Compensation Architecture for the EC

dormakaba’s compensation system balances market competitiveness with internal equity, while rewarding performance and long-term value creation. The total target compensation (annual base salary, short-term incentive target and long-term incentive award) for each EC member is set according to the relevant market benchmark for their role and comprises a competitive fixed salary and a variable, performance-related component that is driven by the success of the company. This allows EC members to be rewarded for their contributions to the company’s success and long-term value creation. The overall compensation consists of the following elements:

• Annual base salary;
• Benefits (such as retirement benefits);
• Short-term incentive;
• Long-term incentive (share-based compensation).

To ensure consistency across the organization, roles within the organization including the EC have been evaluated using the job evaluation methodology of Korn Ferry. The job evaluation system is the basis for compensation activities such as benchmarking and determination of compensation structure and levels. For comparative purposes, dormakaba refers to external compensation studies that are conducted regularly by Korn Ferry in most countries. Overall, these studies include compensation data from 2,500 technology and industrial companies, including listed and privately held competitors in the security sector that are comparable with dormakaba in terms of annual revenues, number of employees, and complexity in the relevant national or regional markets. Consequently, there is no predefined peer group of companies that is used globally. Rather, the benchmark companies vary from country to country based on the database of Korn Ferry.

For the CEO role, the last benchmark analysis is based on the same peer group as for the BoD, consisting of the following 11 Swiss listed companies: Bucher Industries, Clariant, Forbo, Georg Fischer, Landis+Gyr, OC Oerlikon, SFS Group, SIG Combibloc, Stadler Rail, Sulzer, and Tecan. The composition of the peer group is based on the following criteria: market capitalization, annual sales, business model, industry, and compensation practices.

Total Target Compensation Approach

As a principle, the total target compensation (annual base salary, short-term incentive target and long-term incentive awarded) paid to EC members is based on the market median in the relevant national or regional market and must be within a range of –20% to +35% of this figure. The variable component of compensation (= short– and long-term incentives) is targeted to make for at least 50% of the total direct compensation. Thereof, the equity-based compensation opportunity (value of long-term variable compensation) is at least 30% of the total direct compensation.

Illustration of total target compensation mix for CEO and EC members

The CEO’s annual total target direct compensation as of 1 July 2024 is composed as follows and remains unchanged to the prior year:

The annual total target direct compensation of active EC members as of 1 July 2024, is composed as follows and remains broadly unchanged from the prior year. Minor changes are in line with our Total Target Compensation Approach as described above and reflect the appointment of new members to the Executive Committee (COO, CTO, CFO).

1. Annual Base Salary

EC members receive an annual base salary for fulfilling their role. It is based on the following factors:

• Content, responsibilities, and complexity of the function;
• External market value of the respective role: amount paid for comparable positions in the industrial sector in the country where the member works;
• Individual profile in terms of skill set, experience, and seniority.

2. Benefits

EC members participate in the benefits plans available in their country of employment. Benefits mainly consist of retirement, insurance, and healthcare plans that are designed to provide a reasonable level of protection for the participants and their dependents in respect to the events of retirement, disability, death, and illness/accident. The EC members with a Swiss employment contract participate in the occupational pension plans offered to all employees in Switzerland, which consist of the dormakaba pension fund and a supplementary plan for management positions. The benefits offered by the pension fund of dormakaba in Switzerland are in line with benefits provided by other Swiss multinational industrial companies.

EC members under foreign employment contracts are insured commensurately with market conditions and with their position. Each plan varies in line with the local competitive and legal environment and is, as a minimum, in accordance with the legal requirements of the respective country.

Further, EC members are also provided with certain executive perquisites, such as a company car or car allowance, representation allowance, and other benefits in kind according to competitive market practice in their country of employment.

3. Variable Compensation

The variable compensation consists of a short-term incentive (STI) and a long-term incentive (LTI).

3.1 Short-term Incentive

The short-term incentive is a target-based variable incentive delivered in cash in the following financial year. It is designed to reward the overall collective performance of the company over a one-year period, in line with the pay-for-performance compensation principle.

