Resolution on the approval of the compensation system relating to members of the Management Board

The Act Implementing the Second Shareholders' Rights Directive (Gesetz zur Umsetzung der zweiten Aktionärsrechterichtlinie – hereinafter referred to as "ARUG II") repealed Section 120(4) of the Stock Corporation Act (Aktiengesetz – AktG) and added Section 120a to the Stock Corporation Act. In accordance with these provisions, the General Meeting of Shareholders shall resolve on the approval of the compensation system for the members of the Management Board presented by the Supervisory Board in those cases in which there is a significant change in the compensation system, but at least every four years. Pursuant to Section 26j(1) of the Introductory Act to the Stock Corporation Act (Einführungsgesetz zum Aktiengesetz – EGAktG), the first resolution in accordance with Section 87a(1), Section 113(3) and Section 120a(1) AktG in the version applicable as of 1 January 2020 shall be adopted by the end of the first Annual General Meeting subsequent to 31 December 2020.

At its meeting on 14 April 2021, the Supervisory Board decided on a compensation system for the Management Board members that has been adjusted in specific areas. The Supervisory Board shall submit the compensation system of the Management Board for the initial resolution pursuant to Section 120a AktG. The compensation system was drawn up with the assistance of an independent consultant and complies with the requirements of Section 87a AktG, as newly introduced by ARUG II, as well as – with the exceptions specified in SIMONA AG's Declaration of Conformity with the German Corporate Governance Code (GCGC) dated 6 April 2021 – the recommendations of the GCGC in its current version dated 20 March 2020.

The Supervisory Board proposes that the compensation system for the Management Board, as set out in more detail below and resolved by the Supervisory Board in its meeting on 14 April 2021, be approved.

Compensation system of the Management Board

A. PRINCIPAL FEATURES OF THE COMPENSATION SYSTEM FOR THE MEMBERS OF THE MANAGEMENT BOARD OF SIMONA AG

The compensation system for members of the Management Board outlined below makes a significant contribution to the promotion and implementation of SIMONA AG's corporate strategy of achieving a sustainable improvement in performance and profitable growth. Added value is created for customers, employees and shareholders alike by defining performance criteria related to the long-term and sustainable success of the company and incorporating challenging annual and multi-year targets.

Short-term variable compensation ("profit-based bonus") is aligned with the financial performance criterion "Group EBT" according to IFRS. This is conducive to promoting the Management Board's focus on profitability and growth.

In order to link the compensation of members of the Management Board to the long-term performance of SIMONA AG, long-term variable compensation accounts for a significant proportion of total compensation. Long-term variable compensation is granted as a target bonus with a three-year period used to determine the amount. Average ROCE (return on capital employed) serves as the key determinant of financial success during the three-year performance period; in this context, ROCE does not refer to EBIT, but rather to EBIT after income taxes, i.e. net operating profit after taxes ("NOPAT-ROCE"). The long-term incentive programme ("LIP") of SIMONA AG for long-term compensation is aimed at sustainably linking the interests of the company's management with the interests of shareholders in increasing the value of the company over the long term. At the same time, LIP is to be seen as a competitive remuneration component available to SIMONA AG's management, the focus being on establishing a connection with the long-term financial performance of the company. The long-term variable bonus is also based on the achievement of sustainability targets relating to environmental, social and governance aspects ("ESG targets") over the course of a three-year period used as a basis of calculation ("ESG bonus"). This helps to underpin the company's strategic evolution, which also includes social and ecological aspects and focuses on sustainable corporate development.

The system for the compensation of Management Board members is designed in a clear and comprehensible manner. It complies with the requirements of the German Stock Corporation Act as amended by the Act Implementing the Second Shareholders' Rights Directive of 12 December 2019 (Federal Law Gazette Part I 2019, No. 50 of 19 December 2019). The new compensation system will apply from 14 April 2021 and will be directly applicable to any new Management Board members. As regards current Management Board members, the new compensation system will be applied in the case of contract extensions concluded as from 14 April 2021.

