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6. Compensation for the financial year

6.1 Board of Directors compensation

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 2022/23 financial year (10 members from the 2022 AGM) and for the 2021/22 financial year (9 members). The total compensation in the 2022/23 financial year was CHF 3.3 million (2021/22: CHF 2.9 million).

Board of Directors compensation

in CHF

2022/23

 

 

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

 

430,000

 

1,000

 

431,000

 

369,939

 

800,939

 

45,214

Stacy Enxing Seng Vice-Chair of the Board of Directors Member of the Nomination and Compensation Committee

 

135,000

 

–

 

135,000

 

159,879

 

294,879

 

19,094

Gregory (Greg) Behar Member of the Board

 

100,000

 

500

 

100,500

 

159,879

 

260,379

 

16,661

Lynn Dorsey Bleil Member of the Audit Committee

 

120,000

 

500

 

120,500

 

159,879

 

280,379

 

18,051

Lukas Braunschweiler Chair of the Nomination and Compensation Committee

 

140,000

 

1,000

 

141,000

 

159,879

 

300,879

 

437,627

Roland Diggelmann Member of the Nomination and Compensation Committee

 

120,000

 

1,000

 

121,000

 

159,879

 

280,879

 

18,051

Julie Tay 4) Member of the Board

 

79,178

 

500

 

79,678

 

159,879

 

239,557

 

14,942

Ronald van der Vis Member of the Audit Committee

 

120,000

 

–

 

120,000

 

159,879

 

279,879

 

18,051

Jinlong Wang Member of the Board

 

100,000

 

–

 

100,000

 

159,879

 

259,879

 

13,851

Adrian Widmer Chair of the Audit Committee

 

140,000

 

1,000

 

141,000

 

159,879

 

300,879

 

19,441

Total

 

1,484,178

 

5,500

 

1,489,678

 

1,808,850

 

3,298,528

 

620,983

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

1) Travel expenses are paid only for attended meetings. The travel allowance was discontinued from the 2022 AGM

2) Employer social security contributions on cash retainer, restricted shares granted during the financial year as well as stock options exercised during the financial year

3) Including NCC and AC work and attendance.

4) Member of the Board of Directors since June 2022

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

Gregory (Greg) Behar 4)

 

79,178

 

1,500

 

80,678

 

159,794

 

240,472

 

15,006

Lynn Dorsey Bleil Member of the Audit Committee

 

115,003

 

500

 

115,503

 

159,794

 

275,297

 

17,813

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

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 2022 AGM to the 2023 AGM is expected to be CHF 3.3 million. The total compensation is within the limit of CHF 3.5 million approved by the 2022 AGM.

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

in CHF 1,000

 

Approved for AGM 2021 – AGM 2022

 

Effective for AGM 2021 – AGM 2022

 

Approved for AGM 2022 – AGM 2023

 

Expected for AGM 2022 – AGM 2023

AGM approval year

 

2021

 

2022

Total compensation

 

3,140

 

3,068

 

3,450

 

3,320

 

 

 

 

 

 

 

 

 

Breakdown total compensation:

 

 

 

 

 

 

 

 

Fixed fees including expenses

 

1,456

 

1,420

 

1,566

 

1,510

Market value of restricted shares

 

1,684

 

1,648

 

1,883

 

1,810

 

 

 

 

 

 

 

 

 

Number of members of the Board of Directors

 

9

 

9

 

10

 

10

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 2022/23 financial year, and no such loans were outstanding as of March 31, 2023. 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

6.2 Management Board compensation

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

6.2.1 Compensation awarded for the 2022/23 financial year

As stated above, Sonovaʼs 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 positionʼs 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 2022/23 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 2022/23 financial year (8 members) and for the 2021/22 financial year (9 members).

