Bezeq Israel Telecommunication : Additional amendments to compensation policy, April 28, 2022

Bezeq - The Israel Telecommunication Corp. Ltd.

Compensation Policy for Officers

January 2022

Contents

Page

1. Definitions 3

2. Purpose of the document 4

3. Policy objective and considerations in determining the policy 4

4. Officers 5

5. Parameters for reviewing the compensation conditions 5

6. Entities involved in establishing the policy 6

7. Structure of the Company's compensation - general 6

7.1 The fixed component 6

7.1.1 Base salary 6

7.1.2 Benefits and fringe benefits 7

7.1.3 Severance pay and retirement conditions 7

7.2

The variable component 8

7.2.1 Performance-linked bonus (grant) 8

7.2.2 Equity-based compensation 13

7.2.3 Special bonuses 14

7.3 Ratio of the fixed component to the variable components 16

8. Additional terms of office and employment 16

8.1 Insurance 16

8.2 Indemnification 17

8.3 Exemption 17

9. Directors' fees 17

10. Present arrangements 18

11. Rules of control, reporting and correction of irregularities 18

1.

Definitions

Stock Options

-Options exercisable into ordinary shares of the Company including, inter alia, options whose exercise is conditional on the achievement of certain goals;

Bezeq

Bezeq International

Advance Notice

- - -

Bezeq Israel Telecommunication Corp. Ltd.

Bezeq International Ltd.

Notice given to an employee by the Company prior to his dismissal, and notice given to the Company by an employee prior to his resignation from the Company, in accordance with the provisions of the Advance Notice for Dismissal and Resignation Law, 2001 and/or in accordance with the employee's employment agreement.

The CompanySignificant subsidiaries

The Law or the Companies Law

The CEOsThe VPs

The Group

Compensation Committeeyes

The Compensation Policy or the Policy

-Bezeq or each of the material subsidiaries, as the case may be.

- -

Pelephone, Bezeq International, yes and all other companies controlled by Bezeq where the compensation committee and Bezeq's board of directors determined that it is a significant subsidiary of the group.

The Companies Law, 1999.

-The CEO of Bezeq, CEOs of the material subsidiaries and Senior Group Managers.

-

Any Officer at Bezeq, as defined in the Companies Law, who is not a director and not a CEO.

- -

Bezeq together with its significant subsidiaries.

A committee of the Board of Directors of Bezeq which meets the conditions prescribed in Section 118A of the Companies Law concerning a compensation committee.

- -

D.B.S. Satellite Services (1998) Ltd.

Compensation policy for Officers of Bezeq in accordance with the provisions and requirements of section 267A of the Companies Law.

The Officers

-

The Officers who are subject to the Compensation Policy pursuant to the provisions of section 4.1 of this document.

The Officers of Bezeq

Pelephone

Adjusted free cash flowTerms of office and employment

- - -

The CEO of Bezeq and the VPs.

Pelephone Communications Ltd.

Calculated as cash from operating activities less cash for the purchase/sale of fixed and intangible assets (net), and net of payments in respect of leases;

-

As this term is defined in the Companies Law, as may be revised from time to time. At the date of approval of the compensation policy according to this document, the language of the Law is: the terms of office or employment of an officer, including the grant of an exemption, insurance, undertaking to indemnify or indemnification under a permit to indemnify, termination bonus, and any bonus, other payment,

Stock Options

• - Options exercisable into ordinary shares of the Company including, inter alia, options whose exercise is conditional on the achievement of certain goals;

  or undertaking to make such payment, which are given on

  account of the said office or employment.

  Regulations for compensation of external directors

• - The Companies (Rules Concerning Compensation and Expenses for an External Director) Regulations, 2000.

  EBITDA

• - Earnings before interest, taxes, depreciation and amortization, as defined in the chapter "Description of the Company's Business" in the annual periodic reports of the Company.

  Adjusted EBITDA

• - Calculated as EBITDA net of expenses / other operating income (net)/ losses /profit from decrease / increase in value (including losses from continued depreciation) and effects of applying IFRS 16 "Leases" and net of expenses relating to share-based payments.

• 2. Purpose of the document

  2.1

  The purpose of this document is to define and detail the compensation policy for the Officers in the Group who are subject to this Policy as described in section 4.1 below. The Policy addresses the scope and composition of the compensation, and the manner in which it is determined in accordance with the provisions of section 267A of the Companies Law and under any law. The Policy relates to the overall compensation for the Company's officers for their work (in the framework of an employment agreement) and/or the services they render (in the framework of a management agreement) to the Company and/or the Group, as the case may be.

