Compensation Pprinciples

1. Compensation principles

The prin­ci­ples of the com­pen­sa­tion sys­tem for the Board of Direc­tors and man­age­ment of Züblin Immo­bilien Hold­ing AG are set out in the arti­cles of asso­ci­a­tion and con­tain the fol­low­ing fea­tures (see arti­cle 20ff. of the arti­cles of association):

1. The com­pen­sa­tion of the mem­bers of the Board of Direc­tors and man­age­ment is deter­mined by the Board of Direc­tors on the basis of a pro­pos­al from the Com­pen­sa­tion Committee.
2. The com­pen­sa­tion pol­i­cy is intend­ed to ensure the inde­pen­dence of the Board of Direc­tors in exer­cis­ing its con­trol func­tion and is based large­ly on fixed cash remu­ner­a­tion and a vari­able share based com­pen­sa­tion com­po­nent which is award­ed in restrict­ed shares.
3. For man­age­ment the com­pen­sa­tion scheme is intend­ed to ensure that tal­ent­ed man­agers can be recruit­ed, retained and moti­vat­ed. Mem­bers of man­age­ment receive fixed cash renu­mer­a­tion, a share based com­pen­sa­tion com­po­nent which is award­ed in restrict­ed shares and a vari­able per­for­mance-relat­ed com­pen­sa­tion which may be award­ed in cash and/or in shares.
4. The AGM will have to approve on a prospec­tive basis on a bind­ing res­o­lu­tion on the max­i­mum com­pen­sa­tion ceil­ing for the Board of Direc­tors (for the peri­od until the next AGM) and for the Group Man­age­ment (for the next finan­cial year).
5. The arti­cles of asso­ci­a­tion also stip­u­late a max­i­mum sup­ple­men­tary amount of com­pen­sa­tion for mem­bers of man­age­ment who are appoint­ed after the AGM has vot­ed on com­pen­sa­tion, and con­tain details on the pro­ce­dure to be fol­lowed in the event that the com­pen­sa­tion pro­pos­als are reject­ed by the AGM.

2. Setting of compensation

2.1 Nomination and Compensation Committee (NCC)

In accor­dance with arti­cle 18 of the arti­cles of asso­ci­a­tion, the NCC is com­prised of at least two mem­bers of the Board of Direc­tors. They are elect­ed annu­al­ly by the AGM for a peri­od of one year until the next AGM. The NCC assists the Board of Direc­tors in set­ting the com­pen­sa­tion scheme. The NCC also makes rec­om­men­da­tions on com­pen­sa­tion lev­els to the Board of Direc­tors, the CEO and the oth­er mem­bers of Group Man­age­ment and draws up cor­re­spond­ing pro­pos­als for the AGM. 

In finan­cial year 2017/18 the mem­bers of the NCC took part in all its meet­ings. CEO and CFO took part in the meet­ings in an advi­so­ry capac­i­ty. They left the meet­ing when their own com­pen­sa­tion was being dis­cussed. The chair­man of the NCC reports to the Board of Direc­tors on the com­mit­teeʼs delib­er­a­tions after each of its meet­ings. The min­utes of the NCCʼs meet­ings are avail­able to all mem­bers of the Board of Directors.

For more details relat­ing to the mem­bers of the NCC and the com­mit­teeʼs oth­er respon­si­bil­i­ties please refer to the Cor­po­rate Gov­er­nance Report.

2.2 Procedures for setting compensation

The make-up and lev­el of Board of Direc­tors and Exec­u­tive Man­age­ment com­pen­sa­tion is reviewed peri­od­i­cal­ly and is made based on the sec­toral and labour mar­ket envi­ron­ment in which Züblin Immo­bilien com­petes for and hires tal­ent. More­over, the com­pa­nyʼs finan­cial per­for­mance and the extent to which indi­vid­ual job require­ments and per­for­mance tar­gets have been met are also con­sid­ered in NCCʼs deci­sion on the com­pen­sa­tion lev­els of the CEO and the oth­er mem­bers of the Exec­u­tive Management.

2.3 Compensation structure

The com­pen­sa­tion of mem­bers of the Board of Direc­tors is made up of the fol­low­ing com­po­nents, with the fixed cash com­po­nent the main element:

Compensation of the Board of Directors

Sys­tem: The com­pen­sa­tion of mem­bers of the Board of Direc­tors may con­tain of the fol­low­ing com­po­nents, of which the fixed cash por­tion prevails.

