ARYZTA : Compensation Report

ARYZTA AG Annual Report 2021

56

Annual Report and Accounts 2021

Compensation Report

Letter from the Chair of the Remuneration Committee

Dear Shareholders,

On behalf of the Board of Directors and the Remuneration Committee, I am pleased to introduce ARYZTA's Compensation Report for the financial period 2021 ('FY 2021'), which was marked by continued disruption due to the COVID-19 pandemic.

Notably during FY 2021 the Group also saw the transition of leadership post last September's EGM and the subsequent exit of a number of members of the Executive Management. Despite this, and the volatility associated with the ongoing pandemic, the Remuneration Committee ('RemCo') continued to assess and review the overall compensation framework. The intent of our compensation strategy is to support the Company's turnaround ambitions and to align remuneration with the needs and expectations of shareholders.

At the upcoming AGM, we will ask you to approve, as last year, prospectively in a binding vote the maximum compensation of the Board for the period from this AGM until the next 2022 AGM, and the maximum aggregate compensation for the newly constituted Executive Management for FY 2023. Furthermore, you will have the opportunity to register your opinion on this Compensation Report in a consultative vote.

Looking ahead, we will continue refining our compensation framework in order to ensure that it continues to fulfil its purpose in the evolving context in which ARYZTA operates.

On behalf of ARYZTA and the RemCo, I would like to thank you for your support and valuable feedback.

Chair of the Remuneration Committee

Hélène Weber-Dubi,

4 October 2021

Governance

ARYZTA AG Annual Report 2021

57

Compensation Report (continued)

Introduction to Compensation

ARYZTA's Compensation Report for FY 2021 has been prepared in accordance with Swiss laws and regulations, including the Ordinance against Excessive Compensation of Listed Stock Companies and the Directive on Information relating to Corporate Governance, issued by SIX Swiss Exchange. The report also takes into account the recommendations set out in the Swiss Code of Best Practice for Corporate Governance of economiesuisse.

Compensation Governance

The compensation governance at ARYZTA is mainly comprised of three key bodies: The RemCo which advises the Board in compensation-related matters; the Board which ultimately decides on compensation-related matters; and the shareholders of ARYZTA at the AGM who approve the maximum aggregate amount of remuneration of the Board for the period until the next AGM and the Executive Management for the subsequent financial year. The Organizational Regulations, the Terms of Reference of the RemCo and the Articles of Association describe and define the roles and responsibilities of these three bodies. The Articles of Association contain the following relevant provisions on compensation:

• Compensation principles for the compensation of the Board and the Executive Management (Art. 21 and 22)
• Approval of compensation by the AGM (Art. 23a-d)
• Supplementary amounts available for members joining the Executive Management or being promoted within the Executive Management to CEO after the relevant approval of compensation by the AGM (Art. 23e-g)
• Retirement benefits and pensions (Art. 24)
• Duration and Termination of Employment Contracts (Art. 26)

The Articles of Association can be found on our website: https://www.aryzta.com/wp-content/uploads/2019/11/AoA-English.pdf

Governance

ARYZTA AG Annual Report 2021

58

Compensation Report (continued)

The general division of duties, responsibilities, and powers between the three key bodies of compensation governance (RemCo, Board and AGM) is shown in the table below.

	CEO	RemCo	Board	AGM
Compensation strategy and guidelines		P	A
Compensation principles		P	A (subject to	A (binding vote,
(Articles of Association)		AGM approval)	in case of changes)
Key terms of compensation plans for		P	A
Board and Executive Management
Total compensation for the Board		P	A (subject to	A (binding vote)
	AGM approval)
Total compensation for the Executive		P	A (subject to	A (binding vote)
Management		AGM approval)
Individual total compensation for the CEO		P	A
Individual total compensation for other	P	R	A
members of the Executive Management
Employment and termination agreements		P	A		Governance
for the CEO
Employment and termination agreements
for other members of the Executive	P	R	A
Management
Compensation Report		P	A	A
	(consultative vote)
A: Approve, P: Propose, R: Review

Role of the Shareholders regarding the AGM

The AGM approves the maximum aggregate amount of compensation of the Board for the period from AGM until the next AGM and the maximum aggregate amount of compensation for the Executive Management for the subsequent financial period (Art. 23a of the Articles of Association). Shareholders will be asked at the 2021 AGM, to be held on 17 November 2021, to approve the maximum aggregate amount of compensation of:

• The Board for the period from AGM until the next AGM (i.e. the period until the 2022 AGM); and
• The Executive Management for the following financial period (i.e. the financial period ending 31 July 2023.

In addition, as in prior periods, the Board will submit this Compensation Report to a separate advisory vote for the shareholders at the 2021 AGM in line with the Swiss Code of Best Practice for Corporate Governance.

At the 2020 AGM, the Board submitted three separate compensation-related resolutions, which were all approved by the shareholders:

• The maximum aggregate amount of compensation for the members of the Board for the period from the 2020 AGM until the 2021 AGM (binding vote): CHF 1,300,000.
• The maximum aggregate amount of compensation for the Executive Management for the FY 2022 (binding vote): CHF 18,000,000.
• The compensation report for FY 2020.

