03 Determination of compensation and compensation principles

03.1 Determination of compensation and compensation principles

The design, regular review and evaluation of the compensation system are the responsibility of the Nomination and Compensation Committee (NCC). The composition and responsibilities of the NCC are outlined in the corporate governance report.

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

On behalf of the Board of Directors, the external audit firm verifies whether the quantitative disclosures on compensation, loans and other credit made in the compensation report comply with the law and specifically with article 734 of the Swiss Code of Obligations.

03.2 Compensation of the Board of Directors

Compensation principles

Every year, the Board of Directors submits its proposal for the maximum aggregate amount of Board compensation to the Annual Shareholder Meeting for approval. The amounts of Board members’ compensation are set to reflect the Comet Group’s industry environment and are regularly reviewed against benchmarks representing small and mid-sized publicly traded companies with the support from external experts. The latest such review was performed in fiscal year 2021.

The compensation details are specified in a Board-approved compensation plan in the form of a set of regulations. The compensation consists of a combination of a base retainer and fees for committee work. This structure is consistent with standard market practice for companies listed on the SIX Swiss Exchange.

Structure of the compensation system

Overview of Board of Directors compensation structure:

The sum of the base retainer and fees for committee work is split into a cash portion of 60% and a stock portion of 40%. The reported compensation in section 4.1 includes the cash portion of the retainer, the value of the stock portion and, additionally, the actual employer contributions to social security plans. In addition, a flat expense allowance is provided, which is paid in cash. This allowance qualifies as reimbursement of expenses and is therefore not considered part of the compensation itself.

The Board members’ normal term of office begins on the date following the day of the Annual Shareholder Meeting that elects them 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. If 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 the case of pro-rated retainers as well, 60% is paid in cash and 40% is paid in stock.

03.3 Compensation of the Executive Committee

Compensation 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 that bear comparison with other employers competing 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.

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

The compensation of the Executive Committee is specified in Board-approved regulations. The CEO recommends the amounts of fixed compensation for the other Executive Committee members to the NCC. The NCC then 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 NCC also bases its proposals on general experience and on levels of compensation at peer companies; the underlying benchmarking data is purchased from third party market data providers. The full Board of Directors periodically reviews, sets and approves the compensation levels, based on the proposal of the NCC. The latest full review of the compensation system of the Executive Committee was performed in fiscal year 2023 based on data from Korn Ferry, Willis Towers Watson and PricewaterhouseCoopers.

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

• The maximum fixed compensation of the Executive Committee for the next fiscal year after the year of the Annual Shareholder Meeting (prospective vote);
• The maximum long-term variable compensation of the Executive Committee for the fiscal year after the year of the Annual Shareholder Meeting (prospective vote), if such compensation relates to multi-year compensation plans and the maximum value can be determined;
• The variable compensation of the Executive Committee for the last fiscal year before the year of the Annual Shareholder Meeting (retrospective vote)

In accordance with article 735a of the Swiss Code of Obligations and the Articles of Association, the Comet Group is authorized to pay an additional amount to new external members joining the Executive Committee during a period for which the Shareholder Meeting has already approved the compensation, 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.

Structure of the compensation system

The remuneration of the members of the Executive Committee consists of fixed component (“fixed compensation”) and a performance-related component (“variable compensation"). The total compensation takes into account the recipient’s position and level of responsibility. The variable compensation of the Executive Committee members is structured as a short-term incentive plan (STIP) and a long-term incentive plan (LTIP). It is designed to heighten the commitment of the CEO and the other Executive Committee members to the Comet Group. The variable compensation is based on the regulations approved by the Board of Directors.

The STIP is a profit-sharing arrangement based on the Group’s performance in terms of the combination of (i) its rate of sales growth year-over-year and (ii) its net income. The STIP is paid in cash (with some exceptions, which are explained in the table below).

The new LTIP, which is in effect since January 1, 2023, is designed as a three-year performance share unit (PSU) plan based on three key performance indicators (ROCE; sales growth measured against the NASDAQ Global Semiconductor Index; ESG scorecard). PSUs convert into Comet shares at the end of the three-year vesting period, which commences on the grant date in May. The number of vested Comet shares ranges from 0% to 200% of the initial number of PSUs granted, depending on the achievement levels of the above-mentioned KPIs over the three-calendar-year performance cycle. The stock delivered under the LTIP does not have a holding period. The first payout will be in May 2026.

The relative level of entitlement of newly appointed Executive Committee members in the ongoing annual short-term incentive plan (STIP) was reduced in favor of a greater proportional contribution from the new long-term incentive plan (LTIP). For three members of the Executive Committee participating in the former LTIP, the shift will take place from 2025.

The compensation system for the members of the Executive Committee is structured as follows:

Caps

There are individual upper limits on the total variable compensation of the CEO and the other members of the Executive Committee. The upper limit caps the individual’s combined compensation under the STIP (profit-sharing) and LTIP. For the CEO this maximum (the upper limit for the combined total of STIP actual compensation and the LTIP grant value in the form of PSUs) is 200% of the fixed compensation. For each of the other members of the Executive Committee, this maximum (the upper limit for the combined total of STIP actual compensation and the LTIP grant value in the form of PSUs) is 150% of the fixed compensation.

The members of the Executive Committee have employment agreements with a notice period of not more than six months. There is no entitlement to hiring bonuses or termination benefits of any kind.

