4 Compensation System

4.1 Board of Directors

Compensation for the members of the Board of Directors is based on their term of office and is composed of a base amount that is not results-based, and an additional amount for committee work. The base compensation is paid partly in cash and partly in shares that are subject to a four-year vesting period. In addition to this, Board of Directors members are eligible for additional benefits including flat-rate expenses and social security contributions.

The share-based component is awarded in the form of restricted shares. The number of shares is calculated according to the net payment amount divided by the applicable share price. This is the average price from November 1 to January 31. The shares are usually allocated in April, after the Annual General Meeting.

4.2 Executive Committee

The compensation system is based on an annual target income comprised of a base salary, a variable performance-related cash component (short-term incentive plan; STI) and a variable share-based performance-related component (long-term incentive plan; LTI). The breakdown of the aggregate compensation for the CEO and the other members of the Executive Committee given 100% achievement of targets is shown in the illustration on the following illustration.

The compensation system for the Executive Committee is performance- and results-related and is intended to provide tangible incentives for the Executive Committee to act in line with strategy to generate profitable growth and therefore in harmony with the interests of the shareholders, the owners of the company.

Depending on the target achievement, the variable compensation varies between 0% up to a maximum of 150% of the agreed target amounts (cap). The maximum STI here, given 150% achievement of targets, can be 90% of base salary for the CEO and 62.5% of base salary for the members of the Executive Committee. The maximum amounts for the LTI are 60% of base salary for the CEO and 37.5% for the members of the Executive Committee.

Breakdown of compensation
(assuming target achievement rate of 100%)

4.2.1 Base salary

The base salary is fixed and is determined on the basis of the following factors:

• Scope and responsibilities of the respective function (job profile)
• Market value of the role (competitiveness)
• Internal peer comparisons (internal equity)
• Individual profile of the incumbent, such as skill set, capabilities, experience and performance

4.2.2 Variable cash compensation (STI)

The performance parameters for the STI comprise 75% financial (KPIs) and 25% individual targets, which are agreed on an annual basis during the budget- and individual target-setting processes. For members of the Executive Committee with a Group role, the financial performance parameters correspond with the Conzzeta Group’s consolidated figures, whereas the financial performance parameters for the heads of the business units are based 25% on the Group figures and 50% on the figures for the relevant business unit. The measurement of financial performance covers the following performance parameters (KPIs):

• Total revenue (TR)
• Operating result (EBIT)
• Ratio of net operating assets to total revenue
  (NOA/TR)

Performance parameters and target weighting for short-term incentive (STI)

4.2.3 Long-term incentive (LTI)

Of the variable performance-related target compensation, the LTI represents 15% (or 20% in the case of the CEO). Of this, the only performance parameter is the earnings per share (EPS) for the financial year. Depending on the actual value, the monetary value of the share allocation can vary between 0% and 150% (cap) according to EPS target achievement. The number of shares allocated is the product of the LTI monetary value divided by the average share price from November 1 in the current year to January 31 in the following period, with a reduction of 10% allowed. To qualify for the share allocation, the recipient must be in employment on the date of the allocation, with no period of notice served by either side. Shares are allocated to employees after the Board of Directors has approved the annual financial statements, usually after the annual general meeting, and the number of shares allocated is rounded up to the next whole number. The shares allocated for the LTI remain restricted for four years. In the event of invalidity, death or termination of the employment relationship following a change of control this vesting period is canceled.

4.2.4 Additional benefits

Members of the Executive Committee participate in the benefit plans available in their country of employment. Benefits consist mainly of retirement plans that are designed to ensure a reasonable standard of living for the employees and their dependents with regard to retirement and the risk of sickness, disability and death.

Members of the Executive Committee with a Swiss employment contract are insured with the standard pension fund available to all Group employees in Switzerland. The fund covers annual income (fixed base salary and variable STI target compensation) up to the maximum amount permitted by law. The benefits go beyond the statutory requirements of the Swiss Federal Law on Occupational Retirement, Survivors' and Disability Pension Plans (“BVG”).

Members of the Executive Committee with a foreign employment contract are insured according to the local market practice and legislation.

In addition, members of the Executive Committee are entitled to certain perquisites such as a car allowance and other benefits in kind. Executive Committee members in Switzerland also receive flat-rate expenses in line with the applicable expense regulations approved by the tax authorities.

4.2.5 Employment contract terms

The employment contracts of members of the Executive Committee are concluded for an indefinite period and stipulate a notice period of nine months (12 months for the Group CEO). They do not contain any agreement on severance payments or change-of-control provisions.

Compensation system for the Executive Committee