Nomination and Compensation Committee

In accordance with the Articles of Associations and the organizational regulations of Sika AG, the Nomination and Compensation Committee is composed of three members of the Board of Directors that are elected individually by the Annual General Meeting for a period of one year. Since the Annual General Meeting of 2015, Mr. Frits van Dijk (Chairman), Mr. Urs Burkard, and Mr. Daniel Sauter have served as members of the Nomination and Compensation Committee.

It is the responsibility of the Nomination and Compensation Committee to:

  • review and determine the compensation policy, including the principles for the variable compensation and shareholding programs according to the provisions specified in the Articles of Association;
  • propose to the Board of Directors the maximum aggregate amounts of compensation of the Board of Directors and of Group Management to be submitted to the shareholder’s vote at the Annual General Meeting;
  • propose to the Board of Directors the compensation level for the members of the Board of Directors, the CEO, and the other members of Group Management within the maximum aggregate compensation amounts approved by the Annual General Meeting;
  • provide the Board of Directors with a performance assessment of the CEO and of the other members of Group Management, together with a recommendation for the short-term and long-term incentives to be awarded to them based on their individual performance and the performance of the company;
  • propose to the Board of Directors the Compensation Report;
  • prepare the succession planning for the CEO and other members of Group Management and propose to the Board of Directors the appointment of new members of Group Management.
Levels of authority
  CEO Chairman of the BoD NCC BoD AGM
Compensation policy and principles     Proposes Approves  
Maximum aggregate compensation amounts of BoD and GM     Proposes Reviews Approves (binding vote)
Compensation of BoD Chairman     Decides Is informed  
Individual compensation of BoD members     Proposes Approves  
Compensation of CEO   Proposes Reviews Approves  
Individual compensation of
members of GM
Proposes   Reviews Approves  
Compensation report     Proposes Approves Consultative vote

CEO = Chief Executive Officer, BoD = Board of Directors, NCC = Nomination and Compensation Committee, AGM = Annual General Meeting, GM = Group Management

In 2015, the Nomination and Compensation Committee held five meetings according to the following predetermined annual agenda and took one decision by circular:

  Feb Apr Jul Oct Dec
Compensation strategy          
Review of overall compensation policy     x    
Review of overall compensation policy
         
Review of committee duties, accountabilities, and responsibilities
x        
Preparation and approval of Compensation Report x       x
Preparation of say-on-pay vote for next Annual General Meeting x        
Review of external stakeholder feedback on compensation disclosure   x      
Review of compensation disclosure principles     x    
Compensation of Board of Directors          
Determination of compensation for following compensation period   x      
Compensation of Group Management          
Preliminary performance evaluation (previous year) x        
Final performance evaluation (previous year)   x      
Determination of short-term incentive payout for previous year   x      
Determination of long-term incentive vesting (previous performance period) x        
Preliminary compensation review for following year       x  
Determination of compensation (at target) for following year         x
Determination of performance objectives for following year         x
Nomination items          
Review of Board constitution     x    
Review of potential candidates for positions on the BoD       x  
Succession planning for Group Management positions       x  

Two committee members attended all meetings and one committee member attended four meetings and apologized for failing to attend one meeting. This corresponds to an attendance rate of 93%.

The Chairman of the Nomination and Compensation Committee reports to the Board of Directors after each meeting on the activities of the committee. The minutes of the Committee meetings are available to the members of the Board of Directors. As a general rule, the Chairman of the Board of Directors and the CEO attend the meetings in an advisory capacity. They do not attend the meeting when their own compensation and/or performance are being discussed.

The Nomination and Compensation Committee may decide to consult an external advisor from time to time for specific compensation matters. In 2015, Agnès Blust Consulting was mandated to provide services related to executive compensation matters. This company does not have other mandates with Sika. In addition, support and expertise are provided by internal compensation experts such as the Head of Human Resources and the Head of Compensation & Benefits.

