Executive Committee Compensation

The table below summarizes compensation principles and systems in force in 2015. Due to the merger and the changes in the Company’s senior management, a number of changes in the variable pay design took place on the merger completion date (July 10, 2015) designed to further increase the performance-orientation and long-term focus. Our compensation policy for 2016 will broadly follow the structure in place from this date.

Fixed pay

Element and link to strategy

Operation

Quantum

Link with performance

Basic salary

Reflects key responsibilities, experience and market value

  • Paid monthly in cash
  • Reviewed annually based on a market competitiveness review, market movements and individual performance
  • Set at a level comparable to the median of Swiss companies of similar size
  • Salary increase budgets reflect, inter alia, company performance
  • Salary increases will be closely linked to individual performance

Pension

Provide competitive and appropriate retirement plans.

  • Defined benefit scheme applicable to Senior Management
  • Overall pension promise is inclusive of all other local and supplementary schemes participants may benefit from
  • Targeted to achieve, at age 62, assuming 10 years of service in Senior Management and 20 years of service with the Group, an amount of 40% of the average of last 3 years’ salaries
  • Early or deferred retirement pensions adjusted based on actuarial calculations
  • N/A

Other benefits

Provide competitive perquisites and appropriate expatriation-related benefits

  • Car/transport allowance
  • Housing, schooling and travel allowances for members of senior management working outside their home country
  • Amounts consistent with the LafargeHolcim policies applicable to all members of staff
  • N/A

Variable pay

Element and link to strategy

Operation

Quantum

Link with performance

Annual bonus

Rewards the achievement of the company’s annual targets and the executive’s own goals

Before July 10, 2015

  • Paid part in cash, part in shares (held for five years) and part in share options (vesting after three years)
  • Maximum opportunity is 136% of salary for the CEO and between 87% and 128% for Executive Committee
  • Reflects a combination of Group Performance (EBITA margin and ROIC after tax) and individual performance

After July 10, 2015

  • Paid 50% in cash after financial year end, and 50% in LafargeHolcim shares deferred for three years
  • Maximum opportunity is 200% of salary for the CEO and 125% of salary for other Executive Committee members
  • On-target opportunity is 60% of the maximum
  • Based on a combination of financial results at Group level (and at Regional level when appropriate) and individual achievements, attitudes and behaviors

Performance Share Plan

Rewards long-term financial performance and shareholder value creation

After July 10, 2015

  • Normally granted each year, first grant in December 2015
  • Rewards Company performance over a three-year period
  • Delivered in LafargeHolcim shares
  • Strict leaver rules provide strong talent retention
  • Annual award of 225% of salary for the CEO and 75% to 125% of salary for other Executive Committee members
  • 30% of the LTIP vest based on adjusted EPS growth
  • 40% vest based on ROIC
  • 30% vest based on TSR, relative to a 17-company peer group

Integration Award

(Share Options with performance conditions) Rewards the achievement of mid-term merger goals

After July 10, 2015

  • Exceptional share option award granted in December 2015
  • Subject to performance conditions over three years
  • Exercise price set at fair market value
  • Face value of 500% of salary for CEO and 170% to 280% of salary for other Executive Committee members
  • 70% of the award vest on synergies delivered
  • 30% vest on free cash flow

Base salaries

During the merger preparation phase, the Holcim Nomination and Compensation Committee and the Lafarge Compensation Committee benchmarking reports for the total remuneration of the CEO and the Executive Committee from two independent advisory firms (Kepler and New Bridge Street) and ensured that base salaries for the CEO and Executive Committee members were reasonable, yet competitive against Swiss and European companies of comparable size and complexity.

Eric Olsen’s annual base salary was initially set at CHF 1.35 million from July 10, 2015, with a view to increasing it to CHF 1.5 million on April 1st, 2016. Before July 10, 2015, Bernard Fontana’s annual base salary was CHF 1.75 million.

Salaries for the remaining Executive Committee members were decided taking into account previous salaries of the individuals appointed, market practice for the relevant role, as well as consistency across the Executive Committee.

