Lonza | Remuneration

Letter from the Chairman of the Nomination and Compensation Committee

Dear Stakeholders,

In my role as Chair of the Nomination and Compensation Committee (NCC) and on behalf of its fellow members, I am pleased to introduce our 2023 Remuneration Report, which was prepared in compliance with the Swiss Code of Obligations, the SIX Exchange Regulation, the Swiss Code of Best Practice and Lonza’s Articles of Association. In this report, we outline the current compensation policies and the decisions made in relation to 2023 compensation for the Executive Committee and Board of Directors of Lonza.

We are grateful for the active engagement and time with our shareholders, the investor community and proxy advisors in 2023. It helps to ensure we continue our open and transparent dialogue. Our discussions during 2023 covered matters relating to changes to the Executive Committee, Long-term Incentive Plan (LTIP) performance metrics for 2024 onwards, the simplification of our reporting and disclosures, as well as overall company developments.

2023 Performance Outcomes

Lonza presents solid 2023 performance outcomes which have benefitted the public, our shareholders and our employees. The NCC measured the 2023 Lonza Bonus performance outcomes and payout levels against the predetermined and originally set performance targets. The 2021 – 2023 LTIP performance targets were predetermined exclusive of LSI which was carved out in 2021 and so remain as originally set. Performance outcomes, and in turn payout levels, were measured against these predetermined 2021 targets.

The Group performance outcomes against all four performance measures (sales, CORE EBITDA, free cash flow and ESG) combined with individual performance, resulted in a proposed annual bonus payout at 112.4% of target for the Executive Committee. See page 184 of the PDF report for more details.

Overall Group performance against CORE EPS and in particular ROIC targets, measured at the end of the 2021 - 2023 performance period adversely impacted the 2021 LTIP achievement level. As a result the plan did not meet the threshold performance level to result in a plan vesting.

We explain in this report how our company performance impacts the compensation under the incentive plans for the Executive Committee.

2023 NCC Activities

The NCC performed its regular activities throughout the year, including the succession planning for the Executive Committee and Board of Directors, as well as the performance management and the determination of the compensation for the members of the Executive Committee and Board of Directors.

The NCC monitored and reviewed the relevance of the KPIs in the Lonza Bonus and LTIP plans. The NCC concluded that the existing KPIs for the Lonza Bonus plan continue to be relevant, reflecting both top and bottom line performance as well as ESG goals. Overall, the ESG goals tie compensation to annual progress against long-term environmental objectives to reduce GHG emissions, and optimize energy and water consumption, as well as expanding programs to improve our supply chain sustainability, female representation in management positions and our educational programs. This year, we promoted more measurable quantitative targets and have reduced the number of qualitative targets in total. The qualitative targets specifically are used to build the foundation for longer-term ESG initiatives, necessary to ensure continued success.

As an example, delivering a letter of commitment to the Science Based Targets initiative (SBTi) was the pre-requisite to develop and agree to industry-recognized, measurable decarbonization targets in Scopes 1, 2 and 3.

In relation to the LTIP, the NCC determined that ROIC continue to be a relevant long-term performance measure given Lonza’s CAPEX strategy. Similarly, CORE EPS remains relevant to the plan as a key metric for our investors. Furthermore, the NCC decided to introduce Total Shareholder Return (TSR) relative to other companies of the SMI index as of 2024 onwards as further alignment with Shareholder interests. The defined peer group will be the SMI with a Swiss market prevalent payout curve. The three KPIs ROIC, CORE EPS and relative TSR will be equally weighted and will be measured over the three-year LTIP performance period. Further details will be provided in the 2024 Remuneration Report.

Finally, we have enhanced our reporting to comply with the new Swiss Code of Obligations and to further strengthen the transparency of our remuneration disclosure. Key updates relevant to the 2023 report include:

setting out how Lonza’s remuneration principles and policies align with the company’s strategic objectives
presenting details of other mandates held by both the Board of Directors and the Executive Committee
using visual tables and charts throughout the report as well as color coding of remuneration elements to facilitate reading and understanding

In 2023, we also simplified the Executive Committee compensation voting mechanism whilst maintaining our pay-for-performance principles. The system was amended from a three-vote approach to a two-vote approach, in line with market practice in Switzerland. The simplified two-vote approach encompasses a retrospective binding vote on the variable short-term compensation (Lonza Bonus) of the Executive Committee and a prospective vote on the maximum aggregate amount of both fixed compensation and variable long-term compensation (LTIP) of the Executive Committee for the next financial year. Full information can be found on page 176.

