3 Remuneration paid to the Board of Directors

3 Remuneration paid to the Board of Directors

3.1 Principles

The remuneration system for the members of the Board of Directors is designed to attract and retain experienced and motivated people for the Board of Directors’ function. It also seeks to align the interests of the members of the Board of Directors with those of the shareholders. The remuneration is commensurate with the activities and level of responsibility of each member and reflects the normal market remuneration for comparable functions. The basic principles regarding the remuneration of the Board of Directors and the allocation of equity shares are set out in the Articles of Incorporation (Articles 6.4 and 8.1), which can be accessed on the Swisscom website under “Basic principles”.

The remuneration is made up of a Director’s fee related to the member’s function, meeting attendance fees as well as pension fund and any fringe benefits. No variable profit-related emoluments are paid. The members of the Board of Directors are obligated to draw a portion of their fee in the form of equity shares and to comply with the requirements on minimum shareholdings, thus ensuring they directly participate financially in the performance of Swisscom’s shares. The remuneration is reviewed every December for the following year for ongoing appropriateness. In December 2013, the Board of Directors opted not to adjust its remuneration for the 2014 financial year. The Board of Directors judged the appropriateness of the remuneration as part of a discretionary decision based on the publicly accessible ethos study published in 2012. This study provides information for the 2011 financial year on the remuneration of the management of Switzerland’s 100 largest listed companies.

3.2 Remuneration components

Director’s fee

The Director’s fee is made up of a basic emolument and functional allowances as compensation for the individual functions. The basic emolument for all members of the Board of Directors excluding employee social insurance contributions is CHF 120,000 (net).

The functional allowances total CHF 265,000 net for the Chairman, CHF 20,000 net each for the Vice Chairman and the Chairmen of the Finance and Compensation Committees, CHF 50,000 net for the Chairman of the Audit Committee and CHF 40,000 net for the representative of the Swiss Confederation. Remuneration of CHF 10,000 net is awarded for membership in a standing committee. No functional allowance is paid for participation in ad-hoc committees appointed on a case-by-case basis.

Under the Management Incentive Plan, the members of the Board of Directors are obligated to draw 25% of their Director’s fee in the form of shares, with Swisscom adding a 50% top-up to the amount invested in shares. In this manner, the compensation (excluding meeting attendance fees, pension fund benefits and fringe benefits) is made up of a two-thirds’ cash portion and a one-third equity share portion. The amount of the share purchase obligation can vary in the case of members who join, leave, assume or give up a function during the year. Shares are allocated on the basis of their value accepted for tax purposes, rounded up to the next whole number of shares, and are subject to a blocking period of three years. The shares which are allocated in April of each reporting year are recorded at market value on the date of allocation. The share-based compensation is augmented by a factor of 1.19 in order to take account of the difference between the tax value and the market value. Further information on the Management Incentive Plan can be found in Note 11 to the consolidated financial statements. In April 2014, a total of 1,374 shares were allocated to the members of the Board of Directors (prior year: 1,667 shares) for a tax value of CHF 449 per share (prior year: CHF 371). Their market value was CHF 534.50 (prior year: CHF 442) per share.

Meeting attendance fees

For meetings, attendance fees of CHF 1,250 net are paid for each full day and CHF 750 net for each half-day.

Pension fund and fringe benefits

Swisscom assumes the full costs of social insurance, in particular old-age and survivors’ insurance and unemployment insurance, for the members of the Board of Directors. The disclosed compensation to the Members of the Board of Directors includes the employee’s share of social security contributions. The employer’s share of contributions is disclosed separately but included in total remuneration.

With regards to the disclosure of services rendered and non-cash benefits and expenses, these are dealt with from a tax point of view. No significant non-cash benefits are paid nor services rendered. Out-of-pocket expenses are reimbursed on the basis of actual costs incurred. Accordingly, neither services rendered and non-cash benefits nor expenses are included in the reported remuneration.

3.3 Total remuneration

Total remuneration paid to the individual members of the Board of Directors for the financial years 2014 and 2013 is presented in the tables below, broken down into individual components. Hugo Gerber’s remuneration for his mandate as a member of the Board of Directors of Worklink AG, previously reported in a footnote, is included in total remuneration for the first time 2014. The lower amount of total remuneration for 2014 is attributable to the fact that there were fewer meetings in 2014.

3.4 Minimum shareholding requirement

Since 2013, the members of the Board of Directors have been required to maintain a minimum shareholding equivalent to one annual emolument (basic emolument plus functional allowance). The members of the Board of Directors have four years to build up the required minimum shareholding, in the form of the blocked shares paid as part of remuneration and, if necessary, through share purchases on the open market. Compliance with the shareholding requirement is reviewed annually by the Compensation Committee. If a member’s shareholding falls below the minimum requirement due to a drop in the share price, the difference must be made up by no later than the time of the next review. In justified cases such as personal hardship or legal obligations, the Chairman of the Board of Directors can approve individual exceptions at his discretion.

3.5 Shareholdings of the members of the Board of Directors

Blocked and non-blocked shares held by members of the Board of Directors and/or related parties as at 31 December 2014 and 2013 are listed in the table below:

No share of the voting rights of any person required to make disclosure thereof exceeds 0.1% of the share capital.