Remuneration Report

This report is divided into two sections. Section 1 is not subject to the auditing required under Article 13 of Switzerland’s VegüV Ordinance Against Excessive Remuneration at Stock Exchange-Listed Companies, while Section 2 is.

The fundamental aim of the CPH Group is to provide remuneration that is in line with market levels. CPH regards such remuneration as a combination of a fixed and a variable salary component. The amount of each individual’s overall remuneration and the components thereof are determined by regularly reappraising the current classification of each function, benchmarking the remunerations awarded and comparing these to market rates (see also the details for the Board of Directors and Group Executive Management). Any modifications proposed to the remuneration for the Group CEO or further members of Group Executive Management are submitted for approval to the full Board of Directors by its Personnel & Compensation Committee, with due reference to the market comparisons conducted.

Every meeting of the Personnel & Compensation Committee is preceded by an agenda that is communicated to each Board member. The Committee also informs the other Board members of the topics it has discussed and the background to any proposals or recommendations submitted at the next Board meeting.

The Personnel & Compensation Committee generally meets three times (and at least twice) a year. Three such meetings and two telephone conferences were held in 2019.

The members of the Personnel & Compensation Committee are elected individually by the Ordinary General Meeting to serve for one year. For further details of the Committee’s current composition and prime duties and responsibilities, please see the Corporate Governance section.

Individual performance has a direct influence on the remuneration paid to all CPH Group personnel, including management members. The assessment thereof is based on the degree to which broader and individual targets are achieved, and such achievement is remunerated via the variable salary compensation component. For each function, a target bonus is defined that will be paid if the targets concerned are achieved in full. The actual bonus to be paid will then be determined on the basis of the degrees to which such targets are achieved, with a maximum annual bonus payable amounting to 150% of the target bonus set. The bonus gradations between the lower and upper limits of 0% and 150% may either be linear or consist of a series of steps: the details here are determined as part of the annual target-setting process. For 2019 linear gradations were adopted for all the personnel concerned. CPH does not award any discretionary bonus payments.

The Group CEO has a contractual notice period of 12 months, while the further members of Group Executive Management have a notice period of six months. There are no contractual agreements regarding severance payments. CPH maintains occupational pension arrangements for all its employees. There are no additional insurance arrangements for Group Executive Management members. The members of the Board of Directors are not insured under any CPH occupational pension scheme. The CPH remuneration system remained unchanged in 2019 from the previous year.

The structure and amounts of the remuneration paid for certain functions are regularly reappraised using external benchmarks. The remuneration paid to the members of Group Executive Management and the three Divisional Managements was analyzed by an outside company in 2019. Three benchmark groups were created to this end. Benchmark Group I consisted of Swiss-based international companies in the paper, packaging and chemistry sectors (such as Acino, Dottikon, Ems-Chemie, Givaudan, Baumgartner and Vifor). Benchmark Group II added further international industrial companies domiciled in Switzerland (such as Feintool, Lantal Textiles, Huber+Suhner, Stäubli, Landis&Gyr and Schaffner). Benchmark Group III comprised international subsidiaries (including those of companies in Groups I and II) based in China, Germany, the USA and other countries. About two-thirds of the companies in these three benchmark groups are stock exchange-listed. The functions assessed were assigned to the appropriate benchmark group(s) using the recruitment market principle. The findings and conclusions were then discussed by the Personnel & Compensation Committee, and any adjustments deemed necessary were proposed for adoption from 1 January 2020.

The proposals on the maximum aggregate remuneration for the Board of Directors and for Group Executive Management are prepared by the Board’s Personnel & Compensation Committee, appraised by the full Board and submitted to the General Meeting for approval. Should the proposal be rejected, and should the Board not submit a new proposal (or have this rejected, too), an Extraordinary General Meeting should be convened within three months, or the Board may submit a further such proposal for retrospective approval at the next Ordinary General Meeting.

The Articles of Incorporation of CPH Chemie + Papier Holding AG permit the use of long-term incentives (LTIs), particularly in the form of employee share ownership plans. The CPH Group used no such remuneration components in 2019. But the Board of Directors has resolved to introduce a share subscription programme exclusively for the members of Group Executive Management from 2020.

The new LTI will take the form of a restricted stock plan. This means that the shares concerned will be definitively awarded to the persons entitled to them at the time of such entitlement, but will then be subject to a three-year vesting period. The number of shares awarded will not be tied to any further performance or target achievement criteria during their vesting period, and their value will only change during such time on the basis of their current stock exchange price.

The award price of such shares will be the arithmetic mean of the closing prices of the CPH Chemie + Papier Holding AG share for the 15 consecutive calendar days immediately before and immediately after the publication of the annual results for the business year concerned.

The number of shares to be awarded to each Group Executive Management member will be based on their individual LTI target amount. Such shares will only be awarded provided the Group Executive Management member concerned has not served or been served notice at the time of such award.

The shares required for such awards will be acquired by CPH Chemie + Papier Holding AG each year on the equities market. The shares will be awarded in annual tranches, immediately after their award price has been determined following publication of the corresponding annual results. Such shares shall carry both voting and dividend rights from the date of their award.

The shares of each annual tranche shall be entirely at their holder’s disposal after the conclusion of their three-year vesting period.

The remuneration paid to members of the Board of Directors consists of a fixed monetary amount. Members’ work on either of the Board’s two technical committees is additionally remunerated via meeting attendance fees. Board members are further awarded a flat daily allowance for any work beyond their normal meeting activities.

