Compensation Report 2016

This compensation report conforms to the transparency requirements of section 663c of the Code of Obligations and the corporate governance information standards of SIX Exchange Regulation.

The compensation report discloses the compensation of the members of the Board of Directors and of the Executive Committee for fiscal years 2015 and 2016. In addition, the shareholdings of the Board and Executive Committee (disclosed in accordance with the Swiss Code of Obligations) are presented in the notes to the separate financial statements of COMET Holding AG on page 114, and the compensation paid (disclosed in accordance with International Financial Reporting Standards) is presented in the consolidated financial statements of COMET Holding AG on page 100.

The disclosure requirements of the Ordinance Against Excessive Compensation at Listed Companies (OAEC) were fully implemented in the annual report 2016.

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.

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.

03.1 Principles

The compensation system is designed to attract and retain excellent management and specialist staff.

COMET seeks to set compensation levels that reflect the individual levels of skills and responsibility in the Group and are competitive with other employers that vie with COMET for talent. This aim is supported by a fair system of remuneration designed to match levels of pay offered by listed peer companies. No termination benefits are provided.

To promote the focus on corporate strategy and closer ties to the Group, a profit-sharing system is also used, which is based on criteria determined by the Board of Directors. One-half of the profit-sharing remuneration of the Executive Committee members is paid in shares of COMET stock, as a long-term element of compensation. The other employees are paid their profit-sharing compensation entirely in cash. The compensation system for the Board of Directors does not have a performance-based element.

The compensation elements thus take into account short-term and long-term aspects of sustainable company performance and development. COMET is confident that its remuneration architecture creates an effective link between compensation and performance that generates lasting value for shareholders.

03.2 Compensation of the Board of Directors

To ensure the independence of the Board of Directors in its supervision of the Executive Committee, the Board members receive only a fixed retainer, of which 75% is paid in cash and 25% is disbursed in shares of the Company (priced at a discount, and subject to a holding period). The reported compensation includes both the cash portion, and the value of the stock portion, of the retainer. The employer contributions to social security plans are also shown.

03.3 Compensation of the Executive Committee

The compensation of the members of the Executive Committee consists of a fixed base salary and a performance-based component. The employer contributions to social security plans are also shown. One-half of the profit-sharing remuneration of the Executive Committee members is paid in shares of COMET stock, as a long-term element of compensation. The total compensation takes into account the recipient's position and level of responsibility.

03.4 Shareholders’ say on pay

Compensation-related provisions are specified in the Bylaws and documented in corresponding regulations of the COMET Group.

Under the OAEC and the Bylaws of COMET Holding AG, the amounts of the respective aggregate compensation of the Board of Directors and Executive Committee require the approval of shareholders in a binding vote at the Shareholder Meeting. Specifically, under section 21 of the Bylaws of COMET Holding AG, shareholders vote on the following:

The prospectively binding voting in combination with retroactive approval of the performance-related remuneration give shareholders an extensive "say on pay".

04.1 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:

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.

04.2 Nomination & Compen- sation Committee (NCC)

The Nomination & Compensation Committee is made up of two members of the Board, who are elected to the Committee yearly by the Annual Shareholder Meeting. In the year under review these members were Rolf Huber (chairman) and Mariel Hoch.

The term of office is one year. Re-election for consecutive terms is permitted. The NCC prepares all agenda items related to the nomination and compensation of Board members and Executive Committee members. The NCC itself does not make decisions, but prepares proposals for the approval of the full Board of Directors. The Committee has the following responsibilities in particular:

The Company's organizational regulations and the committee charter of the NCC may assign additional responsibilities to the Committee.

The Nomination & Compensation Committee convenes for at least two regular meetings per year. The NCC may call additional meetings at its discretion. The Committee may invite other Board members, Executive Committee members and specialists to its meetings as required.

In the year under review the Committee held three meetings, both of which were attended by both members of the Committee. Both meetings were also partly or fully attended, in an advisory role, by the CEO and the Chief Human Resource Officer. In connection with the search for new Board members, the whole Board also participated in various ad-hoc meetings.

04.3 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.

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. The Board of Directors receives only a fixed retainer.

05.1 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.

05.1.1 Calculation of total profit-sharing pool

The total amount of the 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):

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.

05.1.2 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.

05.1.3 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.

05.2 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.

05.2.1 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.

05.2.2 Fixed retainer

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

05.2.3 Stock compensation

Of this fixed retainer, 75% is paid in cash and 25% is paid in shares of stock. In addition, a flat expense allowance is paid in cash.

Overview of compensation:

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

05.2.4 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.

05.3 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:

05.3.1 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 by 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.

05.3.2 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.

05.3.3 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% is 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

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.

