3 Compensation system and elements

3.1 Compensation of the Board of Directors

3.1.1 Principles of the compensation policy

The compensation of the Board of Directors is guided by the market situation and the specific tasks. In order to ensure the independence of the members of the Board of Directors in the exercise of their supervisory function, the compensation of the Board of Directors does not contain any performance-related elements. The compensation is based on the term-of-office compensation system and is partially paid out in the form of Bystronic AG shares, which remain restricted for a period of four years. This long-term vesting is aimed at ensuring sustainable corporate governance and aligning compensation with the interests of the shareholders.

The structure and amount of the compensation of the Board of Directors are periodically reviewed on the basis of publicly available information about comparable Swiss companies. Comparable companies are defined as globally active companies listed in Switzerland of similar size (market capitalization, sales, number of employees) and complexity. No such review was carried out in the reporting year.

3.1.2 Compensation mix

The compensation of the members of the Board of Directors is comprised as follows:

3.1.3 Description of compensation elements

Base fee in cash

The annual base fee in cash is CHF 175,000 for the Chairman of the Board of Directors and CHF 45,000 for the other members of the Board. It is paid out annually for the previous term of office no later than ten days after the Annual General Meeting.

Base fee in shares

The annual base fee in the form of restricted shares is CHF 175,000 for the Chairman of the Board of Directors and CHF 50,000 for the other members of the Board.

The number of shares allocated is calculated on the basis of the regulatory entitlement divided by the average share price from November 1 to January 31 of the corresponding term of office (rounded up to the next whole number of shares). The transfer takes place no later than ten days after the Annual General Meeting. The allocated shares remain restricted for a period of four years. In the event that a member of the Board of Directors steps down, the allocated shares remain restricted until the four-year period has expired.

The allocated shares are repurchased on the market or taken from the company’s treasury shares.

Committee fee

The annual committee fee in cash is CHF 30,000 for the Chairman of the committee and CHF 15,000 for the other members. The Board of Directors has established two committees, the Audit Committee and the Human Resources Committee. The committee fee is paid out annually in cash no later than ten days after the Annual General Meeting.

Benefits

The benefits comprise the employee’s share of the statutory Swiss social security contributions on the total compensation (monetary benefit), the employer’s share of the statutory social security contributions insofar as these are pension-forming, as well as lump-sum expenses. The latter amount to CHF 6,000 per year for the Chairman of the Board of Directors and CHF 5,000 per year for the other members of the Board. The Board of Directors’ fees are not insured in the pension fund of Bystronic AG.

The chart below provides a summary of the compensation model:

3.2 Compensation of the Executive Committee

3.2.1   Principles of the compensation policy

The principles of Bystronic’s compensation policy support performance orientation within the company, a strategy geared towards profitable and capital-efficient growth, and the core values responsibility, innovation, respect, and financial soundness. The principles comprise:

When determining the target compensation for the members of the Executive Committee, the level of compensation paid by other international industrial companies based in Switzerland is taken into consideration, insofar as these companies are comparable in terms of complexity, size (market capitalization, sales, number of employees), and geographical reach.

For this purpose, the compensation of the Executive Committee is periodically reviewed on the basis of compensation studies conducted by third-party providers or publicly available data such as the compensation disclosure in the annual reports of relevant companies. No such review was carried out in the reporting year.

3.2.2 Compensation mix

The annual compensation of the members of the Executive Committee is comprised as follows:

The following chart shows the composition of the total target compensation for the CEO and the other members of the Executive Committee in the reporting year. The share of short-term variable target compensation for members of the Executive Committee (excluding the CEO) was increased year-on-year from 22% to 25% and that for long-term share-based target compensation from 11% to 15% of total target compensation.

The structure of the variable compensation plans plays a key role in the compensation policy. The following overview summarizes this structure for the members of the Executive Committee; the plans are described in detail in the following Section 3.2.3:

3.2.3 Description of compensation elements

Fixed base salary

The fixed base salary is paid out monthly in cash and is based on the following factors:

• Scope and responsibilities of the respective function (job profile)
• Market value of the role (competitiveness)
• Internal peer comparisons (internal equity)
• Individual profile of the employee (skills, expertise, experience, and performance)

Short-term variable compensation (STI)

Bystronic’s short-term variable compensation incentivizes both the achievement of the annual financial targets in terms of profit, sales/growth, and capital employed at Group and regional level, as well as the achievement of individual performance targets. All targets are agreed in writing at the beginning of the year. In addition to quantitative targets, qualitative targets of a strategic nature can also be applied as individual targets, such as the implementation of important projects relating to market, product, and human resources development, as well as ESG and M&A activities.

