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 will be put to the Annual General Meeting on April 14, 2014, for an advisory vote. The report is based on Section 5 of the Annex to the SIX Swiss Exchange Directive on Information Relating to Corporate Governance.

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: the Company’s success, individual performance, function and the labor market. The ultimate goal of the compensation system is to attract highly qualified and motivated specialists and managers to join the Company and commit to it for the long term, and to reconcile 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 share plan in place for all members of the Management Board (since 2010) – guarantees direct financial participation in the long-term performance of Tecan shares. In the year under review, the compensation of the Board of Directors was adapted in line with the current corporate governance recommendations for compensation systems, which stipulate only a fixed fee. In contrast to 2012, the members of the Board of Directors therefore no longer participate in the Performance Share Matching Plan (PSMP) and instead receive only a “share entitlement”. The total compensation for the Board of Directors accordingly consists of a cash component and a share component. The total amount for the individual members is 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 share value is determined on the basis of the average closing exchange rates of the Tecan share on the SIX Swiss Exchange in the first four months of the respective 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 Committee, whose members are appointed by the Board of Directors, comprised Oliver Fetzer (Chairman) and Christa Kreuzburg (member). The Chairman of the Board of Directors, Rolf Classon, attends the Committee’s meetings whenever possible but does not have voting rights. The CEO, CFO and Corporate Head of Human Resources participate in the meetings regularly in an advisory capacity. They 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 the 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 the target achievement of the CEO and of all members of the Management Board and approves the actual bonus to be paid. The amount and type of remuneration to be paid to the Board of Directors are reviewed annually by the Compensation Committee and must be approved by the full Board of Directors. 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 remuneration for the previous fiscal year. It also ensures consistent objectives are set across the Group for the fiscal year which has just begun, and promotes the development of both individual employees and the Group. Personal objectives are defined in the performance review process as part of an individual meeting with the employee’s supervisor.

The remuneration system for the Management Board of Tecan Group Ltd. is based on three central pillars: a fixed cash component (fixed or base salary), a variable cash component (bonus) and a variable long-term share plan (Performance Share Matching Plan). For senior management (excluding members of the Management Board) at the Tecan Group, the third pillar consists not of a share plan but a performance-based option plan. The remuneration system for middle management is composed of two pillars: a base salary (fixed or base salary) and a variable component (bonus) based on the performance review. In addition, exceptional achievements may be rewarded with single premiums in the form of options. Employees are paid a fixed salary and individual, performance-based, single premiums paid out periodically in cash.

The management compensation structure is based on the Variable Pay Regulations, which have been approved by the Board of Directors. These provide for the definition of a target salary. For the members of the Management Board, this consists of a fixed or basic salary (70 % of the target salary) and a variable component (30 % of the target salary). In the case of the CEO, the fixed or basic salary accounts for 60 % and the variable component 40 % of the target salary. The amount of the variable component is based on the degree to which the following targets are met: firstly, the Company’s financial targets and secondly, corporate quantitative and qualitative targets. The financial targets (sales and EBIT) are set annually by the Board of Directors in December for the following year. The distribution of the variable component differs depending on function and management responsibility. For senior management, Group targets account for the majority of the variable component (up to 80 %), whereas at lower management levels, the percentage share falls to 40 %. If the targets are exceeded, the maximum amount of the variable component is 200 %. In 2013, results at Group level fell short of the financial targets.

In addition to cash compensation, the members of the Management Board participated in the Performance Share Matching Plan in the year under review. This share participation plan is a long-term incentive program which involves the allotment of registered shares in Tecan Group Ltd. to the members of the Management Board and the extended Management Board. Participation in the PSMP was extended in the year under review to a select group of members of senior management and key employees. When the share plan was launched, the previous allotment value under the option plans in place until 2009 was taken as the basis for the initial grant of shares. The shares are blocked for three years from the allotment date, and must be returned on a pro rata basis in the event of termination by the employee before expiration of the three-year period.

