Clariant’s compensation philosophy supports its ambition to be an employer of choice. It is designed to attract, motivate, and retain committed employees.

1. Board oversight on compensation

The Compensation Committee of the Board of Directors establishes principles for the compensation of members of the Board of Directors and the Executive Committee, and submits these to the Board of Directors for approval. The Committee also takes note of employment contracts for the Heads of Global Functions, Global Business Units, and Region Heads, including their respective compensation.

2. Compensation concept

To attract, motivate, and retain qualified and committed employees throughout the world, Clariant’s compensation policy is based on the following main principles:

Remuneration components are aligned with the Clariant Business Strategy and designed to support it. To be competitive, Clariant conducts regular benchmarking studies to ensure compensation levels are adequate and in line with market practices. With a focus on compliance, Clariant’s compensation practices always follow local regulations, such as laws and collective union agreements. Compensation guidelines and work instructions are in place to ensure consistently fair treatment of employees working for Clariant. In regard to performance-based pay, Clariant’s remuneration elements incentivize business and individual performance. Furthermore, remuneration elements must be clear and transparent in order to be understood and appreciated.

The structure of total remuneration is highly performance- and success-oriented to ensure that shareholder and management interests are aligned.

While long-term and short-term incentives are based on Group Performance only, individual performance – measured through a consistent, Global Performance Management system – is a determining factor in career development and annual salary reviews. Within the Global Performance Management System, each manager’s or employee’s performance is assessed and discussed on a yearly basis. This process includes regular 360-degree feedback for all management levels.

3. Linking compensation to sustainable value creation

Short-term incentive plans (cash bonus) include the Group Management Bonus Plan, the Group Employee Bonus Plan, and the Global Sales Incentive Plan. Long-Term Incentive Plans offer equity-based compensation for approximately 250 senior managers worldwide (Executive Committee and Management Level 1 – 4). Figure 001

001 CLARIANT INCENTIVE SCHEME LANDSCAPE

¹ Number of positions as at 31 December 2018
² ML: Management Level

The Group Management Bonus Plan is anchored in the overall Performance Cycle at Clariant, which ensures a challenging business-specific target agreement for each Business Unit and Service Unit (BU/SU). The individual amount of each bonus payment generated in a year is determined by the achieved result of the Clariant Group measured against clear objectives. The achievement is calculated based on three elements:

1. financial result of the Group;
2. financial results of Business and Service Units; and
3. defined top priorities (Group Performance Indicators and strategic projects).

In addition to financial indicators, the Group Performance Indicators include, for example, inventory excellence, Clariant Excellence (CLNX) benefits, innovation sales, and Occupational Health and Safety (Lost Time Accident Rate).

The Group Employee Bonus Plan is an aligned and standardized bonus plan for non-management levels for all legal entities around the world that apply (where legally compliant and possible) the global Group Achievement or a combination of Group results and local Top Priorities as the basis for bonus payouts. For the sales force, the Global Sales Incentive Plan incentivizes premier sales performance and growth by focusing on the individual sales performance in the areas of sales, margin, and trade receivables.

Participation in the Performance Share Unit (PSU) Plan is limited to the Executive Committee and selected senior managers of Management Level 1 – 4, i.e., approximately 1.4% of the workforce. The vesting is conditional on the achievement of the performance target (after three years). The relevant underlying key performance indicator is EBITDA (before exceptional items) in percentage of sales and the performance target to be at or above the median of a defined peer group.

The Compensation Committee has decided to amend the PSU Plan for senior management starting in 2019 to more closely align key performance indicators relevant for PSU vesting with the market perspective, and to present an attractive and competitive incentive for senior management. In addition, the committee has decided to discontinue another element of long-term incentives, the Matching Share Plan, and integrate its volume into the new PSU Plan.

4. Compensation of members of the Executive Committee

The Executive Committee participates in the same compensation elements as Clariant’s senior managers, receiving a fixed annual base salary, an annual cash bonus, and long-term incentives. The annual bonus is based on achieved results for the particular financial year, according to the criteria mentioned above with respect to the Group Management Bonus Plan.