HELLA GmbH : Remuneration report for the fiscal year 2023 including the auditor's report

HELLA

Remuneration report

2023

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Remuneration report for the fiscal year 2023

Remuneration report

This remuneration report provides information, in accordance with Section 162 of the German Stock Corporation Act (AktG), on the main features of the remuneration systems applied in the fiscal year 2023 for the Management Board of HELLA­ Geschäftsführungsgesellschaft mbH (under I.), the members of the Supervisory Board (under II.) and Shareholder Committee (under III.) of HELLA­ GmbH & Co. KGaA as well as the remuneration granted and owed to each individual current and former member of the three aforementioned bodies in the fiscal year 2023. The remuneration report also compares trends in this remuneration to

trends in HELLA's­ earnings and the change in the

average remuneration of HELLA's­ employees (un- der IV.). The remuneration granted and owed to the members of the Management Board, the Supervisory Board and the Shareholder Committee in the prior fiscal year, the short fiscal year 2022, is only shown in the comparative presentation (un- der IV.). A voluntary detailed disclosure of the remuneration granted and owed to the members of the Management Board, the Supervisory Board and the Shareholder Committee in the short fiscal year 2022, which comprises only seven months, is not included due to the lack of comparability with the regular fiscal year 2023, which comprises twelve months. 

I. Remuneration of

the Management Board

1. Objectives and comprehensive overview

The remuneration system for the Management Board provides incentives for successful implementation of the corporate strategy and sustaina-

ble and long-term development of the Company. When determining the remuneration, the Shareholder Committee follows the principle of granting compensation which is in line with market standards and competitive as well as individually appropriate to the requirements and performance profile of the individual Managing Directors, which is proportionate to the size of the Company and to its business and earnings situation and which avoids excessive risks being taken.

To this end, the remuneration system - with its two performance-related components - is bound to important operating indicators that reflect the Company's success and are included in the financial figures for the corporate management. The relevant targets are reviewed annually by the Shareholder Committee and set at a demanding level, in accordance with the corporate strategy and planning. The chief concern is for the Compa- ny's growth to outstrip that of the market as a whole. This ensures that the remuneration is linked to the long-term economic development of the Company and that the interests of the Management Board align with those of the shareholders. Secondly, the performance-related remuneration components also take into account aspects of corporate social responsibility (Environmental, Social

• Governance, "ESG"). In the fiscal year 2023, the corresponding ESG targets included promoting gender diversity and reducing CO2 emissions as well as reducing the accident rate and specific CO2 intensity. The targets for the operational key fig- ures and the ESG targets can also be addressed individually to the individual managing directors, provided that the Shareholder Committee sets cor- responding special ("prioritised") targets.

Further remuneration-­ related disclosures

in accordance with the International Financial Reporting Standards (IFRS) and the German Commercial Code (HGB) can be found

in the consolidated notes. There may be minor discrepancies in the totals shown in the tables below due to rounding.

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Remuneration report for the fiscal year 2023

The individual remuneration of the Managing Directors consists of three components:

  non-performance-related fixed remuneration

(plus non-performance-related benefits in kind, other ancillary benefits and pension commitments),

  an annual performance-related component (short-term incentive, "STI") and

  a long-term incentive ("LTI").

The performance-related remuneration components are subject - individually and jointly - to a maximum limit ("cap"). In addition, the Shareholder Committee may adjust the performance-related

remuneration at its discretion until the date of pay- ment, in particular to account for extraordinary developments. In addition, there are scenarios where repayment can be demanded ("clawback").

The target remuneration for a target achievement level of 100% is 1.1 times the annual fixed salary for the STI and 1.2 times the annual fixed salary for the LTI. If the target remuneration is achieved, both performance-related remuneration components each outweigh the fixed remuneration, which reflects the incentive-driven approach of the remuneration system. In this case, the share of the long- term component predominates within the performance -related remuneration, which expresses the particular importance of sustainable corporate development.

Weighting of the individual target remuneration components

(based on annual target remuneration)

Performance-related components

of which approx. 52% LTI approx. 48% STI

Non-performance- related components

approx. 36%

Long-term variable remuneration (LTI)

approx. 30%

Annual fixed salary (without payment in kind and ancillary benefits)

approx. 33%

Short-term variable remuneration (STI)

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Remuneration report for the fiscal year 2023

The remuneration system approved by the Annual General Meeting on 28 April 2023 can be summarized as follows in the form applied in the fiscal year 2023:

Non-performance-related components

Performance- related components

Component ¹

Annual fixed salary (approx. 30% of annual target remuneration)   Payment in 12 monthly instalments:

• President and CEO: €901 thousand p.a.
• other members: €440 thousand p.a. to €690 thousand p.a. Reviewed annually for appropriateness.

