Compensation report
5. Compensation for the financial year
5.1 Board of Directors compensation
The tables in this section are audited by the external auditor.
The following table shows the compensation for the individual members of the Board of Directors for the 2018/19 financial year (9 members from the AGM 2018) and for the 2017/18 financial year (8 members). The total compensation in the 2018/19 financial year was CHF 3.4 million based on the grant value of the restricted shares (2017/18: CHF 3.1 million).
Board of Directors compensation
|
in CHF |
2018/19 |
|||||||||||
|
|
|
Cash retainer (fixed fee) |
|
Meeting attendance fee/ expenses 1) |
|
Total cash compensation |
|
Grant value of restricted shares |
|
Total compensation |
|
Employer’s social insurance contribution (AHV/ALV) 2) |
|
Robert F. Spoerry 3) Chairman of the Board of Directors Chairman of the Nomination and Compensation Committee |
|
500,000 |
|
2,500 |
|
502,500 |
|
399,821 |
|
902,321 |
|
54,808 |
|
Beat Hess Vice-Chairman of the Board of Directors Member of the Nomination and Compensation Committee |
|
122,500 |
|
8,000 |
|
130,500 |
|
199,910 |
|
330,410 |
|
17,007 |
|
Lynn Dorsey Bleil 4) Member of the Audit Committee |
|
106,000 |
|
7,500 |
|
113,500 |
|
199,910 |
|
313,410 |
|
19,033 |
|
Lukas Braunschweiler 5) |
|
80,000 |
|
3,500 |
|
83,500 |
|
199,910 |
|
283,410 |
|
157,567 |
|
Stacy Enxing Seng Member of the Nomination and Compensation Committee |
|
107,500 |
|
8,000 |
|
115,500 |
|
199,910 |
|
315,410 |
|
19,169 |
|
Michael Jacobi Chairman of the Audit Committee |
|
125,000 |
|
8,000 |
|
133,000 |
|
199,910 |
|
332,910 |
|
17,164 |
|
Ronald van der Vis Member of the Audit Committee |
|
107,500 |
|
8,000 |
|
115,500 |
|
199,910 |
|
315,410 |
|
19,169 |
|
Anssi Vanjoki Member of the Audit Committee |
|
107,500 |
|
8,000 |
|
115,500 |
|
199,910 |
|
315,410 |
|
33,031 |
|
Jinlong Wang |
|
100,000 |
|
6,000 |
|
106,000 |
|
199,910 |
|
305,910 |
|
18,525 |
|
Total (active members) |
|
1,356,000 |
|
59,500 |
|
1,415,500 |
|
1,999,101 6) |
|
3,414,601 6) |
|
355,473 |
The compensation shown in the table above is gross and based on the accrual principle.
1) Attendance fees and expenses are based on the number of meetings attended by each member of the Board of Directors (no attendance fees for the Chairman).
2) Employer social security contributions on the cash retainer and the tax value of options exercised and restricted shares granted during the financial year. The total compensation including the employer social security contributions in the financial year, amounts to CHF 3,321,011 (approach applied for the purposes of the 2017 Annual General Shareholder Meeting vote).
3) Including work and attendance in the Nomination and Compensation Committee and Audit Committee.
4) New member of the Audit Committee since June 2018
5) New member of the Board of Directors since June 2018
6) Equals CHF 1,550,038 for the value of the shares and CHF 2,965,538 for total compensation, each based on the tax value of the restricted shares at grant. The tax value at grant differs from the market value at grant by reduction of 6% per year of restriction and reflects that once the restricted shares have been granted, they are then blocked over a restriction period of five years and four months for the Chairman of the Board of Directors and four years and four months for the other members of the Board of Directors, as described before. Calculation of the tax value of restricted shares: The tax discounted value per restricted share at grant date for the Chairman of the Board of Directors was CHF 134.93, and for the other members of the Board of Directors CHF 143.05 (approach applied for the purposes of the AGM 2018 vote).