Shareholder involvement

With the implementation of the Ordinance, the role of shareholders in compensation matters has been strengthened substantially. On the one hand, the compensation amounts for the Board of Directors and Group Management are subject to a yearly binding vote at the Annual General Meeting. On the other hand, the Articles of Association must include the principles on compensation applicable to the Board of Directors and Group Management. The provisions of the Articles of Associations on compensation are summarized below (please refer to www.sika.com/en/group/investors/CorporateGovernance/ArticlesOfAssociation.html for the full version of the Articles of Association):

  • PRINCIPLES OF COMPENSATION APPLICABLE TO THE BOARD OF DIRECTORS (Articles 11.1, 11.3, and 11.8): The Board of Directors receives fixed compensation in cash and/or in shares;
  • PRINCIPLES OF COMPENSATION APPLICABLE TO GROUP MANAGEMENT (Articles 11.1, 11.4 to 11.6, and 11.8): Group Management receives fixed and variable compensation. The variable compensation consists of a performance bonus paid in cash and in shares (share purchase plan) and of a long-term incentive in form of equity compensation. For the CEO, the variable compensation (value of paid out performance bonus and grant value of the long-term incentive) does not exceed 300% of the fixed compensation. For the other members of Group Management in total, the variable compensation does not exceed 200% of the fixed compensation;
  • BINDING VOTE BY THE ANNUAL GENERAL MEETING (Article 11.2): The Annual General Meeting annually approves the total fixed remuneration amount for the Board of Directors for the period until the next ordinary General Meeting and the maximum total fixed and variable compensation amount for Group Management for the next fiscal year;
  • ADDITIONAL AMOUNT FOR NEW MEMBERS OF GROUP MANAGEMENT (Article 11.7): The total additional compensation for each new member of Group Management may not exceed the average total compensation of Group Management in the previous fiscal year by more than 200%, or 400% for a new CEO. Proven disadvantages from a change of position may be compensated within this additional amount;
  • CREDIT FACILITIES, LOANS, AND POST-EMPLOYMENT BENEFITS (Article 12): The company does not offer any loans, credit facilities, guarantees, or other securities to members of the Board of Directors and Group Management. Pension benefits are offered only in accordance with the occupational pension plans, which are specified in the respective regulations.

 

In addition, the Compensation Report is submitted to a consultative shareholders’ vote, meaning that shareholders can express their opinion on the compensation policy and programs.

Method For determining compensation

PERIODIC BENCHMARKING

The compensation of the Board of Directors is regularly reviewed against prevalent market practice of other multinational industrial companies. In 2012, a thorough review was conducted in order to determine the competitiveness of the Board compensation in terms of structure and overall level. For this purpose, a peer group of Swiss multinational companies from the industry sector listed on the Swiss Stock Exchange (SIX) was selected for the benchmarking analysis. The peer group consisted of Clariant, Geberit, Georg Fischer, Holcim, Lonza, Schindler, Sonova, and Sulzer and was well-balanced in terms of market capitalization, revenue size, and headcount. This compensation review resulted in a fundamental change of the compensation model for the Board of Directors, effective 2012. Consequently, no further analysis and no further adjustments were made in 2013, 2014, and 2015.

Regarding the compensation of Group Management, a compensation review was conducted in 2014, with the support of an independent consultant, Towers Watson. The same peer group of companies was chosen as for the review of the compensation of the Board of Directors. Towers Watson gathered the relevant benchmarking data through a so-called club survey and summarized it in a report that served as the basis for the Nomination and Compensation Committee to analyze the compensation of the CEO and Group Management and to set their target compensation levels for the 2015 financial year.

Peer group for benchmarking purposes

in CHF thousands

 

Market Capitalization (12/31/2015)

 

Revenue  (last reported annual figure)

 

Headcount (last reported figure)

 

Sika

9,195

5,489

17,281

1st quartile

5,362

3,058

12,032

Median

8,482

3,833

14,606

3rd quartile

14,205

6,899

27,059

Performance Management

The actual compensation paid to the individual members of Group Management in a given year depends on the company and on the individual performance. Individual performance is assessed through the annual Performance Management process, which aims to align individual and collective objectives, to stretch performance, and to support personal development. The objectives for the CEO and members of Group Management are approved by the Nomination and Compensation Committee at the beginning of the financial year and achievement against those objectives is assessed at year-end. The performance assessment of the members of Group Management is conducted by the CEO, while that of the CEO is conducted by the Chairman of the Board of Directors. The Nomination and Compensation Committee reviews the performance assessment of the CEO and the other members of Group Management before submitting them to the Board of Directors for approval. In discussing performance, the Nomination and Compensation Committee deliberates on the achievement of the individual objectives of each member of Group Management. The committee also considers the extent to which individuals have carried out their duties in line with company values and expected leadership behavior. The individual performance assessments, together with the company’s performance, form the basis for the determination of incentive payout levels.