Remuneration of the chairman of the board of directors and other board members comprises a cash component and an options component. The chairman of the board receives also 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. Despite the large number of meetings (see annual report 2007, table on page 45), no attendance fees were paid during the year under review. The amount of remuneration is set by the full board of directors in response to a proposal by the nomination and remuneration committee, who reviews the suitability of compensation on an annual basis. The remuneration of the board members and CEO and the full board of directors and the executive committee in its entirety is set out individually in a table in the financial statement of Sulzer Ltd (parent company) under note 113 on pages 67 to 69.
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 (also in cash), as well as a number of Sulzer Ltd stock options according to their functional grade. Basic salaries 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 (2007: Mercer, PricewaterhouseCoopers, Watson/Wyatt). The individual basic salaries are also reviewed annually and adjusted if necessary. The target bonus corresponds to a percentage of the basic annual salary. 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 (such as return on capital employed, net income, operating income, and order intake) and 30% individually, which can be of qualitative or of 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 maximum bonus can reach a maximum of two and a half times the target bonus. Exceptions can be made by board of directors, but they are rare. No bonus at all is paid if the minimum target level is not reached. As result of the solid business results for 2007 and, in particular, the attainment of the financial targets, most executive committee members will receive the maximum bonus for the year under review, but it will only be paid out during 2008. 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 (previously ten). 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 (previously one-quarter) of them subsequently becoming eligible for exercise each year. The subscription ratio is 1:1 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 full board of directors the main annual bonus criteria, as well as the total remuneration of the CEO and other members of the executive committee. Changes to the remuneration system are subject to decision by the full board of directors in response to a proposal by the nomination and remuneration committee. Based on a benchmarking process with the involvement of PricewaterhouseCoopers and Mercer, the Sulzer board decided to replace the option plan with a restricted share unit plan starting in 2009.
No severance payments were made during the reporting year. However, the former CFO received in accordance with internal guidelines a one-time payment into the pension fund, related to his early retirement.
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 is never more than the basic salary plus the target bonus plus 10% of the basic 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 automatically vested. The vesting period for those options granted to the members of the board of directors ends no later than the date at which the individual no longer fulfils the respective function.
All other information on remuneration can be found in the financial section under note 34 (page 50) and note 35 (page 51) as well as in the financial statement of Sulzer Ltd (parent company) under note 113 (pages 67 to 69).