Policy nestle

Policy Mandatory For internal use November 201 2011 1

Nestlé Total Rewards Policy

Policy Mandatory For internal use

Issuing department Corporate Compensation and Benefits

November 2011

Target audience All employees Approver Executive Board Members Repository All Nestlé Principles and Policies, Standards and Guidelines can be found in the Centre online repository at: http://intranet.nestle.com/nestledocs Copyright and confidentiality The content of this document may not be reproduced, distributed or disclosed to third parties without proper authorization. All rights belong to Nestec Ltd., Vevey, Switzerland. © 2011, Nestec Ltd.

Design Nestec Ltd., Corporate Identity & Design, Vevey, Switzerland Production Altavia Swiss Paper This report is printed on BVS, a paper produced from well-managed forests and other controlled sources certified by the Forest Stewardship Council (FSC).

Introduction As the leading Nutrition, Health and Wellness Company, Nestlé’s name is instantly recognisable throughout the world. But what attracts new hires and keeps current employees engaged is not only remuneration and benefits based on solid performance. It is the hard earned value and trust that our name brings to those who work with us; the relationships with our line managers and fellow workers; recognition and experiences enjoyed while working for a diverse global company; possibilities to lear n and grow. These are as a whole, the Total Rewards we receive. It is important to remembe r that Total Rewards need to correspond to what is valued by employees in each and every Market in alignment with our Nestlé principles, culture and the aspirations of our current and potential new employees. Total Rewards must be in line with Nestlé’s corporate governance framework and applied within the local, legal and socio-economic environment. There is a certain degree of discretion in designing programmes to ensure compliance with prevailing legislation or comparability with local trends and practices. It is also important tha t the “Total Rewards” picture should be simple to understand and competitive. It is Nestlé’s expectation that every employee has a full understanding of the specific characteristics of Total Rewards and how they are established and maintained throughout the Group. This Nestlé Total Rewards Policy aims to give this understanding an d to explain how Nestlé is committed to giving each employee the opportunity to grow, evolve and contribute.

Jean-Marc Duvoisin Deputy Executive Vice President


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1. Purpose & Scope The purpose of the Ne stlé Total Rewards Policy is to provide a reference for all employee s to understand the framework on which our Total Rewards are structured and the principles on which they are based. The Nestlé Total Rewards Policy is aligned with our Nestlé Corporate Business Principles and all other relevant Policies, Guidelines and initiatives. Corporate and Local Market Context The principles outlined in this global policy provide the framework within which individual markets can create local programmes that meet their business requirements: Focusing on attracting and retaining the right talented employees, building a high-performance culture and ensuring a highly-engaged workforce that achieves sustainable optimum business performance and results. Rules regarding eligibility and service requirements will be established in that context. Performance requirements, determining the level of rewards, may also app ly.

Nestlé in the Market (NiM) principles, managed by the NiM Compensation and Benefits Centre of Expertise in the Market, need to be a prime governance consideration in order to ensure consistency in the application of rewards across all Businesses in the Market. In line with Nestlé’s Employee Relations Policy, the Nestlé Total Rewards programmes must be established within the social and legal framework of each Market, be fair and constructive and based on the principle of good faith. In this respect, Nestlé continues to maintain its commitment to follow all Collective Bargaining Agreements (CBAs) agreed to in each Ma rket. If any interpretation of this docume nt is in conflict with a CBA, the CBA prevails.

2. Nestlé Total Rewards The specific elements valued by employees within each Market, allowing us to attract, retain and engage our employees, will include: Fixed pay Variable pay Benefits Personal Growth and Development Work-Life Environment Reward principles are influenced by individual performance as well as various factors such as competitive market practices, cost considerations and business results achieved both locally and globally. A Total Rewards programme should encourage the same coherent approach within the organisation, both at the Group and local level. Human Resources, Pensions and Finance should be involved to balance all considerations. Nestlé has a long-term vision of being competitive in the market place. In this context, the total “employee package” needs to be taken into consideration. This means that all the components of Total Rewards have to be established in harmony with each other. • • • • •

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Nestlé, however, is aware that in some countries legal minimum wage levels are not always adequate to fulfill the basic needs of a worker. Nestlé, therefore, is committed to periodically verifying that the lowest level of salaries and benefits are not just complying with local law, but are competitive in allowing employees to cover their needs according to local standards of living, further clarified in the Nestlé Employee Relations and Conditions of Work and Employment policies. Nestlé places strong emphasis on the simplicity and flexibility of its Total Rewards programmes. Programmes may vary within Markets depending on the external environment, government-mandated policies, and the prevailing tax regime.


