2022 Remuneration Report

This Remuneration Report describes the basic principles of the remuneration system for the members of the Management Board and the Supervisory Board of NORMA Group SE. It provides information on the remuneration granted and owed in fiscal year 2022 on an individualized basis and broken down into components. The report complies with the requirements of the German Stock Corporation Act (Section 162). In addition, the Remuneration Report contains an individualized breakdown by components of the remuneration of former members of the Management Board and Supervisory Board.

The Supervisory Board of NORMA Group SE clearly acknowledged that the approval of the Remuneration Report on the remuneration individually granted and owed to the members of the Management Board and the Supervisory Board of NORMA Group SE in fiscal year 2021 for fiscal year 2021 at the Annual General Meeting on May 17, 2022, turned out to be weak with 51.91% of the votes cast. The criticism expressed by shareholders and proxy advisors is to be addressed by this revised compensation report.  In addition to an increased focus on improved transparency and comprehensibility of the information, it also contains a clarification of the extent to which the current remuneration system supports the company’s success in the long term and sustainably. Furthermore, the criticism of the high company pension of the former Chairman of the Management Board, Dr. Michael Schneider, is explicitly addressed. Here, it is important to the Supervisory Board to emphasize, even after Dr. Schneider left the company as of December 31, 2022, that the regulations regarding his company pension no longer correspond to the current practice of NORMA Group SE in the new remuneration system. They stem from old contractual commitments that are no longer granted to newly appointed members of the Management Board in this form and are instead being replaced by contribution pension commitments based on reinsurance.

 

Review of fiscal year 2022

Fiscal year 2022 was characterized by a number of challenges, in particular unexpectedly strong increases in material and energy costs as well as strains in the supply chain from the Ukraine war and corona lockdowns in China. On the one hand, the last fiscal year brought NORMA Group significantly higher sales of EUR 1,243.0 million (an increase of 13.8%). On the other hand, adjusted EBIT suffered, declining by 13.0% to EUR 99.0 million, and the adjusted EBIT margin declined from 10.4% in 2021 to currently 8.0%.

The Chairman of the Management Board, Dr. Michael Schneider, left NORMA Group on December 31, 2022, by mutual agreement.

 

Remuneration system for Management Board members

The Remuneration Report is based on the remuneration system approved at the virtual Annual General Meeting on June 30, 2020, with a majority of 99.80% of the votes in accordance with Section 120a (1) AktG. A more detailed description of the remuneration system for the members of the Management Board applicable to fiscal year 2022 is available on the website.  REMUNERATION SYSTEM

In accordance with the recommendation of the German Corporate Governance Code (GCGC) in the version of December 16, 2019, the Supervisory Board has decided on a clear and understandable system for the remuneration of the members of the Management Board, on the basis of which the specific remuneration of the individual members of the Management Board is determined. The remuneration system is designed to promote sustainable, long-term value creation and the implementation of the business strategy.

In view of the high level of approval for the application of the remuneration system in fiscal year 2021 and taking investor feedback into account, no changes to the remuneration system were deemed necessary in fiscal year 2022. According to Section 120a (1) sentence 1 AktG, the remuneration system for the members of the Management Board must be submitted to the 2024 Annual General Meeting for approval. In this context, it is planned to comprehensively review the current remuneration system in fiscal year 2023 and adjust it if necessary.

The remuneration system consists of fixed and variable remuneration components. The fixed non-performance-related remuneration consists of the fixed annual salary, the company pension scheme and fringe benefits. The variable, performance-based remuneration consists of the Short-Term Incentive (STI) and the Long-Term Incentive (LTI). The LTI consists of the NOVA-LTI and the ESG-LTI. Another key component of the remuneration system is the obligation to purchase and hold shares. This obliges the members of the Management Board to hold a significant number of shares in NORMA Group that is very high by market comparison. The goal of the share purchase and share retention obligation is to align the actions of the members of the Management Board more closely with the company’s creation of added value. Figure G037 illustrates the components of the remuneration system.

