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4 Remuneration of the Group Executive Board

4.1 Remuneration of the Group Executive Board

The remuneration system for the Group Executive Board is intended to create incentives for ensuring the long-term development of the company. For this reason, the remuneration includes a substantial base remuneration and a high share of long-term profit sharing in the form of restricted shares. The short-term variable remuneration, by contrast, is set relatively low.

a) Fixed annual base remuneration

The base remuneration provides recompense for the role held within the organisation. This takes into account the person’s experience, scope of responsibility and influence on the company’s success. The base remuneration is paid in cash.

b) Short-term variable remuneration

The short-term variable remuneration takes account of the achievement of the goals set by the Remuneration and Nomination Committee for the Group Executive Board and the CEO. On the one hand, it is based on the financial results that are achieved, including the EBIT budgeted for the BKW Group. As this amount is set without reserves, this is a “stretch” EBIT target. In addition, the Remuneration and Nomination Committee assesses the progress in implementing the strategy, as well as the achievement of other quantitative or qualitative objectives. For each member of the Group Executive Board, the personal contribution is measured against the individual’s role and influence. The annual targets are agreed in December of each year for the following financial year.

The short-term variable remuneration is paid out in cash during the calendar year following the year for which it is awarded. The short-term variable remuneration ranges from 0 to 30 percent of the base remuneration for the CEO and from 0 to 20 percent of the base remuneration for the members of the Group Executive Board. If the budgeted EBIT is achieved, this equates to maximum target performance. Even if the target EBIT is significantly exceeded, this does not result in the maximum bonus being exceeded. Consequently, there is a maximum limit to the variable remuneration. Extraordinary, unforeseeable events such as the removal of the CHF / EUR cap are taken into account in assessing the level of target performance. The Remuneration and Nomination Committee prepare an overall assessment, taking into account the general economic situation and industry-specific environment in which the company is operating.

The short-term variable remuneration may be reduced or revoked in exceptional circumstances, even if the individual targets are met. Such a situation may arise if the company’s existence is under threat and the payment of dividends and / or any variable components due to employees is cancelled. In this case, there is no claim to short-term variable remuneration. Any reductions in the dividend payment made to finance investment projects shall have no impact on the calculation of the variable remuneration.

c) Remuneration in restricted shares

Remuneration in restricted shares is aimed at securing long-term success and is linked directly to the opportunities and risks associated with the share price performance. Because of the positive performance of the share price, it has become a central element of the total compensation of the Group Executive Board. The issued shares are subject to a blocking period of three years.

Long-term profit sharing in restricted shares amounts – except in exceptional circumstances – to 30 percent of the base salary for the current year for the members of the Group Executive Board. It is first calculated in Swiss francs and then paid out in the form of blocked shares of BKW AG. The share allocation for the Group Executive Board is calculated by taking a share price of CHF 33.00 as the basis, which is the average share price for the years 2014 and 2015. By contrast, the Board of Directors – as part of the transitional solution until the new remuneration system is in place – no longer used the average share price for the years 2014 and 2015 for the allocation of shares to the CEO, but instead defined a fixed amount for the long-term profit sharing, which was then allocated in shares on the basis of the daily price. The shares were allocated on 27 November 2019. As part of the revision of the remuneration system, a general adjustment of the allocation of shares for the Group Executive Board is being reviewed. This review is necessary because the share price has, we are pleased to note, risen sharply and consistently since 2014.

d) Pension contributions and social security contributions

Pension contributions include the employer contributions to the pension fund. The BKW pension fund (Pensionskasse BKW) has operated a defined contribution pension plan since 2019 in accordance with the statutory requirements for occupational pensions (BVG). The specified pension benefits also include the employer contributions to national social security funds due on the total remuneration.

4.2 Remuneration paid in 2019

The remuneration amounts paid to the Group Executive Board are disclosed in the financial year in which they are recognised in the annual financial statements.

The remuneration of all members of the Group Executive Board rose by five percent compared with the 2018 financial year. This was mainly due to the increase in the number of the members to five as a result of the appointment of Dr. Antje Kanngiesser as Head of the Group Markets & Services division. In addition, the remuneration of individual members of the Group Executive Board was adjusted in line with their experience, and this increase brought it more in line with the market median. The measurement of the short-term variable remuneration and long-term profit sharing in shares remained the same. In financial year 2019, a total of 25,608 (2018: 24,796) shares were transferred to the Group Executive Board.

The overall remuneration of the CEO was 13 %

lower in 2019 than in the previous year. This was mainly due to two factors: because the defined benefit plan was eliminated at the end of 2018, there were no additional payments for any increases to remuneration. As a result, the pension benefits were lower than in the previous year. Furthermore, the above-mentioned transitional solution resulted in a substantial reduction to the remuneration system. The long-term remuneration defined by the Board of Directors in the form of restricted shares led to a decrease in the number of shares allocated: 7,008 shares compared with 9,455 shares in 2018. By contrast, the fixed basic remuneration and thus the basis for calculating the short-term variable remuneration rose slightly. As in 2018, the short-term variable remuneration for the CEO amounted to 30 percent and was paid out in full on the basis of the excellent performance of BKW.

Measurement of the short-term variable remuneration

BKW significantly exceeded its short-term financial targets, which were especially challenging

in view of the very low forward prices on the wholesale market for 2019. The negative effects of the revenue from electricity production were more than offset thanks to very good operating business and the excellent results in energy trading. However, the major challenge continues to be the unclear relationship regarding the integration of Switzerland in the European energy market. The growth in the service network continued to be driven forward at a rapid pace, especially as a result of the acquisition of large companies, such as Swisspro AG in the building technology area, LTB Leitungsbau GmbH in the infra services area and ingenhoven architects GmbH in the engineering area in Germany. For these reasons, the CEO was allocated a short-term variable remuneration of 30 percent and the other members of the Group Executive Board 20 percent of their fixed remuneration.

Remuneration of members of the Group Executive Board and the highest-earning member in 2019

Dr. Suzanne Thoma CEO

Group Executive Board 1 (including CEO)

CHF thousands

2019

2019

Fixed basic remuneration

858

2,882

Short-term variable remuneration

257

746

Long-term profit sharing (share-based payments)2

410

1,498

Pension benefits

239

837

Total

1,764

5,963

1 The Group Executive Board was comprised of five members for the year as a whole.

2 The share-based remuneration is recognised at its tax value.

Remuneration of members of the Group Executive Board and the highest-earning member in 2018

Dr. Suzanne Thoma CEO

Group Executive Board 1 (including CEO)

CHF thousands

2018

2018

Fixed basic remuneration

780

2,520

Short-term variable remuneration

234

563

Long-term profit sharing (share-based payments)2

568

1,491

Pension benefits

449

1,097

Total

2,031

5,671

1 With the abolition of the Renewables and Efficiency division following the merger of the wind business with the traditional energy business, one member left the Group Executive Board on 31 May 2018.

2 The share-based remuneration is recognised at its tax value.

4.3 Compliance with the maximum overall remuneration for the 2019 financial year ratified by the General Meeting 2019

In summary, the remuneration paid fully complies with the maximum amount ratified by the 2018 General Meeting of CHF 8,000,000 for remuneration of the Group Executive Board for the 2019 financial year.

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