Remuneration of the Board Members

Principles of the remuneration system for the Board of Management members

The remuneration system for the members of the Board of Management of Brenntag described in more detail below makes a key contribution to achieving the ambitious goals set out in the growth strategy by providing effective incentives for growth and increasing profitability. The Board of Management remuneration system is designed to be clear and coherent and to support the long-term and sustainable development of Brenntag. The system is geared to transparent, performance-related remuneration which is strongly linked to the success of the Company and depends, in particular on long-term, but also operational, targets as well as the performance of the Brenntag share price.

The remuneration system is also highly aligned to the interests of Brenntag’s shareholders. This is achieved, in particular, by a clear link to share price performance, with the return of the Brenntag shares being the primary performance criterion under the performance share plan. An obligation to acquire and hold Brenntag shares is also part of the remuneration system for the Board of Management.

The provisions of the German Stock Corporation Act (AktG) and the recommendations for remuneration and a remuneration system for members of the Board of Management in Section G of the German Corporate Governance Code (GCGC) provide the regulatory framework for the remuneration system.

Procedure for determining and implementing the remuneration system

The Supervisory Board is responsible for determining, implementing, and reviewing the Board of Management remuneration system. The Presiding and Nomination Committee of the Supervisory Board discusses and reviews the Board of Management remuneration system at regular intervals and prepares resolutions on any changes thereto. The rules on dealing with conflicts of interest also apply to the determination, implementation, and review of Board of Management remuneration. The remuneration system determined by the Supervisory Board will be submitted to the Annual General Meeting for approval at the Annual General Meeting in 2023. In future, the remuneration system will be submitted to the Annual General Meeting for approval in the event of significant changes, but at least every four years. If the Annual General Meeting does not approve the remuneration system, a revised remuneration system will be submitted for approval at the next Annual General Meeting.

In its decisions regarding the remuneration system, the Supervisory Board took into account the remuneration and employment conditions of the employees of Brenntag SE. When doing so, the Supervisory Board paid particular attention to ensuring consistent incentivization so that the Board of Management, managers and employees jointly deliver on the long-term strategy of the Brenntag Group (“Group”). This means, for example, that the financial performance criteria for the annual bonus for the Board of Management and other employees eligible to an annual bonus will generally be aligned. In setting the remuneration, the Supervisory Board pays attention to an appropriate relationship between the tasks and performance of the Board of Management members and the situation of the Company.

In order to assess the appropriateness of the remuneration system and the individual remuneration of the members of the Board of Management, the Supervisory Board conducts a horizontal review of remuneration amounts and structures. The horizontal comparison is carried out with companies of comparable size at national level, e.g., with the companies listed in the DAX and MDAX. In addition, the Supervisory Board may conduct a horizontal review at international level, e.g., based on the respective composition of the global peer group for the performance share plan. The Supervisory Board also conducts a vertical review of the remuneration levels of senior management and the workforce as a whole. For the purposes of the vertical review, senior management means the top executives of Brenntag SE, and the total workforce is represented by the workforce of Brenntag SE. In this context, the Supervisory Board also considers the change in remuneration levels over time.

Overview of the Remuneration System 2023

The following table shows the remuneration components and further contractual provisions of the remuneration system which are described in more detail below.

Remuneration structure

The remuneration of the members of the Board of Management comprises fixed remuneration and variable remuneration. The fixed remuneration consists of base salary, pension allowance and benefits in kind. The variable remuneration is composed of short-term and long-term variable remuneration components. The remuneration of the Board of Management is geared towards the long-term and sustainable performance of Brenntag in that the portion of the long-term variable component (performance share plan) outweighs the portion of the short-term variable component (annual bonus). In order to achieve this goal for each Board of Management member, the target amounts of the performance share plan laid down in the individual contracts always exceed the target amounts of the annual bonus.

The remuneration structure of the total target remuneration is highly comparable for the chair of the Board of Management and for the other members of the Board of Management and are as follows.

Any sign-on bonuses and severance payments are not considered in the remuneration structure.

