1. Compensation-Setting Process Audited

1.1 Rules in the Articles of Association Relating to Remuneration

 

Lonza’s Articles of Association contain rules regarding the approval of compensation by the Shareholders’ Meeting (Article 22), the supplementary amount in the event of changes in the Executive Committee (Article 23), compensation of the members of the Board of Directors and the Executive Committee, including the principles applicable to performance­-related compensation (Article 24), the agreements with members of the Board of Directors and the Executive Committee (Article 25) and loans to members of the Board of Directors and the Executive Committee (Article 27).

1.2 Responsibilities of Company Bodies Relating to Remuneration

Board of Directors

 

As outlined in the Organizational Regulations (Article 2.8), the Board of Directors takes decisions on the following matters:

  1. The determination of the remuneration for the members of the Board of Directors in accordance with the Articles of Association, subject to approval of the compensation of the Board by the Shareholders’ Meeting pursuant to the Articles of Association;
  2. The proposals to the Shareholders’ Meeting regarding approval of the compensation of the Board of Directors and the Executive Committee; and
  3. The preparation of the Remuneration Report.

Nomination and Compensation Committee  

 

The Nomination and Compensation Committee (NCC) has the following roles and responsibilities as outlined in the Nomination and Compensation Committee Charter:

  1. To recommend and review compensation policies and plans for approval by the full Board of Directors;
  2. To review periodically and make recommendations to the Board of Directors regarding any variable incentive and the extent to which the plans meet their objectives;
  3. To advise the Board of Directors on the compensation of its members;
  4. To review and approve the objectives relevant to the CEO’s compensation, to evaluate the performance on a regular basis and to determine the CEO’s remuneration based on performance, subject to approval of the compensation of the Executive Committee by the Shareholders’ Meeting pursuant to the Articles of Association;
  5. To review and approve the remuneration proposals for members of the Executive Committee subject to approval by the Shareholders’ Meeting pursuant to the Articles of Association;
  6. To recommend to the Board of Directors proposals to be submitted to the Annual Shareholders’ Meeting for approval regarding total amounts of compensation of the Board and the Executive Committee pursuant to the Articles of Association;
  7. To support the Board of Directors in preparing the remuneration report;
  8. To inform the Board of Directors about compensation policies and programs as well as benchmark compensation of key peer companies; and
  9. To inform the Board of Directors about the terms of employment for the members of the Executive Committee based on the proposal of the NCC.

The NCC continuously reviews the aspects of executive compensation and compliance with good governance standards. As a result of the continous growth, transformation of the Company and inclusion in the Swiss Market Index (SMI) in 2017, Lonza reviewed the overall competitive and governance best practice positioning. Within this analysis, feedback from shareholders, members of the investment community, policy recommendations provided by institutional shareholder advisory organizations and the Swiss Ordinance Against Excessive Compensation for Stock­-Exchange-­Listed Companies was considered.

The Chief Human Resources Officer and the relevant HR specialists prepare the NCC meeting materials and provide the related materials for such meetings. These individuals have an advisory function without voting rights. The Chief Human Resources Officer acts as secretary to the NCC and attends all NCC meetings.

 
Shareholders’ Meeting  
 

The Shareholders’ Meeting approves annually the compensation of the Board of Directors and the Executive Committee in accordance with Article 22 of Lonza’s Articles of Association.

1.3 Nomination and Compensation Committee and Board of Directors Meetings

 

The 2017 meetings of the NCC and the Board of Directors relating to compensation took place in January, February, April, July, October and December. An additional meeting dealing with 2017 compensation matters was held in January 2018.

At these meetings the NCC and/or the Board of Directors finalized:

  • Plan provisions, grants, financial targets and target achievements for the STIP and LTIP plans;
  • Progress report outlining interim ownership guidelines achievement for the Executive Committee;
  • Recommendations relating to compensation motions to be submitted to the Annual General Meeting.

The NCC held six meetings in 2017. All members of the NCC participated in all meetings.  The NCC informs the Board of Directors on a regular basis about its activities and decisions. The discussions and the decisions of the Board of Directors and the NCC regarding compensation of the members of the Executive Committee are resolved in the absence of the affected members of the Executive Committee. All members of the Board of Directors are non-­executive members. All members of the Board of Directors took part and voted at its meetings regarding compensation matters.

1.4 External Advisers and Benchmarks

 

As part of the ongoing commitment to review the competitive environment for 2017 compensation, Lonza reviews compensation for all employees including the Board of Directors and Executive Committee through regular competitive benchmarking. Lonza continues to engage with New Bridge Street (NBS) as needed. The peer companies used for the Board of Directors and the Executive Committee are described in greater details in Section 3.1 and Section 4.1.