B. THE COMPENSATION SYSTEM IN DETAIL

I. Components of compensation

1. Overview of the components of compensation and their relative share of compensation

Compensation in respect of the Management Board members consists of fixed and variable components. The fixed components of compensation for Management Board members are the annual fixed salary and fringe benefits. Variable components include the profit-based bonus (short-term variable compensation) as well as LIP and the ESG bonus (each long-term variable compensation).

 

Compensation component

Assessment basis / parameters

Fixed compensation

components

 

Annual fixed salary

       Fixed, contractually agreed remuneration paid in twelve equal monthly instalments

Fringe benefits

In particular:

       Company car for private use

       Accident insurance

Company pension scheme (CPS)

       Retirement and surviving dependents' benefits

       Defined contribution plan

       Annual pension contribution of approx. 15-25% of annual fixed salary

Variable compensation

 

Short-term variable compensation (profit-based bonus)

Type of plan:

       Performance-related bonus

Limit on the amount paid out:

       180% of the target amount (Chairman of the Management Board – CEO)

       130% of the target amount (other members of the Management Board)

Performance criteria:

       0.45% and 0.65% of Group EBT according to IFRS, respectively

Assessment period:

       Financial year in question

Payment:

       In cash ten days subsequent to the adoption of the annual financial statements of the respective financial year

Long-term variable compensation (LIP)

Type of plan:

 

       Target bonus with three-year assessment period

Limit on the amount paid out:

       150% of the target bonus (Chairman of the Management Board)

130% of the target bonus (other members of the Management Board)

Performance criteria:

       Average NOPAT ROCE during the assessment period

Payment:

       In cash ten days subsequent to the adoption of the consolidated financial statements for the final year of the respective three-year assessment period

Long-term variable compensation (ESG bonus)

Type of plan:

 

       Target bonus with three-year assessment period

Limit on the amount paid out:

       150% of the target bonus (Chairman of the Management Board)

       130% of the target bonus (other members of the Management Board)

Performance criteria:

       Attainment of ESG goals

Payment:

       In cash ten days subsequent to the adoption of the consolidated financial statements for the final year of the respective three-year assessment period

On the basis of the compensation system, the Supervisory Board shall determine specific target total compensation for each member of the Management Board, which shall be commensurate with the duties and performance of the Management Board member as well as the situation of the company and shall not readily exceed the customary level of compensation. Target total compensation is the sum of all compensation components that are of relevance to total compensation. Total compensation includes the annual fixed salary, the profit-based bonus, the LIP, the ESG bonus as well as the fringe benefits and the company pension scheme. The profit-based bonus, LIP and ESG bonus are each based on the amount resulting from 100% target attainment. The share of long-term variable compensation in target total compensation exceeds the share of short-term variable compensation in target total compensation. The relative shares of the fixed and variable compensation components are listed below in relation to target total compensation.

 

Fixed compensation

(Annual fixed salary +
fringe benefits + CPS)

Variable compensation

Profit-based bonus

LIP

ESG bonus

Chairman of the Management Board and other members of the Management Board

approx. 40-50 %

approx. 20-25 %

approx. 20-30 %

approx. 5-10 %

As regards the Chairman of the Management Board and the other Management Board members, the share of fixed compensation (fixed annual salary, fringe benefits and CPS) is approximately 40-50% of target total compensation and the share of variable compensation is approximately 50-60% of target total compensation. The share of short-term variable compensation (profit-based bonus) in total target compensation is approximately 20-25%. The share of long-term variable compensation in the form of the LIP is approximately 20-30% of target total compensation and the share of long-term variable compensation in the form of the ESG bonus is approximately 5-10% of target total compensation.

Die genannten Anteile können für künftige Geschäftsjahre aufgrund der Entwicklung des Aufwands der vertraglich zugesagten Nebenleistungen sowie für etwaige Neubestellungen geringfügig abweichen.

The percentages outlined above may differ slightly in respect of future financial years due to the change in expenses relating to contractually agreed fringe benefits as well as with regard to potential new appointments.

2. Fixed compensation components

2.1 Annual fixed salary

The members of the Management Board receive an annual fixed salary in twelve equal monthly instalments.

