Introductory notes from the Compensation Committee

Overall, results for the 2017/18 financial year were solid, but did not meet our expectations. After a very successful 2016/17, these expectations centered on further integration progress in the third year since Dorma and Kaba merged to dormakaba, further improvements in existing business, and growth from acquired companies. The integration process was largely completed in almost all countries by the end of the 2017/18 financial year, though there were some delays, particularly in Germany and the USA. Sales in 2017/18 were 12.7% higher than a year before at CHF 2,841.0 million, but organic sales growth contributed only 2.6 percentage points, which was below expectations. EBITDA was also much higher than in the previous year, up 11.3% to CHF 431.0 million, but the EBITDA margin of 15.2% was slightly lower than expected and below the prior-year figure of 15.4%. Nevertheless, growth in operating business and the acquired companies helped improve the 2017/18 results. Net profit was 6.3% higher than in the previous financial year at CHF 238.7 million.

The Compensation Report explains how these results impacted the variable incentive payments made to the members of Executive Committee under the different compensation plans.

The purpose of the compensation programs of dormakaba is to attract, engage and retain executives and employees, to drive performance and to encourage behaviors that are in line with dormakaba’s values as well as with the long-term interests of the company’s shareholders. In the reporting year, the Compensation Committee conducted a thorough review of the compensation system of the Board of Directors and of the Executive Committee and decided to implement the following changes, which are explained more in detail in this report:

• The allocation of restricted shares to the Board of Directors is now based on a fixed monetary amount instead of a fixed number of shares. This change has been made in response to the feedback received by shareholders and proxy advisors and is also aligned with prevalent market practice.
• The long-term incentive plan for the Executive Committee will include relative total shareholder return as an additional performance indicator in conjunction with EPS growth. Further, the proportion of the long-term incentive awarded as performance share units will increase, while the proportion awarded as restricted shares will decrease.

Additionally, the Compensation Committee performed its regular activities throughout the financial year such as the propositions of compensation for the members of the Board of Directors and Executive Committee, as well as the preparation of the Compensation Report and the binding say-on-pay votes at the Annual General Meeting of Shareholders (AGM). At the upcoming AGM, our shareholders will again be asked to prospectively approve the aggregate maximum amounts of compensation of the Board of Directors for the period until the following AGM and of the Executive Committee for the financial year 2019/20. Further, our shareholders will have the opportunity to express their opinion about our compensation system and the compensation awarded to the Board of Directors and to the Executive Committee by way of a consultative vote on the 2017/18 Compensation Report. We will continue to regularly review our compensation policy in order to promote sustainable performance, alignment to the long-term interests of our shareholders and employees’ engagement, while being compliant with the regulatory environment. The Board of Directors would like to thank our shareholders for their valuable feedback on our approach to executive compensation.