In my role as Chair of the Remuneration Committee (RemCo) and on behalf of its fellow members, I am pleased to introduce our Remuneration Report 2024, which was prepared in compliance with the Swiss Code of Obligations, the SIX Exchange Regulation, the Swiss Code of Best Practice and Lonza’s Articles of Association. In this report, we outline the current compensation policies and the decisions made in relation to 2024 compensation for the Executive Committee and Board of Directors of Lonza Group Ltd (the Board). In an effort to further enhance and ensure robust succession planning, continuity and further strengthen governance, the RemCo and the Nomination and Governance Committee (NGC) were formed in mid-2024. Both were split from the previous Nomination and Compensation Committee (NCC).
We are grateful for the active engagement and time with our shareholders, the investor community and proxy advisors in 2024. It helps to ensure we continue our open and transparent dialogue. Our discussions during 2024 included for the first time dedicated engagements with external stakeholders in relation to our remuneration approach, governance and remuneration system evolution. In addition our discussions covered matters relating to changes to the Executive Committee, changes to the Board of Directors and Board Committee structure, peer group simplification as well as overall company developments.
2024 Performance Outcomes
Lonza presents solid 2024 performance outcomes which have benefitted the public, our shareholders and our employees. The RemCo measured the 2024 Lonza Bonus performance outcomes and payout levels against predetermined performance targets. The Group performance outcomes against all four performance measures (sales, CORE EBITDA, free cash flow and ESG) resulted in a Company performance factor of 107%. When combined with varying personal performance factors the proposed average total payout factor is 118% of target for Executive Committee members. See page 180 and 183 of the PDF report for more details.
The 2022 – 2024 Long-term Incentive Plan (LTIP) performance targets, and in turn payout levels, were measured against 2022 targets as adjusted for M&A impact and Alternative Performance Measures (APM) definition changes which were communicated in May 2024. Overall Group performance against CORE EPS and ROIC targets, measured at the end of the 2022 – 2024 performance period positively impacted the 2022 LTIP achievement level which vested at 136% of target. We explain in this report how our company performance impacts the compensation under the incentive plans for the Executive Committee.
2024 Committee Activities
The RemCo formed during 2024 focusing on the determination of the compensation for the members of the Executive Committee and Board of Directors. We include in the Remuneration Report a overview of the schedule and key activities of the Remuneration Committee.
The RemCo monitored and reviewed the relevance of the KPIs in the Lonza Bonus and LTIP plans. We concluded that the existing KPIs for the Lonza Bonus plan continue to be relevant, reflecting both top and bottom line performance as well as ESG goals. Overall, the ESG goals tie compensation to annual progress against mid-term environmental objectives to reduce GHG emissions, energy and water consumption, as well as expanding programs to improve our supply chain sustainability, female representation in management positions and our educational programs with measurable quantitative targets. Qualitative targets specifically are used to build the system for longer-term ESG initiatives, necessary to ensure continued success. As an example, continuing to develop our climate-risk assessment process supports our longer-term GHG reduction targets and also fulfills expectations from regulators.
In relation to the LTIP, as communicated in 2023, Total Shareholder Return (TSR) relative to other companies of the SMI index was included as a KPI for the 2024 plan. After reviewing and assessing industry, regional and international peer groups, the SMI was deemed to be the most appropriate comparator group with a Swiss market prevalent payout curve. With the addition of relative TSR as a KPI, the plan alignment with shareholder interests is strengthened.
The RemCo determined that ROIC continued to be a relevant long-term performance measure given Lonza’s CapEx strategy. Similarly, CORE EPS remains relevant to the plan as a key metric for our investors. The three KPIs ROIC, CORE EPS and relative TSR will be equally weighted and will be measured over the three-year LTIP performance period.
As part of the recruitment and selection process for a new CEO, the RemCo also carefully reviewed relevant peer and market data to ensure a market competitive and attractive total compensation package. Given the profile, including a CDMO industry, as well as CEO experienced candidate, the Committee sought additional external expert insights in determining the final compensation package which recognizes the candidates profile, experience and track-record while also being aligned in total compensation with the market and relevant peers. This resulted in a new base salary while maintaining the existing CEO short- and long-term incentive levels. Subsequently this also led to a simplification and specification of the benchmarking peer group.
During 2024 we have enhanced our reporting to ensure continued compliance with the new Swiss Code of Obligations and to further strengthen the transparency of our remuneration disclosure. As referenced above, key updates in the 2024 report include outlining and providing a detailed outline of the annual schedule and focus areas of the Remuneration Committee.
Towards the end of 2024 and looking ahead to 2025, the RemCo has supported the EC and leadership changes associated with the introduction of the One Lonza strategy aligning the right leader to the right business. In addition, the RemCo began outlining key considerations to enable the full implementation and remuneration related support of the One Lonza strategy as well as the defined growth ambitions.
Changes to the Executive Committee and Board of Directors during 2024
Our Executive Committee members transitioned in 2024. Ulrike Käppler was appointed as CHRO with effect from 1 January 2024 and stepped down on 31 May 2024 (with notice until 30 May 2025). Albert Baehny, continued to act as CEO ad interim until 30 June 2024. Effective from 1 July 2024, the Board of Directors appointed Wolfgang Wienand as CEO of Lonza. Nicoleta Baumgärtner was appointed as CHRO effective 1 November 2024.
In respect of the Board of Directors, Albert Baehny decided not to stand for re-election at the Annual General Meeting (AGM) in May 2024. Jean-Marc Huët was elected as the new Chair of the Board of Directors of Lonza at the AGM 2024.
All compensation decisions relating to the appointments and departures were made in line with our Executive Compensation Appointment and Termination Policies outlined on page 174 of the PDF report.
On behalf of the Remuneration Committee, I thank our shareholders for the continued dialogue during 2024. We respectfully ask for your endorsement of this Remuneration Report 2024 and approval of Executive Compensation that will be put forward to you at the 2025 Annual General Meeting
Yours faithfully,
Christoph Mäder
Chair of the Remuneration Committee
Lead Independent Director