3. Fixed Pay 3.1. Base Salary The Base Salary is the foundation of total remuneration. In most cases, the other elements of remuneration are buil t on or linked to it. Competitive Positioning Regular surveys are used as a benchmark to determine our competitive positioning in the marketplace. Nestlé is committed to a pay for performance culture which endeavours to differentiate pay levels on an individual performance basis. Base salaries and wages are determined locally within the corresponding salary structure, which should be set at a level reflecting local market practices, slightly above the median. Actual base salaries and wages, however, can be set between the market median and the third quartile of comparative competitor levels obtained through appropriate and reliable survey providers. The exact salary positioning depends on the salary decision factors developed below. The local competitive market is defined as a group of companies made up of Nestlé ’s prime competitors. These are multinational companies in the Fast Moving Consumer Goods se ctor, as well as any other relevant competitors in the local employment market.

Salary Review & Salary Decision Factors Base salaries should be reviewed periodically, normally once per year. However, under extraordinary circumstances, an additional review could be considered. The annual salary review date is 1 April. Salary reviews should be guided by individual performance as well as internal equity and external competitiveness. In addition, the overall situation of the employee such as potential, future development plans, the pace of previous increases and recent salary adjustments should also be kept in mind when deciding on a salary increase. Across-the-board increases should remain an exception, but may be granted when stipulate d in a CBA or under extraordinary situations such as high inflation or mandatory general increases, with the appropriate approval. The evolution of salaries is fundamentally dependent upon the performance of the Market and business results within the socioeconomic context. 3.2. Cash Allowances Cash allowances form part of the employees’ fixed remuneration, as may be required within the local competitive and/or legal context.

Salary Structure Nestlé strives for simple wage and salary structures that avoid unnecessary complexity. They must offer flexibility to adjust to specific requirements and circumstances. The Markets are responsible for establishing local salary structures that are consistent with prevailing market practices and corporate guidance. Business strategy and objectives should also be taken into consideration. Nestlé in the Market (NiM) principles, aligning compensation and benefits practices between Globally Managed Businesses and other operating companies in the Market, must always apply.


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4. Variable Pay The purpose of variable remuneration schemes is to stimulate the entrepreneurship of participating employees and to ensure that they are motivated to perform even beyond expectations. The objective is also to support employees’ participation in the successes of the Company. The individual’s eligibility for a variable pay scheme depends on the framework defined at Group level and local Market conditions. As a guiding principle, employees should be part of only one single variable pay scheme, either Short-Term Bonus, sales incentive or other variable remuneration plans. 4.1.1. Short-Term Bonus (STB) The Short-Term Bonus (STB) provides an opportunity for recognising employees who deliver tangible results for the business, against agreed targets. STB target levels are expressed as a percentage of Annual Base Salary in line with the corresponding framework determined at Group level and prevailing local Market practices. Objective Setting and Alignment Alignment of objecti ves and Short-Term bonus payout is based on achievements against expected Collective and/or Individual factors defined at the beginning of the performance period, typically a calendar year. In general, a balanced combination of Collective and Individual objectives is recommended. To successfully deliver our business strategy and support our Performance Culture, the objectives must be based on the Business Unit’s strategy, which is aligned with the Nestlé Strategic Performance Framework. Collective objectives are based on business targets shared with others, cascaded from a higher level which implies an indirect and collective responsibility. In addition, the STB should include individual business or functional objectives with direct and individual responsibility, e.g. quantitative or qualitative business or individual performance objectives, quality standards, or sustainable improvements to methods and processes as outlined under Result Focus in the Nestlé Leadership Framework. Objectives are defined by the manager in agreement with the employee, in a Specific, Measurable, Achievable, Realistic, and Timely (SMART) way.