 

The following key points of the remuneration system are to be emphasized in particular:

•The components of the variable remuneration (Short-Term Incentive and Long-Term Incentive) are based on the results that are actually achieved, transparently comprehensible and audited.

•On the one hand, the Short-Term Incentive (STI) is dependent on an absolute performance factor, EBIT (earnings before interest and taxes) adjusted for acquisitions of NORMA Group. On the other hand, the STI depends on a relative performance factor (relative Total Shareholder Return (TSR)). For the TSR of NORMA Group SE, a comparison is made with the TSR of a previously defined group of 15 listed companies that is explained below. Depending on NORMA Group SE’s ranking within the comparison group, the payment amount from the STI increases or decreases by up to 20%. The minimum payment is EUR 0 while the maximum payment is limited to 180% of the fixed annual salary.

•The Long-Term Incentive is broken down into two components.

◦The first incentivizes the entrepreneurial success of NORMA Group and corresponds to a share of the adjusted EBIT above the cost of capital after taxes (NORMA-Value-Added-LTI, NOVA-LTI

for short). The minimum payment is EUR 0 and the maximum payment is limited to 200% of the fixed annual salary.

◦The second part of the LTI incentivizes the sustainable development of NORMA Group by meeting measurable sustainability goals, e.g. the reduction of CO2 emissions (Environment, Social and Governance-LTI, ESG-LTI for short) with a maximum amount of 20% of the fixed annual salary). The minimum payment is EUR 0 while the maximum payment is limited to 20% of the fixed annual salary.

•With the comprehensive obligation to purchase and hold shares, NORMA Group SE follows the recommendation of the German Corporate Governance Code. The members of the Management Board must invest 75% of the payout amount from the NOVA-LTI and 100% of the payout amount from the ESG-LTI in shares of NORMA Group SE. The company is free to settle the payment amount in whole or in part in shares of NORMA Group SE. As a result, more than 50% of the payout target amount of the variable remuneration is either invested by the members of the Management Board in shares of NORMA Group SE or granted by NORMA Group SE on a share basis. The NOVA-LTI includes a four-year share ownership obligation. The ESG-LTI is four years forward and provides for a one-year retention period.

•The Supervisory Board sets the binding performance criteria for the STI and the LTI. The Supervisory Board sets the targets for the ESG-LTI before the start of the fiscal year. The respective payment amounts are calculated after the end of the fiscal year based on the achievement of targets. The Supervisory Board only has the opportunity to adjust the conditions of the STI and the LTI at its reasonable discretion in the event of extraordinary events. Otherwise, the Supervisory Board has no discretion when determining the payment amounts from the STI and the LTI.

•The change-of-control clause, according to which Management Board members can leave the company in the event of a change of control and receive a severance payment of up to three years’ salary, was abolished for new Management Board members from fiscal year 2020.

•Likewise, from fiscal year 2020, new Management Board members receive a standard, defined contribution pension commitment on a reinsurance basis instead of the previous benefit commitments.

•The variable remuneration components are subject to the possibility of being reclaimed (“clawback”) if the audited Consolidated Financial Statements and/or the basis for determining other targets on which the calculation of the variable remuneration is based subsequently turn out to be objectively incorrect and therefore need to be corrected and the error has led to a miscalculation of the variable remuneration.

 

Compliance with the remuneration system

The remuneration system applicable to the members of the Management Board was implemented without any deviations in fiscal year 2022.

 

Basics of the remuneration system

In the opinion of the Supervisory Board and the Management Board, the remuneration system for the members of the Management Board is clear and easy to understand. The goal of NORMA Group’s remuneration system is to remunerate the members of the Management Board in accordance with their tasks and performance and in an appropriate relationship to the situation of the company. In accordance with NORMA Group’s strategy, the remuneration of the members of the Management Board promotes the business strategy and the long-term interests of the company and thus contributes to the sustainable and long-term development of NORMA Group. The focus is on strengthening profitable growth – also by making selected acquisitions – in the business areas of NORMA Group as well as taking the sustainability strategy into account, being the basis for the structure of the remuneration system for the members of the Management Board.

