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4 Remuneration paid to the Group Executive Board

4.1 Principles

The remuneration policy of Swisscom applicable to the Group Executive Board is designed to attract and 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 combination of fixed and variable salary components. The fixed component is made up of a base salary, fringe benefits (primarily use of a company car) and pension benefits. The variable remuneration includes a performance-related component settled in cash and shares.

The members of the Group Executive Board are required to hold 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 minimum shareholding requirement, Group Executive Board members have the opportunity to draw up to 50% of the variable performance-related component of their salary in shares.

The basic principles regarding the performance-related remuneration and the profit and participation plans of the Group Executive Board are set out in the Articles of Incorporation (Article 8.1), which can be accessed on the Swisscom website under “Basic principles”.

See www.swisscom.ch/​basicprinciples WSGE_DP_GR_Verguetungssystem

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.

For the purpose of assessing market values, Swisscom regularly takes part in market comparisons carried out by renowned consultancy firms. In the year under review, Swisscom referred to two comparative studies: the “Swiss Headquarters Executive Total Compensation Measurement Study” by Aon Hewitt covers 78 Swiss companies and international groups in all sectors with global or regional headquarters in Switzerland, average revenues of CHF 2.4 bil­lion and an average workforce of 6,500. The international “European Executive Survey”, also produced by Aon Hewitt, covers 37 European groups, mainly telecommunications companies, with average revenues of around CHF 30 bil­lion and an average workforce of 73,000 (FTEs). Due to their numerous reference companies, both studies provide the basis for a representative comparison. In the evaluation of these studies, Swisscom takes 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, Swisscom adjusted the remuneration of two Group Executive Board members to reflect these benchmarks, to take account of the performance of these members in partially extended functions and to ensure a salary that is in line with the market. The second stage in a salary increase granted to one member in the prior year as of 1 April 2014 and 1 April 2015 was also implemented.

4.2 Remuneration components

Base salary

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.

Performance-related salary component

The members of the Group Executive Board are entitled to a variable, performance-related salary component which represents 70% of the base salary if objectives are achieved (target bonus). The amount of the performance-related component paid out depends on the extent to which the targets are achieved, as set by the Compensation Committee, taking into account the performance evaluation by the CEO. If targets are exceeded, up to 130% of the target bonus may be paid. The maximum performance-related salary component is thus limited to 91% of the base salary. This ensures that the maximum performance-related salary component does not exceed the annual base salary, even taking account of the market value of the component paid in shares.

Targets for the variable performance-related component

The targets underlying the variable performance-related component are adopted annually in December for the following year by the Board of Directors following a proposal submitted by the Compensation Committee. The targets relevant to the reporting year remained largely unchanged. The targets are based on the Swisscom Group’s budget figures for 2015.

All members of the Group Executive Board are measured against targets at the levels “Group”, “Customers” and “Segments”. Group targets consist of financial targets. Customer targets for the reporting year are measured using the Net Promoter Score – a recognised indicator of customer loyalty – taking into consideration the customer group for which the Group Executive Board member is responsible. Further information on customer satisfaction can be found in the Management Commentary.

See report Page 54

Segment targets are tailored to the relevant function of each Group Executive Board member and consist of financial and non-financial targets. These also include financial targets for the Italian subsidiary Fastweb S.p.A., on which the Group Board members delegated to Fastweb’s Boards of Directors are measured since the financial year under review. 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 the CEO and other Group Executive Board members in the year under review, showing the three target levels, individual targets and the respective weighting.


Target levels
 

Objectives
 
Weighting of targets level
CEO
  Weighting of targets level
of other members of the
Group Executive Board
Group   Net revenue   18%   12–18%
    EBITDA margin   18%   12–18%
    Operating free cash flow   24%   16–24%
Customers   Net promoter score   30%   25%
Segments   Segment targets   10%   15–35%
Total       100%   100%
Achievement of targets

The Compensation Committee determines the level of target achievement in the following year once the consolidated financial statements become available. Its decision is based on a quantitative assessment of the extent to which targets have been met using a scale for the overachievement and underachievement of each target. In determining the level of target achievement, the Compensation Committee also has a degree of discretion in assessing the effective management performance, allowing special factors such as fluctuations in exchange rates to be taken into account. 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.

In the year under review, the financial Group targets were met. Depending on the segment, the customer objectives were in some cases not fully achieved and in some cases exceeded. The other targets of the segments were largely achieved and partially exceeded. The resulting payment of the performance-related component is 99% for the CEO and between 95% and 104% of the target bonus for the other members of the Group Executive Board.

Payment of the variable performance-related component

The variable performance-related component is paid in April of the following year, with 25% being paid in the form of Swisscom shares, in accordance with the Management Incentive Plan. Group Executive Board members have an option to increase this share up to a maximum of 50%. The remaining portion of the performance-related component is settled in cash. In the event of a departure during the course of the year, the payment of the performance-related component for the current year is generally made in full 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. In the year under review, two members of the Group Executive Board opted for a higher share component. The shares are allocated on the basis of their tax value, rounded up to whole numbers of shares, and are subject to a three-year blocking period. The share-based remuneration disclosed in the year under review 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 2016. Further information on the Management Incentive Plan can be found in Note 11 to the consolidated financial statements.

