Gesco : Remuneration Report 2021

Remuneration report

Report on the remuneration of the Executive Board and the Supervisory Board of GESCO AG in 2021

Remuneration of the members of the Executive Board

1. Introduction

Review of the business year from a remuneration perspective

GESCO AG ("GESCO" or the "Company") acquires successful industrial SMEs as a long- term investor. In doing so, proven business models are continued and further developed over the long term. Our central task is to exploit growth potential and secure the Group's long- term future viability. In this way, we create added value for all stakeholders: the share­ holders, the workforces, customers, suppliers and business partners of all kinds. Under the umbrella of a lean holding company, the companies operate independently but with the support of GESCO. The goal: a strong group of hidden champions, market and technology lead- ers. The prerequisite for this is an experienced management ("Executive Board" or "Executive Board members") that acts responsibly and

manages efficiently with the resources granted

by the shareholders. For this management, an appropriate and at the same time competitive remuneration system has been implemented in 2018 ("Original Remuneration System", "Remuneration System" or "System").

This Original Remuneration System continues to apply to all current Executive Board service contracts. On 13 May 2021, a new remuneration system was adopted by the members of the

Supervisory­ Board ("Supervisory Board" or "Supervisory Board Members") ("New Remu­ neration System"), which applies to all Executive Board service contracts to be newly concluded or renewed with effect after the Annual General Meeting on 30 June 2021. The New Remuneration System complies with the applicable legal provisions of the German Stock Corporation Act ("AktG") in its current version after the implementation of the Second Shareholders' Rights Directive ("ARUG II")1 and takes into account the recommendations of the German Corporate Governance Code ("GCGC") in its version of

16 December 2019. The following statements relate to the Original System, unless explicit reference is made to the New Remuneration System.

The two incumbent Executive Board members,

Mr Ralph Rumberg as Chief Executive Officer

(CEO) and Ms Kerstin Müller-Kirchhofs as Chief Financial Officer (CFO), have held their respective positions since 1 July 2018 (CEO) and 1 May 2019 (CFO). Accordingly, these are current Executive Board service contracts that are subject to the provisions of the original remuneration system. The Executive Board service contracts have a term until 30 June 2022 (CEO) and

30 April 2022 (CFO).

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1. "Act­ on the Implementation of the Second Shareholders' Rights Directive"

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The remuneration system consists of three components, a non-performance-related component ("fixed remuneration"), a performance -related remuneration component ("bonus") and a remuneration component with a long-term incentive effect granted in the form of virtual stock options ("stock options" or "stock option programme") ­(bonus and stock options together the "variable components"). The fixed remuneration is not dependent on the achievement of ­specific performance targets, but consists of a basic remuneration ("annual fixed sala­ ry"), as well as additional benefits ("fringe benefits") and retirement benefits. The bonus is based on the consolidated net profit after minority interests ("consolidated net prof­ it"). The share options have a vesting period of four years and two months ("vesting period"). The number of exercisable share options is determined by the achievement of an absolute and a relative performance target.

The remuneration system supports the corporate strategy and the sustainable and long-term ­development of the Company by placing particular emphasis on promoting a long-term and sustainable orientation of the Executive Board's actions. In particular, the orientation of the variable remuneration components to the

consolidated­net profit takes into account that

the representation of other quantitative targets in the remuneration at an investment holding company is potentially subject to large and not

always predictable fluctuations and should

therefore be avoided. At the same time, this ­assessment basis for variable remuneration represents the greatest possible alignment with the interests of the shareholders, the Company as a whole and the employees. The introduction

of a multi-year and share-based remuneration component also aims in this direction and

serves to best reflect the alignment between

strategy, strategy implementation and shareholder interests.

The remuneration system is clear and compre- hensible. At the same time, it avoids incentives to take disproportionate risks. With the remuneration system, the Supervisory Board aims to offer the Executive Board members appropriate and competitive remuneration in order to ensure

that qualified Executive Board members can

remain with GESCO in the future and that new Executive Board members can be recruited for the Company.

This remuneration report was prepared jointly by the members of the Executive Board and the Supervisory Board of the Company and ­audited by the auditor in accordance with the legal requirements with regard to its formal completeness.

Compliance with the maximum

remuneration­and principles of ­remuneration determination

The maximum remuneration for a financial year is calculated from the sum of the fixed

remuneration­as well as the maximum possible bonus and the maximum possible payment of the stock options. The bonus is capped at 200 %

of the annual fixed salary of each Executive

Board member. With regard to the share options,

the profit is limited to a maximum of 50 % of

the exercise price of the options.

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The remuneration system is the responsibility of the Supervisory Board. In doing so, the

Supervisory­ Board pays attention to appropriate remuneration compared to other companies and to its own staff. On 30 August 2018, the ­remuneration system was approved by the Annual General Meeting with 98.9 % of the votes.

2. Application of the remuneration system in the 2021 financial year

Non-performance-related

­remuneration (fixed remuneration)

The fixed remuneration includes three com­ ponents in 2021: The annual fixed salary, fringe benefits and retirement benefits. The fixed ­annual salary is paid in 12 monthly instalments. In addition to the fixed annual salary, the Exec-

utive Board members receive fringe benefits, which mainly include the private use of com­

pany cars, directors and officers liability insur-

ance ("D&O insurance"), contributions to the employers' liability insurance associations and subsidies for health insurance. The retirement

benefits amount to 20 % of the annual fixed

­salary each for the CEO and the CFO.

