5.1Remuneration approach

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. Regarding the compensation of the members of the Executive Committee (other than the CEO), the Remuneration and Nomination Committee works in consultation with the CEO.

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 and Remuneration and Nomination Committee meetings 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 the 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 (if applicable).

Below is an overview of the current remuneration framework for the Executive Committee.

5.1.1Base salary

The base salary for each member of the Executive Committee is a fixed component of compensation paid in cash on a monthly or bi-weekly basis depending on market practice. 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, are also considered together with market conditions and competitiveness (see section 2 “Remuneration philosophy and principles” of this Remuneration Report for further information regarding benchmarking analyses).

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 or 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 market practice, such additional benefits may include a company car or car allowance, health coverage, variable vacation supplement, local profit-sharing schemes, 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 is disclosed in the compensation tables.

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 tables presented further below.

5.1.3Short-term incentive program

5.1.3.1Overview

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 clawback 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.

5.1.3.22022 STIP

For the year ended 31 December 2022, the individual target incentive amount for the CEO then in office corresponded to 60.0% of base salary and for the other four members of the Executive Committee then in office to 35.0% of base salary. The maximum payout amount for the CEO then in office was equivalent to 90% of base salary and for the other four members of the Executive Committee then in office to 52.5% of base salary.¹⁶

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 2022, the STIP objectives for the Executive Committee comprised both financial and individual performance objectives, as detailed in the table below.

The identified performance objectives were 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. The targets on employee retention, environmental health and safety and green chemistry also support PolyPeptide’s material ESG topics as “Sustainability partner” and “Employer of choice”. The weighting of the performance objectives for the CEO then in office remained constant for 2022 as compared to 2021. For the other members of the Executive Committee, the weightings of the revenue and adjusted EBITDA performance objectives were both increased to 30% (2021: 25%) and the weighting of the group operational performance objective was decreased to 20% (2021: 30%). These changes were made to further focus the other members of the Executive Committee on driving PolyPeptide’s growth and increasing its profitability.

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 12 in section 5.2.1 “Overview and performance assessment” of this Remuneration Report for an overview of the STIP target performance in 2022). As a general principle, though, the financial, operational and individual performance targets set each year incorporate significant improvements against the previous year’s achievements. Demanding targets are intended to encourage and motivate the Executive Committee to deliver best-in-class performance and advance PolyPeptide’s strategies.

5.1.4Long-term incentive program

5.1.4.1Overview

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 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.

5.1.4.2LTIP Plan¹⁷

During the second half of 2021, the Board of Directors adopted the LTIP rules (the “Plan”), as amended from time to time.

According to the Plan, in any calendar year between 1 January and 31 December, inclusive, (a “Plan Year”), 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 CEO), 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. Raymond De Vré’s employment agreement provided for an annual target value for the allocation of PSUs.¹⁸ 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.

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 basic earnings per share (EPS) of the Company, 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 the last twelve months’ operating result as a percentage of average net operating assets and expresses how well PolyPeptide utilizes its assets to generate earnings. EPS illustrates PolyPeptide’s profitability. During the course of 2022, the EPS performance measure as set out in the Plan was amended to “basic” EPS (previously “diluted” EPS), which we believe more accurately measures the performance of the participants. 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%.

Table 10:

LTIP Plan

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. 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).

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.

Upon recommendation of the RNC, the Board of Directors may in its discretion adjust PSUs as it deems appropriate in the case of variation of share capital (e.g., issues of shares or other equity securities) or other corporate events (other than a change of control) to maintain the value of the PSUs outstanding.

Generally, in case of termination of employment, PSUs are forfeited without 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, PSUs are subject to a pro-rata vesting at the end of each of the applicable vesting period(s). Upon permanent disability, PSUs shall vest 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).

The Plan further includes clawback provisions that allow for the cancelation or forfeiture of all or part of any unvested PSUs or, following vesting of any PSUs, the repayment for all or part of any vested PSUs, shares or cash settlements made under the Plan. These provisions apply in cases where, inter alia, the participant (i) engages in any act or omission that is considered malfeasance, fraud or misconduct, (ii) materially breaches any legal or regulatory obligations and/or internal policy of PolyPeptide, and/or (iii) takes part in any specific conduct that leads (or substantially contributes) to the Company or PolyPeptide having to restate financial statements and / or an inaccurate assessment of any performance or other condition under the Plan pursuant to which the individual LTIP award was made.

5.1.4.32022 LTIP Plan Awards

During the course of 2022, the Remuneration and Nomination Committee considered the expansion of the LTIP to the full Executive Committee as well as other members of senior management. However, in light of PolyPeptide’s weak financial and operational performance, the Remuneration and Nomination Committee ultimately recommended that the Board of Directors not grant any long-term incentive awards for the financial year 2022. Raymond De Vré voluntarily agreed to waive his annual target value 2022 for the allocation of PSUs as set out in his employment agreement. The Remuneration and Nomination Committee plans to revisit this topic during the course of 2023.