See report Page 171

In April 2015, a total of 1,268 shares (2013: 1,599 shares) with a tax value of CHF 473 (prior year: CHF 449) per share and a market value of CHF 563 (prior year: CHF 534.50) per share were allocated for the 2014 financial year to the members of the Group Executive Board.

Restricted share plan

The restricted share plan serves to support the recruitment and retention of employees in key positions. It can also be utilised as a remuneration component for members of the Group Executive Board. Under this plan, the Board of Directors can, where necessary, pay part of the remuneration in the form of restricted share units. These shares must be earned over a three year vesting period.

Swisscom has so far not allocated any restricted share units to members of the Group Executive Board.

Pension fund and fringe 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). The disclosed pension benefits (amounts which give rise to or increase pension entitlements) encompass all savings, guarantee and risk contributions paid by the employer to the pension plan. They also include the pro rata costs of the AHV bridging pension paid by comPlan in the event of early retirement and the premium for the supplementary life insurance concluded for Swisscom management staff in Switzerland.

With regards to the disclosure of services rendered and 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 services rendered and non-cash benefits therefore include an amount for private use of the company car. Out-of-pocket expenses are reimbursed on a lump-sum basis in accordance with expense reimbursement rules approved by the tax authorities, and other expenses are reimbursed on an actual cost basis. They are not included in the reported remuneration.

4.3 Total remuneration

The following table shows total remuneration paid to the members of the Group Executive Board for the 2015 and 2014 financial years, broken down into individual components and including the highest amount paid to one member. In the year under review, the variable performance-related salary component (CHF 2,810 thousand in total) was 74.4% of the base salary (CHF 3,775 thousand in total). The total remuneration paid to the highest-earning member of the Group Executive Board (CEO, Urs Schaeppi) increased by 3.3% compared to the prior year. This is primarily attributable to higher age-related occupational pension plan contributions as well as the choice of a higher proportion of shares in the performance-related component. The increase in total remuneration paid to the Group Executive Board is primarily attributable to the salary increases granted for three members of the Group Executive Board in the year under review as well as the age-related increase in the level of retirement provision contributions for three members of the Group Executive Board.


In CHF thousand
  Total
Group
Executive Board
2015
  Total
Group
Executive Board
2014
 
Thereof
Urs Schaeppi
2015
 
Thereof
Urs Schaeppi
2014
Fixed base salary paid in cash   3,775   3,622   882   882
Variable earnings-related remuneration paid in cash   1,792   1,969   336   463
Variable earnings-related remuneration paid in shares 1   1,018   712   327   184
Service-related and non-cash benefits   85   60   17   18
Employer contributions to social security 2   538   481   126   116
Retirement benefits   816   696   144   110
Total remuneration to members of the Group Executive Board   8,024   7,540   1,832   1,773
Benefits paid following retirement from Group Executive Board 3     252    
Total remuneration to members of the Group Executive Board including benefits paid following retirement from Group Executive Board   8,024   7,792   1,832   1,773
1 The shares are reported at market value and are blocked from sale for three years.
2 Employer contributions to social security (AHV, IV, EO and FAK, incl. administration costs, and daily sickness benefits and accident insurance) are included in the total remuneration.
3 “Benefits paid following departure from the Group Executive Board” indicates the contractually stipulated remuneration paid to those stepping down from the Group Executive Board in the respective year under review that were paid during the notice period up to the date of departure This amount includes the social security contributions made by the employer as well as retirement benefits.

4.4 Minimum shareholding requirement

Since 2013, the members of the Group Executive Board have been required to hold a minimum amount of Swisscom shares. The minimum shareholding to be held by the CEO shall be equivalent to two years’ basic salary. The remaining members shall maintain a shareholding equivalent to one year’s basic 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 applicable, 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 of the next review. In justified cases such as personal hardship or legal obligations, the Chairman of the Board of Directors can approve individual exceptions at his discretion.

4.5 Shareholdings of the members of the Group Executive Board

Blocked and non-blocked shares held by members of the Group Executive Board or related parties as at 31 December 2015 and 2014 are listed in the table below:

Number   31.12.2015   31.12.2014
Urs Schaeppi (CEO)   2,602   2,275
Mario Rossi   821   634
Hans C. Werner   571   421
Marc Werner 1   211   106
Christian Petit 2   1,525   1,332
Roger Wüthrich-Hasenböhler 3   1,032   879
Heinz Herren 3   1,098   1,122
Total shares of the members of the Board of Directors   7,860   6,769
1 Joined the Group Executive Board as of 1 January 2014.
2 Rejoined the Group Executive Board as of 1 April 2014.
3 Rejoined the Group Executive Board as of 1 January 2014.

No share of the voting rights of any person required to make disclosure thereof exceeds 0.1% of the share capital.

4.6 Employment contracts

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. The employment contracts stipulate that Swisscom may allow wrongfully awarded or paid remuneration to expire or reclaim such remuneration. They do not contain a clause on change of control.