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):
- 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.
- 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.
- 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.
- 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).
- 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:
- Dr. Iosif Bakaleynik (CEO): The notice period is six months. The employment contract does not provide for any severance payment.
- 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.