5.2Compensation of the Executive Committee

5.2.1Overview and performance assessment

For the year ended 31 December 2022, the Executive Committee received base salary, short-term variable compensation and pension and other benefits, in line with the remuneration framework described in section 5.1 “Remuneration approach” of this Remuneration Report.

Overall, in 2022 total variable compensation of the CEO then in office (i.e., STIP only) amounted to 4.2% of his total compensation and 4.4% of his 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 CEO then in office), the total variable compensation (i.e., STIP only) amounted to on average 7.1% of the total compensation and 7.6% 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.

Table 11:

Breakdown of Executive Committee compensation

In light of PolyPeptide’s reported revenue decline of 0.4% and adjusted EBITDA decline of 56.2%, the STIP 2022 financial performance objectives just met the minimum threshold for growth, but were below the minimum threshold for profitability. With regard to the Global Balanced Scorecard objectives, the Group’s overall achievement was below the target. Upon recommendation of the Remuneration and Nomination Committee following its assessments of the respective individuals, the Board determined that the members of the Executive Committee had achieved between 50% and 100% of their respective personal objectives. Table 12 illustrates the outcome of the STIP performance targets for 2022 (see Table 9 in section 5.1.3.2 “2022 STIP” of this Remuneration Report for an overview of the 2022 STIP performance objectives and weighting for the Executive Committee).

Table 12:

2022 STIP performance of objectives

Thus, under the STIP 2022, the combined payout for the financial, operational and individual performance targets is 10.4% of the STIP target incentive amount for the CEO then in office and between 18.7% and 28.7% of the STIP target incentive amounts for the other members of the Executive Committee in office during the period under review.

As noted above, the Board of Directors, upon recommendation of the Remuneration and Nomination Committee, decided to defer all LTIP awards for 2022. Raymond De Vré voluntarily agreed to waive his annual target value 2022 for the allocation of PSUs as set out in his employment agreement.

5.2.2Aggregate compensation of the Executive Committee

The following table shows the total aggregate compensation for the CEO (Raymond De Vré) then in office as the highest paid member of the Executive Committee during the period under review as well as the aggregate amount for the other members of the Executive Committee for the period from 1 January 2022 to 31 December 2022, including, inter alia, (i) the pro-rated compensation of Jens Fricke as new member of the Executive Committee effective 1 December 2022, (ii) the pro-rated compensation of Daniel Lasanow until he stepped down from the Executive Committee on 30 November 2022, (iii) the pro-rated compensation for the applicable portion of Daniel Lasanow’s contractual 12-month notice period (which began on 30 November 2022 and will end on 30 November 2023) as well as the aggregate amount for the former members of the Executive Committee as described in greater detail in the notes to Table 13 below.

As announced on 30 January 2023, Raymond De Vré resigned as CEO. Mr. De Vré’s contractual six-month notice period will end on 31 July 2023.

For the year ended 31 December 2022, the Executive Committee received total remuneration of CHF 3,116,537 (2021: CHF 6,160,787). This is an overall decrease of 49.4% compared to previous year, with the main changes explained in greater detail below.

The following table shows the total aggregate compensation for the CEO (the highest paid members of the Executive Committee during the respective periods) as well as the aggregate amount for the other members of the Executive Committee (i.e., excluding the CEO) for the period from 1 January 2021 to 31 December 2021.

Additional commentary
The summaries below provide additional commentary with regard to the changes in the composition of the remuneration paid to the Executive Committee in 2022 as compared to 2021:

Composition of the Executive Committee: Table 13 reflects the remuneration of the members of the Executive Committee (i.e., including the CEO) for the period from 1 January 2022 to 31 December 2022. Neil Thompson joined the Executive Committee as of 1 January 2022, succeeding Jan Christensen. Daniel Lasanow served as a member of the Executive Committee until 30 November 2022, and Jens Fricke joined the Executive Committee as of 1 December 2022 as his successor. Thus, the totals reflected in Table 13 include, inter alia, (i) the pro-rated compensation of Jens Fricke as new member of the Executive Committee effective 1 December 2022, (ii) the pro-rated compensation of Daniel Lasanow until he stepped down from the Executive Committee on 30 November 2022, (iii) the pro-rated compensation for the applicable portion of Daniel Lasanow’s contractual 12-month notice period, which began on 30 November 2022 and will end on 30 November 2023, (iv) amounts paid to Jan Christensen who stepped down from the Executive Committee on 31 December 2021, but continued working full-time for the Group as a Director in the Global Sales & Marketing team until 30 September 2022, and (v) amounts paid to Jane Salik in 2022 in relation to compensation due to her for services performed prior to stepping down from the Executive Committee on 17 August 2021.

