Remuneration System for the Executive Board of Softing AG

Non-performance-related remuneration

Non-performance-related remuneration guarantees an adequate basic income for the Executive Board member and thus prevents them taking unsuitable risks for the Company. The individual non-performance-related components of Executive Board remuneration are as follows:

Basic remuneration

Members of the Executive Board receive a fixed basic remuneration each financial year that is paid out in 12 equal installments. The basic remuneration amount is based on the range of tasks and scope of responsibilities of the Executive Board member in question, as well as their experience and other parameters. The Supervisory Board can implement a provision in which the basic remuneration is increased by up to half of the year-on-year percentage increase in consolidated revenue, but limited to a maximum annual increase of 5%.

Fringe benefits

Members of the Executive Board are also granted contractual fringe benefits, although the amount and scope of these benefits can differ from one individual to the next, taking into account their respective contractual situation. These fringe benefits consist of various benefits in kind and non-cash benefits such as the provision of a company car as well as customary telecommunications and IT equipment for business and personal use. Executive Board members also receive insurance cover in different areas, particularly in the form of accident insurance, occupational disability insurance and property damage liability insurance (D&O insurance). In addition, members of the Executive Board are reimbursed for employer contributions to the statutory pension scheme that would be customary for employees as well as for contributions to statutory or private health and nursing care insurance.

Individual payments can also be made in exceptional cases when new Executive Board members take office, in particular to compensate for payments relating to their previous employment relationship. These payments must always be appropriate and count towards the stipulated maximum remuneration, which means their amount is limited by this.

Occupational pension scheme

Members of the Executive Board receive a defined benefit occupational pension scheme that can be reinsured by corresponding insurance policies or financed in another way. This pension commitment consists of a retirement pension or, optionally, a lump-sum payment, a widow’s pension or, optionally, a lump-sum widow’s payment, and an orphan's pension.

From the age of 60, Executive Board members receive a life-long monthly retirement pension at a contractually stipulated amount. This standard retirement pension increases by a specified percentage for each month of service beyond this point, in the event that the Executive Board member only leaves the service of the Company after the aforementioned standard retirement age. Adjustments to current pension benefits are based on Section 16 of the German Act to Improve Occupational Pensions (BetrAVG). The annual minimum increase is 2.5% of the previous year’s pension. The monthly retirement pension can be entirely or partially replaced by a one-time lump-sum payment equivalent to the present value of the pension obligation, which is calculated based on industry-standard actuarial methods. In this case, all claims arising from the pension entitlement equivalent to the replaced amount, including the widow's and orphan’s pension, expire.

In the event of death, the spouse of the Executive Board member in question receives a life-long monthly widow's pension equivalent to 60% of the agreed standard retirement pension. This widow’s pension can be entirely or partially replaced by a one-time lump-sum widow’s payment; the principles outlined for replacing the standard retirement pension apply accordingly. In the event of death, the children also receive a monthly orphan’s pension equivalent to 30% of the promised retirement pension each, which doubles in the event that the children become full orphans. The orphan's pension ends with the death of the entitled child or at the age of 25 at the latest. Widow’s and orphan's pensions may not collectively exceed the retirement pension amount and are subject to a proportional reduction where appropriate.

If the promised retirement pension is partially fulfilled by a one-time lump-sum payment, claims to the payment of a widow’s pension and an orphan’s pension expire to this extent. In this case, the widow’s pension is reduced to 60% and the orphan’s pension to 30% of the remaining annuity-like pension yet to be disbursed.

If the affected Executive Board member leaves the service of the Company before their pension becomes due for payment, they receive the pension claim they have earned up to that point. This is determined based on the duration of actual service relative to the period of service that would have been achievable up to the standard retirement age if the Executive Board member had not left the Company early. The promised retirement benefits are paid in arrears at the end of each month. One-time lump-sum payments can be disbursed in up to ten annual installments with the approval of the relevant beneficiary.

The Supervisory Board can adjust the terms of the existing defined benefit pension scheme, and in particular the standard retirement age, the amounts of individual subcomponents, the arrangements for the lump-sum option and surviving dependents' benefits, if this appears necessary in the interests of the Company.

The pension scheme outlined above applies to the current contract of Dr. Wolfgang Trier. Executive Board members who have already left the Company receive pension payments based on a different system.

