Compagnie Financiere Richemont : Corporate Document

Compensation report

Letter from the Chairman of the

Compensation Committee

Clay Brendish, Chairman

Dear Shareholders,

On behalf of the Compensation Committee, I am pleased to present our Compensation report for the year ended 31 March 2022.

During the year under review, the Group has delivered significant growth in terms of both profitability and cash generation, and the Committee has been fully supportive of management's efforts to ensure that all of the Group's employees were able to share in the excellent results reported for the period.

Looking to the future, the Committee has also worked with management in the further development of the Group's long-term incentive schemes, with the specific objective of ensuring that long- term and strategic value creation is effectively incentivised and that the highest-performing executives are appropriately compensated.

This focus has led to changes to the Performance Stock Unit ('PSU') scheme, aligning performance criteria, including Return on Net Assets ('RONA'), to the perimeter of responsibility of the individual executive. A new plan, the Performance Cash Unit ('PCU') plan, was put into place for the first time, allowing for an additional cash payout in the event of significant value growth, over and above pre-set, challenging targets. This new plan will further ensure the alignment of management and shareholder interests, both incentivising and rewarding long-term value creation.

The Committee firmly believes that performance assessment for variable compensation is aligned to the Group's strategic priorities. Sustainability is of critical importance to the Group and the Committee fully supports management in the inclusion of ESG-related KPIs when assessing both short and long-term performance.

During the period, the Board of Directors announced a change in the membership and focus of the Senior Executive Committee ('SEC'). This Committee, to whom the Board has delegated management of the Group, is now primarily responsible for capital allocation and strategic decision-making for the Group as a whole, and comprises the Chief Executive Officer and Chief Finance Officer only. Former members of the SEC will now focus solely on the Maisons and business areas for which they are responsible, with no responsibility for overall Group strategy. This significant change in the governance of the Group has implications for the following Compensation report, which are described in detail on the following pages.

At the AGM in September 2021, shareholders once again approved the remuneration proposals by a large majority. Specifically, shareholders were asked to approve the maximum amount of fixed Board compensation from the 2021 AGM to the 2022 AGM; the maximum amount of fixed SEC compensation for the 2023 financial year and the variable compensation of the SEC for the 2021 financial year. The actual compensation paid to the Board for the period from the 2020 AGM to the 2021 AGM and to the SEC with respect to fixed compensation for the 2022 financial year was within amounts previously approved by the shareholders.

The Compensation report that follows describes the Group's guiding principles, philosophy and policies for setting the compensation of members of the Board and the SEC. The report complies with the relevant articles of the Swiss Code of Obligations, the Swiss Code of Best Practice, and SIX Exchange Regulation. The compensation for the financial year under review, as detailed on pages 74 to 76, has been audited by the Group's auditor, PricewaterhouseCoopers.

On behalf of the Board, we would like to thank you for your continued support on executive compensation matters.

We look forward to receiving comments from our investors.

Clay Brendish

Compensation Committee Chairman

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Our compensation-setting philosophy

The primary objective of the Group's compensation strategy is to align variable compensation paid to senior executives to total shareholder returns over the long term, while attracting and retaining key talent in the face of competition from other multinational groups.

Sharing
success	Transparent
	Align with
Emphasis	shareholder
	interests	Performance
on variable
		based
elements
		Long-term
		value
		creation

Members of the SEC, with the exception of the Chairman of the Board of Directors, are rewarded in line with the level of their authority and responsibility within the organisation. An executive's total compensation comprises both fixed and variable elements. Short-term incentives are paid in cash and are awarded to executives in May, based on performance during the previous financial year. These are complemented by long-term awards under the Group's PSU and PCU plans, which serve to both retain key executives and to ensure that the interests of these executives are aligned to the values of the Group, including a focus on capital allocation for long-term strategic purposes and the development of a culture of creativity and responsibility within the Maisons.

The variable remuneration of each Senior Executive is dependent on performance against certain, pre-defined KPIs. These measures are both quantitative, reflecting the performance of the Group or Maison in terms of operating profit, cash generation and return on net assets, and qualitative, with respect to individual and collective management performance.

Non-executive directors receive fixed compensation only and are not eligible for awards under the Group's short- or long-term incentive schemes.

Comparative group benchmarking

To ensure that the Group remains competitive in its compensation arrangements, benchmarking surveys are periodically considered by the Committee. A comprehensive benchmarking survey was performed in early 2020 which covered both the SEC and other key positions within the Group, focusing on base salaries, target bonuses, long-term incentives and total direct compensation levels.

In benchmarking the remuneration of these executives, the Group considered compensation practices in a selection of multinational groups which it considers to be its peers. The criteria for selection included: industry focus on luxury goods, size in term of revenue and headcount, listed companies and international presence in relevant geographies. These peers were identified as follows:

• Multinational groups active in the Luxury Goods industry, such as LVMH, Kering and Hermès, amongst others.
• International groups headquartered in Europe and Switzerland with significant global presence.

