Compensation Principles and Structures
Board of Directors (BoD)
In order to ensure the independence of the BoD members in their supervisory duties, the members receive a fixed compensation only based on their responsibilities and committee memberships. The compensation is partially provided in cash and partially provided via restricted shares to ensure the alignment to stakeholders’ interests.
The cash component covers the annual honorarium, and committee membership fees, and is provided retroactively on a quarterly basis, i.e., in March, June, September, and December of each year.
The restricted shares are granted retroactively for the past mandate year on the last trading day four weeks prior to the AGM, based on the average share price of the last ten trading days prior to the grant date. Once granted, the shares are subject to a blocking period of three years, which also remains in place if a BoD member leaves the Board.
The following outlines the structure of the Board of Directors compensation:
002BOD VICE CHAIR
The assumption for committee fees is a minimum of CHF 30 000.
The Chairman of the Board is not entitled to receive committee fees when serving as a member of a committee. The following table illustrates the fees applicable to committee membership:
Committee Fees in CHF per Mandate Year
|Nomination Committee||50 000||30 000|
|Audit Committee||80 000||40 000|
|Compensation Committee||50 000||30 000|
|Innovation and Sustainability Committee||50 000||30 000|
The compensation for BoD members is subject to taxation and social security, depending on the individual’s situation, with Clariant paying the employer contributions as required. The BoD members do not receive any lump-sum reimbursement of entertainment expenses above and beyond actual expenditure on business trips. All BoD members are asked to build up defined minimum shareholding requirements within three years from becoming a member of the Board. The shareholding requirements are:
|Chairman of the Board of Directors:||30 000 shares|
|Vice-Chairman of the Board of Directors:||15 000 shares|
|Members of the Board of Directors:||12 000 shares|
All members of the BoD have either reached the required share ownership requirements or are expected to reach the requirements in the given timeline.
Executive Steering Committee
Clariant’s compensation philosophy is built around six fundamental principles:
2022 Structure and Elements
The total compensation structure for the ESC is highly performance- and success-oriented. A mix of fixed compensation, short-term, and long-term incentives ensures an alignment of stakeholderStakeholderStakeholders are people or groups whose interests are linked in various ways with those of a company. They include shareholders, business partners, employees, neighbors, and the community. and management interests.
The following table outlines details of the different compensation elements:
ESC Compensation Elements
|Base salary||Monthly, in cash||Attract and retain||Position, responsibilities, experience, and market practice|
|Short-term incentive||Annually, in cash||Reward for annual company performance||Annual company performance||Group ROIC, Group OCF, BU
Performance (EBITDAEBITDAEarnings before interest, taxes, depreciation, and amortization., Sales, Cash FlowCash flowEconomic indicator representing the operational net inﬂow of cash and cash equivalents during a given period.), Top Priorities (Sustainability, Innovation, Process improvements, Safety)
|Long-term incentive||Annually, subject to a three-year vesting period, Performance Share Units, settled in shares||Reward for long-term company performance Align to strategy and stakeholderStakeholderStakeholders are people or groups whose interests are linked in various ways with those of a company. They include shareholders, business partners, employees, neighbors, and the community. interest||Company performance over a three-year performance period||2020 and 2021:
EBITDAEBITDAEarnings before interest, taxes, depreciation, and amortization. margin,
|Benefits||Contributions to pension and other insurances, allowances||Life events support Attract and retain||Local regulations and market practice|
ROIC: Return On Invested Capital, OCF: Operating Cash FlowCash flowEconomic indicator representing the operational net inﬂow of cash and cash equivalents during a given period., EBITDAEBITDAEarnings before interest, taxes, depreciation, and amortization.: Earnings Before Interest, Taxes, Depreciation and Amortization, TSR: Total Shareholder Return, eNPS: Employee Net Promoter Score
The illustrations below show the compensation mix for the CEO and the other ESC members based on target compensation and excluding benefits:
005STRUCTURE AND ELEMENTS CEO
006STRUCTURE AND ELEMENTS ESC MEMBER (AS OF 01 JULY 2022)
007STRUCTURE AND ELEMENTS EC MEMBER (UNTIL 30 JUNE 2022)
