1 Compensation-Setting Process
1.1 Rules in the Articles of Association
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
Board of Directors
As outlined in the Organizational Regulations (Article 2.8), the Board of Directors takes decisions on the following matters:
- The determination of the compensation 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;
- The proposals to the Shareholders’ Meeting regarding approval of the compensation of the Board of Directors and the Executive Committee; and
- 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:
- To recommend and review compensation policies and plans for approval by the full Board of Directors;
- 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;
- To advise the Board of Directors on the compensation of its members;
- 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 compensation based on performance, subject to approval of the compensation of the Executive Committee by the Shareholders’ Meeting pursuant to the Articles of Association;
- To review and approve the compensation proposals for members of the Executive Committee subject to approval by the Shareholders’ Meeting pursuant to the Articles of Association;
- 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;
- To support the Board of Directors in preparing the Remuneration Report;
- To inform the Board of Directors about compensation policies and programs as well as benchmark compensation of key peer companies; and
- To inform the Board of Directors about the terms of employment for the members of the Executive Committee.
The NCC continuously reviews the aspects of executive compensation and compliance with good governance standards. As a result of the continuous growth, transformation of the Company and inclusion in the Swiss Market Index (SMI) in 2017, Lonza reviewed its approach to executive compensation in order to remain competitive to retain talent but at the same time apply governance best-practice positioning. Within this review and 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 were 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 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 2018 meetings of the NCC and the Board of Directors relating to compensation took place in January, March, April, July, October and December. An additional meeting dealing with 2018 company performance and overall target achievement related to compensation matters was held in January 2019.
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; reviewing senior and executive management succession planning and talent development.
At the AGM in May 2018, Christoph Mäder replaced Jean-Daniel Gerber as the Chairperson of the NCC. Besides Christoph Mäder and Jürgen Steinemann, Angelica Kohlmann was elected as a member of the NCC. The NCC held six meetings in 2018. Attendance at the NCC meetings was 89%. For additional details see Corporate Governance Report.
The Chairperson of the NCC informs the Board of Directors on a regular basis about its activities and decisions. The discussions and 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 independent non-executive members.
1.4 External Advisers and Benchmarks
Lonza reviews the competitive environment and compensation for all employees, including the Board of Directors and Executive Committee, through regular competitive benchmarking. For the Board of Directors and Executive Committee a comprehensive review was conducted in 2017. In view of the changes approved by the AGM in 2017 and associated commitments relating to a freeze of the compensation levels, no detailed benchmarking was conducted in 2018. Lonza continues to engage with New Bridge Street (NBS)1 as needed.
1 NBS is part of AON’s Performance, Reward and Talent Group. AON has further consulting arrangements with Lonza Human Resources