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 15) envisage 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 31 ff.) include the following provisions on compensation:

• Principles of compensation and the allocation of listed shares to the Board of Directors (Articles 31 and 33);
• Principles of compensation and the allocation of listed shares to members of the Group Executive Committee (Articles 32, 33 and 35);
• Additional amount for payments to members of the Group Executive Committee appointed after the vote on compensation at the Annual General Meeting (Article 36);
• Loans, credit facilities, and post-employment benefits for members of the Board of Directors and of the Group Executive Committee (Article 34).

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. At the Annual General Meeting 2023, 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 26) and Organisational Regulations (www.zehndergroup.com/en/investor-relations/corporate-governance; Article 4.3.) and include the following:

• Submission of motions to the full Board of Directors relating to the Group's remuneration system;
• Submission of motions to the full Board of Directors relating to targets set for the Group Executive Committee, the achievement of which has an impact on remuneration;
• Provision of information to the Board of Directors on all events relating to the Nomination and Compensation Committee that are not the direct responsibility of the Board of Directors;
• Submission of motions to the full Board of Directors relating to the specific remuneration paid to the Chairman of the Board of Directors and each of the other members of the Board of Directors;
• Submission of motions to the full Board of Directors relating to the specific remuneration paid to the CEO as well as the specific remuneration paid to each of the other members of the Group Executive Committee;
• Submission of proposals to the full Board of Directors relating to amendments to the articles of association affecting the remuneration system for compensating 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 appointment as a member of the Group Executive Committee;
• Assessment of potential members of the Board of Directors on the basis of the defined criteria and a statement made to the Board of Directors regarding their nomination, to 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;
• Approval of employment contracts with the CEO and the other members of the Group Executive Committee;
• Review of succession and contingency planning at the Group Executive Committee level;
• Authorisation of the acceptance of external mandates by members of the Board of Directors and members of the Group Executive Committee in accordance with the articles of association.

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 take place at least four times a year. In 2023, the Nomination and Compensation Committee met five times, for an average of one and a half hours, generally with the participation of all members and with technical support from the Group HR Director. Milva Inderbitzin-Zehnder was absent from two meetings due to maternity leave.

In general, the Chairman of the Board of Directors, the Vice Chairman and 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 2023, the Nomination and Compensation Committee commissioned Willis Towers Watson to prepare a benchmark for the compensation of the members of the Board of Directors. During the reporting year, the company also provided benchmark data for specific Group Executive Committee positions. The company fulfils further mandates for Zehnder Group on this topic. 

The Nomination and Compensation Committee is also supported by internal experts such as the Group HR Director and the Group Compensation & Benefits Manager.

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 that feature similar market capitalisation, turnover, profitability, number of employees, and geographical reach as Zehnder Group. The companies used for comparison are as follows: 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. Executives who attain the defined performance objectives are generally awarded target compensation at a market median level of the relevant benchmark data.

These benchmarking data constitute just one of the factors taken into consideration by the Nomination and Compensation Committee when determining the compensation of members of the Group Executive Committee. Additional factors are also considered, such as the internal compensation structure (equality), the profile of the Group Executive Committee member (skill set, experience), and the responsibilities actually borne by that member. The performance of the company in any given year has a direct impact on the short- and long-term compensation paid to the member of the Group Executive Committee.

In 2023, the consulting firm Willis Towers Watson performed a benchmarking survey for the compensation of the Board of Directors. For this purpose, Willis Towers Watson used data from benchmark industrial companies from its existing database. To this end, the selection criteria for the benchmark companies were reviewed and adjusted. In addition to the existing selection criteria for benchmark companies that operate in the same or a similar industry, are listed on the stock exchange, and have their headquarters and business activities in Switzerland with the same or a similar geographical scope, the criteria of market capitalisation, turnover, and number of employees have been adjusted. Compared to Zehnder Group, these three numerical values can be up to 30% smaller, but no more than three times as large. If the values of the three criteria are all exceeded or fallen short of at a benchmark company, the comparable company is excluded from the peer group. The following companies were therefore used for comparison: Arbonia, Belimo, Bossard, Burckhardt Compression, Burkhalter, Bystronic, Daetwyler, Feintool, Forbo, Gurit, Huber+Suhner, Interroll, Kardex, Komax, Landis+Gyr, Meier Tobler, Phoenix Mecano, Rieter, Schweiter Technologies, Tecan, VAT-Group, Vetropack and V-Zug. The benchmark serves the Compensation Committee as a basis for analysing the compensation of the Board of Directors for the 2024/25 term of office.

¹ Bobst Group was delisted from the SIX Swiss Exchange on 30 December 2022 and will be replaced by V-Zug in the peer group in future.