Compensation of the Board of Management

The following section reports the compensation of the Board of Management of Covestro⁠ ⁠AG for fiscal⁠ ⁠2025. The members of the Board of Management of Covestro⁠ ⁠AG are the same as the members of the Board of Management of Covestro Deutschland AG, which is a wholly owned subsidiary of Covestro⁠ ⁠AG. Compensation is not paid for the members’ work on the Board of Management of Covestro Deutschland AG.

Guiding Principles for Compensation

The compensation system for the Board of Management of Covestro⁠ ⁠AG is based on the corporate strategy and designed to facilitate a long-term increase in the company’s value and responsible corporate governance. We aim to position Covestro as an attractive employer in the competition for highly qualified executives and, at the same time, ensure statutory and regulatory compliance. Board of Management compensation is in line with the basic principles of the Covestro Group’s compensation structure, which is standardized for all Covestro employees in line with our “We are 1” corporate culture:

• The variable compensation of the Board of Management and all participating employees is based on a uniform system and identical criteria.
• Differences exist only in the target percentages related to fixed compensation.

The variable compensation is based on Covestro’s corporate performance, which is measured based on financial and sustainability targets:

• The system and criteria for short-term variable compensation are closely aligned to Covestro’s annual performance.
• The system and the criteria are agreed upon and binding for a three-year period. The Covestro Profit Sharing Plan (Covestro PSP) is a bonus system based in equal parts on the company’s average expected performance and the agreed financial target for the respective fiscal year. The targets set for the Covestro PSP are aimed at enabling an average payout level of 100% to be achieved over a period of up to 10 years.
• In very successful years, high payout percentages are achieved (such as 239.5% for fiscal⁠ ⁠2021), while in challenging years they are significantly lower, or no short-term variable compensation is paid at all (such as for fiscal⁠ ⁠2025).
• The Prisma share-based compensation program for long-term variable compensation is based on Covestro value added (CVA), a key financial performance indicator that measures whether the company generates a return in excess of the capital charge. Prisma also includes a sustainability component.

The determination of variable compensation is simple, transparent, and based on objective criteria:

• The relation between target attainment and payout has been defined for the criteria used and documented in the Compensation Report.
• The payout is calculated on the basis of financial criteria and sustainability targets that are also included in the company’s Management Report; the calculation is also documented in the Compensation Report.

¹ Fixed compensation plus variable target values.

² Excluding fringe benefits.

³ Chief Executive Officer (CEO), ordinary Board of Management member (OBM).

⁴ Expected pension service cost (IFRSs).

⁵ Fixed compensation plus variable target values and post-employment benefits.

Basic Principles for Determining Compensation

Determining Target Compensation

The Supervisory Board determines the total target compensation for the upcoming fiscal year for each Board of Management member in accordance with the compensation system. This compensation is appropriate in view of the Board of Management member’s duties and takes into account Covestro’s financial situation, performance, and future prospects.

The fixed compensation of Board of Management members was raised by 2.5% as of June⁠ ⁠1, 2025. The Supervisory Board’s decision on both the amount and the date was based on the regulations for the workforce in Germany: The budget corresponded to that applied to the salary round for employees in Germany not subject to collective bargaining agreements, and the date was postponed to June⁠ ⁠1, as was the case for the pay increases for payscale and non-payscale employees, which was implemented two months later than originally planned (April⁠ ⁠1) due to the economic situation. The target compensation of individual Board of Management members based on the compensation system in effect is outlined below.

¹ Due to rounding, percentages may not always add up to exactly 100%.

² Included: Annual mobility allowance of €24⁠ ⁠thousand, if still contractually agreed, and costs that are usually to be expected (e.g., for installation of security systems where this has not happened already and/or maintenance and repair of equipment already installed).

³ Expected pension service cost (employer portion) under IFRSs.

⁴ To make comparison easier, the compensation components for the year⁠ ⁠2025 were extrapolated to a full year.

¹ Due to rounding, percentages may not always add up to exactly 100%.

² Included: Annual mobility allowance of €24⁠ ⁠thousand and costs that are usually to be expected (e.g., for maintenance and repair of security systems installed).

