4 Remuneration paid to the Group Executive Board
The remuneration policy of Swisscom applicable to the Group Executive Board is designed to attract and retain highly skilled and motivated specialists and executive staff over the long term and provide an incentive to achieve a lasting increase in the enterprise value. It is systematic, transparent and long-term oriented and is predicated on the following principles:
- Total remuneration is competitive and is in an appropriate relation to the market as well as the internal salary structure.
- Remuneration is based on performance in line with the results achieved by Swisscom and the contribution made to results by the area for which the member of the Group Executive Board is responsible.
- Through direct financial participation in the performance of Swisscom’s shares, the interests of management are aligned with the interests of shareholders.
The remuneration of the Group Executive Board is a balanced combination of fixed and variable salary components. The fixed component is made up of a base salary, fringe benefits (primarily use of a company car) and pension benefits. The variable remuneration includes a performance-related component settled in cash and shares.
The members of the Group Executive Board are required to maintain a minimum shareholding, which strengthens their direct financial participation in the medium-term performance of Swisscom’s share and thus aligns their interests with those of shareholders. To facilitate compliance with the minimum shareholding requirement, Group Executive Board members have the opportunity to draw up to 50% of the variable performance-related component of their salary in shares.
The basic principles regarding the performance-related remuneration and the profit and participation plans of the Group Executive Board are set out in the Articles of Incorporation (Article 8.1), which can be accessed on the Swisscom website under “Basic principles”.
As a rule, the Compensation Committee reviews individual remuneration paid to members of the Group Executive Board every three years of employment. The Compensation Committee decides at its discretion on the level of remuneration, taking into consideration the external market value of the function in question, the internal salary structure and individual performance.
For the purpose of assessing market values, Swisscom regularly takes part in market comparisons carried out by renowned consultancy firms. In the year under review, Swisscom referred to two comparative studies: The “Swiss Headquarters Executive Total Compensation Measurement Study” by Aon Hewitt covers 78 Swiss companies and international groups in all sectors with global or regional headquarters in Switzerland, average revenues of CHF 2.4 billion and an average workforce of 6,500. The international “European Executive Survey”, also produced by Aon Hewitt, covers 37 European groups, mainly telecommunications companies, with average revenues of around CHF 30 billion and an average workforce of 73,000 (FTEs). Due to their numerous reference companies, both studies provide the basis for a representative comparison. In the evaluation of these studies, Swisscom takes into account the sector as well as the extent of responsibility in terms of revenue, number of employees and international scope. During the reporting year, Swisscom adjusted the remuneration of two Group Executive Board members to reflect these benchmarks, to take account of their additional functions and to ensure a salary that is in line with the market. For one of these members, the increase will be made in two steps in April 2014 and April 2015.
4.2 Changes to the remuneration system from 2014
With effect from 1 January 2014, Swisscom adjusted the remuneration system for the Group Executive Board so that the variable component of total remuneration in the event that targets are exceeded may not exceed one year’s base salary. This adjustment did not change the total remuneration of each individual Group Executive Board member. The performance-related bonus for Group Executive Board members now amounts to up to 70% of the adjusted annual base salary, depending on the function. The Board of Directors has also introduced a restricted share plan which will serve to support the recruitment and retention of employees in key positions. Under this plan, the Board of Directors can, where necessary, pay part of the remuneration of individual Group Executive Board members in the form of restricted share units. These shares must be earned over a three year vesting period. During the reporting year, Swisscom did not allocate any restricted share units to members of the Group Executive Board. As part of the implementation of the OaEC, the Board of Directors added a provision to the employment contracts of the members of the Group Executive Board in 2014 according to which Swisscom may allow wrongfully awarded or paid remuneration to expire or reclaim such remuneration.
4.3 Remuneration components
The base salary is the remuneration paid according to the function, qualifications and performance of the individual member of the Group Executive Board. It is determined based on a discretionary decision taking into account the external market value for the function and the salary structure for the Group’s executive management. The base salary is paid in cash.
Variable performance-related salary component
The members of the Group Executive Board are entitled to a variable, performance-related salary component which depending on individual function represents 50–70% of the base salary if objectives are achieved (target bonus). The amount of the performance-related component paid out depends on the extent to which the targets are achieved. The extent of the target achievement is set by the Compensation Committee, taking into account the performance evaluation by the CEO. If targets are exceeded, up to 130% of the target bonus may be paid. The maximum performance-related salary component is thus limited to 65%–91% of the base salary, depending on the function. This ensures that the maximum performance-related salary component does not exceed the annual base salary, even taking account of the market value of the component paid in shares. The variable performance-related salary component was paid to the member of the Group Executive Board who left in the first quarter of the reporting year on the basis of the rules applicable in 2013 (target bonus of 117% of the base salary).
