Compensation Report
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 2017 reporting year unless otherwise noted. The Tecan Group has a set of uniform compensation policies that 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 development of the Group’s economic profits. The compensation of the Board of Directors is in line with the current corporate governance recommendations for compensation systems and provides 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 average closing price of Tecan shares 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 (Chairwoman), Oliver Fetzer and Gérard Vaillant. All members were directly elected by the 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 years, the compensation of the Board of Directors and Management Board 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 2017, a comparison was made of the fees of the members of the Board of Directors by an external specialist (Agnes Blust Consulting), which involved comparing the compensation at Tecan with that of a selection of companies listed on the Swiss Performance Index (SPI) that have similar market capitalization (excluding the financial and real estate sectors). Overall, the total compensation paid to members of the Board of Directors is in line with that of the reference companies. Only the Chairman of the Board of Directors was found to be below the average of comparable companies.
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 supervisor.
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 (annual variable salary component) and a variable long-term stock ownership plan (Performance Share Matching Plan). For members of management levels three and four (senior management) 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 (middle management) in most cases consists of two pillars: a base salary (fixed or base salary) and a variable component (annual 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. In the year under review, financial targets at Group level were exceeded overall, and a component above 100% was paid out accordingly.
If the defined targets are exceeded, depending on the degree of exceedance, up to 200% of the variable component may be paid out.
Additional provisions regarding the compensation policy, e.g. regarding maximum payouts of variable compensation, can be found in the Articles of Incorporation. Those are available for consultation on the Company’s webpage at www.tecan.com/tecan-corporate-policies.
Employee Participation Plans
In addition to cash compensation, the members of the Management Board participate in a long-term incentive plan (LTI). This Performance Share Matching Plan (PSMP) is based on quantitative targets defined for a three-year period. The 2015 to 2017 cycle came to an end in the year under review. The PSMP is initially (first year of the cycle) based on the 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 a certain 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 the 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, among other factors, the two components of “sales growth in local currencies” and “EBITDA margin” (as of 2016 LTI cycle; prior to that the basis was EBIT margin) has been devised for the calculation of the matching share factor. The two parameters are linked, meaning that the EBITDA margin must be higher to achieve a specific factor if growth is lower, while higher growth is required if the EBITDA margin is lower. 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 2017, the initial allotment for Management Board members averaged 33% 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 compensation system of the Tecan Group, with the elements described in this chapter, has remained unchanged since 2016.
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 2018 Annual General Meeting the advance approval of compensation for the Board of Directors and Management Board for fiscal year 2019. For 2018, the Compensation Report will be presented to the shareholders for retrospective, advisory approval at the 2019 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 17, 2018, will be asked to approve a maximum total amount in Swiss francs for compensation of the Management Board for fiscal year 2019. 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 2019 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 annual 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 2017, the average target attainment of all Management Board members was approximately 125%, and a matching share factor of 2.5 was attained for the three-year period ending in 2017 (2015 to 2017).