³ Expected pension service cost (employer portion) under IFRSs.

⁴ To make comparison easier, the compensation components for the year⁠ ⁠2025 were extrapolated to a full year.

Maximum Compensation

Pursuant to Section 87a, Paragraph 1, Sentence 2, No. 1 of the German Stock Corporation Act (AktG), the Supervisory Board stipulated maximum total compensation for the Board of Management members for the first time for fiscal⁠ ⁠2021. The absolute amount in euros for the maximum possible payout includes fixed compensation, fringe benefits (e.g., mobility allowance, payments toward the cost of security equipment, etc.), capped variable compensation components, and pension expenses. As a result, the maximum total compensation for a full fiscal year for the Chair of the Board of Management amounts to €9.0⁠ ⁠million, while this amount for the regular Board of Management members is €5.5⁠ ⁠million.

Compliance with this maximum compensation is reviewed retrospectively for the⁠ ⁠2022 reporting year, as the⁠ ⁠2022⁠–⁠2025 tranche of Prisma long-term variable compensation will have been earned in full as of the end of fiscal⁠ ⁠2025. This review is presented in “Compliance with Maximum Compensation Limit.”

Review of Appropriateness

The Supervisory Board commissioned an expert opinion from an independent third-party consultant firm to ensure the compensation is appropriate compared to other companies. Since on the basis of relevant KPIs (sales, employees, and market capitalization), Covestro is positioned in the bottom quartile of DAX-listed companies and was part of the MDAX prior to its inclusion in the DAX, the entire group of DAX and MDAX companies was used as the peer group, and this is still considered appropriate despite the company’s exit from the DAX. Banks and insurance companies were, however, excluded because of their limited comparability. Based on these equally weighted KPIs, Covestro ranks 39th (out of 83), or in the 54th percentile of this group. The following Board of Management compensation components were compared with the market value for each, i.e., the compensation of board of management members in the peer group:

• Fixed annual compensation
• Target cash compensation = Fixed annual compensation + Target value for short-term variable compensation
• Target direct compensation = Target cash compensation + Target value for long-term variable compensation
• Total target compensation = Target direct compensation + Company pension plan

The costs of the company pension plan were determined by using actuarial methods to calculate a company pension plan premium. This premium indicates the amount that would have to be paid to a third-party pension provider to purchase the relevant pension benefits. Using the same parameters for the calculation, the premium amount, and therefore the costs, can be compared to the pension benefits of the board of management members of other companies.

Based on the expert opinion, the target and maximum compensation of the Board of Management was deemed appropriate within the meaning of the AktG.

Furthermore, the Supervisory Board reviewed the company’s compensation structure and, for this purpose, compared the fixed annual compensation, target cash compensation, and target direct compensation of the Board of Management members with the corresponding compensation components of the Executive Leadership Team (executives at the two highest contract levels below of the Board of Management) and the workforce as a whole (employees subject and not subject to collective bargaining agreements, including the Executive Leadership Team) at Covestro in Germany. The internal compensation structure was also determined to be appropriate in view of this comparison, which covered the period from the year⁠ ⁠2015 to the year⁠ ⁠2025. No adjustments were therefore made to the compensation structure or amount of compensation.

Application of the Compensation System in the Reporting Period

The application of the compensation system in fiscal⁠ ⁠2025 is presented below.

Non-Performance-Related Components

Fixed Annual Compensation, Fringe Benefits

The adjustment to fixed annual compensation as of June⁠ ⁠1 of the fiscal year is described above in “Determining Target Compensation.” Fringe benefits comprise maintenance and repair of security systems installed, use of the company car pool, and –⁠ ⁠for Board of Management members appointed before 2023⁠ ⁠– a mobility allowance. Sucheta Govil additionally received reimbursement of the cost of tax preparation by an external consulting firm. Fringe benefits are reported at cost or the amount of the taxable benefit gained.

Post-Employment Benefits

Dr.⁠ ⁠Markus Steilemann will receive a lifelong company pension after leaving the Covestro Group, though not before the age of 62. These pension payments will be made monthly. The arrangements for surviving dependents basically provide for a widow’s/widower’s pension amounting to 60% of the member’s pension entitlement, and an orphan’s pension amounting to 12% of the member’s pension entitlement for each child.