The remuneration system takes various targets based on profitability (through the adjusted EBIT), the return on investment (through the NOVA), the development of the company’s value (through the share price and the relative return on shares) and sustainability into account. The parameters used have different, but always multi-year terms in order to support the strategic success of the company in the long term. The remuneration of the members of the Management Board is designed in such a way that an appropriate incentive system is created for the implementation of the company strategy and sustainable value creation and growth. Particular attention is paid to the greatest possible congruence between the interests and expectations of the shareholders and the remuneration of the Management Board.

The achievement of individual goals is taken into account by individual differentiation of the fixed remuneration of the members of the Management Board in accordance with the role and performance exercised. Due to the limited number of Management Board members, their performance is viewed as a collective effort and responsibility as a body and no further individual targets have been included in the remuneration system. In accordance with the recommendations of the German Corporate Governance Code, the remuneration consists of a fixed component (fixed remuneration) as well as short-term variable and long-term variable components.

The table below provides an overview of the components of the remuneration system for the members of the Management Board applicable to fiscal year 2022. The table also provides an overview of the structure of the individual remuneration components and explains their objectives, particularly with regard to how the remuneration promotes the long-term development of NORMA Group.

Variable performance dependent remuneration components,  design, reference to the
strategy

T046

Remuneration component

Design

Reference to the strategy

 

Overview of the remuneration components and their relative share in the remuneration

The share of long-term variable remuneration in total remuneration exceeds the share of short-term variable remuneration in the target remuneration. The Supervisory Board determines the target amounts for the variable remuneration components for each fiscal year. In doing so, it decides which goals the company and the Management Board should achieve in relation to the performance criteria on the basis of the result assessments of the previous fiscal years as part of the budget planning for the following fiscal years and the strategic planning for the next few years.

For fiscal year 2022, the CEO’s fixed remuneration (fixed annual salary, pension costs and fringe benefits) accounted for approximately 47% of target total remuneration and variable remuneration for approximately 53% of the target total remuneration. For the ordinary members of the Management Board, the average share of fixed remuneration was approximately 42% of the total target remuneration target total remuneration and the share of variable remuneration was approximately 58% of the total target remuneration.

In the remuneration granted and owed for fiscal year 2022, the share of fixed remuneration (fixed annual salary, pension costs for the company pension scheme and fringe benefits) for the CEO was around 85% of the total remuneration and the share of variable remuneration was around 15% of the total remuneration. For the ordinary members of the Management Board, the fixed component accounted for approximately 79% and 85% of the total remuneration and the variable component for approximately 21% and 15% of the total remuneration.

For the CEO and the other members of the Management Board, the STI (target amount) made up around 35% of the variable target remuneration, while the NOVA-LTI (target amount) made up around 57% of the variable target remuneration and the ESG-LTI (target amount) was approximately 8% of target variable remuneration.

The percentages referred to can differ due to the different actuarial calculation of the service costs for each fiscal year and each Management Board member and the development of the costs of the contractually agreed fringe benefits.

Figure G038 illustrates the relative remuneration components for the CEO and the other Management Board members in relation to the target total remuneration for fiscal year 2022:

 

Determination of the target total remuneration

The Supervisory Board determines a target total remuneration for the individual members of the Management Board. This is made up of the sum of all remuneration components relevant to total remuneration. For the STI, NOVA-LTI and ESG-LTI, the target amounts are based on a target achievement of 100% of the budget values. The Supervisory Board determines the target amounts for the variable remuneration components for each fiscal year. The Supervisory Board decides which goals the company should achieve on the basis of the results determined for the previous fiscal years as part of the budget planning for the current fiscal years.

 

Fixed Remuneration Components

 

Fixed annual salary

The members of the Management Board receive a fixed annual salary in twelve monthly instalments, which are paid at the end of each month. The amount of the fixed annual salary is based on the tasks and the strategic and operational responsibility of the respective Management Board member.

