4.1. Board of Directors
The remuneration of the members of the Board of Directors is defined in a regulation adopted by the Board of Directors and consists of an annual fixed retainer and a remuneration for their committee work. The remuneration is paid in form of restricted shares subject to a four-year blocking period. In addition, the members of the Board of Directors receive a lump sum to cover their expenses, paid out in cash.
The chairman of the Board of Directors receives an annual total fixed retainer paid 70% in cash and 30% in restricted shares subject to a four-year blocking period. The Chairman also receives the same expense allowance but is not entitled to additional fees for committee attendance.
| Annual fees | in CHF | Delivery |
|---|---|---|
| Chairman | 985,000 | Cash and restricted shares |
| Vice-Chairman | 245,000 | Restricted shares |
| Member of the Board of Directors | 170,000 | Restricted shares |
| Chairman of NCC / Audit Committee | 45,000 | Restricted shares |
| Member of NCC / Audit Committee | 30,000 | Restricted shares |
| Expense allowance | 15,000 | Cash |
The remuneration is paid out at the end of the term of office and is subject to regular contributions to social security. The members of the Board of Directors are not insured under the company pension plan.
The shares are subject to an accelerated unblocking in case of death; they remain subject to the regular blocking period in all other instances.
Further information regarding the remuneration amounts for the period from the 2016 General Meeting to the 2017 General Meeting is provided in the invitation to the 2016 General Meeting.
4.2. Group Executive Board
The remuneration of the Group Executive Board is defined in a regulation adopted by the Board of Directors and consists of the following elements:
- Base salary
- Variable cash remuneration (Short-Term Incentive (STI))
- Long-term equity participation plan (Long-Term Incentive (LTI))
- Additional employee benefits, such as pension benefits and perquisites
| Program | Instrument | Purpose | Plan-/ performance period (staged) |
Performance metrics in 2015 |
|
|---|---|---|---|---|---|
| Fixed base salary | Annual base salary | Monthly cash payments | Pay for the function | ||
| Short-Term Incentive | Short-Term Incentive, STI | Annual variable cash | Drive and reward performance, attract & retain | 1-year performance period | Sales, EBIT, EPS, ROIC, individual objectives |
| Share Participation Program MSPP | Matching share options in case of an investment of variable cash in restricted shares | Align with shareholders’ interests | Shares: 3-year restriction period |
||
| Share options: 4-year vesting period (staged), 7-year plan period |
Share options: ROIC |
||||
| Long-Term Incentive | Share Option Plan MSOP | Performance share options | Drive and reward long-term performance Align with shareholders’ interests Retain |
4-year performance period, 7-year plan period* |
ROIC |
| Benefits | Pension | Gemeinschafts-
stiftung Wohlfahrtsfonds |
Cover retirement, death and disability risks | ||
| Perquisites | Company car, expense policy | Attract & retain | |||
| * 2016: 5-year performance period (staged), 10-year plan period | |||||
Base salary
The base salary is a fixed remuneration paid in cash on a monthly basis. It is determined on the basis of the scope and responsibilities of the position, the market value of the role and the qualifications and experience of the incumbent. The base salary is reviewed annually based on market salary information, the company’s financial affordability and performance, and the evolving experience of the individual in the role.
Variable cash remuneration / Short-Term Incentive (STI)
The variable cash remuneration (STI) of the Group Executive Board and some 150 additional members of Group management rewards the achievement of annual financial business goals and of individual objectives agreed and evaluated within the annual performance management process.
The base salary and the variable cash remuneration (assuming 100% achievement of all objectives) form the so-called target income. The base salary makes up 70% of the target income and the variable remuneration 30%, out of which 25% is driven by the achievement of business goals and 5% by the achievement of individual objectives.
Functionality remuneration model
Group financial business goals
Individual performance component
The financial objectives include sales, EBIT, earnings per share (EPS) and return on invested capital (ROIC), equally weighted. These financial objectives have been chosen because they are key value drivers and generally reward for growing the business and gaining market shares (top-line contribution), for increasing profitability over-proportionally through strong operating leverage (bottom-line contribution) and for investing the capital efficiently. Every year, on the basis of a recommendation made by the Nomination & Compensation Committee, the Board of Directors determines the expected target level of performance for each financial objective for the following year. In order to strengthen the company’s position as market leader and to continuously strive for superior performance, substantial improvements against the previous year’s achievements are generally required in order to meet the target level of performance, in line with the company’s ambitious financial plan. The intention of this demanding target setting is to deliver best-in-class performance and to stay ahead of the market. In addition, a threshold level of performance, below which no variable remuneration is paid out, and a maximum level of performance, above which the variable remuneration is capped, are determined as well. The payout level between the threshold, the target and the maximum is calculated by linear interpolation. The maximum payout for the financial objectives shall not exceed 60% of the target income.
The individual performance component is based on the achievement of individual objectives predefined at the beginning of the year between the CEO and individual members of the Group Executive Board, and for the CEO, between the Board of Directors and the CEO. The individual objectives are of a more qualitative and strategic nature and may include, for example, objectives related to product and service innovation, entry in new markets, management of strategic projects and leadership. The maximum payout for the individual objectives shall not exceed 10% of the target income.
As a result, the total variable cash remuneration for members of the Group Executive Board is capped at 70% of the target income, which corresponds to the annual base salary.
