Introductory notes from the Compensation Committee

The company’s business performance and results for the financial year 2019/20 reflect a year of two very different halves. Whereas the first half-year was largely in line with expectations, the outbreak and spread of Covid-19 led to an unprecedented slump in business activity from February 2020 to the end of the financial year. The pandemic and related restrictions – particularly the government-mandated blanket lockdowns – had a substantial negative effect on business, leading to a significant reduction in sales. As a result, the company recorded negative organic sales growth of 6.9% (previous year +1.3%) and EBITDA of CHF 325.0 million (previous year CHF 448.0 million; –27.5%). Correspondingly net profit was down by 35.0% to CHF 164.1 million. Based on an unchanged dividend policy, the BoD proposes that CHF 10.50 per share to be paid out for the financial year 2019/20, down from the CHF 16.00 per share paid for the previous year. The reduction in dividend of 34.4% is thus in line with the reduction in net profit.

Due to the pandemic, all members of the BoD and the EC decided to take a voluntary and temporary reduction in their monthly base pay from May 2020 onwards. In addition, and following the reduction in net profit, the average short-term incentive payout for EC members is significantly below previous year’s level.

The Compensation Committee performed its regular activities throughout the financial year such as the propositions of compensation for the members of the BoD and EC, as well as the preparation of the Compensation Report and the binding say-on-pay votes at the Annual General Meeting (AGM). At the upcoming AGM, our shareholders will again be asked to prospectively approve the aggregate maximum amounts of compensation of the BoD for the period until the following AGM and of the EC for the financial year 2021/22. Further, our shareholders will have the opportunity to express their opinion about our compensation system and the compensation awarded to the BoD and to the EC by way of a consultative vote on the Compensation Report 2019/20.

At the AGM 2019, binding votes were conducted on the aggregate maximum compensation amounts for the BoD and for the EC, as well as a consultative vote on the Compensation Report. The shareholders approved the maximum compensation amounts for both the BoD and the EC with approval rates exceeding 95%, while the consultative vote on the Compensation Report received a lower approval rate of 71%. In response to this result, the Compensation Committee reviewed the shareholders’ feedback to understand and address their concerns on the compensation policy and decided to introduce the following changes:

• Net working capital and sales growth elements will be added to the short-term incentive formula for the CEO and the EC members with functional responsibilities (CFO and CTO [Chief Technology Officer]). This will harmonize the short-term incentive formula across the entire EC by aligning the CEO and Group function leaders with their Chief Operating Officer (COO) colleagues and further strengthen their accountability for an efficient management of the company’s financial resources and growth driven value creation.
• The mix between restricted shares and performance share units under the long-term incentive will be further shifted and the transition to 100% performance share units will be completed with the grant in the year 2021.
• The performance peer group for the total shareholder return under the long-term incentive plan is currently being reviewed, considering that it consists of SMIM companies and that dormakaba will no longer be part of the SMIM as of September 2020. The results of the review will be communicated in the Compensation Report 2020/21.
• At the AGM 2020, the BoD will propose to shareholders to combine the Compensation Committee and the Nomination Committee to a new Nomination and Compensation Committee to increase the efficiency of the committees.
• As previously announced, as of 1 April 2021, Riet Cadonau will step down from his role as CEO of dormakaba and continue in his role as BoD Chair only. As of then, he will start being remunerated in his capacity as BoD Chair, while his compensation for the CEO role will end.

We are convinced that the compensation system is well aligned with the business strategy and the long-term interests of shareholders and allows to attract, engage, and retain executives to drive performance and to encourage behaviors that are aligned with the values of dormakaba. Further, we trust that the amendments described above will address shareholders’ concerns. We will continue to regularly review our compensation policy to promote sustainable performance, alignment with the long-term interests of our shareholders and employees’ engagement, while being compliant with the regulatory environment. The Compensation Committee would like to thank our shareholders for their valuable feedback on our approach to executive compensation.