to this criterion to be set at 14% of the fixed compensation (against a maximum of 16%).
  • Concerning the personal contribution, the Board of Directors considered that most of the objectives that had been set were achieved, particularly the targets relating to successful managerial transition and successful strategic negotiations with producing countries. The Chief Executive Officer’s personal contribution was then set to 30% of the fixed compensation (against a maximum of 33%).

In consideration of the level of attainment and the performance achieved, the Board of Directors has set the Chief Executive Officer’s variable compensation for fiscal year 2014, for the period from October 22 to December 31, 2014 at 126.58% of his fixed compensation, i.e., an amount of €295,469 on a pro rata basis.

Annual variable compensation due for fiscal year 2014 (expressed as a percentage of the base salary)

Annual variable compensation due for fiscal year 2014

For information purposes, it should furthermore be noted that before his appointment as Chief Executive Officer on October 22, 2014, Mr. Pouyanné was paid a fixed compensation of €483,288 and a variable portion relating to this period and defined according to the pre-determined general rules applicable to the Group’s executive officers amounted to €473,806 in respect of his salaried duties as President of Refining & Chemicals for the period from January 1 to October 21, 2014.

Thus, the compensation paid to Mr. Pouyanné in 2015, in respect of his previous salaried duties as President of Refining & Chemicals (i.e., a variable portion on a pro rata basis due for fiscal year 2014) and his duties as Chief Executive Officer (i.e., a fixed portion due for fiscal year 2015 and a variable portion on a pro rata basis due for fiscal year 2014) will therefore be €1,969,275.

Furthermore, in 2014, Mr. Pouyanné had the use of a company car and was covered by the life insurance plan as described above. These benefits were booked in the amount of €23,551 in the Consolidated Financial Statements at December 31, 2014.

Mr. Pouyanné did not benefit from any other forms of compensation due or granted for fiscal year 2014. No multi-year or deferred variable compensation or any extraordinary compensation was awarded for fiscal year 2014.

It should be pointed out that the Chief Executive Officer does not receive directors’ fees as director of the Group’s companies.