Introductory notes from the Compensation Committee

dormakaba finished the 2020/21 financial year with good business results that marked an improvement on the previous year. While profitability was in line with the guidance, organic growth was slightly higher. The main reason for the good results development was a strong performance of dormakaba’s European and Asian businesses. Further contributing factors were the cost-saving and restructuring measures the company implemented early in the pandemic, and the focus on cash flow.

The company's performance continued to be impacted by the influences surrounding Covid-19. Overall year-on-year organic sales growth came to 1.3%. While organic sales in the first six months were still down at –6.0%, the second half of the financial year saw double-digit organic sales growth of 10.0%, driven notably by a strong fourth quarter. Overall, net sales came to CHF 2,499.7 million (previous year CHF 2,539.8 million). EBITDA reached CHF 353.1 million (previous year CHF 325.0 million) with an improved EBITDA margin of 14.1% on 12.8% in the previous year. Net profit increased to CHF 193.3 million (previous year CHF 164.1 million), primarily because of the significantly improved operating profit and a better net financial result. The improved net profit allows the Board of Directors to propose – based on an unchanged dividend policy – to the Annual General Meeting a dividend of CHF 12.50 per share, which is 19.0% higher than the previous year’s CHF 10.50.

Due to the pandemic, all members of the BoD and the EC agreed to take a voluntary and temporary reduction in their monthly base pay from May 2020 ending after six months in October 2020 impacting four months of the reporting period.

At the Annual General Meeting (AGM) 2020, shareholders approved a proposal to merge the Compensation Committee and the Nomination Committee to a new Nomination and Compensation Committee (NCC) to increase the efficiency of the corresponding committee work.

The Nomination and Compensation Committee (previously: 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 AGM. In addition, as noted in the 2019/20 Compensation Report, the NCC implemented the following changes in response to shareholder feedback received previous AGMs and during regular engagement with shareholders as well as due to alterations in the CEO and BoD Chair roles:

• As of 1 April 2021, Riet Cadonau stepped down from his role as CEO of dormakaba and assumed responsibility as non-executive BoD Chair only. His compensation for the CEO role was discontinued at this time and he is as of then remunerated in his capacity as BoD Chair (for the time of his dual role as BoD Chair and CEO, he was only remunerated in his capacity as CEO). As of this date, Sabrina Soussan assumed the role of CEO and her compensation as CEO as well as the one associated with her onboarding period is described later in this report.
• The BoD compensation structure was modified to accommodate the new non-executive BoD chair role as well as the new committee structure.
• Net working capital and sales growth elements were added to the short-term incentive formula for the CEO and the EC members with functional responsibilities (CFO and CTO [Chief Technology Officer]). This harmonizes the short-term incentive formula across the entire EC by aligning the CEO and Group function leaders with the Chief Operating Officers (COO) and further strengthens 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 was further shifted and the transition to 100% performance share units will be completed with the upcoming grant in September 2021.
• As of September 2020, dormakaba is no longer part of the Swiss Market Index Mid (SMIM). Considering that the performance peer group for Total Shareholder Return (TSR) under the long-term incentive consisted of SMIM companies, the NCC decided to review the peer group and replaced it with the Swiss Performance Index of Industrial Companies (SPI industrials).

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 2022/23. 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 2020/21.

At the AGM 2020, 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 of 94% and 97%, respectively, and the consultative vote on the Compensation Report received an approval rate of 91%. This positive voting outcomes show that the active dialogue engaged with investors was fruitful and that shareholders endorse the compensation system in place at dormakaba. We would like to thank investors for their trust and support.

In the context of the strategic review that was initiated in the second half of the reporting year for the period 2022 to 2027, the NCC will conduct a thorough review of the compensation program in financial year 2021/22, to ensure that it continues to be well aligned with the strategic direction, while continuing to drive performance, motivation, and behaviors that are aligned with the values of dormakaba. The compensation review and its outcome will be described in the 2021/22 Compensation Report.

The NCC trusts that this Compensation Report is informative and would like to thank our shareholders for their valuable feedback on our approach to executive compensation.