2.2 Fringe benefits

Die SIMONA AG gewährt insbesondere folgende Nebenleistungen: Jedem Vorstandsmitglied wird grundsätzlich ein Dienstwagen, auch zur privaten Nutzung, zur Verfügung gestellt. Darüber hinaus wird für die Vorstandsmitglieder eine Unfallversicherung abgeschlossen, die auch private Reisen deckt.

2.3 Company pension scheme

SIMONA AG grants retirement and surviving dependents' benefits to members of the Management Board. The retirement benefits can be claimed from the point in time in which an entitlement to a retirement pension from the statutory pension insurance exists in full. The annual pension contribution paid by the company during the term of the contract of service amounts to approximately 15-25% of the contractually agreed fixed salary.

3. Variable compensation components

The variable components of compensation are described below. This includes details of the connection between the achievement of the performance criteria and the respective payout amount in respect of variable compensation. Additionally, we explain in which form and at which point in time the members of the Management Board are entitled to dispose of the variable compensation amounts granted by the company.

3.1 Profit-based bonus

The profit-based bonus is a performance-related bonus covering a one-year assessment period used as a basis of calculation. The financial performance criterion for calculating the bonus is SIMONA's consolidated EBT in accordance with IFRS.

The profit-based bonus is calculated according to the following formula:

0.45% x Group EBT according to IFRS

A higher percentage of 0.65% applies to the Chairman of the Management Board.

The annual payout amount is limited to 130% of the target amount (based on target EBT) for the ordinary members of the Management Board and to 180% of the target amount (based on target EBT) for the Chairman of the Management Board. The amount payable is due for payment ten days subsequent to the adoption of the annual financial statements of SIMONA AG.

If the appointment commences or ceases in the current financial year, the amount paid out shall be reduced pro rata temporis to the time of the beginning or end of the appointment.

Should the company incur exceptionally high expenses or extraordinary income in a financial year arising from the necessity to safeguard pension entitlements of retirees covered by SIMONA Sozialwerk GmbH, the Supervisory Board may, within the scope of its discretion, decide to exclude this item from the calculation of EBT for the purpose of calculating the bonus.

3.2 LIP

The LIP is granted in the form of a target bonus with a three-year assessment period used as the basis of calculation ("performance period"). Each performance period shall commence on 1 January of the first financial year of the performance period ("grant year") and end on 31 December of the second year following the grant year. The LIP consists of tranches, each covering one performance period. Average ROCE (return on capital employed) during the performance period is used as the economic performance target; in this context, ROCE relates to EBIT after income taxes (NOPAT-ROCE) rather than EBIT. For the purpose of determining NOPAT-ROCE during the performance period, the annual calculation parameters are added up over the period of three years, divided by three and rounded to two decimal places.

  • NOPAT-ROCE: 'NOPAT' divided by 'Capital Employed'
  • NOPAT (Net Operating Profit After Taxes): 'Adjusted EBIT' less income taxes
  • Adjusted EBIT: EBIT according to IFRS plus interest expenses for pension commitments included in staff costs
  • Capital employed: Property, plant and equipment + inventories + trade receivables - trade payables, according to IFRS.

All calculation parameters are based on the audited consolidated financial statements of SIMONA AG prepared in accordance with IFRS. In the event of adjustments to the consolidated financial statements, the LIP bonus is redetermined on the basis of the adjusted values.

The amount of the LIP bonus is based on average NOPAT ROCE during the performance period:

  • No LIP bonus is paid if average NOPAT ROCE is less than 3.50% (corresponds to less than 25% target attainment).
  • At an average NOPAT ROCE of 3.50% (equivalent to 25% target attainment), 25% of the target LIP bonus is paid.
  • At an average NOPAT ROCE of 5.00% (equivalent to 50% target attainment), 50% of the target LIP bonus is paid.
  • At an average NOPAT ROCE of 8.00% (corresponds to 100% target attainment), the full target LIP bonus is paid.
  • At an average NOPAT ROCE of 11.00% (equivalent to 150% target attainment), 150% of the target LIP bonus is paid.

