5. Remuneration architecture

5.1 Board of Directors

Remuneration principles

The members of the Board of Directors receive fixed remuneration only in order to ensure their independence in exercising their supervisory duties. The remuneration is paid partially in cash and partially in blocked shares in order to closely align their remuneration with shareholders’ interests.

Remuneration structure

The remuneration of the members of the Board of Directors is defined in a regulation adopted by the Board of Directors and consists of an annual fixed retainer and remuneration for committee work. The remuneration is paid in the form of shares subject to a four-year blocking period. In addition, the members of the Board of Directors receive a lump sum to cover their expenses, paid out in cash.

The Chair of the Board of Directors receives an annual total fixed retainer paid 70% in cash and 30% in restricted shares subject to a four-year blocking period. The Chair also receives the expense allowance but is not entitled to additional fees for committee attendance.

The structure and amount of the remuneration for the members of the Board of Directors were reviewed by an independent consulting company in 2019. The analysis indicated that the remuneration system for the Board of Directors of Geberit is in line with customary market practices and that therefore no modifications to the structure and amount of remuneration for the Board of Directors were necessary:

The remuneration is paid out at the end of the term of office and is subject to contributions to social security. The members of the Board of Directors are not covered under the company pension plan.

The shares are subject to an accelerated unblocking in case of death. They remain subject to the regular blocking period in all other instances.

Further information regarding the remuneration amounts for the period from the 2022 Annual General Meeting to the 2023 Annual General Meeting is provided in the invitation to the 2022 Annual General Meeting.

5.2 Group Executive Board

Remuneration principles

In order to ensure the company’s success and to maintain its position as market leader, it is critical to attract, develop and retain the right talent. Geberit’s remuneration programmes are designed to support this fundamental objective and are based on the following principles:

• Remuneration is competitive with that of other companies with which Geberit competes for talents.
• Both company performance and individual contributions are recognised and rewarded.
• Remuneration programmes are balanced between rewarding short-term success and long-term value creation.
• Participation plans foster the long-term commitment and mindset of executives and the alignment of their interests to those of the shareholders.
• Executives are protected against risks through appropriate pension and insurance programmes.

Remuneration structure

The remuneration of the Group Executive Board is defined in a regulation adopted by the Board of Directors and consists of the following elements:

• Base salary
• Variable cash remuneration (Short-Term Incentive/STI)
• Long-term equity participation plan (Long-Term Incentive/LTI)
• Additional employee benefits, such as pension benefits and perquisites

Annual base salary

The annual base salary is a fixed remuneration paid in cash on a monthly basis. It is determined based on the scope and responsibilities of the position, the market value of the role and the qualifications and experience of the incumbent. The base salary is reviewed annually based on market salary information, considerations from the perspective of the company’s financial affordability and performance, and the evolving experience of the individual in the role.

Variable cash remuneration/short-term incentive (STI)

The variable cash remuneration (STI) of the Group Executive Board and approximately 200 additional members of the Group management rewards the achievement of the annual financial business goals and of the individual objectives agreed and evaluated within the annual performance management process.

The annual base salary and the target STI (assuming 100% achievement of all financial business goals) form the so-called target income. The variable target remuneration (i.e. the STI assuming 100% achievement of all objectives) is unchanged over the previous year and equals 43% of the annual base salary for the CEO as well as for other members of the Group Executive Board.

Remuneration model for the Group Executive Board

The financial objectives include equal weightings of sales performance and earnings per share (EPS) compared with the previous year as well as the margin on earnings before interest, taxes, depreciation and amortisation (EBITDA margin) and the return on invested capital (ROIC). These financial objectives have been chosen because they are key value drivers for Geberit and generally reward for growing the business and gaining market share (top-line contribution), for increasing profitability over-proportionally through strong operating leverage (bottom-line contribution) and for investing the capital efficiently. The Board of Directors is convinced that measures, including the top-line and bottom-line targets, support Geberit’s performance in a balanced and sustainable way.

Starting in 2022, the four financial objectives in the STI plan will be enhanced with a sustainability objective. The additional fifth objective includes a CO₂ emission reduction target, in line with the company’s sustainability strategy. All four financial objectives plus the ESG objective will be equally weighted by 20% per target.

Every year, based on the NCC’s recommendation, the Board of Directors determines the expected target level of performance for each financial objective for the following year. Geberit wants to reinforce its position as market leader and consistently achieve above-average performance. As a general principle, the results achieved in the previous year must be specifically improved in order to meet the target level of performance, in line with the company’s ambitious financial plan. The intention of this demanding target setting is to deliver best-in-class performance and to stay ahead of the market. In addition, a threshold level of performance, below which no variable remuneration is paid out, and a maximum level of performance, above which the short-term variable remuneration is capped, are determined. The payout level between the threshold, the target and the maximum is calculated by linear interpolation.

The individual performance component is based on the achievement of individual objectives predefined at the beginning of the year between the CEO and individual members of the Group Executive Board, and for the CEO, between the Board of Directors and the CEO. The individual objectives are of a more qualitative and strategic nature and may include, for example, objectives related to product and service innovation, leadership skills, entry in new markets and the management of strategic projects.

At the maximum potential STI payout level, the financial objectives are weighted 86%, while the individual performance component accounts for 14% of all objectives. The maximum potential payout cannot exceed 100% of the base salary plus representation allowance.