The annual pension entitlement is based on defined contributions. From September⁠ ⁠1, 2015, onward, Covestro has provided a hypothetical benefit amounting to 33% of the respective fixed compensation beyond the relevant income threshold in the statutory pension plan. This percentage comprises a 6% basic contribution and an additional amount of three times the personal contribution chosen by the Board of Management member. This contribution is limited to a maximum of 9% so that the matching contribution by the company can be no higher than 27%. The total annual contribution is converted into a pension module according to the annuity table for the applicable tariff of the Rheinische Pensionskasse VVaG, Leverkusen (Germany), pension fund. The annual pension entitlement upon retirement is the total amount of the accumulated pension modules, including an investment bonus.

The actual pension entitlement cannot be precisely determined in advance. It depends on the development of the member’s compensation, the number of years of service on the Board of Management, and the return on the assets contributed to the Rheinische Pensionskasse VVaG. Certain assets are administered under a pension trust, providing additional insolvency protection for pension entitlements resulting from direct commitments for the members of the Board of Management in Germany. As a rule, future pension payments are adjusted by at least 1% per year. Depending on the pension obligation, an additional adjustment may be made if the investment bonus of the Rheinische Pensionskasse VVaG or the consumer price index exceeds 1% per year.

Post-employment benefits for other Board of Management members are granted under a defined contribution plan. Covestro and the Board of Management members will each contribute 3% of their fixed annual compensation up to the social security contribution ceiling to a statutory pension plan. For the portion of compensation exceeding the contribution ceiling, Covestro will provide a basic contribution of 6% and a match of up to 30%, three times the Board of Management member’s own contribution of up to 10%. Covestro invests the capital contributed on the capital market according to an age-based lifecycle model. The contributions made are guaranteed. On leaving the Board of Management, but not before the age of 62, the accumulated capital is paid out to the Board member, normally as a one-time payment. Sucheta Govil switched her company pension to this model, which was newly introduced in the year⁠ ⁠2021, as of April⁠ ⁠1, 2021. The aforementioned pension arrangement, which continues to apply for Dr.⁠ ⁠Markus Steilemann, applied to her for the period from the date she joined Covestro on August⁠ ⁠1, 2019 until March⁠ ⁠31, 2021.

Short-Term Variable Compensation

The target value of the short-term variable compensation is currently 100% of the fixed annual compensation. The award is based on the four criteria of profitable growth, liquidity, profitability, and sustainability, which are used as part of Covestro’s management system to plan, manage, control, and report on business performance. This means that short-term variable compensation is directly linked to the Covestro Group’s success.

These performance indicators are applied to the Group-wide short-term Covestro Profit Sharing Plan (Covestro PSP). The Covestro PSP was introduced in fiscal⁠ ⁠2016 and is applicable to all of Covestro’s employees worldwide (with a few exceptions due to stipulations in collective bargaining agreements). Board of Management members also currently participate in the Covestro PSP.

The Covestro Profit Sharing Plan (Covestro PSP) has been expanded, effective from fiscal⁠ ⁠2025. In addition to the four performance metrics already used, for which the targets are derived from the medium-term planning for the years⁠ ⁠2025 to⁠ ⁠2027, a short-term component has been defined. This is based on the EBITDA target of a single fiscal year and is specified for the subsequent year by the Supervisory Board on the basis of the forecast made in the fourth quarter. For the purpose of calculating the total payout, the medium- and short-term components are each weighted at 50%.

¹ Direct and indirect GHG emissions (Scope⁠ ⁠1 and Scope⁠ ⁠2), measured in terms of CO₂ equivalents, of the environmentally relevant sites.

The four components are taken into account for the medium-term component on an equally weighted basis: Profitable growth measured in terms of EBITDA (earnings before interest, taxes, depreciation and amortization), liquidity measured in terms of free operating cash flow (FOCF), profitability measured in terms of return on capital employed (ROCE) above the weighted average cost of capital (WACC), and sustainability measured in terms of selected environmental, social, and governance (ESG) criteria. Since the year⁠ ⁠2025, the sustainability component has been determined by direct and indirect Scope⁠ ⁠1 and Scope⁠ ⁠2 greenhouse gas (GHG) emissions (CO₂ equivalents, CO₂e) of all environmentally relevant sites.