05.4 Calculation of grant price for share awards to the 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.

Presented below is the entire compensation of the members of the Board of Directors and Executive Committee and their related parties ¹ for fiscal years 2015 and 2016, disclosed in accordance with the Ordinance Against Excessive Compensation at Listed Companies (OAEC). Further details on the included individuals and their positions in the Group are provided in the corporate governance section of this annual report.

06.1 Current members of the Board of Directors (including related parties)

To ensure the independence of the Board of Directors in its supervision of the Executive Committee, the Board members receive a fixed retainer, of which 75% is paid in cash and 25% is paid in stock of the Company. The compensation system for the Board of Directors does not have a performance-based element.

The compensation of the Board of Directors is set at the Annual Shareholder Meeting for a period of one year. As the Board's term of office does not match the fiscal year, the compensation stated in the annual report may differ from the pre-set amount.

The 2016 Annual Shareholder Meeting had prospectively approved an aggregate amount of CHF 800,000 for the term of office ending at the 2017 Annual Shareholder Meeting. The actual compensation in fiscal year 2016 was CHF 703,668.

The increase in compensation compared with the prior year was attributable to the addition of a sixth Board member.

Additional compensation for legal services

In the year under review the law firm Notter, Mégevand & Partner invoiced legal fees of CHF 34,320 (prior year: CHF 30,600). Hans Leonz Notter (a Board member until April 21, 2016) is a partner at this firm, whose members provide legal advice and other legal services to the COMET Group.

06.2 Current members of the Executive Committee (including related parties)

A total of nine persons served as Executive Committee members during the fiscal year. On average for the fiscal year, this represented 8.0 full-time equivalents (prior year: 7.0). The compensation of the members of the Executive Committee for which an expense was accrued is presented in the table below.

The actual fixed compensation reported for fiscal year 2016 is CHF 3,012,374 (consisting of the fixed base salaries, benefits in kind and proportionate social security contributions).

In addition, for the prior fiscal year 2015, the 2016 Annual Shareholder Meeting had retrospectively approved an aggregate amount of CHF 500,000 for profit-sharing compensation of the Executive Committee. The actual profit-sharing compensation, including proportionate social security contributions, was CHF 492,961. The difference arises partly from the fact that the share price at the grant date of the stock differs from the average share price used for the calculation of the grant price. Also, the included social security contributions reported are those actually paid in 2016 on the profit-sharing compensation paid, and thus differ from last year's cost estimate for this item. Sixty-one percent of the profit-sharing compensation is being paid in stock (prior year: 61%).

The increase in fixed compensation in fiscal year 2016 compared with the prior year was attributable both to a personnel change on the Executive Committee and an expansion of the Executive Committee by one member. The performance-related pay rose significantly from the year before as a result of the achievement of the financial targets.

The additional costs arising from the CEO change that was announced on December 7, 2016 do not have an effect on the total compensation of the Executive Committee reported for fiscal year 2016. A corresponding expense was recognized on an accrual basis in the consolidated financial statements under IFRS.

The amounts set out in the table above are not identical to the taxable income of the Executive Committee members, as the total compensation for the purposes of section 663 of the Code of Obligations includes employer social security contributions and (in the event of share awards) the stock price discount of 36%.

The aggregate profit-sharing compensation (including proportionate social security contributions) reported for fiscal year 2016 is CHF 1,384,484. Before the 2016 profit-sharing compensation is paid to the members of the Executive Committee, the proposal for it by the Board of Directors must be retrospectively approved by shareholders at the 2017 Annual Shareholder Meeting.

The 2016 Annual Shareholder Meeting had prospectively approved an aggregate amount of CHF 3,400,000 for the fixed base salaries for fiscal year 2017.

06.3 Former members of the Board of Directors and Executive Committee (including related parties)

In the fiscal year, no former members of the Board of Directors or Executive Committee or their related parties worked for or were compensated by COMET.

06.4 Supplementary information on compensation

In the fiscal year, no signing bonuses were paid to present or former members of the Board of Directors or of the Executive Committee and no termination benefits were granted or paid.

No loans or other credit were granted in the year under review and none were outstanding at the balance sheet date. COMET has not provided any guarantees or other security. Board members did not receive benefits in kind.

No material changes related to compensation have occurred after the balance sheet date of December 31, 2016.

06.5 Interim management contracts

There were no interim management contracts in the fiscal year.

At the end of the fiscal year, the members of the Board of Directors and Executive Committee held a total of 1.9% of the outstanding shares of COMET Holding AG (prior year: 1.9%).

A detailed analysis of the shareholdings of the members of the Board of Directors and Executive Committee is presented in the notes to the separate financial statements of COMET Holding AG on page 114.

At the 2017 Annual Shareholder Meeting the Board of Directors will propose the following three resolutions for the compensation of the Board and the Executive Committee:

The detailed proposals and the supporting reasoning will be delivered to shareholders with the notice of the 2017 Annual Shareholder Meeting.