Board of Directors
The members of the Board of Directors receive a fixed fee, consisting of a set remuneration in cash and shares in Holcim Ltd. The shares are subject to a five-year sale and pledge restriction period. The Chairman and Deputy Chairmen of the Board of Directors and Chairmen and members of the Audit Committee, the Nomination & Compensation Committee and the Governance & Strategy Committee receive additional compensation.
In 2014, the senior Management of Holcim Ltd included the Executive Committee, the Area Managers and the Corporate Functional Managers. The total annual compensation of Senior Management comprises a base salary and a variable compensation element. Members of Senior Management are insured in the pension fund. The base salary of members of Senior Management is fixed and is paid in cash.
Benchmarking of the total compensation is carried out periodically on the basis of the annual compensation reports of benchmark companies. The benchmark companies include four international companies in the same industry as Holcim with similar geographical spread and complexity, as well as the ten companies with the largest market capitalization in Switzerland, i.e. with companies of similar size and complexity. The benchmarking is based on position and responsibilities. In 2010, PricewaterhouseCoopers AG was consulted as external advisor for a fundamental and detailed review of the compensation system for the CEO and Executive Committee. The results of this review confirmed that the current system served robustly during the economic upswing and subsequent crisis, and also offers a value-oriented compensation philosophy for the future.
The variable compensation comprises a Group-related and an individual component. Assuming that all targets are achieved as per December 31 of the year, the variable compensation of Senior Management (excluding the CEO) accounts for between 48 percent and 90 percent of base salary, depending on the function concerned, and 92 percent in case of the CEO. For both the Group-related and the individual components, a “target” amount is determined at the beginning of the year. This amount is only paid out if the objectives set are achieved by 100 percent, and so is variable. Minimum and maximum objective achievement levels are also set, for which the respective minimum and maximum payout factors apply, as detailed below. Payout factors in between are interpolated on a linear basis according to objective achievement levels.
The Group-related component depends on the financial results of the Group. If all objectives are achieved at target as per December 31 of the relevant year, it accounts for an average of 61 percent of variable compensation for Senior Management (excluding the CEO) and 56 percent in the case of the CEO. It is calculated on the basis of the operating EBITDA and return on invested capital after tax (ROICAT) achieved. Both objectives are weighted equally, except for Area Managers, for whom 60 percent derives from the operating EBITDA component and 40 percent from the ROICAT component. For each component, a target objective (which, if achieved, results in 100 percent of the targeted variable compensation being paid) and maximum and minimum target levels (which, if achieved, result in 200 percent and 0 percent of the targeted variable compensation being paid, respectively) are set. The Group component of the variable compensation was set at between CHF 120,000 and CHF 550,000 for Senior Management (excluding the CEO), depending on the function and based on 100 percent target objective achievement, and at CHF 901,600 for the CEO.
The performance share plan (PSP) approved for implementation by January 1, 2014 for CEO, Executive Committee, Senior Management and Function Heads was put on hold due to the merger project. The PSP would complement the existing variable compensation comprising Group-related and individual components. It is based on a combination of internal and external long-term targets set by the Nomination & Compensation Committee. Target achievement is measured over a three year period; depending on the level of achievement, the performance shares cliff vest after the performance period of three years. Award level and long-term targets are aligned with market practice. Good leaver provisions apply. For the CEO and the members of the Executive Committee, clawback provisions apply.
In view of the extended period between the announcement of the merger between Holcim and Lafarge and its closing, the Nomination & Compensation Committee has reviewed the cash compensation arrangements with certain members of the Executive Committee and Senior Management and put in place appropriate measures for the purpose of retention. The details will be finalized and disclosed in 2015.
For the year 2014, the operating EBITDA targets were set at 5 percent like-for-like growth versus the previous year (Area Managers at achievement of the budgeted regional operating EBITDA margin) and at ROICAT of 8 percent. The ROICAT target was set based on the defined weighted average cost of capital after tax (WACCAT) of 8 percent. The minimum and maximum payout factors were set at ±20 percent for the operating EBITDA target (for Area Managers –2.5/+5 percentage points of the regional operating EBITDA margin) and at ±3 percentage points for the ROICAT target. In 2014, operating EBITDA increased on a comparable “like-for-like” basis and adjusted for merger costs by 4.0 percent, and the regional operating EBITDA margin was below budget by 1.8 percentage points on average, while ROICAT reached 7.3 percent. This corresponds to an achievement level of 96 percent (operating EBITDA; regional operating EBITDA margin 48 percent) and 76 percent (ROICAT). Senior Management (excluding the CEO) achieved a payout factor of 78 percent, and the CEO 86 percent. The Group component is paid in the form of registered shares in the company, subject to a five-year sale and pledge restriction period, and a cash component of approximately 33 percent. Allotted shares are valued at the average market price in the period from January 1, 2015 to February 15, 2015, and are either taken from treasury stock or purchased from the market.
The individual component for Senior Management (excluding the CEO) amounts to around 39 percent of the variable compensation, if all objectives are achieved as per December 31, and for the CEO to 44 percent. It depends on the performance of the individual. A range of quantitative and qualitative individual objectives are set for all members of Senior Management depending on their roles and responsibilities. These measurable objectives are weighted and relate to functional performance, strategic objectives, operational objectives and specific project-related objectives. For each objective, an achievement level in percent is determined depending on target achievement, resulting in a total achievement factor between 0 percent and 100 percent. The total achievement factor is then multiplied by the targeted variable compensation to determine the amount of the individual component. For the year 2014, the individual component of the variable compensation, at 100 percent target achievement, was set at between CHF 120,000 and CHF 350,000 for Senior Management (excluding the CEO), depending on the function concerned, and CHF 708,400 for the CEO. The average target objective achievement and the payout factor for Senior Management (excluding the CEO) came to 76 percent, and for the CEO to 93 percent. The individual component is paid in the form of options on registered shares in the company and a cash component of around 33 percent. The exercise price of the options corresponds to the stock market price at the grant date. The options are restricted for a period of three years following the grant date and have an overall maturity period of eight years. The options are valued in accordance with the Black Scholes model (input parameters are detailed in note 33 Share compensation plans). The company reserves the underlying shares from treasury stock or purchases them from the market on the grant date of the options.