Performance-related remuneration

In addition to their basic remuneration, contractual fringe benefits and benefits under the occupational pension scheme, members of the Executive Board may also be granted various performance-related remuneration components, specifically a Short Term Incentive (“STI”) with a one-year assessment period, a Long Term Incentive (“LTI”) based on a Long Term Incentive Plan (“LTIP”) with a multiple-year assessment period, and a special bonus for exceptional performance by an Executive Board member. The performance-related remuneration is designed to incentivize members of the Executive Board to act in accordance with the corporate strategy and in the interests of shareholders, customers and employees, and consistently pursue and achieve long-term targets. As a result, LTI targets outweigh STI targets to ensure that these variable remuneration components largely rely on a multiple-year assessment basis and thus provide a long-term incentive.

Short Term Incentive (STI)

The STI consists of three subcomponents (STI 1, STI 2 and STI 3), each of which is based on different financial and non-financial performance criteria and is specified by related annual performance parameters. Each subcomponent of the STI is limited to a maximum amount in euros and is equally weighted in terms of its monetary contribution to the annual target STI. As a result, the amount of the overall STI is limited (cap). This means that extraordinary developments do not cause the STI to reach an unforeseeable level.

Financial and non-financial performance criteria

The Supervisory Board has specified the following as financial and non-financial performance criteria for the subcomponents of STI:

The STI should ensure close integration with the Company's strategic action areas. The aforementioned performance criteria are derived from the corporate strategy and enable it to be implemented effectively.

Group earnings are highly significant for the corporate management of the Softing Group. An annual increase in earnings provides a substantial basis for the Company's targeted growth and the implementation of its corporate strategy. Identifying individual and business-related project and process targets can provide an individual or collective incentive to achieve specific goals that are materially significant for the operational and strategic development of the business. Incentivizing Executive Board members accordingly promotes the efficient and timely implementation of specific individual projects and the introduction and/or adjustment of internal processes and procedures. Qualified and dedicated employees are an important prerequisite for the success of the Softing Group. A high level of expertise and regular training is indispensable for Softing’s high quality requirements as an innovative technology company. Staffing targets are therefore an essential corporate management tool aimed at achieving the highest possible product quality and employee satisfaction and further reinforcing Softing AG’s position as an attractive employer.

Performance parameters

The Supervisory Board sets one or more performance parameters for each of the individual performance criteria. Until further notice, the Supervisory Board has stipulated the following parameters:

The performance parameters selected by the Supervisory Board must be quantifiable, commensurate with the strategic orientation of Softing AG, and must be suitable control parameters for the long-term development of the Company in the view of the Supervisory Board. When specifying several performance parameters for each performance criterion, the individual performance parameters are equally weighted provided that the Supervisory Board does not assign them any other weighting. Performance parameters can be stipulated individually or for all Executive Board members. Where the Supervisory Board considers it appropriate for promoting the corporate strategy and for incentivization, the Supervisory Board can also stipulate performance parameters other than those listed above. The performance parameters are clearly defined for each financial year and are disclosed in the remuneration report.

The performance parameters for the STI relate to a calendar year as the assessment period and are normally stipulated in the previous year when targets are agreed accordingly. For each assessment period, a target figure and suitable benchmark for achieving the target are stipulated for every performance parameter, taking into account the cap for each STI subcomponent. In particular, the benchmark for achieving these targets includes different target achievement percentage groups connected with the performance parameter quantities or qualities assigned in each case, combined with a target amount of STI components (if targets are 100% achieved), or different qualitative or quantitative target achievement ranges or percentage-based deviation ranges (based on 100% target achievement associated with bonus and malus amounts). The STI 1 amount (earnings targets) can also be set out in the directors’ service agreement based on a specified percentage of the earnings performance indicators reported by the Company in its consolidated financial statements (EBITDA, EBIT, EBT, after adjusting the actual figures to take into account non-recurring extraordinary circumstances and/or non-operating effects where appropriate). If targets are achieved in full, the STI 1 target figure is determined based on valid corporate planning and the earnings targets for the relevant assessment year. The STI 3 amount (staffing targets) can also be set out in the directors’ service agreement by specifying the relevant performance parameters and providing a corresponding target figure in euros (particularly by comparing a specified percentage increase in annual training hours per employee with a specified STI 3 amount).

