Report of the Supervisory Board

Dear stockholders: (handwriting)

During 2015, the Supervisory Board monitored the conduct of the company’s business by the Board of Management on a regular basis with the aid of detailed written and oral reports received from the Board of Management, and also acted in an advisory capacity. In addition, the Chairman of the Supervisory Board and the Chairman of the Board of Management maintained a constant exchange of information. In this way the Supervisory Board was kept continuously informed about the company’s intended business strategy, corporate planning (including financial, investment and human resources planning), earnings performance, the state of the business and the situation in the company and the Group as a whole.

Where Board of Management decisions or actions required the approval of the Supervisory Board, whether by law or under the Articles of Incorporation or the rules of procedure, the draft resolutions were inspected by the members at the meetings of the full Supervisory Board, sometimes after preparatory work by the committees, or approved on the basis of documents circulated to the members. The Supervisory Board was involved in decisions of material importance to the company. We discussed at length the business trends described in the reports from the Board of Management and the prospects for the development of the Bayer Group as a whole, the individual organizational units and the principal affiliated companies in Germany and abroad.

Changes on the Supervisory Board and the Board of Management

The Vice Chairman of the Supervisory Board, Thomas de Win, stepped down effective June 30, 2015. He was succeeded as a member of the Supervisory Board by Heinz Georg Webers, who had been elected as a substitute for de Win. The Supervisory Board elected Oliver Zühlke as its new Vice Chairman. Peter Hausmann stepped down from the Supervisory Board effective October 31, 2015. The Local Court of Cologne appointed Frank Löllgen as his successor.

In connection with Bayer's focus on the Life Science business and the reorganization of the Bayer Group, the Board of Management was expanded to include the heads of the new divisions. The Supervisory Board therefore appointed Dieter Weinand (Pharmaceuticals), Erica Mann (Consumer Health) and Liam Condon (Crop Science) to the Board of Management effective January 1, 2016. Also with effect from January 1, 2016, the Supervisory Board appointed Dr. Hartmut Klusik as new Labor Director with responsibility for Human Resources, Technology and Sustainability on the Board of Management of Bayer AG. He succeeds Michael König, who had requested that his contract not be extended.

Work of the Supervisory Board

Six meetings of the full Supervisory Board took place during 2015. No member of the Supervisory Board attended only half or fewer than half of its meetings or those of the committees on which he / she served. The average attendance rate by Supervisory Board members at the meetings of the full Supervisory Board and of its committees held in 2015 was approximately 97 percent.

The members of the Board of Management regularly attended the meetings of the Supervisory Board.

Werner Wenning, Chairman of the Supervisory Board of Bayer AG (Photo)

Werner Wenning, Chairman of the Supervisory Board of Bayer AG

The deliberations of the Supervisory Board focused on questions relating to Bayer’s strategy, portfolio and business activities, as well as personnel decisions. The discussions at the respective meetings in 2015 centered on various topics. At the February meeting, the Supervisory Board discussed the 2014 Annual Report and the agenda for the 2015 Annual Stockholders’ Meeting. It also dealt with the Bayer Group’s risk management system, matters relating to the Board of Management's compensation and the results of the efficiency audit of the Supervisory Board.

At the May meeting, the Supervisory Board dealt with the planned sale of the Diabetes Care business and discussed the business performance to date in 2015 and the imminent Annual Stockholders’ Meeting. At an extraordinary meeting in August, the Supervisory Board discussed in detail the stock market flotation of Bayer’s MaterialScience unit under the name Covestro.

At the September meeting, the Supervisory Board discussed Bayer’s strategy and the future organization of the Bayer Group effective January 1, 2016. With effect from January 1, 2016, the Supervisory Board appointed four new members to the Board of Management – Erica Mann, Dieter Weinand, Liam Condon and Hartmut Klusik – and approved the departure of Michael König from the Board of Management. In connection with the new appointments, the Supervisory Board also discussed in detail matters related to the Board of Management’s compensation. In addition, the Supervisory Board once again discussed the planned stock market flotation of Covestro against the background of the market environment at that time. Finally, the Supervisory Board resolved upon changes to the rules of procedure of the Board of Management and the Supervisory Board and established an additional Supervisory Board committee, the Innovation Committee.