|
in CHF |
2017/18 |
|||||||||||
|
|
|
Cash retainer (fixed fee) |
|
Meeting attendance fee/ expenses 1) |
|
Total cash compensation |
|
Grant value of restricted shares |
|
Total compensation |
|
Employer’s social insurance contribution (AHV/ALV) 2) |
|
Robert F. Spoerry 3) Chairman of the Board of Directors Chairman of the Nomination and Compensation Committee |
|
500,000 |
|
2,500 |
|
502,500 |
|
402,769 |
|
905,269 |
|
54,572 |
|
Beat Hess Vice-Chairman of the Board of Directors Member of the Nomination and Compensation Committee |
|
122,500 |
|
8,000 |
|
130,500 |
|
201,310 |
|
331,810 |
|
16,912 |
|
Lynn Dorsey Bleil |
|
100,000 |
|
5,500 |
|
105,500 |
|
201,310 |
|
306,810 |
|
18,434 |
|
Stacy Enxing Seng Member of the Nomination and Compensation Committee |
|
107,500 |
|
8,000 |
|
115,500 |
|
201,310 |
|
316,810 |
|
19,076 |
|
Michael Jacobi Chairman of the Audit Committee |
|
125,000 |
|
8,000 |
|
133,000 |
|
201,310 |
|
334,310 |
|
42,408 |
|
Ronald van der Vis Member of the Audit Committee |
|
107,500 |
|
7,500 |
|
115,000 |
|
201,310 |
|
316,310 |
|
39,245 |
|
Anssi Vanjoki Member of the Audit Committee |
|
107,500 |
|
8,000 |
|
115,500 |
|
201,310 |
|
316,810 |
|
19,076 |
|
Jinlong Wang |
|
100,000 |
|
6,000 |
|
106,000 |
|
201,310 |
|
307,310 |
|
18,434 |
|
Total (active members) |
|
1,270,000 |
|
53,500 |
|
1,323,500 |
|
1,811,939 4) |
|
3,135,438 4) |
|
228,157 |
The compensation shown in the table above is gross and based on the accrual principle.
1) Attendance fees and expenses are based on the number of meetings attended by each member of the Board of Directors (no attendance fees for the Chairman).
2) Employer social security contributions on the cash retainer, the tax value of income derived from options exercised and restricted shares granted during the financial year. The total compensation including the employer social security contributions in the financial year, amounts to CHF 2,941,711 based on the tax value of the restricted shares (approach applied for the purposes of the AGM 2017 vote).
3) Including work and attendance at the Nomination and Compensation Committee and Audit Committee.
4) Equals CHF 1,390,054 for the value of the shares and CHF 2,713,554 for total compensation, each based on the tax value of the restricted shares at grant. The tax value at grant differs from the market value at grant by reduction of 6% per year of restriction and reflects that once the restricted shares have been granted, they are then blocked over a restriction period of five years and four months for the Chairman of the Board of Directors and four years and four months for the other members of the Board of Directors, as described before. The discount, which reflects the practice of the Swiss tax authorities, also takes account of the fact that restricted shares are not tradable and cannot be pledged and are therefore subject to the full share volatility during the blocking period. In addition, for tax purposes the volume-weighted average price on grant date was used whereas the market value per share corresponds to the closing price at grant date. Calculation of the value of restricted shares: The tax discounted value per restricted share at grant date for the Chairman of the Board of Directors was CHF 109.14, and for the other members of the Board of Directors CHF 115.68 (approach applied for the purposes of the AGM 2017 vote).
Explanatory comments to the compensation tables
After the compensation reduction in 2011 no structural Board compensation changes have been made. The restricted shares were historically disclosed based on their tax value. As outlined before, this practice is now aligned with market practice to a disclosure based on the grant market value as at the date of allocation. The data is disclosed on a comparable basis in the tables above for both the financial year 2017/18 (including restatement) and for the financial year 2018/19 using the grant market value for the restricted shares with the tax value provided in the footnotes.
Note that the Board of Directors amounts reported in the tables do not necessarily correspond to the amounts voted as the reporting period follows the Sonova financial year, whereas the voting follows the term of office and hence the period between AGMs.
