VAT : Compensation Report

VAT GROUP AG	61
ANNUAL REPORT 2022
COMPENSATION REPORT

Compensation Report

The Compensation Report describes the compensation principles and programs as well as the governance framework related to the compensation of the Board of Directors (Board) and the members of the Group Executive Committee (GEC) of VAT Group AG (VAT Group). The report also provides details on the compensation awarded to members of the Board in the 2022 financial year.

The Compensation Report is written in accordance with the Swiss Ordinance against Excessive Compensation with respect to Listed Stock Corporations, the SIX Swiss Exchange Directive on Information relating to Corporate Governance and the principles of the Swiss Code of Best Practice for Corporate Governance of economiesuisse.

1. Letter from the Nomination and Compensation Committee (NCC) Dear Shareholders,

On behalf of the Board, we are pleased to present VAT Group's Compensation Report.

VAT Group reported another set of record results in 2022, crossing the CHF 1 billion sales mark for the first time in the company's history. Despite persisting supply chain challenges and rising input costs, VAT Group achieved net sales of CHF 1.145 billion. The growth was driven by strong market demand and VAT Group's ability to capture the growth in all its businesses through operational improvements and the pro-ac- tive capacity increases. EBITDA, the EBITDA-margin of 35% and the free cash flow, all reached record levels in 2022.

The Board is convinced that VAT Group's compensation system is key to attracting, motivating and retaining talented people who can strengthen the company's leading global position in high-end vacuum valve technology. Our aim is to balance fixed and variable compensation and short- and long-term incentives so that management's interests are aligned with those of other stakeholders. In short, we want to create a culture of sustainable value creation.

In the reporting year, the NCC continued to focus on the succession planning for positions on the Board and the GEC. Maria Heriz was elected as a member of the Board at the 2022 Annual General Meeting (AGM) on May 17, 2022, replacing Heinz Kundert, who has decided not to stand for re-election. Maria's in- depth knowledge of the industry and her international experience are important assets to strengthen the Board as VAT Group moves into its next stage of growth. Further, with the promotion of Urs Gantner, as Ex- ecutive Vice-President Semiconductor Solutions Group, effective August 4, 2022, the GEC has been extend- ed to four members. Under the leadership of Urs, this new Semiconductor Solutions Group integrates the existing Semiconductor business unit with all VAT Group's Research & Development (R&D) activities as well as the creation of a new advance products business development team. By combining these resources into one group, VAT Group will be even more focused on the digitalization of our products as well as the develop- ment of new solutions and services for the sub 3nm era.

In 2022, the NCC reviewed the compensation programs and proposed to the Board to introduce a share ownership guideline for the GEC as of 1 January 2024 in line with good governance practice. No changes to the current compensation system for the GEC were implemented in the reporting year.

The NCC performed its regular annual activities throughout the year, such as setting the perfor- mance goals and assessing the performance of GEC members, determining the level of compensation of the Board and the GEC, as well as preparing the Compensation Report 2022 and the say-on-pay vote for the 2023 AGM. You will find further information on the NCC activities and on VAT Group's compensation system and governance on the following pages.

At the 2022 AGM, a consultative vote on the Compensation Report for fiscal year 2021 was con- ducted for shareholders to express their opinion on the compensation principles and structure of the Board and the GEC. The shareholders approved the Compensation Report as well as the binding votes. VAT Group will continue to revise and improve the compensation systems and further strengthen the engagement with shareholders.

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This Compensation Report will be submitted to a non-binding, consultative shareholders' vote at the upcoming AGM. You will also be asked to vote on the maximum aggregate compensation amount of the Board for the term of office from the 2023 until the 2024 AGM, on the short-term variable compensation amount to be paid out to GEC members for the financial year 2022, on the maximum aggregate amount of fixed compensation of the GEC for financial year 2024, and on the maximum aggregate amount of the long-term incentive plan of the GEC for financial year 2024.

In the future, we will continue to review our compensation programs to ensure that they support the achievement of our business goals, are aligned with the interests of shareholders and fully comply with the various regulations applying to a Swiss listed company. We trust that you will find this report interesting and informative.

NCC of VAT Group

Haag, March 1, 2023

2. Compensation at a glance

Summary of current remuneration system Board of Directors

The members of the Board only receive a fixed compensation in the form of cash and shares, in order to ensure their independence in the performance of their supervisory function; shares are blocked for three years. The compensation system does not contain any performance-related components.

