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4 Remuneration of the Group Executive Board

4.1 Remuneration elements for the Group Executive Board

The remuneration system for the Group Executive Board should provide incentives to securing the long-term positive development of BKW. For this reason, the remuneration includes a substantial base salary and a high share of long-term profit sharing in the form of restricted shares.

Remuneration elements for the Group Executive Board

Instrument

Purpose

Influencing factors

Performance targets

Annual base salary

Monthly cash remuneration

Employee attraction/retention

Position, market-level remuneration, qualifications and experience

Short-term variable remuneration (STI)

Annual variable remuneration in cash

Performance-related remuneration

Annual performance

EBIT

Remuneration in restricted shares (LTI)

Shares with 3-year blocking period

Long-term employee retention in line with shareholder interest

Share price

Pension contributions and social security contributions

Pension and insurance Benefits in kind

Protection against risks Employee attraction/retention

Market-level practice and position

a) Fixed annual base salary

The base salary 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 salary is paid in cash.

b) Short-term variable remuneration

The short-term variable remuneration (STI or Short-Term Incentive plan) 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. Based on this assessment, the Remuneration and Nomination Committee can readjust the payment made on the basis of EBIT achieved according to its judgement. As in previous years, no such readjustment was applied in the reporting year. The annual targets are set in December of each year for the following financial year, and the achievement of targets is assessed at the end of the financial year.

The short-term variable target remuneration for members of the Group Executive Board is between 0 and 20 % of the base salary. 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. 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.

The short-term variable remuneration may be reduced or totally revoked in exceptional circumstances, even if the target is 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.

The short-term variable remuneration is paid out in cash during the calendar year following the year for which it is awarded.

c) Remuneration in restricted shares

Remuneration in restricted shares (LTI or Long-Term Incentive plan) 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 extremely positive performance of the share price in recent years, 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 % 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. In previous years, the share allocation for the Group Executive Board was calculated by taking a share price of CHF 33.00 as the basis, which was the average share price for the years 2014 and 2015. In 2014, work commenced on the implementation of the new strategy, which still applies. Successful implementation of the strategy has been reflected in the growth of the share price and the company’s market value. BKW’s market value has almost tripled since 2014.

graphic

This resulted in an increase in the LTI for the Group Executive Board, which has been subject to criticism from various quarters in the last two years. As part of the revision of the remuneration system, therefore, a general adjustment of the allocation of shares for the Group Executive Board was made. Further details about this can be found in the Outlook section.

As a transition solution before implementation of the new remuneration system in 2021, the number of shares to be issued for the LTI for each member of the Group Executive Board was frozen at the previous year’s level in 2020. This means that the Group Executive Board members received the same allocation of shares in 2020 as in 2019. As in 2019 and as part of the transition solution that applies until the new remuneration system is in place, the Board of Directors no longer based the share allocation for the CEO on the average share price for 2014/2015 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 18 November 2020.

Blocking periods for shares remain in effect as scheduled after the employment relationship has ended.

d) Social security contributions, pension contributions and additional benefits in kind

The members of the Group Executive Board are insured by the regular pension scheme that has been set up for all employees. 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 pension plan covers annual income up to CHF 853,200 with age-dependent contribution rates (including half of the short-term variable cash remuneration), which are paid by the company and the employees according to the rules that apply for all employees. The specified pension benefits also include the employer contributions to national social security funds due on the total remuneration.

The Group Executive Board is entitled to a fixed expenses payment in line with the expenses guideline that has been approved by the tax authority and that applies to all members of the management. In addition, Group Executive Board members have the same entitlement to work anniversary bonuses as all employees, in line with the current guideline. The Group Executive Board has no other entitlements to further benefits in kind.

e) Contracts

Contracts between BKW and members of the Group Executive Board that include remuneration of these members must only be concluded for a period of less than one year or with a notice period of maximum 12 months in accordance with Art. 29 of the articles of incorporation.