Information on the definition and calculation of these indicators is available in the “Key Management Indicators” section of the Combined Management Report.

In fiscal⁠ ⁠2024, the Supervisory Board defined the global values for the threshold, 100% payout, and the maximum amount for each performance indicator, which are applied for a multi-year period from the year⁠ ⁠2025 to the year⁠ ⁠2027. Between these values, linear interpolation is used to determine the payout from the medium-term component. There will be no adjustment after the fact.

For each individual performance indicator, the payout can be between 0% (failure to meet minimum requirements) and 300%. The total payout from the medium-term component is the arithmetic mean of the individual payouts for all four components. However, it is limited to 250% of the target value. This means that, if the cost of capital is not earned in a given fiscal year (ROCE above WACC < 0), no payout is made at all from the medium-term component, irrespective of the results achieved for the other metrics.

An EBITDA target of €1,300⁠ ⁠million has been specified for the short-term component for fiscal⁠ ⁠2025. The minimum amount to be reached for a payout is €1,000⁠ ⁠million, while the payout is limited to 200% for EBITDA of €1,800⁠ ⁠million or more. Between these values, linear interpolation is used to determine the payout from the short-term component.

The thresholds of the three financial indicators for the medium-term component were missed in the 2025 reporting year. On the basis of the value achieved for GHG emissions (4.3⁠ ⁠million metric tons of CO₂ equivalents), a payout percentage of 140% would have been calculated for this component. Since the capital costs were not earned in the reporting year (ROCE above WACC⁠ ⁠<⁠ ⁠0), the plan terms and conditions stipulate that no payout will be made from the medium-term component.

Since the EBITDA threshold of €1,000⁠ ⁠million for the short-term component was not achieved either in the reporting year, no payout will result from this component so that the Board of Management and employees will not receive any short-term variable compensation for the year⁠ ⁠2025.

Long-Term Variable Compensation

Up to and including the 2024⁠–⁠2027 tranche, the Prisma share-based compensation program for long-term variable compensation (long-term incentive, LTI) took into account the performance of Covestro shares, including dividends (total shareholder return) and outperformance against the STOXX Europe 600 Chemicals index^* over a period of four years. As from fiscal⁠ ⁠2024, the sustainability component, which has included a CO₂ factor since its inception and has been part of the LTI plan since the year⁠ ⁠2021, was expanded by adding two metrics from the ESG “Social” aspect. Against the backdrop of the voluntary public takeover offer by ADNOC International Germany Holding AG, Munich (Germany), the share price, and therefore also total shareholder return and outperformance, no longer seemed suitable metrics for long-term compensation. For this reason, the share-based portion of long-term compensation was replaced by economic value added as a metric from 2025 onward. The sustainability component with its three parts (GHG emissions, participation rate, and recordable incident rate) will be retained unchanged.

The long-term variable compensation is geared toward the sustained, future-oriented, and continuous growth of the company’s value and guarantees the implementation of Covestro’s Sustainable Future corporate strategy, particularly since the introduction of the sustainability component. Prisma is applicable to both members of the Board of Management and to Covestro executives. The LTI target value amounts to 130% of fixed annual compensation for members of the Board of Management.

A new Prisma tranche with a four-year performance period is issued for each fiscal year. Prior to the beginning of this performance period, the Supervisory Board stipulates the performance criteria for the financial and sustainability metrics as well as the relative weighting of these criteria.

Various factors are calculated to determine the payout; their values are based on target attainments for the respective metrics: the TSR factor and the outperformance factor (before fiscal 2025), the CVA factor (from fiscal 2025 onward) as well as elements of the sustainability component (the CO₂ factor, the participation factor, and the RIR factor). They are explained in detail below.

The TSR factor is the return generated by a share expressed as a percentage (total of the final price of the Covestro share and all dividends distributed per share during the four-year performance period divided by the initial price).

The outperformance factor is based on the performance of Covestro shares during the performance period relative to the performance of the STOXX⁠ ⁠Europe⁠ ⁠600⁠ ⁠Chemicals index.

