Governance and RemunerationRemuneration ReportCompensation framework for the Executive Committee
5Compensation framework for the Executive Committee
Pursuant to art. 26 of the Articles of Association, the compensation of the members of the Executive Committee is determined by the entire Board of Directors based on the proposal of the Remuneration and Nomination Committee and subject to and within the limits of the aggregate amounts approved by the general meeting. In principle (and as set forth by the Organizational Regulations), members of the Executive Committee shall attend designated and selected sections of the meetings of the Board as guests without the right to vote, except where not appropriate (e.g., if particular matters relating to their performance or remuneration are discussed). Compensation to members of the Executive Committee may be awarded in cash, in form of shares in the Company and other benefits.
The remuneration framework for members of the Executive Committee consists of fixed base compensation in cash as well as variable compensation elements. The fixed compensation comprises the base salary and additional pension and other benefits. The variable compensation comprises short-term and long-term compensation components.
Below is an overview of the current remuneration framework for the Executive Committee.
Remuneration framework for the Executive Committee
Monthly cash payment
Attract, motivate and retain talented and qualified management
Responsibilities and scope of the position; employee qualifications and skills; financial considerations; market conditions and competitiveness
Pension and other benefits
Pension plan, insurances and benefits
and their dependents in
the event of retirement,
sickness, inability to
work and death; provide
Comply with local laws and regulations (i.e., Switzerland, Sweden, the US, etc.); tailored to market conditions
Short-term incentive program
Annual cash bonus
Motivate and reward
operational and strategic
objectives as well as demonstrated commitment
to PolyPeptide values
Achievement of pre-identified performance targets (e.g., financial, operational and personal) at the end of a
Long-term incentive program1
Annual grant of performance share units (PSUs)
Motivate, enhance and
reward loyalty and align
interests of shareholders
Achievement of pre-identified performance targets at the end of a three-year performance period
1For the year ended 31 December 2021 the only eligible participant in the LTIP was the current CEO. However, the Remuneration and Nomination Committee is currently evaluating the expansion of the LTIP to cover additional members of the Executive Committee as well as other members of senior management in future periods.
The base salary for each member of the Executive Committee is a fixed component of compensation paid in cash on a monthly basis. The base salary reflects the scope and key responsibilities of the role as well as the qualification and skills required to perform the role, along with the employee’s individual skill set, qualifications and experience. Financial considerations, such as budget and affordability, together with market conditions (see section 2 “Remuneration philosophy and principles” of this Remuneration Report for further information regarding benchmarking analyses) and competitiveness are also considered.
5.1.2Pension and other benefits
Pension and other benefits provide security for employees and their dependents in the event of retirement, sickness, inability to work and death. The members of the Executive Committee participate in the pension and social insurance schemes in the countries where their employment contracts were entered into or where they are resident, as the case may be. As such, the plans vary according to local market practice and regulations; however, at a minimum they reflect the statutory requirements of the respective countries. For example, in line with local employment practice for Swiss employees, all employees under Swiss employment contracts are covered by a supplementary non-compulsory occupational welfare plan in addition to PolyPeptide’s compulsory occupational pension scheme.
We also offer competitive employee benefits. Depending on the market practice, such additional benefits may include company car or car allowance, health coverage, etc. and, where relevant, relocation-related and international benefits, such as executive benefits allowance or reimbursements, tax advisory services, etc. In addition, to the extent applicable, supplemental awards to incoming Executive Committee members to compensate for remuneration forfeited at the previous employer (generally on a “like-for-like” basis) are reported as “other benefits”. The monetary value of any of these remuneration elements are disclosed in the compensation table.
Out-of-pocket expenses incurred by members of the Executive Committee in connection with their employment services for PolyPeptide are duly reimbursed in accordance with the applicable regulations and are not considered to be compensation subject to approval and, hence, are not further considered in the compensation table presented further below.
5.1.3Short-term incentive program
The short-term incentive program (“STIP”) is an annual cash-based incentive program intended to motivate and reward the Executive Committee to deliver on PolyPeptide’s short-term financial, operational and strategic objectives.