Remuneration in kind and other ancillary benefits

  In particular, the private use of the company car, inclusion in the Group's D&O insurance

and the assumption of work-related expenses for a double household.

Short-term variable remuneration (STI)

(approx. 33% of annual target remuneration)

 One-year bonus as a multiple (1.1 times with 100% target achievement) of the annual fixed salary depending on the degree to which certain targets are reached:

• operating key figures (50%- 70% of STI, in fiscal year 2023: 50%): EBT (70%) and OFCF (30%).
• specific (prioritised) targets (30%- 50% of STI,
  in fiscal year 2023: 50%) consisting of collective/team targets and

individual targets, which are redefined annually.   Target remuneration at 100% target achievement:

• President and CEO: €991 thousand
• other members: €484 thousand to €759 thousand Maximum limit at 300% target achievement:
• President and CEO: €2,973 thousand
• other members: €1,452 thousand to €2,276 thousand

Long-term variable remuneration (LTI) (approx. 36% of annual target remuneration)

 Bonus with two equally weighted components with a four-year reference period, the amount of which is calculated as a multiple (1.2 times for 100% target achievement) of the annual fixed salary and depends on the degree of target achievement for four key figures in fiscal years 2 and 3 of the reference period.

  Relevant key figures:

• Internal financial ratios (75% of the LTI): OFCF (45%) and EBIT margin (30%).
• ESG targets (25% of the LTI): Gender diversity (10%) and CO2 reduction (15%).
• Lower limit for the consideration of the individual key figure

in the overall target achievement: 50% target achievement level.   Payment in cash after the end of the reference period.

  Target remuneration at 100% target achievement:

• President and CEO: €1,081 thousand
• other members: €528 thousand to €828 thousand Maximum limit at 200% target achievement:
• President and CEO: €2,162 thousand
• other members: €1,056 thousand to €1,655 thousand

Objective

Ensures an appropriate base income in order to prevent the taking of inappropriate risks.

Assumption of expenses promoting management activities as customary on the market.

Incentive to achieve the corporate targets for the current fiscal year while simultaneously promoting implementation of strategic priorities.

Multi-year assessment period rewards long- term and sustainable value creation and penalises undesirable developments.

The holding period ensures that the management can only dispose of the two LTI components after a total of four years.

Financial targets take account of the shareholders' sustainable value creation interests.

Ensuring that the remuneration system is linked to the ESG sustainability strategy.

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Remuneration report for the fiscal year 2023

Termination benefits

	Component ¹		Objective
Settlement upon dismissal prior to the end of the term of the service	Settlement cap serves
agreement	to avoid inappropriately
	If the Managing Director has not provided a compelling reason for	high settlements.
	termination, the total of annual fixed salary and STI for the residual term
	of the contract, but for no more than two years, will be paid as settlement;
	LTI instalments amounts already allocated will be reduced pro rata
	temporis and paid at the end of the calculation period.
Post-contractualnon-competition clause	Protection of the
	Duration between 12 and 24 months, agreed on an individual basis.	Company's interests by
	Non-competition compensation of 50% of the annual fixed salary	preventing employment
	fixed netted against settlement and pension payments and earnings	immediately afterwards
	from any other activities.	at major competitors.
	Waiver by Company possible; non-competition compensation will then no
	longer apply.

Other remuneration arrangements

Extraordinary right of termination of a member of the Management Board

  An acting member of the Management Board (Bernard Schäferbarthold) was authorised to terminate his employment contract for cause as a result of the change of control in 2022. In this case, he would have been entitled to twice his annual remuneration.

  This right of termination has been postponed and modified in order to persuade the member to remain on the Management Board.

Pension commitments and comparable long-term obligations

  Defined contribution capital account system to which a percentage (40% or 50% in the case of the CEO) of the annual fixed salary is allocated each year as financing contribution:

• President and CEO: €450 thousand
• other members: €76 thousand to €276 thousand

  Optional payment of contributions by the Managing Director (deferred compensation).

Extension/postpone- ment of the right of termination triggered by the change of control in 2022 makes it possible to remain active in the management without economic disadvantages.

Provision of contributions to build up adequate company pension arrangements.

