Remuneration

With respect to the recommendations of the German Corporate Governance Code as of December 16, 2019, published in the German Federal Gazette on March 20, 2020, and the Act Transposing the Second European Shareholder Rights (ARUG II), the remuneration system for the Executive Board was thoroughly reviewed and further developed.

The revised remuneration system applies to all members of the Executive Board in office as of January 2021 and to all new appointments and re-appointments thereafter.

Remuneration system for the Executive Board from 2021

The remuneration system for the Executive Board will be provided to the next Annual General Meeting for its approval.

With respect to the recommendations of the German Corporate Governance Code as of December 16, 2019, published in the German Federal Gazette on March 20, 2020, and the Act Transposing the Second European Shareholder Rights Directive (ARUG II), the remuneration system for the Supervisory Board which is mainly determined within the Company’s Articles of Association was thoroughly reviewed.

The Supervisory Board is responsible for advising and monitoring the Executive Board. By performing this task, the Supervisory Board contributes to the long-term development of the company and promotes the corporate strategy. The remuneration system accounts for this responsibility and the scope of activity of the Supervisory Board members, serving as the basis for the appropriate remuneration of Supervisory Board members. The attached overview summarizes the remuneration system for the Supervisory Board.

Remuneration system for the Supervisory Board

The remuneration system for the Supervisory Board will be provided to the next Annual General Meeting for its approval.

The remuneration report contains the principles regarding the remuneration of Vossloh AG’s Executive Board members and specifies the amount and structure of the Executive Board members’ income. In addition, the report describes the principles and amount of Supervisory Board remuneration.

Purpose. The aim of the Executive Board remuneration system is the fair remuneration of Vossloh AG’s Executive Board members in accordance with their areas of activity and responsibility and in compliance with legal requirements.

Criteria for the appropriate remuneration of Executive Board members are based on each member’s function and individual performance, Vossloh AG’s economic situation, success and future prospects in addition to customary remuneration polices in view of the Company’s comparative environment, remuneration structure and their development over time.

Executive Board remuneration system. The Executive Board remuneration system was reviewed and revised in light of regulatory requirements, investor expectations, staffing changes and the Executive Board being reduced to two members from October 1, 2019. As before, the remuneration system for Vossloh AG Executive Board members consists of three components: basic remuneration, an annual bonus and a multiyear bonus. The underlying structure of the remuneration system is unchanged. However, the revisions caused variable remuneration to be more dependent on share price and altered how the individual remuneration components are weighted. Prior to the revision, the multiyear bonus included performance targets, two-thirds of which were based on financial performance indicators (in the 2019 fiscal year namely average values over the respective period for sales growth and ROCE). The remaining third was based on personal goals. Before the remuneration system was revised, variable remuneration amounted to around 65 percent (for the CEO) or around 60 percent (for other Executive Board members) of total target remuneration, with the multiyear bonus accounting for around 60 percent of variable target remuneration. Based on a transitional arrangement, the revised remuneration system mainly came into effect for Mr. Schuster on January 1, 2020, and on October 1, 2019, for Dr.-Ing. Runge. It has the following components:

Basic remuneration is a fixed annual sum, based on the responsibilities of each Executive Board member and is to be paid in twelve equal monthly installments. It accounts for around 40 percent of the total target remuneration for Executive Board members. In addition, Executive Board members receive noncash fringe benefits as payments in kind, which primarily relate to the private use of a company car. No separate remuneration was provided for services performed on behalf of subsidiaries.

Variable remuneration, which amounts to around 60 percent of total target remuneration for the members of the Executive Board at 100 percent target achievement, consists of an annual and a multiyear remuneration component. The performance targets are based on financial performance indicators that can be measured objectively and are considered a relevant indicator of the Vossloh Group’s economic performance, in addition to the performance of the Vossloh share. All performance targets are forward-looking and are (with the exception of the share price-based remuneration component) set by the Supervisory Board with target values at the beginning of each assessment period by means of target agreements with the members of the Executive Board. Targets for the share price-based variable remuneration component are derived directly from the relevant employment contracts.

