Annual Report 2011

Remuneration principles

2. Remuneration principles

2.1 The Company’s compensation philosophy

The Company’s compensation philosophy seeks to recognise and reward performance. Taking into consideration Group and business unit contributions as well as individual contributions, the compensation programmes are designed to attract, retain, motivate, and reward employees in order to support the achievement of the Company’s financial and strategic objectives and also to ensure that the total compensation opportunity is internally consistent and externally competitive.

It is the Company’s aim to align its compensation philosophy with the shareholders’ interests and to foster collaboration between countries, units, and departments. The compensation is to be fair and competitive and therefore the base salaries are aligned at a median level of the relevant peer companies used in the benchmarked analysis, taking into consideration additional responsibilities beyond the typical scope of the function. The positioning at the median results from considering factors such as revenues, employees under scope, and, if listed in Switzerland, market capitalisation. The Company strives to recognise and reward team performance. Thus, as a general rule, individual quantitative targets are not used for bonus purposes in the current compensation programmes. Economic Value Added (“EVA”) targets, defined in line with the Company’s strategic long-term projections, are used for the short-term bonuses. EVA is a measure of a company's financial performance, based on residual income. According to this concept, value is only created if operating income after the deduction of taxes is greater than the minimal required rate of return on the invested capital, equal to the company’s weighted average cost of capital (“WACC”). The calculation is based on the Company’s net operating profit after taxes (”NOPAT”). Invested capital is defined as total assets, excluding cash and including gross acquired goodwill and other gross acquired intangibles since the introduction of the EVA concept, minus non-interest bearing liabilities. The Company applies a 10% cost of capital across all its entities, while the actual WACC in the reporting period was lower. Long-term incentive plans are in place to increase the focus on long-term objectives.