III. Compensation for the Group Management

i. Compensation goals and principles

Compensation plays a central role in recruitment and retention of employees. Thus compensation also influences the company’s future success. Lindt & Sprüngli is committed to performance-based compensation in line with the market standards aligning the long-term interests of shareholders, employees, and customers. Therefore, the compensation system at Lindt & Sprüngli pursues the following five goals:

1. Long-term motivation of employees,
2. long-term retention of key personnel in the company,
3. appropriateness of the cost of compensation in relation to the results,
4. ensuring that the activities of the management are aligned with the long-term interests of the owners, and
5. attract talent and be an attractive employer.

Lindt & Sprüngli attaches great importance to employee retention, which manifests itself particularly in the exceptionally low turnover rate over many years. This is of great importance for a premium product manufacturer with a long-term strategy. Compensation principles at Lindt & Sprüngli are meant to have a medium and long-term effect and to be sustainable. Continuity is a high priority.

The principles governing the compensation (including performance-based compensation) of the members of the Group Management and the allocation of equity securities, conversion, and option rights to members of the Group Management are set out in Article 26bis paragraphs 3–7 of the Articles of Association. Regulations governing the amount of pension benefits outside the occupational pension scheme for members of the Group Management are set out in Article 26bis paragraph 8 of the Articles of Association.

• Articles of Association

ii. Compensation system

The compensation of the members of Group Management consists of a combination of a fixed compensation (1) (base salary and other compensation/ancillary benefits), a short-term performance-based compensation (2) (cash bonus) and a long-term performance-based compensation (3) in the form of options for participation certificates, in each case consistent with their respective positions.

Lindt & Sprüngli seeks to ensure that actual compensation of the members of Group Management is linked to the business performance by delivering a substantial portion of compensation in the form of variable performance-based compensation.

The aggregate amount of target compensation is based on the requirements and responsibilities of the recipient and is regularly reviewed within the Group by means of horizontal and vertical internal comparisons. In addition, when new appointments are made, the CNC considers comparative data for the consumer goods sector, with respect to the specific vacancy for the appointment.

The periodic external benchmarking involves a comparison of the level and structure of Group Management compensation with, most recently, 21 industrial companies from the SMI and SMIM that are similar to Lindt & Sprüngli in terms of market capitalization and sales. The last benchmarking for the Group Management compensation was undertaken in December 2021.

iii. Compensation elements

Fixed compensation (Base salary) and other compensation /ancillary benefits

The fixed compensation (1) (base salary) essentially reflects the particular functional level, competencies, and experience of each of the members of Group Management. It is paid out on a monthly basis in twelve or thirteen, respectively, equal cash installments.

In addition, members of Group Management receive other compensation and ancillary benefits, including entitlement to a company vehicle and participation in pension plans.

Short-term performance-based compensation (cash bonus)

The realization of the short-term performance-based compensation (2) is tied to the achievement of clearly defined targets on the one hand corporate financial targets, and on the other hand individual, qualitative targets for the respective financial year. The amount of the individual short-term performance-based compensation is determined by multiplying the individual target cash bonus with a target achievement degree. The payment in cash occurs in spring of the following year once the achievement of targets has been determined.

The individual target cash bonus is defined as a percentage of base salary. For the CEO it is set at 100% of base salary. For the other members of Group Management it is set between 30% and 90% of base salary. In 2021, the total amount of the aggregate cash bonuses awarded to the members of Group Management amounted to CHF 3.981 million (previous year: CHF 1.287 million).

A target achievement degree is determined based on a scorecard and ranges from 0% to 200% (maximum degree of target achievement). In other words, the maximum cash bonus paid out is limited to twice the target cash bonus and cannot exceed 200% of base salary for the CEO and 60% to 180% for members of Group Management, respectively.

For the CEO and the members of Group Management, the target achievement degree largely depends on the achievement of corporate financial targets for the financial year (65%) and to a smaller extend on the achievement of annual personal qualitative targets (35%), which are set by the CNC at its discretion. The financial targets are determined annually and correlate with the long-term strategy, which strives for achieving sustainable organic sales growth accompanied by continuous improvement in profitability.

