Key principles for Clariant’s Short-Term Incentives (STI) and Long-Term Incentives (LTI) are to reduce complexity, increase transparency, and ensure a coordinated and unified »One Clariant« approach throughout all employee groups and countries. Therefore, success, in terms of bonus payouts, will generally be measured only based on relevant financial Group Performance Indicators. Only if Clariant is successful, profits can be shared with employees.

The following variable compensation programs are currently in place for Clariant:

STI: Short-Term Incentive Plans (cash bonus)

1. Group Management Bonus Plan (GMBP) – started in 2010
2. Group Employee Bonus Plan (GEBP) – started in 2010/2011
3. Global Sales Incentive Plan (G-SIP) – started in 2011

002 CLARIANT INCENTIVE SCHEME LANDSCAPE

¹ Number of positions as of 31 Demecber 2018
² ML: Management Level

LTI: Long-Term Incentive Plans (equity-linked incentives)

1. Performance Share Unit (PSU) Plan – started in 2013
2. Group Senior Management – Long-Term Incentive Plan (GSM-LTIP or Matching Share Plan) – started in 2010
3. Restricted shares for the Board of Directors – started in 2012

The Performance Cycle of Clariant is based on a 12-month rotation, which starts in November each year with objective discussions focusing on the next business year. Group Performance Indicators (GPI), top priorities, and related projects are included. In January, alignment meetings take place with key leaders of the company in order to cascade GPI objectives and priorities for the new year.

003 ANNUAL PERFORMANCE CYCLE

4.1. Short-Term Incentive Plans (cash bonus)

1. The Group Management Bonus Plan (GMBP) is anchored in the overall Performance Cycle at Clariant. Through intensive discussions and systematic alignment meetings, this cycle ensures a challenging business-specific target agreement for each Business Unit and Service Unit (BU/SU).

The individual amount of bonus payments generated in a year is determined by the achieved result of the Clariant Group measured against clear objectives. The achievement is calculated by means of three elements: financial result of the Group; financial results of Business and Service Units; and defined top priorities (Group Performance Indicators and strategic projects) Figure 004.

004 GROUP MANAGEMENT BONUS PLAN (GMBP) 2018 – THREE PILLARS TO BALANCE THE BONUS PLAN

As Clariant Performance Cycle agreements with each BU lead to challenging business-specific target settings, the maximum bonus payout is explicitly capped at 100% (= target). These target settings were defined in the fourth quarter of 2017. As outlined in the compensation concept, Clariant aims for a more aggressive pay-mix than the norm in international markets; thus, this 100-percent approach ensures competitive positioning compared with other companies.

The annual evaluation of the achievement of objectives and allocation of funds for the GMBP is conducted by the CoC in February, following the financial year in question, and approved by the Board of Directors. This system ensures that the bonus payments granted to employees are closely aligned with the Group’s overall results.

2. Cash bonus for non-management-levels: The Group Employee Bonus Plan (GEBP) represents an aligned and standardized bonus plan for all legal entities around the world. In general (where legally compliant and possible), all legal entities will apply the global Group Achievement or a combination of Group Achievement and local Top Priorities as the bonus payout. Some countries in Asia reward part of the GEBP for blue-collar employees in form of a local productivity scheme to improve site/plant performance. Since 2017, employees in the Clariant Shared Service Centers in Poland and Mumbai have received 50% of their GEBP in form of a »Global Business Services – Shared Service Center Bonus Plan (GBS-SSC)« to offer a competitive incentive focused on quality and productivity.
3. For the sales force: The Global Sales Incentive Plan (G-SIP) aims to incentivize premier sales performance and growth by focusing on the individual sales performance and underlying Key Performance Indicators in the areas of sales, margin, and trade receivables. Each objective is weighted and can be monitored using existing reporting systems. Thus, the direct impact of individual success on payout can be easily tracked. In 2011, the global rollout started, and in 2018, approximately 1 100 employees were included worldwide. Employees can participate only in one global bonus plan (G-SIP or GMBP/GEBP).

4.2. Long-Term Incentive Plans (equity-linked incentive)

Clariant offers equity-based compensation for approximately 250 senior managers worldwide (EC and ML 1 – 4).

1. The Performance Share Unit (PSU) Plan was introduced in 2013. Its key objective is a strong commitment to higher profitability for Clariant and therefore the achievement of strategic targets.

Clariant’s Performance Share Unit Plan has a three-year vesting period. The vesting is conditional upon achievement of the performance target (check after three years). The relevant underlying Key Performance Indicator is EBITDA (before exceptional items) in percentage of sales and the performance target is to be at or above the median of a defined peer group. If vesting and performance targets are achieved, one PSU will be converted to one Clariant share. For PSUs granted in 2015, the performance criteria were checked in summer 2018. The comparison with the peer group revealed that Clariant missed the relevant performance hurdle (the median of the group) and therefore the PSUs for all participants were forfeited in September 2018.