Members of the Group Executive Board have the opportunity to invest part or all their variable cash remuneration in shares of the company through the Management Stock Purchase Plan (MSPP). They may define a fixed number of shares to purchase, or a certain amount or a percentage of their variable cash remuneration to be invested in shares. The shares are blocked for a period of three years. In order to encourage executives to participate in the program, a free share option is provided for each share purchased through the program. The options are subject to a performance-based vesting period of four years: a quarter vest one year after the grant, a further quarter two years after the grant, a further quarter three years after the grant, and the remaining quarter four years after the grant. The other features of the options and the performance condition (return on invested capital ROIC) are the same as those applicable to the options granted under the Long-Term Incentive MSOP plan, see section Long-Term Incentive (LTI).
In the event of termination of employment, the following provisions apply to MSPP shares and options:
| Termination reason | Plan rules | ||
|---|---|---|---|
| Unvested options | Vested options | Restricted shares | |
| Death | Accelerated vesting based on effective performance at date of termination as determined by the Board of Directors | Regular exercise period | Immediate unblocking |
| Retirement or disability | Regular vesting schedule | Regular exercise period | Immediate unblocking |
| Other reasons than death, retirement or disability | Forfeiture | 90-day exercise period | Regular blocking period |
| Change of control* | Accelerated vesting based on effective performance at date of termination as determined by the Board of Directors | Regular exercise period | Immediate unblocking |
| * This rule only applies in the situation of “double-trigger” where the employment contract of the participant is terminated as a result of a change of control or liquidation. | |||
Long-Term Incentive (LTI)
The purpose of the Long-Term Incentive (Management Share Option Plan MSOP) is to ensure long-term value creation for the company, alignment of the interests of executives to those of shareholders and long-term retention of executives. The MSOP was revised, with the introduction of a performance-based vesting condition effective 1 January 2013 and with the extension of the vesting period to five years (one third three years, one third four years and one third five years after grant), effective 1 January 2016.
Every year, the Board of Directors determines the grant of share options. In 2015, the market value of options granted amounts to 40% of the target income for the CEO and the other members of the Group Executive Board. For some 60 additional participants of the Group management, the market value amounts to 10% of the target income.
The options granted in 2015 are subject to a vesting period staged over four years as follows: a third of the options can be exercised two years after the grant, a further third can be exercised three years after the grant and the remaining third four years after the grant.
For future grants, the vesting period of the options will be extended to five years according to the following schedule: one-third of the grant will vest three years after the grant, a further third will vest four years after the grant and the last third will vest five years after the grant and will have a term of ten years.
The vesting of share options is subject to the achievement of a performance criterion, the average Return on Invested Operating Capital (ROIC) over the respective vesting period. ROIC expresses how well the company is generating cash relative to the capital it has invested in its business. The Board of Directors determines a target level of performance for which the options will vest in full and a minimum level of performance (threshold), below which there is no vesting at all. Both the threshold and the target are ambitious: they are substantially above the weighted average cost of capital. The payout level between the threshold and the target is determined by linear interpolation. There is no over-achievement in the MSOP. The options have a term of seven years (starting 1 January 2016: ten years) after which they expire. They can be exercised between the respective vesting date and the expiration date. The exercise price of the options corresponds to the fair market value of the underlying share at the time of grant.
In the event of termination of employment, the following provisions apply to MSOP options:
| Termination reason | Plan rules | ||
|---|---|---|---|
| Unvested options | Vested options | ||
| Death | Accelerated pro-rata vesting on the basis of the number of full months worked during the vesting period | Regular exercise period | |
| Retirement or disability | Pro-rata vesting (on the basis of the number of full months worked) at regular vesting date | Regular exercise period | |
| Other reasons than death, retirement or disability | Forfeiture | 90-day exercise period | |
| Change of control* | Accelerated vesting based on effective performance at date of termination as determined by the Board of Directors | Regular exercise period | |
| * This rule only applies in the situation of “double-trigger” where the employment contract of the participant is terminated as a result of a change of control or liquidation. | |||
Disclosure of targets
Internal financial and individual targets under the STI and the LTI plans are considered commercially sensitive information. Communicating such targets would allow delicate insight into the strategy of Geberit and therefore may create a competitive disadvantage for the company. Therefore, the decision was made not to disclose the specifics of those targets at the time of their setting, but to provide a general comment on the performance at the end of the cycle. As a general principle, on a comparable basis, substantial improvements against the previous year’s achievements are required in order to meet the target level of performance, in line with the company’s ambitious financial plan.
Benefits
Members of the Group Executive Board participate in the regular employee pension fund applicable to all employees in Switzerland. The retirement plan consists of a basic plan covering annual earnings up to TCHF 146 per annum, with age-related contribution rates equally shared between the company and the individual, and a supplementary plan in which income in excess of TCHF 146 is insured (including actual variable cash remuneration), up to the maximum amount permitted by law. The company pays for the entire contribution in the supplementary plan.
Furthermore, each member of the Group Executive Board is entitled to a company car and a representation allowance in line with the expense regulations applicable to all members of management in Switzerland and approved by the tax authorities.
Employment terms and conditions
All members of the Group Executive Board have permanent employment contracts with notice periods of a maximum of one year. Members of the Group Executive Board are not entitled to any severance payment.
In order to ensure good corporate governance, Geberit has implemented a claw-back policy on payments made under the Short-Term Incentive program, which covers situations where the company is required to restate its accounts due to non-compliance with financial reporting requirements under the securities laws at the time of disclosure. In such cases, the Board of Directors is empowered to recalculate the STI payout, taking into account the restated financial results, and to seek reimbursement of any STI amount paid in excess of the newly calculated amount. The claw-back clause is applicable for three years after the payment of the respective variable remuneration.