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 such member’s 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.

5.1.3.22023 STIP

For the year ended 31 December 2023, the individual target incentive amount for the current CEO corresponded to 75% of base salary and for the other current members of the Executive Committee in office as of 31 December 2023 to 35% of base salary. The maximum payout amount for the current CEO was equivalent to 112.5% of base salary and for the other current members of the Executive Committee in office as of 31 December 2023 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 quantitative 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%. For each qualitative performance target, appropriate deliverables, ranges and/or milestones are defined at the start of the reporting period and subsequently assessed at the end of the reporting period. 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 2023, 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 & ESG projects also support the following PolyPeptide material ESG topics: Green chemistry, Climate change mitigation, People and Supply chain engagement (see also Corporate Responsibility Report). The weighting of the performance objectives for the current CEO and the other current members of the Executive Committee in office as of 31 December 2023 remained constant for 2023 as compared to the respective roles on the Executive Committee in 2022.

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 2023). 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. The Group 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.

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 the LTIP award, reflecting the value of the PSUs at grant date (i.e., assuming 100% target achievement), will be subject to the maximum aggregate compensation amounts approved at the applicable general meeting for the Executive Committee. The number of shares vesting will depend on the achievements against the targets at the end of the three-year performance period, and the LTIP value may vary based on the share price at the time of vesting.

With regard to the current CEO, his employment agreement provides for an annual target corresponding to 145% of his base salary for the allocation of PSUs. The number of PSUs allocated 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 CEO based on objective and subjective criteria determined by the Executive Committee.

5.1.4.2LTIP Plan¹²

The current LTIP rules (the “Plan”) were adopted by the Board of Directors in 2021. During the course of 2024, the Remuneration and Nomination Committee plans to revise the structure and eligible pool of participants under the Plan. The goal is to recalibrate the LTIP performance targets to support PolyPeptide’s key strategic ambitions. Any changes to the Plan in 2024 will be described in the Remuneration Report 2024. For the period under review, the only recipient under the current Plan is the current CEO, Juan José González.

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).

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. In setting the RONOA and EPS performance targets for the LTIP 2023 award, the Remuneration and Nomination Committee proposed and the Board of Directors approved that each performance target exclude the impact of cost absorption to better reflect the Group’s underlying operational 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%.

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, in the event that any PSUs vest, we will disclose the targets and the corresponding results at the end of the respective performance period (i.e., for the 2023 LTIP award with the reporting for the financial year 2025).

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 Remuneration and Nomination Committee, 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.

5.1.4.32023 LTIP Plan awards and vesting of prior awards

In 2023, the current CEO was the only employee eligible to participate in the LTIP and was granted 34,040 PSUs.

No PSUs were awarded in 2022.

The PSUs awarded in 2021 will not vest in April 2024 (based on the financial statements for the year ended 31 December 2023), as the minimum performance thresholds for RONOA and EPS were not achieved through the performance period 2021 to 2023.

5.2Compensation of the Executive Committee

5.2.1Overview and performance assessment

For the year ended 31 December 2023, the Executive Committee received base salary, 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 2023 total variable compensation of the current CEO (i.e., STIP and LTIP) amounted to 56.9% of his total compensation and 131.9% 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 current CEO), the total variable compensation (i.e., STIP only) amounted to an average 12.0% of the total compensation and 13.6% 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 increase of 14.0% and EBITDA decrease of 115.5%, the STIP 2023 financial performance objectives were between the minimum threshold and target for growth, but below the threshold for profitability. With regard to the Global Balanced Scorecard objectives, the Group’s overall achievement was between the minimum threshold and 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 100% and 150% of their respective personal objectives.

Table 12 illustrates the outcome of the STIP performance targets for 2023 (see Table 9 in section 5.1.3.2 “2023 STIP” of this Remuneration Report for an overview of the 2023 STIP performance objectives and weighting for the Executive Committee).

Table 12:

2023 STIP performance of objectives

Thus, under the STIP 2023, the combined payout for the financial, operational and individual performance targets is 54.6% of the STIP target incentive amount for the current CEO and between 47.0% and 57.0% of the STIP target incentive amounts for the other current members of the Executive Committee in office as of 31 December 2023.

5.2.2Aggregate compensation of the Executive Committee

The following table shows the total aggregate compensation for the current CEO (i.e., Juan José González) as the highest paid member of the Executive Committee during the period under review as well as the aggregate amount for the other current and former members of the Executive Committee for the period from 1 January 2023 to 31 December 2023. Dr. Peter Wilden received a fixed executive chair fee of CHF 25,000 per month in connection with his role as Executive Chair from 1 February 2023 to 30 September 2023. The amounts received by Dr. Wilden are included as a separate line item in Table 5, see section 4.2 “Compensation of the Board of Directors” of this Remuneration Report.

