Compensation structure

Compensation related Key Performance Indicators

Short-term incentive plan

In accordance with the long-term strategy 2020, the Board of Directors selected the following Key Performance Indicators (KPI) for the short-term incentive scheme:

Key Performance Indicator

 

Rational / Driver

 

 

 

 

 

Organic sales growth

 

Maximizing growth from within (innovations, improved services, etc.) 

 

EBIT margin

 

Operating profitability

 

Return on invested capital (ROIC)

 

Efficiency at allocating the capital to profitable investments

 

Long-term incentive plan

In order to align the interests of the Executive Committee with those of GF’s shareholders, the Board of Directors selected the following KPIs for the long-term incentive scheme:

Key Performance Indicator

 

Rational / Driver

 

 

 

 

 

Earnings per Share (EPS)

 

Internal measure Reflects GF’s profitability Reflects how efficient the Strategy is implemented

 

Relative Total Shareholder Return (rTSR)

 

External measure Reflects GF’s relative value compared to the SMI-Mid market

 

SMI-Mid

 

Benchmark group As there is no obvious peer group for GF given its diversified portfolio, the SMI-Mid has been selected as the benchmark group for comparability reasons. Companies belonging to the SMI-Mid are broadly comparable in terms of organizational size, complexity and market capitalization; in addition, this index reflects best the economic environment for companies listed in Switzerland. The benchmark group is subject to review for each strategic period for comparability reasons.

 

Each year the Compensation Committee has the responsibility to evaluate whether there are extraordinary, one-time events that have significantly influenced any of the key performance indicators and to make any adjustment recommendations to the Board of Directors as necessary. The explanations for such adjustments would be included in the Compensation Report in the relevant year. For 2018, no adjustments were necessary.

Compensation of the Board of Directors

The compensation regulation applicable to the Board of Directors is reviewed every two to three years based on competitive market practice and its basic structure is kept as constant as possible.

In order to guarantee the independence of the members of the Board of Directors in executing their supervisory duties, their compensation is fixed and does not contain any performance-related component. The annual overall compensation for each member of the Board of Directors depends on the responsibilities carried out in the year under review. The compensation is partially delivered in cash (fee) and in restricted shares.

Compensation model 2018: Board of Directors

Responsibility

 

Fee

 

Restricted shares

 

 

 

 

 

Basis fee

 

 

 

 

Board Membership

 

CHF 70’000

 

150 shares

 

 

 

 

 

Additional fees

 

 

 

 

Board Chairmanship

 

CHF 200’000

 

150 shares

Board Vice-Chairmanship

 

CHF 22’500

 

 

Audit Committee Chairmanship

 

CHF 80’000

 

 

Audit Committee Membership

 

CHF 30’000

 

 

Other Committee Chairmanship

 

CHF 40’000

 

 

Other Committee Membership

 

CHF 20’000

 

 

Members of the Board receive a fixed fee and additional fees for special tasks such as vice-chairmanship of the Board, committee chairmanship or committee membership. The fees are paid in cash in January for the previous calendar year. Actual expenditures are reimbursed against receipts.

In addition, each member of the Board receives a fixed number of GF shares. The value of the share-related compensation is calculated based on the closing share price on the last trading day of the reporting year. Those shares are granted at the end of December and are blocked for a period of five years.

The compensation of the Board of Directors is subject to regular social security contributions and is not pensionable.

Compensation of the Executive Committee

The principles of compensation of the Executive Committee members, as described in the chapter Principles of compensation, are set out in a regulation and retain their validity for several years. They were last reviewed by the Compensation Committee in 2018.

The compensation of the Executive Committee includes the following elements:

  • Fixed base salary in cash
  • Benefits such as pension and social insurance funds
  • Performance-related short-term incentive in cash
  • Share-based remuneration (long-term incentive)

Compensation model 2018: Executive Committee (including CEO)

 

 

 

 

 

 

 

 

 

 

 

Fixed compensation elements

 

 

 

Variable compensation elements

 

 

 

 

Fixed base salary

 

Benefits

 

Short-term incentive Performance year 2018

 

Long-term incentive Performance year 2018

Purpose

 

Ensure basic fixed remuneration

 

Ensure protection against risks such as death, disability and old age

 