PSU participation is limited to the Executive Committee and selected senior managers of ML 1 – 4 (approximately 1.4% of employees). Eligible participants will receive a fixed number of PSUs in accordance with an underlying share price defined over a 10-day trading period. Eligibility and endowment will be reviewed each year that the scheme is in operation. For 2018, the Board of Directors had approved to grant PSUs again. The grant took place on 19 September 2018 with an underlying share price of CHF 23.58.

If an employee should voluntarily leave Clariant before the vesting period (three years) expires, all rights to shares which have not yet been transferred at that point in time become invalid. In case of retirement, disability, or death of the participant, the employee (or the estate and/or heirs of the participant in case of death) will receive an immediate vesting on a pro-rata basis in accordance with published regulations. The vested PSUs remain subject to the performance condition and will be allocated only at the end of the vesting period.

In case a participant has substantially contributed to a financial loss, issues resulting in restatement of financial results, reputational damage, or substantial breach of legal or regulatory requirements, including internal policies, the Board of Directors can decide to cancel any outstanding PSUs.

After 5 years without any plan changes, the Compensation Committee has decided to amend the PSU Plan for senior management starting in 2019. Based on intensive benchmarking, this revised Long-Term Incentive aims to provide a closer alignment of underlying Key Performance Indicators with the market perspective and to represent an attractive and competitive incentive for senior management (see also 4.2. c).

2. Group Senior Management – Long-Term Incentive Plan (GSM-LTIP) = Matching Share Plan

The Matching Share Plan requires a personal investment in Clariant shares and fosters the commitment of key managers (approximately 108 positions; EC and ML 1 – 3) to the long-term success of Clariant. Under this plan, key managers have to invest 20% of their annual cash bonus (GMBP) in Clariant shares (= investment shares). Thus, this plan supports senior managers in meeting their requirement to permanently hold a minimum of 20 000 and up to 100 000 shares, depending on their management level. New participants will have six years to fulfill the required investment thresholds.

The investment shares will be blocked and held in a custody account for a period of three years. At the end of the blocking period, the participant is entitled to obtain for each investment share an additional share free of charge (= matching share). This matching is subject to the condition of continued employment with Clariant throughout the blocking period. In case of termination of employment before the end of the blocking period, the right to receive Matching Shares lapses. In case of retirement, disability, or death, a cash amount will be paid instead, equal to the pro rata temporis portion (considering employment during the blocking period).

The senior managers who do not participate in this plan, or do not invest according to the plan regulations, will have their target cash bonus (GMBP) decreased by 50% and forfeit the eligibility to participate in any Long-Term Incentive Programs (including the PSU Plan) for the following bonus year.

The CoC has decided to revise Clariant’s Long-Term Incentive Plans for 2019 to better reflect Clariant’s strategic targets and to ensure a competitive remuneration package to senior managers reflecting market best practices. The Matching Share Plan will therefore be discontinued and will not be granted for 2018. Consequently, no deduction for investment shares from the actual 2018 bonus payout in 2019 will be made and the bonus will be fully paid in cash instead. The STI weighting within total remuneration for 2018 has therefore as an exception been higher than regular Figure 001.

3. New Long-Term Incentive Plan

The new LTIP will be initiated in 2019; it will have a three-year vesting period and will represent an equity-based award in the form of Performance Share Units. Vesting will be conditional upon achievement of performance targets. Relative Total Shareholder Return and Economic Profit have been selected as underlying Key Performance Indicators. Vesting will occur only if at least a threshold performance level as defined by the Board of Directors has been achieved and can take place at any level between 0% and 100% of the granted PSU volume. At vesting, each PSU will be converted into one Clariant share.

Participation in the new Long-Term Incentive Plan will be limited to the Executive Committee and selected senior managers of ML 1 – 4 (approximately 1.4% of employees).

4. Restricted shares for the Board of Directors

This share plan introduced in 2012 allocates shares of Clariant Ltd to members of the Board of Directors. Board members will receive a fixed portion of the annual fee allocated in the form of shares subject to a blocking period (»Restricted Shares«). The blocking period is three years from the date they are allocated. From the first business day after the blocking period, the board member may freely dispose of and trade these shares without any further restrictions (legal restrictions will remain applicable). The allocation is made once a year, at the end of the mandate year, four weeks prior to the Annual General Meeting (AGM).

The value of a grant is determined by the role and responsibility.