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Special report 

A return to normalcy – from extraordinary compensation decisions recognizing exceptional performance in an extreme situation.

In 2018, Sulzer’s business was impacted by exceptional, existence-threatening circumstances. Against this background, Sulzer’s Executive Committee members were granted special concessions for the successful resolution of the impending consequences.

What happened?

Renova became the target of US sanctions on the afternoon of Friday, April 6th, 2018, which immediately severely affected Sulzer’s business, as these sanctions were extended to all companies held by Renova as a majority shareholder and entities doing “significantˮ business with a sanctioned company. Already on Saturday the company credit cards were no longer working. In addition, Sulzer was no longer allowed to acquire new businesses and transactions in dollars were prohibited with immediate effect. The situation was dramatic. Sulzer was in danger of becoming insolvent within a short period of time, since a large part of our business is conducted in dollars. Another immediate consequence was a drastic collapse in the share price.

In order to protect Sulzer from further sanctions and to work towards the cancellation of already imposed sanctions, the Executive Committee negotiated an immediate share buyback with Renova in order to reduce its shareholding below 50% and affirm Sulzer’s independence vis-à-vis US authorities. Sulzer’s Executive Committee’s decisive and fast reaction averted the US sanctions within three days by taking the most appropriatea course of action and implementing it expediently.

Timing of the events and our reactions

How did the Nomination and Remuneration Committee react?

1. We changed the PSU grant date in 2018 to allow for a grant unaffected by US sanctions

In line with the flexibility provided for by the PSP regulation, the PSU grant date in 2018 was shifted from April 1 to July 1 to allow the share price to stabilize after the massive fluctuations triggered by the US sanctions. This shift mitigated short-term volatility concerns by having the PSU grants based on a less volatile three-month average price, which also included the off-exchange share buyback of 5.00 million shares in the same period. This shift of the PSU grant date in 2018 was a one-time adjustment to reflect the extraordinary circumstances at that time.

2. We guaranteed the relative TSR performance prior to US sanctions for PSP tranches 2016 and 2017

The US sanctions targeting Renova in April 2018 were deemed to be an extraordinary event, given its dramatic mid-term impact on the share price of Sulzer and this despite sustained strong operational performance and positive strategic developments. The PSP regulation in its article 15 allows for corrections in case of extreme market situations or in the event of activities or decisions of large Sulzer shareholders which have a significant impact on Sulzer’s TSR. In order to quickly reassure the Executive Committee and ensure its focus on the acute problems, the effects of the sanctions on Sulzer’s TSR performance – which have direct impact on the payout value of the active PSP tranches – were compensated by the following:

The relative TSR performance which had been achieved directly prior to the event was assessed and guaranteed. The TSR component of the PSP (weighted at 50%) was affected while the two other components – opEBITA growth and opROCEA – stayed unchanged. The relative TSR performance was 100% for PSP 2017 and 213% for PSP 2016 just before the sanctions occurred. This guarantee was given for the PSP tranches granted in 2016 and 2017. No other tranches were affected. The guarantee led to a higher payout of the PSP 2016 at 213% versus 120% without guarantee. For the payout of the PSP 2017, the guarantee was not applied as the actual performance ended up higher than the guarantee. The introduction of the pre-April guaranteed TSR target achievement level in May 2018 resulted in a one-time step-up in fair value of outstanding tranches (PSP 2016 and PSP 2017) which was duly disclosed in the compensation tables of the Annual Report 2018.

3. We lowered the relative TSR threshold to allow for a volatile share development

The threshold for Sulzer’s relative TSR performance in the industrial peer group was lowered from the 25th percentile to the 10th percentile. The lowered TSR threshold at the 10th percentile has been in place for two PSP tranches in 2018 and 2019. We understand that this adjusted TSR curve is not perceived as ambitious enough for our investors under normal circumstances. As we regard the immediate and mid-term effects of the US sanctions as settled, the original TSR threshold at the 25th percentile is reinstated as of 2020. Please note that as the TSR stayed higher than 100%, the temporarily lowered TSR threshold didn’t come into play and didn’t benefit management.

4. We decided on a special PSP grant for the Executive Committee in 2019 (spread over 2019 and 2020 for the CEO)

The Board of Directors recognized the Executive Committee’s continued exceptional performance during and since the US sanctions episode. The executive team successfully protected the company and worked in the interest of all our shareholders, customers and employees. Team stability remains paramount as we work to put this unfortunate incident behind us. In this context, the Board decided to award all Executive Committee members a special grant of performance share units in addition to the regular annual PSP grant in 2019. This special grant, subject to the usual three-year progressive vesting, both rewards outstanding management team performance during and after the sanctions and acts as a retention instrument in a turbulent period. This special grant is a one-off reward. For the CEO, the special grant is spread over the 2019 and 2020 PSP tranches. It is disclosed in the respective Annual Report’s compensation tables. Even with the special grant, the compensation for the CEO in 2019 was 6.5% lower than in 2018.


Regular PSP grant 2019

Special PSP grant 2019

Special PSP grant 2020


CHF 1’440’000

CHF 720’000

CHF 720’000

How do we proceed? Back to normal

We consider the substantial effects of the US sanctions on Sulzer’s business to be over and therefore see no need for further exceptions. We understand that our shareholder’s guidelines on compensation underpinning your votes are against “exceptionsˮ. We though believe that no policy, no plan rules and no contingency plans would have ever been able to ex-ante address what happened to our company in April 2018. We feel highly confident in our leadership team and their performance in safely navigating Sulzer through the eye of the storm. From 2020 we will return to “normalˮ regarding our compensation plans and decisions. We hope that transparency provided will help to understand and support our decisions.