Teardown 4: Inpost

Freshly post-IPO European company drives innovation and aggressive expansion in medium-term

InPost is a European publicly traded company operating in the logistics sector. The firm redefined the traditional parcel shipping system by introducing outdoor parcel lockers (automated parcel machines - AMOs) by substantially speeding up the delivery times while driving the costs down.

Headquartered in Kraków, Poland, InPost operates internationally, providing mail and parcel delivery services in France, Italy, Benelux, Spain, Portugal, and the UK.

InPost has been experiencing a dynamic change. The company was founded in 1999 and went public in 2021 (traded at Euronext Amsterdam). The same year, they entered the French market by acquiring Mondial Relay, one of the major logistics companies in the country.

Today InPost is valued at €2.8 billion and plans to continue aggressive expansion and scaling to other markets while developing innovative e-commerce solutions and partnerships with businesses and retailers.

So, how do they structure their compensation plans?

Executive compensation plan at InPost

Main goal: To drive long-term profits while promoting expansion, scaling, process optimization, and innovation through achieving short-term goals with medium to long-term effects.

Means: This is done through a mix of fixed and performance-based variable pay with all the elements of the typical package present. The key is the balance between short-term incentives and equity-based LTIP, both based on financial performance metrics, with the at-risk pay significantly higher compared to the market peers and fixed salary in the first quartile of the comparator group.

Elements of InPost's executive compensation plan:

Base salary:

All the executives receive a fixed yearly salary, ranging from 1 - 1.8 million PLN (c. $240 000-$400 000) for the NEOs and 2.6 million PLN (c. $560 000) for the CEO Rafał Brzoska. The executive pay is purposefully set around the lower quartile of the peers from public and private companies of similar profiles to emphasize the performance.

Short-term incentives:

The short-term incentive plans form an essential part of the package for all the NEOs, which is reflected in their unique structure.

Unlike most annual incentives, InPosts's STI bonus awards are 50% cash and 50% deferred into shares for three years with a clawback policy of forfeiting these shares upon leaving before the end of that period.

Additionally, any performance shares need to be held for at least three years. The performance metrics used are 60% EBIDTA, and the other 40% consists of 4 undisclosed personal objectives specific to each NEO's role.

The total annual incentive plan is capped at 100% of the base salary and amounted to 2.6 mln PLN (~$560 000) for the CEO.

Long-term incentive plans:

Every named executive officer at InPost is eligible for the long-term incentive plan.

The InPost's LTIPs are generally equity grants vesting over a three-year performance period. The maximum value of shares granted per year is equal to 200% of the sum of the base salary and the prior year's annual STI bonus, including the value of the deferred STI shares.

The total value of an executive's long-term incentives per year is capped at 600% of the base salary. In addition, all the LTIP shares must be held for a minimum of 2 years from the vesting date.

2021 LTIP for the CEO, Rafał Brzoska came with 16.2 mln PLN (~$3.5 mln) worth of company equity.

American package structure for the European innovator experiencing fast growth

The executive compensation package at InPost is interesting in several ways.

First, the company is based in Europe, and the CEO's total direct compensation of 21.4 mln PLN (~$4.5 mln) is in line with the total remuneration granted to the European CEOs, the median being $6.8 mln. Yet, its executive compensation plan is much more American in structure.

The typical European executive receives much smaller long-term incentive plans, forming only 41% of the total compensation package. On the other hand, long-term incentives in InPost's CEO compensation comprise 75.8% of the 2021 package and are much closer to the American median of 78%.

The balance of fixed versus variable pay is also more in line with the American standards. Brzoska's ratio of 12.1% fixed to 87.9% compensation based on employee performance mirrors the American public company median of 8% to 92%.

InPost's executive compensation plan structure may be similar to the US ones, but the amounts are WAY less.

Jack Connell

Leading Expert Consultant and CEO at Jack Connell Compensation Consulting

In contrast, the European standard settles at a 30% to 70% ratio. American packages are much riskier, focused on performance, rewarding effects, and aligning the interests with those of the shareholders. This is why InPost, a company in a dynamic growth and expansion phase, chose to structure the executive pay this way.

Another curious element of InPost's compensation package is the unique structure of the short-term incentive plan. Typically annual bonuses come as cash compensation received annually upon the fulfillment of select targets.

Here, only 50% of the annual incentives come as cash awards, and the rest is granted in the form of equity that cannot be sold for three years. This is, in part, effectively a mini LTIP with a one-year performance period and 3-year vesting schedule.

The reason for structuring the annual incentive plan in this way is the need to push for the fulfillment of the short and medium-term organization's strategic goals that are well defined, including:

• consolidation of its leadership position in Poland,
• fast expansion to other markets,
• optimization of the existing processes,
• introduction of new services,
• increasing parcel locker density and coverage,
• and entering the e-grocery market.

The one-year performance period encourages the fast achievement of the set targets. At the same time, the equity awards with extended hold times discourage risky undertakings and promote thoughtful and reasonable decision-making.

Additionally, the vesting schedules and clawbacks in the annual incentive plan act as retention mechanisms and ensure that those decision-makers are fully responsible for their choices.

InPosts's LTIPs serve a similar function. The difference is the more extended performance period of the typical three years and the hold time for an additional two.

Compared to other innovative companies focused ultimately on increasing shareholder value like Tesla or Amazon, where the effective LTIP schedules span 10 to 15-year timeliness, InPost operates on what we could call a medium-term horizon of three to five years.

The shorter periods drive faster realizations and assessments of the goals that may be more traditionally in line with the logistics sector, making their success easier to predict.

In contrast to Amazon, InPost is not planning to enter the entertainment industry or expand out-of-industry but builds its business strategy around shipment and delivery. Hence, the performance-heavy compensation package that strongly drives the medium-term goals makes the most sense.