 

Company pension scheme

NORMA Group grants the members of the Management Board a defined contribution company pension plan with reinsurance. The company is required to make contributions to an external provider each year under the defined contribution plan. The amount of the contributions corresponds to current market practice. Mrs. Stieve and all other future board members participate in this plan.

Following Dr. Schneider’s departure as of December 31, 2022, only Dr. Klein is backed by a company benefit plan. The entitlement to a pension arises when the employment contract ends and the Management Board member has reached the age of 65 or the Management Board member is permanently unable to work. The pension level (retirement pension) of the pension agreements is 4% of the fixed annual salary for each completed year of service from appointment to the Management Board, up to a maximum of 55% of the last fixed annual salary. A pension

for the surviving dependents is also provided. After retirement, adjustments are agreed in accordance with Section 16 (1) BetrAVG.

These agreements originate from contractual commitments before the current remuneration system came into force and will no longer be granted in this form in the future in accordance with the current market conditions.

 

Fringe benefits

The company provides each Management Board member with a company car for private use. In addition, the members of the Management Board are included in the company’s D&O insurance and the company reimburses 50% of the expenses for health and nursing care insurance, up to a maximum of the expenses that the company would have to pay if they were employed under social security law. The company also takes out accident insurance (private and occupational accidents) for the members of the Management Board at its own expense.

 

 

Variable Remuneration Components

The performance indicators used to measure the short-term and long-term variable remuneration components are derived from NORMA Group’s company strategy and are based on a three- or four-year observation period. The variable remuneration of the Management Board consists of the following components:

 

 

Short-term variable remuneration (Short-Term Incentive, STI)

The STI is a performance-related bonus which, on the one hand, reflects the absolute performance figure adjusted EBIT (earnings before interest and taxes, adjusted for acquisitions) of NORMA Group and, on the other hand, the relative return on shares (Total Shareholder Return, TSR for short) of NORMA Group SE in relation to a comparison group. The STI payout amount is calculated from a baseline amount and an adjustment to the target achievement of the TSR in the granting fiscal year. The calculation is based on the following formula:

 

Payout amount = Baseline (= Average adjusted EBIT x STI percentage) x TSR adjustment

The baseline figure results from multiplying the average adjusted EBIT, i.e. adjusted for acquisitions, in the fiscal year for which the STI is granted and the two fiscal years preceding the fiscal year in which the STI is granted (arithmetic mean) by the STI percentage, which is 0.33% for the CEO and 0.22% for the other board members. In a second step, this initial amount is multiplied by the TSR adjustment factor and the result represents the payout amount. The TSR is defined as the percentage change in the stock market price during the grant fiscal year, including notional reinvested dividends and all capital measures. In other words, the TSR is a measure of how the value of an equity investment has performed over a period of time, taking both dividends accrued over the period and any appreciation in share prices that may have occurred into account. With the current remuneration system, the return on shares is taken into account as a relative performance factor. The TSR adjustment factor is determined by measuring the TSR development (share price and dividend development) of NORMA Group SE in relation to the TSR development of the peer group companies during the granting fiscal year. Depending on the results of the comparison, if a position in the comparison group is achieved above the 75th percentile, the baseline STI is adjusted upward by 20% and below the 25th percentile, the baseline STI is adjusted downward by 20%; the TSR adjustment factor is thus limited to the range of 0.8 to 1.2. The comparison group currently consists of the

following 15 listed companies of comparable size, structure and industry sector to NORMA Group and is shown in the following table. The Supervisory Board is entitled to adjust the comparison group for future assessment periods before the start of the respective assessment period.

 

Figure G039 illustrates the calculation of the target remuneration of the STI.

The payout amount (= initial value x TSR adjustment factor) is limited to a maximum of 180% of annual base salary; the initial value (= average adjusted EBIT x STI percentage) is limited to a maximum of 150% of the fixed annual salary. The short-term variable remuneration for the past fiscal year is paid out in the following year after the Consolidated Financial Statements have been approved by the Supervisory Board. If the Management Board member has not worked for the company for a full twelve months in a fiscal year, the annual bonus will be reduced accordingly.

