69. Description of the Remuneration Policy of the Board of Directors and Supervisory Boards

At the Company’s General Meeting held on 20 April 2023, the proposal for a new Company’s Corporate Bodies Remuneration Policy, presented by the Remuneration Committee was approved, which is set out below.

1. Independence and conflicts of interest

The Committee keeps and reaffirms, at every moment, its independent nature, being composed only by non-directors appointed by the shareholders. This independence, together with the permanent monitoring of the benchmark referred to below and the resource, whenever necessary, to the best external consulting services, constitutes an effective way to avoid any possible conflicts of interest with the members of the corporate bodies at stake.

2. Core principles

The Remuneration Committee reviewed and gave careful consideration to the principles that govern the remuneration policy of the corporate bodies of the Company. These principles reinforce and highlight those aspects of the remuneration policy that are critical to the sustainability of the Jerónimo Martins business, namely:

• the international landscape should be the foundation of the benchmark for the corporate bodies’ competitive remuneration. It is essential to maintain the ability to attract and retain the best talent in a competitive international context;
• the alignment of the remuneration of the corporate bodies’ members to their responsibilities, their availability and their competencies put at the service of the Company;
• the target competitiveness level, encompassing the total remuneration package (fixed remuneration and variable payments), that should consider the best practices of the reference market (e.g., European top executives’ market), and the internal remuneration policies;
• the alignment with the Company employees’ remuneration policies and employment conditions is ensured by considering the reference markets and/or other companies with similar strategic positioning (always comparing to equivalent jobs) that confer a substantial level of internal equity and adequate external competitiveness;
• the importance of rewarding the commitment to the Group’s overall strategy and to the shareholders’ long-term interests, the achievement of superior results and the demonstration of appropriate attitude and behaviours, which is also taken into consideration in the rewarding policies of the Company; and
• the need to safeguard the overall interests of the Company.

3. Organizational model and remuneration framework

The committee decided to propose to maintain the above-mentioned policy’s principles. The proposal considers the legal framework and the existing recommendations, as well as the organizational model adopted by the Board of Directors.

With respect to the organisation of the Board of Directors, the Remuneration Committee has specifically considered the following characteristics:

• the existence of a Chief Executive Officer with delegated duties (who since 18^th December 2013, accumulates such duty with that of Chairman of the Board of Directors) regarding the day-to-day management of the Company;
• the existence of a director or directors to whom the Board have entrusted or may entrust special duties;
• the participation of Non-executive Directors in Specialised Committees, who are therefore called to devote increased time to Company’s affairs.

Given the current organizational model and in accordance with the framework of the compensation principles, the Remuneration Committee considered also relevant:

• to ensure that the remuneration of directors with executive duties is aligned with international market practices, reinforcing the importance of keeping the process for defining targets and assessing performance, which should be subject to review and/or update on a regular basis (every mandate);
• to guarantee the consistency between the quantitative key performance indicators defined for the Chief Executive Officer annual performance evaluation and those that are also considered, according to their responsibilities, in the annual performance appraisal for all Company’s managers;

Considering the above-mentioned core principles and assumptions, the following remuneration framework was defined:

3.1. Non-executive Directors

• the remuneration of the Non-executive Directors shall be a fixed amount exclusively, reviewed periodically according to international best practices and taking into consideration the benchmark with other listed companies and the specific responsibilities and availability of such directors;
• the amount paid to Directors with non-executive duties may be differentiated for those who have been assigned functions in Specialized Committees or Supervisory Boards of subsidiaries. With respect to those, the Remuneration Committee considers it appropriate to award a fee per meeting, since the duties performed on behalf of these Committees and Supervisory Boards demand additional availability from the respective committee members. An additional fixed remuneration may also be paid to those Non-executive Directors who are in charge of specific tasks.

3.2. Directors with executive duties

• the remuneration of Directors with executive duties, specifically the Chief Executive Officer (CEO), the Remuneration Committee shall comprise two remuneration components, fixed and variable one, as follows:
  1. the fixed component of remuneration corresponds to a monthly remuneration paid in 14 monthly instalments, the amount of which is determined taking into account the duties and responsibilities attributed to the CEO of the Company, the performance achieved and the benchmark for similar positions; also the CEO remuneration cannot or should not create an impediment to the competitiveness of the Company’s remuneration policies;
  2. the variable component corresponds to an annual amount determined by the Remuneration Committee and is limited to the maximum amount of twice the value of the fixed remuneration. The determination of a final amount is based on an annual individual performance evaluation. The evaluation is based on a framework of key quantitative indicators which should be in line with the Group strategic goals and business plans approved by the Board of Directors, and qualitative priorities that are key to the long term sustainability of the business;

• These dimensions – quantitative and qualitative – the latter more a long-term by nature, critical for the future success of the businesses and, as such, can have a timeline that can exceed a year;
• Bearing in mind the contribution of the countries and business areas where the Group operates, the Remuneration Committee considers adequate that the payment of fixed and variable components of remuneration to Directors with executive duties be split between the Company and its subsidiary companies where such Directors are also members of the management body, in a portion determined by the Remuneration Committee.

