Pay for Performance Building a High Performance culture through Rewards & Recognition C&B Operations Human Resources | C&B Op’s | Madhumita Chaudhary 16 January 2019

Presentation Outline Key slides shared with PV Discussion slide used with key stakeholder Action/Suggestions/Options and next steps Your valuable input !!! Human Resources | C&B Op’s | Madhumita Chaudhary 16 January 2019

Nestlé & I : Pay for Performance is an improvement area Questions TOP 5 Company makes quality products High performance culture Understand what is expected in job Pride in working for company Intend to stay BOTTOM 5 Link between pay and performance Paid fairly Time to take advantage of training Recognition Effective support from other groups Process for evaluating performance is fair Comparison to trend MOST IMPROVED Care and concern for employees (+4) Feel motivated (+4) Process for evaluating performance is fair (+4) Opportunity to achieve career goals (+4) MOST DECLINED Responding effectively to changes in the business environment (-1) Company’s prospects over the next 2-3 years (-1) Note these are the only two items that declined Comparison to HP Norm MOST ABOVE Intent to stay (+16) Safe work environment (+6) Making quality products (+5) Innovative in how work is done (+4) Understand and meet needs of consumers (+4) MOST BELOW Recognition (-13) Link between pay and performance (-10) Employee benefits (-10) Sharing of ideas and resources across the company (-9) Work life balance (-8)

Areas most below HP Norm Dimension MOST BELOW HIGH PERFORMING NORM % Favorable Versus HP Norm Cycle I vs. Cycle II Reward & Recognition I receive recognition when I do a good job 53 -13 +1 The better my performance, the better my pay will be 43 -10 +2 Rate your company on providing employee benefits that meet your needs 60 Cooperation How would you rate the sharing of ideas and resources across the company 57 -9 Respect & Treatment My company supports me in achieving a reasonable balance between my work life and my personal life 56 -8 +3 My work group receives high quality support from other groups on which we depend -7 There is good cooperation and teamwork within my work group 73 Manager Behaviors How would you rate your manager on coaching you to improve your skills/performance 62 -6 How would you rate your manager on listening to your ideas and opinions* 70 -5 * Item included as an illustration – several other lower scoring items © 2013 Hay Group. All rights reserved 16 January 2019

Pay for Performance Indicators – Dashboard 2013 Nestle Global Overall population Human Resources | C&B Op’s | Madhumita Chaudhary 16 January 2019

2013 Human Resources Priorities Corporate focus Market focus HR Strategy Identifying Best Practice / Evaluating / Prioritising Designing / Constructing / Piloting Implementing Sustaining Practice 1 Talent Diversity Gender Balance 2 Employer Branding 3 Enhance Leadership Capabilities 4 Focus on Performance Management and Effective Reward and Recognition 5 Provide NCE Education & Training Pillar Expertise 6 Living a Responsible Culture Safety & Health Working Conditions 7 Continue Developing HR Capabilities 8 Expand the scope of implementation of NCE in HR Human Resources | C&B Operations | Jérôme Dano 16 January 2019

Pay for Performance - Objectives HRLT OMP Driver – Improve Pay for Performance in the group Pay for Performance - Objectives If effectively constructed, Pay for Performance compensation plans should help us fulfil the following objectives: Recruit and retain the highest quality employees Communicate and reinforce the values, goals and objectives of the company Engage employees in the organization's success Reward contributors for successful achievements Human Resources | C&B Op’s | Madhumita Chaudhary 16 January 2019

Pay for Performance - Line of Sight The combination of rewards strategies that we institute should help to draw a correlation in the mind of the employees between interdependent elements: Vision - where is this company going? Strategy - how is it going to get there? Zone/Business Blueprints/ MBS/OMP Roles and Objectives - what role does each key person have in that strategy and what is expected of him or her in that role? – Job Success Profiles & PE & TA Rewards How will each employee be rewarded for the achievement of the expectations associated with his or her role ? How will each employee be rewarded for collective achievements ? Human Resources | C&B Op’s | Madhumita Chaudhary 16 January 2019

Pay for Performance - Elements Performance & Pay through Reward and Recognition Organization Result Individual Contribution/ Team Result Behaviors Demonstrated Total Reward Base Salary Short Term Incentive (Bonus) Long Term Incentive (RSU) Benefits (Medical, Retirals etc) Recognition Programmes Growth & Promotion Compensation’s role Attracting and Retaining Talent Driving Discretionary Effort Differentiation Motivation Engagement Compelling Offer Vary across workforce demographics Change with economic and regulatory changes Organisation Performance Individual/Team Contributions Organisation Result Human Resources | C&B Op’s | Madhumita Chaudhary 16 January 2019

Compensation Elements– Driving retention and attraction Category Avg Compensation 4.24 Attributes Benefits 4.47 Development & Work Environment 3.70 Work- Life Balance 3.88 Company Environment 3.88 Importance Score Source CLC