The Supervisory Board ensures that the achievement of each performance parameter is quantifiable based on objective criteria such as the audited financial statements for the financial targets, assessments or audits carried out internally or externally or, in the case of project and process targets, objective results or achieved milestones.

Calculation and payment of bonus

After the relevant assessment year has elapsed and the Company's audited annual and consolidated financial statements have been presented to the Supervisory Board, an overall assessment is made and the individual STI subcomponent amounts are calculated by the Supervisory Board, taking into account the target achievement and cap in each case. Payments from the STI are due four weeks after approval of the audited annual financial statements for the relevant assessment year.

Performance-related discretionary bonus

The Supervisory Board is entitled to pay a performance-related bonus at its reasonable discretion in the event of exceptional performance or contributions by an Executive Board member. The Supervisory Board decides whether to award such a discretionary bonus for a given financial year in its meeting to approve the financial statements for the financial year in which the Executive Board member in question primarily performed exceptionally or made their special contribution. The amount of this discretionary bonus is limited to a maximum of 15% of the annual basic remuneration in the financial year in which the discretionary bonus is paid.

If the Supervisory Board awards a discretionary bonus for the past financial year, the bonus becomes due for payment four weeks after approval of the audited annual financial statements.

The Supervisory Board has the option to award a discretionary bonus as a useful tool enabling it to appropriately acknowledge the special efforts and accomplishments of an Executive Board member during a particular financial year. This applies in particular to circumstances and events whose occurrence could not yet or not reliably be foreseen at the time the STI targets were set. The option to award such a bonus can serve as a significant incentive to make an exceptional effort for the good of the Company and its shareholders and other stakeholders and compensate for personal commitment from an Executive Board that exceeds what is expected of them (e.g. in the event of unforeseeable individual projects or transactions). In each case, the Supervisory Board will ensure that the bonus amount is proportionate to the exceptional performance of the Executive Board member in question as well as to the related interests of the Company.

Long Term Incentive (LTI)

Members of the Executive Board receive an LTI from the relevant applicable LTIP as long-term variable remuneration components. The LTI is aligned with the positive development of market capitalization and thus with an increase in the Company's enterprise value and is designed to incentivize the sustainable positive development of the Company over several years. At the same time, it strengthens the Executive Board members’ loyalty to the Company and aligns the interests of Executive Board members with those of the shareholders.

Performance criteria and calculation methodology

The LTI consists of a cash benefit that is limited to a maximum annual amount (cap) stipulated in the relevant director's service agreement and is calculated as follows:

LTI = multiplier x increase in market capitalization

The “multiplier” is a factor that is established for each individual Executive Board member. It determines the share of the increase in market capitalization that should be awarded to the relevant Executive Board member as an incentive.

The “increase in market capitalization” is the increase in the average market capitalization of the Company's shares in euros over a performance period of two financial years. To calculate the increase in market capitalization, reference is made in the calculation year to the past financial year and the corresponding previous year based on the price of Softing shares in XETRA trading on the Frankfurt Stock Exchange (or a comparable successor system). The basis of calculation in the assessment period is the difference between (i) the average XETRA closing price in the last 15 calendar days of the second year multiplied by the average total number of all issued Softing shares within this period, and (ii) the average XETRA closing price for the first 15 calendar days of the first year multiplied by the average total number of issued Softing shares within this period.

If the positive increase in market capitalization calculated during the respective performance period is solely due to one or more capital increases, the “increase in market capitalization” factor is zero.

The LTI is calculated differently if an LTI has been disbursed at least once in accordance with the aforementioned calculation method but the market capitalization then falls during the next performance period, which means that no LTI has been paid in this next period. If the market capitalization then rises again in a subsequent period but without exceeding the market capitalization level when LTI was last disbursed, the multiplier used to calculate LTI in this period is only half of that stipulated for the Executive Board member in question. This continues to apply until the highest market capitalization for which an LTI was disbursed via the aforementioned method as part of the director's service agreement is exceeded again.

Reduction and omission of LTI
If the Executive Board or the corporate divisions for which it is responsible make a contribution to earnings that is materially negative for the development of the business during the performance period, the Supervisory Board, taking into account statutory and regulatory provisions and all the circumstances of the individual incident, will use its professional judgment to decide on a suitable reduction in the future claim to LTI for the financial year affected by the negative contribution or development or for the entire performance period (malus). Such a malus is limited to the disbursement of LTI payments that have not yet been made. The Company has no recourse to LTI payments that have already been disbursed. Irrespective of this, however, the Supervisory Board reserves the right to assert other claims in accordance with the directors’ service agreements and statutory provisions. The Supervisory Board can stipulate provisions whereby the claim to disbursement of the LTI lapses when the director’s service agreement is terminated; this relates in particular to a termination prior to the end of the performance period and a differentiation according to the reasons for the departure (good/bad leaver provisions).