of a minimum bonus. The responsibility for the design of STB plans lies with the Market within the framework approved at corporate level. 4.1.2. Sales Incentives Sales Incentive Schemes are designed for sales staff or individuals who influence sales operations in rewarding the achievement against sales targets. The core objective is to motivate sales staff to outperform both qualitative and quantitative sales targets. Design and structure of Sales Incentives Schemes remain the responsibility of the local Markets/Businesses, and employees who participate in a Sales Incentive Scheme do not participate in the STB plan. 4.1.3. Other Variable Remuneration Plans Other variable remuneration plans for a defined group of employees, based on predetermined measures, are also possible. Emphasis should be placed on both quantitative and qualitative objectives, but in some circumstances qualitative objectives can be a primary consideration. 4.1.4. Special Payments It is also possible to pay out non-recurring, one time spot-bonuses or awards to individuals in situations of extraordinary achievements, e.g. successful completion of a critical project. This should remain an exception and be approved by appropriate Business and HR Management levels. 4.2. Long-Term Incentives (LTI) Nestlé puts strong emphasis on sustainable growth and performance, and the creation of value for our Comp any. By linking rewards to the success of Nestlé, the comp any not only strengthens long-term performance, but also allows the attracting and retaining of the best talents. This strategy is the underlying principle for the design of Long-Term Incentive Plans (LTI). LTI Plans are designed and driven by Corporate HR and remain a key retention tool for senior management. Equity or cash-based programmes provide incentives to selected employees for reaching longer-term value objectives of the Group or business unit.

Short-Term Bonus pay-out Short-Term Bonuses are delivered as a cash payout based on achievement of targets against objectives. There is no guarantee for the payout 4


5. Employee Benefits As an Employer of Choice, Nestlé wishes to provide comprehensive and competitive Employee Benefits as par t of the Total Rewards package: Benefit programmes represent a substantial financial commitment on the part of the Company and often also of the employee s. To leverage the value of the benefits offered to our employees, and whenever appropriate and in line with local competitive practice, employees can be given, the flexibility to choose the level and/or type of benefits best suited to their individual needs, circumstances, family situation and/or life cycle stage. Benefit programmes have to be affordable and sustainable. Their design and delivery must be in line with Company guidelin es as well as with local conditions and practices in each country, and at all times compliant with local mandatory and social security requirements. Depending on the specificity of each Market, the benefit programmes offered may include some or all of the following bene fits: •

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Disability and Life Benefits Short and/or long-term disability benefits as well as survivor and/or life benefits are provided in the form of income and/or lump sum payment to support employees through difficult times. 5.3. Other Benefits Vacation Markets may offer vacation tim e in excess of legal requirements, providing employees with additional leisure time to use at their discretion. Employees are encouraged to take their annual vacation entitlement, which is provided according to Market policy. Perquisites Perquisites or fringe benefits, such as company car, car allowances or company transportation are provided in line with local competitive practices.

5.1. Pension and Retirement Schemes Such benefits aim to support employees in ensuring an adequate standard of living after retirement, according to local standards and in addition to State/social security benefits, personal savings and/or other individual retirement financial arrangements. 5.2. Insurance Benefits Insurance benefits aim to provide protection against risks such as illness, accident, death, and disability with the accompanying financial consequences. Depending on market practice and requirements, these programmes are usually provided to the employees on a contributory basis, in addition to the occupational and/or mandatory/social security workers’ compensation benefits in case of work-related disability, accident or sickness. Medical Benefits Medical benefit programmes aim to provide access to quality healthcare and/or health insurance benefits in case of illness and/or accident. Nestlé also encourages all employees to participate in the employee wellness, health promotion and prevention initiatives as well as other programmes offered in the Markets (see also Work-Life Environment section).


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6. Personal Growth and Development Nestlé endeavours to foster a culture where career and development opportunities are a significant compone nt of its Total Rewards and where growth and career advancement opportunities are linked to performance, potential and the appropriate differentiation of rewards. Managers and supervisors have a key role to play in inspiring, motivating and engaging their employees, providing guidance and day-to-day coaching to support them in their performance and development goals. 6.1 Performance Evaluation Our ability to measure the growth potential of each employee is realised in part through their ability to achieve objectives, cascaded down from the Nestlé Roadmap and Zone, Business or Market Blueprints. These align all performance objectives in a clear, concise and strategic manner. Performance evaluation measures and recognises individual performance in a fair and transparent manner. Through performance evaluation, employees know what to focus on in a given performance year. Whilst WHAT is achieved in terms of objectives is important, Nestlé puts an equal emphasis on HOW these objectives are delivered, by focusing on some key behaviours that are in line with Nestlé values and principles. Through performance evaluation, employees should also receive honest and regular feedback in order that they may continually improve. Performance evaluation is a core pillar which can enable a clear direct link between performance and rewards.

