Gigaset : Compensation report (agenda item 5)

Gigaset AG

Compensation Report pursuant to Section 162 AktG

The following Compensation Report prepared by the Executive Board and Supervisory Board pursuant to Section 162 Stock Corporations Act (Aktiengesetz, AktG) describes the amount and structure of the compensation of current and former Executive Board and Supervisory Board members of Gigaset AG in the 2021 financial year. The recommendations of the German Corporate Governance Code (GCGC) in the version of December 16, 2019 are also taken into account in accordance with the Declaration of Conformity of February 17, 2022.

Review of compensation-related developments in the 2021 financial year

In financial year 2021, the Supervisory Board adopted a new system for the compensation of Executive Board members pursuant to Section 87a AktG and presented it to the Annual General Meeting for approval on June 8, 2021. The Annual General Meeting approved the compensation system for Executive Board members by a majority of 99.88%. In addition, the Annual General Meeting established the compensation for Supervisory Board members - as last resolved in the Annual General Meetings of August 17, 2017 and December 19, 2013 - as a provision of the Articles of Association and adopted the compensation system on which this compensation is based (Sections 113 (3), 87a (1) sentence 2 AktG) by a majority of 96.59%.

The new Executive Board compensation system

The new compensation system for Executive Board members meets the requirements of the German Stock Corporations Act and particularly includes the specifications required by Section 87a AktG. The overall compensation established in the new compensation system comprises fixed compensation components (annual salary, fringe benefits, pension benefits). It also provides for both a short-term variable compensation component (Short-Term Incentive (STI)) and a long-term variable compensation component (Long-Term Incentive (LTI)). The compensation structure on which the new compensation system is based establishes greater incentives to promote the company's long-term performance, particularly with regard to the sustainability strategy of Gigaset AG and its Group companies (also referred to as "Gigaset"), in the form of long-term variable compensation.

The new compensation system is applicable to all employment contracts with Executive Board members that are concluded, amended, or extended two months after the approval of the compensation system by the Annual General Meeting on June 8, 2021. In financial year 2021, a supplemental agreement was concluded with the CEO Klaus Weßing, which governs the new compensation to be granted as of January 1, 2021 in accordance with the new compensation system. By way of exception, the compensation granted to the CFO Thomas Schuchardt in financial year 2021 was based on the agreements concluded before the new compensation system took effect. Therefore, the compensation paid to Thomas Schuchardt in accordance with the previously applicable contractual arrangements, which is described in the present Compensation Report, is not yet based on the new Executive Board compensation system.

The total compensation granted to each Executive Board member is commensurate with each member's tasks and personal performance, as well as Gigaset's economic position and success. The Supervisory Board conducts a review of the compensation system and the appropriateness of Executive Board compensation (on the basis of preparatory activity on the part of the Personnel Committee, where applicable) at its dutiful discretion on a regular basis and when necessary, also on an ad-hoc basis, but at least every four years. To this end, it conducts a vertical comparison of Executive Board compensation with the compensation of division heads who report directly to the Executive Board and with the compensation of the total staff of Gigaset AG and its Group companies in Germany. To assess the customariness of the specific total compensation of Executive Board members compared to other companies, the Supervisory Board also refers to a suitable peer group of other, usually exchange-listed companies with comparable market positions. For this horizontal comparison, various compensation data of exchange-listed companies of comparable sizes (particularly with respect to employee count and revenues) in different segments of the manufacturing sector were analyzed most recently on the occasion of the development of the new Executive Board compensation system.

