gategroup: Supplementary information on; Executive Management Board (EMB) compensation Donnerstag, 31. März 2016 - 06:45

Dear Shareholders

As chair of the Board’s Nomination and Compensation Committee (“NCC”), I would like to draw your attention to some more background information which will give you greater clarity on the recent changes in gategroup’s executive compensation scheme:

(A) Changes in the compensation framework for the Executive Management Board

(B) Maximum aggregate compensation for the Executive Management Board for 2017

(A) Changes in the compensation framework for the Executive Management Board

In September 2015, gategroup launched its 2020 strategy, with the goal of accelerating sustainable value creation over the years 2015 to 2020. One of the NCC’s main tasks was therefore to adapt the Executive Management Board (“EMB”) compensation system so that it better supports the company strategy.

In essence, we simplified the EMB compensation framework, and, at the same time, further anchored gategroup’s strategy and fostered an outperformance culture to better support long-term shareholder value creation. The rationale behind the changes to the variable components of executive compensation taking effect in 2015 and 2016 were as follows:

1. Variable bonus incentive plan (“STIP”):

The variable bonus incentive plan was simplified and redesigned in 2015 to better align the plan and resulting executive cash awards with the strategic direction of gategroup.

• Firstly, we have removed the guaranteed payment element that existed within the previous scheme.
  
• Furthermore, the STIP was redesigned so that payout is based on two important financial metrics for gategroup: EBITDA (weighted 80%), and free cash flow (weighted 20%).
  
• We also revised the payout scheme and set the threshold point with a zero payout at 80% target achievement. The bonus is provisioned for and only calculated on a fully funded basis.
  
• The maximum STIP award as a percent of target level of the CEO was increased from 150% to 200% in order to be consistent with that of other EMB members.

2. Equity incentive plan (“ELTIP”):

The ELTIP was further developed in 2016 to ensure it is simple, reasonable, transparent, and drives the behavior of management to support long-term shareholder value creation. The key changes comprise:

• Switch to an absolute EPS, fully diluted EPS, attributable to shareholders, which includes all costs, taxes and interest, as well as captures any dilutive effects on shareholders’ equity to foster management’s “focus on the core”.
  
• Reward of an outstanding performance to promote the outperformance culture, whilst controlling for potential excessive risk-taking via capping the ELTIP payout at 200% of initially granted share units (which corresponds to common market practice in Switzerland and also in continental Europe). The target setting process for the ELTIP is changed in a way to create a payout scheme that on one hand makes the ELTIP attractive to the EMB members, and, at the same time, only allows for significant payouts if the operational performance, in particular the bottom-line as well the share price performance, is attractive to shareholders. To support this, we took into account an “outside-in view” to our target setting process. This approach provides a view on performance derived from the market value considerations – and not only book value – in order to better align objectives and payout schemes with shareholder return expectations.
  
• Alignment of performance period with strategic planning cycle from four to three years to better anchor the strategy and incentivize faster bottom-line improvements.

3. New: Shareholding Requirement

To enhance the alignment of executives’ interests with those of shareholders, from 2016, members of the EMB are required to build up a target holding of gategroup’s shares.

Overall, the revised variable compensation scheme (comprising STIP and ELTIP) encourages management to improve operations through clear focus on the important financial metrics(EBITDA, Free Cash Flow, and EPS) and only rewards realized performance.

(B) Maximum aggregate compensation for the Executive Management Board for 2017

I would like to provide some background and assumptions for the proposed maximum aggregate amount of compensation of the EMB attributable to the financial year 2017.

This refers to item 9.2 of the invitation to the Annual General Meeting:

• Base Compensation: For the maximum budget 2017, we allowed for an increase; however, any actual increase needs to be justified by market benchmarking, recommended by the NCC and approved by the Board of Directors. We do not apply any automatic increases in base compensation.
  
• Variable bonus incentive plan (“STIP”): The actual payout of the STIP in 2015 was less than 100% of target. The budget 2017 allows for a maximum of 200% of target STIP. However, any STIP payout will first occur, if at least 80% of the performance targets are achieved. Target achievement will result in a payout of 100% of the target STIP with any payout above 100% of the target STIP only possible in case of overachievement of pre-defined performance targets.
  
• Equity incentive plan (“ELTIP”): To estimate the maximum fair value grant amount in 2017, we applied the same methodology as in previous years but assumed a significant share price increase. This reflects a maximum value at grant; however, vesting will occur in 2019 depending on the performance criteria and could also result in a final payout value of zero.
  
• Other compensation: The budget 2017 also includes a reserve for other compensation costs such as future pension benefits, social security contributions, other benefits and unforeseen expenses.

The table below presents a breakdown of the maximum aggregate compensation for the expected members of the EMB (in Swiss Francs millions):

For reference, the following chart shows the indicative maximum aggregate compensation of the EMB that would have been calculated for 2013, 2014 and 2015 (under the same assumptions) and the maximum aggregate compensation of the EMB that was approved by the AGM for 2016.

With regards to the comparison of actual vs. maximum pay in the graph above, please note that:

• The reduction in the EMB structure taking place in 2015 affected functions with comparably lower total compensation, and, consequently, led to an increase in the average total compensation of the remaining EMB members. Hence, any straight average calculations are misleading and do not offer a proper view on compensation levels for the different functions within the EMB.
  
• The total compensation of the EMB in 2015 only refers to the active EMB members at year-end and does not reflect a full year total compensation level.
  
• For the budget 2017, we assumed that a replacement of the Chief Commercial Officer would be recruited and start in 2016.
  
• An achievement of the maximum payout is only feasible if there is a significant outperformance.

My NCC colleagues and I are confident that the proposed maximum aggregate amount for the EMB for 2017, as well as the changes to the EMB compensation framework, very well align with both the changing environment in which gategroup operates as well as the company strategy. We look forward to your support at the upcoming AGM.

Julie Southern

Chair of the Nomination and Compensation Committee

Zurich, March 30, 2016