5.1.1 Approved versus expected total compensation for the members of the Board of Directors
The total compensation paid to the Board of Directors for the period from the AGM 2018 to the AGM 2019 is expected to be CHF 3.4 million at grant value and CHF 3.0 million at tax value; this is based on the approach described in the AGM invitation of using the tax value for the restricted shares, which comes to CHF 3.0 million. The total compensation is within the limit of CHF 3.13 million as approved by the AGM 2018.
|
in CHF 1,000 |
|
Approved for AGM 2017 – AGM 2018 1) |
|
Effective for AGM 2017 – AGM 2018 1) |
|
Approved for AGM 2018 – AGM 2019 1) |
|
Expected for AGM 2018 – AGM 2019 1) |
|
AGM approval year |
|
2017 |
|
2018 |
||||
|
Total compensation |
|
3,000 2) |
|
2,934 2) |
|
3,130 3) |
|
2,991 3) |
|
|
|
|
|
|
|
|
|
|
|
Breakdown total compensation: |
|
|
|
|
|
|
|
|
|
Fixed fees including meeting attendance and expenses |
|
1,453 |
|
1,324 |
|
1,518 |
|
1,440 |
|
Mandatory employer’s social security contributions |
|
185 |
|
219 |
|
n/a |
|
n/a |
|
Tax value of restricted shares |
|
1,362 |
|
1,391 |
|
1,612 |
|
1,551 |
|
|
|
|
|
|
|
|
|
|
|
Number of members of the Board of Directors |
|
8 |
|
8 |
|
9 |
|
9 |
1) Based on tax value for restricted shares (approach applied for the purposes of the AGM 2018 and the AGM 2017 vote).
2) Including social security contributions (approach applied for the purposes of the AGM 2017 vote).
3) Excluding social security contributions (approach applied for the purposes of the AGM 2018 vote forward).
5.1.2 Other compensation, loans, and credit for members of the Board of Directors and related parties
No other compensation was paid for additional services beyond the total compensation disclosed in the tables above.
In the year under review, no payments were made to individuals who are closely related to any former or current member of the Board of Directors.
No loans were granted by Sonova or any other Group company to present or former members of the Board of Directors in the 2018/19 financial year, and no such loans were outstanding as of March 31, 2019. Furthermore, neither Sonova nor any other Group company has granted any loans to related parties of present or former members of the Board of Directors.
5.2 Management Board compensation
The tables in this section are audited by the external auditor.
The system of the VCC is outlined in more detail in section 4.3 of this report. The following KPIs are used in addition to individual qualitative targets, to assess the performance of management: at the Group level, sales, EBITA, EPS and FCF; and additionally at the business level, ASP and OPEX.
Group sales were above target. While the hearing instruments and audiological care business exceeded their growth target, the cochlear implants business was slightly below, held back by slow growth in upgrades and lower sales related to government tenders in a number of markets. All regions contributed to organic growth, with EMEA growing the strongest.
EBITA achievement in the hearing instruments segment did not fully meet target, as a result of adverse developments against the currencies as budgeted. Partly due to exchange rate impacts and despite efficiency measures, the EBITA in the cochlear implants segment was below target. However, the results were significantly above the previous year.
As a result of these adverse currency developments, both Group EBITA and EPS fell slightly short of the respective target. For the assessment of these targets, the restructuring costs related to further improvements of the local operating structure in the UK, Germany, and Canada were excluded.
Driven by an increased level of trade receivables and inventory as a result of the strong sales acceleration towards the end of the fiscal year, FCF fell short of target, which is fully reflected in the VCC.
On average, individual qualitative targets for management were slightly over-achieved.
The ROCE target, which is relevant for the vesting of the long-term equity award plan (EEAP), was exceeded. Since there is no provision for over-achievement in the EEAP, the vesting of the options is capped at target, namely at 100%. The EEAP target achievement was therefore 100%.
In the 2018/19 financial year and mainly driven by the outlined adverse currency impact, the overall weighted VCC achievement level was 95.5% for the CEO (2017/18: 104.2% for the previous CEO) and between 91.7% –100.4% (2017/18: 99.6%–112.1%) for the other members of the Management Board. This resulted in an average variable cash payout to Management Board members, including the CEO, of 89.2%, whereas the respective average overall payout ratio was 119.3% in the previous year.
