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Compensation

Sonova is all about people: the value and success of our company strongly depend on our employees. We therefore aim to attract and retain the best talent available in a highly competitive global employment market. As custodians of shareholders’ equity, we take very seriously our responsibility to uphold a transparent and sustainable approach to compensation.

Compensation policy and principles

To assure Sonova’s success and to maintain its position as leading manufacturer and provider of innovative hearing care, it is essential to attract, engage, develop, and retain the best talent available in the market. Sonova’s compensation system is designed to support this fundamental objective and is based on the following principles:  

Market competitiveness To be able to attract, motivate, and retain talented executives and employees, compensation is regularly benchmarked and is in line with competitive market practice.
Pay for performance Compensation inspires best-in-class performance. A large portion of compensation depends on the company’s performance and individual contributions. We recognize both short-term success and long-term value creation through a well-balanced combination of incentive plans.
Alignment with shareholder’s interests A substantial portion of the compensation of the Management Board, CEO and Board of Directors is delivered in the form of company equity: Restricted Share Units (RSUs), options and restricted shares. We have share ownership guidelines to foster the long-term commitment of the Management Board and the Board of Directors, and the alignment of their interests with those of the shareholders.
Alignment with company’s values Compensation incentivizes behavior that is in line with the company’s values and high standard of integrity.

The compensation of the Board of Directors consists of fixed compensation only, paid partly in cash and partly in the form of non-discounted restricted shares. The independence of the Board of Directors in its supervisory function is reinforced by the fact that no performance-related compensation is awarded.

The compensation of the Management Board consists of fixed and variable compensation components. The fixed base salary and benefits form the fixed components and are determined based on current market practice. Targets for the short-term and long-term incentives are defined at the beginning of each financial year and not changed during that period. Options granted under the EEAP are not re-priced after they have been granted, regardless of whether they are in or out of the money.

Variable compensation consists of a short-term cash incentive award and a long-term equity incentive award, which are both based on performance:

  • The short-term cash incentive award is awarded under Sonova’s Variable Cash Compensation plan (VCC), which is based on Sonova’s key performance indicators (KPIs), such as sales,
    operating profit before acquisition-related amortization (EBITA), free cash flow (FCF), earnings per share (EPS), average sales price (ASP), and operating expenses (OPEX) at Group and / or business unit level. It additionally reflects the achievement of individual objectives
    as defined in the annual performance review process. Therefore, the VCC rewards both the company’s success and individual performance over a one-year period. 
  • The long-term equity incentive award includes the grant of Restricted Share Units (RSUs) and options under Sonova’s Executive Equity Award Plan (EEAP), for both of which the vesting is dependent on the return on capital employed (ROCE) performance. The vesting is time based over a period of 4 years and 4 months. The EEAP reinforces the alignment between compensation and the company’s long-term performance. It also aligns the interests of the Management Board with those of shareholders, and fosters the long-term retention of the Management Board (see section 4.3 for more information related to the planned revision of the EEAP award for the 2017 / 18 financial year). 

To avoid compensation for inappropriate risk taking or short-term profit maximization at the expense of the long-term health of the company, a cap applies on the VCC cash payout and on the number of equity awards that can vest under the EEAP. 

Finally, Sonova has mandatory share ownership guidelines in place for members of the Board of Directors and the Management Board. These guidelines require them to hold a minimum number of Sonova shares and thus reinforce the alignment between the interests of shareholders, the Board of Directors, and the Management Board.

Organization, competencies and method of determining compensation

Governance and shareholders’ involvement

Authority for decisions related to compensation is governed by the Articles of Association.

The prospective maximum aggregate total compensation amounts to be awarded to the Board of Directors and the Management Board is subject to a yearly binding shareholders’ vote at the Annual General Shareholders’ Meeting. The provisions of the Articles of Association foresee that shareholders will vote prospectively: on the maximum aggregate total compensation for the Board of Directors for the period until the next ordinary Annual General Shareholders’ Meeting, and for the Management Board for the following financial year. In addition, Sonova intends to continue to submit the yearly compensation report to a consultative shareholders’ vote at the Annual General Shareholders’ Meeting, so that shareholders have an opportunity to express their opinion about the compensation of the previous financial year.

