Total remuneration of the Managing Board 2021

Introduction

Actual remuneration for 2021 is fully aligned with the remuneration policy, which complies with EU requirements and Dutch legislation.

2021 was the first full year in which Geraldine Matchett and Dimitri de Vreeze were in charge as Co-CEOs. A comparison with 2020 is somewhat distorted, because the remuneration for that year was partly based on their capacity as a Member of the Managing Board and partly in their capacity as Co-CEOs.

Base salary

As already reported in the 2020 Remuneration report, a quick scan was conducted early 2021, benchmarking DSM’s position within the labor market peer group as defined within the Remuneration Policy of the Managing Board of Koninklijke DSM N.V. Whereas the policy is to approach the median from below, the benchmark showed that DSM had dropped to the lowest position in the peer group as far as targeted total Direct Compensation (annual base salary plus targeted Short-Term Incentive plus targeted Long-Term Incentive) is concerned. As a first step to close the gap, the Supervisory Board decided to adjust annual base salary of the Co-CEOs to € 1,003,625 on annual basis per 15 February 2021. This adjustment reflects the fact that the annual base salary of the Co-CEOs was initially set below the level of their predecessor and considers the market movement of the peer group. After this adjustment and compared to the quick scan mentioned, the Co-CEOs’ base salary moved toward the 25^th percentile of the labor market peer group, whereas target Total Direct Compensation still remains below the 25^th percentile.

Goals and targets incentive programs

Our purpose as company is to create brighter lives for all. We are therefore in business to generate profitable growth while at the same time contributing to a better world. Our focus in 2021 was on developing innovative solutions addressing our three focus domains: Nutrition & Health, Climate & Energy, and Resources & Circularity. Our initiatives within these focus domains were brought together in the three pillars of our Brighter Living Agenda:

• improving our own operations (for example, by reducing our emissions)
• enabling our customers to deliver healthy and sustainable solutions by developing and providing products that, from a Triple-P perspective, stand out against mainstream products
• accepting and acting on our responsibilities as a corporate member of society

Our focus shifted in light of the strategic update announced in September 2021. With a growing global population, the world is facing multiple systemic and interconnected food system challenges that impact the health and well-being of people, animals and the planet. DSM has the capability and therefore the responsibility to make a meaningful impact on the world’s food systems. Helping to bring about a positive transformation in global food systems also creates attractive new market opportunities for our company. With this new strategic focus, we are therefore staying true to our purpose of creating brighter lives for all.

Related to this framework, a broader set of key performance indicators (KPIs) was defined, some of them feature in our incentive programs. Added to this are financial targets that reflect our financial performance, since contributing to brighter lives goes hand in hand with profitable growth. The design of our Short- and Long-Term incentive plans emphasizes the importance of building long-term growth opportunities. Targets on energy efficiency and greenhouse gas (GHG) emission reduction and building our portfolio of Brighter Living Solutions underpin our commitment to contribute to a better world, while at the same time generating profitable growth in line with our key strategic goals (Adjusted EBITDA and Adjusted net operating free cash flow) and safeguarding employee safety and engagement (definitions are provided in the respective paragraph).

A comprehensive scenario analysis was initially conducted when the revised Remuneration policy was prepared. The analysis confirmed that neither the structure of the incentive schemes nor the nature of the goals would result in inappropriate pay-out levels. DSM’s Remuneration policy is designed in the interest of long-term value creation, as is confirmed by a range of factors, including:

• the pay mix: the target value of the LTI has twice the target value of the STI
• the mandatory re-investment of any STI achieved in LTI and the vesting of the match provided on such investments is subject to targets with a long-term horizon
• the targets set for the STI or underlying the LTI grants are consistent with DSM’s longer-term strategic financial and sustainability objectives

By this means, the structure of the policy is designed to ensure that the pursuit of short-term objectives does not prevail over the delivery of long-term results.

