2  Compensation system

2.1  Articles of association provisions

Art. 30 to 33 of the articles of association of Allreal Holding AG govern the principles of remuneration. They provide that the Board of Directors and Group Management may, in addition to a fixed remuneration, also receive results-based and performance-based compensation as well as equity securities or convertible and warrant bonds. Variable remuneration will be dependent on performance targets.

In the case of members of Group Management appointed after the total fixed remuneration for the current year has been approved by the annual general meeting, an additional amount of a maximum of 20% of the fixed total remuneration paid to the respective predecessor is available. This additional amount may not, however, exceed 50% of the approved total remuneration for Group Management.

The articles of association do not contain any special rules regarding loans, credits and pension benefits granted to members of the Board of Directors and Group Management. The exact wording (in German only) of the articles of association can be accessed on the Allreal website: http://www.allreal.ch/de/investoren/corporate-governance/statutenprotokolle

2.2  Remuneration paid to the members of the Board of Directors

The members of the Board of Directors receive fixed remuneration, which is paid out in cash after the annual general meeting has approved the annual financial statements.

The remuneration takes account of the claims made on the individual members and their responsibilities and is not tied to company targets. It is regularly compared against the remuneration paid to the members of the Boards of Directors of listed competitors from the real estate sector and presented annually to the annual general meeting for approval at the latter’s discretion. No further remuneration is paid to the Board of Directors.

2.3  Remuneration paid to the members of Group Management

In addition to their fixed basic salary (including fringe benefits and employer’s contributions to the management pension plan), members of Group Management also receive variable remuneration (target bonus), which is paid out in cash and is based on the company’s annual result (performance bonus) and the attainment of individual targets (function bonus). Over and above this, members of Group Management also receive variable remuneration in the form of share allocations geared to the company’s long-term performance.

Fixed basic salary

The amount of the fixed basic salary in cash is dependent on the individuals’ tasks and responsibilities, on their experience and on their proven track record. The basic salary is determined on joining the company or on being appointed to Group Management and is based on salary levels in the Swiss real estate sector. To this end, regular comparisons are made against the remuneration levels at listed competitors and reviewed annually by the Nomination and Compensation Committee.

Target bonus

The amount of the target bonus, consisting of the performance and function bonuses, is set by the Board of Directors annually.

       Performance bonus

The performance bonus is based on the budgeted net operating profit (net profit excluding revaluation effect). If the budget is achieved and once the annual accounts have been approved by the annual general meeting, the performance bonus will be paid out in the following year and will amount to a maximum of 18% of the basic salary per member of Group Management. If the net operating profit falls short of the budget by 10 or more percent, no performance bonus will be paid out. If the net operating profit is 10 or more percent above budget, 150% of the agreed performance bonus will be paid out. The performance bonus for a net operating profit which is less than 10% above or below budget will be calculated on a linear basis.

With net profit excluding revaluation effect at CHF 115.6 million, the result was 3.5% lower than budgeted (2017: +5.2%).

       Function bonus

The function bonus is dependent on the performance of the member of Group Management in his area of responsibility and functions and hence on individual target attainment. The function bonus may make up a maximum of 66% of the target bonus and will amount to a maximum of 36% of the basic salary per member of Group Management. If the individual targets are not achieved, no bonus will be paid out.

In the 2018 financial year, the average individual target attainment for Group Management as a whole amounted to approximately 95% (2017: 79%).

Remuneration in shares

In addition to the variable target bonus, members of Group Management may be awarded a variable remuneration component in the form of shares. The stock exchange value of the registered allocated shares of Allreal Holding AG shall not exceed 20% of the individual’s fixed basic salary for the year in question. The effective amount of the remuneration awarded in shares is set annually at the discretion of the Board of Directors. Bonus recipients will be able to access half of the allocated shares immediately and the remainder in three years’ time provided their position is not under notice of termination.

In principle, if the budget is achieved, the share of the variable remuneration component should not exceed 37% of the total remuneration per member of Group Management.

2.4  Adjustments made in the period under review

Compared with previous years, the Board of Directors made adjustments to the compensation system in the period under review:

  1. Remuneration paid to the members of Group Management contains variable remuneration in the form of share allocations. These allocations previously amounted to 10% of the basic salary and are being gradually increased to up to 20% of the basic salary over the next few years. Bonus recipients will, as previously, be able to access half of the allocated shares immediately. They will, however, now only be able to access the remaining shares in three instead of two years’ time provided their position is not under notice of termination. As a consequence of this adjustment, the variable components will in subsequent years make up a larger proportion of the total remuneration and factor in the company’s long-term success to a greater degree.

  2. The bonuses paid out in the past broke down into one third function bonuses and two thirds performance bonuses. With effect from the 2018 financial year, target bonuses are structured such that two thirds are function bonuses and one third performance bonuses. This new weighting is designed to place greater emphasis on the valuation of individual targets of the respective members of Group Management.