For those members of Group Management who have responsibility on regional or country level, respectively, financial targets on regional or country level, respectively, are also taken into account, along with Group targets. Non-financial targets depend on the individual function and refer to the implementation of the strategy and to defined leadership and conduct criteria, including promotion of Environment Social Governance (ESG) and Diversity & Inclusion (D&I) efforts. In order to support the achievement of our sustainability goals, from 2022 onwards, three to four individual qualitative targets will be defined for each member of Group Management which are linked to our strategic goals, e.g. living and breathing our Lindt values (Excellence, Innovation, Entrepreneurship, Responsibility, Collaboration), focussing on internal talent development, promoting women in leadership positions or supporting our transformation agenda. For each member of Group Management, at least one goal will be linked to our sustainability goals.

Calculation of the short-term performance-based compensation (cash bonus) for the CEO and Group Management

Internal financial and individual qualitative targets under the short-term performance-based compensation plan are considered commercially sensitive information. For this reason, the disclosure of the latter is not warranted explicitly, but rather a general comment pertaining to the performance achievements is attained.

In the financial year 2021, Lindt & Sprüngli achieved strong results in an economically challenging year impacted by the Corona pandemic. The corporate financial targets set for the year under the short-term performance-based compensation program were overachieved. All members of Group Management also achieved their annual individual qualitative targets by showing great leadership, embracing change and continuous innovation. For all members of Group Management, the effectively paid individual cash bonuses for 2021 correspond on average to 71% of the base salary (36% in 2020), and for the CEO 121% (0% in 2020 as for the year 2020, the CEO has waived any cash bonus).

Forfeiture of unsettled short-term compensation and clawback provisions for settled short-term compensation apply in a range of events, enabling the company to seek repayment where appropriate.

Long-term performance-based compensation (option plan)

The long-term performance-based compensation (3) consists of an option plan awarded to Group Management and selected key employees with expert knowledge at the annual discretion of the Board of Directors, with respect to the CEO, or, respectively, the CNC, with respect to the other members of Group Management. It strengthens the shareholder orientation and aligns the interests of Group Management with those of the company’s shareholders in the long term by awarding the long-term increase of the value of the company.

Grant levels are determined by the CNC or, respectively, the Board of Directors (upon proposal by the CNC), based on multiple factors, including the employee’s position and influence on the long-term success of the company, yet not depending on the company’s previous year’s performance. The individual grant levels are based on a number of options on participation certificates valued by using the binomial model for the determination of option prices. The resulting CHF amount is however capped and may not exceed 200% of the base salary for each member in any year. In 2021, the total of the option grants awarded to the members of Group Management (other than the CEO), amounted to CHF 3.110 million (previous year: CHF 3.568 million). The option grant awarded to the CEO amounted to CHF 1.583 million (previous year: CHF 1.223 million).

Each option carries the right to subscribe to one participation certificate (subscription ratio 1:1). The option exercise price corresponds to the average amount of the closing price of the participation certificates of Chocoladefabriken Lindt & Sprüngli AG on the five trading days on the SIX Swiss Exchange prior to grant.

Option rights have an exercise period of up to seven years from grant and have vesting periods for the exercise of three (35%), four (35%), or five (30%) years.

Forfeiture of unsettled or unexercised long-term compensation and clawback provisions for settled awards apply in a range of events, enabling the company to seek repayment where appropriate.

iv. Compensation

Compensation of the members of Group Management for the years 2021 and 2020 is shown in the following table. The valuation of the option-based compensation for 2021 and 2020 is based on the respective market values at the time of grant.

An amount of CHF 18 million was approved by the General Meeting of April 24, 2020, as the maximum aggregate amount of compensation for 2021 for the Group Management, whereby approx. CHF 14 million were utilized in 2021. The total compensation of the Group Management for 2021 was higher than for the previous year due to full achievement of the relevant targets, which resulted in higher payouts under the short-term performance-based compensation, while the number of Group Management members remained unchanged.

No use was made of the supplementary amount pursuant to Article 15bis paragraph 5 of the Articles of Association.

No loans and credits were granted to current or past executive and non-executive members of Group Management.

v. Supplementary amount

Pursuant to Article 15bis paragraph 5 of the Articles of Association, the company and its Group affiliates are authorized with respect to any member of Group Management who enters the Group Management during a period for which approval of the remuneration for Group Management has already been given, of a supplementary amount for that period, where the total amount already approved is not sufficient for such remuneration; such supplementary amount shall in no case exceed 40% of the maximum total amount already approved for the remuneration of Group Management.

• Articles of Association