6.3 Training and Learning To achieve competitive superiority through our people, Nestlé is committed to lifelong learning, which is a three-way partnership: The individual who is responsible for his/her own development; the Manager who encourages, coaches and mentors that development and the Training and Learning team who completes the triad by offering learning consulting, products and services to assist leaders, employees and the business in their quest for continuous improvement. Performance and development discussions act as the critical link to help determine and recommend the types of training, resources, and tools made available to each employee. 6.4 Recognition Nestlé encourages the recognition of special efforts for achievements, as well as the loyalty and long-term commitment of its employees, contributing to the overall success of the Company. Formal or informal recognition programmes aim to reward, on the spot, individual and teams’ contribution, usually without predetermined goals or performance levels. Awards can be cash (please see Special Payment, 4.1.4) or non-cash (e.g. non-financi al), and in the form of verbal recognition, trophies, certificates, plaques, dinners, tickets, gift vouchers etc. They can be delivered and communicated one-to-one or through more formal, company-wide recognition programmes.

6.2 Development and Career Employees have regular discussions with their managers about their long-term aspirations, ambitions, career opportunities and development needs. Employee action plans are implemented to engage employees to perform better, fulfill their potential and to reach their long-term aspirations, taking advantage of the learning opportunities available. In line with Nestlé’s multicultural and international essence, international careers may be made available to appropriately qualified employees, and create further opportunities for advancement in an employee’s career.

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7. Work-Life Environment An inspiring Nestlé Work Environme nt is a requirement in attracting, retaining and engaging our high performing Nestlé talents. This depends on the level of trust each employee has in Nestlé and our ability to truly live our values and principles. Nestlé, within the cultural-social context of each Market, aims to promote a healthy and positive lifestyle at work and outside of work, and is thereby committed to providing: A positive and inspiring work-life environment which supports a good balance between work and personal life. Opportunities to participate and contribute in volunteer programmes, where appropriate, that leverage the Creating Shared Value (CSV) principles that are important to us. Work-life flexibility whenever possible in order to provide a framework in which specific

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individual circumstances such as life stages/ cycles are taken into account. The “Flexible Work Environment at Nestlé” guidelines provide directions for each Market to implement in line with their local business and cultural context. Lifestyle and Wellness programmes, whereby, and wherever feasible, the Company endeavours to provide access to various forms of employee assistance programmes including dependent care, counselling, fitness centre affiliations, smoking cessation programmes, stress management programmes, health screenings and other workplace convenience services. A safe and caring environment where safety and health is a fundamental value.

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8. Employee Communication It is the responsibility of each manager to propose within the framework of the Compa ny policy, the remuneration of their employees. They will also communicate the salary policy, decisions and the individual remuneration to each staff member, taking into account their performance and specific responsibilities. The necessary time should be spent with each employee to explain his or her specific situation in terms of remuneration and benefits, if needed with the support of HR management, in order to communicate properly, clearly and with sufficient transparency. Corporate Compensation & Benefits (C&B) will provide the necessary support and guidance so that the NiM C&B are able to ensure all pay and benefit programmes are implemented and communicated coherently and consistently across the Market and Businesses. As a result, all employees will have a clear understanding of the programmes in which they participate.


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9. Corporate Governance, Compliance and Creating Shared Value The way in which a remunerati on policy is set up reflects a company’s corporate governance, i.e. how the company is run, how it ensures Compliance and how it assumes its responsibility by Creating Shared Value for employees and society. In addition, all the pay and benefit programmes which are part of this policy must be in full compliance with applicable local, national and/ or international laws and regulations, as well as Nestlé’s internal regulations. Remuneration levels should properly reflect the skills and the efforts of an employee. Nestlé gives equal consideration to all employees, regardless of the level of their remuneration and without any discrimination with respect to, but not limited to, origin, nationality, religion, race, gender, age or sexual orientation, as stated in th e Nestlé Corporate Business Principles. Nestlé understands the importance of transparency towards its shareholders and the public. Such transparency goes along with the disclosure of pertinent information. Due consideration must also be given to the protection of the employees’ privacy. Corporate Human Resources is available for advice and active support in connection with the design, review and implementation of all elements of this policy.

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