In view of the fact that Kuoni Travel Holding Ltd. is listed on the SIX Swiss Exchange, and in line with the desire of its Board of Directors and Group Executive Board to maintain a transparent compensation policy, the present Compensation Report contains all the information required under the Swiss Code of Obligations (Article 663b bis and Article 663c, Paragraph 3) and Section 5.1 of the Directive on Information Relating to Corporate Governance issued by SIX Exchange Regulation. In its corporate governance provisions and its reporting thereon, the Kuoni Group also observes the Swiss Code of Best Practice for Corporate Governance issued by economiesuisse, the umbrella association for Swiss business and industry. The Kuoni Group’s financial statements are compiled in accordance with International Financial Reporting Standards (IFRS). The directives issued by each of these bodies and authorities show slight variations in their presentation and interpretation provisions.
The Compensation Report below complies with the provisions of Section 5.1 of the Directive on Information Relating to Corporate Governance issued by the SIX Swiss Exchange, and also pays due regard to Annex 1 of the Swiss Code of Best Practice for Corporate Governance issued by economiesuisse. The Report presents the compensation system used by the Kuoni Group. The compensation paid in accordance with the aforementioned provisions of the Swiss Code of Obligations is shown and commented on in 02_04_10_06 (as of page 289).
The present Compensation Report is intended to inform the public about the compensation paid by the Kuoni Group. This Compensation Report will be presented to the 2013 Ordinary General Meeting of Shareholders both for approval as an integral part of the 2012 Annual Report and for its separate consultative voting approval.
Since the members of the Board of Directors of Kuoni Travel Holding Ltd. are independent and are not members of the Group Executive Board, the details of the compensation of the Board of Directors and of the Group Executive Board are presented in two separate sections.
The Kuoni Group strives constantly to be a first-choice employer which is able to recruit, retain and motivate the best and most professional employees around the world who are of the calibre that is essential to Kuoni’s continued success.
THE ROLE OF THE NOMINATION AND COMPENSATION COMMITTEE (NCC)
The Kuoni Group’s NCC is appointed by the Board of Directors and consists solely of independent non-executive members. The present members of the NCC are Heinz Karrer (chairman), Annette Schömmel and Raymond Webster. Board Chairman Henning Boysen also attended all the NCC’s meetings in 2012.
The main duty of the NCC is to monitor the organisation, qualification, performance and remuneration of executive management and the Board of Directors and to review the terms and conditions of any employee share purchase plan. Other tasks performed by the NCC include assessing the performance of the CEO and the further individual members of the Group Executive Board, arranging succession plans for the members of the Board of Directors and the Group Executive Board, submitting proposals for and recruiting new members of the Board of Directors and furthering the development of management as a whole.
The NCC submits to the Board of Directors – generally once a year in December – its proposal for the structure and the amounts of compensation to be paid to the members of the Board of Directors and the salaries of the members of the Group Executive Board (including the relevant bonus programmes), for the Board of Directors to confirm or modify in accordance with the NCC’s recommendations. It may also enlist the services of external consultants when doing so. “Compensation” in this sense includes salaries and all further benefits received, including (but not limited to) all shares and similar securities, pension fund payments, discretionary and other bonuses, insurances, company vehicles, leaving settlements and further termination agreement benefits.
The NCC ensures that all executive personnel are compensated fairly, appropriately, competitively, in line with their performance and in accordance with the strategic goals of the Kuoni Group. To do so, the NCC devises proposals which are submitted to the Board of Directors for decision, monitors the implementation of employeerelated corporate guidelines and upholds the norms of good business management practice in the long-term interests of the company’s shareholders.
The Board of Directors took decisions on a number of major issues in 2012 following corresponding proposals from the NCC. These included:
- Rolling out of a new compensation system for a long-term compensation as part of the already established total compensation approach in 2013 in order to further improve the alignment of the long-term compensation with the business strategy. PricewaterhouseCoopers, Zurich was tasked with the mandate of accompanying this new design in its capacity as a consultant. The complex benefit factors of the current system will be re- placed with new benefit factors that are easier to understand and easier to verify by Senior Management. The aim is to further improve simplicity, measurability, clarity and compliance with shareholder interests.
The changes should compensate a conduct of the Group Executive Board and the Senior Management that takes into account the following four main targets:
- Cash flow
In short, the aim is increasingly to achieve “profitable growth without increasing the net working capital”.
In detail, the “Performance Share Plan” (PSP) already applied is now supplemented by a “Restricted Share Plan” (RSP) for the Group Executive Board and Senior Vice Presidents. The PSP now has a weighting of 60% of the long-term target compensation and the RSP a weighting of 40%.
The PSP, which assigns the persons entitled thereto Kuoni shares at the beginning of April, is guided by the value-adding performance over a three-year reference period (three business years). The number of shares assigned at the beginning of the reference period will be multiplied by a performance factor within a range, based on actual performance achieved, between a floor of 0 and a cap of 2.5, instead of the previous cap of 3.0. The basis of this financial performance assessment is the free cash flow (at a rate of 2/3) and the turnover of the Kuoni Group (1/3).
The RSP, which assigns the persons entitled thereto Kuoni shares at the beginning of April for a three-year period, is predominantly designed to promote loyalty to the company. 1/3 of the shares are transferred to the person entitled thereto after one year for the first time, with further transfers of 1/3 each on completion of further one-year periods, as long as a valid employment relationship exists.
To determine the targets for the PSP annually, a Target Committee was established, which consists of the Chairman of the Board of Directors, the Chairman of the NCC and the Chairman of the Audit Committee. The CEO and CFO of the Kuoni Group are also involved in consultation capacity.
The programmes currently in place for long-term compensation will be completed as planned.
- When determining the payment of the short-term incentives for the 2012 business year, in addition to the appraisal of the performance targets set, a bonus for the transformation process over the past two years in the form of a one-off payment was also included.
- The structure and amount of compensation for the Board of Directors and Group Executive Board will remain unchanged in 2013.
- Due to a serious illness of a close family member, Group Executive Board Member Leif Vase Larsen requested a six-month sabbatical until 31 March 2013, which was granted.
When determining the compensation levels (including basic salary, incentives and fringe benefits) to be set and the service agreements to be concluded, the NCC pays particular regard to:
- external comparisons of comparable roles with international corporations of similar size from all business and industry sectors;
- internal comparisons with the salaries and further benefits awarded to management personnel elsewhere throughout the Kuoni Group. Here the Kuoni Group uses Mercer’s International Position Evaluation (IPE) system, which grades each function via a “position evaluation” based on a series of criteria: impact (size of organisation, influencing scope, financial contribution), communication (need for the position to communicate, organisational framework), innovation (requirement to identify, improve or further develop processes, services or products) and knowledge (knowledge required to achieve the position’s goals and make a value contribution, team size and team expertise required, and geographical context in which knowledge must be used);
- the future development of the Kuoni Group in performance and profitability terms (based on the corresponding Kuoni Group three-year planning, in which external market developments are also projected).
The members of the Group Executive Board have no right of participation or consultation in the determining of their compensation (including any payments due under the relevant bonus programmes). The CEO is, however, present when the compensations proposed for Group Executive Board members are explained (except for his own compensation amounts).
The decision on the structure and amount of compensation for the members of the Board of Directors is taken by the Board of Directors and laid down in a set of regulations. In any vote on the compensation to be paid to a particular member of the Board of Directors, however, the Board member concerned must observe the relevant general withdrawal/abstention procedures.
The NCC establishes and maintains a philosophy of payment for services and performance rendered that is in line with overall company strategy, and submits this to the Board of Directors for approval.