Compensation Report
This Compensation Report sets out the compensation system and the compensation paid to the members of the Board of Directors and the Management Board of Tecan Group Ltd. It has been drawn up based on the applicable regulatory provisions for Switzerland and will be put to the Annual General Meeting on April 11, 2017, retrospectively for the past fiscal year for an advisory vote.
Policies
The Compensation Report contains information on the total compensation paid to members of the Board of Directors and Management Board and refers to the 2016 reporting year unless otherwise noted. The Tecan Group has a set of uniform compensation policies, which are systematic, transparent and have a long-term focus. Compensation is determined on the basis of four factors: corporate profit, individual performance, position held and the labor market. The ultimate goal of the compensation system is to attract highly qualified and motivated specialists and managers, ensure their long-term loyalty to the Company and align the interests of employees and shareholders. The variable performance component is a complementary management tool designed to promote the achievement of overriding objectives. In addition, the Performance Share Matching Plan (PSMP) — the stock ownership plan in place for all members of the Management Board — guarantees direct financial participation in the long-term performance of Tecan's stock. The compensation of the Board of Directors is in line with the current corporate governance recommendations for compensation systems, which stipulate only a fixed fee. Members of the Board of Directors receive a fixed allotment of shares in addition to a specified cash component. These shares vest fully upon completion of their term and pro rata in the event of an early exit. The total amounts for the individual members are nominally determined in Swiss francs, from which the cash component is deducted and the remainder converted into shares. As is the case with the PSMP, the value of the shares is based on the Tecan share's average closing price on the SIX Swiss Exchange during the first four months of the relevant fiscal year. The amount and composition of the compensation paid to both the Board of Directors and the Management Board is assessed and determined by the Compensation Committee. In the year under review, the Compensation Committee comprised Christa Kreuzburg, Oliver Fetzer and Gérard Vaillant, who were directly elected by the Annual General Meeting. The CEO, CFO and Corporate Head of Human Resources regularly attend meetings in an advisory capacity. Invited members of the Management Board do not take part in discussions on agenda items concerning themselves. Minutes are kept of the meetings. The Compensation Committee proposes motions to the Board of Directors, which in turn must approve the HR and salary policies for the entire Group as well as the general conditions of employment for members of the Management Board.
The Compensation Committee defines the compensation amounts to be paid to the members of the Management Board. The Board of Directors then reviews and approves the target achievement of the CEO and members of the Management Board and the actual bonus to be paid. The amount and type of compensation to be paid to the Board of Directors is reviewed annually by the Compensation Committee and put before the Board of Directors. Every two to three years, the compensation of the Board of Directors is benchmarked by an external specialist and, if necessary, adjustments are proposed. Each year, the Board of Directors submits a proposal to the Annual General Meeting on the maximum total compensation for the members of the Management Board for the fiscal year following the Annual General Meeting (January 1 to December 31).
In 2016, a comparison was made of the salaries of the Management Board members by an external specialist (Willis Towers Watson). Compensation at Tecan was compared with a selection of companies from the medical devices and suppliers, pharmaceuticals, chemical and foodstuffs sectors. The system is based on an analytical approach in which industry, value chain and size (sales volume and employees) are weighted and applied to transform each job into a relative value. Overall, the total compensation paid to members of the Management Board is in line with that of the reference companies. This confirmed the fundamental results of the 2012 and 2014 compensation comparison for the members of the Management Board with comparable companies (2012: by AON Hewitt; 2014: by Mercer).
All employees of Tecan Group go through a formalized target and performance review process, which generally takes place at least once a year, shortly after the end of the fiscal year. This process forms the basis for the calculation of individual employees' performance-based pay for the preceding fiscal year. It also ensures that consistent targets are set across the Group for the new fiscal year and promotes the development of both individual employees and the Group. Personal targets are determined in the performance review process at an individual meeting with the employee's upervisor.
The System
The compensation system for members of the Management Board and extended Management Board of Tecan Group Ltd. is based on three central pillars: a fixed cash component (fixed or base salary), a variable cash component (variable salary component) and a variable long-term stock ownership plan (Performance Share Matching Plan). For members of management levels three and four and key employees at the Tecan Group, the third pillar consists of either a performance-based share plan or a performance-based option plan. The compensation system for members of management levels one and two in most cases consists of two pillars: a base salary (fixed or base salary) and a variable component (variable salary component) based on the performance review. In addition, outstanding performance may be rewarded with one-time bonuses in the form of options. Employees are paid a fixed salary and may receive individual, performance-based, one-time spot cash bonus payments.
