V. Compensation of the Group Management

i. Compensation goals and principles

Compensation plays a central role in the 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 market practice aligning the long-term interests of shareholders, employees and customers. Therefore, the compensation system at Lindt & Sprüngli pursues the following five goals, which were recently refined and updated:

1. Ensure the alignment of management activities with the long-term interests of shareholders
2. Anchor Lindt & Sprüngli’s strategy in the compensation landscape
3. Attract and retain highly qualified talent and be an attractive employer
4. Motivate employees to excellent performance in the long term
5. Emphasize “pay-for-performance” by considering appropriateness of cost of compensation in relation to results

Lindt & Sprüngli attaches great importance to employee retention, which manifests itself particularly in the exceptionally voluntary 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 be sustainable. Continuity is a high priority for Lindt & Sprüngli .

The rules and principles governing the compensation, particularly including performance-based compensation, of the members of the Group Management and the allocation of equity securities, conversion rights, or option rights to members of the Group Management are set out in Article 26^bis 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 26^bis paragraph 8 of the Articles of Association.

ii. Compensation framework

a) Overview

The compensation of the members of the Group Management is aligned with their respective positions and responsibilities and consists of a combination of: (1) fixed compensation (Base Salary, allowances, and other benefits incl. pension benefits); (2) short-term performance-based compensation (Cash Bonus); and (3) long-term performance-based compensation in the form of options for participation certificates (Option Plan).

While the Cash Bonus rewards the individual or collective achievement of annually determined targets, the Option Plan, which makes up a significant part of the variable compensation, is meant to further underline the importance of long-term success and value creation for our shareholders and vests only after a total vesting period of three, four or five years (as illustrated below).

b) Compensation structure

Lindt & Sprüngli seeks to ensure that actual total compensation of the members of the Group Management is linked to business performance. For this purpose, a substantial portion of compensation is structured in the form of variable, performance-based compensation.

If the performance targets set under the Cash Bonus and Option Plan are achieved at 100%, the total compensation should consist of 36% fixed compensation and 64% variable compensation for the CEO (prior year: 26% fixed compensation and 74% variable compensation) and 39% fixed compensation and 61% variable compensation for the other members of the Group Management (prior year: 34% fixed and 66% variable).

c) Regular review and benchmarking

The CNC annually reviews the compensation level of the members of the Group Management, thereby taking into account the responsibility associated with the position, the experience and contributions of the person concerned, competitiveness of the compensation and periodic external benchmarks.

The periodic external benchmarking involves a comparison of the level and structure of the compensation of Group Management with other selected listed Swiss companies and is based on the most recent available information and data for the respective previous year.

The relevant peer group for the purpose of the benchmarking is selected from among listed Swiss companies (SMI, SMIM) based on similar size (following market capitalization as of the end of the previous financial year) and industry affiliation (understood in a broader sense, approximated by non-financial companies, but including in particular also companies from the consumer goods sector).

The most recent benchmarking for the compensation of Group Management was undertaken in 2023 (based on data of year end 2022) with a peer group of 15 listed Swiss non-financial companies similar to Lindt & Sprüngli in terms of size. The peer companies for this benchmark were the same as for the Board of Directors mentioned above; i.e. Alcon, Barry Callebaut, Emmi, Ems-Chemie, Geberit, Givaudan, Kühne + Nagel, Lafarge Holcim, Schindler, SGS, Sonova, Straumann, Swatch, Swisscom, and VAT.

The recent analyses confirmed that the target compensation level of the CEO is slightly below the peer group median, while the other Members of the Group Management on average are positioned slightly above the peer group median. Although the current compensation approach does not significantly deviate from the market practice represented by the peer group, certain structural changes (specifically with respect to payout opportunities under the Cash Bonus and annual grant amount under the Option Plan) were resolved to be made to the compensation framework of the Group Management and became effective in 2023.

The next regular benchmarking with respect to the compensation of the Group Management is scheduled for 2024.

iii. Compensation elements

a) Fixed compensation: Base Salary, allowances, and other benefits and pension benefits

The Base Salary reflects the functional level, competencies, expertise and experience, and a baseline level of sustained expected performance of each member of the Group Management. It is paid out on a monthly basis in twelve equal cash installments.

In addition, members of the Group Management receive allowances and other benefits in line with competitive market practice, including entitlement to a company vehicle and participation in the company’s pension plans.

b) Short-term performance-based compensation: Cash Bonus

The Cash Bonus is meant to reward the members of the Group Management for the achievement of certain annually set targets in relation to predetermined key performance indicators (KPIs), either on an individual or on a collective basis. The KPIs are derived from the annual business plan and the business strategy focusing on sustainable organic sales growth accompanied by continuous improvement in profitability, and align with Lindt & Sprüngli’s key long-term goals.

