Corporate Reports 2023 | Compensation Report | 157 |
Compensation
Report
Introduction | 158 |
Compensation at a glance | 159 |
Contents | 162 |
Compensation governance | 163 |
Compensation structure | 166 |
Compensation for the financial year 2023 | 175 |
Outlook | 185 |
Report of the statutory auditor | 186 |
Corporate Reports 2023
Introduction by the Chairwoman of the Compensation Committee
Dear Shareholders,
At the beginning of the current strategy cycle, which runs from 2021 to 2025, GF adjusted and aligned its compensation system to support the implementation of the Strategy 2025. Three years into this strategic cycle, the Compensation Committee is convinced that the current compensation system is working well and will continue to focus on further improving it as needed.
Compensation Report | 158 |
In 2023, the most notable extraordinary event was GF's acquisition of Uponor. The Compensation Committee will continue to oversee the integration of Uponor and ensure it proceeds swiftly and seam- lessly as per shareholders' expectations. The following are some of the most important developments arising from the acquisition:
Uponor's CEO Michael Rauterkus joined GF's Executive Committee as of 1 January 2024. This development is addressed in more detail in GF's 2024 Annual Report.
An impact is seen on GF's earnings per share (EPS), being one of the performance metrics in the long-term incentive (LTI) plan for awards to vest. For the awards with a performance period ending in 2023, the direct impact of the acquisitions has been excluded from the EPS performance measure. For 2024 onwards, the Board of Directors will ensure a like-for-like comparison as the Uponor organization will be fully integrated as of 2024. The Board of Directors has engaged with major investors and proxy advisors to align on the most suitable approach to this end. The details thereof are set out in this report, and we will continue to explain any ongoing effects in the coming years and reports.
As announced in the outlook of the 2022 Compensation Report, the Board of Directors approved and implemented a slightly adjusted compensation structure for members of the Board, effective as of the 2023 Annual Shareholders' Meeting. While the total package remains unchanged, the split between cash and shares was adjusted to more closely align with market practice and to mitigate undue exposure to short-term share price volatility.
For 2023, total compensation for the Executive Committee was lower compared with 2022. This was mainly due to the lower STI target achievement of the Corporation and the divisions in 2023: While profitability, thanks to our increased portfolio resilience, remained strong, geostatic and macroeconomic challenges limited the achievement of organic sales growth targets, resulting in a lower overall STI payout.
This Compensation Report includes all relevant information concerning the compensation policy and programs, the governance in place for decisions relating to compensation and the compensation awarded in the reporting year. At the upcoming Annual Sharehold- ers' Meeting, our shareholders will again be asked to approve the maximum compensation amount for the Board of Directors for the period until the next Annual Shareholders' Meeting, and the maximum compensation amount for the Executive Committee for the next financial year (prospective binding votes). Our shareholders' valued opinion will also be sought with regard to the Compensation Report through a consultative retrospective vote.
On behalf of the Board of Directors, I would like to thank you for your valuable feedback and support. We look forward to continuing our constructive dialogue with our shareholders and stakeholders. We remain convinced that GF's compensation system rewards performance in a balanced and sustainable way, and that it is therefore well aligned with the interests of our shareholders.
Sincerely,
Eveline Saupper
Chairwoman of the Compensation Committee
Corporate Reports 2023 | Compensation Report | 159 |
Compensation at a glance
Compensation for the Board of Directors
Compensation model
In order to ensure independence in their supervisory function, the members of the Board of Directors receive fixed compensation only, paid out in cash and shares that are blocked for five years.
Responsibility | Fee | Restricted shares |
Basis fee | ||
Board membership | CHF 100'000 | 2'500 shares |
Additional fees | ||
Board chairmanship1 | CHF 260'000 | 3'500 shares |
Independent Lead Director | CHF 22'500 | |
Audit Committee chairmanship | CHF 80'000 | |
Audit Committee membership | CHF 30'000 | |
Compensation Committee chairmanship | CHF 60'000 | |
Compensation Committee membership | CHF 20'000 | |
Nomination and Sustainability Committee chairmanship | CHF 60'000 | |
Nomination and Sustainability Committee membership | CHF 20'000 | |
1 The Chairman of the Board of Directors is not eligible for additional committee fees.
The compensation system for the Board of Directors does not contain any performance-related components.