The employment contracts of the members of the Group Executive Board have been drafted in accordance with the Ordinance against Excessive Compensation in Listed Companies Limited by Shares. During the reporting period, all Group Executive Board members had permanent employment contracts with a termination period of six months. No contractual severance payments, special change of control provisions or prohibition of competition payments are owed to members of the Group Executive Board.

f) Special rules for the remuneration of the CEO

Plans are in place in the course of the coming years to align the CEO’s remuneration with the median determined in the remuneration study. Furthermore, it is planned in line with the new remuneration system being introduced for the Group Executive Board to introduce a much more variable STI component than is currently in place, as well as an additional condition for LTI. The new Group Executive Board remuneration system that will take effect from 2021 is described in the Outlook.

Due to the political discussions, the BKW Board of Directors decided against raising the CEO’s remuneration to the market median in 2020. In contrast, the remuneration has been fixed for a transitional period.

The CEO’s remuneration for 2020 is structured as follows:

4.2 Remuneration paid in 2020

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. In comparison with the 2019 financial year, the CEO’s total remuneration increased by 15 % as a result of the aforementioned transition solution, while the total remuneration of the other members of the Group Executive Board increased by 6.5 %. These increases can be attributed to the following change in the individual remuneration elements:

Base salary

The base salary paid to the individual members of the Group Executive Board in 2020 was once again adjusted according to their experience as planned and therefore brought closer into alignment with the market median. The salary increase in 2020 amounted to 7 % for the CEO and 3 % for the other members of the Group Executive Board.

Short-term variable remuneration

Despite the difficult market environment, BKW once again significantly exceeded its quantitative EBIT target.

The qualitative target set for the Group Executive Board comprised the strategic continued development of the Services business. This target was also achieved in full, with the support for further business expansion, improved structures and company culture and continued deployment of new technologies. The organisation is better positioned as a result and, on the whole, has begun the new year even stronger.

The achievement of the EBIT target has led to full disbursement to the Group Executive Board of the short-term variable remuneration of 20 % of the base salary. Since the qualitative target has also been exceeded, the Remuneration and Nomination Committee has decided to pay out the maximum amount.

Long-term variable remuneration

In the 2020 financial year a significantly lower number of shares (21,065, compared with 25,608 in 2019) were transferred to the Group Executive Board (including the CEO) as a result of the transitional arrangement described above. In accordance with a special transitional solution, the CEO received 3,465 shares, which are blocked for three years. The disclosed value of these shares is nevertheless 11 % higher than the value disclosed in the previous year, since the share price has performed extremely well thanks to the good business record.

Remuneration (gross) of members of the Group Executive Board and the highest-earning member in 2020

Dr. Suzanne Thoma CEO

Group Executive Board 1 (including CEO)

CHF thousands

2020

2020

Fixed base salary

919

2,998

Short-term variable remuneration

441

856

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

273

1,662

Other benefits in kind and pension contributions 3

299

890

Total

1,932

6,406

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 in line with long-standing practice.

3 Other benefits in kind consist of a payment for the CEO’s service anniversary amounting to CHF 38 thousand. Pension contributions correspond to the contributions paid during the reporting year.

Remuneration (gross) 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

Other benefits in kind and pension contributions 3

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 in line with long-standing practice.

3 Pension contributions correspond to the contributions paid during the reporting year.

4.3 Compliance with the maximum overall remuneration for the 2020 financial year ratified by the General Meeting

In summary, the remuneration paid fully complies with the maximum amount of CHF 8,800 thousand ratified by the 2019 General Meeting for remuneration of the Group Executive Board for the 2020 financial year.

4.4 Payments to former members of the Group Executive Board and their related parties

No payments were made to former members of the Group Executive Board during the reporting year. There were also no payments to related parties of members of the Group Executive Board.

4.5 Loans and credit to members of the Group Executive Board

No loans were granted to members of the Group Executive Board in the financial year. No loans were owed at the end of the reporting year.

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