Against the backdrop of the takeover offer, the share price as well as the price change in relation to the STOXX Europe 600 Chemicals index no longer reflect the long-term changes in the company’s value. For this reason, the price of Covestro shares has been fixed at the offer price of €62 and the STOXX Europe 600 Chemicals has been set at the closing level of the 2021⁠–⁠2024 tranche (average of the trading days in November and December⁠ ⁠2024).

Covestro value added (CVA) is a key financial performance indicator based on economic value added (EVA). It measures whether the company generates a return in excess of the capital charge. It is calculated by deducting taxes from EBIT to determine operating profit after taxes. Subsequently the capital charge is deducted, which is determined by multiplying the average capital employed (which is the total of current and noncurrent operating assets less non-interest bearing liabilities) by the weighted average cost of capital (WACC).

The CVA factor will be 100%, if Covestro generates CVA of €110⁠ ⁠million in the year⁠ ⁠2028. If CVA of €⁠–⁠440⁠ ⁠million or less is generated, the CVA factor is 0%. If CVA is €990⁠ ⁠million or more in the year⁠ ⁠2028, the factor will reach the maximum of 300%. Between these values, linear interpolation is used to determine the factor.

Starting with the tranche issued in fiscal⁠ ⁠2025, a reduction target for annual Scope⁠ ⁠1 and Scope⁠ ⁠2 greenhouse gas (GHG) emissions (CO₂ equivalents) of all environmentally relevant sites will be applied as part of the sustainability component. The CO₂ factor amounts to 100% if these emissions are reduced by 1,850⁠ ⁠kilotons (kt) by the end of fiscal⁠ ⁠2028 in relation to the baseline year of 2020. This corresponds to an emissions reduction of just over 33%. If the annual emissions are reduced by less than 1,300⁠ ⁠kt, the CO₂ factor is 0%. Starting with a reduction of 2,400⁠ ⁠kt, it reaches the maximum value of 200%. Between these defined reference values, linear interpolation is used to determine the factor. The Supervisory Board considers the defined reduction targets as significant in relation to the company’s actual Scope⁠ ⁠1 and Scope⁠ ⁠2 emissions.

The metric used for the participation factor is the aggregated participation rate of all employees worldwide from all rounds of the employee survey conducted during the last calendar year of the performance period. The aim of including the “Social” aspect in the sustainability component is to create an incentive for senior executives entitled to take part in the long-term incentive program to make the employee survey a regular part of their management activities and to explain to employees how important their feedback and criticism are for us. For the tranche beginning in fiscal⁠ ⁠2025, the participation factor is 100%, if an aggregated participation rate of 82% is achieved. If the aggregated participation rate achieved is 77% or less, the participation factor is 0%. For an aggregated participation rate of 87% and higher, it reaches the maximum of 200%. Between these values, linear interpolation is used to determine the factor.

To boost our well developed safety culture even further, another metric under the “Social” aspect that will be used as a basis for assessment is the global recordable incident rate (RIR). The target is an incident rate of 0.27 in the last year of the performance period. This rate measures the number of recordable incidents against the hours worked by all employees and contractor employees of the Covestro Group worldwide. If this target is reached, the RIR factor is 100%. If the recordable incident rate is 0, the factor reaches the maximum value of 200%. For an incident rate of 0.54 or higher, the RIR factor is 0%. Between these values, linear interpolation is used to determine the factor.

¹ The payouts from the CO₂ factor, the participation factor, and the RIR factor are limited to a maximum of 200%.

² The payout from the CVA factor is limited to a maximum of 300%.

To calculate the total distribution for the tranches beginning before fiscal⁠ ⁠2024, which include only the CO₂ factor for the sustainability component, the LTI target opportunity is multiplied by the TSR factor as well as the total of the outperformance factor weighted at 75% and the CO₂ factor weighted at 25%. The total distribution is limited to no more than 200% of the target opportunity.

For the tranche beginning in fiscal⁠ ⁠2024, the LTI target opportunity is multiplied by the TSR factor as well as by the total of the outperformance factor weighted at 70% and the three sustainability factors (CO₂ factor, participation factor, and RIR factor), each weighted at 10%. This means that the sustainability targets are weighted at 30% in total as compared to outperformance. The total distribution is likewise limited to no more than 200% of the target opportunity.