Over the past several years Sonova has engaged in ongoing dialog with shareholders and shareholders’ representatives and has made significant efforts to continuously improve its compensation disclosure, both in terms of transparency and level of detail provided about its principles and system of compensation. The positive outcome of the consultative votes in recent years indicates that shareholders welcome this approach.

Nomination and Compensation Committee

As determined in the Articles of Association, the Organizational Regulations, and the Nomination and Compensation Committee Charter of Sonova Holding AG, the Nomination and Compensation Committee (NCC) supports the Board of Directors in the fulfillment of its duties and responsibilities in the area of compensation and personnel related matters. Its tasks and responsibilities include, among others: 

  • Periodical review of Sonova’s compensation principles
  • Regular benchmark reviews on compensation of the members of the Board of Directors (including Chairman), the Chief Executive Officer (CEO), and the other members of the Management Board
  • Yearly review of the individual compensation of the CEO and of the other members of the Management Board
  • Review, amendment, and approval of the performance appraisal of the members of the Management Board (prepared by the CEO) and of the CEO (prepared by the Chairman of the Board of Directors)
  • Preparation of the compensation report
  • Selection and nomination of candidates for the membership of the Management Board as proposed by the CEO, and pre-selection of suitable candidates to the Board of Directors

The NCC consists exclusively of independent and non-executive members of the Board of Directors, who are elected individually and annually by the Annual General Shareholders’ Meeting. For the period under review, the NCC consisted of Robert F. Spoerry (Chairman of the Board of Directors), Stacy Enxing Seng, and Beat Hess.

The NCC meets as often as business requires but at least three times per year. In the 2016 / 17 financial year, it held five meetings covering, among others. For detailed information please consult the compensation report.

As a general rule, the Chairman of the Board of Directors, the CEO, and the Group Vice President Corporate Human Resource Management and Corporate Communications participate in the meetings of the NCC. However, they do not take part in the section of the meetings where their own performance and / or compensation are discussed.

There is a closed session (without participation of any executive or guest) after each NCC meeting. The Chairman of the NCC reports to the Board of Directors on its activities and recommendations after each meeting and the minutes of the meetings are available to the full Board of Directors.

Approval and authority levels on compensation matters:

Decision on CEO NCC Board of Directors AGM
Compensation principles and system for the Board of Directors and Management Board within the framework of the Articles of Association   proposes approves  
Maximum aggregate amount of compensation for the Board of Directors and the Management Board to be submitted to shareholders’ vote   proposes reviews and proposes to AGM binding vote
Individual compensation, including cash components and shares, to be granted to the members of the Board of Directors*   proposes approves  
Individual compensation, including fixed base salary, variable cash compensation and long-term equity incentives, of the CEO*   proposes approves  
Employment terms of the CEO*   proposes approves  
Individual compensation, including fixed base salary, variable cash compensation and long-term equity incentives, of the Management Board (excluding CEO)* recommends proposes approves  
Annual total aggregate amount of long-term equity incentives to be granted to all other eligible employees   proposes approves  
Compensation report   proposes approves consultative vote

* within the framework of the Article of Association and / or maximum aggregate amount of compensation approved by the Annual General Shareholders’ Meeting.

Benchmarks and external consultants

Sonova regularly reviews the total compensation of members of the Management Board, comparing data from executive surveys and published benchmarks from companies of similar size in terms of market capitalization, revenue, number of employees, geographic reach, etc., and / or which are operating in related industries. The level and mix of the different compensation components are determined on the basis of those benchmarks.

The last detailed review was conducted in 2015 in cooperation with an independent firm specializing in compensation surveys and analysis. For the purpose of the benchmarking analysis, two relevant peer groups were identified: ten companies in the international Medical Technology sector and eight Swiss companies in the General Industry sector of comparable size. The conclusion of this review was that the members of the Management Board are compensated consistently with the peer groups.

