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 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 on 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 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 is CHF 6,000 per year for the Chairman of the Board of Directors and CHF 5,000 per year for the other members. 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 toward profitable and capital-efficient growth, and the core values of responsibility, innovation, respect, and financial soundness. The principles comprise the following:

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 and overview of the variable compensation plans

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 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 levels, as well as the achievement of ESG and 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 M&A activities.

The short-term variable target compensation amounts to 30% of the total target compensation 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%; the weighting of ESG targets is 10% and the remaining 10% relate to individual 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 to the corresponding region. Those for the heads of Global Service (Chief Service Officer) and Global Solutions (Chief Digital Officer) refer approximately 60% to Bystronic and 40% to the corresponding global segment.

Financial performance measurement 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).

Based on the results achieved, the payment factor is determined for each agreed performance indicator. The weighted average of all payment factors will be multiplied by the short-term variable target compensation in order to derive the actual STI amount owed.

For further information on target values and results from the reporting year, please refer to Section 5.2.1.

Long-term share-based compensation (LTI)

In this reporting year, the new Performance Share Unit (PSU) Plan was applied for the first time for members of the Executive Committee. This replaces both previous participation plans, specifically the Restricted Share Plan (RSP) and the Restricted Share Unit (RSU) Plan. The RSP was previously used for the CEO and the RSU Plan for the other members of the Executive Committee. For a more in-depth description of both plans, please refer to the 2022 Compensation Report. Section 5.6 provides detailed information on the status of all ongoing and settled plans.

The aim of the new plan is better alignment of the interests of members of the Executive Committee with those of shareholders. In particular, the plan is meant to reward high entrepreneurial achievement, foster long-term, sustainable corporate governance, and ensure that members of the Executive Committee are involved in the share capital of the company for the long term.

Under the new plan, members of the Executive Committee will be granted a specific number of Performance Share Units (PSU) annually. One PSU entitles the plan participant to receive one share in the future, provided certain conditions are fulfilled at the end of the vesting period. The number of allocated PSUs is based on the target LTI value guaranteed by the employment contract. The target LTI value amounts to 20% of the total target compensation for all Executive Committee members, including the CEO. The target LTI value divided by the fair value of the PSUs on the day of allocation yields the number of PSUs granted, whereby fractions are rounded up to the next whole number. The fair value of the PSUs will be determined by a specialized consulting firm according to internationally recognized methods. Grant date is April 1 each year, for the first time during the reporting year.

The granted PSUs vest after three years; for each vested PSU, the plan participant is entitled to a class A registered share of Bystronic AG. The number of PSUs actually vested depends on the fulfillment of two specific performance targets over the three-year performance period. The following two performance factors are calculated based on actually achieved results:

• Earnings per share factor (EPS factor)
• Relative total shareholder return factor (rTSR factor)

Both factors have a weight of 50% in the calculation of the performance factor; accordingly, the performance factor is the simple average of the EPS and rTSR factors. Both factors lie between a minimum of 0% and a maximum of 200%.

EPS factor

The average annual EPS growth rate (EPS CAGR) is calculated by comparing the EPS in the third year of the performance period with the EPS of the financial year preceding the allocation of PSUs.

The Board of Directors determines the target values (target value, minimum target value, maximum target value) for profit growth in view of the medium- and long-term corporate strategy.

If only the threshold value is reached or if the threshold value is not reached, the EPS factor is 0%; when the target value is attained, the EPS factor is 100%; and if the maximum target value is achieved or exceeded, the EPS factor is 200%. The EPS factor for all results between the target values is determined through linear interpolation.

The EPS factor function is thus modeled as follows:

Bystronic is committed to disclosure of target achievement and the corresponding payouts at the end of each vesting period.

rTSR factor

The rTSR factor refers to the total shareholder return (TSR) achieved in comparison to TSRs of other Swiss industrial companies (="benchmark group”). The benchmark group consists of all companies that are part of the “Swiss Performance Index SPI® Industrials”. Performance is measured by means of a percentile ranking.

The total shareholder return expressed as a percentage is determined through the division of the volume-weighted average price (VWAP) during the month of December in the last financial year of the performance period with the volume-weighted average price during the month of December in the financial year preceding PSU allocation. In addition to share price development, the TSR calculation takes into account dividends paid out during the performance period. To this end, it is assumed that these were reinvested in shares of the corresponding company at the time of distribution. All calculations for rTSR will be carried out by an independent consulting firm specializing in this matter.

The target value (rTSR factor 100%) is attained when the total shareholder return of the company corresponds to the median TSR within the benchmark group. The maximum target value (rTSR factor 200%) is achieved when the total shareholder return of the company reaches or exceeds the 80th percentile within the benchmark group. The threshold value (rTSR factor 0%) is met when the total shareholder return of the company reaches or falls below the 20th percentile within the benchmark group. The rTSR factor for all results between the target values is determined through linear interpolation.

Independently from the percentile ranking attained, the rTSR factor is limited to 100% if the TSR of the company over the course of the performance period is negative.

Conditions in the case of termination of employment

If the employment relationship with the plan participant is terminated prior to the expiration of the vesting period due to resignation by the plan participant or due to termination for cause by the employer, all unvested PSUs are forfeited as of the end of the employment contract. All vested restricted shares remain blocked until the end of the regular blocking period.

If the employment relationship with the plan participant is terminated prior to the expiration of the vesting period due to ordinary termination by the employer, all PSUs granted less than 12 months prior to the end of the employment contract are forfeited. For all PSUs granted more than 12 months prior to the end of the employment contract, the plan participant retains a pro-rata entitlement based on the period from the day of grant up until the end of the employment contract. The performance factor is determined based on interim results and is capped at 100%. The settlement is paid out in cash at the end of the employment contract. In contrast, all vested restricted shares remain blocked up until the end of the regular blocking period.

If the employment relationship with the plan participant is terminated prior to the expiration of the vesting period due to retirement, the plan participant retains a pro rata entitlement to all granted PSUs based on the period from the day of grant up until the end of the employment contract. The settlement is paid out regularly after the expiration of the vesting period and based on the actual results for the performance factor. The settlement is paid out in shares. Of the transfered shares, 60% will be blocked for two years starting from the day of vesting.

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. The primary purpose of this is to ensure a reasonable standard of living for the members of the Executive Committee and their dependents after retirement or in the event of sickness, disability, or death.

The salaries of members of the Executive Committee with Swiss employment contracts are insured up to a defined limit through the regular pension fund for employees in Switzerland, as well as through a separate pension plan for additional amounts. The plan benefits exceed the statutory provisions of the Federal Law on Occupational Retirement, Survivors' and Disability Pension Plans (BVG) and correspond to the standard market practice of other industrial companies in Switzerland.

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 for members 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.