Starting from the 2025⁠–⁠2028 tranche, there will be no multiplication by the TSR factor so that the total payout will be the total of the CVA factor weighted at 70% and the three sustainability factors (CO₂ factor, participation factor, and RIR factor), each weighted at 10%. This means that the sustainability targets will continue to be weighted at 30% in total as compared to financial performance. The total distribution is limited to no more than 250% of the target opportunity. With the target opportunity being defined as 130% of the fixed compensation, the maximum payout is therefore 325% of the fixed annual compensation.

In summary, the metrics and weightings of the five relevant performance periods – the 2021⁠–⁠2024 tranche paid out at the beginning of the reporting year and the four tranches running as of the reporting date – are as follows:

2021–2024 and 2022–2025 Prisma Tranche Payouts

In April of the 2025⁠ ⁠reporting year, qualifying members of the Board of Management received payouts from the 2021⁠–⁠2024⁠ ⁠Prisma tranche. The payout factor amounted to 166.2%. The 2022⁠–⁠2025 Prisma tranche ended on December⁠ ⁠31 of the 2025 reporting year with a payout factor of 159.5%. The payouts for Dr.⁠ ⁠Thorsten Dreier were based on his respective compensation packages prior to becoming a Board of Management member. Christian Baier, who joined the Board of Management in October⁠ ⁠2023, proportionately participates in the 2023⁠–⁠2026 Prisma tranche for the first time and Monique Buch, who joined in June⁠ ⁠2025, does so in the 2025⁠–⁠2028 tranche; the tranches will be paid out in future years.

The following chart and table illustrate how the aforementioned payout factors are calculated. For the CO₂ factor of the 2021⁠–⁠2024 Prisma tranche, reductions of 150 kilotons per year in relation to the baseline year of 2020 by the end of fiscal⁠ ⁠2024 had been set as the target for Scope⁠ ⁠1 GHG emissions (CO₂ equivalents). With reductions of 255.4⁠ ⁠kilotons achieved, the resulting CO₂ factor is 170.3%, which is to be weighted at 25% in the calculation of the payout. For the⁠ ⁠2022⁠–⁠2025 Prisma tranche, a target was set for reducing Scope⁠ ⁠1 GHG emissions (CO₂ equivalents) by 400 kilotons per year by the end of 2025. This was exceeded by savings of 469⁠ ⁠kilotons, resulting in a CO₂ factor of 146.0%.

¹ The relevant prices are calculated as the average of the applicable ending prices during the months of November and December in the years⁠ ⁠2020 and⁠ ⁠2024.

² Percentage change in the ending price of Covestro share for the year 2024 (€57.45) as compared with the starting price of Covestro share for the year⁠ ⁠2021 (€47.05).

³ Percentage change in the ending price of the STOXX Europe 600 Chemicals index for the year⁠ ⁠2024 (€1,209.19) as compared with the starting price of the STOXX Europe 600 Chemicals index for the year⁠ ⁠2020 (€1,088.78).

¹ November/December⁠ ⁠2020.

² November/December⁠ ⁠2021.

³ November/December⁠ ⁠2024.

⁴ Fixed at the offer price.

⁵ Fixed at the average for November/December⁠ ⁠2024.

The dividend payments for individual years can be accessed on Covestro’s website.

For further information, please refer to: www.covestro.com/en/investors/stock-performance/dividends

The amounts calculated for these two tranches, including those for former Board of Management members Sucheta Govil and Dr.⁠ ⁠Klaus Schäfer, are shown in the following table.

¹ The target value is based on the position and the corresponding fixed compensation of the respective Board Member at the beginning of each tranche.

² Member of the Board of Management since October⁠ ⁠1, 2023.

³ Member of the Board of Management since June⁠ ⁠1, 2025.

⁴ Member of the Board of Management since July⁠ ⁠1, 2023; previously Head of the Coatings & Adhesives Business Unit.

⁵ Member of the Board of Management until July⁠ ⁠31, 2025^.