The highest total compensation for a member of the Management Board in the 2018/19 financial year was paid to Arnd Kaldowski, who took on the role of CEO on April 1, 2018 (the beginning of the financial year). A one-time replacement award for forfeited deferred compensation entitlement awards granted by his former employer was awarded in February 2018 and disclosed in the 2017/18 compensation report.
Two new members of the Management Board were announced on November 16, 2018 and have taken on their roles as of April 1, 2019. Their compensation will be included in next year’s compensation report.
The following tables show the compensation of the CEO and of the other members of the Management Board for the 2018/19 financial year (9 members) and for the 2017/18 financial year (10 members).
Only modest changes to current levels of compensation are foreseen for the 2019/20 financial year. As a basic principle, any changes are kept small and specific, and aligned with those across the organization, as well as with data from executive compensation surveys and published benchmarks from companies of similar size.
Management Board compensation
|
in CHF |
2018/19 |
|||||||||||||||||||
|
|
|
Fixed base salary |
|
Variable compensation 1) |
|
Fringe benefits |
|
Employer’s pension contribution |
|
Total cash compen- sation |
|
Value of PSUs 2) |
|
Value of options 3) |
|
Value of one-time RSU transition award 4) |
|
Total compensation |
|
Employer’s social security contribution 5) |
|
Arnd Kaldowski, CEO |
|
890,848 |
|
677,717 |
|
166,650 |
|
107,002 |
|
1,842,217 |
|
515,401 |
|
859,374 |
|
– |
|
3,216,992 |
|
114,480 |
|
Other members of the MB |
|
3,184,873 |
|
1,598,769 |
|
301,394 |
|
589,553 |
|
5,674,589 |
|
1,251,816 |
|
1,252,428 |
|
658,249 |
|
8,837,082 |
|
904,191 |
|
Total |
|
4,075,721 |
|
2,276,486 |
|
468,044 |
|
696,555 |
|
7,516,806 |
|
1,767,217 |
|
2,111,802 |
|
658,249 |
|
12,054,074 |
|
1,018,671 |
The compensation shown in the table above is gross and based on the accrual principle.
1) The variable compensation will be paid out only when the Group’s audited financial statements for the financial year have been publicly disclosed by the Group in its consolidated financial statements.
2) Fair value per PSU at grant date CHF 224.38. Fair Value of PSUs provided by a third party based on the Monte Carlo pricing model; this is an appropriately balanced approach, taking account of the possibility of either over- or under-achievement. The settlement will be determined based on actual performance achievement prior the vesting in June 2022.
3) Fair value per option at grant date provided by a third party based on the “Enhanced American Pricing Model” of CHF 26.12.
4) Includes the one-time RSU transition award of February 1, 2019 with a fair value per RSU at grant date of CHF 174.14.
5) Employer social security contributions including the tax value of income derived from options exercised and RSU’s vested during the financial year. The total compensation including the employer social security contributions in the financial year amounts to CHF 13,072,745 (approach applied for the purposes of the AGM 2017 vote).
|
in CHF |
2017/18 |
|||||||||||||||||
|
|
|
Fixed base salary |
|
Variable compensation 1) |
|
Fringe benefits |
|
Employer’s pension contribution |
|
Total cash compen- sation |
|
Value of PSUs (RSUs) 2) |
|
Value of options 3) |
|
Total compensation |
|
Employer’s social security contribution 4) |
|
Lukas Braunschweiler, CEO |
|
600,000 |
|
472,293 |
|
60,630 |
|
123,712 |
|
1,256,635 |
|
393,736 |
|
656,236 |
|
2,306,607 |
|
109,159 |
|
Arnd Kaldowski, COO 5) |
|
447,092 |
|
499,488 |
|
61,886 |
|
56,363 |
|
1,064,829 |
|
487,451 |
|
1,812,475 |
|
3,364,755 |
|
62,511 |
|
Other members of the MB 6) |
|
3,486,080 |
|
2,137,192 |
|
397,152 |
|
703,281 |
|
6,723,705 |
|
1,648,008 |
|
1,648,390 |
|
10,020,103 |
|
975,336 |
|
Total |
|
4,533,172 |
|
3,108,973 |
|
519,668 |
|
883,356 |
|
9,045,169 |
|
2,529,195 |
|
4,117,101 |
|
15,691,465 |
|
1,147,006 |
The compensation shown in the table above is gross and based on the accrual principle.