The annual bonus is determined on the basis of annual performance targets. If all of these targets are 100 percent achieved, the annual bonus amounts to slightly less than half of the total variable target remuneration. The performance targets for the annual bonus are Group EBIT, Group sales and the average working capital of the Vossloh Group. The Supervisory Board can reduce the bonus for 100 percent target achievement by up to 20 percent or increase it by up to 30 percent at its discretion based on the individual performance of the Executive Board member in question.

The multiyear bonus amounts to slightly more than 50 percent of total variable target remuneration if all multiyear performance targets are 100 percent achieved. ROCE (return on capital employed) accounts for 48 percent (for the CEO) and around 31 percent (for the other Executive Board member) of the performance targets for the multiyear bonus. The remainder is split evenly between the absolute and the relative performance of the Vossloh share. The relative performance of the Vossloh share is measured and assessed by comparing it to the average performance of the DAX, MDAX and SDAX.

The achievement of targets for the annual bonus and the financial performance indicators for the multiyear bonus are determined annually by the Supervisory Board on the basis of the audited consolidated financial statements. The component of the multiyear bonus related to the performance of the Vossloh share is assessed on the basis of volume-weighted XETRA average share prices or the average closing prices of the relevant indexes as published by Deutsche Börse AG. Both of these are taken from the 40 days immediately before or after the assessment period. The DAX is weighted at 70 percent, and each of the other two indices at 15 percent. The target bonus is granted if the target is fully realized. The bonus increases or decreases in relation to the target bonus depending on the achievement of the defined target values. The annual bonus and the multiyear bonus are limited to a maximum of 170 percent of the respective target bonus.

However, the Supervisory Board may use its discretion to set an extra bonus allocation for extraordinary performance in the period under review.

In the 2017 fiscal year, the Supervisory Board carried out a market standards and system analysis of the remuneration of the Executive Board members of Vossloh AG with the assistance of an independent external compensation consultant. The review confirmed that, even excluding the revision in autumn 2019, Vossloh AG’s remuneration system meets the statutory requirements and that the total remuneration is appropriate and in line with market practice both in the horizontal (with comparable companies) and vertical comparison (differentiation between the members of the Executive Board from each other and from the downstream levels in the Company). Furthermore, the basis for calculating the variable remuneration and the payments in kind granted were also regarded as appropriate and customary within the market.

The aforementioned remuneration system for Executive Board members was approved by the Annual General Meeting on May 9, 2018, in accordance with Section 120 Para. 4 AktG. of the German Stock Corporation Act.

The following table depicts the remuneration for the individual members of the Executive Board. The benefits granted also include accrued amounts for variable remuneration components that will not be paid out until 2020 or 2021. Payments in kind cover private company car use in the amount recognized for tax purposes. Andreas Busemann and Volker Schenk left the Executive Board on September 30, 2019. This table includes their remuneration for the period in which they were still Executive Board members. Benefits due to employment contracts coming to an end have been listed separately.

Entitlements to defined retirement benefits in accordance with German GAAP (Commercial Code) are as follows:

¹ All figures for 2019 for Mr Busemann and Mr Schenk are based on approved agreements

² The employment contracts for Andreas Busemann and Volker Schenk expire on 3/31/2020 and 4/30/2020, respectively.

* The annual variable remuneration granted for 2019 includes extra bonus allocations for extraordinary performance of €120,000 for Oliver Schuster and €19,000 for Dr.-Ing. Karl Martin Runge.

** The granting of multiyear variable remuneration is dependent on the achievement of performance targets for the period in question. Target fulfillment is measured after the expiry of the multiyear period as defined in the contract. The benefits were calculated on the basis of the most likely value and recognized as a provision, provided the contract was still valid

Entitlements in accordance with provisions from the German Commercial Code are as follows:

¹ The employment contracts for Andreas Busemann and Volker Schenk expire on 3/31/2020 and 4/30/2020, respectively.