All claims to the STI from a current fiscal year expire without replacement or compensation if the employment contract of the Management Board member is terminated by the company for an important reason for which the Management Board member is responsible pursuant to Section 626 of the German Civil Code (BGB), the appointment of the Board member is revoked due to a gross breach of duty and / or the appointment of the Board member ends as a result of resignation without the resignation being caused by a breach of duty by the company or health impairments of the Board member or health impairments of a close family member (“bad leaver cases”). In the event of extraordinary events or developments, the acquisition or sale of a part of a company, for example, the Supervisory Board is entitled to temporarily and appropriately adjust the plan conditions of the STI at its reasonable discretion. The same applies if changes in the accounting regulations applicable to the company have

a significant impact on the parameters used to calculate the STI and in the event that a fiscal year comprises less than twelve months (short fiscal year).

Figure G040 provides a detailed overview of the calculation of the target amount of the STI for fiscal year 2022:

The TSR factor is 0.80 because the 25th percentile was reached in 2022.

In fiscal year 2022, NORMA Group generated an adjusted average EBIT of EUR 86.0 million. In combination with the achieved TSR factor of 0.8, this results in a payout amount for the STI 2022 of EUR 227 thousand for the CEO and a payout amount for the STI 2022 of EUR 151 thousand for the other members of the Management Board. The payout amounts comply with the payout cap of 180% of the fixed annual salary.

 

Long-term variable compensation (Long-Term Incentive, LTI)

The long-term variable remuneration consists of two components, the NORMA Value Added-LTI (NOVA-LTI for short) and the Environmental, Social and Governance-LTI (ESG-LTI for short).

•

NOVA LTI

The NOVA-LTI is granted in the form of a backward-looking performance cash plan in annual tranches, which is supplemented by a forward-looking share purchase and share retention obligation. The members of the Management Board are granted a tranche from the performance cash plan on January 1 of each grant fiscal year. Each tranche of the performance cash plan has a term of three years and considers the granting fiscal year and the two fiscal years preceding the granting fiscal year (“performance period”). The main success criterion for the LTI is the average NORMA Value Added (“NOVA”) during the three-year performance period. The payout amount from the LTI is calculated by multiplying the LTI percentage by the average adjusted NOVA during the performance period. The LTI percentage for the CEO is 1.5% and for full Board members 1.0%.

The annual increase in value is calculated using to the following formula:

 

NORMA Value Added = (adjusted EBIT x (1 – s)) – (WACC x invested capital)

The calculation of the first component is based on the adjusted Group earnings before interest and taxes (adjusted NORMA Group EBIT) for the fiscal year and the average corporate tax rate. The second component is calculated from NORMA Group’s cost of capital (WACC) multiplied by the capital employed. The assumptions for the Group’s cost of capital (WACC) are shown in the table below.

The base interest rate is derived from the interest structure data of the Deutsche Bundesbank (three-month average: October 1 to December 31, 2022). The market risk premium represents the difference between the expected return on a risky market portfolio and the risk-free interest rate. NORMA Group uses the recommendation of the Institute of Public Auditors in Germany (IDW) to determine this. The beta factor represents the individual risk of a share compared to a market index. It is first determined as the average value of the unlevered beta factors of the comparable companies (peer group) and then adjusted to the individual capital structure of NORMA Group. The cost of equity is the sum of the following three components: the risk-free interest rate, the weighted country risk of NORMA Group, the product of the market risk premium and leveraged beta factor of the peer group. The credit spread used to calculate the cost of debt was determined on the basis of the conditions of NORMA Group’s current external financing. The invested capital is calculated from Group equity plus the net financial liabilities as of

January 1 of the fiscal year. Figure G041 clarifies the timing of the NOVA-LTI, in particular the performance period and the obligation to purchase and retain shares of four years.

