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 r egulatory provisions for Switzerland and will be put to the Annual General Meeting on April 17, 2018, retrospectively for the past fiscal year for an advisory vote.

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 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.

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.

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. 

 

	Completed Cycles				Motion 2017		Motion 2018
	Theoretical  Maximum  Cycle 2014 – 2016		Theoretical  Maximum  Cycle 2015 – 2017		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  Compensation  Cycle 2014 – 2016		Effective  Compensation  Cycle 2015 – 2017		Effective  Compensation  Cycle 2018– 2020		Effective  Compensation  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
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   theoretical maximum	80 %		77 %

All data in CHF 1,000
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.

 

 

	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
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

1. Payment will be made in the following year.
2. Including the first third of the special payment to a new MB member for lost LTI.
3. Employer's contribution to social security and contributions to post-employment benefit plans (including social security on shares transferred during the reporting period).
4. 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).
5. 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).
6. Assigned/allocated matching shares* Stock price as 30.12.2016 (CHF 158.90).
7. 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.
8. Member of the Management Board with the highest compensation in 2016 and 2017.
9. 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.
10. 2016: Total six members; 2017: Total six members (leaving of a member March, 31; entry of a member Dec, 1).