Caps and maximum remuneration

The Board of Management members’ total remuneration is limited by a cap applying to each variable remuneration component and by maximum remuneration.

Exceptional performance is required to achieve the cap of each variable remuneration component:

If the ambitious upper threshold for the financial key performance indicators of the annual bonus is achieved, a maximum preliminary payout amount of 200% of the target amount is reached. Even the application of the individual performance multiplier cannot increase the payout amount above this cap of 200%.
Under the performance share plan, the number of final virtual shares achievable is limited to 200% of the number of initial virtual shares granted. This maximum number of shares can only be reached if the Brenntag share performs better than 75% of the companies in the global peer group and if the ambitious upper thresholds for both ROCE and the ESG multiplier are reached. In addition, the payout amount depends on the performance of the Brenntag share price and dividend payments. The total payout under the performance share plan is limited to 250% of the initial target amount.

Pursuant to Section 87a, para. 1, sentence 2, no. 1 of the German Stock Corporation Act (AktG), the Supervisory Board has set a maximum remuneration for the members of the Board of Management. Maximum remuneration limits payments of remuneration granted for a given financial year. For the chair of the Board of Management, the maximum remuneration is EUR 7,500,000. For the other members of the Board of Management, the maximum remuneration is EUR 5,000,000. The maximum remuneration comprises annual base salary, annual bonus, performance share plan, pension allowance and benefits in kind (not including costs of the D&O insurance). Any sign-on bonuses and severance payments do not count towards the maximum remuneration.

Fixed remuneration

Annual base salary

The annual base salary is paid in twelve equal monthly instalments at the end of each month. If the service agreement begins or ends during a financial year, the annual base salary for that financial year is payable on a pro rata temporis basis.

Pension allowance

The members of the Board of Management receive an annual fixed allowance for the purpose of building up pension entitlements. The allowance can either be paid out as an annual lump-sum payment or in twelve equal monthly instalments at the end of each month. The members of the Board of Management may decide at their own discretion how to use this money. If the service agreement begins or ends during a financial year, the allowance is granted on a pro rata temporis basis for that financial year.

Benefits in kind

Benefits in kind which may be granted comprise, in particular, a mobility allowance, a company car which may also be used for private purposes, housing, hotel accommodation, rental and relocation expenses, accident insurance coverage, and benefits for health care and long-term care insurance. The benefits for health care and long-term care insurance are limited to max. 50% of the premium the members of the Board of Management pay into their health care and long-term care insurances. Board of Management members abroad may be covered by health insurance under the respective local regulations. The Supervisory Board may also grant reimbursement of tax consultancy fees for Board of Management members who reside or regularly work abroad. Further benefits in kind, e.g., health check-ups or payment of school fees, may be granted on a case-by-case basis.

Any mobility allowance shall cover all costs for the use of private vehicle (except fuel used for company business) as well as housing, hotel accommodation and rental expenses. The mobility allowance is payable at the end of each month.

In addition, the Company will take out Directors & Officers Insurance (damage liability insurance) for the members of the Board of Management. In accordance with § 93 of the German Stock Corporation Act, this D&O insurance provides for a deductible of 10% of the damages claimed in each case but in each year limited to 150% of the annual base salary.

In order to attract suitable candidates, the Supervisory Board may, in reflection of market conditions, grant an appropriate sign-on bonus for members of the Board of Management to be appointed for the first time, e.g., to compensate for forfeited remuneration from previous employment or service relationships. The Supervisory Board may also grant reimbursement of further expenses in connection with a change in the regular place of work of members of the Board of Management.

Variable remuneration

Definition

The variable remuneration consists of two components that support the long-term performance of the Group by setting effective incentives for growth and increasing profitability for successful and sustainable corporate development: short-term variable remuneration in the form of an annual bonus payment (annual bonus) and long-term variable remuneration in the form of virtual shares (performance share plan). The annual bonus provides an incentive to achieve the operational business objectives of the financial year, which in turn are derived from the business strategy and the annual budget plans. The performance share plan provides an incentive to ensure the long-term performance of the Company.