3.2.1. Performance evaluation methodology and variable remuneration attribution

The Remuneration Committee considers that the individual achievement of each of the targets set should not, in itself, determine the automatic attribution of any percentage of the total variable remuneration. Thus, once the targets have been set by the Board of Directors, whether financial (quantitative) or qualitative, the Remuneration Committee considers that it can scrutinize the degree of interdependence between the different indicators and the impact the achievement of a target may have on obtaining or not, other targets, defining that the final global evaluation assumes an holistic nature, without prejudice to the weighting referred to below for the financial (quantitative) and qualitative components.

The quantitative key performance indicators account for 50% of the individual performance calculation, and reflect the financial performance related to the Company’s growth and the shareholders’ return. The financial performance indicators, which will be weighed according to the strategic priorities of the Company, the context of the business and the overall interests of the stakeholders, take into account:

• the turnover growth – is based on reported consolidated sales increase. However it is assessed its real growth on a like-for-like basis, the contribution of organic growth, the evolution of new and mature markets, the evolution of sales per square meter and per employee full-time equivalent (FTE), capital turnover, and the impact on gross margin for achieving the proposed targets;
• the earnings evolution is based on the consolidated net results, with targets defined in absolute vale. It also takes into consideration the evolution of earnings before taxes, interests, depreciations and amortizations (EBITDA), the EBITDA margin (with and without IFRS16), the impact on it of the growth of developing markets, the weighting of the different markets in the sales mix and the evolution of the EBITDA margin in each business area and country;
• the return on invested capital – is based on the economic value added (EVA) defined in absolute value deducted from minority interests. It is taken into account the rates of return on capital invested in each business and the respective cost of capital in each country (with and without IFRS 16), the evolution in relation to previous years and at estimated rates, the rate of reinvestment relating to depreciations amount, the evolution of the average amount invested per square meter of sales area, the comparison with the return rates of the sector, the impact on the achieved value of the businesses under development, and finally, the cash flow released at the disposal of shareholders (the conversion rate of earnings into cash);
• the robustness of the Company’s capital structure – is measured by the debt ratio (“gearing” – net financial debt after distribution of dividends, divided by equity). It is also weighed the value of the working capital and its contribution to financing invested capital and reducing financial debt, the structure of financing obtained, currencies and maturity, its contribution to hedging exchange rate risks, and the interest coverage rate on EBITDA.

The qualitative key performance indicators account for 50% of the individual performance calculation and are grounded in the evaluation of real implementation of transversal projects to the Group’s companies, aligned with established priorities, to ensure the future business competitiveness and the long-term sustainability. The individual performance indicators are some of the following:

• the strategic direction and allocation of resources/investments – includes both the development and implementation of strategic projects, and the exploitation of new investment opportunities, consistent with the Group’s capabilities and resources. Considering the objective of sustained growth and the permanent transformation of the Company in order to ensure its competitiveness and success, the adoption of investment decisions and the launching of projects or initiatives whose execution makes it possible to avoid the dilution of return on capital and guarantee the strength of the balance sheet;
• the organizational health and talent agenda – is evaluated the dissemination of the Company’s values, the consolidation of the core elements of its culture, the degree of engagement and satisfaction of employees, the identification and promotion of leaders who guarantee the growth of the Company, and the normal replacement of executive and management teams, linking the human resources strategy to the business strategy, monitoring the implementation of salary policies suited to remunerate loyalty and merit, as well as social responsibility projects within the scope of HR;
• and the multi-stakeholder relations – the performance and results achieved in the multi-stakeholder relations indicator are measured by Environmental Social and Governance (ESG) analysts according to the information disclosed on the policies, practices and KPI’s. The Committee takes into account, in particular, the progress shown during the year, considering the aspirations defined by the Board of Directors in this matter, and the evolution made by other organizations within the same sector and/or country.