A similar benchmark process is regularly conducted to review and determine the total compensation of the Board of Directors, comparing Sonova with companies of a similar market capitalization (SMIM® companies). The last detailed review was performed in 2016 in cooperation with an independent firm specializing in compensation surveys and analysis. In addition, periodically available data and surveys are reviewed and taken into account.

Performance Management
The actual compensation effectively paid out to the members of the Management Board in a financial year depends on the performance of the Group and / or respective business unit, as well as on individual performance, which is assessed through the formal annual performance review process. Financial, business unit, and individual performance objectives are approved at the beginning of the financial year and achievements against those objectives are assessed at the end of the financial year, according to Sonova’s performance appraisal process.

 

Board of Directors compensation system

The compensation of members of the Board of Directors is defined in a regulation adopted by the Board of Directors; it consists of a cash retainer (fixed fee), a committee fee (if applicable), a meeting attendance fee, as well as a travel allowance, based on the number of meetings attended. In addition, members of the Board of Directors receive non-discounted shares with a restriction period of 5 years and 4 months (Chairman) or 4 years and 4 months (all other members of the Board of Directors). There is no performance-related compensation for the Board of Directors and no eligibility to participate in the occupational pension plan. The total compensation in the 2016 / 17 financial year was CHF 2.9 million the same amount as in the previous year. The following table shows the total compensation of the Board of Directors. For detailed information please consult the compensation report.

in CHF Total compensation 2016/171)
Robert F. Spoerry, Chairman  846,398
Beat Hess, Vice-Chairman 301,936
Stacy Enxing Seng, Member  286,530
Michael Jacobi, Member  307,239
Anssi Vanjoki, Member  288,557
Ronald van der Vis, Member 288,024
Jinlong Wang, Member  278,416
Lynn Dorsey Bleil2), Member 255,740
Total (active members) 2,852,840
John J. Zei3) 28,116
Total (including former member)  2,880,956

1) The compensation shown in the table above is gross and based on the accrual principle.
2) New member of the Board of Directors since June 2016.
3) John J. Zei retired from the Board of Directors at the Annual General Shareholders’ Meeting from June 14, 2016. He has entered into an independent consulting service agreement with Sonova starting July 1, 2016. There are no other anticipated reasonable expenses on the part of consultant for which Sonova will provide reimbursement.

Management Board compensation system

The compensation of the Management Board (including the CEO) is defined in several regulations adopted by the Board of Directors and comprises:

  • Fixed base salary
  • Employee benefits, such as pension benefits, company car or flat rate car allowance and expense allowance
  • Short-term cash incentive award (Variable Cash Compensation VCC)
  • Long-term equity incentive award (EEAP)

The fixed base salary and benefits form the fixed compensation component and are based on current market practice. The variable compensation component consists of a short-term cash incentive award, the VCC, and a long-term equity incentive award in form of options and RSUs under the EEAP. Both short and long-term components are performance-based.

Overall, Sonova looks back on a good year where the Group and many parts of the business achieved new records. The financial targets set by the Board of Directors for the financial year were exceeded. This is reflected in the financial compensation of the members of the Management Board. For the assessment of the target achievement, the non-budgeted impact of the AudioNova acquisition has generally been excluded. However, several members of the Management Board had qualitative targets related to the transaction and subsequent integration. The total compensation of the Management Board members including CEO in the 2016/17 financial year was CHF 14,1 million. The following table shows the total compensation for the CEO and consolidated for the other members of the Management Board. For detailed information please consult the compensation report.

in CHF Total compensation 2016/171)
Lukas Braunschweiler, CEO  2,741,778
Other members of the Management Board2) 11,348,874
Total 14,090,652 

1) The compensation shown in the table above is gross and based on the accrual principle.
2) Including Jan Metzdorff for the full 2016 / 17 financial year as member of the Management Board as well as in his new role as President HI Wholesale US.

 


Compensation Report 2016/17

For detailed information please refer to the Compensation Report. The Compensation Report is part of the Annual Report and describes the compensation system in place at Sonova, including its key elements and general principles, the bodies responsible for the design, the approval framework, and the implementation in detail. The report also provides detailed information on the compensation paid to the Board of Directors and the Management Board in the 2016/17 financial year and 2015/16 financial year.