4.1. Board of Directors

Remuneration of the members of the Board of Directors is based on a fixed retainer and a compensation for their committee work. They also receive a lump sum to cover their expenses. The Vice Chairman/Lead Director receives a higher remuneration than other members of the Board of Directors. The remuneration of non-executive members of the Board of Directors is paid out in the form of shares, which are subject to a blocking period of four years. Only the expenses allowance is paid out in cash.

The remuneration of the Chairman of the Board of Directors is covered by his reported remuneration as CEO.

4.2. Group Executive Board

Remuneration of the Group Executive Board is defined in a regulation adopted by the Board of Directors and consists of the following elements:

• Base salary
• Variable cash remuneration (Short-Term Incentive (STI))
• Long-term equity participation plan (Long-Term Incentive (LTI))
• Additional employee benefits, such as pension benefits and perquisites

Base salary

The base salary is paid in cash on a monthly basis. It is determined on the basis of the scope and responsibilities of the position, the external value of the role and the qualifications and experience of the incumbent.

Variable cash remuneration / Short-Term Incentive (STI)

The variable cash remuneration / STI of the Group Executive Board and some 150 additional members of Group management depends on the achievement of annual financial business goals equally weighted (sales growth, EBIT growth, earnings per share and return on invested capital (ROIC)), and on the achievement of individual objectives agreed and evaluated during the annual performance management process. The transparency and consistency of the system over many years has conferred a high level of credibility and acceptance.

The base salary and the variable cash remuneration (assuming 100% achievement of objectives) form the target income. The base salary makes up 70% of the target income and the variable remuneration 30%, out of which 25% is driven by the achievement of business goals and 5% by the achievement of individual objectives.

Functionality remuneration model

Group financial business goals

Individual performance component

 

Every year, on the basis of a recommendation made by the Nomination & Compensation Committee, the Board of Directors determines the expected level of performance for each financial objective for the following year. The target level of performance is in line with the budget and leads to a payout level equivalent to the target incentive (25% of target income as defined above). In addition, a threshold level of performance, below which no variable renumeration is paid out, and a maximum level of performance, above which the variable renumeration is capped, are determined as well. The payout level between the threshold, the target and the maximum is calculated by linear interpolation. The maximum payout for the financial objectives shall not exceed 60% of target income.

The individual performance component is based on the achieve­ment of individual objectives predefined at the beginning of the year between the CEO and individual members of the Group Executive Board, and for the CEO, between the Board of Directors and the CEO. The individual objectives can be quali­tative and quantitative in nature. The individual performance component amounts to 5% of target income (as defined above) and the payout may range from 0% to 10% of target income. As a result, the total variable cash remuneration for members of the Group Executive Board is capped at 70% of the target income, which corresponds to the annual base salary.

Members of the Group Executive Board have the opportunity to invest part or all their variable cash remuneration in shares of the company through the Management Stock Purchase Plan (MSPP). They may define a fixed number of shares to purchase, or a certain amount or a percentage of their variable cash remuneration to be invested in shares. In order to encourage executives to participate in the program, a free share option is provided for each share purchased through the program. The shares are blocked for a period of three years. The options are subject to a performance-based vesting period of four years: a quarter of the options can be exercised one year after the grant, a further quarter two years after the grant, a further quarter three years after the grant, and the remaining quarter four years after the grant. All the other elements are regulated equally according to the MSOP options (please refer to the section below).

Long-Term Incentive (LTI)

The purpose of the Long-Term Incentive (Management Share Option Plan MSOP) is to ensure long-term value creation for the company, alignment of the interests of executives to those of shareholders and long-term retention of executives. The MSOP was revised, effective January 1, 2013, with the introduction of a performance-based vesting condition.

Every year, the Board of Directors determines the grant of share options. Based on a benchmark study conducted in 2012, the Board of Directors decided to increase the grant value for members of the Group Executive Board. The market value of options granted amounts to 40% of the target income for the CEO and to 20% of the target income for other members of the Group Executive Board. For some 60 additional participants of the Group management, the market value amounts to 10% of the target income.

The exercise price of the options corresponds to the fair market value at the time of grant. In order to respond to the demands of various stakeholders, the vesting schedule has been modified, so that the average vesting period now is three years. The options are subject to a vesting period over four years: a third of the options can be exercised two years after the grant, a further third can be exercised three years after the grant and the remaining third four years after the grant. The vesting of share options is subject to the achievement of a performance criterion, the average Return on Invested Operating Capital (ROIC) over the respective vesting period. A target level of performance is defined, for which the options will vest in full. A minimum level of performance (threshold) is defined, below which there is no vesting at all. The payout level between the threshold and the target is determined by linear interpolation. There is no over-achievement in the MSOP. The options have a term of seven years after which they expire. They can be exercised between the respective vesting date and the expiration date.

In the event of termination of employ­ment, vested options from the MSOP and the MSPP program can be exercised within a 90-day period. Any options that have not been exercised lapse following the expiry of this 90-day period. Non-vested options from the MSOP program are forfeited on termination. Non-vested options from the MSPP program can be re­pur­chased by Geberit. The repurchase price is calculated as the difference between the market price at termination date and the exercise price of the option, and is capped at 10% of the exercise price. If Geberit does not repurchase the options, those continue to vest normally and are exercisable over a 90-day period after the vesting.

In the event of termination of employment following a change of control, the restrictions on any options and shares granted as part of Geberit’s participation plans lapse, so that shares are immediately free and options can be exercised.

Benefits

Members of the Group Executive Board participate in the regular employee pension fund applicable to all employees in Switzerland. The retirement plan consists of a basic plan covering annual earnings up to TCHF 146 per annum, with age-related contribution rates equally shared between the company and the individual, and a supplementary plan in which income in excess of TCHF 146 is insured (including variable cash remuneration). The company pays for the entire con­tri­bu­tion in the supplementary plan.

Furthermore, each member of the Group Executive Board is entitled to a company car and a representation allowance in line with the expense regulations applicable to all members of management in Switzerland and approved by the tax authorities.

Employment terms and conditions

All members of the Group Executive Board have permanent employment contracts with notice periods of a maximum of one year. Members of the Group Executive Board are not entitled to a severance payment.

In order to ensure good corporate governance, Geberit has implemented a claw-back policy on payments made under the Short-Term Incentive program over the last three years, which covers situations where the company is required to restate its accounts due to non-compliance with financial reporting require­ments under the securities laws at the time of disclosure. In such cases, the Board of Directors is empowered to recalculate the STI payout, taking into account the restated financial results, and to seek reimbursement of any STI amount paid in excess of the variable cash renumeration.