The NOVA-LTI is limited to a maximum of 200% of the fixed annual salary for all Management Board members. The company can pay out the payout amount in cash or in shares of the company. In the case of a cash payment, the members of the Management Board are obliged to purchase shares of the company for an amount equal to 75% of the net amount paid out and to retain ownership of these for a period of four years (obligation to purchase and retain shares). The company’s Supervisory Board can decide at its reasonable discretion to issue shares in the company in whole or in part instead of a cash payment. If the company issues shares in the company in lieu of a cash payment, the members of the Management Board are also required to retain ownership of 75% of the shares issued for a period of four years. Independently of, whether the company makes the payout amount in cash or in shares, 75% of the net payout amount from the NOVA-LTI must be invested in shares of the company and be held for a period of four years. Irrespective of the type of payment (cash or in shares in the company), the NOVA-LTI is paid out in the following year after approval of the Consolidated Financial Statements by the Supervisory Board. After the end of the employment contract, the retention obligation generally lasts for a period of twelve months after the legal end of the employment contract, unless the four-year retention period has expired earlier.

The cases described with regard to the STI for a resignation during an ongoing performance period apply accordingly. In the event of extraordinary events or developments, the acquisition or sale of a part of a company, for example, the Supervisory Board is entitled to temporarily and appropriately adjust the plan conditions of the LTI at its reasonable discretion. The same applies if changes in the accounting regulations applicable to the company have a significant impact on the parameters used to calculate the LTI and in the event that a fiscal year is less than twelve months long (short fiscal year).

Figure G042 provides an overview of the target amounts and payout amounts of the NOVA-LTI for fiscal year 2022:

The calculation of the NOVA figure is explained in the following table:

 

 

The amount paid out for the NOVA-LTI 2022 for the CEO and other members of the Management Board is EUR 0.00. The payout amounts maintain the payout cap of 200% of the fixed annual salary.

•

ESG-LTI

In addition to the NOVA-LTI, the ESG-LTI represents the second component of long-term variable remuneration. The ESG-LTI is a variable remuneration element in the form of a forward-looking performance cash plan in annual tranches, which is supplemented by an obligation of Board members to purchase and hold shares. Each tranche of the ESG-LTI has a term of four years. A tranche begins on January 1 of the granting fiscal year and ends at the end of December 31 of the third year following the granting fiscal year (“ESG performance period”). The amount paid out from the ESG-LTI depends on the achievement of environmental, social and prudent corporate governance goals, so-called “ESG goals.” ESG goals can be, for example: Reducing greenhouse gas emissions, increasing workforce satisfaction, increasing customer satisfaction, reducing workplace accidents, and increasing sustainability.

The target amount of the ESG-LTI is 20% of the fixed annual salary. The payout amount is limited to a maximum of 100% of the target amount. The payout amount from the ESG-LTI is due for payment at the end of the month following the month in which the Supervisory Board approved the company’s Consolidated Financial Statements for the granting fiscal year. The company can pay out the payout amount from the ESG-LTI in cash or in shares in the company. In the case of a cash payment, the members of the Management Board are obliged to purchase shares in the company for the entire net amount paid out and to retain ownership of these for a period of one year (“obligation to purchase and retain shares”). The company’s Supervisory Board can decide at its reasonable discretion to issue shares in the company in whole or in part instead of a cash payment. In this case, too, the members of the Management Board are obliged to retain 100% of the shares issued for one year. As a result, 100% of the net payout amount from the ESG bonus must be invested in shares of the company and be held for a period of one year.

Figure G043 clarifies the mechanism of the ESG-LTI.

The cases described with regard to the STI for a resignation during an ongoing performance period apply accordingly. In the event of extraordinary events or developments, the acquisition or sale of a part of a company, for example, the Supervisory Board is entitled to temporarily and appropriately adjust the plan conditions of the ESG-LTI at its reasonable discretion. The same applies if changes in the accounting regulations applicable to the company have a significant impact on the parameters relevant for the calculation of the ESG-LTI and in the event that a fiscal year is less than twelve months long (short fiscal year).

