— Compensation report — Compensation architecture for the Executive Committee

Compensation architecture for the Executive Committee

Compensation principles

The compensation of the Executive Committee is driven by the main principle of pay for performance. The compensation policy and programs are designed to reward performance, sustainable growth and long-term shareholder value creation, while offering competitive remuneration to be able to attract and retain highly qualified employees. The compensation system is based on the following guiding principles:

Assessment of level of compensation

To ensure compensation levels that are competitive and in line with market practice, the compensation of the Board of Directors and of the Executive Committee is regularly benchmarked against that of similar roles in comparable companies every one to two years. For this purpose, the Remuneration Committee selected a peer group of international industrial and medical technology companies headquartered in Switzerland based on their revenue and number of employees. medmix is positioned between the first quartile and median of the peer group. The comparison group reflects medmix’ ambitious business strategy:

The intention is to pay target compensation around the median of the relevant market. Nevertheless, potential compensation increases are not granted based on benchmark results alone. The role and responsibility as well as current performance of the individual Executive Committee member is assessed at the same time. A globally consistent job-grading structure fosters internal equity.

Compensation elements and their application for financial year 2021

The compensation of the Executive Committee comprises fixed and variable components. The fixed compensation of the members of the Executive Committee consists of a base salary, allowances payable in cash and contributions to pension schemes or similar benefits. In addition, the members of the Executive Committee are eligible for performance-based short-term variable compensation (performance bonus plan) paid in cash and long-term variable compensation (performance share plan (PSP)) paid in performance share units (PSUs). The members of the Executive Committee will participate in the medmix PSP from 2022 onwards. These variable compensation components foster a successful development of medmix in the short-term as well as in the long-term.

The following illustration shows the compensation components and provides a brief description of how these components are linked to the guiding principles:

The variable compensation of medmix is designed to create reasonable incentives for the Executive Committee, align interests of Executive Committee and shareholders, ensure pay for performance and implement the company’s strategy in the compensation of the Executive Committee. 

The Executive Committee’s compensation puts a clear focus on the fulfillment of the performance targets defined within the variable compensation. In line with the pay-for-performance principle, a significant portion (~56%) of the target compensation of the CEO and of the other members of the Executive Committee consists of variable incentives based on performance. Furthermore, the compensation structure ensures sustainable long-term growth as the long-term variable compensation makes up the largest portion of the target total compensation.

Fixed compensation

Base salary

The base salary is determined at the discretion of the Board of Directors based on the market value of the respective position and the incumbent’s qualifications, skill set and experience and is paid out in cash. A global job-grading structure provides orientation and fosters internal equity.

Fringe benefits

As additional fixed compensation elements, the members of the Executive Committee receive allowances such as relocation allowances, tax services or child allowances. All such allowances are paid in cash. Furthermore, they receive contributions to social security.

Pension

Members of the Executive Committee participate in the regular employee pension fund applicable to all employees in Switzerland. The retirement plan consists of a basic plan that covers annual earnings up to CHF 149’125 per year and a supplementary plan in which income over this limit, up to the ceiling set by law, is insured (including variable cash remuneration). The contributions are age related and are shared between the employer and the employee.

Variable compensation

Short-term variable compensation

General functionality

As short-term variable compensation, Executive Committee members are granted the performance bonus plan under which they receive an annual, variable, and performance-related compensation.

Under the performance bonus plan, the members of the Executive Committee receive an annual target bonus amount which is expressed as a percentage of the annual base salary (CEO: 80% of base salary; other members of the Executive Committee: 50% of base salary).

The performance period of the performance bonus plan is one financial year. The final payout amount depends on the performance assessed against the predefined performance objectives during the respective performance period. The performance bonus plan comprises financial objectives with a weighting of 70% as well as individual objectives with a weighting of 30%. The relevant performance objectives and their respective weighting are defined at the beginning of the year in the course of the annual target setting. The selected performance objectives are thereby clearly aligned with the corporate strategy of medmix and support the short-term success of the company. They reflect the areas of focus for medmix and relate to key value drivers by underpinning the financial performance of the medmix group. The target achievement of the financial and individual objectives depends on the performance during the financial year and can range between 0% and 200% for each objective. The achievement is assessed against each of the predefined objective after year-end and directly impacts the payout.

The final payout amount is determined by multiplying bonus relevant annual salary and target bonus amount with the overall target achievement, which is calculated based on the target achievement in the performance objectives taking into account their respective weighting.

The financial and individual achievements of the members of the Executive Committee are subject to review and approval by the Remuneration Committee and the Board of Directors, respectively.

Relevant objectives

For the CEO and the other members of the Executive Committee, the payout amount of the Performance Bonus Plan depends on the appraisal of performance against a maximum of six financial objectives and six individual objectives. The objectives for the financial year 2021 as well as their respective weighting are described in the table below:

Performance bonus plan objectives

The selected performance objectives are clearly aligned with the corporate strategy of medmix and support the short-term success of the company. They reflect the area of focus for medmix and relate to key value drivers by underpinning the financial performance of the medmix group.

The objectives are set within the annual target-setting process. For each financial objective, the following parameters are set up front:

• An expected level of performance (“target”), the achievement of which leads to a target achievement (on the respective performance metric) of 100%.
• A minimum level of performance (“threshold”) below which the respective target achievement is zero.
• A maximum level of performance (“cap”) above which the respective target achievement is capped at 200%. With respect to the financial objectives, a performance of 200% of the target figure is required to achieve a target achievement of 200%.

Between threshold and target, as well as between target and cap, the target achievement is interpolated linearly.