A special bonus for exceptional performance shall not be agreed.

Annual bonus

The annual bonus depends on Brenntag’s business success and Board of Management members’ specific business responsibilities and individual challenges. The basic structure of the annual bonus plan is as follows.

The annual bonus depends on Brenntag’s business success in the current financial year. It is calculated based on achievement of the targets set for the financial year for

organic operating EBITA,
working capital turnover and
earnings per share,

in each case at Group level and, if the member of the Board of Management is responsible for a division, additionally at divisional level, as well as an individual performance multiplier to take into account the performance of the individual member of the Board of Management.

If a member of the Board of Management is responsible for a division, the key performance indicators organic operating EBITA and working capital turnover are, independently from each other if appropriate, again weighted between 25% and 100% related to Group and between 0% and 75% related to divisional level.

The payout factor for each key performance indicator lies within a range of 0% and 200%. Target, threshold, and stretch values for the three key performance indicators are derived from the annual budget plans and are set annually by the Supervisory Board. Target values including threshold and stretch will be disclosed in the respective remuneration report.

If the defined target value for each key performance indicator is achieved, this results in a payout factor of 100%. If the actual value for each key performance indicator is equal to or below the threshold, this results in a payout factor of 0%. If the actual value for each key performance indicator is equal to or above the stretch, this results in a maximum payout factor of 200%. If the actual values are between the respective target and threshold values or between the respective target and stretch values, the payout factor is determined by linear interpolation. The following is an example of a payout factor curve defined for each financial key performance indicator.

The overall payout factor is calculated by multiplying the payout factors of the three key performance indicators by their respective weightings and then adding together these three weighted payout factors.

In order to determine the final payout amount, the overall payout factor is multiplied by the individual performance multiplier and by the target amount. The individual performance multiplier is set by the Supervisory Board after each financial year in a range between 0.8 and 1.2. In doing so, the Supervisory Board takes into account the individual financial and non-financial performance.

To measure the individual performance, the Supervisory Board defines individual performance aspects to evaluate the personal contribution of each member of the Board of Management. The individual performance aspects may be based on the three dimensions growth, people, and risk management. They may include strategic and operational aspects as well as non-financial aspects as the Supervisory Board also sees these aspects as being important for the strategy and success of Brenntag and wishes to reward them. The respective remuneration report outlines the relevant individual performance aspects set by the Supervisory Board and the value of the multiplier. Modifications in this context may not be made retrospectively.

The final payout amount is capped at max. 200% of the individual and contractually agreed target amount (Cap). If the overall payout factor for the financial key performance indicators is already 200%, the individual performance multiplier cannot increase the annual bonus further.

If the service agreement begins or ends during a financial year, the target amount for that financial year applies on a pro rata basis.

The annual bonus should be paid out within three months from approval of the consolidated financial statements by the Supervisory Board, but at the latest twelve months after the end of the financial year for which the annual bonus has been determined.

In the event of a change in Brenntag’s priorities or corporate strategy, the Supervisory Board may replace the financial key performance indicators by other financial measures as far as those are part of external financial reporting in order to react to changes that occur in the context of Brenntag’s ongoing transformation program. The Supervisory Board specifies such a replacement prior to the beginning of a financial year. In the event of such a replacement, the Supervisory Board will disclose in the remuneration report the reasons and the justification as to why the chosen key performance indicators align better with the operational business objectives of the financial year. Furthermore, the key performance indicators can only be replaced by closely related financial indicators in the same category. For example, the current profit indicator organic operating EBITA might be replaced by another profit indicator such as organic operating EBITDA, or the current cash flow indicator working capital turnover might be replaced by another cash flow indicator such as cash conversation ratio. The weightings remain unchanged.

Performance Share Plan

The long-term variable remuneration is granted in annual tranches in the form of virtual shares (Performance Share Units). The number of virtual shares may increase or decrease depending on the long-term performance of Brenntag measured over a four-year performance period. The structure of the performance share plan is as follows.