Each EC member, including the CEO, is allocated a target STI amount based on the benchmark and pay mix policy corresponding to the incentive amount to be paid if all performance objectives are met (100% target achievement). The target STI amount is reviewed annually and expressed as an absolute amount. It is determined considering the organization level and external benchmark for a similar function in the relevant market, the positioning of the individual’s total target compensation compared to that benchmark and the target pay mix for the position.

STI payout amount is determined at the end of the performance year by the achievement of financial goals at global level, including Organic Sales, adjusted EBITDA Margin and adjusted ROCE for all EC members including the CEO. Each of the three goals is equally weighted. The STI KPI landscape 2024/25 and the weighting of the financial goals remained unchanged compared to the prior reporting year.

The table below sets out the STI payout range opportunity expressed as a percentage of the annual base salary and the STI performance metrics in terms of definition and weighting for the CEO and the other EC members.

STI payout range opportunity in % of annual base salary

For the CEO, the STI target expressed as a percentage of the annual base salary is unchanged and represents 100% of the annual base salary.

For other active EC members (excluding the CEO), the average STI target expressed as a percentage of the annual base salary rose slightly to 85% (prior year: 83%). The STI target range also widened to 71%–100%, up from 71%–91% in the prior year. This reflects changes in job holders or expanded responsibilities based on which compensation packages were adjusted in line with our Total Target Compensation Approach as well as local market practices.

The STI payout may range from 0% to a maximum of 200% of the target STI amount. There is no payout below the minimum threshold level of performance .

Overview of short-term incentive performance objectives and respective weightings for FY 2024/25

At the beginning of the performance period, the NCC approves the required minimum, target, and maximum values for the respective performance objectives. For performance below or at the minimum value, 0% is paid out, whereas on-target performance (budget) is rewarded with a 100% payout. In case of overperformance, up to 200% can be achieved. For all three performance objectives, linear interpolation applies between the minimum threshold and the maximum threshold (cap) as in the prior performance period.

For all STI-relevant performance objectives, the required achievement level is derived from the company’s strategic business plan and aligned with an ambitious budget for the respective financial year. The performance objectives and weightings remain unchanged from the prior reporting period.

Disclosure of Targets

Most of dormakaba’s competitors are privately held and disclose very limited financial and performance information. Disclosing further details about targets on commercially sensitive information would place dormakaba at a competitive disadvantage and ultimately not serve the best interests of our shareholders. Therefore, no further details on the required achievement levels are disclosed at the beginning of the performance period. However, relevant performance achievements and the resulting STI payout factor for the financial year 2024/25 are reported in the sections "Compensation awarded to the EC in financial years 2024/25 and 2023/24" and "Performance in financial year 2024/25". The calculation of the short-term incentive is determined based on key performance indicators as reported in the financial statements.

Outlook

To maintain alignment with our growth strategy and considering shareholders’ feedback, the NCC reviewed the performance indicators of the variable pay programs to further strengthen the link between measurable performance and reward.

In financial year 2025/26, ROCE will be replaced by the Net Cash from Operating Activities Margin (NCOA Margin) in the STI, introducing a more operationally focused measure of performance aligning better with our short-term objectives.

In addition, to increase the emphasis on top-line growth the weight of the organic net sales component in the STI will be increased to 50%. Accordingly, the weights of the remaining components will be reduced to a 25% each for the remaining two performance indicators.

3.2 Long-term Incentive

The purpose of dormakaba’s long-term incentive plan is to provide the EC with an ownership interest in the company and participation in its long-term performance and thus to align their interests to those of dormakaba shareholders.

The LTI plan is a performance share unit (PSU) plan vesting over three years. At the beginning of the vesting period, a number of PSUs is granted to each EC member.

The grant size is reviewed annually and set as a monetary amount strictly considering the organization level and external benchmark for a similar function in the relevant market, the positioning of the individual’s total target compensation compared to that benchmark and the target pay mix for the position.

The number of PSUs granted is calculated by dividing the grant size (monetary amount) by the reference share price (volume-weighted average share price over three months preceding the grant date). Performance share units are usually awarded annually in September.