As regards the target LIP bonus agreed in the service contract, no more than 150% will be paid in respect of the Chairman of the Management Board and no more than 130% in respect of the other Management Board members. Intermediate values are interpolated on a linear basis.

The entitlement to payment of the LIP bonus is due within ten days of the adoption of the consolidated financial statements of SIMONA AG for the final year of the respective performance period.

If the LIP commences during the year, the LIP bonus earned for this tranche of a performance period is paid pro rata temporis.

If the employment relationship ends for a compelling reason for which the Management Board member is accountable pursuant to Section 626 of the Civil Code (Bürgerliches Gesetzbuch – BGB), all entitlements to LIP bonuses from the tranches still running at the time of the termination of the employment relationship shall lapse. Tranches that have been completed but not yet disbursed will be paid out when due.

In all other termination cases, all current tranches shall be settled and paid out pro rata temporis; in the event of death, the heirs receive the LIP bonus. The LIP bonus is calculated immediately subsequent to the adoption of the consolidated financial statements for the financial year in which the employment relationship ended (for example, if the employment relationship ends on 15 August 2022, the LIP bonus is calculated on the basis of the consolidated financial statements for 2022, i.e. approximately in March 2023). All LIP bonuses are paid two weeks after calculation.

  • The calculation parameters determined in accordance with the consolidated financial statements are used with regard to the tranche that is in the third year at the time of termination of the employment relationship. The resulting LIP bonus is reduced pro rata temporis exactly to the day: (actual term of employment from the beginning of the performance period to the termination of employment in days) divided by 1,095 days.
  • The tranche that is in its second year at the time of termination of employment is reduced to two years. The calculation parameters determined in accordance with the consolidated financial statements are used as a basis. The resulting LIP bonus is reduced pro rata temporis exactly to the day: (actual term of employment from the beginning of the performance period to the termination of employment) divided by 1,095 days.
  • The tranche that is in the first year at the time of termination of employment is reduced to one year. The calculation parameters determined in accordance with the consolidated financial statements are used as a basis. The resulting LIP bonus is reduced pro rata temporis exactly to the day: (actual term of employment from the beginning of the performance period to the termination of employment) divided by 1,095 days.

3.3 ESG bonus

The ESG bonus is determined on the basis of the attainment of ESG targets during the three-year performance period. Each performance period commences on 1 January of the grant year and ends on 31 December of the second year following the grant year. Like the LIP, the ESG bonus consists of tranches, each covering one performance period. The Supervisory Board shall set one or more ESG targets for the performance period prior to the beginning of the respective financial year.

The Supervisory Board shall also determine for each ESG target:

  • a threshold value corresponding to a target attainment level of 50%,
  • a target value that corresponds to a target attainment level of 100%.

If the value falls short of the threshold value in the respective performance period, this corresponds to a target attainment level of 0%. Values between the threshold and the target value are interpolated or extrapolated on a linear basis; this also applies when the target value is exceeded. No subsequent changes to the target values can be made.

In those cases in which there is only one ESG target, the target attainment level corresponds to the overall target attainment level. In the case of several ESG targets, the overall target attainment level is calculated from the average of the target attainment levels of the individual ESG targets, unless the Supervisory Board determines a different weighting of the individual ESG targets for the calculation of the overall target attainment level prior to the beginning of the respective financial year.

The payout amount of the ESG bonus is determined using the following formula:

Target bonus in EUR x overall degree of target attainment

The payout amount of the ESG bonus is limited to a maximum of 150% of the individual target bonus agreed in the employment contract for the Chairman of the Management Board and 130% for the other Management Board members.

The entitlement to payment of the ESG bonus is due within ten days of the adoption of the consolidated financial statements of SIMONA AG for the final year of the respective performance period.

If the employment relationship does not exist for the entire duration of the respective performance period, the payment amount of the ESG bonus is reduced pro rata temporis.

If the employment relationship ceases for a compelling reason for which the member of the Management Board is accountable in accordance with Section 626 of the Civil Code (Bundesgesetzbuch – BGB), all entitlements to the ESG bonus from the tranches still running at the time of the termination of the employment relationship shall lapse. Tranches that have been completed but not yet disbursed will be paid out when due.

