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 2019/20 financial year (8 members from the 2019 AGM) and for the 2018/19 financial year (9 members). The total compensation in the 2019/20 financial year was CHF 2.9 million (2018/19: CHF 3.4 million).
Board of Directors compensation
|
in CHF |
2019/20 |
|||||||||||
|
|
|
Cash retainer (fixed 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 |
|
476,343 |
|
2,500 |
|
478,843 |
|
372,664 |
|
851,506 |
|
52,535 |
|
Beat Hess Vice-Chairman of the Board of Directors Member of the Nomination and Compensation Committee |
|
132,541 |
|
4,500 |
|
137,041 |
|
161,000 |
|
298,041 |
|
15,713 |
|
Lynn Dorsey Bleil Member of the Audit Committee |
|
117,532 |
|
4,500 |
|
122,032 |
|
161,000 |
|
283,033 |
|
17,757 |
|
Lukas Braunschweiler |
|
100,000 |
|
4,000 |
|
104,000 |
|
161,000 |
|
265,000 |
|
376,364 |
|
Stacy Enxing Seng Member of the Nomination and Compensation Committee |
|
117,532 |
|
4,500 |
|
122,032 |
|
161,000 |
|
283,033 |
|
17,757 |
|
Michael Jacobi 4) Member of the Audit Committee |
|
129,058 |
|
4,500 |
|
133,558 |
|
161,000 |
|
294,559 |
|
15,491 |
|
Ronald van der Vis Chairman of the Audit Committee |
|
133,489 |
|
4,000 |
|
137,489 |
|
161,000 |
|
298,489 |
|
18,856 |
|
Jinlong Wang |
|
100,000 |
|
4,000 |
|
104,000 |
|
161,000 |
|
265,000 |
|
16,515 |
|
Total (active members) |
|
1,306,494 |
|
32,500 |
|
1,338,994 |
|
1,499,667 |
|
2,838,662 |
|
530,988 |
|
Anssi Vanjoki 5) Member of the Audit Committee |
|
21,795 |
|
3,000 |
|
24,795 |
|
|
|
24,795 |
|
1,785 |
|
Total (including former members) |
|
1,328,289 |
|
35,500 |
|
1,363,789 |
|
1,499,667 |
|
2,863,456 |
|
532,773 |
The compensation shown in the table above is gross and based on the accrual principle.
1) Expenses are based on the number of meetings attended by each member of the Board of Directors (attendance fees discontinued from the 2019 AGM forward).
2) Employer social security contributions on the cash retainer, the tax value of income derived from options exercised (former CEO) and restricted shares granted during the financial year.
3) Including NCC and AC work and attendance.
4) Including a compensation of CHF 10,000 for the term of office for extraordinary, supplemental work and contribution during the transition to the new Chairman of the Audit Committee as well as on the hiring process for a new member of the Board of Directors.
5) Member of the Board of Directors until June 2019
|
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, the tax value of income derived from options exercised (former CEO) and restricted shares granted during the financial year.
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).
Explanatory comments to the compensation tables
The restricted shares were historically disclosed based on their tax value. As outlined in the 2018/19 financial year report, disclosure is now aligned with market practice and based on the grant market value as at the date of allocation. As approved at the 2019 AGM, the total Board of Directors compensation was decreased.
Note that the amounts reported for members of the Board of Directors in the tables do not necessarily correspond to the amounts voted on at the AGM, as the reporting period follows the Sonova financial year, whereas the voting follows the term of office – 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 2019 AGM to the 2020 AGM is expected to be CHF 2.7 million at grant value. The value of the cash retainer ceded by the Chairman of the Board of Directors from April 2020 until the 2020 AGM equals CHF 0.1 million. The total compensation is within the limit of CHF 2.9 million approved by the 2019 AGM.