 

Information on the shares and stock options granted or promised within the meaning of Section 162 (1) No. 3 AktG as part of the Long-Term Incentives (LTI)

The following table provides an overview of the shares granted:

 

The acquisition of shares from the ESG-LTI will only take place in the future; therefore these shares will only be shown in the future.

 

Maximum Remuneration and Compliance with Maximum Remuneration

The total remuneration to be granted for a fiscal year (total of all remuneration amounts granted for the fiscal year in question, including the fixed annual salary, variable remuneration components, pension expenses (service costs) and fringe benefits) of the members of the Management Board – regardless of whether it is paid out in this fiscal year or at a later date – is capped in absolute terms (“maximum remuneration”). The maximum remuneration pursuant to Section 87a (1) 1 sentence 2 No. 1 AktG is EUR 3,900,000 for the Chairman of the Management Board and EUR 2,500,000 for each of the other Management Board members. If the total remuneration calculated for a fiscal year exceeds the maximum remuneration, the payout amount from the LTI is reduced so that the maximum remuneration is observed. If necessary, the Supervisory Board is permitted, at its due discretion, to reduce other remuneration components or demand reimbursement of remuneration already paid. Irrespective of the specified maximum remuneration, the payment amounts of the individual variable remuneration components are also limited in relation to the fixed annual salary.

The remuneration granted for fiscal year 2022 remained within the target and the maximum payout is below the maximum remuneration.

 

Severance Payments and Change of Control Clause

In the event of premature termination of the service contract without good cause, a possible severance payment is limited to a maximum of two annual salaries in accordance with the recommendations of the German Corporate Governance Code (GCGC) and may not exceed the contractual remuneration for the remaining term (severance payment cap). The calculation of the severance payment cap is generally based on the total remuneration for the past fiscal year and, if applicable, also on the expected total remuneration for the current fiscal year.

Since 2020, NORMA Group has not granted Management Board members any special remuneration in the event of a change of control. After the departure of Dr. Schneider as of December 31, 2022, a change of control clause has only been agreed to with Dr. Klein. If a special right of termination is exercised in the event of a change of control or due to conversions, Dr. Klein is to receive a severance payment equal to three years’ salary, but no more than one-and-a-half times the severance cap or the value of the remuneration for the remainder of his service contract. In accordance with the recommendations of the GCGC, the employment contract of Mrs. Stieve and future members of the Management Board no longer contains a change of control clause. Accordingly, no severance payment is due for these Management Board members if they exercise a special right of termination in the event of a change of control or due to conversions. The annual remuneration is the current fixed annual salary at the time of notice of termination as well as the variable remuneration components granted for the past fiscal year.

 

Opportunities for the company to reclaim variable remuneration components

The company is entitled to adjust and reclaim the payment amounts from the variable remuneration at its due discretion if the audited Consolidated Financial Statements and/or the basis for determining other targets on which the calculation of the variable remuneration is based need to be corrected retrospectively because they prove to be objectively incorrect, and the error has led to an incorrect calculation of the variable remuneration. The claim for repayment consists of the difference between the payment amounts actually paid by the company and the payment amounts that should have been paid out according to the regulations on variable remuneration based on the corrected calculation bases. In the event of a grossly negligent or intentional breach by a member of the Management Board of one of his material duties of care within the meaning of Section 93 of the German Stock Corporation Act (AktG) or a material principle of action of an internal guideline issued by the company and a resulting risk to the business success or reputation of NORMA Group or one of its companies, the Supervisory Board may reduce the variable remuneration components in part or in full (down to zero).

If the correction of the basis for calculating variable remuneration affects several variable remuneration components that have been paid out, payment amounts for all variable remuneration components can be reclaimed. The entitlement to repayment exists for a period of three years after payment of the respective variable remuneration component.

In fiscal year 2022, the Supervisory Board did not make use of the option to withhold or reclaim variable remuneration components.

 

Remuneration of the Management Board in fiscal year 2022

Management Board remuneration for fiscal year 2022 is reported in accordance with Section 162 AktG and, for reasons of continuity and transparency, in accordance with the recommendations of the German Corporate Governance Code (GCGC).

