6. Compensation for the financial year

6.1 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 2021/22 financial year (9 members from the 2021 AGM) and for the 2020/21 financial year (9 members). The total compensation in the 2021/22 financial year was CHF 2.9 million (2020/21: CHF 2.6 million).

Board of Directors compensation

in CHF	2021/22
		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) Chair of the Board of Directors		340,466	1,500	341,966	369,962	711,928	39,329
Stacy Enxing Seng Vice-Chair of the Board of Directors Member of the Nomination and Compensation Committee		126,879	–	126,879	159,794	286,674	18,653
Lynn Dorsey Bleil Member of the Audit Committee		115,003	500	115,503	159,794	275,297	17,813
Gregory (Greg) Behar 4)		79,178	1,500	80,678	159,794	240,472	15,006
Lukas Braunschweiler Chair of the Nomination and Compensation Committee		127,507	1,500	129,007	159,794	288,801	47,402
Roland Diggelmann Member of the Nomination and Compensation Committee 4)		95,014	1,500	96,514	159,794	256,308	16,127
Ronald van der Vis Member of the Audit Committee		118,334	500	118,834	159,794	278,629	18,049
Jinlong Wang		95,836	500	96,336	159,794	256,130	16,457
Adrian Widmer Chair of the Audit Committee		130,838	1,500	132,338	159,794	292,133	18,933
Total (active members)		1,229,055	9,000	1,238,055	1,648,318	2,886,372	207,769
Beat Hess Vice-Chair of the Board of Directors Member of the Nomination and Compensation Committee 5)		22,488	–	22,488	–	22,488	1,255
Michael Jacobi Member of the Audit Committee 6)		19,989	–	19,989	–	19,989	1,091
Total (including former members)		1,271,532	9,000	1,280,532	1,648,318	2,928,849	210,115

The compensation shown in the table above is gross and based on the accrual principle.

1) Travel expenses are paid only for attended meetings.

2) Employer social security contributions on the cash retainer and restricted shares granted during the financial year.

3) Including NCC and AC work and attendance.

4) Member of the Board of Directors since June 2021

5) Vice-Chair of the Board of Directors until June 2021

6) Member of the Board of Directors until June 2021

in CHF	2020/21
		Cash retainer (fixed fee) 1)	Expenses 2)	Total cash compensation	Grant value of restricted shares	Total compensation	Employer’s social insurance contribution (AHV/ALV) 3)
Robert F. Spoerry 4) 5) Chair of the Board of Directors Chair of the Nomination and Compensation Committee		15,450	1,500	16,950	369,011	385,961	17,858
Beat Hess Vice-Chair of the Board of Directors Member of the Nomination and Compensation Committee		138,162	3,500	141,662	159,519	301,181	16,460
Lynn Dorsey Bleil Member of the Audit Committee		122,529	3,000	125,529	159,519	285,048	18,425
Lukas Braunschweiler		104,219	2,500	106,719	159,519	266,238	245,809
Stacy Enxing Seng Member of the Nomination and Compensation Committee		122,529	3,500	126,029	159,519	285,548	18,460
Michael Jacobi Member of the Audit Committee		126,076	3,500	129,576	159,519	289,095	15,634
Ronald van der Vis Chair of the Audit Committee		139,318	3,000	142,318	159,519	301,837	19,610
Jinlong Wang		104,219	2,500	106,719	159,519	266,238	17,098
Adrian Widmer 6)		77,063	–	77,063	159,519	236,582	14,811
Total		949,566	23,000	972,566	1,645,164	2,617,730	384,165

The compensation shown in the table above is gross and based on the accrual principle.

1) As of the 2020 AGM, fee payment is aligned with the term of office (instead of the financial year). For the transition, catch up payments in a total amount of CHF 178,111 had to be made in June 2020.

2) Travel expenses are paid only for attended meetings. No travel expenses paid from 2020 AGM to 2021 AGM due to COVID-19.

3) Employer social security contributions on the cash retainer, the tax value of income derived from outstanding EEAP awards (former CEO) and restricted shares granted during the financial year.

4) Including NCC and AC work and attendance.

5) Amount of CHF 15,450 included under Cash retainer was not paid out, but covers the netting of the social security contributions on the restricted shares.