Pay for annual performance

 

Align to shareholders’ interests Participate in long-term success and align with Strategy 2020

Drivers

 

Scope and complexity of the function Profile of the individual

 

Local legislation and market practice

 

Performance against business and individual objectives

 

Long-term value creation Supporting a high performance culture

Performance / Vesting period

 

 

 

 

 

Year 2018

 

3 years Grant date: 1 January year 2019 Vesting period: years 2019, 2020, 2021

Blocking period

 

 

 

 

 

 

 

Additional 2 years Years 2022, 2023

Performance measures

 

Skills, experience and performance of the individual

 

 

 

Organic sales growth EBIT margin ROIC Individual objectives

 

All LTI-related shares are performance dependent; 50% PS(EPS), 50% PS(rTSR) EPS-related achievement determination: Ø (EPS value years 2019, 2020, 2021) divided by Ø (EPS value years 2016, 2017, 2018) * 1.04 rTSR-related achievement determination: Ø (ranking in the years 2019, 2020, 2021 of GF within the SMI-Mid) The performance measures will be amended for the LTI-Plan 2019. A detailed outline can be found in chapter Changes for the Business Year 2019.

Delivery

 

Monthly cash

 

Contributions to social security, pension, and insurances

 

Cash, one-off payment in March year 2019

 

Number of PS, of which 50% PS(EPS), 50% PS(rTSR) Subject to cap as defined in Articles of Association: The variable compensation (STI and LTI) is capped at 250 % of the fixed compensation for the calendar year in question

EBIT = Earnings before interest and taxes

EPS = Earnings per share

PS = Performance shares

PS(EPS) = EPS dependent performance shares

PS(rTSR) = rTSR dependent performance shares

ROIC = Return on invested capital

Ø = Average

Fixed base salary

The fixed base salary is determined primarily based on the following factors:

  • Scope and complexity of the role, as well as the skills required to perform the function;
  • Skills, experience and performance of the individual in the function;
  • External market value of the function.

Fixed base salaries of the Executive Committee members are reviewed every year based on those factors and adjustments are made according to market developments.

Short-term incentive

The short-term incentive is a variable incentive designed to reward the achievement of business objectives of the Corporation and its divisions, as well as the fulfillment of individual performance objectives as defined within the MBO process, over a time horizon of one year.

The business objectives are set by the Board of Directors in accordance with the published mid-term strategy goals. They include absolute financial figures and are set for a period of several years in order to ensure sustainable and long-term performance. The business objectives are: organic sales growth (excluding acquisitions and divestitures), EBIT margin (EBIT in relation to sales), and Return on Invested Capital (ROIC). The following rules apply:

  • The short-term incentives are expressed as a target in % of annual fixed base salary;
  • The maximum short-term incentive amounts to 150% of the target short-term incentive;
  • The achievement for each objective is capped at 150%;
  • The highest weight is on the organization the executive is responsible for;
  • These challenging weights, hurdles, and targets are defined on a divisional level to reflect the difference in businesses.

For each objective, the Board of Directors sets a target level and a threshold level (hurdle) of achievement under which there is no payout. While the hurdles and the targets are valid for a period of several years, the achievement against those is measured on a yearly basis and leads to a payout factor for this portion of the variable incentive. The hurdle for the ROIC is set at a level clearly over the weighted average cost of capital (WACC) of the Corporation in order to maximize value creation.

The individual objectives are set within the MBO process at the beginning of the year. These objectives are clearly measurable, not duplicating the financial targets, and are set in three different categories:

  • Non-financial strategic goals: such as, for example in 2018, the portfolio adaptation at GF Casting Solutions;
  • Operational: such as, for example, the implementation of strategic topics like digitalization, launching of corporate training initiatives, acquisitions and divestments, large reorganizations;
  • Environment – Social - Governance (ESG): for each individual Executive Committee member, at least one objective annually;
  • Personal: such as, for example, personal improvements and/or trainings, succession planning.

Among the MBO-related objectives, at least one is related to Sustainability (for example ensuring 0% accident rate).

At the end of the year, the achievement against each individual objective is assessed and leads to a payout factor for this portion of the variable short-term incentive.

The short-term incentive plan regulation includes the provision of forfeiture in case of dismissal based on fraud.