The attribution of the annual variable component should consider the following criteria: a) if after review, the individual performance does not meet any of the set targets (quantitative or qualitative), there will be no annual variable remuneration payment; b) if the individual performance equals or exceeds in all or some of the targets, the variable remuneration payment may range from 50% to 100% of the maximum variable amount.

The process for the CEO performance review includes an annual performance assessment with quarterly reviews which are made available to the Remuneration Committee. The assessment and reviews are based on evidence, and on a regular monitoring of the degree of achievement of the targets. In accordance with the established procedure, the annual performance cycle is concluded with the award of the variable incentive component in the first quarter of the year following the performance period after the calculation of the full year results. The payment is made during the first semester.

Together, the fixed and variable components should ensure a competitive remuneration in the international market and drive individual and collective performance, through the setting and achievement of ambitious goals of accelerated growth and appropriate shareholder return. Furthermore, the Committee considers that the Remuneration Policy of the Company is also aligned with the remuneration practices of comparable publicly traded peers, operating in the global arena. Given the pressures in the marketplace for executive capabilities, the Remuneration Committee analyses the competitiveness of the Company in this matter from time to time based on appropriate and reliable benchmark studies provided by independent and credible entities.

3.3. Members of the Audit Committee

The remuneration of the members of the Audit Committee as well as the remuneration of Directors with non-executive duties shall continue to comprise a fixed component only.

3.4. Members of the shareholders general meeting

The Chairman and secretary of the Shareholders General meeting will keep a per meeting fee.

3.5. Statutory auditor

The Statutory Auditor will be remunerated in accordance with the auditing services agreement signed with Jerónimo Martins, which covers almost all its subsidiaries. This remuneration shall be in line with market practices and is subject to the approval of the Audit Committee.

4. Alignment of long-term interests

The Remuneration Committee considers that the remuneration framework of Directors with executive duties is adequate and allows a strong alignment through the setting of appropriate targets of their interests with the interests of the Company to the long term. The alignment with the long-term interests of the Company is reinforced by the circumstance that the current Chairman of the Board of Directors and Chief Executive Officer is a member of the family who is the majority shareholder of the Company.

For this reason, the Remuneration Committee believes it is unnecessary, as a principle, to have a deferral on the variable remuneration. However, and subject to the possible existence of pluriannual goals, it may consider retaining part of the attributed variable remuneration, the one associated with the achievement of these pluriannual goals, in which a partial achievement does not guarantee full implementation. For the same reason, the Remuneration Committee deems unnecessary to determine the maximum potential amount of the remuneration, in aggregate and/or for any individual, to be paid to members of Corporate Bodies (with no prejudice to the above mentioned regarding the proportion between the fixed and the variable remuneration of the executive directors). Finally, and for these same reasons, it also finds unnecessary the inclusion of a claw back mechanism related to variable remuneration paid.

5. Pension Plan and fringe benefits

Additionally, the Company provides for a Retirement Pension Plan for Executive Directors which was approved by the General Meeting, which is described in point 76.

As established by the Remuneration Committee in 2010, life and health insurance fringe benefits for Directors with executive duties shall continue unchanged. These fringe benefits have no relevant weight on the remuneration of such directors, representing less than 1% of the total remuneration.

6. Revision Process

Ordinarily, at the end of each mandate, and extraordinarily, whenever justified, the Remuneration Committee will assess the need to propose to the shareholders general meeting, the revision of the remuneration policy, taking into account the aforementioned principles. With a view to applying, monitoring and defining possible proposals for revising the remuneration policy, the Committee meets at least once a quarter, in order to monitor the situation of the Company, and assess the adequacy of the corporate bodies’ remuneration. In the exercise of its duties, the Remuneration Committee also requests the information and the internal and external studies (in this case, ensuring the competence and independence of the service providers that carry them out) that it deems relevant, and when needed, requests the participation of any directorates, departments and services of the Company.

7. Final remarks

The Company continues not to have any type of plan for the attribution of shares or share purchase options to directors, nor has there been any remuneration paid in the form of profit sharing.

The Company did not enter into any contracts with its Directors which mitigate the risk inherent to the remuneration variability set by the Company, nor is the same aware that any such contracts have been entered into between its Directors and third parties.

The absence of a deferral period for the variable component makes it unnecessary to have mechanisms to prevent the execution of contracts by Executive Directors that subvert the rationale of variable remuneration.

