5. Overview of Existing Incentive Plans

The key principles for Clariant’s Short-Term Incentives (STIs) and Long-Term Incentives (LTIs) 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 (GPIs). 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)

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

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

• Performance Share Unit (PSU) Plan – started in 2013, last grant in 2018
• Group Senior Management – Long-Term Incentive Plan (GSM-LTIP or Matching Share Plan) – started in 2010, last grant in 2018 (for 2017)
• Clariant Long-Term Incentive Plan (CLIP) – started in 2019
• Restricted shares for the Board of Directors – started in 2012

002CLARIANT INCENTIVE SCHEME LANDSCAPE

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 (GPIs), 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.

003ANNUAL PERFORMANCE CYCLE

5.1. Short-Term Incentive Plans (cash bonus)

a) 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 (BU) and service unit (SU).

The individual amount of bonus payments generated in a year is determined by the achieved result of the Clariant Group measured against defined objectives. The achievement is calculated by means of three elements: financial result of the Group, financial results of the BUs or SUs, and defined top priorities (GPIs and strategic projects). Table Group Management Bonus Plan (GMBP) 2021

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). The target settings for 2021 were defined in the fourth quarter of 2020. As outlined in the remuneration structure (see paragraph 4), Clariant offers a good mix between fixed and variable compensation, thus ensuring overall competitive compensation positioning compared with other companies.

The annual evaluation of the achievement of objectives, as well as the allocation of funds for the GMBP, is conducted by the CoC in February, following the respective financial year, 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. The exact actual targets are not being disclosed, as these are considered commercially sensitive.

GROUP MANAGEMENT BONUS PLAN (GMBP) 2021

GMBP – Key Changes 2021

Top Priorities: For GMBP 2021, Productivity was replaced by a Sustainability KPI (Key Performance Indicator) focusing on Scope 1, Scope 2, and Scope 3 reduction. The Inventory Target was eliminated from the KPIs, allowing for higher weightings of the remaining KPIs. For Discontinued Operations, the CLNXCLNXClariant Excellence was an initiative launched in March 2009 with the aim of establishing a culture of continuous improvement. The four elements of Clariant Excellence were: Operational, Commercial, People, and Innovation Excellence. Clariant has adapted and refocused its organization post divestments, Clariant Excellence in its former composition does no longer exist. The Excellence approach is focused on Operational Excellence.View entire glossary Benefits KPI was replaced by the results of an internal optimization project while keeping the Inventory target as a KPI.

The GMBP will remain largely unchanged, especially for Corporate and Continuing Businesses. Changes are made to the KPIs for BFD, eliminating the Cost KPI and increasing the weighting for EBITDAEBITDAEarnings before interest, taxes, depreciation, and amortization.View entire glossary and Cash Flow to 35 % each. From the Sustainability KPI, Scope 1 and Scope 2 were removed, as these are now reflected in the Clariant Long-Term Incentive Plan (please see respective paragraph in this report). In addition, Top Priorities for Services will include a CLNXCLNXClariant Excellence was an initiative launched in March 2009 with the aim of establishing a culture of continuous improvement. The four elements of Clariant Excellence were: Operational, Commercial, People, and Innovation Excellence. Clariant has adapted and refocused its organization post divestments, Clariant Excellence in its former composition does no longer exist. The Excellence approach is focused on Operational Excellence.View entire glossary Benefits KPI instead of the cost roadmap. Finally, the LTAR is removed from the 2022 GMBP.

The GMBP will be reviewed in detail during 2022 to assess a further alignment of KPIs (and weighting) to Clariant’s strategy and performance culture. These potential changes would not be implemented until the 2023 performance period.

b) Cash bonus for nonmanagement levels: The Group Employee Bonus Plan (GEBP) represents a globally 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. The maximum bonus payout is capped at 100 % (= target). Some countries in Asia and Latin America reward part of the GEBP for blue-collar employees in the form of a local productivity scheme to improve site/plant performance. Since 2017, employees in the Clariant Shared Service Centers have received 50 % of their GEBP in the form of a »Global Business Services – Shared Service Center Bonus Plan (GBS-SSC)« to offer a competitive incentive focused on quality and productivity.

c) Cash bonus 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 2021, approximately 720 employees were included worldwide. Employees can participate only in one global bonus plan (G-SIP or GMBP/GEBP).