The main components of the compensation system are broadly described in the summary below:

Overview of the new compensation system (Executive Board)

Compensation component

Description

Fixed compensation components

Fixed annual salary

Disbursed in 12 monthly installments at the end of each calendar month

Fringe benefits

Fringe benefits particularly include the provision of a company car, limited insurance allowances, and other customary insurance benefits

Pension plan

Payment of a contribution to external pension funds, of an amount specified in the employment contract, as a company pension (e.g., direct insurance); for Klaus Weßing, defined contribution plan committed directly by the company and six-month transitional allowance

Variable compensation components

Annual bonus with cash disbursement in the subsequent financial year

STI: Short-term variable compensation

Measured by target attainment on the basis of financial performance indicators (revenues, earnings (to be selected from EBIT, EBITDA or EBIT margin) and free cash flow) and annual operational targets of strategic importance

Possibility of taking any unusual developments into account (adjustment factor: 0.8 - 1.2) Payouts limited to 125% of the target amount specified in the employment contract

Annually offered target bonus based on performance over a four-year period (cash disbursement in the fifth year)

LTI: Long-term variable compensation

Measured by target attainment on the basis of strategic multi-year targets (weighted by approx. 66%) and non-financial targets (Environmental, Social and Governance, ESG) (weighted by approx. 33%)

Possibility of taking any unusual developments into account (adjustment factor: 0.8 - 1.2) Payouts limited to 100% of the target amount specified in the employment contract

Other compensation policies

Maximum amount of compensation expense incurred per financial year and Executive Board member for one financial year

Maximum compensation

•  Executive Board Chairman: EUR 650,000.00

•  Ordinary Executive Board members: EUR 550,000.00

Malus and clawback

The Supervisory Board can reduce the variable compensation (STI and/or LTI) in full or in part (malus) or demand repayment (clawback) if an Executive Board member commits certainserious breaches of duty

Share Ownership Guidelines (SOG)

Obligation of Executive Board members to purchase Gigaset shares of an amount equal at least to 5% of the (gross) fixed annual salary; purchase obligation limited to 100% of the (gross) fixed annual salary; corresponding obligation to own shares for the duration of the term of office.

Compensation of the Executive Board in financial year 2021

Fixed annual salary

As the fixed compensation component, the Supervisory Board system includes a fixed annual salary agreed in the employment contract, which is disbursed in 12 monthly installments at the end of each calendar month. The fixed annual salary granted in financial year 2021 is presented in the table below (Individualized presentation of granted and owed compensation (Executive Board)).

In line with Gigaset's long-term corporate strategy, the granting of the fixed annual salary serves in particular to ensure appropriate basic remuneration and thus helps to avoid incentives for taking inappropriate risks.

Fringe benefits

The compensation system provides that contractually specified fringe benefits be granted to Executive Board members. Among other benefits, an appropriate company car that can also be used for private purposes, insurance allowances, and other customary insurance benefits are granted. The cost of the fringe benefits granted in financial year 2021 is presented in the table below (Individualized presentation of granted and owed compensation (Executive Board)).

Short-Term Incentive (STI)

The new compensation system includes a Short-Term Incentive (STI) with a one-year measurement period as a short-term variable compensation component. Compensation payments from the STI depend on the attainment of financial performance indicators (revenues, earnings, cash flow) and additional annual operational targets of strategic importance. The relevant concrete targets (including minimum required values and maximum creditable values) and the specific weighting of each target are specified by the Supervisory Board at the beginning of each financial year. The target amount specified in the Executive Board employment contract is granted for 100% target attainment. Any unusual developments (Section 87 (1) sentence 3 second clause AktG) can be accounted for by means of an additional adjustment factor (0.8 - 1.2). Payments under the STI are limited to 125% of the target amount. The Supervisory Board determines the level of target attainment after the end of the assessment period (financial year), at the latest in the meeting following the financial statements meeting. STI payments are made with the next possible salary payment after the determination of target attainment.

The financial performance criteria of the STI refer to Gigaset's profitability, operating cash flow, and revenues and are therefore linked to the central criteria applied to manage and monitorthe company and measure its performance. The additional annual operational targets of strategic importance incentivize the attainment of specific targets that have a significant influence on the company's performance. Thus, the STI also contributes to Gigaset's strategic development.

The STI described above was promised to Klaus Weßing for his activity in the reporting period

(2021). The Supervisory Board will determine the level of attainment of the specified targets only in the current financial year (2022). Because the subsequent disbursement will not be due in the reporting period, the STI promised for his activity in the reporting period will be regarded as being "granted" within the meaning of Section 162 (1) sentence 1 AktG only in financial year 2022 and therefore will be the subject of the next Compensation Report for the 2022 financial year. (The foregoing disclosures regarding the promised STI compensation are therefore made voluntarily).

