Compensation, stock ownership and loans

OAEC-related provisions in the Bylaws

Sections 21 to 28 of the Bylaws govern compensation approval, the compensation of the Board of Directors and Executive Committee, the composition of performance-based compensation, and the terms of stock awards.

Every year, the Board of Directors submits its proposals for the maximum aggregate amounts of compensation for approval to the Annual Shareholder Meeting:

  • The compensation of the Board of Directors for the coming term of office
  • The fixed compensation of the Executive Committee for the next fiscal year after the year of the Annual Shareholder Meeting
  • The performance-based compensation of the Executive Committee for the last fiscal year before the year of the Annual Shareholder Meeting

    • To any new member joining the Executive Committee during a period for which the Shareholder Meeting has already approved the compensation, COMET Holding AG or its subsidiaries are authorized to pay an additional amount if the already approved maximum aggregate amount is not sufficient to cover the compensation. The aggregate additional amount per compensation period must not exceed 40% of the approved maximum aggregate amount of compensation of the Executive Committee.

    The Bylaws of the Company do not contain specific provisions on the granting of loans, other credit and pension benefits to members of the Board of Directors and Executive Committee or their related parties.

    The composition of the performance-based compensation is governed by section 24 of the Bylaws as follows:

  • The aggregate amount of variable compensation paid to all members of the Executive Committee of the COMET Group is based on a percentage of the consolidated net income of the COMET Group.
  • Performance-based compensation is therefore paid out only if consolidated net income is positive after the accrual of this profit-sharing compensation.
  • The Board of Directors periodically determines the percentage rate of consolidated net income to pay out as performance-based compensation. This percentage rate is guided by criteria such as sales growth, return on capital employed, economic profit, and others
  • The Nomination & Compensation Committee specifies the details in a written regulation that requires the approval of the full Board.

    • The terms and procedures of stock compensation settlement are governed by section 25 of the Company’s Bylaws as follows:

  • The grant price of the stock is calculated as the average share price of COMET Holding AG in the period between the annual results press conference and the Annual Shareholder Meeting, less a discount. The value of the discount is counted as part of the total compensation.
  • The discount is intended to make up for the deferral of the compensation and dividends and for the price risk associated with the three-year holding period. The stock awarded is subject to a holding period of three years during which it cannot be sold. The Board of Directors may terminate the current holding periods early (for example, in the event of a change of control).

    • Decision authority and responsibility for compensation

    The design and regular review and evaluation of the compensation system are the responsibility of the Nomination & Compensation Committee (NCC).

    Within the limits of the maximum aggregate amounts approved by the Annual Shareholder Meeting, the Board of Directors prepares the compensation proposals as follows:

    Decision on

    CEO

    NCC

    Board of Directors

    Shareholder Meeting

    Compensation policy and guidelines under the Bylaws

    Proposes

    Approves

    Maximum aggregate compensation of Board of Directors

    Proposes

    Reviews

    Binding vote

    Individual compensation of Board members

    Proposes

    Approves

    Fixed salary of CEO

    Proposes

    Approves

    Binding vote as part of vote on aggregate compensation of Executive Committee

    Fixed salary of other members of Executive Committee

    Proposes

    Reviews

    Approves

    Binding vote as part of vote on aggregate compensation of Executive Committee

    Variable compensation of CEO

    Proposes

    Approves

    Binding vote as part of vote on aggregate compensation of Executive Committee

    Variable compensation of other members of Executive Committee

    Proposes

    Reviews

    Approves

    Binding vote as part of vote on aggregate compensation of Executive Committee

    On behalf of the Board of Directors, the external audit firm annually reviews the conformity of the compensation decisions with the regulations of the respective compensation plans for the Board and Executive Committee, and the compliance with the maximum aggregate amounts approved by the Annual Shareholder Meeting.

    Market comparison criteria

    COMET strives for market levels of compensation, and compensation packages are periodically evaluated by the consulting firm Hay Group against benchmarks. This applies to the compensation both of the Board and the Executive Committee. The Nomination & Compensation Committee periodically compares the mix of the individual components of remuneration and the amount of total compensation with the respective industry environment and, taking its findings into account, submits proposals to the Board of Directors.

