Compensation architecture for the CEO and members of the Executive Committee

Compensation principles

The Executive Committee’s compensation is based on the principle of pay-for-performance. The policy rewards performance, sustainable growth and long-term shareholder value, while offering fair and competitive pay to attract and retain top talent.

Method of determining compensation: benchmarking

To ensure competitive and market-aligned compensation, the compensation for Board and Executive Committee members is benchmarked against similar roles in comparable companies every one to two years.

The RC regularly reviews the composition of the peer group, which is applied for benchmarking purposes. In 2024, the RC revised the approach to get a broader peer group with a focus on governance landscape, industry and size effects to determine a fitting peer group for compensation benchmarks. The process of definition was undertaken in four major steps to narrow down the peer group:

The revised comparison group reflects Sulzer’s ambitious business strategy.

The intention is to pay target compensation in line with the relevant market. Nevertheless, compensation is not granted based on benchmark results alone. The role, responsibility and experience, as well as the difference between a new entrant to a role and someone with experience who has already demonstrated his or her impact in a similar role, are also criteria in determining compensation. A globally applied job-grading methodology fosters internal equity.

Compensation elements for the members of the Executive Committee

The Executive Committee’s compensation includes fixed, performance-independent elements to provide secure income and prevent unreasonable risks. The RC reviews this compensation annually and, if needed, proposes adjustments for Board approval. To create reasonable incentives, align interests with shareholders, ensure pay-for-performance, and implement the company’s strategy, the compensation also includes short- and long-term performance-dependent elements.

In line with the pay-for-performance principle, a significant portion of the CEO’s compensation (65%) and the Executive Committee’s compensation (59%) consists of performance-based variable incentives. The compensation structure also promotes sustainable long-term growth, with long-term variable compensation being the largest portion of the target total compensation

Base salary

The Board of Directors determines the base salary based on the market value of the position and the incumbent’s qualifications, skills and experience. It is paid in cash. An internal job-grading methodology ensures orientation and promotes internal equity.

Benefits

Members of the Executive Committee participate in the regular employee pension fund for all Swiss employees. The retirement plan includes a basic plan covering annual earnings up to CHF 152’868 and a supplementary plan for income above this limit, up to the legal ceiling (including variable cash remuneration). Contributions are age-related and shared between the employer and employee.

Additionally, each Executive Committee member receives a representation allowance in line with Swiss management expense regulations, approved by tax authorities.

Short-term incentive plan (bonus plan)

The Short-term Incentive Plan (bonus plan) involves a cash payment after the financial year ends, based on predefined objectives. These objectives measure both financial and individual performance for each Executive Committee member. The target bonus is a percentage of the annual base salary: 90% for the CEO and 60% for other members.

In 2024, the financial targets for the bonus plan were further stretched as we embarked on our Sulzer 2028 journey. As a result, achieving these targets became more challenging. To ensure fairness and align with the pay-for-performance principle, the Board approved an increase in the maximum target achievement to 250%.

Functionality of the bonus plan

The performance is assessed based on the following appraisal process:

For all Executive Committee members, the bonus plan objectives are divided into two categories: “Financial performance” and “Individual performance.” The objectives and targets for 2024 are as follows:

The objectives for the bonus plan are linked to Sulzer’s strategic goal of promoting the sustainable and profitable growth of the company. They are chosen to provide different incentives for growth and shareholder value creation.

Target achievement under the bonus plan

For each financial objective, parameters are set in advance. An expected performance level (“target”) results in a 100% payout factor. A minimum performance level (“threshold”) is defined, below which the payout factor is zero, and a maximum performance level (“cap”) is set, above which the payout factor is capped. The payout factor is interpolated linearly between the threshold and target, and between the target and cap.

The CEO’s financial objectives are measured 100% based on Sulzer group results. For Division Presidents, 70% is based on Sulzer group results and 30% on their respective divisional results.

Aligned with Sulzer 2028 ambition, each Executive Committee member receives personal objectives in three performance categories: “Sulzer Excellence,” “Sulzer 2028” and “Sustainable Sulzer” at the start of the financial year. The CEO reviews the individual performance of each Executive Committee member based on their personal objectives, and this review is then evaluated by the RC. The Lead Independent Director, in close consultation with the Chair of the RC, assesses the CEO’s individual performance.

A payout factor is determined for each objective based on actual performance. The weighted average of these payout factors is multiplied by the target bonus amount to calculate the actual bonus, which is paid out in March of the following year.

