compensation report

dear shareholders

I welcome this opportunity to present the compensation report for the financial year 2014 to you on behalf of the Compensation Committee.

The financial year 2014 saw a great many regulatory changes. In particular, the entry into force of the Ordinance against Excessive Compensation in Stock Exchange Listed Companies (Ordinance) on January 1, 2014, imposes new requirements concerning compensation issues. In the light of the provisions of VegüV, Lindt & Sprüngli reviewed and revised its compensation system as well as the Articles of Association. The performance-based compensation together with share and option plans intended for members of the Group Management and Extended Group Management are concerned in the first instance. To enable the revised Articles of Association to provide the necessary basis for the votes on compensation at the 2015 General Meeting they were already submitted to last year's General Meeting and were approved by 94.6 % entitled to vote. In the financial year 2014, the Corporate Governance Directive of the SIX Swiss Exchange and the compensation principles set out in the attachment to the “Swiss Code of Best Practice for Corporate Governance” of economiesuisse were also revised. The revised compensation system and the Articles of Association of Chocoladefabriken Lindt & Sprüngli AG consider these additional regulatory requirements and recommendations in due form.

VegüV requires a separate compensation report to be drafted for the financial year 2014. The primary purpose of that report is to give a compact overview of all information about compensation for the financial year 2014. By comparison with the previous year's report, transparency has been increased with additional information concerning the determination of the cash bonus amounts. A consultative vote will be taken for the first time on this compensation report at the 2015 General Meeting.

At the forthcoming General Meeting in April 2015, separate votes will then be taken for the first time concerning the approval of the maximum amount of compensation for the Board of Directors until the next General Meeting and the maximum amount of compensation for the Group Management and Extended Group Management in preparation for the year 2016.

This compensation report is structured as follows:

I. Compensation governance
II. Compensation for the Board of Directors
III. Compensation for the Group Management and Extended Group Management
i. Compensation principles
ii. Compensation system
iii. Compensation elements
iv. Compensation
IV. Rules for outgoing officers
V. Participation
VI. Additional fees, compensation, and loans to company officers

The Board of Directors is convinced that this compensation report gives our shareholders a comprehensive and integral overview of the compensation at Lindt & Sprüngli.

The Chairman of the Compensation & Nomination Committee

Dr R. K. Sprüngli

This compensation report describes the underlying principles governing compensation at Lindt & Sprüngli. The information provided refers to the financial year which ended on December 31, 2014. The compensation report likewise takes account of the disclosure obligations set out in Art. 14 ff. VegüV and Art. 663c OR, the revised provisions of Chapter 5 of the Corporate Governance Directive of the SIX Swiss Exchange and the revised recommendations of the “Swiss Code of Best Practice for Corporate Governance” of economiesuisse.

I. COMPENSATION GOVERNANCE

Article 24bis of the Articles of Association of Lindt & Sprüngli lays down the following tasks and terms of reference for the Compensation & Nomination Committee (CNC):

“The Compensation & Nomination Committee shall concern itself with compensation policies, particularly at the most senior levels of the company. It shall have the tasks, decision-making powers, and authority to present motions accorded to it by the organizational regulations and the Compensation Committee regulations. In particular, it shall assist the Board of Directors in determining and evaluating the remuneration system and the principles of remuneration, and in preparing the proposals to be presented to the General Meeting for approval of remuneration pursuant to Art. 15bis of the Articles of Association. The Compensation Committee may submit to the Board of Directors proposals and recommendations in all matters of remuneration.”

The responsibilities of the CNC include the approval of the contracts of employment of members of the Group Management and Extended Group Management. It draws up proposals to the Board of Directors on any occupational benefits and pensions of the company or of its subsidiary companies outside the scope of occupational benefits and similar schemes abroad which are granted to the members of the Board of Directors, the Group Management and Extended Group Management within the limits laid down by the Articles of Association. In addition, the CNC is responsible for drawing up a proposed text of the compensation report for the attention of the Board of Directors.