At an extraordinary meeting in October, the Supervisory Board again discussed the stock market flotation of Covestro and resolved upon the volume of the flotation and the issue price range. At its meeting in December 2015, the Supervisory Board undertook the routine review of the pension amounts of the former members of the Board of Management. Also at this meeting, the Board of Management presented its planning for the business operations in the years 2016 through 2018 and provided information on the current rating situation. The Supervisory Board also approved the proposed financing framework for 2016. In addition, the Supervisory Board once again dealt with the company’s strategy, including developments in the crop science industry, and with the collaboration between Bayer and CRISPR Therapeutics. Furthermore, the Supervisory Board resolved to designate Deloitte & Touche GmbH Wirtschaftsprüfungsgesellschaft as its first choice with regard to the bidding process for the audit of the financial statements for the years 2017 through 2021. In addition, the Supervisory Board resolved to issue an unqualified declaration of compliance with the German Corporate Governance Code. Following the meeting, an information and discussion forum took place on the topic of Life Sciences.

Committees of the Supervisory Board

The Supervisory Board has a Presidial Committee, an Audit Committee, a Human Resources Committee, a Nominations Committee and an Innovation Committee. The current membership of the committees is shown in the “Further Information” section under “Governance Bodies.”

The meetings and decisions of the committees, and especially the meetings of the Audit Committee, were prepared on the basis of reports and other information provided by the Board of Management. Reports on the committee meetings were presented at the meetings of the full Supervisory Board.

Presidial Committee: This comprises the Chairman and Vice Chairman of the Supervisory Board along with a further stockholder representative and a further employee representative. The Presidial Committee serves primarily as the mediation committee pursuant to the German Codetermination Act. It has the task of submitting proposals to the Supervisory Board on the appointment of members of the Board of Management if the necessary two-thirds majority is not achieved in the first vote at a plenary meeting. Certain decision-making powers in connection with capital measures, including the power to amend the Articles of Incorporation accordingly, have also been delegated to this committee. The Presidial Committee may also undertake preparatory work for full meetings of the Supervisory Board.

In 2015, the Presidial Committee was not required to convene in its capacity as the mediation committee. Based on the corresponding authorization by the Supervisory Board, it resolved in writing in 2015 on the issue and redemption of hybrid bonds. At a meeting in September, the Presidial Committee discussed in detail the planned stock market flotation of Covestro and submitted a proposal to the Supervisory Board concerning the volume of the flotation and the issue price range.

Audit Committee: The Audit Committee comprises three stockholder representatives and three employee representatives. The Chairman of the Audit Committee in 2015, Dr. Klaus Sturany, satisfies the statutory requirements concerning the independence and the expertise in the field of accounting or auditing that a member of the Supervisory Board and the Audit Committee is required to possess. The Audit Committee meets regularly four times a year.

Its tasks include in particular oversight of the financial reporting process, the effectiveness and ongoing development of the internal control system, the risk management system, the internal audit system, the compliance system and the audit of the financial statements. The Audit Committee prepares the resolutions of the Supervisory Board concerning the financial statements and management report of Bayer AG and the proposal for the use of the distributable profit, the consolidated financial statements and management report of the Bayer Group and the agreements with the auditor (particularly the awarding of the audit contract, the determination of the main areas of focus for the audit and the audit fee agreement). The committee submits a proposal to the full Supervisory Board concerning the auditor’s appointment, and takes appropriate measures to determine and monitor the auditor's independence. The audit focuses particularly on whether the financial statements have been prepared in compliance with the statutory requirements and whether the financial reporting provides a true and fair view of the financial position and results of operations of the company and the Group.

The Audit Committee discusses developments in the area of corporate compliance at each of its meetings where necessary.

The Chairman of the Board of Management and the Chief Financial Officer regularly attended the meetings of the Audit Committee. Representatives of the auditor were also present at all the meetings and reported in detail on the audit work and the audit reviews of the interim financial reports.

The meetings focused on a number of topics. At the February meeting, the Audit Committee discussed the financial statements and the Group’s tax strategy and tax risks. It also carefully considered the risk report, which covered the risk management system, planning and market risks, legal risks, corporate compliance, the report on process and organizational risks and the internal control system, and the report by the Internal Audit department. At this meeting, the Audit Committee also made a recommendation to the full Supervisory Board concerning the resolution to be submitted to the Annual Stockholders’ Meeting on the appointment of the auditor of the financial statements.

The April meeting mainly dealt with the yearly report of the Group Compliance Officer, the determination of the main areas of focus for the audit of the 2015 financial statements and the bidding process for the audit of the financial statements for 2017 and the fiscal years thereafter. At its July meeting, the Audit Committee again addressed the bidding process for the audit of the financial statements. As at every meeting, the quarterly financial statements were also discussed, along with legal and compliance issues. At its meeting in October, the Audit Committee once more discussed the bidding process for the audit of the financial statements in addition to the regular items on the agenda.

