Henkel : Remuneration System for the Management Board of Henkel AG & Co. KGaA 2023 ‏ (1.43 MB)

HENKEL REMUNERATION SYSTEM FOR THE MEMBERS OF THE MANAGEMENT BOARD

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Remuneration policy for the Management Board

1. General objectives and principles

At Henkel AG & Co. KGaA, the duties of an executive board of a joint stock corporation are performed by Henkel Management AG as the sole Personally Liable Partner, whose Management Board ("Management Board") is therefore responsible for managing the business of Henkel AG & Co. KGaA. Henkel AG & Co. KGaA is the sole shareholder of Henkel Management AG.

Henkel is committed to corporate governance that is responsible, transparent and aligned to the sustainable and long-term development of the corporation. We want to create sustainable value - for our customers and consumers, for our people, for our shareholders, as well as for the communities in which we operate. We shape our future on the basis of a long-term strategic framework that builds on our purpose and our values, with a clear focus on purposeful growth.

Accordingly, the remuneration system for the members of the Management Board takes account of the relevant duties and responsibilities, and is designed to drive implementation of our corporate strategy, to offer incentives for successful and sustainable business performance over the long term, and to avoid inappropriate risk-taking. The following principles, in particular, are considered when designing the remuneration system and when making decisions regarding the structure and amounts of remuneration payable to members of the Management Board:

• Remuneration and its individual elements shall be consistent with regulatory/statutory requirements and the principles of good and responsible corporate governance.
• Remuneration shall be consistent with market practice and competitive, be appropriately commensurate with the duties and performance of the Management Board members, and shall take account of the size, complexity and international activities of the corporation, its economic and financial position, and its prospects for the future.
• Total remuneration shall encourage the implementation of the strategy designed to drive the sustainable and long-term development of the corporation, including its sustainability targets.
• Market alignment shall be assessed using a suitable benchmark group of other companies, while within the corporation the ratio of Management Board remuneration to the remuneration paid to the upper man- agement levels and the workforce both overall and over time shall be considered.

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• Remuneration shall consist of non-performance-related components and a substantial portion of variable, performance-related components. The variable, performance-related remuneration shall be predominantly share-based and designed to ensure that long-term variable target remuneration accounts for a greater share of the total than short-term variable target remuneration.
• The variable, performance-related components of remuneration shall be based on challenging financial performance indicators - related to the corporation's objectives and derived from the corporate strategy
  - and on non-financial targets. Overall, the financial performance indicators shall be weighted more heavily, and are based on quantitative criteria.
• Overall remuneration shall be equitable; reasonable caps on variable components of remuneration and maximum remuneration payable to a Management Board member shall have been defined.
• Each Management Board member shall acquire a reasonable portfolio of Henkel preferred shares during their tenure on the Management Board (Share Ownership Guideline) to enhance alignment to shareholders' interests.

2. Methodology used to determine, implement and review Management Board remuneration

2.1 Determination by the Supervisory Board of Henkel Management AG

The legal form of Henkel AG & Co. KGaA as a "Kommanditgesellschaft auf Aktien" with Henkel Management AG as its sole Personally Liable Partner means that, unlike in the case of joint stock corporations, the Supervisory Board of Henkel Management AG is responsible for appointing and dismissing members of the Management Board, the drafting of their contracts, assignment of their business duties, and their remuneration. Regarding Management Board remuneration, the Supervisory Board of Henkel Management AG is responsible, in particular, for:

• Determining and reviewing remuneration policy
• Specifying the non-performance-related and variable, performance-related components of remuneration
• Defining individual targets each year, and measuring performance with regard to same
• Determining the extent to which financial targets have been met each year and quantifying annual and multi-year variable, performance-related remuneration
• Approving the assumption of voluntary duties and supervisory board, advisory board or similar mandates in other companies, as well as other ancillary professional activities

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Corresponding resolutions are adopted by the Supervisory Board of Henkel Management AG, which is comprised of three members of the Shareholders' Committee of Henkel AG & Co. KGaA, after prior consultation in the Shareholders' Committee's Personnel Committee. The general rules governing the treatment of conflicts of interest are applied. Specifically, members of the Management Board are excluded from such consultations and resolutions to the extent necessary to avoid conflicts of interest. The Supervisory Board of Henkel Management AG is responsible for engaging external remuneration experts to either develop or modify the remuneration system or to assess whether Management Board remuneration is appropriate. In doing so, it ensures the independence of remuneration experts from both the Management Board and the corporation at large.

2.2 Remuneration policy review and approval by the Annual General Meeting

The Supervisory Board of Henkel Management AG regularly reviews the remuneration system, as well as the appropriateness of the remuneration, based on the principles and criteria described in this remuneration policy, and adjusts them as necessary.

The remuneration policy must be submitted for approval to the Annual General Meeting of Henkel AG & Co. KGaA if substantial changes are planned, and in all cases every four years. If the Annual General Meeting refuses to approve the remuneration policy, a revised remuneration system must be submitted for approval at the next Annual General Meeting, at the latest.