Structure and levels of Board compensation AGM 2022 until AGM 2023

In CHF (gross)			Chair	Vice-Chair		Member
			of the Board	of the Board		of the Board
Fixed basic fee	320,000	160,000	110,000
In CHF (gross)			Committee chair	Committee member
Audit Committee					25,000			15,000
Nomination and Compen-
sation Committee					25,000			15,000
Technology Committee	25,000			15,000

Summary of current compensation system Group Executive Committee

The compensation of the GEC consists of fixed and variable elements.

-⁜Base salary and benefits form the fixed compensa- tion.

-⁜Variable compensation drives and rewards best- in- class performance based on ambitious and stretched targets.

-⁜It consists of short-term and long-term elements.

Structure of compensation for the GEC

Element	Purpose	Vehicle
Base salary	Pay for the function		Monthly cash
Short-Term		Reward annual financial		1-year cash
Incentive (STI)		and individual perfor-
		mance; attract & retain
Long-Term		Reward long-term		3-year vesting period
Incentive (LTI)		performance		of PSU, subject to
		Align to shareholders'		performance conditions
		interests
Benefits		Cover retirement, death		Pension and insurances
		and disability risks

Non-tangible rewards such as work environment and culture, personal development and career opportunities

Remuneration policy and principles applicable to the GEC

VAT Group's compensation principles support the company's business strategy and foster the commitment of all employees to the company's long-term goals. The compensation principles are:

-⁜Internal fairness	-⁜Alignment to shareholders' interest
-⁜Reward for performance	-⁜Market competitiveness
-⁜Focus on sustainable long-term value creation	-⁜Simplicity and transparency

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Sales in CHF million

EBITDA Margin in %

Market Capitalization in CHF billion

+27%

+0.8⁜ppt

901

1,145

30.4

34.2

35.0

692

6.9

13.6

-44%

7.6

2020 2021 2022

2020

2021

2022

2020

2021

2022

VAT financial performance

Over the past three years, VAT has steadily improved its financial performance and reached record levels in sales and the EBITDA margin. Market share gains and operational improvements allowed it to outperform the overall market development.

Compensation awarded for the Board for 2021/2022

The compensation paid to the Board for the term AGM 2021 to AGM 2022 is within the maximum aggregate amount approved by the shareholders.

Compensation period		Approved amount	Effective amount
		(CHF)	(CHF)
AGM 2021-AGM 2022	1,101,000		1,017,783

Short-term performance achievement for 2022 While the individual performance results for the GEC were significantly higher for 2022 than for 2021, the level of overall achievement was lower compared to prior year, resulting in a decreased STI payout for 2022 (-6%),given the ambitious financial and spec win performance targets established.

The average STI 2022 payout for the GEC was 111% of target (133% in 2021).

Fixed compensation awarded for the GEC for 2022 The total fixed compensation awarded to the GEC for the financial year 2022 is within the maximum aggregate amount approved by the shareholders.

Compensation period		Approved amount	Effective amount
		(CHF)	(CHF)
Financial year 2022	1,990,000		1,823,369

Compensation governance

-⁜Authority for decisions related to remuneration are governed by the Articles of Association of VAT Group.

-⁜The maximum aggregate amounts of remuneration of the members of the Board and of the GEC are subject to binding votes at the Annual General Meeting.

-⁜In addition, the Compensation Report for the preceding period is subject to a consultative vote at the AGM.

-⁜The Board is supported by the NCC in preparing all compensation-related decisions regarding the Board and the GEC.

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3 Compensation governance

3.1 Articles of Association

The Articles of Association of VAT Group can be found on the corporate website https://ir.vatvalve.com/en/ corporate-governance/articles-regulations-chartersand are summarized below in Table 1. The provisions on compensation in the Articles of Association include the principles of compensation applicable to the Board and the GEC, the structure of the shareholders' vote on compensation, the additional compensation amount for GEC members appointed after the approval of the maximum aggregate compensation amount by the shareholders and provisions on credit and loans.

Table 1: Articles of Association

Compensation principles (Board) - Article 25

Compensation principles (GEC) - Article 26

Compensation vote -

Article 12

Additional compensation amount - Article 29

Credit and loans - Article 28

Members of the Board shall receive a fixed basic fee and fixed fees for memberships in committees of the Board, as well as lump sum compensation for expenses. The compensation may be awarded in cash and in shares.

