New bonus and share purchase compensation plan for Hydro

Norsk Hydro’s board of directors has decided to continue the stock option plan that was established for top management in 1999 and to expand the subsidized share-purchase plan for employees in general. In addition, it has been decided to link the company’s compensation system more closely to the attainment of the company’s goals through a bonus system that will include all employees.

"The board wants a compensation system in Hydro that more strongly rewards good performance. We want Hydro’s top management and the most important decision makers to have their own economic interests more closely linked to the development of Hydro as a company and to have compensation plans that stimulate improvements in Hydro’s performance. It is important that Hydro is competitive in the job market wherever the company has operations, as we begin to see more and more competition including incentive plans both in Norway and globally. It is a clear demand from the financial markets that such plans are established in the company. Also for other employees we want the compensation systems to stimulate improvements, reward good performance and link together the owners’ and the employees’ interests," says Hydro’s chairman of the board Einar Kloster.

The stock option plan will cover around 30 persons in Hydro’s top management and will be linked to shareholder returns over a three-year period. An annual distribution will consist of options for up to 10,000 shares for the president and CEO, 7,000 for others in corporate management board, and 2,000-3,500 for other participants. The options give the right to purchase the shares within a two-year period following the three-year performance period. The options can be exercised in full only if shareholder return in the period has been 20 percent annually. It is a condition that top management will retain a certain number of the shares over the long term.

For Hydro’s other employees in Norway, the board has decided that the current share-purchase rebate will be increased to NOK 6,000 from NOK 1,500 in the years that shareholder return in the previous year reached a minimum of 12 percent. The plan will be implemented this year if the company’s share price from May 2000 to May 2001 increases by 12 percent. The intention is that similar plans will be proposed for employees outside of Norway.

The board has also decided to establish a stronger element of performance rewards in Hydro’s compensation system: a bonus linked to achieving performance goals in the business plans for various units in Hydro. The bonus will be limited to a maximum of one month’s salary per year for employees. For approximately 200 managers with substantial responsibility for performance, the bonus will be limited to a maximum of two months salary. For top management – around 30 persons – the bonus will be limited to a maximum of three months salary.

Performance goals will be established that eliminates effects of price variations of the company’s main products and foreign-exchange fluctuations. It is the actual improvements of Hydro’s activities that will be measured and rewarded.

The bonus plan will be carried out under the condition that approved business plans with predetermined performance goals are in existence. For large parts of Hydro, the systems will begin in the current year, while other parts of the company will implement bonus systems in 2002.