Targets for the variable performance-related component
The targets underlying the variable performance-related component are adopted annually in December for the following year by the Board of Directors following a proposal submitted by the Compensation Committee. The relevant targets set for the reporting year are based on the Swisscom Group’s budget figures for 2014, and are assigned to three target levels: “Group”, “Customers” and “Segments”. All Group Executive Board members are measured against Group and customer targets. Group targets consist of financial targets. The customer targets for the reporting year are measured using the Net Promoter Score – a recognised indicator of customer loyalty – taking into consideration the customer group for which the Group Executive Board member is responsible. The segment targets are tailored to the relevant function of each Group Executive Board member and consist of financial and non-financial targets.
Swisscom’s target structure aims to strike a balance between financial performance and market performance, taking into account the specific area of responsibility of the individual Group Executive Board member.
The following table illustrates the target structure valid for the CEO and other Group Executive Board members in the year under review, showing the three target levels, individual targets and the respective weighting.
|Weighting of targets level|
|Weighting of targets level|
other members of the Group
|Operating free cash flow||28%||16–24%|
|Customers||Net Promoter Score||30%||25%|
|Segments||Targets of segments||15–35%|
Achievement of targets
The Compensation Committee determines the level of target achievement in the following year once the consolidated financial statements become available. Its decision is based on a quantitative assessment of the extent to which targets have been met using a scale for the overachievement and underachievement of each target. In determining the level of target achievement, the Compensation Committee also has a degree of discretion in assessing the effective management performance, allowing special factors such as fluctuations in exchange rates to be taken into account. Based on the level of target achievement, the Compensation Committee submits a proposal for approval to the Board of Directors for the amount of the performance-related salary component to be paid to the Group Executive Board and the CEO.
Most of the financial Group targets were met and some exceeded in the year under review. Customer targets were not all fully met. The other targets of the segments were largely achieved and partially exceeded.
Payment of the variable performance-related component
The variable performance-related component is paid in April of the following year, with 25% being paid in the form of Swisscom shares, in accordance with the Management Incentive Plan. Group Executive Board members may increase this share up to a maximum of 50%. The remaining portion of the performance-related component is settled in cash. The decision of what percentage of the variable performance-related salary component is to be drawn in the form of shares must be communicated prior to the end of the reporting year, but no later than in November following publication of the third-quarter results. The shares are allocated on the basis of the tax value, rounded up to whole numbers of shares, and are subject to a three-year blocking period. The share-based remuneration disclosed in the year under review is augmented by a factor of 1.19 in order to take account of the difference between the market value and the tax value. The market value is determined as of the date of allocation. Shares in respect of the current year are allocated in April 2015. Further information on the Management Incentive Plan can be found in Note 11 to the consolidated financial statements.
In April 2014, a total of 1,599 shares (2012: 2,707 shares) with a tax value of CHF 449 (2012: CHF 371) per share and a market value of CHF 534.50 (2012: CHF 442) per share were allocated for the 2013 financial year to the members of the Group Executive Board.
Pension fund and fringe benefits
The members of the Group Executive Board, like all eligible employees in Switzerland, are insured against the risks of old age, death and disability through the comPlan pension plan (see pension fund regulations at www.pk-complan.ch). The disclosed pension benefits (amounts which give rise to or increase pension entitlements) encompass all savings, guarantee and risk contributions paid by the employer to the pension plan. It also includes the pro rata costs of the AHV bridging pension paid by comPlan in the event of early retirement and the premium for the supplementary life insurance concluded for Swisscom management staff in Switzerland.
With regards to the disclosure of services rendered and non-cash benefits and expenses, these are dealt with from a tax point of view. The members of the Group Executive Board are entitled to the use of a company car. The disclosed services rendered and non-cash benefits therefore include an amount for private use of the company car. Out-of-pocket expenses are reimbursed on a lump-sum basis in accordance with expense reimbursement rules approved by the tax authorities, and other expenses are reimbursed on an actual cost basis. They are not included in the reported remuneration.
