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Compensation of the Executive Committee for 2019

In 2019, the Executive Committee received a total compensation of CHF 15’370’180 (previous year: CHF 16’703’113). Of this total, CHF 6’845’153 was in cash (previous year: CHF 7’773’076); CHF 6’290’403 was in PSU (previous year: CHF 4’462’417); CHF 1’908’991 was in pension and social security contributions (previous year: CHF 2’066’420), and CHF 325’632 was in other payments (previous year: CHF 2’401’200).

Compensation of the Executive Committee (audited)

 

2019

 

Cash compensation

Deferred compensation based on future performance

thousands of CHF

Base salary

Bonus 2)

Other 3)

Pension and social security contributions 4)

Total cash-based compensation

Estimated value of share-based grant under the Performance Share Plan (PSP) 5)

Total (incl. conditional share-based grant)

Highest single compensation, Greg Poux-Guillaume, CEO

1’021

1’183

67

493

2’765

2’709

5’474

Total Executive Committee 1)

3’663

3’182

326

1’909

9’080

6’290

15’370

 

2018

 

Cash compensation

Deferred compensation based on future performance

thousands of CHF

Base salary

Bonus 2)

Other 3)

Pension and social security contributions 4)

Total cash-based compensation

Estimated value of share-based grant under the Performance Share Plan (PSP) 5)

Total (incl. conditional share-based grant)

Highest single compensation, Greg Poux-Guillaume, CEO

1’021

1’375

1’081

           528

4’005

1’841

5’846

Total Executive Committee 1)

4’090

3’683

2’401

2’066

12’241

4’462

16’703

1) The total Executive Committee compensation for 2019 includes the compensation of Greg Poux-Guillaume, CEO since December 1, 2015; Jill Lee, CFO since April 2018; Daniel Bischofberger, Division President Rotating Equipment Services since September 2016; Torsten Wintergerste, Division President Chemtech since June 2016; Armand Sohet, Chief Human Resources Officer since March 2016; Frédéric Lalanne, Division President Pumps Equipment since January 2019; Girts Cimermans, Division President Applicator Systems since October 21, 2019. The total Executive Committee compensation for 2018 includes Greg Poux-Guillaume, CEO since December 1, 2015; Thomas Dittrich, CFO until March 2018; Jill Lee, CFO since April 2018; Michael Streicher, Division President Pumps Equipment until December 2018; Daniel Bischofberger, Division President Rotating Equipment Services since September 2016; Torsten Wintergerste, Division President Chemtech since June 2016; Armand Sohet, Chief Human Resources Officer since March 2016; Frédéric Lalanne, Chief Commercial and Marketing Officer until December 2018.

2) Expected bonus for the performance years 2019 and 2018 respectively, that is paid out in the following year (accrual principle). Includes pro rata short-term incentive (STI) payments for EC members whose employment contracts started or were terminated during the year.

3) Other consists of housing allowances, relocation allowance, schooling allowances, tax services and child allowances. For 2018, this category also includes the step-up in fair value of outstanding PSU (PSP 2016 and PSP 2017) resulting from the Board’s 2018 decision to set TSR floors reflecting the exceptional market conditions and share price collapse following the US sanctions against Russia and the collateral damages to Sulzer.

4) Includes the employer contribution to social security (including the expected employer contributions on equity awards), based on the fair value of all grants made in 2019 and 2018, respectively (PSP).

5) Represents the full fair value of the PSU granted under the PSP in 2019 (including regular annual grants as well as one-off special grant as further detailed in the Compensation Report, which were granted on the same date and based on the same reference price as the regular annual grants) and 2018 respectively. PSU granted in 2019 had a fair value of CHF 115.95 at grant date, based on a third-party fair value calculation. While the share price to convert the grant value into a number of granted PSU is based on the three-month weighted average share price before the grant date (CHF 92.46 per PSU for April 2019 grants), the disclosed fair values are calculated on the grant dates by using market value approaches, which typically leads to differences between the original grant value according to the compensation architecture and the disclosed fair market values.

The total compensation of CHF 15’370’180 awarded to the members of the Executive Committee for the 2019 financial year is within the maximum aggregate compensation amount of CHF 21’505’000 that was approved by the shareholders at the 2018 AGM.

No severance payments to members of the Executive Committee were made during the reporting year.

As of December 31, 2018 and December 31, 2019, there were no outstanding loans or credits granted to the members of the Executive Committee or former members of the Executive Committee (audited).

In 2018 and 2019, no compensation was granted to former members of the Executive Committee or related parties (audited).

Compensation for the Executive Committee: pay-for-performance assessment

In 2019, Sulzer successfully progressed on its expansion path. We acquired and integrated:

  • End of April 2019: GTC Technology
  • July 2019: Alba Power

In both cases, this will supplement and further boost our local expertise and delivery power.

In the following, we elaborate further on how the relevant business performance impacted the variable compensation models of our Executive Committee. More detailed information about Sulzer’s operational and strategic performance in 2019 can be found in the financial report.

a) Total compensation and pay for performance relation

In 2019, the Executive Committee received a total compensation of CHF 15’370’180 (previous year: CHF 16’703’113). This is an overall decrease of 8.0% from the previous year. The main changes compared with the previous year are as follows:

  • The roles and corresponding job sizes of two current EC members were reevaluated. This reevaluation and subsequent market benchmarking led to higher LTI grant entitlements.
  • Since October 2019, the role of the Division President APS newly also forms part of the EC, and as such the respective compensation is included in the 2019 compensation table for the Executive Committee.
  • The exceptional one-off grant of additional performance share units under the PSP as further detailed in section c) below.