2.3 Structure and amounts

The structure and amounts of Management Board remuneration are aligned to the size, complexity and international activities of the corporation, its economic and financial position, its performance and future prospects, the normal levels of remuneration encountered in comparable companies, and also the general compensation structure within the corporation. The remuneration paid to Management Board members of companies listed in the Deutscher Aktienindex (DAX share index) - excluding financial services companies and taking account of concomitant market standing and complexity - substantially represents the external benchmark used to assess whether the remuneration structure is commonplace and whether the target and maximum remuneration levels applied are appropriate (horizontal comparison). In addition, the Supervisory Board of Henkel Management AG considers the development of Management Board remuneration relative to the remuneration paid to senior management (management levels 0 and 1 of the Henkel Group) and to the workforce in Germany, in terms of both total remuneration and progress over time (vertical comparison).

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The compensation package is further determined on the basis of the functions, responsibilities and personal performance of the individual officers, and the performance of the Management Board as a whole. The following criteria play a key role in measuring individual performance:

• The absolute and relative performance of the business unit for which each officer is responsible compared to market/competition performance
• The personal contribution toward implementing the strategic priorities
• Achievement of the relevant separate targets agreed with each individual

The variable annual remuneration components take into account both positive and negative developments. The overall remuneration is designed to be internationally competitive while also providing an incentive for sustainable and long-term business development and a sustainable increase in shareholder value in a dynamic environment.

Members of the Management Board receive non-performance-related components and performance-related components consisting of the following three main elements:

• Fixed non-performance-related basic remuneration to assure a reasonable basic salary
• Annual variable cash remuneration (Short Term Incentive, STI) to encourage the achievement of annual targets relating to business operations
• Variable, share-based cash remuneration relating to the long-term performance of the corporation (Long Term Incentive, LTI), based on achievement of long-term strategic targets

In compliance with the requirements of German Stock Corporation law [Aktiengesetz, AktG] and the recommendations of the German Corporate Governance Code (GCGC), the variable target remuneration is mostly of a long-term nature (i.e. long-term variable target remuneration accounts for a greater share of the total than short-term variable target remuneration), and payment is predominantly share-based.

Fringe benefits (other emoluments) are also paid. In addition, the Supervisory Board of Henkel Management AG is entitled to grant annual allocations to a company pension scheme (pension commitments) or payment of an appropriate lump-sum amount for personal provision. Rules that are consistent with market practice also exist to govern the various components of remuneration upon joining or leaving the Management Board.

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The Supervisory Board of Henkel Management AG has capped the maximum amounts payable both as individual variable components of remuneration and as the total remuneration granted in any fiscal year - taking into account the other emoluments and pension commitments or lump-sum pension payouts. Insofar as the Annual General Meeting complies with Section 87 (4) AktG in adopting resolutions to lower the cap on remuneration that is specified in the remuneration policy, this change is taken into account when entering into new, or extending existing Management Board contracts of employment (executive contracts).

In specific circumstances, the Supervisory Board of Henkel Management AG is entitled to withhold some or all of the variable remuneration (malus regulation) or demand the repayment, within specific limits and time periods, of variable remuneration that has already been paid (clawback regulation).

The obligation to purchase and hold Henkel preferred shares (Share Ownership Guideline) is a further key element of the remuneration policy for Management Board members. The aim here is to promote a degree of alignment in the interests of the Management Board members with those of the shareholders, while ensuring the sustainable and long-term performance of the corporation.

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3. Overview of the structure of the remuneration system

3.1 General overview in tabular form

The following table lists the material elements of the remuneration system and their structure. Further details can be found in Section 4.

Remuneration system overview

Components of remuneration and their structure

Objective and strategic reference

Non-performance-related components

Basic remuneration

• Chair of the Management Board: currently 1,500,000 euros p.a.
• Other Management Board members: currently 900,000 euros p.a.

Other emoluments

• Insurance, reimbursement of accommodation/relocation costs, home security costs, provision of a company car, use of a car service, other in-kind benefits; amounts vary dependent on personal needs
• Caps:
• • Chair of the Management Board: currently 250,000 euros p.a.
  • Other Management Board members: currently 175,000 euros p.a.

Optional: Pension commitments/Lump-sum pension payout

Defined contribution pension scheme

• Superannuation lump sum comprised of the total annual contributions. Annual contribution (lump-sum contribution):

 Assurance of equitable basic salary

commensurate with market conditions and the

function performed

 Avoidance of incentives to take inappropriate risks

 Inclusion of fringe benefits and benefits in kind

that are commensurate with market conditions and

directly related to, and supportive of, Management

Board activity

 Granting of amounts enabling accumulation of an

equitable company pension

• Chair of the Management Board: 750,000 euros
• Other Management Board members: 450,000 euros or alternatively

Lump-sum pension payout

• Lump-sumpension payout, payable annually:
• • Chair of the Management Board: 750,000 euros
  • Other Management Board members: 450,000 euros

 Granting of amounts enabling accumulation of an

equitable private pension

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Remuneration system overview

Components of remuneration and their structure

Performance-related components Variable annual cash remuneration (Short Term Incentive, STI)