Change In Discretionary Effort Compensation’s Role in Driving Discretionary Effort Connection Connecting pay to performance has the greatest impact on discretionary effort Satisfaction Change In Discretionary Effort ….while over all satisfaction with Total compensation is also influential Equity Compensation Levers Each bar represents a statistical estimate of the maximum total impact on discretionary effort each lever will produce through its impact on rational and emotional commitment Source CLC

Leverage Reward elements in creating a Performing Culture Performance Reward elements High Behaviours Individual Contribution Team Results Organisation Results Sales Incentive Base Pay Evolution Long Term Incentive Career Growth Bonus Recognition Benefits earnings Low Shorter Term Longer Term Human Resources | C&B Op’s | Madhumita Chaudhary 16 January 2019

Our approach to Reward and link with performance What is evaluated ? Reward Elements Sales Incentive Plans Short Term Bonus Long Term Incentive Base Salary Evolution Recognition Benefits Growth/Career Organisation Results Financial Result Team Result Business Result Individual Results PE Evaluation Individual Behaviour Sustained Long Term contribution Talent Assessment Professional Potential To build connection/engagement, there is a need to further improve pay for performance link and work towards communication to improve perceptions Linked with share value at pay out Depending on Bonus design ? Managed within Markets Collective Depending on Bonus design ? Managed within Markets Depending on Bonus design Explore Bonus design options Project to create recognition program ? Managed within Markets ? ? Individual ? past allocation considered ? Scope to improve perception ? Link talent data to LTI allocation Human Resources | C&B Op’s | Madhumita Chaudhary 16 January 2019

Possible Directions for moving forward to enhance link of Reward and link with performance Better reflect Nestle Strategic Performance Framework into Managers Individual Objectives (Non Financial/Leadership/Nestle in Society objectives) Manage a Performance distribution more aligned with the Business performance ? Or forced distribution Improve Performance Management ? Ensure Bonus Pay-out Link beyond the Financial targets, through a multiplier Give guidance for a coherent approach between Collective (Business and Team) and individual component Design Bonus Structure more dynamically ? How can HR( Corporate/ Market) add value ? Leverage Sales Incentives better ? Link RSU’s to Talent category Deepen the usage of LTI’s as a retention solution Leverage the LTI better ? Budget and Salary Matrix Differentiation through pay : targets(dashboard) Strengthen the link between Performance and Salary Give a stronger boost to the recognition project ? Accelerate strategic Recognition project ? Define a reference communication to support the markets and train managers Improve our Communication Framework ? Human Resources | C&B Op’s | Madhumita Chaudhary 16 January 2019

Directions for moving forward to enhance link of Reward and link with performance- Outcome of discussions “We should better reflect Nestle Strategic Performance Framework into Managers objectives, beyond Financial targets like people leadership, CSV, Compliance ?” “We should have a Performance distribution more aligned with the Business performance” Improve Performance Management “Beyond the Financial targets, we should ensure Bonus Pay-out Link to “soft “objectives more and behaviours (HOW in PE)” “ We feel guidance could be given for a coherent approach between Collective (Business and Team) and individual component” Design Bonus Structure more dynamically “We should link LTI with the Long term contribution AND Talent category “Especially in markets facing acute Talent Retention challenges , we should deepen the penetration of RSU’s to lower level and key talents.” Leverage the LTI more Human Resources | C&B Op’s | Madhumita Chaudhary 16 January 2019

Directions for moving forward to enhance link of Reward and link with performance- Actions Action 1 : Enrich PE Objective Setting Action 2 : Enhance Differentiation through Performance Ratings Distribution Improve Performance Management Action 3 : Enhance the Bonus Design Design Bonus Structure more dynamically Action 4 : Long Term Incentive – Retain Key Talent in the Markets Action 5 : Long Term Incentive – Explore Link to Talent Category Leverage the LTI more Human Resources | C&B Op’s | Madhumita Chaudhary 16 January 2019

Action 1 : Enrich PE Objective Setting Improve Performance Management Action 1 : Enrich PE Objective Setting Introduce a defined share(%) of Objectives towards Nestle 4x4 Strategic Framework and “People Leadership” under Individual Business/ Function Objectives in the PE. Human Resources | C&B Op’s | Madhumita Chaudhary 16 January 2019

Improve Performance Management Action 2 : Enhance Differentiation through Performance Ratings Distribution Differentiation in Performance Evaluation will better support an effective link between Pay and Performance Option 1 : Targeted / Managed Distribution PE Distribution 25% Human Resources | C&B Op’s | Madhumita Chaudhary 16 January 2019

Improve Performance Management Action 2 Option 2 : Flexible Distribution based on Business Performance Business Performance Level 80% 100% 130% 15% 25% PE Distribution 30% This is a guideline showing the expected performance distribution for different levels of businesses performance over the review period (performance year). Corporate HR | Talent & Performance | Tarun Wadhwani

