Annual report 2018

70 | Galenica annual report 2018 Variable remuneration consists of the bonus and the long-term remuneration (LTI) paid out to members of the Cor- porate Executive Committee and eligi- ble members of Senior Management. However, the annual bonus and long- term remuneration (LTI) represent two independent elements and are calcu- lated and weighted separately. Independent of their remuneration and under the terms of the share acquisi- tion plan for employees, every year employees are entitled to acquire a certain number of blocked shares of Galenica, which is specified in com- pany regulations, at a reduced price; these are known as employee shares (blocked for three years; more infor- mation in the Notes to the consoli- dated financial statements 2018 on page 124 and in the Human Resources section on page 43). Finally, all employees receive employ- er’s contributions to pension funds. Galenica economic profit (GEP) The bonus and long-term remunera- tion (LTI) depend primarily on the achievement of the specified financial targets of the Galenica Group. An increase in the Galenica economic profit (GEP) is used as the metric. The GEP is a measure designed to reflect the principles of value-based manage- ment derived from an economic value added (EVA) approach. It is based on the understanding that in the inter- ests of shareholders and other impor- tant stakeholder groups, Galenica will strive to achieve a long-term investment return which exceeds the weighted average cost of capital. It is calculated as the net operating profit (before interest and after depreciation, amor- tisation and tax) less the weighted average cost of capital (WACC) over the average invested capital. The extent to which the GEP increase, or the target for return on invested capital (ROIC) (for the LTI plans prior to 2018), is achieved has a 75% impact on the bonus and a 100% impact on the num- ber of shares allocated under the long- term incentive (LTI) plan. Personal targets may therefore account for a maximum of 12.5% of the variable remuneration (or 25% of the bonus) of the CEO or the other members of the Corporate Executive Committee. In 2018, it accounted for 6.6% on aver- age for the members of the Corporate Executive Committee (excluding the CEO). Therefore, poor performance inevitably has a negative impact on the total remuneration (fewer shares, with each of them potentially having a lower value). However, the remunera- tion system does not include any par- ticular malus provisions. Annual base salary (fixed) The annual base salary is the fixed compensation reflecting the scope and key areas of responsibility of the function, the skills required to fulfil the function and the individual experi- ence and competencies of the respec- tive manager. The base salary is deter- mined according to the typical market practice (external benchmark) and the Group internal salary structure. A base salary at median of the bench- mark is considered competitive and thus suitable to reward the expected level of skills and competencies. The base salary is typically reviewed annu- ally based on market salary trends, the company’s ability to pay based on its financial performance and the evolving experience of the manager in the function. The annual base salary is paid out in cash on a monthly basis. Relevant parameter: Galenica economic profit (GEP) GEP: Net operating profit (NOPAT) minus weighted average cost of capital over the average invested capital Goal: continuously increasing GEP NOPAT Cost of capital GEP GEP GEP Remuneration Report Galenica