Final calculation and disbursement of LTI, option to reduce it

The LTI amount is calculated by the Supervisory Board after the end of the respective performance period. There is no entitlement to the LTI prior to this. Payments from the LTI are due four weeks after approval of the audited annual financial statements for the last year of the performance period.

If the Company's economic situation deteriorates to such an extent after the LTI is determined that it would be unreasonable for the Company to award the LTI, the Supervisory Board will use its professional judgment to reduce the LTI amount to a reasonable level.

Share ownership guidelines

To align the interests of Executive Board members and shareholders even further and ensure the sustainable long-term development of the Softing Group, every Executive Board member is obliged to hold a portfolio of Softing shares with a value equivalent to at least 60% of the highest LTI disbursement after tax awarded to the Executive Board member during the term of the LTIP. The closing price of Softing shares in XETRA trading on the Frankfurt Stock Exchange (or a comparable successor system) on the day of the relevant LTI disbursement is used to determine the number of shares. If the Executive Board member does not hold this share portfolio in part or in full at the time of the LTI disbursement, they are obliged to acquire the difference by no later than six months after the disbursement of the relevant (highest) LTI. Members of the Executive Board are obliged to hold the aforementioned maximum number of shares determined in accordance with the above stipulation until the end of their director's service agreement.

Target total remuneration, relative share and differentiation by requirements profile

By specifying and/or confirming the targets for STI and LTI on an annual basis, the Supervisory Board thus also indirectly specifies the target total remuneration in a given financial year for each Executive Board member.

The target total remuneration is the sum of all remuneration components for a financial year, namely the basic remuneration, fringe benefits, annual cost of the occupational pension scheme, STI and LTI, in the event that targets are 100% achieved. Irrespective of this, the Supervisory Board can use its professional judgment to decide whether and to what extent a member of the Executive Board should receive a special bonus that is then included in the specified maximum remuneration and is thus limited by such in addition to the specified cap for the discretionary bonus. The Supervisory Board specifies the respective targets for STI and LTI in a separate target agreement before the start of the relevant assessment period where the targets are not already set out in the relevant director's service agreement. In the latter case, the corresponding targets are confirmed in the year prior to the relevant performance period with reference to the corresponding contractual clause. If the amount of the relevant variable remuneration components is linked to the share of an assessment parameter (e.g. percentage of EBITDA or increase in market capitalization), the Supervisory Board will confirm the target value before the start of the relevant performance period, with the target deemed to have been fully achieved when this value is reached.

If the targets for STI and LTI are 100% achieved, the individual remuneration components make up the following relative shares of target total remuneration for the financial year. The awarding of a special bonus is not taken into account when determining these relative shares, as such an award depends upon a retrospective case-by-case decision by the Supervisory Board and cannot be predicted with certainty.

The fixed basic remuneration makes up 20% to 35% of target total remuneration. The STI contributes 25% to 35% to target total remuneration and the LTI 25% to 40%. Fringe benefits representing 1% to 5% of target remuneration are awarded. The cost of the occupational pension scheme makes up 5% to 15% (Chief Executive Officer) or 10% to 20% (ordinary Executive Board member).

There may be small shifts in the aforementioned relative shares due to the fluctuating value and/or use of fringe benefits (which have been estimated as a lump sum based on previous figures for the purposes of the percentages of target total remuneration stated here).

The remuneration system allows the Supervisory Board to take the roles and responsibilities of the individual Executive Board members into account accordingly when calculating their respective remuneration. According to the Supervisory Board’s professional judgment, role-specific differentiation is permitted, taking into account criteria such as usual market practice, the experience of the Executive Board member in question, and their scope of responsibilities on the Executive Board.