Compensation awarded for 2023
The compensation awarded to the Board of Directors for the period from the Annual Shareholders' Meeting 2022 to the Annual Share- holders' Meeting 2023 is within the limits approved by the share- holders:
Compensation period | Amount approved | Effective amount |
2022-2023 | CHF 3'600'0001 | CHF 2'846'0002 |
2023-2024 | CHF 3'600'0001 | n/a3 |
1 Based on a share value of CHF 80.00.
2 Based on a share value of CHF 56.60 for the period in 2022 and CHF 61.10 for the period in 2023.
3 Compensation period not yet completed; a conclusive assessment will be provided in the Compensation Report 2024.
Corporate Reports 2023 | Compensation Report | 160 |
Compensation at a glance |
Compensation for the
Executive Committee
Compensation elements | Purpose | Vehicle | Period | Performance measure |
Fixed compensation | ||||
Fixed base salary | Pay for the function | Cash | Monthly | Skills, experience and individual |
performance | ||||
Benefits | Ensure protection against | |||
risks such as death, | ||||
disability and old age | ||||
Variable compensation | ||||
Short-term incentive | Pay for annual | Cash | Annual | Organic sales growth |
(STI) | performance based on | Return on sales (EBIT margin) | ||
GF strategic targets | ROIC | |||
Sustainability (ESG) | ||||
Individual objectives | ||||
Long-term incentive (LTI) | Pay for long-term | Performance shares | 3-year vesting and | EPS |
performance | additional 2-year | rTSR | ||
blocking | ||||
Align with shareholders' | ||||
interests and GF's | ||||
strategy | ||||
Participate in long-term | ||||
success of the company | ||||
Performance in 2023
Short-term incentive (STI)
Despite geostatic and macroeconomic challenges, GF grew organically in 2023. Thanks to its increased portfolio resilience, profitability remained strong. The STI payout for 2023 for the Executive Committee (incl. CEO) is based on target achievements in the range from 96.4% to 122.1% and was lower than for the previous year, mainly due to the increased aspirational targets set for the reporting year.
Long-term incentive (LTI)
The vesting level of the LTI plan 2021 (performance period ended at the end of 2023) amounted to 150.0% (cap) for the EPS-related performance shares and 111.0% of target for the rTSR-related performance shares, resulting in an overall vesting level of 130.5%. The above information includes EPS-related adjustments in connection with the Uponor acquisition in 2023, ensuring like-for-like measurement as explained in more detail in the relevant sections below.
Compensation awarded for 2023
The compensation awarded to the Executive Committee (including the CEO) for 2023 is within the limits approved by the shareholders at the 2022 Annual Shareholders' Meeting:
Compensation period | Amount approved | Effective amount |
2023 | CHF 11'402'000 | CHF 9'067'000 |
Corporate Reports 2023 | Compensation Report | 161 |
Compensation at a glance |
The ratio between fixed and awarded variable compensation in 2023 was as follows:
CEO compensation for 2023
in CHF 1'000 | Fixed base salary |
3'220 | 29% |
Short-term incentive 35%
Long-term incentive 26%
Benefits 10%
Executive Committee compensation (incl. CEO) for 2023
in CHF 1'000 | Fixed base salary | Short-term incentive | |
9'067 | 35% | 30% | |
Compensation principles
The compensation policy applicable to the Executive Committee is designed to attract, motivate and retain talented individuals based on the following principles:
• Fairness and transparency;
• Pay for performance, business and sustainability strategy implementation;
• Long-term orientation and alignment to shareholders' interests;
• Market competitiveness.
