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Compensation governance and principles

Compensation policies and plans at Sulzer reward performance, sustainable growth and long-term shareholder value creation. The compensation programs are competitive, internally equitable, straightforward and transparent. The Compensation Report is prepared in accordance with the Ordinance against Excessive Compensation in Listed Stock Corporations (Compensation Ordinance), the SIX Swiss Exchange Directive on Information relating to Corporate Governance (RLCG) and the principles of the Swiss Code of Best Practice for Corporate Governance.

Nomination and Remuneration Committee

The Articles of Association, the Board of Directors and Organization Regulations, and the Nomination and Remuneration Committee Regulations (please find them at www.sulzer.com/governance, under “Regulations”) define the functions of the Nomination and Remuneration Committee (NRC). The NRC supports the Board of Directors in nominating and assessing candidates for positions to the Board of Directors and Executive Committee positions, in establishing and reviewing the compensation strategy and principles, and in preparing the respective proposals to the Shareholders’ Meeting regarding the compensation of the members of the Board of Directors and of the Executive Committee.

The NRC is responsible for the following activities and submits all proposals concerning these activities to the Board of Directors, which has the final decision authority:

  • Periodic assessment of the membership structure of the Board of Directors, determination of selection principles, and identification of potential candidates to the Board of Directors
  • Succession planning for the CEO and Executive Committee positions (two upper management levels)
  • Periodic assessment of the compensation policy and programs
  • Determination of performance targets for the CEO and the Executive Committee positions for the purpose of the incentive plans
  • Preparation of the respective proposals to the Shareholders’ Meeting on the maximum aggregate amounts of compensation for the Board of Directors and for the Executive Committee
  • Determination of the target compensation for the CEO and for the Executive Committee positions
  • Preparation of the Compensation Report

The table below describes the levels of authority:

 

CEO

NRC

Board

Shareholders’ Meeting

Selection criteria and succession planning for Board of Directors

 

proposes

approves

 

Selection criteria and succession planning for Executive Committee

proposes

reviews

approves

 

Compensation policy and programs

 

proposes

approves

 

Aggregate maximum compensation amounts to be submitted to vote at the Annual General Meeting

 

proposes

reviews

approves (binding vote)

Individual compensation of the members of the Board of Directors

 

proposes

approves

 

Compensation of the CEO

 

proposes

approves

 

Individual compensation of the members of the Executive Committee

proposes

reviews

approves

 

Performance objectives and assessment of the CEO

 

proposes

approves

 

Performance objectives and assessment of the Executive Committee

proposes

reviews

approves

 

Compensation Report

 

proposes

approves

consultative vote

The NRC consists of a maximum of three members who are non-executive and independent and who are elected individually and annually by the Shareholders’ Meeting for the period of office until the following ordinary Annual General Meeting. At the 2018 Annual General Meeting, Marco Musetti was reelected as member of the NRC, while Hanne Birgitte Breinbjerg Sørensen and Gerhard Roiss (Chairman) were newly elected as members of the NRC because previous members Thomas Glanzmann and Jill Lee did not stand for reelection.

The NRC meets as often as the business requires, but at least twice a year. In 2018, the NRC held four regular meetings and two extraordinary conference calls that were attended by all members. Besides the standard agenda items, the NRC concentrated its efforts on the implementation of the new global job evaluation methodology, the impacts on the variable compensation models of the US sanctions and resulting short-term share price drop in April as well as executive and board compensation benchmarking processes (in cooperation with third-party providers).

The CEO and the Chief Human Resources Officer, who serves as the Secretary of the NRC, generally attend the meetings. The Chairman of the Committee may invite other executives to join the meeting in an advisory capacity, when appropriate. However, the CEO and any other executives do not participate in the meetings, or parts of it, when their own remuneration and/or performance is discussed.

The Chairman of the NRC reports to the next meeting of the full Board of Directors on the activities of the NRC and the matters debated. The Chairman, as far as necessary, submits the respective proposals for approval by the Board of Directors. The minutes of the NRC meetings are available to all members of the Board of Directors.

The NRC may appoint third-party companies to provide independent advice or perform services as it deems necessary for the fulfillment of its duties. In the reporting year, Mercer and Agnes Blust Consulting AG provided benchmarking services on compensation matters. They have no other mandate with Sulzer.