As a point of reference, the Group targets at least the median compensation level of the peer group, while maintaining the potential for above-average variable compensation for superior performance.

Compensation Committee

The Compensation Committee ('the Committee') is a committee of the Board of Directors, responsible for reviewing and establishing the Group's compensation policies and strategy. The core responsibilities of the Committee include agreeing the compensation of the executive director members of the Board and the SEC and setting the compensation of the non-executive directors and the Chairman of the Board of Directors. The compensation of all other members of senior management is regularly reviewed by the Committee.

The Committee considers the recommendations of the Chairman of the Board of Directors regarding compensation awards for the SEC and the Chief Executive Officers of certain Maisons and may amend or reject these recommendations. The Chairman of the Committee reports to the full Board of Directors on the discussions and decisions taken at each Committee meeting.

Members of the Committee are appointed by the shareholders of the Company for a term of one year. During the year ended 31 March 2022, the composition of the Committee was as follows:

Compensation Committee

Clay Brendish (Chairman)

Keyu Jin

Guillaume Pictet

Maria Ramos

The Committee meets four times per year, with additional meetings scheduled as required. During the year ended 31 March 2022, the Committee met five times. The Group Chief Executive Officer, Group Chief Finance Officer and Group Chief People Officer also attend Committee meetings but are not present when decisions are taken regarding their own compensation. One meeting was partially held in the presence of the Group's external auditor.

Remuneration awards for members of the SEC are approved by the Committee at its first meeting following the end of the financial year to which the awards relate.

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Compensation of the Senior Executive Committee

Total compensation of members of the Group's SEC, as well as other Group executives, is made up as follows:

Fixed compensation

Base salary

The base salary reflects the position, qualifications and responsibilities of the executive, taking into account the external market value for the position in the market in which the individual is based. It is paid on a monthly basis in cash. The level of base salary is reviewed as necessary in accordance with the Group's salary review process, which usually takes place in May. In determining the level of any increase to base salary, consideration is given to the Group's performance, the role and responsibilities of the individual and the results of benchmarking studies.

Benefits

SEC members, with the exception of the Chairman of the Board of Directors, also receive benefits in line with their duties and responsibilities, which may include company car and medical insurance subsidy.

The Company also operates a retirement foundation in Switzerland. Each executive has a retirement account to which the executive and the Group make contributions at rates set out in the foundation rules based on a percentage of salary. A Group contribution of up to 13.05% was applied in the year on salaries to a ceiling of CHF 860 400.

Executives are reimbursed for travel and other necessary business expenses incurred in the performance of their duties.

Variable compensation

Short-term cash incentives

Short-term incentives are awarded with respect to performance in each financial year and are paid in cash.

The performance assessment comprises both quantitative and qualitative components, each with a pre-set target expressed as a percentage of base salary. The mix of quantitative and qualitative targets are aligned with the Group's business priorities for the year ahead, encouraging individual creativity and business development, as well as delivering continued profit growth and value creation. For members of the SEC, the short-term incentive target is set at 75% of base salary, with a maximum cap of 150% of base salary.

The quantitative component of the short-term cash incentive is assessed on actual Group, Maison or business area turnover, operating profit and cash generation, compared to budget. Cash generation is calculated as operating cash flow after capital expenditure and lease payments. Each of these three measures has equal weighting in the calculation.

The qualitative component is assessed on performance against both individual and collective strategic targets, measuring contributions towards growing brand equity, enhancing the client journey, driving initiatives on sustainability and enhancing the people experience in the organisation. The Compensation Committee may decide to use its discretion in assessing the qualitative aspect of performance to take into account exceptional performance during the year where necessary.

For exceptional performance and commitment to the Group, additional incentives may be awarded by the Committee. One member of the SEC was awarded an additional payment in the current year, which is payable in May 2022, as well as the right to further additional incentives in 2023 and 2024.

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Long-term variable incentives

SEC members, with the exception of the Chairman of the Board of Directors, are awarded long-term incentives under the Group's PSU and PCU plans.

Performance Stock Unit plan

Under the PSU plan, executives receive 'A' shares after a fixed vesting period. Awards are subject to performance conditions which may reduce the number of shares vesting. The main features of this plan are as follows:

Plan	Performance Stock Unit plan
Vesting period	Three years from grant date (awards prior to 2021 vested between three and five years
Vesting conditions	from grant date)
•	Continued employment with the Group.
	•	Achievement of quantitative and qualitative performance conditions as set by the
		Compensation Committee for each grant.
Termination of employment	•	In the event that an award holder retires, dies or has to end employment with the
		Group due to injury or permanent disability, all outstanding units vest
		immediately.
	•	If the award holder is a bad leaver, all unvested awards are forfeited.
	•	If employment is terminated for any other reason, unvested PSU, reduced pro-rata
		to reflect the date of cessation of employment compared to the original vesting
		period, shall continue and vest on the original date, provided that performance
		conditions are met.
	•	Accelerated vesting of PSU is never granted to any member of the SEC, even in
Hedging of obligations		the case of retirement.
•	Buy-back of 'A' shares or warrants immediately prior to grant date, if needed.
	•	Awards do not result in the issue of new share capital.
Dividends	No entitlement prior to vesting
Compensation value at date of grant	Based on valuation principles of IFRS 2, excluding employer's social security costs
Governance	Total award is reviewed and approved by the Compensation Committee, as are
	individual awards to SEC members