Compensation governance
• Authority for decisions related to compensation is governed by GF's Articles of Association;
• The Board of Directors is supported by the Compensation Committee in preparing all compensation-related decisions regarding the Board of Directors and the Executive Committee;
• The maximum aggregate amounts of compensation for the members of the Board of Directors and the Executive Committee are subject to binding prospective shareholders' votes at the Annual Shareholders' Meeting;
• In addition, the Compensation Report is subject to a retrospective consultative vote at the Annual Shareholders' Meeting.
Long-term incentive 24%
Benefits 11%
Corporate Reports 2023
Contents
The Compensation Report provides information about the compensation policy, the compensation programs and the process for determining compensation for the Board of Directors and the Executive Committee of GF. It also includes details on the compensation payments related to the 2023 business year.
Compensation Report | 162 |
This report is written in accordance with the Swiss Code of Obligations ("CO"), the standards for information on corporate governance issued by the SIX Swiss Exchange and the principles of the Swiss Code of Best Practice for Corporate Governance of Economiesuisse.
The Compensation Report is structured as follows:
Compensation governance
Rules relating to compensation in the Articles of Association Compensation Committee
Levels of authority
Method used to determine compensation
Compensation structure
Compensation of the Board of Directors
Compensation principles
Compensation model
Shareholding ownership guideline
Compensation of the Executive Committee
Compensation principles
Compensation model
Compensation mix and caps
Fixed base salary
Short-term incentive
Long-term incentive (share-based compensation)
Clawback and malus provisions
Benefits
Contractual terms
Shareholding ownership guideline
Compensation for the financial year 2023
Board of Directors Executive Committee Performance in 2023
Shareholdings of the members of the Board of Directors and of the Executive Committee Loans to members of the governing bodies Functions of the members of the Board of Directors Functions of the members of the Executive Committee Outlook
Report of the statutory auditor
Corporate Reports 2023
Compensation governance
Compensation Report | 163 |
Rules relating to compensation in the Articles of Association
The Articles of Association of GF contain provisions regarding the compensation principles applicable to the Board of Directors and to the Executive Committee. These provisions can be found on GF's website and include:
• Principles of compensation of the Board of Directors (Article 22);
• Principles of compensation of the Executive Committee (Article 23c);
• Additional amount for new members of the Executive Committee (Article 23c.9);
• Provisions on the employment contracts for members of the Executive Committee (Article 23b);
• Credits and loans (Article 23d.1);
• Provisions on early retirement for members of the Executive Committee (Article 23d.2).
According to articles 22 and 23 of the Articles of Association, the
Annual Shareholders' Meeting approves annually the maximum aggregate compensation of the Board of Directors for the period from the Annual Shareholders' Meeting to the next Annual Shareholders' Meeting, as well as the maximum aggregate compensation of the Executive Committee for the following calendar year. In addition, the Compensation Report is submitted to the Annual Shareholders' Meeting for an advisory vote on a yearly basis, so that shareholders can express their opinion on the compensation policy and programs.
Compensation Committee
The Compensation Committee consists of three non-executive members of the Board of Directors who are elected annually and individually by the Annual Shareholders' Meeting for a one-year period until the next Annual Shareholders' Meeting. At the 2023 Annual Share- holders' Meeting, Eveline Saupper (Chairwoman) and Roger Michaelis were re-elected as members of the Compensation Committee. Riet Cadonau was replaced by Michelle Wen, who was elected as a new member of the Compensation Committee. The Compensation Committee supports the Board of Directors with the following duties:
• Determining the compensation policy of the company at the highest corporate level, including the principles for the variable compensation and shareholding programs;
• Reviewing the guidelines governing compensation of the Board of Directors and the Executive Committee;
• Preparing the motions related to the maximum aggregate amounts of compensation for the Annual Shareholders' Meeting;
• Proposing the amount of compensation to be paid to the Board of Directors, to the CEO and to the other members of the Executive Committee within the limits approved by the Annual Shareholders' Meeting;
• Reviewing and proposing the annual Compensation Report to the Board of Directors.
