3. Architecture of compensation of the Board of Directors

In order to guarantee their independence in their supervisory function of the Group Executive Committee, the members of the Board of Directors receive a fixed compensation only, consisting of a fixed annual retainer, fixed compensation for membership of committees of the Board of Directors and a lump sum expense allowance.

In order to strengthen the alignment to long-term shareholders’ interests, payment of the fixed annual retainer for the Board of Directors is made half in cash and half in the form of registered shares A of Zehnder Group AG. From the 2021/2022 term of office, the number of shares awarded is to be determined based on the average, volume-weighted share price during the period between 1 and 31 December of that year. The shares are subject to a restriction period of three years during which they cannot be sold, transferred or pledged. The restriction period also applies in case of termination of employment, except in case of death, where the restriction immediately lapses.

The cash compensation is paid out on a monthly basis and the registered shares A are allocated in January for the current compensation period corresponding to the term of office from the Annual General Meeting of the previous year to the Annual General Meeting of the reporting year.

Additional compensation to Board members for advisory services to the company or for activities in companies that are controlled directly or indirectly by the company is permitted. This compensation is included in the total amount of compensation paid to the Board of Directors, which must be approved by the Annual General Meeting.

The compensation of the Board of Directors is reviewed regularly. The benchmark analysis performed by Willis Towers Watson in 2020 was used to determine the adjustments to the compensation model in the context of the expanded responsibilities within the Board of Directors (see 3.5 Internal organisational structure in the Corporate Governance Report). The following changes, among others, were made for the 2021/2022 term of office:

The shares are allocated at market value based on conventional market practice with a view to achieving improved comparability with other companies. Specifically, the discount of 30% on the share price applicable until the Annual General Meeting 2021 was removed. In addition, the reference period for calculating the relevant share price was shortened from three months (October to December of any given year) to one month (December);
The gross retainer for the Board of Directors was raised for all functions in order to take account of the elimination of the share price discount on the one hand, and to align the level of compensation with market practice on the other;
The retainer for the Vice Chairman of the Board of Directors was adjusted in line with the increased responsibilities. In addition, the Vice Chairman serves as the responsible contact (alternatively to the Chairman of the Board of Directors) for matters relating to corporate governance and risk management. He also represents the company vis-à-vis shareholders (including the majority shareholders) as well as other external stakeholder groups. The Vice Chairman of the Board of Directors also serves the role of Lead Independent Director;
The level of fees for committee chairmen was also raised in order to reflect the substantial additional effort involved in their roles;
According to current market practice, the fees due to committee members are paid out entirely in cash.

The compensation structure of the Board of Directors for the term of office until the Annual General Meeting 2021 and for the period from the Annual General Meeting 2021 onwards is summarised in the following table.

Architecture of compensation of the Board of Directors

	Term of office 2020/2021		Term of office 2021/2022
CHF	In cash	In shares 1	In cash	In shares 2
Retainer (gross p.a.)
Chairman of the Board of Directors	175,000	175,000	210,000	210,000
Vice Chairman of the Board of Directors	50,000	50,000	90,000	90,000
Members of the Board of Directors	40,000	40,000	50,000	50,000
Committee fees (gross p.a.)
Chairman of the Nomination and Compensation Committee or Audit Committee	15,000	15,000	50,000
Member of the Nomination and Compensation Committee or Audit Committee	10,000	10,000	25,000
Expense lump sum (gross) 3	2,000		2,000

1 Converted into shares on the basis of the average volume-weighted share price during the period between 1 October and 31 December, discounted by 30%.

2 Converted into shares on the basis of the average volume-weighted share price during the period between 1 December and 31 December, without discount.

3 The Chairman and Vice Chairman of the Board of Directors are paid a lump sum expense allowance in line with the company’s rules on executives’ expenses depending on the work commitment (currently 50% for the Chairman of the Board of Directors and 25% for the Vice Chairman). No lump sum expense allowance is paid for members of the Board of Directors based outside Switzerland or if the actual business expenses exceed CHF 2,000, and the business expenses are reimbursed on an actual cost basis.