For the entire Executive Committee, the variable component amounted to between 40% and 246% of the fixed component (base salary, other, pension and social security contributions). This pay for performance relation reflects Sulzer’s high-performance orientation. Further, it represents the company’s strong emphasis on aligning the interests of the Executive Committee and the shareholders to create long-term shareholder value and profitable growth.

On a like-for-like basis (EC members employed in both 2019 and 2018), the base salaries of the EC members increased by 1.1% on average. Regarding cash bonus payments and LTI amounts, see the following paragraphs.

b) Short-term incentive (cash bonus payouts)

In 2019, Sulzer again made good progress towards its transformation goals. We grew organically but also through acquisitions in all divisions. The financial component of the bonus ranged from 109% to 133% of targeted payout (on average 127%) and significant progress on our transformation path led to a high level of achievement of individual objectives. The financial performance on group level was as follows:

KPI

Weighting

Payout factor

Operational EBITA in % of sales

25%

130.7%

Sales

25%

97.3%

opONCF

20%

179.6%

Total

70%

132.5%

The individual performance was set at 120% to consider the exceptional team performance. For the newly appointed Executive Committee member Girts Cimermans, individual performance was determined at 100%. In recent years, however, the individual performance was very diverse among the members of the Executive Committee.

Overall, this translated into an overall bonus payout factor ranging from 106% to 129% (on average 124%) for the members of the Executive Committee.

c) Long-term incentive (PSP)

We are convinced that the conditional awards to receive Sulzer shares, subject to operational return on capital employed (opROCEA), operating income before restructuring, amortization, impairments and non-operational items (opEBITA) and total shareholder return (TSR) performance as well as ongoing employment through the three-year vesting period:

  • constitutes a very attractive element of variable long-term remuneration for our key management;
  • supports and underlines the company’s focus on excellent, sustainable performance;
  • and provides for a strong alignment of interests with shareholders also in the longer term.

The PSP framework (apart from the specific performance targets for each grant cycle), eligibility and grant entitlement remained unchanged in 2019 compared to previous years.

The roles and corresponding job sizes of two current EC members were reevaluated which resulted, based on a corresponding benchmark, in a higher LTI grant entitlement for those two individuals. This is reflected in the PSP grant amounts disclosed in this report.

The special grant in 2019 for the EC members is included in the PSP grant amounts disclosed in the above compensation tables.

The PSP 2017 vested on December 31, 2019. The relevant key performance indicators (KPI’s) were operating income before restructuring, amortization, impairments and non-operational items (opEBITA) growth, operational return on capital employed (opROCEA) and relative total shareholder return (TSR) over the three-year period from 2017 to 2019. Operational performance in this period was very good, even beyond expectations. The result was a total payout factor of 129% for the PSP 2017, which reflects growth and performance, both against budget targets and against market peers, in the three-year period from 2017 to 2019. The total payout factor results as follows:

KPI

Weighting

Payout factor

opEBITA

25%

150%

opROCEA

25%

127%

Rel. TSR

50%

120%

Total

100%

129%

Overall, the PSP vesting levels fairly reflected the operational performance, also against direct peers, over the respective three-year performance cycles, so Sulzer fully achieved the desired strong link between sustainable company performance and competitive long-term incentive payouts.

Shareholdings of the Executive Committee

As of the end of 2018 and 2019, the members of the Executive Committee held the following shares in the company:

Shareholdings at December 31, 2019

 

2019

 

Sulzer shares

Share units under vesting in equity plans (RSU and PSP)

 

Sulzer shares

Restricted share units (RSU)

Performance share units (PSU) 2017

Performance share units (PSU) 2018

Performance share units (PSU) 2019

Executive Committee

68’838

25’292

28’133

54’251

Greg Poux-Guillaume

46’181

13’196

12’820

23’363

Daniel Bischofberger

2’562

3’024

2’938

6’491

Frédéric Lalanne

4’492

3’024

2’938

6’491

Jill Lee

7’945

3’561

6’491

Armand Sohet

4’204

3’024

2’938

5’355

Torsten Wintergerste

3’454

3’024

2’938

5’355

Girts Cimermans

705

Shareholdings at December 31, 2018

 

2018

 

Sulzer shares

Share units under vesting in equity plans (RSU and PSP)

 

Sulzer shares

Restricted share units (RSU)

Performance share units (PSU) 2016

Performance share units (PSU) 2017

Performance share units (PSU) 2018

Executive Committee

34’035

3’513

28’852

26’667

31’071

Greg Poux-Guillaume

21’381

18’641

13’196

12’820

Daniel Bischofberger

1’424

3’024

2’938

Frédéric Lalanne

2’237

3’513

2’314

3’024

2’938

Jill Lee

7’945

3’561

Armand Sohet

3’560

3’024

2’938

Torsten Wintergerste

1’708

971

3’024

2’938

Michael Streicher

764

1’942

1’375

2’938