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

Clariant offers equity-based compensation for approximately 200 senior managers worldwide (EC and ML 1 – 4).

a) The Performance Share Unit (PSU) Plan was introduced in 2013 and was last granted in 2018. Its key objective was a strong commitment to higher profitability for Clariant and therefore the achievement of strategic targets. The PSU Plan expired in 2021 and has been replaced by the CLIP (see below).

Clariant’s PSU Plan has a three-year vesting period. The vesting is conditional upon achievement of the performance target (checked after three years). The relevant underlying Key Performance Indicator is EBITDAEBITDAEarnings before interest, taxes, depreciation, and amortization.View entire glossary (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 2018, the performance criteria were checked in summer 2021. The comparison with the peer group revealed that Clariant met the relevant performance hurdle (the median of the group); therefore, the PSUs for all participants vested in September 2021.

PSU participation was limited to the Executive CommitteeExecutive CommitteeManagement body of joint stock companies; at Clariant the Executive Committee currently comprises four members.View entire glossary and selected senior managers of ML 1 – 4 (approximately 1.4 % of employees). Eligible participants received a fixed number of PSUs in accordance with an underlying share price defined over a ten-day trading period.

If an employee left Clariant before the vesting period (three years) expired, all rights to shares that had not yet been transferred at that point in time became invalid. In the event of retirement, disability, or death of the participant, the employee (or the estate and/or heirs of the participant in the event of death) received an imme­diate vesting on a pro-rata basis in accordance with published regulations. The vested PSUs remained subject to the performance condition and were allocated only at the end of the vesting period in the event that the performance condition was met.

In the event that a participant had 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 could decide to cancel any outstanding PSUs.

b) Group Senior Management – Long-Term Incentive Plan (GSM-­LTIP) = Matching Share Plan The Matching Share Plan was started in 2010 and granted for the last time in 2018 for the year 2017. It required a personal investment in Clariant shares and fostered the commitment of key managers (EC and ML 1 – 3) to the long-term success of Clariant. Under this plan, senior managers had to invest 20 % of their annual cash bonus (GMBP) in Clariant shares (= investment shares). Thus, this plan supported 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 had six years to fulfill the required investment thresholds.

The investment shares were blocked and held in a custody account for a period of three years. At the end of the blocking period, the participant was entitled to obtain for each investment share an additional share free of charge (= matching share). This matching was subject to the condition of continued employment with Clariant throughout the blocking period. In the event of termination of employment before the end of the blocking period, the right to receive Matching Shares lapsed. In the event of retirement, disability, or death, a cash amount was paid instead, equal to the pro rata temporis portion (considering employment during the blocking period). Matching shares under this plan were distributed for the last time in 2021.

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

c) Clariant Long-Term Incentive Plan (CLIP) In 2018, the Compensation Committee had decided to amend the Long-Term Incentive Plans for senior management starting in 2019 to better reflect Clariant’s strategic targets and to ensure a competitive remuneration package to senior managers reflecting market best practices. Based on intensive benchmarking, the new plan was designed. This revised Long-Term Incentive Plan aims to provide a closer alignment of underlying Key Performance Indicators with the shareholder perspective and to represent an attractive and competitive incentive for Senior Management.

The CLIP was granted for the third time in April 2021. Participation in the CLIP is limited to the Executive CommitteeExecutive CommitteeManagement body of joint stock companies; at Clariant the Executive Committee currently comprises four members.View entire glossary and senior managers of ML 1 – 4 (approximately 1.4 % of employees).