6) Member of the Board of Directors since June 2020

As outlined in the 2020/21 compensation report, the compensation related short-term measures taken in response to the COVID-19 related crisis included that the Chair of the Board of Directors waived his cash retainer (net of social security contributions for the portion delivered in restricted shares) from April 2020 until the 2021 AGM. Additionally, the other members of the Board of Directors waived 20% of their cash retainer and committee fees for this term of office from the 2020 AGM to the 2021 AGM. For more details, please refer to the compensation table above and to the 2020/21 compensation report. – On a 2-year CAGR basis from the 2019/20 to the 2021/22 financial year, no changes were made to the 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) Chair of the Board of Directors Chair of the Nomination and Compensation Committee		476,343	2,500	478,843	372,664	851,506	52,535
Beat Hess Vice-Chair 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 Chair 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 outstanding EEAP awards (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 Chair 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

Explanatory comments to the compensation tables

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. The relative increase of compensation of 11.9% compared to previous year is driven by the compensation related short-term measures taken in the previous year in response to the COVID-19 related crisis. The underlying compensation structure and levels of the Board of Directors remained unchanged compared to previous year.

6.1.1 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 2021 AGM to the 2022 AGM is expected to be CHF 3.1 million. The total compensation is within the limit of CHF 3.1 million approved by the 2021 AGM.

Approved versus expected total compensation for the members of the Board of Directors

in CHF 1,000	Approved for AGM 2020 – AGM 2021	Effective for AGM 2020 – AGM 2021	Approved for AGM 2021 – AGM 2022	Expected for AGM 2021 – AGM 2022
AGM approval year	2020		2021
Total compensation	2,600	2,425	3,140	3,070

Breakdown total compensation:
Fixed fees including expenses 1)	875	779	1,456	1,421
Market value of restricted shares	1,725	1,645	1,684	1,649

Number of members of the Board of Directors	9	9	9	9

1) Fixed fee amounts for AGM 2020 – AGM 2021 reflect the impact of the COVID-19 related measures outlined in this report.

6.1.2 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 2021/22 financial year, and no such loans were outstanding as of March 31, 2022. 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.

6.2 Management Board compensation

The tables in this section are audited by the external auditor.

6.2.1 Compensation awarded for the 2021/22 financial year

As stated above, Sonova’s basic principle is that any changes to the fixed or target compensation 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.

The highest total compensation for a member of the Management Board in the 2021/22 financial year was paid to Arnd Kaldowski, CEO.

The following tables show the compensation of the CEO and of the other members of the Management Board for the 2021/22 financial year (9 members) and for the 2020/21 financial year (9 members).

Management Board compensation

in CHF	2021/22
		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	712,240	55,650	113,601	1,781,491	721,875	1,203,125	3,706,491	297,825
Other members of the MB		3,455,539	1,686,494	334,774	565,549	6,042,355	1,525,000	1,525,000	9,092,355	2,116,865
Total		4,355,539	2,398,734	390,424	679,150	7,823,846	2,246,875	2,728,125	12,798,846	2,414,690

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 334.87. 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 2025 and the PSUs are blocked after vesting to arrive at the total mandatory restriction 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 restriction period based on a “Black-Scholes Model”) of CHF 71.31. The options are blocked after vesting to arrive at the total mandatory restriction period of five years.

in CHF	2020/21
		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		709,615	800,000	69,515	111,231	1,690,361	609,375	1,015,625	3,315,361	125,508
Other members of the MB		2,817,903	1,459,448	291,180	486,524	5,055,056	1,449,500	1,449,500	7,954,056	908,102
Total		3,527,519	2,259,448	360,695	597,754	6,745,417	2,058,875	2,465,125	11,269,417	1,033,610

The compensation shown in the table above is gross and based on the accrual principle.

2) Fair value per PSU at grant date CHF 198.67. 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 2024 and the PSUs are blocked after vesting to arrive at the total mandatory restriction 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 restriction period based on a “Black-Scholes Model”) of CHF 39.90. The options are blocked after vesting to arrive at the total mandatory restriction period of five years.

As outlined in the 2020/21 compensation report, the compensation related short-term measures taken in response to the COVID-19 related crisis included a freeze on salary increases for the Management Board in the 2020/21 financial year. Moreover, the CEO waived 50% of his monthly base salary, and each of the other Management Board members 20% of their monthly base salaries, from April 2020 to September 2020. Additionally, target setting for the VCC was governed on a rolling basis while the maximum VCC payout during the 2020/21 financial year was capped at 100% for Management Board members. For more details, we refer to the compensation table above and to the 2020/21 compensation report. – On a 2-year CAGR basis from the 2019/20 to the 2021/22 financial year, only minor changes were made to the 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.

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.