The remuneration paid to Board members is determined on the basis of comparisons with publicly available data for comparable Swiss industrial companies whose shares are also listed on the SIX Swiss Exchange. The remuneration rates concerned are proposed to the full Board by its Personnel & Compensation Committee.

In accordance with Switzerland’s VegüV Ordinance against Excessive Compensation in Stock Exchange-Listed Companies and the correspondingly amended Articles of Incorporation of CPH Chemie + Papier Holding AG, the maximum aggregate amount payable to the Board of Directors in the period between two Ordinary General Meetings is subject to the approval of the first such Meeting. This provision entered into effect from the 2015 Ordinary General Meeting. For specific remuneration payments, please see Section 2 below.

The remuneration paid to the members of CPH’s Group Executive Management consists of a fixed and a variable component which are both fully paid in monetary form. Group Executive Management members will also receive part of their remuneration in the form of company shares (under an LTI programme) from 2020.

The actual variable remuneration paid depends on the degree to which group targets and individual divisional or functional targets are achieved. The maximum variable remuneration amounts to 100% of the fixed basic salary for the Group CEO and 50% thereof for the further Group Executive Management members.

The assessment of the performance of Group Executive Management for variable remuneration purposes is based on a specific target-setting process. These targets are set in five areas: financial results, customers & market, innovation, processes and leadership & personnel. The financial results targets are the same for all Group Executive Management members, while individual divisional and/or functional targets are set in the four further areas.

The achievement of the quantitative targets set for the financial key performance indicators of EBIT, operating cash flow and net working capital accounts for 60% of the variable remuneration, with the remaining 40% based on the achievement of the quantitative and qualitative targets set in the other four areas. The Heads of Divisions’ performance in financial results terms is based two-thirds on the results of their division and one-third on Group results. The corresponding performances of the Group CEO and CFO are based solely on the Group results achieved.

The targets for all target areas are prescribed by the Board of Directors for all Group Executive Management members (with financial results targets derived directly from agreed budget parameters). The Group CEO and the further members of Group Executive Management may also make target proposals. The latter have their achievement of their annual targets assessed by the Group CEO, who submits appropriate recommendations to the Board’s Personnel & Compensation Committee. The Group CEO’s target achievements are assessed by the Chairman of the Board. All such assessments are discussed by the Personnel & Compensation Committee, which then submits a report to the full Board on the degrees to which each member of Group Executive Management has achieved the targets set, together with recommendations on the individual variable remunerations to be paid. The final decision thereon is then taken by the Board in toto, with due regard to the maxima specified by the previous Ordinary General Meeting.

With the exception of one company car, no fringe benefits are granted to Group Executive Management members.

The Group CEO is entitled to make proposals on the remuneration to be paid to Group Executive Management members.

With effect from the 2015 Ordinary General Meeting, and in accordance with Switzerland’s VegüV Ordinance against Excessive Compensation in Stock Exchange-Listed Companies and the correspondingly amended Articles of Incorporation of CPH Chemie + Papier Holding AG, the maximum aggregate fixed and variable remuneration payable to Group Executive Management are approved by each Ordinary General Meeting for the following business year.

Any new members of Group Executive Management who are appointed and assume their duties after the Ordinary General Meeting has approved the maximum aggregate Group Executive Management remuneration for the business year concerned may – under Article 22 of the CPH Chemie + Papier Holding AG Articles of Incorporation – be paid an additional amount totalling (for all such new members) no more than 40% of this maximum aggregate amount.

The remuneration paid in 2019 to the members of the Board of Directors, the Group CEO (who received the highest remuneration of any Group Executive Management member) and the further members of Group Executive Management is shown in the tables in Section 2.

This remuneration includes salaries, bonuses, credits, social security payments and occupational pension scheme contributions.

The amounts shown are the remuneration paid for the year concerned, regardless of when such payment was made. All such remuneration was in monetary form. Board members are not subject to any share ownership or share option plans. The remuneration is shown in gross form, including employees’ social security contributions. The social security contributions shown separately include those of the employer.

No remuneration was paid to any former Board members. No loans were made to any current or former Board members, and no such loans are outstanding.

No remuneration was paid and no loans were made to any parties related to any Board members, and no such loans are outstanding. No transactions were conducted on non-market terms with any natural persons or legal entities related to any Board members.

The variable remuneration shown for 2019 corresponds to the provisions made (on an accrual basis). The variable remuneration shown for 2018 has been adjusted to reflect the payments actually made. This is not new remuneration, but the same remuneration as was shown in the 2018 Annual Report. That remuneration could only be shown on the basis of the provisions made (on an accrual basis), however, whereas the table below shows the final amounts actually paid for 2018.

All such remuneration, both fixed and variable, is in monetary form. Group Executive Management members are not subject to any share ownership or share option plans. The remuneration is shown in gross form, including employees’ company pension scheme and social security contributions. The company pension scheme and social security contributions shown separately include those of the employer. “Further compensation” relates to the private use of the company car and any long-service awards.

No remuneration was paid to any former Group Executive Management members. No loans were made to any current or former Group Executive Management members, and no such loans are outstanding.

No remuneration was paid and no loans were made to any parties related to any Group Executive Management members, and no such loans are outstanding. No transactions were conducted on non-market terms with any natural persons or legal entities related to any Group Executive Management members.