The new target compensation levels are summarized below:
Remuneration Structure of the Clariant Executive steering CommitteeExecutive Steering CommitteeThe Executive Steering Committee (ESC) is authorized by the Board of Directors to steer the company. It has overall strategic and financial responsibility, including for our profit and loss statement. The ESC consists of the Chief Executive Officer (CEO), the Chief Financial Officer (CFO), and the three Business Presidents.1 in CHF
|CEO Compensation||as % of base salary||CFO & Business Presidents Compensation||as % of base salary||EC Compensation (for members whose term ended 2022)||as % of base salary|
|Total annual target||4 000 000||–||1 350 000–
1 620 000
|–||2 050 000||–|
|Long-term incentives 2||1 500 000||125||450 000–
|3||1 300 000||108||400 000–
|Base salary||1 200 000||100||500 000–
1 Without other benefits
2 Annual grant volume; Performance Share Units with 3-year vesting and defined performance hurdle; vesting capped at 200 % target achievement
3 Target cash bonus (GMBP); annual payout capped at 100 % target achievement
The base salary is determined and reviewed on a regular basis taking into account the size, scope, responsibilities, and complexity of the role. In addition, the required experience for the role, individual contributions, as well as market data and market practice in the industry are considered.
Please refer to Changes to the Compensation System in the Reporting Year for details on changes to the compensation levels and structure for the ESC in 2022 and 2023.
Benefits granted to the members of the ESC include employer contributions to the company’s pension plans; employer contributions to health, life, disability, and accident insurances, as well as customary allowances such as relocation, car, family, and education allowances. The benefits are granted in alignment with practices in Switzerland.
The ESC members participate in the pension plans of the Clariant Group in Switzerland, notably the Clariant pension fund, with an insured income of up to CHF 200 000 per annum, and the management pension fund, with an insured income of up to an additional CHF 653 200 per annum. The maximum insured income under the pension plans therefore stands at CHF 853 200 per annum.
Clariant’s pension plans comply with the legal framework of the Swiss Occupational Pension Scheme Act (BVG), and the maximum contribution will be dynamically aligned in accordance with Article 79c BVG. For ESC members and all other Clariant employees, the insured income is defined as the base salary plus 50 % of the target cash bonus. Equity-linked income components are not subject to pensionable income. Usual policies for death and disability are part of Clariant’s pension plans. The total employer contribution is approximately 11 % of the insured income in the case of the Clariant pension fund and 22 % of the insured income in the case of the Clariant management pension fund.
These contributions cover both the contributions to the formation of retirement capital and the risk components. Under IFRSIFRSThe International Financial Reporting Standards (IFRS) are international accounting standards., the Clariant pension fund is a defined benefit plan. The management pension fund provides the members with retirement capital upon retirement. Pension payments are only accepted in exceptional cases.
As all managers in Clariant, the ESC members are eligible to participate in the annual short-term incentive plan »Global Management Bonus Plan (GMBP)«.
The underlying KPIs for the GMBP were chosen to incentivize employees for Group and business performance, and they were set as top priorities for delivering on the company’s strategy and development in a respective business year.
The following table provides an overview of the GMBP applicable to the 2022 business year:
GMBP KPI STRUCTURE
|Item||Details||Weighting CEO and CFO||Weighting Business Presidents|
|KPIs – Group Financial||ROIC||25 %||5 %|
|Operating Cash FlowCash flowEconomic indicator representing the operational net inﬂow of cash and cash equivalents during a given period.||25 %||5 %|
|KPIs – BU Performance||Average BU Performance||30 %|
|BU EBITDAEBITDAEarnings before interest, taxes, depreciation, and amortization.||20 %|
|BU Cash FlowCash flowEconomic indicator representing the operational net inﬂow of cash and cash equivalents during a given period.||30 %|
|BU Local Currency Growth||20 %|
|KPIs – Top Priorities||Scope 3 emission CLNX Benefits Innovation Sales and COMA % DART||20 %||20 %|
|Performance Period||Business year|
|Grant Value||% of base salary|
|Clawback / Malus||Malus|
|Payout Levels||0 % to 100 %|
For each of the KPIs, the company proposes the annual targets and the respective threshold and maximum. The Compensation Committee reviews these targets and provides a recommendation to the BoD for approval.