Base salary: Each mem­ber of the Board of Direc­tors receives a base salary for their term of office. It is set in advance and is the same for all mem­bers of the Board of Direc­tors apart from the Chair­man. Mem­ber­ship of board com­mit­tees is not remu­ner­at­ed sep­a­rate­ly. The annu­al fixed remu­ner­a­tion is paid in cash on quar­te­ly basis. If a mem­ber leaves the Board of Direc­tors dur­ing their term of office the fixed remu­ner­a­tion is paid pro rata up to the end of the month in which they leave the board. The remu­ner­a­tion deter­mined in the above man­ner is paid out quar­ter­ly after the approval of the over­all amount by the AGM. The annu­al fixed remu­ner­a­tion of the Chair­man and the mem­bers of the Board is irre­spec­tive of the num­ber of board meet­ings. In addi­tion mem­bers of the Board of Direc­tors receive lump-sum expens­es per­mit­ted by the tax author­i­ties (CHF 6’500 for the Chair­man and CHF 5’000 each for Board Mem­bers) and reim­burse­ment of their expens­es incurred in con­nec­tion with board meet­ings. No atten­dance fees are paid to the Board of Direc­tors of Züblin Immo­bilien Hold­ing AG. No non-exec­u­tive mem­ber of the Board of Direc­tors is cov­ered by an occu­pa­tion­al pen­sion scheme.

The work of board mem­bers on the boards of the sub­sidiaries is paid in cash as fixed remu­ner­a­tion. This takes the form either of a fixed annu­al amount or an atten­dance fee depend­ing on the company.

Shares: In accor­dance with the arti­cles of asso­ci­a­tion mem­bers of the Board of Direc­tors may receive part of their com­pen­sa­tion in the form of vari­able, share-based com­pen­sa­tion. In the course of its peri­od­ic reviews dur­ing the year under review, the Com­pen­sa­tion Com­mit­tee (NCC) re-assessed the exist­ing com­pen­sa­tion mod­el and its sys­tem con­sid­er­ing the cur­rent size of the com­pa­ny. Based on the rec­om­men­da­tion of the NCC, the Board of Direc­tors has decid­ed not to imple­ment a long-term, share-based com­pen­sa­tion com­po­nent for the time being. 

Com­pen­sa­tion in the year under review: The com­pen­sa­tion mod­el for the mem­bers of the Board of Direc­tors for the year under review was amend­ed regard­ing share based com­pen­sa­tion com­po­nents. Their effec­tive com­pen­sa­tion is set out in the fol­low­ing sections. 

Compensation of Executive Management

The com­pen­sa­tion of the mem­bers of the Exec­u­tive Man­age­ment may com­prise of the fol­low­ing components:

Annu­al base salary: The mem­bers of Exec­u­tive Man­age­ment receive a fixed annu­al remu­ner­a­tion in cash which is deter­mined by the NCC for the finan­cial year (1 April until 31 March of the fol­low­ing year) and approved by the AGM. This fixed remu­ner­a­tion is deter­mined indi­vid­u­al­ly, tak­ing into account the cri­te­ria set out above and the func­tion and respon­si­bil­i­ties of the indi­vid­ual mem­ber of the Exec­u­tive Management.

Short-term vari­able com­pen­sa­tion (bonus): The short-term vari­able com­po­nent (bonus) for mem­bers of the Exec­u­tive Man­age­ment con­sists of the “Oper­at­ing Per­for­mance Bonus” and the “Return on Equi­ty Bonus”. As a rule, the bonus should be lim­it­ed to a max­i­mum of 50% of the annu­al base salary, but may also be higher.

The Oper­at­ing per­for­mance bonus may amount to a max­i­mum of 25% of annu­al base salary and depends on the indi­vid­ual per­for­mance achieved by the man­age­ment mem­ber. Indi­vid­ual per­for­mance is eval­u­at­ed by means of the annu­al “man­age­ment by objec­tives” process (MbO). Indi­vid­ual tar­gets are set and approved by the Board of Direc­tors at the begin­ning of the year and at the end of the year these are then com­pared with the actu­al per­for­mance. The oper­at­ing per­for­mance bonus is then cal­cu­lat­ed on the basis of the achieve­ment lev­el of the tar­gets, tak­ing account of the weight­ing of the com­po­nents. The oper­at­ing per­for­mance bonus is not paid if the Com­pa­ny records an over­all net loss.