• Target remuneration if all targets are met:
• • Chair of the Management Board: currently 2,100,000 euros
  • Other Management Board members: currently 1,200,000 euros
• One-yearperformance measurement period: Amount dependent on achievements in the fiscal year (remuneration year) with respect to:
• • Business performance (financial targets, bonus): organic sales growth (OSG), adjusted earnings per Henkel preferred share (EPS) at constant exchange rates versus prior year (actual-to-actual comparison); each weighted 50 percent
  • Individual performance: individual multiplier ranging from 0.8 to 1.2 applied to the bonus amount
• Cap: 150 percent of the respective target remuneration

Long-term variable share-based cash remuneration (Long Term Incentive, LTI)

• Virtual share plan
• Target remuneration if all targets are met:
• • Chair of the Management Board: currently 2,500,000 euros
  • Other Management Board members: currently 1,450,000 euros
• Four-yearperformance period, split into a three-year target achievement period and a one-yearlock-up period
• Final payout amount dependent on the share price and derived from the following basis for calculation:
• • 60 percent weighting: adjusted return on capital employed (ROCE)
  • 20 percent weighting: relative total shareholder return (TSR)
  • 20 percent weighting: ESG targets
• Cap: 150 percent of the respective target remuneration

Objective and strategic reference

• Incentive to meet the corporate targets for the current fiscal year
• Incentive for long-term purposeful growth
• Allowance for operational success relative to benchmark group
• Promoting implementation of the strategic priorities and sustainability targets
• Differences in performance possible between Management Board members
• Incentives to raise shareholder value over the long term
• Allowance for profitability
• Allowance for relative performance compared to the market
• Promoting implementation of the strategic priorities and sustainability targets

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Remuneration system overview

Components of remuneration and their structure

Caps	 Caps on total remuneration (basic remuneration, other emoluments and pension
			commitments/lump-sum pension payouts, and variable components of remuneration):
			- Chair of the Management Board: 9,400,000 euros p.a.
			- Other Management Board members: 5,500,000 euros p.a.
	Share Ownership Guideline		 Obligation to acquire a minimum portfolio of Henkel preferred shares and to hold them
			for the duration of tenure on the Management Board:
			- Chair of the Management Board: 200 percent of basic remuneration
			- Other Management Board members: 100 percent of basic remuneration
		Until this amount is achieved, Management Board members must invest at least 25 percent
		of the net amount paid out as performance-related remuneration (STI + LTI) after the close
		of the fiscal year in Henkel preferred share.
	Other regulations governing		Malus and clawback regulations
remuneration	 The Supervisory Board of Henkel Management AG is authorized - in specific circum-
			stances - to wholly or partially withhold variable remuneration (STI, LTI) (malus) or to
			demand repayment, within specific limits, of variable remuneration that has already
			been paid (clawback)
			Severance cap
		 Payment limited to maximum two years' remuneration but no more than due for
			the remaining term of the contract

Post-contractualnon-competition clause

• Two-yearterm; compensation for loss of earnings totaling 50 percent of the annual remuneration, payable in 24 monthly installments
• Severance pay credited against any compensation for loss of earnings for the same period

Objective and strategic reference

• Avoidance of inappropriately high payments
• Aligning the interests of Management Board and shareholders
• Incentive for long-term business performance
• Assurance of equitability of variable remuneration (STI, LTI)
• Ensuring compliance with essential principles of corporate governance
• Consistent with the GCGC, specification of a cap on payments and benefits in the event of premature termination of Management Board appointment
• Avoidance of inappropriately high compensation payments
• Protecting Henkel's interests

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3.2 Target remuneration

The target remuneration - comprised of remuneration excluding other emoluments and pension commitments/ lump-sum pension payouts - payable to all members of the Management Board (apart from the Chair) upon 100-percent achievement of all performance targets is currently 3,550,000 euros p.a. Of this figure, 900,000 euros is attributable to basic remuneration (around 25 percent of target remuneration), 1,200,000 euros to the STI (around 34 percent of target remuneration) and 1,450,000 euros to LTI (around 41 percent of target remuneration). Accordingly, some 75 percent of the target remuneration (= 2,650,000 euros) is therefore variable. Of this total, short-term variable target remuneration (STI) accounts for around 45 percent and long-term variable target remuneration (LTI) for around 55 percent.

Remuneration structure

(without other emoluments, pension benefits)

The target remuneration payable to the Chair of the Management Board upon 100-percent achievement of all performance targets currently totals 6,100,000 euros, broken down as follows: 1,500,000 euros basic remuneration (around 25 percent of target remuneration), 2,100,000 euros STI (around 34 percent of target remuneration) and 2,500,000 euros LTI (around 41 percent of target remuneration).

Other emoluments are paid to all members of the Management Board except the Chair up to a maximum of 175,000 euros, together with pension commitments (annual pension contributions) or lump-sum pension payouts - if granted - of 450,000 euros. Bearing in mind these amounts and 100-percent target achievement ("at target"), members of the Management Board currently receive total annual remuneration (remuneration