Clarifying the Supervisory Board Report Insights from Prof Dr Norbert Winkeljohann

Dear shareholders, esteemed guests,

I am pleased to present the Supervisory Board Report as part of Agenda Item 1 for today’s Annual Stockholders’ Meeting. You will find the detailed report spanning pages 12 to 19 of the Annual Report.

Before delving into the key responsibilities and highlights of the Supervisory Board’s activities, I would like to emphasize specific areas that significantly influenced our work over the past year.

Much of the Supervisory Board’s focus in 2023 revolved around the restructuring of Bayer’s executive team. Notably, we appointed Bill Anderson to the Board of Management effective April 1, subsequently assuming the role of CEO on June 1, 2023. Additionally, decisions regarding two further changes to the Board of Management were made throughout the year.

The composition of the Supervisory Board itself underwent evaluation, leading us to propose the re-election of two incumbent members and the election of three new individuals to replace outgoing members at today’s Annual Stockholders’ Meeting.

Furthermore, the Supervisory Board and the Human Resources and Compensation Committee conducted a comprehensive review of the Board of Management’s compensation and its disclosure in the Compensation Report.

Allow me to provide deeper insights into these matters.

Throughout 2023, the Supervisory Board convened for eight meetings. While in-person meetings resumed following the pandemic, considering the international composition of the Board and our commitment to sustainability and cost-effectiveness, several meetings were conducted virtually.

Between these meetings, I maintained regular and close communication with both the former CEO, Werner Baumann, until May 2023, and subsequently, Bill Anderson, along with other members of the Board of Management and key company executives.

Here are some key areas the Supervisory Board focused on during the past year:

Engagement with shareholders and stakeholders remained a paramount concern for Bayer and the Supervisory Board. Following the 2023 Annual Stockholders’ Meeting, we prioritized dialogue on various topics including CEO transition, corporate structure, Supervisory Board renewal, dividend policy, Board of Management compensation, and sustainability. These discussions were particularly crucial given the feedback received from last year’s Annual Stockholders’ Meeting.

During the Corporate Governance Roadshow, we engaged with shareholders representing 40 percent of shares outstanding (approximately 63 percent of shares held by institutional investors). As Chairman of the Supervisory Board, I participated in many of these engagements, fostering constructive dialogue. The invaluable feedback provided us with a broader perspective on the discussed issues.

Additionally, the Supervisory Board meticulously reviewed the Board of Management’s business strategy and the company’s performance. While Bill Anderson has elaborated on these aspects, the challenges outlined, such as growth and profitability, patent expirations, legal proceedings, debt management, and streamlining operations, were thoroughly analyzed by the Supervisory Board. Many sessions were dedicated to implementing Dynamic Shared Ownership, a new organizational model aimed at enhancing performance, and redefining capital allocation strategies to ensure a robust financial position.

The appointment of a new CEO, as previously mentioned, was a primary focus in 2023. This crucial task was undertaken with careful consideration of shareholder feedback. We are pleased to have Bill Anderson as the new CEO, who has promptly identified key issues and initiated necessary actions. His fresh perspective enables decisive action based on a comprehensive assessment of our strengths and weaknesses.

In addition to the CEO appointment, two new members were appointed to the Board of Management. Heike Prinz assumed the role of Chief Talent Officer and Labor Director, effective September 1, 2023, while Julio Triana was appointed President of the Consumer Health Division, effective May 1, 2024. Both introduced themselves at the commencement of today’s Meeting.

Furthermore, the Supervisory Board, in collaboration with the Human Resources and Compensation Committee, developed an enhanced Board of Management compensation system, incorporating shareholder feedback. We hope for your approval of this improved system today. Alongside new features and enhancements, structural changes were implemented to simplify the system and ensure closer alignment of compensation decisions with company performance, with a clear focus on share price performance.

A detailed summary of investor feedback and corresponding actions is included in the 2023 Compensation Report, subject to approval at today’s Meeting. While shareholder views varied, we believe that the consensus feedback has been addressed through our actions, coupled with a commitment to transparency in our decision-making processes. Key changes, detailed in the compensation system published alongside the Annual Stockholders’ Meeting documentation, include:

  • In the short-term incentive (STI), the free cash flow metric remains unadjusted for litigation payments and mirrors the value published in the Annual Report.
  • A formal mechanism has been established to provide the Supervisory Board with limited authority to adjust final STI payouts in extraordinary circumstances.
  • In the long-term incentive (LTI), we aim for greater alignment with long-term shareholder value creation by increasing the proportion linked to relative total shareholder return (TSR) from 40 percent to 80 percent. While some investors preferred retaining the previous metric, return on capital employed (ROCE), there was a consensus that short-term emphasis should be placed on share price appreciation, particularly with the new outperformance requirement for at-target payout. Achieving the target amount is contingent on reaching the 60th percentile of the EuroStoxx 50 benchmark values.

We are confident that the revised system is well-suited to Bayer’s current circumstances. Nevertheless, the Supervisory Board intends to review the system in two years to assess whether experiences or changing circumstances warrant revision. If necessary, a revised compensation system will be presented for approval ahead of the four-year interval stipulated by law.

Regarding Board of Management compensation for 2023, as outlined in the Compensation Report for today’s Meeting, it remains based on the system approved by the Annual Stockholders’ Meeting in 2020.

The compensation system aims to ensure that variable compensation aligns with overall company performance and shareholder experience. Bayer fell short of the ambitious goals set by the Supervisory Board for 2023, resulting in payouts significantly below target amounts for the year.

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