Idorsia : Compensation Report (2.2MB)

Compensation Report

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23ANNUAL REPORT

The purpose of Idorsia is to discover, develop, and commercialize innovative medicines to help more patients.

We have more ideas, we see more opportunities, and we want to transform the horizon of therapeutic options.

The Compensation Report describes the compensation principles and programs, as well as the governance framework, for the compensation of the members of the Board of Directors (Board) and the Idorsia Executive Committee (IEC) of Idorsia Ltd (Idorsia). The report also provides details of the compensation awarded to the Board and IEC members for the 2023 financial year.

The Compensation Report has been prepared in accordance with the relevant sections of the Swiss Code of Obligations (Swiss CO) applicable to Swiss listed companies, the Directive on Information related to Corporate Governance of SIX Swiss Exchange, as well as the Swiss Code of Best Practice for Corporate Governance issued by economiesuisse.

Contents

Letter from the NGCC Chair

Compensation

Governance

Compensation

Principles

Compensation Structure: Board

Compensation Structure: CEO and all other IEC members

Report of the Statutory Auditor

Compensation awarded to the Board and to the IEC

Mandates of Board and IEC members outside Idorsia

Investments held by Board and IEC members

Equity Overhang

and Dilution

in Idorsia Group

Further parts of the Idorsia Annual Report 2023

Business

Report

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23

Financial

Report

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Governance

Report

20

23

Sustainability

Report

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Contents

4 Letter from the NGCC Chair

8 Compensation Governance

12 Compensation Principles

14 Compensation Structure: Board

16 Compensation Structure: CEO and all other IEC members

26 Report of the Statutory Auditor

28 Compensation awarded to the Board and to the IEC

34 Mandates of Board and IEC members outside Idorsia

36 Investments held by Board and IEC members

37 Equity Overhang and Dilution in Idorsia Group

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Letter from the NGCC Chair

Contents

• Letter from the NGCC Chair
  Compensation Governance
  Compensation Principles
  Compensation Structure: Board
  Compensation Structure: CEO and all other IEC members
  Report of the
  Statutory Auditor
  Compensation awarded to the Board and to the IEC
  Mandates of Board and IEC members outside Idorsia
  Investments held by Board and IEC members
  Equity Overhang and Dilution
  in Idorsia Group

Dear Shareholders,

2023 was an eventful year for Idorsia with significant challenges and important achievements. You will find a detailed description of the year's activities in the Business Report. All these achievements would not have been possible without the concerted efforts of our dedicated employees, the management team, the Board, and other important stakeholders.

Our future success is to a large part dependent on employee engagement and loyalty. Our compensation strategy, as outlined in this report, is clearly focused on retaining our workforce - who have remained loyal and resilient throughout a tough period - and on enabling us to attract new talents committed to navigating through the next phase of growth. In

2023 and up to May 2024, the Board held numerous meetings to discuss and review the various strategic initiatives, and the focus of the NGCC has been to support the Board in the formulation and execution of its strategy.

During the year, significant achievements, for instance in R&D, were reached. The

Board is, however, also cognizant of the fact that important business results were only partially realized and of the reduction in our share price. It therefore concluded that this should have an impact on certain compensation elements.

A decision was made to reduce fee levels for the Board by approximately 15% for the term starting from the 2024 AGM. The Board felt that this was an appropriate measure in the current circumstances.

Despite our best efforts, the company did not reach its sales objectives, although R&D, operational, and some financial goals were achieved, which could have resulted in bonus payouts. Bearing in mind the current funding situation, and in line with the cash preservation principle, the NGCC and the Board deemed a zero bonus payout to be most appropriate for the IEC and across the company. As a result, the total amount of compensation awarded to the IEC for the financial year 2023 (excluding social security contributions) amounted to 43.2% of the aggregate maximum compensation amount approved by shareholders at the 2022 AGM.

2023 and the first few months of 2024 also saw some changes in the composition of the IEC. Simon Jose left his position as Chief Commercial Officer in June 2023. He has not been replaced, with the heads of the commercial organizations in the US and EUCAN (Europe and Canada) now reporting directly to the CEO. In March 2024, it was announced that our Chief Medical Officer, Guy Braunstein, was retiring. The CMO role has been assumed by a senior member of the Global Clinical Development and Medical Affairs team and now is not included at the IEC level.

