KONINKLIJKE PHILIPS NV

Philips’ share-based compensation is an equity-settled plan made of restricted and performance shares. The

restricted shares are subject to a three-year service condition and the performance shares include both market

and non-market-based performance conditions, in addition to athree-year service condition. These shares are

awarded to the Executive Committee and senior management.

The grant date fair value of market-based performance shares is determined through a Monte Carlo valuation

model. The grant date fair value of non-market-based performance shares and restricted shares is determined

as the share price at the grant date as participants receive notional dividends throughout the vesting period.

The costs of share-based compensation plans are revised for expected performance (non-market-based

performance shares) and forfeiture and are spread evenly over the service period.

Share-based compensation is recognized over the service period as personnel expense in the consolidated

statement of income, with a corresponding increase to equity.

The use of a valuation model to determine market-based performance share fair value requires estimates for

the expected volatility of the Philips share price and correlation among input variables.

At each reporting date, Philips calculates the expected realization of the non-market-based performance

targets and revises the expected share-based compensation expense. The cumulative effect is recorded in the

consolidated statement of income with a corresponding adjustment in equity.

No expense is recognized for awards that do not ultimately vest because non-market performance and/or

service conditions have not been met.

The purpose of the share-based compensation plans is to align the interests of management with those of

shareholders by providing incentives to improve the company’s performance on a long-term basis, thereby

increasing shareholder value.

The company has the following plans:

•performance shares: rights to receive common shares in the future based on performance and service

conditions

•restricted shares: rights to receive common shares in the future based on a service condition

•options on its common shares

Since 2013 the Board of Management and other members of the Executive Committee are only granted

performance shares*. Performance shares as well as restricted shares can be granted to executives, certain

selected employees and new employees.

Under the terms of employee stock purchase plans established by the company in various countries,

employees are eligible to purchase a limited number of Philips shares at discounted prices through payroll

withholdings.

Share-based compensation costs were EUR 148 million (2024: EUR 104 million;2023: EUR 97 million). This

includes the employee stock purchase plan of EUR 6 million, which is not a share-based compensation that

affects equity. In the Consolidated statements of changes in equity EUR 141 million is recognized in 2025 and

represents the costs of the share-based compensation plans. The amount recognized as an expense is adjusted

for forfeitures. USD-denominated performance shares, restricted shares and options are being granted only to

employees whose home country is the US.

Performance shares

The performance is measured over athree-year performance period. The performance shares have three

performance conditions: relative Total Shareholders’ Return (TSR) compared to a peer groupof 20 companies

including Philips (2024:20 companies;2023:20 companies); adjusted Earnings Per Share growth** (EPS); and a

sustainability criterion. The criterion is based on three Sustainable Development Goals (SDG) as defined by the

United Nations that are included in Philips’ strategy on sustainability. The performance conditions are

weighted as follows: TSR 50%, EPS 40% and SDG 10% (applicable for 2021, 2022 and 2023 plans). As of 2024

the performance conditions are weighted as follows: TSR 40%, EPS 40% and SDG 20%.

The performance shares vest three years after the grant date. The number of performance shares that will

vest is dependent on achieving the performance conditions provided that the grantee is still employed with

the company.

The amount recognized as an expense is adjusted for actual performance of adjusted EPS growth** and the

actual realization of the SDGs, since these are non-market performance conditions. It is not adjusted for non-

vesting or extra vesting of performance shares due to a relative TSR performance that differs from the

performance anticipated at the grant date, since this is a market-based performance condition.

The fair value of the performance shares is measured based on Monte Carlo simulation, which takes into

account dividend payments between the grant date and the vesting date by including reinvested dividends as

well as the market conditions expected to impact relative total shareholders’ return performance in relation

to selected peers. The following weighted-average assumptions were used for the 2025 grants:

•risk-free rate:1.82%

•expected share price volatility:38%

The assumptions were used for these calculations only and do not necessarily represent an indication of

management’s expectation of future developments for other purposes. The company has based its volatility

assumptions on historical experience measured over a 10-year period.

A summary of the status of the company’s performance share plans as of December 31, 2025, and changes

during the year are presented in the accompanying table:

Performance shares

1 Dividend declared in 2025 on outstanding shares.

2 Adjusted quantity includes the adjustments made to Performance shares outstanding due to updates on the actual TSR, EPS,

and SDG.

As of December 31, 2025, a total of EUR 116 million of unrecognized compensation costs relate to non-vested

performance shares (as of December 31, 2024, EUR 128 million; as of December 31, 2023, EUR 102 million).

These costs are expected to be recognized over a weighted-average period of 1.8 years.

Restricted shares

The fair value of restricted shares is equal to the share price at grant date. The company issues restricted

shares that, in general, have athree-year cliff-vesting period provided that the grantee is still employed with

the company.

A summary of the status of the company’s restricted shares as of December 31, 2025, and changes during the

year are presented in the accompanying table.

Restricted shares

1 Dividend declared in 2025 on outstanding shares.

As of December 31, 2025, a total of EUR 67 million of unrecognized compensation costs relate to non-vested

restricted shares(as of December 31, 2024, EUR 73 million; as of December 31, 2023, EUR 63 million). These

costs are expected to be recognized over a weighted-average period of 1.8 years.

Option plans

Retention option plan

In April 2023, the company granted non-recurring retention options that expire after 10 years. These options

vest aftertwo years, provided that the grantee is still employed with the company.

The fair value of the options under this plan is measured based on Black-Scholes-Merton option pricing

model. The expected life of the options is calculated as the average between vesting period (two years) and

the total contractual life (10 years).

The accompanying tables summarize information about the company’s options as of December 31, 2025, and

changes during the year.

Options on EUR-denominated listed share

The total intrinsic value of EUR-denominated options exercised during 2025 was EUR 0.8 million (2024: EUR 15

thousand). Cash received during 2025 from exercises under the company’s options plans amounted to EUR 8.4

million (2024: EUR 84 thousand). As of December 31, 2025, there were 2,966,493 options outstanding and

exercisable (as of December 31, 2024,3,396,539 options outstanding and 39,983 exercisable) with a weighted

average remaining contractual term of 6.7 years (as of December 31, 2024,8.1 years for outstanding options

and 0.4 years for exercisable options) and total intrinsic value of EUR 3.2 million (as of December 31, 2024 EUR

7.6 million for outstanding optionsand EUR 90 thousand for exercisable options).

Options on USD-denom inated listed share

The total intrinsic value of USD-denominated options exercised during 2025 was USD 0.5 million (2024: USD

nil). Cash received during 2025 from exercises under the company’s options plans amounted to EUR 4.4 million

(2024: EURnil). The actual tax deductions realized as a result of USD option exercises totaled approximately

EUR 1.0 million in 2025 (2024: nil). As of December 31, 2025, there were 1,381,643 options outstanding and

exercisable (as of December 31, 2024,1,637,764 options outstanding andnil exercisable) with a weighted

average remaining contractual term of 5.8 years (as of December 31, 2024,8.0 years for outstanding options

and 0 years for exercisable options) and total intrinsic value of USD 3.7 million (as of December 31, 2024, USD

1.5 million for outstanding optionsand USD nil for exercisable options).

Outstanding options in millions of EUR unless otherwise stated

*Executive Committee members can receive restricted share rights as a sign-on LTI awards upon hiring.

**The definition of this non-IFRS measure and a reconciliation to the IFRS measure is included in Equity.

27 Information on remuneration