Caps and maximum remuneration	Serves to provide non-
	Cap on payment of LTI and STI (combined) at six-fold amount of the fixed	discretionary means of
	salary:	avoiding inappropriately
	- President and CEO: €5,406 thousand	high payments.
	- other members: €2,640 thousand to €4,138 thousand
	Maximum remuneration that comprises all remuneration components:
	- For the President and CEO: €9,500 thousand
	- For the remaining members: €5,000 thousand

Adjustment and reclaim possibilities (clawback)

  Discretionary possibility for the Shareholder Committee to correct all variable remuneration components.

  Possibility to reclaim or retain variable remuneration in the event of grossly negligent or intentional breach of duty of care.

Special commitments

  In individual cases, the Shareholder Committee may grant members of the Management Board special benefits (e.g. sign-on bonuses) to an appropriate extent when they take up their duties.

Ensures appropriateness of the variable remuneration and penalises serious compliance breaches (malus).

This serves to attract qualified individuals for the position of a member of the Management Board.

1 All figures relate to the beginning of the fiscal year 2023 (reporting date: 1 January 2023) and in each case assume membership of the Management Board for the entire fiscal year, i.e. they do not take into account anyone joining or leaving the company during the year.

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Remuneration report for the fiscal year 2023

2. Procedure for determining and reviewing the remuneration system

The legal form of HELLA­ GmbH & Co. KGaA gives rise to a particularity: it is not the Supervisory Board that is responsible for the remuneration of the Management Board; instead, this is the duty of the Shareholder Committee. According to the Articles of Association, it is incumbent upon the Shareholder Committee to regulate the legal relations between the Company and the General Partner - insofar as said relations are not explicitly governed by the Articles of Association or the law

• through agreements. It is also responsible for reg- ulating the employment relationships of the Man- aging Directors of the currently sole General Part- ner, Hella Geschäftsführungsgesellschaft mbH. This
  gives the Shareholder Committee of HELLA­ GmbH & Co. KGaA full responsibility for determining the remuneration system of the Management Board.

The Shareholder Committee is supported by its Personnel Committee, which currently has three members (the Chairman of the Shareholder Committee and two additional members elected by the Shareholder Committee). The Personnel Committee prepares the resolutions of the full Shareholder Committee on the appointment and removal of Managing Directors as well as on the remuneration system and on the Managing Direc- tors' individual total remuneration. Both in the Personnel Committee and in plenary with the Shareholder Committee, the rules generally applicable to handling conflicts of interest apply. These include the rule laid down in the rules of proce- dure, which obliges each of the committee members to disclose conflicts of interest to the Shareholder Committee. In addition, remuneration topics are regularly discussed and decided in the Personnel Committee and in plenary with the Shareholder Committee without the participation of the Management Board. The committees call in external expertise to the extent that they deem necessary, whereby, in the event that a remuneration expert is brought in, due attention is paid to his/her independence from the Management Board and the Company. To assess whether the total remuneration is in line with customary market practice, the Shareholder Committee looks to studies performed on the remuneration of management boards at MDAX companies, as well as comparable European companies, as a basis for comparison ("peer group"). When determining the remuneration, the Shareholder Committee also took into account the ratio of the management remuneration to the remuneration of senior management and the workforce as a whole, including its development over time.

In the event of material changes, but at the latest every four years, the remuneration system is submitted to the Annual General Meeting for approval in accordance with the requirements of the legislation implementing the Shareholder Rights Directive (ARUG II) pertaining to stock corporations. The remuneration system applied in the fiscal year 2023 for the members of the Management Board was approved by resolution of the Annual General Meeting of 28 April 2023 with 97.55% of the valid votes cast. The resolution is available on the Com- pany's website. The remuneration report for the short fiscal year 2022 was also approved by the Annual General Meeting on 28 April 2023 with 97.71% of the valid votes cast. In view of the high approval ratings, there was no reason for the Shareholder Committee to scrutinise the remuneration system, its implementation or the manner of reporting. However, on 26 April 2024 the Shareholder Committee will present the Annual General Meeting with a remuneration system that has been amended with regard to a few points to take account of developments in the meantime.

For improved readability, in the following, when describing the employment relationships of the members of the Management Board, simplified reference will be made to rights and obligations vis-à-vis the "Company". It should be noted in this regard that the service agreements are entered into with Hella Geschäftsführungsgesellschaft mbH, but that the latter services reimbursement from

­HELLA GmbH & Co. KGaA for the expenses and charges arising therefrom and that the services rendered by the members of the Management Board benefit ­HELLA GmbH & Co. KGaA.

3. Remuneration components

1. Annual fixed salary, remuneration in kind as well as other ancillary benefits
   The non-performance-related remuneration com- ponent consists of an annual fixed salary and remu- neration in kind as well as other ancillary benefits.