Short-Term Incentive (STI)

This report includes the STI achievement for 2021, payable in April 2022, and based on the base salary paid in 2021. Targets were set ahead of the STI cycle, in accordance with the Remuneration policy and with reference to the prior year, the budgets and the business plans for the performance year, ensuring that achievement of the threshold, target or maximum pay-out out are appropriately challenging.

Definitions of goals set for 2021 STI (total at-target weight is 50% of annual base salary):

• Adjusted EBITDA (weighting 12.5%): sum of the operating profit plus depreciation and amortization, adjusted for material items of profit/loss following acquisitions/divestments, restructurings and other circumstances deemed necessary
• Adjusted net operating free cash flow (10%): cash flow from operating activities, corrected for the cash flow of the Alternative Performance Measures (APM) adjustments, minus the cash flow of Capital expenditures and drawing rights
• Net sales growth (2.5%): net organic sales growth
• Brighter Living Solutions (BLS) (5%): is DSM’s program for the development of sustainable, innovative solutions with environmental and/or social benefits, creating shared value for our stakeholders. Brighter Living Solutions are products, services and technologies that, considered over their life cycle, offer a superior environmental impact (ECO+) and/or a superior social impact (People+) when compared to the mainstream alternative for the same application.
• Safety (5%): based on the Frequency Index for recordable injuries
• Employee Engagement (5%): based on the High-Performance Norm in the industry
• Individual goals (10%): in 2021 the Managing Board / Executive Committee shared two team targets
• The financial measures reflect our strategic growth ambitions while the targets related to Brighter Living Solutions, Employee Engagement and Safety relate to our Sustainability Commitments.

Within DSM’s STI scheme, pay-out brackets are defined, considering the nature of the goal. A minimum threshold is set for each goal; an achievement below this threshold results in no pay-out with respect to that target. Over-performance results in a pay-out exceeding 100% where the maximum achievement is capped at 200% of the ‘at-target’ weighting of the respective goal. Goals, targets and pay-out schedules were defined at the beginning of the year, with defined brackets between ‘threshold’ and ‘maximum’. The following table provides an overview of the realization of the 2021 STI targets.

We delivered a strong performance as we continued to successfully navigate dynamic market conditions. Good end-user demand further boosted our sales, resulting in an organic sales growth of 13%. The net sales growth target was fully realized and capped at the maximum achievement of 200% (2020 achievement: 0%). The strong sales paired with exceptional operational excellence, translated into a step-up of 18% in Adjusted EBITDA, resulting in maximum achievement (2020 achievement: 0%). The Adjusted net operating free cash flow also improved by 9% compared to 2020, again resulting in maximum achievement. Following the carve out of our Resins & Functional Materials and associated businesses, the composition of our portfolio changed considerably. Continued innovations contributed to an at-target achievement of the BLS-target; 64% (against 63% in 2020) of our products qualify as outstanding compared to mainstream solutions. Our safety performance continued to improve as well in 2021. Compared to 2020, the Frequency Index improved from 0.24 to 0.22, resulting in an achievement of 150% of target. The simplification of our organizational structure and the redesign of the operating model of all our enabling functions as well as the strategic repositioning of our Materials’ business had a significant impact on our employees. Nonetheless, we are proud that the Employee Engagement Score was maintained at the targeted level.

The combined realization resulted in a 2021 STI pay-out as included in the below overview (note: the 2020 STI was pro-rata linked to the base salary as respectively Member of the Managing Board and as Co-CEO).

Short-Term Incentive deferral & matching (STI)

In addition to the mandatory deferral (25% of STI achieved), the Managing Board members decided to convert another 25% (maximum possible) of their STI into shares. This means that the Co-CEOs converted 50% of their STI into this long-term incentive, demonstrating their trust in the company strategy and their focus on the long term. A 1:1 grant of PSUs was implemented, as included in the following table. The 2021 grant was based on the STI achieved during 2020 and therefore on the 2020 terms and conditions partly tied to remuneration as Member of the Managing Board and partly as Co-CEO.