The variable cash component is also tied to this long-term incentive program: if the variable component of the bonus paid to the Management Board and the extended Management Board exceeds 100 % of the target bonus based on the achievement of the Company’s financial objectives, then the portion in excess of 100 % can also be allocated in the form of shares. In addition, a claim for additional shares (called matching shares) will exist if specific financial targets based on an economic profit of the Tecan Group are reached three years after the allotment of shares.

This ensures that the Company’s shareholders also benefit as the value of the Company increases. The economic profit target is primarily based on sales growth and EBIT targets that were compared with companies in the life science sector that are also active globally in the instrument business. The factor used to calculate this matching share portion is between 0 and 2.5, depending on the degree to which the economic profit target is attained. This means that a member of the Management Board can claim a maximum of 2.5 matching shares per originally allotted share. A formula incorporating the two components of “sales growth in Swiss francs” and “EBIT margin” amongst other factors has been devised for the calculation of the matching share factor provided that a certain capital turnover is reached. The two parameters are linked, i. e. in order to achieve a specific factor in the case of low growth, the EBIT margin has to be higher. Likewise, if the EBIT margin is low then higher growth must be generated. 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 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 2013, the members of the Management Board on average received an initial allotment of 18.9 % of the total remuneration.

Members of the Board of Directors and the Management Board have no contractual entitlement to termination benefits.

No loans had been granted to members of the Board of Directors or the Management Board as of December 31, 2012 or December 31, 2013.

¹ Employer’s contribution to social security including social security on share options exercised and shares transferred during the reporting.

² Vesting condition: Graded vesting from May 1, 2013 to April 30, 2014. Vested shares are transferred at the end of the service period (April 30, 2014). The shares are fully included in the amount of fair value of shares granted.

³ Formula: Shares granted in 2013 * fair value at grant (CHF 100.00).

⁴ Vesting condition: Graded vesting from May 1, 2012 to April 30, 2015. Vested shares are blocked until the end of the performance period (April 30, 2015). The shares are fully included in the amount of fair value of initial shares granted.

⁵ Formula: Shares granted in 2012 * fair value at grant (CHF 65.75) * [1 - estimated labor turnover rate (10 %)]

⁶ Vesting conditions: Three years of service and performance target. The terms and conditions are disclosed in note 10.4 of the consolidated financial statements.

⁷ The matching shares granted represent the maximum of potential shares granted in connection with Performance Share Matching Plans (PSMP). Due to the performance target, only a pro rata amount of the potential matching shares granted is included in the fair value of matching shares earned in the period. Fair values of matching shares earned in future periods will be reported in future total compensation amounts with true-ups for fluctuation, matching share factor and share price.

⁸ Formula for 2012: {initial shares granted in 2011 that qualify for matching shares [total 3,232 shares] * estimated matching share factor of 0.18} * individual service period pro rata * share price at year-end 2012 [CHF 76.50] = fair value of matching shares PSMP 2011 earned in period 2012; and formula for 2013: {initial shares granted in 2011 that qualify for matching shares [total 3,232 shares] * estimated matching share factor of 0.00} * individual service period pro rata * share price at year-end 2013 [CHF 105.50] = fair value of matching shares PSMP 2011 earned in period 2013.

⁹ Formula for 2012: {initial shares granted in 2012, that qualify for matching shares [total 2,959 shares] * estimated matching share factor of 1.25} * individual service period pro rata * share price at year-end 2012 [CHF 76.50] = fair value of matching shares PSMP 2012 earned in period 2012 and formula for 2013: {initial shares granted in 2012 that qualify for matching shares [total 2,959 shares] * estimated matching share factor of 0.00} * individual service period pro rata * share price at year-end 2013 [CHF 105.50] = fair value of matching shares PSMP 2012 earned in period 2013.

Gérard Vaillant held the function of an interim CEO during the period from February to October 2012. The corresponding compensation is reported in the table “Compensation to the Management Board”. His total compensation in 2012 was CHF 1,139,000. 

¹ Payment will be made in following year.

² 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.

³ Vesting conditions: Graded vesting from January 1, 2012 to December 31, 2014 (PSMP 2012) and from January 1, 2013 to December 31, 2015 (PSMP 2013). Vested shares are blocked until the end of the performance period (December 31, 2014 and 2015 respectively). The shares are fully included in the amount of fair value of initial shares granted.