The number of virtual shares to be granted initially is calculated by dividing the individual and contractually agreed target amount by the arithmetic mean of the Brenntag share closing prices in the Xetra trading system during the last three months before the start of the performance period. If the service agreement begins or ends during a financial year, the target amount for that financial year shall be calculated on a pro rata basis.

The number of virtual shares finally awarded to the member of the Board of Management is linked to two financial performance criteria and to ESG targets by way of an ESG multiplier. The two financial performance criteria are Brenntag’s total shareholder return (TSR) compared to a global peer group (weighting: 70%) and the return on capital employed (ROCE) (weighting: 30%). The sum of the respective weighted share awards for each performance criterion is then multiplied by the achievement of certain ESG targets by means of an ESG multiplier, which can range from 0.8 to 1.2. The resulting overall share award is then multiplied by the number of virtual shares initially granted, resulting in the number of virtual shares finally awarded to the member of the Board of Management at the end of the four-year performance period. The number of virtual shares finally awarded is limited to 200%.

The respective payout amount depends on the absolute change in the Brenntag share price over the four-year performance period and is determined by multiplying the number of virtual shares finally awarded by the arithmetic mean of the Brenntag share closing prices in the Xetra trading system during the last three months prior to the end of the performance period plus dividend payments during the performance period. The payout amount is capped at maximum 250% of the individual and contractually set target amount (Cap).

The payout amount should be paid out within three months from approval of the consolidated financial statements by the Supervisory Board, but at the latest twelve months after the end of the financial year in which the performance period ends.

Performance criteria

The TSR is a key performance indicator for our shareholders. The TSR reflects the change in the equity value and dividend distributions, i.e., the return of the Brenntag share. Both share price changes and dividends, but also other capital measures, are considered. When comparing the TSR of the Brenntag share with the shareholder return of other companies, the advantages of an investment in the Brenntag share is measured compared with alternative investments in shares of other companies. It is of central importance for the long-term stability of the Company that shareholders receive an attractive return on their investment in Brenntag shares.

The relative TSR is defined as the ranking of Brenntag’s TSR performance compared to the TSR performance of a group of global peer companies. When selecting global peer companies, the Supervisory Board considers the chemical distribution market as well as the distribution business model and the underlying market of Brenntag. Thus, the global peer group is composed as follows and can be adjusted by the Supervisory Board if necessary to maintain a meaningful composition of the peer group (e.g., mergers, acquisitions and delisting of companies in the peer group).

The share award for the relative TSR is determined based on the percentile ranking method. If Brenntag’s TSR percentile ranking is equal to the median (50th percentile), the share award for the relative TSR is 80%. If Brenntag’s TSR percentile ranking is equal to or below the 25th percentile, the share award for the relative TSR is 0%. If Brenntag’s TSR percentile ranking is equal to or exceeds the 75th percentile, the share award for the relative TSR is 160%. The range for relative TSR is defined as 0-160%, in contrast to the range for ROCE, to create a balanced risk-reward profile around the target value through symmetry. Values in-between are determined by linear interpolation. This results in a share award curve as follows.

In Brenntag Group, we measure return on capital using the return on capital employed (ROCE) that is defined as:

Operating EBITA

_____________________________________________________________________________

(Average carrying amount of equity + average carrying amount of financial and lease liabilities – average carrying amount of cash and cash equivalents)

The average carrying amounts in the denominator are defined for a particular year as the arithmetic average of the amounts at each of the following five dates: the beginning of the year, the end of each of the first, second and third quarter, and the end of the year.

The Supervisory Board sets a threshold, target, and stretch value for ROCE in the final year of the four-year performance period. If the defined target value for ROCE is achieved, this results in a share award of 100%. If the actual value for ROCE is equal to or below the threshold, this results in a share award of 0%. If the actual value for ROCE is equal to or above the stretch, this results in a maximum share award of 200%. If the actual values are between the respective target and threshold values or between the respective target and stretch values, the share award is determined by linear interpolation. The following is an example of a share award curve defined for ROCE.