Changes to the Executive Committee during 2023

Our Executive Committee went through two changes in 2023. Caroline Barth, Chief Human Resources Officer (CHRO) stepped down on 30 April 2023. Ulrike Käppler has been appointed as the new CHRO with effect from 1 January 2024. On 30 September 2023, Pierre-Alain Ruffieux, Chief Executive Officer (CEO) stepped down and Albert Baehny, the Chair of the Board of Directors, took on the additional duties of CEO ad interim. The Board of Directors has now appointed Wolfgang Wienand as CEO of Lonza, effective from the summer of 2024. Albert Baehny decided not to stand for re-election at the upcoming Annual General Meeting (AGM) in May 2024 and will continue in the CEO ad interim role until Wolfgang Wienand commences his tenure as CEO. The Board of Directors is proposing the election of Jean-Marc Huët as the new Chair of the Board of Directors of Lonza at the 2024 AGM.

All compensation decisions relating to the appointments and departures were made in line with our Executive Compensation Appointment and Termination Policies outlined on page 178.

On behalf of the Nomination and Compensation Committee, I thank our shareholders for the continued dialogue during 2023. We respectfully ask for your endorsement of this 2023 Remuneration Report and approval of Executive Compensation that will be put forward to you at the 2024 Annual General Meeting.

Yours faithfully,

Christoph Mäder
Chair of the Nomination and Compensation Committee
Lead Independent Director

Discover More

2023 At a Glance

Compensation Principles

Pay for Performance - our compensation programs are performance-based linking employee reward with company and individual performance, both financial and non-financial. Non-financial targets focus on ESG measures to support the UN Sustainable Development Goals.

Drive Sustainability - our compensation programs are linked to our sustainability strategy. Strategic decisions that drive competitive advantage are encouraged but excessive risk taking is discouraged to avoid jeopardizing the financial health, reputation or sustainability of the Company. We believe in equal pay for equal work. Our compensation programs are simple, transparent and communicated internally and externally.

Create Shareholder Value - Our share-based compensation encourages long-term performance and alignment of interests of our management with those of our shareholders. Our Executives are required to hold a minimum level of shares to ensure they have a stake and interest in the long term success of the company.

Drive Strategy - A strong focus on growth, sustainability and individual contribution means our incentive programs support our strategic priorities including service (right first time), scope (breadth of offerings), solutions (scientific, manufacturing, regulatory) and speed. Our competitive compensation programs are designed to attract and retain diverse talent who drive these strategic priorities.

2023 Executive Committee Compensation Structure

Fixed pay and benefits			Performance related variable pay
	Base Salary	Pension and Benefits	Lonza Bonus	Long-term Incentive Plan (LTIP)	Lonza Restricted Share Plan (LRSP)
Purpose	Attract Market aligned payment for role	Attract and retain Protection against risk	Reward for year-over-year performance	Attract and retain Reward for long-term performance Align with shareholder interests	Attract and retain Supports Appointment Policy
Form of payment	Cash	Pension contributions Benefits, allowances and insurances	100% cash; or 50% cash and 50% equity until shareholding guidelines are met	Performance shares subject to a three-year vesting period	Restricted shares subject to a two to five year vesting period
Drivers	Role and responsibilities Skills and experience Market value	Market practice Role	Performance against annual Group financial and ESG objectives Individual goals Values and behaviors	Group performance over 3 years	Replacement award if on joining Lonza Executive forgoes certain compensation at their previous employer Level is set lower than forgone awards
Performance measures			Sales CORE¹ EBITDA Free cash flow ESG KPIs Individual performance	CORE¹ Earnings per share (EPS) Return on invested capital (ROIC)	Sustained performance in role Continued employment

CORE results for incentive plans are adjusted for divestitures, acquisitions, restructuring and extraordinary one-time events, as well as rounding and as approved by the NCC

2023 Lonza Bonus and LTIP outcomes

2023 Annual Bonus

2021 – 2023 Long-term Incentive Plan

2023 Total Remuneration Paymix (CHF)

Highest Paid Member of the Executive Committee

All Executive Committee

Lonza Restricted Share Unit Plan (LRSP) awards are separate from typical total compensation and are awarded at appointment and only in cases where a new Executive Committee member forgoes cash or equity at their previous employer. No awards were made in 2023.
Cash payment (including base salary, other benefits, short–term incentive and social security) and shares (LTIP) received by departed members of the Executive Committee during 2023

Board of Directors Compensation Policy

Compensation of Board of Directors from Annual General Meeting (AGM) 2023 to 2024 excluding social security contributions.

In CHF	Base annual fee	Committee membership fee	Committee Chairperson fee
Chair of the Board of Directors¹	750,000	-	-
Member of the Board of Directors²	200,000	40,000	80,000
	The additional responsibilities of Vice-Chairperson and Lead Independent Director³ do not attract any additional fees
Form of payout	50% in Lonza Group shares (with 3-year blocking period) and 50% in cash and paid in arrears in quarterly installments

The compensation of the Chair of the Board of Directors includes compensation as a member of the Innovation and Technology Committee of the Board of Directors
In the case of multiple committee memberships, the committee fees are cumulated
The roles and responsibilities of the Lead Independent Director 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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