⁴ Formula for 2012: Shares granted in 2012 * fair value at grant (CHF 65.75) * [1 - estimated labor turnover rate (10 %)] and formula for 2013: Shares granted in 2013 * fair value at grant (CHF 83.50) * [1 - estimated labor turnover rate (10%)].

⁵ Vesting conditions: Three years of service and performance target. The terms and conditions are disclosed in note 10.4 of the consolidated financial statements.

⁶ The matching shares granted represent the maximum of potential shares granted in connection with Performance Share Matching Plans (PSMP). Due to the performance target, only a pro rata amount of the potential matching shares granted is included in the fair value of matching shares earned in the period. Fair values of matching shares earned in future periods will be reported in future total compensation amounts with true-ups for fluctuation, matching share factor and share price.

⁷ Formula for 2012: {initial shares granted 2010 plus mandatory and voluntary investments that qualify for matching shares [total 12,488 shares]) * estimated matching share factor of 0.00} * individual service period pro rata * share price at year-end 2012 [CHF 76.50] = fair value of matching shares PSMP 2010 earned in period 2012; formula for 2013: plan ended December 31, 2012.

⁸ Formula for 2012: {initial shares granted 2011 plus mandatory and voluntary investments that qualify for matching shares [total 14,428 shares]) * estimated matching share factor of 0.36} * individual service period pro rata * share price at year-end 2012 [CHF 76.50] = fair value of matching shares PSMP 2011 earned in period 2012; formula for 2013: {(initial shares granted 2011 plus mandatory and voluntary investments that qualify for matching shares [total 9,050 shares]) * estimated matching share factor of 0.00} * individual service period pro rata * share price at year-end 2013 [CHF 105.50] = fair value of matching shares PSMP 2011 earned in period 2013.

⁹ Formula for 2012: {initial shares granted 2012 plus mandatory and voluntary investments that qualify for matching shares [total 26,502 shares]) * estimated matching share factor of 2.50 * individual service period pro rata * share price at year-end 2012 [CHF 76.50] = fair value of matching shares PSMP 2012 earned in period 2012 and formula for 2013: {(initial shares granted 2012 plus mandatory and voluntary investments that qualify for matching shares [total 18,961 shares]) * estimated matching share factor of 0.00} * individual service period pro rata * share price at year-end 2013 [CHF 105.50] = fair value of matching shares PSMP 2012 earned in period 2013.

¹⁰ Formula for 2013: {initial shares granted 2013 plus voluntary investments that qualify for matching shares [total 19,442 shares]) * estimated matching share factor of 2.50 * individual service period pro rata * share price at year-end 2013 [CHF 105.50] = fair value of matching shares PSMP 2013 earned in period 2013.

¹¹ The employment started on October 8, 2012.

¹² Member of the Management Board with the highest compensation in 2013.

¹³ Gérard Vaillant was interim CEO during the period from February to October 2012.

¹⁴ Thomas Bachmann was released from work on February 13, 2012, where as the formal employment ended on October 31, 2012.

¹⁵ Member of the Management Board with the highest compensation in 2012.

¹⁶ 2012: Total six members, including two members who left and one member who joined the Management Board during the year.

¹⁷ 2013: Total seven members, including one member who left and three members who joined the Management Board during the year.

No termination benefits were paid in 2012 and 2013.

For details of the employee participation plans please refer to note 10.4 of the consolidated financial statements.

¹ Members are entitled to vote, but only 3,593 shares (2012: 2,229 shares) are vested.

² Only vested options.

³Shares and share options in 2012 are not disclosed, because the member of the Board joined after year-end 2012.

⁴ Shares and share options in 2013 are not disclosed, because the member of the Board stepped down before year-end 2013.

¹ Members are entitled to vote, but only 25,432 shares (2012: 18,848 shares) are vested.

² Only vested options.

³ Shares and share options in 2012 are not disclosed, because the member of the Board joined after year-end 2012.

⁴ Shares and share options in 2013 are not disclosed, because the member of the Board stepped down before year-end 2013.