|
in CHF 1,000 |
|
Approved for AGM 2018 – AGM 2019 1) |
|
Effective for AGM 2018 – AGM 2019 1) |
|
Approved for AGM 2019 – AGM 2020 |
|
Expected for AGM 2019 – AGM 2020 |
|
AGM approval year |
|
2018 |
|
2019 |
||||
|
Total compensation |
|
3,130 |
|
2,965 |
|
2,900 |
|
2,742 |
|
|
|
|
|
|
|
|
|
|
|
Breakdown total compensation: |
|
|
|
|
|
|
|
|
|
Fixed fees including meeting attendance 2) and expenses |
|
1,518 |
|
1,415 |
|
1,363 |
|
1,242 3) |
|
Market value of restricted shares |
|
1,612 |
|
1,550 |
|
1,537 |
|
1,500 |
|
|
|
|
|
|
|
|
|
|
|
Number of members of the Board of Directors |
|
9 |
|
9 |
|
8 |
|
8 |
1) Based on the tax value for restricted shares (approach applied for the purposes of the AGM 2018 vote).
2) Meeting attendance fees discontinued from AGM 2019 forward.
3) Reflects initial impact of the COVID-19 related measures outlined in this report.
5.1.2 Other compensation, loans, and credit for current and former members of the Board of Directors and related parties
No other compensation was paid to current members of the Board of Directors for additional services beyond the total compensation disclosed in the tables above. No other compensation was paid to former members of the Board of Directors 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 current or former member of the Board of Directors.
No loans were granted by Sonova or any other Group company to current or former members of the Board of Directors in the 2019/20 financial year, and no such loans were outstanding as of March 31, 2020. Furthermore, neither Sonova nor any other Group company has granted any loans to related parties of current 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 the Management Board: at the Group level, sales, EBITA, EPS and FCF; and additionally on the business level, ASP and OPEX.
Group sales target was exceeded with 101.0%, despite the COVID-19 related slowdown in March 2020. While the hearing instruments and audiological care business exceeded their growth target, the cochlear implant business was below target, held back by the voluntary field corrective action announced mid-February 2020.
EBITA achievement in the hearing instruments segment did not fully meet target, mainly as a result of the COVID-19 related sales loss as well as adverse currency developments against budgeted rates. The EBITA in the cochlear implant segment was below target, primarily due to lower demand following the voluntary field corrective action, the COVID-19 related sales loss and further impacted by the strengthening of the Swiss Franc.
As a consequence, both adjusted Group EBITA at 95.7% and EPS at 92.7% fell short of the respective target. For the assessment of these targets, the increase in accounts receivable provisions in connection with COVID-19, restructuring costs in the Hearing Instruments segment, the benefits from the Swiss tax reform as well as one-time costs related to the voluntary field corrective action of Advanced Bionics have been excluded. Driven by the strong business performance for most of the financial year and the strong collection of accounts receivables, FCF was with 113.4% significantly ahead of the target.
On average, individual qualitative targets for the management were slightly over-achieved at 109.9%.
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%.
The overall weighted VCC achievement level for the 2019/20 financial year was 105.2% for the CEO (2018/19: 95.5%) and between 75.7%–106.9% (2018/19: 91.7%–100.4%) for the other members of the Management Board; this was driven by the strong business performance for most of the 2019/20 financial year mentioned above. This resulted in an average variable cash payout to Management Board members, including the CEO, of 115.5%, whereas the equivalent average overall payout ratio for the previous year was 89.2%.
As outlined in the introduction to this compensation report describing the compensation related short-term measures taken in response to the current COVID-19 related crisis, 50 percent of the VCC payout to members of the Management Board for the 2019/20 financial year will be deferred to later in the 2020/21 financial year. This measure will not impact the target, the achievement, the calculation, the conditions of eligibility, or the payment or total amount to be paid out for the 2019/20 financial year – only the timing of the payout of a portion of the VCC.
The highest total compensation for a member of the Management Board in the 2019/20 financial year was paid to Arnd Kaldowski, CEO.
Two former members of the Management Board stepped down on March 31, 2019. Their roles were taken over by two new members of the Management Board as of April 1, 2019.