Annual incentives

The annual incentives, which are paid in the form of cash, shares, and share options, reward financial achievements at Group level (and at regional level for Executive Committee members as appropriate), as well as individual achievements and behaviors.

The annual incentive design applicable to the Executive Committee reflects the merger transition, as summarized below:

Annual incentives

Maximum incentive opportunity

Performance measures

CEO

Executive Committee

Group financial

Regional (where appropriate)

Individual

Delivery vehicle

H1 2015 (pre-merger)

136% of salary (50% pro-rated)

Between 87% and 128% of salary (50% pro-rated)

  • Operating EBITA
  • ROIC after tax

  • Strategic, operational and project-based objectives, as appropriate for each role

Paid part in cash, part in shares (to be held for five years) and part in share options (vesting after three years)

H2 2015 (post-merger)

200% of salary (50% pro-rated)

125% of salary (50% pro-rated)

  • EBITDA
  • CAPEX
  • Synergies
  • EBITDA
  • Synergies
  • 7 to 9 objectives per Executive Committee member
  • Include Health & Safety objectives and support to the merger

Paid 50% in cash and 50% in LafargeHolcim shares held for three years

2016

200% of salary

125% of salary

  • EBITDA
  • Free Cash Flow
  • EBITDA
  • Strategic, operational and project-based objectives
  • Will include Health & Safety-related objectives

Paid 50% in cash and 50% in LafargeHolcim shares held for three years

Achievements and payouts for H1 2015

Group-related component: Financial achievements for the first half of 2015 were assessed by the Committee against objectives set for the whole year 2015 and in the context of the preparation for the merger. Other measures, such as ROIC after tax, are to be assessed on an annual basis and could not be calculated on a half-year basis. The Holcim Ltd Nomination and Compensation Committee therefore decided, taking achievements and the circumstances of the merger into account, to adjudicate this component’s achievement at 100 percent, paid on a time pro-rata basis, one third in cash and two thirds in shares subject to a five-year holding period.

Individual component: In light of the merger between Holcim and Lafarge dated July 10, 2015, the individual component of the short-term variable compensation was paid out using a pro-rata approach for the period from January 1 to June 30, 2015. The average payout was 86 percent of the target amount and, in line with the Holcim annual variable pay policy, was partly delivered in options.

Achievements and incentive payouts for H2 2015

Upon request from the Committee and within the remuneration framework established by the Board, the CEO has proposed a basis for the specific target numbers for 2015 and the individual objectives. The approved criteria were a combination of EBITDA achievement, synergies and CAPEX, support to the merger, and Health & Safety.

The average achievement and the payout factor for Senior Management (excluding the CEO) came to 59 percent, and for the CEO to 62 percent.

Long-term incentives

The performance share plan (PSP) was designed to retain talented employees and to provide forward-looking incentives for sustained corporate performance. Under the scheme rules either conditional share awards or share options can be awarded, and vest after a three-year performance period.

In December 2015, two types of awards were made:

  • A “normal” Performance Share award, based on EPS, ROIC and relative TSR. The CEO received an award over shares worth 200% of his base salary at the time of the grant and Executive Committee members received awards varying between 75 percent and 125 percent of their salary.
  • An exceptional award of market value share options, focused on rewarding the achievement of mid-term merger goals, which will vest based on synergies delivered and cumulative free cash flow to the end of 2017. The CEO received an option award over shares worth 500 percent of his base salary at the time of the grant and Executive Committee members received awards varying between 170 percent and 180 percent of their salary.

Further details of each award’s performance measures and targets are set out in the tables below.

2015 Performance share award
2015 Performance Share award (table)2015 Performance Share award (table)

2015 Exceptional share option award
2015 exceptional share option award (table)2015 exceptional share option award (table)

Executive Share Ownership guidelines

To reflect the importance the Committee places on aligning their interests with shareholders, executives are required to hold LafargeHolcim shares, with a value of 300 percent of salary for the CEO and 150 percent of salary for other Executive Committee members. Executives are expected to retain at least 50 percent net of tax of shares vesting from share plans until the required holding is met.