In accordance with the Remuneration Policy in force, the Company has not adopted and will not adopt any policy or perform any contracts or agreements with directors, members of the Audit Committee or members of the Company’s Internal Committees, related to the performance of its functions, applicable notice periods, termination and payment clauses associated with the termination thereof.

• Assessment of the Chairman of the Board of Directors and Chief Executive Officer in 2023
• Having considered all the circumstances in which the Chairman of the Board of Directors and Chief Executive Officer carried out his activities, managing the difficult balance between inflation and rising cost prices, and the excellent results achieved in all performance indicators, quantitative and qualitative, considered relevant for the Group at the beginning of the year, the Remuneration Committee decided to award, as variable remuneration, the maximum value of €2,520,000, equivalent to 28 (twenty-eight) gross monthly base salaries, considering in the monthly base salary both the paid component by Jerónimo Martins, SGPS, SA, or paid by any of its direct or indirect subsidiaries.
• The Remuneration Committee highlighted that this decision considered not only the Company’s excellent financial results, but also the contributions to the Group’s sustainable performance, given the very special circumstances that marked the year under analysis, having been able to demonstrate continuous progress in quantitative and qualitative measures of success, and reinforce a solid foundation for the future. In this regard, the members of the Remuneration Committee wanted to highlight the following factors that helped support the decision:
  • The continuous and strong growth of all the Group’s brands, both in volume and profitability; the impressive achievement of 25 billion euros in sales, with an increase of over 4.5 billion euros, corresponding to a growth of 21.5% compared to the previous year, achieved almost without reducing the EBITDA margin, despite the increase in cost structure resulting from disruptions in the supply chain resulting from the pandemic and the invasion of Ukraine by Russia;
  • Successful implementation of the Colombia strategy, strengthening sales potential, improving market share and achieving positive EBITDA; the decision to offer Colombian consumers better prices than those underlying the country’s food inflation, although at a sacrifice in terms of gross margin, made Ara a preferred brand, with notable LfL growth above 35% and global growth above 60% of sales. As a result, Ara became the third player in the country (already with more than a thousand stores) and achieved a positive EBITDA of 18 million euros¹. These results confirm that Colombia has the potential to become not only a source of growth, but also of profitability, with impact in the short and medium term;
  • Achievement of breakeven at Hebe, with a 47% growth in e-commerce, improving the Group’s experience in the online market; with a price change well below global inflation and an LfL growth of 25%, Hebe is consolidating its brand, not only in Poland, but also in neighbouring countries such as Slovakia and the Czech Republic, through the online channel, and create conditions to become an additional source of profitable growth, increasing its participation in the group’s budget;
  • Indisputable progress in a broad set of sustainable development criteria for the business; It should be noted that more than 50 ESG analysts and investors are scrutinizing the Group’s activity, classifying the Company as the undisputed leader in its sector; Included on the “A list” of companies in the world with the best environmental performance in climate change and water management as a critical resource, it is also the only food retailer worldwide to achieve the “A-” classification in terms of combating deforestation. No less relevant, the Company’s efforts to promote workers’ rights and gender equality were recognized by various entities such as the Global Child Forum – with a score of 7.6 out of 10, one point above the previous year, and 5 points above the sector average – , Bloomberg (Gender Equality Index), with an increase compared to 2021 of 3.66%, and a total of 75.21%, or even the Equileap analysis, which positioned the Company 11% above the industry average;
  • Investments in leadership and in corporate responsibility policies and measures that allow Jerónimo Martins not to lose competitiveness in the job market in the future; Despite the record net results achieved, exceeding 620 million euros², social cohesion in the communities where the Company operates has become an important concern of its leaders, with donations to support various social institutions that reached more than 71 million euros, 39% above 2021, not including the activity of the Biedronka Foundation already recognized by Polish society. It is also worth highlighting the 33% increase in the amount allocated to bonuses paid to employees, reaching 289 million euros, making the objective of being a reference employer a major priority;
  • Commitment in evaluating and identifying opportunities for developing the agri-food business, not only as a differentiating factor, but as a growth lever; the business plan prepared, supported by the actions already carried out, allows Jerónimo Martins to understand the role of agriculture in JM’s portfolio: the development of specific products will produce the differentiation factor initially thought, and a gradual orientation towards the external market will allow a significant source of growth ; The partnerships will bring the Company additional knowledge to invest with a long-term mentality that enables productive and sustainable processes that result in differentiated, tasty and high-quality products

¹ Excluding the application of the IFRS16 accounting standard.

² Excluding the application of the IFRS16 accounting standard.