The remuneration policy of Swisscom applicable to the Group Executive Board is designed to retain highly skilled and motivated specialists and executive staff over the long term and provide an incentive to achieve a lasting increase in the enterprise value. It is systematic, transparent and long-term oriented and is predicated on the following principles:
- Total remuneration is competitive and is in an appropriate relation to the market as well as the internal salary structure.
- Remuneration is based on performance in line with the results achieved by Swisscom and the contribution made to results by the area for which the member of the Group Executive Board is responsible.
- Through direct financial participation in the performance of Swisscom’s shares, the interests of management are aligned with the interests of shareholders.
The remuneration of the Group Executive Board is a balanced mix of fixed and variable salary components. The fixed component is made up of a base salary, other benefits (primarily use of a company car) and pension benefits. The variable remuneration includes a performance-related component settled in cash and shares. In addition, the Board of Directors may recognise exceptional individual performance by means of a discretionary premium settled in cash or shares.
In the year under review the remuneration system for the Group Executive Board was amended. Group Executive Board members are now required to maintain a minimum shareholding, which strengthens their direct financial participation in the medium-term performance of Swisscom’s share and thus aligns their interests with those of shareholders. To facilitate compliance with the shareholding requirement, Group Executive Board members now have the opportunity to draw up to 50% of the variable performance-related component of their salary in shares. Starting from the reporting year the payout of the variable performance-related component is capped at 130% (previously 200%) of the target performance-related component.
As a rule, the Compensation Committee reviews individual remuneration paid to members of the Group Executive Board every three years of employment. The Compensation Committee decides at its discretion on the level of remuneration, taking into consideration the external market value of the function in question, the internal salary structure and individual performance.
Swisscom regularly takes part in market comparisons for the purpose of assessing market values. In the year under review, Swisscom referred to the following three comparative studies carried out by recognised consulting firms: The “Top Executive Compensation Survey” conducted by Towers Watson covers 20 companies in various sectors, with headquarters in Switzerland. More than half are represented in the SMI and have average revenues of CHF 20 billion and an average workforce of 26,000 (FTEs). The “Swiss Headquarters Executive Total Compensation Measurement Study” by Aon Hewitt covers 82 Swiss companies and international groups in all sectors, with global or regional headquarters in Switzerland, average revenues of CHF 3.3 billion and an average workforce of 9,000. The international “European Executive Survey”, also produced by Aon Hewitt, covers 33 European groups, mainly telecommunications companies, with average revenues of CHF 30 billion and an average workforce of 78,000 (FTEs). Due to their numerous reference companies, these studies provide the basis for a representative comparison. In the evaluation of these studies, Swisscom took into account the sector as well as the extent of responsibility in terms of revenue, number of employees and international scope. During the reporting year the remuneration of two Group Executive Board members was adjusted to reflect these benchmarks and to bring the salary for a new function into line with the market.
The base salary is the remuneration paid according to the function, qualifications and performance of the individual member of the Group Executive Board. It is determined based on a discretionary decision taking into account the external market value for the function and the salary structure for the Group’s executive management. The base salary is paid in cash.
Variable performance-related salary component
The members of the Group Executive Board are entitled to a variable, performance-related salary component which represents 70–117% of the base salary and is based on the individual function and the achievement of objectives. The amount of the performance-related component paid out depends on the extent to which the targets set by the Compensation Committee are achieved, taking into account the performance evaluation by the CEO. If targets are exceeded, additional remuneration up to a maximum of 130% of the targeted performance-related component may be paid. The maximum performance-related salary component is thus limited to 91–152% of the base salary, depending on the function.
Targets for the variable performance-related component
The targets underlying the variable performance-related component are reviewed annually in December for the following year by the Board of Directors following a proposal submitted by the Compensation Committee. The relevant targets set for the reporting year are based on the Swisscom Group’s budget figures for 2013.
Three target levels are defined: “Group”, “Customers” and “Segments”. All Group Executive Board members are assessed according to Group and customer targets. The Group targets are based on financial objectives. For the first time, the customer targets for the reporting year are measured using the Net Promotor Score – a recognised indicator of customer loyalty – taking into consideration the customer group for which the Group Executive Board member is responsible. The segment targets are tailored to the relevant function of each Group Executive Board member and consist of financial and non-financial targets.
Swisscom’s target structure aims to strike a balance between financial performance and market performance, taking into account the specific area of responsibility of the individual Group Executive Board member.
The following table illustrates the target structure valid for Group Executive Board members in the year under review, showing the three target levels, individual targets and the respective weighting.
Achievement of targets
The Compensation Committee determines the level of target achievement in the following year once the consolidated financial statements become available, taking into consideration the calculated degree of target achievement and the level of achievement (from overachievement to underachievement of target values) based on the defined sensitivities for the individual measurements. In determining the level of target achievement, the Compensation Committee also has a degree of discretion in assessing the effective management performance. Special factors can thus also be taken into account such as fluctuations in exchange rates. Based on the level of target achievement, the Compensation Committee submits a proposal for approval to the Board of Directors for the amount of the performance-related salary component to be paid to the Group Executive Board and the CEO.