The PSUs vest after a period of three years, subject to the achievement of performance conditions, which remain unchanged compared to the prior reporting period. The LTI performance indicators include relative Total Shareholder Return (TSR), Earnings per Share (EPS), and targets related to Sustainability (ESG). Sustainability targets were introduced as of the grant 2023 to reflect the increasing importance of sustainability and cover both social and environmental topics that are addressed by our sustainability strategy.

The tables below illustrate the LTI payout range opportunity expressed as a percentage of the annual base salary and the details on the LTI performance metrics in terms of definition and weighting for the CEO and the other EC members:

LTI payout range opportunity in % of annual base salary

The table below sets out the LTI payout amount opportunity expressed as a percentage of the annual base salary.

For the CEO, the LTI grant target expressed as a percentage of the annual base salary is unchanged and represents 100% of the annual base salary.

For the other active EC members (excluding the CEO), the average LTI grant target expressed as a percentage of the annual base salary increased to 82% (prior year: 77%). The LTI grant range expanded from 63% to 100% of the annual base salary (prior year: 63% to 89%). This reflects changes in job holders or expanded responsibilities based on which compensation packages were adjusted in line with our Total Target Compensation Approach as well as local market practices.

The vesting level may 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); there is no vesting below the threshold levels of performance. The vesting rules are detailed below.

Overview of long-term incentive performance objectives and respective weightings for FY 2024/25

The vesting formula has been designed in line with market practice for Swiss publicly traded companies to combine pay-for-performance compensation principles and reach alignment with long-term shareholder interests. It has both challenging targets and no excessive leverage. To reach the target, the company needs to outperform half of the peers in respect of relative TSR and needs to outperform GDP growth by 2 percentage points on the EPS condition. Sustainability performance targets included in the LTI align with the sustainability framework as approved by the BoD in 2021 . While there is no payout below the threshold levels of performance, a partial payout is still possible for a performance between the threshold and the target. On the other side, an extraordinary performance is required to reach the cap of 200%.

Termination Provisions

In the case of voluntary termination by the participant or if a participant is terminated for cause, performance share units are forfeited without any compensation. In the case of termination without cause or retirement, performance share units are subject to a pro rata vesting at the regular vesting date. In case of disability, death, or change of control, performance share units are subject to an accelerated pro rata vesting based on a performance assessment by the BoD (see also Corporate Governance Report). The conditions for the awarding of performance share units are governed by the stock award plans of dormakaba.

Malus and Claw-back Provisions

The long-term incentive awards have been subject to claw-back and malus provisions since 2019. In certain circumstances, such as in the case of financial restatement due to material non-compliance with financial reporting requirements, fraudulent behavior or substantial willful misconduct, the BoD may decide to suspend the vesting or forfeit any granted long-term incentive award (malus provision) or to require the reimbursement of vested shares delivered under the long-term incentive (claw-back provision).

4. Employment Contracts

EC members are employed under employment contracts of unlimited duration that are subject to a notice period of up to twelve months. EC members are not contractually entitled to sign-on awards, termination payments, or any change of control provisions other than the accelerated vesting and/or unblocking of share awards mentioned above. The employment contracts of EC members may include post-employment non-compete clauses for a duration of up to a maximum of two years. In cases where the company decides to activate the post-employment non-compete provisions, the compensation paid in connection with such non-compete provisions may not exceed the monthly base salary, or half of the total compensation, for a period of 12 months.

5. Shareholding Ownership Guideline

EC members are required to own a minimum multiple of their annual base salary in dormakaba shares within five years of their hiring or promotion to the EC, as set out in the following table:

To calculate whether the minimum holding requirement is met, all vested shares are considered, regardless of whether they are restricted or not. However, unvested performance share units are excluded from the calculation. The NCC reviews compliance with the Share Ownership Guideline (SOG) on an annual basis. In the event of a substantial rise or drop in the share price, the BoD may, at its discretion, review the minimum ownership requirement. As of 30 June, all but one EC member comply with the SOG. In line with the SOG the respective EC member is required to hold all shares vesting from the LTI until such requirement is fulfilled. With the upcoming vesting of the grant from September 2022 in September 2025, holding requirements will be fulfilled.