In accordance with art. 26 of the Articles of Association, the STIP performance targets are determined in advance by the Board of Directors, upon recommendation of the Remuneration and Nomination Committee, for one financial year, where any awards are based on the audited consolidated financial statements for that specific financial year (as applicable). Performance targets are determined on an annual basis for each member of the Executive Committee, taking into account his/her position, responsibilities, and tasks, before or at the beginning of the one-year performance period.
We set demanding STIP financial performance targets to incentivize the delivery of best-in-class financial and operational performance. In parallel, individual performance targets (which are of a more qualitative and strategic nature and may include, for example, leadership skills, organizational development, demonstration of behaviors in line with PolyPeptide’s values and management of strategic projects) also serve to encourage and motivate the Executive Committee to achieve the Group’s objectives. Pay-outs are subject to caps that are expressed as pre-determined multipliers of the respective performance target levels.
In case of termination of employment during the performance period, the STIP payout may be reduced or forfeited depending on the conditions of such termination and subject to applicable law. Any STIP awards are paid in cash by 30 June following the approval of the applicable audited consolidated financial statements and are not subject to forfeiture or claw-back provisions.
Following the end of the applicable financial year, the Remuneration and Nomination Committee assesses the achievement of the STIP financial and operational performance targets and calculates the corresponding payout factor, which is subject to approval of the Board of Directors. For the individual performance component, the Remuneration and Nomination Committee conducts an assessment of the individual contributions of each member of the Executive Committee and includes the corresponding payout factor in its proposal to the Board of Directors.
For the year ended 31 December 2021, the individual target incentive amount for the former and current CEO corresponded to 60.0% of base salary and for the other four members of the Executive Committee to 35.0% of base salary. The maximum payout amount for the former and current CEO is equivalent to 90.0% of base salary and for other four members of the Executive Committee on average to 52.5% of base salary.
Currently, payouts under the STIP are calculated based on the achievement level of the respective performance targets, with 100% achievement resulting in 100% payout. For each performance target, there is a minimum threshold performance level of 85% achievement of the performance target, below which there is no payout. There is also a maximum performance level of 115% achievement of the performance target, at which threshold the payout is capped at 150%. Linear extrapolation is used to calculate the payout between the minimum threshold and target, and target and maximum. Thus, total payout under the STIP can range from 0% to 150% of the target incentive amount.
For the year ended 31 December 2021, the STIP objectives for the Executive Committee comprised both financial and individual performance objectives, as detailed in the table below.
2021 STIP performance objectives and weighting for the Executive Committee
2The Global Balanced Scorecard contains quantified targets on “on time in full” (OTIF), quality, people retention, environmental health and safety, independent customer feedback, innovation initiatives and critical project execution.
The identified performance objectives have been chosen because they are key value drivers for PolyPeptide and generally reward Executive Committee members for supporting the Group’s growth, increasing profitability and promoting sustainable value creation. We consider our STIP financial, operational and individual performance targets commercially sensitive information. Communicating such targets would provide privileged insight into PolyPeptide’s strategy and could lead to a competitive disadvantage. Therefore, we have decided not to disclose the specific STIP performance targets, but to provide a general comment on their achievement at the end of the cycle (e.g., see table 11 in section 5.2.1 “Overview and performance assessment” of this Remuneration Report for an overview of the STIP target performance in 2021). As a general principle, though, both the financial, operational and individual performance targets set each year incorporate significant improvements against the previous year’s achievements.
5.1.4Long-term incentive program
The share-based long-term incentive program (“LTIP”) is designed to motivate, reward and retain key employees by providing them with the opportunity to become shareholders as well as participate in the future long-term success and prosperity of PolyPeptide. Furthermore, the LTIP is intended to align the interests of eligible employees with those of the Company’s shareholders, to promote a performance culture throughout the organization and to align remuneration with the creation of shareholder value.
In accordance with art. 26 of the Articles of Association, the LTIP takes into account the sustainable long-term performance and strategic objectives of PolyPeptide. Achievements are generally measured based on a period of several years. The long-term compensation pay-outs are subject to caps that may be expressed as pre-determined multipliers of the respective target levels.
The Board of Directors or, to the extent delegated to it, the Remuneration and Nomination Committee determines the performance metrics, target levels and target achievement as well as determines grant, vesting, exercise, restriction and forfeiture conditions and periods in relation to shares or similar rights regarding shares to be awarded. In particular, the conditions may provide for continuation, acceleration or removal of vesting, exercise, restriction and forfeiture conditions and periods, for payment or grant of compensation based upon assumed target achievement, or for forfeiture, in each case in the event of pre-determined events such as a change of control or termination of an employment or mandate agreement. We may procure the required shares or other securities through purchases in the market or by using conditional share capital. Compensation may be paid by PolyPeptide or companies controlled by it.
During the second half of 2021, the Board of Directors adopted the LTIP rules (the “Plan”). For the period under review, the only recipient under the LTIP is the current CEO. However, the Remuneration and Nomination Committee is currently evaluating the expansion of the LTIP to cover additional members of the Executive Committee as well as other members of senior management in future periods.
According to the Plan, in any calendar year from and including 1 January through 31 December (a so-called “Plan Year”), the eligible employees may be awarded the contingent right to receive a certain number of registered Company shares in the future, provided that certain performance and other conditions are achieved (“Performance Share Unit(s)” or “PSU(s)”). Any shares awarded will only be transferred after such PSUs have vested following the three-year performance period and contingent upon continuous employment (subject to certain limited exemptions).
For awards made to any members of the Executive Committee (including the current CEO in 2021), the Board of Directors approves any granting of PSUs upon recommendation of the Remuneration and Nomination Committee and such number of PSUs are/will be subject to the amounts approved at the applicable general meeting. With regard to the current CEO, his employment agreement provides an annual target value for the allocation of PSUs. The number of allocated PSUs to the other members of the Executive Committee will depend on the individual LTIP grant level determined by the Board of Directors, upon recommendation of the Remuneration and Nomination Committee, based on, inter alia, the individual’s position, complexity of the function and level of responsibility. For eligible employees outside the Executive Committee, such individuals will be selected by the Executive Committee based on objective and subjective criteria determined by the Executive Committee, in each case following discussion with the Remuneration and Nomination Committee.
6Summary of the relevant LTIP Plan; not comprehensive.
As a rule, the number of PSUs to be granted will equal the award amount divided by the volume weighted average share price over the last 20 trading days prior to the PSU grant date. PSUs represent an unsecured, contingent right to the future transfer of shares in accordance with and subject to the restrictions set out in the Plan. PSUs do not provide the participant with any shareholding rights such as dividends, voting rights or the like during the vesting period. The right to receive any PSUs and/or shares under the Plan cannot be settled in cash.
The vesting of (i) 50% of the granted PSUs will be based on the three-year average of annual return on net operating assets (RONOA) and (ii) 50% of the granted PSUs will be based on the three-year weighted cumulative earnings per share (EPS) of the Company, as attributable to shareholders on a fully diluted basis, in each case as achieved during the three-year performance period compared to pre-defined performance ranges with minimum, target, and maximum goals set by the Board of Directors, upon recommendation from the Remuneration and Nomination Committee. RONOA is defined as last twelve months operating result in percent of average net operating assets and expresses how well PolyPeptide utilizes its assets to generate earnings. EPS illustrates PolyPeptide’s profitability. The RONOA and EPS performance achievements will determine the percentage of vested shares from the RONOA and EPS portion, respectively, of the PSUs with a variable factor from 0% up to 150%.
In preparing the proposals for the RONOA and EPS targets for the LTIP 2021 award (and as ultimately approved by the Board of Directors), the Remuneration and Nomination Committee assessed, inter alia, PolyPeptide’s historical growth and performance, its strategic and business plans as well as the expectations from equity analysts currently following PolyPeptide. The actual RONOA and EPS targets are considered commercially sensitive information, and we believe that communicating such targets would provide privileged insight into PolyPeptide’s strategy and could lead to a competitive disadvantage. As such, we will disclose the targets and the corresponding results at the end of the respective performance period (i.e., for the 2021 LTIP award with the reporting for the financial year 2023).
On the vesting date, if the minimum performance for a financial measure RONOA or EPS as defined in the performance range is not met, the portion of the PSUs relating to that financial measure expires unconditionally and the PSUs do not vest. If the maximum performance is met or exceeded for a financial measure, participants may receive up to 150% of that portion of the PSUs relating to that financial measure. Between minimum and target performance as well as between target and maximum performance, the variable factor will increase linearly. The number of vested PSUs is subject to an absolute value cap representing, in each case, 500% of the original grant value.
If PSUs vest and the respective shares are transferred to a participant pursuant to the Plan, that participant will receive an additional number of shares to compensate for missed dividend payments during the vesting period. The number of additional shares will equal the total amount of dividends during the vesting period attributable to the shares transferred to that participant, divided by the weighted average share price over the last 20 trading days prior to the vesting date.
Generally, in case of termination of employment, PSUs are forfeited without any compensation. In certain circumstances, for example the termination of employment as a result of death, all PSU grants will vest with immediate effect on a pro-rata basis at target. Upon the occurrence of a corporate event (e.g., change of control due to a merger), all unvested PSUs shall immediately vest at target. In the event of termination of employment due to retirement or disability, PSUs are subject to a pro-rata vesting at the end of each of the applicable vesting period(s). If a participant’s employment is terminated without cause effective before the vesting date, any PSUs held will vest pro-rata at the end of each of the applicable vesting period(s).
Overall, in 2021 total variable compensation of the current CEO (i.e., STIP and LTIP) amounted to 48.6% of his total compensation and 94.7% of his total fixed compensation (i.e., base salary, pension costs, other benefits and social security contributions). The total variable compensation of the former CEO, the (i.e., STIP only) amounted to 39.5% of her total compensation and 65.3% of her total fixed compensation (i.e., base salary, pension costs, other benefits and social security contributions). For the other members of the Executive Committee (excluding the current and former CEO), the total variable compensation (i.e., STIP only) amounted to on average 18.1% of the total compensation and 22.0% of the total fixed compensation (i.e., base salary, pension costs, other benefits and social security contributions). Below is a cumulative overview of the compensation received by the Executive Committee.
Breakdown of Executive Committee compensation
1For the year ended 31 December 2021 the only eligible participant in the LTIP was the current CEO.
In light of PolyPeptide’s reported revenue growth of 26.5% and adjusted EBITDA growth of 42.4%, the STIP 2021 financial performance objectives exceeded their targets for growth and profitability, reaching the maximum target for adjusted EBITDA. With regard to the Global Balanced Scorecard, the Group’s overall achievement was slightly below target. Upon recommendation of the Remuneration and Nomination Committee following its assessments of the respective individuals, the Board determined that the former and current CEO as well as the other members of the Executive Committee also achieved their targets (i.e., 100%) for each of their respective personal objectives. The table below illustrates the outcome of the STIP performance targets for 2021 (see table 8 in section 18.104.22.168 “2021 STIP” of this Remuneration Report for an overview of the 2021 STIP performance objectives and weighting for the Executive Committee).
2021 STIP performance of objectives
1Executive Committee members other than the current and former CEO.
Thus, under the STIP, the combined payout for the financial, operational and individual performance targets is 131.0% of the STIP target incentive amount for the former and current CEO and 117.1% of the STIP target incentive amounts for the other members of the Executive Committee.
In 2021, the current CEO was the only employee eligible to participate in the LTIP and was granted 6,606 PSUs.
5.2.22021 aggregate compensation of the Executive Committee
The following table shows the total aggregate compensation for the former and current CEO (the highest paid members of the Executive Committee during the respective periods) as well as the aggregate amount for the other four members of the Executive Committee (i.e., excluding the former and current CEO) for the period from 1 January 2021 to 31 December 2021. In light of the Company’s status as a newly listed company, there are no meaningful prior year comparisons.