Within the framework of the compensation principles, the Articles of Association and the decision of the General Meeting, the CNC determines the amount and composition of the compensation of the individual members of the Board of Directors, the Group Management and the Extended Group Management. The individual members of the Board of Directors, the Group Management and the Extended Group Management are excluded from the negotiation and voting as far as their own compensation is directly affected. Once each year, the CNC informs the Board of Directors of the procedure for the determination of compensation and on the outcome of the compensation process. The Committee meets at least twice each year. Three regular meetings were held in the year under review. Members of the Group Management took part regularly in these meetings. The CNC has general authority to call in external consultants. Last year, in connection with the review of the compensation system and the staff option plan, the CNC obtained consultancy services from the independent consultancy company Hostettler & Company, HCM Switzerland Ltd. No other tasks were entrusted to Hostettler & Company, HCM Switzerland Ltd.

Approval system

Recipient of the compensation	Proposal	Decision	Binding votes on compensation starting at the General Meeting 2015
BoD Chairman	CNC	BoD (excluding the Chairman)	Maximum fee budget for the period until the next Ordinary General Meeting
Members of the BoD	CNC	BoD
CEO	CNC	BoD (excluding the Chairman)	Maximum total compensation for the next financial year
Members of the Group Management and Extended Group Management	CEO and CNC	BoD

II. COMPENSATION FOR THE BOARD OF DIRECTORS

The members of the Board of Directors receive compensation in the form of a fixed fee. The entire compensation is paid out in cash after the General Meeting. This compensation released the Board of Directors from potential conflicts of interest in the assessment of the corporate performance.

The fixed fee received by members of the Board of Directors was unchanged by comparison with the previous years. The flat-rate sum paid to the Chairman of the Board of Directors is CHF 260,000 and CHF 145,000 for the members of the Board of Directors. The following compensation was paid to the members of the Board of Directors in the year 2014.

Compensation of the Board of Directors (audited)

		2014		2013
CHF thousand		Cash compensation 1)	Other compensation 4)	Cash compensation 1)	Other compensation 4)
E. Tanner 2)	Chairman and CEO, member of the CSR Committee 3)	260	14	260	14
A. Bulgheroni	Board member, member of the Audit and Compensation Committee, Lead director	145	39	145	38
Dkfm E. Gürtler	Board member, member of the Compensation Committee	145	8	145	8
Dr R. K. Sprüngli	Board member, member of the Audit and CSR Committee 3)	145	8	145	8
Dr F. P. Oesch	Board member, member of the Audit Committee	145	8	145	8
P. Schadeberg-Herrmann 6)	Board member	0	10	0	0
Dr K. Widmer 5)	Board member, member of the Compensation- and CSR Committee 3)	145	8	145	8
Total		985	95	985	84

1) Total gross cash compensation (excluding social charges paid by employer), in the form of Board fees to Directors.
2) Cash compensation for the function as Chairman of the Board.
3) CSR Committee: Corporate Social Responsibility Committee.
4) AHV-share of the employee on fees, that are paid by the employer. Furthermore Mr Bulgheroni received a gross fee of TCHF 32 in 2014 (TCHF 31 in 2013) for his function as Chairman of the Board of Lindt & Sprüngli SpA and Caffarel SpA. Moreover, Ms. Schadeberg-Herrmann received a fixed compensation of TCHF 10 for her consulting function at Lindt & Sprüngli (Austria) GmbH in 2014.
5) Did not run for re-election at the General Meeting 2014.
6) Was elected into the Board of Directors at the General Meeting 2014.

No loans and credits had been granted to executive and non-executive members of the Board of Directors.

III.COMPENSATION FOR THE GROUP MANAGEMENT AND EXTENDED GROUP MANAGEMENT

I. COMPENSATION PRINCIPLES

Compensation plays a central role in the recruitment of staff and in retaining their loyalty. As a consequence, compensation influences the future success of the company. Lindt & Sprüngli is committed to performance-based compensation compliant with the market and designed to reconcile the long-term interests of the shareholders, employees, and customers.

The compensation system at Lindt & Sprüngli has four main aims:

1. long-term motivation of staff,
2. creating long-term loyalty of key personnel to the company,
3. establishing an appropriate relationship between the costs of compensation and the results, and
4. ensuring that the activity of the management reflects the long-term interests of the owners.

