SCH2017_DRF_EN_Livre.indb

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Corporate governance report Interests and compensation of Group Senior Management

Annual Incentive (con'd)

E For sales organic growth, the Group target was revised upward several times vs. the guidance issued to the financial market in February 2017. The organic growth for Group revenue outside Medium Voltage was c.+4.5%, above the initial target of organic growth of between +1% and +3%. For the Medium Voltage Division, excluding selectivity initiatives, organic growth was c.+2% vs. an initial target of remaining stable compared with the prior year. This translated as a 200% achievement on this criterion. E Regarding the adjusted EBITA margin increase, the initial target was organic progression within the +20 to +50 bps medium-term range objective. After several revisions upward during the year, the Group achieved an organic improvement of +90 bps, which represents an achievement rate of 200% on the original target. E On the cash conversion, the record free cash flow generation has resulted in 105% conversion of the net profit, 5 points above the long-term average objective of 100% and also significantly above the cash conversion rate that could be expected in a year with increased dynamism on the sales growth translating into greater capex and working capital growth. This represents an achievement rate of 200%. The Group continued to make progress to drive the strategic transformations, but fell short of the strong expectations set by the Board E On Services, the 3% growth is significantly below the mid to high single-digit growth mark set as the ambition for growing Services, which translated into a 0% achievement for this criterion. E Regarding gross margin improvement on Systems, despite progress made during the year, the high level of priority on that criteria has meant that the objective was significantly above the realized performance and that translated into a 0% achievement on this parameter. E The performance on the digital index did not match the Board expectations defined at the beginning of 2017, which resulted in an 8% achievement on that target. On the Planet and Society Barometer the very strong progress made by the Group, recognized by the numerous awards received on corporate social responsibility and on sustainability, resulted in a 200% achievement. On the individual objectives, the board attributed to the corporate officers an overall achievement rate of 110%, reflecting both the strong financial performance of the year and their high ambitions for further accelerated progress on the strategic priorities. On a reported basis For the 2017–2019 performance cycle, performance share awards (Plans No. 28 and 29) will vest in full after 3 years. 100% of the shares granted to the Senior Management are subject to the fulfillment of performance conditions that are based on: E Adjusted EBITA (org.) (40% weighting) – this is defined as the average of the annual rates of achievement of adjusted EBITA margin for financial years 2017 to 2019 set by the board of directors, and is in line with the objectives announced to investors at the beginning of the year. For 2017, the board decided that if the adjusted EBITA margin decreased by at least -10 basis points before foreign exchange impact compared with 2016, the achievement rate for the year would be 0% and if it increased by at least +30 basis points before foreign exchange impact, then the achievement rate for this criteria for 2017 would be 100%, with a linear distribution between the 2 points; E Group cash conversation rate (25%weighting) – the target average rate ranges between 80% and 100% according to following scale: 0% if the average rate is below or equal to 80%, 100% if the average rate is equal to or higher than 100% with a linear distribution between the 2 points. An average rate higher than 100% will give the right to a complementary allocation of shares for that criterion offsetting, up to the same number of shares and within the limit of 50% (corresponding to an average rate of 120% or more), with a linear distribution between the two, the non-achievement of the target Adjusted EBITA or target TSR objective, provided however the number of additionnal shares thus allocated for rate of the cash conversion criterion shall not, under any circumstances, cause the number of shares originally granted subject to performance conditions under Adjusted EBITA, cash conversion and TSR criteria to be exceeded; E The Planet & Society Barometer (20% weighting) – For 2017, if this index is lower than or equal to 8.5, no shares will vest. If this index is equal to or higher than 9, 100% of the shares will vest. Distribution is linear between the 2 points; and E TSR relative to pre-selected peers (15% weighting) – this objective is set based on Schneider Electric’s TSR ranking within the following panel of companies: ABB, Legrand, Siemens, Schneider Electric, Eaton, Emerson, Honeywell, Johnson Controls, Rockwell Automation, Fuji Electric, Mitsubishi Electric and Yokogawa according to following scale:

Performance Shares

Ranking

Achievement Rate

First quartile ( i.e. 1 st , 2 nd , 3 rd place) Second quartile ( i.e. 4 th , 5 th , 6 th place) Third quartile ( i.e. 7 th , 8 th , 9 th place) Last quartile ( i.e. 10 th , 11 th , 12 th place)

Up to 150% with an average of 135% of the criterion (1)

Average of 87% of the criterion Average of 13% of the criterion

Zero (2) (1) This achievement rate will, on the one hand, enable 100% achievement of the TSR criterion and, on the other hand, can offset non-achievement of the adjusted EBITA target on rate of cash conversion target over the 3 year period. However, final acquisition of shares at the end of the 3 year period will nevertheless be capped at 100% of the number of shares originally subject to adjusted EBITA margin and rate of cash conversion criteria. (2) In the event that the gap between the Schneider Electric TSR and that of the peers is less than 3% in TSR value, Schneider Electric will be deemed to have the same ranking as the latter.

2017 REGISTRATION DOCUMENT SCHNEIDER ELECTRIC

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