For the year ended 31 December 2023, the Executive Committee received total remuneration of CHF 4,715,682 (2022: CHF 3,116,537). This is an overall increase of 51.3% compared to previous year, with the main changes explained in greater detail below.

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 2023 as compared to 2022:

Composition of the Executive Committee: Table 13 reflects the remuneration of the current and former members of the Executive Committee for the period from 1 January 2023 to 31 December 2023, with 6.39 full-time equivalents in total. In 2023, PolyPeptide experienced transitions at the level of both the CEO and CFO. Specifically, Juan José González joined as CEO and member of the Executive Committee as of 12 April 2023, succeeding Raymond De Vré who resigned as CEO and member of the Executive Committee as of 30 January 2023. Jan Fuhr Miller resigned as CFO and member of the Executive Committee on 30 April 2023, and Lalit Ahluwalia joined as CFO ad interim and member of the Executive Committee as of 1 May 2023. Thus, the totals reflected in Table 13 include, inter alia, (i) the compensation paid to Neil James Thompson (Director Global Sales and Marketing), Jens Fricke (Director Global Operations) and Christina Del Vecchio (General Counsel, including a one-time appreciation bonus), (ii) the pro-rated compensation paid to Raymond De Vré as CEO as well as compensation paid during his six-month contractual notice period that ended on 31 July 2023, (iii) the pro-rated compensation paid to Juan José González as of 12 April 2023 (iv) the pro-rated compensation paid to Jan Fuhr Miller as CFO effective 1 January 2023 until 30 April 2023 as well as compensation paid until his departure on 30 June 2023, (v) the pro-rated compensation paid to Lalit Ahluwalia as CFO ad interim and member of the Executive Committee effective 1 May 2023 until he stepped down from the Executive Committee as of 31 December 2023 and (vi) the pro-rated compensation paid to Daniel Lasanow (former Director Global Operations) for the applicable portion of his contractual 12-month notice period that ended on 30 November 2023.

Table 14 reflects, inter alia, the remuneration of the current and former members of the Executive Committee, with 5.83 full-time-equivalents in total, for the period from 1 January 2022 to 31 December 2022, including, inter alia, the remuneration paid to (i) Jens Fricke (Director Global Operations) who joined the Executive Committee as of 1 December 2022, (ii) Daniel Lasanow (former Director Global Operations) who served as member of the Executive Committee until 30 November 2022 and whose contractual 12-month notice period began on 30 November 2022 and ended on 30 November 2023, (iii) Jan Christensen (former Director Global Sales and Marketing) who served on the Executive Committee until 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 (iv) Jane Salik (former CEO) relation to compensation due to her for services performed prior to stepping down from the Executive Committee on 17 August 2021.

Base salary: The variance in base salary between 2022 and 2023 (an increase of 21.8%) is mainly due to the changes in the composition of the Executive Committee, as described above. For members of the Executive Committee in office as of 31 December 2022 and 31 December 2023, respectively, the aggregated base salary levels in CHF decreased by 0.43% in 2023 as compared to 2022, mainly due to currency rate fluctuations.

Other benefits: Other benefits increased by 8.3% in 2023 as compared to 2022, mainly due to the changes in the composition of the Executive Committee, as described above.

STIP: The total payout under the STIP in 2023 is 192.0% higher than in 2022, reflecting the performance levels as described in section 5.2.1 “Overview and performance assessment” of this Remuneration Report. The comparison of the total payouts in 2023 as compared to 2022 is further impacted by the changes to the composition of the Executive Committee, as described above.

LTIP: In 2023, Juan José González, the current CEO, was the only employee eligible to participate in the LTIP 2023 and was granted 34,040 PSUs. The Board of Directors, upon recommendation of the Remuneration and Nomination Committee, deferred all LTIP awards for 2022. Thus, this line item proportionally increased reflecting the LTIP award made in 2023.

Reconciliation of compensation to shareholder resolutions
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). Two new members 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 compensation dispensed to the Executive Committee (including the CEO then in office) in the year ended 31 December 2022 amounted 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.

For the year ended 31 December 2023, the AGM 2022 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). Two new members were promoted to the Executive Committee and Juan José González was newly appointed to the Executive Committee in each case after the AGM 2022; however, no additional compensation amount in excess of that approved by the AGM 2022 has been paid / granted, since the approved aggregate amount of compensation for the financial year 2023 was sufficient to compensate those newly appointed members. The compensation paid / granted to the Executive Committee in the year ended 31 December 2023 amounted to CHF 4,715,682 (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 2023 or 31 December 2022, respectively, to current members of the Executive Committee. In addition, no granted loans or credits were still outstanding as at 31 December 2023 or 31 December 2022, respectively, to former members of the Executive Committee.

For the years ended 31 December 2023 and 31 December 2022, 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 2023 or 31 December 2022, 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 2023.