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. At the Annual General Meeting 2018, Mr. Frits van Dijk (Chairman), Mr. Urs Burkard and Mr. Daniel Sauter were re-elected members of the Nomination and Compensation Committee. At the Extraordinary General Meeting, Mr. Justin Howell was elected as a new member of the Board of Directors and of the Nomination and Compensation Committee, while Mr. Urs Burkard stepped down.

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 the 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 Directorsthe 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     Proposes Approves  
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 2018, the Nomination and Compensation Committee held five ordinary meetings according to the following predetermined annual agenda, as well as one extraordinary conference call related to the review of the compensation system applicable to Group Management:

  Feb Apr May Oct Dec
Review of overall compensation policy and compensation governance          
Review of overall compensation strategy     x x x
Review of external stakeholder feedback on compensation disclosure     x    
Preparation and approval of Compensation Report x       x
Review of shareholdings of member of Group Management (shareholding ownership guideline) x        
Preparation of say-on-pay vote for next Annual General Meeting x        
Review of committee duties, accountabilities, and responsibilities x        
Approve meeting schedule of NCC x        
Self-assessment NCC x        
Compensation of Board of Directors          
Determination of compensation for following compensation period (AGM to AGM)   x      
Benchmark of compensation of the Board of Directors (every 3-4 years)         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 (incl. benchmarking analysis)       x  
Determination of compensation at target for following year         x
Determination of performance objectives for following year         x
Nomination items          
Review of Board of Directors constitution     x    
Appraisal and management development plan for members of Group Management     x x  
Succession planning for Group Management positions       x  

 

In 2018, all members attended all Committee meetings (Mr. Urs Burkard attended the Committee meetings until the Extraordinary General Meeting in June and Mr. Justin Howell attended the Committee meetings thereafter). The meetings’ duration extended from one and a half to three hours.

 

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 made 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 2018, Agnès Blust Consulting continued to provide services related to executive compensation matters. In addition, Willis Towers Watson was mandated to conduct a benchmarking analysis of the compensation levels of Group Management. These companies do 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

The role 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 Associations, which are also approved by the shareholders. The provisions of the Articles of Associations on compensation are summarized below (please refer to http://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 (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 possibly partially 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 compensation amount for the Board of Directors for the period until the next ordinary Annual General Meeting and the maximum total fixed and variable compensation amount for Group Management for the next business 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 business 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, so that shareholders can express theiropinion 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 2018, a thorough review was conducted to determine the competitiveness of the Board compensation in terms of structure and quantum. For this purpose, a peer group of Swiss multinational companies of the industry sector listed on the SIX Swiss Exchange were selected for the benchmarking analysis. The peer group consists of ABB, Adecco, Barry Callebaut, Clariant, EMS-Chemie, Geberit, Givaudan, Kühne+Nagel, LafargeHolcim, Lindt, Lonza, Richemont, Schindler, SGS, Sonova, Straumann, Swatch, and Swisscom and is well balanced in terms of market capitalization, revenue size, and headcount. This analysis showed that the compensation system is broadly in line with prevalent market practice, however compensation levels are slightly below market. Consequently, the decision was made to increase the overall fee levels of the Board of Directors and to deliver a higher portion of compensation in blocked shares.

 

Regarding the compensation of Group Management, a benchmarking analysis is conducted every two years with the support of an independent consultant, Willis Towers Watson. The analysis was performed in 2018, again on the basis of the same peer group of companies as for the review of compensation of the Board of Directors, excluding EMS Chemie (no data available). Willis Towers Watson gathered the relevant benchmarking data and summarized them in a report that served as a 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 2019. Sika’s policy is to target market median compensation for solid performance and to provide for compensation above the median in case of strong performance.

Peer group for benchmarking purposes

in CHF thousands

Market Capitalization
(31/12/2017)

Revenue
(31/12/2017)

Headcount
(31/12/2017)

Sika

20,941

6,248

18,484

1st quartile

11,859

3,803

11,387

Median

18,709

6,594

19,231

3rd quartile

23,183

14,366

64,412

PERFORMANCE MANAGEMENT

The actual compensation paid to the individual members of Group Management in a given year depends on the company’s 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 business 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 reflects 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 behaviors. The individual performance assessments, together with the company’s performance, form the basis for the determination of incentive payout levels.