The annual fixed salary is generally paid in twelve equal monthly instalments. It ensures an adequate basic income to prevent unreasonable risk-taking by managing directors. The most recent annual fixed salary for the President and CEO was €901 thousand and for the other members of the Management Board between €440 thousand and €690 thousand.

The respective amount of the fixed salary reflects the role of the managing director within the Management Board as well as the experience, area of

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Remuneration report for the fiscal year 2023

responsibility and market conditions. The Shareholder Committee reviews the suitability of the fixed salary on an annual basis.

In addition, the managing directors are granted the customary remuneration in kind and other ancillary benefits that support management activ- ities. They consist, in particular, of the private use of the company car and the assumption of work-related expenses for maintaining two households. Furthermore, all the managing directors in their capacity as members of the Company's governing bodies are covered by the Group's D&O insurance. In the event of any claim, they are responsible for a deductible of at least 10% of the loss, which is however capped at one-and-a-half times their fixed salary.

1. Short-termvariable remuneration ("STI") The Short Term Incentive ("STI") remuneration aims to provide an incentive to achieve the corporate targets for the current fiscal year while promoting the implementation of strategic priorities. The Short Term Incentive is calculated depending on the degree to which certain objectives are achieved, which are divided into the categories of "operating key figures" and "special (prioritised) objectives".
   The target remuneration of the STI is 1.1 times the annual fixed salary. This is determined by the fixed salary at the beginning of the respective fiscal year. The payment is made once per fiscal year. If a mem- ber of the Management Board joins or leaves the
   Company during the year, the STI is granted pro rata temporis for the duration of their membership of the Management Board.

Composition of Short Term Incentive (STI)

Short

110% of the annual fixed salary

Achievement of

operating key figures

(0-300%)

EBT		OFCF
Weighting: 70%	Weighting:
	30%

In fiscal year 2023:

50%

Achievement of

prioritised targets

(0-300%)

Target 1 Target 2 Target 3 ...

In fiscal year 2023:

50%

Term Incentive (STI)

The degree of target achievement of the operating key figures and the special (prioritised) targets to be determined by the Shareholder Committee was between 0% and 300% in the past fiscal year. To this end, the Shareholder Committee sets ambitious minimum, target and maximum values before the start of the respective fiscal year, and regularly reviews these on the basis of the development of

HELLA­ GmbH & Co. KGaA and the corporate plan- ning. Since the fiscal year 2024, the contractual maximum target achievement level has been 200%; the

Shareholder Committee can also set interim target achievement levels (e.g. 150%) at its reasonable dis- cretion. For managing directors whose service contracts were concluded or extended for the last time before the approval of the current remuneration system by the Annual General Meeting on 28 April 2023 (Yves Andres, Jörg Weisgerber, Stefan van Dalen), the provision applied until the fiscal year 2023 continues to apply with a contractual maximum target achievement level of 300%. There is no option to set interim targets in these cases.

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Remuneration report for the fiscal year 2023

Operating key figures

In the past fiscal year, the operating key figures included (i) the ­HELLA Group's earnings before taxes (EBT) and before the effects of restructuring in the respective fiscal year, adjusted for special items (extraordinary expenses and income as would have to be reported in the consolidated financial statements in accordance with Section 277

1. HGB (old version)) with a weighting of 70% and (ii) the free cashflow from operating activities (OFCF) before the effects of restructuring with a weighting of 30%. The OFCF is calculated after in- vestments and divestments (procurement and disposal of property, plant and equipment and intangible assets) and does not include company acquisitions. Since the beginning of the fiscal year
   2024, the operating income margin1, as reported in the consolidated financial statements, has been used instead of EBT. In addition, net cash flow2 has been used instead of OFCF since the current

fiscal year, as reported in the consolidated financial statements. At its reasonable discretion, the Shareholder Committee is entitled to change or redefine the operating key figures applied with effect for following fiscal years.

The respective target achievement level is derived from the minimum, target and maximum values which have been established. Intermediate values are determined by linear interpolation and the degree of target achievement thus determined is rounded to full percentage points, in accordance with standard commercial practice. The following diagram shows the resulting target achievement curve (not yet including the option to set interim target values for service contracts that were concluded or extended for the last time after the approval of the current remuneration system by the Annual General Meeting on 28 April 2023):

Degree of target achievement

EBT and OFCF target achievement curve

300%
200%
100%
0%		EBT or OFCF
Minimum value	Target value	Maximum value

• Currently defined as the HELLA­ Group's operating result (EBIT) excluding special components, less the result from investments accounted for using the equity method and other income from investments in relation to reported sales.