The short-term variable target compensation is defined as a percentage of the total target compensation. It amounts to 30% for the CEO and 25% for the other members of the Executive Committee.

The weighting of financial targets for members of the Executive Committee is 80%; correspondingly, the weighting of individual targets is 20%, of which 10% relate to ESG targets. The targets are set annually within the framework of the budget and/or the individual target agreement process. The financial performance parameters for the CEO and CFO refer exclusively to the consolidated values of Bystronic; those for the regional heads of EMEA, Americas, APAC, and China refer in equal parts to Bystronic and the corresponding region, those of the heads of Global Service and Global Solutions relate approximately 60% to Bystronic and 40% to the corresponding global segment.

In the reporting year, the measurement of the financial performance was based on the following performance parameters (KPIs):

• Net sales
• Operating result (EBIT)
• Operating free cash flow

For the financial targets, the target value generally reflects the budget target and is paid out at 100% upon target attainment; for each individual parameter, any deviations from the budget cause upward or downward adjustments using the following linear function, so that payments may vary between 0% and 150% (cap).

Long-term share-based compensation (LTI)

Bystronic’s long-term share-based compensation incentivizes the achievement of set targets in terms of earnings per share (EPS) over a one-year period and makes a part of the compensation of the members of the Executive Committee dependent on the development of the Bystronic share price over a multiple-year period. The LTI plans thus allow members of the Executive Committee to share in the long-term success of Bystronic and they align the interests of the Executive Committee with those of the shareholders.

Two separate LTI plans were in effect in the reporting year:

• For the CEO: Restricted Share Plan (RSP)
• For the other members of the Executive Committee: Restricted Share Unit (RSU) Plan

In the reporting year, the Board of Directors developed and approved a new LTI plan; the new plan will replace the above two plans for the members of the Executive Committee and the Extended Executive Committee. The first allocation under the new plan will be made in the 2023 financial year. It is a Performance Share Unit (PSU) Plan based on the best practice among listed Swiss companies and tailored to Bystronic’s business model. The new plan is described in more detail in Section 7 Outlook.

Below, the two performance share plans to date are described in more detail:

Restricted Share Plan (RSP) for the CEO

Following the retirement of the Conzzeta Executive Committee, the CEO is the only remaining participant in the Restricted Share Plan (RSP), both in the reporting year and in the previous year. The target LTI value corresponds to the long-term share-based target compensation and accounts for 20% of the total target compensation for the CEO (previous year: 20%).

The target LTI value is multiplied by the EPS factor (earnings per share) of the relevant financial year to determine the CEO’s actual entitlement (= “actual LTI value”). The “actual LTI value”, in turn, is divided by the average price of the Bystronic share in the period from November 1 of the current period to January 31 of the following period, whereby a discount of 10% is applied (“reduced allocation price”), in order to determine the CEO’s entitlement to restricted shares. The following chart shows how the Restricted Share Plan (RSP) functions:

To qualify for the transfer of shares, the recipient must be in employment on the date of the transfer, with no period of notice served by either side. Shares are transferred in the following year after the Board of Directors has approved the Annual Financial Statements, and the number of shares is rounded up to the next whole number. The transferred shares remain blocked for a period of four years from the date of transfer. Even upon termination of employment of the CEO, the transferred shares remain blocked, unless the termination of employment occurs in the context of a change of control (see Corporate Governance Report, Section 7.2). The transferred class A shares are registered in the name of the CEO and bear voting and dividend rights.

The EPS factor is based on the attainment of a target EPS value. The target EPS value (100%) corresponds to the budget value and is determined annually by the Board of Directors. The Board of Directors also determines a minimum EPS value (= budget value –20%) and a maximum EPS value (= budget value +20%). If the actual EPS is equal to the minimum EPS value, the EPS factor is 50%; if it is lower than the minimum EPS value, the EPS factor is 0%, i.e. no shares are transferred to the CEO; if the actually achieved EPS reaches or exceeds the maximum EPS value, the factor is 150% (cap). The factor for the actual values between the minimum and maximum EPS values is determined by means of linear interpolation.