The NGCC has reviewed the 2024 LTI program for the IEC, both in terms of instrument and award levels. The Committee believes that stock options still represent the most appropriate vehicle in the current situation of the company. However, the NGCC and the Board decided that the

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Contents

• Letter from the NGCC Chair
  Compensation Governance
  Compensation Principles
  Compensation Structure: Board
  Compensation Structure: CEO and all other IEC members
  Report of the Statutory Auditor
  Compensation awarded to the Board and to the IEC
  Mandates of Board and IEC members outside Idorsia
  Investments held by Board and IEC members
  Equity Overhang and Dilution
  in Idorsia Group

exercise price for stock options will be set at a 50% premium to the market value. With this approach, the Committee aims to incentivize senior executives' long-term performance, while aligning potential rewards with shareholder interests. The Committee will continue to keep the LTI program under review.

Idorsia continues to strive for better representation of women throughout the company. The Board was pleased to recruit a new female NED, Sophie Kornowski, who was elected as a Board member in May 2023. Sophie Kornowski has extensive commercial experience in the biopharmaceutical sector, across Europe and in the US. In addition,

two senior female scientists were also recently appointed to the Idorsia Leadership Team (ILT), responsible for execution of the company's strategy. Going forward, gender diversity will remain a priority for the NGCC.

At the upcoming AGM, to be held on June 13, 2024, this Compensation Report will be submitted to a non-binding, consultative shareholders' vote. In addition, shareholders' formal approval will be sought for the aggregate maximum compensation of the Board for the term of office from the 2024 to the 2025 AGM, and for the aggregate maximum compensation of the IEC for the 2025 financial year.

We appreciate your confidence and ongoing support, and we look forward to pursuing our dialogue as we optimistically continue to work on Idorsia's future.

With best regards on behalf of the NGCC,

Felix R. Ehrat

NGCC Chair

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Compensation Governance

Contents

Letter from the NGCC Chair

• Compensation Governance
  Compensation Principles
  Compensation Structure: Board
  Compensation Structure: CEO and all other IEC members
  Report of the
  Statutory Auditor
  Compensation awarded to the Board and to the IEC
  Mandates of Board and IEC members outside Idorsia
  Investments held by Board and IEC members
  Equity Overhang and Dilution
  in Idorsia Group

Role of Shareholders and Articles of Association

Shareholders have an important say in compensation matters, with their formal approval being required for the aggregate maximum amounts of compensation for the Board and for the IEC through binding votes at each AGM, and with their approval being sought for the company's remuneration policy through the non-binding, consultative vote on the Compensation Report.

In addition, the principles of compensation for the Board and for the IEC are governed by the Articles of Association, which are also approved by the shareholders. The Articles of Association are available at www.idorsia.com/AoA. The compensation provisions in the Articles of Association include the principles of compensation applicable to the Board and the IEC, the structure of the shareholders' vote on compensation, and provisions on credit and loans, as summarized in this table:

Overview of compensation-related provisions in Idorsia's Articles of Association

	Article
Resolutions on compensation	7
Supplementary compensation amount for new members of Executive Management	8
Compensation Committee	20
Permitted additional activities	24
Agreements related to compensation for members of the Board of Directors	25
and the Executive Management
Principles relating to the compensation of the members of the Board of Directors	26
Principles of compensation relating to the members of the Executive Management	27
Credit and pension schemes	28

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Contents

Letter from the NGCC Chair

• Compensation Governance
  Compensation Principles
  Compensation Structure: Board
  Compensation Structure: CEO and all other IEC members
  Report of the Statutory Auditor
  Compensation awarded to the Board and to the IEC
  Mandates of Board and IEC members outside Idorsia
  Investments held by Board and IEC members
  Equity Overhang and Dilution
  in Idorsia Group

Nominating, Governance & Compensation Committee

As specified in the Charter of the NGCC, which is Annex 1 to the company's By-Laws (available at www.idorsia.com/by-laws),the NGCC consists of at least three, but no more than five, Non-Executive Directors (NEDs). The NGCC members are individually elected, for a one-year term, by the shareholders at the AGM. Current members of the NGCC are Felix R. Ehrat (Committee Chair), Srishti Gupta, Sophie Kornowski, and Mathieu Simon.

