Remuneration of the chairman of the board of directors, vice chairman and other board members is comprised of a cash component and an options component. The latter is to be replaced by restricted stock units (RSU) in 2009. The chairman of the board also receives a pension fund contribution. Additionally, the chairmen and the members of the two standing committees receive cash compensation. The remuneration of board members depends on the responsibility assigned, complexity of the tasks involved, time spent and prevailing market rates. No attendance fees are paid. The amount of remuneration is established by the entire board of directors in response to a proposal by the nomination and remuneration committee, which reviews the suitability of compensation on an annual basis. The remuneration of each member of the board of directors and the CEO as well as the entire executive committee and the entire board of directors is documented in a table in the financial statements of Sulzer Ltd under note 109 on pages 68 to 71.
The CEO and members of the executive committee as well as other senior management members receive, in addition to their basic salaries in cash, a performance and results-based bonus, which is also paid in cash, as well as a number of Sulzer Ltd stock options (to be replaced by a RSU plan in 2009) according to their functional grade. Base salaries and annual bonus on target level (target compensation) reflect the market median level for the respective positions, individual qualifications and prevailing local labor market conditions. The latter are regularly assessed and salary ranges adjusted accordingly as required, also with the involvement of external consultants (2008: Mercer, PricewaterhouseCoopers, Watson/Wyatt). The individual base salaries are also reviewed annually and adjusted if necessary. The target bonus corresponds to a percentage of the annual base salary (50% for the CEO, between 20% and 35% for the other members of the Sulzer Management Group). The actual bonus paid depends on the attainment of the targets that have been agreed upon. 70% of these targets are of a financial nature (for example, order intake, operating income, net income and return on capital employed) and 30% individually, which can be of a qualitative or quantitative nature. Three to four financial goals and two to three personal goals with a percentage weighting are defined for each executive committee member. The bonus can reach a maximum of two and a half times the target bonus. Exceptions can be made by the board of directors, but this is rarely done. No bonus at all is paid if the minimum target level is not reached. As a long-term performance incentive, Sulzer has a stock option plan. This plan was revised in 2006. Each year, senior managers receive stock options with a maturity of five years. The number of stock options depends on the respective management grade according to the Watson/Wyatt Global Grading System. These options are vested upon issue, one-third of them subsequently becoming eligible for exercise each year. The conversion ratio is 1:10 but only cash can be paid out for options granted since 2006.
The entire remuneration system is regularly reviewed by the nomination and remuneration committee. This committee proposes to the entire board of directors the main annual bonus criteria as well as the total remuneration of the CEO and the other members of the executive committee. Changes to the remuneration system are subject to decision by the entire board of directors in response to a proposal by the nomination and remuneration committee. Based on a benchmarking process with the involvement of PricewaterhouseCoopers, the Sulzer board has decided to replace the option plan with a RSU plan starting in 2009.
No material severance payments were made during the reporting year. As an exception, the former head of Sulzer Metco was granted the right to exercise options, which were given as agreed to him when he took office in 2004. The options granted to him under the terms of the Sulzer option plan but not yet available were forfeited without compensation when he left the company.
The employment contracts of the executive committee members make no provision for unusually long notice periods or contract terms. However, since February 2006, they contain the right to remuneration if — within eighteen months after a change of control — an employment contract is terminated or the individual’s function changes considerably. This remuneration shall in no case exceed the base salary plus the target bonus plus 10% of the base salary for one year. The board of directors has undertaken this measure in the interest of the company. If there is a change of control, including replacement of the majority of the members of the board of directors, or a public takeover offer that is not supported by the board of directors at the time of publication, all allocated options of the option plan are also automatically vested. The vesting period for those options granted to the members of the board of directors ends no later than the date on which the individual no longer fulfils the respective function.
All other information on remuneration can be found in the financial section under note 31 (page 50) and note 32 (page 51) as well as in the financial statements of Sulzer Ltd under note 109 (pages 68 to 71).