In table 1, the theoretical maximum amounts from the already completed three-year cycles starting in 2014 and 2015 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 2016 and 2017 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 2017 | Motion 2018 | |||||
| Theoretical | Theoretical | Cycle 2018 – 2020 (anticipated) | Cycle 2019 – 2021 (anticipated) | ||||
| 2014 | 2016 | 2015 | 2017 | 2018 | 2020 | 2019 | 2021 |
Base salary & fringe benefits | 2,713 |
| 2,635 |
|
|
|
|
|
Variable salary | 2,576 |
| 2,533 |
|
|
|
|
|
Social benefits | 946 |
| 878 |
|
|
|
|
|
Contingencies | 0 |
| 0 |
|
|
|
|
|
Total cash payments | 6,235 |
| 6,046 |
| 6,800 |
| 6,800 |
|
(Number of members of the Management Board) | 8 |
| 8 |
| 8 |
| 8 |
|
|
|
|
|
|
|
|
|
|
Initial share grant (value) | 1,843 |
| 1,924 |
|
|
|
|
|
Potential additional shares (value “Matching Shares”) |
| 4,608 |
| 4,810 |
|
|
|
|
Social security for granted shares | 113 | 237 | 117 | 348 |
|
|
|
|
Potential additional shares (value “Matching Shares”) on voluntary shares |
| 4,830 |
| 4,749 |
|
|
|
|
Contingencies | 0 | 0 |
|
| ||||
Total (potential) long-term incentives | 11,631 | 11,948 | 11,700 | 11,700 | ||||
| Effective Cycle 2014 – 2016 | Effective Cycle 2015 – 2017 | Effective Cycle 2018– 2020 | Effective Cycle 2019 – 2021 | ||||
Base salary & fringe benefits | 2,713 |
| 2,635 |
|
|
|
|
|
Variable salary | 843 |
| 1,488 |
|
|
|
|
|
Social benefits | 734 |
| 769 |
|
|
|
|
|
Total cash payments | 4,290 |
| 4,892 |
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|
|
|
|
|
|
|
|
|
|
|
|
Initial share grant (value) | 1,843 |
| 1,924 |
|
|
|
|
|
Voluntary shares (value) | 412 |
| 568 |
|
|
|
|
|
Social security for granted shares1 | 606 |
| 197 |
|
|
|
|
|
Additional shares (“Matching Shares”; initial grant and voluntary investment)2 |
| 7,062 |
| 6,232 |
|
| ||
Total long-term incentives | 9,923 | 8,921 |
|
| ||||
Effective compensation in % as of the | 80 % | 77 % |
1Cycle 2015-2017: excl. social security for matching shares.
1Cycle 2014-2016: share price per 17.3.2017 (CHF 156.10).
Cycle 2015-2017: share price per grant date (CHF 124.40); effective value can vary.
Comparability of the proposal to the Annual General Meeting with the disclosure of annual compensation for members of the Management Board
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 will therefore generally differ from those in the proposal to the Annual General Meeting and from the values in Table 1. 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 2017. 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 2017.
Related Party Compensation
No compensation was paid in 2017 or the previous year to parties related to present or former members of the governing bodies.
Termination Benefits
Members of the Board of Directors and Management Board are not contractually entitled to any severance payments.
Loans and Credits
Actual and former Members of the Board or of the Management Board
Neither in 2017 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 2017 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
| Year | Fixed fee | Committee fee | Total cash compensation | Social benefits1 | Share award plan: shares granted (number)2 | Fair value of shares granted3 | Total <br/>compensation |
CHF 1,000 | ||||||||
Rolf Classon <br/>(Chairman) | 2016 | 150 | 28 | 178 | – | 545 | 73 | 251 |
2017 | 150 | 27 | 177 | – | 501 | 86 | 262 | |
Heinrich Fischer <br/>(Vice Chairman) | 2016 | 85 | 36 | 121 | 3 | 341 | 46 | 170 |
2017 | 85 | 34 | 119 | 3 | 313 | 54 | 176 | |
Dr. Oliver S. Fetzer | 2016 | 75 | 37 | 112 | – | 273 | 37 | 149 |
2017 | 75 | 31 | 106 | – | 250 | 43 | 148 | |
Lars Holmqvist (since April 2015) | 2016 | 75 | 10 | 85 | – | 273 | 37 | 122 |
2017 | 75 | 10 | 85 | – | 250 | 43 | 128 | |
Dr. Karen Hübscher | 2016 | 75 | 10 | 85 | 11 | 273 | 37 | 133 |
2017 | 75 | 10 | 85 | 11 | 250 | 43 | 138 | |
Dr. Christa Kreuzburg | 2016 | 75 | 13 | 88 | 11 | 273 | 37 | 136 |
2017 | 75 | 18 | 93 | 11 | 250 | 43 | 147 | |
Gérard Vaillant4 | 2016 | 75 | 17 | 92 | 9 | 273 | 37 | 138 |
2017 | 75 | 20 | 95 | – | 250 | 43 | 138 | |
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Total | 2016 | 610 | 151 | 761 | 34 | 2,251 | 304 | 1,099 |
2017 | 610 | 150 | 760 | 25 | 2,064 | 354 | 1,138 |
- Employer’s contribution to social security.
