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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, the 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 possibility 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 Article 8.1 of the Articles of Incorporation.

See www.swisscom.ch/​basicprinciples WSGE_DP_GR_Verguetungssystem

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 relies on cross-sector market comparisons with Swiss companies as well as international sector comparisons. These two comparative perspectives allow Swisscom to form an optimal overview of the relevant employment market for managerial positions. In the year under review, Swisscom referred to two comparative studies conducted by Towers Watson, a recognised consultancy firm. The comparison with the Swiss market covers major companies domiciled in Switzerland from various sectors, with the exception of the financial and pharmaceutical sectors. On average, these companies generate revenue of CHF 4.7 bil­lion and employ 13,000 people. The sector comparison covers telecommunications companies from eleven western European countries with an average revenue of CHF 8.9 bil­lion and an average workforce of 18,800 employees. The evaluation of these studies takes into account the extent of responsibility in terms of revenue, number of employees and international scope.

As a rule, the Compensation Committee reviews individual remuneration paid to members of the Group Executive Board every three years of employment. In view of the newly adopted efficiency improvement measures, the Board of Directors decided to defer the periodic remuneration review of the individual members of the Group Executive Board, which was due to take place in the year under review, and leave the remuneration unchanged. In connection with this, the Group Executive Board also opted to forego 10% of the variable performance-related salary component due to it as a result of having achieved its targets.

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.

Variable 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 in line with the Group’s continuing corporate strategy. The targets are based on the Swisscom Group’s budget figures for 2016.

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 55

Segment targets are tailored to the relevant function of each Group Executive Board member and consist of financial and non-financial targets. As in the previous year, these also include financial targets for the Italian subsidiary Fastweb S.p.A., on which the Group Board members delegated by Swisscom to Fastweb’s Board of Directors are measured. The target structure is thus aligned to Swisscom’s strategic priorities: strengthening the core business in Switzerland by offering the best infrastructure and customer experiences as well as through the realisation of new growth opportunities and further developing Fastweb in Italy.

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%   15–18%
    EBITDA margin   18%   15–18%
    Operating free cash flow   24%   20–24%
Customers   Net promoter score   20%   20%
Segments   Segment targets   20%   20–30%
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. The achievement of an individual target can vary from 0% (if  the lower limit is not achieved) to 200% (if the upper limit is exceeded).

WSGE_DP_GR_SkalaZielerreichung

The overall achievement of targets governing the payment of the performance-related component is calculated according to the weighting of the individual targets. The payment is limited to a maximum of 130% of the target bonus. In determining the level of target achievement, the Compensation Committee 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 overall achievement of targets, 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, some of the financial Group targets were exceeded and others not quite met in full. The customer targets were not fully met. Depending on the unit, the other targets of the segments were not fully achieved, were achieved in part or were exceeded in part.

In view of the efficiency improvement measures adopted in the year under review, the Group Executive Board opted for a 10-percentage-point reduction of the payment of the variable performance-related salary component to which it was entitled based on the achievement of its targets. Allowing for this reduction, the payment of the performance-related component is 92% of the target bonus for the CEO and between 85% and 95% 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 may opt to increase this share by 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 the 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. This restriction on disposal also applies if the employment relationship is terminated during the 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 2017. Further information on the Management Incentive Plan can be found in Note 11 to the consolidated financial statements.

See report page 180

In April 2016, a total of 1,841 shares (2015: 1,268 shares) with a tax value of CHF 439 (prior year: CHF 473) per share and a market value of CHF 522.50 (prior year: CHF 563) per share were allocated for the 2015 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. Also included is the share of the special contribution to comPlan determined by the Board of Directors in the year under review and attributable to the members of the Group Executive Board. Swisscom is paying the special non-­recurring contribution designed to mitigate the impact of pension reductions suffered by employees born in or before 1969 as a result of the lowering of the conversion rate on 1 July 2017. Further information about this is provided in Note 10 to the consolidated financial statements.

See report page 174

With regard 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 2016 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 2,579 thousand in total) was 68.2% of the base salary (CHF 3,782 thousand in total) The total remuneration paid to the highest-earning member of the Group Executive Board (CEO, Urs Schaeppi) increased by 0.1% compared to the prior year The increase in total remuneration paid to the Group Executive Board is attributable to the one-time special contribution made to the pension plan to offset the impact of the reduction in the conversion rate for employees born in 1969 or earlier. The increase this caused in retirement provision contributions was largely compensated by the lower variable remuneration.


In CHF thousand
  Total
Group
Executive Board
2016
  Total
Group
Executive Board
2015
 
Thereof
Urs Schaeppi
2016
 
Thereof
Urs Schaeppi
2015
Fixed base salary paid in cash   3,782   3,775   882   882
Variable earnings-related remuneration paid in cash   1,604   1,792   284   336
Variable earnings-related remuneration paid in shares 1   975   1,018   338   327
Service-related and non-cash benefits   84   85   14   17
Employer contributions to social security 2   541   538   126   126
Retirement benefits 3   1,064   816   189   144
Total remuneration to members of the Group Executive Board   8,050   8,024   1,833   1,832
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 Includes the share of the exceptional contribution to the pension fund attribuable to the members of the Group Executive Board. Swisscom makes a non-recurring contribution to mitigate the impact of the pension reductions resulting from the lowering of the conversation rate as of 1 July 2017.

4.4 Comparison with the total amount approved by the Annual General Meeting

Total remuneration paid to the members of the Group Executive Board is within the maximum total amount approved by the 2015 Annual General Meeting (AGM) for 2016 of CHF 9.7 million.

WSGE_DP_GR_VergleichKonzernleitung

4.5 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.

4.6 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 2016 are listed in the table below:

Number   31.12.2016   31.12.2015
Urs Schaeppi (CEO)   3,229   2,602
Mario Rossi   1,027   821
Hans C. Werner   897   571
Marc Werner   382   211
Christian Petit   1,337   1,525
Roger Wüthrich-Hasenböhler 1     1,032
Heinz Herren   1,333   1,098
Dirk Wierzbitzki 2   64  
Total shares held by the members of the Group Executive Board   8,269   7,860
1 Resigned from the Group Executive Board as of 31 December 2015.
2 Joined the Group Executive Board as of 1 January 2016.

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

4.7 Employment contracts

The employment contracts of the members of the Group Executive Board are subject to a twelve-month notice period. No termination benefits apply beyond the salary payable for a maximum of twelve months. The employment contracts stipulate that Swisscom may allow wrongfully awarded or paid remuneration to lapse or reclaim such remuneration. They do not contain a non-competition clause or a clause on change of control.