Sika : Compensation Report - Annual Report 2021

SIKA

BUSINESS YEAR

2021

WWW.SIKA.COM/ANNUALREPORT

SIKA ANNUAL

COMPENSATION REPORT

COMPENSATION REPORT

The Compensation Report describes the compensation principles and programs, as well as the governance framework related to the compensation of the Board of Directors and the members of Sika's Group Management. The report also provides details regarding the compensation programs and the payments made to members of the Board of Directors and of Group Management in the 2021 business year.

The Compensation Report is written in accordance with the Ordinance against Excessive Compensation in Listed Stock Corporations, the standard relating to information on Corporate Governance of the SIX Swiss Exchange, and the principles of the Swiss Code of Best Practice for Corporate Governance by economiesuisse. It has the following structure:

Introduction by the Chair of the Nomination and Compensation Committee	167
Compensation governance	168
Architecture of compensation of the members of the Board of Directors	172
Architecture of compensation of the members of Group Management	173
Compensation awarded to the Board of Directors in 2021 (audited)	179
Compensation awarded to the CEO and to Group Management in 2021 (audited)	180
Shareholdings of the members of the Board of Directors and Group Management in 2021	184
Report of the statutory auditor	185

SIKA ANNUAL REPORT 2021	166
Compensation Report

Introduction by the Chair of the Nomination and Compensation Committee

Dear Shareholders,

In the name of the Board of Directors and the Nomination and Compensation Committee, I am pleased to introduce the 2021 Compensation Report.

The 2021 fiscal year was marked by the continuation of the Covid-19 pandemic in combination with supply chain disruptions due to shortages of raw materials. Despite the volatile market environment, Sika was again able to achieve impressive result, thanks to a very motivated and committed workforce. The Compensation Report outlines how the business results impacted the variable incentive payments made to the members of Group Management under the different compensation plans.

In the reporting year, the Nomination and Compensation Committee continued to focus on the succession planning for positions on the Board of Directors and Group Management. On May 1, 2021, Thomas Hasler was appointed Chief Executive Officer, succeeding Paul Schuler. Paul Schuler was elected as member of the Board of Directors at the 2021 Annual General Meeting on April 20, 2021. Further, on November 1, 2021, Patricia Heidtman was appointed to Group Management in the newly created position of Chief Innovation and ­Sustainability Officer. The decision was made to separate Innovation and Sustainability from Operational Efficiency, Quality, and EHS, thus reinforcing each of those strategic pillars. Simultaneously, Frank Hoefflin took over the newly created position of Head Operations, Quality, and EHS. The position reports directly to the CEO but is not part of Group Management.

The Nomination and Compensation Committee performed its regular activities on compensation matters throughout the year, such as the annual review of the compensation programs, the performance goal-setting of Group Management at the beginning of the year and the performance assessment at year-end, the determination of the compensation of the members of the Board of Directors and Group Management, as well as the preparation of the Compensation Report and of the say-on-pay votes at the Annual General Meeting. In particular, the Nomination and Compensation Committee revised the peer group of companies for compensation benchmarking in order to reflect the size and complexity of the company and conducted a review of the compensation of the Board of Directors and of Group Management. The Nomination and Compensation Committee established that the compensation design is well aligned with the business strategy and the share- holders' interests and decided not to implement any further changes for 2022, with the exception of the committee fees of the Board of Directors. From the 2022 Annual General Meeting onwards, committee fees will mirror the annual board retainer and will be paid half in cash and half in restricted share units (currently paid fully in cash).

At the 2021 Annual General Meeting, a binding vote on the aggregate maximum compensation amounts for the Board of Directors and for Group Management was conducted, as well as a consultative vote on the Compensation Report, so that shareholders could express their opinion on our compensation policies and princi- ples. The shareholders approved the compensation amounts for the Board of Directors and for Group Management and the consultative vote on the Compensation Report with a very high approval rate. These positive voting outcomes demonstrate that the company's active dialogue with investors is fruitful and that shareholders endorse the company's compensation system. We would like to thank investors for their continued trust and support.

Looking ahead, we will continue to assess and review our compensation programs to ensure that they are still fulfilling their purpose in the evolving context in which the company operates and are aligned with the interests of our shareholders. We will also continue to maintain an open dialogue with our shareholders and their representatives. We would like to thank you for sharing your perspectives on executive compensation with us, and trust that you will find this report informative.

Chair of the Nomination and Compensation Committee

SIKA ANNUAL REPORT 2021	167
Compensation Report

Compensation Governance

NOMINATION AND COMPENSATION COMMITTEE

In accordance with the Articles of Association and the Organizational Rules of Sika AG, the Nomination and Compensation Committee is composed of three members of the Board of Directors who are elected individually by the Annual General Meeting for a period of one year. At the Annual General Meeting 2021, Mr. Justin M. Howell (Chair), Mr. Daniel J. Sauter, and Mr. Thierry F. J. Vanlancker were elected members of the Nomination and Compensation Committee.

It is the responsibility of the Nomination and Compensation Committee to:

• review and determine the compensation policy, including the principles for variable compensation and shareholding programs according to the provisions specified in the Articles of Association;
• propose to the Board of Directors the maximum aggregate amounts of compensation of the Board of
  Directors­ and of Group Management to be submitted to the shareholders' vote at the Annual General Meeting;
• propose to the Board of Directors the compensation level for the members of the Board of Directors, the CEO, and the other members of Group Management, within the maximum aggregate compensation amounts approved by the Annual General Meeting;
• provide the Board of Directors with a performance assessment of the CEO and of the other members of Group Management, together with a recommendation for the short-term and long-term incentives to be awarded to each of them based on their individual performance and the performance of the company;
• propose to the Board of Directors the Compensation Report;
• prepare the succession planning of the CEO and other members of Group Management, and propose to the Board of Directors the appointment of new members of Group Management;
• prepare the succession planning of the Board of Directors and propose to the Board of Directors new
  candidates­ to the Board of Directors.

LEVELS OF AUTHORITY

		CEO		BoD Chair		NCC		BoD		AGM
Compensation policy and principles						Proposes	Approves
Maximum aggregate compensation						Proposes		Reviews	Approves
amounts of BoD and GM									(binding votes)
Compensation of BoD Chair						Proposes	Approves
Individual compensation of BoD						Proposes	Approves
members
Compensation of CEO				Proposes		Reviews	Approves
Individual compensation of		Proposes				Reviews	Approves
members of GM
Compensation Report						Proposes	Approves		Consultative vote

CEO = Chief Executive Officer, BoD = Board of Directors, NCC = Nomination and Compensation Committee, AGM = Annual General Meeting, GM = Group Management

In 2021, the Nomination and Compensation Committee held five meetings according to the following predetermined annual agenda.

SIKA ANNUAL REPORT 2021	168
Compensation Report