To ensure the sustainable and long-term success of Brenntag and its commitment to sustainable solutions in its own sector and the industries served, the Supervisory Board defines ambitious ESG targets based on Brenntag’s sustainability strategy. Based on the relevance of the strategic ESG key areas which are subject to continuous evolution, the Supervisory Board selects up to three performance criteria and defines targets to be achieved at the end of the performance period of the respective tranche and translating into a multiplier between 0.8 and 1.2 for each ESG target. The multipliers for each ESG target are weighted equally resulting in an overall ESG multiplier between 0.8 and 1.2.

Relevant information on performance criteria chosen as well as target definition and achievement of the performance criteria will be published in the remuneration report for the respective financial year in which the performance period ends.

For example, the specific ESG targets for the 2023-2026 tranche of the performance share plan, which are aligned with the ESG targets for a new syndicated credit facility, are as follows:

Reduction of greenhouse gas emissions (Scope 1 and Scope 2)
Further increase in occupational safety (Total Recordable Injury Frequency Rate (TRIR) reduction)
Increase in the proportion of female employees at various management levels

: The Company is contractually entitled to withhold variable remuneration (“malus”) in whole or in part if the members of the Board of Management breach their obligations under Section 93 of the German Stock Corporation Act or in case of breaches of duty which would justify a termination for cause (Sec. 626 German Civil Code). Equally, the Company is contractually entitled to correct the amount of variable remuneration determined if that determination was based on incorrect data. In addition, the Company is contractually entitled to demand partial or complete repayment (“clawback”) of variable remuneration if members of the Board of Management breach their obligations under Section 93 of the German Stock Corporation Act, or in case of breaches of duty which would justify a termination for cause (Sec. 626 German Civil Code), or payout of the variable remuneration was made on the basis of incorrect data. Malus and clawback events generally only have an effect on variable remuneration components for those financial years during which they actually occurred. Variable remuneration can be clawed back for a period of three years following payout.

: In order to bring the interests of the Board of Management and shareholders more closely into line and to strengthen the Board of the Management members’ ownership in the Company, an obligation to accumulate and hold Brenntag shares (Share Ownership Guideline) applies. The chair of the Board of Management is obliged to accumulate and continue to hold shares to the value of 200% of their annual base salary for two years after the end of their service. All other members of the Board of Management are obliged to accumulate and continue to hold shares to the value of 100% of their annual base salaries for two years after the end of their services. They must accumulate the shares within four years at the latest. In each of these four years, shares equivalent to 25% of the holding obligation must be acquired. Excess shares purchased in one year or shares purchased in previous years may be credited against the target for subsequent years. Compliance with the obligation to hold shares is checked once a year.

