Compensation Report

1. Governance and methods to determine compensation

1.1 Shareholders’ involvement

The Annual General Meeting approves the maximum compensation amounts paid to the Board of Directors and to the Group Executive Committee, each in a binding vote. The provisions of the Articles of Association of Zehnder Group (www.zehndergroup.com/en/investor-­relations/­corporate-governance; Article 16) envisages that the Annual General Meeting votes annually and prospectively on each of the aggregate compensation amounts as follows:

• The maximum total compensation of the Board of Directors for the period up to the next Annual General Meeting;
• The maximum total compensation of the Group Executive Committee for the current fiscal year.

The Articles of Association of Zehnder Group (www.zehndergroup.com/en/investor-­relations/­corporate-governance; Article 32 ff.) include the following provisions on compensation:

• Principles of compensation and the allocation of listed shares to the Board of Directors (Articles 32 and 34);
• Principles of compensation and the allocation of listed shares to members of the Group Executive Committee (Articles 33, 34, and 36);
• Additional amount for payments to members of the Group Executive Committee appointed after the vote on compensation at the Annual General Meeting (Article 37);
• Loans, credit facilities and post-employment benefits for members of the Board of Directors and of the Group Executive Committee (Article 35).

1.2 Nomination and Compensation Committee

According to the Articles of Association, the Annual General Meeting elects annually and individually at least two and a maximum of four members of the Board of Directors to the Nomination and Compensation Committee, for a term of office of one year until the conclusion of the next Annual General Meeting. Members are eligible for re-election. Dr Urs Buchmann did not stand for re-election. At the Annual General Meeting 2022, the shareholders elected the following members of the Nomination and Compensation Committee:

The responsibilities of the Nomination and Compensation Committee are set out in the Articles of Association (www.zehndergroup.com/en/investor-relations/corporate-governance; Article 27) and Organisational Regulations (www.zehndergroup.com/en/investor-relations/corporate-governance; Article 4.3.) and include the following:

• Submission of proposals to the entire Board of Directors regarding the compensation system for the Board of Directors and the Group Executive Committee;
• Submission of proposals to the entire Board of Directors regarding the determination of compensation-related performance objectives for the Group Executive Committee;
• Submission of proposals to the entire Board of Directors regarding the individual compensation of the Chairman and other members of the Board of Directors;
• Submission of proposals to the entire Board of Directors regarding the individual compensation and the employment terms and conditions of the CEO and other members of the Group Executive Committee;
• Submission of proposals to the entire Board of Directors regarding amendments to the Articles of Association that affect the remuneration system for the members of the Group Executive Committee;
• Submission of proposals to the Board of Directors relating to the appropriate size and balanced composition of the Board of Directors, the majority of whose members should be independent, and determination of the criteria for independence;
• Development and presentation of criteria for election or re-election to the Board of Directors or the appointment as a member of the Group Executive Committee;
• Evaluation of potential members of the Board of Directors on the basis of the defined criteria and submission of a statement to the Board of Directors regarding their nomination for the attention of the Annual General Meeting;
• Assessment of proposals from the CEO to the Board of Directors regarding the appointment or dismissal of members of the Group Executive Committee and, if necessary, submission of a statement to the Board of Directors;
• Review of succession and contingency planning at the Group Executive Committee level;
• Provision of information to the Board of Directors on all events relating to the Nomination and Compensation Committee that are not directly the responsibility of the Board of Directors;
• Submission of proposals to the entire Board of Directors regarding the total amount of compensation of the Board of Directors and of the Group Executive Committee to be submitted to a vote at the Annual General Meeting;
• Submission of proposals to the entire Board of Directors regarding the Compensation Report;
• Submission of proposals to the entire Board of Directors regarding the approval of external mandates for members of the Group Executive Committee.

The levels of authority between the Nomination and Compensation Committee, the Board of Directors and the Annual General Meeting are summarised by the following table.