 

Management Board remuneration for fiscal year 2022 in accordance with Section 162 AktG

The variable remuneration (STI, NOVA-LTI and ESG-LTI) is shown as remuneration granted and owed in accordance with Section 162 (1) sentence 2 No. 1 AktG in the fiscal year in which the activity on which the remuneration is based was performed in full. For example, the NOVA-LTI for the 2020-2022 performance period is reported as granted and owed in fiscal year 2022 (however, due to a negative NOVA value, no NOVA-LTI was granted in fiscal year 2021.

The remuneration granted and owed to the members of the Management Board is made up as follows:

 

Departure of the Chairman of the Management Board

Dr. Michael Schneider, Chairman of the Management Board of NORMA Group SE, stepped down from the Management Board effective December 31, 2022 (“departure date”). The settlement agreement concluded provides for the remuneration after the date of departure to be paid during the release phase in accordance with the provisions in the employment contract up until June 30, 2023 (termination date). There are no further severance payment claims. Pension entitlements remain unchanged (pension agreement). In accordance with the agreement, Dr. Schneider will not acquire any further pension entitlements after the termination date.

Remuneration for the period up until December 31, 2022, is shown in the following tables. The benefits promised or granted for the period after December 31, 2022, amount to EUR 800 thousand in total and are composed as follows: non-performance-dependent component: EUR 324 thousand, performance-dependent component: EUR 261 thousand, long-term incentive component: EUR 0 thousand and pension expense: EUR 215 thousand.

The benefits that have been promised to the members of the Management Board in the event of the regular termination of their activity (cf. Section 162 (2) No. 3 AktG) are distributed among the individual Management Board members as shown in the following table.

 

The present value of all pension commitments to former members of the Management Board and their surviving dependents as of December 31, 2022, is EUR 1,014 thousand (2021: EUR 923 thousand).

 

Management Board remuneration for fiscal year 2022 in accordance with the German Corporate Governance Code

For reasons of a continuous presentation and to ensure the best possible transparency, this Remuneration Report is based on the model tables of the German Corporate Governance Code in the version dated February 7, 2017 (in short: GCGC 2017), even if this presentation is no longer mandatory. In deviation from Section 162 of the German Stock Corporation Act (AktG), the remuneration of the Management Board is broken down according to whether it was granted for the reporting year or received in or for the reporting year and is as follows:

The award table does not reflect actual remuneration paid. It specifies the target values of the respective remuneration components as well as their theoretically possible minimum and maximum values for the year 2022. The defined expected or target values give the indication required by the GCGC as to what would be paid out if the target values (EBIT, NOVA and ESG) were planned or typically expected to be achieved. If the target figures are not actually achieved, the payout is correspondingly lower. This is shown in the table below.

 

Verification of the appropriateness of Management Board remuneration

In fiscal year 2022, the Supervisory Board carried out a review of the Management Board remuneration and came to the conclusion that the amount of Management Board remuneration is appropriate from a legal point of view within the meaning of Section 87 (1) AktG. The Supervisory Board also regularly seeks external advice to assess the appropriateness of Management Board remuneration and pensions. From a company-external perspective, the relationship between the amount and structure of Management Board remuneration and the remuneration of senior management and the workforce as a whole is evaluated (vertical comparison). In addition to a status quo consideration, the vertical comparison also takes the development of remuneration ratios over time into account. On the other hand, the amount and structure of remuneration are evaluated based on the positioning of NORMA Group in a peer group (horizontal comparison). In addition to the fixed remuneration, the horizontal comparison also includes the short and long-term remuneration components as well as the amount of the fringe benefits and company pension scheme. The peer group was carefully chosen by the Supervisory Board to avoid an automatic upward trend in remuneration.

The review of the appropriateness of the remuneration of the Management Board in fiscal year 2022 showed that the Management Board remuneration is appropriate.

 

Management Board contracts

The Management Board contracts are concluded upon commencement of service for a period of three years. The Board contract of Dr. Michael Schneider ended on amicable terms on December 31, 2022.