• Currently defined as sum of cash flow from operating activities and cash inflows and outflows from the sale or procurement of intangible assets and property, plant and equipment.

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Remuneration report for the fiscal year 2023

The following table shows the values for EBT and OFCF in the fiscal year 2023, which apply equally to all members of the Management Board:

				Target figure	Maximum value	Established value
		Minimum value	(= 100% target	(= 300% target	Degree of target
In €		(= 0% target achievement)	achievement)	achievement)	achievement
EBT ¹		369.0 million	492.0 million	787.0 million	439.5 million 2 (57%)
OFCF ¹		200.0 million	267.0 million	451.0 million	277.8 million 3 (112%)

1 Before earnings effects from restructuring.

2 After adjustment for special effects in connection with the lack of contribution to earnings from the Behr-­HELLA Thermocontrol joint venture following the sale of the shares held by the Company.

• After adjustment for special effects in connection with a delayed tax refund following a BFH ruling on the deductibility of foreign withholding tax and factoring effects.

Special ("prioritised") targets

In addition, the Shareholder Committee can also define special ("prioritised") targets for the Management Board which, on the basis of a target agreement with the management, also encompass qualitative parameters and are composed of col- lective/team targets - which apply to the Management Board in equal measure - and individual targets. These prioritised targets may be incorporated - as the Shareholder Committee sees fit - into the STI calculation with a total weighting of between 30 and 50%. The weighting of key operating figures is reduced accordingly in this case. For the fiscal year 2023, the Shareholder Committee has set the weighting of the prioritised targets at 50%. For the current fiscal year 2024, the Shareholder Committee has also set the weighting of the prioritised targets at 50%.

The following table shows both the collective/team targets (including ESG targets) and the individual targets, their respective weighting and the degree of target achievement determined in the fiscal year 2023. The individual targets reflect the individual work focuses and priorities of the individual members of the Management Board. In the fiscal year 2023, the individual targets consisted of budget target achievement for (i) consolidated net profit before interest and taxes adjusted for special items (adjusted EBIT) and (ii) free cashflow from operating activities adjusted for special items (OFCF, operating free cash flow after capital expenditure and divestments (procurement and sale of property, plant and equipment and intangible assets) and excluding company acquisitions) in the respective business divisions for which the members of the Management Board are responsible:

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Remuneration report for the fiscal year 2023

					Established
					Degree of target
Target			Weighting	achievement
	Collective/team targets
Realisation of synergy potential	15%	300%
Development of order intake	12.5%	125%
Gross costs for research and development of the HELLA­ Group	7.5%	0%
as a percentage of total sales
ESG targets in the dimensions of accident rate and specific CO2 intensity	15%	150%
Individual target: Development of respective segments/areas for which responsibility is held by...
Michel Favre (entire HELLA­	Group)	50%	93%
Yves Andres (Business Group Lighting)	50%	184%
Dr Lea Corzilius (Business Group Lifecycle Solutions, including Aftermarket and	50%	104%
Special Applications) (until 30/04/2023)
Bernard Schäferbarthold (entire HELLA­ Group)	50%		93%
Björn Twiehaus (Business Group Electronics) (until 31/03/2023)	50%		14%
Stefan van Dalen (Business Group Lifecycle Solutions) (as of 01/04/2023)	50%		104%
Jörg Weisgerber (Business Group Electronics) (as of 01/04/2023)	50%		14%

This resulted in the overall target achievement levels and payout amounts for the STI for the fiscal year 2023 as shown in the table below:

		Degree of target achievement
		Operating	"Prioritised"			Payment
		key figures	targets	Total	amount
Michel Favre	74%		130%		102%	€1,008.4
		thousand
Yves Andres	74%		175%		124%	€629.0
		thousand
Dr Lea Corzilius	74%	135%		104%	€232.4
(until 30/04/2023)		thousand1
Bernard	74%	130%		102%	€771.9
Schäferbarthold		thousand
Björn Twiehaus	74%	90%		82%	€140.7
(until 31/03/2023)		thousand1
Stefan van Dalen	74%	135%		104%	€379.1
(as of 01/04/2023)		thousand1
Jörg Weisgerber	74%	90%		82%	€395.0
(as of 01/04/2023)		thousand1

STI target remuneration (at 100% target achievement)

€991.0 thousand

€505.8 thousand

€222.6 thousand1

€758.7 thousand

€171.9 thousand1

€363.0 thousand1

€482.6 thousand1

1 Payment amount and STI target remuneration calculated pro rata temporis according to the length of service on the Management Board in the fiscal year 2023.