Short-term variable compensation

The variable performance-based compensation promised for activities in the preceding financial year 2020 was disbursed in financial year 2021. Thus, the corresponding disbursement amounts are deemed to have been "granted" within the meaning of Section 162 (1) sentence 1 AktG in financial year 2021 and are presented in the following table of granted and owed compensation within the meaning of Section 162 (1) AktG for Executive Board members (Individualized presentation of granted and owed compensation (Executive Board)).

The measurement of the performance-based variable compensation granted in financial year 2021 was still based on the supplemental agreement concluded on May 29, 2020 before the new compensation system took effect. In accordance with the terms of this supplemental agreement, two equally weighted sub-targets were agreed with respect to the contractually agreed target amount of EUR 50,000.00. In view of the coronavirus crisis, an additional third sub-target corresponding to a target amount of an additional EUR 25,000.00 was agreed. The supplemental agreement was based on the targets and performance criteria indicated in the table below, the attainment of which the Supervisory Board assessed after the close of financial year 2020 in the manner stated below.

The targets were set by the Supervisory Board in particular in view of the specific strategic importance of ensuring sufficient financial resources for Gigaset and thus contribute to ensuring that Gigaset has stable financial resources in the long term. The defined fall-back target (sub-target 3) created an additional possibility to take into account the extraordinary situation in the context of the COVID 19 pandemic, which, however, was not applied as a result.

Performance-based variable compensation (Klaus Weßing and Thomas Schuchardt)

Target (proportional target amount)

Target attainment in 2020

(computational disbursement amount)Justification/remarks

Sub-target 1: Compliance with the EBITDA clause of the state-guaranteed loan or written declaration by the financing banks on non-exercise of termination rights (EUR 25.000,00)

Sub-target 2: The available cash of the Gigaset Group at the end of the year exceeds EUR 10 million (EUR 25,000.00)Sub-target 3: Assessment of the Executive Board's management performance during the coronavirus crisis (EUR 25,000.00)

100% (EUR 25,000.00)

100% (EUR 25,000.00)

0% (EUR 0.00)The EBITDA clause of the state-guaranteed loan was not complied with, but a written confirmation was given on the non-exercise of the lender's special right of termination arising herefrom.

According to the consolidated financial statements, the company's available cash at the end of the year amounted to EUR 40.692 million.

Fallback target agreed in view of the COVID-19 uncertainties prevailing at the beginning of financial year 2020, which was not applied.

Klaus Weßing exercised his contractual right to have the variable compensation paid to the pension account for the existing directly committed pension plan in the amount of EUR 30,000 (gross).

The performance-based variable compensation granted to Executive Board members in financial year 2021 is presented in the table below (Individualized presentation of granted and owed compensation (Executive Board)).

The Supervisory Board will determine the level of target attainment for the short-term variable compensation promised to Thomas Schuchardt for his activity in the reporting period (2021) only in the current financial year (2022). Therefore, these payouts will only be the subject of the next Compensation Report for the 2022 financial year.

Long-Term Incentive (LTI)

In addition to the STI, the new compensation system also includes a variable compensation component with a long-term incentive effect (Long-Term Incentive, LTI). Compensation payments under the LTI are dependent on the attainment of strategic multi-year targets (weighted by approx. 66%) and non-financial targets in the areas of Environment, Social and Governance (ESG) (weighted by approx. 33%) over a four-year performance period. At the beginning of each financial year, the Supervisory Board establishes the targets for the tranche of the corresponding financial year in the amount of each target amount specified in the employment contract. Any unusual developments (Section 87 (1) sentence 3 second clause AktG) can be accounted for by an additional adjustment factor (0.8 - 1.2). Payments under the LTI are limited to 100% of the target amount. After the close of the four-year performance period, the Supervisory Board determines the level of target attainment at the latest in the meeting following the financial statements meeting. This amount is disbursed with the next possible salary payment after the determination of target attainment.