The target long-term variable award for SEC members is set at 112.5% of base salary with a maximum cap of 150% of base salary, with the final value awarded to an executive depending on value creation of the business area for which they are responsible over the period to which the award relates. The Compensation Committee has discretion to increase or decrease the final award to take into account current market conditions, long-term and strategic decision-making, amongst other factors; such discretion is used only in very limited circumstances, to take into account exceptional performance which the calculation above did not capture. The final award value is converted into PSU based on the average share price over the 30 trading days preceding the approval of the award by the Compensation Committee.

For performance in the year ended 31 March 2021, PSU awards were made in June and September 2021, with a vesting date of August 2024. The performance conditions related to these awards are assessed over the vesting period; average performance during the financial years ending March 2022, March 2023 and March 2024 is compared to performance in the base year, being the year ended 31 March 2021. Full vesting of the award takes place only if performance is at least equal to the base year. Any reduction in performance leads to a linear reduction in the number of PSU which vest.

For the 2021 grant, performance is measured as follows:

Measure	Weighting	Description
Value creation	50%	Value based on a predefined
		formula of Operating Profit
		and Cash Flow
RONA	20%	Return on Net Assets
Qualitative	30%	Individual qualitative targets
		in the following categories:

•	Brand equity
•	Customer centricity
•	Sustainability
•	People experience

The weighting of each criteria reflects the percentage of the total grant which vests depending on that performance measure. Each criteria is evaluated independently of the others.

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The cost to the Group of this plan is equal to the fair value of the PSU awards, which is charged to net profit over the vesting period. There may also be a cash outflow on grant, as the Group repurchases its own shares and warrants in order to meet its obligations under this plan. The total fair value of PSU granted to current and former members of the SEC in relation to performance for the year ended 31 March 2021 was CHF 12.0 million. The award of PSU requires retrospective approval from shareholders at the AGM. Following such approval, a revised fair value is determined for accounting purposes only.

The PSU plan may also be used as a retention tool, with additional awards made to specific executives whom the Group has identified as strategic to its future growth.

Performance Cash Unit plan

During the current year, the Group introduced a new long-term cash plan, the PCU. Under this plan, certain senior executives, including members of the SEC, are eligible to receive a cash payment after a fixed vesting period.

The objective of this new plan is to reward those executives whose performance has exceeded expectations in terms of value creation. Payment is made only if pre-set hurdle rates are reached; this hurdle rate is set at the beginning of the plan in order to capture challenging but realistic growth targets over the vesting period. The hurdle rate

is set individually for each executive and depends on various factors, such as forecast growth and market share, amongst others. If the hurdle rates are achieved, the executive receives a cash payment which increases on a linear basis in line with growth in the value of the Group (or Maison or business area, depending on the responsibilities of the executive) compared to the grant year, up to the maximum amount which is set at 50% of the executive's PSU award.

For awards made in June and September 2021, hurdle rates are based on the value of the Group (or Maison or business area, depending on the responsibilities of the executive), calculated on the same basis as for the PSU plan (see above) and on RONA.

An illustration of the potential payout is presented as follows:

Share options

In previous years, executives also received awards under the Group's share option plan. The final awards were made under this plan in

2020. The main features of the Group's share option plan are as follows:

Plan	Employee share option plan
Strike price	Market value of share on grant date
Vesting period	Tranches over periods of three to six years from grant date
Expiry date	Nine years from date of grant
Vesting conditions	•	Continued employment with the Group.
	•	The share options granted between 2008 and 2015 include a performance condition correlated to
Termination of employment		other luxury goods companies upon which vesting is conditional.
•	In the event that an option holder retires, dies or has to end employment with the Group due to
		injury or permanent disability, all outstanding share options vest immediately.
	•	If employment is terminated for any other reason, unvested share options are forfeited.
Dividends	No entitlement prior to exercise

Gains made by executives on exercising the share options depend on changes in the share price since the date of the award and, other than employer's social security contributions thereon, do not represent a cost to the Group.

Long-term incentive schemes for other Group executives

The Group also operates the following long-term incentive plans for Group and Maison executives, to which SEC members are not eligible. Awards are made on an annual basis.

Long-term Retention Plan

The Long-term Retention Plan ('LRP') is a cash incentive plan primarily used as a retention tool for key positions within the Group. For each eligible participant, the awards are set at the grant date at between 50% and 150% of the target short-term cash incentive awarded for the previous year (which varies as a percentage of fixed salary depending on employment grade) and become payable, typically after three further years of service. The

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