Responsibility levels

The Nomination and Compensation Committee meets as often as business matters require, generally before the meetings of the entire Board of Directors, which takes place at least four times a year. In 2022, the Nomination and Compensation Committee held four meetings of one and a half hours each on average, which were attended by all members.

In general, the Chairman of the Board of Directors, the Vice Chairman and/or the CEO attend the meetings in an advisory capacity. The Chairman of the Nomination and Compensation Committee may invite other executives as appropriate. However, the Chairman of the Board of Directors and the executives do not participate in the meetings or parts thereof if their own compensation and/or performance is under discussion. After each meeting, the Chairman of the Nomination and Compensation Committee reports on the activities of the Committee to the Board of Directors. The minutes of the meetings are available to the full Board of Directors.

The Nomination and Compensation Committee is entitled to involve external consultants regarding specific compensation issues. In 2022, the Nomination and Compensation Committee appointed Klingler Consultants to reevaluate the company pension scheme for the members of the Group Executive Committee and to assess potential providers in the market. It also mandated Willis Towers Watson to provide a compensation benchmark for the functions of the Group Executive Committee, including the assessment of the market caps for short-term incentives. Neither company holds any other mandates from Zehnder Group.

During the reporting year, Agnès Blust Consulting AG was mandated to provide data on the standard market structure for performance conditions for the long-term incentive of the Group Executive Committee, in particular regarding ESG performance indicators. The data provided was based on the practices of the defined peer group for the Group and common market practices within the SMI and SMIM. At the time the mandate was granted, Agnès Blust Consulting AG was not performing any other mandates for Zehnder Group. Since April 2022, Agnès Blust Consulting AG has been part of PricewaterhouseCoopers AG, which has served as the external auditor for the Group since 2019. In order to ensure independence between the audit of the financial statements and other mandates of PricewaterhouseCoopers AG, clear rules have been defined that have been consistently applied to this mandate.

The Nomination and Compensation Committee is also supported by internal experts, such as the Director Group Human Resources.

1.3 Method to determine compensation

In order to ensure competitive compensation levels that enable key talent to be attracted and motivated on a long-term basis, the compensation of executives is regularly benchmarked against that of executives from comparable international industrial companies featuring similar market capitalisation, revenue, profitability, headcount and geographical reach as Zehnder Group. The following companies were used for comparison purposes for the CEO and other functions of the Group Executive Committee: Arbonia, Belimo, Bobst¹, Bossard, Burckhardt Compression, Burkhalter, Bystronic, Daetwyler, Feintool, Forbo, Gurit, Huber+Suhner, Interroll, Komax, Landis+Gyr, Metall Zug, Meier Tobler, Phoenix Mecano, Rieter, Schweiter and Starrag. The universe of companies remains unchanged compared with the reference companies of the previous year. Executives who attain the defined performance objectives are generally awarded target compensation at a median level of the relevant benchmark data.

In 2022, the consulting firm Willis Towers Watson performed a benchmarking survey for the compensation of the Group Executive Committee. For this purpose, the data of industrial benchmark companies (as described above) was compiled by Willis Towers Watson from its existing database for each function of the Group Executive Committee in the country of employment of the respective member and through use of its job grading methodology. The grading system forms the basis in setting compensation with regard to aspects such as benchmarking and the definition of the compensation structure and levels.

The benchmarking data constitutes just one factor taken into consideration by the Nomination and Compensation Committee to determine the compensation of members of the Group Executive Committee. Other factors are considered as well, such as the internal compensation structure (equity), the profile of the Group Executive Committee member (skill set, experience, seniority) and the responsibilities actually borne by that member. The performance of the company in any given year has a direct impact on the variable compensation paid to the members of the Group Executive Committee over the short and long term through the profit-sharing plan.

¹ The delisting of Bobst shares from the SIX Swiss Exchange took place on 30 December 2022. Bobst remains in the peer group for 2022.