Arla Foods Annual Report 2020

Management Review Our Strategy Our Brands and Commercial Segments Our Responsibility Our Governance Our Performance Review Our Consolidated Financial Statements Our Consolidated Environmental, Social and Governance Data MANAGEMENT REMUNERATION Arla's executive remuneration policy is designed to encourage high performance and support value creation. The policy ensures alignment with the Group's strategic direction and the interests of our farmer owners. We have a structured approach to remuneration, ensuring that salaries are unbiased towards gender, nationality and age. Remuneration governance Arla's remuneration practice is governed by the remuneration policy set by the Board of Directors (BOD) and reviewed every four years. The BoD is guided by external advisors using market data sources and benchmarks from comparable industries and companies. On an annual basis, the BoD assesses the remuneration paid to the Executive Board as well as variable pay programmes to other executives and senior management. The Remuneration Committee, consisting of six Board members including the chairmanship, meets as a minimum twice a year. The Committee monitors that the remuneration policy is followed and provides recommendations to the BoD. The Board of Representatives (BoR) is updated regularly on remuneration of the BoD and the development in variable pay for executives. Our remuneration practices Remuneration packages are constructed to ensure attraction, engagement and retention of the best senior managers, and at the same time should drive strong performance in both short- and long-term business results. In line with Scandinavian practice, the majority of the remuneration is fixed. However, in recent years the variable part of the remuneration has increased to ensure that total remuneration is also dependent on achievement of Arla's short- and long-term financial targets. All executives and members of senior management are employed on terms according to international standards, including adequate non-compete restrictions, as well as confidentiality and loyalty restrictions. Our performance measures Board of Directors (BOD) The remuneration of the BoD comprises a fixed fee and is not incentive-based. We believe this ensures that the Board is primarily focused on the cooperative's long-term interests. Beyond a minimal travel per diem, no additional compensation is paid for meeting attendance or committee service. The BoD's remuneration is assessed and adjusted on a bi-annual basis and approved by the BoR. The most recent adjustment made was in 2019. For more details on specific amounts please refer to page 114. Executive Board and Executive Management Team The compensation elements and approach for the Executive Board and the Executive Management Team (together: executives) are identical. Remuneration paid to the Executive Board is assessed annually by the BoD based on recom- mendations from the Remuneration Committee. For more details on specific amount go to page 114. The remuneration package for the executives is based on external benchmarks against European and international FMCG companies, providing a competitive and sustainable mix of fixed and variable pay. Pension contributions and non-monetary benefits such as company car, telephone etc. are also part of the package. Levels of fixed remuneration are set based on individual experience, contribution and function, while variable pay reflects performance against annual business targets. The variable pay component SHORT-TERM COMPONENTS 0 Leadership ■Calcium Profit Branded volume growth consists of an annual short term incentive (STI) plan, and a long-term (three-year) incentive (LTI) plan. The STI is composed of the same elements for the executives. The main components of the LTI are branded volume growth and the group's performance versus a peer group index (see graphs). The LTI programme started in 2018 also included a component related to our transformation and efficiency programme, Calcium. LONG-TERM COMPONENTS 0 Performance vs. peer group Branded volume growth 47 ARLA FOODS ANNUAL REPORT 2020

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