Human Resources Committee: On this committee, too, there is parity of representation between stockholders and employees. It consists of the Chairman of the Supervisory Board and three other members. The Human Resources Committee prepares the personnel decisions of the full Supervisory Board, which resolves on appointments or dismissals of members of the Board of Management. The Human Resources Committee resolves on behalf of the Supervisory Board on the service contracts of the members of the Board of Management. However, it is the task of the full Supervisory Board to resolve on the total compensation of the individual members of the Board of Management and the respective compensation components, as well as to regularly review the compensation system on the basis of recommendations submitted by the Human Resources Committee. The Human Resources Committee also discusses the long-term succession planning for the Board of Management.

The Human Resources Committee convened on two occasions in 2015. The matters discussed at these meetings concerned the compensation and contracts of the members of the Board of Management and the preparation of the appointment of the new members of the Board of Management.

Nominations Committee: This committee carries out preparatory work when an election of stockholder representatives to the Supervisory Board is to be held. It suggests suitable candidates for the Supervisory Board to propose to the Annual Stockholders’ Meeting for election. The Nominations Committee comprises the Chairman of the Supervisory Board and the other stockholder representative on the Presidial Committee.

On several occasions outside of the meetings in 2015, the members of the Nominations Committee discussed candidates for the elections to the Supervisory Board that are due to take place in 2016, along with the medium-term planning for the composition of the stockholder side of the Supervisory Board.

Innovation Committee: The Innovation Committee was established in September 2015. It is primarily concerned with the innovation strategy and innovation management, the strategy for the protection of intellectual property, and major research and development programs at Bayer. It is also responsible for advising and overseeing the management and preparing any Supervisory Board decisions. The Committee comprises the Chairman of the Supervisory Board and five other members, with parity of representation between stockholder and employee representatives. The Chairman of the Board of Management and the member of the Board of Management responsible for Innovation regularly attend the meetings of the Innovation Committee.

In 2015, the Innovation Committee convened once in December and dealt at this meeting with new technologies in the area of Life Sciences.

Corporate governance

The Supervisory Board dealt with the ongoing development of corporate governance at Bayer, partly through the amendment of the rules of procedure of the Supervisory Board, taking into account the May 5, 2015, version of the German Corporate Governance Code. In December, the Board of Management and the Supervisory Board issued a new declaration concerning the German Corporate Governance Code.

Financial statements and audits

The financial statements of Bayer AG were prepared according to the requirements of the German Commercial Code and Stock Corporation Act. The consolidated financial statements of the Bayer Group were prepared according to the German Commercial Code and the International Financial Reporting Standards (IFRS). The combined management report was prepared according to the German Commercial Code. The auditor, PricewaterhouseCoopers Aktiengesellschaft, Wirtschaftsprüfungsgesellschaft, Essen, has audited the financial statements of Bayer AG, the consolidated financial statements of the Bayer Group and the combined management report. The conduct of the audit is explained in the auditor’s reports. The auditor finds that Bayer has complied, as appropriate, with the German Commercial Code, the German Stock Corporation Act and / or the International Financial Reporting Standards endorsed by the European Union, and issues an unqualified opinion on the financial statements of Bayer AG and the consolidated financial statements of the Bayer Group. The financial statements of Bayer AG, the consolidated financial statements of the Bayer Group, the combined management report and the audit reports were submitted to all members of the Supervisory Board. They were discussed in detail by the Audit Committee and at a meeting of the full Supervisory Board. The auditor submitted a report on both occasions and was present during the discussions.

We examined the financial statements of Bayer AG, the proposal for the use of the distributable profit, the consolidated financial statements of the Bayer Group and the combined management report. We have no objections, thus we concur with the result of the audit.

We have approved the financial statements of Bayer AG and the consolidated financial statements of the Bayer Group prepared by the Board of Management. The financial statements of Bayer AG are thus confirmed. We are in agreement with the combined management report and, in particular, with the assessment of the future development of the enterprise. We also concur with the dividend policy and the decisions concerning earnings retention by the company. We assent to the proposal for the use of the distributable profit, which provides for payment of a dividend of €2.50 per share.

The Supervisory Board would like to thank the Board of Management and all employees for their dedication and hard work in 2015.

Leverkusen, February 24, 2016
For the Supervisory Board:

Werner Wenning (signature)

Werner Wenning
Chairman