Since 2023, the relevant performance achievements for the Cash Bonus are measured predominantly (80%) based on quantitatively measurable financial KPIs. These KPIs are measured on Group level or split into 60% Group and 20% regional level, for those members of the Group Management who have responsibility on regional or country level. To a lesser extent (20%), the relevant performance achievements are measured based on individual ESG and Transformation KPIs for all members of the Group Management, including the CEO.

Financial KPIs reflect the main metrics of annual Group performance for the relevant year, being profitability (60%) and organic sales growth (40%). The individual targets within the ESG and Transformation KPIs are determined for each member of the Group Management in due consideration of their duties and areas of responsibility, and cover several of the metrics of the ESG and Transformation categories set out below.

For each underlying KPI, the relevant target performance level and the required minimum and maximum to be achieved, together with the corresponding payout levels for the Cash Bonus, are determined annually in December for the following year by the CNC and, in the case of the CEO, by the Board of Directors. The respective decision takes into account budget targets and current market conditions, including volatilities and uncertainties, etc., in order to allow a balanced pay-for-performance profile. The Board of Directors reserves the right to readjust the initial target setting in the case of extraordinary, unforeseen major events.

Internal financial and individual qualitative targets for the short-term performance-based compensation are considered commercially sensitive information. For this reason, they are not explicitly disclosed in the Compensation Report; nevertheless, some details regarding the prior year group financial targets and a review of the overall achievement level for the financial and qualitative KPIs for the financial year 2023 (on an aggregate basis) can be found in the following chapter.

The possible minimum, target and maximum payouts for the CEO and each other member of Group Management with respect to the Cash Bonus are defined as a percentage of their individual Base Salary, in each case in accordance with the respective overall responsibility.

In general, the target level will be paid out if the predefined targets of the relevant KPIs are fully achieved. If set performance targets are not achieved, the Cash Bonus is reduced and can even be zero. This means that there is no (guaranteed) bonus if (collective or individual) targets are not fully or partially met. If KPI targets are overachieved within a certain predefined frame, the payout of the Cash Bonus may be up to 100% (previously 200%) of the Base Salary for the CEO and an amount of between 70% to 90% (previously 60% to 180%) of the individual Base Salary for the other members of the Group Management. The maximum Cash Bonus can be increased to a maximum amount corresponding to 130% of the relevant Base Salary for both the CEO and the other members of the Group Management in extraordinary cases and provided that the targets are overachieved, in each case as assessed and determined by the CNC and for the CEO by the Board of Directors.

The payment of the Cash Bonus is made in the spring of the following year once the determination regarding the level of achievement of the performance targets has been made. Forfeiture or withholding of unsettled short-term performance-based compensation and clawback provisions for settled short-term performance-based compensation may apply in a range of events (e. g., if there is reasonable doubt regarding, but not limited to, misconduct, non-compliance, fraud, reporting, or audit issues with a potential negative financial or reputational impact on the Lindt & Sprüngli Group).

c) Long-term performance-based compensation: Option Plan

The purpose of the Option Plan is to reward sustained business success, to incentivize the creation of overall shareholder value, and hence to align Group Management’s interests with those of shareholders, and to retain members of the Group’s senior management.

Under the Option Plan, a certain number of stock options may be awarded to the members of the Group Management and other selected key employees. Each option carries the right to subscribe to one participation certificate (subscription ratio 1:1) and becomes exercisable during a predefined exercise period following the expiration of a predetermined vesting period (as further described below).

The total value in Swiss Francs available to be awarded under the Option Plan for a given financial year is determined by the Board of Directors, on the recommendation of the CNC, annually at the beginning of the year and is subject to the maximum compensation amounts approved by the Annual General Meeting.

Options are typically granted in January and transferred to plan participants in April. For each member of Group Management, the grant value under the Option Plan as an amount in Swiss Francs is determined on an individual basis and generally ranges between 0% and 100% (previously 0% to 200%) of the relevant Base Salary. The grant amount can be increased to an equivalent of 180% of the relevant Base Salary for both the CEO and the other members of the Group Management provided that several operational performance criteria are strong and overachieved, in each case as assessed and determined by the CNC and for the CEO by the Board of Directors.