Compensation of the Executive Committee (1 January 2021 – 31 December 2021)
2Raymond De Vré served as CEO-elect and member of the Executive Committee as of 1 April 2021 and CEO as of 29 April 2021.
3Other benefits may include company car or car allowance, health coverage, etc. and, where relevant, relocation related and international benefits, such as executive benefits allowance, tax advisory services, etc. For information regarding the IPO Recognition Bonus that eligible members of the Executive Committee received and that was granted and funded (or reimbursed, as the case may be) by Draupnir Holding B.V. (as the selling shareholder), see section 6 “IPO Recognition Bonus” of this Remuneration Report.
4In addition to applicable other benefits, Raymond De Vré received a one-time grant of shares at a value of CHF 750,000, which were calculated at a 20% discount to the IPO offer price (i.e., CHF 64) as compensation for the loss of unvested options from his previous employer. The shares are subject to continuous employment at the Group and will vest over a period of three years, one-third each year starting in June 2022. The shares are entitled to dividends, if any, during the vesting period. To further compensate Raymond De Vré for his loss of variable payments for 2020 and 2021 from his previous employer, he received CHF 100,000 in cash and CHF 100,000 in shares at 15% discount to the IPO offer price (i.e., CHF 64) vesting at the beginning of July 2022. For an overview of the vesting of these shares, see footnote 3 to the table 15 in section 7 “Ownership of shares and options” of this Remuneration Report. The EGM 2021 approved the transition compensation for Raymond De Vré in the maximum aggregate amount of CHF 1.4 million for loss of options and other entitlements (including bonuses) from termination of his previous employment agreement, of which CHF 1,155,147 has been paid and/or granted, as the case may be. The value of the shares is calculated at the fair value at grant date in accordance with IFRS 2 (see also note 4 “Share-based payment” of the consolidated financial statements in the Financial Report 2021).
5A member of the Executive Committee received a one-time IPO Appreciation Bonus in the form of cash funded by PolyPeptide in acknowledgement for the substantial time commitment involved in the preparation and execution of the IPO. For information regarding the separate IPO Recognition Bonus that eligible members of the Executive Committee received and that was granted and funded (or reimbursed, as the case may be) by Draupnir Holding B.V. (as the selling shareholder), see section 6 “IPO Recognition Bonus” of this Remuneration Report.
6The social security contributions for LTIP awards are not included as they are only due at vesting; they are expected to trigger employer social security costs up to 7% of the gain at vesting.
9All compensation amounts are disclosed in gross amounts. Amounts converted to CHF from other currencies are translated at the weighted average exchange rates for the year ended 31 December 2021.
For the financial year 2021, the EGM 2021 approved a maximum aggregate amount of fixed and variable compensation for the Executive Committee of CHF 7.0 million (including social security contributions, etc.). Christina Del Vecchio joined the Executive Committee after the EGM 2021; however, no additional compensation amount in excess of that approved by the EGM 2021 has been paid, since the approved aggregate amount of compensation for the financial year 2021 was sufficient to compensate this newly appointed member.
The table below shows the reconciliation between the compensation that has been paid / granted for the respective term of office and the maximum aggregate amount approved by the shareholders:
Compensation approved and compensation paid / granted for the members of the Executive Committee
Importantly, the amount of compensation granted for the year ended 31 December 2021 reflected in the table above does not include the IPO Recognition Bonus that eligible members of the Executive Committee received and that was granted and funded (or reimbursed, as the case may be) by Draupnir Holding B.V. (as the selling shareholder). For detailed information on the IPO Recognition Bonus, see section 6 “IPO Recognition Bonus” of this Remuneration Report.
5.3Loans, credits and related-party compensation
In accordance with art. 28 of the Articles of Association, no loans or credits were directly or indirectly granted or outstanding as at 31 December 2021 to current or former members of the Executive Committee or to persons closely associated with current or former members of the Executive Committee.
In addition, during the period under review no compensation was directly or indirectly paid or granted to persons closely associated with current or former members of the Executive Committee.