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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 
Maximum 
Cycle 2013 – 2015

Theoretical 
Maximum 
Cycle 2014 – 2016

Cycle 2017 – 2019
(anticipated)

 

Cycle 2018 – 2020
(anticipated)

 

 

2013

2015

2014

2016

2017

2019

2018

2020

Base salary & fringe benefits

2,234

 

2,713

 

 

 

 

 

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 
Compensation 

Cycle 2013 – 2015

 

Effective 
Compensation 

Cycle 2014 – 2016

 

Effective 
Compensation 

Cycle 2017 – 2019

 

Effective 
Compensation 

Cycle 2018 – 2020

Base salary & fringe benefits

2,347

 

2,713

 

 

 

 

 

Variable salary

494

 

843

 

 

 

 

 

Social benefits

644

 

734

 

 

 

 

 

Total cash payments

3,485

 

4,290

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 
 theoretical maximum

  56%

78%

 

 

All data in CHF 1,000
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 
compensation

Rolf Classon 
(Chairman)

2015

 150 

 34 

184 

– 

 703 

 80 

 264 

2016

 150 

 28 

 178 

– 

 545 

 80 

 258 

Heinrich Fischer 
(Vice Chairman) 

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 

57 

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

 – 

 – 

 – 

 – 

– 

– 

 – 

 

 

 

 

 

 

 

 

 

Total 

2015

 610 

 169 

 779 

 54 

 2,902 

 330 

 1,163 

2016

 610 

 151 

 761 

 34 

 2,251 

 331 

 1,126 

1Employer’s contribution to social security
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-
lated variable salary1

Cash payout variable salary

Volun-tary/man-datory invest-
ment on variable salary; granted (number of shares)

Fair value
of vol-
untary/
man-
datory shares

Taxable fringe benefits

Total
cash
com-
pensa-
tion2

Social benefits3

PSMP: Initial shares granted (num-
ber)4

Fair value
of initial grant5

Total
com-
pensa-
tion6

Theoretical maximum of match-
ing shares (number)

 

Cycle
2016-2018

Fair value of match-
ing shares pay out 

 

Cycle
2013-2015 (2015)
Cycle
2014-2016 (2016)

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

  1. 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.
  2. Excluding the voluntary investment in the LTI PSMP
  3. 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
  4. 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).
  5. 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.
  6. Including the voluntary investment in the LTI PSMP
  7. Allocated matching shares * stock price as of December 30, 2016 (CHF 158.90)
  8. Member of the Management Board with the highest compensation in 2015 and 2016.
  9. 2015: Total eight members; 2016: Total eight members
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