Letter to Stakeholders

Dear Stakeholders,

Last year, I started my letter by discussing what a challenging year 2021 was due to the COVID-19 global pandemic. And while we are still feeling the impacts of the pandemic, we are also dealing with the next crisis with Russia’s war on Ukraine.

As Clariant’s plant in Ukraine is right in the center of the war, production had to be stopped, and the company supported the evacuation of employees from the area to other parts of Ukraine or other countries. I am happy to say that the company was able to offer jobs in other countries to a number of Ukrainian employees. At the same time, and like many other companies, Clariant decided to suspend any business in and with Russia.

2022 Transformation

2022 was also a year of transformation for Clariant. Several M&A projects were concluded or advanced: the completion of the divestment of the PigmentsPigmentsPigments are substances used for coloring; they are used in a technical manner, for example in the manufacture of dyes, varnishes, and plastics. In 2020, Clariant launched the divestment process of its Pigments business, which was completed on 3 January 2022.View entire glossary business in January, the sale of the North America Land Oil business with an expected closing in the first quarter of 2023, as well as the completion of the acquisition of the Attapulgite business in the US.

In June, the company announced a new organizational setup and a new leadership structure. The changes include a reduction from five to three business units and a flatter operating model. This is accompanied by a change from the former Executive CommitteeExecutive CommitteeUntil 30 June 2022, the Executive Committee was mainly responsible for implementing and monitoring the Group strategy, for the financial and operational management of the Group, and for the efficiency of the Group’s structure and organization. Effective 1 July 2022, the Executive Committee was replaced by the Executive Steering Committee (ESC).View entire glossary to an Executive Steering CommitteeExecutive Steering CommitteeThe Executive Steering Committee (ESC) is authorized by the Board of Directors to steer the company. It has overall strategic and financial responsibility, including for our profit and loss statement. The ESC consists of the Chief Executive Officer (CEO), the Chief Financial Officer (CFO), and the three Business Presidents.View entire glossary . The new Executive Steering CommitteeExecutive Steering CommitteeThe Executive Steering Committee (ESC) is authorized by the Board of Directors to steer the company. It has overall strategic and financial responsibility, including for our profit and loss statement. The ESC consists of the Chief Executive Officer (CEO), the Chief Financial Officer (CFO), and the three Business Presidents.View entire glossary comprises the CEO, the CFO, as well as the three Business Presidents, who have full P&L responsibility for their respective Business Units (BU). In this process, the three members of the former Executive CommitteeExecutive CommitteeUntil 30 June 2022, the Executive Committee was mainly responsible for implementing and monitoring the Group strategy, for the financial and operational management of the Group, and for the efficiency of the Group’s structure and organization. Effective 1 July 2022, the Executive Committee was replaced by the Executive Steering Committee (ESC).View entire glossary stepped down from their positions.

2022 Performance

Despite the disruptions from the pandemic, the war on Ukraine, and their effects on energy prices and supply chain, Clariant managed to achieve a remarkable financial result. Driven by the strong efforts and dedication of our employees as well as the continued execution of efficiency programs, Clariant achieved significant growth in terms of sales, absolute EBITDAEBITDAEarnings before interest, taxes, depreciation, and amortization.View entire glossary , and cash flow. These results are also reflected in the amounts of variable compensation to the members of the Executive Steering CommitteeExecutive Steering CommitteeThe Executive Steering Committee (ESC) is authorized by the Board of Directors to steer the company. It has overall strategic and financial responsibility, including for our profit and loss statement. The ESC consists of the Chief Executive Officer (CEO), the Chief Financial Officer (CFO), and the three Business Presidents.View entire glossary as outlined later in this report.

Compensation Committee Activities

The Compensation Committee met six times during 2022 and held one telephone conference. The activities focused around three main topics:

(1) The restatements of the financial results for the years 2020 and 2021 and the impact on the achievements of the incentive plans, as well as the timing for payout; (2) Clariant’s organizational transformation, the resulting personnel changes, and the required remuneration packages for former and newly appointed EC/ESC members, and (3) the design of the new short-term incentive plans.

In addition, the Compensation Committee performed its regular activities. These included, for instance, the proposal of targets for the 2023 Clariant Long-Term Incentive Plan (CLIP) grant, the proposal of the Group and business unit targets for the 2023 short-term incentive plan for approval by the Board of Directors, as well as the preparation of the Compensation Report and the say-on-pay votes at the Annual General Meeting.

Changes to the Compensation System in the Reporting Year

As announced in the 2021 Compensation Report, Clariant’s long-term incentive plan was granted in April 2022 under a new plan design including two ESG-related KPIs (CO₂ emission reduction and Employee Net Promoter Score) with a substantial weighting of 34 % in total, thus strengthening the company’s sustainability agenda.

In 2022, the global short-term incentive plans were reviewed and redesigned. The new plans will be effective 1 January 2023, and you will find further details on the new design in this report. The new design places greater emphasis on a pay-for-performance philosophy and continued alignment with the company’s strategy. This also leads to another change in the long-term incentive plan for 2023, where EBITDAEBITDAEarnings before interest, taxes, depreciation, and amortization.View entire glossary margin will be replaced with return on invested capital (ROIC), as EBITDAEBITDAEarnings before interest, taxes, depreciation, and amortization.View entire glossary margin is one of the financial KPIs embedded in the new short-term incentive plan. As in the long-term incentive plan, ESG-related metrics are a substantial part of the new short-term incentive plan.

The organizational transformation and the personnel changes at the EC/ESC level were also taken as an opportunity to review the compensation packages for newly appointed ESC members. Based on benchmarks from Mercer, the level and structure of the total compensation were adjusted. While all newly appointed ESC members follow the same compensation mix with a target short-term incentive of 80 % of base salary and a target long-term incentive of 90 % of base salary, the total target compensation differs for each member, taking into account the size and scope of the role as well as the size and global footprint of the business.

Binding/Nonbinding Votes at the 2022 Annual General Meeting

We are happy that stakeholder support for Clariant’s compensation philosophy and framework continues to be strong. All motions on compensation were approved by Clariant’s stakeholders at the 2022 Annual General Meeting, and the Compensation Report again received a high approval rate in the consultative vote.

However, from the Annual General Meeting as well as from numerous discussions with our stakeholders, we have also received feedback and requests to improve the disclosures regarding the company’s compensation system. We are grateful for this feedback and take it seriously. While we are not able to meet all requests brought forward, we have made an effort with a new structure and additional disclosures in this report. We will continue to engage with our stakeholders to ensure that the company’s compensation programs are aligned with their interests and aligned to the company’s purpose and strategy in an ever-changing environment.

We hope you appreciate the new format and additional information provided.

Sincerely,

Eveline Saupper

Chair Compensation Committee