In my role as Chairman of the Nomination and Compensation Committee (NCC) and on behalf of its fellow members, I am pleased to introduce our 2022 Remuneration Report, which adheres to the remuneration disclosure obligation under the revised Swiss Code of Obligation. In this report, we outline the current compensation policies and the decisions made in relation to 2022 compensation for the Executive Committee of Lonza.
We are grateful for the active engagement and time with our shareholders, the investor community and proxy advisors in 2022. It helps to ensure we continue our open and transparent dialogue. Our discussions during 2022 covered matters relating to the implementation of environmental, social and governance (ESG) compensation measures into executive compensation, changes to the Executive Committee, as well as overall company developments.
Lonza presents strong 2022 performance outcomes which have benefitted the public, our shareholders and our employees. The NCC determined that the 2022 Lonza Bonus performance targets, performance outcomes and payout levels be measured against the predetermined and originally set performance targets. The 2020 – 2022 Long-term Incentive Plan (LTIP) performance targets related to 2020 were revised in 2021 following the LSI carve-out in 2020 and subsequent divestiture in 2021. The targets related to 2021 and 2022 were predetermined exclusive of LSI and so remain as originally set. Performance outcomes, and in turn payout levels, were measured against these revised in 2020 and originally set in 2021 and 2022 targets.
The Full-Year 2022 Group results led to the achievement of the target 2022 performance outcomes. The Lonza Group performance outcomes against all four performance measures (sales, Core EBITDA, free cash flow and ESG) resulted in a proposed annual bonus payout at 102% of target for the Executive Committee.
Overall Group performance in 2022 also had an impact on the 2020 LTIP, which vested at the beginning of 2023 at 197% of target. This was as a result of CORE EPS and ROIC measures being over-achieved during the three-year performance period.
We explain in this report how our 2022 performance impacts the compensation under the incentive plans for the Executive Committee.
The NCC performed its regular activities throughout the year, including succession planning for the Executive Committee, reviewing the peer groups used for benchmarking, operating the performance management process and the determination of compensation for the members of the Executive Committee.
Following a review of total rewards, which was undertaken in 2021, the NCC focused on implementing a number of updates to the Executive Compensation policy in 2022. These market-aligned changes are intended to make continuity and sustainability an integral part of our compensation system. My letter outlines the highlights whilst more details can be found in the full report.
In 2022, a new annual bonus plan (Lonza Bonus) was introduced. ESG performance measures now have a 25% weighting within the overall company performance measures. This plan including ESG measures applies to both the EC and the wider organization.
We determined to include ESG within the annual bonus so we could observe and enhance our approach in future years. This ensures continued alignment with our business strategy and shareholder interests.
These embedded ESG performance measures include quantitative and qualitative targets for each of the seven United Nations’ Sustainable Development Goals (SDG) we have prioritized due to their strong alignment with our business strategy:
The targets tie incentive compensation to annual progress on long-term environmental objectives to reduce GHG emissions, optimize energy and water consumption, as well as expand programs to improve our supply chain sustainability, our females in management positions and our educational programs.
Our process of setting stretch targets (personal, financial and ESG related), is extensive, iterative and robust. Under the Lonza Bonus plan, the maximum attainable short-term incentive for the Executive Committee reflects 195% of the target (previously 200%), in line with the wider organization and based on company performance factor and formulaic non-discretionary personal factor multipliers.
To further strengthen governance of our variable compensation plans, a Malus provision was introduced alongside the already existing Clawback policy in respect of both Lonza bonus and long-term incentive awards.
The NCC decided that the peer groups for Executive Committee compensation shall be reviewed for continued relevancy and also recognizing Lonza’s healthcare focus following the divestment of the Specialty Ingredients Division (LSI). This resulted in a refined peer group list with the primary and secondary peer group approach remaining.
Market benchmarking for the Executive Committee was undertaken at the end of 2022 based on the updated peer groups.
Finally, the revised fees for the Lonza Board of Directors (as outlined in the 2022 Invitation to the Annual General Meeting) were implemented in 2022 after having been supported by our shareholders. The fee for the Chair of the Board of Directors increased while the fee for the committee chairs and memberships remained the same. Furthermore, it was determined that committee fees are paid per committee membership. This approach is in line with market practice and recognizes Lonza's recent structural changes, which significantly impacted the work of the Board of Directors, particularly the time required for stakeholder engagement and ESG oversight.
Our Executive Committee went through a number of planned changes in 2022. The first was the appointment of Christian Seufert who joined the Executive Committee on 1 July 2022 as President Capsules & Health Ingredients. Christian succeeds Claude Dartiguelongue who retired on 31 July 2022. Maria Soler Nunez, Head Group Operations, joined the Executive Committee on 1 August 2022, succeeding Stefan Stoffel who retired on 31 August 2022. Finally, Daniel Palmacci joined the Executive Committee on 1 November 2022 as President Cell and Gene Division. The Cell & Gene Division had been led by Jean-Christoph Hyvert who had dual responsibility – he will continue in his role as President Biologics Division. With Daniel's appointment, the Executive Committee has expanded to ensure dedicated divisional focus and thereby maximizing the growth potential of each area of the business.