During 2023, the Compensation Committee performed the following tasks:
• Reviewed the benchmark analysis prepared in 2022 for the compensation of the Board of Directors and, based on the outcomes, proposed adjustments to the Board of Directors;
• Conducted a benchmark analysis for the compensation of the CEO and of the other members of the Executive Committee, and proposed salary adjustments to the Board of Directors;
• Evaluated the business performance for the 2022 financial
Corporate Reports 2023 | Compensation Report | 164 |
Compensation governance |
year against the pre-set objectives and prepared a proposal for the Board of Directors on the short-term incentive to be paid to the CEO and to the other members of the Executive Committee;
• Determined the business objectives for the 2023 financial year for the CEO and reviewed those of the other members of the Executive Committee before submitting them to the Board of Directors for approval;
• Assessed the impacts of the Uponor acquisition on the ongoing compensation models;
Overview of meeting schedule 2023
• Reviewed the Compensation Report 2022 and prepared the compensation motions to be submitted to vote at the 2023 Annual Shareholders' Meeting;
• Reviewed and discussed the voting results on the compensation motions at the 2023 Annual Shareholders' Meeting, as well as the proxy advisors' and shareholders' feedback received on compensation matters;
• Engaged with proxy advisors and major shareholders on compensation matters in order to gather their feedback and comments;
• Prepared the Compensation Report 2023.
The Compensation Committee convenes as often as necessary, but at least twice per year. In 2023, the Committee held four meetings of approximately two hours each, according to the schedule below:
January (27 January) | February (22 February) | October (13 October) | December (8 December) |
Final decision on changes for the Board of Directors compensation and proposed adjustments to the Board of Directors
Business performance 2022; approval of the STI 2022 (business and individual objectives) for CEO and EC
Target setting for the STI 2023 (business and individual objectives) for CEO and EC
Review of draft of the
Compensation Report 2022
Approval of the LTI 2019 vesting and LTI 2023 grant
Approval of the Compensation Report 2022
Determination of maximum amounts of compensation for the Board of Directors until the next Annual Shareholders' Meeting
Determination of maximum amounts of compensation for the EC for the business year 2024
Analysis of the voting outcomes for compensation motions at the Annual Shareholders' Meeting
Review of proxy advisors' and investors' feedback on compensation
Assessment impact of a possible acquisition of Uponor on compensation models
Review of compensation for the Board of Directors for the next compensation period
Benchmarking of compensation for the CEO and EC members
Review of target compensation for the CEO and EC members for the coming financial year
Review of proxy advisors' and investors' feedback on compensation, in particular due to Uponor acquisition
Decision on LTI adjustments due to Uponor acquisition
Review of draft of the Compensation Report 2023
In 2023, except for one meeting at which a member of the Board of Directors was absent with apologies, all Compensation Committee members attended all meetings. The Chairman of the Board, the CEO, the Head of Corporate Human Resources and the Head of Corporate Compensation and Benefits are invited to attend the Compensation Committee meetings in an advisory capacity. The Chairman of the Board and the CEO do not attend the meeting when their own compensation or performance is discussed.
The Chairwoman of the Compensation Committee reports to the Board of Directors at each private meeting about the activities of the Compensation Committee. The minutes of the Compensation Committee meetings are available to all members of the Board of Directors.
Compensation proposals and decisions are made based on the following levels of authority:
Levels of authority
Approval framework
Subject | Recommendation from | Final approval from |
Compensation policy and principles | Compensation Committee | Board of Directors |
Aggregate compensation amount | Board of Directors based on proposal by | Annual Shareholders' Meeting (binding vote) |
of the Board of Directors | Compensation Committee | |
Individual compensation of the members | Compensation Committee | Board of Directors |
of the Board of Directors | ||
Aggregate compensation amount | Board of Directors based on proposal by | Annual Shareholders' Meeting (binding vote) |
of the Executive Committee | Compensation Committee | |
Individual compensation of the CEO | Compensation Committee based on proposal | Board of Directors |
by the Chairman of the Board | ||
Individual compensation | Compensation Committee based on proposals | Board of Directors |
of the Executive Committee members | by the CEO | |
Compensation Report | Board of Directors based on proposal by | Annual Shareholders' Meeting (consultative vote) |
Compensation Committee | ||
Corporate Reports 2023
Method used to determine compensation
Benchmarking
The compensation structure and levels of the Board of Directors and the Executive Committee are reviewed every two to three years and are tailored to the relevant sectors and labor markets in which GF competes for talent. For the purpose of comparison, the Compensation Committee relies on compensation surveys published by independent consulting firms and on publicly available information such as the compensation disclosures of comparable companies.