Cash Compensation
The compensation structure at all management levels is based on the Variable Pay Policies adopted by the Board of Directors. These call for a target salary to be determined. For members of the Management Board, the target salary is made up of a fixed component (60% of the target salary for the CEO or 70% for the other members) and a variable component (40% of the target salary for the CEO or 30% for the other members). The amount of the variable component is based on achievement of both Group financial targets and other quantitative and qualitative corporate goals. The financial targets (sales and EBITDA margin) are set annually by the Board of Directors in December for the following year. If the target is fully met, 100% of the variable compensation is paid out. However, as stipulated in the Articles of Incorporation, the CEO's short-term variable compensation may not exceed 150% of the fixed salary and that of Management Board members may not exceed 100% of the fixed salary. In the year under review, financial targets at Group level were slightly exceeded overall, and a component of just above 100% was paid out accordingly.
If the defined targets are exceeded, depending on the degree of exceedance, up to 200% of the target component may be paid out. Instead of receiving cash, members of the Management Board and extended Management Board were able in past years to invest up to 150% of the target variable compensation in stock under the PSMP (“voluntary purchases”). This possibility is no longer exercised with effect from fiscal year 2016 in order to reduce the complexity of the compensation system caused by this option.
Employee participation plans
In addition to cash compensation, the members of the Management Board participated in the Performance Share Matching Plan (PSMP) in the year under review. This share plan is a long-term incentive (LTI) plan based on allotment of Tecan Group Ltd. registered shares to the Management Board and the extended Management Board. The shares are blocked for three years from the allotment date. Employees are eligible to receive additional shares ("matching shares") if certain quantitative targets based on the Tecan Group's economic profit are reached three years after the allotment of shares. Participants in the PSMP are eligible for matching shares only if an economic profit was achieved. This mechanism ensures that shareholders' interests are aligned with those of PSMP participants. The economic profit target is based primarily on sales growth and EBIT targets. The factor used to calculate this matching share portion is between 0x and 2.5x, depending on the degree to which the economic profit target is attained. This means that a participant in the PSMP may be eligible for up to 2.5 matching shares per originally allotted share. A formula incorporating the two components of “sales growth in local currencies” and “EBITDA margin” among other factors has been devised for calculating the matching share factor. The two parameters are linked, i.e. EBITDA margin must be higher to achieve a specific factor if growth is low, while higher growth is required if the EBITDA margin is low. The sales growth component has been given a higher weighting, and accounts for two-thirds for the purposes of calculating the matching share factor. The parameter grid is specified anew each year on a look-ahead basis for the coming three-year period in order to clearly establish the financial targets in advance.
The size of the initial allotment of PSMP shares is approved annually by the Board of Directors based on a proposal by the Compensation Committee. In 2016, the initial allotment for Management Board members averaged 29% of total compensation.
STRUCTURE OF THE COMPENSATION SYSTEM
STRUCTURE OF THE COMPENSATION SYSTEM MANAGEMENT BOARD
Annual General Meeting Vote on Compensation
The Ordinance against Excessive Compensation in Listed Companies (OeEC) took effect on January 1, 2014. The compensation and approval mechanism was amended accordingly in 2015 and is set out in the Articles of Incorporation of Tecan Group Ltd. The structure of the Tecan Group's compensation system, with the elements described in this chapter, has remained unchanged since 2010 with the exception of the simplifications in the long-term participation plan. The Compensation Report has been presented to the shareholders since 2012 for retrospective, advisory approval.
Compensation and approval mechanism
Each year, the Board of Directors proposes to the Annual General Meeting for its approval the maximum total amount of compensation to be paid to the Board of Directors for the period up to the next Annual General Meeting and to the Management Board for the following fiscal year. In addition, as previously, each year the Board of Directors presents the Annual General Meeting with the Compensation Report for its retrospective, advisory approval in accordance with Art. 15 (7) of the Articles of Incorporation. The Board of Directors will propose to the 2017 Annual General Meeting the advance approval of compensation for the Board of Directors and Management Board for fiscal year 2018. For 2017, the Compensation Report will be presented to the shareholders for retrospective, advisory approval at the 2018 Annual General Meeting.