Table 14 reflects the remuneration of the members of the Executive Committee for the period from 1 January 2021 to 31 December 2021, including the remuneration paid to (i) Jane Salik who served as CEO from 1 January 2021 until 29 April 2021 and then as member of the Executive Committee until 17 August 2021, (ii) Raymond De Vré as member of the Executive Committee as of 1 April 2021, (iii) Christina Del Vecchio who joined the Executive Committee on 1 September 2021, (iv) Jan Christensen who served on the Executive Committee until 31 December 2021, and (v) Jan Fuhr Miller and Daniel Lasanow who both served on the Executive Committee for the full year 2021.

The total compensation of successors joining the Executive Committee during 2022 is generally commensurate with their predecessors’ total compensation, with some variations due to applicable social security, pension, Other benefits, etc.

Base salary: The variance in base salary between 2021 and 2022 (an increase of 14.1%) is due to the changes in the composition of the Executive Committee as well as the payment made to former members of the Executive Committee, as described above. Excluding the new Executive Committee members who joined on 1 January 2022 and 1 December 2022, respectively, the base salaries for the other Executive Committee members did not change in 2022 as compared to 2021.

Other benefits: Other benefits decreased by 79.8% in 2022 as compared to 2021. As described in Remuneration Report 2021, in addition to applicable Other benefits (i.e., company car or car allowance, health coverage, variable vacation supplement, local profit-sharing schemes etc. and, where relevant, relocation related and international 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 were subject to continuous employment at the Group and were to vest over a period of three years, one-third each year starting in June 2022. To further compensate Mr. 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). In 2021, Mr. De Vré was paid and / or granted, as the case may be, CHF 1,155,147 for loss of options and other entitlements (including bonuses) from termination of his previous employment agreement. The value of the shares was calculated at the fair value at grant date in accordance with IFRS 2. As announced on 30 January 2023, Mr. De Vré resigned as CEO, and his contractual six-month notice period will end on 31 July 2023. As a result, shares subject to vesting on 1 June 2023 will vest, whereas the shares subject to vesting on 1 June 2024 will lapse and be forfeited. In addition, and as described in Remuneration Report 2021, a member of the Executive Committee received a one-time IPO Appreciation Bonus in the form of cash funded by PolyPeptide in acknowledgement of the substantial time commitment involved in the preparation and execution of the IPO.

For the year ended 31 December 2022, no such similar “Other benefits” were awarded.

STIP: The total payout under the STIP in 2022 is 78.0% lower than in 2021, reflecting the lower performance levels as described in section 5.2.1 “Overview and performance assessment” of this Remuneration Report. The comparison of the total payouts in 2022 as compared to 2021 is further impacted by the changes to the composition of the Executive Committee, as described above. Minor differences in actual STIP 2021 paid in 2022 compared to the estimated STIP 2021 due to, inter alia, currency rate fluctuations are reflected in Table 13.

LTIP: The Board of Directors, upon recommendation of the Remuneration and Nomination Committee, decided to defer all LTIP awards for 2022. Raymond De Vré voluntarily agreed to waive his contractual right to an LTIP award in 2022.

Reconciliation of compensation to shareholder resolutions
For the year ended 31 December 2021, the EGM 2021 approved a maximum aggregate amount of fixed and variable compensation for the Executive Committee of CHF 7,000,000 (including all employee and employer social security and pension contributions). 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.

For the year ended 31 December 2022, the EGM 2021 approved a maximum aggregate amount of fixed and variable compensation for the Executive Committee of CHF 7,000,000 (including all employee and employer social security and pension contributions). Jens Fricke and Neil Thompson 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 2022 was sufficient to compensate these newly appointed members to previously existing roles. The sum of the total fixed and variable compensation paid to the Executive Committee (including the CEO then in office) for the relevant period from 1 January 2022 to 31 December 2022 amounts to CHF 3,116,537 (including all employee and employer social security and pension contributions). It is thus within the limits of the amount approved by the extraordinary shareholders’ meeting for the same period.

Table 15 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 general meeting:

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 2022 or 31 December 2021, respectively, to current members of the Executive Committee. In addition, no granted loans or credits were still outstanding as at 31 December 2022 or 31 December 2021, respectively, to former members of the Executive Committee.

For the years ended 31 December 2022 and 31 December 2021, respectively, no compensation was directly or indirectly paid or granted to persons closely associated with current or former members of the Executive Committee. In addition, no loans or credits were directly or indirectly granted or outstanding as at 31 December 2022 or 31 December 2021, respectively, to persons closely associated with current or former members of the Executive Committee.

For the related party transactions, refer to note 22 “Related parties” of the consolidated financial statements in the Financial Report 2022.