: Service agreements are in principle concluded for a maximum of three years if a member of the Board of Management is appointed for the first time, and for a maximum of five years for a reappointment or extension. Service agreements end automatically without any notice of termination being required. In the event of resignation from office by a member of the Board of Management, the service agreement ends with the end of the appointment as a member of the Board of Management.
If the appointment as a member of the Board of Management ends without simultaneous termination of the service agreement, the Company shall have the right to release the Board of Management member from their duty to work at any time with continued payment of remuneration. For purposes of calculating the final annual bonus during such release, it shall be assumed that the individual performance multiplier is 1.0, if not determined otherwise by the Supervisory Board. If the release lasts longer than until the end of the year in which it has begun, the annual bonus and the performance share plan will, for the period from the commencement of the year following the release until the termination of the service agreement, be calculated on basis of the lower of 100% of the target bonus or average annual bonus resp. the average performance share plan of up to three previous financial years during which the member of the Board of Management actively rendered service as a member of the Board of Management of the Company. In the event of premature termination of employment on the initiative of a member of the Board of Management without good cause attributable to the Company and without the Company‘s consent, and in the event of termination by the Company for good cause pursuant to Section 626 of the German Civil Code attributable to the member of the Board of Management, all tranches of the performance share plan granted whose performance period has not yet ended shall be forfeited without entitlement to a remuneration payment. Any annual bonus payments and payments under the performance share plan will be made at the regular payout dates following the end of the respective performance periods.
If their employment or appointment is terminated prematurely, members of the Board of Management may be granted severance payments, although, in accordance with the recommendations of the German Corporate Governance Code, the service agreement limits any severance pay to the value of twice the sum of the annual base salary, annual bonus, performance share plan and the annual amount made available for building up pension entitlements, but no more than the amount of remuneration that would be paid until the end of the term of the service agreement.
Post-contractual non-compete clauses may be agreed with the members of the Board of Management. The post-contractual non-compete obligation can be agreed for a period of up to 24 months after the termination of the service agreement. During this period, the member of the Board of Management shall receive an appropriate non-compete compensation to be determined in the individual case. Any earnings pursuant to Section 74c of the German Commercial Code (HGB) shall be deducted from the non-compete compensation to the extent the sum of the non-compete compensation and other earnings exceeds 100% of the annual base salary. In addition, severance payments shall be deducted from the non-compete compensation.
There are no change-of-control arrangements.
In the event of a Board of Management member’s temporary disability due to illness, accident, or any other cause for which the member of the Board of Management is not at fault, the member of the Board of Management shall be entitled to continued payment of the annual base salary for an uninterrupted period of not more than nine months or until the end of the service agreement, whichever event occurs first. For the first three months of such incapacity, the member of the Board of Management shall also retain full claim to the annual bonus and the target amount of the performance share plan. For periods beyond this, the entitlement to the variable remuneration is reduced pro rata temporis.
In the event of permanent invalidity of the Board of Management member, the service agreement ends at the end of the year in which the permanent invalidity was determined.
In the event of the death of a member of the Board of Management, the annual base salary will be paid to the surviving dependents for the month of death and the six months following death or until the date on which the service agreement would have been terminated without death, whichever event occurs first. In the event of death, the annual bonus and the performance share plan can be paid out without undue delay in the amount equivalent to the respective target amount.

: Remuneration for Supervisory Board mandates within the Group shall be offset against the remuneration in accordance with this remuneration system. Remuneration for Supervisory Board mandates outside the Group shall be offset against the remuneration in accordance with this remuneration system at the discretion of the Supervisory Board.

In accordance with recommendation G.11 of the German Corporate Governance Code, the Supervisory Board has the right to take into appropriate account any extraordinary developments when determining the amount of variable remuneration.

Pursuant to Section 87a, para. 2, sentence 2 AktG, the Supervisory Board is entitled to temporarily deviate from the remuneration system if this is necessary in the interests of the long-term welfare of the Company. A deviation from the remuneration system requires a corresponding resolution of the Supervisory Board establishing the exceptional circumstances and the need for a deviation. Unfavorable market developments are not considered exceptional circumstances justifying the need to deviate from the remuneration system. Pursuant to Section 162, para. 1, sentence 2, no. 5 AktG, in the event of a deviation, the remuneration system components which were deviated from must be stated in the remuneration report and the need for the deviation must be justified.

Even in the event of a deviation, the remuneration must be geared to the long-term and sustainable development of the Company.

A temporary deviation from the remuneration system is possible with regard to the following components:

Modification of the performance criteria for the annual bonus and performance share plan.
Adjustment of the ranges of possible target achievement for both variable remuneration components.
Granting of additional remuneration components or replacement of existing remuneration components to ensure the incentivizing effect of Board of Management remuneration.
Modification of the remuneration structure.
Adjustment of the maximum remuneration.

General information

The provisions of the German Stock Corporation Act (AktG) and the recommendations for the remuneration system for members of the Board of Management in accordance with the German Corporate Governance Code provide the regulatory framework for the remuneration system.

The remuneration system adopted by the Supervisory Board was approved at the 2023 Annual General Meeting. The complete overview of the remuneration system for the members of the Board of Management is included in the convening of the Annual General Meeting 2023.