3. Determination of remuneration

3.1. Nomination and Compensation Committee

As determined in the Articles of Incorporation and in the Organizational Regulations of Geberit AG, the Nomination & Compensation Committee (NCC) supports the Board of Directors (BoD) in the fulfillment of its duties and responsibilities in the area of remuneration and personnel policy, including:

• Establishment and periodical review of the Group’s remuneration policy and principles
• Yearly review of the individual remuneration of the CEO and of the other members of the Group Executive Board
• Yearly performance assessment of the CEO and of the other members of the Group Executive Board
• Preparation of the remuneration report
• Personnel development of the Group Executive Board
• Succession planning and nomination for positions on the Group Executive Board
• Pre-selection of candidates for election or re-election to the Board of Directors

Approval and authority levels on remuneration matters:

The Nomination & Compensation Committee consists exclusively of independent and non-executive members of the Board of Directors, who are elected annually by the General Meeting. For the period under review, the NCC consisted of Robert F. Spoerry as Chairman and Jørgen Tang-Jensen and Hartmut Reuter as members.

The Nomination and Compensation Committee meets at least three time per year. In 2014, it held four meetings. As a general rule, the Chairman of the Board of Directors, the CEO and the Head of Corporate Human Resources participate in the meetings of the Nomination and Compensation Committee. The Chairman of the Nomination & Compensation Committee may invite other executives as appropriate. However, the Chairman of the Board of Directors and the executives do not take part in the section of the meetings where their own performance and/or remuneration are being discussed.

After each meeting, the Chairman of the Nomination & Compensation Committee reports to the Board of Directors on its activities and recommendations. The minutes of the Nomination & Compensation Committee’s meetings are available to the full Board of Directors.

3.2. Process of determination of compensation

Benchmarks and external consultants

Geberit regularly reviews the remuneration of its executives, including that of members of the Group Executive Board. This includes regular participation in benchmark studies on comparable functions in other industrial companies. In 2012, a detailed analysis of the remuneration of members of the Group Executive Board was carried out by an independent external compensation consulting firm, Towers Watson. This consulting firm has no other mandates from Geberit. The remuneration analysis was conducted on the basis of a peer group of industrial companies of comparable size and geographic scope and headquartered in Switzerland: Barry Callebaut, Bucher, Dätwyler, EMS-Chemie, Georg Fischer, Givaudan, Kaba, Lindt & Sprüngli, Logitech, Lonza, Mettler-Toledo, Nobel Biocare, Oerlikon, Sika, Sonova, Straumann, Sulzer and Zehnder. The study revealed that remuneration of the CEO and other members of the Group Executive Board was broadly in line with that of the peer group. However, it became apparent that the weighting of the different remuneration components deviated from that of the market; in particular, the proportion of the Long-Term Incentive as a percentage of the total remuneration at Geberit was below that of the peer group. The Board of Directors decided to rebalance the remuneration components in line with market practice.

In regard to the remuneration of the Board of Directors, the remuneration of non-financial companies of the Swiss Market Index Mid (SMIM) and of the Swiss Market Index (SMI) is taken into consideration. The remuneration system (structure) is reviewed periodically by the Nomination & Compensation Committee. Such a review took place in 2012 and has led to a fundamental change with the elimination of any performance-related remuneration for the Board of Directors.

Performance management

The actual compensation effectively paid out in a given year to the Group Executive Board members depends on the company and on the individual performance. Individual performance is assessed through the formal annual Performance Management process: company and individual performance objectives are approved at the beginning of the business year and achievements against those objectives are assessed after year-end. The performance appraisal is the basis for determination of the actual compensation.

3.3. Shareholder involvement

In the last two years, based on the feedback received by shareholders and shareholders’ representatives, Geberit has made significant efforts to improve the compensation disclosure in terms of transparency and level of detail provided about the remuneration principles and programs. The positive outcome of the consultative vote on the 2013 Remuneration Report indicates that shareholders welcome the progresses made. Geberit will continue to submit the Remuneration Report to a consultative shareholders’ vote at the General Meeting, so that shareholders have an opportunity to express their opinion about the remuneration system.

In addition, as required by the Ordinance against Excessive Remuneration in Stock Listed Corporations, shareholders will be asked to approve the amount of compensation of the Board of Directors and of the Group Executive Board in a binding vote at the General Meeting. The provisions of the Articles of Incorporation of Geberit stipulate that shareholders vote on the prospective maximum aggregate remuneration amount for the Board of Directors until the next ordinary General Meeting and for the Group Executive Board for the following business year.

The maximum aggregate remuneration amount for the Board of Directors includes the cash remuneration, the value of the restricted shares at grant and the social security contributions made by the employer.

The maximum aggregate remuneration amount for the Group Executive Board includes the following:

• Fixed remuneration: base salaries, value of benefits, employer contributions to retirement plans and estimated employer contributions to social security
• Maximum possible payout under the variable cash incentive plan if the achievement of all performance objectives reach the cap level and assuming a maximum investment into the share participation plan (with maximum possible amount of matching options)
• Maximum value of the options at grant assuming that achievement of the performance condition reaches the cap level

Therefore, the maximum aggregate remuneration amount submitted to shareholders' vote is potentially much higher than the amount of compensation that will be effectively paid out to the members of the Group Executive Board based on the performance achieved. The amount effectively paid out will be disclosed in the compensation report of the respective business year, which will subject to a consultative shareholders’ vote.

We are convinced that the binding prospective vote on the aggregate compensation amounts, combined with a consultative retrospective vote on the remuneration report, provide our shareholders with a far-reaching “say-on-pay”.

Articles of Incorporation

As required by the Ordinance, the Articles of Incorporation of Geberit have been revised in 2014 and approved by the shareholders at the last General Meeting. The Articles of Incorporation include the following provisions on remuneration (details available on  www.geberit.com):

• Principles applicable to performance-related pay:
  Members of the Group Executive Board may be paid variable remuneration that may include short- and long-term elements and which is linked to the achievement of one or several performance criteria. Performance criteria are determined by the Board of Directors and may include individual and company targets. The Board of Directors determines the terms and conditions of any share-based remuneration, including time of allocation, valuation methodology, blocking and/or vesting and/or exercise periods, maximum award limits and any applicable claw-back mechanism.
• Additional amount for payments to members of the Group Executive Board appointed after the vote on remuneration at the General Meeting:
  For the remuneration of members of the Group Executive Board who have been appointed after the approval of the maximum aggregate remuneration amount by the General Meeting, and to the extent that the maximum aggregate remuneration amount as approved does not suffice, an amount of up to 40% of the maximum aggregate remuneration amount approved for the Group Executive Board is available without further approval of the General Meeting.
• Loans, credit facilities and post-employment benefits for members of the Board of Directors and of the Group Executive Board:
  No loans or credits shall be granted to members of the Board of Directors or the Group Executive Board.

The provisions of the Articles of Incorporation have been kept generic so that the Board of Directors have sufficient flexibility to make amendments to the compensation programs in the future, if so necessary. The compensation principles currently in place are more restrictive than the provisions of the Articles of Incorporation and are aligned to good practice in terms of corporate governance; for example, the independent members of the Board of Directors are not eligible to any variable remuneration or retirement benefits, refer also to  Remuneration architecture, Board of Directors.