*Including the multiyear special bonus for the two-year period 2016 & 2017.

Entitlements in accordance with provisions from the German Commercial Code are as follows:

Retirement benefits. CEO Oliver Schuster has been granted entitlements to defined retirement benefits in the form of pension payments upon reaching the retirement age of 63. Depending on the years of service on the Executive Board, annual pension benefits after a minimum three-year Executive Board membership amount to 1 percent, or in the case of a first time contract renewal 2 percent, up to a maximum of 40 percent of the pensionable annual basic remuneration. The additional provision for Executive Board members in the 2019 fiscal year amounted to €517,265 (previous year: €473,272). Upon the death of an active or former member of the Executive Board, the pension entitlement or the most recent pension paid to the surviving spouse is reduced to 60 percent.

Commitments in the event of premature termination of duties. In the event of an agreed premature termination of the employment contract, the Executive Board contracts contain commitments to pay out their earned or expected remuneration, unless the termination is based on a unilateral resignation by the Executive Board member without good cause or on a revocation of the appointment for good cause. However, the commitments are in any case limited to a maximum of two years’ remuneration (severance payment cap). No payment obligations are made in the event of an early termination of Executive Board duties due to a change of control.

Benefits due to employment contracts coming to an end. The benefits in the following table have been pledged or made to the Executive Board members who left during the fiscal year due to their employment contracts coming to an end. Fixed remuneration has already been paid pro rata temporis in the 2019 fiscal year. Variable remuneration components will be paid out in the 2020 fiscal year.

¹ Employment contract expires on 3/31/2020

² Employment contract expires on 4/30/2020

Loans to Executive Board members. No advances or loans were granted to any Executive Board members of Vossloh AG in the 2019 fiscal year.

Remuneration to former Executive Board members of Vossloh AG and their surviving dependents. Remuneration in the form of pension payments to former members of the Executive Board and management as well as their surviving dependents totaled €3,683,409 (previous year: €1,172,861). These were pension payments of €1,183,658 and benefits totaling €2,499,751 to the Executive Board members who left during the fiscal year. Current pension payments are subject to adjustment in relation to the collective pay trend in the metal and electrical industries of North Rhine-Westphalia. Pension obligations to former members of the Executive Board and management, as well as their surviving dependents amounted to €22,809,518 (previous year: €21,256,507). This includes the aforementioned amount for Volker Schenk. Employer pension liability insurance policies totaling €10,297,220 (previous year: €10,459,305) are pledged in each beneficiary’s favor. The remaining amount of these pension obligations is covered by provisions.

Supervisory Board remuneration in 2019. The remuneration of members of the Supervisory Board is to be determined by the Annual General Meeting and governed by the Company’s Articles of Incorporation. The remuneration system complies with German law and takes into account the responsibilities and scope of duties of Supervisory Board members.

In addition to reimbursement for their expenses, Supervisory Board members receive a fixed annual remuneration for duties performed of €40,000 (gross) to be paid after the conclusion of the fiscal year. The Supervisory Board Chairman receives three times and the vice-chairman one-and-a-half times the above fee. Membership in a committee is compensated by a premium of one quarter of the aforementioned remuneration amounts. The Audit Committee Chairman receives three times the additional Audit Committee membership fee. If the Supervisory Board Chairman is also a committee member, no additional fee is to be paid for their activities on the committee.

For the 2019 fiscal year, Supervisory Board members received a total remuneration of €429,167 (previous year: €435,833).

The table below depicts the amounts paid to each Supervisory Board member:

Consulting agreements. No consulting agreements with Supervisory Board members existed in the 2019 fiscal year.

Loans to Supervisory Board members. In the 2019 fiscal year, no advances or loans were granted to any Supervisory Board members.