4.4 Total remuneration
The following table shows total remuneration paid to the members of the Group Executive Board for the 2014 and 2013 financial years, broken down into individual components and including the highest amount paid to one member. Any remuneration paid to those stepping down from the Group Executive Board includes the respective maximum remuneration up to the end of the notice period of those members of the Group Executive Board who stepped down in the relevant reporting year. During the reporting period, one member left the Group Executive Board. Members of the Group Executive Board stepping down receive the full variable performance-related component in cash. The increase in the base salary relative to the previous year and the associated reduction in the variable performance-related component is attributable to the change to the remuneration system from 2014. In the year under review, the variable performance-related salary component (CHF 2,681 million in total) was 74% of the base salary (CHF 3,622 million in total). The total remuneration paid to the highest-earning member of the Group Executive Board (CEO, Urs Schaeppi) increased by 3.5% compared to the prior year. The reason for this is that the remuneration of the CEO, which was adjusted upon his assumption of the position in November 2013, affects the entire year in 2014. The reduction in total remuneration paid to the Group Executive Board (excluding remuneration paid to those stepping down from the Group Executive Board) is mainly attributable to the changed composition of the body as of 1 January 2014.
In CHF thousand
|Fixed base salary paid in cash||3,622||3,183||882||622|
|Variable earnings-related remuneration paid in cash||1,969||2,640||463||566|
|Variable earnings-related remuneration paid in shares 1||712||853||184||298|
|Service-related and non-cash benefits||60||45||18||16|
|Employer contributions to social security 2||481||488||116||105|
|Retirement benefits||696||738 3||110||106|
|Total remuneration to members of the Group Executive Board||7,540||7,947||1,773||1,713|
|Benefits paid following retirement from Group Executive Board 4||252||1,481 5||–||–|
|Total remuneration to members of the Group Executive Board including benefits paid following retirement from Group Executive Board||7,792||9,428||1,773||1,713|
1 The shares are reported at market value and are blocked from sale for three years.
2 Employer contributions to social security (AHV, IV, EO and FAK, incl. administration costs, and daily sickness benefits and accident insurance) are included in the total remuneration.
3 As compensation for deferred entitlement to shares/option plans, which expired as a result of the switch to Swisscom, an additional CHF 165,000 was deposited into the retirement provision of a member of the Group Executive Board in 2013. (A total of CHF 500,000 gross was awarded to him over the reporting years 2012-2014).
4 This amount includes the employer social security contributions as well as retirement benefits.
5 This amount also includes 2014 retirement benefits as compensation for deferred entitlement to shares/option plans.
4.5 Minimum shareholding requirement
Since 2013, the members of the Group Executive Board have been required to hold a minimum amount of Swisscom shares. The minimum shareholding to be held by the CEO shall be equivalent to two years’ base salary. The remaining members shall maintain a shareholding equivalent to one year’s base salary. The members of the Group Executive Board have four years to build up the required minimum shareholding in the form of the blocked shares paid as part of remuneration and, if necessary, through share purchases on the open market. Compliance with the shareholding requirement is reviewed annually by the Compensation Committee. If a member’s shareholding falls below the minimum requirement due to a drop in the share price or a salary adjustment, the difference must be made up by no later than the time of the next review. In justified cases such as personal hardship or legal obligations, the Chairman of the Board of Directors can approve individual exceptions.
4.6 Shareholdings of the members of the Group Executive Board
Blocked and non-blocked shares held by current members of the Group Executive Board or related parties as at 31 December 2014 and 2013 are listed in the table below:
|Urs Schaeppi (CEO) 1||2,275||1,716|
|Hans C. Werner||421||257|
|Marc Werner 2||106||–|
|Christian Petit 3||1,332||–|
|Roger Wüthrich-Hasenböhler 2||879||–|
|Heinz Herren 2||1,122||–|
|Andreas König 4||–||170|
|Total shares of the members of the Board of Directors||6,769||2,526|
1 From 23 July to 6 November 2013 CEO ad interim and from 7 November 2013 CEO.
2 Joined the Group Executive Board as of 1 January 2014.
3 Joined the Group Executive Board as of 1 April 2014.
4 Resigned from the Group Executive Board as of 31 March 2014.
No share of the voting rights of any person required to make disclosure thereof exceeds 0.1% of the share capital.
4.7 Employment contracts
The employment contracts of the members of the Group Executive Board are subject to a twelve-month notice period. No termination benefits are payable in addition to the salary payable for a maximum of twelve months. The employment contracts stipulate that Swisscom may allow wrongfully awarded or paid remuneration to expire or reclaim such remuneration. They do not contain a clause on change of control.