The owed class A registered shares are repurchased on the market or taken from the company’s treasury shares.

Restricted Share Unit (RSU) plan for the members of the Executive Committee (excl. CEO)

The target LTI value corresponds to the long-term share-based target compensation and accounts for 15% of the total target compensation for the members of the Executive Committee (excl. CEO) (previous year: 11%).

The target LTI value is multiplied by the EPS factor (earnings per share) of the prior financial year to determine the plan participant’s actual entitlement (= “actual LTI value”). The “actual LTI value”, in turn, is divided by the average price of the Bystronic share from November 1 of the previous period to January 31 of the current period (allocation price) in order to determine the plan participant’s entitlement to Restricted Share Units (RSUs). RSUs represent a conditional right to receive one share of Bystronic free of charge after the expiry of a 3-year vesting period (conversion at a ratio of 1:1), provided that the employment relationship is ongoing. The RSUs do not confer any voting or dividend rights and cannot be traded. The following chart shows how the RSU Plan functions:

The prerequisite for the grant of RSUs is an indefinite employment contract that has not been terminated at the time of grant. The grant takes place in the current year after the Board of Directors has approved the previous year’s Annual Financial Statements, and the number of RSUs granted is rounded up to the next whole number.

The EPS factor is based on the achievement of a target EPS value in the financial year prior to the grant of the RSUs. The target EPS value (100%) corresponds to the budget value and is determined annually by the Board of Directors. The EPS factor can range between 100% and 150% of the target LTI value, as outlined below:

RSUs are subject to a three-year vesting period (“cliff vesting”) beginning on the grant date and ending on the vesting date. The conversion of non-forfeitable RSUs into shares takes place on the vesting date, provided that the employment relationship is ongoing at that time, whereas under the following circumstances, forfeitable RSUs will vest on a pro rata basis, provided that the event occurred after the expiration of a one-year period from the grant date:

• Qualified retirement: Retirement of a plan participant who has reached the age of 60 and 5 years of service
• Termination without significant cause by the employer
• Permanent disability or death of the plan participant

Unless otherwise determined by the Board of Directors, forfeitable RSUs will immediately vest on a pro rata basis, irrespective of the timing of the event, in the event of a change of control at the level of Bystronic AG, its merger with a non-affiliated company, or the sale of all or a majority of a business unit to a non-affiliated company (see Corporate Governance Report, Section 7.2).

The plan participant may freely dispose of the shares transferred to him/her. The transferred shares are registered in the name of the plan participant and bear voting and dividend rights.

The necessary shares are repurchased on the market or taken from the company’s treasury shares. The Board of Directors may in individual cases elect to make a corresponding cash payment in lieu of a share transfer.

Social security and pension plan

The members of the Executive Committee are covered by social security in accordance with the legal regulations and they participate in the social security and pension plans available in their country of employment. Their primary purpose is to ensure a reasonable standard of living for the members of the Executive Committee and their dependants after retirement or in the event of sickness, disability, or death.

Members of the Executive Committee with a Swiss employment contract are insured with the standard pension fund set up for all employees in Switzerland. The fund covers the annual income (fixed base salary and short-term variable target compensation) up to the maximum amount permitted by law. The benefits go above and beyond the statutory requirements of the Swiss Federal Act on Occupational Old Age, Survivors’, and Invalidity Pension Provision (OPA).

Members of the Executive Committee with an employment contract outside of Switzerland are insured according to local market practice and legislation.

Fringe benefits

In addition, members of the Executive Committee are entitled to certain fringe benefits that are customary in the respective country of employment, such as a company car and other benefits in kind. Executive Committee members in Switzerland also receive a lump sum expense allowance in line with the applicable expense regulations approved by the tax authorities.

3.3 Contractual terms of the Executive Committee

The employment contracts of members of the Executive Committee are concluded for an indefinite period and stipulate a notice period of twelve months for the CEO and as a general rule six months for the remaining members of the Executive Committee. They do not contain any agreement on severance payments or change-of-control clauses.