The NGCC supports the Board in questions relating to nomination and governance, as well as compensation. With regard to compensation-related matters, the duties of the NGCC as outlined in the NGCC charter include:

• determining the compensation strategy of the company;
• recommending and reviewing compensation policies and plans for approval by the full Board;
• reviewing and assessing the adequacy of the provisions in the Articles of Association relating to compensation, as well as the adequacy of the NGCC Charter;
• proposing and recommending to the
  Board, for approval by the AGM, the aggregate maximum compensation of the Board for the term of office until the next ordinary AGM and the aggregate maximum compensation of executive management, i.e., the CEO and the IEC for the next financial year;
• recommending to the Board for approval the compensation of the members of the Board within the limits approved by the AGM;

• recommending to the Board for approval the compensation of the CEO, as well as setting the annual performance targets and determining achievement against these targets of the CEO under the relevant compensation schemes;
• approving, upon recommendation of the
  CEO, the compensation of the CEO's direct reports, as well as setting their annual performance targets and determining achievement against these targets within the framework of the relevant compensation schemes; and
• preparing the Compensation Report for approval by the Board.

Additional information on the responsibilities of the NGCC is provided in the "Board of Directors" section of the Governance Report.

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Contents

Letter from the NGCC Chair

• Compensation Governance
  Compensation Principles
  Compensation Structure: Board
  Compensation Structure: CEO and all other IEC members
  Report of the
  Statutory Auditor
  Compensation awarded to the Board and to the IEC
  Mandates of Board and IEC members outside Idorsia
  Investments held by Board and IEC members
  Equity Overhang and Dilution
  in Idorsia Group

The responsibilities of the AGM, Board, NGCC, and CEO on compensation matters are summarized in this table:

Annual process and responsibilities for compensation of the Board and IEC

	August -	October -	January -	April -
	September	December	February	May**
Compensation policy review and compensation	NGCC
principles for next financial year	Board
Compensation incentive plans (design, performance		NGCC
targets) for the next financial year		Board
Aggregate maximum amounts of compensation			NGCC	AGM
for the Board and the IEC			Board	(binding)
Compensation structure and levels for the Board			NGCC
		Board
Target compensation of the CEO		NGCC	Board
Target compensation of all other individual IEC members		CEO	NGCC
Short-term incentive plan (STIP) payouts			CEO
for IEC members*			NGCC
Long-term incentive plan (LTIP) grants			CEO
for IEC members*			NGCC
Compensation Report			NGCC	AGM
		Board	(consultative)

* Proposals relating to CEO compensation are prepared by the NGCC and approved by the Board.

• In 2024, the AGM will be held exceptionally in June. As a result certain compensation matters were reviewed or approved with a slightly different schedule compared to the standard timeline.

Recommending

Reviewing

Approving

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Contents

Letter from the NGCC Chair

• Compensation Governance
  Compensation Principles
  Compensation Structure: Board
  Compensation Structure: CEO and all other IEC members
  Report of the Statutory Auditor
  Compensation awarded to the Board and to the IEC
  Mandates of Board and IEC members outside Idorsia
  Investments held by Board and IEC members
  Equity Overhang and Dilution
  in Idorsia Group

The NGCC meets as often as business requires, but at least four times a year. In 2023, the NGCC held four meetings: one hybrid (with one member present by video conference) and three in person. Each meeting took on average around two hours, and all members were present at every meeting. In addition, the NGCC Chair interacts regularly (normally every two or three weeks) with Idorsia's Head of Global Human Resources.

The NGCC Chair may, at his discretion, invite executives to attend meetings in full, or in part, depending on the topics: the CEO, the Head of Human Resources, and the Head of Rewards. Executives do not attend meetings when their own compensation and/or performance is being discussed.

The NGCC Chair reports to the Board on the activities of the Committee after each meeting. The NGCC meeting minutes are available to the Board.

The NGCC may decide to consult independent external advisors for general and specific compensation matters. In 2023, Alvarez & Marsal (London office) provided services on compensation matters and related topics and participated in all the NGCC meetings. Alvarez & Marsal did not provide any other services to Idorsia.

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Compensation Principles

Contents

Letter from the NGCC Chair

Compensation

Governance

• Compensation Principle
  Compensation Structure: Board
  Compensation Structure: CEO and all other IEC members
  Report of the
  Statutory Auditor
  Compensation awarded to the Board and to the IEC
  Mandates of Board and IEC members outside Idorsia

Investments held by Board and IEC members

Equity Overhang

and Dilution

in Idorsia Group

Idorsia's compensation principles support the business strategy and foster the commitment of all employees to the company's key strategic priorities. They also support the ongoing development of Idorsia's business and organizational culture:

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