In my role as Chairman of the Nomination and Compensation Committee (NCC) and on behalf of its fellow members, I am pleased to introduce our 2020 Remuneration Report, which adheres to the Swiss Ordinance Against Excessive Compensation for stock exchange listed companies. In this report, we outline the current compensation policies and the decisions made in relation to 2020 compensation for the Executive Committee of Lonza.
We are thankful for the active engagement and time with our shareholders, the financial regulators and proxy advisors in 2020. It helps to ensure we continue our open and transparent dialogue. Our discussions covered matters relating to changes to the Executive Committee and overall Company developments.
To support retention and shareholder alignment throughout Lonza, the Board approved the implementation of the Lonza Restricted Share Units Plan (LRSP). This plan was put in place for wider employees of Lonza to support competitive remuneration packages, to allow us to attract the best talent and to aid retention throughout special strategic projects. It was determined that the LRSP will also be utilized within our Executive Compensation Appointments Policy only, whereby awards can be made to compensate for cash or equity awards forgone at the previous employer, where evidence is provided. Adopting such a scheme allows us to be agile in attracting top executive talent to Lonza. Further details can be found in the Remuneration Report PDF on page 204 (Executive Compensation Appointments Policy) and page 208 (An overview of the LRSP).
With our Market Benchmarking peer group last reviewed in 2017, we sought to review the peer groups again in 2020 to ensure they remain fit for purpose. Following the review, a number of adjustments were made to the primary and secondary peer groups. These changes can be found on page 203. Using our revised peer groups, market benchmarking for our Executive Committee was conducted towards the end of 2020. It was determined that no change would be made to Executive Committee base salary levels. Further detail can be found in the Annual General Meeting 2021 invitation.
Lonza has established Environmental, Social and Governance (ESG) reporting, as outlined in our latest 2020 Sustainability Report. The NCC has had meaningful discussion this year on how such measures should be incorporated into the compensation system for Executive Committee members. Fundamentally, the measures should align to overall sustainability strategy and be clearly defined, focused and measurable. Our Senior Management within the Lonza Operations Function already have key governance targets (including safety) incorporated into its performance measures within the Short-term Incentive Plan (STIP). The NCC commits to implementing ESG performance measures for the Executive Committee for the 2022 performance year.
Our Executive Committee went through a number of changes in 2020. The first was the appointment of Caroline Barth as Chief Human Resources Officer (CHRO) in May. Sven Abend then stepped down as Chief Operating Officer and Head of Lonza Specialty Ingredients (LSI) and formally left Lonza at the end of October in order to take on an external appointment. Due to the ongoing progress to carve out the LSI segment, the Board and the NCC determined that the role no longer be part of the Group Executive Committee. Finally, Pierre-Alain Ruffieux was appointed as the new Chief Executive Officer (CEO) at the beginning of November. Albert Baehny stepped down from the CEO ad interim role at the end of October and continued with his role as Chairman of the Board of Directors throughout 2020.
All compensation decisions relating to the appointments and terminations were made in line with our Executive Compensation Appointment and Termination Policies outlined on page 204.
In the context where for many organizations 2020 has been an extreme challenge, Lonza presents strong 2020 performance outcomes which have benefitted the public, shareholders and our employees. The Committee determined that the 2020 STIP and 2018 – 2020 LTIP performance targets, performance outcomes and in turn payout levels, did not need to be adjusted to reflect the impact of the pandemic. As such, performance outcomes were measured against the predetermined and originally set performance targets.
The strong full-year 2020 Group results led to above target 2020 performance outcomes. This reflects strong performance across both Lonza segments, with both the Pharma Biotech & Nutrition businesses and the Specialty Ingredients business achieving above target performance outcomes. The Lonza Group performance outcomes against all three performance targets (sales, CORE EBITDA and operational free cash flow) resulted in the STIP paying out at 187% of target for the Executive Committee. Overall Group performance in 2020 also had an impact on the 2018 LTIP, which vested at the beginning of 2021 at 199% of target, as a result of strong CORE EPS and ROIC performance over the 2018–2020 three-year performance period. The NCC determined that no downwards adjustment to the payout levels be applied.
No change has been made to our Board fees for 2020. A full overview of our Board fee structure can be found on page 213. In line with the best practices under the Swiss Code of Best Practice for Corporate Governance, the Board established the role of Lead Independent Director during Albert Baehny’s tenure as CEO ad interim.