Short-term incentive in % of annual fixed base salary

The target short-term incentive amounts to 100% of the annual fixed base salary for the Chief Executive Officer and to 60% of the annual fixed base salary for the other members of the Executive Committee. Short-term incentive payouts are capped at 150% of target level.

 

 

Target

 

Minimum

 

Maximum

CEO

 

100%

 

0%

 

150%

Executive Committee

 

60%

 

0%

 

90%

The weighting of the business and individual objectives for the Chief Executive Officer and the other Executive Committee members is described in the following table:

Weighting of the business and individual objectives (target level of performance/payout factor)

 

 

CEO

 

Head Division

 

Staff functions

 

 

 

 

 

 

 

Business objectives

 

 

 

 

 

 

Corporation level

 

 

 

 

 

 

Organic sales growth (20%)

 

15%

 

5%

 

15%

EBIT margin (40%)

 

30%

 

10%

 

30%

ROIC (40%)

 

30%

 

10%

 

30%

 

 

 

 

 

 

 

Division level

 

 

 

 

 

 

Organic sales growth (20%)

 

 

 

10%

 

 

EBIT margin (40%)

 

 

 

20%

 

 

ROIC (40%)

 

 

 

20%

 

 

 

 

 

 

 

 

 

Individual objectives

 

 

 

 

 

 

MBO

 

25%

 

25%

 

25%

 

 

 

 

 

 

 

Total

 

100%

 

100%

 

100%

Thresholds and targets for the corporate business objectives

Business objectives

 

Hurdle 1

 

Strategy targets 2016–2020

Organic sales growth (at constant currencies)

 

1%

 

3–5%

EBIT margin

 

6%

 

8–9%

ROIC

 

 14%

 

18–22%

1 Achievements below the hurdle result in zero payout for the respective business objective; for the objectives EBIT margin and ROIC, hurdle achievements result in 50% payout for the respective target

Long-term incentive (share-based remuneration) 

GF introduced as per 1 January 2017 a new long-term, performance-based plan, the so-called Long-Term Incentive Plan (LTI-Plan) which has been proposed by the Compensation Committee and approved by the Board of Directors.

The metrics of the LTI-Plan have been designed to fit with GF’s Strategy targets, focusing on long-term sustainable value creation for employees, company, customers, and shareholders.

The Board of Directors decided to amend the LTI-Plan structure for the LTI-Plan 2019. Details to can be found in the chapter Changes for the business year 2019.

The CEO and members of the Executive Committee are granted performance shares (PS). The vesting of the PS is subject to meeting two specific performance achievements over prospective three years, followed by a two-year blocking period. The incentive is based on two Key Performance Indicators, Earnings per Share (EPS) and relative Total Shareholder Return (rTSR), both measured in relation to defined benchmarks, in order to:

  • Align the interests with those of GF’s shareholders;
  • Allow to participate in the long-term success of GF;
  • Foster and support a high-performance culture.

The initial grant is expressed as a number of shares for the CEO and for members of the Executive Committee, based on the length of employment in the year prior to the grant.

The number of granted shares is split as follows:

  • 50% EPS dependent performance shares PS(EPS);
  • 50% rTSR dependent performance shares PS(rTSR).

Performance shares

 

 

PS(EPS) EPS – Performance shares

 

PS(rTSR) rTSR – Performance shares

 

Total number of shares

CEO

 

Grant: 375 Vesting: 0% – 200%

 

Grant: 375 Vesting: 0% – 200%

 

Grant: 750 Vesting: 0% – 200%

Executive Committee

 

Grant: 125 Vesting: 0% – 200%

 

Grant: 125 Vesting: 0% – 200%

 

Grant: 250 Vesting: 0% – 200%

General vesting provisions

Both KPIs, EPS and rTSR, are measured individually; hence, the vesting of the PS(EPS) cannot be compensated by the vesting of PS(rTSR) and vice-versa.

The shares of the share-based compensation program either are treasury shares or are repurchased on the market. No issuance of shares is foreseen for the LTI-plan in order to avoid shareholder dilution.