Lindt & Sprüngli attaches great importance to staff loyalty. That is apparent in particular from the extraordinarily low turnover rate over a period of many years in the Group and Extended Group Management. This is particularly important for a premium product manufacturer with a long-term strategy. The compensation principles at Lindt & Sprüngli are intended to have a medium and long-term impact and be sustainable. Continuity is a high priority.

ii. COMPENSATION SYSTEM

The compensation for members of the Group Management and Extended Group Management consists of a combination of basic salary, cash bonus, share and participation certificate or option-based compensation, and ancillary benefits consistent with their respective position. Fixed compensation essentially reflects the particular grade, powers and experience of the members of the Group Management and the Extended Group Management. The cash bonus is tied to the performance targets of the financial year, while the compensation in equities or similar instruments strengthens the focus on shareholders within the corporate management and reconciles the long-term interests of the Management with those of the shareholders.

The compensation in equities or similar instruments with vesting periods of three to five years until they can be sold promotes the long-term action which is important in the consumer goods industry and has already been a major pillar of the company's development in recent years. The following table shows the particular bonus target as a percentage of the basic salary, the accompanying target attainment bandwidth as a percentage of the bonus target and the elements of the equity-based compensation. The bandwidth for possible option allocations is expressed as a percentage of the fixed compensation in each case.

Composition of variable compensation of the Group Management

	Fixed compensation		Variable compensation
		Cash bonus
	Basic salary	Target bonus in % of base salary	Target attainment range as % of target	Shares (number)	Options* as % of base salary
CEO	100 %	100 %	0 – 200 %	0 – 50	0 – 200 %
Group Management and Extended Group Management	100 %	30 – 90 %	0 – 200 %	—	0 – 200 %

* Options on participation certificates

The amount of the target compensation is guided by the requirements and responsibility of the beneficiaries and is regularly reviewed within the Group by making horizontal and vertical comparisons. When new appointments are made the CNC also takes account of comparable data for the consumer goods sector with reference to the post to which a new appointment is to be made.

In the year 2014 the compensation for the Group Management and Extended Group Management was reviewed by benchmarking. Here the level of compensation and its structure were compared with twelve industrial companies from the SMI and SMIM of a similar size in terms of their market capitalization and sales. In addition, the long-term corporate performance of Lindt & Sprüngli was determined by comparison with the peer group to obtain an assessment representing a “Pay for Performance” analysis.

iii. COMPENSATION ELEMENTS

Basic salary and other compensation—The basic salary is paid out in twelve or thirteen equal monthly cash installments. In addition, the members of the Group Management and Extended Group Management receive other compensation and ancillary benefits. These include the entitlement to a company vehicle and participation in pension plans.

Cash bonus—The amount of the cash bonus is determined by multiplying the individual target cash bonus by a target attainment factor which is determined by a scorecard. For the CEO and members of the Group Management this factor is determined largely by the attainment of financial targets for the year at Group level and to a lesser extent by the attainment of personal annual qualitative targets which are proposed by the CNC and finally set by the Board of Directors. The financial targets are determined annually and correlated with the long-term strategy which aims to achieve sustainable organic sales growth accompanied by continuous improvement of profitability. As to the financial targets, the financial results achieved over the last three years on the market are also measured against those of a comparison group. The purpose of that comparison is to take account of circumstances which cannot be influenced by the company itself. The non-financial targets are guided by the individual function and relate to the implementation of the strategy and to defined management and conduct criteria.

For the members of the Extended Group Management, the target bonus multiplier is also determined using a scorecard. Here, too, the multipliers are mainly influenced by the attainment of the set financial targets. For the members of the Extended Group Management who have responsibility at regional or national level the regional and national financial targets are likewise considered alongside the Group targets. Also in the case of members of the Extended Group Management, the degree of attainment of the strategic and personal targets represents a comparatively small part of the bonus calculation.

As the illustration shows, the particular target cash bonus of the CEO, the members of the Group Management and Extended Group Management are multiplied by the particular degree of attainment of the target which ranges from 0 % to 200 % (maximum figure in excess of the set target). In other words the cash bonus paid out is limited to not more than twice the target cash bonus.