Shareholders’ role and engagement

The company is keen to receive shareholders’ feedback on the compensation policy and programs, and it began the practice of holding a consultative vote on the Compensation Report in 2011. Further, the company regularly meets with shareholders and shareholder representatives to understand their perspectives. At the Annual General Meeting, shareholders approve the maximum aggregate compensation amounts for the Board of Directors and for the Executive Committee in an annual binding vote.

Further, the Articles of Association regulate the principles of compensation. They include the following provisions related to compensation (read the full version of the Articles of Association at www.sulzer.com/governance, under “Articles of Association”):

  • Principles of compensation: non-executive members of the Board of Directors receive fixed compensation only. Members of the Executive Committee receive fixed and variable compensation elements. The variable compensation may include short-term and long-term variable compensation components. These are governed by performance metrics that take into account the performance of the company, the group or parts of it, targets in relation to the market, other companies or comparable benchmarks and/or individual targets, as well as strategic and/or financial objectives. Compensation may be paid in the form of cash, shares, options, financial instruments or similar units, in kind, in services, or in other types of benefits;
  • Shareholders’ binding vote on remuneration: the Shareholders’ Meeting shall approve the maximum aggregate amount of compensation for the Board of Directors for the next term of office and the maximum aggregate amount of compensation for the Executive Committee for the following financial year. The Board of Directors shall submit the annual Compensation Report to an advisory vote at the Annual General Meeting;
  • Additional amount for members of the Executive Committee hired after the vote on remuneration by the Shareholders’ Meeting: to the extent that the maximum aggregate amount of compensation as approved by the Shareholders’ Meeting does not suffice, up to 40% of the maximum aggregate amount of compensation approved for the Executive Committee is available, without further approval, for the compensation of the members of the Executive Committee who were appointed after the Annual General Meeting;
  • Loans, credit facilities, and post-employment benefits for members of the Board of Directors and of the Executive Committee: the company may not grant loans or credits to members of the Board of Directors and of the Executive Committee.

Compensation principles

The compensation of the Board of Directors is fixed and does not contain any performance-based variable component. This ensures that the Board of Directors is truly independent in fulfilling its supervisory duties towards the Executive Committee.

The compensation of the Executive Committee is driven by the main principle of pay for performance. The compensation policy and programs are designed to reward performance, sustainable growth and long-term shareholder value creation, while offering competitive remuneration to be able to attract and retain highly qualified employees. The compensation principles are:

Pay for performance

A substantial portion of the compensation is delivered in the form of variable incentives based on company and individual performance.

Ownership

Part of the compensation is delivered in the form of company equity to foster ownership and to align the interests of executives with those of shareholders.

Market competitiveness

Compensation levels are competitive and in line with market practice to attract and retain highly qualified employees.

Internal equity

The internal compensation structure is based on a job-grading methodology applied globally.

Transparency

Compensation programs are straightforward and transparent.

Method of determination of compensation: benchmarking and annual target-setting process

To ensure compensation levels that are competitive and in line with market practice, the compensation of the Board of Directors and of the Executive Committee is regularly benchmarked against that of similar roles in comparable companies. For this purpose, the Nomination and Remuneration Committee selected a peer group of international industrial companies headquartered in Switzerland based on their revenue and number of employees (see box “compensation benchmark”). Sulzer is positioned between the first quartile and median of the peer group.

Compensation benchmark

The comparison group reflects Sulzer’s ambitious business strategy:

  • ABB
  • Clariant
  • Georg Fischer
  • Lonza
  • OC Oerlikon
  • Rieter
  • Schindler
  • Sika
  • Sonova
  • Tetra Laval Group

Actelion and Syngenta previously also formed part of the peer group but have now been removed after being taken over by investors and delisted from the stock exchange. Apart from these two removals, the peer group remained unchanged and no replacements were made, as the NRC considered the remaining peer group to continuously represent the most relevant and suitable group of companies for Sulzer’s compensation benchmarking.

The intention is to pay target compensation around the median of the relevant market. For the Executive Committee, sustainable superior performance is rewarded through actual variable compensation significantly above the market median.

The compensation effectively paid out depends on the performance of the company and/or the divisions and on the achievement of individual performance objectives. Performance objectives are defined at the beginning of the year during annual target setting. Achievement is assessed against each of those objectives after year-end and directly influences the variable incentive payouts.

Details on the targets and on the performance assessment can be found in the chapter “Compensation architecture”.