- Vesting condition: Graded vesting from May 1, 2016 to April 30, 2017 (Share Plan BoD 2016) and from May 1, 2017 to April 30, 2018 (Share Plan BoD 2017). Vested shares are transferred at the end of the service period (April 30, 2017 and April 30, 2018, respectively). The shares are fully included in the amount of fair value of shares granted.
- Formula for 2016: Shares granted in 2016* fair value at grant (CHF 134.20) and formula for 2017: Shares granted in 2017 * fair value at grant (CHF 171.30).
- Seniority gift not included in the total compensation; worth CHF 4,000 (2017).
Compensation to the Management Board
| Year | Fixed Salary | Calculated variable salary1 | Taxable fringe <br/>benefits2 | Total cash compensation | Social benefits3 | PSMP: Initial shares granted (number)4 | Fair value of initial grant5 | Total compensation | Theoretical maximum of matching shares (number)
Cycle2017 – 2019 | Fair value of matching shares pay out
Cycle 2014 – 2016 (2016)6 Cycle 2015 – 2017 (2017)7 |
CHF 1,000 | |||||||||||
Dr. David Martyr (CEO)8 | 2016 | 661 | 500 | 7 | 1,168 | 291 | 5,023 | 673 | 2,132 | n/a | 1,999 |
2017 | 686 | 575 | 12 | 1,273 | 450 | 11,6209 | 1,991 | 3,714 | 14,550 | 2,663 | |
Dr. Rudolf Eugster (CFO) | 2016 | 354 | 159 | 5 | 518 | 161 | 2,478 | 332 | 1,011 | n/a | 1,079 |
2017 | 354 | 190 | 9 | 553 | 201 | 2,279 | 390 | 1,144 | 5,698 | 1,438 | |
Other members of the Management Board10 | 2016 | 1,626 | 730 | 48 | 2,404 | 646 | 11,171 | 1,498 | 4,548 | n/a | 3,734 |
2017 | 1,448 | 777 | 136 | 2,361 | 782 | 8,838 | 1,518 | 4,661 | 22,095 | 4,958 | |
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Total | 2016 | 2,641 | 1,389 | 60 | 4,090 | 1,098 | 18,672 | 2,503 | 7,691 | n/a | 6,813 |
2017 | 2,488 | 1,542 | 157 | 4,187 | 1,433 | 22,737 | 3,899 | 9,519 | 42,343 | 9,059 |
- Payment will be made in the following year.
- Including the first third of the special payment to a new MB member for lost LTI.
- Employer's contribution to social security and contributions to post-employment benefit plans (including social security on shares transferred during the reporting period).
- Vesting and granting conditions: Vesting January 1, 2016 (PSMP 2016) granted May 2, 2016. Vesting January 1, 2017 (PSMP 2017) granted May 2, 2017. Vested shares are blocked until the end of the performance period (December 31, 2018 and 2019, respectively).
- Formula for 2016: Shares granted in 2016 * fair value at grant (CHF 134.20); Formula for 2017: Shares granted in 2017 * fair value at grant (CHF 171.30).
- Assigned/allocated matching shares* Stock price as 30.12.2016 (CHF 158.90).
- Assigned/allocated matching shares* Stock price as 29.12.2017 (CHF 201.50) minus calculated matching shares of a leaving member of the Management Board.
- Member of the Management Board with the highest compensation in 2016 and 2017.
- In the reporting year, the CEO was granted a one-off 7,000 PSMP shares as an additional long-term incentive (LTI), although the matching share potential is limited to 3,000 shares.
- 2016: Total six members; 2017: Total six members (leaving of a member March, 31; entry of a member Dec, 1).
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