Board of Directors
The compensation paid to the chairman of the Board of Directors, the vice chairman (until August 18, 2009) and the other members of the Board of Directors is based on a compensation regulation. They consist of a fixed cash component and a restricted stock unit component (RSU). The latter replaced the option component in 2009 and serves the long-term alignment of the interests of shareholders and board members. The value of the allocated RSU on the grant date is fixed (CHF 125 000 per board member and CHF 250 000 for the chairman of the board). In the event of an election of a new board member at an Annual General Meeting, the number of RSUs is calculated on the basis of the volume-weighted average share price of the last ten trading days prior to the grant date, which lies between the date of the publication of the year-end results and the Annual General Meeting. For the calculation of the RSU component for the two members newly elected to the Board of Directors on August 18, 2009, the grant date was replaced with the election date, and the value was reduced pro rata temporis. The vesting period for those options and RSUs granted to the members of the Board of Directors ends no later than the date on which the individual steps down from his respective function. Additionally, the chairmen and the members of the committees receive a fixed amount of cash compensation (CHF 20 000 for the chairmen; CHF 10 000 for the members). The total amount of compensation for the Board of Directors depends on the amount of responsibility, the complexity of the tasks, the professional and personal requirements placed on them and the expected average time spent. No attendance fees are paid. The suitability of compensation is reviewed by the Nomination and Remuneration Committee on an annual basis and, if necessary, adjusted by the full Board of Directors in response to a proposal by the committee. Comparisons are also made with the compensation paid to the Boards of Directors of other industrial companies of a similar size listed in Switzerland. The Board of Directors decided to reduce the corresponding compensation for the reporting year. Further details on the RSU component are available in the Executive Committee subsection. Detailed information on the remuneration of the Board of Directors is given in the financial statements of Sulzer Ltd under note 109 (pages 120 to 123).
Executive Committee
The CEO and members of the Executive Committee as well as other members of senior management (Sulzer Management Group) receive, in addition to their basic salary (fixed amount in cash), a performance- and results-based bonus (also in cash), as well as a value in restricted stock units (RSUs) consistent with their functional grade, which replaced the stock options plan in 2009. Jobs are evaluated according to the Watson/Wyatt Global Grading System (www.watsonwyatt.com/tools/globalgradingsystem; as of January 1, 2010, Tower Watson).
Basic salary (fixed, in cash): The basic salary reflects the market median level for the respective position, individual qualifications, and the prevailing local labor market conditions, i.e., for members of the Executive Committee, Swiss labor market conditions. In order to review, assess and, where needed, to adjust the individual compensation, multinational salary benchmark studies are used, which are issued by external advisors (Watson/Wyatt: Global 50 Remuneration Planning Report 2008/2009; PricewaterhouseCoopers: Executive Compensation Benchmark 2008; and Mercer: Mercer Executive Remuneration Guide Switzerland 2008).
Bonus (variable, performance-based, in cash): The annual target bonus corresponds to a percentage of the basic annual 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 agreed targets. 70% of these targets are of a financial nature (such as order intake, operating income, net income and return on capital employed) and 30% are individual targets, which can be both qualitative and quantitative. For each of those targets, a target value as well as a lower and an upper target level are set. Depending on the level of achievement, a corresponding number of points is calculated. The sum of the points determines the payout ratio, which amounts to a maximum value of two and a half times the target bonus. No bonus at all is paid if the minimum target level is not reached. Exceptions to this policy may be defined by the Board of Directors in response to a proposal by the Nomination and Remuneration Committee. For the year 2009, the Board of Directors decided to grant a discretionary bonus to selected senior managers at Sulzer Metco and Sulzer Chemtech. The amount of this bonus is lower than the bonus that would have been paid out if the minimum target level had been reached.
RSU plan (fixed, share-based remuneration): Sulzer has been implementing a restricted stock unit plan (RSU plan) as a long-term performance incentive since 2009. Following a benchmarking analysis (PricewaterhouseCoopers: Executive Compensation Benchmark 2008) and in consultation with PricewaterhouseCoopers and Mercer, the Board of Directors decided to replace the previous long-term option plan with an RSU plan from 2009. Each year, members of the Sulzer Management Group receive RSUs; the value of the RSUs upon issue depends on the respective management grade (according to the Watson/Wyatt Global Grading System) and is regularly reviewed using benchmarks (PricewaterhouseCoopers: Executive Compensation Benchmark 2008). All senior managers with the same global grade receive the same number of RSUs. The number of RSUs is based on the defined value per global grade (see above) and the volume-weighted average share price over the last ten trading days before the grant date. The RSUs are not definitively allocated when issued; instead, one-third of the units granted are vested every year. In the event of the termination of an employment, all options and RSUs, which were unvested on the day the working relationship has expired, shall lapse. Details of the remuneration of the Executive Committee are given in the financial statements of Sulzer Ltd under note 109 (pages 120 to 123).
The compensation of the Executive Committee is reviewed annually 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 compensation of the CEO and other members of the Executive Committee. Changes to and the determination of the compensation system are subject to a decision by the full Board of Directors in response to a proposal by the Nomination and Remuneration Committee. The members of the Executive Committee have no right to neither attend nor vote at meetings concerning their compensation. However, the CEO attends meetings in which proposed compensation of members of the Executive Committee is being discussed, and submits proposals (except for his own compensation).
No severance payments to members of the Executive Committee were made during the reporting year. The employment contracts of the Executive Committee members make no provision for unusually long notice periods or contract terms. However, since February 2006, they do contain the right to compensation if an employment contract is terminated within 18 months after a change of control or in the event of a considerable change to a member’s function. This compensation consists of 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 interests of the company. Furthermore, if there is a change of control (for members of the Executive Committee including the replacement of the majority of the members of the Board of Directors) or a public takeover bid that is not supported by the Board of Directors, all allocated options of the option plan and RSUs of the RSU plan are automatically vested.
All other information on compensation (including that of the CEO and the Executive Committee as a whole) can be found in the financial section under note 32 (pages 104 to 105) and note 33 (page 105) as well as in the financial statements of Sulzer Ltd under note 109 (pages 120 to 123).
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