Compensation and Performance Overview 2016

Lonza’s compensation philosophy is designed to attract and retain talent through competitive compensation programs. Lonza's compensation programs are performance based, linking employee rewards with company and individual performance. Executive compensation is aligned with the short-term and long-term objectives of Lonza; results are measured based on achievement of specific goals that are aligned with the short-term and long-term objectives. Our performance goals are selected to achieve a balance between desired short-term and long-term outcomes. In this way, we encourage strategic decisions for competitive advantage and discourage executives from taking unnecessary or excessive risks that would threaten the reputation or sustainability of the Company.

For 2016 Lonza’s overall financial performance vs. short-term incentive plan (STIP) targets was as follows:

2016 STIP Payout 1: Financial Targets 2

million CHF Actual performance
in 2016
Target
weighting in %
Achieved
in %
Proposed 2016
payout % (weighted)
         
CORE EBIT 635.9 50.0 200.00 100.00
Sales (at target FX rates) 3,979.5 15.0 116.14 17.42
Operational cash flow 626.8 15.0 154.26 23.14

 

Lonza’s overall financial performance in 2016 vs. long-term incentive plan (LTIP) targets for 2014 was determined by the Nomination and Compensation Committee (NCC) to approximate the financial performance required to meet Lonza’s challenging strategic goals and support Lonza’s three-year plan. The 2014 LTIP performance was as follows (plan vested on 31 January 2017):

2014 LTIP Financial Performance 3

  Actual performance Payout in %
     
CORE EPS (Earnings Per Share) CHF 8.15 100
CORE RONOA (Return on Net Operating Assets) 20.97% 100

As illustrated above, Lonza’s financial performance is benefiting from the measurable progress that our teams are making by implementing strategic and transformational initiatives. Lonza’s compensation programs closely align the short- and long-term targets of the company and the remuneration of our executives. We have seen outstanding financial performance in 2016, which allowed us to achieve and, in some cases, surpass our short-term incentive targets. We are continuing to see the benefits of the longer-term initiatives with a 2014 LTIP payout. 

The Company feels strongly that our Executive Committee and other senior managers should have a defined shareholding in Lonza to strengthen their alignment with our shareholders’ interests. Starting in 2016 we therefore established minimum shareholding requirements for the Executive Committee and other senior managers based on level in the organization and specified a five-year period to achieve these minimum requirements4. Shareholding levels are reviewed annually beginning in January 2016.