The development of the company’s target proposal follows a well-defined process subject to several rounds of discussions between the ESC and business leaders as well as the BoD. This process ensures that defined targets support the company’s financial and growth ambitions and are challenging, yet achievable. The actual targets and achievements for 2022 are disclosed on page 18. The targets for 2023 are not being disclosed, as these are considered commercially sensitive.
The annual evaluation of the achievement of objectives, as well as the allocation of funds for the GMBP, is conducted by the Compensation Committee and approved by the BoD prior to the sign-off of the respective year’s financial statements. This system ensures that the bonus payments granted to employees are closely aligned with the Group’s overall results.
For the financial KPIs, the target achievements are derived based on a straight line from threshold to cap. The target achievement for the Top Priority KPIs is based on a step approach, requiring the achievement of two Top Priorities to reach the threshold and ending at a cap of 100 % when all four Top Priorities are met.
The payout is a result of the weighted target achievements applied to the target bonus of the respective participant. The payout is capped at 100 % of the target bonus.
Along with employees in senior management positions, the ESC members are eligible to participate in the Clariant Long-Term Incentive Plan (CLIP). Implemented in 2019, the CLIP was designed to align compensation with long-term stakeholderStakeholderStakeholders are people or groups whose interests are linked in various ways with those of a company. They include shareholders, business partners, employees, neighbors, and the community. interests and to have eligible employees drive the company’s long-term strategy. In 2022, the CLIP was redesigned to ensure continued alignment with the company’s updated strategy and to ensure that the CLIP contributes to an overall attractive and competitive compensation package.
The CLIP represents an equity-based award in the form of Performance Share Units with a three-year vesting period. The CLIP grant per individual is defined as a fixed percentage of the annual base salary. The vesting is conditional upon achievement of defined performance targets, and a vesting will only occur if at least a threshold performance level as defined by the BoD has been achieved. KPIs applied for the CLIP are purely quantitative in nature. For each KPI, the BoD determines a threshold, a target, and a maximum performance level prior to each grant date, and the grant details are communicated to participants accordingly. For the relative total shareholder return (TSR), the target is met if the index performance is met. Threshold and maximum are determined by one standard deviation down and up from the target. For the internal targets, exact actual targets are not being disclosed, as these are considered commercially sensitive.
At vesting and subject to continued employment up to the vesting date, the number of PSUs that vest for a participant is calculated by multiplying the number of the granted PSUs with the overall vesting factor. Under the CLIP 2020 and 2021 design, each PSU is converted into up to one Clariant share. Under the CLIP 2022 design, each PSU is converted up to a maximum of two Clariant shares. The vesting factor for each KPI is determined by the BoD at the end of the vesting period upon proposal of the Compensation Committee. The Compensation Committee may propose adjustments to the vesting factors for each KPI in the event of extraordinary and nonrecurring events during the vesting period (please refer to Comments on the 2022 Compensation).
