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 2016, Mr. Frits van Dijk (Chairman), Mr. Urs Burkard and Mr. Daniel Sauter are 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 shareholders 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 of 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 BoD Chairman
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 2016, the Nomination and Compensation Committee held five meetings according to the following predetermined annual agenda:

  Feb Apr May Oct Dec
Governance
         
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    
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 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    
Succession planning for Group Management x     x  

In 2016, two committee members attended all meetings and one member attended four meetings and apologized for one meeting, which 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 2016, Agnès Blust Consulting continued 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.

Shareholders, involvement

The roles of the shareholders on compensation matters has gained in importance in recent years. First of all, shareholders annually approve the maximum aggregate compensation amounts of the Board of Directors and Group Management. In addition, the principles of compensation are governed by the Articles of Association, which are also approved by the shareholders. The provisions of the Articles of Associations on compensation are summarized below (please refer to www.sika.com/en/group/investors/corporate-governance/articles-of-association.html for the full version of the Articles of Association):

  • Principles of compensation applicable to the Board of Directors (art. 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 the Group Management (art. 11.1, 11.4 to 11.6 and 11.8): The Group Management receives a fixed and a 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 (art. 11.2): The Annual General Meeting approves annually the total fixed remuneration amount of the Board of Directors for the period until the next ordinary General Meeting, and the maximum total fixed and variable compensation amount of the Group Management for the next fiscal year;
  • Additional amount for new members of Group Management (art. 11.7): The total additional compensation for each new member of Group Management may not exceed the average total compensation of the Group Management in the previous fiscal year by more than 200%, resp. 400% for a new CEO. Proven disadvantages from the change of position may be compensated within this additional amount;
  • Credit, loans and post-employment benefits (art. 12): The company does not offer any loans, credit, 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.

The compensation report is submitted to a consultative shareholders’ vote, so that shareholders can express their opinion on the compensation policy and programs.

Method of determination of 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 had been 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 of the industry sector listed on the Swiss Stock Exchange (SIX) had been selected for the benchmarking analysis. The peer group consists of Clariant, Geberit, Georg Fischer, LafargeHolcim, Lonza, Schindler, Sonova and Sulzer and is well-balanced in terms of market capitalization, revenue size and headcount. The compensation model of the Board of Directors have not changed since 2012, consequently, no further analysis was made since then.

Regarding the compensation of the Group Management, a benchmarking analysis is conducted every two years with the support of an independent consultant, Willis Towers Watson. The same peer group of companies has been chosen as for the review of compensation of the Board of Directors. Willis Towers Watson gathers the relevant benchmarking data through a so-called club survey and summarizes them in a report that serves as basis for the Nomination and Compensation Committee to analyze the compensation of the CEO and the Group Management and to set their target compensation levels. In 2016, such compensation benchmarking analysis was undertaken again. The policy of Sika is to target market median compensation for solid performance and to provide for compensation above median in case of strong performance.

 

Peer group for benchmarking purposes

in CHF thousands

Market Capitalization
(31/12/2016)

Revenue
(last reported annual figure)

Headcount
(last reported figure)

Sika

12,425

5,748

17,419

1st quartile

5,147

2,931

11,769

Median

8,615

3,886

14,339

3rd quartile

16,055

6,703

27,100

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 pay-out levels.