SCH2017_DRF_EN_Livre.indb

3 Corporate governance report

Interests and compensation of Group Senior Management

7.2 Corporate Officers’ compensation policy for financial year 2017

7.2.1 Principles and criteria governing Corporate Officers’ compensation attributable for the financial year 2017 After re-examining the suitability and fairness of the compensation policy for Corporate Officers and its alignment with the Group’s performance, in February 2017 the board formulated its compensation principles for financial year 2017 as outlined below. These principles were approved by shareholders in April 2017.

Pillar

How It is Reflected in the Group 2017 Compensation Policy

Pay-for- performance

E Principle 1: A prevalent part of the Corporate Officer target packages shall be variable; the 2017 target packages consist of approximately 75% to 80% variable pay components. E Principle 2: Performance is evaluated via criteria that are mainly economic (75% of variable cash compensation and 80% of multi-year performance shares) and measurable (80% of variable cash compensation and 100% of performance shares), which are selected based on KPIs used in the market communication and drivers of the Group’s strategy. E Principle 3: Financial and Sustainability & Transformation objectives are fairly balanced and distributed between short-term (annual incentive) and medium-term (long-term incentive) components, in such a manner that the orientations adopted by the Corporate Officers take into consideration both dimensions. E Principle 4: Corporate Officer target packages consist of approximately 50% long-term share-based benefits, meaning Officer compensation is subject to the same share price volatility that shareholders experience. E Principle 5: Performance criteria are selected from financial indicators that are most representative of Group performance and that are closely linked to shareholder value creation. Performance levels required to reach targets are set in early 2017 in line with the guidance disclosed to the market simultaneously with the results of the previous financial year and are supplemented by factors that enable the Group to offer a lasting and satisfactory development outlook for all stakeholders in the company’s success. E Principle 6: Corporate Officer pay is benchmarked against the median of a peer group consisting of 24 French and international companies that are comparable to Schneider Electric or that represent a potential source of recruitment or attrition, re-examined on an annual basis. This benchmarking is used as an indicator, not as a target, and is done ex-post for reference only. The peer group comprises European and US-based companies, covering: E Business competitors (in particular those identified in the Long-Term Incentive Plan as performance peers for TSR calculation purposes), E Talent competitors for operational and functional jobs, and E “Acceptance” peers ( i.e. groups of a similar size, business or structure).

Alignment with shareholders’ long-term interests

Competitiveness

Financial Year 2017 Compensation Peer Group E ABB E ACS E Air Liquide E Bayer E Dassault Systèmes E Eaton

E Rockwell Automation E Saint-Gobain E SAP

E Johnson Controls International E Lafarge Holcim E Legrand E Philips E PTC

E Airbus Group E Atlas Copco E Autodesk

E Siemens E Syngenta E Thyssen Krups E Vinci

E Emerson E Hexagon E Honeywell

E Principle 7: The board assesses Corporate Officer pay in reference to indices, namely to the top quartile of the CAC 40 and the median of the Stoxx Europe 50, in line with the Group’s position within these indices.

In February 2017, the board determined the Corporate Officers’ compensation for 2017 in accordance with the principles and criteria approved by the shareholders and reproduced below for easy reference for each of the component of the compensation.

Consistent with the pillars of the Group compensation philosophy, 82% of Mr. Tricoire’s financial year 2017 target compensation and 77% of Mr. Babeau’s financial year 2017 target compensation was comprised of variable pay.

2017 REGISTRATION DOCUMENT SCHNEIDER ELECTRIC

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