The compensation of the GEC members consists of a fixed compensation and of variable compensation components, which comprise short-term and long-term compensation elements. The short-term variable compensation is paid in cash and depends on the level of achievement of specific predefined targets for a one-year performance period. The long-term variable compensation is awarded in shares or rights to receive shares. The Board determines the terms and conditions of the long-term variable compensation.

Shareholders approve the maximum aggregate compensation amount for the Board for the upcoming term until the next ordinary AGM.

Shareholders approve the short-term variable compensation of the GEC for the preceding business year, the maximum fixed compensation of the GEC to be paid in the subsequent business year and the maximum long-term variable compensation of the GEC to be granted in the subsequent business year.

For each GEC member newly appointed after the approval by shareholders of the maximum aggregate compensation amount, the company may pay an aggregate compensation of up to 50% of the last aggregate compensation amount approved by the AGM.

The company shall not grant loans, credits, pension benefits other than from occupational pension funds to the members of the Board or GEC.

3.2 Nomination and Compensation Committee

In accordance with the NCC charter1, the NCC consists of at least three members of the Board who are elected annually by the shareholders for a term of one year until the next AGM. At the AGM 2022, Libo Zhang (NCC chair), Hermann Gerlinger, Martin Komischke and Urs Leinhäuser have been elected as members of the NCC.

It is the responsibility of the NCC to:

-⁜periodically review the company's compensation policy and principles applicable to the Board and the GEC,

-⁜annually review and propose to the Board the total compensation of the CEO and other members of the GEC, subject to shareholders' approval,

-⁜prepare all relevant Board proposals and recommendations related to the nomination and compensation of the members of the Board and of the GEC.

Additional information on the responsibilities of the NCC is provided in section 3.9 of the Corporate Governance Report on page 52.

1 The NCC charter of VAT Group AG is published at https://ir.vatvalve.com/en/corporate-governance/articles-regulations-charters.

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The NCC acts in a preparatory capacity while the Board retains the decision authority on compensation mat- ters, except for the maximum aggregate compensation amounts of the Board and of the GEC, which are subject to shareholders' approval at the AGM. The approval and authority levels of the different bodies on compensation matters are detailed in Table 2.

Table 2: Decision authorities in compensation matters

Maximum aggregate compensation amount Board Individual compensation of Board members Group compensation policy and principles Maximum aggregate compensation amount GEC Performance target setting and assessment of CEO

Performance target setting and assessment of other GEC members CEO compensation

Individual compensation of other GEC members

Compensation report

CEO

Proposes

Proposes

NCC

Proposes

Proposes

Proposes

Proposes

Proposes

Reviews

Proposes

Reviews

Proposes

Board

Reviews

Approves

Approves

Reviews

Approves

Approves

Approves

Approves

Approves

AGM

Approves

Approves

Consultative vote

The NCC meets as often as business requires, but at least three times a year. In 2022, the NCC held four formal meetings. Details on meeting attendance of the individual NCC members are provided in section 3.12 of the Corporate Governance Report on page 54.

The chair of the NCC reports to the Board on the activities of the Committee after each meeting. The minutes of the NCC meetings are available to all members of the Board. The chair of the NCC may decide to invite executives to attend the meetings as appropriate. Executives do not attend the meeting when their own compensation and/or performance are being discussed.

The NCC may decide to consult external advisors for specific compensation matters. In 2022, Agnès Blust Consulting was mandated to provide consulting services related to executive and Board compensation matters. The company was acquired on April 1, 2022, by PricewaterhouseCoopers (PwC) which provides other services to VAT Group. There are clear rules in place to ensure the independence of PwC consultants.

4. Compensation for the Board of Directors 4.1 Compensation principles

In order to ensure their independence in exercising their supervisory duties, members of the Board receive a fixed compensation only. The compensation is delivered partially in cash and partially in shares, blocked for a period of three years, to strengthen the alignment to shareholders' interests.

4.2 Compensation structure

The compensation for the members of the Board is fixed and does not contain any performance-related compo- nent. The annual compensation for each member of the Board depends on the functions and tasks carried out in the year under review. It consists of an annual fixed basic fee for the chair of the Board, a fixed basic fee for the members of the Board, plus additional fees for assignments to the committees of the Board, either as chair or member.

The compensation period relates to the term of office, which starts with the election at the ordinary AGM and ends at the next ordinary AGM. The amount of the fixed basic fee and the fixed committee fees reflect the responsibility and time requirement inherent to the function, as illustrated in Table 3. The Board members do not receive any performance-based remuneration and do not participate in the occupational pension plans of VAT Group.