Long-Term Incentive (LTI)

2021 and 2022 grant

In 2021, 10,000 Performance Shares Units (PSUs) were granted (on 31 March) to each of the Co-CEOs (2020: 12,500). The grant is based on the annual base salary applicable on the grant date and the average share price in January of the year of grant. The 2022 grant (to be implemented 31 March) equals 8,500 PSUs for each Co-CEO. Any grant equals the maximum number of PSUs that may vest. The fact that the number of PSUs granted in 2021 and 2022 is lower compared to the foregoing year is a result of the share price appreciation.

Goal setting

Targets were set ahead of the LTI cycle, in accordance with the remuneration policy, ensuring that achievement of threshold, target or maximum vesting is challenging. The following goals were set for the LTI grants:

• Total Shareholder Return — TSR (weighting 25%): sum of capital gain and dividends paid, representing the total return to shareholders; the relative ranking (within the peer group) reflects the overall performance relative to our peers
• Return on Capital Employed — ROCE (25%): operating profit as percentage of weighted average capital employed
• Energy Efficiency Improvement — EEI (25%): the reduction of the amount of energy used per unit product (known as energy efficiency) on a three-year rolling average basis
• Greenhouse Gas Emissions — GHGE (25%): as of the 2019 grant: absolute reduction of greenhouse gas emissions in kilotons over performance; the target up to and including the 2018 grant is based on the reduction of greenhouse gas emissions per unit of product

Vesting 2018 grant

The performance period of the PSUs granted in 2018 was completed by year-end 2020: the actual vesting was on 31 March 2021. This concerns the PSUs granted under the Long-Term Incentive plan as well as the PSUs granted under the STI deferral & matching plan. The following vesting schemes applied.

A strong share price appreciation resulted in the second rank on the relative Total Shareholder Return goal (same score applied for the 2017 grant that vested in 2020), resulting in an achievement of 145%; i.e., the vesting of 97% of the PSUs initially granted linked to this goal. The ROCE reported over 2020 of 10.3% is substantially below target on the back of several acquisitions in the period 2018–2020. When adjusted for these acquisitions, the ROCE improved to 12.2%, still below target. As the threshold was not achieved, no PSUs tied to this goal vested. On Energy Efficiency DSM realized an improvement of 9% over the performance period. During the 3-year performance period total GHG emissions were reduced by 30%. As a result, the vesting related to both sustainability goals was at maximum level. The below table provides an overview of the number of PSUs granted in 2018 that vested (i.e., converted to unconditional shares) on 31 March 2021. In total, 74.2% of the PSUs granted in 2018 vested (note: in 2020, 90.8% of the PSUs granted in 2017 vested). Since the number of PSUs granted equals the maximum number to vest, the vesting equals 111.3% of the targeted grant (136.3% in 2020).

Pension and other benefits

Participation in the basic pension plan provided by the Dutch pension fund (Stichting Pensioenfonds DSM Nederland – PDN) to all DSM employees in the Netherlands is mandatory for the Managing Board. Regarding pensionable salary not covered by the basic pension plan, a company-paid pension contribution as determined by the Supervisory Board applies. This contribution can be used by Managing Board members to participate in the so-called Net Pension Plan under conditions applicable to all participating DSM employees. The company provides accident insurance cover, a company car, and a fixed representation allowance in line with market practice.

Total remuneration

Actual total remuneration for 2021 is fully aligned with the remuneration policy. The following table provides an overview of the total remuneration expense for the company in relation to the Managing Board in accordance with IFRS rules (these costs are not necessarily equal to compensation paid or the cash out for DSM).

In line with the outstanding company performance, the STI achieved over 2021 compared to 2020 went up, whereas the cost of Share based compensation (LTI) decreased due to the valuation and composition of the underlying series. Also considering the base salary adjustment, total remuneration expenses incurred in 2021 went up to € 5,830 million.