Explanatory comments to the compensation tables

The total compensation of CHF 12.8 million for the 2021/22 financial year is above the total of CHF 11.3 million for the previous year. This is explained by the following main contributing factors:

The fixed compensation is higher compared to the previous year mainly given the COVID–19 related compensation measures during the 2020/21 financial year.
Selected members of the Management Board did receive salary increases at the beginning of 2021/22 aligned with those across the organization, as well as with data from executive compensation surveys and published benchmarks from companies of similar size.
The total EEAP grant value awarded increased as a result of a combination of selective higher awards.

Variable Cash Compensation performance outcomes 2021/22

The system of the VCC is outlined in more detail in section 5.3 of this report.

The overall Group sales (excluding acquisition of Sennheiser) target was exceeded at 1.5% on the back of strong commercial execution, despite some volatility caused by new variants of COVID-19 and supply challenges related to the sourcing of certain electronic components. While the Hearing Instruments and Cochlear Implants businesses exceeded their growth targets, the Audiological Care business was slightly below target.

The target achievement on EBITA resulted at 98.3%. The lower than targeted achievement was driven by a strengthening of the Swiss franc against key currencies compared to the currency target scenario, and by the headwind from the supply chain and component cost. The Hearing Instrument segment slightly missed the profitability target, while the Cochlear Implant segment clearly exceeded its target on the back of the strong upgrade business following the introduction of the new Marvel processor. The EPS target was met (100%).The assessment of these targets was undertaken based on the adjusted metrics as disclosed in the financial review of this Annual Report.

Despite the strong business performance for most of the financial year, not all envisioned improvements in working capital management could be realized to their full extent. This resulted in an Operating Free Cash Flow achievement of 96.7%.

ESG targets were defined around eight categories, with energy and climate, as well as talent & employee engagement, set as a target for all Management Board members. Additionally, members each had a selection of targets set depending on their role and responsibilities. These included eco-friendly products, diversity & inclusion, talent development, customer satisfaction, product quality, safety & reliability and responsible supply chain. On average, ESG targets for management were achieved at 82.8%.

Individual qualitative targets for management were, on average, slightly overachieved at 103.0%.

The overall target achievement for the 2021/22 financial year for the CEO was 89.0% (2020/21: 100.0%) and between 66.9% and 134.8% (2020/21: 77.6% –100.0%) for the other members of the Management Board. The average variable cash payout to Management Board members, including the CEO, was 85.7%, whereas the equivalent average overall payout ratio for the previous year was 96.8%. As noted later in this report, the VCC achievement for the 2020/21 financial year was capped at 100.0%, impacting the year-on-year comparison.

6.2.2 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 Sonovaʼs ambitious target–setting, substantial progress needs to be made to reach the target (100%).

6.2.3 Approved versus actual total compensation for the members of the Management Board

The actual total compensation for the Management Board for the 2021/22 financial year was CHF 12.8 million. This figure is below the maximum aggregate compensation amount of CHF 15.2 million approved at the 2020 AGM for the 2021/22 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 upon vesting in each respective financial year.

Additional information to support the shareholder votes on compensation can be found in the invitation to the 2022 AGM.

6.2.4 Executive Equity Award Plan performance outcomes 2021/22

Options

The vesting of the options is subject to a pre-defined ROCE target. In the 2021/22 financial year, the ROCE target 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%. This applies to the option tranches awarded under the EEAP 2017, 2018, 2019 and 2020 that vested in the reporting year.

Performance Share Units

The PSUs vest based on relative TSR measured against a pre-defined peer group. The number of shares allocated for each vested PSU between the 20th and 80th percentile is calculated by linear interpolation within a range of 0% to 200%. The PSUs awarded under the EEAP 2019 vest in June 2022 based on the performance period ending on March 31, 2022.

The actual TSR was 107.8%, which corresponds to a 82.4% percentile rank relative to the peer group, and results in a 200.0% vesting in June 2022. For the PSUs awarded under the EEAP 2018 vesting in June 2021, the actual TSR was 46.5%, which corresponded to a 77.0% percentile rank relative to the peer group and resulted in a 189.9% vesting.

Restricted Share Units

The RSUs that were awarded under the EEAP in the 2018/19 financial year vested in the reporting year. They were not subject to any performance conditions but to employment conditions.

6.2.5 Other compensation, loans and credits for current and former members of the Management Board and related parties

No other compensation was paid to current or former members of the Management Board beyond the total compensation disclosed in the tables above.

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 2021/22 financial year, and no such loans were outstanding as of March 31, 2022. Furthermore, neither Sonova nor any other Group company has granted any loans to related parties of current or former members of the Management Board.