Management Board compensation

in CHF

2022/23

 

 

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

 

284,170

 

55,200

 

115,575

 

1,354,945

 

778,125

 

1,296,875

 

3,429,945

 

225,722

Other members of the MB

 

3,114,138

 

558,171

 

433,123

 

538,087

 

4,643,519

 

1,604,500

 

1,604,500

 

7,852,519

 

630,933

Total

 

4,014,138

 

842,341

 

488,323

 

653,662

 

5,998,464

 

2,382,625

 

2,901,375

 

11,282,464

 

856,655

  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 243.35. 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 2026 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 59.40. The options are blocked after vesting to arrive at the total mandatory restriction period of five years.

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.

Explanatory comments to the compensation tables

The total compensation of CHF 11.3 million for the 2022/23 financial year is below the total of CHF 12.8 million for the previous year. This is explained by the following main contributing factors:

  • The fixed compensation is lower compared to the previous year driven by the reduction of one Management Board member from 9 in 2021/22 financial year to 8 in 2022/23 financial year.
  • Overall VCC payout ratio decreased from 85.7% in 2021/22 financial year to 35.3% in 2022/23 financial year

Variable Cash Compensation performance outcomes 2022/23

The system of the VCC is outlined in more detail in section 5.3 of this report. The table below (not audited by the external auditor) shows the target achievement ranges for the VCC for the 2022/23 financial year.

  1. Individual target achievement can be above 200%. However, maximum payout is capped at 200% except for Sales at 250%
  2. Local Currency
  3. Earning Per Share
  4. Free cash flow – cash consideration for acquisitions and from divestments, net of cash acquired/divested – cash consideration for associates
  5. Individual objectives not disclosed. Each MB Member considered as a single data point (weighted average per category)

Despite the successful launch of the Phonak Lumity platform in August 2022 as well as price increases implemented to offset inflationary pressures, sales were held back by a slower than anticipated momentum in certain key hearing care markets and by the non-renewal of a large contract with a single US customer. Overall, all the businesses achieved between 92% and 96% of the annual sales target.

The lower than targeted achievement was mainly driven by the sales target miss, major adverse currency exchange impact and continued headwind from the supply chain and component cost. The EPS target achievement was at 91.5%.The assessment of these targets was undertaken based on the adjusted metrics as disclosed in the financial review of this Annual Report. The Operating Free Cash Flow achievement was 72.7% only, mainly driven by the weaker than targeted business performance for most of the financial year, by maintaining higher safety stock after the build up in the PY and by the additional net working capital required after the successful acquisition of the Sennheiser Consumer Division largely without receivables and payables.

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, employee engagement, customer satisfaction, product quality, safety & reliability and responsible supply chain. On average, ESG targets for management were achieved at 109.5%.

Individual qualitative objectives for management were, on average, slightly overachieved at 105.8%.

The overall payout for the 2022/23 financial year for the CEO was 35.5% (2021/22: 89.0%) and between 28.3% and 53.2% (2021/22: 66.9% – 134.8%) for the other members of the Management Board.

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 2022/23 financial year was CHF 11.3 million. This figure is below the maximum aggregate compensation amount of CHF 15.8 million approved at the 2021 AGM for the 2022/23 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 into account 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 2023 AGM.

6.2.4 Executive Equity Award Plan performance outcomes 2022/23

Options

The vesting of the options is subject to a pre-defined ROCE target. In the 2022/23 financial year, the ROCE target was exceeded for the option tranches awarded between 2019 – 2021. Since there is no provision for over-achievement in the EEAP, the vesting of the options is capped at target, namely at 100%. The target for the option tranche awarded in 2022 was not fully met and the vesting level equals 56.5%.

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 actual TSR was 7.95%, which corresponds to a 38.84% percentile rank relative to the peer group, and results in a 62.8% vesting in June 2023. For the PSUs awarded under the EEAP 2019 vesting in June 2022, the actual TSR was 107.8%, which corresponded to a 82.4% percentile rank relative to the peer group and resulted in a 200% 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 2022/23 financial year, and no such loans were outstanding as of March 31, 2023. Furthermore, neither Sonova nor any other Group company has granted any loans to related parties of current or former members of the Management Board.