Principles of the compensation system

The success of SFS Group depends largely on the quality, entrepreneurial mindset and motivation of its workforce. The aim of the compensation system is to attract well-qualified specialists and executives, and foster commitment to the company’s long-term goals. The compensation policy of SFS Group satisfies the following criteria:

• Performance-oriented with fixed and variable compensation components
• Based on clearly defined and measurable targets
• Clear and straightforward
• Compensation is fair and market-based
• Predefined maximum and minimum thresholds

The Articles of Association prohibit the company from providing members of the Board of Directors (BoD) or the Group Executive Board (GEB) with any loans, credits, or pension benefits other than from occupational pension plans.

The basic principles of the compensation paid to the Board of Directors and Group Executive Board are set forth in Arts. 25–30 of SFS Group AG’s Articles of Association.

Responsibility for revision of the compensation system and the proposal of the amounts of compensation to be paid lies with the Nomination and Compensation Committee. Its proposals are submitted to the entire BoD. The composition, tasks, duties and working methods of the NCC are disclosed in the Corporate Governance Report.

Compensation of the Board of Directors

The members of the Board of Directors receive a fixed basic fee, fixed fees for membership of committees and a fixed number of SFS shares. The various amounts of compensation are determined annually by the BoD based on a proposal submitted by the NCC. The amount of compensation paid is subject to and within the limits of the aggregate amounts approved by the Annual General Meeting. Compensation is paid in cash and in the form of a fixed number of shares of SFS Group AG. The SFS shares are a compensation component focused on long-term success and are subject to a minimum holding period of three years. The NCC reviews the weighting of SFS shares as a component of overall compensation on a regular basis and submits proposals for modification to the BoD.

Basic fee and share allocation (per term of office)

An additional compensation, as specified in Art. 25 of the Articles of Association, was not awarded during the year under review or during the previous year. Compensation of the members of the BoD is subject to approval by the Annual General Meeting.

In principle, there will be no payments to pension funds or similar institutions for the members of the BoD. In exceptional cases, such payments may be made upon request of the NCC and are subject to approval by the Annual General Meeting if the members in question do not have other insurable income from subordinate employment.

Compensation of the Group Executive Board

Members of the GEB receive a base salary in cash commensurate with their responsibilities and experience. In addition, a variable component of compensation based on individual performance and the operational results is paid in cash and in the form of SFS shares. The SFS shares awarded are blocked for a period of at least three years.

The compensation of the members of the GEB is subject to approval by the Annual General Meeting. Members of the GEB additionally receive a lump-sum cash payment as reim­bursement for business and representational expenses. This is in accordance with local legislation and in Switzerland with the business and travel expense policy document approved by the competent cantonal tax authority.

The compensation for GEB members comprises the following components:

1. Base salary
2. Variable cash compensation
3. Variable SFS share compensation

1. Base salary

The base salary is fixed individually and considers the function performed and the responsibility of the respective member of the GEB.

2. Variable cash compensation

The variable compensation system of the GEB is based on the MbO (Management by Objectives) process of the SFS Group. A success and performance-oriented target compensation in cash is agreed in advance for each member of the GEB that, according to the Articles of Association, may not exceed an amount equal to 100% of the base salary. In accordance with the compensation system of the SFS Group, which is approved by the entire Board of Directors at the request of the NCC, the variable target cash compensation is limited to 40 to 60% of the base salary for the Chief Executive Officer (CEO) and to 30 to 50% for the other GEB members. If the threshold for the specific target is not met, no variable cash compensation will be paid out. Where the agreed targets are significantly outperformed, a cap for this salary component is set at 150% of the agreed variable cash amount.

The amount of variable cash compensation is governed by three criteria:

1. Extent to which the financial targets have been achieved
   The financial targets are proposed by the NCC and set by the BoD in advance for a one-year period of service. These include the sales and the EBIT margin and also the cash-to-cash cycle at Group and divisional level.
2. Achievement of individual annual targets
   The Board of Directors determines these compensation-relevant targets for the CEO and the CEO, in coordination with the Chair of the BoD, determines them individually in respect of all other GEB members. Ongoing projects, the established strategic targets and sustainable corporate development serve as guidelines in this process. A floor value is determined for each of the defined targets, below which there is no entitlement to compensation. A cap value determines the maximum amount of variable compensation for each target.
   Specific ESG goals are defined as part of the individual target agreements for the Group Executive Board to strengthen the emphasis on ecological and social governance aspects in the context of corporate management. These include, for example, the use of renewable energy, CO₂ reduction and topics from the fields of occupational health and safety, equal treatment as well as training and education.
3. A discretionary decision regarding leadership
   Leadership, values and behavior are also topics that are evaluated when determining entitlement to variable cash compensation. These compensation-relevant components for the CEO are determined by the BoD; in respect of all other GEB members, they are determined individually by the CEO, in coordination with the Chair of the BoD.

The weighting of the goals for the variable cash compensation is determined by the BoD based on a proposal submitted by the NCC. For the year under review and the previous year, these weightings were set as follows:

3. Variable SFS share compensation

A second part of the variable compensation is paid out in the form of SFS shares. This compensation component rewards the long-term performance of the Group Executive Board and is aligned with the interests of the shareholders. The BoD defines the number of shares to be awarded to each member every year at the beginning of the performance period. The number of the shares for the CEO should be within a target range of 1,500 to 2,500 shares and for the other members of the GEB within a target range of 250 to 1,000 shares. At the end of the performance period, the BoD will determine at its own discretion how many shares will be granted based on the proposal submitted by the NCC, taking into consideration the market environment (economic activity, industry developments, etc.), the execution of company strategy, the company’s financial situation as well as the individual performance. A factor of 0 to 1.5 may be applied. The SFS shares are transferred to the members at the end of the Annual General Meeting at which the variable compensation is confirmed. These SFS shares are blocked for a period of at least three years. Shares awarded to a member of the GEB shall remain their property on separation from the company.

The compensation will be paid to the members of the GEB subject to the approval of the Annual General Meeting.

Stock ownership plan

SFS Group AG can periodically offer company shares to selected and long-standing employees (at all levels). The BoD issued a regulation addressing the following elements in particular: Determination of the purchase price, granting of a potential discount on the purchase price, maximum reference value (valued upon allocation) in relation to the individual annual base compensation as well as a blocking period of the shares. The NCC calculates the figures for the respective plan based on these figures and submits the terms to the Board of Directors for approval. Members of the BoD and the GEB may be included in this program. The SFS shares acquired through this plan will be blocked for at least three years.

A stock ownership program was not implemented in financial year 2024.