SALARY STRUCTURE CEO
SALARY STRUCTURE MANAGEMENT BOARD
(WITHOUT CEO)
COMPENSATION AND APPROVAL MECHANISM
APPLICATION FOR A MAXIMUM TOTAL AMOUNT FOR THE MANAGEMENT BOARD
The Annual General Meeting of April 11, 2017, will be asked to approve a maximum total amount in Swiss francs for compensation of the Management Board for fiscal year 2018. The most significant factors in the calculation of this maximum amount are the estimated performance-based compensation and the number of members of the Management Board. As was the case last year, the proposal for 2018 is based on eight members.
In determining variable compensation, the calculation of this maximum amount assumes that the defined performance targets are significantly exceeded and that the threshold for the payment of 200% of the variable component is met. The maximum matching share factor of 2.5 is also assumed for the long-term stock ownership plan, the Performance Share Matching Plan. To make the calculation of the maximum amount as transparent and comprehensible as possible, complex mathematical formulae and methods have been avoided. For example, future payments were not discounted. Likewise, in calculating the value of matching shares, no complex formula such as a Monte Carlo model was used, but simply the value of the initial allotment of shares in Swiss francs multiplied by the maximum factor of 2.5.
In 2016, the average target attainment of all Management Board members was 105.2%, and a matching share factor of approximately 2.2 was attained for the three-year period ending in 2016 (2014–2016).
In table 1, the theoretical maximum amounts from the already completed three-year cycles starting in 2013 and 2014 are compared with the actual amounts in order to provide a better understanding. These figures are not available for the three-year cycles starting in 2015 and 2016 as the cycles of the stock ownership plan have not yet come to an end. If the proposed maximum total amount is not approved by the Annual General Meeting, the Board of Directors can submit new proposals to the same Annual General Meeting at any time or call a new General Meeting if it does not submit new proposals or if the Annual General Meeting also rejects the new proposals. The Board of Directors can submit a proposal to retrospectively increase an approved total amount to the Annual General Meeting at any time.
Table 1
| Completed Cycles | Motion 2016 | Motion 2017 | |||||
| Theoretical | Theoretical | Cycle 2017 – 2019
| Cycle 2018 – 2020
| ||||
| 2013 | 2015 | 2014 | 2016 | 2017 | 2019 | 2018 | 2020 |
Base salary & fringe benefits | 2,234 |
| 2,713 |
|
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|
|
|
Variable salary | 2,544 |
| 2,576 |
|
|
|
|
|
Social benefits | 875 |
| 946 |
|
|
|
|
|
Contingencies | 0 |
| 0 |
|
|
|
|
|
Total cash payments | 5,766 |
| 6,235 |
| 6,700 |
| 6,800 |
|
(Number of members of the Management Board) | 8 |
| 8 |
| 8 |
| 8 |
|
|
|
|
|
|
|
|
|
|
Initial share grant (value) | 1,272 |
| 1,843 |
|
|
|
|
|
Potential additional shares (value “Matching Shares”) |
| 3,180 |
| 4,608 |
|
|
|
|
Social security for granted shares | 81 | 202 | 113 | 237 |
|
|
|
|
Potential additional shares (value “Matching Shares”) on voluntary shares |
| 4,770 |
| 4,830 |
|
|
|
|
Contingencies | 0 | 0 |
|
| ||||
Total (potential) long-term incentives | 9,505 | 11,6311 | 11,500 | 11,700 | ||||
|
Effective Cycle 2013 – 2015 |
Effective Cycle 2014 – 2016 |
Effective Cycle 2017 – 2019 |
Effective Cycle 2018 – 2020 | ||||
Base salary & fringe benefits | 2,347 |
| 2,713 |
|
|
|
|
|
Variable salary | 494 |
| 843 |
|
|
|
|
|
Social benefits | 644 |
| 734 |
|
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|
|
|
Total cash payments | 3,485 |
| 4,290 |
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|
|
Initial share grant (value) | 1,272 |
| 1,843 |
|
|
|
|
|
Voluntary shares (value) | 371 |
| 412 |
|
|
|
|
|
Social security for granted shares | 104 |
| 138 |
|
|
|
|
|
Additional shares (“Matching Shares”; initial grant and voluntary investment) |
| 3,317 |
| 7,188 |
|
| ||
Total long-term incentives | 5,064 | 9,581 |
|
| ||||
Effective compensation in % as of the | 56% | 78% |
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|
1 Share price per 30.12.2016 (CHF 158.90)
Additional amounts for members of the Management Board
In accordance with the Articles of Incorporation, the Board of Directors may pay an additional amount as compensation in the event that new members are appointed to the Management Board following the approval of the maximum total compensation. For a new CEO, this additional amount may not exceed the maximum total compensation for the previous CEO approved by the Annual General Meeting for the relevant fiscal years by more than 35%; for any other new members of the Management Board, it may not exceed the average total compensation of a Management Board member for the relevant fiscal years by more than 25%. The average total compensation of a Management Board member is equal to the approved maximum total sum for the members of the Management Board after the deduction of the amount due to the CEO, divided by the number of members of the Management Board (excluding the CEO) on the day that the total sum is approved by the Annual General Meeting.