    Compensation system

    With effect from January 1, 2014, the Board of Directors of COMET Holding AG launched a new compensation system that applies worldwide. This framework governs the profit-sharing for all eligible staff. The details of the system are set out in a Board-approved regulation. In the year under review, the profit-sharing criteria were the sales growth and net income of the COMET Group. Since fiscal year 2015 the Board of Directors receives only a fixed retainer. The compensation of the members of the Board of Directors and Executive Committee is disclosed in an annual compensation report.

    Compensation system for the employees

    The compensation system for the employees of the COMET Group (including the Executive Committee) has two main elements. All employees receive a fixed base salary, and all are eligible for a performance-based (profit-sharing) pay component.

    Calculation of total profit-sharing pool

    The total amount of profit-sharing compensation is determined as a percentage of the consolidated net income of the COMET Group. This percentage rate is dependent upon the Group’s rate of sales growth compared with the prior year. For fiscal year 2016 the percentage rate was determined according to the following model (unchanged from the prior year):

    Sales growth

    Percentage of net income

    Less than 5%

    15%

    5% − 15%

    Linear increase between 15% and 25%

    More than 15%

    25%

    Eighty percent of the profit-sharing pool is allocated among the employees (including the members of the Executive Committee of the COMET Group), using a general allocation formula.

    Up to an aggregate maximum of 20% of the profit-sharing pool may be allocated selectively to individual employees (including the members of the Executive Committee), using an individual allocation formula. This is to enable the Board and the CEO to recognize individual performance distinctively. Performance is assessed in the sole discretion of the Board and the CEO, at the end of the fiscal year. The performance criteria for an individual allocation are not set in advance. Any unused portion of the individual allocation pool is distributed by the general allocation formula.

    Compensation groups and calibration

    Every employee in the COMET Group is assigned to one of five compensation groups. These five groups are the CEO, the other members of the Executive Committee, and (subdivided into three groups) the other employees. Each compensation group has a different multiplier. Within a given compensation group, the same multiplier is used for each member of the group. This multiplier represents the weighting assigned to the member of the compensation group in the allocation of the total profit-sharing pool. The values of the individual multipliers are set by the Board of Directors of COMET Holding AG.

    The Board of COMET Holding AG has the authority to adjust the calibration of the profit-sharing so as to reflect the performance of the COMET Group. When doing so, the Board ensures the adjustment is fair to all participants. The calibration is normally reviewed every three years and adjusted if appropriate.

    Precondition for payment of profit-sharing compensation

    A precondition for paying any profit-sharing compensation is that, after the accrual of this distribution, the COMET Group is still able to report positive consolidated net income.

    Compensation system for the Board of Directors

    Every year, the Board of Directors submits its proposal for the maximum aggregate amount of Board compensation to the Annual Shareholder Meeting for approval.

    Responsibility and procedure

    The amounts of Board members’ compensation are set to reflect the industry environment and are regularly reviewed against benchmarks. The latest such review was performed in fiscal year 2014. The compensation details are specified in a Board-approved compensation plan in the form of a regulation.

    Fixed retainer

    For their work on the Board, the members of the Board of Directors receive a fixed retainer.

    Stock compensation

    Of the fixed retainer, 75% is paid in cash and 25% is paid in shares of stock. As well, a flat expense allowance is paid in cash.

    Overview of compensation

    In CHF

    Fixed retainer

    Cash portion of retainer (75%)

    Stock portion of retainer (25%)

    Value of discount on stock

    Total reported value of compensation

    Flat expense allowance (additional)

    Chairman of the Board

    172,000

    129,000

    43,000

    24,188

    196,188

    8,000

    Member of the Board

    86,000

    64,500

    21,500

    12,094

    98,094

    4,000

    Additionally, the actual employer contributions to social security plans are paid.

    New and departing Board members

    Board members’ normal term of office begins on the date of the Annual Shareholder Meeting and ends on the date of the next Annual Shareholder Meeting.

    When a new member joins the Board of Directors, the compensation is paid on a pro-rated basis from the day of election. When a member leaves the Board before the end of a term, the retainer is calculated on a pro-rated basis to the date of departure. In this case the retainer of the departing member is paid only in cash.