Variable remuneration

Description of the system and objectives

The performance-related remuneration com­

ponent is generally granted in the form of a performance-related bonus, which is based on

a percentage of the consolidated net profit after third parties as the financial target. Two-thirds

of the respective bonus is based on the consol­

idated net profit for the last financial year and

one-third is based on the average of the consol­

idated net profit after third parties for the last financial year and the two preceding financial

years (three years in total). The bonus is capped

at twice the amount of the annual fixed salary.

Since the performance-related remuneration component depends on the result, a total loss is also possible. In the event that the consolidated result is negative, i. e. a net loss for the year is reported, this net loss for the year is carried forward to the next year and reduces the assessment basis for the bonus there. If the consoli-

dated result for the last completed financial

year before the departure or in the year of departure shows a loss, the Executive Board will participate in this loss. In the year of departure, the bonus is paid pro rata temporis.

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Virtual share options, which are granted to Executive Board members in annual tranches on the basis of the share option programme, serve as a remuneration component with a long-term incentive effect. The stock option programme is structured in such a way that the Executive Board members must contribute GESCO shares they have purchased themselves from their

private­ assets, which are subject to a lock-up period for the duration of the waiting period. The number of shares to be contributed depends on the number of options granted to the Executive Board by the Supervisory Board. For ten options, one share must be contributed by the respective Executive Board member. The Supervisory Board grants a maximum of 18,000 options­ to an Executive Board member, for which the Executive Board member must then contribute 1,800 shares. The waiting period before the ­options can be exercised is four years and

two months.

The average XETRA closing price of the GESCO share in the last six months before the Annual General Meeting is decisive for the exercise price of the 2017 to 2021 tranches. The average closing index of the SDAX price index in the same period serves as the benchmark. After the expiry of the waiting period of four years and two months, the programme profit is deter- mined, whereby the average closing price of the GESCO share or the average closing index of the SDAX price index in the last six months

before­ the expiry of the waiting period is used as the benchmark. The options were granted within one month of the Annual General Meeting in each case.

Whether and how many of the options granted can be exercised depends on the achievement of an absolute or relative performance target. The absolute performance target is achieved

­if the share price of the GESCO share has developed positively by the exercise date. The relative­ performance target is achieved if the GESCO share price outperforms the SDAX price index by the exercise date (outperformance). If both performance targets are achieved, the Executive Board members can exercise 100 % of their

options­ . If the absolute performance target is achieved, but not the relative performance ­target, the Executive Board members can only exercise 75 % of their options in the case of the 2015 to 2016 tranches and only 50 % of their

options­ in the case of the 2017 to 2021 tranches inclusive, while the remaining 25 % or 50 % ­expire without replacement or compensation. If the absolute performance target is not achieved, all share options of the respective tranche expire without replacement or com-

pensation. The maximum profit opportunity

for Executive Board members is limited to 50 %

of the exercise price. The programme profit is

settled in cash in each case.

Target achievement in 2021

The consolidated net income after third parties

for the 2021 financial year amounted to

T€ 26,862, while T€ 16,396 was used as the

average­ value from the last three financial

years. As in the previous year, the result of the

2020 financial year was taken into account

without special effects from impairment and transaction losses. In total, the CEO and CFO

receive 1 % of the consolidated net profit of the last financial year and 0.5 % of the average of

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the consolidated net profit of the last financial year and the two previous financial years.

The bonus for the Executive Board amounts to T€ 360 each.

Obligation to hold shares (Share Ownership Guidelines)

In order to align the interests of shareholders and the Executive Board and to further align the actions of the CEO and CFO with a sustain­ able increase in the value of the Company, guidelines for the share ownership of Executive Board members have been introduced ("Share Ownership"). Within the framework of the share option programme, the members of the Executive Board are obliged to acquire and hold shares in the Company ("Share Ownership Guidelines").

ment on the day the option is exercised. If a participant in the stock option programme ­retires during the vesting period or leaves the Company due to disability or occupational

in­ capacity,­ the option rights remain intact.

­Separate agreements on the non-forfeiture of stock options were made with former Executive Board members upon their departure.

All payments and fringe benefits to the Execu-

tive Board during the period after the end of the Executive Board mandate may not exceed in total the value of two years' remuneration (based

on the total remuneration of the past financial

year and, if applicable, also on the expected to-

tal remuneration for the current financial year),

and in any case may not remunerate more than the remaining term of the employment contract ("payment cap").

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Benefits in the event of withdrawal & payment cap

In the event of the dismissal of a member of the

Executive Board, the fixed annual salary, the

performance-related bonus and the retirement

benefits are granted at most until the expiry of

the term of the contract. The options under the stock option programme may only be exercised if the employment relationship has not been terminated by either party or by mutual agree-

3. Remuneration in 2021

The Executive Board remuneration pursuant to

• 162 para. 1 sentence 1 AktG for 2021 is shown separately for both Executive Board members in the tables below. With regard to the bonus, the amount granted for the performance ren- dered in the 2021 financial year is shown; the actual payment to the Executive Board members is expected to be made in April 2022 after the adoption of the annual financial statements.

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