The Compensation Report describes the compensation principles and programs, as well as the governance framework related to the compensation of the Board of Directors and the members of Group Management of Sika. The report also provides details regarding the compensation programs and the payment made to members of the Board of Directors and of Group Management in the 2018 business year.
The Compensation Report is written in accordance with the Ordinance against Excessive Compensation in Listed Stock Corporations, the standard relating to information on Corporate Governance of the SIX Swiss Exchange, and the principles of the Swiss Code of Best Practice for Corporate Governance of economiesuisse.
"Looking ahead, we will continue to assess and review our compensation programs to ensure that they are still fulfilling their purpose in the evolving context in which the company operates, and are aligned with the interests of our shareholders. We will also continue to maintain an open dialog with our shareholders and their representatives. We would like to thank you for sharing your perspectives on executive compensation with us, and trust that you will find this report informative." Frits van Dijk, Chairman of the Nomination and Compensation Committee
Outlook on Compensation Architecture for 2019
Compensation of the Board Of Directors
Considering that the compensation of the Board of Directors has remained unchanged since 2012, the decision was made to conduct a benchmark analysis and to align compensation structure and levels to evolving market practice. Consequently, the compensation of the Board of Directors will be adjusted as follows, effective for the compensation period starting at the 2019 Annual General Meeting:
| in CHF | in cash | in shares |
|---|---|---|
| Retainer (gross p.a.) | ||
| Chairman of the Board of Directors | 450,000 + 30,000 allowances (currently 480,000 + 30,000) | 450,000* (currently 300,000) |
| Members of the Board of Directors | 125,000 (currently 150,000) | 125,000* (currently 50,000) |
| Committee fees (gross p.a.) | ||
| Committee Chairman | 60,000 (currently 50,000) | |
| Committee members | 40,000 (currently 30,000) | |
* Converted into shares based on the average closing share price in the five first trading days of April before the beginning of the year of office. Shares are allocated to the members of the Board of Directors shortly after the end of the year of office.
The shares will be subject to a three-year blocking period (currently a four-year blocking period).
Compensation of Group Management
Following the thorough review of the compensation system applicable to Group Management, the Nomination and Compensation Committee proposed several changes that were approved by the Board of Directors and that will be implemented as of business year 2019.
The performance bonus will be fully paid out in cash. The voluntary deferral plan that allowed members of Group Management to invest either 20% or 40% of the performance bonus in blocked shares and to receive free matching shares, will be discontinued. This decision was made with the intention to simplify the overall compensation structure for members of Group Management with a clear distinction between short-term cash compensation (base salary and performance bonus) and long-term equity compensation (long-term incentive).
The performance measurement will continue to be based on relative Group performance (Obermatt benchmark) accounting for 60%, and on individual performance accounting for 40% of the total bonus opportunity. Individual performance will continue to include profitability (EBIT target of unit under responsibility) and individual objectives (People & Projects). The net working capital target will be applied selectively only considering that the company overall and all regions made substantial progress on working capital management over the last several years.
The long-term incentive plan has been enhanced with the introduction of relative total shareholder return (TSR) as a performance condition. Therefore, the vesting of the performance share units will be subject to the relative TSR performance with a weight of 50% and to the ROCE performance with a weight of 50%. ROCE will be measured as it was in the past (average of the three years of the vesting period). Relative TSR will be measured in relation to the peer group, following the same methodology as in the performance bonus, which means that the same peer group and the same payout curve will apply. For both performance conditions, the maximum achievement level will be capped at 200%, however the overall vesting level for the plan will be capped at 150% (currently: 100%). This is in line with the pay-for-performance philosophy of the company and prevalent market practice.
The relative TSR measure has been introduced to further strengthen the link between the compensation of Group Management and the interests of shareholders.
Clawback and malus provisions are introduced in both the performance bonus and the long-term incentive plans. In case of financial restatement due to non-compliance to accounting standards or fraud, and/or in case of violation of law or of internal rules by a member of Group Management, the Board of Directors may deem any performance bonus payment and/or unvested PSU to forfeit (malus provision) or may seek reimbursement of any paid Performance Bonus and/or allocated shares under the long-term incentive (clawback provision) within a period of three years after the year of restatement or of the fraudulent/non-compliant behavior.