Investors - Poised for sustainable success
Sonova is all about people: the value and success of our company strongly depends on our highly dedicated employees. We therefore aim to attract and retain the best talent available in a very 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 ensure Sonova’s success and to maintain its position as a global leading manufacturer and provider of innovative hearing care solutions and services, 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 Sonova’s compensation principles, summarized below:
|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 rewards 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: Performance Share Units (PSUs), 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 practice that no performance-related compensation is awarded.
The compensation of the Management Board consists of fixed, and variable performance-based 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 are 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. Payout under the VCC is based on Sonova’s growth targets related to key performance indicators (KPIs), such as sales, earnings before interest, taxes and amortization/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 that are 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 revised long-term equity incentive award under the EEAP includes the grant of options and PSUs. The vesting of the options is dependent on the return on capital employed (ROCE) performance and for the PSUs on relative Total Shareholder Return (rTSR). The EEAP reinforces the alignment between compensation and the company’s long-term performance. Moreover, it aligns the interests of the Management Board with those of Sonova’s shareholders, and fosters long-term retention of the Management Board (see section 4.3 for more information related to implementation of the revised EEAP 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 to the VCC cash payout and to the number of equity awards that can be granted and subsequently 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 members to invest defined amounts in Sonova shares and thus reinforce the alignment between the interests of the Board of Directors and the Management Board with those of shareholders.
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
- Periodical benchmark reviews covering compensation of the members of the Board of Directors (including the Chairman of the Board of Directors), the CEO, and the other members of the Management Board
- A yearly review of the individual compensation of the CEO and of the other members of the Management Board, including variable cash compensation
- 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
- Succession planning; and
- 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 2017/18 financial year, it held four meetings. 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 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 periodically reviews the total compensation of members of the Management Board, comparing data from executive compensation 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, along with other considerations, with reference to those benchmarks.
The actual compensation of 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 fixed compensation, namely a cash retainer and nondiscounted shares with a restriction period of five years and four months (Chairman of the Board of Directors) or four years and four months (all other members of the Board of Directors). In addition, members of the Board of Directors receive a committee fee (if applicable), a meeting attendance fee as well as a travel allowance. There is no performancerelated compensation for the Board of Directors and Board members are not eligible to participate in the occupational pension plan.
The total compensation in the 2017/18 financial year was CHF 2.9 million, nearly 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 2017/181)|
|Robert F. Spoerry2), Chairman||797,712|
|Beat Hess, Vice-Chairman||286,906|
|Stacy Enxing Seng, Member||271,906|
|Michael Jacobi, Member||289,406|
|Anssi Vanjoki, Member||271,906|
|Ronald van der Vis, Member||271,406|
|Jinlong Wang, Member||262,406|
|Lynn Dorsey Bleil, Member||261,906|
|Total (active members)||2,713,554|
1) The compensation shown in the table above is gross and based on the accrual principle.
2) Including work and attendance in the Nomination and Compensation Committee and Audit Committee.
The total compensation including the employer social security contributions in the financial year, amounts to CHF 2,941,711 (approach applied for the purposes of the 2017 Annual General Shareholder Meeting vote).
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, flat rate car allowance, expense allowance, and relocation benefits for certain affected members
- 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 achieved solid results with many parts of the Group achieving new records. Overall, the financial targets set by the Board of Directors for the financial year were slightly exceeded. This is reflected in the financial compensation of the members of the Management Board. For the assessment of the target achievement, the one-time costs related to the AudioNova acquisition were excluded.
The following table shows the compensation of the CEO and of the other members of the Management Board for the 2017/18 financial year. For detailed information please consult the compensation report.
|in CHF||Total compensation 2017/181)|
|Lukas Braunschweiler, CEO||2,306,607|
|Arnd Kaldowski, COO2)||3,364,755|
|Other members of the Management Board3)||10,020,103|
1) The compensation shown in the table above is gross and based on the accrual principle.
2) Member of the Management Board since October 1, 2017 in the role of COO and to transition to the role of CEO as of April 1, 2018. Total compensation for the period from October 1, 2017 until March 31, 2018.
3) Including Sarah Kreienbühl and Franz Petermann for the full 2017/18 until contractual end date.
The total compensation including the employer social security contributions in the financial year amounts to CHF 16,838,471 (approach applied for the purposes of the 2017 Annual General Shareholder Meeting vote).
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 2017/18 financial year and 2016/17 financial year.