Sulzer strives for transparency in relation to pay-for-performance. To ensure transparency while avoiding competitive risk, Sulzer provides a general performance assessment for each financial objective as well as the aggregated individual performance at the end of the performance cycle.

In 2024, the bonus plan target achievement for the financial performance was as follows:

For 2024, the financial component of the bonus averaged at 153% and the individual performance averaged at 144%.

Overall, the combined financial and individual performance resulted in a bonus payout factor ranging from 137% to 166% (average 153%) for Executive Committee members.

Performance share plan (PSP)

The Performance Share Plan (PSP) incentivizes long-term shareholder value by granting performance share units (PSUs) to Executive Committee members. PSUs are conditional rights to company shares, subject to ongoing employment and achieving strategic/financial targets at the Group level over a three-year period.

The PSP aligns participants’ interests with shareholders by delivering a substantial portion of compensation as company equity. This supports Sulzer’s focus on pay-for-performance, sustainable growth, and employee retention. It is a fair and attractive element of long-term variable remuneration for key management, emphasizing excellent, sustainable performance.

The PSP, with annual grants, is available exclusively to Executive Committee and Sulzer Management Team (SMT) members. The number of PSUs granted is calculated by dividing the grant value by the three-month volume-weighted average share price before the grant date (units prorated based on employment entry date). The grant value is determined by the executive’s role level and amounts to:

The following table outlines the performance criteria.

The PSP objectives are aligned with Sulzer’s strategic goal of promoting sustainable and profitable growth. They are designed to incentivize growth and create shareholder value.

Functioning of the PSP Performance at a glance

Target achievement under the Performance Share Plan

For each PSP performance condition, an expected performance level (“target”) is defined, resulting in a 100% payout factor. A minimum performance level (“threshold”) is set, below which the payout factor is zero, and a maximum level (“cap”) is set, capping the payout factor at 250%. The payout factor is interpolated linearly between the threshold and target, and between the target and cap.

Sulzer aims for transparency in pay-for-performance and discloses all relevant information that does not pose strategic disadvantages. The target achievement can be illustrated in a target achievement curve as follows:

Target achievement curve of the PSP performance conditions

Relative total shareholder return (TSR) target achievement

Relative total shareholder return (TSR) is measured based on the performance against a predefined peer group of international peers, measured as a percentile ranking, aligned with the target achievement curve as follows:

The target achievement curve of the relative TSR can be illustrated as follows:

Target achievement curve of the relative TSR

The current peer group for the measurement of the relative TSR consists of the following companies:

The Board of Directors can change the peer group composition if necessary, such as in cases of mergers, acquisitions, delistings or significant business changes in a peer company. In such situations, the Board will select new peer companies from a predefined successor list.

Financial objectives target achievement

To ensure transparency while avoiding competitive risk, Sulzer provides a general performance assessment for each criterion at the end of the performance cycle. The PSP framework, eligibility and grant entitlement remained unchanged in 2024, except for specific performance targets for each grant cycle.

PSP 2022 performance

Over the past three years, Sulzer significantly grew its operational profit through the Sulzer 2028 ambition and leveraged strong market momentum in 2024. This performance resulted in an achievement factor of 250% compared to the original PSP target set by the Board.

Operational ROCEA also achieved a factor of 250%, thanks to continuous profitability improvements and better capital management through the Sulzer 2028 ambition.

With Sulzer’s share price in the 75th percentile compared to international peers, the relative TSR achieved a factor of 250%, resulting in a total payout factor of 250% for PSP 2022, subject to the original grant value cap.

Overall, the PSP vesting levels accurately reflected operational performance, including against direct peers, over their respective three-year cycles. The success of the Sulzer 2028 ambition ensured a strong link between sustainable company performance and competitive long-term incentive payouts.

Vesting of PSUs under the Performance Share Plan

On the vesting date, the number of vested PSUs is calculated by multiplying the initial PSUs granted by the weighted average achievement factor of each performance condition. Each vested PSU results in one Sulzer share for the participant.

While performance assessment affects the number of vested PSUs and shares delivered, the share value may also increase over the three-year period, impacting the total value delivered. Therefore, the number of vested PSUs is capped at 250% of the original grant value. After applying this cap, the overall payout factor for PSP 2022 is reduced to 147%.

In the event of termination of employment, the following provisions apply:

In the event of an Executive Committee member’s death, pro-rated PSUs will vest immediately, pending a performance assessment by the Board of Directors. If a change of control occurs, PSUs will also vest immediately, subject to the Board’s performance assessment. The Board may opt for a cash settlement of the awards in such cases.

Compensation Governance and Principles

Compensation of the Executive Committee