The following tables show the compensation of the CEO and of the other members of the Management Board for the 2019/20 financial year (9 members) and for the 2018/19 financial year (9 members).
Management Board compensation
|
in CHF |
2019/20 |
|||||||||||||||||
|
|
|
Fixed base salary |
|
Variable compensation 1) |
|
Fringe benefits |
|
Employer’s pension contribution |
|
Total cash compen- sation |
|
Value of PSUs 2) |
|
Value of options 3) |
|
Total compensation |
|
Employer’s social security contribution |
|
Arnd Kaldowski, CEO |
|
900,000 |
|
986,560 |
|
74,944 |
|
109,338 |
|
2,070,841 |
|
562,500 |
|
937,500 |
|
3,570,841 |
|
110,466 |
|
Other members of the MB |
|
3,138,129 |
|
2,147,971 |
|
356,124 |
|
515,913 |
|
6,158,137 |
|
1,649,000 |
|
1,649,000 |
|
9,456,137 |
|
888,687 |
|
Total |
|
4,038,129 |
|
3,134,531 |
|
431,068 |
|
625,251 |
|
8,228,978 |
|
2,211,500 |
|
2,586,500 |
|
13,026,978 |
|
999,153 |
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 266.80. 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 to the vesting in June 2023 and the PSUs are blocked after vesting to arrive at the total mandatory holding period of five years from grant date.
3) Fair value per option at grant date provided by a third party based on the "Enhanced American Pricing Model” (including the impact of the holding period based on a “Black-Scholes Model”) of CHF 33.34. The options are blocked after vesting to arrive at the total mandatory holding period of five years.
|
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).
Explanatory comments to the compensation tables:
- The total compensation of CHF 13.0 million for the 2019/20 financial year is above the total of CHF 12.1 million for the previous year.
- The fixed compensation has marginally decreased by 1% compared to the previous year.
- The markedly higher VCC payout due to the strong business performance is outlined under 5.2 above the tables.
- The total EEAP grant value awarded overall increased as a result of a combination of changes in the Management Board, the one-time transitional EEAP RSU award of the previous financial year falling away and selective increases.
As outlined before, our basic principle is that any compensation changes for the Management Board are made only if and when they are deemed necessary and appropriate. Such changes are generally in line with those across the organization, with a primary focus on the variable compensation components, and they can be differentiated in cases such as, for example, a change to a position’s responsibilities. They are also aligned with data from executive compensation surveys and published benchmarks from companies of similar size.
As outlined in the introduction to this compensation report describing the compensation related short-term measures taken in response to the current COVID-19 related crisis, no salary increases will be given to members of the Management Board until later in the 2020/21 financial year. Additionally and voluntarily, the CEO will forego 50 percent of his base salary and each of the other Management Board members 20 percent of their base salary from April 2020 until September 2020. The VCC payout will be capped at 100% for the 2020/21 financial year.
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 2019/20 financial year was CHF 13.9 million (including contractual compensation for a former member of the Management Board outlined under 5.2.3). This figure is below the maximum aggregate compensation amount of CHF 15.1 million approved at the 2018 AGM for the 2019/20 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 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 2020 AGM.
5.2.3. Other compensation, loans and credits for current and former members of the Management Board and related parties
No other compensation was paid to current members of the Management Board beyond the total compensation disclosed in the tables above.
In 2019/20, payments totaling CHF 830,751 were made to one former member of the Management Board. This amount is made up of contractually due compensation for the previous Management Board role as well as company contributions to the pension fund. Company social security contributions in line with applicable laws and insurances amounted to CHF 158,523.
No payments were made to individuals who are closely related to any current or former member of the Management Board.
No loans were granted by Sonova or any other Group company to current or former members of the Management Board in the 2019/20 financial year, and no such loans were outstanding as of March 31, 2020. Furthermore, neither Sonova nor any other Group company has granted any loans to related parties of current or former members of the Management Board.