Comparability of the proposal to the Annual General Meeting with the disclosure of annual compensation of Management Board members
As outlined, the calculation of a maximum total amount for the members of the Management Board depends on certain assumptions. The amounts in the disclosed compensation table further down will therefore generally differ from those in the proposal to the Annual General Meeting and the values in Table 1 above. The deviations are mainly the result of the differing treatment of the long-term stock ownership plan. In order to increase comparability, the key differences are described below.
In the disclosure of annual compensation:
The actual variable component paid is used.
Only the fair value of initial shares granted as part of the long-term stock ownership plan is taken into account, in the stated total compensation.
In addition, the theoretical maximum matching share factor of 2.5 is used to determine the number of potential matching shares together with the matching shares actually granted in the fiscal year for the three-year period that ended in 2016. In the proposal to the Annual General Meeting, however, a fair value has already been calculated and the maximum matching share factor of 2.5 is assumed.
Application for a maximum total amount for the Board of Directors
The Board of Directors will propose to the Annual General Meeting for its approval the maximum total compensation to be paid to the Board of Directors, consisting of a fixed cash component and a share component nominally determined in Swiss francs. No payments to a pension fund are planned.
Compensation to Former Members of Governing Bodies
No compensation was paid to former members of the Board of Directors or Management Board in 2016.
Related Party Compensation
No compensation was paid in 2016 or the previous year to parties related to present or former members of the governing bodies.
Severance Benefits
Members of the Board of Directors and Management Board are not contractually entitled to any severance payments.
Loans and Credits
Current and former members of governing bodies
Neither in 2016 nor in the previous year were any loans or credits extended to current or former Members of the Board or of the Management Board that remained outstanding at the end of the year.
Related Parties
Neither in 2016 nor in the previous year were any loans or credits extended to related parties of current of former members of governing bodies that remained outstanding at the end of the year.
Compensation to members of the Board of Directors and Management Board
Compensation to the Board of Directors
CHF 1,000 | Year | Fixed fee | Committee fee | Total cash compensation | Social benefits1 | Share award plan: shares granted (number)2 | Fair value of shares granted3 | Total |
Rolf Classon | 2015 | 150 | 34 | 184 | – | 703 | 80 | 264 |
2016 | 150 | 28 | 178 | – | 545 | 80 | 258 | |
Heinrich Fischer | 2015 | 85 | 42 | 127 | 12 | 439 | 50 | 189 |
2016 | 85 | 36 | 121 | 3 | 341 | 50 | 174 | |
Dr. Oliver S. Fetzer | 2015 | 75 | 47 | 122 | – | 352 | 40 | 162 |
2016 | 75 | 37 | 112 | – | 273 | 40 | 152 | |
Lars Holmqvist (since April 2015) | 2015 | 50 | 7 | 57 | 5 | 352 | 40 | 102 |
2016 | 75 | 10 | 85 | – | 273 | 40 | 125 | |
Dr. Karen Hübscher | 2015 | 75 | 10 | 85 | 11 | 352 | 40 | 136 |
2016 | 75 | 10 | 85 | 11 | 273 | 40 | 136 | |
Dr. Christa Kreuzburg | 2015 | 75 | 10 | 85 | 11 | 352 | 40 | 136 |
2016 | 75 | 13 | 88 | 11 | 273 | 40 | 139 | |
Gérard Vaillant | 2015 | 75 | 16 | 91 | 9 | 352 | 40 | 140 |
2016 | 75 | 17 | 92 | 9 | 273 | 40 | 141 | |
Erik Walldén (until April 2015) | 2015 | 25 | 3 | 28 | 6 | – | – | 34 |
2016 | – | – | – | – | – | – | – | |
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Total | 2015 | 610 | 169 | 779 | 54 | 2,902 | 330 | 1,163 |
2016 | 610 | 151 | 761 | 34 | 2,251 | 331 | 1,126 |
2Vesting condition: Graded vesting from May 1, 2015 to April 30, 2016 (Share Plan BoD 2015) and from May 1, 2016 to April 30, 2017 (Share Plan BoD 2016). Vested shares are transferred at the end of the service period (April 30, 2016 and April 30, 2017, respectively). The shares are fully included in the amount of fair value of shares granted.