Share plan—The long-term share compensation which was agreed contractually with the CEO when he was appointed in the year 1993 and entitles him to a fixed number of shares every year is now supplemented by a success-dependent variable allocation mechanism. The CEO is to receive a variable quantity of up to 50 shares which depend upon the performance achieved in the previous years. The exact number of shares is decided by the Board of Directors as part of an overall assessment based on a scorecard and is determined by the degree of attainment of financial and non-financial targets which are measured over a period of three years. If the targets are not achieved, the amount of the number of shares will be reduced accordingly. The allocated shares continue to be subject to a five-year vesting period during which they may not be sold; in other words, the long-term value is linked to the trend in value of the company.

Option plan—The option plan enables the Group Management and Extended Group Management as well as selected employees to participate in the long-term increase in corporate value. The options are allocated as an incentive for future value growth. The number is not determined primarily by the performance in the previous year but by the position held by the employee and his influence on long-term corporate success. The Board of Directors takes the final decision on the value of the options per participant on the basis of the stated criteria; the allocated value may amount to as much as 200 % of the particular basic salary for the CEO, Group Management and Extended Group Management. The options are issued in a ratio of one option to one participation certificate (1:1). The option strike price corresponds upon allocation to the average value on the five previous trading days.

The option rights have a strike period of not more than seven years from allocation with initial vesting periods of three, four or five years (35 % of the options may therefore be exercised after three or four years and 30 % after five years).

iv.COMPENSATION

The compensation for members of the Group Management and Extended Group Management for the year 2014 is shown in the following table. The calculation of the option and equity-based compensation for 2014 uses market values based on Black-Scholes at the time of allocation. The compensation table for 2013 has been adjusted accordingly for comparison purposes.

Compensation for the Group Management and Extended Group Management (audited)

						2014 market value
CHF thousand	Fixed cash compensation 1))	variable cash compensation 2)	Other compensation 3)	Options 4)	Registered shares5)	Total remuneration
Ernst Tanner, CEO 6)	1,256	1,600	99	1,574	2,450	6,979
Other members of the Group Management and Extended Group Management 7)	4,208	3,810	1,186	4,486	–	13,690
Total	5,464	5,410	1,285	6,060	2,450	20,669
						2013 market value
CHF thousand	Fixed cash compensation 1)	Variable cash compensation 2)	Other compensation 3)	Options 4)	Registered shares5))	Total remuneration
Ernst Tanner, CEO 6)	1,256	1,600	146	1,904	3,602	8,508
Other members of the Group Management and Extended Group Management 7)7)	4,064	3,160	698	6,823	–	14,745
Total	5,320	4,760	844	8,727	3,602	23,253
						2013 tax value
CHF thousand	Fixed cash compensation 1))	Variable cash compenstion 2)	Other compensation 3)	Options	Registered shares	Total remuneration
Ernst Tanner, CEO 6)	1,256	1,600	146	996	2,691	6,689
Other members of the Group Management and Extended Group Management 7)	4,064	3,160	698	3,570	–	11,492
Total	5,320	4,760	844	4,566	2,691	18,181

1) Total gross cash compensation and allowances including pension benefits paid by employer (excluding social charges paid by employer).
2) Accrual at year end for expected pay-out in April of following year (excluding social charges paid by employer).
3) Employees part of social charges (AHV) related to exercising of options and grant of registered shares, paid by employer.
4) Option grants on Lindt & Sprüngli participation certificates under the terms and conditions of the Lindt&Sprüngli employee share option plan (see also note 28). The valuation reflects the market value at the time granted according to Black Scholes. The total number of granted share options in 2014 to Mr Tanner was 2,000 units (3,000 units in 2013) and to all other members of the Group Management and the Extended Group Management 5,700 units (10,750 units in 2013).
5) Grant of 50 Lindt & Sprüngli registered shares in 2014 (100 in 2013). The valuation is based on the market value upon allocation.
6) Compensation for function as CEO, fixed base salary of CHF 1.3 million (including pension benefits paid by employer) unchanged since 1993.
7) The number of other Group Management and Extended Group Management members is seven.