Comparable companies are defined as multinational industrial companies listed on the Swiss stock exchange (SIX) with a similar business model and size in terms of market capitalization, sales, number of employees, complexity and geographic scope. The peer group for the compensation benchmark of the Board of Directors and the Executive Committee include the following Swiss companies: Bucher Industries, DKSH, dormakaba, Geberit, OC Oerlikon, SIG Combibloc, Sonova, Straumann and Sulzer. Compensation benchmarking was last conducted in 2023.
Performance management
The Compensation Committee also takes into consideration effective business and individual performance while determining the compensation amounts to be paid to the CEO and to the other members of the Executive Committee. Individual performance is assessed through the annual Management By Objectives (MBO) pro- cess, for which individual objectives are defined at the beginning of the year and the achievement against those objectives is evaluated at the end of the year. The objective setting and the performance assessment of the members of the Executive Committee are conducted by the CEO and by the Chairman of the Board for the CEO. The performance assessment of the CEO and the other members of the Executive Committee is reviewed by the Compensation Committee.
Compensation Report | 165 |
Compensation governance
Corporate Reports 2023 | Compensation Report | 166 |
Compensation structure
Compensation of the Board of Directors
Compensation principles
In order to ensure their independence in exercising their supervisory duties, the members of the Board of Directors receive fixed compensation only. The compensation is paid partially in cash and partially in shares blocked for a period of five years in order to closely align their compensation with shareholders' interests.
Compensation model
The compensation applicable to the Board of Directors is reviewed every two to three years based on competitive market practice, and its basic structure is kept as constant as possible.
In order to guarantee the independence of the members of the Board of Directors in executing their supervisory duties, their compensation is fixed and does not contain any performance-related compo- nent. The annual compensation for each Member of the Board of Directors depends on the functions and tasks carried out in the year under review, and consists of an annual basis fee paid in cash and in blocked shares, as well as additional committee fees paid in cash.
The Compensation Committee conducted a benchmarking analysis | |||
in 2022 for the Board of Directors' compensation using the same | |||
approach as in prior years. Feedback from exchanges with investors | |||
and proxy advisors was also taken into consideration. The results | |||
showed that total compensation levels are in line with the market. | |||
However, the Board membership basis cash fee was found to be | |||
lower, while the share-based compensation was determined to be | |||
higher compared to the peer group. This leads to volatility in total | |||
compensation when the share price fluctuates. To better balance | |||
cash and share-based compensation and to reduce the volatility of | |||
total compensation, the Board of Directors approved, based on the | |||
proposal of the Compensation Committee, the following new com- | |||
pensation structure for members of the Board of Directors, with | |||
effect | from the Annual Shareholders' Meeting 2023: | ||
Compensation model | |||
Responsibility | Fee | Restricted shares | |
Basis fee | |||
Board membership | CHF 100'000 | 2'500 shares | |
Additional fees | |||
Board chairmanship1 | CHF 260'000 | 3'500 shares | |
Independent Lead Director | CHF 22'500 | ||
Audit Committee chairmanship | CHF 80'000 | ||
Audit Committee membership | CHF 30'000 | ||
Compensation Committee chairmanship | CHF 60'000 | ||
Compensation Committee membership | CHF 20'000 | ||
Nomination and Sustainability Committee chairmanship | CHF 60'000 | ||
Nomination and Sustainability Committee membership | CHF 20'000 | ||
1 The Chairman of the Board of Directors is not eligible for additional committee fees.
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Georg Fischer AG published this content on 18 March 2024 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 19 March 2024 06:24:01 UTC.