ARYZTA AG Annual Report 2021

59

Compensation Report (continued)

In addition and without further approval, ARYZTA is authorised to use supplementary amounts of 40% of the approved maximum aggregate amount (in full and not pro rata) of the compensation for the Executive Management for the relevant financial periods for members joining the Executive Management and/or being promoted from a member of the Executive Management to CEO after the AGM has approved the relevant maximum aggregate amount (Art. 23e of the Articles of Association).

Role of the Remuneration Committee

The RemCo has the duties of supervision and governance of ARYZTA's compensation framework and philosophy as well as the purpose to assist the Board in fulfilling its responsibilities regarding the compensation of the members of the Board and the Executive Management of ARYZTA.

The RemCo consists of three to four independent non-executive members of the Board who are elected annually and individually by the AGM pursuant to Swiss law for a one-year period until the next AGM. The RemCo Chair is appointed by the Board (Art. 20a of the Articles of Association).

Post the AGM 2020, the RemCo consisted of three members: Hélène Weber-Dubi, Heiner Kamps and Gordon Hardie, with Hélène Weber-Dubi approved by the Board as Chair of RemCo. Please refer to the Corporate Governance Report section for further details on RemCo composition, duties, and election.

As in prior periods, in FY 2021 the RemCo acted within the limits of the relevant shareholder approvals, being responsible for (Art. 20b of the Articles of Association):

• Considering and determining all elements of the compensation of the members of the Board and the Executive Management.
• Approving the compensation of other members of the Executive Management, upon the recommendation of the CEO.
• Reviewing and recommending to the Board on an annual basis a proposal regarding the total compensation amount of the Board and the Executive Management for the following period.
• Preparing and recommending to the Board the Compensation Report for approval.

The RemCo reviews the level and structure of the compensation for the Executive Management on an annual basis to ensure that executives are remunerated in line with the level of their authority and responsibility within the Group and so as to ensure ARYZTA's capacity to recruit and retain a high calibre of professional managers (for details with regards to the conducted compensation benchmarking in FY 2021, see page 68).

After each RemCo meeting, the RemCo Chair reports to the Board at the following Board meeting, ensuring that the Board members are kept informed in a timely and appropriate manner of all material matters within the RemCo's area of responsibility. In addition, all RemCo papers (e.g. agenda, minutes, presentations, etc.) are available to all members of the Board. When the RemCo considers it appropriate to do so, it may directly ask members of the Executive Management or members of the Human Resources

Governance

ARYZTA AG Annual Report 2021

60

Compensation Report (continued)

department to attend meetings as a guest. The RemCo regularly holds private sessions (i.e. without the presence of members of the Executive Management, members of the Human Resource department or third parties). Executives and the Chair of the Board do not participate during the sections of the meetings where their own performance and/ or compensation are discussed. The RemCo is authorised to obtain appropriate external advice and to invite those persons to attend at meetings of the RemCo.

The RemCo Chair convenes meetings of the RemCo as often as the business affairs of ARYZTA requires. During FY 2021, the RemCo held nine meetings with an average duration of two hours each. All members of the Committee had full meeting attendance during the reporting period.

The agenda items covered by the RemCo during the nine meetings of FY 2021 are described in the table below.

		Sep	Oct	Nov	Jan	Mar	May	June
	Agenda item	2020	20201	2020	2021	2021	2021	2021
General	Committee Terms of Reference				•
Framework
Annual Work Plan					•
	Management Compensation Packages				•	•	•
	Maximum aggregate compensation amount FY 2022		•
	STIP
	- Review of STIP FY 2022 design							•
Executive	- Performance achievement FY 2020	•	•
Management	- Target setting for STIP FY 2022							•
compensation	LTIP
	- Design LTIP grant FY 2021		•
	- Target setting LTIP FY 2021		•
	- Review of LTIP Regulations		•
	Benchmarking					•	•	•
Board	Maximum aggregate compensation amount from 2020 AGM	•
until the 2021 AGM
compensation
Compensation for Lead Independent Director			•
Reporting &	- Compensation Report FY 2020	•	•
Communication	- Disclosure level FY 2022							•

1. In October there were two meetings of the RemCo

Compensation Principles

ARYZTA's compensation framework and principles are designed to attract and retain top talent, to underpin the implementation and support of the Group's strategic plans and to provide a balance between motivating and challenging the members of the Executive Management to deliver ARYZTA's near-term business priorities together with achieving sustainable, long-term success (Art. 21a of the Articles of Association). Furthermore, ARYZTA's compensation framework aims to be aligned with shareholders' interest

and driving the creation of shareholder value. The RemCo gives careful and detailed consideration to the Board and Executive Management compensation. As one reference point, the RemCo regards market data on compensation to assess its competitiveness in the market environment.

Governance