On behalf of the Nominations and Compensation Committee, I thank our shareholders for the continued dialogue during 2020. The NCC personally thanks Albert Baehny for his commitment and service in the CEO ad interim role. He provided leadership and acted as a constant in the build up to the appointment of our new CEO. We respectfully ask for your endorsement of this 2020 Remuneration Report and approval of Executive Compensation that will be put forward to you at the 2021 Lonza Annual General Meeting.
Chairman of the Nomination and Compensation Committee
Lonza’s approach to compensation is designed to attract and retain talent with competitive compensation programs. Our 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 the wider business; results are measured based on achievement of specific short and long-term objectives.
Our performance objectives are defined to achieve a balance between short-term and long-term outcomes. We encourage strategic decisions that drive competitive advantage but discourage executives from taking unnecessary or excessive risks that may threaten the financial health, reputation or sustainability of the Company.
|Base Salary||Benefits||Short-term Incentive Plan (STIP)||Long-term Incentive Plan (LTIP)||Lonza Restricted Share Unit Plan (LRSP)||Shareholding Guidelines|
|Fixed amount paid in return for the day-to-day duties and responsibilities performed||Post-employment and other benefits to complement Lonza’s total compensation offering||Short-term variable compensation component, rewards for annual company and individual performance||Long-term variable compensation component, rewards for long-term company performance. Aligns interests of the Executive with Shareholders||Additional variable compensation element, used as a vehicle to support the Executive Committee Appointments Policy. Awarded solely in cases where an Executive forgoes certain compensation at their previous employer||Shareholding guidelines to align interests of the Executive with Shareholders|
|100% cash||Pension and other benefits such as company car and expense allowances and insurances||100% cash; or 50% cash and |
50% equity, (until shareholding guidelines are met)
|100% vesting subject to a three-year performance period||100% equity subject to a two to five-year time-based vesting period|
|Consideration for |
• experience of individual;
• direct role responsibilities; and
• market levels observed at companies in the relevant industry to Lonza
|Aligned with companywide and country specific benefits policies|| Target levels: |
• CEO – 100% of salary
• Other EC – 75% of salary
Min. = 0% of target
Threshold = 50% of target
Max. = 200% of target
|Target levels: |
• CEO – 150% of salary
• Other EC – 125% of salary
Min. = 0% of target
Threshold = 50% of target
Max. = 200% of target
|Levels set at less than forgone awards, considering, but not limited to, previous employer variables such as historical company performance, volatility and the equity instrument|
• CEO – 300% of salary
To be accumulated over 5 years
May be a mix of financial and individual measures, typically with weighting of 80% and 20% respectively
2020 was based on 100% financial measures
50% CORE EBITDA 1
31.25% Lonza sales
18.75% Operating free cash flow
50% CORE EPS 1
Sustained performance in role
|1 CORE results exclude exceptional expenses and income related to e.g. restructuring, environmental-remediation, acquisitions and divestitures, impairments and amortization of acquisition-related intangible assets, which can differ significantly from year to year|
2020 Total Remuneration Paymix (CHF)
Lonza Restricted Share Unit Plan (LRSP) awards are separate from typical total compensation and are awarded only in cases where a new Executive Committee member forgoes cash or equity at their previous employer. See page 211 for details of the LRSP award
Cash payment (including base salary, other benefits, short–term incentive and social security) and shares (LTIP) received by departed members of the Executive Committee during 2020
Compensation Board of Directors Annual General Meeting (AGM) 2020 to 2021 (excluding social security contributions)
|In CHF||Base annual fee||Committee membership fee||Committee Chairperson fee|
|Chairperson of the Board of Directors 1||600,000||-||-|
|Board of Directors Member 2||200,000||40,000||80,000|
|The additional responsibilities of Vice-Chairperson and Lead Independent Director 3 do not attract any additional fees|
|Form of payout||50% in Lonza Group shares and 50% in cash. This is paid in quarterly installments during the 2020 financial year|
The compensation of the Chairperson of the Board of Directors includes compensation as a member of the Innovation and Technology Committee of the Board of Directors. For details on the compensation received for the role of CEO ad interim during 2020 please see page 210 in the Remuneration Report PDF
The compensation for Committee Chairpersons amounts to CHF 280,000 and includes the committee membership fee. In the case of multiple committee memberships, this attracts one committee membership fee only
The roles and responsibilities of such Lead Independent Director are in line with sect. 19 para. 2 of the Swiss Code of Best Practice for Corporate Governance, requiring adequate control mechanisms, and commensurate to such position