All compensation decisions relating to the appointments and departures were made in line with our Executive Compensation Appointment and Termination Policies.
On behalf of the Nominations and Compensation Committee, I thank our shareholders for the continued dialogue during 2022. We respectfully ask for your endorsement of this 2022 Remuneration Report and approval of Executive Compensation that will be put forward to you at the 2023 Lonza Annual General Meeting.
Chairman of the Nomination and Compensation Committee
Lonza’s approach to compensation is designed to attract and retain talent with competitive compensation programs. Our compensation programs are performance-based, linking employee rewards with company and individual performance. Executive compensation is aligned with the short-term and long-term objectives of the wider business. Results are measured based on the achievement of specific short and long-term objectives, which are defined to achieve a balance between short-term and long-term outcomes. We encourage strategic decisions that drive competitive advantage but discourage executives from taking unnecessary or excessive risks that may threaten the financial health, reputation or sustainability of the Company.
|Base Salary||Benefits||Lonza Bonus||Long-term Incentive Plan (LTIP)||Lonza Restricted Share Unit Plan (LRSP)||Shareholding Guidelines|
|Fixed amount paid in return for the day-to-day duties and responsibilities performed||Retirement and other benefits to complement Lonza’s total compensation offering||Rewards performance against annual company financial and ESG objectives, and individual goals, values and behaviors||Rewards long-term company performance and aligns interests of the Executive with shareholders||Additional variable compensation component, used as a vehicle to support the Executive Committee Appointments Policy. Awarded solely in cases where an Executive forgoes certain compensation at their previous employer||Shareholding guidelines to align interests of the Executive with shareholders|
|100% cash||Retirement plans and other benefits such as transportation, expense and medical benefits and other insurances||100% cash; or 50% cash and 50% equity until shareholding guidelines are met. The NCC may grant exceptions in justified cases||100% vesting subject to a three-year performance period||100% equity subject to a two to five-year time-based vesting period|
• experience of individual;
• direct role responsibilities; and
• market levels observed at companies in the relevant industry to Lonza
|Broadly aligned with the wider workforce and country benefits policy of the country in which they are employed|
|Levels set are less than forgone awards, considering, but not limited to previous employer variables such as historical company performance, volatility and the equity instrument|
To be accumulated over 5 years
Company factor: Made up of four weighted components resulting in a company factor from 0 – 150% of target
• Sales 22.5%
• CORE1 EBITDA 37.5%
• Free Cash Flow 15%
• ESG KPIs 25%
Personal factor: based on personal performance and may result in a multiplier from 0% – 130% in line with performance rating
|50% CORE1 EPS |
|Sustained performance in role|
|Clawback and Malus|
|Variable compensation for Executive Committee members is subject to Clawback and Malus provisions to allow for forfeiture, reduction or recovery of awards.|
|1 CORE results exclude exceptional expenses and income related to e.g. restructuring, environmental-remediation, acquisitions and divestitures, impairments and amortization of acquisition-related intangible assets, which can differ significantly from year to year|
Lonza Restricted Share Unit Plan (LRSP) awards are separate from typical total compensation and are awarded only in cases where a new Executive Committee member forgoes cash or equity at their previous employer. See page 194 for details of the LRSP award
Cash payment (including base salary, other benefits, short–term incentive and social security) and shares (LTIP) received by a departed member of the Executive Committee during 2022 and a cash payment to an Executive Committee member upon their appointment to compensate for forfeited annual bonus at their previous employer
Compensation Board of Directors Annual General Meeting (AGM) 2021 to 2022 (excluding social security contributions)
|In CHF||Base annual fee||Committee membership fee||Committee Chairperson fee|
|Chairperson of the Board of Directors 1||750,000||-||-|
|Board of Directors Member 2||200,000||40,000||80,000|
|The additional responsibilities of Vice-Chairperson and Lead Independent Director3 do not attract any additional fees|
|Form of payout||50% in Lonza Group shares and 50% in cash and paid in quarterly installments|
The compensation of the Chair of the Board of Directors includes compensation as a member of the Innovation and Technology Committee of the Board of Directors
The compensation for a Committee Chairperson amounts to CHF 280,000 where chairing one committee. In the case of multiple committee memberships each attracts a separate fee
The roles and responsibilities of Lead Independent Director are in line with sect. 18 para. 2 of the Swiss Code of Best Practice for Corporate Governance, requiring adequate control mechanisms, and commensurate to such position