II. Maximum compensation

DTotal compensation to be granted for a financial year (sum of all compensation amounts expended for the financial year in question, including annual fixed salary, variable compensation components, fringe benefits and company pension) of the Management Board members – regardless of whether it is paid out in this financial year or at a later point in time – is capped in absolute terms ("maximum compensation").

Maximum gross compensation for the Chairman of the Management Board is EUR 1,312,000.00. For the other members of the Management Board, maximum gross compensation is EUR 772,000.00 each.

III. Compensation-related legal transactions

1. Terms of the contracts of service

Generally, members of the Management Board are appointed for a period of three years upon initial appointment. A reappointment period shall be determined individually at the due discretion of the Supervisory Board, taking into account all statutory requirements.

2. Requirements for the termination of compensation-related legal transactions

The contract of service shall cease at the latest at the end of the year in which the Management Board member reaches the age of 65. Furthermore, the contract of service shall cease at the end of the 12th month after a permanent incapacity of the Management Board member has been determined, but at the latest at the end of the respective contract term.

IV. Consideration of the compensation and employment conditions of the employees when determining the compensation system

When determining the compensation system, the Supervisory Board also takes into account the remuneration and employment conditions of the company's employees. When assessing the appropriateness of compensation, the comparative environment of SIMONA AG (horizontal comparison) as well as the internal compensation structure (vertical comparison) are taken into account. The vertical comparison refers to Management Board compensation in relation to compensation paid to senior management and the total workforce of SIMONA AG and its affiliated companies. In this context, the Supervisory Board also takes into account trends relating to the remuneration of the aforementioned groups.

V. Procedures for determining, implementing, and reviewing the compensation system

The Supervisory Board shall adopt a clear and comprehensible compensation system for the members of the Management Board. The Personnel and Nomination Committee is responsible for preparing the resolution by the Supervisory Board on the compensation system and the regular review of the compensation system. The Personnel and Nomination Committee provides the Supervisory Board with all the information it requires for the purpose of reviewing the compensation system. A review of the compensation system shall be carried out by the Supervisory Board at its due discretion, but at the latest every four years. In this context, the Supervisory Board shall conduct a market comparison and take into account, in particular, changes in the business environment, the overall economic situation and the strategy of the company, changes and trends in national and international corporate governance standards, and developments in respect of the remuneration and employment conditions of the employees in accordance with section B. IV. If necessary, the Supervisory Board shall consult external remuneration experts and other advisors. In doing so, the Supervisory Board shall pay attention to the independence of the external remuneration experts and consultants from the Management Board and shall take precautions to avoid conflicts of interest.

The Supervisory Board shall submit the adopted compensation system to the General Meeting of Shareholders for approval whenever there is a significant change to compensation, but at least every four years. If the General Meeting of Shareholders does not approve the compensation system submitted in this form, the Supervisory Board shall submit a reviewed compensation system to the General Meeting of Shareholders for approval at the following Annual General Meeting at the latest.

The Supervisory Board shall take appropriate measures to ensure that potential conflicts of interest of the members of the Supervisory Board involved in the deliberations and decisions on the compensation system are avoided and, if necessary, resolved. In this context, each member of the Supervisory Board is obliged to report conflicts of interest to the Supervisory Board. The Supervisory Board shall decide on how to deal with an existing conflict of interest on a case-by-case basis. In particular, there is the option of a Supervisory Board member affected by a conflict of interest not participating in a meeting or individual deliberations and decisions of the Supervisory Board.

The Supervisory Board may temporarily deviate from the compensation system (procedures and regulations governing the compensation structure) and its individual components as well as with regard to individual compensation components of the compensation system or introduce new compensation components if this is deemed necessary in the interests of the long-term prosperity of SIMONA AG. The Supervisory Board reserves the right to make such deviations in particular in response to extraordinary circumstances, such as an economic or corporate crisis.

This compensation system was approved by the General Meeting of Shareholders on 2 June 2021

Voteresults 2021 (only in german)