Group targets were overall slightly exceeded in the year under review. Customer targets in the individual segments were largely achieved and exceeded. The other targets of the segments were also achieved and partially exceeded.
Payment of the variable performance-related component
The variable performance-related component is paid in April of the following year, with a minimum of 25% being paid in the form of Swisscom shares, in accordance with the Management Incentive Plan. The members of the Group Executive Board have the option of increasing this proportion up to a maximum of 50%. The remainder of the variable performance-related salary component is paid in cash. The decision of what percentage of the variable performance-related salary component is to be drawn in the form of shares must be communicated prior to the end of the reporting year, but no later than in November following publication of the third-quarter results. Two members of the Group Executive Board receive in addition a certain part of the performance-related salary component exclusively in shares, making the respective total proportion of shares at least 34% and at most 57%. The shares are allocated on the basis of the tax value, rounded up to whole numbers of shares, and are subject to a three-year blocking period. The share-based compensation for the reporting period is augmented by a factor of 1.19 in order to take account of the difference between the market value and the tax value. The market value is determined as of the date of allocation. Shares in respect of the current year are allocated in April 2014. Further information on the Management Incentive Plan can be found in Note 11 to the consolidated financial statements.
In April 2013, a total of 2,707 shares (2011: 3,170 shares) with a tax value of CHF 371 (2011: CHF 310) per share and a market value of CHF 442 (2011: CHF 361) per share were allocated for the 2012 financial year to the members of the Group Executive Board in office in the previous year.
During the reporting year Urs Schaeppi was awarded a premium settled in cash for outstanding individual services in his role as acting CEO ad interim.
Pension fund and other benefits
The members of the Group Executive Board, like all eligible employees in Switzerland, are insured against the risks of old age, death and disability through the comPlan pension plan (see pension fund regulations at www.pk-complan.ch). Reported pension benefits (amounts which give rise to pension entitlements or increase pension benefits) encompass all savings, guarantee and risk contributions paid by the employer to the fund. This includes the premium for supplementary life insurance concluded for swisscom management staff in Switzerland.
With regard to the disclosure of non-cash benefits and expenses, these are dealt with from a tax point of view. The members of the Group Executive Board are entitled to the use of a company car. The disclosed service-related and non-cash benefits therefore include an amount for private use of the company car. Incidental expenses are reimbursed at the per diem rate approved by the tax authorities while other expenses are reimbursed at cost. These expenses are not added to remuneration.
The following table shows total remuneration paid to the members of the Group Executive Board for the accounting years 2013 and 2012, broken down into individual components and including the highest amount paid to one member. Any remuneration paid to those stepping down from the Group Executive Board includes the respective maximum remuneration up to the end of the notice period in the year under review or previous year. Two members of the Group Executive Board stepped down in the year under review. No termination benefits were paid. The variable performance-related salary component due to members of the Group Executive Board who are stepping down is paid completely in cash. In the year under review the ratio of the base salary (total CHF 3.183 million) to the variable performance-related bonus (total CHF 3.493 million) was 47.7% to 52.3%. The total remuneration paid to the highest-earning member of the Group Executive Board decreased by 12.3% compared to the prior year. This is due to the death of the CEO in July 2013, the interim situation it created and the appointment of a new CEO in November. The decrease in the remuneration of the Group Executive Board is mainly attributable to the reduction in the number of board members from ten to six as of 1 January 2013 and the absence of two further board members in 2013. The decrease was only minor as a result of benefits paid following retirement from Group Executive Board.
From 2013, the members of the Group Executive Board are required to hold a minimum amount of Swisscom shares. The minimum shareholding to be held by the CEO shall be equivalent to two years’ base salary. The remaining members shall maintain a shareholding equivalent to one year’s base salary. The members of the Group Executive Board have four years to build up the required minimum shareholding, in the form of the blocked shares paid as part of remuneration and, if necessary, through share purchases on the open market. Compliance with the shareholding requirement is reviewed annually by the Compensation Committee. If a member’s shareholding falls below the minimum requirement due to a drop in the share price or a salary adjustment, the difference must be made up by no later than the time the Compensation Committee performs its next review. At his own discretion, the Chairman of the Board can approve exceptions in an individual case for justified reasons such as personal hardship or the fulfilment of legal obligations.
Shareholdings of the members of the Group Executive Board
Blocked and non-blocked shares held by current members of the Group Executive Board or related parties as at 31 December 2013 are listed in the table below:
The voting rights of any person subject to the disclosure obligation do not exceed 0.1% of the share capital.
The employment contracts of the members of the Group Executive Board are subject to a twelve-month notice period. No termination benefits are payable in addition to the salary payable for a maximum of twelve months. They do not contain a clause relating to change of control.
Planned adjustments to the remuneration system for Executive Board members as of 2014
Effective as of 2014, the variable component of the total remuneration of Executive Board members will be reduced, so that it may not exceed one year’s base salary, even if the targets are exceeded. This adjustment does not change the total remuneration of each individual Executive Board member. The targeted variable component for Executive Board members now amounts up to 70% of the adjusted annual base salary, depending on the function.