The CLIP represents an equity-based award in the form of Per­formance Share Units with a three-year vesting period. The CLIP grant per individual is defined as a fixed percentage of the annual base salary for management levels ML 1 – 4 and as a fixed amount for EC members.

Figure 001

Table Remuneration Structure of the Clariant Executive Committee

Relative Total Shareholder Return (rTSR) and Economic Profit (EP) have been selected as underlying and equally weighted Key Performance Indicators (weighted at 50 % each). The number of PSUs is determined by dividing the individual grant value by the Fair Market Value of a PSU at the grant date. In accordance with the Accounting Standards Codification, the Monte Carlo valuation methodology is applied to determine the grant date Fair Market Value to measure the per­formance of the rTSR component. To calculate the Economic Profit component, the market value of Clariant shares at the grant date is adjusted by the present value of future dividends. The vesting is conditional upon achievement of defined performance targets. Vesting will only occur if at least a threshold performance level as defined by the Board of Directors has been achieved. Vesting can take place at any level between 0 % and 100 % of the granted PSU volume. The Key Performance Indicators are measured indepen­dently.

The CLIP 2019 grant will vest in April 2022. The threshold for the rTSR KPI was not met, resulting in a vesting factor of 0 % for this KPI. The vesting factor for the EP KPI was 72 %. This results in an overall vesting factor for the CLIP 2019 grant of 36 %.

004RELATIVE TSR/EP VESTING CURVE

At vesting, each PSU is converted into one Clariant share. At vesting, the number of PSUs that vest for a participant is calculated by multiplying the number of the granted PSUs with the Overall Vesting Factor, rounded up to the next whole share.

Should an employee voluntarily leave Clariant before the vesting period (three years) expires, all rights to shares that have not yet been transferred at that point in time become invalid. In the event of retirement, the unvested PSUs will be pro-rated and remain subject to the performance condition. The PSUs will be allocated to the participants only at the end of the vesting period. In the event of disability or death of the participant, the employee (or the estate and/or heirs of the participant in the event of death) will receive an immediate vesting on a pro-rata basis. The vested PSUs will be released from the performance condition and will be settled in cash.

In the event that 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.

Participation in CLIP is tied to share ownership targets that have to be achieved within five years:

• CEO: 150 000 shares
• EC: 80 000 shares
• ML 1 – 4: up to 30 000 shares, depending on management level

In 2021, the Compensation Committee decided to introduce changes to the CLIP program for the grant in April 2022. These changes follow a process of analysis and consultation with external remuneration experts. Based on these insights, the changes are in alignment with practices in the Swiss market and among peer group companies.

While the relative Total Shareholder Return will remain as one of the KPIs, the Economic Profit will be replaced by EBITDAEBITDAEarnings before interest, taxes, depreciation, and amortization.View entire glossary margin, thus strengthening the tie to the financial strategy. In addition to the two financial KPIs, two ESG-related KPIs will be introduced: A CO₂ reduction target to underline Clariant’s commitment to Sustain­ability and a target on the improvement of the Employee Net Promoter Score (eNPS) to support the ambition to become a top employer in the chemical industry. With the addition of the two non-financial KPIs, the respective KPI weighting will be the following:

• Relative TSR: 33 %
• EBITDAEBITDAEarnings before interest, taxes, depreciation, and amortization.View entire glossary margin: 33 %
• CO₂ reduction: 17 %
• eNPS: 17 %

The exact targets are not being disclosed as these are considered commercially sensitive. Vesting can take place between 0 % and 200 %. Thresholds for each KPI were determined to be achievable, the targets to be ambitious and the maximum to incentivize and reward highest performance levels. Finally, the determination of PSUs will be changed from a fair value approach to considering the average share price of the last 30 trading days prior to the grant date. Ultimately, the changes to the CLIP aim toward a closer alignment with Clariant’s long-term strategy and a stronger performance culture.

d) Restricted shares for the Board of Directors The 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 member of the Board of Directors 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.

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