CLIP STRUCTURE 2020 and 2021
|KPIs||Relative TSR (measured against the MSCI World Chemicals Index)||50 %|
|Economic Profit (EP)||50 %|
|Vesting Period||3 years|
|Delivery||Performance Share Units|
|Grant Value||% of base salary|
|# of PSUs||Grant value divided by fair value of PSU|
|Clawback / Malus||Malus|
|Vesting Levels||0 % to 100 %|
010RELATIVE TSR/EP VESTING CURVE
CLIP STRUCTURE 2022
|KPIs||Relative TSR (measured against the MSCI World Chemicals Index)||33 %|
|EBITDAEBITDAEarnings before interest, taxes, depreciation, and amortization. margin||33 %|
|CO2 (Scope 1+2) reduction||17 %|
|Employee Net Promoter Score (eNPS)||17 %|
|Vesting Period||3 years|
|Delivery||Performance Share Units|
|Grant Value||% of base salary|
|# of PSUs||Grant value divided by 30-day average share price|
|Clawback / Malus||Malus|
|Vesting Levels||0 % to 200 %|
011VESTING CURVE 2022
The STI and LTI plans foresee a malus provision, enabling the BoD (in the case of ESC members) or the company (in the case of any other employee) to decide on a reduction of up to a full forfeiture of unvested entitlements in justified and defined cases of misconduct. For 2023, a clawback provision will be added to the plan rules. Please refer to Changes to the Compensation System.
The procedures upon termination of employment during the vesting period are:
- Retirement: Pro-rata vesting at the regular vesting date based on actual performance
- Disability and death: Immediate pro-rata cash out based on 100 % performance
- Sale of a business, change of control and redundancy: Immediate pro-rata cash out based on 80 % performance
- Voluntary termination and termination for cause: Full forfeiture
The participation in the CLIP is tied to share ownership targets that have to be achieved within five years of the first participation:
- CEO: 150 000 shares
- Other ESC members: 80 000 shares
- Other participants: Up to 30 000 shares, depending on management level
As all current members of the ESC did not yet receive a vesting under the CLIP, they are still building up the share ownership within the allowed timeframe. The previous EC members were in complianceComplianceCompliance is a key element of Corporate Governance. It refers to compliance with the law and directives as well as with company codes and ethical business practices and behaviors. with the share ownership requirements.
Other contractual terms
As per the Articles of Association (Article 39), employment contracts of the ESC members have an indefinite period. The notice period is twelve months followed by a noncompete period of twelve months. The contracts do not allow for any severance packages.
Changes to the Compensation System
This section will outline the changes to the Compensation System for the Executive Steering CommitteeExecutive Steering CommitteeThe Executive Steering Committee (ESC) is authorized by the Board of Directors to steer the company. It has overall strategic and financial responsibility, including for our profit and loss statement. The ESC consists of the Chief Executive Officer (CEO), the Chief Financial Officer (CFO), and the three Business Presidents. members that have been implemented in 2022 or will take effect as of 2023.
Accompanying the organizational transformation and the newly formed Executive Steering CommitteeExecutive Steering CommitteeThe Executive Steering Committee (ESC) is authorized by the Board of Directors to steer the company. It has overall strategic and financial responsibility, including for our profit and loss statement. The ESC consists of the Chief Executive Officer (CEO), the Chief Financial Officer (CFO), and the three Business Presidents., compensation levels and the paymix for the CFO and the Business Presidents were reviewed and adjusted. Each role was benchmarked against the market taking into account the scope, responsibilities, and experience required, as well as the size of the respective business units (e.g. revenue, FTE). Benchmarks were conducted with the support of Mercer and based on their market data. While the overall compensation package for EC members was already reduced effective January 2021, the benchmark results showed a further need to adjust the compensation levels and the paymix for the new ESC members.
Since July 2022, the base salary for the CFO and the three Business Presidents ranges from CHF 500 000 to CHF 600 000, depending on the indicators as described above. This compares to the identical fixed compensation of CHF 650 000 for EC members whose term ended in 2022. The target short-term incentive amount was reduced from previously 108 % of base salary to 80 % of base salary while the fair market value of long-term incentive entitlements was reduced from 108 % of base salary to 90 % of base salary. With these changes, the total target compensation for the new ESC members ranges from CHF 1 350 000 to CHF 1 620 000, compared to CHF 2 050 000 for EC members whose term ended in 2022.
With the new paymix, the compensation structure continues to focus on variable compensation elements supporting the company’s pay-for-performance philosophy. The higher percentage for the long-term incentive plan ensures alignment with the company’s long-term strategy and shareholder interests.
