4. Compensation system framework
4.1 Board of Directors
4.1.1 Fixed compensation
Each member of the Board of Directors receives an equal amount of fixed compensation (exception: chairman), which is prospectively determined by the annual general meeting. The chairman is paid a higher amount of fixed compensation due to his additional duties in leading the Board of Directors and his function as a link between the Company’s operational and strategic management. The amount of fixed compensation paid is determined at the Board’s own discretion, in compliance with the general compensation principles (see section 2.1 above).
In addition to this base compensation, the members of the Board of Directors receive fees for services as directors on the boards of Group subsidiaries and associated companies, and for services on Board committees and as the chair of Board committees. The compensation system thus takes into account the responsibility and roles assigned to individual members of the Board of Directors.
The base compensation of every member of the Board of Directors is determined annually and paid out in cash on a quarterly basis. If a director leaves the board before their term of office expires, the fixed compensation will be calculated on a pro rata basis to the end of the quarter of separation.
4.1.2 Variable compensation
The variable compensation of the Board of Directors is based on performance criteria that support the achievement of the strategic goals of the Company, the Group or parts of the Group.
In the year under review, the variable compensation was determined at the Board’s own discretion, in compliance with the general compensation principles (see section 2.1 above).
The variable compensation of the Board of Directors is paid in the form of shares of the Company, and are subject to a four-year lock-up period. The shares will be awarded only after the corresponding amount of compensation has been approved by shareholders at the Annual General Meeting.
The Board of Directors proposes to the Annual General Meeting an amendment to the Articles of Incorporation and thus an adjustment of the compensation system according to which the members of the Board of Directors will no longer be paid variable compensation (see section 7.1 below).
4.1.3 Business expenses
Members of the Board of Directors do not receive fixed expense allowances; the actual expenses incurred are reimbursed.
4.1.4 Pension plan coverage
The members of the Board of Directors are not covered by the Company’s pension plan.
4.1.5 Voluntary employee stock ownership plan
The Board of Directors occasionally offers voluntary employee stock ownership plans under which members of the Board of Directors may also be entitled to purchase Company shares at a discount to the given market price. The maximum discount on the date of the offer is 25%. The difference between the 10-day VWAP at the time the shares are transferred and the purchase price corresponds to the monetary benefit.
4.1.6 Advisory services
Subject to approval at the Annual General Meeting, members of the Board of Directors can be compensated in cash at standard market rates for advisory services benefiting the Company or a Group subsidiary that go beyond their duties and responsibilities as a director.
4.2 Group Executive Board
The components of compensation paid to the Group Executive Board are as follows:
4.2.1 Fixed compensation
The members of the Group Executive Board receive a fixed amount of base compensation that is determined annually for each financial year and that is partial prospective approved by the Annual General Meeting. The payout is in cash. These amounts are determined individually at the Board’s own discretion in compliance with the general compensation principles (see section 2.1 above), taking into account the duties and responsibilities assigned to each member of the Group Executive Board.
The fixed compensation for every financial year is subject to approval by shareholders at the Annual General Meeting, in a prospective vote to some extent.
4.2.2 Variable compensation (share of profit)
The variable compensation of the members of the Group Executive Board is based on a performance review, measured against goals and expectations that are fixed in advance annually. This process takes into account each individual’s role, experience and personal performance as well as the market environment. The weighting of these elements is determined individually.
In addition, the variable compensation of the members of the Group Executive Board is part of the overall variable compensation that has been determined for the individual operating units for which the various Group Executive Board members are responsible and for the entire Company. Aggregate variable compensation is thus also aligned with the value each operating unit creates for Company shareholders.
However, the individual performance review process for the members of the Group Executive Board who are responsible for monitoring and control functions cannot include any components directly related to income items. Instead, the Board uses its discretion in determining the variable compensation for these individuals.
Variable compensation is basically structured and paid out as follows:
- Short-term variable compensation in cash
- Short-term variable compensation in the form of restricted shares
- Short-term variable compensation in the form of restricted shares with a vesting period and clawback provisions
- Other short-term variable compensation
- Long-term variable compensation
The structure of the variable compensation and the lock-up, vesting and clawback provisions are determined by the Board of Directors or its Compensation Committee, depending on the role and the amount of the designated individual variable compensation.
Variable compensation in the form of restricted shares is reported as short-term compensation despite the long-term nature of such compensation. This is because there are no stock option plans that confer a right to acquire shares of the Company; Company stock awards are exclusively direct grants of shares.
Short-term variable compensation components are subject to retrospective approval by the Annual General Meeting, while the long-term variable compensation components are partially subject to a prospective vote.
The following provisions apply with respect to the payment of short-term variable compensation:
Long-term variable compensation is paid out in shares.
4.2.3 Business expenses
Members of the Group Executive Board do not receive fixed expense allowances; the actual expenses incurred are reimbursed.
4.2.4 Pension plan coverage
The members of the Group Executive Board are enrolled in the standard pension plan offered to all employees in Switzerland. This pension plan only covers the base pay of all employees.
4.2.5 Long-term incentive plans at investment companies
BB Biotech AG and Bellevue Healthcare Trust, Bellevue Group’s investment companies, are independent companies listed on multiple stock exchanges and they are managed and overseen by their own independent Board of Directors. Among the requirements stipulated by the boards of these companies with respect to the investment teams at Bellevue Group that have been retained by these companies was the establishment of long-term incentive plans that are in alignment with the expectations and interests of the shareholders of the investment companies.
Team members in the operating units who provide services related to mandates from the listed investment companies participate in employee stock ownership plans that have been set up in conjunction with the asset management mandates of BB Biotech AG and Bellevue Healthcare Trust. Within the scope of these plans, some of the members of the Group Executive Board can be entitled to receive a maximum number of shares in BB Biotech AG and/or Bellevue Healthcare Trust. The actual number of shares awarded depends on various conditions. Awarded shares are subject to a three-year vesting period beginning on the date of grant. In addition, the actual number of shares distributed will depend on the achievement of certain performance targets over the subsequent three fiscal years in connection with the respective investment mandates. The maximum number of shares will be distributed only if the absolute performance of the respective mandates during the subsequent three years exceeds the mark of 10% p.a. and the relative performance of the respective mandates is better than that of the relevant indexes. There could be no entitlement to the maximum number of shares if the absolute performance of the respective investment mandates during the three-year period is less than 5% p.a. and does not exceed the performance of at least one of the relevant indexes.
The long-term incentive plans in place at the investment companies are treated as long-term variable compensation.
4.2.6 Voluntary employee stock ownership plan
The Board of Directors occasionally offers voluntary employee stock ownership plans under which all Company employees are entitled to purchase Company shares at a discount to the market price. The maximum discount on the date of the offer is 25%. The difference between the 10-day VWAP at the time the shares are transferred and the purchase price corresponds to the monetary benefit.
In essence, the voluntary employee stock ownership plans described above are not elements of the Company’s compensation policy.
4.2.7 Employment conditions
Members of the Group Executive Board have permanent employment contracts with a notice period of three months. Members of the Group Executive Board are not entitled to severance pay.
4.3 Management and employees
Compensation components paid to management and other employees are as follows:
As with the Group Executive Board, a restrained policy applies to the determination of fixed compensation for management and employees from an entrepreneurial point of view. For further details on the compensation system for middle management and other employees, please refer to section 4.2, as it does not differ from the compensation system in place for the Group Executive Board.