Share buybacks, major acquisitions/divestitures or capital increases will be neutralized and will have no impact on the EPS value. The Compensation Committee is responsible for evaluating each year if extraordinary, one-time events have significantly influenced any of the KPIs, EPS and rTSR, and, if so, to make adjustment recommendations to the Board of Directors. The explanations for such adjustments, if any, will be included in the Compensation Report of the relevant year.

In case of dismissal by GF due to cause, the vested shares will remain blocked until the end of the respective blocking periods; the unvested PS as well as the grant for the year the employment ends will forfeit.

Vesting of the PS(EPS) for the LTI-Plan 2018 

Vesting of the PS(EPS) for the LTI-Plan 2019 can be found in Chapter Changes for the Business Year 2019.

For the year 2018, the PS are granted on 1 January 2019. The grant value of the shares is based on the closing share price on the last trading day of 2018. The vesting of the PS is subject to meeting the following performance criteria:

The Key Performance Indicator (KPI) for the EPS-related performance shares for the LTI-Plan year 2018 is defined as follows:

The factor 1.04 reflects the average of the growth rate of 3% to 5% outlined in the GF Strategy 2020.

The vesting conditions are as follows:

  • If KPI(EPS) = 100%, 100% of the granted PS(EPS) will vest at the vesting date;
  • If KPI(EPS) = 125%, 150% of the granted PS(EPS) will vest at the vesting date;
  • If KPI(EPS) = 150%, 200% of the granted PS(EPS) will vest at the vesting date (cap);
  • If KPI(EPS) = 70%, 50% of the granted PS(EPS) will vest at the vesting date (threshold);
  • If KPI(EPS) < 70%,all granted PS(EPS) will forfeit (threshold;
  • For values in between the calculation is linear.

After the vesting period of three years, the PS will be blocked for two years (blocking period).

The vesting date of the granted PS(EPS) is defined as the day three years after the grant date and five working days after the official disclosure of the EPS value of the relevant last business year.

Vesting of the PS(rTSR) for the LTI-Plan 2018

Vesting of the PS(rTSR) for the LTI-Plan 2019 can be found in Chapter Changes for the Business Year 2019.

TSR is measured with a starting value of the Volume Weighted Average Share price (VWAP) over the first 30 trading days of the year and an ending value of the VWAP over the last 30 trading days of the year. Relativity is measured against the SMI-Mid group of companies (benchmark group).

The ranking is evaluated on an annual basis. At the end of the vesting period, the final ranking of GF amongst the benchmark group results from the average annual rankings over the three-year vesting period.

The vesting conditions are as follows:

  • Ranking at the median of the benchmark group leads to 100% vesting of the granted PS(rTSR);
  • Ranking as number 1 within the benchmark group leads to 200% vesting of the granted PS(rTSR);
  • Ranking at the lower end of the 2nd quartile of the benchmark group leads to 50% vesting of the granted PS(rTSR);
  • Ranking in the 1st quartile of the benchmark group leads to a forfeiting of the granted PS(rTSR);
  • For results in between the calculation is linear.

The vesting date of the granted PS(rTSR) is coincidental with the vesting date of the granted PS(EPS).

Benefits

Benefits consist primarily of retirement and insurance plans that are designed to provide reasonable retirement remuneration as well as a reasonable level of protection against risks such as death and disability. All members of the Executive Committee have a Swiss employment contract and participate in the pension fund of GF offered to all Swiss-based employees, in which only the fixed base salary is insured. The pension fund exceeds the minimum legal requirement of the Swiss Federal Law on Occupational Retirement, Survivors and Disability Pension Plans (BVG) and is in line with commensurate market practice. For top-management positions, including the members of the Executive Committee, an early retirement plan is in place. The plan is entirely financed by the employer and is administered by a Swiss foundation. Beneficiaries may opt for early retirement from the age of 60, if they are enrolled with the Swiss Social Security and have been employed by GF at least for ten years. Ordinary retirement is at age 65.

Members of the Executive Management do not receive special benefits. They are entitled to a representation lump-sum allowance and to reimbursement of business expenses in accordance to the expense rules applicable to all employees at management levels employed in Switzerland. The expense regulation has been approved by the relevant cantonal tax authorities.

Contractual terms

The contractual agreements with the Chief Executive Officer and the Executive Committee members foresee a notice period of maximum twelve months. There are no entitlements to severance payments.