New Compensation Architecture
In the context of the strategic review that was initiated in 2021 for the period 2022 to 2027, the NCC has conducted a thorough review of the compensation program in financial year 2021/22 to ensure that it remains aligned with the strategic direction of the company, while continuing to drive performance, motivation, and behaviors that are aligned with the values of dormakaba. In line with the new business strategy Shape4Growth and related operating model, the current human capital context and the shareholder feedback received asking for more transparency, and a stronger pay-for-performance link, the NCC decided to implement several changes to the incentive programs, which will come into effect as of the 2022/23 financial year:
- Short-term incentive (STI): a target-based approach will replace the current profit-share approach. A target STI amount – corresponding to the amount to be paid if all performance objectives are met – will be determined for each EC member and will be multiplied by a performance factor between 0% and 200% based on the achievement of the pre-defined performance objectives. The performance objectives will include organic sales growth, unadjusted EBITDA margin, and ROCE/NWC at Group and/or regional or business level (for EC members responsible for a Region or Key & Wall Solutions) and clearly measurable functional objectives (for EC members responsible for a Function);
- Long-term incentive (LTI): the LTI grant size will be determined as a monetary amount based on the organizational level of the role instead of the current set of criteria.
Short-term incentive (STI)
The current STI model based on a predefined share of profit will be replaced by a target-based system as of the financial year 2022/23: A target STI amount will be determined for each EC member, corresponding to the amount to be paid if all performance objectives are met (100% achievement). The CEO and CFO will be measured 100% on Group performance. The performance of Regional Presidents and KWS as well as Global Functions will be measured based on the Group performance (60%) and the performance of the own Region or Function (40%):
At the beginning of the financial year, the NCC sets a threshold, target, and maximum level of achievement for each performance objective. At the end of the financial year, the actual achievement is compared with the objectives that were set at the beginning of the period. The level of achievement for each objective determines a payout factor for each objective, and the respective payout factors are then summed up to determine an overall payout factor. The overall STI payout can range from 0% to 200% of the target STI amount.
The STI is paid in cash in the following financial year.
Long-term incentive (LTI)
Effective with the annual LTI grant planned for September 2023, the determination of the individual grant amounts will no longer depend on a set of criteria including individual performance, and strategic and retention needs. The grant size will be based on a monetary amount determined based on the organizational level of the role and the market data for the respective role.
No further changes to the design of the LTI will be made. The awards will continue to be fully granted in performance share units subject to a three-year vesting period and conditional upon the achievement of two equally weighted performance criteria: relative TSR and EPS growth. The vesting level will still range from 0% to a maximum of 200% of the original number of units granted (maximum two shares for each performance share unit originally granted).