  2.2

  It is emphasized that this Policy does not grant the Officers any right to receive any compensation as specified in this Compensation Policy by virtue of the adoption of this Compensation Policy. The compensation to which the Officers currently serving in the Group or officers who serve in it in the future will be entitled, will be based on the specific conditions defined for them individually and approved by the competent organs, subject to the provisions of any law as may be from time to time.

  This Policy should not be seen as exhausting all the provisions of the law or the definitions in it. This Policy does not constitute an alternative to or derogate from the provisions laid down by existing statutes and regulations.

  2.3

• This Compensation Policy will come into force on January 1, 20191.

• 3. Objective of the Policy and considerations in its determination

  The objectives of the Compensation Policy are as follows:

  •  To help advance the goals of the Company and the Group, work plans, and the policy of the Company in a long-term perspective, and to ensure that there is a correlation between the goals of the Company and the Group and the goals of management, and the compensation paid to the Officers.

1

In accordance with the general meeting's approval dated February 6, 2020, the amendment to section 8.2 regarding the cumulative amount of indemnity to officers is effective as of June 30, 2019. In addition, amendments to section 7.2.1.6.3 relating to goals and weights defined for the Company's CEO and relating to the threshold criteria for the payment of a bonus conditional on the performance of the Company's CEO and the CEO of the material subsidiaries are effective as of December 16, 2019 in respect of 2020 (and thereafter). In addition, amendments to section 1 "definitions" of adjusted free cash flow", "EBITDA", and "adjusted EBITDA" and footnote 6 in the definition of "FFO" are effective as of January 1, 2020.

•  To create a worthy array of compensation for the Officers, taking into account, inter alia, the size of the Group or the Company, the nature of their business activity, their risk management policy, and the goals which it aspires to achieve from time to time.

•  To enable the Company and the Group to recruit and retain senior managers with the ability to lead them to long-term business success, to attain their goals and to confront the challenges they face.

•  To provide the Officers with a sense of partnership with the Company's business results, all without deviating from the risk management policy of the Group and of the Company.

•  To create an appropriate balance between the various compensation components - fixed and variable, short-term versus long-term, etc.

• 4. The Officers

  4.1 4.2

  The Officers referred to in the Compensation Policy are the CEOs2 and the VPs at Bezeq.

  The Compensation Policy also addresses the terms of office of directors of Bezeq (Section 9), which for the purposes of this document are not included in the definition of "Officers".

• 5. Parameters for reviewing the compensation conditions

  Following are general parameters that are likely to be taken into account when reviewing the compensation conditions of the Officers:

  •  The qualifications, skills, expertise, professional experience and achievements of the officer.

  •  The position, degree of responsibility, and previous salary agreements signed with the Officer.

  •  The Officer's contribution to the performance, profit and stability of the Company and/or the Group, as the case may be.

  •  The degree of responsibility imposed on the Officer in respect of his position in the Company and/or the Group, as the case may be.

  •  The Company's and/or the Group's need to retain the Officer in view of his skills, knowledge and/or special expertise.

  •  The size of the Group and/or the Company and the scope and nature of their activity.

  •  The market conditions, competition and regulatory environment in which the Company and/or the Group operates.

  •  The reasonability of the compensation mechanisms and scope of the amounts in relation to accepted conditions in the market for officers serving in similar positions in similar companies.

  •  Review of the ratio of the fixed component to the variable components based on the definitions prescribed as part of the Policy.

    •  Review of the ratio between the cost of the terms of office and employment of the Officer to the cost of salary/compensation average of the other employees of the Group and/or of the relevant company (including temporary placement workers who are hired in the Group or the relevant company), and in particular the ratio to the average cost of the salary/compensation and to the cost of the median salary/compensation of such workers and the effect of the gaps between them on work relations in the Group and/or the Company, as the case may be. On this matter, "temporary placement workers who are hired in the Group or the relevant

2 It is clarified that subject to any law, in the event of a merger of Bezeq with a material subsidiary or a merger of material subsidiaries, should that occur, then the provisions of the Compensation Policy will continue to apply to the CEO of the material subsidiary, and for the purpose of the Compensation Policy he will continue to be considered CEO of a material subsidiary even if his title in the Group is different.