3Formula for 2015: Shares granted in 2015* fair value at grant (CHF 124.40) and formula for 2016: Shares granted in 2016 * fair value at grant (CHF 134.20).
Compensation to the Management Board
CHF 1,000 | Year | Fixed Salary | Calcu- | Cash payout variable salary | Volun-tary/man-datory invest- | Fair value | Taxable fringe benefits | Total | Social benefits3 | PSMP: Initial shares granted (num- | Fair value | Total | Theoretical maximum of match-
Cycle | Fair value of match-
Cycle
|
Dr. David Martyr (CEO)8 | 2015 | 617 | 516 | 516 | - | - | 8 | 1,141 | 221 | 3,516 | 374 | 1,736 | n/a | 964 |
2016 | 661 | 500 | n/a | n/a | n/a | 7 | 1,168 | 291 | 5,023 | 577 | 2,036 | 12,558 | 1,999 | |
Dr. Rudolf Eugster (CFO) | 2015 | 353 | 190 | 190 | - | - | - | 543 | 119 | 2,197 | 234 | 896 | n/a | 679 |
2016 | 354 | 159 | n/a | n/a | n/a | 5 | 518 | 161 | 2,478 | 284 | 963 | 6,195 | 1,079 | |
Other members of the Management Board9 | 2015 | 1,615 | 783 | 783 | - | - | 43 | 2,441 | 545 | 9,756 | 1,039 | 4,025 | n/a | 1,429 |
2016 | 1,626 | 730 | n/a | n/a | n/a | 48 | 2,404 | 646 | 11,171 | 1,282 | 4,332 | 27,928 | 3,734 | |
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Total | 2015 | 2,585 | 1,489 | 1,489 | - | - | 51 | 4,125 | 885 | 15,469 | 1,647 | 6,657 | n/a | 3,072 |
2016 | 2,641 | 1,389 | n/a | n/a | n/a | 60 | 4,090 | 1,098 | 18,672 | 2,143 | 7,331 | 46,680 | 6,813 |
- Payment will be made in the following year. Up to 50 % of the theoretical 100 % variable part can be taken as voluntary investment (2015) or mandated by the Board of Directors (2016) for the LTI PSMP.
- Excluding the voluntary investment in the LTI PSMP
- Employer’s contribution to social security, including social security on share options exercised and shares transferred during the reporting period, and contributions to post-employment benefit plans
- Vesting and granting conditions: Vesting January 1, 2015 (PSMP 2015) granted May 4, 2015. Vested January 1, 2016 (PSMP 2016) granted May 2, 2016. Vested shares are blocked until the end of the performance period (December 31, 2017 and 2018, respectively).
- Formula for 2015: Shares granted in 2015 * fair value at grant (CHF 124.40) – 14.4% tax reductions; Formula for 2016: Shares granted in 2016 * fair value at grant (CHF 134.2); tax redemption of 14.4% (3-year holding period) no longer deducted.
- Including the voluntary investment in the LTI PSMP
- Allocated matching shares * stock price as of December 30, 2016 (CHF 158.90)
- Member of the Management Board with the highest compensation in 2015 and 2016.
- 2015: Total eight members; 2016: Total eight members
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