The individual grant decision is made by the CNC and, in the case of the CEO, by the Board of Directors, respectively, in any particular year and based on a comprehensive assessment of the several operational performance criteria, comprising for example:

1. Historical achievements on operative and strategic levels
2. Position and influence on Lindt & Sprüngli’s long-term success, but not dependent on previous year’s performance
3. Level of overall responsibility
4. Importance of contribution of skills, experience, and know-how to future growth of financial parameters, such as EBIT margin, organic sales, and free cash flow, and future progress on ESG and transformational topics
5. Relevance of retention of talents

The fair market value per option at the time of grant is determined by way of binomial statistical models in accordance with the relevant accounting standards (see also note 26 Share-based payments in the Financial Report). The number of options to be granted to each member of Group Management is calculated by dividing the individual grant level in Swiss Francs by the value per option at the time of grant.

The options granted under the Option Plan are subject to staggered vesting periods of three (35%), four (35%), and five (30%) years and can be exercised during an exercise period of seven years from when they were initially granted. The price at which options may be exercised is predetermined at the time of grant and corresponds to the average closing prices of the participation certificates of Chocoladefabriken Lindt & Sprüngli AG on the five trading days on SIX Swiss Exchange before grant in the month of January of the respective year. Options that are not exercised during the applicable exercise periods become forfeit.

The Board of Directors believes that options for participation certificates constitute an optimal instrument to achieve a stringent pay-for-performance approach. The performance-based grant approach under the Option Plan ensures that grant levels are aligned with long-term business performance reflected by several operational KPIs used for the performance assessment. Additionally, options have value for the participants only in the event of future positive share price performance, therefore reflecting the requirement to achieve a positive Total Shareholder Return (TSR) over the vesting period. This is closely aligned with the interests of our shareholders. The Option Plan therefore rewards Group Management members for their contributions to the growth and long-term value creation of Lindt & Sprüngli, remunerates them in line with the shareholder experience, and aligns their interests with those of our shareholders.

In view of the strong performance focus of the grants under the Option Plan and the significant amount of deferred compensation thereunder resulting from the long vesting periods, the Board considers a fixed limitation of the aggregate number of outstanding options in relation to the company’s outstanding equity capital as unnecessary. The authority of the Board to issue options under the Option Plan is limited by the General Meeting in two ways: Firstly, the General Meeting annually approves the maximum value of compensation granted to the Executive Management and, secondly, it approves every renewal or increase of the underlying contingent capital. A motion for such an approval is usually submitted by the Board to the General Meeting every four to five years.

• Further information regarding the contingent capital

According to the Option Plan, any granted but unvested options are forfeited immediately in the event that notice of termination is given at any time and for any reason, with or without cause, by the employer or the employee, whereas any vested options remain exercisable for a limited period of time. Granted options may be withheld or clawed back completely if there is doubt regarding, but not limited to, misconduct, non-compliance, fraud, reporting, or audit issues with a potential negative financial or reputational impact on the Lindt & Sprüngli Group.

iv. Compensation 2023

Compensation of the members of the Group Management for 2023 and 2022 is shown in the following table. The valuation of the option-based compensation for 2023 and 2022 is based on the respective fair market values at the time of grant.

An amount of CHF 18 million was approved by the General Meeting of April 28, 2022, as the maximum aggregate amount of compensation for 2023 for the Group Management, whereby approximately CHF 17.9 million was used in 2023. The total compensation of the Group Management for 2023 was higher than for the previous year due to the higher fair market value of the stock options. The Board of Directors for the CEO, and the CNC for the remaining members of the Group Management, approved individual stock option grants above 100% of the relevant Base Salary due to overachieved operational performance criteria.

Although as of November 1, 2023, Nicole Uhrmeister started as new member of the Group Management, no use was made of the supplementary amount pursuant to Article 15^bis paragraph 5 of the Articles of Association.

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

In 2023, the total amount of the aggregate Cash Bonuses awarded to the members of the Group Management amounted to CHF 4.599 million (previous year: CHF 5.112 million). For Dr Adalbert Lechner (CEO as from October 1, 2022), the awarded Cash Bonus amounted to CHF 1.200 million, corresponding to 100% of his Base Salary (75% in 2022). For the other bonus eligible members of the Group Management, the awarded Cash Bonus amounted on average to 86% of the relevant Base Salary (80% in 2022). No CNC discretion was applied in respect to the individual payouts under the Cash Bonus.

The option grant awarded to the CEO (since October 1, 2022) under the Option Plan for 2023 amounted to CHF 1.664 million (previous year: CHF 0.844 million), corresponding to 139% of his Base Salary (previous year: 96% of his Base Salary). The value of the options granted under the Option Plan for 2023 to the other members of the Group Management amounted to CHF 5.614 million (previous year: CHF 4.153 million). The individual grant amounts correspond to 152% of the relevant individual Base Salary on average (previous year: 100% of the relevant individual Base Salary on average).

• Details on outstanding options

The following table illustrates the effective split of the total compensation of the CEO and the other members of the Group Management into fixed compensation and variable compensation: