Lonza

Letter from the Chairman of the Nomination and Compensation Committee

Dear Shareholders,

In my role as Chairman of the Nomination and Compensation Committee (NCC) and on behalf of its fellow members, I am pleased to introduce our 2021 Remuneration Report, which adheres to the Swiss Ordinance Against Excessive Compensation for stock exchange listed companies. In this report, we outline the current compensation policies and the decisions made in relation to 2021 compensation for the Executive Committee of Lonza.

We continue to be grateful for the active engagement and time with our shareholders, the investor community and proxy advisors in 2021. It helps to ensure we continue our open and transparent dialogue. Our discussions during 2021 covered matters relating to changes to the Executive Committee, the implementation of environment, social and governance (ESG) compensation measures into executive compensation as well as overall Company developments.

2021 Performance Outcomes

Lonza presents strong 2021 performance outcomes which have benefitted the public, shareholders and our employees. The Committee determined that the 2021 Short-term Incentive Plan (STIP) and 2019 – 2021 Long-term Incentive Plan (LTIP) performance targets, performance outcomes and in turn payout levels, did not need to be adjusted to reflect the impact of the continuing pandemic. As such, performance outcomes were measured against the predetermined and originally set performance targets.

The Full-Year 2021 Group results led to above target 2021 performance outcomes. This reflects strong business performance across our four divisions. The Lonza Group performance outcomes against all three performance targets (sales, CORE EBITDA and operational free cash flow) resulted in a proposed STIP payout at 153% of target for the Executive Committee. See Remuneration PDF on page 191 for more details. The relevant STIP performance targets set at the beginning of 2021 factored in Lonza Specialty Ingredients (LSI) as discontinuing operations and hence the performance targets were not required to be updated following the divestment of LSI during 2021.

Overall Group performance in 2021 also had an impact on the 2019 LTIP, which vested at the beginning of 2022 at 193% of target, as a result of above target CORE EPS and ROIC performance over the 2019–2021 three-year performance period. The 2019 LTIP performance targets were assessed factoring in annualized LSI performance achievement.

2021 Committee Activities and Compensation Changes, Including Introduction of ESG

A review of total reward for our Executive Committee was undertaken during 2021 for implementation in 2022. This included benefits, annual bonus and the long-term incentive. The key principles underpinning the review were a need for simplicity and alignment to the ESG priorities at Lonza.

During this review, it was determined that compensation levels and structure were aligned with the market. In addition, a number of decisions were made by the NCC in relation to Executive Compensation policy for 2022 onward, including the introduction of ESG performance measures into the Short-Term Incentive Plan (STIP) for the 2022 performance year. The ESG performance measures set are both quantitative, and therefore measurable, as well as qualitative with the intent of these supporting the achievement of the quantitative targets. They are set as short-term goals within the STIP in order to enable the setting of robust targets that will support Lonza’s long-term ambitions. All measures align to Lonza’s priority areas linked to the UN Sustainable Development Goals including good health and well-being, climate action, industry, innovation and infrastructure, responsible consumption and production, gender equality, clean water and sanitation and quality education. The NCC commits to providing additional detail on the 2022 performance measures and the relevant performance targets and outcomes on a retrospective basis in the 2022 Remuneration Report.

In 2022, the transportation and medical benefits provided for the Executive Committee will be simplified. Malus will be introduced alongside our existing Clawback policy to add more robust governance to our short and long-term incentive plans. The NCC commits to providing additional and clarifying detail on these changes in the relevant 2022 Remuneration Report.

Following the divestment of LSI in July 2021, the NCC determined that the Executive Committee compensation benchmarking peer groups be revised to exclude any chemical peer companies. This has resulted in a diminished yet more relevant peer group list. The principle of the primary and secondary peer groups remains. The revised peer groups can be found in the Remuneration PDF on page 187.

Finally, the Lonza Board of Directors fees were last reviewed over five years ago. Since then the Company has undergone significant structural changes, which also impact the work of the Board of Directors. In addition, the Board of Directors understands the value of stakeholder engagement as well as ESG oversight and respective time required of its directors. The NCC therefore sought to conduct a review of the Lonza Board of Director fee levels. Details of the review and outcomes can be found in the 2022 Invitation to the Annual General Meeting.

Changes to the Executive Committee During 2021

Our Executive Committee went through a number of changes in 2021. Four new members joined the Executive Committee, expanding the Committee to ensure divisional representation. Gordon Bates, President, Small Molecules Division, Claude Dartiguelongue, President, Capsules & Health Ingredients Division, and Jean-Christoph Hyvert, President, Biologics and Cell & Gene Divisions were all appointed to the Executive Committee at the beginning of April 2021. Rodolfo Savitzky stepped down as Chief Financial Officer (CFO) on 30 November 2021. Philippe Deecke followed Rodolfo Savitzky as Chief Financial officer and member of the Executive Committee on 1 December 2021.

All compensation decisions relating to the appointments and departures were made in line with our Executive Compensation Appointment and Termination Policies outlined in the Remuneration PDF on page 188.

On behalf of the Nominations and Compensation Committee, I thank our shareholders for the continued dialogue during 2021. We respectfully ask for your endorsement of this 2021 Remuneration Report and approval of Executive Compensation that will be put forward to you at the 2022 Lonza Annual General Meeting.

Yours faithfully,

Christoph Mäder

Chairman of the Nomination and Compensation Committee

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At a Glance

Lonza’s approach to compensation is designed to attract and retain talent with competitive compensation programs. Our compensation programs are performance-based, linking employee rewards with company and individual performance. Executive compensation is aligned with the short-term and long-term objectives of the wider business. Results are measured based on the achievement of specific short and long-term objectives, which are defined to achieve a balance between short-term and long-term outcomes. We encourage strategic decisions that drive competitive advantage but discourage executives from taking unnecessary or excessive risks that may threaten the financial health, reputation or sustainability of the Company.

2021 Executive Committee Compensation Policy Table

Base Salary	Benefits	Short-term Incentive Plan (STIP)	Long-term Incentive Plan (LTIP)	Lonza Restricted Share Unit Plan (LRSP)	Shareholding Guidelines
Fixed amount paid in return for the day-to-day duties and responsibilities performed	Post-employment and other benefits to complement Lonza’s total compensation offering	Short-term variable compensation component, rewards for annual company and individual performance	Long-term variable compensation component, rewards for long-term company performance. Aligns interests of the Executive with shareholders	Buy-out instrument for Executive Committee members awarded solely in cases where an Executive forgoes certain compensation at their previous employer. Used as a vehicle to support the Executive Committee Appointments Policy and replicates existing vesting schedule at previous employer	Shareholding guidelines to align interests of the Executive with shareholders
Vehicle
100% cash	Pension and other benefits such as company car / transportation allowance, expense allowances and insurances	100% cash; or 50% cash and 50% equity (until shareholding guidelines are met)	100% vesting subject to a three-year performance period	100% equity subject to a two to five-year time-based vesting period
Levels
Consideration for • experience of individual; • direct role responsibilities; and • market levels observed at companies in the relevant industry to Lonza	Aligned with companywide and country specific benefits policies	Target levels: • CEO – 100% of salary • Other EC – 75% of salary Minimum = 0% of target Maximum = 200% of target	Target levels: • CEO – 150% of salary • Other EC – 125% of salary Minimum = 0% of target Maximum = 200% of target	Levels set equivalent or less than forgone awards, considering, but not limited to previous employer variables such as historical company performance, volatility and the equity instrument	CEO – 300% of salary Other EC – 200% of salary To be accumulated over 5 years
Performance Measures
		May be a mix of financial and individual measures, typically with weighting of 80% and 20% respectively 2021 was based on 100% financial measures 50% CORE EBITDA¹ 31.25% Sales 18.75% Operating free cash flow	50% CORE EPS ¹ 50% ROIC	Sustained performance in role Continued employment
¹ CORE results exclude exceptional expenses and income related to e.g. restructuring, environmental-remediation, acquisitions and divestitures, impairments and amortization of acquisition-related intangible assets, which can differ significantly from year to year

2021 STIP and LTIP Outcomes

Includes 10% CORE EBITDA, 6.25% Sales and 3.75% operational free cash flow distributed from 20% individual performance element.

2021 Total Remuneration Paymix (CHF)

Lonza Restricted Share Unit Plan (LRSP) awards are separate from typical total compensation and are awarded only in cases where a new Executive Committee member forgoes cash or equity at their previous employer. See the Remuneration PDF on page 195 for details of the LRSP award
Cash payment (including base salary, other benefits, short–term incentive and social security) and shares (LTIP) received by a departed member of the Executive Committee during 2021 and a cash payment to an Executive Committee member upon their appointment to compensate for forfeited annual bonus at their previous employer

Board of Directors

Compensation Board of Directors Annual General Meeting (AGM) 2021 to 2022 (excluding social security contributions)

In CHF	Base annual fee	Committee membership fee	Committee Chairperson fee
Chairperson of the Board of Directors¹	600,000	-	-
Board of Directors Member²	200,000	40,000	80,000
	The additional responsibilities of Vice-Chairperson³ do not attract any additional fees
Form of payout	50% in Lonza Group shares and 50% in cash. This is paid in quarterly installments during the 2021 financial year

The compensation of the Chairman of the Board of Directors includes compensation as a member of the Innovation and Technology Committee of the Board of Directors. For details on the compensation received for the role of CEO ad interim during 2020 please see the 2020 Remuneration Report
The compensation for Committee Chairpersons amounts to CHF 280,000 and includes the committee membership fee. In the case of multiple committee memberships, this attracts one committee membership fee only
The roles and responsibilities of such Vice-Chairperson are in line with sect. 19 para. 2 of the Swiss Code of Best Practice for Corporate Governance, requiring adequate control mechanisms, and commensurate to such position

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