Maximum remuneration

The amount of benefits from STI, LTI and any discretionary bonus is limited in each case. The Supervisory Board specifies a maximum figure for the sum of all remuneration components, i.e. those currently consisting of basic remuneration, fringe benefits, contributions to the occupational pension scheme, STI, LTI and any discretionary bonus for each financial year. The maximum remuneration for members of the Executive Board of Softing AG in a given financial year has been stipulated as follows:

-  Chief Executive Officer EUR 2,600,000.00
-  Any other Executive Board member: EUR 1,750,000.00

The maximum remuneration required by the German Stock Corporation Act (AktG) only sets an additional absolute upper limit to prevent disproportionately high Executive Board remuneration in unexpectedly strong financial years. It has nothing to do with the Supervisory Board’s desired level of remuneration for Executive Board members.

Contract term, termination options

The fundamental regulations governing Executive Board remuneration are agreed with the relevant Executive Board members in their directors’ service agreements and the annual STI targets based thereupon, agreements on participation in the LTIP for LTI and commitments to the occupational pension scheme. Subject to a prior mutually agreed termination or changes, the term of each director’s service agreement corresponds to the term of office for the Executive Board member in question and is extended when the Executive Board member is reappointed for the duration of their reappointment. Routine termination of the director’s service agreement is fundamentally excluded for both parties. However, the Company and the Executive Board member have the right to terminate the director’s service agreement for cause on an extraordinary basis in accordance with Section 626 of the German Civil Code (BGB).

The following principles apply for the term of office and/or duration of reappointment: Members of the Executive Board of Softing AG are generally appointed for an initial term of three years. Reappointments are generally for a period of three to five years. The Supervisory Board will inform the Executive Board member whether and to what extent the Executive Board member can expect their term of office to be extended by no later than 12 months prior to the expiry of their term of office. This does not give rise to a legal claim to reappointment to the Executive Board.

Additional activities

Where an Executive Board member is also involved in activities at one of the Company's subsidiaries, this work is not remunerated and is covered by the Executive Board remuneration.

Benefits in the event of early contract termination

In the event that an Executive Board member is dismissed for cause without good reason for terminating their director’s service agreement, the Supervisory Board can release the Executive Board member while continuing their remuneration. In this case, the Executive Board member receives a severance payment for their contractually agreed remuneration claims in the form of the basic remuneration, STI and LTI that would still have accrued for the remainder of their director’s service agreement. This severance payment is limited to the value of two years’ remuneration (severance payment cap). The amount of the variable remuneration components is then calculated based on the claims realized from this in the previous year, provided that the STI 1 calculation is based on a notional update of the relevant earnings performance indicator from the previous year (e.g. EBITDA) in future months for the remainder of the agreement. If the remaining term of the agreement is one year or less, the severance payment is limited to one year’s remuneration. Any payment from a post-contractual non-compete clause must be taken into account for the severance payment.

There are no change of control clauses that commit to benefits in the case of early termination of an Executive Board member’s service agreement due to a change of control.

Continued remuneration in the event of illness, surviving dependents' benefits

In the event of illness, the contractually agreed remuneration can continue to be paid for up to 12 months. In the event of death, the fixed basic remuneration can continue to be paid to surviving dependents' for the month in which the death occurred and up to six additional months. In this case, variable remuneration components are settled as if the Executive Board member left the Company at the end of the month in which the death occurred, i.e. the performance criteria underlying the variable remuneration are calculated for the entire year and the resulting variable remuneration is proportionately disbursed to the surviving dependents' for the months of active service.

Transparency and documentation

Immediately after the General Shareholders’ Meeting adopts a resolution to approve the remuneration system, the resolution and remuneration system will be made publicly available on the Softing AG website free of charge for the duration of the period in which the remuneration system is valid, in accordance with Section 120a (2) AktG.

The Executive Board and Supervisory Board will also prepare a clear and comprehensible report (remuneration report) on the remuneration granted and owed to each individual present and former member of the Executive Board and Supervisory Board by the Company and companies within the Softing Group each year in accordance with Section 162 AktG. The remuneration report must be audited by the auditor. The General Shareholders’ Meeting decides whether to approve the prepared and audited remuneration report for the past financial year (for the first time in the 2021 financial year) in accordance with Section 162 AktG. The Company will make the remuneration report and auditor’s report publicly available free of charge on the Softing AG website for ten years from the date of the General Shareholders’ Meeting's resolution to approve them (to be made for the first time by the General Shareholders’ Meeting in 2022).

Haar, March 19, 2021

Supervisory Board of Softing AG