1) The variable salary will be paid out only when the Group’s audited financial statements for the fiscal year have been publicly disclosed by Sonova Group HQ and publicly disclosed by the Group in its consolidated financial statements.
2) Fair value per PSU at grant date CHF 118.63. Fair Value on PSUs is based on 100% target achievement; this is an appropriately balanced approach, taking account of the possibility of either over- or under-achievement. RSUs granted only to Lukas Braunschweiler. Fair value per RSU at grant date CHF 140.62.
3) Fair value per option at grant date CHF 20.77. For Arnd Kaldowski this also includes the one-time, non-recurring performance option grant with a value of CHF 21.09.
4) Employer social security contributions including the tax value of options exercised and RSU’s vested during the financial year. The total compensation including the employer social security contributions in the financial year amounts to CHF 16,838,471 (approach applied for the purposes of the 2017 Annual General Shareholder Meeting vote).
5) Member of the Management Board since October 1, 2017 in the role of COO and to transition to the role of CEO as of April 1, 2018. Total compensation for the period from October 1, 2017 until March 31, 2018.
6) Including Sarah Kreienbühl and Franz Petermann for the full 2017/18 until contractual end date.
Explanatory comments to the compensation tables:
- The total compensation of CHF 13.1 million for the 2018/19 financial year is below the total of CHF 16.8 million for the previous year.
- The financial year 2017/18 included reduced compensation for the previous CEO to reflect his reduced responsibilities during transition period, the total compensation of the new CEO in his previous role as COO, and his one-time replacement grant of performance options for forfeited deferred compensation entitlements from his previous employer.
- The fixed compensation has decreased by 10% compared to the previous year. This is also due to the different composition of the Management Board, as mentioned above.
- The lower VCC payout based on the Group, business, and individual objective achievements is outlined in the paragraphs above the tables.
- The total EEAP grant value awarded decreased, due to a combination from the different composition of the Management Board, the one-time replacement award for the new CEO in the previous year as well as the one-time transitional RSU arrangement as a result of changing from RSU to PSU.
- The fringe benefits, the employerʼs pension contributions as well as the social security contributions decreased in line with the changes mentioned above.
5.2.1 Historical variable cash compensation for the members of the Management Board over the last five years
The above chart illustrates that the design of the VCC is effective: in line with Sonova’s ambitious target–setting, substantial progress needs to be made to reach the target (100%).
5.2.2 Approved versus actual total compensation for the members of the Management Board
The actual total compensation for the Management Board for the 2018/19 financial year, CHF 13.1 million (including social security contributions as per historical practice), is below the maximum aggregate compensation amount of CHF 16.9 million approved at the AGM 2017 for the 2018/19 financial year.
The approved compensation for EEAP applies fair value at grant, which is based on 100% target achievement; this is an appropriately balanced approach, taking account of the possibility of either over- or under-achievement for the PSUs. The actual number of shares allocated for each PSU will depend on the achievement of pre-determined performance conditions, and ranges from 0 to 2 shares per PSU. Actual achievement will be disclosed following vesting in each respective financial year.
Additional information to support the shareholder votes on compensation can be found in the invitation to the AGM 2019.
5.2.3. Other compensation, loans and credits for members of the Management Board and related parties
No other compensation was paid beyond the total compensation disclosed in the tables above.
In the year under review, no payments were made to individuals who are closely related to any former or current member of the Management Board.
No loans were granted by Sonova or any other Group company to present or former members of the Management Board in the 2018/19 financial year, and no such loans were outstanding as of March 31, 2019. Furthermore, neither Sonova nor any other Group company has granted any loans to related parties of present or former members of the Management Board.