    Compensation system for the Executive Committee

    The compensation of the Executive Committee is specified in a Board-approved regulation. Every year, the Board of Directors submits its proposals for the maximum aggregate amounts of Executive Committee compensation to the Annual Shareholder Meeting for approval, specifically:

  • The fixed compensation of the Executive Committee for the next fiscal year after the year of the Annual Shareholder Meeting
  • The performance-based compensation of the Executive Committee for the last fiscal year before the year of the Annual Shareholder Meeting

    • Responsibility and procedure

    The Nomination & Compensation Committee prepares a specific proposal for the amounts of the individual fixed compensation of the CEO and each of the other Executive Committee members, for approval by the full Board of Directors. The CEO recommends the amounts of fixed compensation for the other Executive Committee members to the NCC. The NCC also bases its proposals on general experience and on levels of compensation at peer companies. The full Board periodically reviews, sets and approves the compensation system, based on the proposal of the NCC. The latest such review was performed in fiscal year 2016 with support from the consulting firm Hay Group. The members of the Executive Committee do not attend the related Board meetings and are not entitled to vote on their compensation.

  • Fixed base salary

    • All members of the Executive Committee receive a fixed base salary that is paid monthly, as well as a flat expense allowance. The base salary is determined by the individual’s amount of responsibility, role, performance, experience and skills, and local market conditions. These elements of compensation are paid in cash.

    Type of compensation

    Form of delivery

    Purpose

    Drivers

    Fixed base salary

    Monthly payment in cash

    Pay for position

    Nature and level of position, individual qualifications, market conditions

    Profit-sharing plan

    Annual payment in cash (50%)

    Profit-sharing based on corporate financial results

    Corporate financial results in terms of profitable growth

    Profit-sharing plan

    Annual payment in stock (50%)

    Long-term alignment with interests of shareholders

    Corporate financial results in terms of profitable growth

    Social security

    Company pension, state old age and survivors (AHV) and unemployment insurance (ALV) plans, short-term disability and accident insurance

    Risk protection

    Local legislation and voluntary benefits in line with market

    Flat expense allowance

    Monthly payment in cash

    Defraying of minor expenses

    Local legislation, tax authorities

    Benefits in kind

    Costs paid directly by company or reimbursed in cash

    Pay for position

    Local market practice

    Profit-sharing compensation

    In addition to the fixed compensation, the COMET Group’s employee profit-sharing plan provides a performance-related pay component, of which 50% must be paid in stock.

    Calculation of profit-sharing compensation

    An individual Executive Committee member’s share of the total profit-sharing pool is calculated using the following model:

    a) Calculation of individual’s percentage share of total profit-sharing pool

    Gross base salary of employee × multiplier × 100

    = % share of total profit-sharing pool

    Total weighted gross salaries of all staff 1

    1 Represents the aggregate of the multiplier-weighted gross salaries of all employees and the retainers of the Board of Directors.

    b) Calculation of effective profit-sharing compensation

    % share of total profit-sharing pool × amount of profit-sharing pool actually being distributed

    The calculation of an individual’s effective profit-sharing compensation is based on that portion of the total profit-sharing pool which has been allocated by the general allocation formula. In addition to that general portion, the Board of Directors may award an individual share of profit.

    Profit-sharing awards to the CEO and the other members of the Executive Committee are approved by the Board, which in turn proposes them to shareholders for ratification at the Annual Shareholder Meeting.

    New and departing members of the Executive Committee

    Members joining the Executive Committee intra-year participate in profit-sharing on a pro-rated basis. Individuals whose employment contract has been terminated with due notice are entitled to pro-rated participation in profit-sharing compensation, calculated on the latest rolling forecast issued by the Board of COMET Holding AG. Profit-sharing payments to individuals leaving the Executive Committee are made in a combination of stock and cash.

    Terms of employment

    The members of the Executive Committee have employment agreements with a notice period of not more than one year. There is no entitlement to termination benefits of any kind.

    Disbursement of profit-sharing compensation

    The members of the Executive Committee receive 50% of their profit-sharing compensation in stock. The balance of the amount is payable in cash. A precondition for paying out any profit-sharing compensation is that consolidated net income remains positive after the accrual of this distribution.

    Calculation of grant price for share awards to Board of Directors and Executive Committee

    The grant price, at which the stock is awarded and transferred to recipients, is the average closing price of the stock (during the period from the stock’s first trading day after the date of the annual results press conference, to its last trading day before the Annual Shareholder Meeting) less a discount of 36%. The discount is intended to make up for the deferral of the compensation and for the price risks associated with the holding period. The shares awarded are subject to a holding period of three years from the date of the award, during which they cannot be sold. All other shareholder rights are already effective during the holding period, including rights to dividends and similar distributions and the right to participate in shareholder meetings.