Fixed compensation

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

Short-term profit-sharing compensation (STIP)

In addition to the fixed compensation, the Executive Committee members are eligible for annual profit-sharing compensation (this represents the STIP). The total pool of profit-sharing compensation is calculated as a percentage of the Group’s consolidated net income. This percentage rate is dependent upon the Group’s rate of sales growth compared with the prior year. For fiscal year 2023, the percentage of Group net income was determined according to the following model, unchanged from fiscal year 2022:

In fiscal year 2023, 15.0% of the Group’s total consolidated net income (after profit-sharing) was accrued for distribution as short-term profit-sharing compensation (prior year: 24.0%).

The members of the Executive Committee and all employees eligible for profit-sharing are assigned to one of five compensation groups. These five groups consist of the CEO, the other members of the Executive Committee, and, subdivided into three groups, the other eligible employees. Each compensation group is assigned a different multiplier. The multipliers are set by the Board of Directors of Comet Holding AG. The product of this multiplier and the gross annual base salary determines the respective share assigned to the individual member of the Executive Committee or individual other employee in the allocation of the total profit-sharing pool. The individual 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 individual profit-sharing amount

At least 80% of the profit-sharing pool is allocated among the members of the Executive Committee and all employees, using a general allocation formula. Up to an aggregate maximum of 20% of the profit sharing pool may be allocated selectively to individual members of the Executive Committee or individual other employees, using an individual allocation formula. This is to enable the Board and the CEO to recognize individual performance distinctively. Performance is evaluated by the Board and CEO at the end of the fiscal year and a decision is made on whether to allocate part or all of the 20% individual allocation pool to individual employees. Any unused portion of the individual allocation pool is also distributed by the general allocation formula. The Board of Directors did not allocate any of the 20% individual allocation pool in the year under review.

A precondition for paying any profit-sharing compensation is that, after the accrual of this distribution, the Group must still be able to report positive consolidated net income. Executive Committee members, or other employees, who join Comet intra-year participate in profit-sharing on a pro-rated basis. In the event of intra-year termination of the employment relationship, payment is made on a pro-rated basis, subject to prevailing termination conditions as applicable in the respective country. Any payment to the CEO and to the other members of the Executive Committee must be approved by the Board and is only made after ratification by the shareholders at the Annual Shareholder Meeting as part of the binding retrospective vote on the short-term variable compensation of the Executive Committee, and after shareholders’ approval of the consolidated financial statements.

Long-term profit-sharing compensation (LTIP)

Effective January 1, 2023, a new long-term incentive plan (LTIP) was introduced to foster long-term profitable growth, sustainability, shareholder return, and executive retention. It offers equity-based performance-driven rewards to the CEO, other members of the Executive Committee, and selected key employees across the Comet Group, thus reinforcing their focus on executing our strategy and aligning their interests with our objective of enhancing shareholder value.

The LTIP uses performance share units (PSUs), which are granted to eligible employees with specific performance conditions that result in a potential vesting into Comet shares after three years.

PSUs are granted once a year after the AGM. The number of granted PSUs is calculated by dividing the participant’s individual grant value by a 20-day average closing Comet share price preceding the grant. In 2023, the LTIP grant value corresponded to 64% of the base salary for the CEO and was between 38% and 39% of the base salary for other members of the Executive Committee.

At the conclusion of the three-year vesting period, granted PSUs are converted into Comet’s shares, contingent upon the satisfaction of predefined service and performance criteria. Failure to meet the service condition due to termination of employment during the three-year vesting period results in partial or full forfeiture of the granted PSUs.

The achievement of three specific performance objectives over a prospective performance period of three years determine the number of shares to be converted per PSU at the vesting date:

• Sales growth vs. NASDAQ GSOX Semiconductor Index weighted with 33%,
• ROCE weighted with 34%, and
• ESG performance (scorecard) weighted with 33%.

The performance targets for each performance measure are defined so as to encourage high performance while providing a realistic performance-related opportunity for vesting. The particular performance levels for threshold (no PSUs convert into Comet shares), target (target number of PSUs convert into Comet shares), and cap (twice the target number of PSUs convert into Comet shares) for each measure are recommended by the NCC and approved by the Board of Directors in line with the strategic goals of the Comet Group.

Achievement is assessed independently for each performance measure. However, the combined total of PSUs converted into Comet shares can never exceed twice the number of PSUs initially granted. Every one vested PSU converts into one Comet share. Further, if performance of all three measures remains below the respective thresholds, the resulting combined conversion multiple is zero and consequently no PSUs will vest.

For the 2023 LTIP, the performance period started on January 1, 2023 and ends on December 31, 2025. The vesting curves for financial performance measures were set as follows:

The ESG performance is encapsulated within the ESG scorecard, which comprises objectives that are equally weighted across environmental and social criteria. The environmental criteria are tied to Comet’s commitment to actively manage its Scope 1 and Scope 2 emissions through obtaining site certifications and aiming for a significant proportion of the company’s total energy consumption to come from renewable sources. On the social side, the objectives are centered around enhancing employee well-being, as evidenced by the rate of voluntary turnover, and promoting diversity within leadership, specifically through achieving a balanced gender representation in management positions. Similar to financial metrics, specific threshold, target, and cap performance levels that are aligned with the company’s strategic goals were set for each ESG objective by the Board of Directors following the NCC recommendations.

Vesting conditions are based on the following parameters (schedule: cliff vesting):

03.4 Compensation system for employees below the Executive Committee level

Compensation principles

The compensation systems for the Board of Directors and the Executive Committee are covered in separate sections above.

The compensation system for Comet’s other employees has two main elements: All employees receive fixed compensation, and employees eligible for profit-sharing under the STIP may earn a performance-based pay component.

Structure of the compensation system

Fixed compensation

All employees receive fixed compensation that is paid monthly in cash. The fixed compensation is determined by the individual’s amount of responsibility, role, performance, experience, skills, and by local market conditions.

STIP

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. The STIP is settled in cash.