Directions for moving forward to enhance link of Reward and link with performance- Suggestions Action 1 : Enrich PE Objective Setting Action 2 : Enhance Differentiation through Performance Ratings Distribution Improve Performance Management Action 3 : Enhance the Bonus Design Design Bonus Structure more dynamically Action 4 : Long Term Incentive – Retain Key Talent in the Markets Action 5 : Long Term Incentive – Explore Link to Talent Category Leverage the LTI more Human Resources | C&B Op’s | Madhumita Chaudhary 16 January 2019

Difference is % pay-out between level of Performers is not significant – Pay for Performance perception ? Human Resources | C&B Op’s | Madhumita Chaudhary 16 January 2019

Directions for moving forward to enhance link of Reward and link with performance- Suggestions Action 1 : Enrich PE Objective Setting Action 2 : Enhance Differentiation through Performance Ratings Distribution Improve Performance Management Action 3 : Enhance the Bonus Design Design Bonus Structure more dynamically Action 4 : Long Term Incentive – Retain Key Talent in the Markets Action 5 : Long Term Incentive – Explore Link to Talent Category Leverage the LTI more Option I Continue with current additive design with directions to the markets Option II Option I , with the individual component as a % which is translation of PE Rating Option III Multiplier Method with Collective Achievement x Individual Component, % which is translation of PE Rating Human Resources | C&B Op’s | Madhumita Chaudhary 16 January 2019

Action 3 - Option I Collective Achievement + Individual Achievement Design Bonus Structure more dynamically Action 3 - Option I Continue with current additive design but give directions to the markets to ensure at least a defined minimum weightage on Individual Component for all positions Bonus Pay-Out Collective Achievement + Individual Achievement Direction to Markets : Eg: All positions to have at the most 50% Individual component in the Bonus Pay out Human Resources | C&B Op’s | Madhumita Chaudhary 16 January 2019

Action 3 - Option II Collective Achievement + Individual Achievement Design Bonus Structure more dynamically Action 3 - Option II Option I, but the individual component is a % which is translation of PE Rating Bonus Pay-Out Collective Achievement + Individual Achievement Not anymore calculated on the PE form but based on over all PE Rating which includes WHAT and HOW Suggested PE Rating vs Individual Pay – out % Table PE Rating Individual Pay out % (alternative as a range) 3/3 120% 115% - 120% 3/2 , 2/3 110% 105% - 115% 2/2 100% 95% - 105% 3/1 , 1/3 90% 90% - 95% 2/1 , 1/2 80% 60% - 80% 1/1 50% 20% - 40% Human Resources | C&B Op’s | Madhumita Chaudhary 16 January 2019

Action 3 - Option III Collective Achievement X Individual Achievement Design Bonus Structure more dynamically Action 3 - Option III Multiplier Method Bonus Pay-Out Collective Achievement X Individual Achievement % based on over all PE Rating which includes WHAT and HOW Suggested PE Rating vs Individual Component % Table PE Rating Individual Pay out % (alternative as a range) 3/3 120% 115% - 120% 3/2 , 2/3 110% 105% - 115% 2/2 100% 95% - 105% 3/1 , 1/3 90% 90% - 95% 2/1 , 1/2 80% 60% - 80% 1/1 50% 20% - 40% Other Point – We could look at capping at a Maximum Pay-out Human Resources | C&B Op’s | Madhumita Chaudhary 16 January 2019

Directions for moving forward to enhance link of Reward and link with performance- Actions Action 1 : Enrich PE Objective Setting Action 2 : Enhance Differentiation through Performance Ratings Distribution Improve Performance Management Action 3 : Enhance the Bonus Design Design Bonus Structure more dynamically Action 4 : Long Term Incentive – Retain Key Talent in the Markets Action 5 : Long Term Incentive – Explore Link to Talent Category Leverage the LTI more Human Resources | C&B Op’s | Madhumita Chaudhary 16 January 2019

Leverage the LTI more Action 4 - Long Term Incentive – Retain Key Talent at lower levels in the Markets Feedback from the Zones to provide avenues/tools to retain selected key talent below the Nestle Grade E level in the markets. Similar companies in the competition already providing LTI at much lower levels than currently eligible population in Nestle – Nestle Markets loose competitive advantage in retaining top talent at that level Suggestion Option I Allocate every year a maximum budgeted number of shares for each market/Zone/GMB to include unique talent at lower level (clear criteria to be defined like a discretionary offer of restricted shares in a year on selective and strictly one time reward basis Option II Create a clear category with defined criteria (eg: consistent Performance Rating over sustained period). This category to be rewarded the RSUs only mid session (bis) as a one time reward /very selective and defined criteria basis. Human Resources | C&B Op’s | Madhumita Chaudhary 16 January 2019

Action 5 - Long Term Incentive Leverage the LTI more Action 5 - Long Term Incentive “Should we determine individual RSU allocation primarily by the Talent Rating instead of PE Rating category” Human Resources | C&B Op’s | Madhumita Chaudhary 16 January 2019

Your Thoughts !! Human Resources | C&B Op’s | Madhumita Chaudhary 16 January 2019