The Return on equi­ty bonus (RoE bonus) may amount to a max­i­mum of 25% of annu­al base salary and depends on the net result for the finan­cial year. It is based on the Groupʼs RoE includ­ing changes in the mar­ket val­ue of prop­er­ties and prof­its and loss­es on sales of invest­ment properties.

The Board of Direc­tors defines a per­for­mance matrix with an upper and low­er RoE per­for­mance thresh­old. The low­er thresh­old cor­re­sponds to the bud­get­ed RoE for the finan­cial year. If the low­er RoE per­for­mance thresh­old is not met, the RoE bonus is reduced to zero. For results above the low­er RoE thresh­old, a grow­ing pro­por­tion of the RoE bonus is paid as the Com­pa­nyʼs earn­ings increase. If the upper RoE per­for­mance thresh­old is met or exceed­ed, the RoE bonus reach­es its max­i­mum of 25% of the annu­al base salary. The per­for­mance matrix is reviewed and adjust­ed by the Board of Direc­tors periodically.

The Cumu­la­tive short-term vari­able com­pen­sa­tion com­po­nent is cal­cu­lat­ed as a nom­i­nal amount in Swiss francs. The pay­ment is gen­er­al­ly made in cash, but may also con­sist of three-quar­ters in cash and one quar­ter in Züblin shares, where­by the price of the allo­ca­tion is cal­cu­lat­ed on the basis of the clos­ing shareprice on the last trad­ing day of the pre­vi­ous finan­cial year.

Shares: Mem­bers of the Exec­u­tive Man­age­ment may receive a share-based com­pen­sa­tion com­po­nent. The pur­pose of the share-based com­pen­sa­tion is to align the inter­ests of the Exec­u­tive Man­age­ment with the inter­ests of share­hold­ers. As with the share-based com­pen­sa­tion of board mem­bers, this com­po­nent may – sub­ject to approval of the NCC – amount to max. 25% of the annu­al base salary of the mem­ber of the Exec­u­tive Management. 

Pen­sions and oth­er ben­e­fits: The oth­er main ben­e­fits received by man­age­ment employ­ees are pen­sion plans and insur­ance poli­cies which pro­vide an appro­pri­ate pen­sion con­tri­bu­tion and appro­pri­ate cov­er­age against the risks of death or dis­abil­i­ty. For mem­bers of the Exec­u­tive Man­age­ment with a Swiss employ­ment con­tracts the plan ben­e­fits exceed those pro­vid­ed by the Swiss Fed­er­al Law on Old-Age, Sur­vivorsʼ and Dis­abil­i­ty Pen­sion Plans (BVG) and are in line with stan­dard mar­ket practice.

Mem­bers of the Exec­u­tive Man­age­ment do not receive any spe­cial addi­tion­al ben­e­fits. They are enti­tled to a lump-sum amount for busi­ness expens­es in accor­dance with the expens­es reg­u­la­tions approved by the rel­e­vant can­ton­al tax authorities.

Com­pen­sa­tion in the year under review: In the year under reveiw the mem­bers of the Exec­u­tive Man­age­ment received a trans­ac­tion relat­ed, non-recur­ring bonus pay­ment.  Their com­pen­sa­tion for the year under review is set out in the fol­low­ing sections. 

Notice peri­ods and sev­er­ance pay­ments for the Exec­u­tive Man­age­ment: The employ­ment con­tracts of the mem­bers of the Exec­u­tive Man­age­ment include the fol­low­ing peri­ods of notice and sev­er­ance payments:

1. Dr. Iosif Baka­leynik (CEO): The notice peri­od is six months. The employ­ment con­tract does not pro­vide for any sev­er­ance payment.
2. Roland Friederich (CFO): The notice peri­od is six months. The employ­ment con­tract does not pro­vide for any sev­er­ance payment.

Com­pen­sa­tion in the report­ing year: The com­pen­sa­tion of the mem­bers of the Exec­u­tive Man­age­ment for the report­ing year is set out in the Com­pen­sa­tion Report.