2023 Short-Term Incentive
In 2022, new global short-term incentive plans were developed and approved by the BoD for all Clariant employees, including the ESC members. These plans will come into effect as of 1 January 2023.
The new STI design is fully aligned with the company’s strategy and targets up to 2025:
- Closer alignment to Clariant’s financial strategy and steering: By exchanging ROIC with EBITDAEBITDAEarnings before interest, taxes, depreciation, and amortization. margin and Operating Cash FlowCash flowEconomic indicator representing the operational net inﬂow of cash and cash equivalents during a given period. with Free Cash FlowCash flowEconomic indicator representing the operational net inﬂow of cash and cash equivalents during a given period., the new design not only follows market practice, it also strengthens the commitment to the financial targets communicated to stakeholders in November 2021
- Continued strong focus on sustainability: Clariant’s commitment to sustainability is supported by the significant increase in the weightings for sustainability-related KPIs compared to the previous design
- Increase pay-for-performance philosophy: The broader range of potential performance outcomes with the possibility to overachieve targets and the upside and downside potential from the individual performance factor increases employee motivation and company performance
- Align to market practice: The selection of KPIs, pay-out curves, and higher cap are closely aligned to market practices as confirmed by external compensation advisors
- Simplification: Fewer KPIs provide for higher transparency and an increased focus on the selected KPIs due to higher weightings
Short-term Incentive PLAN
|Category||CEO and CFO||Business Presidents|
|EBITDAEBITDAEarnings before interest, taxes, depreciation, and amortization. margin||Financial||35 %||10 %|
|Free Cash FlowCash flowEconomic indicator representing the operational net inﬂow of cash and cash equivalents during a given period.||Financial||35 %||10 %|
|CO2 emission (Scope 3)||ESG||15 %|
|DART 1||ESG||15 %|
|Business Unit Results|
|BU EBITDAEBITDAEarnings before interest, taxes, depreciation, and amortization. (absolute)||Financial||25 %|
|BU Cash FlowCash flowEconomic indicator representing the operational net inﬂow of cash and cash equivalents during a given period.||Financial||25 %|
|CO2 emission (Scope 3)||ESG||15 %|
|DART 1||ESG||15 %|
|TOTAL||100 %||100 %|
1 Days Away from Work, Job Restriction, or Job Transfer
For each KPI, a bonus curve is defined with a target (stretched goal), a threshold (minimum performance required for a payout), and a maximum (maximum performance, payout cap). The payout is determined based on a straight line between threshold and target and target and maximum.
Depending on individual performance and individual contributions toward goals defined and assessed by the BoD, the payout under the short-term incentive plan may decrease or increase in a corridor from 50 % to 150 %. The respective goals and assessment will be outlined in the Compensation Report going forward. In any case, the payout under the short-term incentive plan is capped at 200 % of the individual target bonus.
Except for the individual multiplier, all KPIs are quantitative in nature. They are either directly audited (financial KPIs) or the functionality of the underlying systems are audited (Scope 3 and DART).
The plan design is consistently applied for the ESC members as well as other Clariant employees eligible to participate in the new Clariant Global Bonus Plan (GBP).
In addition to the changes to the overall short-term incentive plan design, the plan rules were strengthened by adding a clawback provision in addition to the already existing malus provision. This enables the BoD or the company to not only decide on a reduction or forfeiture of not yet paid entitlements, but also to claim back already paid entitlements from the plan participants in defined and justified cases of misconduct, e.g., leading to a restatement of financial statements, financial or reputational damage, or in cases of a substantial breach of legal, regulatory, or contractual requirements.
2023 Long-Term Incentive
In order to avoid an overlap with the KPIs for the new short-term incentive plan, the KPIs for the Clariant Long-term Incentive Plan (CLIP) will be adjusted for the 2023 grant. For this grant, ROIC will replace EBITDAEBITDAEarnings before interest, taxes, depreciation, and amortization. margin as a CLIP KPI. The weighting of 33 % will remain.
As with the STI, the LTI plan regulations will be strengthened by the inclusion of a clawback provision in addition to the already existing malus provision.