⁶ Member of the Board of Management until June⁠ ⁠30, 2023.

Compliance with Maximum Compensation Limit

The maximum total compensation defined in the compensation system and specified in individual Board of Management contracts comprises fixed compensation, fringe benefits, and pension expense for the fiscal year, as well as the amounts of variable compensation components granted in the fiscal year concerned. Below is a summary of the corresponding amounts listed in the Annual Report for the year⁠ ⁠2022 and the amounts to be paid out for the 2022⁠–⁠2025 Prisma tranche. For none of the Board of Management members listed does the total exceed the specified maximum compensation of €9.0⁠ ⁠million (CEO) or €5.5⁠ ⁠million (ordinary Board of Management members).

¹ Member of the Board of Management until July⁠ ⁠31, 2025.

² Member of the Board of Management until June⁠ ⁠30, 2023.

³ Member of the Board of Management until August⁠ ⁠31, 2023.

Overview of Current Prisma Tranches

The three currently running Prisma tranches with their starting prices and fair values calculated as of the reporting date are explained below.

Against the background of the takeover by ADNOC International Germany Holding AG, it no longer seems appropriate to continue to determine fair value using the market value of the respective tranche determined with a Monte Carlo simulation. Instead, the price of Covestro shares has been fixed at the offer price of €62 and the STOXX Europe 600 Chemicals has been set at the closing level of the 2021⁠–⁠2024 tranche (average of the trading days in November and December⁠ ⁠2024). The metrics of the sustainability component apply unchanged; they are used according to the plan terms and conditions on the basis of target attainment as of the end of the tranche for calculating the payout.

The two sustainability criteria relating to the “Social” aspect, the participation rate for the regularly held employee survey and the recordable incident rate (RIR), will only be reflected in the payouts from the 2024⁠–⁠2027 and 2025⁠–⁠2028 Prisma tranches, which will be determined in the years⁠ ⁠2027 and⁠ ⁠2028. Since the current status of these metrics does not permit any forecast for the year⁠ ⁠2027 or 2028, both payout factors for calculating fair value are set to 100%.

¹ The CVA factor introduced with the 2025⁠–⁠2028 tranche is based on the projected business plan for the year⁠ ⁠2028.

² The figures used for the CO2 factors introduced are based on the emission values forecast in October⁠ ⁠2025 for the respective final years of the individual tranches.

Share Ownership Guidelines

As a rule, the members of the Board of Management were contractually obligated to acquire Covestro shares equivalent to 100% of the fixed compensation (as set at the start of their term) on their own account within three years of their initial appointment and to hold these shares for the duration of their service on the Board of Management. If their contracts were extended, this obligation was increased to the amount of the new fixed compensation. The Board of Management member in question had to acquire Covestro shares equivalent to the difference within four years of starting the new period of service.

On the basis of the takeover offer, whose acceptance the Board of Management and Supervisory Board had jointly recommended to shareholders, the Supervisory Board has decided to remove, until further notice, the obligations on Board of Management members in order to enable them to transfer the shares they hold in the company as part of the takeover offer. The share ownership guidelines will finally cease to apply upon completion of the takeover.

Malus and Clawback Clauses

According to the malus and clawback rules introduced in the year⁠ ⁠2021, the Supervisory Board can withhold short-term and/or long-term variable compensation or request the return of variable compensation already paid out, either in whole or in part, at its discretion in the event of serious breaches of duty or compliance violations. Moreover, a clawback is possible when the calculation and payout was based on incorrect data.

The Supervisory Board has not exercised the right to claw back variable compensation, because no circumstances arose either before or during the reporting year⁠ ⁠2025 that would have triggered this provision.

Benefits Associated with Ending Board of Management Service

If the term of Board of Management service is terminated early without good cause, the company fulfills its commitments up to the time the member leaves the company. In this case, payments to the Board of Management member, including fringe benefits, may not exceed two times annual compensation and may not compensate more than the remaining term of the service contract (severance cap). Outstanding variable compensation components are paid out at the originally agreed times and conditions, i.e., they are not paid out in advance.