No loans and credits had been granted to executive and non-executive members of the Group Management and Extended Group Management.

IV. RULES FOR OUTGOING OFFICERS

The employment contracts stipulate a maximum notice period of twelve months and make no provision for a severance payment. The maximum prohibitions on competition for members of the Group Management and Extended Group Management amount to twelve months. Compensation must not exceed the basic salary for one year. The vesting periods imposed on shares and options do not lapse upon departure and the vesting periods are not shortened.

V. Participation

The following table provides information on the ownership of Lindt & Sprüngli registered shares, participation certificates and options on participation certificates for members of the Board of Directors, the Group Management and Extended Group Management as at December 31, 2014.

		Number of registered shares (RS)		Number of participation certificates (PC)		Number of options
		2014	2013	2014	2013	2014	2013
E. Tanner	Chairman and CEO	3,103	3,039	6,943	8,967	19,750	17,750
A. Bulgheroni	Member of the Board	1,000	1,000	–	–	5,900	5,900
Dr K. Widmer 1)	Member of the Board	–	35	–	–	–	–
Dkfm E. Gürtler	Member of the Board	–	–	–	–	–	–
Dr R. K. Sprüngli	Member of the Board	1,092	1,090	–	–	–	–
Dr F. P. Oesch	Member of the Board	13	17	–	–	–	–
P. Schadeberg-Herrmann	Member of the Board	131	–	–	–	–	–
U. Sommer	Group Management	12	12	140	1,449	7,450	9,369
Dr D. Weisskopf	Group Management	7	5	2,400	1,800	9,650	10,550
A. Pfluger	Group Management	5	5	30	30	5,188	8,213
R. Fallegger	Group Management	5	5	1,969	1,612	6,035	5,985
K. Kitzmantel	Extended Group Management	5	5	100	100	4,338	4,938
A. Lechner	Extended Group Management	6	6	53	53	5,650	6,900
T. Linemayr	Extended Group Management	4	4	77	77	5,500	5,350
Total		5,383	5,223	11,712	14,088	69,461	74,955

1) Mr. Dr K. Widmer left the Lindt & Sprüngli Group in 2014, therefore no participation is reported for 2014.

VI. additional fees, compensation, and loans to company officers

Apart from the benefits listed in this report, no other compensation was provided in the year under review 2014 – either directly or via consultancy companies – for the executive and non-executive members of the Board of Directors or for the members of the Group Management and Extended Group Management. In addition, as of December 31, 2014, no loans, advances or credits had been granted by the Group or by any of its subsidiary companies to the members of the Board of Directors, Group Management and Extended Group Management.

Report of the statutory auditor

To the general meeting of Chocoladefabriken Lindt & Sprüngli AG, Kilchberg

We have audited pages 49 and 53 of the compensation report of Chocoladefabriken Lindt & Sprüngli AG for the year ended December 31, 2014.

Board of Directors' responsibility

The Board of Directors is responsible for the preparation and overall fair presentation of the remuneration report in accordance with Swiss law and the Ordinance against Excessive Compensation in Stock Exchange Listed Companies (Ordinance). The Board of Directors is also responsible for designing the remuneration system and defining individual remuneration packages.

Auditor's Responsibility

Our responsibility is to express an opinion on the accompanying remuneration report. We conducted our audit in accordance with Swiss Auditing Standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the remuneration report complies with Swiss law and articles 14–16 of the Ordinance.

An audit involves performing procedures to obtain audit evidence on the disclosures made in the remuneration report with regard to compensation, loans and credits in accordance with articles 14–16 of the Ordinance. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatements in the remuneration report, whether due to fraud or error. This audit also includes evaluating the reasonableness of the methods applied to value components of remuneration, as well as assessing the overall presentation of the remuneration report.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Opinion

In our opinion, the remuneration report of Chocoladefabriken Lindt & Sprüngli AG for the year ended 31 December 2014 complies with Swiss law and articles 14–16 of the Ordinance.

PricewaterhouseCoopers AG