As part of the assessment of their individual performance, each Executive Committee member is given objectives for their respective area of responsibility and an additional objective related to supporting sustainability through environment, social, governance (ESG) efforts. The ESG objective includes improvements in health and safety, emissions, water and energy efficiency or initiatives and actions taken to increase employee and community engagement or efforts in R&D for more efficient or sustainable products. The CEO reviews the individual performance based on the personal objectives of each Executive Committee member which in turn is reviewed by the Remuneration Committee. The CEO’s individual performance is assessed by the Remuneration Committee.

medmix strives for transparency in relation to pay for performance. However, further disclosure of financial and individual objectives may create a competitive disadvantage to the company, because it renders sensitive insights into medmix’ strategy. To ensure transparency while avoiding competitive risk, medmix provides a general performance assessment for each financial objective as well as the aggregated individual performance at the end of the performance cycle.

Payout from the performance bonus plan 2021

The final payout amount of the Performance Bonus 2021 is based on the total target achievement and the target bonus amount. The total target achievement is calculated by taking the sum of the target achievement of the financial objectives and the individual objectives multiplied with their respective weighting. Given the spin-off of medmix during the financial year 2021, the target bonus amounts of the members of the Executive Committee are calculated pro rata temporis as of September 20, 2021. The payout from the Performance Bonus Plan 2021 can be summarized as follows:

Performance bonus plan 2021: Summary

Long-term variable compensation

Applicable performance share plans 

Due to the timing of the spin-off of medmix from Sulzer in autumn 2021, the members of the Executive Committee remain participants with the Sulzer PSP tranches between 2019 and 2021. Therefore, until the end of 2023, these allocations granted in the past under the Sulzer PSP will become due. From 2022 onwards, the members of the Executive Committee will participate in the medmix PSP. The following graphic depicts the tranches that are currently running as well as three exemplary future tranches for the medmix PSP:

General functionality of the medmix performance share plan starting in 2022

Members of the Executive Committee and other selected employees of medmix are eligible to participate in a long-term variable compensation component, called a performance share plan (PSP). Given the spin-off of medmix from Sulzer in financial year 2021, the first regular grant of the medmix PSP will occur in financial year 2022. The PSP consists of rolling annual plans, which allows the Board of Directors to review and adjust the terms and targets on an annual basis.

The PSP incentivizes long-term shareholder orientation and value creation and aligns the interests of the participants with those of the shareholders by delivering a substantial portion of the compensation as company equity. This underlines the focus of medmix on pay for performance and sustainable growth, with a long-term perspective and additional retention effect on employees.

Under the PSP, members of the Executive Committee are eligible to be granted PSUs. PSUs are contingent rights to receive a variable number of shares at the end of a three-year vesting period. The number of PSUs to be granted to each participant shall depend on the participant’s position and impact on the business and shall be determined by the Board of Directors in its sole discretion (subject to shareholders’ approval). The number of PSUs granted is calculated by dividing the individual grant value by the three-month volume-weighted average share price before the grant date.

On the vesting date, the number of vested PSUs is dependent on three performance indicators related to the price of medmix’ shares, revenue growth and profitability. The overall target achievement for these three performance indicators can range between 0% and 250%. The final number of vested PSUs is calculated by multiplying the overall target achievement with the number of vested PSUs. For each vested PSU, a medmix share will be delivered to the member of the Executive Committee.

Details on the performance indicators and the respective target achievement curves will be given in the compensation report 2022 with the first grant of the medmix PSP.

Handling of outstanding Sulzer PSP tranches

At the time of the spin-off of medmix from Sulzer in autumn 2021, the members of the Executive Committee were participants in the Sulzer PSP tranche 2019 to 2021. As part of this, they had previously been granted a number of Sulzer PSUs. Given the spin-off, the number of granted PSUs remaining were pro-rated on the basis of the portion of the total performance period during which the company was a part of the Sulzer group. This prorated number of PSUs will continue to vest on the normal vesting dates (i.e., no acceleration), thus also be subject to ongoing performance measurement throughout the entire original performance period. The portion of PSUs forfeit as a result of the prorating will be taken into consideration for the determination of the grant amounts in the next grant to the affected members of the Executive Committee under the new PSP of medmix starting 2022. This spin-off correction grant will be made at one time together with the regular grant cycle expected to be in April 2022.

On the vesting date of the Sulzer PSP 2021, the number of vested PSUs is calculated by multiplying the initial number of PSUs granted by the weighted average of the target achievements of each performance condition. For each vested PSU, a Sulzer share will be delivered to the participant. The number of shares to be issued for each PSU can be between 0% and 250% of the number of PSUs granted, depending on the three additively linked performance indicators: operational profit growth (weighting 25%), operational ROCEA (weighting 25%) and relative total shareholder return (relative TSR; weighting 50%). In addition, the number of vested PSUs is subject to an absolute value cap representing, in each case, 2.5 times the original grant value.

In financial year 2021, the Sulzer PSP tranche 2019 vested. For this tranche, the objectives described above also apply. The Sulzer PSP tranche 2019 resulted in a total payout factor of 185%.

For more details on the Sulzer PSP, please see the Sulzer annual report.

Contractual arrangements

Service contracts

The employment contracts of the Executive Committee are of undetermined duration and have a maximum notice period of 12 months. Members of the Executive Committee are not entitled to any impermissible severance or change of control payments. The employment contracts of the Executive Committee may include non-compete agreements with a time limit of one year and with a maximum total compensation of one annual target compensation.

Malus and clawback

The Board of Directors may determine that long-term variable compensation is forfeited in full or in part (malus) or that a vested award will be recovered in full or in part (clawback) in situations of material misstatement of the financial results, an error in assessing a performance condition or in the information or assumptions on which the award was granted or vested, serious reputational damage to the company, gross negligence, or willful misconduct on the part of the participant.