In the event of a change of control that results in a material change of status of an individual Board of Management member – e.g., change in company strategy or change in the Board of Management’s job responsibilities – the Board of Management member has the right to terminate the service contract within 12⁠ ⁠months of the change of control. When this right of termination is exercised or if the employment relationship is ended by mutual agreement on the company’s initiative within 12⁠ ⁠months of the change of control, the Board of Management member is entitled to payment of severance of 2.5⁠ ⁠times the fixed annual compensation. The amount of the severance payments, including fringe benefits, is limited to the remaining compensation up to the expiration of the service contract and is subject to the severance cap.

Due to the existence of the takeover offer by ADNOC International Germany Holding AG, no such clauses were included in the Board of Management contract of Monique Buch (since June⁠ ⁠2025) and in the future contract of Dr.⁠ ⁠Thorsten Dreier (reappointed from July⁠ ⁠2026).

Third-Party Benefits

In the reporting year, the Board of Management members were not promised nor did they receive, any benefits from third parties for their activities on the Board of Management.

Board of Management Compensation in the Fiscal Year

Compensation Awarded and Due

The compensation for the fiscal year awarded and due is outlined below in accordance with Section⁠ ⁠162, Paragraph⁠ ⁠1 AktG. The amounts of short-term and long-term variable compensation are given for the fiscal year in which the activity for which the compensation is paid was performed in full.

Even if the pension expense for the company pension plan is not classified as compensation awarded and due within the meaning of Section⁠ ⁠162 AktG, to ensure transparency, we additionally disclose the pension service cost according to IFRSs in the table below.

¹ Due to rounding, percentages may not always add up to exactly 100%.

² The negative amount listed for Mr. Dreier relates to the correction of a payment in error, which had been instructed on the basis of a supposed entitlement under the employment contract prior to his appointment to the Board of Management. This error was corrected and the amount transferred back.

³ Including Board of Management members’ own contributions derived from deferred fixed compensation.

Prisma Long-Term Variable Compensation

The fair value at the grant date of the long-term variable compensation (2025⁠–⁠2028 Prisma tranche) for current members of the Board of Management is €4,278⁠ ⁠thousand (previous year: €3,939⁠ ⁠thousand for the 2024⁠–⁠2027 Prisma tranche).

Provisions amounting to €15,368⁠ ⁠thousand (previous year: €14,370⁠ ⁠thousand) were recognized as of December⁠ ⁠31, 2025 for all current tranches of long-term variable compensation in which active and former Board of Management members participate, of which €5,221⁠ ⁠thousand (previous year: €2,699⁠ ⁠thousand) was recognized for former Board of Management members.

Pension Entitlements

The current pension service cost for the members of the Board of Management recognized through profit or loss in the reporting year totaled €1,492⁠ ⁠thousand⁠ ⁠(previous year: €1,476⁠ ⁠thousand)⁠ ⁠according to IFRSs. The service cost depends on the actuarial assumptions made, in particular the relevant discount rate. The contributions to pension commitments actually made are recognized as cash outflows in the operating cash flow. The service cost, present value of the pension obligations, and contributions made in accordance with pension plan rules are shown in the table below.

Compensation of Former Members of the Board of Management

The compensation awarded and due to former Board of Management members for the fiscal year is outlined below in accordance with Section 162, Paragraph 1 AktG.

¹ Due to rounding, percentages may not always add up to exactly 100%.

² The amount listed for Ms. Govil relates to compensation for her post-contractual noncompete agreement.

³ The figure disclosed for Dr.⁠ ⁠Klaus Schäfer for the year⁠ ⁠2024 includes one-time payments of €64⁠ ⁠thousand. The entitlements had been funded by Dr.⁠ ⁠Schäfer himself before he was appointed to the Board of Management.

⁴ Including Board of Management members’ own contributions derived from deferred fixed compensation.

A provision of €11,976⁠ ⁠thousand (previous year: €11,727⁠ ⁠thousand) is recognized in the Consolidated Financial Statements as of December⁠ ⁠31, 2025, for current pensions for former Board of Management members. The settlement value of direct and indirect pension obligations in the Financial Statements of Covestro⁠ ⁠AG amounted to €15,289⁠ ⁠thousand (previous year: €14,405⁠ ⁠thousand).