Members of the Group Executive Board have the opportunity to invest part or all of their variable cash remuneration in shares of the company through the Management Stock Purchase Plan (MSPP). They may define a fixed number of shares to purchase, or a certain amount or a percentage of their variable cash remuneration to be invested in shares. The shares are blocked for a period of three years. In order to encourage executives to participate in the programme, 1.5 free share options are provided for each share purchased through the programme. The options are subject to a performance-based vesting period of three years. The other features of the options and the performance condition (ROIC) are the same as those applicable to the performance options granted under the Long-Term Incentive MSOP programme (see also Long-Term Incentive, LTI).

In the event of termination of employment, the following provisions apply to MSPP shares and options:

Long-term Incentive (LTI)

The purpose of the Long-Term Incentive (Management Stock Option Plan MSOP) is to ensure long-term value creation for the company, alignment of the interests of executives to those of shareholders and long-term retention of executives.

The vesting of performance options is subject to the achievement of a performance criterion, the average Return on Invested Capital (ROIC), over the respective vesting period. ROIC expresses how well the company is generating cash relative to the capital it has invested in its business.

MSOP payout curve

The Board of Directors determines the expected performance annually based on a recommendation submitted by the NCC. The options partially vest upon the reference level being achieved. In addition, a minimum level of performance (threshold value) under which no options vest and a maximum level of performance (cap) at which 100% of the options vest are defined. Both the reference level and the cap are ambitious and are substantially above the weighted average cost of capital. The payout amounts between the threshold value and the cap are determined by linear interpolation. The options can be exercised between the respective vesting date, three years after being granted, and the expiration date. The exercise price of the options corresponds to the fair market value of the underlying share at the time of granting.

Every year, the Board of Directors determines the granting of share options. There was no change in the granting of the LTI over the previous year in 2021. The fair value of options granted amounted to 86% of the annual base salary for the CEO and 71% of the annual base salary for the other members of the Group Executive Board. For some 100 additional participants of the Group management, the fair value amounted to 13% of the base salary.

In the event of termination of employment, the following provisions apply to MSOP options:

Disclosure of targets

Internal financial and individual targets under the STI and the LTI plans are considered commercially sensitive information. Communicating such targets would allow delicate insight into the strategy of Geberit and could as such create a competitive disadvantage for the company. Therefore, the decision was made not to disclose the specifics of those targets at the time of their setting, but to provide a general comment on the performance at the end of the cycle. As a general principle, on a comparable basis, significant improvements against the previous year’s achievements are required in order to meet the target level of performance, in line with the company’s ambitious financial plan. To provide additional guidance, we regularly communicate our mid-term targets which are net sales growth in local currencies, after adjustments for acquisitions of between 4 and 6 percent as an average over one economic cycle, an operating cashflow (EBITDA) margin of between 28 and 30 percent, continuously increasing return on invested capital (ROIC) and an average reduction in CO₂ intensity of 5 percent per year.

Benefits

Members of the Group Executive Board participate in the regular employee pension fund applicable to all employees in Switzerland. The retirement plan consists of a basic plan covering annual earnings up to TCHF 151 per annum, with age-related contribution rates equally shared between the company and the individual, and a supplementary plan (collective foundation in accordance with Art. 1e BVV 2 [Ordinance on Occupational Retirement, Surviving Dependants’ and Disability Pension Plans]) in which income in excess of TCHF 151 is insured (including actual variable cash remuneration), up to the maximum amount permitted by law.

Furthermore, each member of the Group Executive Board is entitled to a company car and a representation allowance in line with the expense regulations applicable to all members of management in Switzerland and approved by the tax authorities.

Employment terms and conditions

All members of the Group Executive Board have permanent employment contracts with notice periods of a maximum of one year. Members of the Group Executive Board are not entitled to any severance payment.

Share ownership guidelines

In order to bring the interests of the members of the Group Executive Board into line with those of the shareholders and to strengthen their ties to the company, the CEO and each member of the Group Executive Board must satisfy the minimum requirements with respect to the ownership of shares in Geberit. Therefore, the members of the Group Executive Board are required to build up and own at least a minimum multiple of their annual base salary in Geberit shares within five years of their appointment to the Group Executive Board or introduction of this policy, as set out below.

To further reflect the importance the Board of Directors places on the alignment with shareholders’ interests, the minimum shareholding requirements for the CEO were increased from 150% to 300% in 2021.

For this calculation, all vested shares are considered, regardless of whether they are blocked or not. However, unvested awards are excluded. The NCC reviews compliance with the share ownership guideline on an annual basis.

Clawback and malus provisions

In order to ensure good Corporate Governance, Geberit has implemented a clawback policy on payments made under the Short-Term Incentive programme and the Long-Term Incentive programme. Those provisions foresee that in case of financial restatement due to non-compliance with accounting standards and/or fraud, and/or in case of violation of the law or internal rules by a participant, the Board of Directors may deem all or part of any unpaid short-term incentive or unvested long-term incentive to be forfeited (malus provision) and/or may seek reimbursement of all or part of any paid short-term incentive or vested long-term incentive. The clawback and malus provisions may be enacted for a period of three years following the year subject to a financial restatement and/or the year of the fraudulent behaviour.

For further information on both programmes, please also refer to 5. Remuneration architecture, 5.2 Group Executive Board.